<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997
REGISTRATION NO. 333-18447
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 6552 95-4582157
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5933 WEST CENTURY BOULEVARD, SUITE 210
LOS ANGELES, CALIFORNIA 90045
(310) 348-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
ANDREW D. HUTTON
VICE PRESIDENT AND GENERAL COUNSEL
SIGNATURE RESORTS, INC.
5933 WEST CENTURY BOULEVARD, SUITE 210
LOS ANGELES, CALIFORNIA 90045
(310) 348-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
<TABLE>
<S> <C>
JOHN M. NEWELL, ESQ. PETER T. HEALY, ESQ.
LATHAM & WATKINS O'MELVENY & MYERS LLP
633 W. FIFTH STREET 275 BATTERY STREET
SUITE 4000 EMBARCADERO CENTER WEST
LOS ANGELES, CALIFORNIA 90071 SAN FRANCISCO, CALIFORNIA 94111
(213) 485-1234 (415) 984-8833
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434 of
the Securities Act of 1933, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE/NOTE PRICE(2) FEE
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<S> <C> <C> <C> <C>
4,600,000
Common Stock, $0.01 par value per Share... Shares 34.91(2) $160,568,750 $48,659(3)
- ------------------------------------------------------------------------------------------------------------
% Convertible Subordinated Notes due
2007..................................... $115,000,000 100% $115,000,000 $34,849(4)
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Common Stock, $0.01 par value per share... (5) -- -- --
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</TABLE>
(1) Includes 600,000 shares of Common Stock and $15,000,000 aggregate
principal amount of Convertible Notes issuable upon exercise of the
Underwriters' over-allotment options.
(2) Estimated solely for the purpose of calculating the registration fee based
on the average of the high and low trading prices of the Common Stock on
the Nasdaq National Market on December 13, 1996 (which average was $34.50)
with respect to the 3,450,000 shares of Common Stock registered in the
initial filing of the Registration Statement on December 20, 1996 and the
average of the high and low trading prices of the Common Stock on the
Nasdaq National Market on January 27, 1997 (which average was $36.125)
with respect to the additional 1,150,000 shares of Common Stock registered
in this Amendment No. 3.
(3) Includes the $36,069 registration fee paid in connection with the initial
filing of the Registration Statement on December 20, 1996 and an
additional fee of $12,590 paid in connection with the filing of this
Amendment No. 3.
(4) Previously paid in connection with the initial filing of the Registration
Statement on December 20, 1996.
(5) Such indeterminable number of shares of Common Stock as may be required
for issuance upon conversion of the Convertible Notes being registered
hereunder. Pursuant to Rule 457(i), no registration fee for such shares of
Common Stock is required.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
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<PAGE>
SIGNATURE RESORTS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT PROSPECTUS CAPTION
------------------------------- ------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Facing Page; Cross-Reference Sheet;
Cover Page of Prospectus........ Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Summary; Risk Factors; Recent
Charges......................... Developments
4. Use of Proceeds.................. Summary; Use of Proceeds; Consolidated
Capitalization; Management's
Discussion and Analysis of Financial
Condition and Results of Operations
5. Determination of Offering Price.. Outside Front Cover Page; Underwriting
6. Dilution......................... Not Applicable
7. Selling Security Holders......... Principal and Selling Stockholders
8. Plan of Distribution............. Outside Front Cover Page; Underwriting
9. Description of Securities to be Summary; Description of Capital Stock
Registered......................
10. Interests of Named Experts and Experts; Legal Matters
Counsel.........................
11. Information with Respect to the Outside and Inside Front Cover Pages of
Registrant...................... Prospectus; Summary; Risk Factors; Use
of Proceeds; Concurrent Offerings;
Common Stock Price Range; Dividend
Policy; Consolidated Capitalization;
Selected Consolidated Historical
Financial Information of the Company;
Selected Financial Data of AVCOM
International, Inc.; Pro Forma
Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; The Proposed Merger;
Management; Certain Relationships
and Related Transactions; Principal
and Selling Stockholders; Description
of Capital Stock; Description of
Notes; Certain Federal Income Tax
Considerations; Certain Provisions of
Maryland Law and of the Company's
Charter and Bylaws; Shares Eligible
for Future Sale; Underwriting; Legal
Matters; Experts; Additional
Information
12. Disclosure of Commission Position
on Indemnification for Not Applicable
Securities Act Liabilities......
</TABLE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with the offering of the Common Stock (the "Common Stock
Prospectus") and one to be used in connection with a concurrent offering of
Convertible Subordinated Notes (the "Convertible Notes Prospectus"). The
Common Stock Prospectus and the Convertible Notes Prospectus will be identical
in all respects except that they will contain different front and back cover
pages and different descriptions under the captions "Summary," "Risk Factors,"
"Concurrent Offerings," "Underwriting" and "Legal Matters." In addition, the
Convertible Notes Prospectus will contain additional sections under the
captions "Description of Notes" and "Certain Federal Income Tax
Considerations." The Common Stock Prospectus is included herein and is
followed by those pages to be used in the Convertible Notes Prospectus which
differ from, or are in addition to, those in the Common Stock Prospectus. Each
of the additional pages for the Convertible Notes Prospectus included herein
has been labeled "Alternate Page for Convertible Notes Prospectus."
The offering of the Common Stock and the offering of the Convertible Notes
are not conditioned upon one another and, therefore, one offering may be
consummated without the other offering being consummated.
If required pursuant to Rule 424(b) of the General Rules and the Regulations
under the Securities Act of 1933, as amended, copies of each of the
prospectuses in the forms in which they are used after the Registration
Statement becomes effective will be filed with the Securities and Exchange
Commission (the "Commission").
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 28, 1997
4,000,000 SHARES
[LOGO OF SIGNATURE RESORTS]
SIGNATURE RESORTS, INC.
COMMON STOCK
Of the 4,000,000 shares of Common Stock, $0.01 par value ("Common Stock"), of
Signature Resorts, Inc., a Maryland corporation (the "Company" or "Signature"),
offered hereby (the "Stock Offering"), 1,600,000 shares are being sold by the
Company and 2,400,000 shares are being sold by certain stockholders of the
Company (the "Selling Stockholders"). See "Principal and Selling Stockholders."
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. The Company's Common Stock is quoted on the Nasdaq
National Market under the symbol "SIGR." On January 27, 1997, the last reported
sale price of the Company's Common Stock was $36.125 per share. See "Common
Stock Price Range."
Concurrently with the Stock Offering, the Company is offering $100 million
principal amount of its % Convertible Subordinated Notes due 2007 (the
"Convertible Notes"). See "Concurrent Offerings" and "Use of Proceeds."
SEE "RISK FACTORS" COMMENCING ON PAGE 16 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Stockholders
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<S> <C> <C> <C> <C>
Per Share ............. $ $ $ $
Total (3).............. $ $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 240,000 additional shares of Common Stock solely to cover over-
allotments, if any. The Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 360,000 additional shares of
Common Stock solely to cover over-allotments, if any. If the Underwriters
exercise these options in full, the Price to Public will total $ , the
Underwriting Discount will total $ , the Proceeds to Company will
total $ and the Proceeds to Selling Stockholders will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that the
delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about ,
1997.
----------
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
SCHRODER WERTHEIM & CO.
SMITH BARNEY INC.
, 1997
<PAGE>
[Fold-Out--Photos/Art Work]
IN CONNECTION WITH THE STOCK OFFERING AND THE CONVERTIBLE NOTES OFFERING,
THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR
MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AND THE CONVERTIBLE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, ON THE OPEN MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE STOCK OFFERING, THE UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SEE "UNDERWRITING."
EMBASSY VACATION RESORTS(SM) IS A SERVICE MARK OF THE PROMUS HOTEL
CORPORATION. WESTIN HOTELS & RESORTS(SM) IS A SERVICE MARK OF THE WESTIN HOTEL
COMPANY.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Except as otherwise noted, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment options. Unless the
context otherwise indicates, the "Company" means Signature Resorts, Inc. and
includes its corporate and partnership predecessors and wholly-owned
subsidiaries and affiliates. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
THE COMPANY
Signature Resorts, Inc. is one of the largest developers and operators of
timeshare resorts in North America, based on number of resorts in sales. The
Company is devoted exclusively to timeshare operations and owns eight timeshare
resorts currently in sales, which include one under construction, and a ninth
resort in sales in which the Company holds a partial interest (the "Existing
Resorts"). The Existing Resorts are located in a variety of popular resort
destinations including Hilton Head Island, South Carolina, Koloa, Kauai,
Hawaii, the Orlando, Florida area (two resorts), St. Maarten, Netherlands
Antilles (two resorts), Branson, Missouri, South Lake Tahoe, California and
Avila Beach, California. In addition, in December 1996 the Company announced
plans for the acquisition and development of its tenth resort to be located in
St. John, U.S. Virgin Islands. The Company's principal operations currently
consist of (i) acquiring, developing and operating timeshare resorts, (ii)
marketing and selling timeshare interests in its resorts, which typically
entitle the buyer to use a fully-furnished vacation residence, generally for a
one-week period each year ("Vacation Intervals") and (iii) providing financing
for the purchase of Vacation Intervals at its resorts.
As part of its growth and acquisition strategy, the Company in September 1996
entered into a definitive agreement and plan of merger (the "Merger Agreement")
to acquire AVCOM International, Inc. ("AVCOM"), the parent company of All
Seasons Resorts, Inc. ("All Seasons"), a developer, marketer and operator of
timeshare resorts in Arizona, California and Texas. AVCOM currently operates
nine resorts, which include two under construction, and a tenth resort in which
AVCOM holds a partial interest. Five of AVCOM's Resorts are located in Sedona,
Arizona, two are located in South Lake Tahoe, California and one resort is
located in each of Lake Arrowhead, California, Lake Conroe (near Houston),
Texas and Scottsdale, Arizona (the "AVCOM Resorts"). AVCOM currently sells
Vacation Intervals at six of its ten resorts, sales at three resorts have been
substantially completed and sales at one resort have yet to commence. On
January 10, 1997 the stockholders of AVCOM voted to approve the Merger. The
Company anticipates that the merger with AVCOM (the "Merger") will be
consummated in February 1997, assuming all other conditions to closing are
timely satisfied. See "The Proposed Merger" and "Risk Factors--Risks Related to
the Proposed Merger. "
The Company believes that, based on published industry data, it is the only
developer and operator of timeshare resorts in North America that will offer
Vacation Intervals in each of the three principal price segments of the market
(value, upscale (characterized by high quality accommodations and service) and
luxury (characterized by elegant accommodations and personalized service)). The
Company's resorts operate in the following three general categories, each
differentiated by price range, brand affiliation and quality of accommodations:
. NON-BRANDED RESORTS. Vacation Intervals at the Company's six non-branded
resorts, which are not affiliated with any hotel chain, generally sell
for $6,000 to $15,000 and are targeted to buyers with annual incomes
ranging from $35,000 to $80,000. The Company believes its non-branded
resorts offer buyers an economical alternative to branded timeshare
resorts (such as Embassy Vacation Resorts and Westin Vacation Club
resorts) or traditional vacation lodging alternatives. Vacation
Intervals at the resorts acquired in the Merger with AVCOM generally
sell for $9,000 to $18,000 and are targeted to buyers in the same non-
branded market segment.
3
<PAGE>
. EMBASSY VACATION RESORTS. Vacation Intervals at the Company's three
Embassy Vacation Resorts generally sell for $14,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide timeshare
accommodations that offer the high quality and value that is represented
by the more than 135 Embassy Suites hotels throughout North America.
. WESTIN VACATION CLUB RESORTS. Through its agreement with Westin Hotels &
Resorts ("Westin"), the Company has the exclusive right through May 2001
to jointly acquire, develop and market with Westin "four-star" and
"five-star" timeshare resorts located in North America, Mexico and the
Caribbean (the "Westin Agreement"). The Company anticipates that
Vacation Intervals at Westin Vacation Club resorts generally will sell
for $16,000 to $25,000 and will be targeted to buyers with annual
incomes ranging from $80,000 to $250,000. The Westin Agreement
represents Westin's entry into the timeshare market. The Company and
Westin recently announced plans for the acquisition and development of
the first Westin Vacation Club resort to be located in St. John, U.S.
Virgin Islands. See "Business--Westin Vacation Club Resorts."
For the twelve month period ended September 30, 1996, the Company sold 6,512
Vacation Intervals at the Existing Resorts, compared to 3,566 and 5,687 for the
same periods ended in 1994 and 1995, respectively. Total revenue from Vacation
Interval sales at the Existing Resorts for the same periods increased from
$36.6 million in 1994 to $57.2 million in 1995 to $84.2 million in 1996. The
number of Existing Resorts increased during the same periods through
acquisitions and development from four in 1994, to seven in 1995, and to nine
in 1996. See "Business--The Resorts."
The Company's Existing Resorts and the AVCOM Resorts participate in the
Vacation Interval exchange network operated by Resort Condominiums
International, Inc. ("RCI"), the world's largest Vacation Interval exchange
organization with more than two million Vacation Interval owners as members.
Participation in the RCI network entitles Vacation Interval owners to exchange
their annual Vacation Intervals for occupancy at any of the approximately 2,900
other resorts participating in the RCI network. In November 1996, HFS
Incorporated consummated its acquisition of RCI for a combination of cash and
securities. According to the American Resort Development Association ("ARDA"),
a non-profit industry organization, the ability to exchange Vacation Intervals
is cited by buyers as a primary reason for purchasing a Vacation Interval.
According to ARDA, during the fifteen year period ending in 1994 (the most
recent year for which ARDA statistics are available), the total Vacation
Interval sales volume for the timeshare industry increased from $490 million in
1980 to $4.76 billion in 1994. A year-by-year presentation of annual Vacation
Interval sales volume is detailed under "Business--The Timeshare Industry--The
Market." Based on industry data, the Company believes that the total Vacation
Interval sales volume for the timeshare industry exceeded $5 billion in 1995.
The Company believes that, based on ARDA reports and other industry data, the
timeshare industry has benefited recently from increased consumer acceptance of
the timeshare concept resulting from effective governmental regulation of the
industry, the entry into the industry by national lodging and hospitality
companies and increased vacation flexibility resulting from the growth of
Vacation Interval exchange networks. The Company expects the timeshare industry
to continue to grow as consumer awareness of the timeshare industry increases
and as the baby boom generation continues to enter the 40-55 year age bracket,
the age group which purchased the most Vacation Intervals in 1994.
The Company has historically provided financing for approximately 85% of its
Vacation Interval buyers. Buyers who finance through the Company typically are
required to make a down payment of at least 10% of the Vacation Interval's
sales price and pay the balance of the purchase price over a period of one to
ten years. The Company typically borrows against its loans to Vacation Interval
buyers with borrowings from third-party lending institutions. At September 30,
1996, the Company had a portfolio of approximately 12,800 loans to Vacation
Interval buyers amounting to approximately $90.8 million with respect to the
Company's consolidated resorts (all of the Existing Resorts except the Embassy
Vacation Resort Poipu Point). The Company's consumer
4
<PAGE>
loans had a weighted average maturity of approximately seven years and a
weighted average interest rate of 15% compared to a weighted average cost of
funds of 10.25% on the Company's borrowings secured by such customer loans. As
of September 30, 1996, approximately 8.1% of the Company's consumer loans were
considered by the Company to be delinquent (past due by 60 or more days) and
the Company has completed or commenced foreclosure or deed-in-lieu of
foreclosure on approximately 2.5% of its consumer loans. The Company also
provides resort management and maintenance services at its non-branded resorts
for which it receives fees paid by the homeowners associations at its resorts.
Pursuant to management agreements between the Company and the Vacation Interval
owners, the Company generally has sole responsibility and exclusive authority
for the day-to-day operation of its resorts, including administrative services,
procurement of inventories and supplies and promotion and publicity.
The Company's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, the Company intends to
(i) acquire, convert and develop additional resorts to be operated as Embassy
Vacation Resorts, Westin Vacation Club resorts and non-branded resorts,
capitalizing on the acquisition and marketing opportunities to be provided
through its relationships with Promus Hotel Corporation ("Promus") which is the
owner of the Embassy Suites brand, Westin and selected financial institutions,
(ii) increase sales and financings of Vacation Intervals at the Existing
Resorts through broader-based marketing efforts and in certain instances
through the construction of additional Vacation Interval inventory,
(iii) improve operating margins by consolidating administrative functions,
reducing borrowing costs and reducing its sales and marketing expenses as a
percentage of revenues and (iv) acquire additional Vacation Interval inventory,
management contracts, Vacation Interval mortgage portfolios, and properties or
other timeshare-related assets that may be integrated into the Company's
operations. To implement its growth strategy, the Company intends to pursue
resort acquisitions and developments in a number of resort markets that will
complement the Company's operations, including the California and Hawaii
markets which are subject to barriers to entry and in which the Company's
founders, Messrs. Kaneko, Gessow and Kenninger (the "Founders"), have extensive
acquisition and development experience.
The Company has established strategic agreements and relationships with
certain lodging companies and financial institutions, including the following:
. The Company is one of two licensees and operators of Embassy Vacation
Resorts. The Company presently operates two Embassy Vacation Resorts and
plans to complete the first phase of construction of a third in March
1997. The Company is evaluating additional properties which could be
operated as Embassy Vacation Resorts, although no agreements have been
entered into with Promus with respect to such properties. See "Risk
Factors--Acquisition Strategy and Risks Related to Rapid Growth."
. The Company, through the Westin Agreement, has the exclusive right
through May 2001 to jointly acquire, develop and market with Westin
Vacation Intervals at "four-star" and "five-star" Westin-affiliated
resorts. The Company and Westin recently announced plans for the
acquisition and development of the first Westin Vacation Club resort to
be located in St. John, U.S. Virgin Islands. See "Business--Westin
Vacation Club Resorts." In addition, the Company and Westin are
evaluating the potential acquisition of a number of other properties
which may be operated as Westin Vacation Club resorts.
. The Company has relationships with financial institutions which control
significant real estate portfolios and has acquired three of the
Existing Resorts from such institutions. The Company expects that these
relationships will continue to permit the Company to acquire resort
properties at attractive prices. The Company currently is evaluating the
acquisition of a number of properties currently owned or controlled by
such financial institutions.
The Company's principal executive offices are located at 5933 West Century
Boulevard, Suite 210, Los Angeles, California 90045, and its telephone number
is (310) 348-1000.
5
<PAGE>
RECENT DEVELOPMENTS
The Company intends to pursue resort acquisitions and developments in a
number of vacation destinations that will complement the Company's operations.
The Company's pending merger with AVCOM and the proposed acquisition and
development of the first Westin Vacation Club resort to be located in St. John,
U.S. Virgin Islands, which transactions were announced in the third and fourth
quarter of 1996, respectively, are the result of the Company's growth strategy.
Merger with AVCOM. On September 22, 1996, the Company signed the Merger
Agreement to acquire AVCOM for shares of the Company's Common Stock (determined
as described below). AVCOM is the parent company of All Seasons, a developer,
marketer and operator of timeshare resorts in the western United States. AVCOM
currently operates nine resorts, which includes two under construction, and a
tenth resort in which AVCOM holds a partial interest. Five of the AVCOM Resorts
are located in Sedona, Arizona, two are located in South Lake Tahoe, California
and one resort is located in each of Lake Arrowhead, California, Lake Conroe
(near Houston), Texas and Scottsdale, Arizona. Vacation Intervals at the AVCOM
Resorts generally sell for $9,000 to $18,000 and are targeted to buyers in the
same market segment as the Company's non-branded resorts. For the twelve month
period ended September 30, 1996, AVCOM sold approximately 2,560 Vacation
Intervals at the AVCOM Resorts, compared to approximately 1,760 and
approximately 2,230 for the same periods ended in 1994 and 1995, respectively.
Total revenue from Vacation Interval sales at the AVCOM Resorts for the same
periods increased from approximately $21.7 million in 1994 to approximately
$31.0 million in 1995 to approximately $38.6 million in 1996. The number of
AVCOM Resorts increased during the same periods through acquisitions and
development from three in 1994, to four in 1995, and to nine in 1996. See
"Business--Description of AVCOM's Resorts."
The number of shares of Common Stock to be issued in the Merger is subject to
adjustment based on the market value of the Company's Common Stock over a
period preceding the closing date of the Merger. However, the Merger Agreement
provides that the Company will issue not more than $34.6 million nor less than
$23.1 million in value of its Common Stock at the closing. Based upon the
anticipated closing date of the Merger in February 1997, the Company would have
been required to issue $34.6 million of its Common Stock in the Merger. In
addition, the Company will assume AVCOM's existing indebtedness. In connection
with the Merger Agreement, the Company has loaned AVCOM approximately $4.4
million as of the date of this Prospectus, which was used by AVCOM for working
capital purposes and for the development of Vacation Intervals. Management
expects that the Merger will qualify for pooling accounting treatment. On
January 10, 1997, the stockholders of AVCOM voted to approve the Merger. It is
anticipated that the Merger will be consummated in February 1997, subject to
the timely satisfaction of all other conditions to closing, including the
satisfactory completion of due diligence by the Company and other customary
conditions. See "The Proposed Merger" and "Risk Factors--Risks Related to the
Proposed Merger."
Development of First Westin Vacation Club Resort. In December 1996, the
Company and Westin announced plans to acquire and develop the first Westin
Vacation Club resort in St. John, U.S. Virgin Islands. The Westin Vacation Club
at St. John will involve a conversion of the existing Virgin Grand Villas
condominium development (the "St. John Villas"), located adjacent to the Great
Cruz Bay Resort Hotel (formerly known as the Hyatt Regency St. John) which will
be operated as a Westin Resort Hotel (the "St. John Hotel"). Pursuant to the
purchase and sale agreement, Westin will acquire a 100% interest in the St.
John Hotel and the Company and Westin will form an entity owned 50% by each of
the Company and Westin (the "Westin Partnership") to acquire the St. John
Villas, consisting of 96 units, representing 4,163 remaining unsold Vacation
Intervals, which will be operated as the Westin Vacation Club resort at St.
John. Of the $10.5 million purchase price for the remaining unsold Vacation
Intervals at St. John Villas, each of the Company and Westin is obligated to
contribute approximately $2.5 million in cash, with the remaining $5.5 million
of the acquisition price to be paid by the Westin Partnership. In addition, the
Westin Partnership will borrow approximately $7.1 million to complete the
conversion of the St. John Villas to a Westin Vacation Club resort.
The acquisition of the St. John resort is anticipated to close during the
first quarter of 1997 and commencement of Vacation Interval sales at the resort
is anticipated to begin by the fourth quarter of 1997. Located adjacent to the
beachfront hotel, the St. John Villas consist of 96 studio, one bedroom, two
bedroom and three bedroom units located on 12.3 hillside acres, of which 48
units are completed and ready for immediate occupancy. The additional 48 units
currently require construction of interior finishes and installation of
furniture, fixtures and equipment prior to occupancy. See "Risk Factors--Risks
of the St. John Acquisition" and "Business--Westin Vacation Club Resorts."
6
<PAGE>
THE RESORTS
The following table sets forth certain information as of September 30, 1996
regarding each of the Existing Resorts, the Westin Vacation Club at St. John
and the AVCOM Resorts to be acquired in the pending Merger, including location,
date acquired or to be acquired by the Company, the number of existing and
total potential units at the resort, and the number of Vacation Intervals
currently available for sale and occupancy and additional expansion potential.
Of the 20 resorts set forth below, the Embassy Vacation Resort Poipu Point is
partially owned by the Company, the Westin Vacation Club Resort at St. John
will be partially owned by the Company when acquired and the North Bay Resort
at Lake Arrowhead is partially owned by AVCOM. The exact number of units and
Vacation Intervals ultimately constructed may differ from the following
estimates based on future land planning and site layout considerations.
<TABLE>
<CAPTION>
VACATION
UNITS AT RESORT INTERVALS AT RESORT
DATE ----------------------- -------------------------
ACQUIRED/TO BE TOTAL CURRENT POTENTIAL
RESORT LOCATION ACQUIRED(a) CURRENT(b) POTENTIAL(c) INVENTORY(d) EXPANSION(e)
------ -------- -------------- ---------- ------------ ------------ ------------
<C> <S> <C> <C> <C> <C> <C>
NON-BRANDED
RESORTS:
Cypress Pointe Lake Buena Vista, November 1992 224 500(f) 3,111 14,076(f)
Resort Florida
Plantation at Branson, Missouri July 1993 98 400(g) 690 15,402(g)
Fall Creek
Royal Dunes Hilton Head Island, April 1994 40 55(h) 641 765(h)
Resort South Carolina
Royal Palm Beach St. Maarten, Netherlands July 1995 140 140(i) 1,937 -- (i)
Club Antilles
Flamingo Beach St. Maarten, Netherlands August 1995 172 257(j) 2,584 4,420(j)
Club Antilles
San Luis Bay Avila Beach, California June 1996 68 130(k) 907(l) 3,162(k)
Resort
EMBASSY VACATION
RESORTS:
Poipu Point(m) Koloa, Kauai, Hawaii November 1994 219 219(n) 9,966(n) --
Grand Beach Orlando, Florida January 1995 102 370(o) 2,673 13,668(o)
Lake Tahoe South Lake Tahoe, May 1996 -- 210(p) -- 10,710(p)
California
WESTIN VACATION
CLUB:
St. John(q) St. John, U.S. Virgin First Quarter 1997 48 96(r) 1,715(r) 2,448(r)
Islands
AVCOM RESORTS:
Scottsdale Villa Scottsdale, Arizona First Quarter 1997 -- 168(s) -- 8,568(s)
Mirage Resort
The Ridge on Sedona, Arizona First Quarter 1997 -- 120(t) -- 6,120(t)
Sedona Golf
Resort
Sedona Springs Sedona, Arizona First Quarter 1997 40 40 62 --
Resort
Sedona Summit Sedona, Arizona First Quarter 1997 12 60(u) -- (u) 2,448(u)
Resort
Villas of Poco Sedona, Arizona First Quarter 1997 33 33 78 --
Diablo
Villas of Sedona Sedona, Arizona First Quarter 1997 40 40 105 --
North Bay Resort Lake Arrowhead, First Quarter 1997 13 13(v) 429 -- (v)
at Lake California
Arrowhead(v)
Tahoe Beach & South Lake Tahoe, First Quarter 1997 140 140 1,204 --
Ski Club California
Tahoe Seasons South Lake Tahoe, First Quarter 1997 21 21(w) 899(w) --
Resort California
Villas on the Lake Conroe, Texas First Quarter 1997 37 85(x) 1,808 2,448(x)
Lake
----- ----- ------ ------
TOTAL......................................................... 1,447 3,097 28,809 84,235
===== ===== ====== ======
</TABLE>
- -------
(a) The dates listed with respect to the Existing Resorts represent the date of
acquisition or, if later, the date of completion of development of the
first phase of the resort by the Company and the dates listed with respect
to the Westin Vacation Club at St. John and AVCOM Resorts represent the
anticipated closing dates of the pending acquisitions by the Company. See
"The Proposed Merger" and "Business--Westin Vacation Club Resorts."
7
<PAGE>
(b) Current units at each resort represents only those units that have received
their certificate of occupancy as of September 30, 1996.
(c) Total potential units at each resort includes, as of September 30, 1996,
(i) units which have received their certificate of occupancy, (ii) units
currently under development that have not yet received their certificate of
occupancy and (iii) units planned to be developed on land currently owned
by the Company or AVCOM.
(d) Current inventory of Vacation Intervals at each resort represents only
those unsold intervals that have received their certificate of occupancy as
of September 30, 1996.
(e) Potential expansion of Vacation Intervals at each resort includes, as of
September 30, 1996, (i) intervals currently under development that have not
yet received their certificate of occupancy and (ii) intervals planned to
be developed on land currently owned by the Company or AVCOM.
(f) Includes an estimated 276 units, which will accommodate an additional
estimated 14,076 Vacation Intervals, which the Company plans to construct
on land which it owns at the Cypress Pointe Resort and for which all
necessary governmental approvals and permits (except building permits) have
been obtained. Should the Company elect to construct a higher percentage of
three bedroom units, rather than its current planned mix of one, two and
three bedroom units, the actual number of planned units and Vacation
Intervals will be lower than is indicated above.
(g) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, on which the Company commenced construction in June 1996 and for
which all necessary discretionary governmental approvals and permits have
been received by the Company. Also includes an additional estimated 286
units, which will accommodate an additional estimated 14,586 Vacation
Intervals, which the Company plans to construct on land which it owns or is
currently subject to a contract to purchase at the Plantation at
Fall Creek.
(h) Includes 15 units, which will accommodate 765 Vacation Intervals,
construction of which is planned to begin in the second quarter of 1997 and
for which all necessary governmental approvals and permits have been
received by the Company.
(i) The Company has not committed to any expansion of the Royal Palm Beach
Club. The Company is considering the acquisition of additional land
adjacent to the Royal Palm Beach Club for the addition of an estimated 60
units, which will accommodate an estimated 3,060 Vacation Intervals, but
has yet to enter into an agreement with respect to such additional land or
to obtain the necessary governmental approvals and permits for such
expansion.
(j) In May 1996 the Company acquired a five-acre parcel of land adjacent to the
Flamingo Beach Club on which the Company plans to develop approximately 85
units which will accommodate an estimated 4,420 Vacation Intervals. The
Company is in the process of seeking to obtain the necessary governmental
approvals and permits for such proposed expansion.
(k) Includes 62 units, which will accommodate an estimated 3,162 Vacation
Intervals, for which all necessary governmental approvals and permits have
been received by the Company. Construction of the first 31 units began in
October 1996. In addition, the Company is considering the acquisition of
additional land near the San Luis Bay Resort for the addition of an
estimated 100 units which will accommodate an estimated 5,100 Vacation
Intervals, but has yet to enter into an agreement with respect to such land
or to obtain the necessary governmental approvals and permits for such
proposed expansion.
(l) The Company in June 1996 acquired approximately 130 Vacation Intervals at
the San Luis Bay Resort out of the bankruptcy estate of Glen Ivy Resorts,
Inc. In addition, the Company acquired promissory notes in default that are
secured by approximately 900 Vacation Intervals. The Company intends to
foreclose upon and acquire clear title to such Vacation Intervals and
intends to complete such foreclosure procedures (or deed-in-lieu
procedures) during the second quarter of 1997. These 900 Vacation Intervals
are included in the above table as Current Inventory.
(m) The Company acquired a 30.4% partnership interest in the Embassy Vacation
Resort Poipu Point in November 1994. The Company owns, directly or
indirectly, 100% of the partnership interests in one of the two co-managing
general partners of Poipu Resort Partners L.P., a Hawaii limited
partnership ("Poipu Partnership"), the partnership which owns the Embassy
Vacation Resort Poipu Point. The managing general partner owned by the
Company holds a 0.5% partnership interest for purposes of distributions,
profits and losses. The Company also holds, directly or indirectly, a
29.93% limited partnership interest in the Poipu Partnership for purposes
of distributions, profits and losses, for a total partnership interest of
30.43%. In addition, following repayment of any outstanding partner loans,
the Company, directly or indirectly, is entitled to receive a 10% per annum
return on the Founders' and certain former limited partners' initial
capital investment of approximately $4.6 million in the Poipu Partnership.
After payment of such preferred return and the return of approximately $4.6
million of capital to the Company, directly or indirectly, on a pari passu
basis with the other general partner in the partnership, the Company,
directly or indirectly, is entitled to receive approximately 50% of the net
profits of the Poipu Partnership. In the event certain internal rates of
return specified in the Poipu Partnership agreement are achieved, the
Company, directly or indirectly, is entitled to receive approximately 55%
of the net profits of the Poipu Partnership.
(n) Includes 179 units that the Company currently rents on a nightly basis,
pending their sale as Vacation Intervals.
(o) Includes at least 24 units, which will accommodate an additional 1,224
Vacation Intervals, on which the Company commenced construction in the
fourth quarter of 1996 and for which all necessary discretionary
governmental approvals and permits (excluding building permits which have
not yet been applied for by the Company) have been received by the Company.
The Company has also received all necessary discretionary governmental
approvals and permits to construct an additional estimated 244 units on
land which it owns at the Embassy Vacation Resort Grand Beach, which will
accommodate an additional estimated 12,444 Vacation Intervals (excluding
building permits which have not yet been applied for by the Company). The
Company plans to apply for and obtain these building permits on a building-
by-building basis.
(p) Includes 62 units, which will accommodate 3,162 Vacation Intervals, on
which construction began in May 1996 and for which all necessary
discretionary governmental approvals and permits have been received by the
Company. Twenty-seven units, which will accommodate 1,377 Vacation
Intervals, are scheduled for completion in March 1997 and 35 units, which
will accommodate 1,785 Vacation Intervals, are scheduled for completion in
April 1997. Of this total, the Company is obligated
8
<PAGE>
to convey four Vacation Intervals to the former owners of the land on which
the Embassy Vacation Resort Lake Tahoe is being developed. Such conveyance
will be made upon completion of the first phase of development. The Company
has also received all necessary discretionary governmental approvals and
permits to construct an additional estimated 148 units (excluding building
permits which have not yet been applied for by the Company and which will be
applied for and obtained on a phase-by-phase basis) on land that it owns at
the Embassy Vacation Resort Lake Tahoe, which will accommodate an estimated
7,548 Vacation Intervals, and, subject to market demand, currently plans to
construct 40 of such units commencing in May of each year from 1997 through
1999 and the remaining 28 units commencing in May 2000. The Company
commenced sales of Vacation Intervals at the Embassy Vacation Resort Lake
Tahoe in June 1996, although the Company will not be able to close any of
such sales until the completion of the first units. The Company currently is
pre-selling Vacation Intervals at the Embassy Vacation Resort Lake Tahoe
prior to receipt of certificates of occupancy.
(q) As described under "Business--Westin Vacation Club Resorts," the Company
will own 50% of the entity which will acquire the unsold Vacation
Intervals at this resort. The acquisition is anticipated to close during
the first quarter of 1997 and commencement of Vacation Interval sales is
anticipated to begin by the fourth quarter of 1997.
(r) Includes 48 units, which will accommodate approximately 1,715 unsold
Vacation Intervals, which are ready for immediate occupancy. With respect
to such 48 units, 36 of such units have received all necessary
discretionary governmental approvals and permits necessary to commence
Vacation Interval sales and, upon closing of the pending acquisition, the
Company plans to file the necessary documentation to receive such
approvals with respect to the remaining 12 of such units. Also includes an
additional 48 units, which will accommodate an additional approximately
2,448 Vacation Intervals, which will require the installation of
utilities, furniture, fixtures and equipment and interior finishes before
occupancy. Upon closing of the pending acquisition, the Company currently
anticipates completing the renovation of such 48 additional units by the
fourth quarter of 1997. Upon closing of the pending acquisition, the
Company also will have acquired adjacent land at the St. John resort which
will accommodate the development of additional units. The Company has not
yet determined the amount of potential additional units which may be
constructed on such adjacent land or the timing of such potential
development. See "Business--Westin Vacation Club Resorts."
(s) Scottsdale Villa Mirage Resort is in the final stages of construction of
the 64 units which constitute Phase I of the resort. Such 64 units will
accommodate approximately 3,264 Vacation Intervals and are scheduled for
completion in January, 1997. The 40 units in Phase II, which will
accommodate approximately 2,040 Vacation Intervals, and the 64 units in
Phase III, which will accommodate approximately 3,264 Vacation Intervals,
are scheduled for completion in the first quarters of 1998 and 1999,
respectively. All necessary discretionary approvals and permits have been
received by AVCOM for the Scottsdale Villa Mirage Resort. AVCOM currently
is pre-selling Vacation Intervals at the Scottsdale Villa Mirage Resort
prior to receipt of certificates of occupancy.
(t) Construction began in December 1996 on The Ridge on Sedona Golf Resort,
which upon completion will consist of 120 units. The first 12 units, which
will accommodate approximately 612 Vacation Intervals, and clubhouse are
scheduled for completion in April 1997, for which all necessary
discretionary governmental approvals and permits have been received by
AVCOM. Governmental approvals and permits have not been received for the
additional planned 108 units, which will accommodate approximately 5,508
Vacation Intervals.
(u) The Sedona Summit Resort is being developed by an affiliated entity,
Sedona Summit Development, L.P. of which All Seasons, a wholly owned
subsidiary of AVCOM, is the sole general partner. Sales and construction
commenced in February 1996 and the Sedona Summit is in the final stages of
construction of the final 48 units, which will accommodate approximately
2,448 Vacation Intervals, at which point no further expansion is planned.
Construction of the final 48 units is scheduled for completion in the
second quarter of 1997. All necessary discretionary governmental approvals
and permits have been received by AVCOM. AVCOM currently is pre-selling
Vacation Intervals in the final 48 units at the Sedona Summit Resort prior
to receipt of certificates of occupancy. All Vacation Intervals at the
initial 12 units have been sold as of September 30, 1996. See "Business--
Description of AVCOM's Resorts."
(v) All Seasons owns 40% of Trion Capital Corporation, and has the power to
vote another 40% of Trion, the General Partner of Arrowhead Capital
Partners, L.P., the developer of North Bay Resort at Lake Arrowhead. The
General Partner is entitled to receive 1% of the profits of Arrowhead
Capital Partners, L.P., but under certain circumstances, is entitled to
receive substantially higher profits. All Seasons has an exclusive sales
and marketing contract for sales at North Bay, and is the property manager
of the resort. Although Arrowhead Capital Partners, L.P. owns undeveloped
land and buildings under construction at the North Bay Resort at Lake
Arrowhead, no definitive expansion plans have been made.
(w) AVCOM purchased a portfolio of 1,057 defaulted consumer notes at the Tahoe
Seasons Resort in March 1996 which are secured by Vacation Intervals. Of
the notes purchased, 414 notes have been converted to inventory of which
117 Vacation Intervals have been sold and 41 of the notes have been
reaffirmed by the original buyers. AVCOM intends to foreclose on the
remaining notes and acquire clear title to the intervals. These remaining
602 notes are included in the above table as Current Inventory.
(x) Villas on the Lake consists of 37 existing units purchased in February
1996 currently in the final phase of renovation. Land included in the
initial purchase is able to accommodate construction of an additional 48
units, which will accommodate an additional approximately 2,448 Vacation
Intervals. The phase II construction start date has not yet been
determined. All necessary discretionary governmental approvals and permits
(excluding building permits which have not yet been applied for by AVCOM)
have been received by AVCOM.
9
<PAGE>
CORPORATE BACKGROUND
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by Osamu
"Sam" Kaneko, Andrew J. Gessow and Steven C. Kenninger to effect the
Consolidation Transactions and the Company's initial public offering, which
were consummated on August 20, 1996 (the "Initial Public Offering"). The
exchange of direct and indirect interests in, and obligations of, certain
limited partnerships, limited liability companies and other corporations
affiliated with the Founders for shares of Common Stock in the Company are
referred to herein as the "Consolidation Transactions." For additional
information regarding the Consolidation Transactions and resulting effect
thereof, see "Certain Relationships and Related Transactions--Consolidation
Transactions" and "Principal and Selling Stockholders."
The Company's timeshare resort acquisition and development business commenced
in 1992 to take advantage of the unique real estate development, financing and
travel industry expertise of the Founders. Mr. Kaneko, who is a Japanese
national and was educated in the United States, has more than 24 years of
experience in resort real estate acquisition and development. Prior to forming
the Company, Mr. Kaneko co-founded KOAR Group, Inc. ("KOAR"), a Los Angeles-
based real estate acquisition and development company, with Mr. Kenninger in
1985 and was previously the executive vice-president of the Hawaii-based United
States operations of a Japanese publicly-traded real estate developer. Mr.
Kenninger, a former business attorney for the seven years prior to co-founding
KOAR, has had overall responsibility for the development, acquisition,
licensing, branding and legal operations of the Company since 1993. Prior to
forming the Company, Mr. Gessow in 1990 formed one of the predecessors of the
Company, Argosy Group, Inc. ("Argosy"), a Woodside, California based real
estate acquisition and development company and, prior to forming Argosy, was
previously president of both the Florida and west coast offices of Trammell
Crow Residential Services, a real estate development company. See "Management--
Directors and Executive Officers."
10
<PAGE>
THE STOCK OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company........ 1,600,000 shares(1)
Common Stock offered by the Selling
Stockholders.............................. 2,400,000 shares(1)
Common Stock to be outstanding after
the Stock Offering........................ 18,992,205 shares(1)(2)
Use of Proceeds............................ The Company will use the net
proceeds of the Offerings (as
defined below) primarily in the
following order of priority:
(i) approximately $40.4 million
to retire existing indebtedness
of the Company,
(ii) approximately $21.1 million
to retire existing indebtedness
of AVCOM that will be assumed by
the Company in the Merger, (iii)
approximately $2.5 million to
finance acquisition costs related
to the St. John Villas and
(iv) the balance to complete
construction and expansion at
certain Existing Resorts and
AVCOM Resorts, to finance the
acquisition and development of
additional resorts and timeshare-
related assets, to finance sales
of Vacation Intervals and for
working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol.............. "SIGR"
Concurrent Offerings....................... Concurrently with the Stock
Offering, the Company is offering
$100 million principal amount of
its % Convertible Subordinated
Notes due 2007 (the "Convertible
Offering" and together with the
Stock Offering, the "Offerings").
The Stock Offering and the
Convertible Offering are not
conditioned upon one another and,
therefore, one offering may be
consummated without the other
offering being consummated. See
"Concurrent Offerings" and "Use
of Proceeds."
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Does not include an estimated 843,942 shares of Common Stock issuable in
connection with the Merger (based upon an anticipated closing date of the
Merger of February 7, 1997), shares of Common Stock issuable upon
conversion of the Convertible Notes, 1,750,000 shares of Common Stock
reserved for issuance upon exercise of options granted pursuant to the
Company's 1996 Equity Participation Plan (as defined) and 500,000 shares of
Common Stock reserved for issuance pursuant to the Company's Employee Stock
Purchase Plan (as defined). See "Management--1996 Equity Participation
Plan" and "--Employee Stock Purchase Plan."
11
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION OF THE
COMPANY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary consolidated historical and pro forma
financial information of the Company. For the historical period ended
September 30, 1996, the financial information presented below includes the
effect of the Consolidation Transactions and the Initial Public Offering which
were consummated in August 1996. For periods ending prior to September 30,
1996, the historical financial information presented below combines each of
the Company's predecessor limited partnerships, limited liability companies
and other affiliated corporations that were combined into the Company in the
Consolidation Transactions. Such information should be read in conjunction
with the selected consolidated historical and pro forma financial information
of the Company, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements for the
Company and the notes thereto which are contained elsewhere in this
Prospectus. The pro forma information for the year ended December 31, 1995 and
each nine month period ended September 30, 1995 and 1996 give effect to the
Consolidation Transactions, the Initial Public Offering and the Merger as if
each had occurred as of the beginning of the period presented. Due to
seasonality, other market factors and additions to the number of the Company's
resorts, the combined historical and pro forma results for the nine months
ended September 30, 1995 and 1996 are not necessarily indicative of results
for a full year.
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------- ----------------------
1992 1993 1994 1995 1995 1996
------- -------- -------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Vacation Interval
sales............. $11,328 $ 22,238 $ 40,269 $ 59,071 $ 46,385 $49,459
Interest income... 402 1,825 3,683 6,929 4,669 6,627
Other income...... 115 373 338 6,608 2,641 7,646
------- -------- -------- ---------- ---------- ----------
Total revenues.... 11,845 24,436 44,290 72,608 53,695 63,732
COSTS AND
OPERATING
EXPENSES:
Vacation Interval
cost of sales..... 2,999 5,708 12,394 15,650 12,547 11,255
Advertising,
sales, and
marketing......... 4,734 10,809 18,745 28,488 22,429 24,408
Loan portfolio:
Interest
expense--
treasury........ 168 674 1,629 3,586 2,533 4,022
Other expenses.. 50 208 851 1,189 758 1,048
Provision for
doubtful
accounts........ 555 619 923 1,787 1,471 1,372
General and
administrative:
Resort-level.... 665 2,346 2,864 4,947 2,760 4,961
Corporate....... 375 877 874 1,607 1,130 2,428
Depreciation and
amortization...... 209 384 489 1,675 1,158 1,675
Interest expense--
other............. -- 518 959 476 344 1,868
------- -------- -------- ---------- ---------- ----------
Total costs and
operating
expenses.......... 9,755 22,143 39,728 59,405 45,130 53,037
Net operating
income............ 2,090 2,293 4,562 13,203 8,565 10,695
Resort property
valuation
allowance......... -- -- -- -- -- --
Minority interest
in profits of LP.. -- -- -- -- -- --
Equity loss on
investment in
joint venture..... -- -- 271 1,649 1,293 95
------- -------- -------- ---------- ---------- ----------
Income before
taxes............. 2,090 2,293 4,291 11,554 7,272 10,600
Income taxes...... -- -- -- 641 210 539
------- -------- -------- ---------- ---------- ----------
Net income........ $ 2,090 $ 2,293 $ 4,291 $ 10,913 $ 7,062 $10,061
======= ======== ======== ========== ========== ==========
Net income per
share of Common
Stock............. -- -- -- $ 0.96 $ 0.62 $ 0.82
Weighted average
number of shares
outstanding....... -- -- -- 11,354,705 11,354,705 12,321,759
------- -------- -------- ---------- ---------- ----------
Pro forma net
income(b)......... $ 1,301 $ 1,414 $ 2,674 $ 7,206 $ 4,533 $ 6,608
Pro forma net
income per share
of Common
Stock(b).......... -- -- -- -- 0.40 0.54
Pro forma weighted
average number of
shares of Common
Stock outstanding. -- -- -- -- 11,354,705 12,321,759
OTHER DATA:
Ratio of earnings
to fixed
charges(c)........ 4.19 1.98 1.70 2.70 2.49 1.91
Pro forma ratio of
earnings to fixed
charges(d)........ -- -- -- 3.48 -- 2.12
EBITDA(e)......... $ 2,467 $ 3,869 $ 7,368 $ 17,291 $ 11,307 $ 18,165
Cash flows
provided by (used
in)
Operating
activities....... (6,166) (3,262) (10,964) 2,304 4,345 (21,851)
Investing
activities....... (51) (10,776) (24,940) (36,919) (31,382) (27,390)
Financing
activities....... 5,146 15,341 36,134 37,102 30,121 54,744
Number of Existing
Resorts at period
end............... 1 3 4 7 7 9
Number of Vacation
Intervals sold(f). 1,284 2,442 4,482 5,675 4,321 5,157
Numbers of
Vacation Intervals
in inventory(f)... 1,164 1,233 2,401 20,270 18,020 22,509
Average price of
Vacation Intervals
sold(f)........... $ 8,822 $ 9,106 $ 8,985 $ 11,353 $ 11,196 $ 13,223
<CAPTION>
PRO FORMA (UNAUDITED)
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------- ---------------------------------------------------
1995 1995 1996
------------------------- ------------------------- -------------------------
CONSOLIDATION CONSOLIDATION CONSOLIDATION
TRANSACTIONS/ TRANSACTIONS/ TRANSACTIONS/
INITIAL PUBLIC THE INITIAL PUBLIC THE INITIAL PUBLIC THE
OFFERING MERGER(a) OFFERING MERGER(a) OFFERING MERGER(a)
-------------- ---------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Vacation Interval
sales............. $ 59,071 $ 92,302 $ 46,385 $ 71,206 $ 49,459 $ 79,870
Interest income... 6,929 7,523 4,669 4,922 6,627 9,023
Other income...... 6,928 7,372 2,881 3,521 7,856 6,799
-------------- ---------- -------------- ---------- -------------- ----------
Total revenues.... 72,928 107,197 53,935 79,649 63,942 95,692
COSTS AND
OPERATING
EXPENSES:
Vacation Interval
cost of sales..... 15,586 26,667 12,497 20,179 11,205 19,949
Advertising,
sales, and
marketing......... 28,488 42,408 22,429 33,661 24,408 39,525
Loan portfolio:
Interest
expense--
treasury........ -- 518 -- 78 1,810 3,159
Other expenses.. 1,074 1,074 668 668 982 982
Provision for
doubtful
accounts........ 1,787 2,579 1,471 1,683 1,372 2,427
General and
administrative:
Resort-level.... 4,947 4,947 2,760 2,760 4,961 4,961
Corporate....... 1,607 6,202 1,130 4,255 2,428 7,886
Depreciation and
amortization...... 1,675 1,860 1,158 1,289 1,675 2,446
Interest expense--
other............. -- 1,300 -- 1,044 28 1,623
-------------- ---------- -------------- ---------- -------------- ----------
Total costs and
operating
expenses.......... 55,164 87,555 42,113 65,617 48,869 82,958
Net operating
income............ 17,764 19,642 11,822 14,032 15,073 12,734
Resort property
valuation
allowance......... -- -- -- -- -- 839
Minority interest
in profits of LP.. -- -- -- -- -- 112
Equity loss on
investment in
joint venture..... 1,804 1,804 1,355 1,355 485 485
-------------- ---------- -------------- ---------- -------------- ----------
Income before
taxes............. 15,960 17,838 10,467 12,677 14,588 11,298
Income taxes...... 6,297 7,135 4,135 5,071 5,835 4,519
-------------- ---------- -------------- ---------- -------------- ----------
Net income........ $ 9,663 $ 10,703 $ 6,332 $ 7,606 $ 8,753 $ 6,779
============== ========== ============== ========== ============== ==========
Net income per
share of Common
Stock............. $ 0.56 $ 0.59 $ 0.36 $ 0.42 $ 0.50 $ 0.37
Weighted average
number of shares
outstanding....... 17,392,205 18,236,147 17,392,205 18,236,147 17,494,836 18,338,778
-------------- ---------- -------------- ---------- -------------- ----------
Pro forma net
income(b).........
Pro forma net
income per share
of Common
Stock(b)..........
Pro forma weighted
average number of
shares of Common
Stock outstanding.
OTHER DATA:
Ratio of earnings
to fixed
charges(c)........
Pro forma ratio of
earnings to fixed
charges(d)........
EBITDA(e).........
Cash flows provided by
(used in)
Operating
activities.......
Investing
activities.......
Financing
activities.......
Number of Existing
Resorts at period
end...............
Number of Vacation
Intervals sold(f).
Numbers of
Vacation Intervals
in inventory(f)...
Average price of
Vacation Intervals
sold(f)...........
</TABLE>
- ----
(continued on following page)
12
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------------------------------------
AS ADJUSTED AS ADJUSTED FOR
FOR THE THE AS ADJUSTED FOR
AS ADJUSTED MERGER AND MERGER AND THE
COMPANY FOR THE THE STOCK THE CONVERTIBLE MERGER AND
ACTUAL MERGER(g) OFFERING(h) OFFERING(i) THE OFFERINGS(j)
-------- ----------- ----------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash, including escrow.. $ 11,339 $ 12,026 $ 43,596 $ 68,316 $ 99,886
Total assets............ 214,529 292,812 324,382 349,102 380,672
Long-term debt.......... 81,145 134,051 112,951 193,651 172,551
Stockholders' equity.... 100,115 103,881 156,551 103,881 156,551
</TABLE>
- --------
(a) Reflects the effects of the Merger, as well as the Consolidation
Transactions and the Initial Public Offering.
(b) Reflects the effect on historical statement of operations data, assuming
the combined Company had been treated as a C corporation rather than as
individual limited partnerships and limited liability companies for federal
income tax purposes.
(c) The ratio of earnings to fixed charges has been computed by dividing
earnings before income tax, plus fixed charges (excluding capitalized
interest) and amortization of previously capitalized interest by fixed
charges. Fixed charges consist of interest and other finance expenses and
capitalized interest.
(d) The pro forma ratio of earnings to fixed charges has been computed as
described in (c) above after giving effect to the net decrease in interest
expense resulting from the portion of the Convertible Offering used to
retire existing indebtedness of the Company. See "Use of Proceeds."
(e) As shown below, EBITDA represents net income before interest expense,
income taxes and depreciation and amortization. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness. However, EBITDA should not be construed
as an alternative to net income as a measure of the Company's operating
results or to operating cash flow as a measure of liquidity. The following
table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ---------------
1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income.................. $2,090 $2,293 $4,291 $10,913 $ 7,062 $10,061
Interest expense--treasury.. 168 674 1,629 3,586 2,533 4,022
Interest expense--other..... -- 518 959 476 344 1,868
Taxes....................... -- -- -- 641 210 539
Depreciation and
amortization............... 209 384 489 1,675 1,158 1,675
------ ------ ------ ------- ------- -------
EBITDA...................... $2,467 $3,869 $7,368 $17,291 $11,307 $18,165
====== ====== ====== ======= ======= =======
</TABLE>
(f) Includes the effect of sales or inventory at the Company's non-consolidated
resort (the Embassy Vacation Resort Poipu Point).
(g) The pro forma adjustments for the Merger represent the historical financial
statements of AVCOM. These adjustments assume the Merger will be accounted
for using the pooling-of-interests method of accounting. See "Risk
Factors--Risks Related to the Proposed Merger--Accounting Treatment."
(h) Adjusted to give effect to the Merger (see footnote (g) above) and to the
sale of 1,600,000 shares of Common Stock offered in the Stock Offering by
the Company at an assumed offering price of $36.125 per share, less the
underwriting discount and the payment by the Company of the estimated
offering expenses.
(i) Adjusted to give effect to the Merger (see footnote (g) above) and to the
sale of $100 million of Convertible Notes offered in the Convertible
Offering by the Company at an assumed offering price of 100% of the
principal amount of the Convertible Notes, less the underwriting discount
and the payment by the Company of the estimated offering expenses.
(j) As adjusted to give effect to the offerings described in footnotes (h) and
(i) above.
13
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF AVCOM
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The statements of operations for the years ended December 31, 1993, 1994 and
1995 and the balance sheet data as of December 31, 1994 and 1995 are derived
from AVCOM's consolidated financial statements and notes thereto which have
been audited by Ernst & Young LLP, independent public accountants, and are
included elsewhere in this Prospectus. The statement of operations for the year
ended December 31, 1992 and the balance sheet data as of December 31, 1993 are
derived from AVCOM's consolidated financial statements which have been audited
by Ernst & Young LLP, independent public accountants, which are not included in
this Prospectus. The statements of operations and the balance sheet data as of
and for the nine months ended September 30, 1995 and 1996, the balance sheet
data as of December 31, 1991 and December 31, 1992 and the statement of
operations for the year ended December 31, 1991 have been derived from
unaudited financial statements that in the opinion of AVCOM's management
reflects all adjustments, consisting of normal recurring adjustments, necessary
to present fairly the financial information for such periods and of such dates.
The selected consolidated financial data presented below should be read in
conjunction with AVCOM's consolidated financial statements, appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS:
Revenues:
Sales of Vacation
Intervals............ $6,416 $9,301 $ 14,481 $ 24,130 $ 33,231 $ 24,821 $ 30,411
Timeshare management.. -- 62 452 650 1,256 962 1,059
Contract commission
revenue.............. -- -- -- -- -- -- 497
Gain on sale of notes
receivable........... -- 48 167 571 566 564 77
Health club revenue... -- -- -- -- -- -- 375
Other................. -- 53 99 66 193 137 250
------ ------ --------- --------- --------- --------- ---------
Total revenues........ 6,416 9,464 15,199 25,417 35,246 26,484 32,669
Costs and operating
expenses:
Cost of Vacation
Intervals sold....... 1,676 2,203 3,548 6,792 11,081 7,682 8,744
Marketing and selling. 3,212 4,703 6,950 12,232 13,920 11,232 15,117
Timeshare management.. -- 30 547 743 1,571 1,023 1,769
Contract marketing and
selling.............. -- -- -- -- -- -- 974
Health club expenses.. -- -- -- -- -- -- 572
General and
administrative....... 323 800 1,621 3,034 4,780 3,256 6,229
Resort property
valuation allowance.. -- -- -- -- -- -- 839
Provision for doubtful
accounts............. 322 103 251 371 792 212 1,055
------ ------ --------- --------- --------- --------- ---------
Total costs and
operating expenses... 5,533 7,839 12,917 23,172 32,144 23,405 35,299
Operating income
(loss)............... 883 1,625 2,282 2,245 3,102 3,079 (2,630)
Minority interest in
consolidated limited
partnership.......... -- -- -- -- -- -- (112)
Interest and financing
costs................ (42) (422) (335) (809) (1,818) (1,122) (2,944)
Interest income....... 35 184 236 180 594 253 2,396
------ ------ --------- --------- --------- --------- ---------
Income (loss) before
income taxes......... 876 1,387 2,183 1,616 1,878 2,210 (3,290)
Income taxes
(benefit)............ 0 12 1,970 695 838 936 (1,316)
------ ------ --------- --------- --------- --------- ---------
Net income (loss)..... $ 876 $1,375 $ 213 $ 921 $ 1,040 $ 1,274 $ (1,974)
====== ====== ========= ========= ========= ========= =========
Cumulative preferred
stock dividends...... -- -- -- 105 105 79 79
------ ------ --------- --------- --------- --------- ---------
Net income (loss)
available for holders
of common stock...... -- -- -- 816 935 1,195 (2,053)
====== ====== ========= ========= ========= ========= =========
Earnings (loss) per
share of common stock
(pro forma in
1993)(a)............. -- -- 0.27 0.16 0.17 0.22 (0.41)
Weighted average
number of shares of
common stock and
common stock
equivalents (pro
forma in 1993)(a).... -- -- 4,682,507 4,942,759 5,554,089 5,530,669 4,987,080
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
-------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(b)............... $ 1,052 $ 1,825 $ 2,574 $ 2,571 $ 3,881 $ 3,463 $ 502
Cash flows provided by
(used in):
Operating activities... 291 (1,552) 2,907 291 3,564 3,101 1,327
Investing activities... (43) (1,742) (2,197) (1,926) (13,413) (9,009) (17,904)
Financing activities... (247) 3,281 (183) 1,046 11,378 6,164 15,735
Number of existing
resorts at period end.. 1 2 2 4 4 4 9
Number of Vacation
Intervals sold......... 605 922 1,061 1,987 2,304 1,809 1,994
Number of Vacation
Intervals in inventory. 1,078 2,196 1,135 3,868 1,995 2,322 4,585
Average price of
Vacation Intervals..... $10,609 $10,693 $13,650 $12,140 $ 14,420 $ 13,720 $ 15,250
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash, including cash in
escrow................. 64 62 589 1,026 1,807 486 687
Total assets............ 2,658 7,245 8,459 20,852 35,934 31,380 78,283
Long-term debt
(including capitalized
leases)................ 82 4,040 3,454 12,960 23,453 18,540 52,906
Stockholders' equity(c). 1,078 1,819 2,514 3,415 5,340 5,673 3,766
</TABLE>
- --------
(a) See Footnote 1 to AVCOM's consolidated financial statements.
(b) As shown below, EBITDA represents net income (loss) before interest
expense, income taxes and depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. However, EBITDA
should not be construed as an alternative to net income as a measure of
AVCOM's operating results or to operating cash flow as a measure of
liquidity. The following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).......... $ 876 $1,375 $ 213 $ 921 $1,040 $1,274 $(1,974)
Interest and financing
costs..................... 42 422 335 809 1,818 1,122 2,944
Taxes...................... 0 12 1,970 695 838 936 (1,316)
Depreciation and
amortization.............. 134 16 56 146 185 131 848
------ ------ ------ ------ ------ ------ -------
EBITDA.................... $1,052 $1,825 $2,574 $2,571 $3,881 $3,463 $ 502
====== ====== ====== ====== ====== ====== =======
</TABLE>
(c)Partners' capital for 1991 and 1992.
15
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the
Company and its business before purchasing any of the shares of Common Stock
offered hereby. The Company cautions the reader that this list of risk factors
may not be exhaustive.
Certain statements in this Prospectus that are not historical fact
constitute "forward- looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Discussions containing such forward-
looking statements may be found in the material set forth under "Summary,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as within the
Prospectus generally. In addition, when used in the Prospectus the words
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to a number
of risks and uncertainties. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors
set forth below and the matters set forth in the Prospectus generally. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
A principal component of the Company's strategy is to continue to grow by
acquiring additional resorts. The Company's future growth and financial
success will depend upon a number of factors, including its ability to
identify attractive resort acquisition opportunities, consummate the
acquisitions of such resorts on favorable terms, convert such resorts to use
as timeshare resorts and profitably sell Vacation Intervals at such resorts.
There can be no assurance that the Company will be successful with respect to
such factors. The Company's ability to execute its growth strategy depends to
a significant degree on the existence of attractive resort acquisition
opportunities (which, in the past, have included completed or nearly completed
resort properties), its ability both to consummate acquisitions on favorable
terms and to obtain additional debt and equity capital and to fund such
acquisitions and any necessary conversion and marketing expenditures.
Currently, there are numerous potential buyers of resort real estate which are
better capitalized than the Company competing to acquire resort properties
which the Company may consider attractive resort acquisition opportunities.
There can be no assurance that the Company will be able to compete against
such other buyers successfully or that the Company will be successful in
consummating any such future financing transactions or equity offerings on
terms favorable to the Company. The Company's ability to obtain and repay any
indebtedness at maturity may depend on refinancing, which could be adversely
affected if the Company cannot effect the sale of additional debt or equity
through public offerings or private placements on terms favorable to the
Company. Factors which could affect the Company's access to the capital
markets, or the cost of such capital, include changes in interest rates,
general economic conditions, the perception in the capital markets of the
timeshare industry and the Company's business, results of operations,
leverage, financial condition and business prospects.
In addition, an important part of the Company's growth strategy is to
acquire and develop additional Embassy Vacation Resorts and Westin Vacation
Club resorts. See "Business--Embassy Vacation Resorts," and "--Westin Vacation
Club Resorts." Westin has not previously been active in the timeshare market
and may not devote the corporate resources to such projects at levels which
will make the projects successful. Moreover, there can be no assurance that
Promus will elect to continue licensing the Embassy Vacation Resort name to
the Company with respect to possible future resorts. Under the terms of a
recently-announced exclusive five-year agreement, Promus and Vistana, Inc.
will jointly acquire, develop, manage and market vacation ownership resorts in
North America under Promus brand names. As part of the exclusive agreement,
Promus and Vistana, Inc. will designate selected markets for development
(which markets have yet to be announced). The Company has been identified by
Promus as the only other licensee to whom Promus will license the Embassy
Vacation Resort name. However, there can be no assurance that Promus will not
grant other entities a license to develop Embassy Vacation Resorts or that
Promus will not exercise its rights to terminate the Embassy Vacation Resort
licensees. See "--Competition."
16
<PAGE>
RISKS RELATED TO THE PROPOSED MERGER
Uncertainty as to Future Financial Results. The Company believes that the
Merger with AVCOM will offer opportunities for long-term efficiencies in
operations that should positively affect future results of the combined
operations of the Company and AVCOM. However, the Merger may adversely affect
the Company's financial performance in 1997 and future years until such time
as the Company is able to realize the positive effect of such long-term
efficiencies. In addition, the combined companies will be more complex and
diverse than the Company individually, and the combination and continued
operation of their distinct business operations will present difficult
challenges for the Company's management due to the increased time and
resources required in the management effort. While management and the Board of
Directors of the Company believe that the combination can be effected in a
manner which will realize the value of the two companies, management has no
experience in combinations of this size. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Following the Merger, in order to maintain and increase profitability, the
combined companies will need to successfully integrate and streamline
overlapping functions. The Company and AVCOM have different systems and
procedures in many operational areas which must be rationalized and
integrated. There can be no assurance that integration will be successfully
accomplished. The difficulties of such integration may be increased by the
necessity of coordinating geographically separate organizations. The
integration of certain operations following the Merger will require the
dedication of management resources which may temporarily distract attention
from the day-to-day business of the combined companies. Failure to effectively
accomplish the integration of the two companies' operations could have an
adverse effect on the Company's results of operations and financial condition.
Merger and Related Expenses. Transaction costs relating to the negotiation
of, preparation for, and consummation of the Merger and the anticipated
combination of certain operations of the Company and AVCOM will result in a
one-time charge to the Company's earnings of approximately $1.7 million to
$1.9 million in the quarter in which the Merger is consummated (expected to
occur in February 1997). This charge is expected to include the fees and
expenses payable to financial advisors, legal fees and other transaction
expenses related to the Merger. In addition, there can be no assurance that
the Company will not incur additional charges in subsequent quarters to
reflect costs associated with the Merger and the integration of the Company's
and AVCOM's operations. Additionally, transaction costs relating to the
consummation of the Merger and the anticipated combination of operations of
the Company and AVCOM, along with changes in AVCOM's accounting policies to
conform to the Company's and the write-down and write-off of certain AVCOM
assets, will result in a one-time charge to AVCOM's earnings of approximately
$7 million to $9 million. This charge is expected to include the estimated
costs associated with workforce reductions, contractual payment obligations
and other restructuring activities. While the exact timing of this charge
cannot be determined at this time, management anticipates that this charge to
earnings will be recorded primarily in the fourth quarter of 1996.
Potential Dilution to Existing Stockholders. If the Merger is consummated,
the Company would issue a substantial number of shares of Common Stock to
holders of shares of common stock of AVCOM. Based upon an anticipated closing
date of the Merger of February 7, 1997, the Company would issue an estimated
843,942 shares of Common Stock in the Merger in exchange for outstanding
shares (or options exercisable into such shares) of AVCOM common stock. Based
on such anticipated closing date, the estimated 843,942 shares of Common Stock
issuable in connection with the Merger would represent approximately 4.4% of
the number of shares of Common Stock to be outstanding upon completion of the
Stock Offering (assuming no exercise of the Underwriters' over-allotment
options). The actual number of shares of Common Stock that would be issued in
the Merger is subject to certain adjustments. See "The Proposed Merger."
Shares Eligible for Public Sale. Sales of substantial amounts of the
Company's Common Stock in the public market after the consummation of the
Merger could adversely affect prevailing market prices. The estimated 843,942
shares of Common Stock (based upon an anticipated closing date of the Merger
of February 7, 1997) to be issued in the Merger will be eligible for immediate
sale in the public market, subject to
17
<PAGE>
certain contractual limitations and limitations under the Securities Act
applicable to affiliates of AVCOM. See "Shares Eligible for Future Sale" and
"Underwriting."
Risk of Non-Consummation of the Merger. The closing of the Offerings are not
conditioned upon the closing of the Merger, which is subject to certain
significant conditions contained in the Merger Agreement. Many of these
conditions are beyond the control of the Company. Although the Company
currently expects that such conditions will be satisfied or waived, there can
be no assurance that the closing of the Merger will occur. Such conditions,
include, among others, the satisfactory completion of due diligence by the
Company, the receipt by the Company of an opinion from its and AVCOM's
independent public accountants with respect to certain matters relating to the
availability of pooling-of-interests accounting treatment for the Merger and
the absence of any material adverse change in the business, results of
operations or financial condition of either the Company or AVCOM. See "The
Proposed Merger."
Accounting Treatment. The Merger is expected to be accounted for by the
pooling-of-interests method of accounting. Under this method of accounting,
the recorded assets and liabilities of the Company and AVCOM will be carried
forward at their book values to the Company after the Merger, income of the
Company after the Merger will include the income (or loss) of the Company and
AVCOM for the entire fiscal year in which the Merger occurs, and the reported
income of the Company and AVCOM for prior periods will be combined and
restated as income of the Company after the Merger. It is a condition to the
Company's obligation to effect the Merger that it receive an opinion from its
independent public accountants that the Merger will qualify for a pooling-of-
interests accounting treatment. See "The Proposed Merger--Conditions of the
Merger." Opinions of accountants are not binding upon the Commission, and
there can be no assurance that the Commission will not successfully assert a
contrary position. In such case, the purchase method of accounting would be
applicable. Under the purchase method, the book value of AVCOM's assets would
be increased to their fair values, which could result in higher costs of
sales, thereby adversely affecting the Company's earnings. Additionally, the
excess of the purchase price over the fair value of AVCOM's assets would be
amortized and expensed, which could also adversely affect the Company's
earnings.
If the closing of the Merger does not occur, the Company will not succeed to
the business and operations of AVCOM and, accordingly, the business and
operations of the Company will not include any of the business and operations
of AVCOM described in this Prospectus. In connection with the Merger
Agreement, the Company has loaned AVCOM approximately $4.4 million as of the
date of this Prospectus. Such loan was used by AVCOM for working capital
purposes and for the development of Vacation Intervals, and AVCOM may or may
not be able or willing to repay the loan. In addition, the Company would be
required to take a one-time charge to earnings to reflect the costs of the
payment of certain amounts relating to the Merger. See "The Proposed Merger,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Pro Forma Financial Information."
VARIABILITY OF QUARTERLY RESULTS; POSSIBLE VOLATILITY OF STOCK PRICE
The Company's earnings may be impacted by the timing of the completion and
development of future resorts, and the potential impact of weather or other
natural disasters at the Company's resort locations (e.g., hurricanes in
Hawaii, St. Maarten and St. John and earthquakes in California). See "--
Natural Disasters; Uninsured Loss" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Furthermore, the Company
has historically experienced and expects to continue to experience seasonal
fluctuations in its gross revenues and net income from the sale of Vacation
Intervals. This seasonality may cause significant variations in quarterly
operating results. If sales of Vacation Intervals are below seasonal norms
during a particular period, the Company's annual operating results could be
materially adversely affected. In addition, the combination of (i) the
possible delay in generating revenue after the acquisition by the Company of
additional resorts prior to the commencement of Vacation Interval sales and
(ii) the expenses associated with start-up unit or room-rental operations,
interest expense, amortization and depreciation expenses from such
acquisitions may materially adversely impact earnings.
18
<PAGE>
Due to the foregoing and other factors, the Company believes that its
quarterly and annual revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not
be relied upon as indications of future performance. Because of the above
factors, it is possible that the Company's operating results will be below the
expectations of stock market analysts and investors, which could have a severe
adverse effect on the market value of the Company's Common Stock. Furthermore,
the market price for the Common Stock has been subject to significant
fluctuations. Numerous factors, including announcements of fluctuations in the
Company's or its competitors' operating results and market conditions for
hospitality and timeshare industry stocks in general, could have a significant
impact on the future price of the Common Stock. In addition, the stock market
in recent years has experienced significant price and volume fluctuations that
often have been unrelated or disproportionate to the operating performance of
companies. These broad fluctuations may adversely affect the market price of
the Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to actively continue development, construction,
redevelopment/conversion and expansion of timeshare resorts. There can be no
assurance that the Company will complete development and/or conversion of the
Lake Tahoe and AVCOM's Scottsdale Villa Mirage Resort, Villas on the Lake,
Sedona Summit Resort and The Ridge on Sedona Golf Resort currently under
development, complete the expansion projects currently under development at
the Company's Cypress Pointe, Plantation at Fall Creek and Embassy Vacation
Resort Grand Beach resorts and at AVCOM's Sedona Summit Resort, North Bay
Resort at Lake Arrowhead and Villas on the Lake resorts, undertake the
additional expansion plans set forth in "Business--Description of the
Company's Resorts" or undertake to develop other resorts or complete such
development if undertaken. Risks associated with the Company's development,
construction and redevelopment/conversion activities, including activities
relating to the Lake Tahoe and AVCOM's Scottsdale Villa Mirage Resort, Villas
on the Lake and The Ridge on Sedona Golf Resort, and expansion activities,
including activities relating to the Cypress Pointe, Plantation at Fall Creek,
San Luis Bay, Flamingo Beach Club and Embassy Vacation Resort Grand Beach
resorts and at AVCOM's Sedona Summit Resort, may include the risks that:
acquisition and/or development opportunities may be abandoned; construction
costs of a property may exceed original estimates, possibly making the resort
uneconomical or unprofitable; sales of Vacation Intervals at a newly completed
property may not be sufficient to make the property profitable; financing may
not be available on favorable terms for development of, or the continued sales
of Vacation Intervals at, a property; and construction may not be completed on
schedule, resulting in decreased revenues and increased interest expense. In
addition, the Company's construction activities typically are performed by
third-party contractors, the timing, quality and completion of which cannot be
controlled by the Company. Nevertheless, construction claims may be asserted
against the Company for construction defects and such claims may give rise to
liabilities. New development activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention. Development activities are also subject to risks relating
to the inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy and other required governmental permits and
authorizations, the ability of the Company to coordinate construction
activities with the process of obtaining such permits and authorizations, and
the ability of the Company to obtain the financing necessary to complete the
necessary acquisition, construction, and/or conversion work. Upon the closing
of the Offerings, the Company will not have the financing available to
complete all of its planned expansion as set forth in "Business--Description
of the Company's Resorts." The ability of the Company to expand its business
to include new resorts will in part depend upon the availability of suitable
properties at reasonable prices and the availability of financing for the
acquisition and development of such properties. In addition, certain states
and local laws may impose liability on property developers with respect to
construction defects, discovered or repairs made by future owners of such
property. Pursuant to such laws, future owners may recover from the Company
amounts in connection with any repairs made to the developed property. See
"Business--Business Strategy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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RISKS OF THE ST. JOHN ACQUISITION
Although the Company and Westin have announced the signing of definitive
agreements for the acquisition of the St. John Villas and the St. John Hotel,
the closing of such acquisition is subject to the timely satisfaction of
certain conditions, including the execution by the Company and Westin of
mutually satisfactory agreements relating to the operation of the St. John
Villas. See "--Risks Related to Westin Agreement; Limited Control of Resorts
and Termination." Although the Company expects such acquisition to be
consummated during the first quarter 1997 and sales of Vacation Intervals to
begin at the resort by the fourth quarter of 1997, there can be no assurance
that such acquisition and commencement of timeshare sales will be consummated
in such time period, if at all. In the event that the closing of the St. John
acquisition or the commencement of timeshare sales is materially delayed or
does not occur, the Company could incur additional transaction and start-up
costs, which may result in an adverse effect on the results of the Company in
1997 or in future years.
RISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS
The Company will have significant interest expense and principal repayment
obligations under the Convertible Notes and its other indebtedness. As of
September 30, 1996, after giving effect to the Offerings and the application
of the net proceeds therefrom and the Merger, the Company and its consolidated
subsidiaries would have had an aggregate of approximately $172.6 million of
long-term debt. See "Consolidated Capitalization" and "Pro Forma Financial
Information." Future development by the Company at its Existing Resorts and
the AVCOM Resorts will be financed with indebtedness obtained pursuant to the
Company's existing credit facilities or credit facilities obtained by the
Company in the future. The agreements with respect to such facilities do
contain or in the future could contain restrictive covenants, possibly
including covenants limiting capital expenditures, incurrence of debt and
sales of assets and requiring the Company to achieve certain financial ratios,
some of which could become more restrictive over time. Subsequent acquisition
activities will be financed primarily by new financing arrangements. The
Company's pro forma indebtedness as well as the indebtedness to be incurred
under such facilities will be secured by mortgages on the Company's resort
properties as well as other assets of the Company. Among other consequences,
the leverage of the Company and such restrictive covenants and other terms of
the Company's debt instruments could impair the Company's ability to obtain
additional financing in the future, to make acquisitions and to take advantage
of significant business opportunities that may arise. In addition, the
Company's leverage may increase its vulnerability to adverse general economic
and timeshare industry conditions and to increased competitive pressures.
RISKS ASSOCIATED WITH PARTNERSHIP INVESTMENT IN THE POIPU PARTNERSHIP
The Embassy Vacation Resort Poipu Point is owned by the Poipu Partnership,
which consists of the Company and a third party. Property ownership through a
partnership involves additional risks, including requirements of partner
consents for major decisions (including approval of budgets), capital
contributions and entry into material agreements. If the Company and its
partner are unable to agree on major decisions, either partner may elect to
invoke a buy/sell right, which could require the Company to either sell its
interest in the Embassy Vacation Resort Poipu Point or to buy out the interest
of its partner at a time when the Company is not prepared to do so. In
addition, under certain circumstances, the other partner can require the
Company to purchase such partner's interest or sell its interest to the
partner. If a dispute arises under this partnership, an adverse resolution
could have a material adverse effect on the operations of the Company. In
addition, as a general partner, the Company will be subject to certain
fiduciary obligations which may obligate it to act in a manner which is not
necessarily in the best interest of the Company. The Company may elect to
purchase interests in future resorts through similar partnership arrangements.
See "--Risks Related to Westin Agreement; Limited Control of Resorts and
Termination."
LIMITED OPERATING HISTORY
The Company was recently formed in order to effectuate the Consolidation
Transactions and the Initial Public Offering. Although predecessors of the
Company have operating history in the timeshare and hospitality
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industries, the Company has limited operating history as an integrated entity
with respect to the Existing Resorts and limited experience operating as a
public company, which could have an adverse impact on the Company's operations
and future profitability. The Company has chosen to conduct its management
operations (i) in two locations in California primarily with respect to
acquisition, development and finance, (ii) in Chicago, Illinois with respect
to marketing, (iii) in Orlando, Florida primarily with respect to sales,
accounting, treasury and property management operations and (iv) following the
Merger, in Sedona, Arizona, primarily with respect to sales, marketing,
accounting and property management of the Company's and AVCOM's Western
resorts. However, as the Company grows and diversifies into additional
geographic markets, including new markets as a result of the Merger with
AVCOM, no assurance can be given as to management's ability to efficiently
manage operations and control functions without a centrally located management
team.
GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN TIMESHARE INDUSTRY; GEOGRAPHIC
CONCENTRATION OF INVESTMENTS
Any downturn in economic conditions or any price increases (e.g., airfares)
related to the travel and tourism industry could depress discretionary
consumer spending and have a material adverse effect on the Company's
business. Any such economic conditions, including recession, may also
adversely affect the future availability of attractive financing rates for the
Company or its customers and may materially adversely affect the Company's
business. Furthermore, adverse changes in general economic conditions may
adversely affect the collectibility of the Company's loans to Vacation
Interval buyers. Because the Company's operations are conducted solely within
the timeshare industry, any adverse changes affecting the timeshare industry
such as an oversupply of timeshare units, a reduction in demand for timeshare
units, changes in travel and vacation patterns, changes in governmental
regulations of the timeshare industry and increases in construction costs or
taxes, as well as negative publicity for the timeshare industry, could have a
material adverse effect on the Company's operations. Additionally, two of the
nine Existing Resorts are located in each of California, Florida and St.
Maarten, and six of the ten AVCOM Resorts are located in Arizona and three are
located in California. See "Business--The Resorts." The concentration of the
Company's investments in California, Florida, the Caribbean and Arizona could
result in adverse events or conditions which affect those areas in particular,
such as economic recessions and natural disasters, having a more significant
negative effect on the operations of the Company's resorts, than if the
Company's investments were more geographically diverse. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH CUSTOMER FINANCING
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts who make a down payment generally equal to at least 10% of
the purchase price. This financing generally bears interest at fixed rates and
is collateralized by a first mortgage on the underlying Vacation Interval. The
Company has entered into agreements with lenders for the financing of these
customer receivables. These agreements provide an aggregate of up to
approximately $178 million of available financing to the Company bearing
interest at variable rates tied to either the prime rate or LIBOR, of which
the Company as of September 30, 1996, has approximately $116 million of
additional borrowing availability. Under these arrangements, the Company
pledges as security promissory notes to these lenders, who typically lend the
Company 80% to 90% of the principal amount of such notes. Payments under these
promissory notes are made by the buyer/borrowers directly to a payment
processing center and such payments are credited against the Company's
outstanding balance with the respective lenders. The Company does not
presently have binding agreements to extend the terms of such existing
financing or for any replacement financing upon the expiration of such funding
commitments (which have varying borrowing periods ranging from 18 to 20 months
after the initial commitment date), and there can be no assurance that
alternative or additional arrangements can be made on terms that are
satisfactory to the Company. Accordingly, future sales of Vacation Intervals
may be limited by both the availability of funds to finance the initial
negative cash flow that results from sales that are financed by the Company
and by reduced demand which may result if the Company is unable to provide
financing through unaffiliated lenders to buyers of Vacation Intervals. If the
Company is required to sell its customer receivables to lenders, discounts
from the
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face value of such receivables may be required by such lenders, if lenders are
available at all. At September 30, 1996, the Company had a portfolio of
approximately 12,800 loans to Vacation Interval buyers amounting to
approximately $90.8 million with respect to the Company's consolidated resorts
(all of the Existing Resorts except the Embassy Vacation Resort Poipu Point).
The Company's consumer loans had a weighted average maturity of approximately
seven years and a weighted average cost of funds of 15%. At such date, the
Company had borrowings secured by such loans of approximately $62.2 million,
which borrowings bear interest at variable rates with a weighted average of
10.25%. As of September 30, 1996, approximately 8.1% of the Company's consumer
loans were considered by the Company to be delinquent (past due by 60 or more
days) and the Company has completed or commenced foreclosure or deed-in-lieu
of foreclosure on approximately 2.5% of its consumer loans. The Company has
historically derived income from its financing activities. However, because
the Company's borrowings bear interest at variable rates and the Company's
loans to buyers of Vacation Intervals bear interest at fixed rates, the
Company bears the risk of increases in interest rates with respect to the
loans it has from its lenders. To the extent interest rates on the Company's
borrowings decrease, the Company faces an increased risk that customers will
pre-pay their loans and reduce the Company's income from financing activities.
See "Business--Customer Financing."
RISKS OF HEDGING ACTIVITIES
To manage risks associated with the Company's borrowings bearing interest at
variable rates, the Company expects from time to time to purchase interest
rate caps, interest rate swaps or similar instruments. The nature and quantity
of the hedging transactions for the variable rate debt will be determined by
the management of the Company based on various factors, including market
conditions, and there have been no limitations placed on management's use of
certain instruments in such hedging transactions. No assurance can be given
that any such hedging transactions will offset the risks of changes in
interest rates, or that the costs associated with hedging activities will not
increase the Company's operating costs.
RISKS ASSOCIATED WITH CUSTOMER DEFAULT
The Company bears the risk of defaults by buyers who financed the purchase
of their Vacation Intervals. If a buyer of a Vacation Interval defaults on the
loan made by the Company to finance the purchase of such Vacation Interval
during the early part of the repayment schedule the Company generally must
take back the mortgage with respect to such Vacation Interval and replace it
with a performing mortgage. In connection with the Company taking back any
such Vacation Interval, the associated marketing costs other than certain
sales commissions will not have been recovered by the Company and they must be
incurred again after their Vacation Interval has been returned to the
Company's inventory for resale (commissions paid in connection with the sale
of Vacation Intervals may be recoverable from the Company's sales personnel
and from independent contractors upon default in accordance with contractual
arrangements with the Company, depending upon the amount of time that has
elapsed between the sale and the default and the number of payments made prior
to such default). Although private mortgage insurance or its equivalent is
available to cover Vacation Intervals, the Company has never purchased such
insurance. In addition, although the Company in many cases may have recourse
against Vacation Interval buyers, sales personnel and independent contractors
for the purchase price paid and for commissions paid, respectively, no
assurance can be given that the Vacation Interval purchase price or any
commissions will be fully or partially recovered in the event of buyer
defaults under such financing arrangements. The Company purchased defaulted
mortgage notes with respect to 900 Vacation Intervals at the San Luis Bay
Resort on which the Company is in the process of foreclosing. The Company will
be subject to the costs and delays associated with such foreclosure process
and no assurance can be given that the value of the underlying Vacation
Intervals being foreclosed upon at the time of resale will exceed the purchase
price of the defaulted loans, taking into consideration the costs of
foreclosure and resale. See "Business--Customer Financing." Similarly, in
March 1996, AVCOM purchased defaulted mortgage notes with respect to 1,057
Vacation Intervals at the Tahoe Seasons Resort on which AVCOM is in the
process of foreclosing. AVCOM will be subject to the costs and delays
associated with such foreclosure process and no assurance can be given that
the value of the underlying Vacation Intervals being foreclosed upon at the
time of resale will exceed the
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purchase price of the defaulted loans, taking into consideration the costs of
foreclosure and resale. See "Business--Description of AVCOM's Resorts."
COMPETITION
The Company is subject to significant competition at each of its resorts
from other entities engaged in the business of resort development, sales and
operation, including interval ownership, condominiums, hotels and motels. Many
of the world's most recognized lodging, hospitality and entertainment
companies have begun to develop and sell Vacation Intervals in resort
properties. Although the Company recently obtained the exclusive development
rights to Westin Vacation Clubs from Westin pursuant to the Westin Agreement,
other major companies that now operate or are developing or planning to
develop Vacation Interval resorts include Marriott Ownership Resorts
("Marriott"), The Walt Disney Company ("Disney"), Hilton Hotels Corporation
("Hilton"), Hyatt Corporation ("Hyatt"), Four Seasons Hotels & Resorts ("Four
Seasons") and Inter-Continental Hotels and Resorts ("Inter-Continental"). Many
of these entities possess significantly greater financial, marketing,
personnel and other resources than those of the Company and may be able to
grow at a more rapid rate or more profitably as a result.
The Company also competes with companies with non-branded resorts such as
Westgate, Vistana, Inc. and Vacation Break. Under the terms of a recently
announced exclusive five-year agreement, Promus and Vistana, Inc. will jointly
acquire, develop and manage and market vacation ownership resorts in North
America under Promus brand names. As part of the exclusive agreement, Promus
and Vistana, Inc. will designate selected markets for development (which
markets have yet to be announced). The Company has been identified by Promus
as the only other licensee to whom Promus will license the Embassy Vacation
Resort name. However, there can be no assurance that Promus will not grant
other entities a license to develop Embassy Vacation Resorts or that Promus
will not exercise its rights to terminate the Embassy Vacation Resort
licenses. Additionally, Vacation Break announced in November 1996 that it had
agreed to purchase the Berkley Group, another timeshare resort developer, and
following consummation of Vacation Breaks' acquisition of the Berkley Group,
such entity will possess greater resources as a consolidated entity.
In the event that the Westin Agreement becomes the subject of dispute
between the parties thereto, it is possible that the Company's interest in
pursuing acquisition and development opportunities at "four-star" and "five-
star" resorts located in North America, Mexico and the Caribbean through May
2001 could be barred pending the final resolution of such dispute.
Additionally, at the expiration or early termination of the Westin Agreement,
Westin could become a direct competitor with the Company in the timeshare
resort business, including in the markets most attractive to the Company. See
"--Risks Related to the Westin Agreement; Limited Control of Resorts and
Termination" and "Business--Westin Vacation Club Resorts." In addition, the
five Embassy Suites hotels owned or controlled by affiliates of the Founders,
which will not be owned by the Company, may compete with certain of the
Company's timeshare resorts; however, the Company anticipates that such five
Embassy Suites hotels could be a significant source of lead generation for its
marketing activities. Subject to the covenants not to compete (as described
herein), the Founders could acquire resort and other hotel properties that
could compete with the Company's timeshare business. See "Management--
Employment Agreements" and "--Covenants Not To Compete."
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO
QUALIFY RESORTS
The attractiveness of Vacation Interval ownership is enhanced significantly
by the availability of exchange networks that allow Vacation Interval owners
to exchange in a particular year the occupancy right in their Vacation
Interval for an occupancy right in another participating network resort.
According to the ARDA, the ability to exchange Vacation Intervals was cited by
buyers as a primary reason for purchasing a Vacation Interval. Several
companies, including RCI, provide broad-based Vacation Interval exchange
services, and the Company's Existing Resorts are currently qualified for
participation in the RCI exchange network. In November 1996, HFS Incorporated
consummated its acquisition of RCI.
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No assurance can be given that the Company will continue to be able to
qualify its Existing Resorts or the AVCOM Resorts, or will be able to qualify
its future resorts, for participation in the RCI network or any other exchange
network. RCI is under no obligation to include the Existing Resorts or the
AVCOM Resorts in its exchange network. If such exchange networks cease to
function effectively, or if the Company's resorts are not accepted as
exchanges for other desirable resorts, the Company's sales of Vacation
Intervals could be materially adversely effected. See "Business--Participation
in Vacation Interval Exchange Networks."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of Messrs. Kaneko, Gessow and Kenninger, who serve as the Company's
Chief Executive Officer, President, and Chief Operating Officer, respectively,
as well as the abilities of James E. Noyes and Michael A. Depatie, the
Company's Executive Vice President, and Executive Vice President and Chief
Financial Officer, respectively. The loss of the services of any one of these
individuals could have a material adverse effect on the Company, its
operations and its business prospects. See "Management--Employment
Agreements." The Company's success is also dependent upon its ability to
attract and maintain qualified development, acquisition, marketing,
management, administrative and sales personnel for which there is keen
competition among the Company's competitors. In addition, the cost of
retaining such key personnel could escalate over time. There can be no
assurance that the Company will be successful in attracting and/or retaining
such personnel.
Pursuant to the Poipu Partnership Agreement, the Company may be removed as
managing general partner if, under certain circumstances, two of the three
Founders (Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger) are no
longer officers of the Company. In addition, the Poipu Partnership Agreement
provides that certain of the Founders will be actively involved in the
management of the Embassy Vacation Resort Poipu Point.
REGULATION OF MARKETING AND SALES OF VACATION INTERVALS; OTHER LAWS
The Company's marketing and sales of Vacation Intervals and other operations
are subject to extensive regulation by the federal government and the states
and foreign jurisdictions in which the Existing Resorts are located and in
which Vacation Intervals are marketed and sold. On a federal level, the
Federal Trade Commission has taken the most active regulatory role through the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or
competition in interstate commerce. Other federal legislation to which the
Company is or may be subject appears in the Truth-in-Lending Act and
Regulation Z, the Equal Opportunity Credit Act and Regulation B, the
Interstate Land Sales Full Disclosure Act, Telephone Consumer Protection Act,
Telemarketing and Consumer Fraud and Abuse Prevention Act, Fair Housing Act
and the Civil Rights Acts of 1964 and 1968. In addition, many states have
adopted specific laws and regulations regarding the sale of interval ownership
programs. The laws of most states, including Florida, South Carolina and
Hawaii, require the Company to file with a designated state authority for its
approval a detailed offering statement describing the Company and all material
aspects of the project and sale of Vacation Intervals. The laws of California
and Arizona require the Company to file numerous documents and supporting
information with their respective Departments of Real Estate, the agencies
responsible for the regulation of Vacation Intervals. When such Departments
determine that a project has complied with applicable law, they will issue a
public report for the project. The Company is required to deliver an offering
statement or public report to all prospective purchasers of a Vacation
Interval, together with certain additional information concerning the terms of
the purchase. The laws of Illinois, Florida, Hawaii and Texas impose similar
requirements. Laws in each state where the Company sells Vacation Intervals
generally grant the purchaser of a Vacation Interval the right to cancel a
contract of purchase at any time within a period ranging from three to fifteen
calendar days following the earlier of the date the contract was signed or the
date the purchaser has received the last of the documents required to be
provided by the Company. Most states have other laws which regulate the
Company's activities, such as real estate licensure; seller's of travel
licensure; anti-fraud laws; telemarketing laws; price, gift and sweepstakes
laws; and labor laws. The Company believes that it is in material compliance
with all federal, state, local and foreign laws and regulations to which it
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is currently subject. However, no assurance can be given that the cost of
qualifying under Vacation Interval ownership regulations in all jurisdictions
in which the Company desires to conduct sales will not be significant or that
the Company is in fact in compliance with all applicable federal, state, local
and foreign laws and regulations. Any failure to comply with applicable laws
or regulations could have a material adverse effect on the Company. See
"Business--Governmental Regulation."
In addition, certain state and local laws may impose liability on property
developers with respect to construction defects discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may
recover from the Company amounts in connection with the repairs made to the
developed property.
In connection with the resorts to be acquired in the Merger with AVCOM, the
California Department of Real Estate has conducted an audit with respect to
AVCOM timeshare operations at the Tahoe Beach & Ski Club and has informed
AVCOM of several discrepancies it claims to have discovered during such audit.
AVCOM has responded to the Department of Real Estate's request for additional
information and has been advised by the Department of Real Estate that it will
close its audit. In addition, the Arizona Department of Real Estate is
investigating AVCOM and its Scottsdale Villa Mirage and Sedona Summit Resorts
with respect to the alleged failure of John R. Stevens, AVCOM's Director of
Marketing and New Projects, to disclose certain events from his prior
development history in Colorado on timeshare registration applications filed
in Arizona and on certain other of AVCOM's timeshare-related activities. As a
result of the Arizona investigation, Mr. Stevens agreed to voluntarily resign
his position as an officer and director of AVCOM, and AVCOM and Mr. Stevens
are cooperating with the Arizona Department of Real Estate. AVCOM and Mr.
Stevens believe that they have satisfied all applicable requirements and the
Arizona Department of Real Estate has lifted its request for additional
disclosure regarding Mr. Stevens in public timeshare resorts filed in Arizona.
However, the enforcement action against Mr. Stevens is still pending.
Additionally, in December 1996, the Arizona Department of Real Estate served
certain affiliates of AVCOM with a Cease and Desist Order which relates to the
alleged use by All Seasons and its third-party telemarketing vendors of a
promotion which had not been approved by the Department of Real Estate. The
Order requires All Seasons to provide all persons originally offered the
promotion with a Department of Real Estate approved premium of equal or
greater worth or pay the person the advertised cash value of the promotion.
The Cease and Desist Order may be followed by an enforcement action. The Texas
Real Estate Commission also has investigated AVCOM. The Company has been
advised by the Texas Real Estate Commission that based on information it has
gathered and Mr. Stevens' resignation as an officer of AVCOM's Texas
subsidiaries, the Texas Real Estate Commission will not take any action in
this matter. Upon consummation of the Merger with AVCOM, it is anticipated
that Mr. Stevens will be employed by a subsidiary of the Company. See
"Management--Employment Agreements."
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, the
owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's
ability to sell or lease a property or to borrow using such real property as
collateral. Other federal and state laws require the removal or encapsulation
of asbestos-containing material when such material is in poor condition or in
the event of construction, demolition, remodeling or renovation. Other
statutes may require the removal of underground storage tanks. Noncompliance
with these and other environmental, health or safety requirements may result
in the need to cease or alter operations at a property.
As of the date of the Prospectus, Phase I environmental reports (which
typically involve inspection without soil sampling or ground water analysis)
have been prepared by independent environmental consultants for each Existing
Resort and for each AVCOM Resort. In connection with the acquisition and
development of the Embassy Vacation Resort Lake Tahoe and the San Luis Bay
Resort, the independent environmental consultants
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have identified several areas of environmental concern. The areas of concern
at the Embassy Vacation Resort Lake Tahoe relate to possible soil and water
contamination that originated on the resort site due to prior uses and to
contamination that may migrate onto the resort site from upgradient sources.
California regulatory agencies have been monitoring the resort site and have
required or are in the process of requiring the responsible parties (presently
excluding the Company) to effect remediation action. The Company has been
indemnified by certain of such responsible parties for certain costs and
expenses in connection with contamination at the Embassy Vacation Resort Lake
Tahoe (including Chevron (USA), Inc.) and does not anticipate incurring
material costs in connection therewith; however, there is no assurance that
the indemnitor(s) will meet their obligations in a complete and timely manner.
In addition, the Company's San Luis Bay Resort is located in an area of Avila
Beach, California which has experienced underground contamination resulting
from leaking pipes at a nearby oil refinery. California regulatory agencies
have required the installation of groundwater monitoring wells on the beach
near the resort site, and no demand or claim in connection with such
contamination has been made on the Company, however, there is no assurance
that claims will not be asserted against the Company with respect to this
environmental condition. In addition, while remodeling the Carson Building at
the Tahoe Beach & Ski Club, one of the AVCOM Resorts, AVCOM's contractor
informed AVCOM of the possible presence of asbestos containing materials.
AVCOM has given governmental and private notification to various agencies and
persons whom AVCOM determined, after consulting with counsel, should receive
notice. Civil and criminal penalties could be assessed in this matter,
however, it is the present belief of AVCOM, after conferring with counsel,
that such penalties are unlikely. Civil liability for personal injury is also
possible, but AVCOM's consultants do not believe that the asbestos posed a
substantial health hazard and that the environmental concern has been
remediated. The total additional cost to AVCOM for the asbestos remediation,
including all professional fees, was $325,000.
With the exception of the above mentioned resorts, the Company is not aware
of any environmental liability that would have a material adverse effect on
the Company's business, assets or results of operations. No assurance,
however, can be given that these reports reveal all environmental liabilities
or that no prior owner created any material environmental condition not known
to the Company.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
The Company believes that it and AVCOM are in compliance in all material
respects with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances and, except as described above with
respect to the Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort,
the Company has not been notified by any governmental authority or third party
of any non-compliance, liability or other claim in connection with any of its
present or former properties. See "Business--Governmental Regulation--
Environmental Matters."
COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO
DISABLED PERSONS
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons on a variety of public accommodations and
facilities. These requirements did not become effective until after January 1,
1991. Although the Company believes that its Existing Resorts and the AVCOM
Resorts are substantially in compliance with laws governing the accessibility
of its facilities to disabled persons, a determination that the Company is not
in compliance with the ADA could result in a judicial order requiring
compliance, imposition of fines or an award of damages to private litigants.
The Company is likely to incur additional costs of complying with the ADA;
however, such costs are not expected to have a material adverse effect on the
Company's results of operations or financial condition. Additional legislation
may impose further burdens or restrictions on property owners (including
homeowner associations at the Existing Resorts) with respect to access by
disabled persons. The ultimate amount of the cost of compliance with such
legislation is not currently ascertainable, and, while such costs are not
expected to have a material effect on the Company, such costs could be
substantial. Limitations or restrictions on the completion of certain
renovations may limit application of the Company's growth strategy in certain
instances or reduce profit margins on the Company's operations. If a
homeowners' association at a resort
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was required to make significant improvements as a result of non-compliance
with the ADA, Vacation Interval owners may default on their mortgages and/or
cease making required homeowners' association assessment payments. The Company
is not aware of any non-compliance with the ADA, the Fair Housing Act or
similar laws that management believes would have a material adverse effect on
the Company's business, assets or results of operations.
NATURAL DISASTERS; UNINSURED LOSS
In 1992, prior to the Company's purchase of an interest in the Embassy
Vacation Resort Poipu Point, the resort was substantially destroyed by
Hurricane Iniki. The resort was rebuilt with insurance proceeds before the
Company acquired its interest in the resort, but could suffer similar damage
in the future. In September 1995 and July 1996, the Company's St. Maarten
resorts were damaged by hurricanes and could suffer similar damage in the
future. In addition, the Company's other resorts which are or will be located
in Hawaii, Florida and the Caribbean (including the recently-announced St.
John resort which was damaged by Hurricane Marilyn in 1995) may be subject to
hurricanes and damaged as a result thereof. The Company's resorts located in
California and Hawaii may be subject to damage resulting from earthquakes.
There are certain types of losses (such as losses arising from acts of war)
that are not generally insured because they are either uninsurable or not
economically insurable and for which the Company does not have insurance
coverage. Should an uninsured loss or a loss in excess of insured limits
occur, the Company could lose its capital invested in a resort, as well as the
anticipated future revenues from such resort and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could have a material adverse effect on the Company.
See "Business--Insurance, Legal Proceedings."
EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDERS; WESTIN DIRECTOR DESIGNATION
After giving effect to the Stock Offering, the Founders will hold
substantial amounts of shares of Common Stock (Messrs. Kaneko, Gessow and
Kenninger will hold 14.0%, 16.1% and 7.2%, respectively, before consummation
of the Merger and before giving effect to the conversion of the Convertible
Notes) which may allow them, collectively, to exert substantial influence over
the election of directors and the management and affairs of the Company.
Accordingly, if such persons vote their shares of Common Stock in the same
manner, they may have sufficient voting power to determine the outcome of
various matters submitted to the stockholders for approval, including mergers,
consolidations and the sale of substantially all of the Company's assets.
Pursuant to the Westin Agreement, during the term thereof Westin generally
will have the right to designate one member of the Company's Board of
Directors, irrespective of its share ownership in the Company. See "Principal
and Selling Stockholders," "Description of Capital Stock" and "Business--
Westin Vacation Club Resorts." Such control may result in decisions which are
not in the best interest of the Company. In addition, under certain
circumstances, in the event that the Founders collectively own less than 75%
of the shares of Common Stock owned by them immediately following the closing
of the Initial Public Offering and the consummation of the Consolidation
Transactions, and the Common Stock they own thereafter is less than 75% of the
market value of the Common Stock issued to them in the Initial Public
Offering, then the Company's partner in the Poipu Partnership will be entitled
to require the Company to either dispose of its interest or purchase such
partner's interest in the Poipu Partnership pursuant to the terms and
conditions of the partnership agreement.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be in the discretion of the Company's Board of Directors
and will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions in respect of the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
27
<PAGE>
RISK OF TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY; COST OF COMPLIANCE WITH APPLICABLE LAWS
The Company sells Vacation Intervals at its Existing Resorts and will sell
Vacation Intervals at the AVCOM Resorts through independent sales agents. Such
independent sales agents provide services to the Company under contract and,
the Company believes, are not employees of the Company. Accordingly, the
Company does not withhold payroll taxes from the amounts paid to such
independent contractors. Although the Internal Revenue Service has made
inquiries regarding the Company's classification of its sales agents at its
Branson, Missouri resort, no formal action has been taken and the Company has
requested that the inquiry be closed. In the event the Internal Revenue
Service or any state or local taxing authority were to successfully classify
such independent sales agents as employees of the Company, rather than as
independent contractors, and hold the Company liable for back payroll taxes,
such reclassification may have a material adverse effect on the Company.
Additionally, from time to time, potential buyers of Vacation Intervals
assert claims with applicable regulatory agencies against Vacation Interval
salespersons for unlawful sales practices. Such claims could have adverse
implications for the Company in negative public relations and potential
litigation and regulatory sanctions.
LIMITED RESALE MARKET FOR VACATION INTERVALS
The Company sells the Vacation Intervals to buyers for leisure and not
investment purposes. The Company believes, based on experience at its Existing
Resorts and AVCOM's Resorts, that the market for resale of Vacation Intervals
by buyers is presently limited, and that any resales of Vacation Intervals are
typically at prices substantially less than the original purchase price. These
factors may make ownership of Vacation Intervals less attractive to
prospective buyers, and attempts by buyers to resell their Vacation Intervals
will compete with sales of Vacation Intervals by the Company. In addition, the
market price of Vacation Intervals sold by the Company at a given resort or by
its competitors in the market in which each resort is located could be
depressed by a substantial number of Vacation Intervals offered for resale.
RISKS RELATED TO OPERATIONS IN ST. MAARTEN, NETHERLAND ANTILLES
Two of the Existing Resorts are located in St. Maarten, Netherland Antilles,
both of which were acquired by the Company in a foreclosure sale. There are a
number of ongoing disputes with owners who owned units at the Flamingo Beach
Club, including certain claims respecting their obligations to pay for annual
maintenance expenses or whether there are certain entitlements to guaranteed
returns. If such claims are adversely determined against the Company, such
determination may have a material adverse impact on the operation of this
property.
In addition, a portion of the Company's Royal Palm Beach Club resort located
in St. Maarten, Netherlands Antilles, is operated by the Company pursuant to a
long-term ground lease that expires in 2050 and the types of tenant
protections, such as estoppel certificates, which would be provided in the
United States, are not available. Although the Company is unaware of any
circumstances that could cause the early termination of such ground lease
before its scheduled expiration date, any such early termination or
cancellation of the ground lease could have an adverse effect on the Company's
operations. In addition, title insurance is not available in the Netherlands
Antilles. Accordingly, title to the Company's real property and ground lease
with respect to the Flamingo Beach Club and Royal Palm Beach Club resorts are
not insured, may be subject to challenge, and, if successfully challenged,
could result in additional costs to operate these resorts.
POTENTIAL CONFLICTS OF INTEREST
Because affiliates of Messrs. Kaneko and Kenninger have operations in the
lodging industry other than those with respect to the development and
operation of timeshare resorts, potential conflicts of interest exist.
Affiliates of KOAR, which are owned by Messrs. Kaneko and Kenninger, have
developed and currently act as the managing general partner of partnerships
which own five hotels that are franchised as Embassy Suites hotels
28
<PAGE>
(one of which, the Embassy Suites Lake Tahoe, is located in a market served by
the Company) and a residential condominium project overlooking the ocean in
Long Beach, California (a market in which the Company may operate in the
future). Messrs. Kaneko and Kenninger will continue to devote a portion of
their time to KOAR's hotel business and to meeting their duties and
responsibilities to investors in such entities existing prior to the
Consolidation Transactions and the Initial Public Offering.
Additionally, notwithstanding their covenants not to compete, the Founders
have the right to pursue certain activities which could divert their time and
attention from the Company's business and result in conflicts with the
Company's business. The Founders are evaluating the acquisition of other hotel
properties in Hawaii, which at a future date may be converted to accommodate
timeshare operations. See "Management--Employment Agreements," "--Covenants
Not To Compete" and "Business--Future Acquisitions."
RISKS RELATED TO WESTIN AGREEMENT; LIMITED CONTROL OF RESORTS AND TERMINATION
The Westin Agreement may involve certain additional risks to the Company's
future operations. The Westin Agreement imposes certain restrictions on the
Company's ability to develop certain timeshare resorts in conjunction with
hotel operators other than Westin. Generally, the Company is required, subject
to certain exceptions involving Embassy Vacation Resorts and Promus, to submit
for Westin's consideration any "four-star" or "five-star" development
opportunity that the Company has determined to pursue. In the event Westin
determines not to proceed with the Company to develop such resort, the Company
would be free only to develop the resort as a "non-branded" property or as a
property branded as an Embassy Vacation Resort or in conjunction with other
upscale operators, but excluding specified operators of luxury hotels and
resorts. In addition, resorts acquired or developed pursuant to the Westin
Agreement, including the St. John resort, will be owned by partnerships,
limited liability companies or similar entities in which each of Westin and
the Company will own a 50% equity interest and have an equal voice in
management. Accordingly, the Company will not be able to control such resorts
or the applicable entities. In addition, the Westin Agreement will be
terminable by either party if certain thresholds relating to development or
acquisitions of resorts are not met, in the event of certain changes in
management of Westin or the Company or in the event of an acquisition or
merger of either party. Pursuant to the Westin Agreement, Westin and the
Company intend to enter into detailed definitive agreements to implement the
Westin Agreement, including operating agreements. There can be no assurance
that the parties will be able to reach such definitive agreements. See
"Business--Westin Vacation Club Resorts" and "Risk Factors--Effective Voting
Control of Existing Stockholders; Westin Director Designation."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS
Certain provisions of the Company's articles of incorporation (the
"Charter") and bylaws (the "Bylaws"), as well as Maryland corporate law, may
be deemed to have anti-takeover effects and may delay, defer or prevent a
takeover attempt that a stockholder might consider to be in the stockholder's
best interest. For example, such provisions may (i) deter tender offers for
Common Stock, which offers may be beneficial to stockholders or (ii) deter
purchases of large blocks of Common Stock, thereby limiting the opportunity
for stockholders to receive a premium for their Common Stock over then-
prevailing market prices. These provisions include the following:
Preferred Shares. The Charter authorizes the Board of Directors to issue
preferred stock in one or more classes and to establish the preferences and
rights (including the right to vote and the right to convert into Common
Stock) of any class of preferred stock issued. No preferred stock will be
issued or outstanding as of the closing of either of the Offerings. See
"Description of Capital Stock--Preferred Stock."
Staggered Board. The Board of Directors of the Company has three classes of
directors. The terms of the first, second and third classes will expire in
1997, 1998 and 1999, respectively. Directors for each class will be chosen for
a three-year term upon the expiration of the term of the current class,
beginning in 1997. The affirmative vote of two-thirds of the outstanding
Common Stock is required to remove a director.
29
<PAGE>
Maryland Business Combination Statute. Under the Maryland General
Corporation Law ("MGCL"), certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any person
who owns, directly or indirectly, 10% or more of the voting power of the
corporation's shares of capital stock (an "Interested Stockholder") must be
approved by a supermajority (i.e., 80%) of voting shares. In addition, an
Interested Stockholder may not engage in a business combination for five years
following the date he or she became an Interested Stockholder.
Maryland Control Share Acquisition. Maryland law provides that "Control
Shares" of a corporation acquired in a "Control Share Acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the
votes eligible under the statute to be cast on the matter. "Control Shares"
are voting shares of beneficial interest which, if aggregated with all other
such shares of beneficial interest previously acquired by the acquiror, would
entitle the acquiror directly or indirectly to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority or (iii) a majority of all voting power. Control
Shares do not include shares of beneficial interest the acquiring person is
then entitled to vote as a result of having previously obtained stockholder
approval. A "Control Share Acquisition" means the acquisition of Control
Shares, subject to certain exceptions.
If voting rights are not approved at a meeting of stockholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
Control Shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for Control Shares are approved at
a stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares of beneficial interest entitled to vote, all other stockholders may
exercise appraisal rights. See "Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE
Holders who received their shares of Common Stock as a result of the
Consolidation Transactions hold their shares subject to the limitations of
Rule 144 of the Securities Act ("Rule 144"). Such holders have been granted
certain registration rights pursuant to which the Company has agreed to file,
and use its best efforts to cause to become effective as soon as practicable
following February 17, 1997, a shelf registration statement with the
Commission for the purpose of registering the sale of such shares of Common
Stock. Each stockholder who received shares of Common Stock as a result of the
Consolidation Transactions has agreed, with certain exceptions, not to offer,
sell, contract to sell or otherwise dispose of any Common Stock, for a period
of 180 days (one year with respect to the Founders) after the closing of the
Initial Public Offering, which occurred on August 20, 1996 and 90 days after
the closing of the Stock Offering without the prior written consent of
Montgomery Securities (which written consent with respect to the Stock
Offering has been granted to the Selling Stockholders who are participating in
the Stock Offering); one of such exceptions allows the Founders to pledge
between $30 million and $50 million of their Common Stock to secure a margin
loan in a maximum amount of $10 million and another exception allows the
Founders to pledge approximately $5.8 million of their Common Stock in
connection with their buyout of a former partner. The Company and the officers
and directors of the Company who did not receive shares in the Consolidation
Transaction will also agree to a similar 90-day lock-up period. See "Shares
Eligible for Future Sale" and "Underwriting."
Future sales of substantial amounts of Common Stock, or the potential for
such sales, could adversely affect prevailing market prices. See "Shares
Eligible for Future Sale" and "Underwriting."
Sales of substantial amounts of Common Stock in the public market after the
consummation of the Merger could adversely affect prevailing market prices.
The estimated 843,942 shares of Common Stock to be issued in the Merger (based
upon an anticipated closing date of the Merger of February 7, 1997) will be
eligible for immediate sale in the public market, subject to certain
limitations under the Securities Act applicable to affiliates of AVCOM.
Additionally, there are (i) outstanding stock options to purchase 1,750,000
shares of Common Stock which have been granted to executive officers, other
key employees, independent directors and a consultant of the Company under the
1996 Equity Participation Plan (less than 20% of which are presently
exercisable), (ii) up to 500,000 shares of Common Stock that may be sold
pursuant to the Company's Employee Stock Purchase Plan (none of which have
been sold to date) and (iii) shares of Common Stock initially issuable
upon conversion of the Convertible Notes.
30
<PAGE>
CONCURRENT OFFERINGS
Concurrently with the offering of the Common Stock, the Company is
separately offering up to $100 million principal amount of its Convertible
Notes due 2007. The consummation of the Stock Offering is not conditioned upon
the consummation of the Convertible Offering. There can be no assurance that
the Convertible Offering will be consummated and, if so, on what terms.
Failure to consummate the Convertible Offering will adversely affect the
Company's ability to make the lower priority expenditures described under "Use
of Proceeds." See "Use of Proceeds."
31
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,600,000 shares of
Common Stock offered by the Company in the Stock Offering, based on an assumed
public offering price of $36.125 per share, and from the sale of the
$100 million aggregate principal amount of the % Convertible Subordinated
Notes due 2007 offered by the Company in the Convertible Offering, based on an
assumed public offering price of 100% of the principal amount thereof, in each
case after deducting underwriting discounts and estimated expenses of the
Stock Offering and the Convertible Offering, are estimated to be $52.7 million
and $96.7 million, respectively ($60.9 million and $111.3 million,
respectively, if the Underwriters' over-allotment options are exercised in
full). The Stock Offering and the Convertible Offering are not conditioned
upon one another and, therefore, one offering may be consummated, without the
other offering being consummated. See "Risk Factors--Concurrent Offerings."
The Company intends to use the net proceeds of the Offerings in the
following order of priority: (i) approximately $40.4 million to retire
existing indebtedness of the Company, (ii) approximately $21.1 million to
retire existing indebtedness of AVCOM that will be assumed by the Company in
the Merger, (iii) approximately $2.5 million to finance acquisition costs
related to the St. John Villas, and (iv) the balance to complete construction
and expansion at certain Existing Resorts and AVCOM Resorts, to finance the
acquisition and development of additional resorts and timeshare-related
assets, to finance sales of Vacation Intervals, and for working capital and
other general corporate purposes. However, in the event the Convertible
Offering is consummated but the Stock Offering is not consummated, the Company
will not use any of the net proceeds of the Convertible Offering to retire any
existing indebtedness of AVCOM that will be assumed by the Company in the
Merger. Pending any such additional uses, the Company will invest the excess
proceeds in commercial paper, bankers' acceptances, other short-term
investment-grade securities and money-market accounts.
Indebtedness to be repaid out of the net proceeds from the Offerings bears
interest at a weighted average interest rate of approximately 10.7% per annum
and has maturities ranging between February 1997 and January 2007.
Indebtedness to be repaid that was incurred within the last year was incurred
for acquisitions and development of timeshare resorts and for general
corporate purposes. None of the proceeds from the Offerings will be used to
pay any delinquent indebtedness.
The Company will not receive any of the proceeds of the sale of the
2,400,000 shares of Common Stock by the Selling Stockholders.
32
<PAGE>
CONCURRENT OFFERINGS
The Stock Offering is being conducted concurrently with, but is not
conditioned upon, the public offering by the Company of $100 million aggregate
principal amount of its Convertible Notes (without giving effect to the
Underwriters' over-allotment option granted by the Company), at a price to the
public of % per Convertible Note.
This document does not constitute an offer to sell, or a solicitation of an
offer to buy, the Convertible Notes. The Convertible Notes will be registered
under the Securities Act and such securities will be offered only by means of
the related prospectus.
COMMON STOCK PRICE RANGE
The Company's Initial Public Offering of Common Stock was consummated in
August 1996, at an initial public offering price of $14.00 per share. The
Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "SIGR." The following table sets forth, for the periods indicated, the
high and low sale prices for the Common Stock, as quoted on the Nasdaq
National Market.
<TABLE>
<CAPTION>
COMMON STOCK
-------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Third Quarter (commencing August 15, 1996).................. 24 5/8 13 5/8
Fourth Quarter.............................................. 39 1/8 25
YEAR ENDING DECEMBER 31, 1997:
First Quarter (through January 27, 1997).................... 38 31
</TABLE>
A recent reported last sales price for the Company's Common Stock as quoted
on the Nasdaq National Market is set forth on the cover of this Prospectus. On
January 8, 1997, there were approximately 73 holders of record of the
Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be at the discretion of the Board of Directors of the
Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect of the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
33
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth, as of September 30, 1996, the total
consolidated capitalization of the Company on (i) an actual basis, (ii) as
adjusted to give effect to the Merger, (iii) as adjusted to give effect to the
sale of Common Stock offered in the Stock Offering and the application of the
estimated net proceeds to the Company therefrom, (iv) as adjusted to give
effect to the sale of the Convertible Notes offered in the Convertible
Offering and the application of the estimated net proceeds to the Company
therefrom and (v) as adjusted to give effect to both the Stock Offering and
the Convertible Offering. This table should be read in conjunction with the
historical and pro forma financial statements of the Company and the related
notes thereto included elsewhere in this Prospectus. See "Use of Proceeds,"
"Selected Consolidated Historical Financial Information of the Company" and
"Pro Forma Financial Information."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------------------------
AS ADJUSTED
AS AS ADJUSTED FOR THE MERGER AS ADJUSTED
ADJUSTED FOR THE MERGER AND THE FOR THE MERGER
FOR THE AND THE STOCK CONVERTIBLE AND THE
ACTUAL MERGER(1) OFFERING(2) OFFERING(3) OFFERINGS(4)
-------- --------- -------------- -------------- --------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Debt:
Notes payable to
financial
institutions(5)...... $ 81,145 $134,051 $112,951 $ 93,651 $ 72,551
% Convertible
Subordinated Notes
due 2007............. -- -- -- 100,000 100,000
-------- -------- -------- -------- --------
Total debt.......... 81,145 134,051 112,951 193,651 172,551
Stockholders' equity:
Common Stock, $0.01
par value;
17,392,205 shares
issued and
outstanding,
18,236,147 as
adjusted for the
Merger and 19,836,147
as adjusted for the
Stock Offering(6).... 174 182 198 182 198
Additional paid-in
capital.............. 98,515 100,747 153,401 100,747 153,401
Retained earnings..... 1,426 2,952 2,952 2,952 2,952
-------- -------- -------- -------- --------
Total stockholders'
equity............... 100,115 103,881 156,551 103,881 156,551
-------- -------- -------- -------- --------
Total
capitalization..... $181,260 $237,932 $269,502 $297,532 $329,102
======== ======== ======== ======== ========
</TABLE>
- --------
(1) The adjustments for the Merger represent the historical financial
statements of AVCOM. These adjustments assume the Merger will be accounted
for using the pooling-of-interests method of accounting. See "Risk
Factors--Rights Related to the Proposed Merger--Accounting Treatment."
(2) Adjusted to give effect to the sale by the Company of 1,600,000 shares of
Common Stock offered in the Stock Offering at an assumed offering price of
$36.125 per share, less the underwriting discount and the payment by the
Company of the estimated offering expenses.
(3) Adjusted to give effect to the sale by the Company of $100 million of
Convertible Notes offered in the Convertible Offering at an assumed
offering price of 100% of their principal amount, less the underwriting
discount and the payment by the Company of the estimated offering
expenses.
(4) As adjusted to give effect to both the Stock Offering and the Convertible
Offering described in notes (2) and (3) above and the Merger.
(5) Includes notes collateralized by notes receivable.
(6) Does not include an aggregate of 1,750,000 shares of Common Stock reserved
for issuance upon exercise of options granted pursuant to the Company's
1996 Equity Participation Plan, 500,000 shares of Common Stock reserved
for issuance pursuant to the Employee Stock Purchase Plan, 240,000 shares
of Common Stock which the Underwriters may purchase pursuant to the over-
allotment option granted to them by the Company and shares of Common
Stock initially issuable upon conversion of the Convertible Notes. See
"Management--1996 Equity Participation Plan" and "--Employee Stock
Participation Plan" and "Underwriting."
34
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary consolidated historical financial
information of the Company. For periods ending prior to September 30, 1996,
the financial information presented below combines each of the Company's
predecessor limited partnerships, limited liability companies and other
affiliated corporations that were combined into the Company in the
Consolidation Transactions. The following financial information does not give
effect to the proposed acquisition of AVCOM. Such information should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
for the Company and the notes thereto which are contained elsewhere in this
Prospectus. Due to seasonality, other market factors and additions to the
number of the Company's resorts, the combined historical and pro forma results
for the nine months ended September 30, 1995 and 1996 are not necessarily
indicative of results for a full year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ----------------------
1992 1993 1994 1995 1995 1996
------- -------- -------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Vacation Interval
sales................. $11,328 $ 22,238 $ 40,269 $ 59,071 $ 46,385 $ 49,459
Interest income........ 402 1,825 3,683 6,929 4,669 6,627
Other income........... 115 373 338 6,608 2,641 7,646
------- -------- -------- -------- ---------- ----------
Total revenues......... 11,845 24,436 44,290 72,608 53,695 63,732
Costs and operating
expenses:
Vacation Interval cost
of sales.............. 2,999 5,708 12,394 15,650 12,547 11,255
Advertising, sales and
marketing............. 4,734 10,809 18,745 28,488 22,429 24,408
Loan portfolio
Interest expense--
treasury............. 168 674 1,629 3,586 2,533 4,022
Other expenses........ 50 208 851 1,189 758 1,048
Provisions for
doubtful accounts.... 555 619 923 1,787 1,471 1,372
General and
administrative
Resort-level.......... 665 2,346 2,864 4,947 2,760 4,961
Corporate............. 375 877 874 1,607 1,130 2,428
Depreciation and
amortization.......... 209 384 489 1,675 1,158 1,675
Interest expense--
other................. -- 518 959 476 344 1,868
------- -------- -------- -------- ---------- ----------
Total costs and
operating expenses.... 9,755 22,143 39,728 59,405 45,130 53,037
Net operating income... 2,090 2,293 4,562 13,203 8,565 10,695
Equity loss on
investment in joint
venture............... -- -- 271 1,649 1,293 95
------- -------- -------- -------- ---------- ----------
Net income before
taxes................. 2,090 2,293 4,291 11,554 7,272 10,600
Income taxes........... -- -- -- 641 210 539
------- -------- -------- -------- ---------- ----------
Net income............. $ 2,090 $ 2,293 $ 4,291 $ 10,913 $ 7,062 $ 10,061
======= ======== ======== ======== ========== ==========
Pro forma net
income(a)............. 1,301 1,414 2,674 7,206 4,533 6,608
Pro forma net income
per share of common
stock(a).............. -- -- -- -- .40 .54
Pro forma weighted
average number of
shares of common stock
outstanding........... -- -- -- -- 11,354,705 12,321,759
OTHER DATA:
Ratio of earnings to
fixed charges(b)....... 4.23 2.00 1.82 2.77 2.56 2.07
Pro forma ratio of
earnings to fixed
charges(c)............. -- -- -- 3.48 -- 2.27
EBITDA(d)............... $ 2,467 $ 3,869 $ 7,368 $ 17,291 $ 11,307 $ 18,165
Cash flows provided by
(used in)
Operating activities... (6,166) (3,262) (10,964) 2,304 4,345 (21,851)
Investing activities... (51) (10,776) (24,940) (36,919) (31,382) (27,390)
Financing activities... 5,146 15,341 36,134 37,102 30,121 54,744
Number of resorts at
period end............. 1 3 4 7 7 9
Number of Vacation
Intervals sold(e)...... 1,284 2,442 4,482 5,675 4,321 5,157
Numbers of Vacation
Intervals in
inventory(e)........... 1,164 1,233 2,401 20,270 18,020 22,509
Average price of
Vacation Intervals
sold(e)................ $ 8,822 $ 9,106 $ 8,985 $ 11,353 $ 11,196 $ 13,223
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash, including cash in
escrow................. $ 850 $ 2,567 $ 4,282 $ 6,288 $ 6,757 $ 11,339
Total assets............ 18,739 38,230 82,454 138,085 126,643 214,529
Long-term debt.......... 9,696 22,931 44,415 84,738 75,066 81,145
Stockholders' equity.... 7,439 11,838 30,780 38,470 37,312 100,115
</TABLE>
35
<PAGE>
- --------
(a) Reflects the effect on historical statement of operations data, assuming
the combined Company had been treated as a C corporation rather than as
individual limited partnerships and limited liability companies for
federal income tax purposes.
(b) The ratio of earnings to fixed charges has been computed by dividing
earnings before income tax plus fixed charges (excluding capitalized
interest) and amortization of previously capitalized interest by fixed
charges. Fixed charges consist of interest and other finance expenses and
capitalized interest.
(c) The pro forma ratio of earnings to fixed charges has been computed as
described in (b) above after giving effect to the net decrease in interest
expense resulting from the portion of the Convertible Offering used to
retire existing indebtedness of the Company. See "Use of Proceeds."
(d) As shown below, EBITDA represents net income before interest expense,
income taxes and depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness. However, EBITDA should not be
construed as an alternative to net income as a measure of the Company's
operating results or to operating cash flow as a measure of liquidity. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ---------------
1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income.................. $2,090 $2,293 $4,291 $10,913 $ 7,062 $10,061
Interest expense--treasury.. 168 674 1,629 3,586 2,533 4,022
Interest expense--other..... -- 518 959 476 344 1,868
Taxes....................... -- -- -- 641 210 539
Depreciation and
amortization............... 209 384 489 1,675 1,158 1,675
------ ------ ------ ------- ------- -------
EBITDA...................... $2,467 $3,869 $7,368 $17,291 $11,307 $18,165
====== ====== ====== ======= ======= =======
</TABLE>
(e) Includes the effect of sales or inventory of Vacation Intervals at the
Company's non-consolidated resort (the Embassy Vacation Resort Poipu
Point).
36
<PAGE>
SELECTED FINANCIAL DATA OF AVCOM INTERNATIONAL, INC.
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The statements of operations for the years ended December 31, 1993, 1994 and
1995 and the balance sheet data as of December 31, 1994 and 1995 are derived
from AVCOM's consolidated financial statements and notes thereto which have
been audited by Ernst & Young LLP, independent public accountants, and are
included elsewhere in this Prospectus. The statement of operations for the
year ended December 31, 1992 and the balance sheet data as of December 31,
1993 are derived from AVCOM's consolidated financial statements which have
been audited by Ernst & Young LLP, independent public accountants, which are
not included in this Prospectus. The statements of operations and the balance
sheet data as of and for the nine months ended September 30, 1995 and 1996,
the balance sheet data as of December 31, 1991 and December 31, 1992 and the
statement of operations for the year ended December 31, 1991 have been derived
from unaudited financial statements that in the opinion of AVCOM's management
reflects all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial information for such periods and of
such dates. The selected consolidated financial data presented below should be
read in conjunction with AVCOM's consolidated financial statements, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS:
Revenues:
Sales of Vacation
Intervals............ $6,416 $9,301 $ 14,481 $ 24,130 $ 33,231 $ 24,821 $ 30,411
Timeshare management.. -- 62 452 650 1,256 962 1,059
Contract commission
revenue.............. -- -- -- -- -- -- 497
Gain on sale of notes
receivable........... -- 48 167 571 566 564 77
Health club revenue... -- -- -- -- -- -- 375
Other................. -- 53 99 66 193 137 250
------ ------ --------- --------- --------- --------- ---------
Total revenues........ 6,416 9,464 15,199 25,417 35,246 26,484 32,669
Costs and operating
expenses:
Cost of Vacation
Intervals sold....... 1,676 2,203 3,548 6,792 11,081 7,682 8,744
Marketing and selling. 3,212 4,703 6,950 12,232 13,920 11,232 15,117
Timeshare management.. -- 30 547 743 1,571 1,023 1,769
Contract marketing and
selling.............. -- -- -- -- -- -- 974
Health club expenses.. -- -- -- -- -- -- 572
General and
administrative....... 323 800 1,621 3,034 4,780 3,256 6,229
Resort property
valuation allowance.. -- -- -- -- -- -- 839
Provision for doubtful
accounts............. 322 103 251 371 792 212 1,055
------ ------ --------- --------- --------- --------- ---------
Total costs and
operating expenses... 5,533 7,839 12,917 23,172 32,144 23,405 35,299
Operating income
(loss)............... 883 1,625 2,282 2,245 3,102 3,079 (2,630)
Minority interest in
consolidated limited
partnership.......... -- -- -- -- -- -- (112)
Interest and financing
costs................ (42) (422) (335) (809) (1,818) (1,122) (2,944)
Interest income....... 35 184 236 180 594 253 2,396
------ ------ --------- --------- --------- --------- ---------
Income (loss) before
income taxes......... 876 1,387 2,183 1,616 1,878 2,210 (3,290)
Income taxes
(benefit)............ 0 12 1,970 695 838 936 (1,316)
------ ------ --------- --------- --------- --------- ---------
Net income (loss)..... $ 876 $1,375 $ 213 $ 921 $ 1,040 $ 1,274 $ (1,974)
====== ====== ========= ========= ========= ========= =========
Cumulative preferred
stock dividends...... -- -- -- 105 105 79 79
------ ------ --------- --------- --------- --------- ---------
Net income (loss)
available for holders
of Common Stock...... -- -- -- 816 935 1,195 (2,053)
====== ====== ========= ========= ========= ========= =========
Earnings (loss) per
share of Common Stock
(pro forma in
1993)(a)............. -- -- 0.27 0.16 0.17 0.22 (0.41)
Weighted average
number of shares of
common stock and
common stock
equivalents (pro
forma in 1993)....... -- -- 4,682,507 4,942,759 5,554,089 5,530,669 4,987,080
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
-------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(b)............... $ 1,052 $ 1,825 $ 2,574 $ 2,571 $ 3,881 $ 3,463 $ 502
Cash flows provided by
(used in):
Operating activities... 291 (1,552) 2,907 291 3,564 3,101 1,327
Investing activities... (43) (1,742) (2,197) (1,926) (13,413) (9,009) (17,904)
Financing activities... (247) 3,281 (183) 1,046 11,378 6,164 15,735
Number of existing
resorts at period end.. 1 2 2 4 4 4 9
Number of Vacation
Intervals sold......... 605 922 1,061 1,987 2,304 1,809 1,994
Number of Vacation
Intervals in inventory. 1,078 2,196 1,135 3,868 1,995 2,322 4,585
Average price of
Vacation Intervals..... $10,609 $10,693 $13,650 $12,140 $ 14,420 $ 13,720 $ 15,250
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash, including cash in
escrow................. 64 62 589 1,026 1,807 486 687
Total assets............ 2,658 7,245 8,459 20,852 35,934 31,380 78,283
Long-term debt
(including capitalized
leases)................ 82 4,040 3,454 12,960 23,453 18,540 52,906
Stockholders' equity(c). 1,078 1,819 2,514 3,415 5,340 5,673 3,766
</TABLE>
- --------
(a) See Footnote 1 to AVCOM's consolidated financial statements.
(b) As shown below, EBITDA represents net income (loss) before interest
expense, income taxes and depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. However, EBITDA
should not be construed as an alternative to net income as a measure of
AVCOM's operating results or to operating cash flow as a measure of
liquidity. The following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)......... $ 876 $1,375 $ 213 $ 921 $1,040 $1,274 $(1,974)
Interest and financing
costs.................... 42 422 335 809 1,818 1,122 2,944
Taxes..................... 0 12 1,970 695 838 936 (1,316)
Depreciation and
amortization............. 134 16 56 146 185 131 848
------ ------ ------ ------ ------ ------ -------
EBITDA...................... $1,052 $1,825 $2,574 $2,571 $3,881 $3,463 $ 502
====== ====== ====== ====== ====== ====== =======
</TABLE>
(c) Partners' capital for 1991 and 1992.
38
<PAGE>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma statements of operations data set forth below for the year
ended December 31, 1995 and for the nine month periods ended September 30,
1995 and 1996 give effect, individually and in the aggregate, to the
following: (i) the Consolidation Transactions and the Initial Public Offering
and (ii) the Merger, in each case, as if each had occurred at the beginning of
the period. The pro forma adjustments are based upon currently available
information and certain assumptions that management of the Company believes
are reasonable under current circumstances.
PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------
CONSOLIDATION
TRANSACTIONS/
INITIAL
COMPANY PUBLIC THE COMPANY
ACTUAL OFFERING(a) MERGER(b) PRO FORMA
---------- ------------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval sales.... $ 59,071 $ -- $33,231 $ 92,302
Interest income............ 6,929 -- 594 7,523
Other income............... 6,608 320 (c) 444 7,372
---------- --------- ------- ----------
Total revenues........... 72,608 320 34,269 107,197
---------- --------- ------- ----------
Costs and Operating Expenses
Vacation Interval cost of
sales..................... 15,650 (64)(d) 11,081 26,667
Advertising, sales and
marketing................. 28,488 -- 13,920 42,408
Loan portfolio
Interest expense......... 3,586 (3,586)(d) 518 518
Other expenses........... 1,189 (115)(d) -- 1,074
Provision for doubtful
accounts................ 1,787 -- 792 2,579
General and administrative
Resort-level............. 4,947 -- -- 4,947
Corporate................ 1,607 -- 4,595 6,202
Depreciation and
amortization.............. 1,675 -- 185 1,860
Other interest expense..... 476 (476)(d) 1,300 1,300
---------- --------- ------- ----------
Total costs and operating
expenses................ 59,405 (4,241) 32,391 87,555
---------- --------- ------- ----------
Net operating income......... 13,203 4,561 1,878 19,642
Loss (gain) on equity
investment................ 1,649 155 (e) -- 1,804
---------- --------- ------- ----------
Income before taxes 11,554 4,406 1,878 17,838
Income taxes............... 641 5,656 (f) 838 7,135
---------- --------- ------- ----------
Net income................... $ 10,913 $ (1,250) $ 1,040 $ 10,703
========== ========= ======= ==========
Pro forma net income per
share of Common Stock....... $ 0.96 $ 0.59
Pro forma weighted average
number of shares of Common
Stock outstanding........... 11,354,705 6,037,500 843,942(g) 18,236,147
</TABLE>
- -------
(a) Reflects the Initial Public Offering of 6,037,500 shares of Common Stock.
(b) The pro forma adjustments for the Merger assume pooling-of-interests
accounting and reflect the historical statement of operations of AVCOM for
the year ended December 31, 1995.
(c) Reflects increase in interest income due to the purchase of loans from
certain combining interests of $2.7 million relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(d) Reflects the following: (i) the elimination or reduction of interest
expense due to the retirement of $53.5 million of debt; (ii) the reduction
of Vacation Interval cost of sales due to the reduction of capitalized
interest related to the retirement of debt; and (iii) the elimination of
financing fees on advances not required as a result of the debt
retirement. The average interest rate on the debt retired was 10.82%.
(e) Reflects the increase of goodwill amortization on the purchase of a joint
venture interest.
(f) Reflects the effect on 1995 historical statement of operations data of
(c)-(e) above and assumes the combined Company had been treated as a
C corporation rather than as limited partnerships and limited liability
companies for federal income tax purposes.
(g) Represents the number of shares estimated to be issued in connection with
the Merger based upon an anticipated closing date of the Merger of
February 7, 1997.
39
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS DATA
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------------------------------------- ---------------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS
------------------------- --------------------------
CONSOLIDATION
TRANSACTIONS/ CONSOLIDATION
INITIAL TRANSACTIONS/
COMPANY PUBLIC THE COMPANY COMPANY INITIAL PUBLIC THE COMPANY
ACTUAL OFFERING(a) MERGER(b) PRO FORMA ACTUAL OFFERING(A) MERGER(b) PRO FORMA
---------- ------------- --------- ---------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval
sales................. $ 46,385 $ -- $24,821 $ 71,206 $ 49,459 $ -- $30,411 $ 79,870
Interest income........ 4,669 -- 253 4,922 6,627 -- 2,396 9,023
Other income........... 2,641 240 (c) 640 3,521 7,646 210 (c) (1,057) 6,799
---------- --------- ------- ---------- ---------- --------- ------- ----------
Total revenues......... 53,695 240 25,714 79,649 63,732 210 31,750 95,692
Costs and operating
expenses:
Vacation Interval cost
of sales.............. 12,547 (50)(d) 7,682 20,179 11,255 (50)(d) 8,744 19,949
Advertising, sales and
marketing............. 22,429 -- 11,232 33,661 24,408 -- 15,117 39,525
Loan portfolio
Interest expense..... 2,533 (2,533)(d) 78 78 4,022 (2,212)(d) 1,349 3,159
Other expenses....... 758 (90)(d) -- 668 1,048 (66)(d) -- 982
Provision for
doubtful accounts... 1,471 -- 212 1,683 1,372 -- 1,055 2,427
General and
administrative
Resort-level......... 2,760 -- -- 2,760 4,961 -- -- 4,961
Corporate............ 1,130 -- 3,125 4,255 2,428 -- 5,458 7,886
Depreciation and
amortization.......... 1,158 -- 131 1,289 1,675 -- 771 2,446
Other interest
expense............... 344 (344)(d) 1,044 1,044 1,868 (1,840)(d) 1,595 1,623
---------- --------- ------- ---------- ---------- --------- ------- ----------
Total costs and
operating expenses.... 45,130 (3,017) 23,504 65,617 53,037 (4,168) 34,089 82,958
Net operating income.... 8,565 3,257 2,210 14,032 10,695 4,378 (2,339) 12,734
Loss (Gain) on equity
investment ........... 1,293 62 (e) -- 1,355 95 390 (e) -- 485
Minority interest in
profits of limited
partnership........... -- -- -- -- -- -- 112 112
Resort property
valuation allowance... -- -- -- -- -- -- 839 839
---------- --------- ------- ---------- ---------- --------- ------- ----------
Income before taxes..... 7,272 3,195 2,210 12,677 10,600 3,988 (3,290) 11,298
Income taxes........... 210 3,925 (f) 936 5,071 539 5,296 (f) (1,316) 4,519
---------- --------- ------- ---------- ---------- --------- ------- ----------
Net income.............. $ 7,062 $ (730) $ 1,274 $ 7,606 $ 10,061 $ (1,308) $(1,974) $ 6,779
========== ========= ======= ========== ========== ========= ======= ==========
Pro forma net income per
share of Common Stock.. $ 0.62 $ 0.42 $ 0.82 $ 0.37
Pro forma weighted
average of number of
shares of Common Stock
outstanding............ 11,354,705 6,037,500 (g) 843,942(h) 18,236,147 12,321,759 5,173,077 (g) 843,942 (h) 18,338,778
</TABLE>
- -------
(a) The consolidated pro forma statements of operations all give effect to the
exchange of direct and indirect interest in, and obligations of, certain
predecessor limited partnerships, limited liability companies and
corporations for shares of the Company's Common Stock in the Consolidation
Transactions as if it had occurred at the beginning of the period
indicated. The Consolidation Transactions were consummated concurrently
with the Initial Public Offering in August 1996. The pro forma adjustments
are based upon currently available information and certain assumptions that
the Company's management believes are reasonable under current
circumstances.
(b) The pro forma adjustments for the Merger assume pooling-of-interests
accounting and reflect the historical statements of operations data for
AVCOM.
(c) Reflects increase in interest income due to the assumption of notes
receivable in the Consolidation Transactions of $2.7 million. Such notes
bear interest at a rate of 12% per annum.
(d) Reflects the following: (i) the elimination or reduction of interest
expense due to the retirement of $54.3 million of debt retirement with
respect to the period ended September 30, 1996; (ii) the reduction of
Vacation Interval cost of sales due to the reduction of capitalized
interest related to the retirement of construction debt; and (iii) the
elimination of financing fees on advances not required as a result of the
debt retirement. The average interest rate on a per annum basis on the debt
retired was 11.5% for the nine months ended September 30, 1996.
(e) Reflects the increase in goodwill amortization on the purchase of a joint
venture interest.
(f) Reflects the effects on historical statements of operations data of (c)-(e)
above and assumes the combined Company had been treated as a C corporation
rather than as individual limited partnerships and limited liability
companies for federal income tax purposes.
(g) Reflects the Initial Public Offering of 6,037,500 shares and approximately
1,750,000 options granted to employees and directors to acquire shares
issued during the nine months ended September 30, 1996.
(h) Includes the estimated number of shares that will be issued in connection
with the Merger based upon an anticipated closing date of the Merger of
February 7, 1997.
40
<PAGE>
The pro forma balance sheet data set forth below at September 30, 1996 give
effect to the Merger as if it had occurred on September 30, 1996. The pro
forma adjustments are based upon currently available information and certain
assumptions that management of the Company believes are reasonable under
current circumstances.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------
PRO FORMA
COMPANY THE COMPANY
ACTUAL MERGER(a) PRO FORMA
-------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents..................... $ 9,844 $ 687 $ 10,531
Cash in escrow................................ 1,495 -- 1,495
Mortgages receivable.......................... 87,956 36,659 124,615
Due from related parties...................... 4,567 1,320 5,887
Other receivables, net........................ 8,249 1,037 9,286
Prepaid expenses and other assets............. 2,275 5,225 7,500
Investment in joint venture................... 7,538 -- 7,538
Real estate and development costs............. 85,030 26,705 111,735
Property and equipment, net................... 2,733 5,580 8,313
Intangible assets, net........................ 4,842 470 5,312
Investment in common stock.................... -- 600 600
-------- ------- --------
Total assets.............................. $214,529 $78,283 $292,812
======== ======= ========
LIABILITIES AND EQUITY:
Accounts payable.............................. $ 7,903 $ 9,665 $ 17,568
Accrued liabilities........................... 11,766 8,383 20,149
Due to related parties........................ 1,632 354 1,986
Income taxes payable.......................... 569 -- 569
Deferred taxes................................ 11,399 1,597 12,996
Notes payable to financial institutions....... 81,145 52,906 134,051
-------- ------- --------
Total liabilities............................. 114,414 72,905 187,319
Minority interest in consolidated limited
partnership.................................. -- 1,612 1,612
Equity........................................ 100,115 3,766 103,881
-------- ------- --------
Total liabilities and equity.............. $214,529 $78,283 $292,812
======== ======= ========
</TABLE>
- --------
(a) The pro forma adjustments for the Merger represent the historical
financial statements of AVCOM. These adjustments assume that the Merger
will be accounted for using the pooling of interests method of accounting.
See "Risk Factors--Risks Related to the Proposed Merger--Accounting
Treatment."
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Signature Resorts, Inc. was formed in May 1996 to combine the ownership of
the Existing Resorts and the timeshare acquisition and development business of
the Company's predecessors. The Company generates revenues from the sale and
financing of Vacation Intervals in resorts, which typically entitle the buyer
to the use in perpetuity of a fully-furnished vacation resort in perpetuity,
generally for a one-week period each year. The Company generates additional
revenues from room rental operations, rentals of Vacation Intervals in Company
inventory and from fees associated with managing the resorts.
As part of its growth and acquisition strategy, the Company in September 1996
entered into the Merger Agreement to acquire AVCOM, the parent company of All
Seasons, a developer, marketer and operator of timeshare resorts in Arizona,
California and Texas. AVCOM currently operates nine resorts, which include two
under construction, and a tenth resort in which AVCOM holds a partial interest.
Five of AVCOM's resorts are located in Sedona, Arizona, two are located in
South Lake Tahoe, California and one resort is located in each of Lake
Arrowhead, California, Lake Conroe (near Houston), Texas, and Scottsdale,
Arizona. AVCOM currently sells Vacation Intervals at six of its ten resorts,
sales at three resorts have been substantially completed and sales at one
resort have yet to commence. The Company anticipates that the Merger will be
consummated in February 1997, assuming all conditions to closing are timely
satisfied. See "The Proposed Merger" and "Risk Factors--Risks Related to the
Proposed Merger."
The Company recognizes sales of Vacation Intervals on an accrual basis after
a binding sales contract has been executed between the Company and the proposed
buyer, a 10% minimum down payment has been received, the rescission period has
expired, construction is substantially complete, and certain minimum sales
levels are achieved. If all the criteria are met, except that construction is
not substantially complete, revenues are recognized on the percentage-of-
completion basis. Costs associated with the acquisition and development of
timeshare resorts, including carrying costs such as interest and taxes, are
capitalized as real estate and development costs and allocated as Vacation
Interval cost of sales as the respective revenue is recognized. The Company's
investment in the Embassy Vacation Resort Poipu Point is accounted for using
the equity method and reflected on the balance sheet as "Investment in joint
venture" and on the income statement as "Equity loss on investment in joint
venture."
RESULTS OF OPERATIONS
The following discussion of the results of operations relates to entities
comprising the Company on a combined historical basis. The results of
operations only reflect operations of entities in existence for each respective
reporting year. The following table sets forth certain operating information
for the entities comprising the Company.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------
1993 1994 1995 1995 1996
-------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
AS A PERCENTAGE OF TOTAL
REVENUES
Vacation Interval sales......... 91.0% 90.9% 81.4% 86.4% 77.6%
Interest income................. 7.5% 8.3% 9.5% 8.7% 10.4%
Other income.................... 1.5% 0.8% 9.1% 4.9% 12.0%
-------- -------- -------- ------ ------
Total Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ====== ======
AS A PERCENTAGE OF VACATION
INTERVAL SALES
Vacation Interval cost of sales. 25.7% 30.8% 26.5% 27.1% 22.8%
Advertising, sales and
marketing...................... 48.6% 46.5% 48.2% 48.4% 49.4%
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
----------------------- ------------------
1993 1994 1995 1995 1996
------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF INTEREST INCOME
Loan Portfolio:
Interest expense--treasury...... 36.9% 44.2% 51.8% 54.2% 60.7%
Other expenses.................. 11.4% 23.1% 17.2% 16.2% 15.8%
AS A PERCENTAGE OF TOTAL REVENUES
Provision for doubtful accounts... 2.5% 2.1% 2.5% 2.7% 2.2%
General and administrative........ 13.2% 8.4% 9.0% 7.2% 11.6%
Depreciation and amortization..... 1.6% 1.1% 2.3% 2.2% 2.6%
Interest expense--other........... 2.1% 2.2% 0.7% 0.6% 2.9%
Equity loss on investment in joint
venture.......................... -- 0.6% 2.3% 2.4% 0.0%
Total costs and operating
expenses......................... 88.5% 87.5% 81.2% 83.4% 80.3%
SELECTED OPERATING DATA:
Vacation Intervals sold at
Existing Resorts(1).............. 2,442 4,482 5,675 4,321 5,157
Vacation Intervals sold at
Consolidated Resorts(2).......... 2,442 4,482 5,394 4,209 4,233
Vacation Intervals sold at non-
branded resorts(3)............... 2,442 4,482 3,871 2,961 3,226
Vacation Intervals sold at Embassy
Vacation Resorts(4).............. -- -- 1,804 1,360 1,931
Average sales price per Vacation
Interval at Consolidated
Resorts(5)....................... $9,106 $8,985 $10,953 $ 11,020 $ 11,684
Average sales price per Vacation
Interval at non-branded
resorts(6)....................... $9,106 $8,985 $10,120 $ 10,265 $ 10,757
Average sales price per Vacation
Interval at Embassy Vacation
Resorts(7)....................... -- -- $13,999 $ 13,222 $ 17,343
Number of Vacation Intervals in
inventory at period-end(8)....... 1,233 2,401 20,270 18,020 22,509
</TABLE>
- --------
(1) Reflects Vacation Intervals sold at the Company's Existing Resorts:
Cypress Pointe Resort, Plantation at Fall Creek, Royal Dunes Resort, Royal
Palm Beach Club, Flamingo Beach Club, San Luis Bay Resort, Embassy
Vacation Resort Grand Beach, and Embassy Vacation Resort Poipu Point.
Embassy Vacation Resort Lake Tahoe sales during the third quarter are not
presented because there were none eligible for accrual under the
percentage of completion method.
(2) Reflects Vacation Intervals sold at the Company's Existing Resorts, with
the exception of Vacation Intervals sold at the Embassy Vacation Resort at
Poipu Point in which the Company holds a partial interest and is accounted
for by the Company under the equity method (the "Consolidated Resorts").
(3) Reflects Vacation Intervals sold at the Company's non-branded resorts.
(4) Reflects Vacation Intervals sold at the Embassy Vacation Resort Grand
Beach and 112 Vacation Intervals sold at the non-consolidated Embassy
Vacation Resort Poipu Point for the nine months ended September 30, 1995
and 924 Vacation Intervals sold for the nine months ended September 30,
1996, respectively.
(5) Reflects average price achieved on sales of Vacation Intervals at
Consolidated Resorts.
(6) Reflects average price achieved on sales of Vacation Intervals at non-
branded resorts.
(7) Reflects average price achieved on sales of Vacation Intervals at Embassy
Vacation Resorts.
(8) Reflects Vacation Interval inventory at all Existing Resorts.
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Comparison of the nine months ended September 30, 1996 to the nine months
ended September 30, 1995. For the nine months ended September 30, 1996, the
Company achieved total revenue of $63.7 million compared to $53.7 million for
the nine months ended September 30, 1995, an increase of $10.0 million or 19%.
Total revenue grew primarily due to a 7% increase in Vacation Interval sales
to $49.5 million from $46.4 million, a 40% increase in interest income to $6.6
million from $4.7 million, and a 192% increase in resort operations and other
income to $7.6 million from $2.6 million during the nine months ended
September 30, 1996 as compared to the comparable period in 1995, respectively.
A complete nine months of Vacation Interval sales at Royal Palm and Flamingo
Beach Club, and the commencement of sales at the San Luis Bay Resort in June
1996 drove the 7% increase in Vacation Interval sales volume at the
Consolidated Resorts.
For the nine months ended September 30, 1996 Vacation Interval sales at the
Existing Resorts grew to $68.2 million from $48.4 million for the comparable
period in 1995, an increase of 41%. Vacation Interval sales at the
Consolidated Resorts increased 7% to $49.5 million and from $46.4 million for
the comparable period in 1995. The average price of Vacation Intervals sold at
the Consolidated Resorts, grew during the period to $11,684 from $11,020, an
increase of 6%. The number of Vacation Intervals sold at the Consolidated
Resorts increased during the period approximately 1% to 4,233 from 4,209.
Management attributes the increase in Vacation Intervals sold to commencement
of sales of Vacation Intervals at the San Luis Bay Resort and increasingly
more effective marketing programs.
Vacation Interval sales at non-branded resorts increased 9% to 3,226 for the
nine months ended September 30, 1996 from 2,961 for 1995. Average sales price
per Vacation Interval at non-branded resorts increased by 5% to $10,757 in
1996 from $10,265 in 1995. These increases are attributed to the commencement
of sales of Vacation Intervals at the San Luis Bay Resort in June 1996 and
increasingly more effective marketing programs.
Vacation Interval sales at Embassy Vacation Resorts, increased 42% to 1,931
in the first nine months of 1996 from 1,360 in the first nine months of 1995
while the average price per Vacation Interval increased 31% to $17,343 in the
first nine months of 1996 from $13,222 in the first nine months of 1995. These
increases primarily resulted from a full nine months of sales at the Embassy
Vacation Resort Poipu Point, as the resort was not in operation for the entire
nine months ended September 30, 1995.
Interest income increased by 40% to $6.6 million in the first nine months of
1996 from $4.7 million in the first nine months of 1995 due to a $22.9 million
increase in mortgages receivables, which grew to $88.0 million at September
30, 1996 from $65.1 million at December 31, 1995, an increase of 35% coupled
with increased interest rates and a full year of interest income on all
properties.
Other income increased by $5.0 million to $7.6 million during the nine
months ended September 30, 1996 from $2.6 million during the nine months ended
September 30, 1995. This increase was the result of rental income at the
resorts increasing to $1.2 million from $0.7 million in 1995, and the
acquisition of a mortgage receivable portfolio in July, 1995 on which the
Company earned $2.9 million during the 1996 nine months and $1.3 million
during the 1995 nine months.
Operating costs increased to $51.2 million for the nine months ended
September 30, 1996 from $44.8 million for the nine months ended September 30,
1995, an increase of 14%. However, as a percentage of revenues, operating
costs decreased to 80% during the nine months ended September 30, 1996 from
83% during the nine months ended September 30, 1995. Relative decreases in
Vacation Interval cost of sales and other expenses as a percentage of revenues
were offset by relative increases in advertising, sales, marketing, and
interest expense-treasury, depreciation and amortization and general and
administrative expenses. The Company was able to purchase and construct
Vacation Intervals at a discount to historical development costs, reducing the
unit cost on average for each Vacation Interval sold. This, coupled with an
increase in average sales price per unit, has resulted in a proportionate
decrease in costs of Vacation Intervals sold to 23% of Vacation Interval sales
during the nine months ended September 30, 1996 from 27% of Vacation Interval
sales during the nine months ended September 30, 1995.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased to $6.4 million during the nine
months ended September 30, 1996 from $4.8 million during the nine
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months ended September 30, 1995, an increase of 33%. This increase reflects
the 57% increase in average mortgages payable due to increased factoring of
mortgages receivable related to Vacation Interval sales growth, an increased
factoring rate, and acquisitions of resorts made by the Company during the
nine months ended September 30, 1996.
General and administrative expenses increased to $7.4 million during the
nine months ended September 30, 1996 from $3.9 million during the nine months
ended September 30, 1995, an increase of 90%. The increase in general and
administrative expenses was the result of (i) the addition of a number of
senior officers and key executives in connection with building the Company's
management and organizational infrastructure necessary to efficiently manage
the Company's future growth, (ii) the Company's expenses and reporting
obligations as a public company, (iii) increased overhead due to the
acquisition of additional resorts, and (iv) added salary, travel, and office
expenses attributable to the current and planned growth in the size of the
Company. Relative to revenues, general and administrative expenses were higher
during the nine months ended September 30, 1996 at 12% of revenues versus 7%
of revenues during the nine months ended September 30, 1995.
Depreciation and amortization increased to $1.7 million during the nine
months ended September 30, 1996 from $1.2 million during the nine months ended
September 30, 1995, reflecting increased depreciation and amortization
resulting from an increase in capital expenditures and intangible assets.
Equity loss on joint venture decreased to $94,695 during the nine months
ended September 30, 1996 from $1.3 million during the nine months ended
September 30, 1995. The decrease in the equity loss is attributable to
increased Vacation Interval sales and higher hotel occupancy at Embassy
Vacation Poipu Point than during the comparable period in 1995.
Pre-tax net income increased 45% to $10.6 million, or 17% of total revenue,
during the nine months ended September 30, 1996 from $7.3 million, or 14% of
total revenues, during the nine months ended September 30, 1995.
Income taxes increased 156%, or $328,882, from $210,322 for the nine months
ended September 30, 1995 to $539,204 for the nine months ended September 30,
1996. The increase in income taxes is due to the change in the Company's
status to a Subchapter C corporation for approximately one month in the third
quarter. The Company completed the Consolidation Transactions in August 1996.
Previously, the Company's predecessor entities only incurred foreign taxes on
their properties located in the St. Maarten, Netherlands Antilles.
Net income increased 42% to $10.1 million for the nine months ended
September 30, 1996 from $7.1 million for the nine months ended September 30,
1995.
Comparison of the year ended December 31, 1995 to year ended December 31,
1994. For the year ended December 31, 1995 the Company achieved total revenue
of $72.6 million compared to $44.3 million for the year ended December 31,
1994, an increase of $28.3 million or 64%. Total revenue grew due to a 47%
increase in Vacation Interval sales from $40.3 million to $59.1 million, an
86% increase in interest income from $3.7 million to $6.9 million, and a $6.3
million increase in resort operations and other income. The commencement of
sales of Vacation Intervals at Royal Palm, Flamingo Beach Club, and Embassy
Vacation Resort Grand Beach drove Vacation Interval sales volume at the
consolidated resorts from 4,482 sold in 1994 to 5,394 sold in 1995, an
increase of 20%. These higher volumes, combined with price growth, drove the
47% increase in Vacation Interval sales revenue. Interest income increased due
to a $31.7 million increase in mortgage receivables, which grew from $33.4
million at the end of 1994 to $65.1 million at the end of 1995, an increase of
95%. Other income increased $6.3 million from $0.3 million in 1994 to $6.6
million in 1995. This increase was the result of rental income at the resorts
increasing from $0.2 million to $1.3 million from 1994 to 1995, and the
acquisition of a mortgage receivable portfolio of approximately $10.2 million
acquired with the two St. Maarten resorts on which the Company earned $2.2
million. In addition, the Company accrued $2.0 million of business
interruption insurance claims to compensate for loss revenues and profits
related to damages sustained from Hurricane Luis at the two St. Maarten
resorts.
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While operating costs increased from $38.8 million for the year ended
December 31, 1994 to $58.9 million for the year ended December 31, 1995, an
increase of 52%, as a percentage of revenues operating costs decreased from
88% in 1994 to 81% in 1995. Relative decreases in Vacation Interval cost of
sales and other expenses, as a percentage of revenues were offset by relative
increases in interest expense-treasury, provision for doubtful accounts,
depreciation and amortization and equity loss on investment in joint venture.
The Company was able to purchase and construct Vacation Intervals at a
relative discount to historical development costs, reducing the unit cost on
average of each Vacation Interval sold. This is reflected in a proportionate
decrease in cost of Vacation Intervals sold from 30.8% of Vacation Interval
sales in 1994 to 26.5% of Vacation Interval sales in 1995. Although
advertising, sales and marketing costs decreased as a percentage of total
revenues from 42.3% to 39.2%, these costs increased as a percentage of
Vacation Interval sales from 46.5% in 1994 to 48.2% in 1995. This was
primarily the result of $2.0 million in expenses in 1995 relating to research
and development associated with national marketing strategies and programs
related to "branded" and "non-branded" resorts. Excluding these expenses,
advertising, sales and marketing costs in 1995 were 44.8% of Vacation Interval
sales, slightly less than in 1994.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased from $3.4 million in total in 1994
to $6.6 million in total in 1995, an increase of 94%. This increase reflects
the 104% increase in mortgage receivables due to Vacation Interval sales
growth and acquisitions of resorts made by the Company in 1995.
General and administrative expenses increased 78% from $3.7 million in 1994
to $6.6 million in 1995. The increase in general and administrative expenses
was the result of increased salary expenses and overhead due to the
acquisition of additional resorts and growth in the size of the Company.
Relative to revenues, general and administrative expenses were slightly higher
in 1995 at 9.0% of revenues versus 8.4% of revenues in 1994.
Depreciation and amortization increased from $0.5 million in 1994 to $1.7
million in 1995, reflecting increased depreciation resulting from an increase
in capital expenditures of $1.8 million and acquisitions resulting in a $1.8
million increase in intangible assets.
The Company made its investment in the Embassy Vacation Resort Poipu Point
during the last quarter of 1994. The Embassy Vacation Resort Poipu Point has
experienced losses associated with the start-up operations of the related
resort, which is being converted to timeshare. Equity loss on joint venture
increased from $0.3 million in 1994 to $1.6 million in 1995 reflecting a full
year's operations at the resort in 1995.
Pre-tax net income increased 170% to $11.6 million, or 15.9% of total
revenue, in 1995 from $4.3 million, or 9.7% of total revenues, in 1994.
Income taxes increased to $641,545 for the year ended December 31, 1995 from
zero for the year ended December 31, 1994 due to the acquisition of Royal Palm
Beach Club and Flamingo Beach Club in St. Maarten, Netherlands Antilles. In
July and August, the Company acquired Royal Palm and Flamingo, respectively,
incurring foreign taxes related to income earned for the remainder of fiscal
year 1995.
Net income increased $6.6 million to $10.9 for the twelve months ended
December 31, 1995 from $4.3 million for the twelve months ended December 31,
1994.
Comparison of the year ended December 31, 1994 to year ended December 31,
1993. For the year ended December 31, 1994 the Company generated total revenue
of $44.3 million compared to $24.4 million in 1993, an increase of 82%. This
increase was due to an 82% growth in Vacation Interval sales revenues from
$22.2 million in 1993 to $40.3 million in 1994. The first full year of sales
at the Plantation at Fall Creek Resort and the addition of the Royal Dunes
Resort drove higher volume Vacation Interval sales from 2,442 Vacation
Intervals sold in 1993 to 4,482 Vacation Intervals sold in 1994. This volume
growth of 84% more than offset the 1.3% decrease in the average price of
Vacation Intervals sold to drive the 81% increase in Vacation Interval sales
revenues. Interest income increased due to a $16.0 million increase in
mortgage receivables from $17.4 million at the end of 1993 to $33.4 million at
the end of 1994, an increase of 92%.
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Operating costs increased from $21.6 million for the year ended December 31,
1993 to $38.8 million for the year ended December 31, 1993, an increase of
79.6%. However, as a percentage of revenues, operating costs decreased
slightly from 88.5% in 1993 to 87.5% in 1994. Increases in Vacation Interval
cost of sales as a percentage of revenue from 23.4% in 1993 to 28.0% in 1994
were more than offset by decreases in other operating costs. From 1993 to
1994, advertising, sales and marketing decreased from 44.2% of revenues to
42.3% of revenues, general and administrative decreased from 13.2% of revenues
to 8.4% of revenues, and depreciation and amortization decreased from 1.6% of
revenues to 1.1% of revenues. Vacation Interval cost of sales increased as a
percentage of revenues due to relatively higher Vacation Interval cost
associated with the first year of operations at Royal Dunes. Advertising,
sales and marketing costs decreased as a percentage of Vacation Interval sales
from 48.6% in 1993 to 46.5% in 1994. This reflects increased Vacation Interval
sales volume at Cypress Pointe, which increased from 1,784 Vacation Intervals
in 1993 to 2,061 Vacation Intervals in 1994. Although decreasing in terms of a
percentage of revenue, due to expansion in the administrative costs necessary
to support a growing business, general and administrative expenses increased
in absolute terms from $3.2 million in 1993 to $3.7 in 1994, a 16.0% increase.
Depreciation and amortization was approximately consistent between 1993 and
1994 at $0.4 million and $0.5 million respectively reflecting capital
expenditures of $0.2 million, and the recording of intangibles at Grand Beach
in late 1994 with no related amortization. Equity loss on investment in joint
venture of $0.3 million in 1994 reflects the Company's share of losses
associated with the start-up operations at the Embassy Vacation Resort Poipu
Point.
Loan portfolio expenses consisting of interest expense, loan portfolio and
provision for doubtful accounts increased from $1.5 million in 1993 to $3.4
million in 1994, an increase of 127%. This reflects the increase in Vacation
Intervals sold in 1994 and a relative increase in borrowings made by the
Company secured by interval inventory. While loan portfolio expenses were
consistent as a percentage of total revenue, interest expense treasury
increased from 36.9% of interest income to 44.2%. Provision for doubtful
accounts decreased slightly from 2.5% of revenues to 2.1% of revenues. Other
loan portfolio expenses increased from $0.2 million in 1993 (0.9% of revenues)
to $0.9 million in 1994 (1.9% of revenues) reflecting additional costs from
portfolio management services started in 1994.
Pre-tax net income increased 87% from $2.3 million in 1993 to $4.3 million
in 1994.
MERGER WITH AVCOM INTERNATIONAL, INC.
On September 22, 1996, the Company signed the Merger Agreement to acquire
AVCOM for shares of the Company's Common Stock, plus the assumption of debt.
AVCOM is the parent company of All Seasons Resorts, Inc., a developer,
marketer and operator of timeshare resorts in Arizona, California, and Texas.
On January 10, 1997 the stockholders of AVCOM voted to approve the Merger.
The Company believes that AVCOM maintains a strong presence in the Sedona,
Arizona market which should be enhanced by the development of its fifth
resort, The Ridge on Sedona Golf Resort. AVCOM is currently completing
development and selling of Vacation Intervals at its fourth Sedona resort,
Sedona Summit Resort, and will begin sales at The Ridge in the spring of 1997.
In addition to development in Sedona, AVCOM is developing and pre-selling
Vacation Intervals at the Scottsdale Villa Mirage Resort in Scottsdale,
Arizona. The Company believes the acquisition of AVCOM will give the Company a
stronger presence in the Southwest, complementing its existing presence in the
Southeastern United States and California. Vacation Intervals at All Seasons'
resorts generally sell for $9,000 to $18,000 and will be targeted to the same
market segment as the Company's non-branded resorts.
Over the year following consummation of the Merger, the Company anticipates
required capital expenditures for expansion and development of certain AVCOM
Resorts (Sedona Summit Resort, The Ridge on Sedona Golf Resort, Scottsdale
Villa Mirage Resort and Villas on the Lake) to be approximately $23.5 million.
The Company may also be required to expend additional amounts to fund certain
AVCOM guarantees relating to the North Bay Resort at Lake Arrowhead. See
"Business--Description of AVCOM's Resorts--Partially Owned Resorts." The
Company plans to fund the foregoing expenditures primarily with the net
proceeds of the Offerings, available capacity on credit facilities and cash
generated from operations.
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The Company's management believes that the Merger represents a strategic
combination of two companies in the timeshare resort industry, offering
enhanced opportunities to better service this market. The Merger is viewed by
both management teams as providing both short and long-term potential benefits
to shareholders resulting from economies of scale and other operating
synergies made possible by the Merger. The Company's management believes the
Merger to be an appropriate combination due to several factors, including:
(i) AVCOM's strength in the Southwestern United States combines well with the
Company's presence in Florida, Missouri, California, South Carolina, Hawaii
and St. Maarten, Netherlands Antilles and (ii) the management strengths of the
two companies are generally complementary, allowing the combined company to
benefit from an enhanced overall level of management experience and operating
leverage.
The Company believes that the Merger may allow the Company to enhance its
sales potential by adding AVCOM's existing six resorts in sales (plus one
additional resort under construction to begin in sales during 1997) to the
Company's existing portfolio of nine resorts in sales and the recently
announced Westin Vacation Club resort in St. John (for a total of 17 resorts
in sales by the end of 1997) from which the combined company will be able to
sell Vacation Intervals. In particular, the management of the Company believes
that the Merger may allow the Company to have greater access to customers by
way of AVCOM's strong sales and marketing organization in the Southwestern
United States, in addition to benefiting from AVCOM's current base of
approximately 15,000 Vacation Interval owners. The Company believes that the
combined company will have access to greater financial resources and lower
borrowing costs. The Company believes that this lower cost of borrowing may
contribute to greater net interest income and lower development costs for the
Company going forward. The Merger is expected to provide the Company certain
administrative benefits and opportunities for cost reductions, including
reductions resulting from employee redundancies. AVCOM has certain
development, sales and marketing expertise that may enable the Company to
function more efficiently. Management of the Company believes that beyond cost
savings and efficiencies, there is also a long term potential benefit to
shareholders from leveraging the operating experiences of both management
teams to improve operations of resorts and, thereby, increasing the
profitability of the combined company. There is no assurance that such
potential will be realized.
Transaction costs relating to the negotiation of, preparation for, and
consummation of the Merger and the anticipated combination of certain
operations of the Company and AVCOM will result in a one-time charge to the
Company's earnings of approximately $1.7 million to $1.9 million in the
quarter in which the Merger is consummated (expected to occur in February
1997). This charge is expected to include the fees and expenses payable to
financial advisors, legal fees and other transaction expenses related to the
Merger. In addition, there can be no assurance that the Company will not incur
additional charges in subsequent quarters to reflect costs associated with the
Merger and the integration of the Company's and AVCOM's operations.
Additionally, transaction costs relating to the consummation of the Merger and
the anticipated combination of operations of the Company and AVCOM, along with
changes in AVCOM's accounting policies to conform to the Company's and the
write-down and write-off of certain AVCOM assets, will result in a one-time
charge to AVCOM's earnings of approximately $7 million to $9 million. This
charge is expected to include the estimated costs associated with workforce
reductions, contractual payment obligations and other restructuring
activities. While the exact timing of this charge cannot be determined at this
time, management anticipates that this charge to earnings will be recorded
primarily in the fourth quarter of 1996.
For the nine months ended September 30, 1996 AVCOM's total revenues grew 23%
from $26.5 million for the period in 1995 to $32.7 million for the period in
1996 while net income decreased from $1.3 million in 1995 to a loss of ($2.0)
million in 1996. The loss for the period in 1996 was due to either the growth
in AVCOM's business or the impact of the following events: (i) general and
administrative expenses increased $3.0 million during the period in 1996, from
12.3% of revenues to 19.1% of revenues reflecting increased corporate
infrastructure necessary to support five resorts in 1996 versus two resorts in
1995, and due to higher sales subject to the percentage of completion method
of revenue recognition which resulted in $7.0 million of Vacation Interval
sales deferred in 1996; (ii) during the period AVCOM commenced sales at three
resorts, two of which were in new geographic locations which caused
significant start-up costs and higher sales and marketing costs as a
percentage of sales of timeshare interests; (iii) both start-up costs
associated with the initiation of AVCOM's contract marketing and selling
business and accounting timing differences between when contract marketing and
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selling expenses are incurred and when contract commission revenue is
recognized resulted in contract marketing and selling expenses exceeding
contract commission revenues by $477,000; (iv) AVCOM incurred a one-time
charge of $610,000 associated with the cancellation of a third party services
contract in conjunction with the anticipation of conversion to an integrated
computer reservation system; and (v) commensurate with the announcement of the
merger with Signature Resorts, Inc., AVCOM wrote-off deposits and costs in
connection with a terminated purchase agreement for a property in South Lake
Tahoe for which the recovery of deposits and costs totaling $839,000 incurred
by AVCOM is conditioned upon finding a replacement purchaser.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations from the sale of Vacation
Intervals, the financing of the sales of Vacation Intervals, the rental of
unsold Vacation Interval units, and the receipt of management fees. With
respect to the sale of Vacation Intervals, the Company generates cash for
operations from cash sales of Vacation Intervals, from the receipt of down
payments from customers acquiring Vacation Intervals, and from the
hypothecation of mortgage receivables from purchasers equal to 85% to 90% of
the amount borrowed by such purchasers. The Company generates cash related to
the financing of Vacation Interval sales on the difference between the
interest charged on the mortgage receivables, which averaged 15.0% in 1995,
and the interest paid on the notes payable secured by such mortgage
receivables.
During the years ended December 31, 1995, 1994, and 1993 cash (used in)
provided by operating activities was $2.3 million, ($11.0) million and $3.3
million, respectively. Cash generated from operating activities was higher for
the year ended December 31, 1995 when compared to the same period in the prior
year primarily due to higher net income, decreases in the amount spent on
acquisition and development activities, and increases in payables outstanding
at the end of 1995 when compared to at the end of 1994. Cash generated from
operating activities was lower for the year ended December 31, 1994 when
compared to the same period in the prior year primarily due to accelerated
acquisition and development activities during the year of 1994 when compared
to the prior year.
During the nine months ended September 30, 1996 and 1995, cash (used in)
provided by operating activities was ($21.9) million, and $4.3 million,
respectively. Cash generated from operating activities was lower for the nine
months ended September 30, 1996 when compared to the comparable period in 1995
primarily due to a $28.3 million increase in expenditures on acquisition and
development activities associated with the acquisition and development of new
resorts and the expansion of existing resorts during the period.
Net cash used in investing activities for the years ended December 31, 1995,
1994 and 1993 was ($36.9) million, ($24.9) million, and ($10.8) million,
respectively. Net cash used by investing activities was higher for the year
ended December 31, 1995 when compared to the same period in 1994 principally
due to increases in mortgage receivables which resulted from both higher sales
of Vacation Intervals and the purchase of a mortgage receivable portfolio with
a value of approximately $7.8 million related to the St. Maarten properties.
Net cash used in investing activities was higher for the year ended December
31, 1994 when compared to the same period in the prior year due to both
expenditures for the investment in Embassy Vacation Resort Poipu Point and
increases in the mortgage receivables portfolio which resulted from higher
Vacation Interval sales in 1994.
Net cash used in investing activities for the nine months ended September
30, 1996, and 1995 was ($27.4) million and ($31.4) million, respectively. For
the nine months ended September 30, 1996, the change in net mortgage
receivables was $4.3 million lower than during the comparable period in 1995
due to more effective collection efforts in 1996. As of September 30, 1996,
approximately 8.1% of the Company's consumer loans were considered by the
Company to be delinquent (past due by 60 or more days) and the Company has
completed or commenced foreclosure or deed-in-lieu of foreclosure on
approximately 2.5% of its consumer loans. Of these delinquent loans,
approximately 90% were originated by the Company and the remaining 10% were
acquired by the Company as delinquent loans. If only the Company's originated
loans were considered, approximately 7.5% of them would be considered
delinquent as of September 30, 1996.
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For the years ended December 31, 1995, 1994 and 1993, net cash provided by
financing activities was $37.1 million, $36.1 million and $15.3 million,
respectively. These net cash figures were affected by the Company's increased
borrowings secured by mortgage receivables to fund operations and increased
payments on these borrowings due to amortizations on a larger portfolio. In
addition, year to year net cash provided by investing activities fluctuates as
a result of borrowing activities for acquisition and development, and from
equity investments as a result of resort acquisitions.
For the nine months ended September 30, 1996 and 1995, net cash provided by
financing activities was $54.7 million and $30.1 million, respectively. During
the quarter ended September 30, 1996, the Company issued 6,037,500 shares of
common stock in the Initial Public Offering in August 1996 resulting in
approximately $74.0 million of net proceeds. The proceeds of the Initial
Public Offering were used by the Company to repay debt, to fund expansion, and
for other corporate purposes. In addition, period to period net cash provided
by investing activities fluctuates as a result of borrowing activities for
acquisition and development, and from equity investments as a result of resort
acquisitions.
The Company requires funds to finance the future acquisition and development
of timeshare resorts and properties and to finance customer purchases of
Vacation Intervals. Such capital has been provided by secured financings on
Vacation Interval inventory, secured financings on mortgage receivables and
partner loans generally funded by third party lenders and capital
contributions. As of September 30, 1996, the Company had $18.9 million
outstanding under its notes payable secured by Vacation Interval inventory
(land), and $62.2 million outstanding under its notes payable secured by
mortgage receivables. In order to finance anticipated development costs at
Existing Resorts, the Company intends to rely on cash from operations and
borrowing capacity available on existing credit facilities.
During 1997, the Company anticipates spending approximately $33.0 million
for expansion and development activities at the Existing Resorts (excluding
Royal Palm Beach Club and Embassy Vacation Resort Poipu Point) and
approximately $23.5 million at certain of the AVCOM Resorts (Sedona Summit
Resort, The Ridge on Sedona Golf Resort, Scottsdale Villa Mirage Resort and
Villas on the Lake). The Company may also be required to expend additional
amounts to fund certain AVCOM guarantees relating to the North Bay Resort at
Lake Arrowhead. See "Business--Description of AVCOM's Resorts--Partially Owned
Resorts." The Company plans to fund these expenditures primarily with the net
proceeds of the Offerings, available capacity on credit facilities and cash
generated from operations. See "Use of Proceeds." In addition, during 1997,
the Company anticipates spending approximately $8.8 million to finance the
acquisition, development and conversion costs related to the St. John
acquisition. These expenditures are expected to be funded primarily with the
net proceeds of the Offerings, available borrowing capacity under lines of
credit and cash generated from operations.
In addition, the Company anticipates spending approximately $212.0 million
to complete its expansion plans at the Existing Resorts during the periods
following 1997 as described in "Business--The Resorts." The Company also plans
to spend $34.0 million to complete expansion plans at the AVCOM Resorts during
the periods following 1997 as described in "Business--The Resorts." The
Company anticipates financing the expansion plans of the Company's and AVCOM's
resorts through cash acquired from operations, future credit facilities and/or
future issuance of securities. While the Company has not entered into
commitments with respect to any new credit facilities or planned any
additional issuances of securities, it is not currently obligated to continue
with the planned expansion of the Existing Resorts and the AVCOM Resorts.
There can be no assurance that the Company will be able to obtain the
financing necessary to continue such expansion plans.
The Company intends to pursue a growth-oriented strategy. From time to time,
the Company may acquire, among other things, additional timeshare properties,
resorts and completed Vacation Intervals; land upon which additional timeshare
resorts may be built; management contracts (which may from time to time
require capital expenditures by the Company); loan portfolios of Vacation
Interval mortgages; portfolios which include properties or assets which may be
integrated into the Company's operations; and operating companies providing or
possessing management, sales, marketing, development, administration and/or
other expertise with respect to the Company's operations in the timeshare
industry. See "Business--Business Strategy."
50
<PAGE>
The Company is currently evaluating the acquisition and/or development of a
number of resort properties and of completed Vacation Intervals as inventory,
but, other than as disclosed in this Prospectus, currently has no material
contracts or capital commitments relating to any such potential property or
inventory acquisitions. In addition, the Company is currently evaluating
several timeshare asset and management and operating company acquisitions to
integrate into or to expand the operations of the Company, but, other than as
described in this Prospectus, currently has no material contracts or capital
commitments relating to any such potential timeshare asset or management and
operating company acquisitions.
The Company has entered into the Westin Agreement whereby the Company has
the exclusive right through May 2001 to jointly acquire, develop and market
with Westin "four-star" and "five-star" timeshare resorts located in North
America, Mexico and the Caribbean. See "Business--Westin Vacation Club
Resorts." In connection with its recently announced plans to acquire and
develop the first Westin Vacation Club resort at St. John, the Company will be
obligated to contribute $2.5 million in cash. The Westin Partnership will
borrow approximately $5.5 million of the remaining purchase price and
approximately $7.1 million to complete the conversion of the St. John Villas
to a Westin Vacation Club resort. See "Recent Developments."
The Company is currently evaluating the acquisition of several resort
properties to be branded as an Embassy Vacation Resort and several development
opportunities to be developed as an Embassy Vacation Resort, but currently has
no binding contracts or capital commitments relating to any potential Embassy
Vacation Resorts. See "Risk Factors--Acquisition Strategy and Risks Related to
Rapid Growth." The Company is also currently evaluating the acquisition of
several resort properties and of completed Vacation Intervals to be non-
branded timeshare resorts or inventory, but currently has no binding contracts
or capital commitments relating to any such potential property or inventory
acquisitions. See "Business--Future Acquisitions." In addition, the Company is
currently evaluating several asset and operating company acquisitions to
integrate into or to expand the operations of the Company, but currently has
no contracts or capital commitments relating to any such potential asset or
operating company acquisitions.
In the future, the Company may negotiate additional credit facilities, or
issue, in addition to the Convertible Notes, other corporate debt or equity
securities. Any debt incurred or issued by the Company may be secured or
unsecured, fixed or variable rate interest and may be subject to such terms as
management deems prudent. For a description of the Convertible Notes being
offered concurrently with the Common Stock, see "Concurrent Offerings."
The Company believes that, with respect to its current operations, the net
proceeds to the Company from the Offerings, together with cash generated from
operations and future borrowings, will be sufficient to meet the Company's
working capital and capital expenditure needs for the near future. However,
depending upon conditions in the capital and other financial markets and other
factors, the Company may from time to time consider the issuance of debt or
other securities, the proceeds of which would be used to finance acquisitions,
to refinance debt or for other general corporate purposes. The Company
believes that the Company's properties are adequately covered by insurance.
See "Business--Insurance" and "--Legal Proceedings."
51
<PAGE>
BUSINESS
OVERVIEW
The Company is one of the largest developers and operators of timeshare
resorts in North America, based on number of resorts in sales. The Company is
devoted exclusively to timeshare operations and owns eight timeshare resorts
currently in sales, which includes one under construction, and a ninth resort
in sales in which the Company holds a partial interest. The Existing Resorts
are located in a variety of popular resort destinations including Hilton Head
Island, South Carolina, Koloa, Kauai, Hawaii, the Orlando, Florida area (two
resorts), St. Maarten, Netherlands Antilles (two resorts), Branson, Missouri,
South Lake Tahoe, California, and Avila Beach, California. The Company's
principal operations currently consist of (i) acquiring, developing and
operating timeshare resorts, (ii) marketing and selling Vacation Intervals at
its resorts, which typically entitle the buyer to use a fully-furnished
vacation residence, generally for a one-week period each year and
(iii) providing financing for the purchase of Vacation Intervals at its
resorts.
As part of its growth and acquisition strategy, the Company in September
1996 entered into the Merger Agreement to acquire AVCOM, the parent company of
All Seasons, a developer, marketer and operator of timeshare resorts in
Arizona, California and Texas. AVCOM currently operates nine resorts, which
includes two under construction, and a tenth resort in which AVCOM holds a
partial interest. Five of the AVCOM Resorts are located in Sedona, Arizona,
two are located in South Lake Tahoe, California and one resort is located in
each of Lake Arrowhead, California, Lake Conroe (near Houston), Texas, and
Scottsdale, Arizona. AVCOM currently sells Vacation Intervals at six of its
ten resorts, sales at three resorts have been substantially completed and
sales at one resort have yet to commence. The Company anticipates that the
Merger will be consummated in February 1997, assuming all conditions to
closing are timely satisfied. See "The Proposed Merger" and "Risk Factors--
Risks Related to the Proposed Merger."
For the twelve month period ended September 30, 1996, the Company sold 6,512
Vacation Intervals at the Existing Resorts, compared to 3,566 and 5,687 for
the same periods ended in 1994 and 1995, respectively. Total revenue from
Vacation Interval sales at the Existing Resorts for the same periods increased
from $36.6 million in 1994 to $57.2 million in 1995 to $84.2 million in 1996.
The number of existing resorts has increased during the same periods through
acquisitions and development from four in 1994, to seven in 1995 and to nine
in 1996. See "--The Resorts." As of September 30, 1996, the Company had an
existing inventory of 22,509 Vacation Intervals at the Existing Resorts and
the Company is in the process of developing or has current plans to develop an
additional 62,203 Vacation Intervals on land which the Company owns or has an
option to acquire at the Existing Resorts. The Company anticipates that the
existing inventory at its Existing Resorts (except the Company's Hilton Head
Island resort), including the planned expansion at these resorts, will provide
sufficient inventory for between three and ten years of Vacation Interval
sales at such resorts.
THE TIMESHARE INDUSTRY
The Market. The resort component of the leisure industry primarily is
serviced by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare or "vacation ownership" resorts.
Commercial lodging consists of hotels and motels in which a room is rented on
a nightly, weekly or monthly basis for the duration of the visit and is
supplemented by rentals of privately-owned condominium units or homes. For
many vacationers, particularly those with families, a lengthy stay at a
quality commercial lodging establishment can be very expensive, and the space
provided to the guest relative to the cost (without renting multiple rooms) is
not economical for vacationers. In addition, room rates and availability at
such establishments are subject to change periodically. Timeshare presents an
economical alternative to commercial lodging for vacationers.
According to the ARDA, the timeshare industry experienced a record year in
1994 (the most recent year for which statistics are available) with 384,000
new owners purchasing 560,000 Vacation Intervals with a sales volume of $4.76
billion. First introduced in Europe in the mid-1960s, ownership of Vacation
Intervals has been one of the fastest growing segments of the hospitality
industry over the past two decades. As shown in the
52
<PAGE>
following charts, according to the ARDA the worldwide timeshare industry has
expanded significantly since 1980 both in Vacation Interval sales volume and
number of Vacation Interval owners.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
[The following table is represented as a bar graph.]
Dollar Volume of Vacation Interval Sales
(in billions)
<S> <C> <C>
1 1980 0.49
2 1981 0.965
3 1982 1.165
4 1983 1.34
5 1984 1.735
6 1985 1.58
7 1986 1.61
8 1987 1.94
9 1988 2.39
10 1989 2.97
11 1990 3.24
12 1991 3.74
13 1992 4.25
14 1993 4.505
15 1994 4.76
</TABLE>
<TABLE>
<CAPTION>
[The following table is represented as a bar graph.]
Number of Vacation Intervals Owners
(in millions)
<S> <C> <C>
1 1980 0.155
2 1981 0.220
3 1982 0.335
4 1983 0.470
5 1984 0.620
6 1985 0.805
7 1986 0.970
8 1987 1.125
9 1988 1.310
10 1989 1.530
11 1990 1.800
12 1991 2.070
13 1992 2.363
14 1993 2.760
15 1994 3.144
</TABLE>
Source: American Resort Development Association, The 1995 Worldwide Timeshare
Industry.
53
<PAGE>
The Company believes that, based on published industry data, the following
factors have contributed to the increased acceptance of the timeshare concept
among the general public and the substantial growth of the timeshare industry
over the past 15 years:
. Increased consumer confidence resulting from consumer protection
regulation of the timeshare industry and the entrance of brand name
national lodging companies to the industry;
. Increased flexibility of timeshare ownership due to the growth of
exchange organizations such as RCI;
. Improvement in the quality of both the facilities themselves and the
management of available timeshare resorts;
. Increased consumer awareness of the value and benefits of timeshare
ownership, including the cost savings relative to other lodging
alternatives; and
. Improved availability of financing for purchasers of Vacation Intervals.
The timeshare industry traditionally has been highly fragmented and
dominated by a very large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality.
The Company believes that one of the most significant factors contributing to
the current success of the timeshare industry is the entry into the market of
some of the world's major lodging, hospitality and entertainment companies.
Such major companies which now operate or are developing Vacation Interval
resorts include Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-
Continental, as well as Promus and Westin. Unlike the Company, however, the
timeshare operations of each of Marriott, Disney, Hilton, Hyatt, Four Seasons
and Inter-Continental comprise only a small portion of such companies' overall
operations.
Of the Company's major brand name lodging company competitors, the Company
believes that, based on industry consultant reports: (i) Marriott entered the
timeshare market in 1985, currently sells Vacation Intervals at 9 resorts
which it also owns and operates (Kauai, Hawaii; Palm Desert, California; Park
City, Utah; Breckenridge, Colorado; Williamsburg, Virginia; Hilton Head
Island, South Carolina; Orlando, Florida; Marabella, Spain; Boston,
Massachusetts; and Ft. Lauderdale, Florida) and directly competes with the
Company's Poipu Point, Hilton Head Island and Orlando area resorts;
(ii) Disney entered the market in 1991, currently sells Vacation Intervals at
three resorts which it also owns and operates (Lake Buena Vista and Vero
Beach, Florida; and Hilton Head Island, South Carolina) and directly competes
with the Company's Orlando area and Hilton Head Island resorts; (iii) Hilton
entered the market in 1993, currently sells Vacation Intervals at two resorts
which it owns and operates (Las Vegas, Nevada; and Orlando, Florida) and
directly competes with the Company's Orlando area resorts; (iv) Hyatt entered
the market in 1995, owns and operates one resort in Key West, Florida but does
not directly compete in any of the Company's existing markets (although Hyatt
has announced an intention to develop a timeshare resort in Orlando); (v) Four
Seasons has developed its first timeshare resort in Carlsbad, California but
does not currently directly compete in any of the Company's existing markets;
and (vi) Inter-Continental announced its entry into the timeshare market in
1996, but has yet to announce any specific projects and is not yet in sales of
Vacation Intervals at any resorts. See "--Competition."
The Economics. The Company believes that national lodging and hospitality
companies are attracted to the timeshare concept because of the industry's
relatively low product cost and high profit margins and the recognition that
Vacation Intervals provide an attractive alternative to the traditional hotel-
based vacation and allow the hotel companies to leverage their brands into
additional resort markets where demand exists for accommodations beyond
traditional hotels.
The Consumer. According to information compiled by the ARDA for the year
ended December 31, 1994, the prime market for Vacation Intervals is customers
in the 40-55 year age range who are reaching the peak of their earning power
and are rapidly gaining more leisure time. The median age of a Vacation
Interval buyer at the time of purchase is 46. The median annual household
income of current Vacation Interval owners in the United States is
approximately $63,000, with approximately 35% of all Vacation Interval owners
having annual household income greater than $75,000 and approximately 17% of
such owners having annual household income
54
<PAGE>
greater than $100,000. Despite the growth in the timeshare industry as of
December 31, 1994, Vacation Interval ownership has achieved only an
approximate 3.0% market penetration among United States households with income
above $35,000 per year and 3.9% market penetration among United States
households with income above $50,000 per year.
According to the ARDA study, the three primary reasons cited by consumers
for purchasing a Vacation Interval are (i) the ability to exchange the
Vacation Interval for accommodations at other resorts through exchange
networks such as RCI (cited by 82% of Vacation Interval purchasers), (ii) the
money savings over traditional resort vacations (cited by 61% of purchasers)
and (iii) the quality and appeal of the resort at which they purchased a
Vacation Interval (cited by 54% of purchasers). According to the ARDA study,
Vacation Interval buyers have a high rate of repeat purchases: approximately
41% of all Vacation Interval owners own more than one interval representing
approximately 65% of the industry inventory and approximately 51% of all
owners who bought their first Vacation Interval before 1985 have since
purchased a second Vacation Interval. In addition, customer satisfaction
increases with length of ownership, age, income, multiple location ownership
and accessibility to Vacation Interval exchange networks.
The Company believes it is well positioned to take advantage of these
demographics trends because of the quality of its resorts and locations, its
program to allow buyers to exchange intervals at several of the Company's
resorts and its participation in the RCI network. However, RCI is under no
obligation to continue to include the resorts or the AVCOM Resorts in its
exchange network. See "Risk Factors--Dependence on Vacation Interval Exchange
Networks; Risk of Inability to Qualify Resorts." The Company expects the
timeshare industry to continue to grow as the baby-boom generation continues
to enter the 40-55 year age bracket, the age group which purchased the most
Vacation Intervals in 1994.
BUSINESS STRATEGY
The Company's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, the Company intends to
(i) acquire, convert and develop additional resorts to be operated as Embassy
Vacation Resorts, Westin Vacation Club resorts and non-branded resorts,
capitalizing on the acquisition and marketing opportunities to be provided as
a result of its relationships with Promus, Westin, selected financial
institutions and its position in certain markets and the timeshare industry
generally, (ii) increase sales and financings of Vacation Intervals at the
Existing Resorts through broader-based marketing efforts and in certain
instances through the construction of additional Vacation Interval inventory,
(iii) improve operating margins by consolidating administrative functions,
reducing borrowing costs and reducing its sales and marketing expenses as a
percentage of revenues and (iv) acquire additional Vacation Interval
inventory, management contracts, Vacation Interval mortgage portfolios, and
properties or other timeshare-related assets that may be integrated into the
Company's operations.
The Company's merger with AVCOM and the recently-announced proposed
acquisition and development of the first Westin Vacation Club resort to be
located in St. John, U.S. Virgin Islands, which were announced in the third
and fourth quarters of 1996, respectively, are the result of the Company's
growth strategy. The key elements of the Company's strategy are described
below.
Acquisition and Development of New Resorts. The Company intends to acquire
and develop additional resorts to be operated as branded Embassy Vacation
Resorts, Westin Vacation Club resorts and as non-branded resorts. To implement
its growth strategy, the Company intends to pursue resort acquisitions and
developments in a number of vacation destinations that will complement the
Company's operations, including the California and Hawaii markets, which are
subject to barriers to entry and in which the Company's founders have
extensive acquisition and development experience. The Company believes that
its relationships with Promus, Westin and selected financial institutions that
control resort properties located in Hawaii and California will provide it
with acquisition, development and hotel-to-timeshare conversion opportunities
and will allow it to take advantage of currently favorable market
opportunities to acquire resort and condominium properties to be operated as
timeshare resorts. Since the inception of the resort acquisition and
development business by the Company's
55
<PAGE>
predecessor in 1992, the Company believes it has been able to purchase hotel,
condominium and resort properties and/or entitled land at less than either
their initial development cost or replacement cost and remodel or convert such
properties for sale and use as timeshare resorts. In addition to acquiring
existing resort and hotel-to-timeshare conversion properties, the Company also
seeks to develop resorts located in destinations where it discerns a strong
demand, which the Company anticipates will enable it to achieve attractive
rates of return.
The Company considers the potential acquisition or development of timeshare
resorts in locations based on existing timeshare competition in the area as
well as existing overall demand for accommodations. In evaluating whether to
acquire, convert or develop a timeshare resort in a particular location, the
Company analyzes relevant demographic, economic and financial data.
Specifically, the Company considers the following factors, among others, in
determining the viability of a potential new timeshare resort in a particular
location: (i) supply/demand ratio for the purchase of Vacation Intervals in
the relevant market and for Vacation Interval exchanges into the relevant
market by other Vacation Interval owners, (ii) the market's growth as a
vacation destination, (iii) the ease of converting a hotel or condominium
property into a timeshare resort from a regulatory and construction point of
view, (iv) the availability of additional land at the property for potential
future development and expansion, (v) competitive accommodation alternatives
in the market, (vi) uniqueness of location, and (vii) barriers to entry that
would tend to limit competition.
The Company believes that its relationships with Promus and Westin will
provide it with attractive acquisition, conversion, development and marketing
opportunities and uniquely position the Company to offer Vacation Intervals at
a variety of attractive resort destinations to multiple demographic groups in
the timeshare market. Capitalizing on two of its Founders' relationship with
Promus as a developer and owner of Embassy Suites hotels, in 1994 the Company
and Promus established Embassy Vacation Resorts. However, the Company has no
ownership of or rights to the "Embassy Vacation Resorts" name or servicemark,
both of which are owned exclusively by Promus, except as set forth in the
Company's license agreements with Promus with respect to the Company's Embassy
Vacation Resorts. Under Promus's exclusive development agreement with Vistana,
Inc., Promus has identified the Company as the only other licensee of the
Embassy Vacation Resort name. On January 7, 1997, Promus announced that it
intended to expand its branded vacation ownership business with both the
Company and Vistana and that additional Embassy Vacation Resort properties to
be developed or acquired by the Company and licensed by Promus are under
discussion. However, there can be no assurance that Promus will license the
Embassy Vacation Resort name to the Company with respect to possible future
resorts. See "Risk Factors--Competition."
Through the Westin Agreement, the Company has the exclusive right through
May 2001, to jointly acquire, develop and market with Westin "four-star" and
"five-star" timeshare resorts located in North America, Mexico and the
Caribbean. The Company's rights also cover the conversion of Westin hotels to
timeshare resorts. In addition, pursuant to the Westin Agreement, it is
expected that Westin will provide the Company with lead generation assistance
and marketing support and Promus currently provides such assistance at Embassy
Vacation Resorts. The five KOAR-owned Embassy Suites hotels also provide lead
generation assistance and support to the Company with respect to the marketing
of the Company's resorts.
The Company's relationships with Promus and Westin also provide it with a
competitive advantage in the timeshare industry by allowing it to offer two
separate branded products in both the upscale and luxury market segments. The
Company believes that brand affiliation is becoming an important
characteristic in the timeshare industry as it provides the consumer an
important element of reliability and image in a fragmented industry. Through
its Embassy Vacation Resorts and Westin Vacation Club resorts the Company
believes it will be able to provide Vacation Interval buyers with quality and
consistency in their timeshare purchases. In addition, through its non-branded
resorts the Company will be able to appeal to the value-conscious consumer who
seeks the best value for his or her money and does not seek affiliation with
brand-name lodging companies.
Sales and Expansion at Existing Resorts and AVCOM Resorts. The Company
intends to continue sales of Vacation Intervals at the Existing Resorts and
the AVCOM Resorts by adding Vacation Interval inventory through the
construction of new development units and by broadening marketing efforts. The
Company believes
56
<PAGE>
it is well positioned to expand sales of Vacation Intervals at the Existing
Resorts and the AVCOM Resorts as a result of its existing supply of Vacation
Intervals in inventory as well as planned expansion. As of September 30, 1996,
the Company had existing inventory of 22,509 Vacation Intervals at the
Existing Resorts and currently is in the process of developing, or has plans
to develop, units to accommodate an additional 62,203 Vacation Intervals at
the Existing Resorts, including construction in progress for 10,710 Vacation
Intervals at the Embassy Vacation Resort Lake Tahoe, the addition of
approximately 3,162 Vacation Intervals at the San Luis Bay Resort and 816
Vacation Intervals at the Plantation at Fall Creek. See "--Description of the
Company's Resorts." As of September 30, 1996, AVCOM had existing inventory of
4,585 Vacation Intervals and currently is in the process of developing, or has
plans to develop, units to accommodate an additional 19,584 Vacation Intervals
at its resorts, including construction in progress for 8,568 Vacation
Intervals at the Scottsdale Villa Mirage Resort and 6,120 Vacation Intervals
at the Ridge on Sedona Golf Resort and the addition of approximately 2,448
Vacation Intervals at Sedona Summit Resort and 2,448 Vacation Intervals at the
Villas on the Lake. See "--Description of the Company's Resorts."
Based on information received from the Company's customers and sales agents,
the Company believes that in addition to basic quality, expanded resort
amenities and larger, multi-purpose units, current and potential buyers want
enhanced flexibility in scheduling their vacations, a broader distribution of
quality exchange locations and the availability of other value-priced
services. As a major developer and operator of timeshare resorts in North
America, the Company believes that it has acquired skill and expertise both in
the development and operation of timeshare resorts and in the marketing and
sales of Vacation Intervals and that it has acquired the breadth of resorts
which give it a competitive advantage among Vacation Interval purchasers.
Improvement of Operating Margins. As the Company grows, management believes
it will be able to reduce operating costs as a percentage of revenues by
consolidating administrative functions and reducing borrowing costs by virtue
of its consolidated operations. The Company believes that its larger number of
resorts relative to its competitors will provide it with additional revenue
opportunities and economies of scale which will allow it the potential for
significant cost savings. Benefitting from economies of scale both internally
and through its relationships with Promus and Westin, the Company plans to
centralize many of the administrative functions currently performed at
individual resorts, such as accounting, reservations and marketing, resulting
in a reduction in labor costs throughout the Company's Existing Resorts. The
Company believes that increased efficiency, reduction in on-site
administrative requirements and a multi-resort management system will reduce
operating costs and allow the Company to experience increased margins by
spreading operating and corporate overhead costs over a larger revenue base.
In addition, operating margins at a resort tend to improve over time as a
greater percentage of Vacation Intervals are sold, resulting in lower selling,
marketing and advertising expenses. The Company believes that it will reduce
sales and marketing expenses as a result of the lead generation assistance
provided or to be provided by Westin and Promus (including marketing and lead
generation assistance from KOAR's five Embassy Suites hotels) and by targeting
potential buyers through Westin and Embassy Suites hotels.
Acquisition of Timeshare Assets, Management Contracts and Operating
Companies. As a result of the Company's relationships in the timeshare and
financial communities, the size and geographic diversity of its portfolio of
properties and position in the timeshare industry, the Company has access to a
variety of acquisition opportunities related to the Company's business. The
Company's business strategy includes pursuing growth by expanding or
supplementing the Company's existing timeshare business through acquisitions.
The recently announced proposed acquisition of AVCOM is a recent example of
the implementation of the Company's business strategy. The Company believes
that its record of acquiring resort properties gives the Company credibility
and, the Company's status as a public company may make the acquisition by the
Company of businesses or operations more attractive to potential sellers. The
Company believes that these collective factors will help the Company acquire
attractive assets, operations and companies in the fragmented timeshare
industry. Acquisitions which the Company may consider, in addition to those
disclosed herein, include acquiring additional Vacation Intervals as
inventory, management contracts, Vacation Interval mortgage portfolios and
properties or other timeshare-related assets which may be integrated into the
Company's operations.
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DESCRIPTION OF THE COMPANY'S RESORTS
The Company believes that, based on published industry data, it is the only
developer and operator of timeshare resorts in North America that will offer
Vacation Intervals in each of the three principal price segments of the market
(value, upscale (characterized by high quality accommodations and service) and
luxury (characterized by elegant accommodations and personalized service)).
Since the inception of the timeshare development and acquisition business of
the Company's predecessors, the Company has developed or acquired eight
timeshare resorts currently in sales, which include one under construction,
and a ninth resort in sales in which the Company holds a partial interest,
located in a variety of popular resort destinations including Lake Buena Vista
(Orlando area), Florida (developed in 1992); Branson, Missouri (developed in
1993); Hilton Head Island, South Carolina (developed in 1994); Koloa, Hawaii
(acquired in 1994 and in which the Company holds an approximately 30%
interest); Orlando, Florida (developed in 1995); two resorts located in St.
Maarten, Netherlands Antilles (each acquired in 1995); Avila Beach, California
(acquired in 1996); and South Lake Tahoe, California (currently under
construction). The Company expects that its resorts will operate in the
following three general categories, each differentiated by price range, brand
affiliation and quality of accommodations:
. NON-BRANDED RESORTS. Vacation Intervals at the Company's six non-branded
resorts, which are not affiliated with any hotel chain, generally sell
for $6,000 to $15,000 and are targeted to buyers with annual incomes
ranging from $35,000 to $80,000. The Company believes its non-branded
resorts offer buyers an economical alternative to branded timeshare
resorts (such as Embassy Vacation Resorts and Westin Vacation Club
resorts) or traditional vacation lodging alternatives. Upon consummation
of the proposed Merger with AVCOM, the Company will acquire six
additional resorts currently in timeshare sales. Vacation Intervals at
these AVCOM resorts generally sell for $9,000 to $18,000 and are
targeted to buyers in the same non-branded market segment.
. EMBASSY VACATION RESORTS. Vacation Intervals at the Company's three
Embassy Vacation Resorts generally sell for $14,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide timeshare
accommodations that offer the high quality and value that is represented
by the more than 135 Embassy Suites hotels throughout North America.
. WESTIN VACATION CLUB RESORTS. Through the Westin Agreement the Company
has the exclusive right through May 2001 to jointly acquire, develop and
market with Westin "four-star" and "five-star" timeshare resorts located
in North America, Mexico and the Caribbean. The Company anticipates that
Vacation Intervals at Westin Vacation Club resorts generally will sell
for $16,000 to $25,000 and will be targeted to buyers with annual
incomes ranging from $80,000 to $250,000. The Westin Agreement
represents Westin's entry into the timeshare market. The Company and
Westin recently announced plans for the acquisition and development of
the first Westin Vacation Club resort to be located in St. John, U.S.
Virgin Islands. See "--Westin Vacation Club Resorts."
Innovation in the design and quality of the resorts developed by the
Company, as well as the branded product image of its Embassy Vacation Resorts
and Westin Vacation Club resorts, has and will continue to result in
differentiation of the Company's resorts from those of its competitors. The
Company believes feedback from its Vacation Interval owners and property
management enhances the Company's product acquisition, development and design
process. The resorts designed and developed by the Company have been
recognized by major industry groups and publications for excellence in
architectural and landscape design and overall development quality. Each of
the Company's resorts and nine of AVCOM's resorts have been designated a "Gold
Crown" resort by RCI.
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THE RESORTS
The following table sets forth certain information as of September 30, 1996
regarding each of the Existing Resorts, the Westin Vacation Club at St. John
and the AVCOM Resorts to be acquired in the pending Merger, including
location, date acquired or to be acquired by the Company, the number of
existing and total potential units at the resort, and the number of Vacation
Intervals currently available for sale and occupancy and additional expansion
potential. Of the 20 resorts set forth below, the Embassy Vacation Resort
Poipu Point is partially owned by the Company, the Westin Vacation Club Resort
at St. John will be partially owned by the Company when acquired and the North
Bay Resort at Lake Arrowhead is partially owned by AVCOM. The exact number of
units and Vacation Intervals ultimately constructed may differ from the
following estimates based on future land planning and site layout
considerations.
<TABLE>
<CAPTION>
VACATION
UNITS AT RESORT INTERVALS AT RESORT
DATE ----------------------- -------------------------
ACQUIRED/TO BE TOTAL CURRENT POTENTIAL
RESORT LOCATION ACQUIRED(a) CURRENT(b) POTENTIAL(c) INVENTORY(d) EXPANSION(e)
------ -------- -------------- ---------- ------------ ------------ ------------
<C> <S> <C> <C> <C> <C> <C>
NON-BRANDED
RESORTS:
Cypress Pointe Lake Buena Vista, November 1992 224 500(f) 3,111 14,076(f)
Resort Florida
Plantation at Branson, Missouri July 1993 98 400(g) 690 15,402(g)
Fall Creek
Royal Dunes Hilton Head Island, April 1994 40 55(h) 641 765(h)
Resort South Carolina
Royal Palm Beach St. Maarten, Netherlands July 1995 140 140(i) 1,937 -- (i)
Club Antilles
Flamingo Beach St. Maarten, Netherlands August 1995 172 257(j) 2,584 4,420(j)
Club Antilles
San Luis Bay Avila Beach, California June 1996 68 130(k) 907(l) 3,162(k)
Resort
EMBASSY VACATION
RESORTS:
Poipu Point(m) Koloa, Kauai, Hawaii November 1994 219 219(n) 9,966(n) --
Grand Beach Orlando, Florida January 1995 102 370(o) 2,673 13,668(o)
Lake Tahoe South Lake Tahoe, May 1996 -- 210(p) -- 10,710(p)
California
WESTIN VACATION
CLUB:
St. John(q) St. John, U.S. Virgin First Quarter 1997 48 96(r) 1,715(r) 2,448(r)
Islands
AVCOM RESORTS:
Scottsdale Villa Scottsdale, Arizona First Quarter 1997 -- 168(s) -- 8,568(s)
Mirage Resort
The Ridge on Sedona, Arizona First Quarter 1997 -- 120(t) -- 6,120(t)
Sedona Golf
Resort
Sedona Springs Sedona, Arizona First Quarter 1997 40 40 62 --
Resort
Sedona Summit Sedona, Arizona First Quarter 1997 12 60(u) -- (u) 2,448(u)
Resort
Villas of Poco Sedona, Arizona First Quarter 1997 33 33 78 --
Diablo
Villas of Sedona Sedona, Arizona First Quarter 1997 40 40 105 --
North Bay Resort Lake Arrowhead, First Quarter 1997 13 13(v) 429 -- (v)
at Lake California
Arrowhead(v)
Tahoe Beach & South Lake Tahoe, First Quarter 1997 140 140 1,204 --
Ski Club California
Tahoe Seasons South Lake Tahoe, First Quarter 1997 21 21(w) 899(w) --
Resort California
Villas on the Lake Conroe, Texas First Quarter 1997 37 85(x) 1,808 2,448(x)
Lake
----- ----- ------ ------
TOTAL......................................................... 1,447 3,097 28,809 84,235
===== ===== ====== ======
</TABLE>
- --------
(a) The dates listed with respect to the Existing Resorts represent the date
of acquisition or, if later, the date of completion of development of the
first phase of the resort by the Company and the dates listed with respect
to the Westin Vacation Club at St. John and AVCOM Resorts represent the
anticipated closing dates of the pending acquisitions by the Company. See
"The Proposed Merger" and "Business--Westin Vacation Club Resorts."
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(b) Current units at each resort represents only those units that have
received their certificate of occupancy as of September 30, 1996.
(c) Total potential units at each resort includes, as of September 30, 1996,
(i) units which have received their certificate of occupancy, (ii) units
currently under development that have not yet received their certificate
of occupancy and (iii) units planned to be developed on land currently
owned by the Company or AVCOM.
(d) Current inventory of Vacation Intervals at each resort represents only
those unsold intervals that have received their certificate of occupancy
as of September 30, 1996.
(e) Potential expansion of Vacation Intervals at each resort includes, as of
September 30, 1996, (i) intervals currently under development that have
not yet received their certificate of occupancy and (ii) intervals planned
to be developed on land currently owned by the Company or AVCOM.
(f) Includes an estimated 276 units, which will accommodate an additional
estimated 14,076 Vacation Intervals, which the Company plans to construct
on land which it owns at the Cypress Pointe Resort and for which all
necessary governmental approvals and permits (except building permits)
have been obtained. Should the Company elect to construct a higher
percentage of three bedroom units, rather than its current planned mix of
one, two and three bedroom units, the actual number of planned units and
Vacation Intervals will be lower than is indicated above.
(g) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, on which the Company commenced construction in June 1996 and
for which all necessary discretionary governmental approvals and permits
have been received by the Company. Also includes an additional estimated
286 units, which will accommodate an additional estimated 14,586 Vacation
Intervals, which the Company plans to construct on land which it owns or
is currently subject to a contract to purchase at the Plantation at
Fall Creek.
(h) Includes 15 units, which will accommodate 765 Vacation Intervals,
construction of which is planned to begin in the second quarter of 1997
and for which all necessary governmental approvals and permits have been
received by the Company.
(i) The Company has not committed to any expansion of the Royal Palm Beach
Club. The Company is considering the acquisition of additional land
adjacent to the Royal Palm Beach Club for the addition of an estimated 60
units, which will accommodate an estimated 3,060 Vacation Intervals, but
has yet to enter into an agreement with respect to such additional land or
to obtain the necessary governmental approvals and permits for such
expansion.
(j) In May 1996 the Company acquired a five-acre parcel of land adjacent to
the Flamingo Beach Club on which the Company plans to develop
approximately 85 units which will accommodate an estimated 4,420 Vacation
Intervals. The Company is in the process of seeking to obtain the
necessary governmental approvals and permits for such proposed expansion.
(k) Includes 62 units, which will accommodate an estimated 3,162 Vacation
Intervals, for which all necessary governmental approvals and permits have
been received by the Company. Construction of the first 31 units began in
October 1996. In addition, the Company is considering the acquisition of
additional land near the San Luis Bay Resort for the addition of an
estimated 100 units which will accommodate an estimated 5,100 Vacation
Intervals, but has yet to enter into an agreement with respect to such
land or to obtain the necessary governmental approvals and permits for
such proposed expansion.
(l) The Company in June 1996 acquired approximately 130 Vacation Intervals at
the San Luis Bay Resort out of the bankruptcy estate of Glen Ivy Resorts,
Inc. In addition, the Company acquired promissory notes in default that
are secured by approximately 900 Vacation Intervals. The Company intends
to foreclose upon and acquire clear title to such Vacation Intervals and
intends to complete such foreclosure procedures (or deed-in-lieu
procedures) during the second quarter of 1997. These 900 Vacation
Intervals are included in the above table as Current Inventory.
(m) The Company acquired a 30.4% partnership interest in the Embassy Vacation
Resort Poipu Point in November 1994. The Company owns, directly or
indirectly, 100% of the partnership interests in one of the two co-
managing general partners of the Poipu Partnership, the partnership which
owns the Embassy Vacation Resort Poipu Point. The managing general partner
owned by the Company holds a 0.5% partnership interest for purposes of
distributions, profits and losses. The Company also holds, directly or
indirectly, a 29.93% limited partnership interest in the Poipu Partnership
for purposes of distributions, profits and losses, for a total partnership
interest of 30.43%. In addition, following repayment of any outstanding
partner loans, the Company, directly or indirectly, is entitled to receive
a 10% per annum return on the Founders' and certain former limited
partners' initial capital investment of approximately $4.6 million in the
Poipu Partnership. After payment of such preferred return and the return
of approximately $4.6 million of capital to the Company, directly or
indirectly, on a pari passu basis with the other general partner in the
partnership, the Company, directly or indirectly, is entitled to receive
approximately 50% of the net profits of the Poipu Partnership. In the
event certain internal rates of return specified in the Poipu Partnership
agreement are achieved, the Company, directly or indirectly, is entitled
to receive approximately 55% of the net profits of the Poipu Partnership.
(n) Includes 179 units that the Company currently rents on a nightly basis,
pending their sale as Vacation Intervals.
(o) Includes at least 24 units, which will accommodate an additional 1,224
Vacation Intervals, on which the Company commenced construction in the
fourth quarter of 1996 and for which all necessary discretionary
governmental approvals and permits (excluding building permits which have
not yet been applied for by the Company) have been received by the
Company. The Company has also received all necessary discretionary
governmental approvals and permits to construct an additional estimated
244 units on land which it owns at the Embassy Vacation Resort Grand
Beach, which will accommodate an additional estimated 12,444 Vacation
Intervals (excluding building permits which have not yet been applied for
by the Company). The Company plans to apply for and obtain these building
permits on a building-by-building basis.
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(p) Includes 62 units, which will accommodate 3,162 Vacation Intervals, on
which construction began in May 1996 and for which all necessary
discretionary governmental approvals and permits have been received by the
Company. Twenty-seven units, which will accommodate 1,377 Vacation
Intervals, are scheduled for completion in March 1997 and 35 units, which
will accommodate 1,785 Vacation Intervals, are scheduled for completion in
April 1997. Of this total, the Company is obligated to convey four
Vacation Intervals to the former owners of the land on which the Embassy
Vacation Resort Lake Tahoe is being developed. Such conveyance will be
made upon completion of the first phase of development. The Company has
also received all necessary discretionary governmental approvals and
permits to construct an additional estimated 148 units (excluding building
permits which have not yet been applied for by the Company and which will
be applied for and obtained on a phase-by-phase basis) on land that it
owns at the Embassy Vacation Resort Lake Tahoe, which will accommodate an
estimated 7,548 Vacation Intervals, and, subject to market demand,
currently plans to construct 40 of such units commencing in May of each
year from 1997 through 1999 and the remaining 28 units commencing in May
2000. The Company commenced sales of Vacation Intervals at the Embassy
Vacation Resort Lake Tahoe in June 1996, although the Company will not be
able to close any of such sales until the completion of the first units.
The Company currently is pre-selling Vacation Intervals at the Embassy
Vacation Resort Lake Tahoe prior to receipt of certificates of occupancy.
(q) As described under "Business--Westin Vacation Club Resorts," the Company
will own 50% of the entity which will acquire the unsold Vacation
Intervals at this resort. The acquisition is anticipated to close during
the first quarter of 1997 and commencement of Vacation Interval sales is
anticipated to begin by the fourth quarter of 1997.
(r) Includes 48 units, which will accommodate approximately 1,715 unsold
Vacation Intervals, which are ready for immediate occupancy. With respect
to such 48 units, 36 of such units have received all necessary
discretionary governmental approvals and permits necessary to commence
Vacation Interval sales and, upon closing of the pending acquisition, the
Company plans to file the necessary documentation to receive such
approvals with respect to the remaining 12 of such units. Also includes an
additional 48 units, which will accommodate an additional approximately
2,448 Vacation Intervals, which will require the installation of
utilities, furniture, fixtures and equipment and interior finishes before
occupancy. Upon closing of the pending acquisition, the Company currently
anticipates completing the renovation of such 48 additional units by the
fourth quarter of 1997. Upon closing of the pending acquisition, the
Company also will have acquired adjacent land at the St. John resort which
will accommodate the development of additional units. The Company has not
yet determined the amount of potential additional units which may be
constructed on such adjacent land or the timing of such potential
development. See "Business--Westin Vacation Club Resorts."
(s) Scottsdale Villa Mirage Resort is in the final stages of construction of
the 64 units which constitute Phase I of the resort. Such 64 units will
accommodate approximately 3,264 Vacation Intervals and are scheduled for
completion in January, 1997. The 40 units in Phase II, which will
accommodate approximately 2,040 Vacation Intervals, and the 64 units in
Phase III, which will accommodate approximately 3,264 Vacation Intervals,
are scheduled for completion in the first quarters of 1998 and 1999,
respectively. All necessary discretionary approvals and permits have been
received by AVCOM for the Scottsdale Villa Mirage Resort. AVCOM currently
is pre-selling Vacation Intervals at the Scottsdale Villa Mirage Resort
prior to receipt of certificates of occupancy.
(t) Construction began in December 1996 on The Ridge on Sedona Golf Resort,
which upon completion will consist of 120 units. The first 12 units, which
will accommodate approximately 612 Vacation Intervals, and clubhouse are
scheduled for completion in April 1997, for which all necessary
discretionary governmental approvals and permits have been received by
AVCOM. Governmental approvals and permits have not been received for the
additional planned 108 units, which will accommodate approximately 5,508
Vacation Intervals.
(u) The Sedona Summit Resort is being developed by an affiliated entity,
Sedona Summit Development, L.P. of which All Seasons, a wholly owned
subsidiary of AVCOM, is the sole general partner. Sales and construction
commenced in February 1996 and the Sedona Summit is in the final stages of
construction of the final 48 units, which will accommodate approximately
2,448 Vacation Intervals, at which point no further expansion is planned.
Construction of the final 48 units is scheduled for completion in the
second quarter of 1997. All necessary discretionary governmental approvals
and permits have been received by AVCOM. AVCOM currently is pre-selling
Vacation Intervals in the final 48 units at the Sedona Summit Resort prior
to receipt of certificates of occupancy. All Vacation Intervals at the
initial 12 units have been sold as of September 30, 1996. See "Business--
Description of AVCOM's Resorts."
(v) All Seasons owns 40% of Trion Capital Corporation, and has the power to
vote another 40% of Trion, the General Partner of Arrowhead Capital
Partners, L.P., the developer of North Bay Resort at Lake Arrowhead. The
General Partner is entitled to receive 1% of the profits of Arrowhead
Capital Partners, L.P., but under certain circumstances, is entitled to
receive substantially higher profits. All Seasons has an exclusive sales
and marketing contract for sales at North Bay, and is the property manager
of the resort. Although Arrowhead Capital Partners, L.P. owns undeveloped
land and buildings under construction at the North Bay Resort at Lake
Arrowhead, no definitive expansion plans have been made.
(w) AVCOM purchased a portfolio of 1,057 defaulted consumer notes at the Tahoe
Seasons Resort in March 1996 which are secured by Vacation Intervals. Of
the notes purchased, 414 notes have been converted to inventory of which
117 Vacation Intervals have been sold and 41 of the notes have been
reaffirmed by the original buyers. AVCOM intends to foreclose on the
remaining notes and acquire clear title to the intervals. These remaining
602 notes are included in the above table as Current Inventory.
(x) Villas on the Lake consists of 37 existing units purchased in February
1996 currently in the final phase of renovation. Land included in the
initial purchase is able to accommodate construction of an additional 48
units, which will accommodate an additional approximately 2,448 Vacation
Intervals. The phase II construction start date has not yet been
determined. All necessary discretionary governmental approvals and permits
(excluding building permits which have not yet been applied for by AVCOM)
have been received by AVCOM.
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NON-BRANDED RESORTS
The Cypress Pointe Resort. Cypress Pointe Resort, the Company's first
timeshare resort, opened in November 1992 and is located in Lake Buena Vista,
Florida, approximately one-half mile from the entrance of Walt Disney World
and is an approximately 10 minute drive from all major Orlando attractions.
The resort is being developed in two phases. Phase I sits on 9.7 acres of land
and consists of nine buildings, eight of which currently are complete. Phase
II sits on 12.5 acres of land and will consist of seven buildings, the first
and second of which were completed in April and September 1996, respectively.
Styled with a Caribbean theme, upon completion of the nine buildings, Phase
I will contain 192 three bedroom 1,460 square foot units. Each unit
comfortably accommodates up to eight people with its two large master
bedrooms, three bathrooms, living room with sleeper sofa, and full kitchen.
The three bedroom units in Phase I also offer a jacuzzi tub, a roman tub,
three color televisions (including one 460 screen), a video cassette player, a
complete stereo system, a washer/dryer and elegant interior details such as
nine-foot ceilings, crown moldings, interior ceiling fans, imported ceramic
tile, oversized sliding-glass doors and rattan and pine furnishings. With the
completion of Phase II, the resort will be equipped with three pools including
a 4,000 gallon heated pool with a volcano, two spas, two poolside cafes, two
tennis courts, a sand volleyball court, a basketball court, an exercise
facility, a kiddie pool, a gift shop, a lakeside gazebo, a shuffleboard court,
a picnic area and a video arcade. The resort also contains a full children's
playground and a new 17,000 square foot clubhouse.
Upon completion of Phases I and II, the resort will contain approximately
500 units. Upon completion of seven buildings in Phase II, Phase II will
contain a total of approximately 308 units consisting of one, two and three
bedroom units of up to 1,850 square feet and accommodating up to ten people.
Phase I consists of 168 existing units, with 24 units scheduled to be built
upon the completion of Phase II.
The resort currently contains 11,424 total Vacation Intervals of which 3,111
remained for sale as of September 30, 1996. Vacation Intervals at the Cypress
Pointe Resort are currently priced from $6,000 to $16,000 for one-week
Vacation Intervals, 1,824 of which were sold in 1995. Vacation Intervals at
the resort can be exchanged for Vacation Intervals at other locations through
RCI, which awarded the resort its Gold Crown Resort Designation. The resort
won the ARDA National Award for its overall owner package in 1993.
The Plantation at Fall Creek. The Plantation at Fall Creek, which opened in
March 1993, is located on the shores of Lake Taneycomo, a fishing lake near
the heart of Branson, Missouri, the capital of country music theaters. The
resort currently contains 98 units each consisting of 2 bedrooms and 2 baths
and up to 1,417 square feet, built in a country style on approximately 130
acres of land. The Company currently plans to continue to expand the resort to
accommodate a total of 400 units. Each unit features two large master
bedrooms/baths, queen sized sofa-sleeper, full kitchen, three color
televisions, video cassette player, washer/dryer, cherry wood furnishings,
ceiling fans and jacuzzi or roman tub. The resort is equipped with 4 swimming
pools, a fishing dock, a shuffleboard court, a game room, a children's
playground, a health club, a tennis court, a miniature golf course, a sand
volleyball court, barbecue areas and a basketball court.
As of September 30, 1996, the resort contained 4,998 total Vacation
Intervals of which 690 remained for sale. Vacation Intervals at the Plantation
at Fall Creek are currently priced from $7,295 to $10,295 for one-week
Vacation Intervals, 1,094 of which were sold in 1995. Vacation Intervals at
the resort can be exchanged for Vacation Intervals at other locations through
RCI, which awarded the resort its Gold Crown Resort Designation.
The Royal Dunes Resort at Port Royal Plantation. The Royal Dunes Resort at
Port Royal Plantation opened in April 1994 and is located in Port Royal
Plantation on Hilton Head Island, South Carolina, only 400 yards from the
beach. The resort presently contains 40 units consisting of three bedrooms and
three bath units and upon completion scheduled for late 1997, will be expanded
to include a total of 55 units. The units can comfortably accommodate eight
people in their 1,460 square feet of living area with two master suites with
private bath, one guest bedroom with bath, a living room with a sofa sleeper,
a full kitchen and an outside deck.
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Each unit features a jacuzzi tub, a roman tub, a washer/dryer, four color
televisions, a video cassette player, an entertainment center and elegant
interior details such as nine-foot ceilings, crown moldings, interior ceiling
fans and rattan and pine furnishings. The resort offers a heated swimming
pool, outdoor whirlpool spa, kiddie pool, sand volleyball court, barbecue
grill and picnic area. The Royal Dunes is conveniently located for golf,
tennis, fishing, shopping, boating, biking and croquet and adjacent to Royal
Dunes is the Westin Hotel and Resort at Port Royal, Hilton Head Island.
The resort currently contains 2,040 total Vacation Intervals of which 641
remained for sale as of September 30, 1996. Vacation Intervals at the Royal
Dunes are currently priced from $8,250 to $13,250 for one-week Vacation
Intervals, 577 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The Royal Palm Beach Club. The Royal Palm Beach Club, originally opened in
1990 and acquired by the Company in July 1995, is located at Simpson Bay in
St. Maarten, Netherlands Antilles. Located approximately one mile from the
island's major airport and ten minutes from local shopping and dining, the
resort is surrounded by the Caribbean on three sides. The resort contains 140
units consisting either of two bedrooms, two baths or three bedrooms, three
baths. Each unit is equipped with a full kitchen, complete with microwave and
dishwasher, color television, VCR and private lanai. The resort is equipped
with a private beach, an overflowing style pool located on the beach, a large
sun deck and a picnic area with barbecue grills. The Royal Palm Beach Club is
also conveniently located for water sports, boating, health club workouts and
tennis, and is located adjacent to a retail center, including an outdoor cafe,
dance clubs, market, hair salon, gift shop, mini-market and restaurants. Each
unit at the resort, as well as the resort grounds and common areas, recently
received a complete renovation in connection with repairs following the
September 1995 hurricane which damaged the resort.
The resort currently contains 7,280 total Vacation Intervals of which 1,937
remained for sale as of September 30, 1996. Units at the Royal Palm Beach
Club, are currently priced from $9,450 to $12,900 for one-week Vacation
Intervals, 272 of which were sold by the Company in 1995. Vacation Intervals
at the resort can be exchanged for Vacation Intervals at other locations
through RCI, which awarded the resort its Gold Crown Resort Designation and
through Interval International, the other major exchange company in the
industry, which awarded the resort a "five-star" designation, the highest
quality level in the II system.
The Flamingo Beach Club. The Flamingo Beach Club, originally opened in
January 1991 and acquired by the Company in July 1995, is located on "the
Point" of the Pelican Key Peninsula in St. Maarten, Netherlands Antilles,
directly on the beach of the Caribbean. The resort is located approximately
two miles from the island's major airport and is within walking distance of
shopping and dining facilities. The resort is surrounded by the Caribbean
Ocean on three sides and contains 172 units consisting of beachfront studio
and one bedroom, one bath units. Each unit is equipped with two color
televisions, a video cassette player, air conditioning, a balcony suitable for
outside dining and a fully equipped kitchen complete with microwave oven and
dishwasher. The resort features water sports, a beach palapa bar and grill, a
mini-market, tennis facilities and a beach house bar. Each unit at the resort,
as well as the resort grounds and common areas, recently received a complete
renovation in connection with repairs following the September 1995 hurricanes
which damaged the resort.
The resort currently contains 8,944 total Vacation Intervals of which 2,584
remained for sale as of September 30, 1996. Vacation Intervals at the Flamingo
Beach Club are currently priced from $6,500 to $8,900 for one-week Vacation
Intervals, 104 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The San Luis Bay Resort. The San Luis Bay Resort, located on 16 oceanview
acres in Avila Beach, California, near San Luis Obispo, was originally opened
in 1969 as a hotel club and in June 1996 was acquired by the Company from the
bankruptcy estate of Glen Ivy Resorts, Inc., which had converted the property
to a timeshare resort in 1989. The resort is adjacent to a championship golf
course and is well located for visiting local wineries and historical
attractions. At present, a total of 68 studio and one bedroom units are
completed at
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the resort. The Company currently intends to commence construction of the
phase I addition of 30 units in the fourth quarter of 1996. Upon completion of
the addition, units will be available in one and two bedroom configurations
(some with lock-off capability) and will offer a king size bed, a queen size
sofa sleeper, a porch, a full kitchen, two color televisions, a video cassette
player and a stereo. The phase II addition of 32 units is scheduled to
commence construction following the completion of phase I. The resort features
a swimming pool, a spa, four tennis courts, exercise facilities, a full
service salon, a video game room, a basketball court and a barbecue area. The
resort is also well located for windsurfing, boating, fishing and surfing.
The Company's inventory at the resort contains 907 available Vacation
Intervals (including 900 Vacation Intervals which the Company is in the
process of acquiring through foreclosure). Vacation Intervals at the San Luis
Bay Inn are currently priced from $8,500 to $16,000 for one-week Vacation
Intervals. Vacation Intervals at the resort can be exchanged for Vacation
Intervals at other locations through RCI.
EMBASSY VACATION RESORTS
The Embassy Vacation Resort Grand Beach. The Embassy Vacation Resort Grand
Beach opened in January 1995 and is located along nearly 2,000 feet of the
south shore of Lake Bryan, a 450-acre spring-fed lake in Lake Buena Vista,
Florida. The 1920's Florida architectural style resort sits on 18 acres and
upon its projected completion by the year 2000 will offer approximately 370
units in 14 four and five story buildings. Despite the resort's remote, lake
front ambiance, it is only minutes from International Drive which provides
access to Orlando, Florida's major attractions. All current units offer three
bedrooms and three bathrooms with approximately 1,550 square feet of living
area, including a large screened-in deck and a full-size, well-equipped
kitchen. With two master suites, a third bedroom, and a sleeper sofa in the
living room, units can comfortably accommodate four couples. Each unit
features air-conditioning, a whirlpool tub, a washer/dryer, three cable
televisions, a video cassette player, a stereo and elegant interior details
such as nine-foot ceilings, crown molding, wooden venetian blinds, imported
ceramic tile and slate flooring. Upon full completion, the Company expects
that the resort will include 5,000 square feet of sand beaches, four gazebo-
covered docks that stretch out over Lake Bryan and easy access to water
skiing, jetskiing, parasailing, sailboating, wind surfing and fishing on Lake
Bryan. The Grand Beach resort will provide two outdoor pools, two spas, two
kiddie pools, two lighted tennis courts, sand volleyball courts, shuffleboard
courts, a putting green, a children's playground, barbecue and picnic areas
and a fitness complex with two clubhouses containing exercise rooms, kitchens
and a video arcade. In 1995, the resort was featured in both RCI Perspective
Magazine and Resort Development and Operations Magazine.
The resort currently contains 5,202 total Vacation Intervals of which 2,673
remained for sale as of September 30, 1996. Vacation Intervals at the Embassy
Vacation Resort Grand Beach are currently priced from $12,500 to $14,000 for
one-week Vacation Intervals, 1,523 of which were sold in 1995. Vacation
Intervals at the resort can be exchanged for Vacation Intervals at other
locations through RCI, which awarded the resort its Gold Crown Resort
Designation.
The Embassy Vacation Resort Poipu Point. The Embassy Vacation Resort Poipu
Point was reconstructed in 1993 after being substantially destroyed by
Hurricane Iniki and was acquired by the Company in November 1994. The resort
is located at the most southern point on the Poipu Sun Coast of Kauai, Hawaii,
offering a natural, open setting in an architectural style designed to blend
with the land. The resort spans 10 buildings on 22 acres with a total of 219
units. The units, one of which has one bedroom and one bathroom, 216 of which
have two bedrooms and two bathrooms and 2 of which have three bedrooms and
three bathrooms, range in size from 1,363 to 2,629 square feet. Each unit
either overlooks the ocean or one of the many gardens maintained on the
grounds. All units feature air-conditioning, two telephones with voice mail,
two cable televisions, video cassette player, stereo, washer/dryer, whirlpool
tub, full kitchen and a spacious lanai. Units can accommodate up to six people
and are appointed with designer furnishings, custom fabrics, and custom-
designed ceramic tile. The resort is equipped with a spectacular lagoon-like
freshwater swimming pool with a sandy beach entry and its own beach,
waterfalls, fish ponds, lush garden walkways, a kiddie pool and a health club
with weight and aerobic equipment, two hydrospas, sauna and steamroom. The
property is adjacent to a large sandy beach and is well
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located for scuba diving, wind surfing, golf, tennis, surfing, horseback
riding, fishing, boating and exploring the island's rain forests, fern grottos
and waterfalls.
The resort currently contains 11,169 total Vacation Intervals of which 9,966
remained for sale as of September 30, 1996. Units at the Embassy Vacation
Resort Poipu Point are currently priced from $13,700 (one bedroom) to $25,600
(three bedrooms) for one-week Vacation Intervals, 281 of which were sold in
1995. Vacation Intervals at the resort can be exchanged for Vacation Intervals
at other locations through RCI, which featured the resort in RCI Perspective
Magazine in 1995 and awarded it the RCI, Gold Crown Resort Designation.
The Embassy Vacation Resort Lake Tahoe. Construction on the Embassy Vacation
Resort Lake Tahoe began in May 1996. The resort is located in South Lake
Tahoe, California, and is situated on nine acres near the shores of Lake Tahoe
adjoining the Lake Tahoe Marina in one of the world's most beautiful resort
areas. The architectural design of the resort connotes the rustic elegance
known as "Old Tahoe." Approximately one mile from the casinos and 1/2 mile
from the base lift of Heavenly Ski Resort, upon completion the resort will
contain 210 two bedroom/two bath units offering lake and mountain views. The
resort will feature a restaurant, an indoor/outdoor heated swimming pool, a
spa, a sunning deck, lakefront activities, bike rentals, ski valet, sundry
shop, convenience store and delicatessen.
The Company plans to complete construction of the first phase of the resort
in March 1997. Upon completion of all planned phases, the Company expects that
the resort will contain units for 10,710 total Vacation Intervals. Vacation
Intervals at the Embassy Vacation Resort Lake Tahoe are priced from $17,000 to
$25,000 for one-week Vacation Intervals. RCI has indicated that Vacation
Intervals at the resort may be exchanged for Vacation Intervals at other
locations through RCI.
WESTIN VACATION CLUB RESORTS
The Company and Westin have entered into the Westin Agreement pursuant to
which the Company has acquired the exclusive right to jointly acquire, develop
and sell with Westin "four-star" and "five-star" Westin Vacation Club resorts
in North America, Mexico and the Caribbean for a five year term expiring May
3, 2001. Pursuant to the Westin Agreement, Westin and the Company intend to
enter into detailed definitive agreements to implement the Westin Agreement,
including operating agreements. There can be no assurance that the parties
will be able to reach such definitive agreements. See "Risk Factors--Risks
Related to Westin Agreement; Limited Control of Resorts and Termination."
Pursuant to the Westin Agreement, each of the Company and Westin will own a
50% equity interest in the ventures that own such resorts and have an equal
voice in the management of such ventures. The primary focus of the Westin
Agreement is (i) developing vacation ownership villas surrounding existing
Westin hotel resort properties and (ii) acquiring or developing hotels which
can be operated under the Westin hotel brand while at the same time being
converted to vacation ownership properties. Pursuant to the Westin Agreement,
each of the Company and Westin has agreed that, subject to certain exceptions,
including certain Embassy Vacation Resort acquisition and development
opportunities, it will present to the other party all "four-star" and "five-
star" hotel and resort acquisition and development opportunities (e.g.,
properties that are flagged by brands such as Disney, Marriott, Omni, Ritz
Carlton, Four Seasons/Regent, Inter-Continental and Meridien) that it has
determined to pursue and such other party has a right of first refusal to
determine whether to jointly develop such opportunities with the other party
subject to the foregoing exclusions. Pursuant to the Westin Agreement, Westin
and the Company will form a separate partnership, limited liability company or
similar entity to develop and operate each Westin Vacation Club resort, of
which Westin and the Company shall be co-general partners or co-managers, as
applicable. Each of the Company and Westin will contribute 50% of the equity
needed to develop and operate each Westin Vacation Club resort. Pursuant to
the Westin Agreement, Westin has the right to manage all Westin Vacation Club
resorts and the Company and Westin will share the profits from such management
activity. In addition, Westin will promote the Westin Vacation Club concept by
utilizing its customer base for sales and marketing programs, arranging for
on-site sales desks and other in-house marketing programs, in exchange for
which the Company has agreed to reimburse Westin predetermined marketing and
advertising costs incurred by Westin. Under certain circumstances, either
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party may terminate the Westin Agreement upon failure to reach specified
development goals. See "Risk Factors--Risks Related to the Westin Agreement;
Limited Control of Resorts and Termination."
Pursuant to the Westin Agreement, the Company has agreed to make available
to Westin one voting seat on the Company's Board of Directors and has agreed
to use maximum reasonable efforts to cause the nomination and election of
Westin's designee. Westin has agreed to make available to the Company one non-
voting seat on its Board of Directors which will be filled by one of the
Founders. Following any public offering of equity securities by Westin, the
Company's seat on Westin's board will become a voting seat, entitled to all
reciprocal provisions granted by the Company to Westin. See "Risk Factors--
Effective Voting Control by Existing Stockholders; Westin Director
Designation."
In December 1996, the Company and Westin announced plans to acquire and
develop the first Westin Vacation Club resort in St. John, U.S. Virgin
Islands. The "four-star" Westin Vacation Club at St. John will involve a
conversion of the existing St. John Villas, located adjacent to the Great Cruz
Bay Resort Hotel (formerly known as the Hyatt Regency St. John) which will be
operated as the St. John Hotel. Pursuant to a purchase and sale agreement with
subsidiaries of Skopbank, a Finnish corporation, Westin will acquire a 100%
interest in the St. John Hotel and the Company and Westin will form the Westin
Partnership owned 50% by each of the Company and Westin to acquire an interest
in the 96 units at the St. John Villas, representing 4,163 Vacation Intervals
(the number of unsold Vacation Intervals remaining at the St. John Villas),
which will be operated as the Westin Vacation Club resort at St. John. Of the
$10.5 million purchase price for the remaining unsold Vacation Intervals at
St. John Villas, each of the Company and Westin is obligated to contribute
approximately $2.5 million in cash, with the remaining $5.5 million of the
acquisition price to be paid by the Westin Partnership. In addition, the
Westin Partnership will borrow approximately $7.1 million to complete the
conversion of the St. John Villas to a Westin Vacation Club resort.
The acquisition of the St. John resort is anticipated to close during the
first quarter of 1997 and commencement of Vacation Interval sales is
anticipated to begin by the fourth quarter of 1997. Located adjacent to the
beachfront hotel, the St. John Villas consist of 96 studio, one bedroom, two
bedroom and three bedroom units located on 12.3 hillside acres, of which 48
units are completed and ready for immediate occupancy. The additional 48 units
currently require construction of all interior finishes and installation of
furniture, fixtures and equipment prior to occupancy. The renovation, which
repaired damage sustained during Hurricane Marilyn in September 1995, has been
completed.
DESCRIPTION OF AVCOM'S RESORTS
AVCOM owns nine timeshare resorts, including two under construction, and a
tenth resort in which AVCOM holds a partial interest. Of these resorts, six
are currently in sales (including the partially-owned North Bay Resort at Lake
Arrowhead), one resort is pending development and AVCOM has completed sales at
three resorts (Villas at Poco Diablo, Villas of Sedona and Sedona Springs
Resort) and provides homeowners' association management and resale services at
these three locations.
Resorts in Current Sales
Tahoe Beach & Ski Club. The Tahoe Beach & Ski Club is a beach front resort
located in the City of South Lake Tahoe, California on approximately eight
acres at the end of Ski Run Boulevard which was purchased by AVCOM in March
1994. The project includes a total of 140 units, of which 110 were renovated
as timeshare units at the date acquired. Thirty units have since been
renovated for sale as timeshare units and are being marketed. At the time of
purchase, 4,533 Vacation Intervals related to the 110 renovated units of the
resort had been previously sold. The homeowners' association engaged RPM
Management, Inc. ("RPM"), a wholly-owned subsidiary of All Seasons, to operate
the property.
Sedona Summit Resort. In May 1995, AVCOM purchased approximately three acres
in Sedona, Arizona for development of a 60 unit timeshare resort.
Additionally, in May, 1996, AVCOM exercised an option to
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acquire an adjacent parcel consisting of approximately four acres. Timeshare
interest sales commenced in February 1996.
AVCOM is developing the Sedona Summit Resort through an affiliated entity,
Sedona Summit Development Limited Partnership ("SSDLP"), of which All Seasons
is the sole general partner. The activities of SSDLP are consolidated in
AVCOM's financial statements. SSDLP sold limited partnership interests in
March 1996 of approximately $1,500,000 representing a 99% ownership interest.
AVCOM has secured a revolving construction loan of $2,500,000 which has been
guaranteed by SSDLP for the development of the Sedona Summit Resort. AVCOM has
contracted to purchase completed units in phases from SSDLP for an aggregate
of $14,084,000. Sales and construction commenced in February 1996.
Scottsdale Villa Mirage Resort. The Scottsdale Villa Mirage Resort is a 168
unit resort currently under construction located on 10 acres in Scottsdale,
Arizona at the Scottsdale Princess Resort development, within proximity of the
Scottsdale Princess Hotel. The units will be two bedroom condominium type
units consisting of approximately 1,200 square feet. Construction and sales of
Phase I began in March 1996, and is planned to be open for occupancy in
February 1997. Amenities are anticipated to include a clubhouse with an
exercise facility, swimming pool and spas and tennis and volleyball courts.
Villas on the Lake. AVCOM acquired an existing condominium project adjacent
to Lake Conroe in Montgomery County, Texas in April 1996. The project consists
of 37 completed units and existing approvals and land for the construction of
48 additional units. AVCOM has contracted with the April Sound Country Club
for use of its facilities by the project's homeowner's association. Renovation
of existing units began in February 1996 and sales began in June 1996.
Tahoe Seasons Resort. During February 1996, AVCOM acquired a portfolio of
approximately 1,057 non-performing timeshare receivables generated from the
sale of timeshare intervals at Tahoe Seasons Resort in South Lake Tahoe,
California. The purchase price of approximately $1.5 million was funded by a
loan. AVCOM has also agreed to purchase other receivables generated from sales
at Tahoe Seasons Resort that subsequently become delinquent. AVCOM will
convert non-performing loans into timeshare inventory which will be sold.
Resorts Under Development
The Ridge on Sedona Golf Resort. AVCOM has acquired an approximate 12 acre
parcel in Sedona, Arizona for approximately $5.5 million. The facility
comprising The Ridge Spa & Racquet Club has been acquired as a portion of this
development. The parcel is located on the 18th fairway of the golf course at
the Sedona Golf Resort. AVCOM anticipates developing the property into a 120
unit timeshare resort in phases. Amenities are anticipated to include a 12,000
square foot club house, three swimming pools and six spas in addition to
privileges at The Ridge Spa and Racquet Club.
Partially Owned Resorts
North Bay Resort at Lake Arrowhead. The North Bay Resort at Lake Arrowhead
is located in San Bernardino County, California. AVCOM entered into a series
of agreements in January 1996 whereby AVCOM provided guarantees for $12.7
million of the developer's financing in return for a fee of $450,000
(evidenced by a note payable), a right of first refusal to offer Vacation
Interval receivable financing to the developer after expiration of the
developer's present $10.0 million financing commitment, received an option to
assume property management for the resort's homeowners association and
purchased a 40% equity position in Trion Capital Corporation, the corporate
general partner of Arrowhead Capital Partners L.P., the developer of the
resort. The general partner is entitled to receive 1% of the profits of the
developer partnership, but under certain circumstances is entitled to receive
substantially higher profits. The 40% equity position was acquired for
$600,000. The proposed resort contemplates the consolidation of two adjacent
developments. One development consists of two completed condominium buildings
converted to Vacation Interval and additional undeveloped land. The second
parcel consists of a combination of three existing condominium buildings in
various stages of
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construction and pads for two additional condominium buildings. The developer
has been provided with a $2.7 million construction and operating loan
commitment and a $10.0 million commitment for Vacation Interval receivable
financing from a financing company, subject to operational involvement and
financial guarantees of AVCOM.
Resorts At Which Sales Have Been Completed
AVCOM has substantially completed sales of Vacation Intervals at the
following three resorts. AVCOM provides homeowners' association management and
resale services at these locations.
Villas at Poco Diablo. The Villas at Poco Diablo resort is a 33 unit, 1,683
Vacation Interval condominium conversion of studios and one-bedroom units
located in Sedona, Arizona. The one-bedroom units have frontage to Oak Creek
and the studio units have frontage to the golf course owned by the Poco Diablo
Resort. During the period 1988 through 1992, the resort was renovated by
AVCOM, and the units were refurbished with new furniture, fixtures and
equipment, new paint, new roofs and interiors and a remodeled outdoor pool and
spa area.
Villas of Sedona. The Villas of Sedona resort is a 40 unit, 2,040 Vacation
Interval townhouse conversion of one and two bedroom units located in west
Sedona, Arizona. The property was purchased in 1992 and has been remodeled by
AVCOM since then. The resort has new furniture, fixtures and equipment, new
paint, a new outdoor pool and custom spa area and major landscaping. In
addition, a new building encloses an outdoor pool which adjoins a 4,000 square
foot clubhouse and fitness center.
Sedona Springs Resort. Sedona Springs is a 40-unit, 2,040 Vacation Interval
two bedroom suite resort located in Sedona, Arizona on four acres adjacent to
the Villas of Sedona resort. Common areas include a 5,000 sq. ft. clubhouse,
two outdoor spas, a pool facility and spa area. This resort was the first
"purpose built" development construction by AVCOM. Construction of this
project commenced in the first quarter of 1994. Phase one consisted of 13
units and was completed in the third quarter of 1994. Phase two, consisting of
14 units and common areas, was completed in the second quarter of 1995. Phase
three, consisting of 13 units was completed in November 1995. The clubhouse is
completed and being used temporarily as a sales center. Sales at this project
were substantially completed by January 1996.
CUSTOMER FINANCING
A typical Vacation Interval entitles the buyer to a one-week per year stay
at one of the Company's resorts and ranges in price from approximately $4,000
to $8,000 for a studio residence to approximately $12,000 to $26,000 for a
three bedroom residence. The Company offers financing to the purchasers of
Vacation Intervals in the Company's resort properties who make a down payment
generally equal to at least 10% of the purchase price. This financing
generally bears interest at fixed rates and is collateralized by a first
mortgage on the underlying Vacation Interval. A portion of the proceeds of
such financing is used to obtain releases of the Vacation Interval unit from
any underlying debt. The Company has entered into agreements with lenders for
the financing of customer receivables. These agreements provide an aggregate
of up to approximately $178 million of available financing to the Company
bearing interest at variable rates tied to either the prime rate or LIBOR of
which the Company had, at September 30, 1996, approximately $116 million of
additional borrowing capacity available. Under these arrangements, the Company
pledges as security qualified purchaser promissory notes to these lenders, who
typically lend the Company 80% to 90% of the principal amount of such notes.
Payments under these promissory notes are made by the purchaser borrowers
directly to a payment processing center and such payments are credited against
the Company's outstanding balance with the respective lenders. These
arrangements currently have varying borrowing periods ranging from 18 to 20
months after the initial commitment date. The Company does not presently have
binding agreements to extend the terms of such existing financing or for any
replacement financing upon the expiration of such funding commitments, and
there can be no assurance that alternative or additional arrangements can be
made on terms that are satisfactory to the Company. Accordingly, future sales
of Vacation Intervals may be limited by both the availability of funds to
finance the initial negative cash flow that results from sales that are
financed by the Company and by reduced
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demand which may result if the Company is unable to provide financing to
purchasers of Vacation Intervals. If the Company is required to sell its
customer receivables, discounts from the face value of such receivables may be
required by buyers, or the Company may be unable to locate buyers.
At September 30, 1996, the Company had a portfolio of approximately 12,800
loans to Vacation Interval buyers amounting to approximately $90.8 million
with respect to the Company's consolidated resorts. The Company's consumer
loans had a weighted average maturity of approximately seven years and a
weighted average interest rate of 15% compared to a weighted average cost of
funds of 10.25% on the Company's borrowings secured by such customer loans. As
of September 30, 1996, approximately 8.1% of the Company's consumer loans were
considered by the Company to be delinquent (past due by 60 or more days) and
the Company has completed or commenced foreclosure or deed-in-lieu of
foreclosure on approximately 2.5% of its consumer loans. The Company has
historically derived income from its financing activities. Of these delinquent
loans, approximately 90% were originated by the Company and the remaining 10%
were acquired by the Company as delinquent loans. If only the Company's
originated loans were considered, approximately 7.5% of them would be
considered delinquent as of September 30, 1996. However, because the Company's
borrowings bear interest at variable rates and the Company's loans to
purchasers of Vacation Intervals bear interest at fixed rates, the Company
bears the risk of increases in interest rates with respect to the loans it has
from its lenders. The Company intends to continue to engage in interest rate
hedging activities from time to time in order to reduce the risk and impact of
increases in interest rates with respect to such loans, but there can be no
assurance that any such hedging activity will be adequate at any time to fully
protect the Company from any adverse changes in interest rates. See "Risk
Factors--Risk of Hedging Activities."
The Company also bears the risk of purchaser default. The Company's practice
has been to continue to accrue interest on its loans to purchasers of Vacation
Intervals until such loans are deemed to be uncollectible, at which point it
expenses the interest accrued on such loan, commences foreclosure proceedings
and, upon obtaining title, returns the Vacation Interval to the Company's
inventory for resale. The Company closely monitors its loan accounts and
determines whether to foreclose on a case-by-case basis. See "Risk Factors--
Risks Associated with Customer Financing" and "--Risks Associated with
Customer Default."
SALES AND MARKETING
The Company. As one of the leading developers and operators of timeshare
resorts in North America, the Company believes that it has acquired the skill
and expertise in the development, management and operation of timeshare
resorts and in the marketing of Vacation Intervals. The Company's primary
means of selling Vacation Intervals is through on-site salesforces at each of
its Existing Resorts. A variety of marketing programs are employed to generate
prospects for these sales efforts, which include targeted mailings, overnight
mini-vacation packages, certificate programs, seminars and various
destination-specific local marketing efforts. Additionally, incentive premiums
are offered to guests to encourage resort tours, in the form of entertainment
tickets, hotel stays, gift certificates or free meals. The Company's sales
process is tailored to each prospective buyer based upon the marketing program
that brought the prospective buyer to the resort for a sales presentation.
Prospective target customers are identified through various means of
profiling, and either include or will include Westin and Embassy Suites hotel
guests and current owners of timeshare. Cross-marketing targets current owners
of intervals at the Company's existing resorts, both to sell additional
intervals at the owner's home resort, or to sell an interval at another of the
Company's resorts. The Company also sells Vacation Intervals through off-site
sales centers.
The Company seeks to attract potential Vacation Interval buyers at its
Embassy Vacation Resorts by targeting past and present Embassy Suites' hotel
guests with in-hotel marketing and direct marketing programs. These marketing
efforts offer this target audience of Embassy Suites hotel guests value priced
vacation packages which include resort tours and the opportunity to purchase
complete vacations, including accommodations, airfare and other vacation
components such as car rental. Additionally, the Company has the ability to
generate resort tours through Embassy Suites' central reservation system (and
through the five KOAR-owned Embassy Suites hotels) by offering a premium for a
resort tour at the time a consumer books an Embassy Suites hotel in
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the vicinity of an Embassy Vacation Resort property. The Company believes its
access to the Embassy Suites customer base allows it to generate Vacation
Interval sales from these prospective customers at a lower cost than through
other lead generation methods. Because a high percentage of such customers
already have a preference for the Embassy brand, the Company believes it
achieves relatively high sales closing percentages among these customers.
Pursuant to the Westin Agreement, the Company intends to use similar marketing
strategies at its Westin Vacation Club resorts. The Company's six non-branded
resorts also provide it the opportunity to cross-market customers among
resorts and give owners and prospective buyers the ability to visit and own
Vacation Intervals in multiple destinations. These cross-marketing programs
may also help to create a meaningful identity for the non-branded properties.
AVCOM. Upon consummation of the Merger, all sales and marketing operations
with respect to the AVCOM Resorts will be conducted by the Company.
ACQUISITION PROCESS
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, real estate brokers, lodging companies or financial institutions
with which the Company has established business relationships. From time to
time the Company is also contacted by lenders and property owners who are
aware of the Company's development, management, operations and sales expertise
with respect to Vacation Interval properties.
The Company has expertise in all areas of resort development including, but
not limited to, architecture, construction, finance, management, operations
and sales. With relatively little lead time and with minimal outside
consultant expense, the Company is able to analyze potential acquisition and
development opportunities. After completing an analysis of the prospective
market and the general parameters of the property or the site, the Company
generates a conceptual design to determine the extent of physical construction
or renovation that can occur on the site in accordance with the requirements
of the local governing agencies. For most properties, the predominant factors
in determining the physical design of the site include density of units,
maximum construction height, land coverage and parking requirements. Following
the preparation of such a conceptual design, the Company analyzes other
aspects of the development process, such as construction cost and phasing, to
match the projected sales flow in the relevant market. At this stage of
analysis, the Company undertakes to compare sales, construction cost and
phasing, debt and equity structure, cash flow, financing and overall project
cost to the acquisition cost. The Company's procedures when considering a
potential acquisition are set forth below.
Economic and Demographic Analysis. To evaluate the primary economic and
demographic indicators for the resort area, the Company considers the
following factors, among others, in determining the viability of a potential
new timeshare resort in a particular location: (i) supply/demand ratio for
Vacation Intervals in the relevant market, (ii) the market's growth as a
vacation destination, (iii) the ease of converting a hotel or condominium
property into a timeshare resort, (iv) the availability of additional land at
the property for future development and expansion, (v) competitive
accommodation alternatives in the market, (vi) uniqueness of location, and
(vii) barriers to entry that would limit competition. The Company examines the
competitive environment in which the proposed resort is located and all
existing or to-be-developed resorts. In addition, information respecting
characteristics, amenities and financial information at competitive resorts is
collected and organized. This information is used to assess the potential to
increase revenues at the resort by making capital improvements.
Pro Forma Operating Budget. The Company develops a comprehensive pro forma
budget for the resort, utilizing available financial information in addition
to the other information collected from a variety of sources. The estimated
sales of units are examined, including the management fees associated with
such unit. Finally, the potential for overall capital appreciation of the
resort is reviewed, including the prospects for liquidity through sale or
refinancing of the resort.
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Environmental and Legal Review. In conjunction with each prospective
acquisition or development, the Company conducts real estate and legal due
diligence on the property. This due diligence includes an environmental
investigation and report by a reputable environmental consulting firm similar
to that undertaken and prepared in connection with the Offering, including
tests on identified underground storage tanks. If recommended by the
environmental consulting firm, additional testing is generally conducted. The
Company also obtains a land survey of the property and inspection reports from
licensed engineers or contractors on the physical condition of the resort. In
addition, the Company conducts customary real estate due diligence, including
review of title documents, operating leases and contracts, zoning, and
governmental permits and licenses and a determination of whether the property
is in compliance with applicable laws.
OTHER OPERATIONS
Room Rental Operations. In order to generate additional revenue at certain
of the Existing Resorts that have an excess inventory of Vacation Intervals,
the Company rents units with respect to such unsold or unused Vacation
Intervals for use as a hotel. The Company offers these unoccupied units both
through direct consumer sales, travel agents or package vacation wholesalers.
In addition to providing the Company with supplemental revenue, the Company
believes its room-rental operations provide it with a good source of lead
generation for the sale of Vacation Intervals. As part of the management
services provided by the Company to Vacation Interval owners, the Company
receives a fee for services provided to rent an owner's Vacation Interval in
the event the owner is unable to use or exchange the Vacation Interval. In
addition, the Embassy Vacation Resort Poipu Point (acquired in November 1994)
and the Westin Vacation Club at St. John (plans for acquisition and
development announced in December 1996) were both acquired or proposed to be
acquired as a traditional hotel with the intention of converting each such
resort to a timeshare property. Until such time as a unit at each resort is
sold as Vacation Intervals, the Company continues (or will continue) to rent
such unit on a nightly basis. In the future, other acquired resorts may be
operated in this fashion during the start-up of Vacation Interval sales. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Resort Management. The Company's Existing Resorts are (i) generally managed
by the Company itself pursuant to management agreements with homeowner
associations with respect to each of the Company's non-branded resorts, (ii)
managed by Promus pursuant to management agreements with the Company with
respect to the Company's Grand Beach and Lake Tahoe Embassy Vacation Resorts
or (iii) managed by Aston Hotels & Resorts ("Aston") with respect to the
Embassy Vacation Resort Poipu Point. The Company pays Promus a licensing fee
of 2% of Vacation Interval sales at the Embassy Vacation Resorts.
At each of the Company's non-branded resorts, the Company enters into a
management agreement with an association comprised of owners of vacation
interests at the resort to provide for management and maintenance of the
resort. Pursuant to each such management agreement the Company is paid a
monthly management fee equal to 10% to 12% of monthly maintenance fees. The
management agreements are typically for a three year period, renewable
annually automatically unless notice of non-renewal is given by either party.
Pursuant to each management agreement the Company has sole responsibility and
exclusive authority for all activities necessary for the day-to-day operation
of the non-branded resorts, including administrative services, procurement of
inventories and supplies and promotion and publicity. With respect to each
resort the Company also obtains comprehensive and general public liability
insurance, all-risk property insurance, business interruption insurance and
such other insurance as is customarily obtained for similar properties. See
"Business--Insurance; Legal Proceedings." The Company also provides all
managerial and other employees necessary for the non-branded resorts,
including review of the operation and maintenance of the resorts, preparation
of reports, budgets and projections, employee training, and the provision of
certain in-house legal services. At the Company's Grand Beach and Lake Tahoe
Embassy Vacation Resorts, Promus provides (or will provide with respect to
Lake Tahoe), at the Embassy Vacation Resort Poipu Point, Aston provides
management and maintenance services to the Company pursuant to a management
agreement and assumes responsibility of such day-to-day operation of the
Embassy Vacation Resorts.
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VACATION INTERVAL OWNERSHIP
The purchase of a Vacation Interval typically entitles the buyer to use a
fully-furnished vacation residence, generally for a one-week period each year,
in perpetuity. Typically, the buyer acquires an ownership interest in the
vacation residence, which is often held as tenant in common with other buyers
of interests in the property.
The owners of Vacation Intervals manage the property through a non-profit
homeowners' association, which is governed by a Board consisting of
representatives of the developer and owners of Vacation Intervals at the
resort. The Board hires an agent, delegating many of the rights and
responsibilities of the homeowners' association to a management company, as
described above, including grounds landscaping, security, housekeeping and
operating supplies, garbage collection, utilities, insurance, laundry and
repair and maintenance.
Each Vacation Interval owner is required to pay the homeowners' association
a share of all costs of maintaining the property. These charges can consist of
an annual maintenance fee (generally $400 to $550 per owner) and special
assessments, assessed on an as-needed basis. If the owner does not pay such
charges, the owner's use rights may be suspended and the homeowners'
association may foreclose on the owner's Vacation Interval.
AVCOM OPERATIONS
Overview
AVCOM develops and markets interests in timeshare resorts, finances and
services timeshare sales and receivables at its timeshare resorts, provides
homeowners' association and property management services and produces
marketing data for itself and third parties. AVCOM currently owns or holds
interests in properties in Scottsdale and Sedona, Arizona, South Lake Tahoe,
California, Lake Arrowhead, California, and Lake Conroe, Texas (near Houston),
held for the purpose of developing, marketing, selling, financing and managing
timeshare interests. AVCOM's businesses are conducted through its wholly-owned
subsidiary, All Seasons Resorts, Inc. All Seasons has several wholly-owned
subsidiaries of which RPM, All Seasons Realty, Inc. ("All Seasons Realty"),
All Seasons Construction, Inc. ("AS Construction") and The Ridge Spa and
Racquet Club, Inc. ("RSR Club") have employees or significant activities. All
Seasons conducts the executive, management, accounting, consumer financing and
development activities. RPM directs the resort homeowners associations and
resort management, housekeeping, maintenance, guest services and other resort
operations. All Seasons Realty engages licensed real estate agents as
independent contractors who sell timeshare interests to consumers and conduct
the marketing, sales and administrative functions in Sedona and South Lake
Tahoe. In addition to timeshare interests at resorts developed by AVCOM, All
Seasons Realty markets timeshare interests in other resort properties not
developed by AVCOM from the marketing centers located at its developed
resorts. AS Construction performs development and construction activities for
certain of AVCOM's projects. RSR Club operates The Ridge Spa and Racquet Club
at Sedona, Arizona, which serves as an amenity to AVCOM's developments in
Sedona and is also open to the public.
Administrative and Operating Facilities
AVCOM's administrative offices are located in Sedona, Arizona. The main
facility is owned by AVCOM, has approximately 9,000 square feet of space. In
addition to AVCOM's main administrative office, in January 1996, AVCOM
purchased an additional office building in Sedona, Arizona. This facility has
approximately 9,000 square feet of space.
AVCOM utilizes additional facilities for its marketing and sales activities,
including sales facilities located at its developments at Sedona, Arizona and
South Lake Tahoe, California and marketing centers located at the Village of
Oak Creek (in proximity to Sedona), Phoenix and Scottsdale, Arizona. The
facilities at the Village of Oak Creek, Phoenix and Scottsdale, Arizona are
leased by AVCOM under short-term leases and the sales facilities at Sedona and
South Lake Tahoe are a part of AVCOM's developments at such locations.
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As discussed above, AVCOM owns an approximate 19,000 square foot facility
which is operated as The Ridge Spa & Racquet Club. The facility is located at
the Sedona Golf Resort development.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
The Company believes that its Vacation Intervals are made more attractive by
the Company's participation in Vacation Interval exchange networks operated by
RCI and Interval International with respect to the Royal Palm Beach Club. In a
recent 1995 study sponsored by the Alliance for Timeshare Excellence and ARDA,
the exchange opportunity was cited by purchasers of Vacation Intervals as one
of the most significant factors in determining whether to purchase a Vacation
Interval. Participation in RCI allows the Company's customers to exchange in a
particular year their occupancy right in the unit in which they own a Vacation
Interval for an occupancy right at the same time or a different time in
another participating resort, based upon availability and the payment of a
variable exchange fee. A member may exchange his Vacation Interval for an
occupancy right in another participating resort by listing his Vacation
Interval as available with the exchange organization and by requesting
occupancy at another participating resort, indicating the particular resort or
geographic area to which the member desires to travel, the size of the unit
desired and the period during which occupancy is desired. RCI assigns a rating
to each listed Vacation Interval, based upon a number of factors, including
the location and size of the unit, the quality of the resort and the period
during which the Vacation Interval is available, and attempts to satisfy the
exchange request by providing an occupancy right in another Vacation Interval
with a similar rating. If RCI is unable to meet the member's initial request,
it suggests alternative resorts based on availability.
Founded in 1974, RCI has grown to be the world's largest Vacation Interval
exchange organization, which has a total of more than 2,900 participating
resort facilities and over 2.0 million members worldwide. During 1995 RCI
processed over 1.5 million Vacation Interval exchanges. The cost of the annual
membership fee in RCI, which typically is at the option and expense of the
owner of the Vacation Interval, is $65 per year, plus an exchange fee of $89
and $119 for domestic and international exchanges, respectively. RCI has
assigned high ratings to the Vacation Intervals in the Company's resort
properties which are operational, and such Vacation Intervals have in the past
been exchanged for Vacation Intervals at other highly-rated member resorts.
During 1995, approximately 97% of all exchange requests were fulfilled by RCI,
and approximately 58% of all exchange requests are confirmed on the day of the
request. According to RCI, its members in the United States engage in an
average of 25.7 personal travel days per year and an average of 6.2 domestic
trips per year with an average duration of 4.2 days. In November 1996, HFS
Incorporated consummated the acquisition of RCI for cash and securities. See
"Risk Factors--Dependence on Vacation Interval Exchange Networks; Risk of
Inability to Qualify Resorts."
FUTURE ACQUISITIONS
The Company intends to expand its timeshare business by acquiring or
developing resorts located in attractive resort destinations, including Hawaii
and California, and is in the process of evaluating strategic acquisitions in
a variety of locations. Such future acquisition and development of resorts
could have a substantial and material impact on the Company's operations and
prospects. The Company currently is evaluating possible acquisitions of
resorts and development opportunities, including opportunities located in
Southern and Northern California, the Hawaiian islands of Hawaii, Maui and
Oahu, the Caribbean, Mexico, the Western, Southwestern and Southeastern United
States (including Florida, Arizona and Utah) and in various Westin resorts
throughout North America. Other than as described in this Prospectus under
"Recent Developments" with respect to the St. John resort, the Company has not
entered into any definitive acquisition agreement with respect to any such
resort or development opportunity and there can be no assurance that such an
agreement will be negotiated or that any such acquisition will be consummated.
In addition, the Company has also explored the acquisition of and may consider
acquiring existing management companies, timeshare developers and marketers,
loan portfolios or other industry related operations or assets in the
fragmented timeshare development, marketing, finance and management industry.
See "Management--Employment Agreements" and "Certain Relationships and Related
Transactions--Founders' Other Business Interests."
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COMPETITION
Although major lodging and hospitality companies such as Marriott, Disney,
Hilton, Hyatt, Four Seasons and Inter-Continental, as well as Promus and
Westin, have established or declared an intention to establish timeshare
operations in the past decade, the industry remains highly fragmented, with a
vast majority of North America's approximately 2,000 timeshare resorts being
owned and operated by smaller, regional companies. Of the Company's major
brand name lodging company competitors, the Company believes, based on
published industry data and reports, that Marriott currently sells Vacation
Intervals at 10 resorts which it also owns and operates (Kauai, Hawaii; Palm
Desert, California; Park City, Utah; Breckenridge, Colorado; Williamsburg,
Virginia; Hilton Head Island, South Carolina; Orlando, Florida; Marabella,
Spain; Boston, Massachusetts, and Ft. Lauderdale, Florida) and directly
competes with the Company's Poipu Point, Hilton Head Island and Orlando area
resorts; Disney currently sells Vacation Intervals at three resorts which it
also owns and operates (Lake Buena Vista and Vero Beach, Florida; and Hilton
Head Island, South Carolina) and directly competes with the Company's Orlando
area and Hilton Head Island resorts; Hilton currently sells Vacation Intervals
at two resorts which it also owns and operates (Las Vegas, Nevada; and
Orlando, Florida) and directly competes with the Company's Orlando area
resorts; Hyatt owns and operates one resort in Key West, Florida but does not
directly compete in any of the Company's existing markets (although Hyatt has
announced an intention to develop a timeshare resort in Orlando, Florida);
Four Seasons currently is developing its first timeshare resort in Carlsbad,
California but is not yet in sales of Vacation Intervals at any resorts; and
Inter-Continental announced its entry into the timeshare market in 1996, but
has yet to announce any specific projects and is not yet in sales of Vacation
Intervals at any resorts. Many of these entities possess significantly greater
financial, marketing, personnel and other resources than those of the Company
and may be able to grow at a more rapid rate as result.
Direct competition in the Sedona, Arizona area currently is from ILX
Incorporated which is converting the Los Abrigados Resort Hotel to a timeshare
resort and selling various product configurations. ILX's product is a
combination of studios, one bedroom and two bedroom units. AVCOM competes
directly with The Ridge at Lake Tahoe for timeshare sales in the Lake Tahoe
market. The Ridge is a large condominium development with extensive on-site
amenities. AVCOM competes with the Orange Tree Resort, located in Scottsdale,
Arizona and developed by the Shell Group, with respect to its Scottsdale Villa
Mirage project. At present, the only timeshare resort in competition with
AVCOM's planned Lake Conroe project is a project located 15 miles away
developed by Silverleaf Corporation.
The Company also competes with companies with unbranded resorts such as
Westgate, Vistana and Vacation Break, each of which competes with the
Company's Orlando area resorts, and Fairfield, which competes with the
Company's Orlando area and Branson resorts. Under the terms of a recently
announced exclusive five-year agreement, Promus and Vistana, Inc. will jointly
acquire, develop and manage and market vacation ownership resorts in North
America under Promus brand names. As part of the exclusive agreement, Promus
and Vistana, Inc. will designate selected markets for development (which
markets have yet to be announced). The Company has been identified by Promus
as the only other licensee to whom Promus will license the Embassy Vacation
Resort name. However, there can be no assurance that Promus will not grant
other entities a license to develop Embassy Vacation Resorts or that Promus
will not exercise its rights to terminate the Embassy Vacation Resort
licenses. See "Risk Factors--Competition." Additionally, Vacation Break
announced in November 1996 that it had agreed to purchase the Berkley Group,
another timeshare resort developer, for stock worth $225.8 million at the time
of the announcement. The transaction will leave Berkley shareholders with
control of the combined company. Vacation Break markets and finances time-
sharing interests in Florida and Bahamas resorts, and the combined company
will have resort properties in Virginia, Florida and the Bahamas. Both are
based in Fort Lauderdale, Fla.
The Company believes, based on published industry data and reports, that its
experience and exclusive focus on the timeshare industry, together with its
portfolio of resorts located in a wide range of resort destinations and at a
variety of price points, distinguish it from each of its competitors and that
the Company is uniquely positioned for future growth.
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GOVERNMENTAL REGULATION
General. The Company's Vacation Interval marketing and sales are subject to
extensive regulations by the federal government and the states and foreign
jurisdictions in which its resort properties are located and in which Vacation
Intervals are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which the Company is or may
be subject appears on the Truth-In-Lending Act and Regulation Z, the Equal
Credit Opportunity Act and Regulation B, the Interstate and Land Sales Full
Disclosure Act, Telephone Consumer Protection Act, Telemarketing and Consumer
Fraud and Abuse Prevention Act, Fair Housing Act and the Civil Rights Act of
1964 and 1968. In addition, many states have adopted specific laws and
regulations regarding the sale of interval ownerships programs. The laws of
most states, including Florida, South Carolina and Hawaii require the Company
to file with a designated state authority for its approval a detailed offering
statement describing the Company and all material aspects of the project and
sale of Vacation Intervals. The laws of California require the Company to file
numerous documents and supporting information with the California Department
of Real Estate, the agency responsible for the regulation of Vacation
Intervals. When the California Department of Real Estate determines that a
project has complied with California law, it will issue a public report for
the project. The Company is required to deliver an offering statement or
public report to all prospective purchaser of a Vacation Interval, together
with certain additional information concerning the terms of the purchase. The
laws of Illinois, Florida and Hawaii impose similar requirements. Laws in each
state where the Company sells Vacation Intervals generally grant the purchaser
of a Vacation Interval the right to cancel a contract of purchase at any time
within a period ranging from three to 15 calendar days following the earlier
of the date the contract was signed or the date the purchaser has received the
last of the documents required to be provided by the Company. Most states have
other laws which regulate the Company's activities such as real estate
licensure; sellers of travel licensure; anti-fraud laws; telemarketing laws;
price gift and sweepstakes laws; and labor laws. The Company believes that it
is in material compliance with all federal, state, local and foreign laws and
regulations to which it is currently or may be subject. However, no assurance
can be given that the cost of qualifying under interval ownership regulations
in all jurisdictions in which the Company desires to conduct sales will not be
significant. Any failure to comply with applicable laws or regulations could
have material adverse effect on the Company. See "Risk Factors--Regulation of
Sales of Vacation Intervals."
In connection with the resorts to be acquired in the Merger with AVCOM, the
California Department of Real Estate has conducted an audit with respect to
AVCOM timeshare operations at the Tahoe Beach & Ski Club and has informed
AVCOM of several discrepancies it claims to have discovered during such audit.
AVCOM has responded to the Department of Real Estate's request for additional
information and disputes the claimed discrepancies. The final results of the
audit are pending. In addition, the Arizona Department of Real Estate is
investigating AVCOM and its Scottsdale Villa Mirage and Sedona Summit Resorts
with respect to the alleged failure of John R. Stevens, AVCOM's Director of
Marketing and New Projects, to disclose certain events from his prior
development history in Colorado on timeshare registration applications filed
in Arizona and certain other of AVCOM's timeshare-related activities. As a
result of the Arizona investigation, Mr. Stevens agreed to voluntarily resign
his position as an officer and director of AVCOM, and AVCOM and Mr. Stevens
are cooperating with the Arizona Department of Real Estate. AVCOM and Mr.
Stevens believe that they have satisfied all applicable requirements and the
Arizona Department of Real Estate has lifted its request for additional
disclosure regarding Mr. Stevens in public timeshare resorts filed in Arizona.
The Texas Real Estate Commission also has investigated AVCOM, but has
determined that, based upon the information it has gathered to date, and Mr.
Stevens' resignation as an officer of AVCOM's Texas subsidiaries, it will not
take any further action.
Environmental Matters. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and
for investigation and clean-up costs incurred by such parties in connection
with the contamination. Such laws typically impose clean-up responsibility and
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liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate the contamination on such
property, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances at a disposal
or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of its properties, the Company may be potentially
liable for such costs.
Certain Federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws
may impose liability for release of ACMs and may provide for third parties to
seek recovery from owners or operators of real properties for personal injury
associated with ACMs. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no
state or federal requirements regarding the monitoring for, presence of, or
exposure to, radon in indoor air, the EPA and the Surgeon General recommend
testing residences for the presence of radon in indoor air, and the EPA
further recommends that concentrations of radon in indoor air be limited to
less than 4 picocuries per liter of air (Pci/L) (the "Recommended Action
Level"). The presence of radon in concentrations equal to or greater than the
Recommended Action Level in one or more of the Company's properties may
adversely affect the Company's ability to sell Vacation Intervals at such
properties and the market value of such property. Recently-enacted federal
legislation will eventually require the Company to disclose to potential
purchasers of Vacation Intervals at the Company's resorts that were
constructed prior to 1978 any known lead-paint hazards and will impose treble
damages for failure to so notify.
Electric transmission lines are located in the vicinity of the Company's
properties. Electric transmission lines are one of many sources of electro-
magnetic fields ("EMFs") to which people may be exposed. Research into
potential health impacts associated with exposure to EMFs has produced
inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic
fields emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, the
Company understands that lawsuits have, on occasion, been filed (primarily
against electric utilities) alleging personal injuries resulting from exposure
as well as fear of adverse health effects. In addition, fear of adverse health
effects from transmission lines has been a factor considered in determining
property values in obtaining financing and in condemnation proceedings in
eminent domain brought by power companies seeking to construct transmission
lines. Therefore, there is a potential for the value of a property to be
adversely affected as a result of its proximity to a transmission line and for
the Company to be exposed to damage claims by persons exposed to EMFs.
The Company has conducted Phase I assessments at each of its Existing
Resorts in order to identify potential environmental concerns. These Phase I
assessments have been carried out in accordance with accepted industry
practices and consisted of non-invasive investigations of environmental
conditions at the properties, including a preliminary investigation of the
sites and identification of publicly known conditions concerning properties in
the vicinity of the sites, physical site inspections, review of aerial
photographs and relevant governmental records where readily available,
interviews with knowledgeable parties, investigation for the presence of above
ground and underground storage tanks presently or formerly at the sites, a
visual inspection of potential lead-based paint and suspect friable ACMs where
appropriate, a radon survey, and the preparation and issuance of written
reports.
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The Company's assessments of its properties have not revealed any
environmental liability that the Company believes would have a material
adverse effect on the Company's business, assets or results of operations, nor
is the Company aware of any such material environmental liability.
Nevertheless, it is possible that the Company's assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. The Company does not believe that compliance
with applicable environmental laws or regulations will have a material adverse
effect on the Company or its financial condition or results of operations.
In connection with the acquisition and development of the Embassy Vacation
Resort Lake Tahoe and the San Luis Bay Resort, the Company's environmental
consultant has identified several areas of environmental concern. The areas of
concern at the Embassy Vacation Resort Lake Tahoe relate to possible
contamination that originated on the resort site due to prior uses and to
contamination that may migrate onto the resort site from upgradient sources.
California regulatory agencies have been monitoring the resort site and have
required or is in the process of requiring the responsible parties (presently
excluding the Company) to effect remediation action. The Company has been
indemnified by certain of the responsible parties for certain costs and
expenses in connection with contamination at the Embassy Vacation Resort Lake
Tahoe (including Chevron (USA), Inc.) and does not anticipate incurring
material costs in connection therewith, however, there is no assurance that
the indemnitor(s) will meet their obligations in a complete and timely manner.
In addition, the Company's San Luis Bay Resort is located in an area of Avila
Beach, California which has experienced underground contamination resulting
from leaking pipes at a nearby oil refinery. California regulatory agencies
have required the installation of groundwater monitoring wells on the beach
near the resort site, and no demand or claim in connection with such
contamination has been made on the Company, however, there is no assurance
that claims will not be asserted against the Company with respect to this
environmental condition.
The Company believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. Except as described above with
respect to the Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort,
the Company has not been notified by any governmental authority or any third
party, and is not otherwise aware, of any material noncompliance, liability or
claim relating to hazardous or toxic substances or petroleum products in
connection with any of its present properties.
Other Regulations. Under various state and federal laws governing housing
and places of public accommodation the Company is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management of the Company believes that its facilities are substantially in
compliance with present requirements of such laws, and the Company may incur
additional costs of compliance. Additional legislation may impose further
burdens or restriction on owners with respect to access by disabled persons.
The ultimate amount of the cost of compliance with such legislation is not
currently ascertainable, and, while such costs are not expected to have a
material effect on the Company, such costs could be substantial. Limitations
or restrictions on the completion of certain renovations may limit application
of the Company's growth strategy in certain instances or reduce profit margins
on the Company's operations.
EMPLOYEES
The Company. As of September 30, 1996, the Company employed approximately
650 full-time employees. The Company believes that its employee relations are
good. Except for certain employees located in the St. Maarten, Netherlands
Antilles properties, none of the Company's employees is represented by a labor
union. The Company sells Vacation Intervals at its resorts through 376
independent sales agents. Such independent sales agents provide services to
the Company under contract and are not employees of the Company. See "Risk
Factors--Risk of Tax Re-Classification of Independent Contractors and
Resulting Tax Liability; Cost of Compliance with Applicable Laws."
AVCOM. As of September 30, 1996, AVCOM had approximately 430 full-time
employees. AVCOM's employees are not represented by a labor union and AVCOM
has no knowledge of any current organization
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activities. AVCOM has never suffered a work stoppage and considers its
relations with employees to be good. Additionally, AVCOM primarily utilizes
independent contractors as its sales representatives. As of September 30,
1996, AVCOM engaged approximately 190 independent contractors in this
capacity.
INSURANCE
The Company carries comprehensive liability, fire, hurricane, storm,
earthquake and business interruption insurance with respect to the Company's
resorts, with policy specifications, insured limits and deductibles
customarily carried for similar properties which the Company believes are
adequate. In September 1995 and July 1996, the Company's St. Maarten resorts
were damaged by a hurricane. With respect to such September 1995 damage, the
Company has recovered amounts from its insurance carriers sufficient to cover
100% of the property damage losses and is in the process of recovering amounts
for business interruption. The Company has agreed to provide approximately
2,700 replacement weeks to owners who were unable to use their Vacation
Interval as a result of such September 1995 hurricane. Such provision of
replacement Vacation Intervals will have the short term effect of reducing the
number of Vacation Intervals available for sale or alternative rental as hotel
rooms at the St. Maarten resorts. Additionally, the St. Maarten resorts
sustained relatively minor damage in 1996 as the result of Hurricane Bertha;
management estimates that such damage is approximately $100,000, which is less
than the applicable insurance deductibles and, accordingly, the expense to
repair the damage will be borne by the Company. There are, however, certain
types of losses (such as losses arising from acts of war) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits
occur, the Company could lose its capital invested in a resort, as well as the
anticipated future revenues from such resort and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could have a material adverse effect on the Company.
See "Risk Factors--Natural Disasters; Uninsured Loss."
LEGAL PROCEEDINGS
The Company is currently subject to litigation and claims respecting
employment, tort, contract, construction and commissions, disputes, among
others. In the judgment of management, none of such lawsuits or claims against
the Company is likely to have a material adverse effect on the Company or its
business. See "The Proposed Merger--Legal Proceedings Against AVCOM" for a
discussion of lawsuits or claims against AVCOM that AVCOM deems material.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On September 12, 1996, Ernst & Young LLP advised the Company that it was
resigning as independent auditors for the Company. Ernst & Young LLP had been
retained since the Company's inception and there have been no disagreements
between the Company and Ernst & Young LLP with respect to accounting
principles or practices, financial statement disclosure, auditing scope or
procedures, which if not resolved to Ernst & Young LLP's satisfaction, would
have resulted in a reference to the subject matters of the disagreement in its
audit report. Since the Company's inception, Ernst & Young LLP's report on the
Company's financial statements did not contain an adverse opinion or a
disclaimer of opinion, nor were the opinions qualified or modified as to
uncertainty, audit scope, or accounting principles, nor were there any events
of the type requiring disclosure under Item 304(a)(l)(v) of Regulation S-K
under the Securities Act.
On September 17, 1996, the Company retained the accounting firm of Arthur
Andersen LLP as auditors for the fiscal year ending December 31, 1996
following Board of Directors approval, which was obtained on September 16,
1996. The decision to retain Arthur Andersen LLP was based upon the prior
relationship with a predecessor of the Company as auditors for the fiscal year
ending December 31, 1994 and Arthur Andersen LLP's experience in the Company's
industry, and was not motivated by any disagreements between the Company and
Ernst & Young LLP concerning any accounting principles and/or policy matters.
From the Company's inception to September 17, 1996, the Company did not
consult with Arthur Andersen LLP with respect to the matters described in Item
304(a)(2) of Regulation S-K.
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TRADEMARKS AND COMPANY NAME
While the Company owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights and other intellectual
property rights which, in the aggregate, are of material importance to its
business, it is believed that the Company's business, as a whole, is not
materially dependent upon any one intellectual property or related group of
such properties. The Company is licensed to use certain technology and other
intellectual property rights owned and controlled by others, and, similarly,
other companies are licensed to use certain technology and other intellectual
property rights owned and controlled by the Company.
The Company is considering a proposal to change its corporate name following
closing of the Merger.
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THE PROPOSED MERGER
GENERAL DESCRIPTION OF MERGER
Pursuant to the Merger Agreement, on the closing date of the Merger (the
"Closing Date"), ASP Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of the Company, will merge with and into AVCOM. Upon
consummation of the Merger, each share of Common Stock of AVCOM, except shares
held in treasury and shares owned by shareholders who have taken all required
steps to exercise their appraisal rights under Delaware law, will be converted
into consideration of $5.00, subject to adjustment to a maximum of $6.00 or a
minimum of $4.00. The consideration will consist of shares of the Company's
Common Stock. The Company will not be required to issue more than $34.6
million nor less than $23.1 million in value of its Common Stock at the
closing of the Merger. The value of the Company's Common Stock for purposes of
determining the number of shares issuable as the merger consideration will be
equal to the mean average of the high and low trading prices of the Company's
Common Stock as reported on the Nasdaq National Market for each the ten
consecutive trading days immediately preceding the ten days prior to the
Closing Date.
If stock options granted by AVCOM are outstanding as of the Closing Date and
converted into shares of the Company's Common Stock, the holders thereof will
receive merger consideration calculated on the basis of the number of shares
underlying options having the same exercise price multiplied by a fraction,
the denominator of which is $5.00 (subject to adjustment, as described below)
and the numerator of which is the excess of the denominator over the exercise
price of the underlying options. In the alternative, the Company may elect to
convert AVCOM options into options to acquire the Company's Common Stock on
substantially the same terms and conditions. In such event, the number of
shares of the Company's Common Stock subject to such options shall be
determined by multiplying the number of shares subject to the AVCOM option by
the conversion ratio (as described below), and the exercise price shall be
determined by dividing the exercise price for the AVCOM options by the
conversion ratio. As of December 12, 1996, there were outstanding options to
purchase 400,000 shares of AVCOM Stock, all of which are held by employees of
AVCOM. There was also an option to acquire 350,000 shares claimed to be held
by William C. Needham, Jr., the validity of which is being disputed by AVCOM.
All valid and outstanding options will, as of the effective time of the Merger
be converted into the right to receive shares of the Company's Common Stock in
accordance with the foregoing calculation.
The Merger Agreement provides that the consideration of $5.00 per share of
Common Stock of AVCOM to be received by AVCOM shareholders is subject to
adjustment to a maximum of $6.00 or a minimum of $4.00, based upon the
Conversion Share Value of the Company Common Stock as of the Closing Date. As
of the last trading day immediately preceding the date of the execution of the
Merger Agreement, the average sale price of a share of the Company Common
Stock was $19.44. The parties agreed to a value of $5.00 per share for Common
Stock of AVCOM, yielding the initial conversion ratio of 0.26. This initial
conversion ratio is fixed, and will not adjust, unless the market price of the
Company Common Stock as of the Closing Date is in excess of $23.33, or less
than $15.55. The "Conversion Share Value" pursuant to the Merger Agreement of
a share of the Company Common Stock shall be equal to the mean average of the
high and low trading prices of the Company Common Stock as reported on the
Nasdaq National Market for each of the ten consecutive trading days
immediately preceding ten days prior to the Closing Date. Consequently, in the
event that the Conversion Share Value should equal $23.33, the effective
Merger consideration received by a holder of a share of Common Stock of AVCOM
would be $6.00 based upon the conversion ratio of 0.26. If the Conversion
Share Value is $15.55, a holder of a share of Common Stock of AVCOM would
receive Merger consideration of $4.00, based upon the conversion ratio of
0.26. In the event, however, that the Conversion Share Value should exceed
$23.33, the conversion ratio would be reduced so as to reduce the Merger
consideration per share of Common Stock of AVCOM to $6.00. Likewise, should
the Conversion Share Value be less than $15.55, the conversion ratio would be
increased so as to insure that a share of Common Stock of AVCOM would receive
Merger consideration of $4.00.
The aggregate amount of the Merger consideration to be received by AVCOM
shareholders is also subject to adjustment in the event that AVCOM incurs in
excess of $250,000 in fees and expenses with consultants,
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attorneys, and accountants in connection with the Merger and the due diligence
conducted in regard to the Merger, unless a higher amount is agreed to by the
Company, such agreement not to be unreasonably withheld. Adjustment also can
occur if any amount is paid by AVCOM or a subsidiary of AVCOM in excess of
certain projected litigation expenses. Any adjustments arising out of these
provisions would be borne pro rata by all shares of Common Stock of AVCOM
being converted in the Merger.
ESCROW AGREEMENT AND INDEMNITY
Terms of Indemnity and Escrow
In order to establish a procedure for the satisfaction of any claims by the
Company for indemnification pursuant to the Merger Agreement, AVCOM has agreed
in the Merger Agreement that 10% of the aggregate shares of the Company Stock
to be received by AVCOM shareholders upon consummation of the Merger will be
deposited into escrow and governed by the Escrow Agreement. Pursuant to the
Escrow Agreement, all stock splits or dividends payable in stock or other
securities of the Company that are made by the Company with respect to the
escrowed shares, will be deposited into escrow and governed by the Escrow
Agreement. The escrowed shares and such stock or other dividends deposited in
escrow are collectively referred to herein as the "Escrow Deposit."
AVCOM, along with Gary L. Hughes and John R. Stevens, the Chief Executive
Officer and Director of Marketing and New Products of AVCOM, respectively, has
agreed to indemnify the Company from and against all expenses and damages
(including, without limitation, all related counsel and paralegal fees and
expenses) arising out of any breach of a representation or warranty made by
AVCOM in the Merger Agreement, any breach of the covenants or agreements made
by AVCOM in the Merger Agreement, or any inaccuracy in any certificate
delivered by AVCOM pursuant to the Merger Agreement. The Company shall have a
right, pursuant to the indemnification provisions, to be put in the same pre-
tax consolidated financial condition as it would have been in had each of the
representations and warranties of AVCOM been true and correct and had the
covenants and agreements of AVCOM been performed in full. The Merger Agreement
and the Escrow Agreement provide that the Escrow Deposit shall be held by the
Company for a period of one year following the Closing Date, unless there
remains any unresolved claim for indemnifiable damages in which event any
Escrow Deposit remaining after such claim shall have been satisfied shall be
returned to shareholders promptly after the time of satisfaction; provided,
however, that if any litigation or disputes disclosed in the Merger Agreement
has not been settled and dismissed with prejudice, the Escrow Deposit (or as
much as does not exceed the Company's claims with respect to such
indemnification) shall be held until the earlier of the settlement of all such
litigation or five years following the Closing Date. Partial releases of the
Escrow Deposit occur upon determination that the remaining Escrow Deposit
exceeds the estimated litigation exposure. No claim may be made by the Company
under the indemnification provisions of the Merger Agreement unless the amount
of the individual claim exceeds $25,000, or the aggregate of all claims made
from the Closing Date shall exceed $100,000. Once such limitations are met,
however, whether individually or in the aggregate, the entire claim shall be
subject to indemnification. This limitation provision does not provide for a
deductible and shall not apply, in any event that the claim arises out of
fraud or intentional or willful misconduct on the part of the breaching party.
In addition, pursuant to the Merger Agreement, Signature is indemnified for
any expenses, costs, deficiencies, liabilities and damages with respect to any
litigation or claims disclosed by AVCOM in an exhibit to the Merger Agreement
to the extent that such expenses, costs, deficiencies, liabilities and
damages, subsequent to September 22, 1996, exceed $1,000,000, in the
aggregate.
The shares of the Company Common Stock to be issued pursuant to the Merger,
other than those deposited in the Escrow Deposit, will be freely transferable
except by certain shareholders of AVCOM who are deemed to be "affiliates" of
AVCOM. The shares of the Company Common Stock issued to such affiliates will
be restricted in their transferability in accordance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations promulgated thereunder by the Securities and Exchange Commission.
Shares of the Company Common Stock will not be transferable while they remain
in the Escrow Deposit.
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LEGAL PROCEEDINGS AGAINST AVCOM
AVCOM or its affiliates are presently involved in the following litigation
that AVCOM management has deemed material.
AVCOM International, Inc., et al. v. Needham, et al., filed January 13, 1995
in the United States District Court of the District of Arizona. AVCOM filed
this action against its former director, William C. Needham, Jr. and Cannon
Time for damages relating to the merger of Cannon Time into AVCOM and
cancellation of AVCOM stock and options claimed by Mr. Needham. The action is
based upon allegations of breach of contract, fraud, securities fraud, breach
of fiduciary duty, and other alleged wrongful conduct of Mr. Needham based
upon allegations of misrepresentation and omissions to disclose material facts
in connection with the merger of Cannon Time into AVCOM. This suit is also
based upon allegations that Mr. Needham failed to perform certain services on
behalf of AVCOM. Mr. Needham has filed a counter-claim against AVCOM, All
Seasons, Gary L. and Sandra G. Hughes and John R. Stevens alleging defamation,
interference with business relations, breach of contract and indemnification.
AVCOM intends to vigorously prosecute this litigation for the benefit of
AVCOM. Additionally, AVCOM intends to vigorously defend the counter-claim on
behalf of AVCOM and its officers and directors.
All Seasons Development, Inc., et al. v. Eng-Chye Low, et ux., filed on
February 24, 1995 in Maricopa County Superior Court; Eng-Chye Low v.
Villashare Partners Limited Partnership, et al., filed on April 7, 1995 in the
Verde Valley Judicial District of the Yavapai County, Arizona Superior Court.
All Seasons and Gary L. and Sandra G. Hughes filed the initial action against
Eng-Chye and Vivian Low seeking damages for conversion, breach of fiduciary
duty and breach of contract. The suit arises out of a claim by All Seasons and
Mr. Hughes related to a loan to or investment with Mr. Low. In response to the
suit, Mr. Low sued All Seasons under two promissory notes issued by VPLP, of
which All Seasons was the sole general partner, to Mr. Low under a separate
obligation which was secured by certain consumer receivables, alleging breach
of contract under the promissory notes and breach of the implied covenant of
good faith and fair dealing and sought the appointment of a receiver.
Additionally, Mr. Low has demanded 450,000 shares of Common Stock of AVCOM
which he claims were promised in connection with a previous business
arrangement, although no suit has been filed on this claim. On June 2, 1995,
the Court denied Low's request for appointment of a receiver without prejudice
to reassert such motion. AVCOM intends to vigorously defend this action.
Success Marketing, Inc., et al. v. All Seasons Resorts, Inc., filed on
August 3, 1995 in the Maricopa County, Arizona Superior Court; Success
Marketing, Inc., et al. v. All Seasons Resorts, Inc., filed on August 3, 1995
with the American Arbitration Association in Phoenix, Arizona. Success
Marketing, Inc. and its affiliate Success Ventures, Inc. (collectively
"Success") filed suit, made demand for arbitration against All Seasons
alleging breach of contract, loss of compensation, failure to negotiate in
good faith and promissory fraud. Success seeks contract and punitive damages.
The suit is a result of a prior marketing and sales agreement between the
parties and negotiations for a new agreement which were not consummated. AVCOM
has filed a counter-claim for damages and intends to vigorously defend these
actions. Additionally, Success has recently made written demand to exercise an
alleged option for 150,000 shares of AVCOM stock at a per share exercise price
of $2.50, although no suit has been filed on this claim. AVCOM disputes the
existence of these options.
AVCOM is presently advancing legal fees on behalf of the Messrs. Hughes and
Stevens with respect to the defense of the counter-claim asserted by Mr.
Needham in the AVCOM International, Inc., et al. litigation, and on behalf of
Mr. Hughes with respect to prosecution of the All Seasons Development, Inc.,
et al. v. Eng-Chye Low, et ux. litigation. Upon consummation of the Merger,
the Company will be responsible for defending such litigation and has agreed
to bear the first $1,000,000 of costs, expenses and liabilities associated
with or resulting from such litigation.
CONDITIONS OF THE MERGER
The respective obligations of the Company and AVCOM to consummate the Merger
are subject to the satisfaction or waiver of certain conditions, including the
following: (a) all required governmental, regulatory
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and third party approvals, consents and/or waiting periods shall have been
obtained or shall have expired; and (b) there shall be no injunction,
restraining order or decree of any nature of any court or governmental agency
or body in effect that restrains or prohibits the consummation of transactions
contemplated by the Merger.
AVCOM's obligations to consummate the Merger are subject to the
satisfaction, unless waived, of certain other conditions, including the
following: AVCOM's lenders shall have consented to the Merger to the extent
that proceeding without such consent would allow any such lender to accelerate
its indebtedness.
The Company's obligations to consummate the Merger are subject to the
satisfaction, unless waived, of certain other conditions, including the
following: (a) AVCOM shareholders holding more than 10% of the Common Stock of
AVCOM shall not have dissented or exercised appraisal rights under applicable
law in connection with the transactions contemplated by the Merger Agreement;
(b) certain of the Company's lenders shall have consented to the transactions
contemplated by the Merger Agreement, and such lenders shall have received
such documents and instruments as it may reasonably require; (c) the Company
shall have received a letter, dated as of the Closing Date, in a form and
substance reasonably acceptable to the Company, from its independent certified
public accountants to the effect that the Merger shall qualify for a pooling
of interest accounting treatment; (d) the Conversion Share Value for a share
of the Company Common Stock shall not be less than $15.55, subject to
appropriate adjustment; (e) there shall not have occurred any material adverse
change in the assets, business, condition or prospects of AVCOM or any of its
subsidiaries; and (f) all outstanding shares of AVCOM Preferred shall have
been converted into shares of common stock of AVCOM. On January 10, 1997, the
AVCOM shareholders approved the Merger and the Company anticipates closing the
Merger on February 7, 1997 upon the satisfaction or waiver of the balance of
the foregoing conditions. See "Risk Factors--Risks Related to the Proposed
Merger."
COMPANY LOAN TO AVCOM
In connection with the Merger Agreement, the Company loaned AVCOM
approximately $2.5 million in October 1996, which was used by AVCOM for
working capital purposes. The proceeds of such loan were used by AVCOM to
fund, by way of illustration, accounts payable, release fees due to
construction lenders and payments of assessments or subsidies to timeshare
associations. Interest accrues at 12% per annum. The loan is secured by (i) a
second priority pledge of approximately 38% of the Common Stock of AVCOM, (ii)
a negative pledge of all the All Seasons common stock with an obligation to
grant a security interest in the All Seasons stock upon receipt of any
applicable third party consents, (iii) an assignment of (a) All Seasons'
interest in Tunlii, L.L.C. and (b) All Seasons' rights to distributions from
the sale of property owned by Tunlii, L.L.C., (iv) an assignment of All
Seasons' right to acquire timeshare intervals at the Sedona Summit Resort, and
(v) a second priority deed of trust on All Seasons' interest in the Sedona
Summit Resort. The loan will be paid from the proceeds of sale of the Tunlii,
L.L.C. property and release prices paid from the sale of intervals at the
Sedona Summit Resort. The loan has a maturity date of not later than December
31, 1997 but can mature sooner if, among other reasons, the Company validly
terminates the Merger Agreement. In December 1996 and January 1997, the
Company loaned AVCOM an additional $1.9 million for working capital purposes
and for development of Vacation Intervals, resulting in a total loan as of the
date of this Prospectus of approximately $4.4 million.
TERMINATION OF MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing Date
by the mutual consent of the parties. In addition, either of the parties may
terminate the Merger Agreement in the event that the Merger has not been
consummated by June 30, 1997, or if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other final action restraining, enjoining or otherwise prohibiting the Merger
with the acceptance and payment for the Common Stock of AVCOM and such order,
decree, ruling or other action is or shall have become non-appealable. The
Merger Agreement may also be terminated by the Company for various other
reasons, including, but not limited to, the AVCOM Board materially modifying
its authorization, approval or recommendation with respect to the Merger, if
any party shall have commenced a tender offer for a majority of the
outstanding shares of Common Stock of AVCOM at a price
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in excess of $5.00 per share, if the Company shall not have resolved to its
full satisfaction any issues arising in its due diligence investigation, or if
the Conversion Share Value shall at any time subsequent to the date of the
Merger Agreement be less than $15.55, subject to appropriate adjustments. The
Merger Agreement is also terminable by AVCOM for certain events, including,
but not limited to, the Company's Board of Directors having materially
modified its authorization or approval of the Merger.
If the Merger is not consummated or the Merger Agreement is terminated by
the Company due to a change in control of AVCOM, a material breach of the
Merger Agreement by AVCOM, or certain events described in the Merger
Agreement, AVCOM shall be required to reimburse the Company for all expenses
incurred, plus the payment to the Company of a cancellation fee of $1,800,000,
as liquidated damages. In addition, the Company would have the right to
acquire shares of Common Stock of AVCOM equal to 19.9% of the total
outstanding AVCOM shares, on a fully-diluted basis at an option price of $5.00
per share. If the Merger is not consummated or the Merger Agreement is
terminated by AVCOM pursuant to a material breach by the Company, or in the
event of a withdrawal or material modification of approval by the Company's
Board of Directors, then the Company shall reimburse AVCOM for all expenses
incurred, and shall pay to AVCOM a cancellation fee of $900,000, as liquidated
damages. The Merger Agreement, including all material terms thereof, may be
amended or modified in writing by the parties at any time before or after the
Special Meeting.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each person
who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Osamu Kaneko 49 Chairman of the Board and Chief Executive Officer
Andrew J. Gessow 39 Director and President
Steven C. Kenninger 44 Director, Chief Operating Officer and Secretary
James E. Noyes 50 Director and Executive Vice President
Michael A. Depatie 39 Executive Vice President and Chief Financial
Officer
Charles C. Frey 40 Senior Vice President and Chief Accounting
Officer
Genevieve Giannoni 33 Senior Vice President of Operations
Andrew D. Hutton 31 Vice President and General Counsel
Timothy D. Levin 40 Vice President--Architecture
Dewey W. Chambers 39 Vice President and Treasurer
Juergen Bartels 56 Director
Sanford R. Climan 40 Director
Joshua S. Friedman 41 Director
W. Leo Kiely III 50 Director
</TABLE>
OSAMU KANEKO has served as a Director, Chairman of the Board and Chief
Executive Officer of the Company since its inception. Mr. Kaneko, a Japanese
national, was born in Tokyo, Japan and received his B.A. degree from Indiana
State University in 1971. From 1974 to 1986 Mr. Kaneko was the Executive Vice
President of Hasegawa Komuten (USA) Inc., the American subsidiary of Hasegawa
Komuten Ltd., a large Japanese development company based in Tokyo. In this
capacity, Mr. Kaneko was responsible for the development of over $500 million
of income producing properties in Hawaii including approximately 2,000 resort
condominiums and three resort hotels. Mr. Kaneko co-founded KOAR with Mr.
Kenninger in 1985, which over the following seven years developed and acquired
over $400 million in commercial and hospitality properties, including five
Embassy Suites hotels. Pursuant to the Westin Agreement, Mr. Kaneko serves as
the Founder's designee on the Board of Directors of Westin Hotels & Resorts.
ANDREW J. GESSOW has served as a Director and President of the Company since
its inception. Mr. Gessow founded Argosy Group Inc. in 1990 and served as
President since inception. Mr. Gessow served as a Partner with Trammell Crow
Company from 1987 to 1990, and was President of Trammell Crow Residential
Services, Florida and West Coast, and Founder and President of NuMarket Cable.
From 1981 through 1987, Mr. Gessow was Founder and President of Travel, Inc.
and Home Search, Inc. which he co-founded with Citicorp Venture Capital. Mr.
Gessow received his B.B.A. degree in Finance from Emory University in 1978 and
a M.B.A. degree from Harvard Business School in 1980.
STEVEN C. KENNINGER has served as a Director, Chief Operating Officer and
Secretary of the Company since its inception. Mr. Kenninger co-founded KOAR
with Mr. Kaneko in 1985 and served as its President. Mr. Kenninger was a
practicing attorney at Paul, Hastings, Janofsky & Walker, Los Angeles,
California from 1977 through 1981 and at Riordan & McKinzie, Los Angeles,
California from 1981 through 1985, where he was a partner. Mr. Kenninger
graduated with highest distinction from Purdue University with a B.S. degree
in Mechanical Engineering in 1974, and received a J.D. degree from Stanford
Law School in 1977. Mr. Kenninger is a licensed real estate broker in
California and has been a member of the State Bar of California since 1977.
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JAMES E. NOYES has served as a Director and Executive Vice President of the
Company since July 1996 and has overall responsibility for the daily operation
of the Company's sales, marketing and resort/hotel management divisions. Prior
to joining the Company, from 1989 through June 1996 Mr. Noyes served as
President of The Trase Miller Group, the parent company of MTI Vacations,
Inc., with interests in vacation packaging, travel technology and specialized
teleservices, and previously served as its Vice President of Marketing and
Sales since 1980. Mr. Noyes served in various management positions for Wilson
Sporting Goods from 1976 to 1980. Mr. Noyes was named as one of the travel
industry's Top 25 Most Influential Executives in 1995 by Tour and Travel News.
Mr. Noyes is a director of Premier Yachts, Ltd., Preview Travel, Inc. and Ball
Horticultural, Inc. Mr. Noyes received a B.A. degree in 1970 from Dartmouth
College and received a M.B.A. degree in 1974 from Stanford Business School.
MICHAEL A. DEPATIE has served as Executive Vice President and Chief
Financial Officer of the Company commencing November 1996, and has served as a
consultant to the Company since September 10, 1996. Prior to joining the
Company, Mr. Depatie was Senior Vice President of Finance and Chief Financing
Officer of La Quinta Inns, Inc. from July 1992 to August 1996. From April 1989
through June 1992, Mr. Depatie was co-founder and Senior Vice President of
Finance of Summerfield Hotel Corporation. From April 1988 through April 1989,
Mr. Depatie was founder and Managing General Partner of Pacwest Capital
Partners. From June 1984 through April 1988, Mr. Depatie served as Senior Vice
President of Finance and Development of The Residence Inn Company. Mr. Depatie
received a B.A. degree with highest honors from Michigan State University in
1979 and a M.B.A. degree from Harvard Business School in 1983.
CHARLES C. FREY has served as Senior Vice President and Chief Accounting
Officer of the Company since January 1997. Previously, he served as Senior
Vice President and Treasurer of the Company since November 1996 and as Chief
Financial Officer and Treasurer of the Company since July 1996. Prior thereto
had served as Senior Vice President of Administration and Treasurer of the
Company and its predecessor since 1992. Mr. Frey has overall responsibility
for accounting, operating systems and resort administration. Prior to joining
the Company, Mr. Frey was Vice President and Chief Financial Officer of
Trammell Crow Residential Services-Florida from 1986 to 1992 where his
responsibilities included control and administration of real estate tax,
insurance and payroll for over 65 residential communities. Mr. Frey is a
Certified Public Accountant, is a licensed real estate broker in Florida and
received a B.S. degree in Accounting and Economics from the Indiana University
of Pennsylvania in 1977.
GENEVIEVE GIANNONI has served as Senior Vice President of Operations of the
Company since 1995 and has overall responsibility for operations at all of the
Company's resorts. Ms. Giannoni joined Argosy in May 1992 as Director of
Marketing and became a Vice President of the Company's predecessor in 1993.
Prior to joining Argosy, Ms. Giannoni was a marketing director at Trammell
Crow Residential Services-Florida from 1987 to 1992 where her responsibilities
included marketing new residential communities. Ms. Giannoni is a licensed
real estate agent in Florida. She received her B.A. degree from Rollins
College in 1985 and graduated from the Crummer Management Program at Rollins
College in 1990.
ANDREW D. HUTTON has served as Vice President and General Counsel of the
Company since October 1996. Prior to joining the Company, Mr. Hutton practiced
corporate securities and finance law with the law firm of Latham & Watkins,
located in Los Angeles, California. Mr. Hutton had been a practicing attorney
with Latham & Watkins since receiving a J.D. degree with honors from the
University of Minnesota Law School in 1991. Mr. Hutton received both B.S. and
B.A. degrees from the University of Kansas in 1988. Mr. Hutton has been a
member of the State Bar of California since 1991.
TIMOTHY D. LEVIN has served as Vice President--Architecture of the Company
since its inception and of the Company's predecessor since December 1995. From
1989 through December 1995, Mr. Levin was the President of Sevelex
Consultants, Inc., a project management and design consulting firm affiliated
with Messrs. Kaneko and Kenninger. Prior thereto, Mr. Levin was the senior
design and production manager at Carl Wahlquist AIA Architects, Inc. from 1983
through 1988 and was instrumental in the design and construction of more than
ten Embassy Suites Hotels nationwide. Mr. Levin is a member of the American
Institute of
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Architects. Mr. Levin received his Bachelor of Architecture degree from
Southern California Institute of Architecture in 1986. Mr. Levin has been a
licensed General Contractor in the State of California since 1980.
DEWEY W. CHAMBERS has served as Vice President and Treasurer of the Company
since January 1997. Prior to joining the Company, Mr. Chambers served as Vice
President--Treasurer of La Quinta Inns, Inc. from 1992 through December 1996.
Prior thereto, Mr. Chambers served with the accounting firm of KPMG Peat
Marwick, L.L.P. from 1983 to 1992, most recently as Senior Manager. Mr.
Chambers received a Bachelor of Business Administration degree from the
University of Oklahoma in 1980.
JUERGEN BARTELS has served as a Director of the Company since August 1996.
Mr. Bartels has been Chairman and Chief Executive Officer of Westin Hotels &
Resorts since May 1995. From 1983 through April 1995, Mr. Bartels was
President and Chief Executive Officer of Carlson Hospitality Group, Inc.
("Carlson"), where he directed Carlson's Radisson Hotels International,
Radisson Seven Seas Cruises and several restaurant companies, including the
T.G.I. Friday's chain. Prior to joining Carlson, Mr. Bartels held executive
positions with Holiday Inn and Ramada and was the founder of Ramada
Renaissance Hotels.
SANFORD R. CLIMAN has served as a Director of the Company since August 1996.
Mr. Climan has been Executive Vice President of MCA Inc. ("MCA") since October
1995. Prior to joining MCA, Mr. Climan was a member of the senior executive
team at Creative Artists Agency, Inc. ("CAA"), a leading literary and talent
agency, from June 1986 to September 1995. At CAA, Mr. Climan participated in a
range of corporate advisory activities, including mergers and acquisitions,
and financial restructurings. From 1979 to 1986, Mr. Climan held various
positions in the entertainment industry. Mr. Climan also serves as a director
of PointCast Inc. Mr. Climan received a B.A. degree from Harvard College in
1977, a M.B.A. degree from Harvard Business School in 1979 and a Master of
Science in Health Policy and Management from the Harvard School of Public
Health in 1979.
JOSHUA S. FRIEDMAN has served as a Director of the Company since August
1996. Mr. Friedman is a founder of Canyon Partners Incorporated, a private
merchant banking firm and an affiliate of Canpartners Incorporated, and has
been a Managing Partner of Canyon Partners Incorporated since its inception in
1990. From 1984 through 1990, Mr. Friedman was Executive Vice President and
Co-Director, Capital Markets of Drexel Burnham Lambert Incorporated. Mr.
Friedman also serves as a director of Yale International, Inc., a publicly
traded diversified industrial company, and several privately held companies
and charitable organizations. Mr. Friedman received a B.A. degree from Harvard
College in 1976, a M.A. degree from Oxford University in 1978, a J.D. degree
from Harvard Law School in 1982 and a M.B.A. degree from Harvard Business
School in 1982.
W. LEO KIELY III has served as a Director of the Company since August 1996.
Mr. Kiely has been President and Chief Operating Officer of Coors Brewing
Company since 1993. From 1982 through 1993, Mr. Kiely held various executive
positions with Frito-Lay Inc. ("Frito-Lay"), a subsidiary of PepsiCo, most
recently serving as President of Frito-Lay's Central Division since 1991.
Prior to joining Frito-Lay, Mr. Kiely was President of Ventura Coastal
Corporation, a division of Seven-Up Corporation, from 1979 through 1982 and
prior thereto held various positions with the Wilson Sporting Goods Company
and with the Proctor & Gamble Company. Mr. Kiely also serves as a director of
Bell Sports, Inc. He is also on the advisory boards of the National
Association of Manufacturers and several educational and charitable
organizations. Mr. Kiely received a B.A. degree from Harvard College in 1969
and a M.B.A. degree from the Wharton School of Business at the University of
Pennsylvania in 1971.
On August 5, 1996, an action was filed in California state court against
KEN/KOAR LAX Partners, L.P. (the "LAX Partnership"), the owner of the Embassy
Suites hotel located at Los Angeles International Airport, by the secured
lender on the hotel. The complaint sought judicial foreclosure of the loan,
appointment of a receiver and certain other relief. On August 7, 1996, the
court set a hearing on a motion for the appointment of a receiver for August
26, 1996 and entered a temporary restraining order restricting certain actions
pending such hearing. Prior to the hearing on August 26, the LAX Partnership
filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.
Such Chapter 11 proceeding is pending and the LAX Partnership currently
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is operating the hotel as debtor-in-possession. The LAX Partnership is
negotiating to sell a majority interest in the Embassy Suites hotel, and in
connection therewith, has filed a motion seeking dismissal of the Chapter 11
proceeding effective concurrently with closing of such transaction. An
affiliate of Messrs. Kaneko and Kenninger controls and is the co-general
partner of the LAX Partnership, with an approximately 5% profits and capital
interest therein. The hotel is managed by Promus Hotels. The Company has no
interest in the hotel or the LAX Partnership. Following the consummation of
the proposed sale, neither Mr. Kaneko nor Mr. Kenniger will hold any interest
in or obligation related to the hotel.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. The Board of Directors has established an executive
committee (the "Executive Committee"), which will be granted such authority as
may be determined from time to time by a majority of the Board of Directors.
The Executive Committee consists of Messrs. Gessow, Kenninger and Friedman.
All actions by the Executive Committee will require the unanimous vote of all
of its members.
Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee"), which consists of Messrs. Bartels, Friedman and
Kenninger. The Audit Committee makes recommendations concerning the engagement
of independent public accountants, review with the independent public
accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls.
Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee"), which consists of
Messrs. Kiely and Climan, to determine compensation for the Company's senior
executive officers, determine awards under the Company's 1996 Equity
Participation Plan and administer the Company's Employee Stock Purchase Plan.
The Board of Directors of the Company does not have a nominating committee.
CLASSIFIED BOARD OF DIRECTORS
The Charter provides for the Company's Board of Directors to be divided into
three classes serving staggered terms so that directors' initial terms will
expire either at the 1997, 1998 or 1999 annual meeting of stockholders.
Starting with the 1997 annual meeting of stockholders, one class of directors
will be elected each year for three-year terms. The classification of
directors makes it more difficult for a significant stockholder to change the
composition of the Board of Directors in a relatively short period of time
and, accordingly, provides the Board of Directors and stockholders time to
review any proposal that a significant stockholder may make and to pursue
alternative courses of action which are fair to all the stockholders of the
Company. Messrs. Kenninger, Bartels and Noyes have been classified as Class I
directors of the Company whose initial terms will expire at the 1997 annual
meeting of stockholders. Messrs. Gessow, Friedman and Kiely have been
classified as Class II directors whose initial terms will expire at the 1998
annual meeting of stockholders. Messrs. Kaneko and Climan have been classified
as Class III directors whose initial terms will expire at the 1999 annual
meeting of stockholders.
DIRECTOR COMPENSATION
The Company pays its directors who are not officers of the Company
("Independent Directors") a fee of $1,000 per meeting of the Board of
Directors and any committee thereof (including telephonic meetings) for their
services as directors. In addition, the Company has granted options to
purchase 15,000 shares of Common Stock at the initial public offering price to
each such Independent Director to vest in equal portions over a term of three
years. Each Independent Director who is still a member of the Board of
Directors at the end of the three year vesting period of the initial grant of
options will receive a grant of additional options to purchase 15,000 shares
of Common Stock at the fair market value of the Common Stock on the date of
the grant, with such options to vest over an additional three year period. In
addition to such option grants, the Independent Directors
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will be reimbursed for expenses of attending each meeting of the Board of
Directors. Officers of the Company who are directors will not be paid any
director fees but will be reimbursed for expenses of attending meetings of the
Board of Directors.
DIRECTORS AND OFFICERS INSURANCE
The Company has purchased a directors and officers liability insurance
policy with coverage typical for a public company. The directors and officers
liability insurance policy insures (i) the officers and directors of the
Company from any claim arising out of an alleged wrongful act by such person
while acting as officers and directors of the Company, (ii) the Company to the
extent it has indemnified the officers and directors for such loss and (iii)
the Company for losses incurred in connection with claims made against the
Company for covered wrongful acts.
INDEMNIFICATION
The Charter provides for the indemnification of the Company's officers and
directors against certain liabilities to the fullest extent permitted under
applicable law. The Charter also provides that the directors and officers of
the Company be exculpated from monetary damages to the fullest extent
permitted under applicable law. It is the position of the Securities and
Exchange Commission that indemnification of directors and officers for
liabilities arising under the Securities Act is against public policy and
unenforceable pursuant to Section 14 of the Securities Act.
EXECUTIVE COMPENSATION
Summary Compensation Table. The Company was incorporated as a Maryland
corporation in May 1996. The following table sets forth the annual base salary
and other annual compensation which the Company paid in 1996 to the Company's
chief executive officer and each of the other four most highly compensated
executive officers whose cash compensation exceeded $100,000 (salary and
bonus) (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ---------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS/SARS(3)
------------------ ---- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Osamu Kaneko............ 1996 $280,000 $ -- $2,500 150,000
Chairman of the Board
and Chief Executive
Officer
Andrew J. Gessow........ 1996 280,000 -- 2,500 150,000
Director and President
Steven C. Kenninger..... 1996 280,000 -- 2,500 150,000
Director, Chief
Operating Officer and
Secretary
James E. Noyes.......... 1996 280,000 120,000 14,500 375,000
Director and Executive
Vice President
Michael A. Depatie...... 1996 280,000 -- 2,500 375,000
Executive Vice
President and Chief
Financial Officer
</TABLE>
- --------
(1) See "--Incentive Compensation Plan" and "--Employment Agreements" below
for a discussion of annual performance bonuses payable to key employees
and executive officers.
(2) Represents automobile lease payments and insurance premiums.
(3) Options to purchase an aggregate of 1,750,000 shares of Common Stock have
been granted to directors, executive officers and other employees of the
Company. See "--1996 Equity Participation Plan."
89
<PAGE>
Option Grants in 1996. The following table contains information concerning
the grant of stock options under the Company's 1996 Equity Participation Plan
expected to be made for the year ended December 31, 1996 to the Named
Executive Officers. The table also lists potential realizable values of such
options on the basis of assumed annual compounded stock appreciation rates of
5% and 10% over the life of the options which are set for a maximum of ten
years.
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES PERCENT OF RATES OF SHARE
UNDERLYING TOTAL OPTIONS EXERCISE PRICE APPRECIATION
OPTIONS GRANTED TO OR BASE FOR OPTION TERM(3)
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#)(1) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
- ---- ---------- -------------- -------- -------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Osamu Kaneko............ 150,000 8.6% $14 August 2006 $1,321 $ 3,347
Andrew J. Gessow........ 150,000 8.6% $14 August 2006 $1,321 $ 3,347
Steven C. Kenninger..... 150,000 8.6% $14 August 2006 $1,321 $ 3,347
James E. Noyes.......... 375,000 21.4% $12 June 2006 $2,830 $ 7,172
Michael A. Depatie...... 110,000 6.3% $18.13 September 2006 $ 1,247 $ 3,148
Michael A. Depatie...... 265,000 15.1% $24.13 November 2006 $ 2,499 $ 6,296
</TABLE>
- --------
(1) The options granted to Messrs. Kaneko, Gessow, and Kenninger will vest in
three equal installments on the first, second, and third anniversaries of
the date of the grant. The options granted to Mr. Depatie vested with
respect to 22,000 shares at $18.13 per share and with respect to 53,000
shares at $24.13 per share upon the date of the respective grant, with the
balance of such shares vesting in four equal annual installments beginning
on the first anniversary of the date of grant. The options granted to Mr.
Noyes vested with respect to 75,000 shares on the date of the grant and
with respect to the remaining 300,000 shares will vest in 48 equal
installments at the end of each of the first 48 months that Mr. Noyes is
employed by the Company.
(2) During 1996 the Company issued options to employees and directors of the
Company to purchase an aggregate of 1,750,000 shares of Common Stock.
(3) The potential realizable value (in thousands of dollars) is reported net
of the option price, but before income taxes associated with exercise.
These amounts represent assumed annual compounded rates of appreciation at
5% and 10% only from the date of grant to the expiration date of the
option.
INCENTIVE COMPENSATION PLAN
The Company has established an incentive compensation plan for officers and
key employees of the Company after the closing of the Offering. This plan
provides for payment of a cash bonus to participating officers and key
employees if certain performance objectives established for each individual
are achieved. Pursuant to such plan, each of Messrs. Kaneko, Gessow, Kenninger
and Depatie shall be entitled to receive a cash bonus of up to 100% of their
respective base compensation, respectively, upon the achievement by the
Company of specified targets of growth in revenues, earnings per share and
other key operating factors as determined by the Compensation Committee.
Pursuant to his employment agreement, Mr. Noyes shall be entitled to receive a
cash bonus of $30,000 per quarter for each quarter that he is employed by the
Company. The amount of the bonus to other participating officers and key
employees will be based on a formula to be determined for each employee by the
Compensation Committee, and is expected to be based on growth in earnings per
share and other factors.
1996 EQUITY PARTICIPATION PLAN
The Company has established an equity participation plan (the "1996 Equity
Participation Plan") to enable executive officers, other key employees,
Independent Directors and consultants of the Company to participate in the
ownership of the Company. The 1996 Equity Participation Plan is designed to
attract and retain executive officers, other key employees, Independent
Directors and consultants of the Company and to provide incentives to such
persons to maximize the Company's performance. The 1996 Equity Participation
Plan provides for the
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<PAGE>
award to executive officers, other key employees, Independent Directors and
consultants of the Company of a broad variety of stock-based compensation
alternatives such as nonqualified stock options, incentive stock options,
restricted stock and performance awards and provides for the grant to
executive officers, other key employees, Independent Directors and consultants
of nonqualified stock options. Awards under the 1996 Equity Participation Plan
may provide participants with rights to acquire shares of Common Stock.
The 1996 Equity Participation Plan will be administered by the Compensation
Committee, which is authorized to select from among the eligible participants
the individuals to whom options, restricted stock purchase rights and
performance awards are to be granted and to determine the number of shares to
be subject thereto and the terms and conditions thereof. The members of the
Compensation Committee who are not affiliated with the Company will select
from among the eligible participants the individuals to whom nonqualified
stock options are to be granted, except as set forth below, and will determine
the number of shares to be subject thereto and the terms and conditions
thereof. The Compensation Committee is also authorized to adopt, amend and
rescind rules relating to the administration of the 1996 Equity Participation
Plan.
Nonqualified stock options will provide for the right to purchase Common
Stock at a specified price which may be less than fair market value on the
date of grant (but not less than par value), and usually will become
exercisable in installments after the grant date. Nonqualified stock options
may be granted for any reasonable term.
Incentive stock options will be designed to comply with the provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and will be subject
to restrictions contained in the Code, including exercise prices equal to at
least 100% of fair market value of Common Stock on the grant date and a ten
year restriction on their term, but may be subsequently modified to disqualify
them from treatment as an incentive stock option.
Restricted stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Compensation Committee. Restricted stock, typically, may be repurchased by
the Company at the original purchase price if the conditions or restrictions
are not met. In general, restricted stock may not be sold, or otherwise
transferred or hypothecated, until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will receive dividends prior to the time when the restrictions
lapse.
Performance awards may be granted by the Compensation Committee on an
individual or group basis. Generally, these awards will be based upon specific
agreements and may be paid in cash or in Common Stock or in a combination of
cash and Common Stock. Performance awards may include "phantom" stock awards
that provide for payments based upon increases in the price of the Company's
Common Stock over a predetermined period. Performance awards may also include
bonuses which may be granted by the Compensation Committee on an individual or
group basis and which may be payable in cash or in Common Stock or in a
combination of cash and Common Stock.
There are 1,750,000 shares of Common Stock reserved for issuance pursuant to
the 1996 Equity Participation Plan. The Company has issued to executive
officers, other key employees, Independent Directors and consultants of the
Company options to purchase 1,750,000 shares of Common Stock pursuant to the
1996 Equity Participation Plan. In addition, the Company currently intends to
request Board of Directors and stockholder approval to increase the authorized
number of shares of Common Stock reserved for issuance pursuant to the 1996
Equity Participation Plan from 1,750,000 shares to approximately 2,575,000
shares, effective following the Company's 1997 Annual Meeting of Stockholders.
EMPLOYEE STOCK PURCHASE PLAN
The Company has established the Signature Resorts, Inc. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") to assist employees of the
Company in acquiring a stock ownership interest in the Company and to
encourage them to remain in the employment of the Company. The Employee Stock
Purchase Plan is neither a qualified pension, profit sharing or stock bonus
plan under Section 401(a) of the Code, nor an
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<PAGE>
"employee benefit plan" subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended. The following discussion is a general
summary of the material U.S. federal income tax consequences to U.S.
participants in the Employee Stock Purchase Plan. The discussion is based on
the Code, regulations thereunder, rulings and decisions now in effect, all of
which are subject to change. The summary does not discuss all aspects of
federal income taxation that may be relevant to a particular participant in
light of such participant's personal investment circumstances.
The Employee Stock Purchase Plan is intended to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Code. Neither the
grant of the right to purchase shares, nor the purchase of shares, under the
Employee Stock Purchase Plan has a federal income tax effect on employees or
the Company. Any United States tax liability to the employee and the tax
deductions to the Company are deferred until the employee sells the shares,
disposes of the shares by gift or dies. Under the Employee Stock Purchase
Plan, shares are generally purchased for 85% of the fair market value thereof,
as permitted by the Code.
In general, if shares are held for more than one year after they are
purchased and for more than two years from the beginning of the enrollment
period in which they are purchased or if the employee dies while owning the
shares, gain on the sale or other disposal of the shares constitutes ordinary
income to and employee (with no corresponding deduction to the Company) to the
extent of the lesser of (i) 15% of the fair market value of the shares at the
beginning of the enrollment period or (ii) the gain on sale of the amount by
which the market value of the shares on the date of sale, gift or death,
exceeds the purchase price. Any additional gain is capital gain. If the shares
are sold or disposed of within either or both of the holding periods, an
employee recognizes ordinary income (and the Company receives a corresponding
deduction subject to Section 162(m) of the Code) to the extent that the fair
market value of the shares at the date of exercise of the option exceeds the
option price. Any appreciation or depreciation after the date of purchase is
capital gain or loss.
A maximum of 500,000 shares of Common Stock have been reserved for issuance
under the Employee Stock Purchase Plan. The Employee Stock Purchase Plan will
be administered by the Compensation Committee.
401(k) PLAN
The Company intends to establish a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Code (the
"401(k) Plan"). The 401(k) Plan will permit the employees of the Company to
defer a portion of their compensation in accordance with the provisions of
Section 401(k) of the Code. The 401(k) Plan will allow participants to defer
up to ten percent of their eligible compensation on a pre-tax basis subject to
certain maximum amounts. Matching contributions may be made in amounts and at
times determined by the Company. The 401(k) Plan provides for Company matching
contributions, if determined by the Company to be made, in an amount equal to
fifty-cents for each one dollar of participant contributions up to a maximum
of three percent of the participant's salary per year. No other Company
matching contributions are contemplated at this time. Certain other statutory
limitations with respect to the Company's contribution under the 401(k) Plan
also apply. Participants will receive service credit for employment with the
predecessors of the Company and affiliates. Amounts contributed by the Company
for a participant will vest over five years and will be held in trust until
distributed pursuant to the terms of the 401(k) Plan.
Employees of the Company will be eligible to participate in the 401(k) Plan
if they meet certain requirements concerning minimum age and period of
credited service. All contributions to the 401(k) Plan will be invested in
accordance with participant elections among certain investment options.
Distributions from participant accounts will not be permitted before age 59
1/2, except in the event of death, disability, certain financial hardships or
termination of employment.
EMPLOYMENT AGREEMENTS
Each of Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie have entered
into an employment agreement with the Company for a term of two years. The
employment agreement for each of such executives
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<PAGE>
provides for an annual salary of $280,000 per year, with annual performance
bonuses determined by the independent directors in connection with the
achievement of performance criteria to be determined (except with respect to
Mr. Noyes, who will receive a quarterly bonus of $30,000 for each quarter he
is employed by the Company). In addition, each of Messrs. Kaneko, Gessow,
Kenninger, Noyes and Depatie have received options to purchase shares of
Common Stock as described in "--1996 Equity Participation Plan." In addition,
each of Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie shall receive
severance payments equal to base compensation and bonus at the most recent
annual amount for the longer of the balance of the employment term or two
years upon the death, disability, termination or resignation of such
executive, unless such executive resigns without "good cause" or unless the
Company terminates such executive as a result of gross negligence, willful
misconduct, fraud or a material breach of the employment agreement. Each such
executive will have "good cause" to terminate his employment with the Company
in the event of any reduction in his compensation or benefits, material breach
or material default by the Company under his employment agreement or following
the merger or change in control of the Company.
Additionally, it is anticipated that upon the consummation of the Merger
with AVCOM, a subsidiary of the Company will employ Gary L. Hughes and John R.
Stevens pursuant to Employment Agreements to be executed by the parties.
Pursuant to such agreements, the term of employment shall be for a period of
three years. The Company may terminate their employment, with or without
cause, at any time. The initial base salary shall be $225,000 with increases
and potential bonuses and fringe benefits tied to performance and
profitability. Messrs. Hughes and Stevens will primarily perform duties
related to the operation of AVCOM as a wholly-owned subsidiary of the Company.
Upon consummation of the Merger, it is anticipated that the Company will
grant Messrs. Hughes and Stevens options to purchase up to 250,000 shares of
Common Stock of the Company, in the aggregate, in consideration for their
continued employment. Options to purchase 150,000 of such shares will be
contingent upon AVCOM achieving certain net income targets in 1997. These
options will vest and become exercisable in three annual installments assuming
continued employment; provided, however, that the options will cease to be
exercisable following a termination of employment. The exercise price will be
the fair market value of the stock on the date of grant.
COVENANTS NOT TO COMPETE
The Founders and Messrs. Noyes and Mr. Depatie have agreed (and upon
commencement of their employment with the Company, Messrs. Hughes and Stevens
will agree) to devote substantially full time to the business of the Company
and not engage in any competitive businesses. In particular, the foregoing
individuals are prohibited from managing, consulting or participating in any
way in any timeshare business or from acquiring any property with the intent
to convert the property to a timeshare operation, unless the Independent
Directors of the Company determine that such investment is in the best
interest of the Company. Such noncompetition provisions shall survive for two
years following any termination of employment. Such individuals are not,
however, prohibited from acquiring hotels, including hotels which may compete
directly with properties of the Company. See "Certain Relationships and
Related Transactions--Founders' Other Business Interests."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FOUNDERS' OTHER BUSINESS INTERESTS
Affiliates of Messrs. Kaneko and Kenninger currently have managing general
partner or similar interests in entities which own investment properties which
the Company does not consider to be competitive with its timeshare business
(the "KOAR Interests"). These properties include a 225-unit condominium
project in Long Beach, California which is being marketed for whole share unit
sales or long-term residential use rather than vacation use (and with respect
to which the KOAR Interests currently own 74 of the total 225 units, the
balance having been sold to third parties); and several retail centers and a
proposed office development project. Messrs. Kaneko and Kenninger are also
currently the constituent general partners of a number of partnerships in
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<PAGE>
which they owe fiduciary duties to limited partners who invested over $80
million of equity therein (which partnerships include five Embassy Suites
hotels which are still owned by partnerships controlled by Affiliates of
Messrs. Kaneko and Kenninger (the "Prior Partnerships")). Messrs. Kaneko and
Kenninger are authorized by the Company to meet their duties and
responsibilities to the Prior Partnerships pursuant to the terms thereof,
including the sale, refinancing, restructuring and packaging of the Prior
Partnerships, and including with respect to the formation of public or private
entities for such purpose, including a public real estate investment trust
("REIT") for one or all of the Embassy Suites hotels in the Prior Partnerships
(provided, that Messrs. Kaneko and Kenninger agree not to serve as an officer
or employee of such REIT). Messrs. Kaneko and Kenninger agree to continue to
retain third party management companies to manage these properties (e.g.,
Promus Hotels manages all five Embassy Suites hotels), and to employ personnel
not employed by the Company to carry out the day-to-day responsibilities of
managing and overseeing these properties. However, Messrs. Kaneko and Kenninger
reserve the right to do what is reasonably necessary within these constraints
to carry out their duties and responsibilities to the Prior Partnerships
pursuant to the terms thereof. The Company does not believe that such
activities will detract materially from Messrs. Kaneko's and Kenninger's
services to the Company.
PAYMENTS TO AFFILIATES
A total of $15.7 million of the net proceeds from the Initial Public Offering
were used to repay outstanding debt to affiliates of the Founders. Of the $15.7
million of the funds paid to the affiliates of the Founders, $15.3 million was
used to pay off existing debt to third party financial institutions or other
third party financing sources or to pay tax liabilities. The proceeds from the
loans were previously either invested in or loaned either to the Company or its
predecessors or to acquire or develop the Existing Resorts.
In addition, pursuant to the Consolidation Transactions, during the three
months ended September 30, 1996 Founders also received $2.3 million of
distributions from certain predecessor partnerships of the Company to fund
income tax obligations which had accrued through the date of the Initial Public
Offering and with respect to whom no pre-Offering profits of the Company had
been distributed.
In addition, $12.2 million of the net proceeds of the Initial Public Offering
were used to repay outstanding indebtedness owed to partnerships in which an
affiliate of Mr. Friedman, a director of the Company, is a general partner. Of
such repayment, approximately $3.0 million was repaid directly to Mr. Friedman
or his affiliates.
CONSOLIDATION TRANSACTIONS
The Company's Existing Resorts were previously owned and operated by the
Property Partnerships, each affiliated with the Founders. The Property
Partnerships consisted of Grand Beach Resort, L.P., a Georgia limited
partnership (Embassy Vacation Resort Grand Beach); AKGI-Flamingo C.V., a
Netherlands Antilles limited partnership (Flamingo Beach Club); AKGI-Royal Palm
C.V., a Netherlands Antilles limited partnership (Royal Palm Beach Club); Port
Royal Resort, L.P., a South Carolina limited partnership (Royal Dunes Resort);
an approximately 30% interest in Poipu Resort Partners, L.P., a Hawaii limited
partnership (Embassy Vacation Resort Poipu Point); Fall Creek Resort, L.P., a
Georgia limited partnership (Plantation at Fall Creek); Cypress Pointe Resort,
L.P., a Delaware limited partnership (Cypress Pointe Resort); Lake Tahoe Resort
Partners, LLC, a California limited liability company (Embassy Vacation Resort
Lake Tahoe); and San Luis Resort Partners, LLC, a Georgia limited liability
company (San Luis Bay Resort). Affiliates of the Founders were previously the
sole general partners or the sole members of each of the Property Partnerships.
Each of the Property Partnerships (other than the Embassy Vacation Resort Poipu
Beach) which remained in existence following the Consolidation Transactions and
the Initial Public Offering are wholly owned by the Company.
As a result of the consummation of the Consolidation Transactions described
below, the partnership and limited liability company interests in each of the
Property Partnerships, certain of the stock of certain other corporations
affiliated therewith held by "accredited investors" (as defined pursuant to
Regulation D under the Securities Act) and certain debt obligations of the
Property Partnerships and affiliates (and, as a result, ownership of each of
the Existing Resorts) have been directly or indirectly transferred to the
Company and in exchange the
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<PAGE>
holders of such partnership interests and certain of such stock will receive
shares of Common Stock in the Company. Holders of any such partnership
interests who are not "accredited investors" received cash at a price
commensurate with the value received by the accredited investors to be
determined prior to the Consent Solicitation. All financial and share
information presented in this Prospectus reflects the consummation of the
Consolidation Transactions and reflects the issuance of an aggregate of
11,354,705 shares of Common Stock to the holders of partnership interests in
the Property Partnerships and to certain stockholders of the Affiliated
Companies. The Affiliated Companies include Argosy/KOAR Group, Inc., Resort
Management International, Inc., Resort Marketing International, Inc., RMI-
Royal Palm C.V.o.a., RMI-Flamingo C.V.o.a., AK-St. Maarten, LLC, Premier
Resort Management, Inc., Resort Telephone & Cable of Orlando, Inc., Kabushiki
Gaisha Kei, LLC, Vacation Ownership Marketing Company and Vacation Resort
Marketing of Missouri, Inc., each of which are controlled by the Founders and
previously provided administrative, utility, management and/or marketing
services to certain of the Property Partnerships.
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Initial Public
Offering. Pursuant to a Private Placement Memorandum dated as of May 28, 1996,
the Company in the Consent Solicitation solicited and received on or before
June 13, 1996 the consent and agreement of the ultimate owners of interests in
the Property Partnerships, the stockholders of the Affiliated Companies and
the holders of certain debt obligations to exchange their partnership
interests or shares in, and obligations of, the Property Partnerships or
Affiliated Companies (or their direct or indirect interests in the owners
thereof), as applicable, for shares of Common Stock in the Company. Such
exchange occurred simultaneously with the closing of the Initial Public
Offering. The Consent Solicitation and exchange of direct and indirect
interests in, and obligations of, the Property Partnerships and the Affiliate
Companies, as applicable, for shares of Common Stock in the Company are
referred to herein as the "Consolidation Transactions." Direct and indirect
holders of interests in, and obligations of, certain Property Partnerships
received, upon consummation of the Consolidation Transactions, shares of
Common Stock in the Company equal to a predetermined dollar value based on
agreement between the Company and such holders as set forth in the Private
Placement Memorandum for the Consent Solicitation. The balance of the shares
of Common Stock issued in the Consolidation Transactions were issued to the
holders of interests in the remaining Property Partnerships and to the holders
of interests in the Affiliated Companies, which are comprised solely of the
Founders or their affiliates. As a result of the Consolidation Transactions
and the Initial Public Offering, the ultimate owners of interests in the
Property Partnerships and stockholders of the Affiliated Companies own, in the
aggregate, approximately 65.3% (approximately 46.3% after giving effect to the
Stock Offering) of the outstanding Common Stock in the Company, with
approximately 41.4% (approximately 37.4% after giving effect to the Stock
Offering) of the outstanding Common Stock in the Company being held by the
Founders, or affiliates thereof. For additional information regarding the
Property Partnerships and the Affiliated Companies as well as the
Consolidation Transactions and resulting effect thereof, see "Principal and
Selling Stockholders" and "Certain Relationships and Related Transactions."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The information in the following table sets forth information regarding the
beneficial ownership of the Common Stock of the Company, as adjusted to
reflect the sale of shares offered in the Stock Offering, with respect to (i)
each person known by the Company to beneficially owns 5% or more of the
outstanding shares of Common Stock, (ii) each person who is a director, or
Named Executive Officer of the Company, (iii) all directors and executive
officers of the Company as a group and (iv) each of the Selling Stockholders.
Applicable percentage ownership is based on 17,392,205 shares of Common Stock
outstanding as of the date of this Prospectus and 18,992,205 shares of Common
Stock outstanding following completion of the Offerings. The table below does
not give effect to the Merger.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP AFTER
PRIOR TO THE OFFERINGS THE OFFERINGS(B)
---------------------------- -----------------------
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER(A) SHARES PERCENTAGE BEING OFFERED(B) SHARES PERCENTAGE
------------------- ------------- ----------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS, NAMED
EXECUTIVE OFFICERS AND
5% STOCKHOLDERS
Osamu Kaneko(c)......... 2,667,903 15.3% -- 2,667,903 14.0%
Andrew J. Gessow(d)..... 3,056,704 17.6% -- 3,056,704 16.1%
Steven C.
Kenninger(c)(e)........ 1,371,779 7.9% -- 1,371,779 7.2%
James E. Noyes.......... 125,000(f) * -- 125,000(f) *
Michael A. Depatie...... 82,400(g) * -- 82,400(g) *
Juergen Bartels......... -- -- -- -- --
Sanford R. Climan....... 3,250 * -- 3,250 *
Joshua S.
Friedman(h)(i)......... -- -- -- -- --
W. Leo Kiely, III....... -- -- -- -- --
Putnam Investments, Inc.
(j).................... 1,765,970 10.2% -- 1,765,970 9.3%
One Post Office Square
Boston, Massachusetts
02109
Canpartners
Incorporated(h)(k)..... 1,474,511 8.5% 1,126,479 348,032 1.8%
Beth Friedman(h)(i)... 286,688 1.6% 224,274 62,414 *
Loretta Evensen(h)(i). 286,688 1.6% 224,274 62,414 *
Mitchell R.
Julis(h)(i).......... 286,688 1.6% 224,274 62,414 *
------------- -------- --------- ---------
Total (as a group)... 2,334,575 13.4% 1,799,301 535,274 2.8%
All directors and
executive officers as a
group (13 persons)(l).. 7,482,384 43.0% -- 7,482,384 39.4%
OTHER SELLING
STOCKHOLDERS
J.C. Investment &
Realty, Inc.(m)........ 328,219 1.9% 78,229 249,990 1.3%
Peach Tree, Ltd. ....... 327,154 1.9% 100,000 227,154 1.2%
Shinko Sangyou Co.
Ltd.(n)................ 120,001 * 52,212 67,789 *
Community Funds,
Inc.(o)................ 107,200 * 83,862 23,338 *
Dennis H. Vaughn(p)..... 101,513 * 59,257 42,256 *
Kenpoh, Inc.(q)......... 90,001 * 70,407 19,594 *
Brains-Heart, Ltd.(r)... 54,494 * 23,710 30,784 *
EKC Corporation(s)...... 54,494 * 826 53,668 *
The California Community
Foundation(t).......... 45,000 * 35,203 9,797 *
James W. Geisz(u)....... 37,158 * 13,889 23,269 *
Tadaaki Chigusa(v)...... 27,247 * 21,315 5,932 *
William S. Waldo(w)..... 17,985 * 14,069 3,916 *
Ethan Lipsig(x)......... 17,980 * 14,066 3,914 *
Michael B. Reeves(y).... 14,376 * 4,678 9,698 *
Charles V. Thornton(z).. 11,980 * 2,237 9,743 *
Sook Ja Kim(aa)......... 10,899 * 8,526 2,373 *
Randall Wooster(bb)..... 10,329 * 8,080 2,249 *
James A. Hamilton(cc)... 7,143 * 1,956 5,187 *
Paul Grossman(dd)....... 5,990 * 4,686 1,304 *
Charles H. Reeves(ee)... 2,995 * 1,616 1,379 *
Raymond M. Bukaty(ff)... 2,396 * 1,875 521 *
</TABLE>
- --------
* Less than 1%
(a) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock owned by
such beneficial owner.
(b) Does not reflect the possible sale of shares of the Company's Common Stock
by Selling Stockholders upon exercise of the Underwriters' over-allotment
option.
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(c) The address of such person is 5933 West Century Blvd., Suite 210, Los
Angeles, California 90045.
(d) The address of such person is 2934 Woodside Road, Woodside, California
94062.
(e) The shares indicated are held by Mr. Kenninger through trusts, pension
plans and profit sharing plans, under which Mr. Kenninger may be deemed to
have, or to share, beneficial ownership of such shares.
(f) Represents presently exercisable options to acquire shares of Common Stock
or options which will become exercisable within 60 days of the date of
this Prospectus.
(g) Includes (i) presently exercisable options to acquire 75,000 shares of
Common Stock, (ii) 6,400 shares of Common Stock held through trusts and
retirement plans and (iii) 1,000 shares of Common Stock held by a
corporation in which Mr. Depatie is a director and a 7.2% shareholder.
(h) Canpartners Incorporated ("Canyon") is the beneficial owner of 123,269
shares and is the sole general partner of CPI Securities L.P. (which holds
927,274 shares), Canpartners Investments II, L.P. (which holds 380,003
shares) and Canpartners Investments V, L.P. (which holds 43,965 shares).
Of the 1,126,479 shares indicated to be sold by such entities in the Stock
Offering, 96,433 shares will be sold by Canpartners Incorporated, 725,400
shares will be sold by CPI Securities L.P. and 304,646 shares will be sold
by Canpartners Investments II, L.P. Each of Canpartners Incorporated, CPI
Securities L.P. and Canpartners Investments II, L.P. has granted the
Underwriters an over-allotment option with respect to 15,084; 113,463; and
47,824 shares, respectively. Mr. Friedman (a director of the Company),
Mitchell R. Julis and R. Christian B. Evensen are the sole shareholders
and directors of Canyon and may be deemed to share beneficial ownership of
the shares shown as owned by Canyon and the indicated limited
partnerships. Such persons disclaim beneficial ownership of such shares.
The 1,474,511 shares shown as beneficially owned by Canyon do not include
286,688 shares owned by Mr. Friedman's wife, 286,688 shares owned by Mr.
Julis and 286,688 shares owned by Mr. Evensen's wife, the beneficial
ownership of which is disclaimed by Canyon.
(i) Beth Friedman is the wife of Joshua S. Friedman, a director of the
Company. Loretta Evensen is the wife of R. Christian B. Evensen, a
shareholder and director of Canyon. Mitchell R. Julis is a shareholder and
director of Canyon. Each of Mrs. Friedman, Mrs. Evensen and Mr. Julis has
granted the Underwriters an over-allotment option with respect to 35,079
shares.
(j) Information based solely on a Schedule 13G filed with the Securities and
Exchange Commission by, among others, Putnam Investments, Inc. ("PI"). Of
the shares beneficially owned by PI, Putnam Investment Management, Inc.
("PIM") beneficially owns 1,260,370 (or 7.25%) of the outstanding shares
of Common Stock and The Putnam Advisory Company, Inc. ("PAC") beneficially
owns 505,600 (or 2.9%) of the outstanding shares of Common Stock. The
shares of Common Stock reported as being beneficially owned by PI consist
of securities beneficially owned by subsidiaries of PI which are
registered investment advisers, which in turn include securities
beneficially owned by clients of such investment advisers, which clients
may include investment companies registered under the Investment Company
Act and/or employee benefit plans, pension funds, endowment funds or other
institutional clients. PI, which is a wholly-owned subsidiary of Marsch &
McLennan Companies, Inc. ("M&MC"), wholly owns two registered investment
advisers: PIM, which is the investment adviser to the Putnam family of
mutual funds and PAC, which is the investment adviser to Putnam's
institutional clients. Both subsidiaries have dispository power over the
shares as investment managers, but each of the mutual fund's trustees have
voting power over the shares held by each fund, and PAC has shared voting
power over the shares held by the institutional clients. M&MC and PI
disclaim beneficial ownership of the shares of Common Stock reported as
being beneficially owned by PI.
(k) The address of such entity is 9665 Wilshire Boulevard, Suite 200, Beverly
Hills, California 90210.
(l) Includes 354,000 shares which may be acquired upon exercise of presently
exercisable options or options which will become exercisable within 60
days of the date of this Prospectus.
(m) J.C. Investment & Realty, Inc. has granted the Underwriters an over-
allotment option with respect to 12,236 shares.
(n) Shinko Sangyou Co. Ltd. has granted the Underwriters an over-allotment
option with respect to 8,434 shares.
(o) Community Funds, Inc. has granted the Underwriters an over-allotment
option with respect to 12,579 shares.
(p) Includes (i) 45,320 shares held by The Vaughn Family Trust, of which Mr.
Vaughn is a co-trustee, (ii) 41,203 shares held by the Dennis H. Vaughn
Individual Retirement Account, of which Mr. Vaughn is beneficiary,
(iii) 9,000 shares held by the Paul, Hastings, Janofsky & Walker
Retirement Plan FBO Dennis H. Vaughn, of which Mr. Vaughn is beneficiary
and (iv) 5,990 shares held by the Dennis Vaughn Subtrust, of which
Mr. Vaughn is trustee. Of the 59,257 shares indicated to be sold by Mr.
Vaughn in the Stock Offering, 41,203 shares will be sold by the Dennis H.
Vaughn Individual Retirement Account, 9,000 shares will be sold by the
Paul, Hastings, Janofsky & Walker Retirement Plan FBO Dennis H. Vaughn and
9,054 shares will be sold by The Vaughn Family Trust. The Vaughn Family
Trust has granted the Underwriters an over-allotment option with respect
to 9,399 shares.
(q) Kenpoh, Inc. has granted the Underwriters an over-allotment option with
respect to 11,013 shares.
(r) Brains-Heart, Ltd. has granted the Underwriters an over-allotment option
with respect to 3,831 shares.
(s) EKC Corporation has granted the Underwriters an over-allotment option with
respect to 134 shares.
(t) The California Community Foundation holds 15,000 shares of Common Stock in
each of the Friedman Family Fund, the Evensen Family Fund and the Julis
Family Fund, charitable funds over which Mr. and Mrs. Friedman, Mr. and
Mrs. Evensen and Mr. Julis have no dispositive or voting power and with
respect to which such individuals disclaim beneficial ownership of such
shares. The California Community Foundation has granted the Underwriters
an over-allotment option with respect to 5,510 shares.
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(u) Includes 11,990 shares held by MLPF&S Inc. Custodian FPO James W. Geisz
SEP, of which Mr. Geisz is beneficiary. Of the 13,889 shares indicated to
be sold by Mr. Geisz in the Stock Offering, 11,990 shares will be sold by
such retirement plan. Mr. Geisz has granted the Underwriters an over-
allotment option with respect to 2,244 shares.
(v) The shares indicated are held by Mr. Chigusa through the Northern Pacific
Properly Company, a trust under which he may be deemed to have, or to
share, beneficial ownership of such shares. Mr. Chigusa has granted the
Underwriters an over-allotment option with respect to 3,334 shares.
(w) Mr. Waldo has granted the Underwriters an over-allotment option with
respect to 2,201 shares.
(x) Includes 11,980 shares held by the Paul, Hastings, Janofsky & Walker
Retirement Plan FBO Ethan Lipsig, of which Mr. Lipsig is beneficiary. Of
the 14,066 shares indicated to be sold in the Stock Offering, 10,349 shares
will be sold by the Paul, Hastings, Janofsky & Walker Retirement Plan FBO
Ethan Lipsig. Each of Mr. Lipsig and the Paul, Hastings, Janofsky & Walker
Retirement Plan FBO Ethan Lipsig has granted the Underwriters an over-
allotment option with respect to 569 and 1,631 shares, respectively.
(y) Includes 11,980 shares held by The CCN&M Revocable Trust, of which Mr.
Reeves is co-trustee. The 4,678 shares indicated to be sold by Mr. Reeves
will be sold by The CCN&M Revocable Trust. The CCN&M Revocable Trust has
granted the Underwriters an over-allotment option with respect to 732
shares.
(z) Includes 5,990 shares held by the Paul, Hastings, Janofsky & Walker
Retirement Plan FBO Charles V. Thornton. Of the 2,237 shares indicated to
be sold by Mr. Thornton in the Stock Offering, 1,527 shares will be sold by
such retirement plan. The Paul, Hastings, Janofsky & Walker Retirement Plan
FBO Charles V. Thornton has granted the Underwriters an over-allotment
option with respect to 362 shares.
(aa) Mr. Kim has granted the Underwriters an over-allotment option with
respect to 1,334 shares.
(bb) Mr. Wooster has granted the Underwriters an over-allotment option with
respect to 1,264 shares.
(cc) Mr. Hamilton has granted the Underwriters an over-allotment option with
respect to 306 shares.
(dd) Mr. Grossman has granted the Underwriters an over-allotment option with
respect to 733 shares.
(ee) The shares indicated are held by a trust of which Mr. Reeves is co-
trustee. The trust has granted the Underwriters an over-allotment option
with respect to 252 shares.
(ff) Mr. Bukaty has granted the Underwriters an over-allotment option with
respect to 294 shares.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, par value $0.01 per share, 17,392,205 shares of which
are outstanding as of the date of this Prospectus and 18,992,205 shares of
which will be outstanding after the Stock Offering and (ii) 25,000,000 shares
of Preferred Stock, par value $0.01 per share, none of which will be
outstanding after the Offerings. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Charter and Bylaws of the Company, copies of which are filed as exhibits to
the Registration Statement of which this Prospectus is a part. See "Additional
Information."
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Board of Directors with respect to any series of Preferred Stock
establishing the designation, powers, preferences and relative, participating,
option or other special rights and powers of such series of Preferred Stock,
the holders of shares of Common Stock exclusively possess all voting power.
The Charter does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such
distributions as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation are entitled to receive
pro rata all assets of the Company available for distribution to such holders.
All shares of Common Stock issued in the Offering will be fully paid and
nonassessable and the holders thereof will not have preemptive rights.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes, as
authorized by the Board of Directors. Prior to issuance of shares of each
class, the Board of Directors is required by the MGCL and the Company's
Charter to fix for each such class, the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption, as
are permitted by Maryland law. The Board of Directors could authorize the
issuance of Preferred Stock with terms and conditions which could have the
effect of discouraging a takeover or other transaction which holders of some,
or a majority, of the Company's outstanding shares might believe to be in
their best interests or in which holders of some, or a majority, of shares
might receive a premium for their shares over the market price of such shares.
No Preferred Stock will be outstanding following the closing of the Offering.
TRANSFER AGENT AND REGISTRAR
The Company has appointed ChaseMellon Shareholder Services, L.L.C.
(successor in interest to Wells Fargo Bank) as its transfer agent and
registrar.
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CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's Charter and Bylaws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Company's
Charter and Bylaws, copies of which are exhibits to the Registration Statement
of which this Prospectus is a part, as described in "Additional Information,"
and to Maryland law.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Charter provides that the number of directors of the Company
shall be established by the Bylaws but shall not be less than the minimum
number required by the MGCL, which in the case of the Company is three. The
Bylaws currently provide that the Board of Directors will consist of not fewer
than seven nor more than 13 members. Any vacancy on the Board of Directors
will be filled, at any regular meeting or at any special meeting called for
that purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors will be filled by a
majority of the entire board of directors. The Charter provides for a
staggered Board of Directors consisting of three classes as nearly equal in
size as practicable. One class will hold office initially for a term expiring
at the annual meeting of stockholders to be held in 1997, another class will
hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1998 and another class will hold office initially
for a term expiring at the annual meeting of stockholders to be held in 1999.
As the term of each class expires, directors in that class will be elected for
a term of three years and until their successors are duly elected and qualify.
The Company believes that classification of the Board of Directors will help
to assure the continuity and stability of the Company's business strategies
and policies as determined by the Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Holders of shares of Common Stock will have no right to cumulative
voting for the elections of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of outstanding shares of Common Stock
will be able to elect all of the successors of the class of directors whose
term expires at that meeting.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed with or without cause by
the affirmative vote of at least two-thirds of the votes entitled to be cast
in the election of directors, and by the vote required to elect a director,
the stockholders may fill a vacancy on the Board of Directors resulting from
removal. This provision, when coupled with the provision in the Bylaws
authorizing the Board of Directors to fill vacant directorships, could
preclude stockholders from removing incumbent directors except upon a
substantial affirmative vote and filling the vacancies created by such removal
with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain "Business Combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power of the then-
outstanding voting stock of the corporation (an "Interested Stockholder") or
an affiliate thereof are prohibited for five years after the most recent date
on which the Interested Stockholder became an Interested Stockholder.
Thereafter, any
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such Business Combination must be recommended by the Board of Directors of
such corporation and approved by the affirmative vote of at least (i) 80% of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation and (ii) 66 2/3% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom the Business Combination is to be effected,
unless, among other things, the corporation's stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of Maryland law do not apply,
however, to Business Combinations that are approved or exempted by the Board
of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Board of Directors of the
Company has exempted from these provisions of the MGCL any Business
Combination involving the Executive Officers and certain persons and entities
affiliated therewith.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "Control Shares" of a Maryland corporation acquired
in a "Control Share Acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power, would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of all voting
power. Control Shares do not include shares the acquiring person is then
entitled to voter as a result of having previously obtained stockholder
approval. A "Control Share Acquisition" means the acquisition of Control
Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for control shares, as of the date of the last
Control Share Acquisition or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares are
determined for purposes of such appraisal rights may not be less than the
highest price per share paid in the Control Share Acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a Control Share Acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the Charter or Bylaws
of the corporation. The Company in its Bylaws has exempted from the Control
Share Acquisition statute the Executive Officers and certain persons and
entities affiliated therewith.
AMENDMENT TO THE COMPANY'S CHARTER AND BYLAWS
The Company's Charter, including its provisions on classification of the
Board of Directors and removal of directors, may be amended only by the
affirmative vote of the holders of at least 66 2/3% of the capital stock
entitled to vote. The Company's Bylaws may be amended by the affirmative vote
of holders of at least 66 2/3% of the capital stock entitled to vote on the
matter. Subject to the right of stockholders to adopt, alter and repeal the
Bylaws, the Board of Directors is authorized to adopt, alter or repeal the
Bylaws.
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ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(a) pursuant to the Company's notice of the meeting, (b) by the Board of
Directors, or (c) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and
(ii) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders, or provided that the Board of Directors has determined that
directors shall be elected at such meeting, nominations of persons for
election to the Board of Directors may be brought by a stockholder who is
entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
STOCKHOLDER MEETINGS AND ACTION BY WRITTEN CONSENT
In order for stockholders to call special meetings, the Bylaws require the
written request of holders of shares entitled to cast not less than 25% of all
votes entitled to be cast at such meeting. Such provisions do not, however,
affect the ability of stockholders to submit a proposal to the vote of all
stockholders of the Company in accordance with the Bylaws, which provide for
the additional notice requirements for stockholder nominations and proposals
at the annual meetings of stockholders as described above.
The Bylaws provide that any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent is signed by each stockholders entitled to notice of the meeting
but not entitled to vote at it.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Charter limits the liability of the Company's directors and
officers to the Company and its stockholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the
liability of directors and officers to a corporation or its stockholders for
money damages to be limited, except (i) to the extent that it is proved that
the director or officer actually received an improper benefit or profit, or
(ii) if a judgment or other final adjudication is entered in a preceding based
on a finding that the director's or officers' action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. This provision does not limit the
ability of the Company or its stockholders to obtain other relief, such as an
injunction or rescission.
The Company's Charter and Bylaws require the Company to indemnify its
directors, officers and certain other parties to the fullest extent permitted
from time to time by Maryland law. The MGCL presently permits a corporation to
indemnify its directors, officers and certain other parties against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service to the corporation, unless it is established that (i)
the act or omission of the indemnified party was material to the matter giving
rise to the proceeding, and (1) was committed in bad faith or (2) was the
result of active and deliberate dishonest; or (ii) the indemnified party
actually received an improper personal benefit in money, property or services;
or (iii) in the case of any criminal proceeding, the indemnified party had
reasonable cause to believe that the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by the director or officer in
connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made
with respect to any proceeding in which the director or officer has been
adjudged to be liable to the corporation. In addition, a director or officer
may not be indemnified with respect to any proceeding charging improper
personal benefit to the director or officer in which the director or officer
was adjudged to be liable on the basis that personal benefit was improperly
received. The termination of any proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of any order of probation prior
to judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite
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standard of conduct required for indemnification to be permitted. The Company
has applied for directors and officers insurance which will become effective
upon the effectiveness of the Registration Statement.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
holders of not less than a majority of all of the votes entitled to be cast on
the matter.
SHARES ELIGIBLE FOR FUTURE SALE
As a result of the Initial Public Offering and the Consolidation
Transactions and prior to the consummation of the Offerings, the Company has
outstanding 17,392,205 shares of Common Stock. Of these shares, the 6,037,500
shares sold in the Initial Public Offering are freely tradable in the public
market without restriction or further registration under the Securities Act.
The shares offered in the Stock Offering are also freely tradable in the
public market without restriction or further registration under the Securities
Act.
The remaining 11,354,705 outstanding shares of Common Stock were issued upon
consummation of the Consolidation Transactions and are "restricted securities"
as that term is defined under Rule 144 and may be sold only pursuant to
registration under the Securities Act or pursuant to an exemption therefrom,
such as that provided by Rule 144. In general, under Rule 144 as currently in
effect, if two years have elapsed since the later of the date of acquisition
of shares of Common Stock from the Company or the date of acquisition of
shares of Common Stock from any "affiliate" of the Company, as that term is
defined under the Securities Act, the acquiror or subsequent holder is
entitled to sell within any three-month period a number of shares of Common
Stock that do not exceed the greater of 1% of the then-outstanding shares of
Common Stock or the average weekly trading volume of shares of Common Stock on
all exchanges and reported through the automated quotation system of a
registered securities association during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission. Sales under
Rule 144 are also subject to certain restrictions on the manner of sales,
notice requirements and the availability of current public information about
the Company. If three years have elapsed since the date of acquisition of
shares of Common Stock from the Company or from any "affiliate" of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares of Common Stock in the
public market under Rule 144(i) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") the Company has agreed to file and use its best efforts to have
declared effective within six months following the closing of the Initial
Public Offering, a shelf registration statement with the Commission for the
purpose of registering the shares of Common Stock (the "Registrable Shares")
issuable to holders of restricted shares. The Company will use its best
efforts to have the shelf registration statement kept effective for a period
of 18 months. Upon the effectiveness of such shelf registration statement, and
as provided in the Registration Rights Agreement, the holders of the
Registrable Shares will be subject to the volume restrictions of Rule 144. The
Company will bear the expenses incident to the registration requirements of
the Registrable Shares, except that such expenses shall not include any
underwriting discounts or commissions, Securities and Exchange Commission or
state securities registration fees or transfer taxes relating to such shares.
Under the Registration Rights Agreement, the holders of the Registrable
Shares will also be entitled to include within any registration statement
under the Securities Act filed by the Company with respect to any underwritten
public offering of Common Stock (either of its own account or the account of
other security holders) at any time within three years following the closing
of the Initial Public Offering, which occurred on August 20, 1996, the shares
of Registrable Shares held by such holders, subject to certain conditions and
restrictions. See "Underwriting." The existence of the Registration Rights
Agreement may adversely affect the terms upon which the Company can obtain
additional equity financing in the future.
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The Company may require in its sole discretion that the Registrable Shares
be sold in block trades through underwriters or broker-dealers or that the
Registrable Shares be underwritten by investment banking firms selected by the
Company.
The Registration Rights Agreement also provides that each stockholder who
received its shares of Common Stock as a result of the Consolidation
Transactions has agreed, with certain exceptions, not to offer, sell, contract
to sell or otherwise dispose of any Common Stock, for a period of 180 days
after the closing of the Initial Public Offering (one year with respect to the
Founders) and 90 days after the closing of the Stock Offering without the
prior written consent of Montgomery Securities (which waiver has been granted
to the Selling Stockholders participating in the Stock Offering with respect
to the Stock Offering); one of such exceptions allows the Founders to pledge
between $30 million and $50 million of their Common Stock to secure a margin
loan in a maximum amount of $10 million and another exception allows the
Founders to pledge approximately $5.8 million of their Common Stock in
connection with their buyout of a former partner. In November 1996, Mr.
Kenninger pledged 300,000 shares of Common Stock to secure a margin loan
obtained from Swiss Bank Corporation, New York Branch, permitting advances not
to exceed the aggregate amount of $2 million at any time during a two year
term. Messrs. Kaneko and Gessow currently are negotiating with an affiliate of
Merrill Lynch to each obtain a margin loan in the amount of $4 million, each
to be secured by a pledge of shares of Common Stock owned by them.
The Company and those officers and directors of the Company that are not a
party to the Registration Rights Agreement have also agreed that, except under
certain circumstances, for a period of 90 days after the date of this
Prospectus, they will not, without the consent of Montgomery Securities,
issue, sell or dispose of any shares of Common Stock or any shares convertible
or exchangeable into any shares of Common Stock.
Prior to the Initial Public Offering, there had been no public market for
the Common Stock and the effect, if any, that future market sales of Common
Stock or the availability of such Common Stock for sale will have on the
market price of the Common Stock prevailing from time to time cannot be
predicted. Nevertheless, sales of substantial amounts of Common Stock in the
public market (or the perception that such sales could occur) might adversely
affect market prices for the Common Stock.
Sales of substantial amounts of Common Stock in the public market after the
consummation of the Merger could adversely affect prevailing market prices.
The estimated 843,942 shares of Common Stock issuable in connection with the
Merger (based upon an anticipated closing date of the Merger of February 7,
1997) will be eligible for immediate sale in the public market, subject to
certain limitations under the Securities Act, applicable to affiliates of
AVCOM.
Additionally, there are (i) outstanding stock options to purchase 1,750,000
shares of Common Stock which have been granted to executive officers, other
key employees, Independent Directors and consultants of the Company under the
1996 Equity Participation Plan, (ii) up to 500,000 shares of Common Stock that
may be sold pursuant to the Company's Employee Stock Purchase Plan and (iii)
shares initially issuable upon conversion of the % Convertible
Subordinated Notes due 2007.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Goldman, Sachs & Co., Schroder Wertheim & Co. Incorporated and
Smith Barney Inc. (the "Representatives"), have severally agreed, subject to
the terms and conditions of the underwriting agreement (the "Underwriting
Agreement") by and among the Company, the Selling Stockholders and the
Underwriters to purchase from the Company and the Selling Stockholders the
number of shares of Common Stock indicated below opposite their respective
names, at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters are committed to purchase all
of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITER PURCHASED
- ----------- ---------
<S> <C>
Montgomery Securities................................................
Goldman, Sachs & Co. ................................................
Schroder Wertheim & Co. Incorporated.................................
Smith Barney Inc.....................................................
---------
Total........................................................ 4,000,000
=========
</TABLE>
The Underwriters, through the Representatives, have advised the Company that
the Underwriters propose initially to offer the shares of Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not
more than $ per share; the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Representatives.
The Company and the Selling Stockholders have granted options to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 240,000 and 360,000, respectively,
additional shares of Common Stock to cover over-allotments, if any, at the
initial offering price less the underwriting discount. To the extent that the
Underwriters exercise this option, the Underwriters will be committed, subject
to certain conditions, to purchase such additional shares in approximately the
same proportion as set forth in the above table. The Underwriters may purchase
such shares only to cover over-allotments made in connection with the Stock
Offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with the Stock Offering, the Underwriters may engage in
passive market-making transactions in the Common Stock on the Nasdaq National
Market immediately prior to the commencement of sales in the Offering, in
accordance with Rule 10b-6A under the Exchange Act. Passive market-making
consists of displaying bids on the Nasdaq National Market limited by the bid
prices of independent market-makers and purchases limited by such prices and
effected in response to order flow. Net purchases by a passive market-maker on
each day are limited to a specified prior percentage of the passive market-
maker's average daily trading volume in the Common Stock during a specified
prior period and must be discontinued when such limit is reached. Passive
market-making may stabilize the market price of the Common Stock at a level
above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
Pursuant to the Registration Rights Agreement, if holders of the Registrable
Securities elect to sell shares of Registrable Securities in a non-publicly
underwritten offering, the timing of sales and the volume sold shall be
managed in a manner consistent with the best interests of the Company. See
"Shares Eligible for Future Sale."
105
<PAGE>
The Registration Rights Agreement also provides that each stockholder who
received its shares of Common Stock as a result of the Consolidation
Transactions has agreed, with certain exceptions, not to offer, sell, contract
to sell or otherwise dispose of any Common Stock, for a period of 180 days
(one year with respect to the Founders) after the closing of the Initial
Public Offering, which occurred on August 20, 1996, and 90 days after the
closing of the Stock Offering without the prior written consent of Montgomery
Securities (which waiver has been granted to the Selling Stockholders
participating in the Stock Offering); one of such exceptions allows the
Founders to pledge between $30 million and $50 million of their Common Stock
to secure a margin loan in a maximum amount of $10 million and another
exception allows the Founders to pledge approximately $5.8 million of their
Common Stock in connection with their buyout of a former partner.
The Company and those officers and directors of the Company that are not a
party to the Registration Rights Agreement have also agreed that, except under
certain circumstances, for a period of 90 days after the date of this
Prospectus, they will not, without the consent of Montgomery Securities,
issue, sell or dispose of any shares of Common Stock or any shares convertible
or exchangeable into any shares of Common Stock.
Investment funds managed by Goldman, Sachs & Co. are major shareholders in
Westin. The Company and Westin have entered into the Westin Agreement. See
"Business--Westin Vacation Club Resorts." Pursuant to the Westin Agreement,
Westin has certain rights to designate a member of the Company's Board of
Directors.
Montgomery Securities has provided certain investment banking services to
the Company, including rendering a fairness opinion in connection with the
Merger, for which the Company has agreed to pay usual and customary fees upon
the closing of the Merger.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain
other legal matters will be passed upon for the Company by Latham & Watkins,
Los Angeles, California. Certain matters of California real estate and
timeshare law will be passed upon for the Company by Paul, Hastings, Janofsky
& Walker, LLP, Los Angeles, California and certain matters of Florida real
estate and timeshare law will be passed upon for the Company by Schreeder,
Wheeler & Flint, LLP, Atlanta, Georgia. Certain partners of Paul, Hastings,
Janofsky & Walker, LLP, members of their families and related persons own
approximately 1% of the Common Stock of the Company prior to the Stock
Offering and certain partners of Schreeder, Wheeler & Flint, LLP own less than
1% of the Common Stock of the Company. Certain matters will be passed upon for
the Underwriters by O'Melveny & Myers LLP, San Francisco, California in
reliance, as to matters of Maryland law, on the opinion of Ballard Spahr
Andrews & Ingersoll.
EXPERTS
The consolidated financial statements of Signature Resorts, Inc. and
subsidiaries as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
The consolidated financial statements of AVCOM International, Inc. and
subsidiaries as of December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, appearing in this Prospectus and the
related Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
106
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Company is also subject to the informational requirements
of the Exchange Act, and in accordance therewith files reports and other
information with the Commission. Copies of the Registration Statement and
reports, proxy statements and other information concerning the Company may be
obtained from the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the public reference section of the Commission at its
Washington address upon payment of the fees prescribed by the Commission or
may be examined without charge at the offices of the Commission. Electronic
filings made through the Electronic Data Gathering Analysis and Retrieval
System are publicly available through the Commission's Website
(http://www.sec.gov).
The Company intends to furnish its stockholders with annual reports
containing combined financial statements audited by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited combined financial information.
107
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SIGNATURE RESORTS, INC.
Report of Independent Certified Public Accountants........................ F-2
Consolidated Financial Statements (Amounts as of September 30, 1995 and
1996 and for the nine month periods then ended are unaudited)
Consolidated Balance Sheets at December 31, 1994 and 1995 and September
30, 1995 and 1996...................................................... F-3
Consolidated Statements of Income for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996................................................................... F-4
Consolidated Statements of Equity for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1996..... F-5
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996................................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
AVCOM INTERNATIONAL, INC.
Report of Independent Auditors............................................ F-21
Consolidated Financial Statements (Amounts as of September 30, 1995 and
1996 and for the nine month periods then ended are unaudited)
Consolidated Balance Sheets at December 31, 1994 and 1995 and September
30, 1996............................................................... F-22
Consolidated Statements of Operations for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996................................................................... F-23
Consolidated Statements of Stockholders' Equity for each of the three
years ended December 31, 1995 and for the nine months ended September
30, 1995 and 1996...................................................... F-24
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996................................................................... F-25
Notes to Consolidated Financial Statements................................ F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Signature Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Signature
Resorts, Inc. (a Maryland Corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signature Resorts, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Orlando, Florida,
December 11, 1996
F-2
<PAGE>
SIGNATURE RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
------------------------ -------------------------
1994 1995 1995 1996
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 1,854,572 $ 4,341,591 $ 4,937,932 $ 9,844,097
Cash in escrow.............. 2,427,190 1,945,856 1,819,112 1,494,906
Mortgages receivable, net of
an allowance of $1,570,886
and $5,589,527 at December
31, 1994 and 1995,
respectively, $6,463,470
and $5,693,022 at September
30, 1995 and 1996,
respectively............... 33,437,116 65,099,612 60,511,155 87,955,723
Due from affiliates......... -- 2,700,820 2,949,419 4,567,335
Other receivables, net...... 1,019,673 6,383,134 3,222,218 8,249,342
Prepaid expenses and other
assets..................... 1,676,348 2,125,118 888,148 2,274,542
Investment in joint
venture.................... 4,293,525 2,644,449 3,000,101 7,537,754
Real estate and development
costs...................... 33,452,751 46,757,151 43,341,935 85,030,279
Property and equipment,
net........................ 437,092 1,863,579 729,741 2,732,399
Intangible assets, net...... 3,856,571 4,223,834 5,243,380 4,842,175
----------- ------------ ------------ ------------
Total assets................ $82,454,838 $138,085,144 $126,643,141 $214,528,552
=========== ============ ============ ============
LIABILITIES AND EQUITY
Accounts payable............ $ 1,190,072 $ 4,599,000 $ 3,614,842 $ 7,902,938
Accrued liabilities......... 5,931,911 8,854,772 10,181,227 11,765,984
Due to affiliates........... 138,245 1,422,098 469,654 1,631,848
Income taxes payable........ -- -- -- 569,451
Deferred taxes.............. -- -- -- 11,398,787
Notes payable to financial
institutions............... 34,439,558 72,395,704 63,398,732 81,144,879
Notes payable to related
parties.................... 9,975,454 12,343,518 11,667,302 --
----------- ------------ ------------ ------------
Total liabilities........... 51,675,240 99,615,092 89,331,757 114,413,887
Commitments (Note 11).......
Equity...................... 30,779,598 38,470,052 37,311,384 100,114,665
----------- ------------ ------------ ------------
Total liabilities and
equity..................... $82,454,838 $138,085,144 $126,643,141 $214,528,552
=========== ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
----------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Vacation Interval
sales.................. $22,237,812 $40,269,401 $59,070,917 $46,384,993 $49,458,553
Interest income......... 1,825,483 3,683,302 6,928,862 4,668,436 6,626,609
Other income............ 372,697 337,487 6,607,999 2,641,418 7,646,518
----------- ----------- ----------- ----------- -----------
Total revenues.......... 24,435,992 44,290,190 72,607,778 53,694,847 63,731,680
----------- ----------- ----------- ----------- -----------
COSTS AND OPERATING
EXPENSES
Vacation Interval cost
of sales............... 5,707,542 12,393,647 15,649,805 12,547,235 11,254,793
Advertising, sales, and
marketing.............. 10,808,680 18,744,828 28,488,178 22,429,056 24,408,031
Loan portfolio:
Interest expense--
treasury............. 673,706 1,629,283 3,585,927 2,532,436 4,021,948
Other expenses........ 208,258 850,661 1,188,502 757,809 1,048,497
Provision for doubtful
accounts............. 618,650 923,129 1,786,811 1,470,640 1,371,926
General and
administrative:
Resort-level.......... 2,346,043 2,863,833 4,946,525 2,759,876 4,960,842
Corporate............. 877,134 874,137 1,607,413 1,130,266 2,428,228
Depreciation and
amortization........... 384,470 489,160 1,675,515 1,158,337 1,674,822
----------- ----------- ----------- ----------- -----------
Total costs and
operating expenses..... 21,624,483 38,768,678 58,928,676 44,785,655 51,169,087
----------- ----------- ----------- ----------- -----------
Net operating income.... 2,811,509 5,521,512 13,679,102 8,909,192 12,562,593
Interest expense--
other.................. 518,612 958,628 475,693 343,796 1,867,765
Equity loss on
investment in joint
venture................ -- 271,475 1,649,076 1,293,424 94,695
----------- ----------- ----------- ----------- -----------
Net income before
taxes.................. 2,292,897 4,291,409 11,554,333 7,271,972 10,600,133
Income taxes............ -- -- 641,545 210,322 539,204
----------- ----------- ----------- ----------- -----------
Net income.............. $ 2,292,897 $ 4,291,409 $10,912,788 $ 7,061,650 $10,060,929
=========== =========== =========== =========== ===========
PRO FORMA INCOME DATA
(UNAUDITED)
Net income before
taxes.................. $ 2,292,897 $ 4,291,409 $11,554,333 $ 7,271,972 $10,600,133
Pro forma provision for
income taxes........... 878,966 1,617,913 4,348,822 2,738,904 3,992,505
----------- ----------- ----------- ----------- -----------
Pro forma net income.... $ 1,413,931 $ 2,673,496 $ 7,205,511 $ 4,533,068 $ 6,607,628
=========== =========== =========== =========== ===========
Pro forma net income per
common share........... -- -- $ 0.63 $ -- $ 0.54
Pro forma weighted
average common shares
outstanding............ -- -- 11,354,705 -- 12,321,759
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
ADDITIONAL RETAINED MEMBERS'
PAID-IN EARNINGS EQUITY GENERAL LIMITED
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT) PARTNERS PARTNERS TOTAL
---------- --------- ------------ ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January
1, 1993.......... -- $ -- $ -- $ -- $ -- $ 77,124 $ 7,361,649 $ 7,438,773
Issuance of Common
Stock............ -- -- -- -- -- -- -- --
Contributions..... -- -- -- -- -- 1,010 2,500,890 2,501,900
Distributions..... -- -- -- -- -- (154,488) (240,890) (395,378)
Net income........ -- -- -- -- -- 17,269 2,275,628 2,292,897
---------- --------- ------------ ----------- ----------- ----------- ------------ ------------
Balance at
December 31,
1993............. -- -- -- -- -- (59,085) 11,897,277 11,838,192
Issuance of Common
Stock............ -- -- -- -- -- -- -- --
Contributions..... -- -- -- -- -- 3,204,997 12,315,000 15,519,997
Distributions..... -- -- -- -- -- -- (870,000) (870,000)
Net (loss) income. -- -- -- (271,475) -- 183,363 4,379,521 4,291,409
---------- --------- ------------ ----------- ----------- ----------- ------------ ------------
Balance at
December 31,
1994............. -- -- -- (271,475) -- 3,329,275 27,721,798 30,779,598
Issuance of Common
Stock............ 200 22,000 -- -- -- -- -- 22,000
Contributions..... -- 155,000 -- 656,133 1,000 374,000 -- 1,186,133
Distributions..... -- -- -- -- (2,438,000) (42,467) (1,950,000) (4,430,467)
Net income........ -- -- -- 2,050,680 1,004,385 515,536 7,342,187 10,912,788
---------- --------- ------------ ----------- ----------- ----------- ------------ ------------
Balance at
December 31,
1995............. 200 177,000 0 2,435,338 (1,432,615) 4,176,344 33,113,985 38,470,052
1996 activity
(unaudited):
Proceeds from the
sale of 6,037,500
shares of common
stock to the
public, net of
offering costs of
$9,864,811....... 16,845,205 171,452 74,488,737 0 0 0 0 74,660,189
Goodwill from the
acquisition of
investment in
Joint Venture in
exchange for
stock............ 547,000 5,470 4,982,530 -- -- -- -- 4,988,000
Acquisition of
minority limited
partners'
interests........ -- -- (6,751,037) -- -- -- -- (6,751,037)
Deferred taxes
recorded in
connection with
the Consolidation
Transactions..... -- -- (11,227,504) -- -- -- -- (11,227,504)
Interest accrued
on deferred
installment
gains............ -- -- (517,993) -- -- -- -- (517,993)
Distributions of
partnership
equity........... (200) (11,735) -- (2,541,257) (5,382,314) -- (1,632,665) (9,567,971)
Net income........ -- -- -- 2,901,998 3,568,304 (164,269) 3,754,896 10,060,929
Reclassification
of partners'
equity in
connection with
the Consolidation
Transactions..... -- (168,261) 37,540,424 (1,370,497) 3,246,625 (4,012,075) (35,236,216) --
---------- --------- ------------ ----------- ----------- ----------- ------------ ------------
Balance at
September 30,
1996 (unaudited). 17,392,205 $ 173,926 $ 98,515,157 $ 1,425,582 $ 0 $ 0 $ 0 $100,114,665
========== ========= ============ =========== =========== =========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
SIGNATURE RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 2,292,897 $ 4,291,409 $ 10,912,788 $ 7,061,650 $ 10,060,929
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization.......... 384,470 489,160 1,675,515 1,158,337 1,674,822
Provision for bad debt
expense............... 618,650 923,129 1,786,811 1,470,640 1,371,926
Equity loss on
investment in joint
venture............... -- 271,475 1,649,076 1,293,424 94,695
Changes in operating
assets and
liabilities:
Cash in escrow....... (413,591) (1,484,501) 481,334 608,078 450,950
Due from affiliates.. -- -- (2,700,820) (2,949,419) (1,866,515)
Prepaid expenses and
other assets........ (642,680) (1,033,668) (448,770) 788,200 (149,423)
Real estate and
development costs... (7,270,978) (17,671,125) (13,304,400) (9,889,184) (38,273,128)
Other receivables.... (87,870) (549,041) (5,363,461) (2,202,545) (1,866,208)
Accounts payable..... 358,896 24,486 3,408,928 2,424,770 3,303,938
Accrued liabilities.. 1,451,996 3,682,475 2,922,861 4,249,316 2,396,218
Income taxes payable. -- -- -- -- 569,451
Deferred taxes....... -- -- -- -- 171,283
Due to affiliates.... 45,730 92,515 1,283,853 331,409 209,750
------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by operating
activities............. (3,262,480) (10,963,686) 2,303,715 4,344,676 (21,851,312)
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures for
investment in joint
venture................ -- (4,565,000) -- -- --
Expenditures for
property and equipment. (255,156) (221,248) (1,764,253) (380,431) (1,149,402)
Expenditures for
intangible assets...... (722,923) (3,146,546) (1,705,012) (2,457,364) (2,012,581)
Mortgages receivable.... (9,797,740) (17,007,472) (33,449,307) (28,544,679) (24,228,037)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities... (10,775,819) (24,940,266) (36,918,572) (31,382,474) (27,390,020)
------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from notes
payable................ 16,478,302 35,266,249 71,062,122 52,984,364 76,759,011
Payments on notes
payable................ (7,591,261) (16,358,188) (33,105,976) (24,025,190) (68,009,836)
Proceeds from notes
payable to related
parties................ 6,120,971 5,145,454 3,711,005 3,141,193 5,606,208
Payments on notes
payable to related
parties................ (1,773,209) (2,569,224) (1,342,941) (1,449,345) (17,949,726)
Equity contributions.... 2,501,900 15,519,997 1,208,133 970,136 --
Proceeds from Initial
Public Offering........ -- -- -- -- 74,657,189
Acquisition of minority
limited partners'
interests.............. -- -- -- -- (6,751,037)
Equity distributions.... (395,378) (870,000) (4,430,467) (1,500,000) (9,567,971)
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities... 15,341,325 36,134,288 37,101,876 30,121,158 54,743,838
------------ ------------ ------------ ------------ ------------
Net increase in cash and
cash equivalents....... 1,303,026 230,336 2,487,019 3,083,360 5,502,506
Cash and cash
equivalents, beginning
of period.............. 321,210 1,624,236 1,854,572 1,854,572 4,341,591
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
period................. $ 1,624,236 $ 1,854,572 $ 4,341,591 $ 4,937,932 $ 9,844,097
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for interest.... $ 1,352,000 $ 3,646,117 $ 5,413,502 $ 4,753,739 $ 9,156,703
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INFORMATION
Acquisition of
Investment in Joint
Venture in exchange for
stock recorded in
connection with the
Consolidation
Transactions........... $ 7,658,000
============
Deferred taxes recorded
in connection with the
Consolidation
Transactions........... $ 11,227,504
============
Interest accrued on
deferred installment
gains recorded in
connection with the
Consolidation
Transactions........... $ 517,993
============
Net assets of
predecessor
partnerships acquired
in exchange for stock,
net of cash transferred
of approximately $4.5
million recorded in
connection with the
Consolidation
Transactions........... $ 35,324,920
============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
1. NATURE OF BUSINESS
Signature Resorts, Inc. and its wholly-owned subsidiaries (the Company)
generate revenues from the sale and financing of timeshare interests in its
resorts, which typically entitle the owner to use a fully furnished vacation
resort [in perpetuity,] typically for a one-week period each year (each, a
Vacation Interval). The Company's principal operations consist of
(1) developing and acquiring vacation ownership resorts, (2) marketing and
selling Vacation Intervals at its resorts, (3) providing consumer financing
for the purchase of Vacation Intervals at its resorts, and (4) managing the
operations of its resorts.
The Company was incorporated in May 1996. On August 20, 1996, the Company
consummated an initial public offering of a portion of its common stock (the
Initial Public Offering). Concurrently with the Initial Public Offering,
certain predecessor limited partnerships, limited liability companies and
corporations (the Entities) exchanged their direct or indirect interest in,
and obligations of, for shares of the Company's common stock (the
Consolidation Transactions).
For periods ended prior to September 30, 1996, the Entities were as follows:
<TABLE>
<CAPTION>
RESORT PROPERTY DATE ACQUIRED/OPENED
--------------- --------------------
<C> <S> <C>
Signature Resorts, Inc.
Cypress Pointe Resorts, L.P. Cypress Pointe Resort November 1992
Vacation Ownership Marketing Company Cypress Pointe Resort November 1992
Fall Creek Resort, L.P. Plantation at Fall Creek July 1993
Vacation Resort Marketing of Missouri,
Inc. Plantation at Fall Creek July 1993
Port Royal Resort, L.P. Royal Dunes Resort April 1994
Grand Beach Resort, Limited Embassy Vacation Resort
Partnership Grand Beach January 1995
Resort Marketing International-- Embassy Vacation Resort
Orlando Grand Beach January 1995
AKGI-Royal Palm, C.V.o.a. Royal Palm Beach Club July 1995
AKGI-Flamingo, C.V.o.a. Flamingo Beach Club August 1995
Premier Resort Management, Inc.
Resort Telephone & Cable of Orlando,
Inc.
USA Vacation Investors, L.P.
Kabushiki Gaisha Kei, LLC
Argosy/KOAR Group, Inc.
</TABLE>
For the year ended December 31, 1994, AKGI-Royal Palm, C.V.o.a., AKGI-
Flamingo, C.V.o.a., Premier Resort Management, Inc., Resort Telephone & Cable
of Orlando, Inc., USA Vacation Investors, L.P., Argosy/KOAR Group, Inc. and
Kabushiki Gaisha Kei, LLC had not been formed and, accordingly, did not form
part of the combined 1994 financial statements. For the year ended December
31, 1993, Grand Beach Resort, Limited Partnership, and Vacation Resort
Marketing of Missouri, Inc. had not been formed and, accordingly, did not form
part of the combined 1993 financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Prior to August 20, 1996, the accompanying financial statements include the
combined accounts of Signature Resorts, Inc. and the companies listed in Note
1, which became wholly-owned by common interests. As a result, the combined
accounts are now referred to as consolidated financial statements for the
historical periods presented. All significant intercompany transactions and
balances have been eliminated from these consolidated financial statements.
F-7
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Consolidation Transactions have been accounted for as a reorganization
of entities under common control. Accordingly, the net assets of the
predecessor entities were recorded at the predecessor entities' basis. In
addition, the accompanying financial statements reflect the historical results
of operations of the predecessor partnerships on a combined basis.
Interim Financial Statements
The accompanying unaudited interim financial statements at September 30,
1995 and 1996 and for the nine months ended September 30, 1995 and 1996 do not
include all disclosures provided in the annual combined financial statements.
These interim financial statements should be read in conjunction with the
accompanying annual audited combined financial statements and the footnotes
thereto. Results for the 1996 interim period are not necessarily indicative of
the results to be expected for the year ending December 31, 1996. However, the
accompanying interim financial statements reflect all adjustments which are,
in the opinion of management, of a normal and recurring nature necessary for a
fair presentation of the financial position and results of operations of the
Company. Unless otherwise stated, all information subsequent to December 31,
1995, is unaudited.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments purchased
with an original maturity of three months or less. Cash and cash equivalents
consist of cash and money market funds.
Cash in Escrow
Cash in escrow is restricted cash consisting of deposits received on sales
of Vacation Intervals that are held in escrow until a certificate of occupancy
is obtained or the legal recission period has expired.
Real Estate and Development Costs
Real estate is valued at the lower of cost or net realizable value.
Development costs include both hard and soft construction costs and together
with real estate costs are allocated to Vacation Intervals based upon their
relative sales values. Interest, taxes, and other carrying costs incurred
during the construction period are capitalized. The amount of interest
capitalized during 1994 and 1995 was $2,040,544 and $2,088,382, respectively.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121
in the first quarter of 1996 and there has been no material impact on the
Company's operations or financial position.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful life of 3 to 7 years.
Depreciation and amortization expense related to property and equipment was
$25,562, $59,710 and $337,765 in 1993, 1994, and 1995, respectively. For the
nine months ended September 30, 1995 and 1996, depreciation and amortization
expense was $87,783 and $280,582, respectively.
F-8
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
Start-up costs and organizational costs incurred in connection with the
formation of the Company have been capitalized and are being amortized on a
straight-line basis over a period of one year. Start-up costs relate to costs
incurred to develop a marketing program prior to receiving regulatory approval
to market the related property.
Financing and loan origination fees incurred in connection with obtaining
funding for the Company have been capitalized and are being amortized on a
straight-line basis over the life of the respective loans.
Goodwill recorded in connection with the acquisition of the Investment in
Joint Venture is being amortized by a fixed amount per Interval as Intervals
are sold.
Revenue Recognition
The Company recognizes sales of Vacation Intervals on an accrual basis after
a binding sales contract has been executed, a 10% minimum down payment has
been received, the recision period has expired, construction is substantially
complete, and certain minimum sales levels have been achieved. If all the
criteria are met except that construction is not substantially complete, then
revenues are recognized on the percentage-of-completion (cost to cost) basis.
For sales that do not qualify for either accrual or percentage-of-completion
accounting, all revenue is deferred using the deposit method.
Revenues from resort management and maintenance services are recognized on
an accrual basis as earned.
Income Taxes
Prior to August 20, 1996, the predecessor entities were taxed as regular
corporations at the corporate level, as S corporations taxable at the
shareholder level, or as partnerships taxable at the partner level. Due to the
Initial Public Offering, the Company became subject to federal, state, and
foreign income taxes from the effective date of the Initial Public Offering.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications were made to the 1995 financial statements to
conform to the 1996 presentation.
3. ACCOUNTS RECEIVABLE
The Company has accrued insurance claims as a result of hurricane damage to
its Royal Palm and Flamingo properties located in St. Maarten, Netherlands
Antilles of $3.8 million and $1.5 million at December 31, 1995 and September
30, 1996, respectively. The receivable at September 30, 1996 consists of
business interruption insurance claims. The Company has submitted additional
claims above the amounts accrued for business interruption insurance and is in
negotiations with its carriers regarding these claims.
4. MORTGAGES RECEIVABLE
The Company provides financing to the purchasers of Vacation Intervals which
are collateralized by their interest in such Vacation Intervals. The mortgages
receivable bear interest at the time of issuance of between 12% and 17% and
remain fixed over the term of the loan, which is seven to ten years. The
weighted average rate of interest on outstanding mortgages receivable is 15%.
F-9
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1994 and 1995, mortgages in the amount of $823,251 and
$1,796,060, respectively, are noninterest bearing. These mortgages have not
been discounted as management has determined that the effect would not be
material on the combined financial statements.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $415,127 and $860,776 at December 31, 1994 and 1995,
respectively, and $627,139 and $1,132,916 at September 30, 1995 and
September 30, 1996, respectively. The accrued interest receivable at December
31, 1995 and September 30, 1996 is net of an allowance for doubtful accounts
of $151,201 and $145,319, respectively.
The following schedule reflects the principal maturities of mortgages
receivable:
<TABLE>
<S> <C>
Year ending December 31:
1996...................................................... $ 6,347,717
1997...................................................... 7,230,664
1998...................................................... 8,422,516
1999...................................................... 9,778,920
2000...................................................... 11,315,961
Thereafter................................................ 27,593,361
-----------
Total principal maturities of mortgages receivable........ 70,689,139
Less allowance for doubtful accounts...................... (5,589,527)
-----------
Net principal maturities of mortgages receivable.......... $65,099,612
===========
</TABLE>
The Company considers all mortgages receivable past due more than 60 days to
be delinquent. At December 31, 1995, $6,700,000 of mortgages receivable were
delinquent.
At December 31, 1995, the Company estimated that $1,560,000 of additional
costs would be incurred related to Vacation Intervals sold or Vacation
Intervals currently available for sale. Obligations related to such
improvements are insignificant.
The activity in the mortgages receivable allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of the peri-
od............................. $ 798,441 $1,570,886 $1,570,886 $5,589,527
Increase (Decrease) in allowance
for purchased mortgage
receivables.................... -- $3,156,166 $3,412,276 (729,633)
Provision....................... 923,129 1,786,811 1,470,640 1,371,926
Receivables (charged off) recov-
ery............................ (150,684) (924,336) 9,668 (538,798)
---------- ---------- ---------- ----------
Balance, end of the period...... $1,570,886 $5,589,527 $6,463,470 $5,693,022
========== ========== ========== ==========
</TABLE>
During September 1995, the Company recorded an allowance for doubtful
accounts of $3,412,276 for certain mortgage portfolios acquired in conjunction
with the acquisition of the two properties in St. Maarten.
F-10
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated cost of sales consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................... $ 18,102,052 $ 19,734,459 $ 18,451,761 $ 29,049,291
Development costs, ex-
cluding capitalized
interest............... 33,718,050 57,969,594 54,632,946 96,035,101
Capitalized interest.... 2,730,363 5,300,400 4,667,789 8,260,858
------------ ------------ ------------ ------------
Total real estate and
development costs...... 54,550,465 83,004,453 77,752,496 133,345,250
Less accumulated cost of
sales.................. (21,097,714) (36,247,302) (34,410,561) (48,314,971)
------------ ------------ ------------ ------------
Net real estate and de-
velopment costs........ $ 33,452,751 $ 46,757,151 $ 43,341,935 $ 85,030,279
============ ============ ============ ============
</TABLE>
6. INVESTMENT IN JOINT VENTURE
The Company owns 100% of the partnership interests in one of the co-managing
general partners of the Poipu Partnership, the partnership which directly owns
the Embassy Vacation Resort at Poipu Point, a venture that acquired a 219 unit
condominium project situated on 22 acres of oceanfront land at Koloa, Kauai,
Hawaii (the "Property"). The sole purpose of the venture is to hold the
Property for sale in phases as Vacation Intervals while generating revenues
from transient rentals as the Vacation Intervals are being sold. As co-
managing general partner, the Company holds a 0.5% partnership interest for
purposes of distributions, profits and losses. The Company is also a limited
partner of the Poipu Partnership and holds a 29.93% partnership interest for
purposes of distributions, profits and losses, for a total partnership
interest of 30.43%. In addition, following repayment of any outstanding
partner loans, the Company is entitled to receive a 10% per annum return on
the Founders' and certain former limited partners' initial capital investment
of approximately $4.6 million in the Poipu Partnership. After payment of such
preferred return and the return of approximately $4.6 million of capital to
the Company on a pari passu basis with the other partner in the partnership,
the Company is entitled to receive approximately 50% of the net profits of the
Poipu Partnership. In the event certain internal rates of return specified
under the partnership agreement are achieved, the Company is entitled to
receive approximately 55% of the net profits of the Poipu Partnership.
Summarized financial information as of December 31 relating to the Company's
investment is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Mortgages receivable........................................ $ -- $ 3,474
Timeshare inventory......................................... -- 3,248
Net property and equipment.................................. 42,188 39,287
Total assets................................................ 45,553 50,696
Notes payable............................................... 30,300 35,494
Advances from partners...................................... -- 4,000
Partners' capital........................................... 14,108 8,688
Revenues.................................................... 491 10,119
Net loss.................................................... 892 5,419
</TABLE>
Concurrently with the Initial Public Offering, the Company exchanged 547,000
shares of stock with the former holders of interests in the Poipu Partnership
for a 30.43% interest in the joint venture. As a result of this exchange,
$4,988,000 of goodwill was recorded and is being amortized on a per Interval
basis as Intervals are
F-11
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
sold. The amortization of such goodwill for the nine months ended September
30, 1996 was $76,371. The Company also acquired a $2,546,513 note receivable
from the partnership in connection with the exchange on which the Company has
accrued approximately $30,000 of interest. This note bears interest at a rate
of 12% per annum.
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------------------- ------------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Organizational costs........ $3,200,510 $ 3,884,581 $ 2,528,256 $ 3,134,066
Start-up costs.............. 538,364 713,319 2,849,615 2,471,200
Loan origination fees....... 349,380 522,378 422,380 422,379
Financing fees.............. 698,229 1,444,242 1,304,859 2,356,035
---------- ----------- ----------- -----------
Total intangible assets..... 4,786,483 6,564,520 7,105,110 8,383,680
Less accumulated
amortization............... (929,912) (2,340,686) (1,861,730) (3,541,505)
---------- ----------- ----------- -----------
Net intangible assets....... $3,856,571 $ 4,223,834 $ 5,243,380 $ 4,842,175
========== =========== =========== ===========
</TABLE>
Amortization expense related to intangible assets was $358,908, $429,450,
and $1,337,750 in 1993, 1994 and 1995, respectively. For the nine months ended
September 30, 1995 and 1996, amortization expense was $1,070,555 and
$1,394,240, respectively.
F-12
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE
Notes payable to financial institutions consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Construction loans payable not
to exceed $49 million in the
aggregate, interest payable
monthly at prime plus 2%
(10.5% and 10.65% at December
31, 1994 and 1995,
respectively, and 11% and
10.25% at September 30, 1995
and 1996, respectively),
principal and all accrued
interest due on dates ranging
from February 1996 to May
1998, collateralized by
substantially all the assets
of the certain combined
entities..................... $ 4,573,849 $ 9,267,391 $ 6,359,756 $ --
Construction and acquisition
loan payable, due October
31,1998 with interest payable
monthly at LIBOR plus 4.25%
(9.94% at December 31, 1995
and 10.75% and 10.25% at
September 30, 1995 and 1996,
respectively), secured by
land, improvements and
timeshare interests.......... -- 1,897,716 1,698,511 --
Revolving lines of credit not
to exceed $145 million in the
aggregate (limited by
eligible collateral), with
interest payable monthly at
rates ranging from prime plus
2% to prime plus 3% (10.5% to
11.5% and 10.65% to 11.65% at
December 31, 1994 and 1995,
respectively, and 10.25% to
11.75% and 10.25% to 11.25%
at September 30, 1995 and
1996, respectively), payable
in monthly installments of
principal and interest equal
to 100% of all proceeds of
the receivables collateral
collected during the month
but not less than the accrued
interest, with any remaining
principal due seven to ten
years after the date of the
last advance related to
mortgages receivable,
collateralized by specific
mortgages receivable......... 19,357,724 37,858,352 30,597,567 48,411,823
Revolving line of credit of
$10 million, collateralized
by certain mortgages
receivable with interest
payable at LIBOR plus 4.25%
(9.94% at December 31, 1995
and 10.38% and 9.75% at
September 30, 1995 and 1996,
respectively), payable in
monthly installments of
principal and interest equal
to 100% of all proceeds of
the receivables collateral
collected during the month
but not less than the accrued
interest, with any remaining
principal due October 31,
2003......................... -- 1,571,070 3,737,910 4,154,852
Revolving line of credit of
$11 million, with interest
payable at prime plus 2.5%
(11% and 10.75% at
December 31, 1994 and
September 30, 1995,
respectively), and prime plus
2% (10.65% and 10.25% at
December 31, 1995 and
September 30, 1996,
respectively), secured by
specific mortgages
receivable, due ten years
after the date on which the
last advance related to the
mortgages receivable is made. $ 2,287,245 $ 4,058,306 $ 3,923,614 $ 3,807,138
</TABLE>
F-13
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revolving line of credit of
$6.0 million, with interest
payable at prime plus 3%
(11.65% and 11.25% at
December 31, 1995 and
September 30, 1996,
respectively), maturing seven
years after the date of the
last advance, secured by
mortgages receivable......... $ -- $ 3,873,513 $ -- $ 2,889,328
Working capital loan payable,
due September 30, 1995, with
interest payable monthly at
prime plus 2.5% (11% at
December 31, 1994), secured
by time-share interests and
with total borrowings
allowable of $2,425,000...... 1,046,080 -- -- --
Working capital notes payable
of $5.5 million, with
interest payable at rates
ranging from prime plus 2% to
prime plus 2.5%, (10.65% to
11.15% at December 31, 1995),
due on dates ranging from
July 1997 to November 1997,
collateralized by certain
mortgage receivables......... -- 521,397 1,121,656 2,955,815
Acquisition loans payable of
$9.85 million, with interest
payable at prime plus 3%
(11.65% and 11.25% at
December 31, 1995 and
September 30, 1996,
respectively), due on dates
ranging from January 1998 to
April 1998, payable with a
portion of the proceeds
received on the sale of
Vacation Intervals,
collateralized by specific
mortgages receivable......... -- 5,998,283 9,846,289 2,735,530
Acquisition/construction loan
payable of $9 million, with
interest payable at prime
plus 2% (10.25% at
September 30, 1996), due by
June 13, 1999, payable with a
portion of the proceeds
received on the sale of
Vacation Intervals........... -- -- -- 2,363,539
Land loan payable of $2.3
million, $1.8 million with
interest payable at 18% and
$0.5 million at a 0% interest
rate, payable with a portion
of the proceeds received on
the sale of Vacation
Intervals.................... -- -- -- 5,443,833
Land purchase obligation at
the Fall Creek Plantation
property (see note 9 for
further discussion).......... -- 1,500,000 -- 639,626
Noninterest bearing land loan
of $500,000 payable at
$54 per interval sold with
remaining balance due May 1,
1991......................... 500,000
Notes payable to certain
investors and former owners,
with monthly principle
payments of $100,000, plus
interest at 12%, with
additional interest of $325
per interval sold............ 2,000,000
Noninterest bearing purchase
money mortgage note, payable
in annual installments of $2
million with final payment
due November 5, 1997, net of
a discount of $825,340 and
$411,577 at December 31, 1994
and 1995, respectively....... 7,174,660 5,588,423 6,000,000 4,000,000
Other notes payable........... -- 261,253 113,429 1,243,395
----------- ----------- ----------- -----------
Total notes payable........... $34,439,558 $72,395,704 $63,398,732 $81,144,879
=========== =========== =========== ===========
</TABLE>
F-14
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the revolving lines of credit agreements, the Company may
typically borrow from 85% to 90% of the balances of the pledged mortgages
receivable. Of the aggregate of $178 million borrowings available under these
certain agreements at September 30, 1996, the borrowing capacity expires seven
to ten years after the date on which the last advance related to mortgages
receivable was executed.
Of the aggregate of $49 million available in construction loans payable,
$2.0 million expires on January 31, 1997, $8.0 million expires January 14,
1998, $8.0 million expires on May 9, 1998, $3.0 million expires on October 31,
1998 and $28.0 million expires on April 30, 2000.
The loans contain certain covenants, the most restrictive of which requires
certain of the combined affiliates to maintain a minimum net worth, as defined
in the related loan agreement. In addition, the loan agreements contain
certain covenants restricting distributions to partners and additional
borrowings. At December 31, 1995, $18.4 million of equity was specifically
restricted from payment of distributions.
At December 31, 1995, contractual maturities of mortgages and other notes
payable over the next five years and thereafter, excluding first mortgage
notes payable and revolving lines of credit totaling $54,859,524 as these
amounts are payable based on established release prices or from excess cash
flows related to certain timesharing week sales, are as follows:
<TABLE>
<CAPTION>
Due in fiscal year
<S> <C>
1996....................................................... $ 8,906,686
1997....................................................... 4,886,527
1998....................................................... 3,655,080
1999....................................................... 29,129
2000....................................................... 32,227
Thereafter................................................. 26,531
-----------
$17,536,180
===========
</TABLE>
9. LAND PURCHASE AGREEMENT AND RELATED DEBT
The Company has entered into an agreement to purchase approximately 140
acres of land (the Property) at its Fall Creek Resort in Branson, Missouri,
upon which it intends to construct Vacation Intervals. The property is to be
acquired in four phases in four separate closings at a total purchase price of
$6 million. The first closing has occurred with the Company acquiring the land
for its first stage of development for $2 million. The second closing will
occur upon the settlement of a noninterest bearing land purchase obligation of
$1.5 million which will be paid as units are sold. The Company has the right
but not the obligation to acquire the other two phases under similar land
purchase obligations totaling $2.5 million.
10. RELATED-PARTY TRANSACTIONS
The Company accrued $652,164 and $1,418,022 as a receivable and payable,
respectively, at December 31, 1995 with the homeowners' associations at its
resorts. The related party payable to the homeowners' associations at December
31, 1995 included $1,029,900 of a special assessment fee charged to the
Company. At September 30, 1996, the Company, had accrued $2,903,873 and
$1,631,856 as a receivable and payable, respectively, with the various
homeowners' associations at its resorts. All amounts are classified as due
from and due to related parties in the accompanying consolidated balance
sheets.
The Company recorded a receivable of $1,153,829 and $120,697 from two of its
predecessor partnerships at December 31, 1995 for pre-development costs
incurred by the Company at its Embassy Vacation Resort
F-15
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lake Tahoe and San Luis Bay Resorts. Such predecessor partnerships were
consolidated into the Company on August 20, 1996 as a result of the
Consolidation Transactions.
Included in due from related parties at December 31, 1995 and September 30,
1996 are approximately $310,000 and $1,549,555, respectively, relating to
expenses paid on behalf of related parties to be subsequently reimbursed to
the Company by such related party. Subsequent to September 30, 1996, the
Company collected $739,458 of this amount.
The Company also made payments of $295,001 during the twelve months ended
December 31, 1995 to an affiliate of the Company for construction consulting
and expense reimbursement. For the three months and nine months ended
September 30, 1996, no such payments were made.
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
---------------------- ----------------
1994 1995 1995 1996
---------- ----------- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Notes payable to CPI Securities, L.P.,
an affiliate of a limited partner,
with interest at 10%, payable monthly
and the entire principal balance and
all accrued interest due on January
4, 1995.............................. $ 182,513 $ -- $ -- $--
Notes payable to CPI Securities, L.P.,
an affiliate of a limited partner,
with interest at 12%, payable monthly
and the entire principal balance and
all accrued interest due on December
31, 1996 [see (a) below]............. 2,722,250 2,722,250 2,722,250 --
Notes payable to Grace Investments,
Ltd. one of the limited partners,
with interest at 12% payable monthly,
due on December 31, 1996 [see (a)
below]............................... 1,666,650 1,666,650 1,666,650 --
Notes payable to Dickstein & Company,
L.P., a limited partner, with
interest payable monthly at 12%, due
on December 31, 1996 [see (a) below]. 1,111,100 1,111,100 1,111,100 --
Notes payable to certain employees,
investors, and partners, with monthly
principal payments of $100,000, plus
interest at 12%, with additional
interest of $325 per interval sold... 4,000,000 2,900,000 3,200,000 --
Acquisition loan payable with interest
payable at 12%, due on December 31,
1996................................. -- 1,495,000 -- --
Notes payable to partners, with
interest accrued at 16%, payable on
demand............................... -- 2,157,018 2,947,302 --
Other................................. 292,941 291,500 20,000 --
---------- ----------- ----------- ----
Total notes payable to related
parties.............................. $9,975,454 $12,343,518 $11,667,302 $--
========== =========== =========== ====
</TABLE>
F-16
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS
The Company entered into a license agreement in April 1994 with Embassy
Vacation Resorts, a division of Embassy Suites, Inc. (ESI), to franchise the
Grand Beach property. The license allows the resort to be operated and
marketed as an "Embassy Vacation Resort." It provides for ESI to be paid a
percentage of net sales of the Embassy Vacation Resort property. Additional
terms are stated in the related license agreement.
On September 23, 1996, the Company announced the signing of a merger
agreement to acquire AVCOM for approximately $34.6 million of the Company's
common stock plus the assumption of net debt. AVCOM is the parent company of
All Seasons, Resorts, Inc., a developer, marketer and operator of timeshare
resorts in Arizona, California and Texas.
Under the terms of the merger agreement, the Company has agreed to issue
approximately 1,480,000 shares of its common stock in exchange for all
outstanding capital stock of AVCOM, based on the average high and low trading
prices of the Company's common stock on September 20, 1996 of $19.44 per
share. The actual number of its shares of the Company's common stock to be
issued is subject to adjustment if the price of the Company's common stock on
the NASDAQ National Market System exceeds $23.33 per share, or falls below
$15.55 per share and under certain other circumstances. In addition, if the
merger had taken place, as of September 30, 1996, the Company would have
assumed approximately $22.6 million of AVCOM's net debt. Also, pursuant to the
merger agreement, the Company committed to loan AVCOM $2.5 million. Management
expects the merger will qualify for pooling accounting treatment. The Company
has received an opinion from its independent financial advisor that the
consideration paid by the Company in the proposed merger is fair from a
financial point of view. It is anticipated that the acquisition will be
consummated in the first quarter of 1997, subject to the occurrence of all
conditions to closing.
AVCOM Resorts, Inc. develops, markets and operates timeshare resorts in the
western United States, with four existing resorts in Sedona, Arizona, one at
Lake Arrowhead, California, one at South Lake Tahoe, California and one at
Houston, Texas. In addition, All Seasons has resorts currently under
development in Scottsdale, Arizona, and South Lake Tahoe, California, and has
purchased twelve acres of land in Sedona, Arizona for future development.
The proposed merger is subject to the approval of the stockholders of AVCOM,
the satisfactory completion of due diligence by the Company, the expiration of
the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and other customary conditions.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the Company disclose estimated
fair values for its financial instruments. The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments:
Cash and cash equivalents and cash in escrow: The carrying amount reported
in the balance sheet for cash and cash equivalents and cash in escrow
approximates its fair value.
Mortgages receivable: The carrying amount reported in the balance sheet for
mortgages receivable approximates its fair value because the weighted average
interest rate on the portfolio of mortgages receivable approximates current
interest rates to be received on similar current mortgages receivable.
Notes payable and notes payable to related parties: The carrying amount
reported in the balance sheet for notes payable approximates its fair value
because the interest rates on these instruments approximate current interest
rates charged on similar current borrowings.
F-17
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1994 1995
----------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents... $ 1,854,572 $ 1,854,572 $ 4,341,591 $ 4,341,591
Cash in escrow.............. 2,427,190 2,427,190 1,945,856 1,945,856
Mortgages receivable........ 33,437,116 33,437,116 65,099,612 65,099,612
Notes payable............... 34,439,558 34,439,558 72,395,704 72,395,704
Notes payable to related
parties.................... 9,975,454 9,975,454 12,343,518 12,343,518
</TABLE>
13. OTHER INCOME
Other income for the year ended December 31, 1995 primarily consists of
business interruption insurance proceeds of $2,000,000, income from purchased
mortgages receivable of $2,180,000, rental income of $1,293,000 and management
fees of $841,000. Included in other income for the nine months ended
September 30, 1996 is $2,940,490 of income from purchased mortgages
receivable, $1.7 million of income related to the settlement of certain
receivables from the former owners of the St. Martin properties, $1,215,374 of
rental income and $769,253 of management fees.
14. PRO FORMA DISCLOSURES (UNAUDITED)
On August 20, 1996 the Company consummated a public offering which made it
subject to federal, state, and foreign income taxes from the effective date of
the Initial Public Offering. In addition, the Company is now required to
record a deferred tax liability for cumulative temporary differences between
financial reporting and tax reporting following the effective date of the
Initial Public Offering. During the nine months ended September 30, 1996, the
Company recorded approximately $315,000 of current income tax expense and
approximately $171,000 of deferred income tax expense. Additionally, the
Company recorded deferred taxes of $11,227,504 related to deferred taxes from
previous years that were assumed as part of the Initial Public Offering. The
total current tax liability and deferred tax liability at September 30, 1996
was $569,451 and $11,398,787, respectively. Both the deferred tax assets,
deferred tax liabilities, and the current tax provision were estimated based
on management's most recent information as of September 30, 1996.
The Company has recorded $517,993 of accrued interest related to deferred
installment gains from previous years that were assumed as part of the Initial
Public Offering.
F-18
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro forma provision for income taxes represents the estimated
income taxes that would have been reported had the Company filed federal,
state and foreign income tax returns as a regular C corporation. The following
summarizes the unaudited pro forma provision for income taxes:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
------------------------------ ---------------------
1993 1994 1995 1995 1996
-------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $405,552 $ 361,290 $1,579,424 $1,358,974 $2,242,039
States................ 41,148 -- 4,934 151,183 233,882
Foreign............... -- -- 662,288 122,618 49,186
-------- ---------- ---------- ---------- ----------
446,700 361,290 2,246,646 1,632,775 2,525,107
Deferred:
Federal............... 346,393 1,018,602 1,476,865 860,317 1,080,838
States................ 85,873 238,021 633,808 245,812 344,819
Foreign............... -- -- (8,497) -- 41,741
-------- ---------- ---------- ---------- ----------
432,266 1,256,623 2,102,176 1,106,129 1,467,398
-------- ---------- ---------- ---------- ----------
Unaudited pro forma
provision for income
taxes.................. $878,966 $1,617,913 $4,348,822 $2,738,904 $3,992,505
======== ========== ========== ========== ==========
</TABLE>
The reconciliation between the unaudited pro forma statutory provision for
income taxes and the unaudited pro forma actual provision for income taxes is
shown as follows for the year ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Income tax at federal statutory rate...... $779,585 $1,459,079 $3,928,474
State tax, net of federal benefit......... 97,521 156,862 422,336
Foreign tax, net of federal benefit....... -- -- (8,497)
Nondeductible expenses.................... 1,860 1,972 6,509
-------- ---------- ----------
Unaudited pro forma provision for income
taxes.................................... $878,966 $1,617,913 $4,348,822
======== ========== ==========
</TABLE>
F-19
<PAGE>
SIGNATURE RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the pro forma net deferred tax liabilities were as follows for
the year ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Book over tax depreciation....... $ -- $ -- $ 28,142
Book over tax amortization....... 16,870 -- 218,340
Allowance for doubtful accounts.. 258,859 621,128 1,355,617
Gain on foreclosure.............. -- -- 203,716
Start-up costs................... 96,794 96,794 96,794
Net operating loss carryforward.. -- 1,048,417 --
Federal benefit of state deferred
tax............................. 67,830 148,712 364,207
Foreign tax credit carryover..... -- -- 632,007
Minimum tax credit carryover..... 561,679 922,969 2,502,393
----------- ----------- -----------
Total deferred tax assets.......... 1,002,032 2,838,020 5,401,216
Deferred tax liabilities:
Tax over book depreciation....... (20,374) (29,334) --
Tax over book amortization....... -- (40,033) --
Installment sales................ (1,771,627) (4,124,917) (8,586,188)
Marketing and commissions........ (18,443) (456,322) (568,394)
Deferred sales................... -- (281,931) (82,903)
Interest capitalization, net of
recovery........................ -- 56,688 (453,097)
Other............................ 14,141 (13,065) 127,799
----------- ----------- -----------
Total deferred tax liabilities..... (1,796,303) (4,888,914) (9,562,783)
----------- ----------- -----------
Pro forma net deferred tax
liabilities....................... $ (794,271) $(2,050,894) $(4,161,567)
=========== =========== ===========
</TABLE>
Additionally, certain of the Company's combined affiliates include foreign
corporations which are taxed at a regular rate of 45%. The Company has filed a
request for a tax holiday for AKGI-Royal Palm C.V.o.a. This request has been
verbally approved by the Chairman of the Tax Facility which effectively
reduces the tax to 2%. This 2% tax liability rate will be in effect up to and
including the fiscal year 1997. Generally, a foreign tax credit is allowed for
any taxes paid on foreign income up to the amount of U.S. tax.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
AVCOM International, Inc.
We have audited the accompanying consolidated balance sheets of AVCOM
International, Inc. (Company) as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of AVCOM International, Inc. as of December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Phoenix, Arizona
May 31, 1996, except for Note 12,
as to which the date is July 1, 1996
F-21
<PAGE>
AVCOM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash ($1,026,000, $278,000 and $0
restricted at December 31, 1994 and
1995 and September 30, 1996,
respectively)......................... $ 1,026,000 $ 1,807,000 $ 687,000
Notes receivable, net.................. 5,939,000 18,659,000 36,659,000
Receivables from related parties....... 734,000 690,000 1,320,000
Other receivables...................... 386,000 626,000 1,037,000
Resort property held for timeshare
sales and under development........... 10,643,000 10,827,000 26,705,000
Property and equipment, net............ 1,906,000 2,188,000 5,580,000
Prepaid loan commitment fees........... -- 199,000 414,000
Deferred marketing and selling costs... 40,000 759,000 4,143,000
Capitalized start-up costs, net........ -- -- 470,000
Investment in common stock............. -- -- 600,000
Other assets........................... 178,000 179,000 668,000
----------- ----------- -----------
Total assets........................... $20,852,000 $35,934,000 $78,283,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued
liabilities........................... $ 989,000 $ 2,524,000 $ 9,665,000
Deferred revenue....................... 80,000 -- 7,055,000
Commissions payable.................... 442,000 1,009,000 1,328,000
Amounts due to related parties......... 387,000 484,000 354,000
Income taxes payable................... 403,000 500,000 --
Deferred income taxes payable.......... 2,176,000 2,624,000 1,597,000
Capitalized leases payable............. 378,000 761,000 1,586,000
Notes payable.......................... 12,582,000 22,692,000 51,320,000
----------- ----------- -----------
Total liabilities...................... 17,437,000 30,594,000 72,905,000
----------- ----------- -----------
Minority interest in consolidated lim-
ited partnership...................... -- -- 1,612,000
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par
value; 1,400,000 shares authorized,
1,310,700 shares issued and
outstanding; liquidation preference
of $1,521,000 at December 31, 1995
and $1,600,000 at September 30,
1996................................ 13,000 13,000 13,000
Common stock, $.01 par value;
10,000,000 shares authorized,
3,290,300 and 3,653,936 shares
issued and outstanding at December
31, 1994 and 1995, respectively, and
3,963,936 shares at September 30,
1996................................ 33,000 38,000 41,000
Paid-in capital...................... 939,000 1,819,000 2,216,000
Retained earnings.................... 2,460,000 3,500,000 1,526,000
----------- ----------- -----------
3,445,000 5,370,000 3,796,000
Less treasury stock, 12,000 shares of
common stock, at cost............... (30,000) (30,000) (30,000)
----------- ----------- -----------
Total stockholders' equity............. 3,415,000 5,340,000 3,766,000
----------- ----------- -----------
Total liabilities and stockholders'
equity................................ $20,852,000 $35,934,000 $78,283,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
AVCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Sales of timeshare
interests.............. $14,481,000 $24,130,000 $33,231,000 $24,821,000 $30,411,000
Timeshare management.... 452,000 650,000 1,256,000 962,000 1,059,000
Contract commission
revenue................ -- -- -- -- 497,000
Gain on sale of notes
receivable............. 167,000 571,000 566,000 564,000 77,000
Health club revenue..... -- -- -- -- 375,000
Other................... 99,000 66,000 193,000 137,000 250,000
----------- ----------- ----------- ----------- -----------
15,199,000 25,417,000 35,246,000 26,484,000 32,669,000
COST OF SALES AND
OPERATING EXPENSES
Cost of timeshare
interests sold......... 3,548,000 6,792,000 11,081,000 7,682,000 8,744,000
Marketing and selling... 6,950,000 12,232,000 13,920,000 11,232,000 15,117,000
Timeshare management.... 547,000 743,000 1,571,000 1,023,000 1,769,000
Contract marketing and
selling................ -- -- -- -- 974,000
Health club expenses.... -- -- -- -- 572,000
General and
administrative......... 1,621,000 3,034,000 4,780,000 3,256,000 6,229,000
Resort property
valuation allowance.... -- -- -- -- 839,000
Provision for doubtful
accounts............... 251,000 371,000 792,000 212,000 1,055,000
----------- ----------- ----------- ----------- -----------
12,917,000 23,172,000 32,144,000 23,405,000 35,299,000
----------- ----------- ----------- ----------- -----------
Operating income (loss). 2,282,000 2,245,000 3,102,000 3,079,000 (2,630,000)
Minority interest in
consolidated limited
partnership............ -- -- -- -- (112,000)
Interest and financing
costs.................. (335,000) (809,000) (1,818,000) (1,122,000) (2,944,000)
Interest income......... 236,000 180,000 594,000 253,000 2,396,000
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... 2,183,000 1,616,000 1,878,000 2,210,000 (3,290,000)
Provision for (benefit
from) income taxes..... 1,970,000 695,000 838,000 936,000 (1,316,000)
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ 213,000 921,000 1,040,000 1,274,000 (1,974,000)
===========
Cumulative preferred
stock dividends........ 105,000 105,000 79,000 79,000
----------- ----------- ----------- -----------
Net income (loss)
available for common
stockholders........... $ 816,000 $ 935,000 $ 1,195,000 $(2,053,000)
=========== =========== =========== ===========
Earnings (loss) per
share.................. $ 0.16 $ 0.17 $ 0.22 $ (0.41)
=========== =========== =========== ===========
Pro forma earnings per
share (unaudited)...... $ 0.27
===========
Weighted average common
shares and common share
equivalents (pro forma
in 1993--unaudited).... 4,682,507 4,942,759 5,554,089 5,530,669 4,987,080
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
AVCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
----------------- ----------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- ------- --------- ------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... 1,310,700 $13,000 2,890,300 $29,000 $ 451,000 $ 1,326,000 $ -- $ 1,819,000
Issuance of common
stock.................. -- -- 400,000 4,000 496,000 -- -- 500,000
Redemption of
partnership interests.. -- -- -- -- (18,000) -- -- (18,000)
Net income.............. -- -- -- -- -- 213,000 -- 213,000
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31,
1993................... 1,310,700 13,000 3,290,300 33,000 929,000 1,539,000 -- 2,514,000
Repurchase of common
stock.................. -- -- -- -- -- -- (30,000) (30,000)
Payment for stock held
in escrow.............. -- -- -- -- 10,000 -- -- 10,000
Net income.............. -- -- -- -- -- 921,000 -- 921,000
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31,
1994................... 1,310,700 13,000 3,290,300 33,000 939,000 2,460,000 (30,000) 3,415,000
Issuance of common
stock, net of issuance
costs of $114,999...... -- -- 363,636 5,000 880,000 -- -- 885,000
Net income.............. -- -- -- -- 1,040,000 -- 1,040,000
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31,
1995................... 1,310,700 13,000 3,653,936 38,000 1,819,000 3,500,000 (30,000) 5,340,000
Conversion of
subordinated debt
(unaudited)............ 310,000 3,000 397,000 400,000
Net (loss) (unaudited).. -- -- -- -- -- (1,974,000) -- (1,974,000)
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at September 30,
1996 (unaudited)....... 1,310,700 $13,000 3,963,936 $41,000 $2,216,000 $ 1,526,000 $(30,000) $3,766,000
========= ======= ========= ======= ========== =========== ======== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE>
AVCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)....... $ 213,000 $ 921,000 $ 1,040,000 $ 1,274,000 $(1,974,000)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Gain on sale of notes
receivable............. (167,000) (571,000) (566,000) (564,000) (77,000)
Deferred income taxes... 1,658,000 506,000 448,000 571,000 (1,027,000)
Provision for doubtful
accounts............... 251,000 371,000 792,000 212,000 1,055,000
Depreciation and
amortization........... 56,000 146,000 185,000 131,000 848,000
Write-off of resort
property............... -- -- -- -- 839,000
Changes in operating
assets and liabilities:
Restricted cash......... -- (1,026,000) 748,000 796,000 278,000
Receivables from related
parties................ (382,000) (328,000) 44,000 (169,000) (630,000)
Other receivables....... (71,000) (195,000) (240,000) (100,000) (411,000)
Resort property held for
timeshare sales........ 1,684,000 (1,013,000) (184,000) (629,000) (6,623,000)
Prepaid loan commitment
fee.................... -- -- (199,000) -- (493,000)
Deferred marketing and
selling costs.......... -- -- (719,000) -- (3,384,000)
Capitalized start-up
costs.................. -- -- -- -- (470,000)
Other assets............ 139,000 -- (1,000) (135,000) (489,000)
Accounts payable and
other accrued
liabilities............ (402,000) 720,000 1,535,000 887,000 7,141,000
Commissions payable..... (463,000) 361,000 567,000 521,000 319,000
Amounts due to related
parties................ 79,000 308,000 97,000 (44,000) (130,000)
Deferred revenue........ -- -- (80,000) 7,055,000
Income taxes payable.... 312,000 91,000 97,000 350,000 (500,000)
----------- ------------ ------------ ----------- -----------
Net cash provided by
operating activities... 2,907,000 291,000 3,564,000 3,101,000 1,327,000
CASH FLOWS FROM
INVESTING ACTIVITIES
Additions to notes
receivable............. (9,472,000) (20,539,000) (26,843,000) (19,512,000) (30,004,000)
Proceeds from sales of
notes receivable....... 7,211,000 18,425,000 11,645,000 10,009,000 6,210,000
Collections of notes
receivable............. 300,000 740,000 2,252,000 571,000 6,571,000
Purchases of property
and equipment.......... (236,000) (552,000) (467,000) (77,000) (631,000)
Investment in common
stock.................. -- -- -- -- (50,000)
----------- ------------ ------------ ----------- -----------
Net cash used by
investing activities... (2,197,000) (1,926,000) (13,413,000) (9,009,000) (17,904,000)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from notes
payable................ 1,115,000 4,413,000 22,410,000 10,144,000 34,632,000
Principal payments on
notes payable.......... (1,874,000) (3,542,000) (12,301,000) (4,991,000) (20,178,000)
Proceeds from
capitalized leases
payable................ 238,000 315,000 604,000 189,000 --
Principal payments on
capitalized leases
payable................ (65,000) (110,000) (220,000) (162,000) (331,000)
Minority interest in
limited partnership.... -- 1,612,000
Redemptions of partners. (18,000) -- -- -- --
Payments to redeeming
partners............... (79,000) -- -- -- --
Purchase of treasury
stock.................. -- (30,000) -- -- --
Issuance of common
stock, net of issuance
costs.................. 500,000 -- 885,000 984,000 --
----------- ------------ ------------ ----------- -----------
Net cash provided (used)
by financing
activities............. (183,000) 1,046,000 11,378,000 6,164,000 15,735,000
----------- ------------ ------------ ----------- -----------
Net increase (decrease)
in cash................ 527,000 (589,000) 1,529,000 256,000 (842,000)
Cash, excluding
restricted cash, at
beginning of period.... 62,000 589,000 -- -- 1,529,000
----------- ------------ ------------ ----------- -----------
Cash, excluding
restricted cash, at end
of period.............. $ 589,000 $ -- $ 1,529,000 $ 256,000 $ 687,000
=========== ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Income taxes paid....... $ -- $ 127,000 $ 367,000 $ 33,000 $ 353,000
=========== ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF NONCASH ACTIVITY
Acquisition of resort
property through
origination of notes
payable................ $ -- $ 7,275,000 $ 805,000 $ 805,000 $10,094,000
Acquisition of office
building and land
through origination of
note payable........... -- 1,165,000 -- -- 2,098,000
Payment received for
stock held in escrow
through forgiveness of
note payable to
stockholder............ -- 10,000 -- -- --
Acquisition of stock in
Trion through
origination of note
payable................ 550,000
Acquisition of notes
receivable through
origination of note
payable................ 1,832,000
Acquisition of equipment
through origination of
capitalized leases..... 1,156,000
Conversion of note
payable to common
stock.................. 400,000
</TABLE>
See accompanying notes.
F-25
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE PERIODS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Combination
American Vacation Company, Inc., a Delaware corporation, was incorporated on
August 16, 1993. On August 20, 1993, Cannon Time Corp. (Cannon) was merged
with and into the Company. Cannon was formed on March 16, 1988 and had not
conducted business operations since 1990. On September 27, 1993, American
Vacation Company, Inc. changed its name to AVCOM International, Inc.
(Company).
Effective September 1, 1993, the Company exchanged 1,531,300 shares of
common stock and 1,310,700 shares of preferred stock for 100 percent of the
partners equity of Villashare Partners Limited Partnership (Villashare
Partners) and the common stock of its general partner, All Seasons Resorts,
Inc. (formerly All Seasons Development, Incorporated) (All Seasons). The
merger has been accounted for as a reverse merger with Villashare Partners as
the acquirer for accounting purposes.
On September 30, 1995, the Company purchased all of the outstanding stock of
All Seasons Properties, Inc. (ASP) and Great Western Financial, Inc. (GWFI)
for $100,000, by issuing promissory notes to the shareholders of ASP and GWFI.
ASP and GWFI were wholly-owned by the chief executive officer and the
president of the Company and had liabilities in excess of assets on an
historical cost basis of approximately $177,000 at the date of the
acquisition. ASP's assets, which aggregated approximately $580,000, consisted
primarily of resort property held for timeshare sales and timeshare notes
receivable at the date of acquisition. The acquisition has been accounted for
as a purchase and the results of the operations of ASP and GWFI are included
in the Company's consolidated financial statements from the date of
acquisition.
Prior to June 20, 1995, the Company utilized one company at its projects to
provide all marketing and selling services which were paid solely on a
commission basis. The Company terminated its relationship with the marketing
company and acquired All Seasons Realty, Inc. in June 1995, for $1,000. As a
result, the Company is currently performing the selling and marketing of its
projects through All Seasons Realty, Inc. All Seasons Realty, Inc. did not
have material activity prior to the acquisition, which has been accounted for
as a purchase.
In January 1996, the Company purchased 40 percent of the common stock of
Trion Capital Corporation (Trion), the general partner of Arrowhead Capital
Partners developing North Bay Resort at Lake Arrowhead (see Note 3).
Business Activities
The Company develops resort properties for timeshare sales, finances
ownership interests in such properties, and manages the operations of the
resort properties and their related homeowners associations. The Company's
capital requirements related to the development of future projects and the
financing of notes receivables have been and will continue to be significant.
In addition, the Company's level of general and administrative costs is based
on the level of sales and development activity which occurred in 1995 and
which is anticipated in 1996. Further, the Company has and will continue to
incur initial start-up sales and marketing costs in anticipation of future
projects and transactions. To date, the Company has been substantially
dependent upon loans from banks and private lenders and the sale or pledge of
notes receivable to finance its developments and operations. The Company will
be required to seek significant amounts of additional debt and/or equity
capital to continue to finance or sell its notes receivable, develop its
proposed projects and carry the current level of overhead. There is no
assurance that the Company can continue to obtain adequate financing from
lenders for its financing or sale
F-26
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of notes receivable or its project developments and operations if and when
required, or on terms acceptable to the Company.
In the event the Company is unsuccessful in obtaining additional funds
necessary for these purposes, management may need to take steps to continue to
operate within the available cash flow. Such steps may include, among others,
postponement or abandonment of certain timeshare projects and transactions,
reduction of general and administrative costs, or reduction of selling and
marketing costs.
Principles of Consolidation
The consolidated financial statements include the accounts of AVCOM
International, Inc. and its wholly-owned subsidiaries and a majority owned
limited partnership. All significant intercompany transactions and balances
have been eliminated in consolidation. Investments in joint ventures and the
Company's investment in 40 percent of the common stock of Trion Capital
Corporation are accounted for on the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. These estimates and assumptions include expected default
rates on notes receivable, resale value of the timeshare interests received
through foreclosure, total construction and other costs to develop projects
and the resulting cost per interval, and recoverability of costs incurred on
projects, particularly those projects which are in the early stages. Actual
results could differ from those estimates.
Resort Property Held for Timeshare Sales and Underdevelopment
Resort property held for timeshare sales and under development is recorded
at historical cost less amounts charged to cost of sales for timeshare sales.
As timeshare interests are sold, the Company amortizes to cost of sales the
average carrying cost of the respective timeshare interest, which includes an
estimate of future completion costs related to remodeling and/or construction.
Timeshare interests received in exchange for timeshare interests in property
which were not developed by the Company are recorded at the fair value of the
timeshare interest received. Timeshare interests received in exchange for
timeshare interests at properties developed by the Company or through
foreclosure are recorded at the average carrying cost of timeshare interests
for the related project, which management believes approximates fair value.
In addition to direct construction costs, interest and indirect product
costs are capitalized as part of the cost of the property during the periods
of qualifying activities. Indirect product costs include the allocation of
certain payroll and administrative costs attributed to personnel directly
involved with the development and construction of the respective properties
and estimated subsidies of the homeowners' association related to the
property.
Recognition of Revenue
Generally, timeshare interests are sold under contracts which provide a cash
down payment and a deferred payment balance evidenced by a promissory note
secured by a deed of trust or mortgage on the timeshare interest. Sales of
timeshare interests are recognized using the percentage of completion method
after a binding sales contract has been executed, a 10 percent minimum down
payment has been received, and certain minimum sales and construction levels
have been obtained. Under the percentage of completion method, the portion of
revenue applicable to costs incurred, as compared to total estimated
development costs, is recognized in the period of sale. Sales which do not
meet these criteria are deferred using the deposit method.
F-27
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Until a contract for sale qualifies for revenue recognition, all payments
received are accounted for as deposits. Commissions and other selling costs,
attributable to the sale, are deferred until the sale is recorded. If a
contract is canceled before qualifying as a sale, nonrecoverable selling
expenses are charged to expense and deposits forfeited are credited to income.
Contract commission revenues are earned and recognized upon close of escrow
of the related sale. Contract marketing and selling costs are expensed when
incurred.
The deferred revenue resulting from the percentage of completion method was
approximately $80,000, $0 and $6,980,000 at December 31, 1994 and 1995, and
September 30, 1996, respectively.
Timeshare management revenue represents daily room rentals and fees for
management of the resorts. Such revenues are net of amounts due to timeshare
interval owners, if any, and are recorded as the rooms are rented or the
services are performed.
Health club initiation fees are deferred and amortized to revenue over three
years.
The present value of the difference between the stated interest rate of
notes receivable sold and the yield to the purchaser (interest rate
differential) is recognized as a gain at the time the notes receivable are
sold, less an allowance for estimated prepayments and notes receivable
repurchased pursuant to the recourse provisions.
Allowances for Losses
The Company provides for losses on notes receivable, including notes
receivable owned by the Company and notes sold with recourse, by a charge
against earnings at the time of sale, at a rate based on historical default
experience.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are calculated using the
straight-line method based on the following estimated lives:
<TABLE>
<S> <C>
Equipment...................................................... 5 years
Furniture and fixtures......................................... 7 years
Building improvements.......................................... 10 years
Buildings...................................................... 40 years
</TABLE>
Income Taxes
Prior to the merger, Villashare Partners was taxed as a partnership.
Accordingly, Villashare Partners did not pay federal or state income taxes on
its income. Instead, the partners were liable for individual federal and state
income taxes based on their respective partnership interests.
On September 1, 1993, the assets, liabilities and operations of Villashare
Partners were transferred to All Seasons as a result of the merger. Deferred
income taxes were established at that time for temporary differences between
the financial reporting basis and the tax basis of the assets and liabilities.
The Company follows Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes," which uses the liability method in accounting
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when differences are expected to reverse.
F-28
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized Start-Up Costs
It is the Company's policy to capitalize as start-up costs all marketing and
selling expenses incurred at new resort projects up to sixty days after sales
begin. Capitalized start-up costs are then amortized over one year.
Advertising Expense
The cost of advertising is expensed as incurred. The Company did not incur
any significant amounts of advertising costs during the years ended December
31, 1993, 1994 and 1995, and the nine months ended September 30, 1995 and
1996, respectively.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, which provides an alternative to APB Opinion No. 25 in
accounting for stock-based compensation issued to employees. Statement No. 123
allows for a fair value based method of accounting for employee stock options
and similar equity instruments. The Company applies the recognition and
measurement provisions of APB Opinion No. 25 to all employee stock options and
similar equity instruments awarded after December 31, 1995.
Fair Value of Financial Instruments
The carrying value of cash, receivables, and accounts payable and other
accrued liabilities approximate fair value due to the short-term nature of
these assets and liabilities. The fair value of notes receivable held with a
carrying value of $15,357,000 is approximately $15,900,000 at December 31,
1995. The fair value of debt approximates its carrying value since the current
rates reflect the rates at which the Company could borrow funds with similar
maturities.
Concentration of Credit Risks
Most of the Company's notes receivable held and notes receivable sold on a
recourse basis originated from sales of timeshare interests of Tahoe Beach and
Ski Club in Lake Tahoe, California, Sedona Summit Resort, Sedona Springs
Resort, Villas of Sedona and Villas at Poco Diablo resorts in Sedona, Arizona
and Scottsdale Villa Mirage Resort in Scottsdale, Arizona. The sales have been
primarily made to residents of California and Arizona. The Company performs
credit evaluations prior to timeshare sales. The timeshare deed of trust
serves as collateral on the note receivable.
The Company's development of timeshare projects through September 30, 1996
has been limited to Sedona and Scottsdale, Arizona, Lake Tahoe, California and
Houston, Texas. This lack of geographic diversification results in a high
correlation between the profitability of such operations and the local market,
economy and legislative conditions of such locations and generally the states
of Arizona, California and Texas. While management of the Company intends to
expand operations and to engage in timeshare development projects at other
locations, there is no assurance that significant geographic diversification
of the timeshare operations can be achieved.
F-29
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings (Loss) Per Share and Pro Forma Earnings Per Share
Earnings (loss) per share for the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996 is based on net income (loss),
adjusted for cumulative and unpaid dividends on convertible preferred stock, and
on the outstanding weighted average shares (less treasury shares), common stock
equivalents and convertible preferred stock outstanding. Common stock held in
escrow has been considered to be outstanding and stock options are considered
common stock equivalents. Common stock equivalents, which are antidilutive, were
not included in the computation of the net loss per share for the nine months
ended September 30, 1996.
Pro forma earnings per share for the year ended December 31, 1993 gives
effect to the reorganization, as if it occurred at the beginning of the period
and is based on income before income taxes, adjusted for cumulative and unpaid
dividends on convertible preferred stock and adjusted for a pro forma income
tax provision at the rate of 40 percent, and on the outstanding weighted
average shares (less treasury stock), common stock equivalents and convertible
preferred stock.
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of,
including resort property held for timeshare sales. The Company adopted
Statement No. 121 in 1996 which did not have a material effect.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which provides standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The Company plans to adopt Statement No. 125 in 1997 and the
Company has yet to determine its impact.
Interim Financial Information
The financial information at September 30, 1996 and for the nine month
periods ended September 30, 1995 and 1996 is unaudited, but includes all
adjustments that the Company considered necessary for a fair presentation of
the financial information set forth therein, in accordance with generally
accepted accounting principles. The results for the nine months ended
September 30, 1996 are not considered indicative of the results to be expected
for any future period or for the entire year.
Reclassifications
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform them to the current year presentation.
F-30
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
----------------------- 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Timeshare notes receivable............. $2,751,000 $15,357,000 $35,017,000
Holdbacks on notes receivable sold..... 3,177,000 3,197,000 2,046,000
Accrued interest rate differential..... 678,000 921,000 823,000
Other notes receivable................. -- 202,000 131,000
---------- ----------- -----------
6,606,000 19,677,000 38,017,000
Less allowance for possible losses..... (667,000) (1,018,000) (1,358,000)
---------- ----------- -----------
$5,939,000 $18,659,000 $36,659,000
========== =========== ===========
</TABLE>
Notes receivable from the sale of timeshare interests bear interest at
annual rates ranging generally from 9.9 percent to 14.9 percent and have terms
of generally seven years. The notes are collateralized by first deeds of trust
on the timeshare interests sold.
The Company has outstanding commitments under which the Company may sell its
notes receivable under certain terms and conditions. At September 30, 1996,
the remaining commitments aggregated approximately $4,885,000, expiring
primarily in 1996. In connection with one commitment, Fletcher Financial, Inc.
(Fletcher Financial), which is owned by one of the stockholders of the Company
(see Note 9), has guaranteed $5,000,000 of notes receivable sold. In exchange,
therefore, the Company has agreed to share 50 percent of the interest rate
differential with Fletcher Financial resulting from the sale of these notes
receivable.
The Company's obligations pursuant to these agreements are generally
guaranteed by the Company's president and chief executive officer, and are
secured by the related holdbacks. The commitments also contain various
restrictive financial covenants which the Company must meet. Among the most
restrictive are covenants prohibiting the payment of dividends and requiring
the maintenance of at least $3,000,000 of tangible net worth and no more than
a 15-to-1 debt-to-equity ratio. The Company was not in compliance with the
debt-to-equity ratio covenants at September 30, 1996; however, a waiver from
the lender was obtained.
The agreements which provide for sales of the notes receivable are on a
recourse basis with a percentage (generally 10 percent) of the amount sold
held back by the purchaser as additional collateral, which is released to the
Company as the notes receivable are paid down. The Company is paid interest on
the holdback at generally a money market rate. At December 31, 1994 and 1995
and September 30, 1996, the Company had approximately $32,844,000, $32,449,000
and $29,009,000, respectively, of outstanding notes receivable sold on a
recourse basis.
The activity in the allowance for possible losses consisted of the
following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- -------- ---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period................. $ 300,000 $300,000 $ 667,000 $667,000 $ 1,018,000
Provisions.............. 251,000 371,000 792,000 212,000 1,055,000
Charge offs............. (251,000) (4,000) (441,000) -- (715,000)
--------- -------- ---------- -------- -----------
Balance, end of period.. $ 300,000 $667,000 $1,018,000 $879,000 $ 1,358,000
========= ======== ========== ======== ===========
</TABLE>
F-31
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RESORT PROPERTY HELD FOR TIMESHARE SALES AND UNDER DEVELOPMENT
Resort property held for timeshare sales and under development consists of
the following projects:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER
1994 1995 30, 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Held for timeshares sales:
Villas of Sedona/ Poco Diablo............ $ 458,000 $ 301,000 $ 357,000
Sedona Springs Resort.................... 1,287,000 233,000 226,000
Tahoe Beach & Ski Club................... 7,635,000 6,367,000 4,852,000
Villas on The Lake....................... -- 56,000 2,676,000
Other.................................... 91,000 573,000 505,000
Tahoe Seasons............................ -- -- 450,000
Under development:
Scottsdale Villa Mirage Resort........... 238,000 1,095,000 7,061,000
Sedona Summit............................ -- 1,220,000 3,411,000
Park Plaza Resort........................ 833,000 833,000 --
Sedona Golf Resort....................... -- 62,000 4,594,000
Tunlii................................... -- 61,000 2,402,000
Other.................................... 101,000 26,000 171,000
----------- ----------- -----------
$10,643,000 $10,827,000 $26,705,000
=========== =========== ===========
</TABLE>
Completed Developments
The Villas at Poco Diablo and Villas of Sedona resorts are 33-unit and 40-
unit townhouse projects, respectively, located in Sedona, Arizona.
Sales were substantially complete at the Villas at Poco Diablo in October
1992 and at Villas of Sedona in June 1994. The current balance consists of
timeshare interests available for sale that were received in trade for
timeshare interests at other developments of the Company.
Sedona Springs Resort. Sedona Springs Resort (Sedona Springs) is a 40-unit
resort located in Sedona, Arizona adjacent to the Villas of Sedona resort.
Sales at the project began in 1994 and were substantially completed in January
1996.
Current Developments
Tahoe Beach & Ski Club. The Tahoe Beach & Ski Club is located in South Lake
Tahoe, California and was purchased in March 1994 for approximately
$6,400,000. The project includes a total of 140 units of which 110 were
renovated as timeshare units at the date acquired. Renovation of the remaining
30 units was completed in April 1996. At the time of purchase by the Company,
4,533 timeshare interests related to the 110 renovated units of the resort had
been sold. As part of the purchase, the Company acquired approximately
$9,245,000 of notes receivable related to these prior sales, which were
concurrently resold. Further, the Company provided approximately $875,000 to
the homeowners association for reserves for current and future renovation and
refurbishing, which was recorded as part of the acquisition cost.
Under Development
Scottsdale Villa Mirage Resort. The Scottsdale Villa Mirage Resort is a
planned 176 unit resort located in Scottsdale, Arizona. The Company entered
into an agreement with Desert Princess Resort L.L.C. (Princess) to
F-32
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
develop the project for the Company in three phases of 64, 48, and 64 units,
respectively. The Company has a construction loan commitment for $4,350,000
and a take-out commitment for $8,800,000. Construction of phase one and sales
began in March 1996.
The Company had advanced approximately $1,000,000 as of December 31, 1995 in
construction and development costs and in January 1996 paid an additional
$1,600,000 to pay off prior encumbrances. The Company purchased on February
28, 1996 substantially all of the outstanding interests in Princess for a
total of $550,000. The purchase price consists of $285,000 paid at closing,
and a note payable of $265,000 payable in 12 monthly installments.
Princess has a construction contract for Phase I of $8,389,000 and for
Phases II and III of $9,563,000. The construction contractor has a right to
$500,000 of the profits, as defined, and the construction lender has a right
to 15% of the profits, as defined.
Park Plaza Resort. In October 1993, the Company acquired the timeshare
development rights for approximately 195 units in South Lake Tahoe from a
third-party developer (the Developer). The project is a component of a major
area redevelopment program sponsored in part by the South Lake Tahoe
Redevelopment Agency (the Agency). The purchase price is $2,500,000, of which
the Company has made a deposit of $750,000 and the balance of $1,750,000 is
due upon issuance of certain building permits anticipated in 1998. The
Developer has a right to 9% of the gross project sales as additional
consideration. The Company is further required to pay a developers fee to be
determined by the Agency, but not to exceed $1,500,000. The Company is
currently negotiating the termination of this agreement and does not
anticipate proceeding with this project. It is anticipated that the proposed
termination will provide for a partial refund of the Company's $750,000
deposit conditioned on the Developer or the Agency finding a replacement
developer should the existing Developer decide not to proceed with its
development rights. Notwithstanding the proposed termination agreement,
pursuant to the current purchase agreement, the Company's recovery would be
limited to $600,000 conditioned on the Developer or Agency finding a
replacement purchaser of the Company's development rights. Under either
circumstance, since recovery is conditioned on a future event, the Company has
written-off the full amount of its deposit, together with costs previously
capitalized with regard to this project.
Sedona Summit. In May, 1995, the Company purchased approximately three acres
in Sedona, Arizona for $1,067,000, which is planned for development of 26
timeshare units. The Company made additional payments of $52,000 through
December 31, 1995 and $52,000 thereafter, which does not apply toward the
purchase price. Additionally, the Company purchased in May 1996 an adjacent
parcel consisting of approximately four acres for $1,220,000, which is planned
for development of 34 timeshare units. Development of the property includes
the start-up and operation of a private waste water treatment facility, which
has been leased by the Company. The start-up costs of the waste water
treatment facility is estimated at approximately $30,000.
The Company is developing the property through an affiliated entity, Sedona
Summit Development Limited Partnership (SSDLP), which was formed on May 1,
1996 and All Seasons is the sole general partner. The activities of SSDLP are
consolidated in the financial statements. SSDLP sold limited partnership
interests in March 1996 of approximately $1,500,000 representing a 99%
ownership interest. The Company has secured a revolving construction loan of
$2,500,000 which has been guaranteed by SSDLP for the development of the
project. The Company has contracted to purchase completed units in phases from
SSDLP for an aggregate of $14,084,000. Sales and construction commenced in
February 1996.
Tahoe Seasons Resort. In February 1996, the Company acquired a portfolio of
1,057 non-performing timeshare receivables generated from the sale of
timeshare interests at Tahoe Seasons Resort in South Lake Tahoe, California.
The purchase price of $1,548,000 was funded by a loan. The Company has also
agreed to purchase other receivables generated from sales at Tahoe Seasons
Resort that subsequently become delinquent.
F-33
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company will convert non-performing loans into timeshare interest
inventory which will be sold by the Company's marketing group at Lake Tahoe.
Villas on the Lake. In February 1996, the Company acquired an existing
condominium project in Lake Conroe, Texas for $1,860,000. The project consists
of 37 completed units and existing approvals and land for the construction of
48 additional units. The Company obtained a $2,400,000 loan for acquisition
and renovation of the project. Renovation of existing units began in February
1996 and sales commenced in June 1996.
Future Developments
The Ridge on Sedona Golf Resort. In October 1995, the Company entered into a
purchase agreement to acquire an approximately 12 acre parcel in Sedona,
Arizona for $5,500,000, including the Ridge Spa & Racquet Club, an existing,
though inactive facility. The Company anticipates developing the property into
a 120 unit timeshare resort in phases. The Company closed this transaction in
February 1996 with a $1,000,000 cash payment and notes payable of $700,000 due
on March 15, 1996 which was paid, and $500,000 due on October 31, 1996. The
remaining purchase price of $3,300,000 is payable in quarterly installments of
principal and interest of $79,800 with the balance due in February 1999. The
Company obtained a short-term loan of $1,307,000 to fund the acquisition
payment.
Main Street Pier. The Company entered into a letter of intent in November
1995 whereby the Company agreed to purchase 80 condominium units located in
Huntington Beach, California for a total cost not to exceed $17,176,000. The
seller is to acquire the property and construct the condominium units. The
Company has deposited $50,000 earnest money in escrow. The seller has not
timely obtained the necessary governmental approvals for the project. The
Company has informed the seller of its intent to terminate the letter of
intent and close the purchase escrow. The Company anticipates full recovery of
its earnest money.
Tunlii (formerly known as Cherry Creek Country Club). In February 1996, the
Company acquired a 68.4 acre parcel of land in Camp Verde, Arizona,
approximately 100 miles north of Phoenix. This parcel is contiguous to a 127
acre tract owned by an independent party with cooperative intent to jointly
develop the properties. At the same time, the Company contracted to purchase
an additional 99.2 acres and 263 acres adjacent to the development parcels.
The purchase of the 99.2 acre tract closed in May 1996. The acquisition cost
of the 68.4 acres and the 99.2 acres was $547,000 and $843,000, respectively,
which includes seller financing of $447,000 and $632,000, respectively. The
263 acre tract is under contract for $790,000 with an earnest money deposit of
$40,000, and seller financing of $552,000.
During March 1996, the Company entered into a limited liability company
operating agreement (LLC) with the independent land owner whereby the
respective parties will contribute their respective land holdings
(approximately 557 acres) and liabilities related to this project into a
limited liability company in exchange for an 82.5% and 17.5% ownership,
respectively. During September 1996, the LLC entered into a sale agreement for
the bulk sale of the LLC's land holdings contingent upon certain land use
approvals being obtained. The LLC Operating Agreement provides for a 76.5% and
23.5% allocation, respectively, in the event of a bulk sale.
North Bay Resort at Lake Arrowhead. The North Bay Resort at Lake Arrowhead,
located in San Bernardino County, California, is the first "affiliated
property" of the Company. The Company entered into a series of agreements in
January 1996 whereby the Company provided guarantees for $12,650,000 of the
developer's financing for a fee of $450,000 (evidenced by a note payable),
received a right of first refusal to offer timeshare receivable financing to
the developer after expiration of the developer's present $10,000,000
financing commitment, received an option to assume property management for the
project's homeowners' association and
F-34
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purchased a 40% equity position in the corporate general partner of the
developer partnership. The equity position was acquired for $600,000, of which
$550,000 is financed by a note payable due in installments of $150,000 in May
1996 (which has been paid) and $400,000 in January 1998. The proposed project
contemplates the consolidation of two adjacent developments. One development
consists of two completed condominium buildings converted to timeshare use and
additional undeveloped land. The second parcel consists of a combination of
three existing condominium buildings in various stages of construction and
pads for two additional condominium buildings. The developer has been provided
with a $2,650,000 construction and operating loan commitment and a $10,000,000
commitment for timeshare receivable financing from a financing company,
subject to operational involvement and financial guarantees of the Company.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land and building........................ $1,200,000 $1,200,000 $3,403,000
Building improvements.................... 172,000 430,000 961,000
Computer equipment....................... 335,000 464,000 896,000
Office equipment, furniture and fixtures. 306,000 330,000 1,005,000
Sales center............................. 104,000 91,000 135,000
---------- ---------- ----------
2,117,000 2,515,000 6,400,000
Accumulated depreciation and amortiza-
tion.................................... (211,000) (327,000) (820,000)
---------- ---------- ----------
$1,906,000 $2,188,000 $5,580,000
========== ========== ==========
</TABLE>
F-35
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
----------------------- 30,
TERM NOTES 1994 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Warehouse note payable secured by
timeshare notes receivable, interest at
LIBOR plus 3 percent, personally
guaranteed by the president and chief
executive officer........................ $ -- $12,277,000 $29,165,000
Notes payable secured by unsold timeshare
interests and common area of Tahoe Beach
& Ski Club:
Interest at 13.5 percent, payable through
a release price of the greater of 10
percent of the selling price of the
timeshare interest or $1,200, plus 5
percent of net profits, as defined, due
in April 1997............................ 2,246,000 1,408,000 615,000
Interest at 10 percent payable monthly,
principal payable at the greater of 13
percent of the selling price of the
timeshare interest or $1,200, balance due
in March 1997, personally guaranteed by
the president and the chief executive
officer, subordinate to the 13.5 percent
note payable............................. 3,677,000 1,921,000 711,000
Construction notes payable, secured by
unsold timeshare interests and common
area of Sedona Springs, principal payable
by release prices of $2,375 per annual
sale and $1,188 per biannual sale,
interest at the prime rate (8.8 percent
at December 31, 1995) plus 3.5 percent
payable monthly, due April, 1996. The
loan is guaranteed by the president and
chief executive officer.................. 1,654,000 174,000 --
Notes payable, secured by deed of trust on
Sedona Summit land:
Interest at 15.0 percent, monthly
installments of interest only, due June,
1996..................................... -- 307,000 --
Interest of 13.0 percent, quarterly
installments of interest only, due June,
1996..................................... -- 500,000 --
Unsecured note payable, interest at 5
percent, due in equal monthly principal
and interest installments of $1,946, due
June, 1997............................... -- 33,000 17,000
Convertible subordinated note payable,
monthly installments of interest only,
interest at 9.0 percent, convertible into
310,000 shares of common stock at $3 per
share. On April 30, 1996, the Company
paid down the principal balance to
$580,000 and received an extension until
August 31, 1996. As part of the extension
agreement, interest changed to $10,000
per month. An additional extension was
granted until December 31, 1996 when a
principal payment of $94,000 was made in
September, 1996 and $86,000 is due in
December, 1996. The remaining $400,000
principal balance was converted into
310,000 shares of the Company's common
stock.................................... -- 930,000 86,000
Note payable, secured by office building,
interest at 8.5 percent, due in equal
monthly principal and interest
installments of $8,112, balance due
March, 2001.............................. 1,054,000 1,046,000 1,040,000
</TABLE>
F-36
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
TERM NOTES 1994 1995 1996
---------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, secured by unsold
timeshare interests, principal payable
by release price of $1,000 per
timeshare interval sold, and monthly
installments of interest only, interest
at 17.5 percent........................ $ -- $ 185,000 $ 138,000
Unsecured note payable with Fletcher
Financial, Inc., interest at
20.0 percent due monthly, principal due
December 1996, personally guaranteed by
the president and chief executive
officer................................ 650,000 650,000 650,000
Unsecured notes payable to chief
executive officer and president,
interest at 12.5 percent, due September
2000................................... -- 100,000 100,000
Note payable to Glaser Capital, interest
at prime plus 1 percent, paid January
1995................................... 500,000 -- --
Note payable, secured by office
building, interest at 12.0 percent, due
in equal monthly principal and interest
installments of $8,239, balance due
January, 1999.......................... -- -- 752,000
Note payable secured by stock in Trion
Capital Corporation, interest at 10.0
percent, interest payable in quarterly
installments, balance due January,
1998................................... -- -- 400,000
Note payable secured by deed of trust,
interest at 15.0 percent, installments
of $16,000 including interest, due
monthly, balance due July, 1997........ -- -- 973,000
Note payable secured by deed of trust,
interest at 9.0 percent, principal
payment of $500,000 plus accrued and
unpaid interest due August, 1996,
thereafter interest and principal
installments of $79,774 due quarterly,
balance due May, 1999.................. -- -- 3,800,000
Note payable secured by deed of trust,
due in monthly payments of $4,500
including interest at 9.0 percent,
balance due March, 2001................ -- -- 440,000
Construction note payable, secured by
unsold timeshare interests and common
area of Scottsdale Villa Mirage,
principal payable by release price,
interest at prime rate (8.5 percent at
September 30, 1996) plus 3 percent
payable monthly, due April, 1997....... -- -- 2,614,000
Construction note payable, secured by
unsold timeshare interests and common
area of Sedona Summit, principal
payable by release price, interest at
prime (8.5 percent at September 30,
1996) plus 3 percent payable monthly,
due September, 1997.................... -- -- 614,000
Note payable, secured by unsold
timeshare interests, principal payable
by release price, interest at prime
plus 4.5 percent payable monthly, due
February, 1999......................... -- -- 1,523,000
Note payable secured by deed of trust,
due in monthly installments of $5,000
including interest at 10.0 percent,
balance due February, 1997............. -- -- 234,000
</TABLE>
F-37
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
TERM NOTES 1994 1995 1996
---------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Other................................... $ 231,000 $ $ --
Notes payable secured by deed of trust
on Tunlii land: Interest at 8.0
percent, monthly installments of
principal and interest of $6,052.
$315,000 due December 15, 2000 and
remaining balance due January, 2001.... -- -- 623,000
Interest at 6.8 percent, quarterly
installments of $9,320, due June, 1999. -- -- 552,000
Note payable secured by deed of trust on
Sedona Golf Resort land, interest at
15.0 percent, monthly installments of
principal and interest of $4,952, due
April, 1997............................ -- -- 303,000
Note payable secured by deed of trust
and lien on real property and
improvements, due in monthly
installments of principal and interest
at prime rate (8.5 percent at September
30, 1996) plus 2.5 percent, balance due
August, 1997........................... -- -- 2,047,000
Note payable secured by deed of trust on
Sedona Golf Resort land, interest at
15.0 percent, monthly installments of
principal and interest of $4,030, due
July 31, 1997.......................... -- -- 247,000
Warehouse note payable secured by
timeshare notes receivable, interest at
prime plus 1.75 percent................ -- -- 403,000
----------- ----------- -----------
Total term notes........................ 10,012,000 19,531,000 48,047,000
<CAPTION>
DEMAND NOTES
------------
<S> <C> <C> <C>
Subordinated notes payable secured by
notes receivable from sales of
timeshare interests, interest ranging
from 12.5 percent to 15.5 percent:
Stockholders, due on demand........... 1,557,000 1,742,000 1,509,000
Others, due on demand or five years
from origination..................... 1,013,000 1,356,000 1,355,000
Notes payable, secured by a collateral
assignment of beneficial interest,
monthly installments of interest only,
interest at 15 percent, due on 60 day
demand or June 1998.................... -- 63,000 63,000
Note payable, secured by contract
commissions, monthly installments of
$50,000, interest at 15.0 percent, due
on demand.............................. -- -- 225,000
Note payable, secured by contract
commissions, interest at 15.0 percent,
due on demand.......................... -- -- 121,000
----------- ----------- -----------
$12,582,000 $22,692,000 $51,320,000
=========== =========== ===========
</TABLE>
The warehouse loan agreement provides for borrowings up to an aggregate of
$25,000,000 and in September 1996 it was increased to $40,000,000 and was
extended to September 1997. The Company has an additional warehouse line of
credit available up to an aggregate of $5,000,000 of which $4,597,000 is
unused at September 30, 1996. These loan agreements and certain other of the
notes payable contain various restrictive covenants prohibiting the payment of
dividends and requiring the maintenance of at least $3,000,000 of tangible net
worth and no more than a 15-to-1 debt to equity ratio. The Company was not in
compliance with the debt-to-equity ratio covenants at September 30, 1996;
however, a waiver from the lender was obtained.
F-38
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a schedule by year of principal payments of the term notes
payable as of December 31, 1995 and September 30, 1996:
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 30,
31, 1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
1996.............................................. $16,988,000 $33,212,000
1997.............................................. 1,416,000 7,185,000
1998.............................................. 10,000 1,098,000
1999.............................................. 11,000 4,521,000
2000 and thereafter............................... 1,106,000 2,031,000
----------- -----------
Total term notes.................................. $19,531,000 $48,047,000
=========== ===========
</TABLE>
Interest and finance costs capitalized and expensed for the years ended
December 31 and for the nine months ended September 30, 1995 and 1996 is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Capitalized, beginning
of period.............. $ 142,000 $ 227,000 $ 508,000 $ 508,000 $ 597,000
Capitalized........... 411,000 755,000 745,000 612,000 996,000
Expensed as cost of
sales................ (326,000) (474,000) (656,000) (568,000) (426,000)
--------- --------- --------- --------- ----------
Capitalized, end of pe-
riod................... $ 227,000 $ 508,000 $ 597,000 $ 552,000 $1,167,000
========= ========= ========= ========= ==========
</TABLE>
Interest and finance costs paid aggregated $766,000, $1,406,000 and
$2,563,000 during the years ended December 31, 1993, 1994 and 1995,
respectively and $1,734,000 and $3,940,000 for the nine months ended September
30, 1995 and 1996, respectively. Included in interest and finance costs paid
is interest paid to related parties of $128,000, $192,000, and $232,000 for
the years ended December 31, 1993, 1994 and 1995, respectively and $175,000
and $169,000 for the nine months ended September 30, 1995 and 1996,
respectively.
6. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
---------- -------- --------
<S> <C> <C> <C>
Current
Federal.......................................... $ 262,000 $183,000 $360,000
State............................................ 50,000 6,000 30,000
Deferred
Federal.......................................... 1,409,000 430,000 381,000
State............................................ 249,000 76,000 67,000
---------- -------- --------
$1,970,000 $695,000 $838,000
========== ======== ========
</TABLE>
F-39
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the provision for income taxes with the expected income
taxes based on the statutory federal and state income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
---------- -------- --------
<S> <C> <C> <C>
Expected federal income tax provision............ $ 743,000 $549,000 $639,000
State income taxes............................... 131,000 97,000 113,000
Other............................................ 95,000 49,000 86,000
Establishment of deferred tax liability at Sep-
tember 1, 1993.................................. 1,380,000 -- --
Reduction in allowance........................... (40,000) -- --
Villashare Partners Limited Partnership income
taxed to partners............................... (339,000) -- --
---------- -------- --------
$1,970,000 $695,000 $838,000
========== ======== ========
</TABLE>
The net deferred tax liability results from the tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes are
shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets
Allowance for losses................................... $ 267,000 $ 407,000
Net operating loss carryforward........................ 514,000 1,383,000
Prepaid interest....................................... 182,000 62,000
Uniform capitalization costs........................... 94,000 94,000
Credit carryforwards................................... 319,000 592,000
---------- ----------
Total deferred tax assets................................ 1,376,000 2,538,000
---------- ----------
Deferred tax liabilities
Other.................................................. 368,000 371,000
Percentage of completion............................... 271,000 --
Deferred sales expense................................. -- 304,000
Interest rate differential............................. 272,000 368,000
Installment sales...................................... 2,161,000 3,879,000
Cash to accrual adjustment............................. 480,000 240,000
---------- ----------
Total deferred tax liabilities........................... 3,552,000 5,162,000
---------- ----------
Net deferred tax liability............................... $2,176,000 $2,624,000
========== ==========
</TABLE>
At December 31, 1995, the Company has a minimum tax credit carryforward of
approximately $592,000 for income tax purposes available to offset future
income taxes payable to the extent regular income taxes payable exceeds
alternative minimum taxes payable. Minimum tax credits can be carried forward
indefinitely. The Company has a net operating loss carryforward at December
31, 1995 of approximately $3,211,000 for state and federal income tax
purposes. The state net operating loss carryforward will begin to expire in
1999 and the federal net operating loss carryforward will begin to expire in
2009.
F-40
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASES
Capital Leases
The Company leases furnishings and equipment under capital leases with a
cost of approximately $284,000, $470,000 and $1,550,000 at December 31, 1994
and 1995 and September 30, 1996, respectively, and accumulated amortization of
approximately $48,000, $119,000 and $281,000, respectively, and such amounts
are included with property and equipment. The amortization of the costs of the
furnishings and equipment is included with depreciation expense.
The Company also leases furniture and equipment under capital leases which
it subleases to the homeowner associations at the projects under financing
leases. The balance of the lease receivables from the homeowners associations
are included in receivables from related parties and were $275,000, $675,000
and $514,000 at December 31, 1994 and 1995 and September 30, 1996,
respectively.
The following is a schedule by year of future minimum lease payments under
the capital leases together with the present value of the payments as of
September 30, 1996.
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
1996......................................................... $ 206,000
1997......................................................... 727,000
1998......................................................... 558,000
1999......................................................... 286,000
2000......................................................... 117,000
2001......................................................... 15,000
----------
Total minimum lease payments................................. 1,909,000
Less interest................................................ (323,000)
----------
Present value of net minimum lease payments.................. $1,586,000
==========
</TABLE>
The scheduled future sublease receivables related to the furniture and
equipment subleased to the homeowners associations approximates the following
at September 30, 1996 (including interest of $152,000): 1996--$63,000; 1997--
$153,000; 1998--$153,000; 1999--$153,000; and 2000 and thereafter $144,000.
These sublease receivables vary in amount from the future minimum lease
payments under the capital leases as the result of differing lease maturities
and lease commencement dates.
OPERATING LEASES
The Company leases offices and equipment under operating leases expiring at
various dates through 2001. Future minimum annual rental payments required
under operating leases with initial or remaining noncancelable terms of one
year or more consisted of the following at September 30, 1996:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
1996.......................................................... $ 189,000
1997.......................................................... 382,000
1998.......................................................... 354,000
1999.......................................................... 220,000
2000.......................................................... 53,000
2001.......................................................... 12,000
----------
$1,210,000
==========
</TABLE>
F-41
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total rental expense, including short-term rentals, was approximately
$35,000, $167,000, and $279,000, for the years ended December 31, 1993, 1994
and 1995, respectively, and $240,000 and $391,000 for the nine months ended
September 30, 1995 and 1996.
8. STOCKHOLDERS' EQUITY
Common Stock
The Company has 10,000,000 shares of $.01 par value common stock authorized,
of which 3,653,936 are outstanding at December 31, 1995, including 12,000
shares held as treasury stock. On all matters voted upon by stockholders, each
outstanding share of common stock is entitled to one vote. No dividends may be
declared on the common stock unless all cumulative dividends on preferred
stock have been declared and paid as of the declaration date. The terms of
certain of the agreements for the sale or financing of notes receivable
prohibit payment of dividends (see Note 2). Substantially all of the Company's
operations and assets are held by its wholly-owned subsidiary All Seasons,
which is also prohibited from paying dividends by virtue of these agreements.
In connection with the stock exchange discussed in Note 1, 500,000 shares of
common stock issued to Sangar Investment Company, L.L.C. (jointly owned by the
chief executive officer and the president) and 65,000 shares issued to an
individual are subject to the terms of an escrow agreement which provides that
the shares are to be released upon the Company attaining earnings per share on
a fully diluted basis of at least $0.20. If the shares are not released prior
to December 31, 2000, the shares shall be redeemed by the Company at $0.02 per
share.
During 1993, the Company issued 400,000 shares of common stock pursuant to
Rule 504 of Regulation D for $1.25 per share.
During 1994, the Company repurchased 12,000 shares of its common stock, to
be held as treasury stock, from stockholders for $30,000.
In January 1995, the Company issued 363,636 shares of common stock pursuant
to Rule 504 of Regulation D at $2.75 per share for net proceeds of
approximately $885,000.
In August 1996, the Company issued 310,000 shares of common stock pursuant
to an agreement to modify a convertible note payable and subscription
agreement. Under the agreement, the convertible note payable was reduced by
$400,000 in exchange for the stock (see Note 5).
CONVERTIBLE PREFERRED STOCK
The Company has 1,400,000 shares of convertible preferred stock authorized
of which 1,310,700 shares are issued and outstanding at December 31, 1995 and
September 30, 1996. The preferred stock may be issued by action of the board
of directors without further shareholder approval. Holders of preferred stock
do not have preemptive rights. Each share of preferred stock is entitled to
one vote on all matters submitted to a vote of shareholders, including the
election of directors. The holders of the preferred stock also vote and must
approve as a class any material changes to the Company's articles of
incorporation or to the rights and preferences of the preferred stock.
Dividends may be paid to the holders of preferred stock out of funds legally
available for dividends when and if declared by the board of directors. Each
share of preferred stock is entitled to a cumulative dividend of $.08 per
share per annum, which shall be declared and paid before any dividend is
payable to holders of the common stock. The $.08 dividend shall accrue on July
1, 1994 and each July 1st thereafter. In the event of a liquidation,
dissolution or winding-up of the affairs of the Company, the holders of the
preferred stock will
F-42
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
be entitled to receive $1.00 per share plus all accrued but unpaid dividends
before any liquidation proceeds are distributed to the holders of any other
class of Company stock. The preferred stock is convertible into common stock
as a class, by affirmative vote of the holders of 66.67 percent of the
preferred stock, on a one-for-one basis, subject to adjustment for stock
dividends, stock splits, mergers and similar changes of the Company's capital
structure. The Company has no obligation to pay accrued but unpaid dividends
on the shares of preferred stock converted. The accumulated but unpaid and
undeclared dividends on preferred stock was $210,000 at December 31, 1995 and
$289,000 at September 30, 1996. The terms of certain of the agreements for the
sale or financing of notes receivable prohibit payment of dividends (see Note
2). Subsequent to September 30, 1996, all holders of the convertible preferred
stock converted their shares into common stock and forfeited their rights to
cumulative dividends.
STOCK OPTIONS
In connection with the merger with Cannon described in Note 1, the Company
issued an option to purchase up to 350,000 shares of common stock with an
exercise price of $.02 per share to an individual. The option is currently
exercisable and expires August 1998. The option (or the common stock received
upon exercise of the option) vests and becomes nonforfeitable if the common
stock trades in a public market for at least $4.00 for 120 consecutive trading
days prior to the expiration date. If the option is exercised prior to vesting
and the vesting criteria is not met prior to the expiration date of the
option, the shares issued upon exercise of the option shall be repurchased by
the Company for $0.02 per share. The option has not vested and has not been
exercised as of September 30, 1996. The Company has made a claim against the
individual for cancellation of the 371,500 outstanding shares of common stock
held by the individual and of this option (see Note 10) which, if successful,
would reduce the number of outstanding shares and impact the calculation of
earnings per share.
The Company granted 100,000 options on January 5, 1995 to an employee to
purchase common stock at $2.75 per share exercisable for up to 10 years.
Although the options are immediately exercisable, the employee is restricted
from selling any shares in 1995 and shares in excess of 25,000 in 1996. No
options have been exercised as of September 30, 1996.
Effective October 1, 1995, the Company's Board of Directors adopted a non-
statutory stock option plan and an incentive stock option plan under a single
stock option plan (Stock Option Plan). The Stock Option Plan was approved by
the stockholders in June 1996. Under the terms of the Stock Option Plan, both
qualified incentive stock options (ISOs) and non-qualified stock options may
be granted. ISOs may be granted to the officers and key personnel of the
Company. Non-qualified stock options may be granted to the Company's directors
and key personnel, and to providers of various services to the Company.
Under the Stock Option Plan, options to purchase a maximum of 750,000 shares
of the Company's common stock may be granted. The exercise price for any
option granted under the Stock Option Plan may not be less than 100% (110% if
the option is granted to a stockholder who at the time the option is granted
owns stock comprising more than 10% of the total combined voting power of all
classes of stock of the Company) of the fair market value of the common stock
at the time the option is granted. The option holder may pay the exercise
price in cash or by delivery of previously acquired shares of common stock of
the Company. Each option granted must terminate no more than 10 years from the
date it is granted.
The Stock Option Plan will terminate in September 2005, but any option
granted thereunder will continue throughout the terms of such option.
Pursuant to the Stock Option Plan, 250,000 options were issued on December
19, 1995 and 50,000 options were issued in July 1996 at an exercise price of
$3.44, and vest ratably over five years. No options had been exercised through
September 30, 1996.
F-43
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTY TRANSACTIONS
At December 31, 1994, ASP owed the Company $454,000 in advances, including
accrued interest, to facilitate resale of timeshare interests which is
included in receivables from related parties. At December 31, 1994, the
Company owed the executive officers of ASP $78,000, included in amounts due to
related parties, and $130,000 included in notes payable to stockholders
relating to the issuance of subordinated notes payable (see Note 5).
As discussed in Note 1, the Company purchased all of the outstanding stock
of ASP and GWFI on September 30, 1995 from the chief executive officer and the
president of the Company. The Company received commissions of $37,000 from ASP
through September 30, 1995 related to the sale of ASP timeshare interests.
Fletcher Financial, a company owned by one of the stockholders of the
Company, has guaranteed up to $5,000,000 of timeshare notes receivable sold
(see Note 2). In addition, Fletcher Financial has an unsecured note payable
(see Note 5).
The Company provides management services to the homeowners associations of
its developments. Certain officers of the Company are members of the board of
directors and officers of the homeowners associations. The homeowners
associations board of directors is responsible for presenting the annual
budget to each homeowners association and supervising the daily operations of
each resort. The Company has provided covenants in its debt agreements and
note receivable sale and financing agreements that it will support the
operations of the homeowners associations, if required, until substantially
sold-out. The Company has receivables, including lease receivables (Note 7),
from the homeowners' association of $280,000, $675,000 and $568,000 at
December 31, 1994 and 1995 and September 30, 1996, respectively, and payables
of $309,000, $484,000 and $353,000, respectively, included in receivables from
and amounts due to related parties.
10. CONTINGENCIES
The stockholders approved the removal of one of the Company's directors in
February 1995. The Company has initiated litigation against this former
director and Cannon for damages and rescission of the merger of Cannon into
the Company based upon breach of contract, fraud, securities fraud and
violations of the Arizona Racketeering Act. The director has filed a counter-
claim alleging defamation, interference with business relations, breach of
contract and indemnification.
The Company is a defendant in several lawsuits filed by its former marketing
company, Success Marketing, Inc. (Success). On September 20, 1995 Success gave
the Company notice of termination of their sales agreement. On August 3, 1995
Success filed suit and made demand for arbitration alleging breach of
contract, loss of compensation, failure to negotiate in good faith and
promissory fraud. Success seeks contract and punitive damages. The suit is a
result of a prior marketing and sales agreement between the parties and
negotiations of a new agreement which was not consummated. The Company is
vigorously defending these actions and has filed counterclaims. The Company
has withheld commissions related to sales prior to termination of the sales
agreement and has paid various costs subsequent to termination of the sales
agreement which it believes are recoverable through offset against the
commissions and has established a receivable. The ultimate resolution of this
commission payable and receivable is dependent upon the resolution of the
litigation.
The Company is a defendant in other litigation arising in the course of the
operations. Management intends to vigorously defend these and the foregoing
actions and does not believe such lawsuits will have a material effect on the
Company's consolidated financial position, results of operations or cash
flows.
F-44
<PAGE>
AVCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. DEFINED CONTRIBUTION PLAN
The Company adopted a 401(k) defined contribution plan (Plan) covering all
employees who elect to participant in the Plan effective January 1, 1995. Each
participant may make pretax contributions to the Plan up to 10 percent of such
participant's earnings with a maximum of approximately $9,240 in 1995.
12. SUBSEQUENT EVENT
The Company received an extension and modification of the warehouse loan
agreement (Note 5) on July 1, 1996. The loan was extended to August 13, 1996
and the aggregate maximum amount of advances was increased to $28,000,000. The
loan was further modified as discussed in Note 5.
13. PROPOSED MERGER (UNAUDITED)
Pursuant to a merger agreement entered into in September, 1996, ASP
Acquisition Corp., a wholly owned subsidiary of Signature Resorts, Inc.
(Signature), will merge with and into AVCOM. Upon consummation of the merger,
each share of AVCOM Stock, except shares held in treasury and shares owned by
dissenting shareholders who have taken all required steps to exercise their
appraisal rights, will be converted into shares of Signature Stock. As part of
the Merger, Signature agreed to make a working capital loan to the Company up
to $4.0 million to accommodate the Company's working capital needs in lieu of
the Company otherwise continuing its capital raising activities during the due
diligence period contemplated by the Merger. The outstanding loan amount is
$3.0 million as of December 18, 1996 with an interest rate of 12 percent. The
loan will be paid from the proceeds of sale of the Tunlii, L.L.C. property and
release prices and paid from the sale of intervals at the Sedona Summit Resort
with a maturity date of not later than December 31, 1997 but can mature sooner
if, e.g., Signature validly terminates the Merger Agreement.
Separately, should the Merger fail to be consummated, the Company will grant
Signature an irrevocable option exercisable through December 31, 1998 to
acquire a number of shares of AVCOM Stock equal to 19.9 percent of the total
issued and outstanding AVCOM Stock, on a fully diluted basis, at an exercise
price of $5.00 per share. Additionally, if the Merger Agreement is terminated
by Signature under certain circumstances, the Company would be required to pay
Signature a termination fee of $1,800,000 plus certain expenses.
F-45
<PAGE>
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No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the registered
securities to which this Prospectus relates or any offer to any person in any
jurisdiction where such an offer would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof.
------------------
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 16
Use of Proceeds........................................................... 32
Concurrent Offerings...................................................... 33
Common Stock Price Range.................................................. 33
Dividend Policy........................................................... 33
Consolidated Capitalization............................................... 34
Selected Consolidated Historical Financial Information of the Company..... 35
Selected Financial Data of AVCOM International, Inc....................... 37
Pro Forma Financial Information........................................... 39
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 42
Business.................................................................. 52
The Proposed Merger....................................................... 80
Management................................................................ 85
Certain Relationships and Related Transactions............................ 93
Principal and Selling Stockholders........................................ 96
Description of Capital Stock.............................................. 99
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws................................................................... 100
Shares Eligible for Future Sale........................................... 103
Underwriting.............................................................. 105
Legal Matters............................................................. 106
Experts................................................................... 106
Available Information..................................................... 107
Index to Financial Statements............................................. F-1
</TABLE>
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4,000,000 SHARES
[LOGO OF SIGNATURE RESORTS]
SIGNATURE RESORTS, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
SCHRODER WERTHEIM & CO.
SMITH BARNEY INC.
, 1997
- --------------------------------------------------------------------------------
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<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 28, 1997
$100,000,000
[LOGO OF SIGNATURE RESORTS]
SIGNATURE RESORTS, INC.
% CONVERTIBLE SUBORDINATED NOTES DUE 2007
-----------
The Notes offered hereby (the "Convertible Offering") will be convertible
into Common Stock, $0.01 par value (the "Common Stock"), of Signature Resorts,
Inc. ("Signature" or the "Company") at any time after 60 days following the
latest date of original issuance thereof and prior to maturity, unless
previously redeemed, at a conversion price of $ per share, subject to
adjustment in certain events. See "Description of Notes--Conversion Rights" for
a description of events that may cause an adjustment to the conversion price.
The Common Stock of the Company is quoted on the Nasdaq National Market under
the symbol "SIGR." On January 27, 1997, the last reported sale price of the
Common Stock on the Nasdaq National Market was $36.125 per share. See "Common
Stock Price Range."
Interest on the Notes is payable on February and August of each year,
commencing on August , 1997. The Notes are redeemable, in whole or in part,
at the option of the Company at any time on or after February , 2000, at the
redemption prices set forth herein, plus accrued interest, if any, to the
redemption date. If a Change in Control (as defined herein) occurs, each holder
of Notes will have the right, subject to certain conditions and restrictions,
to require the Company to offer to repurchase all outstanding Notes, in whole
or in part, owned by such holder at 100% of their principal amount, plus
accrued interest, if any, to the date of repurchase. See "Description of Notes"
for a more complete description of the Indenture's provisions. The Notes are
subordinated to all existing and future Senior Indebtedness (as defined herein)
of the Company and will be effectively subordinated to all indebtedness and
other obligations of the Company's subsidiaries. At September 30, 1996, after
giving effect to the transactions described herein, including the proposed
Merger with AVCOM International Inc. described herein, the Company would have
had approximately $29.6 million of outstanding Senior Indebtedness, and the
subsidiaries of the Company would have had approximately $66.2 million of
indebtedness and other liabilities (other than indebtedness to the Company).
The Indenture governing the Notes does not restrict the ability of the Company
or its subsidiaries to incur additional indebtedness, including Senior
Indebtedness.
The Notes will be represented by a global note registered in the name of the
nominee of The Depository Trust Company ("DTC"), which will act as depositary.
Beneficial interests in the global note will be shown on, and transfers thereof
will be effected only through, records maintained by DTC and its direct and
indirect participants. Except as described herein, Notes in definitive form
will not be issued. The Notes will be issued in registered form in
denominations of $1,000 and integral multiples thereof. See "Description of
Notes--Book-Entry."
Concurrently with this Convertible Offering, the Company is offering
4,000,000 shares of Common Stock (including 2,400,000 shares for the account of
certain selling stockholders) by a separate prospectus. The consummation of the
Convertible Offering and the Common Stock Offering are not conditioned upon
each other.
SEE "RISK FACTORS" COMMENCING ON PAGE 16 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
NOTES OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public(1) Discount(2) Company(1) (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............................... 100.00%
Total(4)............................... $100,000,000 $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of initial issuance.
(2) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(3) Before deducting expenses payable by the Company, estimated at $ .
(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional $15,000,000 aggregate principal amount of Notes at the Price
to Public, less the Underwriting Discount, solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discount will total
$ , and the Proceeds to Company will total $ . See
"Underwriting."
The Notes are offered by the Underwriters when, as and if delivered to and
accepted by the Underwriters and subject to the right to reject any order in
whole or in part. It is expected that the Notes will be ready for delivery in
book-entry form only through the facilities of DTC in New York, New York on or
about , 1997 against payment thereof in immediately available funds.
-----------
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
SMITH BARNEY INC.
, 1997
<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
THE OFFERING
Securities Offered........ $100,000,000 aggregate principal amount of %
Convertible Subordinated Notes due , 2007 (the
"Notes").
Interest Payment Dates.... February and August , commencing August ,
1997.
Maturity.................. February , 2007.
Conversion Rights......... The Notes are convertible into shares of the
Company's common stock, par value $0.01 per share
(the "Common Stock"), at any time after 60 days
following the latest date of original issuance
thereof and prior to the close of business on the
last trading day prior to maturity, unless
previously redeemed, at a conversion price of $
per share, subject to adjustment under certain
circumstances as described herein (the "Conversion
Price"). Accordingly, each $1,000 principal amount
of Notes is convertible into shares of Common
Stock, subject to adjustment in certain
circumstances, initially for an aggregate of
shares. See "Capitalization."
Optional Redemption....... The Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after
February , 2000, at the redemption prices
(expressed as a percentage of principal amount)
set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption.
Repurchase at Option of
Holders Upon a Change in
Control................... Upon a Change of Control (as herein defined), the
Company will be required to offer to purchase the
Notes for cash or, at the Company's option, Common
Stock (valued at 95% of the average of the closing
prices for any five trading days during the 10
trading day period immediately following the
Change of Control or public announcement of the
Change in Control) at a repurchase price of 100%
of the principal amount thereof, plus accrued and
unpaid interest to the date of purchase.
Subordination............. The Notes will be general unsecured obligations of
the Company, subordinated in right of payment to
all existing and future Senior Indebtedness of the
Company and will be effectively subordinated to
all indebtedness and other liabilities (including
trade payables) of the Company's subsidiaries. At
September 30, 1996, as adjusted to give effect to
the proposed Merger (as herein defined) and the
issuance and sale of the Notes and the Common
Stock in the Offerings (as herein defined) and the
application of the estimated net proceeds
therefrom, the Senior Indebtedness of the Company
would have aggregated approximately $29.6 million,
and the Company's subsidiaries had approximately
$66.2 million of indebtedness and other
liabilities (other than indebtedness to the
Company). The Indenture will not restrict the
incurrence of Senior Indebtedness or other
indebtedness by the Company or any of its
subsidiaries.
Use of Proceeds........... The Company will use the net proceeds of the
Offerings (as defined below) primarily in the
following order of priority: (i) approximately
$40.4 million to retire existing indebtedness of
the Company, (ii) approximately $21.1 million to
retire existing indebtedness of AVCOM that will be
assumed by the Company in the Merger, (iii)
approximately $2.5 million to finance acquisition
costs related to the St. John Villas and (iv) the
balance to complete construction and expansion
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<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTE OFFERING]
at certain Existing Resorts and AVCOM Resorts, to
finance the acquisition and development of
additional resorts and timeshare-related assets,
to finance sales of Vacation Intervals and for
working capital and other general corporate
purposes. See "Use of Proceeds."
Listing..................... The Notes will not be listed on any securities
exchange or market.
Common Stock................ The Common Stock is quoted on the Nasdaq National
Market under the symbol "SIGR." See "Common Stock
Price Range."
Concurrent Offerings........
Concurrently with the Convertible Offering, the
Company is offering (the "Stock Offering")
4,000,000 shares of its Common Stock (including
2,400,000 shares for the account of certain
selling stockholders (the "Selling
Stockholders")) (without giving effect to the
Underwriters' over-allotment option). The
Convertible Offering and the Stock Offering (the
"Offerings") are not conditioned upon one another
and, therefore, one offering may be consummated
without the other offering being consummated. See
"Concurrent Offerings" and "Use of Proceeds."
ALT-3
<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTE OFFERING]
RISK FACTORS
[CONTINUED FROM "RISK FACTORS" IN COMMON STOCK PROSPECTUS.]
CONCURRENT OFFERINGS
Concurrently with the offering of the Notes, the Company is separately
offering up to 4,000,000 shares of its Common Stock pursuant to the Stock
Offering (including 2,400,000 shares for the account of certain selling
stockholders) (without giving effect to the Underwriters over-allotment
options). The consummation of the Convertible Offering is not conditioned upon
the consummation of the Stock Offering. There can be no assurance that the
Stock Offering will be consummated and, if so, on what terms. Because the
Company is relying, in part, on proceeds from the Stock Offering to finance the
acquisition and development of additional resorts and timeshare-related assets,
the failure to consummate the Stock Offering may have an adverse effect on the
Company's future growth and financial success and its ability to make the lower
priority expenditures described under "Use of Proceeds." See "Use of Proceeds."
ABSENCE OF PUBLIC MARKET FOR THE NOTES; POSSIBLE VOLATILITY OF PRICE
Prior to the Convertible Offering, there has been no public market for the
Notes. Certain of the Underwriters have advised the Company that they intend to
make a market in the Notes. The Underwriters are not obligated, however, to
make a market in the Notes and any such market making may be discontinued at
any time at the sole discretion of any such Underwriter without notice.
Accordingly, there can be no assurance that an active market for the Notes will
develop or be sustained after the Convertible Offering or that the market price
of the Notes will not decline. If an active market for the Notes fails to
develop or be sustained, the trading price of such Notes could be materially
adversely affected. Various factors such as changes in prevailing interest
rates or changes in perceptions of the Company's creditworthiness could cause
the market price of the Notes to fluctuate significantly. The trading price of
the Notes also could be significantly affected by the market price of the
Common Stock, which could be subject to wide fluctuations in response to a
number of factors, including quarterly variations of operating results,
investor perceptions of the Company and other timeshare companies and general
economic and market conditions. The Notes will not be listed on any securities
exchange or quoted on the Nasdaq National Market.
SUBORDINATION OF NOTES
The Notes will be unsecured subordinated obligations of the Company and not
of any of its subsidiaries and will be subordinated to the prior payment in
full of all Senior Indebtedness (as defined in the Indenture) of the Company.
The Notes will also be effectively subordinated to all indebtedness and other
liabilities (including trade payables incurred in the ordinary course of
business) of the Company's subsidiaries. In the event of bankruptcy,
liquidation, or reorganization of the Company, the assets of the Company will
be available to pay obligations on the Notes only after all Senior Indebtedness
has been paid in full, and there may not be sufficient assets to pay any
interest, premium, if any, or principal due on any or all of the Notes then
outstanding. As of September 30, 1996, after giving effect to the Offerings and
the anticipated use of proceeds thereof, and after giving effect to the
proposed Merger, the Company would have had approximately $29.6 million of
outstanding indebtedness which constituted Senior Indebtedness (excluding
Senior Indebtedness constituting liabilities of a type not required to be
reflected as a liability on the balance sheet of the Company in accordance with
generally accepted accounting principles). In addition, as of September 30,
1996, after giving effect to the Offerings and the anticipated use of proceeds
thereof, and after giving effect to the proposed Merger, subsidiaries of the
Company would have had outstanding an aggregate of approximately $66.2 million
of indebtedness and other liabilities (other than indebtedness to the Company)
to which the Notes are effectively subordinated. The Indenture will not limit
the amount of additional indebtedness, including Senior Indebtedness, which the
ALT-4
<PAGE>
Company or any of its subsidiaries can create, incur, assume or guaranty. The
incurrence of additional indebtedness and other liabilities by the Company or
its subsidiaries could adversely affect the Company's ability to pay its
obligations on the Notes. In addition, the cash flow and ability of the Company
to service debt, including the Notes, is dependent in part upon the ability of
its subsidiaries to make cash payments to the Company. Any right of the Company
and its creditors to participate in the assets of any such subsidiary will be
subject to the prior claims of the subsidiaries, creditors, including trade
creditors. No payment on account or principal, premium, if any, or interest on,
or redemption or repurchase of, the Notes may be made by the Company if (i)
there is a default in the payment of principal, premium, if any, or interest
(including a default under any repurchase or redemption obligation) with
respect to any Senior Indebtedness, or (ii) if any other event of default with
respect to any Senior Indebtedness permitting the holders thereof to accelerate
the maturity thereof shall have occurred and the Senior Indebtedness in respect
of such default has been declared due and payable in its entirety, until such a
default has been cured or waived. In addition, in the event of certain non-
payment defaults with respect to the Senior Indebtedness, where the Senior
Indebtedness has not been declared to be due and payable, no payments may be
made until such default has been cured or waived for a period of up to 179
days. Upon any acceleration of the principal due on the Notes or payment or
distribution of assets of the Company to creditors upon any dissolution,
winding-up, liquidation or reorganization, all principal, premium, if any, and
interest due on all Senior Indebtedness must be paid in full before the holders
of the Notes are entitled to receive any payment. See "Description of Notes--
Subordination."
LIMITATION ON REPURCHASE OF CONVERTIBLE NOTES UPON A CHANGE IN CONTROL
Upon a Change in Control (as defined in the Indenture), each holder of the
Notes will have certain rights, at the holder's option, to require the Company
to repurchase all or a portion of such holder's Notes. If a Change in Control
were to occur, there can be no assurance that the Company would have sufficient
financial resources, or would be able to arrange financing, to pay the
repurchase price for all Notes tendered by the holders thereof. In addition,
the Company's repurchase of Notes as a result of the occurrence of a Change in
Control may create an event of default under the Company's various credit
agreements, and could create an event of default under other future Senior
Indebtedness. The Change in Control provision may not, in some instances,
prevent a decrease in the value of the Notes in the event the Company incurs
additional leverage through certain types of recapitalizations, leveraged
buyouts, or similar transactions. The Indenture excludes from the definition of
Change in Control transactions that would otherwise constitute a Change in
Control if (i) the trading price of the Common Stock during specified periods
equals or exceeds 105% of the conversion price of the Notes or (ii) at least
90% of the consideration in the transaction consists of shares of common stock
or securities convertible into common stock that are traded on a national
securities exchange or quoted on the Nasdaq National Market and as a result of
such transaction or transactions the Notes become convertible solely into such
common stock. See "Description of Notes--Repurchase at Option of Holders Upon a
Change in Control."
ABSENCE OF FINANCIAL COVENANTS
The Indenture does not contain any financial performance covenants.
Consequently, the Company is not required under the Indenture to meet any
financial tests such as those that measure the Company's working capital,
interest coverage, fixed charge coverage, net worth, or other tests in order to
maintain compliance with the terms of the Indenture. See "Description of
Notes--Events of Default."
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<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
CONCURRENT OFFERINGS
The Convertible Offering is being conducted concurrently with, but is not
conditioned upon, the public offering by the Company of 4,000,000 shares of its
Common Stock (including 2,400,000 shares for the account of certain selling
stockholders) (without giving effect to the Underwriters' over-allotment
options), at a price to the public of $ per share. The closing sales price of
the Common Stock on the Nasdaq National Market (trading symbol "SIGR") on
January 27, 1997 was $36.125 per share. The Convertible Offering and the Stock
Offering are not conditioned upon one another and therefore one offering may be
consummated without the other offering being consummated. See "Use of
Proceeds."
This document does not constitute an offer to sell, or a solicitation of an
offer to buy, the Common Stock. The Common Stock will be registered under the
Securities Act and such securities will be offered only by means of the related
prospectus.
ALT-6
<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, to be dated as of February 1,
1997 (the "Indenture"), between the Company and Norwest Bank Minnesota,
National Association, as Trustee (the "Trustee"), a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
The following summaries of certain provisions of the Indenture do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of the Indenture, including the definitions
therein of certain terms. Reference in italics are to the Indenture. Whenever
particular Sections, Articles or defined terms of the Indenture are referred
to, such Sections, Articles or defined terms are incorporated herein by
reference. As used in this "Description of Notes," the "Company" refers to
Signature Resorts, Inc. and does not include its subsidiaries or affiliates.
GENERAL
The Notes will be unsecured convertible subordinated obligations of the
Company, will be limited to an aggregate principal amount of $100,000,000
(subject to increase in the event of the exercise of the Underwriters'
overallotment option) and will mature on February , 2007. The Notes will
bear interest at the rate per annum shown on the front cover of this
Prospectus from the date of initial issuance or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, payable
semiannually on February and August of each year, commencing on August
, 1997, to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the preceding January or July as
the case may be. Principal of, and premium, if any, and interest on the Notes
will be payable at, and the transfer of Notes will be registrable at, the
office of the Trustee currently located in Minneapolis, Minnesota. In
addition, payment of interest may, at the option of the Company, be made by
check mailed to the address of the person entitled thereto as it appears in
the Security Register. Interest will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
CONVERSION RIGHTS
The Holder of any Note will have the right, at the Holder's option, to
convert any portion of the principal amount thereof that is an integral
multiple of $1,000 into shares of Common Stock at any time after 60 days
following the latest date of original issuance thereof and prior to the close
of business on the last Business Day prior to maturity (unless earlier
redeemed or repurchased) at the conversion price set forth on the cover page
hereof (subject to adjustment as described below). The right to convert a Note
called for redemption or delivered for repurchase will terminate at the close
of business on the fifth Business Day prior to the Redemption Date or the
fifth Business Day prior to the Repurchase Date, as the case may be.
Any Note (except Notes called for redemption) surrendered for conversion
during the period from the close of business on any Regular Record Date to the
opening of business of the next succeeding Interest Payment Date must be
accompanied by payment of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of Notes being surrendered for
conversion. In the case of any Note which has been converted after any Regular
Record Date but before the next Interest Payment Date, interest, the Stated
Maturity of which is due on such Interest Payment Date, shall be payable on
such Interest Payment Date notwithstanding such conversion, and such interest
shall be paid to the Holder of such Note on such Regular Record Date. As a
result, Holders that surrender Notes for conversion on a date that is not an
Interest Payment Date will not receive any interest for the period from the
Interest Payment Date next preceding the date of conversion to the date of
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<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
conversion or for any later period, even if the Notes are surrendered after a
notice of redemption (except for the payment of interest on Notes called for
redemption on a Redemption Date between a Regular Record Date and the Interest
Payment Date to which it relates). No fractional shares will be issued upon
conversion but, in lieu thereof, an appropriate amount will be paid in cash by
the Company based on the market price of Common Stock at the close of business
on the day of conversion.
The conversion price is subject to adjustment in certain events, including:
(a) dividends (and other distributions) payable in Common Stock on shares of
capital stock of the Company, (b) the issuance to all holders of Common Stock
of rights, options or warrants entitling them to subscribe for or purchase
Common Stock at less than the then current market price (determined as
provided in the Indenture) of Common Stock as of the record date for
shareholders entitled to receive such rights, options or warrants,
(c) subdivisions, combinations and reclassifications of Common Stock, (d)
distributions to all holders of Common Stock of evidences of indebtedness of
the Company, shares of capital stock, cash or assets (including Notes, but
excluding those dividends, rights, options, warrants and distributions
referred to above, dividends and distributions paid exclusively in cash and
mergers and consolidations to which the third succeeding paragraph applies),
(e) distributions consisting exclusively of cash (excluding any cash portion
of distributions referred to in (d) above, or cash distributed upon a merger
or consolidation to which the third succeeding paragraph applies) to all
holders of Common Stock in an aggregate amount that, combined together with
(i) other such all-cash distributions made within the preceding 12 months in
respect of which no adjustment has been made, and (ii) any cash and the fair
market value of other consideration payable in respect of any tender offer by
the Company or any of its subsidiaries for Common Stock concluded within the
preceding 12 months in respect of which no adjustment has been made, exceeds
15% of the Company's market capitalization (being the product of the then
current market price of the Common Stock and the number of shares of Common
Stock then outstanding) on the record date for such distribution, and (f) the
completion of a tender offer made by the Company or any of its subsidiaries
for Common Stock which involves an aggregate consideration that, together with
(i) any cash and other consideration payable in a tender offer by the Company
or any of its subsidiaries for Common Stock expiring within the 12 months
preceding the expiration of such tender offer in respect of which no
adjustment has been made, and (ii) the aggregate amount of any such all-cash
distributions referred to in (e) above to all holders of Common Stock within
the 12 months preceding the expiration of such tender offer in respect of
which no adjustments have been made, exceeds 15% of the Company's market
capitalization on the expiration of such tender offer. The Company reserves
the right to make such reductions in the conversion price in addition to those
required in the foregoing provisions as it considers to be advisable, which
determination shall be conclusive. No adjustment of the conversion price will
be required to be made until the cumulative adjustments amount to 1.0% or more
of the conversion price as last adjusted.
Notwithstanding the foregoing, (i) if the options, rights or warrants
described in clause (b) of the preceding paragraph are exercisable only upon
the occurrence of certain triggering events, then the conversion price will
not be adjusted until such triggering events occur, and (ii) if such options,
rights or warrants expire unexercised, the conversion price will be readjusted
to take into account only the actual number of such options, rights or
warrants which were exercised. In addition, the provisions of the preceding
paragraph will not apply to the issuance of Common Stock or the issuance or
exercise of options to purchase Common Stock under any stock-based employee
compensation plan now existing or hereafter adopted.
In the event of a pro rata distribution to holders of Common Stock of rights
to subscribe for additional shares of Common Stock (other than those referred
to in clause (b) above) or of evidences of indebtedness or assets as provided
in clause (d) above, the Company may, instead of making any adjustment in the
conversion price, make proper provision so that each holder of a Note who
converts such Note (or a portion thereof) after the record date for such
distribution and prior to the expiration or redemption of such rights shall be
entitled to receive upon conversion, in addition to the shares of Common Stock
issuable upon conversion, an appropriate number of such rights, evidences of
indebtedness or assets, as the case may be, as if such holders had converted
the Notes immediately before the record date for any such distribution.
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In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all
or substantially all of the assets of the Company, each Note then outstanding
will, without the consent of any Holder of any such Note, become convertible
only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of
the number of shares of Common Stock into which such Note was convertible
immediately prior thereto (assuming such holder of Common Stock failed to
exercise any rights of election and received per share the kind and amount
received per share by a plurality of non-electing shares and assuming that
such Note was then convertible).
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness
or assets of the Company, but generally not stock dividends on Common Stock or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the number of shares into which Notes are
convertible is increased, such increase may be deemed for federal income tax
purposes to be the payment of a taxable dividend to Holders of Notes. Holders
of Notes could, therefore, have taxable income as a result of an event
pursuant to which they receive no cash or property that could be used to pay
the related income tax. See "Certain Federal Income Tax Considerations."
SUBORDINATION
The payment of the principal of, premium, if any, and interest on (including
any amounts payable upon the redemption or repurchase of the Notes permitted
by the Indenture), the Notes will be subordinated in right of payment, to the
extent set forth in the Indenture, to the prior payment in full of the
principal of (and premium, if any), interest on and other amounts in respect
of all Senior Indebtedness of the Company. "Senior Indebtedness" includes (a)
all indebtedness of the Company, including the principal of and premium, if
any, and interest on such indebtedness (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding,
whether or not a claim for post-petition interest is allowable as a claim in
such proceeding) and all fees and other amounts payable in connection with,
the following, whether absolute or contingent, secured or unsecured, due or to
become due, outstanding on the date of the Indenture or thereafter created,
incurred or assumed: (i) indebtedness of the Company, other than the Notes,
(including obligations of the Company arising from its guarantee of the
indebtedness of others) to banks, insurance companies and other financial
institutions evidenced by credit or loan agreements, notes or other written
obligations, (ii) all other indebtedness of the Company (including obligations
of the Company arising from its guarantee of the indebtedness of others) other
than the Notes, whether outstanding on the date of the Indenture or thereafter
created, incurred or assumed, which is (1) for money borrowed, or (2)
evidenced by a note, security, debenture, bond or similar instrument or
guarantee thereof, (iii) obligations of the Company as lessee under leases
required to be capitalized on the balance sheet of the lessee under generally
accepted accounting principles or in respect of any lease or related document
(including a purchase agreement) which provides that the Company is
contractually obligated to purchase or cause a third party to purchase the
leased property and thereby effectively guarantees a minimum residual value of
the leased property to the landlord and the obligations of the Company under
such lease or related document to purchase or cause a third party to purchase
such leased property, (iv) obligations of the Company under interest rate and
currency swaps, caps, floors, collars or similar agreements or arrangements,
(v) all obligations of the Company issued or assumed as the deferred purchase
price of property (but excluding any portion thereof constituting trade
accounts payable arising in the ordinary course of business), (vi) all
obligations of the Company for the reimbursement of any letters of credit (1)
to the extent the obligations underlying such letters of credit are Senior
Indebtedness under clauses (i) through (iv) above or (2) that secure the
Company's obligations to clearing institutions arising out of its merchant
processing business to the extent such obligations are incurred in the
ordinary course of business in amounts consistent with the Company's past
practices, and (vii) renewals, extensions, modifications, restatements and
refundings of, and any amendments,
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modifications or supplements to, or any indebtedness or obligation issued in
exchange for, any such indebtedness or obligation described in clauses (i)
through (vi) of this paragraph; provided, however, that Senior Indebtedness
shall not include (A) indebtedness to a Subsidiary or other Affiliate of the
Company, (B) any such indebtedness or obligation if the terms of such
indebtedness or obligation (or the terms of the instrument under which, or
pursuant to which, it is issued) expressly provided that such indebtedness or
obligation shall not be senior in right of payment to the Notes, and (C)
accounts payable of the Company to trade creditors. "Designated Senior
Indebtedness" means any particular Senior Indebtedness in which the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Senior Indebtedness shall be "Designated Senior
Indebtedness" for purposes of the Indenture (provided that such instrument,
agreement or other document may place limitations and conditions on the right
of such Senior Indebtedness to exercise the rights of Designated Senior
Indebtedness).
Upon any acceleration of the principal due on the Notes or payment or
distribution of assets of the Company to creditors upon any dissolution,
winding up, liquidation or reorganization, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other similar proceedings of the
Company, all principal, premium, if any, and interest or other amounts due on
all Senior Indebtedness must be paid in full before the Holders of the Notes
are entitled to receive any payment (other than in Junior Securities). The
Indenture will further require that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default. The Company also may not make any payment upon or in respect of the
Notes (other than in Junior Securities) if (i) a default in the payment of the
principal of, premium, if any, interest or other amounts due on any Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate the maturity thereof and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from
any lender of Designated Senior indebtedness (or agent bank on behalf of such
lender) or other person permitted to give such notice under the Indenture.
Payments on the Notes may and shall be resumed (a) in the case of a payment
default or a non-payment default pursuant to which the Senior Indebtedness has
been declared due and payable in its entirety, upon the date on which such
default is cured or waived in accordance with the agreements evidencing such
Senior Indebtedness, and (b) in case of a nonpayment default, the earlier of
the date on which such nonpayment default is cured or waived in accordance with
the agreements evidencing such Senior Indebtedness or 179 days after the date
on which the applicable Payment Blockage Notice is received. No new period of
payment blockage may be commenced unless and until (i) 365 days have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice, and
(ii) all scheduled payments of principal, premium, if any, and interest on the
Notes that have come due have been paid in full in cash. No nonpayment default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice. "Junior Securities" of any person means any Qualified Capital
Stock and any indebtedness of such person that is subordinated in right of
payment to the Notes and has no scheduled installment of principal due, by
redemption, sinking fund payment or otherwise, on or prior to the Stated
Maturity of the Notes.
As a result of the foregoing subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its Subsidiaries or a marshaling of assets or liabilities of the Company
and its subsidiaries, creditors of the Company who are holders of Senior
Indebtedness are likely to recover more, ratably, than the Holders of the
Notes. Furthermore, the subordination of the Notes may, upon the occurrence of
one or more of the circumstances described in the preceding sentence, result in
a reduction or elimination of payments to the Holders of the Notes.
The Indenture does not limit the Company's ability to incur Senior
Indebtedness or any other indebtedness or the ability of any subsidiary of the
Company to incur any indebtedness or other liabilities.
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As of September 30, 1996, after giving effect to the Offerings and the
anticipated use of proceeds thereof, and after giving effect to the proposed
Merger, the principal amount of outstanding Senior Indebtedness was
approximately $29.6 million (excluding Senior Indebtedness constituting
liabilities of a type not required to be reflected as a liability on the
balance sheet of the Company in accordance with generally accepted accounting
principles, such as contingent obligations, forward foreign exchange contracts
and interest rate swap agreements, which are senior to the Notes).
The Company conducts certain of its operations through its Subsidiaries.
Accordingly, the Company's ability to meet its cash obligations is dependent
upon the ability of its Subsidiaries to make cash distributions to the
Company. The ability of its Subsidiaries to make distributions to the Company
is and will continue to be restricted by, among other limitations, applicable
legal requirements and contractual provisions. The Indenture will not limit
the ability of the Company's Subsidiaries to incur such restrictions in the
future. The right of the Company to participate in the assets of any
Subsidiary (and thus the ability of Holders of the Notes to benefit indirectly
from such assets) is generally subject to the prior claims of creditors,
including trade creditors, of that Subsidiary except to the extent that the
Company is recognized as a creditor of such Subsidiary, in which case the
Company's claims would still be subject to any security interest of other
creditors of such Subsidiary. The Notes, therefore, will be structurally
subordinated to creditors, including trade creditors, of Subsidiaries of the
Company with respect to the assets of the Subsidiaries against which such
creditors have a claim.
As of September 30, 1996, after giving effect to the Offerings and the
anticipated use of proceeds thereof, and after giving effect to the proposed
Merger, there was outstanding approximately $66.2 million of indebtedness and
other liabilities of Subsidiaries of the Company (excluding (i) intercompany
liabilities, (ii) indebtedness included in Senior Indebtedness because it is
guaranteed directly or indirectly by the Company, and (iii) liabilities of a
type not required to be reflected as a liability on the balance sheet of such
Subsidiaries in accordance with generally accepted accounting principles), as
to which the Notes would have been structurally subordinated.
OPTIONAL REDEMPTION
The Notes may not be redeemed at the option of the Company prior to February
, 2000. Thereafter, the Notes may be redeemed, in whole or in part, at the
option of the Company, upon not less than 30 nor more than 60 days' notice by
mail.
The Redemption Prices (expressed as a percentage of principal amount), and
in each case plus accrued and unpaid interest to the date of redemption, and
subject to the rights of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date, are as follows for the
12-month period (unless otherwise noted) beginning on February of the
following years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000........................................................... %
2001........................................................... %
2002........................................................... %
2003........................................................... %
2004........................................................... %
2005........................................................... %
2006 and thereafter............................................ 100.00%
</TABLE>
If less than all of the Notes are to be redeemed, the Trustee will select
the particular Notes (or the portions thereof) to be redeemed either by lot,
pro rata or by such other method as the Trustee shall deem fair or
appropriate.
No sinking fund is provided for the Notes.
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REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a Change in Control (as defined) occurs, each Holder of Notes shall have
the right, at the Holder's option, to require the Company to repurchase all of
such Holder's Notes, or any portion thereof that is an integral multiple of
$1,000, on the date (the "Repurchase Date") that is 45 days after the date of
the Company Notice (as defined), at a price equal to 100% of the principal
amount of the Notes to be repurchased (the "Repurchase Price"), together with
accrued interest to the Repurchase Date.
The Company may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock valued at 95% of the average of
the last reported sale price of the Common Stock for the five consecutive
trading days ending on and including the third trading day preceding the
Repurchase Date; provided that payment may not be made in Common Stock of the
Company unless the Company satisfies certain conditions with respect to such
payment as provided in the Indenture.
Within 30 days after the occurrence of a Change in Control, the Company is
obligated to mail to all Holders of record of the Notes a notice (the "Company
Notice") of the occurrence of such Change in Control and of the repurchase
right arising as a result thereof. The Company must also deliver a copy of the
Company Notice to the Trustee. To exercise the repurchase right, a Holder of
Notes must deliver on or before the 30th day after the date of the Company
Notice irrevocable written notice to the Trustee of the Holder's exercise of
such right, together with the Notes with respect to which the right is being
exercised, duly endorsed for transfer to the Company.
A Change in Control shall be deemed to have occurred at such time after the
original issuance of the Notes as there shall occur:
(i) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors (other than any such
acquisition by the Company, any Subsidiary of the Company or any employee
benefit plan of the Company); or
(ii) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or
any conveyance, sale, transfer or lease, in one transaction or a series of
related transactions, of all or substantially all of the assets (other than
to a wholly owned subsidiary of the Company) of the Company to any other
Person (other than (a) any such transaction pursuant to which the holders
of 50% or more of the total voting power of all shares of capital stock of
the Company entitled to vote generally in elections of directors
immediately prior to such transaction have, directly or indirectly, at
least 50% or more of the total voting power of all shares of capital stock
of the continuing or surviving corporation entitled to vote generally in
elections of directors of the continuing or surviving corporation
immediately after such transaction and (b) a merger (x) which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock, or (y) which is effected solely to
change the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock into solely shares of common stock); or
(iii) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the 12-month period immediately preceding such change
(together with any other director whose election by the Board of Directors
of the Company or whose nomination for election by the stockholders of the
Company was approved by a vote of at least a majority
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of the directors then in office either who were directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the directors
then in office;
provided, however, that a Change in Control shall not be deemed to have
occurred if either (i) the closing price per share of the Common Stock for any
five trading days within the period of ten consecutive trading days ending
immediately after the later of the Change in Control or the public announcement
of the Change in Control (in the case of a Change in Control under clause (i)
above) or ending immediately before the Change in Control (in the case of a
Change in Control under clause (ii) above) shall equal or exceed 105% of the
conversion price of the Notes in effect on each such trading day, or (ii) at
least 90% of the consideration (excluding cash payments for fractional shares)
in the transaction or transactions constituting the Change in Control consists
of shares of common stock or securities convertible into common stock that are
traded on a national securities exchange or quoted on the Nasdaq National
Market (or which will be so traded or quoted when issued or exchanged in
connection with such change in control) and as a result of such transaction or
transactions the Notes become convertible solely into such common stock.
"Beneficial owner" shall be determined in accordance with Rule 13d-3
promulgated by the Commission under the Exchange Act, as in effect on the date
of execution of the Indenture.
The right to require the Company to repurchase Notes as a result of the
occurrence of a Change in Control would create an event of default under the
Company's existing Senior Indebtedness and could create an event of default
under future Senior Indebtedness of the Company. As a result, any repurchase
would, absent a waiver, be blocked by the subordination provisions of the
Notes. See "Subordination." Failure by the Company to repurchase the Notes when
required would result in an Event of Default with respect to the Notes whether
or not such repurchase is permitted by the subordination provisions. See
"Events of Default."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time and with Rule 14e-1 and all other applicable federal and state
securities laws in connection with such repurchase option.
The right to require the Company to repurchase Notes as a result of a Change
of Control could have the effect of delaying, deferring or preventing a Change
of Control or other attempts to acquire control of the Company unless
arrangements have been made to enable the Company to repurchase all the Notes
at the Repurchase Date. Consequently, this right may render more difficult or
discourage a merger, consolidation or tender offer (even if such transaction is
supported by the Company's Board of Directors or is favorable to the
stockholders), the assumption of control by a holder of a large block of the
Company's shares and the removal of incumbent management.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged transaction, reorganization,
restructuring, merger, spin-off or similar transaction involving the Company
that may adversely affect Holders.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other Person or
transfer or lease all or substantially all of its properties and assets to any
Person unless (a) the Person formed by such consolidation or into which the
Company is merged or the Person to which the properties and assets of the
Company are so transferred or leased, (i) shall be a corporation, partnership
or trust organized and existing under the laws of the United States, any State
thereof or the District of Columbia and (ii) shall expressly assume the payment
of the principal of (and premium, if any) and interest on the Notes and the
performance of the other covenants of the Company under the Indenture, and (b)
immediately after giving effect to such transaction, no Event of Default,
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and no event which, after notice or lapse of time or both, would become an
Event of Default, shall have occurred and be continuing.
Upon any consolidation, merger of, or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, the
successor corporation formed by such consolidation or into which the Company is
merged or to which such transfer is made, shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under the Indenture
with the same effect as if such successor corporation had been named therein as
the Company, and the Company will be released from its obligations under the
Indenture and the Notes.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal or premium, if any, on any Note when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest on any Note when due, continuing for 30 days,
whether or not such payment is prohibited by the subordination provisions of
the Indenture; (c) default in the Company's obligation to provide a Company
Notice of Change in Control, (d) failure to perform any other covenant of the
Company in the Indenture, continuing for 60 days after written notice as
provided in the Indenture; (e) failure of the Company or any Significant
Subsidiary to make payment in respect of indebtedness, which term as used in
the Indenture means obligations (other than Non-Recourse Debt) of, or
guaranteed or assumed by, the Company or any subsidiary for borrowed money
("Indebtedness"), in an amount in excess of $15 million and continuance of such
failure for at least 90 days; (f) default by the Company or any Significant
Subsidiary with respect to any Indebtedness, which default results in the
acceleration of Indebtedness in an amount in excess of $15 million without such
Indebtedness having been discharged or such acceleration having been cured,
waived, rescinded or annulled within 90 days of such acceleration; (g) a final
judgment or judgments for payment of money against the Company or any
Significant Subsidiary which remains undischarged for a period ending on the
later of (i) 60 days after the entry of such judgment, as extended by any
effective stay of its execution; or (ii) the date on which any payment is or
becomes due and payable pursuant to such judgment in accordance with its terms,
other than final judgments with respect to Non-recourse Debt of the Company or
any of its Significant Subsidiaries provided that the aggregate of all such
outstanding judgments exceeds $15 million (excluding any amounts covered by
insurance as to which the insurer has not denied liability); and (h) certain
events in bankruptcy, insolvency or reorganization with respect to the Company
or any of its Significant Subsidiaries. Subject to the provisions of the
Indenture relating to the duties of the Trustee in case an Event of Default
shall occur and be continuing, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Trustee, the Holders of a majority in aggregate
principal amount of the Outstanding Notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee.
"Subsidiary," with respect to any person, means a corporation a majority of
whose Capital Stock with voting power normally entitled to vote in the election
of directors is at the time, directly or indirectly, owned by such person, by
such person and one or more Subsidiaries of such person, or by one or more
Subsidiaries of such person. "Significant Subsidiary" means any Subsidiary
which is a "significant subsidiary" of the Company within the meaning of Rule
1.02(w) of Regulation S-X promulgated by the SEC as in effect as of the date of
the Indenture. "Non-recourse Debt" means indebtedness of a person to the extent
that under the terms thereof and pursuant to applicable law, no personal
recourse could be had against such person for the payment of the principal of
or interest or premium or any other amounts with respect to such indebtedness
or for any claim based on such indebtedness and that enforcement of obligations
on such indebtedness is limited solely to recourse against interests in
specified assets.
If an Event of Default (other than an event of default specified in
subsection (h) above) shall occur and be continuing, either the Trustee or the
Holders of at least 25% in principal amount of the Outstanding Notes may
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accelerate the maturity of all Notes; provided, however, that after such
acceleration, the Holders of a majority in aggregate principal amount of
Outstanding Notes may, under certain circumstances, rescind and annul such
acceleration after all Events of Default, other than the non-payment of
accelerated principal and interest, have been cured or waived as provided in
the Indenture. If an Event of Default specified in subsection (h) occurs and
is continuing, the principal and any accrued interest on all of the then
Outstanding Notes shall ipso facto become due and payable immediately without
any declaration or other act on the part of the Trustee or any Holder. For
information as to waiver of defaults, see "Modification and Waiver."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless also the Holders of at least 25% in aggregate
principal amount of the Outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a
majority in aggregate principal amount of the Outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of a Note for the enforcement of payment of the
principal of and premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note or of the right to
convert such Note in accordance with the Indenture.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of, or the premium or interest on, any Note, (c) reduce the
amount payable upon an optional redemption or the consideration payable to any
Holder converting after a notice of redemption has been given, (d) modify the
provisions with respect to the repurchase right of the Holders in a manner
adverse to the Holders, (e) change the place or currency of payment of
principal of, or premium or interest on, any Note, (f) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Note, (g) adversely affect the right to convert the Notes, (h) modify the
subordination provisions in a manner adverse to the Holders of the Notes, (i)
reduce the above-stated percentage of Outstanding Notes necessary to modify or
amend the Indenture, or (j) reduce the percentage of aggregate principal
amount of Outstanding Notes necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults.
The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions
of the Indenture. The Holders of a majority in aggregate principal amount of
the Outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal, premium or interest.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain Outstanding if (i) all Outstanding Notes will become due and payable at
their scheduled maturity within one year, (ii) or all Outstanding Notes are
scheduled for redemption within one year, or (iii) all Outstanding Notes are
delivered to the Trustee for conversion in accordance with the Indenture, and,
in the case of clause (i) or (ii), the Company has deposited with the Trustee
an amount sufficient to pay and discharge all Outstanding Notes on the date of
their scheduled maturity or the scheduled date of redemption.
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GOVERNING LAW
The Indenture and the Notes provide that they are to be governed in
accordance with the laws of the State of New York.
THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee, in
the event it becomes a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; provided, however, that if it acquires any conflicting
interest (as defined), it must eliminate such conflict or resign.
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Notes, unless they shall have offered to the Trustee reasonable security or
indemnity.
BOOK-ENTRY
The Notes will be issued in the form of a global note or notes (together,
the "Global Note") deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of Cede & Co. as DTC's nominee.
Owners of beneficial interests in the Notes represented by the Global Note
will hold such interests pursuant to the procedures and practices of DTC and
must exercise any rights in respect of their interests (including any right to
convert or require repurchase of their interests) in accordance with those
procedures and practices. Such beneficial owners will not be Holders, and will
not be entitled to any rights under the Global Note or the Indenture, with
respect to the Global Note and the Company and the Trustee, and any of their
respective agents, may treat DTC as the sole Holder and owner of the Global
Note.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds securities that its
participants deposit with DTC. DTC also facilitates the settlement among
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers (including Montgomery Securities), banks, trust companies, clearing
corporations, and certain other organizations. DTC is owned by a number of its
direct participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or maintain
a custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to DTC and its participants are on file with
the Securities and Exchange Commission.
Unless and until they are exchanged in whole or in part for certificated
Notes in definitive form as set forth below, the Global Note may not be
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of
DTC to DTC or another nominee of DTC.
The Notes represented by the Global Note will not be exchangeable for
certificated Notes, provided that if (i) DTC is at any time unwilling, unable
or ineligible to continue as depositary or (ii) there shall have occurred
ALT-16
<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
and be continuing an Event of Default with respect to the Notes represented by
the Global Note, the Company will issue individual Notes in definitive form in
exchange for the Global Note. In addition, the Company may at any time and in
its sole discretion determine not to have a Global Note, and, in such event,
will issue individual Notes in definitive form in exchange for the Global Note
previously representing all such Notes. In such instances, an owner of a
beneficial interest in a Global Note will be entitled to physical delivery of
Notes in definitive form equal in principal amount to such beneficial interest
and to have such Notes registered in its name. Individual Notes so issued in
definitive form will be issued in denominations of $1,000 and any larger
amount that is an integral multiple of $1,000 and will be issued in registered
form only, without coupons.
Payments of principal of and interest on the Notes will be made by the
Company through the Trustee to DTC or its nominee, as the case may be, as the
registered owner of the Global Note. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Global
Note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that DTC, upon receipt of
any payment of principal or interest in respect of the Global Note, will
credit the accounts of the related participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global Note as shown on the records of DTC. The Company also
expects that payments by participants to owners of beneficial interests in the
Global Note will be governed by standing customer instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participants.
So long as the Notes are represented by a Global Note, DTC or its nominee
will be the only entity that can exercise a right to repayment pursuant to the
Holder's option to elect repayment of its Notes or the right of conversion of
the Notes. Notice by participants or by owners of beneficial interests in a
Global Note held through such participants of the exercise of the option to
elect repayment, or the right of conversion, of beneficial interests in Notes
represented by the Global Note must be transmitted to DTC in accordance with
its procedures on a form required by DTC and provided to participants. In
order to ensure that DTC's nominee will timely exercise a right to repayment,
or the right of conversion, with respect to a particular Note, the beneficial
owner of such Notes must instruct the broker or other participant through
which it holds an interest in such Notes to notify DTC of its desire to
exercise a right to repayment, or the right of conversion. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
participant through which it holds an interest in a Note in order to ascertain
the cut-off time by which such an instruction must be given in order for
timely notice to be delivered to DTC. The Company will not be liable for any
delay in delivery of such notice to DTC.
NO PERSONAL LIABILITY OF SHAREHOLDERS, OFFICERS, DIRECTORS
No shareholder, officer or director, as such, past, present or future of the
Company or any successor corporation shall have any personal liability in
respect of the obligations of the Company under the Indenture or the Notes by
reason of his or its status as such shareholder, officer or director.
ALT-17
<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations. This discussion does not purport to deal
with all aspects of federal income taxation that may be relevant to a
particular investor's decision to purchase the Notes, and it is not intended
to be wholly applicable to all categories of investors, some of which, such as
dealers in securities, banks, insurance companies, tax-exempt organizations
and non-United States persons, may be subject to special rules. In addition,
this discussion is limited to persons that purchase the Notes in the Offering
and hold the Notes as a "capital asset" within the meaning of Section 1221 of
the Code.
PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK.
CONVERSION OF NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for federal income tax
purposes on a conversion of the Notes into shares of Common Stock. However,
cash paid in lieu of a fractional share of Common Stock will result in taxable
gain (or loss), which will be capital gain (or loss) to the extent that the
amount of such cash exceeds (or is exceeded by) the portion of the adjusted
basis of the Note allocable to such fractional share. The adjusted basis of
shares of Common Stock received on conversion will equal the adjusted basis of
the Note converted, reduced by the portion of adjusted basis allocated to any
fractional share of Common Stock exchanged for cash. The holding period of an
investor in the Common Stock received on conversion will include the period
during which the converted Notes were held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes--Conversion Rights." Section 305 of
the Code and the Treasury Regulations issued thereunder may treat the holders
of the Notes as having received a constructive distribution, resulting in
ordinary income to the extent of the Company's current earnings and profits if
and to the extent that certain adjustments in the conversion price that may
occur in limited circumstances (particularly an adjustment to reflect a
taxable dividend to holders of Common Stock) increase the proportionate
interest of a holder of Notes in the fully diluted Common Stock, whether or
not such holder ever exercises its conversion privilege. Moreover, if there is
not a full adjustment to the conversion price of the Notes to reflect a stock
dividend or other event increasing the proportionate interest of the holders
of outstanding Common Stock in the assets or earnings and profits of the
Company, then such increase in the proportionate interest of the holders of
the Common Stock generally will be treated as a distribution to such holders,
taxable as ordinary income to the extent of the Company earnings and profits.
MARKET DISCOUNT
Investors acquiring Notes pursuant to this Prospectus should note that the
resale of those Notes may be adversely affected by the market discount
provisions of sections 1276 through 1278 of the Code. Under the market
discount rules, if a holder of a Note purchases it at market discount (i.e.,
at a price below its stated redemption price at maturity) in excess of a
statutorily-defined de minimis amount and thereafter recognizes gain upon a
disposition or retirement of the Note, then the lesser of the gain recognized
or the portion of the market discount that accrued on a ratable basis (or, if
elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount
on a Note may be taxable to an investor to the extent of appreciation at the
time of certain otherwise non-taxable transactions (e.g., gifts). Any
ALT-18
<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
accrued market discount not previously taken into income prior to a conversion
of a Note, however, should (under Treasury Regulations not yet issued) carry
over to the Common Stock received on conversion and be treated as ordinary
income upon a subsequent disposition of such Common Stock to the extent of any
gain recognized on such disposition. In addition, absent an election to
include market discount in income as it accrues, a holder of a market discount
debt instrument may be required to defer a portion of any interest expense
that otherwise may be deductible on any indebtedness incurred or maintained to
purchase or carry such debt instrument until the holder disposes of the debt
instrument in a taxable transaction.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Each holder of Notes generally will recognize gain or loss upon the sale,
exchange, redemption, repurchase, retirement, or other disposition of those
Notes measured by the difference (if any) between (i) the amount of cash and
the fair market value of any property received (except to the extent that such
cash or other property is attributable to the payment of accrued interest not
previously included in income, which amount will be taxable as ordinary
income) and (ii) the holder's adjusted tax basis in those Notes (including any
market discount previously included in income by the holder). Each holder of
Common Stock into which the Notes are converted, in general, will recognize
gain or loss upon the sale, exchange, or other disposition of the Common Stock
measured under rules similar to those described in the preceding sentence for
the Notes. Any such gain or loss recognized on the sale, exchange, repurchase,
retirement, or other disposition of a Note or share of Common Stock should be
capital gain or loss (except as discussed under "--Market Discount" above),
and would be long-term capital gain or loss if the Note or the Common Stock
had been held for more than one year at the time of the sale or exchange. An
investor's initial basis in a Note will be the cash price paid therefor.
BACKUP WITHHOLDING
A holder of Notes or Common Stock may be subject to "back-up withholding" at
a rate of 31% with respect to certain "reportable payments," including
interest payments, dividend payments and, under certain circumstances,
principal payments on the Notes. These backup withholding rules apply if the
holder, among other things, (i) fails to furnish a social security number or
other taxpayer identification number ("TIN") certified under penalties of
perjury within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) fails to report properly interest or dividends, or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalties of perjury, that the TIN furnished is the correct number and
that such holder is not subject to backup withholding. A holder who does not
provide the Company with its correct TIN also may be subject to penalties
imposed by the IRS. Any amount withheld from a payment to a holder under the
backup withholding rules is creditable against the holder's federal income tax
liability, provided the required information is furnished to the IRS. Backup
withholding will not apply, however, with respect to payments made to certain
holders, including corporations, tax-exempt organizations and certain foreign
persons, provided their exemption from backup withholding is properly
established.
The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
ALT-19
<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities
Corporation and Smith Barney Inc. (the "Representatives"), have severally
agreed, subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") by and among the Company and the Underwriters to
purchase from the Company the principal amount of Notes indicated below
opposite their respective names, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the Notes if they purchase any.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
- ----------- ------------
<S> <C>
Montgomery Securities.............................................
Goldman, Sachs & Co. .............................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
Smith Barney Inc. ................................................
------------
Total..................................................... $100,000,000
============
</TABLE>
The Underwriters, through the Representatives, have advised the Company that
the Underwriters propose initially to offer the Notes to the public at the
public offering price set forth on the cover page of this Prospectus. The
Underwriters may allow selected dealers a concession of not more than % of
the principal amount thereof; the Underwriters may allow, and such dealers may
reallow, a concession of not more than % to certain other dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Representatives.
The Company has granted the option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional $15 million aggregate principal amount of the Notes to cover over-
allotments, if any, at the initial offering price less the underwriting
discount. To the extent that the Underwriters exercise this option, the
Underwriters will be committed, subject to certain conditions, to purchase
such additional amount in approximately the same proportion as set forth in
the above table. The Underwriters may purchase such amount only to cover over-
allotments made in connection with the Convertible Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
An affiliate of Goldman, Sachs & Co. is a major shareholder in Westin. The
Company and Westin have entered into the Westin Agreement. See "Business--
Westin Vacation Club Resorts." Pursuant to the Westin Agreement, Westin has
certain rights to designate a member of the Company's Board of Directors.
Montgomery Securities has provided certain investment banking services to
the Company, including rendering a fairness opinion in connection with the
Merger, for which the Company has agreed to pay usual and customary fees upon
the closing of the Merger.
Each stockholder who received shares of Common Stock as a result of the
Consolidation Transactions has agreed, with certain exceptions, not to offer,
sell, contract to sell or otherwise dispose of any Common Stock, or any
securities convertible into, or exchangeable for shares of Common Stock, for a
period of 180 days (one year with respect to the Founders) after the closing
of the Initial Public Offering, which occurred on August 20, 1996 (which
consent has been granted to the Selling Stockholders in the Stock Offering) ,
and 90 days after the closing
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<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTES PROSPECTUS]
of the Stock Offering without the prior written consent of Montgomery
Securities; one of such exceptions allows the Founders to pledge between $30
million and $50 million of their Common Stock to secure a margin loan in a
maximum amount of $10 million and another exception allows the Founders to
pledge approximately $5.8 million of their Common Stock in connection with
their buyout of a former partner.
The Company and those officers and directors of the Company that are not a
party to the Registration Rights Agreement have also agreed that, except under
certain circumstances, for a period of 90 days after the date of this
Prospectus, they will not, without the written consent of Montgomery
Securities, issue, sell or dispose of any shares of Common Stock or any shares
convertible or exchangeable into any shares of Common Stock.
The Notes are a new issue of securities for which there is currently no
public market. Certain of the Underwriters have advised the Company that they
intend to make a market in the Notes, however, they are not obligated to make
a market in the Notes. If such market making is undertaken it may be
discontinued at any time.
LEGAL MATTERS
Certain legal matters relating to the issuance and sale of the Notes will be
passed upon for the Company by Latham & Watkins, Los Angeles, California, and,
with respect to certain matters of Maryland law, by Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland. Certain legal matters relating to the validity
of the Common Stock issuable upon conversion of the Notes will be passed upon
for the Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland.
Certain matters of California real estate and timeshare law will be passed
upon for the Company by Paul, Hastings, Janofsky & Walker, LLP, Los Angeles,
California and certain matters of Florida real estate and timeshare law will
be passed upon for the Company by Schreeder, Wheeler & Flint, LLP, Atlanta,
Georgia. Certain partners of Paul, Hastings, Janofsky & Walker, LLP, members
of their families and related persons own approximately 1% of the Common Stock
of the Company prior to the Stock Offering and certain partners of Schreeder,
Wheeler & Flint, LLP own less than 1% of the Common Stock of the Company.
Certain matters will be passed upon for the Underwriters by O'Melveny & Myers
LLP, San Francisco, California in reliance, as to matters of Maryland law, on
the opinion of Ballard Spahr Andrews & Ingersoll.
EXPERTS
The consolidated financial statements of Signature Resorts, Inc. and
subsidiaries as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said reports.
The consolidated financial statements of AVCOM International, Inc. and
subsidiaries as of December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, appearing in this Prospectus and the
related Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
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<PAGE>
[ALTERNATE PAGE FOR CONVERTIBLE NOTE PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the registered
securities to which this Prospectus relates or any offer to any person in any
jurisdiction where such an offer would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................
Risk Factors..............................................................
Use of Proceeds...........................................................
Concurrent Offerings......................................................
Common Stock Price Range..................................................
Dividend Policy...........................................................
Consolidated Capitalization...............................................
Selected Consolidated Historical Financial Information of the Company.....
Selected Financial Data of AVCOM International, Inc.......................
Pro Forma Financial Information...........................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations...............................................................
Business..................................................................
The Proposed Merger.......................................................
Management................................................................
Certain Relationships and Related Transactions............................
Principal and Selling Stockholders........................................
Description of Capital Stock..............................................
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws...................................................................
Shares Eligible for Future Sale...........................................
Description of Notes......................................................
Certain Federal Income Tax Considerations.................................
Underwriting..............................................................
Legal Matters.............................................................
Experts...................................................................
Additional Information....................................................
Index to Financial Statements.............................................
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$100,000,000
[LOGO OF SIGNATURE RESORTS]
SIGNATURE RESORTS, INC.
% CONVERTIBLE SUBORDINATED NOTES
DUE 2007
---------------
PROSPECTUS
---------------
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, in connection with the sale and
distribution of the shares of Common Stock being registered hereby.
<TABLE>
<S> <C>
Commission Registration Fee................................... $ 83,508
NASD filing fee............................................... 32,715
Accounting fees and expenses.................................. 500,000
Blue Sky fees and expenses.................................... 10,000
Legal fees and expenses....................................... 950,000
Printing and engraving expenses............................... 350,000
Transfer Agent fees........................................... 5,000
Trustee fees and expenses..................................... 15,000
Rating Agency and Nasdaq listing fees......................... 50,000
Prospectus liability insurance................................ 300,000
Other outside consultants..................................... 100,000
Internal/Road Show expenses................................... 220,000
Miscellaneous and other expenses.............................. 183,777
----------
TOTAL....................................................... $2,800,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Maryland corporation. Section 2-418 of the Maryland General
Corporation Law empowers the Company to indemnify, subject to the standards
set forth therein, any person who is a party in any action in connection with
any action, suit or proceeding brought or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company, or
is or was serving as such with respect to another entity at the request of
such company. The Maryland General Corporation Law also provides that the
Company may purchase insurance on behalf of any such director, officer,
employee or agent.
The Company's Charter and Bylaws provide in effect for the indemnification
by the Company of each director and officer of the Company to the fullest
extent permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Consolidation Transactions in June 1996, investors in
the Property Partnerships and the Affiliated Entities agreed to contribute
their interests in such entities to the Company in return for the issuance of
11,354,705 shares of the Company's common stock, $.01 par value. Such
securities were issued by the Company in reliance upon an exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Unless otherwise indicated, all exhibits have been previously filed.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement (Common Stock) among Signature Resorts,
Inc., the Selling Stockholders and Montgomery Securities, Goldman,
Sachs & Co., Schroder Wertheim & Co. and Smith Barney, Inc. dated as
of , 1997
*1.2 Form of Underwriting Agreement (Convertible Notes) among Signature
Resorts, Inc., Montgomery Securities, Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney,
Inc. dated as of , 1997
2. Plan and Agreement of Merger as amended (by reference to Exhibit 2 to
Registrant's Registration Statement on Form S-4 (No. 333-16339))
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Charter of Signature Resorts, Inc. (incorporated by reference to
Exhibit 3.1 to Registrant's Registration Statement on Form S-1 (No.
333-06027))
3.2 Bylaws of Signature Resorts, Inc. (incorporated by reference to
Exhibit 3.2 to Registrant's Registration Statement on Form S-1 (No.
333-06027))
*4 Form of Indenture by and between the Company and Norwest Bank
Minnesota, National Association, as trustee, for the %
Convertible Subordinated Notes of the Company due 2007.
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of
the Common Stock being registered (including consent)
*5.2 Opinion of Latham & Watkins regarding the validity of the Convertible
Subordinated Notes being registered (including consent)
10.1 Form of Registration Rights Agreement among Signature Resorts, Inc.
and the persons named therein (incorporated by reference to Exhibit
10.1 to Registrant's Registration Statement on Form S-1 (No. 333-
06027))
10.2.1 Form of Employment Agreements between Signature Resorts, Inc. and each
of Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger
(incorporated by reference to Exhibit 10.2.1 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.2.2 Employment Agreement between Signature Resorts, Inc. and James E.
Noyes (incorporated by reference to Exhibit 10.2.2 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.2.3 Form of Employment Agreement between Signature Resorts, Inc. and Gary
L. Hughes (incorporated by reference to Exhibit 10.2.3 to
Registrant's Registration Statement on Form S-4 (No. 333-16339))
10.2.4 Form of Employment Agreement between Signature Resorts, Inc. and John
R. Stevens (incorporated by reference to Exhibit 10.2.4 to
Registrant's Registration Statement on Form S-4 (No. 333-16339))
10.2.5 Employment Agreement between Signature Resorts, Inc. and Michael A.
Depatie (incorporated by reference to Exhibit 10.2.5 to Registrant's
Registration Statement on Form S-4 (No. 333-16339))
10.2.6 Form of Option Agreement between Signature Resorts, Inc. and Gary L.
Hughes (incorporated by reference to Exhibit 10.2.6 to Registrant's
Registration Statement on Form S-4 (No. 333-16339))
10.2.7 Form of Option Agreement between Signature Resorts, Inc. and John R.
Stevens (incorporated by reference to Exhibit 10.2.7 to Registrant's
Registration Statement on Form S-4 (No. 333-16339))
10.3 1996 Equity Participation Plan of Signature Resorts, Inc.
(incorporated by reference to Exhibit 10.3 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.4 Agreement of Limited Partnership of Pointe Resort Partners, L.P.
(subsequently renamed Poipu Resort Partners L.P.) dated October 11,
1994 (incorporated by reference to Exhibit 10.4 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.5 to Registrant's Registration Statement on
Form S-1 (No. 333-06027))
10.6 Agreement between W&S Hotel L.L.C. and Argosy/KOAR Group, Inc. dated
as of May 3, 1996 (incorporated by reference to Exhibit 10.6 to
Registrant's Registration Statement on Form S-1 (No. 333-06027))
10.7 Conti-Trade Financial Warehouse Line Agreement (incorporated by
reference to Exhibit 10.7 to Registrant's Registration Statement on
Form S-4 (No. 333-16339))
*10.8.1 Loan and Security Agreement between Port Royal Resort, L.P., and
Finova Capital Corporation (as successor in interest to Greyhound
Capital Corporation) dated as of October 7, 1993 and as amended by
the First Amendment to Loan and Security Agreement dated as of April
26, 1995
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*10.8.2 Loan and Security Agreement between Signature Resorts, Inc. (as
successor in interest to Cypress Pointe Resorts, L.P.), and Finova
Capital Corporation (as successor in interest to Greyhound Real
Estate Finance Company) dated as of December 19, 1991 and as amended
by (i) the First Amendment to Loan and Security Agreement and
Consent and Agreement of Guarantors dated as of November 9, 1992,
(ii) the Second Amendment to Loan and Security Agreement dated as of
January 13, 1993, (iii) the Third Amendment to Loan and Security
Agreement dated as of April 7, 1993, (iv) the Fourth Amendment to
Loan and Security Agreement dated as of December 16, 1993, (v) the
Fifth Amendment to Loan and Security Agreement dated as of June 28,
1994, (vi) the Sixth Amendment to Loan and Security Agreement dated
December 16, 1994, and (vii) the Seventh Amendment to Loan and
Security Agreement dated as of November 6, 1995
*10.8.3 Loan and Security Agreement between Signature Resorts, Inc. (as
successor in interest to San Luis Resort Partners, LLC), and Finova
Capital Corporation dated as of June 6, 1996
*10.8.4 Loan and Security Agreement between Grand Beach Resort, Limited
Partnership, and Finova Capital Corporation (as successor in
interest to Greyhound Financial Corporation) dated as of October 7,
1994 and as amended by the First Amendment to Loan and Security
Agreement dated as of July 5, 1995
*10.8.5 Loan and Security Agreement (Receivables) between Signature Resorts,
Inc. (as successor in interest to Fall Creek Resort, L.P.), and
Heller Financial, Inc., dated as of October 9, 1995
*10.8.6 Loan and Security Agreement between AKGI-St. Maarten NV (as successor
in interest to AKGI-Royal Palm C.V.o.a.), and Finova Capital
Corporation dated as of July 12, 1995
*10.8.7 Loan and Security Agreement between Lake Tahoe Resort Partners, LLC,
and Finova Capital Corporation dated as of April 29, 1996
*10.8.8 Construction Loan Agreement between Lake Tahoe Resort Partners, LLC,
and Finova Capital Corporation dated as of April 29, 1996
10.8.9 Lender's Certification and Consent from Resort Capital Corporation to
Signatures Resorts, Inc. dated as of August 15, 1996 (incorporated
by reference to Exhibit 10.8.1 to Registrant's Registration
Statement on Form S-4 (No. 333-16339))
10.8.10 Lender's Certification and Consent from FINOVA Capital Corporation to
Signature Resorts, Inc. dated as of August 15, 1996 (incorporated by
reference to Exhibit 10.8.2 to Registrant's Registration Statement
on Form S-4 (No. 333-16339))
10.8.11 Assumption Agreement between FINOVA Capital Corporation and Signature
Resorts, Inc. dated as of August 15, 1996 (incorporated by reference
to Exhibit 10.8.3 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
10.8.12 Assumption Agreement between Resort Capital Corporation and Signature
Resorts, Inc. dated as of August 15, 1996 (incorporated by reference
to Exhibit 10.8.4 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
10.8.13 Assumption Agreement between FINOVA Capital Corporation and AKGI-Sint
Maarten, N.V. dated as of August 15, 1996 (incorporated by reference
to Exhibit 10.8.5 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
*11 Statement re Computation of Per Share Earnings
12 Statement re Computation of Ratios of Earnings to Fixed Charges
16.1 Letter from Ernst & Young LLP regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to
Registrant's current report on Form 8-K filed with the Commission on
September 18, 1996)
21 Subsidiaries of Signature Resorts, Inc.
*23.1 Consent of Ballard Spahr Andrews & Ingersoll (included as part of
Exhibit 5.1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*23.2 Consent of Latham & Watkins (included as part of Exhibit 5.2)
*23.3 Consent of Arthur Andersen LLP
*23.4 Consent of Ernst & Young LLP
24 Power of Attorney
25 Statement of Eligibility of Trustee on Form T-1 for the %
Convertible Subordinated Notes of the Company due 2007
27 Amended Financial Data Schedule
</TABLE>
- --------
* Filed herewith
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Signature Resorts, Inc. has duly caused this Amendment No. 3 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on January 28,
1997.
SIGNATURE RESORTS, INC.
By: /s/ Andrew D. Hutton
-----------------------------------
Name: Andrew D. Hutton
Title: Vice President and General
Counsel
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and January 28, 1997
____________________________________ Chief Executive Officer
Osamu Kaneko (Principal Executive
Officer)
* Director and President January 28, 1997
____________________________________
Andrew J. Gessow
* Director, Chief Operating January 28, 1997
____________________________________ Officer and Secretary
Steven C. Kenninger
* Executive Vice President and January 28, 1997
____________________________________ Chief Financial Officer
Michael A. Depatie (Principal Financial
Officer)
* Executive Vice President and January 28, 1997
____________________________________ Director
James E. Noyes
* Senior Vice President and January 28, 1997
____________________________________ Chief Accounting Officer
Charles C. Frey (Principal Accounting
Officer)
* Director January 28, 1997
____________________________________
Juergen Bartels
* Director January 28, 1997
____________________________________
Sanford R. Climan
* Director January 28, 1997
____________________________________
Joshua S. Friedman
* Director January 28, 1997
____________________________________
W. Leo Kiely III
By: /s/ Andrew D. Hutton
---------------------------------
Andrew D. Hutton
Attorney-in-fact
</TABLE>
II-5
<PAGE>
DESCRIPTION OF GRAPHICS AND PHOTOS FOR EDGAR TRANSMISSION
Inside Front Cover: Map of North America indicating the Company's resorts by
location and brand logo (Non-branded, Embassy Vacation Resorts, Westin Vacation
Clubs and All-Seasons Resorts).
Fold-out Inside Front Cover: Six Photos of resorts: Clockwise, in order: 1.
Photo of San Luis Bay Resort in Avila Beach, California -- Aerial view of
resort, coastline and canyon behind resort; 2. Photo of pool and palapa bar at
the Royal Palm Beach Club in St. Maarten, Netherlands Antilles; 3. Photo of the
Royal Palm Beach Club in St. Maarten, Netherlands Antilles -- Aerial view of
resort, beach and surrounding coastline of Simpson Bay; 4. Photo of Embassy
Vacation Resort Poipu Point in Kauai, Hawaii -- Aerial view of resort, lagoon
pool, beach and coastline; 5. Photo of pool and palapa bar at the proposed
Westin Vacation Club St. John in St. John, U.S. Virgin Islands; 6. Photo of the
proposed Westin Vacation Club St. John in St. John, U.S. Virgin Islands --
Aerial view of the hillside villas and adjacent beach. Chart summarizing the
Company's Growth Strategy -- Acquisition and Development of New Resorts, Sales
and Expansion of Existing Resorts, Acquisition of Timeshare Assets, Management
Contracts and Operating Companies and Improvement of Operating Margins. Charts
showing: Growth in Industry Revenues from 1980 to 1995, Growth in the Company's
revenues 1992 through September 1996, Growth in the Company's Net Income from
1992 through September 1996, and Signature Resorts Intervals Sold from 1992
through September 1996.
Inside Back Cover: Six Photos of resorts: Clockwise, in order: 1. Photo of
Sedona Springs Resort in Sedona, Arizona -- View of Resort and adjacent spring;
2. Photo of canyon in Sedona, Arizona; 3. Photo of golfer at Canyon Mesa, Oak
Creek Country Club located in Sedona, Arizona; 4. View of Embassy Vacation
Resort Grand Beach in Orlando, Florida -- View of Resort, adjacent Lake Bryan
and gazebo; 5. View from a veranda at Embassy Vacation Resort Grand Beach in
Orlando, Florida; 6. Photo of Villas at Poco Diablo Resort in Sedona,
Arizona -- View of resort taken from across adjacent body of water.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement (Common Stock) among
Signature Resorts, Inc., the Selling Stockholders and
Montgomery Securities, Goldman, Sachs & Co., Schroder
Wertheim & Co. and Smith Barney, Inc. dated as of
, 1997
*1.2 Form of Underwriting Agreement (Convertible Notes)
among Signature Resorts, Inc., Montgomery Securities,
Goldman, Sachs & Co., Donaldson Lufkin & Jenrette
Securities Corporation and Smith Barney, Inc. dated as
of , 1997
2. Plan and Agreement of Merger as amended (by reference
to Exhibit 2 to Registrant's Registration Statement on
Form S-4 (No. 333-16339))
3.1 Charter of Signature Resorts, Inc. (incorporated by
reference to Exhibit 3.1 to Registrant's Registration
Statement on Form S-1 (No. 333-06027))
3.2 Bylaws of Signature Resorts, Inc. (incorporated by
reference to Exhibit 3.2 to Registrant's Registration
Statement on Form S-1 (No. 333-06027))
*4 Form of Indenture by and between the Company and
Norwest Bank Minnesota, National Association, as
trustee, for the % Convertible Subordinated Notes
of the Company due 2007.
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding
the validity of the Common Stock being registered
(including consent)
*5.2 Opinion of Latham & Watkins regarding the validity of
the Convertible Subordinated Notes being registered
(including consent)
10.1 Form of Registration Rights Agreement among Signature
Resorts, Inc. and the persons named therein
(incorporated by reference to Exhibit 10.1 to
Registrant's Registration Statement on Form S-1
(No. 333-06027))
10.2.1 Form of Employment Agreements between Signature
Resorts, Inc. and each of Osamu Kaneko, Andrew J.
Gessow and Steven C. Kenninger (incorporated by
reference to Exhibit 10.2.1 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.2.2 Employment Agreement between Signature Resorts, Inc.
and James E. Noyes (incorporated by reference to
Exhibit 10.2.2 to Registrant's Registration Statement
on Form S-1 (No. 333-06027))
10.2.3 Form of Employment Agreement between Signature Resorts,
Inc. and Gary L. Hughes (incorporated by reference to
Exhibit 10.2.3 to Registrant's Registration Statement
on Form S-4 (No. 333-16339))
10.2.4 Form of Employment Agreement between Signature Resorts,
Inc. and John R. Stevens (incorporated by reference to
Exhibit 10.2.4 to Registrant's Registration Statement
on Form S-4 (No. 333-16339))
10.2.5 Employment Agreement between Signature Resorts, Inc.
and Michael A. Depatie (incorporated by reference to
Exhibit 10.2.5 to Registrant's Registration Statement
on Form S-4 (No. 333-16339))
10.2.6 Form of Option Agreement between Signature Resorts,
Inc. and Gary L. Hughes (incorporated by reference to
Exhibit 10.2.6 to Registrant's Registration Statement
on Form S-4 (No. 333-16339))
10.2.7 Form of Option Agreement between Signature Resorts,
Inc. and John R. Stevens (incorporated by reference to
Exhibit 10.2.7 to Registrant's Registration Statement
on Form S-4 (No. 333-16339))
10.3 1996 Equity Participation Plan of Signature Resorts,
Inc. (incorporated by reference to Exhibit 10.3 to
Registrant's Registration Statement on Form S-1 (No.
333-06027))
10.4 Agreement of Limited Partnership of Pointe Resort
Partners, L.P. (subsequently renamed Poipu Resort
Partners L.P.) dated October 11, 1994 (incorporated by
reference to Exhibit 10.4 to Registrant's Registration
Statement on Form S-1 (No. 333-06027))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.5 to
Registrant's Registration Statement on Form S-1 (No.
333-06027))
10.6 Agreement between W&S Hotel L.L.C. and Argosy/KOAR
Group, Inc. dated as of May 3, 1996 (incorporated by
reference to Exhibit 10.6 to Registrant's Registration
Statement on Form S-1 (No. 333-06027))
10.7 Conti-Trade Financial Warehouse Line Agreement
(incorporated by reference to Exhibit 10.7 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
*10.8.1 Loan and Security Agreement between Port Royal Resort,
L.P., and Finova Capital Corporation (as successor in
interest to Greyhound Capital Corporation) dated as of
October 7, 1993 and as amended by the First Amendment
to Loan and Security Agreement dated as of April 26,
1995
*10.8.2 Loan and Security Agreement between Signature Resorts,
Inc. (as successor in interest to Cypress Pointe
Resorts, L.P.), and Finova Capital Corporation (as
successor in interest to Greyhound Real Estate Finance
Company) dated as of December 19, 1991 and as amended
by (i) the First Amendment to Loan and Security
Agreement and Consent and Agreement of Guarantors
dated as of November 9, 1992, (ii) the Second
Amendment to Loan and Security Agreement dated as of
January 13, 1993, (iii) the Third Amendment to Loan
and Security Agreement dated as of April 7, 1993, (iv)
the Fourth Amendment to Loan and Security Agreement
dated as of December 16, 1993, (v) the Fifth Amendment
to Loan and Security Agreement dated as of June 28,
1994, (vi) the Sixth Amendment to Loan and Security
Agreement dated December 16, 1994, and (vii) the
Seventh Amendment to Loan and Security Agreement dated
as of November 6, 1995
*10.8.3 Loan and Security Agreement between Signature Resorts,
Inc. (as successor in interest to San Luis Resort
Partners, LLC), and Finova Capital Corporation dated
as of June 6, 1996
*10.8.4 Loan and Security Agreement between Grand Beach Resort,
Limited Partnership, and Finova Capital Corporation
(as successor in interest to Greyhound Financial
Corporation) dated as of October 7, 1994 and as
amended by the First Amendment to Loan and Security
Agreement dated as of July 5, 1995
*10.8.5 Loan and Security Agreement (Receivables) between
Signature Resorts, Inc. (as successor in interest to
Fall Creek Resort, L.P.), and Heller Financial, Inc.,
dated as of October 9, 1995
*10.8.6 Loan and Security Agreement between AKGI-St. Maarten NV
(as successor in interest to AKGI-Royal Palm
C.V.o.a.), and Finova Capital Corporation dated as of
July 12, 1995
*10.8.7 Loan and Security Agreement between Lake Tahoe Resort
Partners, LLC, and Finova Capital Corporation dated as
of April 29, 1996
*10.8.8 Construction Loan Agreement between Lake Tahoe Resort
Partners, LLC, and Finova Capital Corporation dated as
of April 29, 1996
10.8.9 Lender's Certification and Consent from Resort Capital
Corporation to Signatures Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.1 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.8.10 Lender's Certification and Consent from FINOVA Capital
Corporation to Signature Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.2 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.8.11 Assumption Agreement between FINOVA Capital Corporation
and Signature Resorts, Inc. dated as of August 15,
1996 (incorporated by reference to Exhibit 10.8.3 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.8.12 Assumption Agreement between Resort Capital Corporation
and Signature Resorts, Inc. dated as of August 15,
1996 (incorporated by reference to Exhibit 10.8.4 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
10.8.13 Assumption Agreement between FINOVA Capital Corporation
and AKGI-Sint Maarten, N.V. dated as of August 15,
1996 (incorporated by reference to Exhibit 10.8.5 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
*11 Statement re Computation of Per Share Earnings
12 Statement re Computation of Ratios of Earnings to Fixed
Charges
16.1 Letter from Ernst & Young LLP regarding change in
certifying accountant (incorporated by reference to
Exhibit 16.1 to Registrant's current report on Form 8-
K filed with the Commission on September 18, 1996)
21 Subsidiaries of Signature Resorts, Inc.
*23.1 Consent of Ballard Spahr Andrews & Ingersoll (included
as part of Exhibit 5.1)
*23.2 Consent of Latham & Watkins (included as part of
Exhibit 5.2)
*23.3 Consent of Arthur Andersen LLP
*23.4 Consent of Ernst & Young LLP
24 Power of Attorney
25 Statement of Eligibility of Trustee on Form T-1 for the
% Convertible Subordinated Notes of the Company
due 2007
27 Amended Financial Data Schedule
</TABLE>
- -------
* Filed herewith
<PAGE>
EXHIBIT 1.1
4,000,000 SHARES
SIGNATURE RESORTS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
January , 1997
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
SCHRODER WERTHEIM & CO.
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Signature Resorts, Inc., a Maryland
------------
corporation (the "Company"), proposes to issue and sell 1,600,000 shares of its
authorized but unissued common stock, $.01 par value (the "Common Stock"), and
the several stockholders of the Company listed in Schedule A annexed hereto (the
"Selling Stockholders"), propose to sell 2,400,000 shares of the Company's
issued and outstanding Common Stock to the several underwriters named in
Schedule B annexed hereto (the "Underwriters"), for whom you are acting as
representatives (the "Representatives"). Said aggregate of 4,000,000 shares are
herein called the "Firm Common Shares." In addition, the Company and the
Selling Stockholders propose to grant to the Underwriters an option to purchase
up to 240,000 and 360,000 additional shares, respectively (the "Option Common
Shares") as provided in Section 5 hereof. The Option Shares of the respective
Selling Shareholders are set forth on Schedule A annexed hereto. The Firm
Common Shares and, to the
<PAGE>
extent such option is exercised, the Option Common Shares are hereinafter
collectively referred to as the "Common Shares."
Concurrently with the offering of the Common Shares, the Company
proposes to issue and sell an aggregate of $100,000,000 principal amount of its
____% Convertible Subordinated Notes Due 2007 (the "Notes").
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the Registration Statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-18447) with
respect to the Common Shares has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. There have been delivered to you two
signed copies of such registration statement and any amendments thereto,
together with two copies of each exhibit filed therewith. Conformed copies
of such registration statement and amendments (but without exhibits) and of
the related preliminary prospectus have been delivered to you in such
reasonable quantities as you have requested for each of the Underwriters.
The Company will next file with the Commission one of the following: (i)
prior to effectiveness of such registration statement, a further amendment
thereto, including the form of final prospectus, or (ii) a final prospectus
in accordance with Rules 430A and 424(b) of the Rules and Regulations. As
filed, such amendment and form of final prospectus, or such final
prospectus, shall include all Rule 430A Information (as hereinafter
defined) and, except
<PAGE>
to the extent that you shall agree in writing to a modification, shall be
in all substantive respects in the form furnished to you prior to the date
and time that this Agreement was executed and delivered by the parties
hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes (beyond
that contained in the latest Preliminary Prospectus) as the Representatives
shall have approved.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date, shall also mean such
registration statement as so amended; provided, however, that such term
shall also include all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes
effective as provided by Rule 430A of the Rules and Regulations. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to
in the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Common Shares in the form in which it
is first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations or, if no filing pursuant to Rule 424(b) of the Rules and
Regulations is required, shall mean the form of final prospectus included
in the Registration Statement at the time such registration statement
becomes effective. The term "Rule 430A Information" means information with
respect to the Common Shares and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective pursuant
to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the
Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in the light
<PAGE>
of the circumstances under which they were made, not misleading; and at the
time the Registration Statement becomes effective, and at all times
subsequent thereto up to and including each Closing Date (as hereinafter
defined), the Registration Statement and the Prospectus, and any amendments
or supplements thereto, will contain all material statements and
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements
of the Act and the Rules and Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or warranty
contained in this Section 2(b) shall be applicable to information contained
in or omitted from any Preliminary Prospectus, the Registration Statement,
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished pursuant to Section 4 of this
Agreement to the Company by or on behalf of any Underwriter, directly or
through the Representatives, specifically for use in the preparation
thereof.
(c) The Company has been duly formed and is validly existing as a
corporation, is in good standing under the laws of the State of Maryland,
with full power and authority (corporate and other) to conduct its business
as currently conducted or as described in the Prospectus.
(d) Each of the Company's affiliates (as defined in Rule 144(a) under
the Act) and subsidiaries which is material to the operation of the
Company, considered as whole (the "Company Affiliates and Subsidiaries")
has been duly formed and is validly existing as a partnership, limited
liability company or corporation, as applicable, in good standing under the
laws of its jurisdiction of formation, with full power and authority
(partnership and other) to own and lease its properties and conduct its
respective businesses as currently conducted or described in the
prospectus, except where the failure to be in good standing would not have
a material adverse effect on the condition (financial or otherwise),
business, properties, results of operations or prospects of the
<PAGE>
Company and the Company Affiliates and Subsidiaries, considered as one
entity (a "Material Adverse Effect").
(e) The Company and each of the Company Affiliates and Subsidiaries
are in possession of and operating in compliance with all authorizations,
licenses, permits, consents, certificates and orders material to the
conduct of their respective businesses, all of which are valid and in full
force and effect; the Company and each of the Company Affiliates and
Subsidiaries are duly qualified to do business and in good standing as a
foreign corporation, partnership or limited liability company, as
applicable, in each jurisdiction in which the conduct of their respective
businesses requires such qualification, except where the failure to be so
qualified and in good standing would not have a Material Adverse Effect;
and to the Company's knowledge no proceeding has been instituted or
threatened in any such jurisdiction revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification.
(f) As of September 30, 1996, the Company has an authorized and
outstanding capital stock as set forth under the column captioned "Actual"
under the heading "Consolidated Capitalization" in the Prospectus; the
issued and outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities and will conform to the description
thereof contained in the Registration Statement and the Prospectus. The
form of certificate, if any, evidencing the Common Stock complies with all
applicable requirements of Maryland law. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company
and the related notes thereto, as of the First Closing Date the Company
does not have outstanding any options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase such securities or
obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock, partnership interests or limited
liability company
<PAGE>
interests, as the case may be, or any such options, rights, convertible
securities or obligations.
(g) The Common Shares to be sold by the Company in the public offering
contemplated by this Agreement, when issued, delivered and paid for in the
manner set forth in this Agreement, will be duly authorized and validly
issued, fully paid and nonassessable, will be registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), have been duly authorized for quotation by the Nasdaq
National Market upon official notice of issuance and will conform to the
description thereof contained in the Prospectus. No preemptive rights or
other rights to subscribe for or purchase Common Stock exist with respect
to the issuance and sale of the Common Shares by the Company pursuant to
this Agreement. Except for the Selling Stockholders, no shareholder of the
Company has any right which has not been waived or lost to require the
Company to register the sale of any Common Stock owned by such shareholder
under the Act in the public offering contemplated by this Agreement. No
further approval or authority of the shareholders or the Board of Directors
of the Company will be required for the issuance and sale of the Common
Shares to be sold by the Company as contemplated herein. No further
approval or authority of the Board of Directors of the Company will be
required for the transfer and sale of the Common Shares to be sold by the
Selling Stockholders as contemplated herein. The description of the
Company's share option, share bonus and other share plans or arrangements,
and the options or other rights granted and exercised thereunder, set forth
in the Prospectus accurately and fairly presents the information required
to be shown with respect to such plans, arrangements, options and rights.
(h) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding obligation of the Company in accordance
with its terms. The making and performance of this Agreement by the
Company and the consummation of the transactions herein contemplated, will
not violate any provisions of any partnership agreement, certificate of
<PAGE>
partnership, charter, bylaws or other organizational documents, as
applicable, of the Company or any of the Company Affiliates and
Subsidiaries and will not conflict with, result in the breach or violation
of, or constitute, either by itself or upon notice or the passage of time
or both, a default under (i) any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the
Company or any of the Company Affiliates and Subsidiaries is a party or by
which the Company, any of the Company Affiliates and Subsidiaries or any of
the Existing Resorts (as defined in the Prospectus) may be bound or
affected or (ii) any statute or any authorization, judgment, decree, order,
rule or regulation of any court or any regulatory body, administrative
agency or other governmental body applicable to the Company, any of the
Company Affiliates and Subsidiaries or any of the Existing Resorts, in each
case except as would not have a Material Adverse Effect. No consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required, including the
satisfaction of any requirements pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, for the execution and
delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Act, the
Exchange Act, the Blue Sky and Canadian securities laws applicable to the
public offering of the Common Shares by the several Underwriters, the
clearance of such offering with the National Association of Securities
Dealers, Inc. (the "NASD"), and except for any such consent, approval,
authorization or other order as has been or will be obtained prior to the
First Closing Date.
(i) Ernst and Young LLP ("E & Y") and Arthur Andersen LLP ("Arthur
Andersen") who have expressed their opinion with respect to the financial
statements and schedules filed with the Commission as a part of the
Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the Act
and the Rules and Regulations.
(j) The consolidated financial statements of the Company, together
with the related notes thereto, set forth in the Registration Statement and
the Prospectus fairly
<PAGE>
present the financial condition of such entities as of the dates indicated
and the results of operations and changes in financial position for the
periods presented. The pro forma financial statements, included in the
Registration Statement and the Prospectus comply in all material respects
with the applicable requirements of Rule 11-02 of Regulation S-X of the
Commission and the pro forma adjustments have been properly applied to the
historical amounts in the compilation of such statements. Such statements,
schedules and related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis as certified
by the independent accountants named in Section 2(i). No other financial
statements or schedules are required to be included in the Registration
Statement. The selected financial data set forth in the Prospectus under
the captions "Consolidated Capitalization", "Selected Combined Historical
Financial Information of the Company" and "Summary Consolidated Historical
and Pro Forma Financial Information" fairly present the information set
forth therein on the basis stated in the Registration Statement.
(k) Except as disclosed in the Prospectus, the Company is not in
violation of any of its articles of organization or by-laws, and is not in
breach or default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which it is a party or by which it
or any of its properties are bound, or to which any of the property or
assets of the Company is subject except for any such violation, breach or
default that could not have a Material Adverse Effect.
(l) There are no material contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which
have not been described or filed as required. The material contracts so
described in the Prospectus are in full force and effect on the date
hereof; and neither the Company or any of the Company Affiliates and
Subsidiaries, nor to the best of the Company's knowledge, any other party
is in breach of or default under any such material contracts.
<PAGE>
(m) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or threatened to which
the Company or any of the Company Affiliates and Subsidiaries are a party
or of which any resort owned or leased by the Company Affiliates and
Subsidiaries is the subject, or related to environmental or discrimination
matters, which actions, suits or proceedings could reasonably be
anticipated to individually or in the aggregate, prevent or adversely
affect the transactions contemplated by this Agreement or have a Material
Adverse Effect. Neither the Company nor any of the Company Affiliates and
Subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(n) Except as set forth in the Prospectus, the Company or the Company
Affiliates and Subsidiaries have good and marketable title to all of the
Existing Resorts, and, upon consummation of the Agreement and Plan of
Merger, dated as of September 22, 1996, by and between the Company and
AVCOM International, Inc. ("AVCOM"), as amended (the "Merger Agreement"),
to the Company's knowledge and except as set forth in the Prospectus, the
Registration Statement on S-4 (Registration No. 333-16339) filed by the
Company with the Commission on November 19, 1996 as amended by Amendment
No. 1 filed by the Company with the Commission on December 20, 1996 (the
"S-4") or the schedules to the Merger Agreement (the "Schedules"), the
Company or the Company Affiliates and Subsidiaries will have good and
marketable title to Scottsdale Villa Mirage Resort, Sedona Summit Resort,
Tahoe Beach & Ski Club, Villas on the Lake and The Ridge on Sedona Golf
Resort (collectively, the "Merger Properties"), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those reflected
in the financial statements or elsewhere in the Prospectus. Except as
disclosed in the Prospectus, the Company and each of the Company Affiliates
and Subsidiaries owns or leases all such properties as are necessary to
operate the Existing Resorts as now conducted or as proposed to be
conducted, except with respect to the Poipu Resort and the San Luis Bay
intervals.
(o) From September 30, 1996 through the date hereof, and except as
described in or specifically contemplated by
<PAGE>
the Registration Statement and Prospectus: (i) the Company has not incurred
any material liabilities or obligations, indirect, direct or contingent, or
entered into any material verbal or written agreement or other transaction
which is not in the ordinary course of business or which could result in a
material reduction in the future earnings of the Company; (ii) the Company
has not sustained any loss or interference with its respective businesses
or properties from fire, flood, windstorm, accident or other calamity,
whether or not covered by insurance, that would have a Material Adverse
Effect; (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock, shares or interests, as
applicable (other than such dividends or distributions paid to shareholders
to satisfy tax liabilities) and the Company is not in arrears or default in
the payment of principal or interest on any outstanding material debt
obligations; (iv) there has not been any change (excluding transfers) in
the capital stock (other than the sale of the Common Shares under this
Agreement) of the Company, or indebtedness material to the Company (other
than in the ordinary course of business); and (v) there has not been any
material adverse change in the condition (financial or otherwise),
business, properties, or results of operations of the Company and its
Subsidiaries, considered as one entity (a "Material Adverse Change").
(p) Except as specifically disclosed in or specifically contemplated
by the Prospectus, the Company will have sufficient trademarks, trade
names, patent rights, copyrights, licenses or other similar rights and
proprietary knowledge (collectively, "Intangibles"), approvals and
governmental authorizations to conduct its businesses; the expiration of
any Intangibles, approvals or governmental authorizations will not have a
Material Adverse Effect; and the Company has no knowledge of any material
infringement by any of the Company Affiliates and Subsidiaries of any
Intangibles, and there is no claim being made against the Company or any of
the Company Affiliates and Subsidiaries regarding any Intangible or other
infringement which could have a Material Adverse Effect.
(q) Neither the Company nor any of the Company Affiliates and
Subsidiaries has been advised, or has reason
<PAGE>
to believe, that the Company or any of the Company Affiliates and
Subsidiaries is not conducting its businesses in compliance with all
applicable laws, rules and regulations of the jurisdictions in which any of
them is, including, without limitation, all applicable local, state and
federal environmental laws and regulations, in each case except as would
not have a Material Adverse Effect.
(r) The Company and each of the Company Affiliates and Subsidiaries
has filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes shown as due thereon; and the Company has
no knowledge of any tax deficiency which has been or might be asserted or
threatened against the Company in each case except as would not have a
Material Adverse Effect.
(s) Neither the Company nor any of the Company Affiliates and
Subsidiaries has distributed or will distribute prior to the First Closing
Date any offering material in connection with the offering and sale of the
Common Shares other than the Prospectus, the Registration Statement,
materials distributed in connection with the offering and sale of the
Common Stock and Notes and other materials permitted or not prohibited by
the Act and the Rules and Regulations.
(t) Neither the Company nor any of the Company Affiliates and
Subsidiaries has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(u) Neither the Company nor any of the Company Affiliates and
Subsidiaries has taken or will take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
<PAGE>
(v) The Company and the Company Affiliates and Subsidiaries have and
will maintain liability, property and casualty insurance (insured by
insurers of recognized financial responsibility) in favor of the Company,
or the Company Affiliates and Subsidiaries, with respect to each of the
Existing Resorts and, upon consummation of the Merger Agreement, and except
as set forth in the Prospectus, the S-4 or the Schedules, the Merger
Properties (except with respect to the Poipu Resort, such insurance
therefor being obtained and/or maintained by the Poipu Partnership), in an
amount and on such terms as is reasonable and customary for businesses of
the type proposed to be conducted by the Company, including, among other
things, insurance against theft, damage, destruction and acts of vandalism.
The Company has not received from any insurance company notice of any
material defects or deficiencies affecting the insurability of any such
resort.
(w) Title insurance in favor of the Company or the Company Affiliates
and Subsidiaries is in force with respect to each of the Existing Resorts
in an amount reasonably acceptable to a reasonably prudent company in a
similar line of business (except with respect to the St. Maarten Resorts),
and upon consummation of the Merger Agreement, and except as set forth in
the Prospectus, the S-4 or the Schedules, title insurance in favor of the
Company or the Company Affiliates and Subsidiaries will be in force with
respect to the Merger Properties in an amount reasonably acceptable to a
reasonably prudent company in a similar line of business.
(x) The mortgages and deeds of trust encumbering the Existing Resorts
and, to the best knowledge of the Company, and except as set forth in the
Prospectus, the S-4 or the Schedules, the Merger Properties, are not
convertible into equity securities of the Company nor does the Company hold
a participating interest therein and such mortgages and deeds of trust are
not cross-defaulted or cross-collateralized to any property not to be
owned, upon consummation of the Merger Agreement, directly or indirectly by
the Company, and since the Initial Public Offering (as defined in the
Prospectus) and as of the date hereof, the Company has not acquired any
property subject to such mortgage.
<PAGE>
(y) The Company and each of the Company Affiliates and Subsidiaries
(i) are in compliance with any and all applicable foreign, federal, state
and local rules, laws and regulations relating to the protection of human
health and safety, the environment or any Hazardous Material (as
hereinafter defined) ("Environmental Laws"), (ii) has received, or will
have received, as of the Closing Date, as the case may be, all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) is or will be, as of
the Closing Date, as the case may be, in compliance with all terms and
conditions of any such permit, license or approval, in each case except as
would not have a Material Adverse Effect. As used herein, "Hazardous
Material" shall mean (a) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA"), (b) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act, as amended, (c) any petroleum or
petroleum product, (d) any polychlorinated biphenyl and (e) any pollutant
or contaminant or hazardous, dangerous, or toxic chemical, material, waste
or substance regulated under or within the meaning of any other
Environmental Law.
(z) To the Company's knowledge, there is no liability, alleged
liability or potential liability (including, without limitation, liability,
alleged liability or potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries or penalties), of the Company arising out of,
based on or resulting from (a) the presence or release into the environment
of any Hazardous Material at any location, whether or not owned by the
Company, or (b) any violation or alleged violation of any Environmental
Law, which liability, alleged liability or potential liability is required
to be disclosed in the Registration Statement, other than as disclosed
therein.
(aa) The Company is not, nor will it conduct its business in a manner
in which it would become an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
<PAGE>
(bb) The assets of neither the Company nor any of the Company
Affiliates and Subsidiaries constitute, nor will such assets, as of the
Closing Date, constitute "plan assets" under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
(cc) The Company and each of the Company Affiliates and Subsidiaries
maintain and will maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
financial and corporate books and records is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(dd) Neither the Company nor any of the Company Affiliates and
Subsidiaries has incurred any liability for a fee, commission or other
compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement other than
as disclosed in the Registration Statement.
(ee) No environmental engineering firm which prepared Phase I
environmental assessment reports (or other similar reports with respect to
the Existing Resorts as set forth in the Registration Statement) was, at
the time such reports were delivered, employed for such purpose on a
contingent basis or had any substantial interest in the Company or any of
the Company Affiliates and Subsidiaries.
(ff) To the Company's knowledge, no labor problem exists or is
imminent with respect to the employees of any of the Existing Resorts, the
Company, any of the Company Affiliates and Subsidiaries, or, except as set
forth in the Prospectus, the S-4 or the Schedules, the Merger Properties
which could have a Material Adverse Effect.
<PAGE>
(gg) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the matters
covered thereby.
(hh) The Company, and to the Company's knowledge, and except as set
forth in the Prospectus, the S-4 or the Schedules, AVCOM are in compliance
with all federal, state, local and foreign laws and regulations regarding
the marketing, offers to sell and sales of vacation intervals in each state
in which the Company is doing business, including but not limited to the
Federal Trade Commission Act, Regulation Z (the truth-in-lending act),
Equity Opportunity Credit Act and Regulation B, Interstate Land Sales Full
Disclosure Act, Telephone Consumer Protection Act, Telemarketing and
Consumer Fraud and Abuse Prevention Act, Fair Housing Act and Civil Rights
Acts of 1964 and 1968, in each case except as would not have a Material
Adverse Effect. The Company and to the Company's knowledge, and except as
set forth in the Prospectus, the S-4 or the Schedules, AVCOM have filed all
required documents and supporting information in compliance with federal,
state, local and foreign laws and regulations, and the Company and to the
Company's knowledge, and except as set forth in the Prospectus, the S-4 or
the Schedules, AVCOM are in compliance with all licensure, anti-fraud,
telemarketing, price, gift and sweepstakes and labor laws to which it is or
may become subject, in each case except as would not have a Material
Adverse Effect. The Company and each of the Company Affiliates and
Subsidiaries have, or upon the First Closing Date will have, all permits
and licenses which are required to sell vacation intervals in each state
and foreign jurisdiction where it conducts business, in each case except as
would not have a Material Adverse Effect. To the Company's knowledge, and
except as set forth in the Prospectus, the S-4 or the Schedules, the
Company will have, upon consummation of the Merger Agreement, all permits
and licenses which are required to sell vacation intervals at the Merger
Properties in each state and foreign jurisdiction where it conducts
business, in each case except as would not have a Material Adverse Effect.
(ii) Except as set forth in the Prospectus, no person has an option
or right of first refusal to purchase all or
<PAGE>
part of any of the Existing Resorts (other than the Poipu Resort) and to
the Company's knowledge, and except as set forth in the Prospectus, the S-4
or the Schedules, the Merger Properties, or any interest therein. Each of
the Existing Resorts and, to the Company's knowledge, and except as set
forth in the Prospectus, the S-4 or the Schedules, the Merger Properties
complies with all applicable codes, laws and regulations (including,
without limitation, building and zoning codes and laws relating to
handicapped access), except as would not have a Material Adverse Effect.
The Company has no knowledge of any pending or threatened condemnation
proceedings, zoning changes, or other proceedings or actions that will in
any manner affect the size of, number of vacation intervals planned for,
the use of any improvements on, or access to, the Existing Resorts or,
except as set forth in the Prospectus, the S-4 or the Schedules, the Merger
Properties.
(jj) To the Company's knowledge, no dispute exists or is imminent
between the Company and Promus Hotels, Inc. or between the Company and
Westin Hotels & Resorts and no officer or director of the Company has any
agreement or understanding (verbally or in writing) with Westin Hotels &
Resorts except as set forth in the Prospectus.
(kk) The Common Shares have been approved for listing on the Nasdaq
National Market, subject to official notice of issuance.
(ll) The Company has full legal right, power and authority to enter
into the Merger Agreement and perform the transactions contemplated
thereby. The Merger Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation of
the Company in accordance with its terms. Assuming the consents and
approvals set forth in the Prospectus have been obtained, the making and
performance of the Merger Agreement by the Company and the consummation of
the transactions therein contemplated, will not violate any provisions of
any partnership agreement, certificate of partnership, charter, bylaws or
other organizational documents, as applicable, of the Company or any of the
Company Affiliates and Subsidiaries and will not conflict with, result in
the breach or violation of, or constitute, either by itself or upon notice
or the passage of time or both, a default under (i) any agreement,
<PAGE>
mortgage, deed of trust, lease, franchise, license, indenture, permit or
other instrument to which the Company or any of the Company Affiliates and
Subsidiaries is a party or by which the Company, any of the Company
Affiliates and Subsidiaries and, to the Company's knowledge, and except as
set forth in the Prospectus, the S-4 or the Schedules, AVCOM, or any of the
Existing Resorts, or to the Company's knowledge, and except as set forth in
the Prospectus, the S-4 or the Schedules, the Merger Properties may be
bound or affected or (ii) any statute or any authorization, judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the Company,
any of the Company Affiliates and Subsidiaries or any of the Existing
Resorts or, to the Company's knowledge, and except as set forth in the
Prospectus, the S-4 or the Schedules, the Merger Properties, in each case
except as would not have a Material Adverse Effect. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required, including the satisfaction
of any requirements pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, for the execution and delivery of the
Merger Agreement or the consummation of the transactions contemplated by
the Merger Agreement, except for compliance with the Act, the Exchange Act,
the Blue Sky and Canadian securities laws applicable to the transactions
contemplated by the Merger Agreement, and except for any such consent,
approval, authorization or other order as has been or will be obtained
prior to the First Closing Date.
(mm) The Company has received from its independent certified public
accountants the letter attached hereto respecting pooling of interest
treatment relating to the consummation of the transactions contemplated by
the Merger Agreement.
(nn) To the Company's knowledge, there are no material adverse claims
to any of the Common Shares to be sold by the Selling Stockholders.
SECTION 3. Representations and Warranties of the Selling
---------------------------------------------
Stockholders. Each of the Selling Stockholders hereby
- ------------
<PAGE>
represents and warrants, jointly but not severally, to the several Underwriters
that:
(a) The Selling Stockholder has all right, power and authority to
enter into this Agreement, the Power of Attorney for Sale of Common Stock
of Signature Resorts, Inc. (the "Power of Attorney") and the Custody
Agreement for Sale of Common Stock of Signature Resorts, Inc. (the "Custody
Agreement") and to consummate the transactions contemplated hereby and
thereby, including, without limitation, the sale, assignment, transfer and
delivery of the Common Shares to be sold by the Selling Stockholder
pursuant to this Agreement. Each of the Power of Attorney and the Custody
Agreement has been duly authorized, executed and delivered by or on behalf
of the Selling Stockholder and constitutes the valid and binding instrument
or agreement of the Selling Stockholder enforceable in accordance with its
terms except as such enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally.
(b) The execution, delivery and performance of the Custody Agreement
and the Power of Attorney by the Selling Stockholder (i) requires no
action, consent or approval by or in respect of, or filing with, any
governmental body, agency, official or authority or any individual,
corporation, partnership, association, trust or other entity or
organization which has not been made or obtained and (ii) does not
constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of such party or a
loss of any benefit to which such party is entitled under any provision of
any material agreement, contract, indenture, lease or other instrument
binding upon such party or any material license, franchise, permit or other
similar authorization held by such party or result in the creation or
imposition of any mortgage, life interest, lien (except as created by such
agreements), pledge, charge, security interest, fiduciary assignment,
attachment, encumbrance or other adverse claim of any kind in respect of
any asset of such party.
(c) The Selling Stockholder has, and immediately prior to the delivery
of any Common Shares to the Underwriter will
<PAGE>
have, good and valid title to the Common Shares to be sold by the Selling
Stockholder pursuant to this Agreement, free and clear of all liens,
encumbrances, equities or claims or any nature, and full right, power and
authority to sell, assign, transfer and deliver such Common Shares, subject
only to this Agreement, the Power of Attorney and the Custody Agreement;
and upon delivery of such Common Shares and payment therefor pursuant to
this Agreement, good and valid title to such Common Shares, free and clear
of all liens, encumbrances, equities or claims of any nature will pass to
the several Underwriters.
(d) The Selling Stockholder will not, for a period of 90 days after
the date of the Prospectus, either directly or indirectly, offer to sell,
agree to sell or otherwise sell or dispose of any shares of Common Stock of
the Company, any options or warrants to purchase any shares of Common Stock
of the Company, or any securities or rights convertible into or
exchangeable for shares of Common Stock of the Company, owned either
directly or indirectly by the Selling Stockholder or with respect to which
the Selling Stockholder has the power of disposition, without the prior
written consent of Montgomery Securities.
(e) The Selling Stockholder has not, in connection with the sale of
the Selling Stockholder's Common Shares to the Underwriters, distributed
any offering material other than that permitted by the Act.
(f) The attention of the Selling Stockholder has been directed to the
rules of the Commission which prohibit the Selling Stockholder from bidding
for or purchasing any shares of the Common Stock of the Company, or
attempting to induce anyone else to bid for or purchase such shares, or
taking any other action which might tend to stabilize or manipulate the
price of the Common Stock, until the distribution of Common Stock pursuant
to the Registration Statement has been completed. The Selling Stockholder
has not taken and will not take, directly or indirectly, any action which
is designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Common Shares.
<PAGE>
(g) The Selling Stockholder has duly executed and placed in custody
all of the documents to be delivered to the Custodian pursuant to the
Custody Agreement, which documents represent all of the Common Shares to be
sold by the Selling Stockholder pursuant to this Agreement.
(h) The Selling Stockholder specifically agrees that the Common Shares
represented by the certificate(s) held in custody for the Selling
Stockholder pursuant to the Custody Agreement are subject to the interest
of the Company, the Underwriters and all the other Selling Stockholders who
may become parties to this Agreement; and, in consideration of those
interests, and for the purpose of completing the transactions contemplated
by this Agreement and the Power of Attorney, the Power of Attorney, the
arrangements made by the Selling Stockholder for such custody, and the
appointment by the Selling Stockholder of the Attorney-in-Fact by the Power
of Attorney, shall be deemed coupled with an interest and shall be
irrevocable subject to Article V of the Power of Attorney. The Selling
Stockholder specifically agrees that the obligations of the Selling
Stockholder pursuant to this Agreement shall not be terminated by operation
of law, whether by the death, disability, incompetence or incapacity of any
individual Selling Stockholder or, in the case of a trust, partnership,
corporation, limited liability company or other entity by the termination,
liquidation, winding up, or dissolution of such trust, partnership,
corporation, limited liability company or other entity or by the occurrence
of any other event, (including, without limitation, the bankruptcy or
insolvency of the Selling Stockholder, or the termination of any trust or
estate for which the Selling Stockholder is acting as a fiduciary) subject
to Article V of the Power of Attorney. If, after the execution hereof, any
individual Selling Stockholder should die or become disabled, incompetent
or incapacitated, or if any Selling Stockholder that is a trust,
partnership, corporation, limited liability company or other entity should
be terminated, liquidated, wound up or dissolved, or if any similar event
should occur (including, without limitation, the bankruptcy or insolvency
of the Selling Stockholder, or the termination of any trust or estate for
which the Selling Stockholder is acting as a fiduciary) before the delivery
of the Shares pursuant to this Agreement, certificates representing the
Shares shall
<PAGE>
be delivered by or on behalf of the Selling Stockholder in accordance with
the terms and conditions of this Agreement and of the Custody Agreement,
and actions taken by the Attorney-in-Fact pursuant to the Power of Attorney
shall be as valid as if such death, disability, incompetence or incapacity,
termination, liquidation, winding up or dissolution or other event
(including, without limitation, the bankruptcy or insolvency of the Selling
Stockholder, or the termination of any trust or estate for which the
Selling Stockholder is acting as a fiduciary) had not occurred, regardless
of whether or not the Custodian, the Attorney-in-Fact, or any of them,
shall have received notice thereof, subject to Article V of the Power of
Attorney. The Power of Attorney shall be binding upon the heirs, executors,
successors and assigns of the Selling Stockholder.
(i) Except with respect to Canpartners Incorporated, the Selling
Stockholder is not directly or indirectly an affiliate of or associated
with any member of the NASD.
(j) To the extent that any statements made in the Registration
Statement, any Preliminary Prospectus or the Prospectus, or any amendment
or supplement thereto, are made in reliance upon, and in conformity with,
written information furnished to the Company by such Selling Stockholder
specifically for use in the preparation thereof, such statements will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
SECTION 4. Representations and Warranties of the Underwriters. The
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Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and the Selling Stockholders that the information set forth (i) on
the cover page of the Prospectus with respect to price, underwriting discounts
and commissions and terms of offering and (ii) under "Underwriting" in the
Prospectus was furnished to the Company by and on behalf of the Underwriters for
use in connection with the preparation of the Registration Statement and the
Prospectus and is correct in all material respects. The Representatives
represent and warrant that they have been authorized by each of the other
Underwriters as the Representatives to enter into this
<PAGE>
Agreement on their behalf and to act for each Underwriter in the manner herein
provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the
--------------------------------------------
basis of the representations, warranties and agreements set forth herein, and
subject to the terms and conditions set forth herein, (i) the Company agrees to
issue and sell to the Underwriters 1,600,000 of the Firm Common Shares; (ii)
each of the Selling Stockholders agrees to sell to the Underwriters the number
of Firm Common Shares set forth opposite the name of such Selling Stockholder in
Schedule A annexed hereto; and (iii) the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Stockholders the number of
Firm Common Shares set forth opposite the name of such Underwriter in Schedule B
annexed hereto. The purchase price per share to be paid by the several
Underwriters to the Company and the Selling Stockholders shall be [$____] per
share.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at such place as set forth
below at such time and date, not later than the third (or, if the Firm Common
Shares are priced as contemplated by Rule 15c6-1(c) of the Securities Exchange
Act of 1934, after 4:30 p.m. Washington, D.C. time, the fourth) full business
day following the first date that any of the Common Shares are released by you
for sale to the public, as you shall designate by at least 48 hours prior notice
to the Company (or at such other time and date, not later than one week after
such third full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the later of the first
date that any of the Common Shares are released by you for sale to the public
and the date that is 48 hours after the date that the Prospectus has been so
recirculated.
Delivery of certificates for the Firm Common Shares shall be made by
or on behalf of the Company and the Selling Stockholders to you, for the
respective accounts of the Underwriters against payment by you, for the accounts
of the several Underwriters, by wire transfer of immediately available
<PAGE>
funds in proportion to the number of Firm Common Shares to be sold by the
Company and the Selling Stockholders, respectively,to the order of (i) the
Company or other agent designated by the Company and (ii) the Custodian. The
certificates for the Firm Common Shares shall be registered in such names and
denominations as you shall have requested at least two full business days prior
to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
New York, New York or such other location, as may be designated by you. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements set forth herein, and subject to the terms and conditions set forth
herein, the Company and the Selling Stockholders hereby grant an option to the
several Underwriters to purchase, severally and not jointly, up to an aggregate
of 460,000 Option Common Shares, from the Company and the Selling Stockholders
in the amount of 240,000 Shares and 360,000 Shares, respectively, at the
purchase price per share to be paid for the Firm Common Shares, for use solely
in covering any over-allotments made by you for the account of the Underwriters
in the sale and distribution of the Firm Common Shares. The option granted
hereunder may be exercised at any time (but not more than once) within 30 days
after the first date that any of the Common Shares are released by you for sale
to the public, upon written notice by you to the Company and the Selling
Stockholders setting forth the aggregate number of Option Common Shares as to
which the Underwriters are exercising the option, the names and denominations in
which the certificates for such shares are to be registered and the time and
place at which such certificates will be delivered. Such time of delivery
(which may not be earlier than the First Closing Date), being herein referred to
as the "Second Closing Date," shall be determined by you, but if at any time
other than the First Closing Date shall not be earlier than three nor later than
five full business days after delivery of such notice of exercise. References
herein to "Closing Date" shall mean the First Closing Date and/or the Second
Closing Date, as the context requires. The number of Option Common Shares to be
purchased by each Underwriter from the Company shall be determined by
multiplying the number of Option Common Shares to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which is the
number of Firm Common Shares to be purchased by such Underwriter as set forth
opposite its name in Schedule B and the denominator of which is 4,000,000
(subject to such adjustments to eliminate any fractional share purchases as you
in your discretion may make). The number of Optional Common Shares to be
purchased by each Underwriter from each of the Selling Stockholders shall be
determined by multiplying the number of Optional Common Shares to be sold by
such Selling Stockholder pursuant to such notice
<PAGE>
of exercise by a fraction, the numerator of which is the number of Firm Common
Shares to be purchased by such Underwriter as set forth opposite its name in
Schedule B and the denominator of which is 4,000,000. Certificates for the
Option Common Shares will be made available for checking and packaging on the
business day preceding the Second Closing Date at a location in New York, New
York or such other location, as may be designated by you. Payment for the Option
Common Shares shall be the same as for the Firm Common Shares purchased from the
Company and the Selling Stockholders as specified in the two preceding
paragraphs. At any time before lapse of the option, you may cancel such option
by giving written notice of such cancellation to the Company and the Selling
Stockholders. If the option is cancelled or expires unexercised in whole or in
part, the Company will deregister under the Act the number of Option Shares as
to which the option has not been exercised.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to issue a receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose
to make a public offering of their respective portions of the Common Shares as
soon after the effective date of the Registration Statement as in the judgment
of the Representatives is advisable and at the public offering
<PAGE>
price set forth on the cover page of and on the terms set forth in the
Prospectus.
SECTION 6. Covenants of the Company. The Company covenants and
------------------------
agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing
of the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly
advise you in writing (i) of the receipt of any comments of the Commission,
(ii) of any request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus of which you have not been furnished with a copy a reasonable
time prior to such filing or to which you reasonably object or which is not
in compliance with the Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration
Statement or the Prospectus which in your judgment may be necessary or
advisable to enable the several Underwriters to continue the distribution
<PAGE>
of the Common Shares and will use its best efforts to cause the same to
become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rule 430A of the Rules and
Regulations with respect to information omitted from the Registration
Statement in reliance upon such Rule.
(c) If at any time within the applicable period referred to in Section
10(a)(3) of the Act or Rule 174 of the Rules and Regulations during which a
prospectus relating to the Common Shares is required to be delivered under
the Act any event occurs, as a result of which the Prospectus, including
any amendments or supplements, would include an untrue statement of a
material fact, or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or if
it is necessary at any time to amend the Prospectus, including any
amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment or
supplement which will effect such compliance and will use its best efforts
to cause the same to become effective as soon as possible; and, in case any
Underwriter is required to deliver a prospectus after the applicable time
period, the Company upon request, but at the expense of such Underwriter,
will promptly prepare such amendment or amendments to the Registration
Statement and such Prospectus or Prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act and Rule
174 of the Rules and Regulations, as applicable.
(d) As soon as practicable, but not later than 45 days (or 90 days if
such quarter is the fiscal year end) after the end of the first quarter
ending after one year following the effective date of the Registration
Statement (as defined in Rule 158(c) of the Rules and Regulations), the
Company will make generally available to its security holders an earnings
statement (which need not be audited) covering a period of 12 consecutive
months beginning after the effective date of the Registration Statement
which will satisfy the provisions of the last paragraph of Section 11(a) of
the Act.
<PAGE>
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the applicable period referred to in
Section 10(a)(3) of the Act or Rule 174 of the Rules and Regulations, will
furnish to you or mail to your order copies of the Registration Statement,
the Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents in each case as soon as available and in
such quantities as you may reasonably request, for the purposes
contemplated by the Act and the Rules and Regulations.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions
from the application of) the Blue Sky and Canadian securities laws of such
jurisdictions as you designate, will comply with such laws and will
continue such qualifications, registrations and exemptions in effect so
long as reasonably required for the distribution of the Common Shares,
except that the Company will not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a corporation. The Company will advise you promptly
of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering; sale or trading in
any jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company, with your
cooperation, will use its best efforts to obtain the withdrawal thereof.
(g) During the period of five years after the date of this Agreement,
the Company will furnish to the Representatives and their counsel and, upon
request of the Representatives, to each of the other Underwriters: (i) as
soon as practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of the
close of such fiscal year and statements of income, shareholders' equity
and cash flows for the year then ended and the opinion thereon of the
Company's independent public accountants; (ii) as soon as
<PAGE>
practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form
8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its
Common Stock.
(h) During the period of 90 days after the first date that any of the
Common Shares are released by you for sale to the public, without your
prior written consent (which consent may be withheld at your sole
discretion), the Company will not, other than as disclosed in the
Prospectus, issue, offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other securities
convertible into or exchangeable with its Common Stock or other equity
security of the Company, except, in each case, to grant options or to sell
shares of Common Stock pursuant to the Company's 1996 Equity Participation
Plan or the Company's Employee Stock Option Plan, each as described in the
Prospectus, to grant options or to sell shares of Common Stock in
connection with the offering and sale of the Notes or to grant options or
to sell or issue shares of Common Stock in connection with the Merger
Agreement.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it in accordance with the statements under the caption "Use
of Proceeds" in the Prospectus.
(j) As necessary, the Company will use its best efforts to qualify or
register its Common Shares for sale in non-issuer transactions under (or
obtain exemptions from the application of) the Blue Sky laws of the State
of California and the provincial laws of Canada as specified by the
Representatives (and thereby permit market making transactions and
secondary trading in the Company's Common Shares in California and such
Canadian provinces as specified by the Representatives), will comply with
such Blue Sky or Canadian provincial laws and continue such qualifications,
registrations and exemptions in effect for a period of five years after the
date hereof.
<PAGE>
(k) The Company will use its best efforts to continue the quotation
of the Common Shares as a national market system security on the Nasdaq
National Market.
(l) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of formation of the Company, a registrar (which may
be the same entity as the transfer agent).
You, on behalf of the Underwriters, may, in your sole discretion,
waive in writing the performance by the Company of any one or more of the
foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including without limiting the
generality of the foregoing, (i) all expenses incident to the issuance and
delivery of the Common Shares (including all printing and engraving costs), (ii)
all fees and expenses of the registrar and transfer agent of the Common Shares,
(iii) all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel and the Company's independent accountants, (v)
all costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Agreement Among Underwriters, the Selected Dealers Agreement, the
Underwriters' Questionnaire, the Underwriters' Power of Attorney and the
preliminary and final Blue Sky memoranda, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the Blue Sky laws or the provincial securities laws of Canada, (vii) the filing
fee of the NASD and the fees and expenses related to the inclusion of the Common
Shares on the Nasdaq National Market, and (viii) all other fees, costs and
<PAGE>
expenses referred to in Item 13 of Part II of the Registration Statement.
Except as provided in this Section 7, Section 9 and Section 11 hereof, the
Underwriters and the Selling Stockholders shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to qualification, registration or exemption under the Blue Sky and Canadian
provincial securities laws and the preliminary and final Blue Sky memoranda,
which fees shall be paid on the First Closing Date or the Second Closing Date,
as applicable).
This Section 7 shall not affect any agreement between the Company and
the Selling Stockholders relating to the payment of expenses. This Section 7
shall not affect any agreement to which the Company is a party relating to the
payment of expenses incurred in connection with the issuance and sale of the
Notes.
SECTION 8. Conditions of the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Option Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company set forth herein as of the date hereof and
as of the First Closing Date or the Second Closing Date, as the case may be, to
the accuracy of the statements of the Company's officers and the Selling
Stockholders made pursuant to the provisions hereof, to the performance of the
Company and the Selling Stockholders of their respective obligations hereunder,
and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
not later than 10:00 P.M.), Washington, D.C. Time, on the date of this
Agreement, or at such later time as shall have been consented to by you; if
the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule
424(b) of the Rules and Regulations; and prior to such Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or
<PAGE>
shall be pending or, to the knowledge of the Company or you, shall be
contemplated by the Commission; and any request of the Commission for
inclusion of additional information in the Registration Statement, or
otherwise, shall have been complied with to your satisfaction.
(b) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance satisfactory to
you, except as otherwise expressly provided below:
(i) An opinion of Latham & Watkins, counsel for the Company
(exclusive of environmental matters, matters relating to real property
ownership and condition, indebtedness of the Company or its affiliates
or subsidiaries, regulation of the Company's business and property or
that of its affiliates or subsidiaries, the Company's or its
affiliates' or subsidiaries' relationship with Promus Hotels
Corporation and Westin Hotels & Resorts and any matters relating to
AVCOM and its subsidiaries and affiliates) addressed to the
Underwriters and dated the First Closing Date, or the Second Closing
Date, as the case may be, to the effect that:
(1) Except as disclosed in or specifically contemplated by
the Prospectus and except for the Notes, to such counsel's
knowledge there are no outstanding options, warrants or other
rights calling for the issuance of any shares of capital stock of
the Company or any security convertible into or exchangeable for
capital stock of the Company;
(2)(a)(i) The Registration Statement has become effective
under the Act; (ii) to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued; (iii) to
such counsel's knowledge, no proceedings for that purpose have
been instituted by the Commission; and (iv) any required filing
of the Prospectus and any supplement thereto pursuant to Rule
424(b) of
<PAGE>
the Rules and Regulations has been made in the manner and within
the time period required by such Rule 424(b);
(b) The Registration Statement and the Prospectus comply as
to form in all material respects with the applicable requirements
for registration statements on Form S-1 under the Act and the
Rules and Regulations, it being understood that such counsel need
not express any opinion with respect to the financial statements,
schedules and other financial and statistical data included in
the Registration Statement or the Exhibits thereto;
(c) To such counsel's knowledge, there are no contracts,
agreements, documents, franchises, leases or licenses of a
character required to be disclosed in the Registration Statement
or Prospectus which are not disclosed or filed, as required
(which opinion may be rendered by the Company's general counsel);
and
(d) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened
against the Company which are required to be described in the
Prospectus which are not described as required (which opinion may
be rendered by the Company's general counsel);
(3) This Agreement is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except as to those
provisions relating to indemnity or contribution
<PAGE>
for liabilities arising under the Act as to which no opinion need
be expressed;
(4) No approval, authorization, order, consent,
registration, filing, qualification, license or permit of or with
any court, regulatory, administrative or other governmental body
is required for the execution and delivery of this Agreement by
the Company or the consummation of the transactions contemplated
by this Agreement, except (i) such as have been obtained and are
in full force and effect under the Act, (ii) such as may be
required under applicable Blue Sky or Canadian securities laws in
connection with the purchase and distribution of the Common
Shares by the Underwriters; (iii) clearing of such offering with
the NASD; and (iv) such as to which the failure to so obtain
would not have a Material Adverse Effect;
(5) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a default
under any of the material agreements filed under Rule 601(b)(10)
of Regulation S-K under the Act as exhibits to the Registration
Statement, except as would not have a Material Adverse Effect;
(6) Except for the holders of the Company's Common Stock
who are parties to the Company's Registration Rights Agreement
dated August 19, 1996 and except as otherwise set forth in the
Prospectus, no holders of securities of the Company have rights
to register shares of Common Stock or other securities because of
the filing of the Registration Statement by the Company or the
offering or other transactions contemplated hereby; and
<PAGE>
(7) The Company is not an "investment company" within the
meaning of the 1940 Act.
Such counsel shall also include a statement to the effect that
nothing has come to such counsel's attention that would lead such
counsel to believe that either at the effective date of the
Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, it being
understood that, in addition to the matters excluded in paragraph
(b)(i) above, such counsel express no belief as to the financial
statements, schedules and other financial, statistical, numerical and
accounting data included in the Registration Statement or Prospectus
or in the exhibits to the Registration Statement.
In rendering such opinion, such counsel may rely as to matters of
fact, on certificates of the Company and the Company Affiliates and
Subsidiaries, officers of the Company and the Company Affiliates and
Subsidiaries, and governmental officials, in which case their opinion
is to state that they are so doing and that the Underwriters are
justified in relying on such opinions or certificates and copies of
each of said opinions or certificates are to be attached to the
opinion.
(ii) An opinion of Ballard, Spahr, Andrews & Ingersoll, local
counsel for the Company, on matters of Maryland law, addressed to the
Underwriters and dated the First Closing Date, or the Second Closing
Date, as the case may be, to the effect that:
(1) The Company has been duly formed and is validly
existing as a corporation, is in good standing under the laws of
the State of Maryland, and is duly qualified to do business as a
foreign corporation and is in good standing in those
jurisdictions where the conduct of the Company's
<PAGE>
business requires it to be qualified, and has the requisite
corporate power and authority to own its Existing Resorts and
conduct its business as described in the Registration Statement;
(2) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus; all outstanding
shares of Common Stock (including the Common Shares), have been
duly and validly issued, are fully paid and nonassessable, have
been issued in compliance with federal and state securities laws,
were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase any
securities; and the certificates representing the Common Shares
to be delivered hereunder are in due and proper form under
Maryland law, and when duly countersigned by the Company's
transfer agent and registrar, and delivered to you or upon your
order against payment of the agreed consideration therefor in
accordance with the provisions of this Agreement, the Common
Shares represented thereby will be duly authorized and validly
issued, fully paid and nonassessable, will not have been issued
in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities granted under the
laws of the State of Maryland, the Articles of Incorporation or
Bylaws of the Company or any agreement or instrument filed with
the Commission as an exhibit to the Registration Statement; and
will conform in all material respects to the description thereof
contained in the Registration Statement;
(3) This Agreement has been duly and validly authorized by
all necessary action by the Company, has been duly and validly
executed and delivered by and on behalf of the Company; and
(4) The information set forth in the Prospectus under the
headings "Description of Capital Stock", "Certain Provisions of
Maryland Law and of the Company's Charter and Bylaws" and
<PAGE>
"Shares Eligible for Future Sale" to the extent that such
information constitutes matters of Maryland law or legal
conclusions involving Maryland law, has been reviewed by such
counsel and is correct in all material respects.
(iii) Opinions of Paul, Hastings, Janofsky & Walker and/or
Schreeder, Wheeler & Flint (or other counsel acceptable to you), each
a special real estate and timeshare counsel for the Company, addressed
to the Underwriters and dated as of the First Closing Date, or the
Second Closing Date, which opinions shall state to the effect that (it
being understood that such counsel shall only have to opine as to the
laws of the jurisdictions in which it is duly licensed to practice law
in):
(1) The Company has obtained the material approvals and
permits from the timeshare authority of the state in which the
subject Existing Resort is located ("Home State") necessary to
offer for sale and sell timeshare interests and offer purchase
money financing in connection with such sales ("Home State
Approvals") in accordance with the applicable laws and
regulations of the state in which the resort is located
specifically governing the marketing and sale of timeshare
interests in real property ("Home State Timeshare Laws");
(2) All of the permits and/or approvals issued by timeshare
authorities of states other than the state where each applicable
resort is located ("Foreign State") for the offering for sale and
sale of timeshare interests in such resort (collectively, the
"Foreign State Approvals"), constitute the material approvals and
permits necessary to be issued by such Foreign State to permit
the offering for sale and sale of timeshare interests in such
resort in accordance with the laws and regulations of the Foreign
State specifically governing the offering for sale and sale of
timeshare interests in real property
<PAGE>
located outside of the Foreign State ("Foreign State Timeshare
Laws");
(3) To such counsel's knowledge and based upon its review of
certificates and letters from state timeshare authorities, the
Company and other pertinent parties (collectively, "Reliance
Certificates and Letters"), the Company has not received any
written notice from any regulatory authority that it is in
violation of any applicable federal or state law or regulation
regarding the offering for sale and sale of timeshare interests
in the resorts, the violation of which would have a Material
Adverse Effect on the ownership or operation of the Existing
Resorts;
(4) To such counsel's knowledge, there are no material
franchises, licenses, leases, contracts, agreements or other
documents (collectively, the "Material Agreements") entered into
by the Company outside the ordinary course of business, which
involve matters relating to the ownership, purchase money
financing and/or use of real property and/or the offering for
sale or sale of timeshare interests in the Existing Resorts,
which are of a character required to be disclosed in the
Registration Statement or to be filed as exhibits to the
Registration Statement which are not disclosed or filed;
(5) To such counsel's knowledge and based upon such
counsel's review of Reliance Certificates and Letters, there are
no real estate or timeshare related governmental actions,
governmental suits or governmental proceedings pending or
threatened against the Company with respect to the business and
property relating to the Existing Resorts except (a) those which
have been disclosed in the Registration Statement, and
(b) those which would not have a Material Adverse Effect;
<PAGE>
(6) The consummation by the Company of the transactions
contemplated by the Underwriting Agreement do not require the
consent, approval, authorization, registration or qualification
of (i) any governmental agency or authority of the timeshare
authority of the states where each of the Existing Resorts are
located, (ii) any lender which has a recorded security interest
in the Existing Resorts, (iii) Westin Hotels & Resorts or any
related entities under that certain agreement by and between W &
S Hotel L.L.C. and Argosy/Koar Group, Inc., dated May 3, 1996
("Westin Agreement"), (iv) Promus Hotels, Inc. (or any subsidiary
or affiliate of Promus Hotels, Inc.) under any Licensee
Agreements and Management Agreements with Promus Hotels, Inc. (or
any of its subsidiaries or affiliates) (collectively, the
"Embassy License Agreements and Management Agreements"), except
those which have been obtained and are in full force and effect
and those as to which the failure to so obtain would not have a
Material Adverse Effect;
(7) The consummation by the Company of the transactions
contemplated by the Underwriting Agreement as they relate to the
Existing Resorts do not conflict with or result in a material
breach or violation by the Company of: (i) any of the terms and
provisions of any loans which encumber the Existing Resorts, (ii)
any terms or provisions of the Home State Approvals where each of
the Existing Resorts are located; (iii) any terms or provisions
of the Foreign State Approvals; (iv) the Westin Agreement; (v)
the Embassy License Agreements and Management Agreements, or if
such transactions would have constituted such a breach, violation
or default had the necessary consents or approvals not been
obtained, consents or approvals have been obtained and are in
full force and effect;
(8) The owner of each of the Existing Resorts, if required
by law, has obtained a brokerage or sales license from the state
<PAGE>
timeshare authority in order to offer purchase money financing in
connection with the sale of timeshare interests in the applicable
resorts. The owner of each of the Existing Resorts, if required
by law, has obtained a brokerage or sales license from the state
timeshare authority in order to offer for sale and sell timeshare
interests in the State of California or has contracted with a
licensed broker to provide any of the aforementioned services;
and
(9) A statement to the effect that although such counsel is
not passing upon, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in
the Registration Statement or the Prospectus and has not made any
independent check or verification thereof, during the course of
such participation (relying as to the factual matters upon the
Reliance Certificates and Letters), no facts came to the
counsel's attention that have caused it to believe that the
Registration Statement at the time it became effective and as of
the date hereof or the Prospectus contained an untrue statement
of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein
in light of the circumstances under which they were made, not
misleading; provided, however, that this statement is limited
solely to the statements or omissions relating to (i)
indebtedness secured by the Existing Resorts (it being understood
that the counsel's review of the Registration Statement has been
limited to legal and other non-financial matters with respect
thereto), (ii) environmental matters with respect to the Existing
Resorts (it being understood that our involvement with respect
thereto has been limited to environmental matters that have come
to the counsel's attention since the acquisition of such Existing
Resorts by the Company), (iii) ownership of the Existing Resorts
(it being understood that our review thereof has been limited to
the review of certain title reports),
<PAGE>
(iv) regulation by each Home State and each Foreign State with
respect to the issuance of the Home State Approvals and the
Foreign State Approvals, (v) the Property Partnerships' and the
Company's contractual relationships with Promus or Westin, and
(vi) the statements in the Prospectus under the caption "Business
- Governmental Regulation," to the extent that such information
constitutes matters of law or legal conclusions as it pertains to
the ownership, operation, sale and offering of sale of timeshare
interests in the Existing Resorts.
In rendering such opinions, each such counsel may rely as to
matters of local law, on opinions of local counsel, and as to
matters of fact, on certificates of officers of the Company as
applicable, and of governmental officials, in which case their
opinion is to state that they are doing so and certificates and
copies of each of said opinions or certificates are attached to
the opinion.
(iv) An opinion of Sidley & Austin, as counsel for the Selling
Stockholders separately identified in Schedule A hereto addressed to
the Underwriters and dated as of the First Closing Date, or the Second
Closing Date, which opinions shall state to the effect that:
(1) The Selling Stockholder has all right, power and
authority to enter into this Agreement, the Power of Attorney and
the Custody Agreement and to consummate the transactions
contemplated hereby and thereby, including, without limitation,
the sale, assignment, transfer and delivery of the Shares to be
sold by the Selling Stockholder pursuant to this Agreement. Each
of this Agreement, the Power of Attorney and the Custody
Agreement has been duly authorized, executed and delivered by or
on behalf of the Selling Stockholder and constitutes the valid
and binding instrument or agreement of the Selling Stockholder
enforceable in accordance with its terms except as
<PAGE>
such enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally;
(2) The execution, delivery and performance of this
Agreement, the Power of Attorney and the Custody Agreement by the
Selling Stockholder (i) requires no action, consent or approval
by or in respect of, or filing with, any governmental body,
agency, official or authority or any individual, corporation,
partnership, association, trust or other entity or organization
which has not been made or obtained and (ii) does not constitute
a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of such
party or a loss of any benefit to which such party is entitled
under any provision of any material agreement, contract,
indenture, lease or other instrument binding upon such party
(with such material agreements to be identified by the Selling
Stockholders) or any material license, franchise, permit or other
similar authorization held by such party or result in the
creation or imposition of any mortgage, life interest, lien,
pledge, charge, security interest, fiduciary assignment,
attachment, encumbrance or other adverse claim of any kind in
respect of any asset of such party; and
(3) Upon delivery of such Common Shares and payment thereof
pursuant to this Agreement, and assuming the Underwriters are
purchasers in good faith and without notice of any adverse claim,
good and valid title to such Common Shares, free and clear of all
liens, encumbrances, equities or claims of any nature will pass
to the several Underwriters.
(v) Opinion of Schreeder, Wheeler & Flint, in addition to the
opinion set forth above in section 8(c)(iii), as counsel for the
Company in connection with the Merger Agreement, addressed to the
Underwriters and dated as of the First Closing Date, or
<PAGE>
the Second Closing Date, which opinions shall state to the effect
that:
(1) The Company had the corporate power and authority to
enter into the Merger Agreement and to consummate the
transactions contemplated therein; the Merger Agreement has been
duly and validly authorized by all necessary action by the
Company, has been duly and validly executed and delivered by and
on behalf of the Company, and is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except as to those
provisions relating to indemnity or contribution for liabilities
arising under the Act as to which no opinion need be expressed;
(2) The registration statement and the prospectus filed
with the Commission on November 20, 1996, and the Merger
Agreement were duly and validly authorized by all necessary
action by the Company and conformed in all material respects with
the applicable requirements for registration statements on Form
S-4 under the Act and the Rules and Regulations; and
(3) The Merger has been duly and validly approved by the
shareholders of Avcom.
(vi) An opinion of Gallagher & Kennedy, counsel to AVCOM,
substantially in the form required by Section 6.1(c) of the Merger
Agreement.
(vii) Such opinion or opinions of O'Melveny & Myers LLP, counsel
for the Underwriters, dated the First Closing Date or the Second
Closing Date, as the case may be, with respect to the formation of the
Company and other legal matters relating to this Agreement, the
validity of the Common Shares, the Registration Statement and the
Prospectus and other related matters as you may reasonably require,
and the
<PAGE>
Company shall have furnished to such counsel such documents and shall
have exhibited to them such papers and records as they may reasonably
request for the purpose of enabling them to pass upon such matters. In
connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and
governmental officials, as applicable.
(viii) A certificate of the Company, executed by the Chairman of
the Board or President and the chief financial or accounting officer
of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with each of the agreements and satisfied all of the
conditions on its part to be performed or satisfied on or prior
to such Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued; and to the knowledge
of the Company no proceedings for that purpose have been
instituted or are pending or contemplated under the Act;
(3) Each of the respective signers of each certificate has
carefully examined the Registration Statement and the Prospectus;
in his opinion and to the knowledge of the Company, the
Registration Statement and the Prospectus and any amendments or
supplements thereto contain all statements required to be stated
therein; and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto
<PAGE>
includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided, however, that such certificate does not require any
representation concerning statements in, or omissions from, the
Registration Statement or Prospectus, which are based upon and
conform to information furnished by the Underwriters pursuant to
Section 4 hereof;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction
or event has occurred which should have been set forth in an
amendment to the Registration Statement or in a supplement to or
amendment of any prospectus which has not been disclosed in such
a supplement or amendment;
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and
except as specifically disclosed in or contemplated by the
Prospectus and except for Note Offering, there has not been any
Material Adverse Change or a development involving a Material
Adverse Change; and no legal or governmental action, suit or
proceeding is pending or threatened against the Company, or, to
the knowledge of the Company, any of the Existing Resorts which
would have a Material Adverse Effect; since such dates and except
as so disclosed, the Company has not entered into any verbal or
written agreement or other transaction which is not in the
ordinary course of business, incurred any liability or
obligation, direct, contingent or indirect, made any change in
its capital stock, made any change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the
Company's capital stock which could be reasonably expected to
have a Material Adverse Effect; and the Company has not declared
or paid any dividend, or made any other distribution (other than
dividends or distributions paid to shareholders to satisfy tax
<PAGE>
liabilities), upon its capital stock payable to shareholders of
record on a date prior to the First Closing Date or the Second
Closing Date, as the case may be; and
(6) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except
as disclosed in or contemplated by the Prospectus, none of the
Existing Resorts has sustained a material loss or damage by
strike, fire, flood, windstorm, hurricane, typhoon, accident or
other calamity (whether or not insured).
(ix) On the date that this Agreement is executed and also on the
First Closing Date and the Second Closing Date a letter addressed to
you, as Representatives of the Underwriters, from E & Y and Arthur
Andersen, as applicable, independent accountants, the first one to be
dated the day of this Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a Second Closing) to
be dated the Second Closing Date, in form and substance satisfactory
to the Representatives, to the effect that:
(1) E & Y and Arthur Andersen are independent certified
public accountants with respect to the Company within the meaning
of the Act and the Rules and Regulations;
(2) It is their opinion that the financial statements
included in the Registration Statement audited by them comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations;
(3) The financial statements for the nine months ended
September 30, 1996 and the nine months ended September 30, 1995,
to the extent applicable, were reviewed by them in accordance
with the standards established by the American Institute of
Certified Public Accountants and
<PAGE>
based upon their review they are not aware of any material
modifications that should be made to such financial statements
for them to be in conformity with generally accepted accounting
principles currently in effect in the United States to comply as
to form in all material respects with the applicable requirements
of the Act and the Rules and Regulations;
(4) Based upon procedures set forth in detail in such
letter with respect to the period from October 1, 1996 to
December 31, 1996, including a reading of the latest available
interim financial statements of the Company and inquiries of
officials of the Company responsible for financial and accounting
matters, nothing has come to their attention which causes them to
believe that:
(a) at December 31, 1996, there was any change in the
capital stock, increase in long-term debt, or decrease in
consolidated net current assets or stockholders' equity of the
consolidated companies as compared with amounts shown in the
September 30, 1996, unaudited condensed consolidated balance
sheet included in the Registration Statement;
(b) for the period from October 1, 1996, to December 31,
1996, there were any decreases, as compared to the corresponding
period in the preceding year, in consolidated net sales or in the
total or per-share amounts of income before extraordinary items
or of net income, except in all instances for changes, increases,
or decreases that the Registration Statement discloses have
occurred or may occur;
(c) at a specified date not more than five days prior to
the date of this Agreement, other than changes resulting from the
offering and sale of the Notes or the Merger Agreement, (i) there
has been any change in capital stock, increase in long-term debt
or any decreases in consolidated
<PAGE>
net current assets or stockholders' equity of the Company as
compared with the amounts shown in the September 30, 1996 balance
sheet of the Company included in the Registration Statement, (ii)
or for the period from October 1, 1996 to a date not to exceed
five days prior to the date of this Agreement there were any
decreases, as compared with the corresponding period in the
preceding year, in consolidated net revenues or in the total per
share amounts of income before extraordinary items or of net
income of the Existing Resorts, except in all instances for
changes, increases or decreases which the Registration Statement
discloses have occurred or may occur; and
(5) In addition to the examination referred to in their
opinions and the procedures referred to above, they have carried
out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information
which are included in the Registration Statement and Prospectus
and which were specified by you, and have found such amounts,
percentages and financial information to be in agreement with, or
derived from, the relevant accounting, financial and other
records of the Company and each of the Property Partnerships.
(d) The Firm Common Shares and the Option Common Shares shall have
been approved for listing on the Nasdaq National Market, subject to
official notice of issuance, and the NASD, upon review of the terms of the
public offering, shall not have objected to such offering, such terms or
the Underwriters' participation in the same.
(e) The Company shall have furnished to you such further certificates
and documents as you shall have reasonably requested.
(f) There shall have been delivered to you the Firm Common Shares
and, if any Option Common Shares are purchased, the Option Common Shares in
the manner required pursuant to Section 5 hereof.
<PAGE>
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to O'Melveny & Myers LLP, counsel for the Underwriters. The Company shall
furnish you with such manually signed or conformed copies of such opinions,
certificates, letters and documents as you request. Any certificate signed by
any officer of the Company and delivered to the Representatives or to counsel
for the Underwriters shall be deemed to be a representation and warranty by the
Company to the Underwriters as to each of the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Stockholders without liability on
the part of any Underwriter, the Company or the Selling Stockholders, except for
the expenses to be paid or reimbursed by the Company pursuant to Sections 7 and
9 hereof and except to the extent provided in Section 10 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding
---------------------------------------
any other provisions hereof, if this Agreement shall be terminated by you
pursuant to Section 14, or if the sale to the Underwriters of the Common Shares
at the First Closing is not consummated because of any willful refusal,
inability or failure on the part of the Company or any Selling Stockholder to
perform any agreement herein or to comply with any provision hereof without
reasonable justification therefor, the Company agrees to reimburse, you and the
other Underwriters upon demand for all out-of-pocket expenses that shall have
been reasonably incurred by you and them in connection with the proposed
purchase and the sale of the Common Shares, including but not limited to fees
and disbursements of counsel relating directly to the offering contemplated by
the Prospectus. Any such termination shall be without liability of any party to
any other party except that the provisions of this Section 9, Section 7 and
Section 11 shall at all times be effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. You and the
---------------------------------------
Company will use your and its best efforts to cause the Registration Statement
to become effective, to prevent the issuance of any stop order suspending the
effectiveness of the
<PAGE>
Registration Statement and, if such stop order be issued, to obtain as soon as
possible the lifting thereof.
SECTION 11. Indemnification. (a) The Company agrees to indemnify
---------------
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act, the Exchange Act or other
federal, state or Canadian statutory laws or regulations, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained herein or any failure of the Company to
perform its obligations hereunder or under law and will reimburse each
Underwriter and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability, expense or action arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or as a result of or any amendment or supplement thereto in
reliance upon and in conformity with the information furnished to the Company
pursuant to Section 4 hereof or to the Company by any Selling Stockholder; and
provided the indemnity agreement contained in this Section 11(a) shall not inure
to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or expenses purchased the Common Shares
concerned to the extent that any such loss, claim, damage, liability or expense
of such Underwriter results
<PAGE>
from the fact that a copy of the Prospectus was not sent or given to such person
at or prior to the written confirmation of sale of such Common Shares to such
person as required by the Act. In addition to its other obligations under this
Section 11(a) the Company agrees that it will reimburse expenses as provided in
this Section 11(a) as incurred, but no less frequently than quarterly,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligations to reimburse each Underwriter for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company, together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Selling Stockholder, severally in proportion to the number of
Common Shares to be sold by such Selling Shareholder hereunder, will indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act, the Exchange Act or other
federal, state or Canadian statutory laws or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Selling Stockholder), insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based in
whole or in part on any inaccuracy in the representations and warranties of the
Selling Stockholders contained herein or any failure of the Selling Stockholders
to perform their obligations hereunder or under law and will reimburse each
Underwriter and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising
<PAGE>
or paying any such loss, claim, damage, liability, expense or action; provided,
however, that the Selling Stockholders will not be liable in any such case to
the extent that any such loss, claim, damage, liability, expense or action
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or as a result of or any amendment or
supplement thereto in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and provided the
indemnity agreement contained in this Section 11(a) shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased the Common Shares concerned
to the extent that any such loss, claim, damage liability or expense of such
Underwriter results from the fact that a copy of the Prospectus was not sent or
given to such person at or prior to the written confirmation of sale of such
Common Shares to such person as required by the Act; and provided further that
each Selling Stockholder's liability shall not exceed in the aggregate the
purchase price per share set forth in Section 5 hereof, multiplied by the number
of Common Shares sold by each Selling Stockholder to the Underwriters.
(c) Each Underwriter will severally indemnify and hold harmless the
Company, the Selling Stockholders, each of its directors, each of its officers
who signed the Registration Statement, each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, the Selling Stockholders, any such
director, officer, or controlling person may become subject under the Act, the
Exchange Act or other federal or state statutory laws or regulations, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue
<PAGE>
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with the
information furnished to the Company pursuant to Section 4 hereof; and will
reimburse the Company, any Selling Stockholder, or any such director, officer or
any controlling person of the Company for any legal and other expense reasonably
incurred by the Company, such Selling Stockholder, any such director, officer or
controlling person of the Company in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action. In addition to its other obligations under this Section
11(c), each Underwriter severally agrees that it will reimburse expenses as
provided in this Section 11(c) as incurred, but no less frequently than
quarterly, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Underwriters, obligation to reimburse the
Company (and, to the extent applicable, each Selling Stockholder, each officer,
director or controlling person of the Company) for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to the
extent applicable, each Selling Stockholder, each officer, director or
controlling person of the Company) shall promptly return it to the Underwriters
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case
<PAGE>
any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel representing all indemnified parties who are parties to
such action or set of related actions) or (ii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
(e) If the indemnification provided for in this Section is required by
its terms, but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under Sections 11(a), 11(b),
11(c) or 11(d) hereof in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such
<PAGE>
indemnified party as a result of any losses, claims, damages, liabilities or
expenses referred to herein (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company, the Selling Stockholders and the
Underwriters from the offering of the Common Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, the Selling
Stockholders and the Underwriters in connection with the statements or omissions
or inaccuracies in the representations and warranties herein which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits received by
the Company, the Selling Stockholders and the Underwriters shall be deemed to be
in the same proportion, in the case of the Company and the Selling Stockholders
as the total price paid to the Company and the Selling Stockholders for the
Common Shares sold by it and them, respectively, to the Underwriters (net of
underwriting commissions, but before deducting expenses), and in the case of the
Underwriters as the underwriting commissions received by them bears to the total
of such amounts paid to the Company and the Selling Stockholders and received by
the Underwriters as underwriting commissions. The relative fault of the Company,
the Selling Stockholders, and the Underwriters shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact or
the inaccurate or the alleged inaccurate representation and/or warranty relates
to information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section (d) of this Section, any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section (d) of this Section with respect to notice of commencement of any action
shall apply if a claim for contribution is to be made under this Section (e);
provided, however, that no additional notice shall be required with respect to
any action for which notice has been given under Section (d) of this Section for
purposes of indemnification. The
<PAGE>
Company, the Selling Stockholders and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section were determined
solely by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this paragraph.
Notwithstanding the foregoing, the Underwriters shall be entitled to
contribution from the Selling Stockholders only to the extent that contribution
from the Company to the Underwriters does not fully hold harmless the
Underwriters in respect of all losses, claims, liabilities, or expenses referred
to in this Section, no Selling Stockholder shall be required to give
contribution with respect to any claim for which they would not be required to
provide indemnification as a result of any proviso to Section 11(b) and no
Selling Stockholder shall be required to provide contribution in an amount that,
together with any amounts paid in indemnification pursuant to Section 11(b),
would exceed the limitation on amounts set forth in the third proviso to Section
11(b). Notwithstanding the provisions of this Section, no Underwriter shall be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section are several in proportion to their respective
underwriting commitments and not joint.
(f) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 11(a), 11(b) or
11(c) hereof, including the amounts of any requested reimbursement payments and
the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such
<PAGE>
an arbitration would be limited to the operation of the interim reimbursement
provisions contained in Sections 11(a), 11(b) and 11(c) hereof and would not
resolve the ultimate propriety or enforceability of the obligation to reimburse
expenses which is created by the provisions of such Sections 11(a), 11(b) or
11(c) hereof.
SECTION 12. Default of Underwriters. It shall be a condition to this
-----------------------
Agreement and the obligation of the Company and each of the Selling Stockholders
to sell and deliver the Common Shares hereunder, and of each Underwriter to
purchase the Common Shares in the manner as described herein, that, except as
hereinafter in this Section provided, each of the Underwriters shall purchase
and pay for all the Common Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Representatives of all such shares in accordance
with the terms hereof. If any Underwriter or Underwriters default in its or
their obligations to purchase the Common Shares hereunder on either the First or
Second Closing Date and the aggregate number of Common Shares which such
defaulting Underwriter or Underwriters agreed but failed to purchase on such
Closing Date does not exceed 10% of the total number of Shares which the
Underwriters are obligated to purchase on such Closing Date, the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Common Shares which such defaulting
Underwriters agreed but failed to purchase on such Closing Date. If any
Underwriter or Underwriters so default and the aggregate number of Common Shares
with respect to which such default occurs is more than 10% of the total number
of Common Shares which the Underwriters are obligated to purchase on such
Closing Date, and arrangements satisfactory to the Representatives and the
Company for the purchase of such Common Shares or Notes by other persons are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriters, the Company or the
Selling Stockholders except for the expenses to be paid by the Company and the
Selling Stockholders pursuant to Section 7 hereof and except to the extent
provided in Section 11 hereof.
In the event that the Common Shares to which a default relates are to
be purchased by the non-defaulting Underwriters or by another party or parties,
the Representatives or the Company shall have the right to postpone the First
Closing Date or the
<PAGE>
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
--------------
immediately as to Sections 7, 9, 11, 14 and 15 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 13, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering or
(ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 14. Termination. Without limiting the right to terminate
-----------
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Selling Stockholders or by you by notice to the Company and the
Selling Stockholders at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall
be without liability on the part of the Company and the Selling
Stockholders to any Underwriter (except for the expenses to be paid or
reimbursed by the Company pursuant to Sections 7 and 9 hereof and except to
the extent provided in Section 11 hereof) or of any Underwriter to the
Company and the Selling
<PAGE>
Stockholders (except to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such Exchange or in the over the counter market by the
NASD, or a general banking moratorium shall have been established by
federal, New York or California authorities; (ii) if an outbreak of major
hostilities or other national or international calamity or any substantial
change in political, financial or economic conditions shall have occurred
or shall have accelerated or escalated to such an extent, as, in the
judgment of the Representatives, to affect adversely the marketability of
the Common Shares; (iii) if any adverse event shall have occurred or shall
exist which makes untrue or incorrect in any material respect any statement
or information contained in the Registration Statement or Prospectus or
which is not reflected in the Registration Statement or Prospectus but
should be reflected therein in order to make the statements or information
contained therein not misleading in any material respect; or (iv) if there
shall be any action, suit or proceeding pending or threatened, or there
shall have been any development involving particularly the business or
properties or securities of the Company or the transactions contemplated by
this Agreement, which, in the reasonable judgment of the Representatives,
may materially and adversely affect the Company's business or earnings and
makes it impracticable or inadvisable to offer or sell the Common Shares.
Any termination pursuant to this Section 14(b) shall be without liability
on the part of any Underwriter to the Company or the Selling Stockholders
or on the part of the Company or the Selling Stockholder to any Underwriter
(except for expenses to be paid or reimbursed by the Company and the
Selling Stockholders pursuant to Sections 7 and 9 hereof and except to the
extent provided in Section 11 hereof).
<PAGE>
SECTION 15. Failure of the Selling Stockholders to Sell and Deliver.
-------------------------------------------------------
If any of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholder under the terms of this Agreement, then the Underwriters may at
their option, by written notice from you to the Company and such Selling
Stockholder, either (i) terminate this Agreement without any liability on the
part of any Underwriter or, except as provided in Sections 7, 9 and 11 thereof,
the Company or the Selling Stockholders, or (ii) purchase the shares which the
Company and the non-defaulting Selling Stockholders have agreed to sell and
deliver in accordance with the terms hereof. In the event of a failure by a
Selling Stockholder to sell and deliver as referred to in this Section, either
you or the company shall have the right to postpone the Closing Date for a
period not exceeding seven business days in order that the necessary changes in
the Registration Statement, the Prospectus and any other documents, as well as
any other arrangements, may be effected.
SECTION 16. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company, of the Company's officers, of the Selling
Stockholders and of the several Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers or directors or any controlling person, or the
Selling Stockholders as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
SECTION 17. Notices. All communications hereunder shall be in
-------
writing and, if sent to the Representatives shall be mailed, delivered,
telecopied or telegraphed and confirmed to Montgomery Securities at 600
Montgomery Street, San Francisco, California 94111, Telecopier: (415) 249-
5513, Attention: Karl L. Matthies, and Goldman, Sachs & Co. at 85 Broad Street,
New York, New York 10044, Telecopier: (212) 902-3000, Attention: John S.
Barakat with a copy to O'Melveny & Myers LLP, Embarcadero Center West 275
Battery Street, San Francisco, California 94111, Telecopier: (415) 984-8701,
Attention: Peter T. Healy, Esq.; and if sent to the Company or the Selling
Stockholders shall be mailed, delivered or telegraphed and confirmed to the
Company or the Selling Stockholder, as applicable at 5933 West Century
<PAGE>
Boulevard, Suite 210, Los Angeles, California 90045 Telecopier: (310) 348-1000
Attention: Andrew D. Hutton with a copy to Latham & Watkins, 633 W. Fifth
Street, Suite 4000, Los Angeles, California 90071 Telecopier: (213) 891-8763,
Attention: Edward Sonnenschein, Jr., Esq. The Company, the Selling Stockholder
or you may change the address for receipt of communications hereunder by giving
notice to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of
----------
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 12, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 19. Underwriters' Representatives. You will act as
-----------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you, as
Representatives, will be binding upon all of the Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or
------------------------
unenforceability of any section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other section, paragraph or
provision hereof. If any section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. Knowledge. As used in this Agreement, the term knowledge
---------
or best knowledge on the part of an entity shall include the knowledge of such
entity's officers and any other employees with managerial responsibilities and
such entity shall
<PAGE>
only make such statement after conducting a diligent investigation on the
subject matter thereof.
SECTION 23. General. This Agreement constitutes the entire agreement
-------
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholder and you.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company, the Selling Stockholders and
the several Underwriters, including you, all in accordance with its terms.
[Signature Page to Follow]
<PAGE>
Very truly yours,
SIGNATURE RESORTS, INC.
By:
-----------------------------
Its
--------------------------
--------------------------------
As Attorney-In-Fact for each of the Selling
Stockholders named in the attached Schedule A
The foregoing Underwriting Agreement is hereby
confirmed and accepted by us in San Francisco,
California as of the date first above written.
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
SCHRODER WERTHEIM & CO.
SMITH BARNEY INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule B.
By: MONTGOMERY SECURITIES
By:
-----------------------------
Managing Director
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Shares Over-
Selling Stockholder to be Sold allotment
- ------------------- ---------- ---------
<S> <C> <C>
Canpartners Incorporated* 1,126,479 176,371
Beth Friedman* 224,274 35,079
Loretta Evensen* 224,274 35,079
Mitchell R. Julis* 224,274 35,079
J.C. Investment & Realty, Inc. 78,229 12,236
Peach Tree, Ltd. 100,000
Shinko Sangyou Co. Ltd. 52,212 8,434
Community Funds, Inc. 83,862 12,579
Dennis H. Vaughn 59,257 9,399
Kenpoh, Inc. 70,407 11,013
Brains-Heart, Ltd. 23,710 3,831
EKC Corporation 826 134
The California Community Foundation 35,203 5,510
James W. Geisz 13,889 2,244
Tadaaki Chigusa 21,315 3,334
William S. Waldo 14,069 2,201
Ethan Lipsig 14,066 2,200
Michael B. Reeves 4,678 732
Charles V. Thornton 2,237 362
Sook Ja Kim 8,526 1,334
Randall Wooster 8,080 1,264
James A. Hamilton 1,956 306
Paul Grossman 4,686 733
Charles H. Reeves 1,616 252
Raymond M. Bukaty 1,875 294
--------- -------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
2,400,000 360,000
--------- -------
*Separately identified for purposes of Section 8(b)(iv)
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Amount of
Securities
to be
Underwriter Purchased
- ----------- ----------
<S> <C>
Montgomery Securities [_______]
Goldman, Sachs & Co. [_______]
Schroder Wertheim & Co. [_______]
Smith Barney Inc. [_______]
Total 4,000,000
=========
</TABLE>
<PAGE>
EXHIBIT 1.2
$100,000,000
SIGNATURE RESORTS, INC.
____ CONVERTIBLE SUBORDINATED NOTES DUE 2007
UNDERWRITING AGREEMENT
----------------------
January __, 1997
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Signature Resorts, Inc., a Maryland
------------
corporation (the "Company"), proposes to issue and sell an aggregate of
$100,000,000 principal amount of its ____% Convertible Subordinated Notes Due
2007 (the "Firm Notes") to be issued under an indenture, to be dated as of
__________, 1997 (the "Indenture"), between the Company and Norwest Bank
Minnesota, National Association as Trustee (the "Trustee"), to the several
underwriters named in Schedule A annexed hereto (the "Underwriters") for whom
you are acting as representatives (the "Representatives"). In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
aggregate of $15,000,000 principal amount of the Securities (the "Option Notes")
as provided in Section 5 hereof. The Firm Notes and, to the extent such option
is exercised, the Option Notes are hereinafter collectively referred to as the
"Notes."
Concurrently with the offering of the Notes, the Company proposes to
issue and sell 1,600,000 shares of its authorized but unissued common stock,
$.01 par value (the "Common
1
<PAGE>
Stock"), and several stockholders of the Company propose to sell 1,400,000
shares of the Company's issued and outstanding Common Stock (the "Common
Shares").
You have advised the Company that the Underwriters propose to make a
public offering of their respective portions of the Notes on the effective date
of the Registration Statement hereinafter referred to, or as soon thereafter as
in your judgment is advisable.
The Company hereby confirms its respective agreements with respect to
the purchase of the Notes by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-18447) with
respect to the Notes has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder and has been filed
with the Commission. The Company has also taken such actions as are
necessary to qualify the Indenture under the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"). There have been delivered to you
two signed copies of such registration statement and any amendments
thereto, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but without
exhibits) and of the related preliminary prospectus have been delivered to
you in such reasonable quantities as you have requested for each of the
Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a
further amendment thereto, including the form of final prospectus, or (ii)
a final prospectus in accordance with Rules 430A and 424(b) of the Rules
and Regulations. As filed, such amendment and form of final prospectus, or
such final prospectus, shall include all Rule 430A Information (as
hereinafter defined) and, except to the extent that you shall agree in
writing to a modification, shall be in all
2
<PAGE>
substantive respects in the form furnished to you prior to the date and
time that this Agreement was executed and delivered by the parties hereto,
or, to the extent not completed at such date and time, shall contain only
such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Representatives
shall have approved.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date, shall also mean such
registration statement as so amended; provided, however, that such term
shall also include all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes
effective as provided by Rule 430A of the Rules and Regulations. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to
in the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Notes in the form in which it is first
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations or, if no filing pursuant to Rule 424(b) of the Rules and
Regulations is required, shall mean the form of final prospectus included
in the Registration Statement at the time such registration statement
becomes effective. The term "Rule 430A Information" means information with
respect to the Notes and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule 430A
of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the applicable requirements of the
Act, the Rules and Regulations and the Trust Indenture Act and, as of its
date, has not included any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in the
light of the
3
<PAGE>
circumstances under which they were made, not misleading; and at the time
the Registration Statement becomes effective, and at all times subsequent
thereto up to and including each Closing Date (as hereinafter defined), the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, will contain all material statements and information
required to be included therein by the Act, the Rules and Regulations and
the Trust Indenture Act and will in all material respects conform to the
requirements of the Act, the Rules and Regulations and the Trust Indenture
Act, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, no representation or warranty contained in this Section
2(b) shall be applicable to information contained in or omitted from any
Preliminary Prospectus, the Registration Statement, the Prospectus or any
such amendment or supplement in reliance upon and in conformity with
written information furnished pursuant to Section 3 of this Agreement to
the Company by or on behalf of any Underwriter, directly or through the
Representatives, specifically for use in the preparation thereof.
(c) The Company has been duly formed and is validly existing as a
corporation, is in good standing under the laws of the State of Maryland,
with full power and authority (corporate and other) to conduct its business
as currently conducted or as described in the Prospectus.
(d) Each of the Company's affiliates (as defined in Rule 144(a) under
the Act) and subsidiaries which is material to the operation of the
Company, considered as whole (the "Company Affiliates and Subsidiaries")
has been duly formed and is validly existing as a partnership, limited
liability company or corporation, as applicable, in good standing under the
laws of its jurisdiction of formation, with full power and authority
(partnership and other) to own and lease its properties and conduct its
respective businesses as currently conducted or described in the
prospectus, except where the failure to be in good standing would not have
a material adverse effect on the condition (financial or otherwise),
business,
4
<PAGE>
properties, results of operations or prospects of the Company and the
Company Affiliates and Subsidiaries, considered as one entity (a "Material
Adverse Effect").
(e) The Company and each of the Company Affiliates and Subsidiaries
are in possession of and operating in compliance with all authorizations,
licenses, permits, consents, certificates and orders material to the
conduct of their respective businesses, all of which are valid and in full
force and effect; the Company and each of the Company Affiliates and
Subsidiaries are duly qualified to do business and in good standing as a
foreign corporation, partnership or limited liability company, as
applicable, in each jurisdiction in which the conduct of their respective
businesses requires such qualification, except where the failure to be so
qualified and in good standing would not have a Material Adverse Effect;
and to the Company's knowledge no proceeding has been instituted or
threatened in any such jurisdiction revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification.
(f) As of September 30, 1996, the Company has an authorized and
outstanding capital stock as set forth under the column captioned "Actual"
under the heading "Consolidated Capitalization" in the Prospectus; the
issued and outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities and will conform to the description
thereof contained in the Registration Statement and the Prospectus. The
form of the certificate, if any, evidencing the Common Stock complies with
all applicable requirements of Maryland law. All of the shares of Common
Stock issuable upon conversion of the Notes have been duly authorized and
duly reserved for issuance upon such conversion and, when issued upon
conversion of the Notes pursuant to the terms of the Indenture, will be
validly issued, fully paid and the Notes nonassessable. No preemptive
rights or other rights to subscribe for or purchase Common Stock will exist
with respect to the issuance and sale of the Common Shares upon
5
<PAGE>
conversion of the Notes. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related
notes thereto, as of the First Closing Date the Company does not have
outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase such securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares
of its capital stock, partnership interests or limited liability company
interests, as the case may be, or any such options, rights, convertible
securities or obligations. The description of the Company's share option,
share bonus and other share plans or arrangements, and the options or other
rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(g) The Notes have been duly authorized and, when issued, delivered
and paid for in the manner set forth in this Agreement and the Indenture,
will be duly executed, authenticated and delivered and will constitute
valid and legally binding obligations of the Company entitled to the
benefits provided by the Indenture under which they are to be issued, which
will be in substantially the form filed as an exhibit to the Registration
Statement subject, as to enforcement, to bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; the Indenture has been duly authorized and duly
qualified under the Trust Indenture Act and, when executed and delivered by
the Company and the Trustee, the Indenture will constitute a valid and
legally binding instrument enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles, and the Notes and the Indenture will conform to the
descriptions thereof in the Prospectus.
(h) The Company has full legal right, power and authority to enter
into this Agreement, the Notes and the Indenture and perform the
transactions contemplated hereby
6
<PAGE>
and thereby. The Company has all necessary corporate power and authority to
issue the Common Stock issuable upon conversion of the Notes. This
Agreement, the Notes and the Indenture have been duly authorized, executed
and delivered by the Company and constitutes a valid and binding obligation
of the Company in accordance with its terms. The making and performance of
this Agreement, the Notes and the Indenture by the Company and the
consummation of the transactions herein and therein contemplated (including
the issuance of Common Stock upon the conversion of the Notes), will not
violate any provisions of any partnership agreement, certificate of
partnership, charter, bylaws or other organizational documents, as
applicable, of the Company or any of the Company Affiliates and
Subsidiaries and will not conflict with, result in the breach or violation
of, or constitute, either by itself or upon notice or the passage of time
or both, a default under (i) any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the
Company or any of the Company Affiliates and Subsidiaries is a party or by
which the Company, any of the Company Affiliates and Subsidiaries or any of
the Existing Resorts (as defined in the Prospectus) may be bound or
affected or (ii) any statute or any authorization, judgment, decree, order,
rule or regulation of any court or any regulatory body, administrative
agency or other governmental body applicable to the Company, any of the
Company Affiliates and Subsidiaries or any of the Existing Resorts, in each
case except as would not have a Material Adverse Effect. No consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required, including the
satisfaction of any requirements pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, for the execution and
delivery of this Agreement, the Notes and the Indenture or the consummation
of the transactions contemplated by this Agreement and the Indenture,
except for compliance with the Act, the Exchange Act, the Trust Indenture
Act, the Blue Sky and Canadian securities laws applicable to the public
offering of the Notes by the several Underwriters, the clearance of such
offering with the National Association of Securities Dealers, Inc. (the
"NASD") and except for any such consent, approval, authorization or other
order as has been or will be obtained prior to the First Closing Date.
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(i) Ernst and Young LLP ("E & Y") and Arthur Andersen LLP ("Arthur
Andersen") who have expressed their opinion with respect to the financial
statements and schedules filed with the Commission as a part of the
Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the Act
and the Rules and Regulations.
(j) The consolidated financial statements of the Company, together
with the related notes thereto, set forth in the Registration Statement and
the Prospectus fairly present the financial condition of such entities as
of the dates indicated and the results of operations and changes in
financial position for the periods presented. The pro forma financial
statements, included in the Registration Statement and the Prospectus
comply in all material respects with the applicable requirements of Rule
11-02 of Regulation S-X of the Commission and the pro forma adjustments
have been properly applied to the historical amounts in the compilation of
such statements. Such statements, schedules and related notes have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis as certified by the independent accountants
named in Section 2(i). No other financial statements or schedules are
required to be included in the Registration Statement. The selected
financial data set forth in the Prospectus under the captions "Consolidated
Capitalization", "Selected Combined Historical Financial Information of the
Company" and "Summary Consolidated Historical and Pro Forma Financial
Information" fairly present the information set forth therein on the basis
stated in the Registration Statement.
(k) Except as disclosed in the Prospectus, the Company is not in
violation of any of its articles of organization or by-laws, and is not in
breach or default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which it is a party or by which it
or any of its properties are bound, or to which any of the property or
assets of the Company is subject except for any such violation, breach or
default that could not have a Material Adverse Effect.
8
<PAGE>
(l) There are no material contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which
have not been described or filed as required. The material contracts so
described in the Prospectus are in full force and effect on the date
hereof; and neither the Company or any of the Company Affiliates and
Subsidiaries, nor to the best of the Company's knowledge, any other party
is in breach of or default under any such material contracts.
(m) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or threatened to which
the Company or any of the Company Affiliates and Subsidiaries are a party
or of which any resort owned or leased by the Company Affiliates and
Subsidiaries is the subject, or related to environmental or discrimination
matters, which actions, suits or proceedings could reasonably be
anticipated to individually or in the aggregate, prevent or adversely
affect the transactions contemplated by this Agreement or have a Material
Adverse Effect. Neither the Company nor any of the Company Affiliates and
Subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(n) Except as set forth in the Prospectus, the Company or the Company
Affiliates and Subsidiaries have good and marketable title to all of the
Existing Resorts, and, to the Company's knowledge and except as set forth
in the Prospectus, the Registration Statement on S-4 (Registration No. 333-
16339) filed by the Company with the Commission on November 19, 1996 as
amended by Amendment No. 1 filed by the Company with the Commission on
December 20, 1996 (the "S-4") or the schedules to the Merger Agreement (the
"Schedules"), upon consummation of the Agreement and Plan of Merger, dated
as of September 22, 1996, by and between the Company and AVCOM
International, Inc. ("AVCOM"), as amended (the "Merger Agreement"), the
Company or the Company Affiliates and Subsidiaries will have good and
marketable title to Scottsdale Villa Mirage Resort, Sedona Summit Resort,
Tahoe Beach & Ski Club, Villas on the Lake and The Ridge on Sedona Golf
Resort (collectively, the "Merger Properties"), subject
9
<PAGE>
to no lien, mortgage, pledge, charge or encumbrance of any kind except
those reflected in the financial statements or elsewhere in the Prospectus.
Except as disclosed in the Prospectus, the Company and each of the Company
Affiliates and Subsidiaries owns or leases all such properties as are
necessary to operate the Existing Resorts as now conducted or as proposed
to be conducted, except with respect to the Poipu Resort and the San Luis
Bay intervals.
(o) From September 30, 1996 through the date hereof, and except as
described in or specifically contemplated by the Registration Statement and
Prospectus: (i) the Company has not incurred any material liabilities or
obligations, indirect, direct or contingent, or entered into any material
verbal or written agreement or other transaction which is not in the
ordinary course of business or which could result in a material reduction
in the future earnings of the Company; (ii) the Company has not sustained
any loss or interference with its respective businesses or properties from
fire, flood, windstorm, accident or other calamity, whether or not covered
by insurance, that would have a Material Adverse Effect; (iii) the Company
has not paid or declared any dividends or other distributions with respect
to its capital stock, shares or interests, as applicable (other than such
dividends or distributions paid to shareholders to satisfy tax liabilities)
and the Company is not in arrears or default in the payment of principal or
interest on any outstanding material debt obligations; (iv) there has not
been any change (excluding transfers) in the capital stock (other than the
sale of the Common Shares under this Agreement) of the Company, or
indebtedness material to the Company (other than in the ordinary course of
business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, or results of
operations of the Company and its Subsidiaries, considered as one entity (a
"Material Adverse Change").
(p) Except as specifically disclosed in or specifically contemplated
by the Prospectus, the Company will have sufficient trademarks, trade
names, patent rights, copyrights, licenses or other similar rights and
proprietary knowledge (collectively, "Intangibles"), approvals and
governmental authorizations to conduct its businesses; the
10
<PAGE>
expiration of any Intangibles, approvals or governmental authorizations
will not have a Material Adverse Effect; and the Company has no knowledge
of any material infringement by it or any of the Company Affiliates and
Subsidiaries of any Intangibles, and there is no claim being made against
the Company or any of the Company Affiliates and Subsidiaries regarding any
Intangible or other infringement which could have a Material Adverse
Effect.
(q) Neither the Company nor any of the Company Affiliates and
Subsidiaries has been advised, or has reason to believe, that the Company
or any of the Company Affiliates and Subsidiaries is not conducting its
businesses in compliance with all applicable laws, rules and regulations of
the jurisdictions in which any of them is, including, without limitation,
all applicable local, state and federal environmental laws and regulations,
in each case except as would not have a Material Adverse Effect.
(r) The Company and each of the Company Affiliates and Subsidiaries
has filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes shown as due thereon; and the Company has
no knowledge of any tax deficiency which has been or might be asserted or
threatened against the Company in each case except as would not have a
Material Adverse Effect.
(s) Neither the Company nor any of the Company Affiliates and
Subsidiaries has distributed or will distribute prior to the First Closing
Date any offering material in connection with the offering and sale of the
Common Shares other than the Prospectus, the Registration Statement,
materials distributed in connection with the offering and sale of the
Common Stock and Notes and other materials permitted or not prohibited by
the Act and the Rules and Regulations.
(t) Neither the Company nor any of the Company Affiliates and
Subsidiaries has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public
11
<PAGE>
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(u) Neither the Company nor any of the Company Affiliates and
Subsidiaries has taken or will take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Notes.
(v) The Company and the Company Affiliates and Subsidiaries have and
will maintain liability, property and casualty insurance (insured by
insurers of recognized financial responsibility) in favor of the Company,
or the Company Affiliates and Subsidiaries, with respect to each of the
Existing Resorts and, upon consummation of the Merger Agreement, and except
as set forth in the Prospectus, the S-4 or the Schedules, the Merger
Properties (except with respect to the Poipu Resort, such insurance
therefor being obtained and/or maintained by the Poipu Partnership), in an
amount and on such terms as is reasonable and customary for businesses of
the type proposed to be conducted by the Company, including, among other
things, insurance against theft, damage, destruction and acts of vandalism.
The Company has not received from any insurance company notice of any
material defects or deficiencies affecting the insurability of any such
resort.
(w) Title insurance in favor of the Company or the Company Affiliates
and Subsidiaries, is in force with respect to each of the Existing Resorts
in an amount reasonably acceptable to a reasonably prudent company in a
similar line of business (except with respect to the St. Maarten Resorts),
and upon consummation of the Merger Agreement, and except as set forth in
the Prospectus, the S-4 or the Schedules, title insurance in favor of the
Company or the Company Affiliates and Subsidiaries will be in force with
respect to the Merger Properties in an amount reasonably acceptable to a
reasonably prudent company in a similar line of business.
(x) The mortgages and deeds of trust encumbering the Existing Resorts
and, to the best knowledge of the Company, and except as set forth in the
Prospectus, the S-4 or the
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<PAGE>
Schedules, the Merger Properties, are not convertible into equity
securities of the Company nor does the Company hold a participating
interest therein and such mortgages and deeds of trust are not cross-
defaulted or cross-collateralized to any property not to be owned, upon
consummation of the Merger Agreement, directly or indirectly by the
Company, and since the Initial Public Offering (as defined in the
Prospectus) and as of the date hereof, the Company has not acquired any
property subject to such mortgage.
(y) The Company and each of the Company Affiliates and Subsidiaries
(i) are in compliance with any and all applicable foreign, federal, state
and local rules, laws and regulations relating to the protection of human
health and safety, the environment or any Hazardous Material (as
hereinafter defined) ("Environmental Laws"), (ii) has received, or will
have received, as of the Closing Date, as the case may be, all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) is or will be, as of
the Closing Date, as the case may be, in compliance with all terms and
conditions of any such permit, license or approval, in each case except as
would not have a Material Adverse Effect. As used herein, "Hazardous
Material" shall mean (a) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA"), (b) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act, as amended, (c) any petroleum or
petroleum product, (d) any polychlorinated biphenyl and (e) any pollutant
or contaminant or hazardous, dangerous, or toxic chemical, material, waste
or substance regulated under or within the meaning of any other
Environmental Law.
(z) To the Company's knowledge, there is no liability, alleged
liability or potential liability (including, without limitation, liability,
alleged liability or potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries or penalties), of the Company arising out of,
based on or resulting from (a) the presence or release into the environment
of any Hazardous Material at any location, whether or not owned by the
Company, or (b) any violation or alleged violation of any
13
<PAGE>
Environmental Law, which liability, alleged liability or potential
liability is required to be disclosed in the Registration Statement, other
than as disclosed therein.
(aa) The Company is not, nor will it conduct its business in a manner
in which it would become an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
(bb) The assets of neither the Company nor any of the Company
Affiliates and Subsidiaries constitute, nor will such assets, as of the
Closing Date, constitute "plan assets" under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
(cc) The Company and each of the Company Affiliates and Subsidiaries
maintain and will maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
financial and corporate books and records is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(dd) Neither the Company nor any of the Company Affiliates and
Subsidiaries has incurred any liability for a fee, commission or other
compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement other than
as disclosed in the Registration Statement.
(ee) No environmental engineering firm which prepared Phase I
environmental assessment reports (or other similar reports with respect to
the Existing Resorts as set forth in the Registration Statement) was, at
the time such reports were delivered, employed for such purpose on a
contingent
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<PAGE>
basis or had any substantial interest in the Company or any of the Company
Affiliates and Subsidiaries.
(ff) To the Company's knowledge, no labor problem exists or is
imminent with respect to the employees of any of the Existing Resorts, the
Company, any of the Company Affiliates and Subsidiaries, or, except as set
forth in the Prospectus, the S-4 or the Schedules, the Merger Properties
which could have a Material Adverse Effect.
(gg) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the matters
covered thereby.
(hh) The Company, and to the Company's knowledge and except as set
forth in the Prospectus, the S-4 or the Schedules, AVCOM are in compliance
with all federal, state, local and foreign laws and regulations regarding
the marketing, offers to sell and sales of vacation intervals in each state
in which the Company is doing business, including but not limited to the
Federal Trade Commission Act, Regulation Z (the truth-in-lending act),
Equity Opportunity Credit Act and Regulation B, Interstate Land Sales Full
Disclosure Act, Telephone Consumer Protection Act, Telemarketing and
Consumer Fraud and Abuse Prevention Act, Fair Housing Act and Civil Rights
Acts of 1964 and 1968, in each case except as would not have a Material
Adverse Effect. The Company and to the Company's knowledge and except as
set forth in the Prospectus, the S-4 or the Schedules, AVCOM have filed all
required documents and supporting information in compliance with federal,
state, local and foreign laws and regulations, and the Company and to the
Company's knowledge and except as set forth in the Prospectus, the S-4 or
the Schedules, AVCOM are in compliance with all licensure, anti-fraud,
telemarketing, price, gift and sweepstakes and labor laws to which it is or
may become subject, in each case except as would not have a Material
Adverse Effect. The Company and each of the Company Affiliates and
Subsidiaries have, or upon the First Closing Date will have, all permits
and licenses which are required to sell vacation intervals in each state
and foreign jurisdiction where it conducts business, in each case except as
would not have a Material Adverse Effect. To
15
<PAGE>
the Company's knowledge, and except as set forth in the Prospectus, the S-4
or the Schedules, the Company will have, upon consummation of the Merger
Agreement, all permits and licenses which are required to sell vacation
intervals at the Merger Properties in each state and foreign jurisdiction
where it conducts business, in each case except as would not have a
Material Adverse Effect.
(ii) Except as set forth in the Prospectus, no person has an option
or right of first refusal to purchase all or part of any of the Existing
Resorts (other than the Poipu Resort), and to the Company's knowledge, and
except as set forth in the Prospectus, the S-4 or the Schedules, the Merger
Properties, or any interest therein. Each of the Existing Resorts and, to
the Company's knowledge, and except as set forth in the Prospectus, the S-4
or the Schedules, the Merger Properties complies with all applicable codes,
laws and regulations (including, without limitation, building and zoning
codes and laws relating to handicapped access), except as would not have a
Material Adverse Effect. The Company has no knowledge of any pending or
threatened condemnation proceedings, zoning changes, or other proceedings
or actions that will in any manner affect the size of, number of vacation
intervals planned for, the use of any improvements on, or access to, the
Existing Resorts or, except as set forth in the Prospectus, the S-4 or the
Schedules, the Merger Properties.
(jj) To the Company's knowledge, no dispute exists or is imminent
between the Company and Promus Hotels, Inc. or between the Company and
Westin Hotels & Resorts and no officer or director of the Company has any
agreement or understanding (verbally or in writing) with Westin Hotels &
Resorts except as set forth in the Prospectus.
(kk) The Common Stock into which the Notes are convertible will be
approved for listing on the Nasdaq National Market, subject to official
notice of issuance.
(ll) The Company has full legal right, power and authority to enter
into the Merger Agreement and perform the transactions contemplated
thereby. The Merger Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation of
the
16
<PAGE>
Company in accordance with its terms. Assuming the consents and approvals
set forth in the Prospectus have been obtained, the making and performance
of the Merger Agreement by the Company and the consummation of the
transactions therein contemplated, will not violate any provisions of any
partnership agreement, certificate of partnership, charter, bylaws or other
organizational documents, as applicable, of the Company or any of the
Company Affiliates and Subsidiaries and will not conflict with, result in
the breach or violation of, or constitute, either by itself or upon notice
or the passage of time or both, a default under (i) any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit or
other instrument to which the Company or any of the Company Affiliates and
Subsidiaries is a party or by which the Company, any of the Company
Affiliates and Subsidiaries and, to the Company's knowledge, and except as
set forth in the Prospectus, the S-4 or the Schedules, AVCOM, or any of the
Existing Resorts, or, to the Company's knowledge, and except as set forth
in the Prospectus, the S-4 or the Schedules, the Merger Properties may be
bound or affected or (ii) any statute or any authorization, judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the Company,
any of the Company Affiliates and Subsidiaries or any of the Existing
Resorts or, to the Company's knowledge, and except as set forth in the
Prospectus, the S-4 or the Schedules, the Merger Properties, in each case
except as would not have a Material Adverse Effect. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required, including the satisfaction
of any requirements pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, for the execution and delivery of the
Merger Agreement or the consummation of the transactions contemplated by
the Merger Agreement, except for compliance with the Act, the Exchange Act,
the Blue Sky and Canadian securities laws applicable to the transactions
contemplated by the Merger Agreement, and except for any such consent,
approval, authorization or other order as has been or will be obtained
prior to the First Closing Date.
(mm) The Company has received from its independent certified public
accountants the letter attached hereto respecting pooling of interest
treatment relating to the
17
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consummation of the transactions contemplated by the Merger Agreement.
SECTION 3. [Intentionally omitted]
-----------------------
SECTION 4. Representations and Warranties of the Underwriters. The
--------------------------------------------------
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was furnished
to the Company by and on behalf of the Underwriters for use in connection with
the preparation of the Registration Statement and the Prospectus and is correct
in all material respects. The Representatives represent and warrant that they
have been authorized by each of the other Underwriters as the Representatives to
enter into this Agreement on their behalf and to act for each Underwriter in the
manner herein provided.
SECTION 5. Purchase, Sale and Delivery of Notes. On the basis of the
------------------------------------
representations, warranties and agreements set forth herein, and subject to the
terms and conditions set forth herein, the Company agrees to issue and sell to
the Underwriters an aggregate of $100,000,000 principal amount of the Firm
Notes; each Underwriter agrees, severally and not jointly, to purchase from the
Company the respective principal amount of Firm Notes set forth opposite the
name of such Underwriter in Schedule A annexed hereto. The purchase price for
the Firm Notes to be paid by the several Underwriters to the Company shall be
__% of the principal amount thereof.
Delivery of certificates for the Firm Notes to be purchased by the
Underwriters and payment therefor shall be made at such place as set forth below
at such time and date, not later than the third full business day following the
first date that any of the Notes are released by you for sale to the public, as
you shall designate by at least 48 hours prior notice to the Company (or at such
other time and date, not later than one week after such third full business day
as may be agreed upon by the
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Company and the Representatives) (the "First Closing Date"); provided, however,
that if the Prospectus is at any time prior to the First Closing Date
recirculated to the public, the First Closing Date shall occur upon the later of
the third full business day following the later of the first date that any of
the Notes are released by you for sale to the public and the date that is 48
hours after the date that the Prospectus has been so recirculated.
Delivery of certificates for the Firm Notes shall be made by or on
behalf of the Company to you, for the respective accounts of the Underwriters
against payment by you, for the accounts of the several Underwriters, by wire
transfer of immediately available funds to the order of the Company or other
agent designated by the Company. The Notes shall be registered in such names
and denominations as you shall have requested at least two full business days
prior to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
New York, New York or such other location, as may be designated by you. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements set forth herein, and subject to the terms and conditions set forth
herein, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of $15,000,000 principal
amount of the Option Notes at the same percentage purchase prices to be paid for
the Firm Notes, for use solely in covering any over-allotments made by you for
the account of the Underwriters in the sale and distribution of the Firm Notes.
The option granted hereunder may be exercised at any time (but not more than
once) within 30 days after the first date that any of the Notes are released by
you for sale to the public, upon written notice by you to the Company setting
forth the aggregate number of Option Notes as to which the Underwriters are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
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Closing Date shall not be earlier than three nor later than five full business
days after delivery of such notice of exercise. References herein to "Closing
Date" shall mean the First Closing Date and/or the Second Closing Date, as the
context requires. The Option Notes shall be purchased for the account of each
Underwriter in the same proportion as the principal amount of Firm Notes set
forth opposite such Underwriter's name on Schedule A hereto bears to the total
amount of Firm Notes (subject to adjustment by the Underwriters to round
purchases to the nearest $1,000 principal amount). Such Option Notes will be
made available for checking and packaging on the business day preceding the
Second Closing Date at a location in New York, New York or such other location,
as may be designated by you. Payment for the Option Notes shall be the same as
for the Firm Notes purchased from the Company as specified in the two preceding
paragraphs. At any time before lapse of the option, you may cancel such option
by giving written notice of such cancellation to the Company. If the option is
cancelled or expires unexercised in whole or in part, the Company will
deregister under the Act the number of Option Notes as to which the option has
not been exercised.
You have advised the Company that each Underwriter has authorized you
to accept delivery of its Notes, to make payment and to issue a receipt
therefor. You, individually and not as the Representatives of the Underwriters,
may (but shall not be obligated to) make payment for any Notes to be purchased
by any Underwriter whose funds shall not have been received by you by the First
Closing Date or the Second Closing Date, as the case may be, for the account of
such Underwriter, but any such payment shall not relieve such Underwriter from
any of its obligations under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose
to make a public offering of their respective portions of the Notes as soon
after the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the Prospectus.
SECTION 6. Covenants of the Company. The Company covenants and
------------------------
agrees that:
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(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing
of the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly
advise you in writing (i) of the receipt of any comments of the Commission,
(ii) of any request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus of which you have not been furnished with a copy a reasonable
time prior to such filing or to which you reasonably object or which is not
in compliance with the Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration
Statement or the Prospectus which in your judgment may be necessary or
advisable to enable the several Underwriters to continue the distribution
of the Notes and will use its best efforts to cause the same to become
effective as promptly as possible. The Company will fully and completely
comply with the provisions of Rule 430A of the Rules and Regulations with
respect to information omitted from the Registration Statement in reliance
upon such Rule.
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(c) If at any time within the applicable period referred to in Section
10(a)(3) of the Act or Rule 174 of the Rules and Regulations during which a
prospectus relating to the Notes is required to be delivered under the Act
any event occurs, as a result of which the Prospectus, including any
amendments or supplements, would include an untrue statement of a material
fact, or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or if it is
necessary at any time to amend the Prospectus, including any amendments or
supplements, to comply with the Act or the Rules and Regulations, the
Company will promptly advise you thereof and will promptly prepare and file
with the Commission, at its own expense, an amendment or supplement which
will correct such statement or omission or an amendment or supplement which
will effect such compliance and will use its best efforts to cause the same
to become effective as soon as possible; and, in case any Underwriter is
required to deliver a prospectus after the applicable time period, the
Company upon request, but at the expense of such Underwriter, will promptly
prepare such amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act and Rule 174 of the Rules
and Regulations, as applicable.
(d) As soon as practicable, but not later than 45 days (or 90 days if
such quarter is the fiscal year end) after the end of the first quarter
ending after one year following the effective date of the Registration
Statement (as defined in Rule 158(c) of the Rules and Regulations), the
Company will make generally available to its security holders an earnings
statement (which need not be audited) covering a period of 12 consecutive
months beginning after the effective date of the Registration Statement
which will satisfy the provisions of the last paragraph of Section 11(a) of
the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the applicable period referred to in
Section 10(a)(3) of the Act or Rule 174 of the Rules and Regulations, will
furnish to you or mail to your order copies of the
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Registration Statement, the Prospectus, the Preliminary Prospectus and all
amendments and supplements to any such documents in each case as soon as
available and in such quantities as you may reasonably request, for the
purposes contemplated by the Act and the Rules and Regulations.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Notes for sale under (or obtain exemptions from the
application of) the Blue Sky and Canadian securities laws of such
jurisdictions as you designate, will comply with such laws and will
continue such qualifications, registrations and exemptions in effect so
long as reasonably required for the distribution of the Notes, except that
the Company will not be required to qualify as a foreign corporation or to
file a general consent to service of process in any such jurisdiction where
it is not presently qualified or where it would be subject to taxation as a
corporation. The Company will advise you promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Notes for offering; sale or trading in any jurisdiction or any initiation
or threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or
exemption, the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.
(g) During the period of five years after the date of this Agreement,
the Company will furnish to the Representatives and their counsel and, upon
request of the Representatives, to each of the other Underwriters: (i) as
soon as practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of the
close of such fiscal year and statements of income, shareholders' equity
and cash flows for the year then ended and the opinion thereon of the
Company's independent public accountants; (ii) as soon as practicable after
the filing thereof, copies of each proxy statement, Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its Common
Stock.
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(h) During the period of 90 days after the first date that any of the
Notes are released by you for sale to the public, without your prior
written consent (which consent may be withheld at your sole discretion),
the Company will not, other than as disclosed in the Prospectus, issue,
offer, sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities or any other securities convertible into or
exchangeable with its Common Stock or other equity security of the Company,
except, in each case, to grant options or to sell shares of Common Stock
pursuant to the Company's 1996 Equity Participation Plan or the Company's
Employee Stock Option Plan, each as described in the Prospectus, to grant
options or to sell shares of Common Stock in connection with the offering
and sale of the Common Shares or to grant options or to sell or issue
shares of Common Stock in connection with the Merger Agreement.
(i) The Company will apply the net proceeds of the sale of the Notes
sold by it in accordance with the statements under the caption "Use of
Proceeds" in the Prospectus.
(j) As necessary, the Company will use its best efforts to qualify or
register its Notes for sale in non-issuer transactions under (or obtain
exemptions from the application of) the Blue Sky laws of the State of
California and the provincial laws of Canada as specified by the
Representatives (and thereby permit market making transactions and
secondary trading in the Company's Notes in California and such Canadian
provinces as specified by the Representatives), will comply with such Blue
Sky or Canadian provincial laws and continue such qualifications,
registrations and exemptions in effect for a period of five years after the
date hereof.
(k) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of formation of the Company, a registrar (which may be the
same entity as the transfer agent).
You, on behalf of the Underwriters, may, in your sole discretion,
waive in writing the performance by the Company of
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any one or more of the foregoing covenants or extend the time for their
performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including without limiting the
generality of the foregoing, (i) all expenses incident to the issuance and
delivery of the Notes (including all printing and engraving costs), (ii) all
fees and expenses of the Trustee and any agent of the Trustee, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Notes to the Underwriters, (iv) all fees and expenses of the
Company's counsel and the Company's independent accountants, (v) all costs and
expenses incurred in connection with the preparation, printing, filing, shipping
and distribution of the Registration Statement, each Preliminary Prospectus and
the Prospectus (including all exhibits and financial statements) and all
amendments and supplements provided for herein, this Agreement, the Agreement
Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the preliminary and final
Blue Sky memoranda, (vi) all filing fees, attorneys' fees and expenses incurred
by the Company or the Underwriters in connection with qualifying or registering
(or obtaining exemptions from the qualification or registration of) all or any
part of the Notes for offer and sale under the Blue Sky laws or the provincial
securities laws of Canada, (vii) the filing fee of the NASD and the fees and
expenses related to the inclusion of the Notes on the Nasdaq National Market,
and (viii) all other fees, costs and expenses referred to in Item 13 of Part II
of the Registration Statement. Except as provided in this Section 7, Section 9
and Section 11 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to qualification, registration or exemption under the Blue Sky and Canadian
provincial securities laws and the preliminary and final Blue Sky memoranda,
which fees shall be paid on the First Closing Date or the Second Closing Date,
as applicable).
This Section 7 shall not affect any agreement to which the Company is
a party relating to the payment of expenses
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incurred in connection with the separate issuance and sale of the Common Shares.
SECTION 8. Conditions of the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Notes
on the First Closing Date and the Option Notes on the Second Closing Date shall
be subject to the accuracy of the representations and warranties on the part of
the Company set forth herein as of the date hereof and as of the First Closing
Date or the Second Closing Date, as the case may be, to the accuracy of the
statements of the Company's officers made pursuant to the provisions hereof, to
the performance of the Company of its obligations hereunder, and to the
following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
not later than 10:00 P.M.), Washington, D.C. Time, on the date of this
Agreement, or at such later time as shall have been consented to by you; if
the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule
424(b) of the Rules and Regulations; and prior to such Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company or you,
shall be contemplated by the Commission; and any request of the Commission
for inclusion of additional information in the Registration Statement, or
otherwise, shall have been complied with to your satisfaction.
(b) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance satisfactory to
you, except as otherwise expressly provided below:
(i) An opinion of Latham & Watkins, counsel for the Company
(exclusive of environmental matters, matters relating to real property
ownership and condition, indebtedness of the Company or its affiliates
or subsidiaries, regulation of the Company's business and property or
that of its affiliates or subsidiaries, the Company's or its
26
<PAGE>
affiliates' or subsidiaries' relationship with Promus Hotels
Corporation and Westin Hotels & Resorts and any matters relating to
AVCOM and its subsidiaries and affiliates) addressed to the
Underwriters and dated the First Closing Date, or the Second Closing
Date, as the case may be, to the effect that:
(1) The Indenture and the Notes have been duly authorized by
the Company, the Indenture has been duly qualified under the
Trust Indenture Act and when duly executed and delivered will
constitute, and the Notes, when duly executed, authenticated,
issued and delivered as contemplated hereby and by the Indenture,
will constitute, valid and legally binding obligations of the
Company, enforceable in accordance with their terms and, in the
case of the Notes, entitled to the benefits of the Indenture,
subject, as to enforcement, to bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles.
(2) Except as disclosed in or specifically contemplated by
the Prospectus and except for the Common Shares, to such
counsel's knowledge, there are no outstanding options, warrants
or other rights calling for the issuance of any shares of capital
stock of the Company or any security convertible into or
exchangeable for capital stock of the Company;
(3)(a)(i) The Registration Statement has become effective
under the Act; (ii) to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued; (iii) to
such counsel's knowledge, no proceedings for that purpose have
been instituted by the Commission;
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and (iv) any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required by
such Rule 424(b);
(b) The Registration Statement and the Prospectus comply as
to form in all material respects with the applicable requirements
for registration statements on Form S-1 under the Act, the Trust
Indenture Act and the Rules and Regulations, it being understood
that such counsel need not express any opinion with respect to
the financial statements, schedules and other financial and
statistical data included in the Registration Statement or the
Exhibits thereto;
(c) To such counsel's knowledge, there are no contracts,
agreements, documents, franchises, leases or licenses of a
character required to be disclosed in the Registration Statement
or Prospectus which are not disclosed or filed, as required
(which opinion may be rendered by the Company's general counsel);
and
(d) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened
against the Company which are required to be described in the
Prospectus which are not described as required (which opinion may
be rendered by the Company's general counsel);
(4) This Agreement is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except as to those
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<PAGE>
provisions relating to indemnity or contribution for liabilities
arising under the Act as to which no opinion need be expressed;
(5) No approval, authorization, order, consent,
registration, filing, qualification, license or permit of or with
any court, regulatory, administrative or other governmental body
is required for the execution and delivery of this Agreement by
the Company or the consummation of the transactions contemplated
by this Agreement, except (i) such as have been obtained and are
in full force and effect under the Act and the Trust Indenture
Act, (ii) such as may be required under applicable Blue Sky or
Canadian securities laws in connection with the purchase and
distribution of the Notes by the Underwriters; (iii) clearing of
such offering with the NASD; and (iv) such as to which the
failure to so obtain would not have a Material Adverse Effect;
(6) The execution and performance of this Agreement, the
Notes and the Indenture and the consummation of the transactions
herein and therein contemplated will not conflict with, result in
the breach of, or constitute, either by itself or upon notice or
the passage of time or both, a default under any of the material
agreements filed under Rule 601(b)(10) of Regulation S-K under
the Act as exhibits to the Registration Statement except as would
not have a Material Adverse Effect;
(7) Except for the holders of the Company's Common Stock
who are parties to the Company's Registration Rights Agreement
dated August 19, 1996 and except as otherwise set forth in the
Prospectus, no holders of securities of the Company have rights
to register shares of Common Stock or other securities because of
the filing of the Registration Statement by the Company or the
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offering or other transactions contemplated hereby; and
(8) The Company is not an "investment company" within the
meaning of the 1940 Act.
Such counsel shall also include a statement to the effect that
nothing has come to such counsel's attention that would lead such
counsel to believe that either at the effective date of the
Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, it being
understood that in addition to the matters excluded in paragraph
(b)(i) above, such counsel express no belief as to the financial
statements, schedules and other financial, statistical, numerical and
accounting data included in the Registration Statement or Prospectus
or in the exhibits to the Registration Statement.
In rendering such opinion, such counsel may rely as to matters
of fact, on certificates of the Company and the Company Affiliates and
Subsidiaries, officers of the Company and the Company Affiliates and
Subsidiaries, and governmental officials, in which case their opinion
is to state that they are so doing and that the Underwriters are
justified in relying on such opinions or certificates and copies of
each of said opinions or certificates are to be attached to the
opinion.
(ii) An opinion of Ballard, Spahr, Andrews & Ingersoll, local
counsel for the Company, on matters of Maryland law, addressed to the
Underwriters and dated the First Closing Date, or the Second Closing
Date, as the case may be, to the effect that:
(1) The Company has been duly formed and is validly
existing as a corporation, is in good standing under the laws of
the State of Maryland,
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and is duly qualified to do business as a foreign corporation and
is in good standing in those jurisdictions where the conduct of
the Company's business requires it to be qualified, and has the
requisite corporate power and authority to own its Existing
Resorts and conduct its business as described in the Registration
Statement;
(2) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus; all outstanding
shares of Common Stock of the Company (including the Common
Shares), have been duly and validly issued, are fully paid and
nonassessable, have been issued in compliance with federal and
state securities laws, were not issued in violation of or subject
to any preemptive rights or other rights to subscribe for or to
purchase any securities; the Notes are convertible into Common
Stock of the Company in accordance with the terms of the
Indenture; the shares of such Common Stock initially issuable
upon conversion of the Notes have been duly authorized and
reserved for issuance upon such conversion and, when issued upon
such conversion in accordance with the terms of the Indenture,
will be validly issued and outstanding, fully paid and
nonassessable and will conform in all material respects to the
description thereof contained in the Registration Statement;
other than as described in the prospectus, the stockholders of
the Company have no preemptive or other rights to subscribe for
or to purchase, and no restrictions exist upon the voting or
transfer of, any shares of the Common Stock issuable upon
conversion of the Notes, pursuant to the laws of the State of
Maryland, the Articles of Incorporation or Bylaws of the Company
or any agreement or instrument filed with the Commission as an
exhibit to the Registration Statement or any document
incorporated therein; and neither the filing of the Registration
Statement, the offering or sale of the Notes nor the conversion
of the Notes as contemplated by this Agreement gives rise under
any agreement or instrument filed with the
31
<PAGE>
Commission as an exhibit to the Registration Statement or any
document incorporated therein to any rights, other than those
which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock;
(4) This Agreement has been duly and validly authorized by
all necessary action by the Company, has been duly and validly
executed and delivered by and on behalf of the Company; and
(4) The information set forth in the Prospectus under the
headings "Description of Capital Stock", "Certain Provisions of
Maryland Law and of the Company's Charter and Bylaws" and "Shares
Eligible for Future Sale" to the extent that such information
constitutes matters of Maryland law or legal conclusions
involving Maryland law, has been reviewed by such counsel and is
correct in all material respects.
(iii) Opinions of Paul, Hastings, Janofsky & Walker and/or
Schreeder, Wheeler & Flint (or other counsel acceptable to you), each
a special real estate and timeshare counsel for the Company, addressed
to the Underwriters and dated as of the First Closing Date, or the
Second Closing Date, which opinions shall state to the effect that (it
being understood that such counsel shall only have to opine as to the
laws of the jurisdictions in which it is duly licensed to practice law
in):
(1) The Company has obtained the material approvals and
permits from the timeshare authority of the state in which the
subject Existing Resort is located ("Home State") necessary to
offer for sale and sell timeshare interests and offer purchase
money financing in connection with such sales ("Home State
Approvals") in accordance with the applicable laws and
regulations of the state in which the resort is located
specifically governing the marketing and sale of timeshare
interests in real property ("Home State Timeshare Laws");
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<PAGE>
(2) All of the permits and/or approvals issued by timeshare
authorities of states other than the state where each applicable
resort is located ("Foreign State") for the offering for sale and
sale of timeshare interests in such resort (collectively, the
"Foreign State Approvals"), constitute the material approvals and
permits necessary to be issued by such Foreign State to permit
the offering for sale and sale of timeshare interests in such
resort in accordance with the laws and regulations of the Foreign
State specifically governing the offering for sale and sale of
timeshare interests in real property located outside of the
Foreign State ("Foreign State Timeshare Laws");
(3) To such counsel's knowledge and based upon its review of
certificates and letters from state timeshare authorities, the
Company and other pertinent parties (collectively, "Reliance
Certificates and Letters"), the Company has not received any
written notice from any regulatory authority that it is in
violation of any applicable federal or state law or regulation
regarding the offering for sale and sale of timeshare interests
in the resorts, the violation of which would have a Material
Adverse Effect on the ownership or operation of the Existing
Resorts;
(4) To such counsel's knowledge, there are no material
franchises, licenses, leases, contracts, agreements or other
documents (collectively, the "Material Agreements") entered into
by the Company outside the ordinary course of business, which
involve matters relating to the ownership, purchase money
financing and/or use of real property and/or the offering for
sale or sale of timeshare interests in the Existing Resorts,
which are of a character required to be disclosed in the
Registration Statement or to be filed as exhibits to the
Registration Statement which are not disclosed or filed;
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<PAGE>
(5) To such counsel's knowledge and based upon such
counsel's review of Reliance Certificates and Letters, there are
no real estate or timeshare related governmental actions,
governmental suits or governmental proceedings pending or
threatened against the Company with respect to the business and
property relating to the Existing Resorts except (a) those which
have been disclosed in the Registration Statement, and (b) those
which would not have a Material Adverse Effect;
(6) The consummation by the Company of the transactions
contemplated by the Underwriting Agreement do not require the
consent, approval, authorization, registration or qualification
of (i) any governmental agency or authority of the timeshare
authority of the states where each of the Existing Resorts are
located, (ii) any lender which has a recorded security interest
in the Existing Resorts, (iii) Westin Hotels & Resorts or any
related entities under that certain agreement by and between W &
S Hotel L.L.C. and Argosy/Koar Group, Inc., dated May 3, 1996
("Westin Agreement"), (iv) Promus Hotels, Inc. (or any subsidiary
or affiliate of Promus Hotels, Inc.) under any Licensee
Agreements and Management Agreements with Promus Hotels, Inc. (or
any of its subsidiaries or affiliates) (collectively, the
"Embassy License Agreements and Management Agreements"), except
those which have been obtained and are in full force and effect
and those as to which the failure to so obtain would not have a
Material Adverse Effect;
(7) The consummation by the Company of the transactions
contemplated by the Underwriting Agreement as they relate to the
Existing Resorts do not conflict with or result in a material
breach or violation by the Company of: (i) any of the terms and
provisions of any loans which encumber the Existing Resorts, (ii)
any terms or provisions of the Home State Approvals where each of
the Existing Resorts are located; (iii) any
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terms or provisions of the Foreign State Approvals; (iv) the
Westin Agreement; (v) the Embassy License Agreements and
Management Agreements, or if such transactions would have
constituted such a breach, violation or default had the necessary
consents or approvals not been obtained, consents or approvals
have been obtained and are in full force and effect;
(8) The owner of each of the Existing Resorts, if required
by law, has obtained a brokerage or sales license from the state
timeshare authority in order to offer purchase money financing in
connection with the sale of timeshare interests in the applicable
resorts. The owner of each of the Existing Resorts, if required
by law, has obtained a brokerage or sales license from the state
timeshare authority in order to offer for sale and sell timeshare
interests in the State of California or has contracted with a
licensed broker to provide any of the aforementioned services;
and
(9) A statement to the effect that although such counsel is
not passing upon, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in
the Registration Statement or the Prospectus and has not made any
independent check or verification thereof, during the course of
such participation (relying as to the factual matters upon the
Reliance Certificates and Letters), no facts came to the
counsel's attention that have caused it to believe that the
Registration Statement at the time it became effective and as of
the date hereof or the Prospectus contained an untrue statement
of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made,
not misleading; provided, however, that this statement is limited
solely to the statements or omissions relating to (i)
indebtedness secured by the Existing Resorts (it
35
<PAGE>
being understood that the counsel's review of the Registration
Statement has been limited to legal and other non-financial
matters with respect thereto), (ii) environmental matters with
respect to the Existing Resorts (it being understood that our
involvement with respect thereto has been limited to
environmental matters that have come to the counsel's attention
since the acquisition of such Existing Resorts by the Company),
(iii) ownership of the Existing Resorts (it being understood that
our review thereof has been limited to the review of certain
title reports), (iv) regulation by each Home State and each
Foreign State with respect to the issuance of the Home State
Approvals and the Foreign State Approvals, (v) the Property
Partnerships' and the Company's contractual relationships with
Promus or Westin, and (vi) the statements in the Prospectus under
the caption "Business - Governmental Regulation," to the extent
that such information constitutes matters of law or legal
conclusions as it pertains to the ownership, operation, sale and
offering of sale of timeshare interests in the Existing Resorts.
In rendering such opinions, each such counsel may rely as to
matters of local law, on opinions of local counsel, and as to
matters of fact, on certificates of officers of the Company as
applicable, and of governmental officials, in which case their
opinion is to state that they are doing so and certificates and
copies of each of said opinions or certificates are attached to
the opinion.
(iv) An opinion of Schreeder, Wheeler & Flint, in addition to
the opinion set forth above in section 8(c)(iii), as counsel for the
Company in connection with the Merger Agreement, addressed to the
Underwriters and dated as of the First Closing Date, or the Second
Closing Date, which opinions shall state to the effect that:
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<PAGE>
(1) The Company had the corporate power and authority to
enter into the Merger Agreement and to consummate the
transactions contemplated therein; the Merger Agreement has been
duly and validly authorized by all necessary action by the
Company, has been duly and validly executed and delivered by and
on behalf of the Company, and is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except as to those
provisions relating to indemnity or contribution for liabilities
arising under the Act as to which no opinion need be expressed;
(2) The registration statement and the prospectus filed with
the Commission on November 20, 1996, and the Merger Agreement
were duly and validly authorized by all necessary action by the
Company and conformed in all material respects with the
applicable requirements for registration statements on Form S-4
under the Act and the Rules and Regulations; and
(3) The Merger has been duly and validly approved by the
shareholders of AVCOM.
(v) An opinion of Gallagher & Kennedy, counsel to AVCOM,
substantially in the form required by Section 6.1(c) of the Merger
Agreement.
(v) Such opinion or opinions of O'Melveny & Myers LLP, counsel
for the Underwriters, dated the First Closing Date or the Second
Closing Date, as the case may be, with respect to the formation of the
Company and other legal matters relating to this Agreement, the
validity of the Notes, the Registration Statement and the Prospectus
and other related matters as you may reasonably require, and the
Company shall have furnished to such counsel such documents and shall
have exhibited to them such papers and records as they may reasonably
request for the purpose of enabling them to
37
<PAGE>
pass upon such matters. In connection with such opinions, such counsel
may rely on representations or certificates of officers of the Company
and governmental officials, as applicable.
(vi) A certificate of the Company, executed by the Chairman of
the Board or President and the chief financial or accounting officer
of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with each of the agreements and satisfied all of the
conditions on its part to be performed or satisfied on or prior
to such Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued; and to the knowledge
of the Company no proceedings for that purpose have been
instituted or are pending or contemplated under the Act;
(3) Each of the respective signers of each certificate has
carefully examined the Registration Statement and the Prospectus;
in his opinion and to the knowledge of the Company, the
Registration Statement and the Prospectus and any amendments or
supplements thereto contain all statements required to be stated
therein; and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make
the statements
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therein not misleading, provided, however, that such certificate
does not require any representation concerning statements in, or
omissions from, the Registration Statement or Prospectus, which
are based upon and conform to information furnished by the
Underwriters pursuant to Section 3 hereof;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction
or event has occurred which should have been set forth in an
amendment to the Registration Statement or in a supplement to or
amendment of any prospectus which has not been disclosed in such
a supplement or amendment;
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and
except as specifically disclosed in or contemplated by the
Prospectus and except for the Stock Offering, there has not been
any Material Adverse Change or a development involving a Material
Adverse Change; and no legal or governmental action, suit or
proceeding is pending or threatened against the Company, or, to
the knowledge of the Company, any of the Existing Resorts which
would have a Material Adverse Effect; since such dates and except
as so disclosed, the Company has not entered into any verbal or
written agreement or other transaction which is not in the
ordinary course of business, incurred any liability or
obligation, direct, contingent or indirect, made any change in
its capital stock, made any change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the
Company's capital stock which could be reasonably expected to
have a Material Adverse Effect; and the Company has not declared
or paid any dividend, or made any other distribution (other than
dividends or distributions paid to shareholders to satisfy tax
liabilities), upon its capital stock payable to shareholders of
record on a date prior to the
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<PAGE>
First Closing Date or the Second Closing Date, as the case may
be; and
(6) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except
as disclosed in or contemplated by the Prospectus, none of the
Existing Resorts has sustained a material loss or damage by
strike, fire, flood, windstorm, hurricane, typhoon, accident or
other calamity (whether or not insured).
(vii) On the date that this Agreement is executed and also on
the First Closing Date and the Second Closing Date a letter addressed
to you, as Representatives of the Underwriters, from E & Y and Arthur
Andersen, as applicable, independent accountants, the first one to be
dated the day of this Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a Second Closing) to
be dated the Second Closing Date, in form and substance satisfactory
to the Representatives, to the effect that:
(1) E & Y and Arthur Andersen are independent certified
public accountants with respect to the Company within the meaning
of the Act and the Rules and Regulations;
(2) It is their opinion that the financial statements
included in the Registration Statement audited by them comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations;
(3) The financial statements for the nine months ended
September 30, 1996 and the nine months ended September 30, 1995,
to the extent applicable, were reviewed by them in accordance
with the standards established by the American Institute of
Certified Public Accountants and based upon their review they are
not aware of any material modifications that should be made to
such
40
<PAGE>
financial statements for them to be in conformity with generally
accepted accounting principles currently in effect in the United
States to comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations;
(4) Based upon procedures set forth in detail in such
letter with respect to the period from October 1, 1996 to
December 31, 1996, including a reading of the latest available
interim financial statements of the Company and inquiries of
officials of the Company responsible for financial and accounting
matters, nothing has come to their attention which causes them to
believe that:
(a) at December 31, 1996, there was any change in the
capital stock, increase in long-term debt, or decrease in
consolidated net current assets or stockholders' equity of the
consolidated companies as compared with amounts shown in the
September 30, 1996, unaudited condensed consolidated balance
sheet included in the Registration Statement;
(b) for the period from October 1, 1996, to December 31,
1996, there were any decreases, as compared to the corresponding
period in the preceding year, in consolidated net sales or in the
total or per-share amounts of income before extraordinary items
or of net income, except in all instances for changes, increases,
or decreases that the Registration Statement discloses have
occurred or may occur;
(c) at a specified date not more than five days prior to
the date of this Agreement, other than changes resulting from the
offering and sale of the Common Shares or the Merger Agreement,
(i) there has been any change in the capital stock, increase in
long-term debt or any decreases in consolidated net current
assets or stockholders' equity of the Company as compared
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<PAGE>
with the amounts shown in the September 30, 1996 balance sheet of
the Company included in the Registration Statement, (ii) or for
the period from October 1, 1996 to a date not to exceed five days
prior to the date of this Agreement, there were any decreases, as
compared with the corresponding period in the preceding year, in
consolidated net revenues or in the total per share amounts of
income before extraordinary items or of net income of the
Existing Resorts, except in all instances for changes, increases
or decreases which the Registration Statement discloses have
occurred or may occur; and
(5) In addition to the examination referred to in their
opinions and the procedures referred to above, they have carried
out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information
which are included in the Registration Statement and Prospectus
and which were specified by you, and have found such amounts,
percentages and financial information to be in agreement with, or
derived from, the relevant accounting, financial and other
records of the Company and each of the Property Partnerships.
(c) The NASD, upon review of the terms of the public offering, shall
not have objected to such offering, such terms or the Underwriters'
participation in the same.
(d) The Company shall have furnished to you such further certificates
and documents as you shall have reasonably requested.
(e) There shall have been delivered to you the Firm Notes, and if any
Option Notes are purchased, the Option Notes in the manner required
pursuant to Section 5, hereof.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to O'Melveny & Myers LLP, counsel for the Underwriters. The Company shall
furnish you with such
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manually signed or conformed copies of such opinions, certificates, letters and
documents as you request. Any certificate signed by any officer of the Company
and delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the Underwriters as
to each of the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company without liability on the part of any Underwriter
or the Company, except for the expenses to be paid or reimbursed by the Company
pursuant to Sections 7 and 9 hereof and except to the extent provided in Section
10 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding
---------------------------------------
any other provisions hereof, if this Agreement shall be terminated by you
pursuant to Section 14, or if the sale to the Underwriters of the Notes at the
First Closing is not consummated because of any willful refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof without reasonable justification therefor, the Company
agrees to reimburse you and the other Underwriters upon demand for all out-of-
pocket expenses that shall have been reasonably incurred by you and them in
connection with the proposed purchase and the sale of the Notes, including but
not limited to fees and disbursements of counsel relating directly to the
offering contemplated by the Prospectus. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section 9, Section 7 and Section 11 shall at all times be effective and shall
apply.
SECTION 10. Effectiveness of Registration Statement. You and the
---------------------------------------
Company will use your and its best efforts to cause the Registration Statement
to become effective, to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
SECTION 11. Indemnification. (a) The Company agrees to indemnify
---------------
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the
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Act against any losses, claims, damages, liabilities or expenses, joint or
several, to which such Underwriter or such controlling person may become
subject, under the Act, the Exchange Act, the Trust Indenture Act, or other
federal, state or Canadian statutory laws or regulations, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company) insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained herein or any failure of the Company to
perform its obligations hereunder or under law, and will reimburse each
Underwriter and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability, expense or action arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or as a result of or any amendment or supplement thereto in
reliance upon and in conformity with the information furnished to the Company
pursuant to Section 4 hereof; and provided the indemnity agreement contained in
this Section 11(a) shall not inure to the benefit of any Underwriter from whom
the person asserting any such losses, claims, damages, liabilities or expenses
purchased the Notes concerned to the extent that any such loss, claim, damage
liability or expense of such Underwriter results from the fact that a copy of
the Prospectus was not sent or given to such person at or prior to the written
confirmation of sale of such Notes to such person as required by the Act. In
addition to its other obligations under this Section 11(a) the Company agrees
that it will reimburse expenses as provided in this Section 11(a) as incurred,
but no less frequently than quarterly,
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<PAGE>
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligations to reimburse each Underwriter for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company, together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages, liabilities or expenses to
which the Company, any such director, officer or controlling person may become
subject under the Act, the Exchange Act, the Trust Indenture Act, or other
federal or state statutory laws or regulations, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of such Underwriter), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue or alleged untrue statement of
any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof; and will reimburse the Company, or any such director, officer or any
controlling person of the Company for any legal and other expense
45
<PAGE>
reasonably incurred by the Company, or any such director, officer or controlling
person of the Company in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. In addition to its other obligations under this Section 11(b), each
Underwriter severally agrees that it will reimburse expenses as provided in this
Section 11(b) as incurred, but no less frequently than quarterly,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters, obligation to reimburse the Company (and, to
the extent applicable, each officer, director or controlling person of the
Company) for such expenses and the possibility that such payments might later be
held to have been improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have been improper,
the Company (and, to the extent applicable, each officer, director or
controlling person of the Company) shall promptly return it to the Underwriters
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have
46
<PAGE>
reasonably concluded that there may be a conflict between the positions of the
indemnifying party and the indemnified party in conducting the defense of any
such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel representing all indemnified parties who are parties to such
action or set of related actions) or (ii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement of
the action, in each of which cases the fees and expenses of counsel shall be at
the expense of the indemnifying party.
(d) If the indemnification provided for in this Section is required by
its terms, but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under Sections 11(a), 11(b)
or 11(c) hereof in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to herein (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Underwriters from the offering of the Notes or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Underwriters in connection with the statements or omissions
47
<PAGE>
or inaccuracies in the representations and warranties herein which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits received by
the Company and the Underwriters shall be deemed to be in the same proportion,
in the case of the Company as the total price paid to the Company for the Notes
sold by it to the Underwriters (net of underwriting commissions, but before
deducting expenses), and in the case of the Underwriters as the underwriting
commissions received by them bears to the total of such amounts paid to the
Company and received by the Underwriters as underwriting commissions. The
relative fault of the Company and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
or the inaccurate or the alleged inaccurate representation and/or warranty
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in Section (c) of this Section, any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim. The provisions set forth in Section (c) of this Section
with respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section (d); provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section (c) of this Section for purposes of
indemnification. The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section were determined
solely by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section, no Underwriter shall be required
to contribute any amount in excess of the amount of the total underwriting
commissions received by such Underwriter in connection with the Notes
underwritten by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was
48
<PAGE>
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute pursuant to this Section are several in proportion to their
respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 11(a) or 11(b)
hereof, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 11(a) and 11(b)
hereof and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
Sections 11(a) or 11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a condition to this
-----------------------
Agreement and the obligation of the Company to sell and deliver the Notes
hereunder, and of each Underwriter to purchase the Notes in the manner as
described herein, that, except as hereinafter in this Section provided, each of
the Underwriters shall purchase and pay for all the Notes agreed to be purchased
by such Underwriter hereunder upon tender to the Representatives of all such
shares in accordance with the terms hereof. If any Underwriter or Underwriters
so default in their obligation to purchase Notes hereunder on either the First
or Second Closing Date, and the aggregate number of Notes which such defaulting
Underwriter or Underwriters agreed but failed to purchase on such Closing Date
does not exceed 10% of the total number of Notes which the Underwriters are
obligated to purchase on such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Notes which such defaulting Underwriters agreed but
failed to purchase on such Closing Date. If any Underwriter or Underwriters so
default and
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<PAGE>
the aggregate number of Notes with respect to which such default occurs is more
than 10% of the total number of Notes which the Underwriters are obligated to
purchase on such Closing Date, and arrangements satisfactory to the
Representatives and the Company for the purchase of such Notes by other persons
are not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter or the Company
except for the expenses to be paid by the Company pursuant to Section 7 hereof
and except to the extent provided in Section 11 hereof.
In the event that the Notes to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, for not more than
five business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
--------------
immediately as to Sections 7, 9, 11, 14 and 15 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Notes for sale to the public. For the purposes of
this Section 13, the Notes shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Notes or
upon the release by you of telegrams (i) advising Underwriters that the Notes
are released for public offering or (ii) offering the Notes for sale to
securities dealers, whichever may occur first.
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SECTION 14. Termination. Without limiting the right to terminate
-----------
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
or by you by notice to the Company at any time prior to the time this
Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company to any
Underwriter (except for the expenses to be paid or reimbursed by the
Company pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof) or of any Underwriter to the Company (except
to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such Exchange or in the over the counter market by the
NASD, or a general banking moratorium shall have been established by
federal, New York or California authorities; (ii) if an outbreak of major
hostilities or other national or international calamity or any substantial
change in political, financial or economic conditions shall have occurred
or shall have accelerated or escalated to such an extent, as, in the
judgment of the Representatives, to affect adversely the marketability of
the Notes; (iii) if any adverse event shall have occurred or shall exist
which makes untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or Prospectus or which
is not reflected in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or information contained
therein not misleading in any material respect; or (iv) if there shall be
any action, suit or proceeding pending or threatened, or there shall have
been any development involving particularly the business or properties or
securities of the Company or the transactions contemplated by this
Agreement, which, in
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the reasonable judgment of the Representatives, may materially and
adversely affect the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the Notes. Any termination
pursuant to this Section 14(b) shall be without liability on the part of
any Underwriter to the Company or on the part of the Company to any
Underwriter (except for expenses to be paid or reimbursed by the Company
pursuant to Sections 7 and 9 hereof and except to the extent provided in
Section 11 hereof).
SECTION 15. [Intentionally omitted]
-----------------------
SECTION 16. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company, the Company's officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of its or their partners, officers or
directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Notes sold hereunder and any termination of this
Agreement.
SECTION 17. Notices. All communications hereunder shall be in
-------
writing and, if sent to the Representatives shall be mailed, delivered,
telecopied or telegraphed and confirmed to Montgomery Securities at 600
Montgomery Street, San Francisco, California 94111, Telecopier: (415) 249-
5513, Attention: Karl L. Matthies, and Goldman, Sachs & Co. at 85 Broad Street,
New York, New York 10044, Telecopier: (212) 902-3000, Attention: John S.
Barakat with a copy to O'Melveny & Myers LLP, Embarcadero Center West 275
Battery Street, San Francisco, California 94111, Telecopier: (415) 984-8701,
Attention: Peter T. Healy, Esq.; and if sent to the Company shall be mailed,
delivered or telegraphed and confirmed to the Company, as applicable at 5933
West Century Boulevard, Suite 210, Los Angeles, California 90045 Telecopier:
(310) 348-1000 Attention: Andrew D. Hutton with a copy to Latham & Watkins, 633
W. Fifth Street, Suite 4000, Los Angeles, California 90071 Telecopier: (213)
891-8763, Attention: Edward Sonnenschein, Jr., Esq. The Company or you may
change the address for receipt of communications hereunder by giving notice to
the other.
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SECTION 18. Successors. This Agreement will inure to the benefit of
----------
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Notes as such from any of the Underwriters merely by reason
of such purchase.
SECTION 19. Underwriters' Representatives. You will act as
-----------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you, as
Representatives, will be binding upon all of the Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or
------------------------
unenforceability of any section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other section, paragraph or
provision hereof. If any section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. Knowledge. As used in this Agreement, the term knowledge
---------
or best knowledge on the part of an entity shall include the knowledge of such
entity's officers and any other employees with managerial responsibilities and
such entity shall only make such statement after conducting a diligent
investigation on the subject matter thereof.
SECTION 23. General. This Agreement constitutes the entire agreement
-------
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
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counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and you.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company and the several Underwriters,
including you, all in accordance with its terms.
[Signature Page to Follow]
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Very truly yours,
SIGNATURE RESORTS, INC.
By:_________________________
Its______________________
The foregoing Underwriting Agreement is
hereby confirmed and accepted by us in
San Francisco, California as of the date
first above written.
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
Acting as Representatives of the several
Underwriters named in the attached
Schedule A.
By: MONTGOMERY SECURITIES
By:___________________________
Managing Director
55
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Underwriter Principal
- ----------- Amount of
Notes to be
Purchased
---------
<S> <C>
Montgomery Securities
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette
Smith Barney Inc.
</TABLE>
56
<PAGE>
EXHIBIT 4
SIGNATURE RESORTS, INC.
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
--------------------
INDENTURE
Dated as of
February __, 1997
$100,000,000
(With an Over-Allotment option for an
Additional $15,000,000)
% Convertible Subordinated Notes due 2007
================================================================================
<PAGE>
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of February __,1997
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
--------------- ---------
<C> <S> <C>
SECTION 310 (a)(1).................................... 6.9
(a)(2).................................... 6.9
(a)(3)....................................Not Applicable
(a)(4)....................................Not Applicable
(b)....................................... 6.8
6.1
SECTION 311 (a)....................................... 6.13
(b)....................................... 6.13
SECTION 312 (a)....................................... 7.1
7.2(a)
(b)....................................... 7.2(b)
(c)....................................... 7.2(c)
SECTION 313 (a)....................................... 7.3(a)
(b)....................................... 7.3(a)
(c)....................................... 7.3(a)
(d)....................................... 7.3(b)
SECTION 314 (a)....................................... 7.4
(b).......................................Not Applicable
(c)(1).................................... 1.2
(c)(2).................................... 1.2
(c)(3)....................................Not Applicable
(d).......................................Not Applicable
(e)....................................... 1.2
SECTION 315 (a)....................................... 6.1(a)
(b)....................................... 6.2
7.3(a)
(c)....................................... 6.1(b)
(d)....................................... 6.1(c)
(d)(1).................................... 6.1(a)(i)
(d)(2).................................... 6.1(c)(ii)
(d)(3).................................... 6.1(c)(iii)
(e)....................................... 5.14
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 316 (a)(1)(A)................................. 5.12
(a)(1)(B)................................. 5.13
(a)(2)....................................Not Applicable
(b)....................................... 5.8
SECTION 317 (a)(1).................................... 5.3
(a)(2).................................... 5.4
(b)....................................... 10.3
SECTION 318 (a)....................................... 1.7
</TABLE>
____________________
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
3
<PAGE>
TABLE OF CONTENTS*
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION......... 1
Section 1.1 Definitions........................................... 1
Section 1.2 Compliance Certificates and Opinions.................. 9
Section 1.3 Form of Documents Delivered to Trustee................ 10
Section 1.4 Acts of Holders....................................... 11
Section 1.5 Notices, Etc., to Trustee and Company................. 13
Section 1.6 Notice to Holders; Waiver............................. 13
Section 1.7 Conflict with Trust Indenture Act..................... 14
Section 1.8 Book-Entry System..................................... 14
Section 1.9 Effect of Headings and Table of Contents.............. 14
Section 1.10 Successors and Assigns................................ 14
Section 1.11 Separability Clause................................... 14
Section 1.12 Benefits of Indenture................................. 14
Section 1.13 Governing Law......................................... 15
Section 1.14 Legal Holidays........................................ 15
Section 1.15 Immunity of Incorporators, Stockholders,
Officers and Directors................................ 15
ARTICLE 2
NOTE FORMS................................ 16
Section 2.1 Forms Generally....................................... 16
Section 2.2 Form of Face of Note.................................. 16
Section 2.3 Form of Reverse of Note............................... 18
Section 2.4 Form of Trustee's Certificate of
Authentication........................................ 23
Section 2.5 Form of Conversion Notice............................. 23
Section 2.6 Form of Assignment.................................... 24
ARTICLE 3
THE NOTES................................ 25
Section 3.1 Title and Terms....................................... 25
Section 3.2 Denominations......................................... 26
Section 3.3 Execution, Authentication, Delivery and
Dating................................................ 26
Section 3.4 Temporary Notes....................................... 26
Section 3.5 Registration; Registration of Transfer and
Exchange.............................................. 27
Section 3.6 Mutilated, Destroyed, Lost and Stolen Notes........... 29
Section 3.7 Payment of Interest; Interest Rights
Preserved............................................. 30
</TABLE>
- ----------------
* Note: This Table of Contents shall not, for any purpose, be deemed to be a
part of the Indenture.
4
<PAGE>
<TABLE>
<C> <S> <C>
Section 3.8 Persons Deemed Owners................................. 31
Section 3.9 Cancellation.......................................... 32
Section 3.10 Computation of Interest............................... 32
ARTICLE 4
SATISFACTION AND DISCHARGE........................ 32
Section 4.1 Satisfaction and Discharge of Indenture............... 32
Section 4.2 Application of Trust Money............................ 33
ARTICLE 5
REMEDIES................................. 34
Section 5.1 Events of Default..................................... 34
Section 5.2 Acceleration of Maturity; Rescission and
Annulment............................................. 35
Section 5.3 Collection of Indebtedness and Suits for
Enforcement by Trustee................................ 36
Section 5.4 Trustee May File Proofs of Claim...................... 37
Section 5.5 Trustee May Enforce Claims Without
Possession of Notes................................... 38
Section 5.6 Application of Money Collected........................ 38
Section 5.7 Limitation on Suits................................... 39
Section 5.8 Unconditional Right of Holders to Receive
Principal, Premium and Interest and to Convert........ 40
Section 5.9 Restoration of Rights and Remedies.................... 40
Section 5.10 Rights and Remedies Cumulative........................ 40
Section 5.11 Delay or Omission Not Waiver.......................... 40
Section 5.12 Control by Holders.................................... 41
Section 5.13 Waiver of Past Defaults............................... 41
Section 5.14 Undertaking for Costs................................. 41
Section 5.15 Waiver of Stay or Extension Laws...................... 42
ARTICLE 6
THE TRUSTEE............................... 42
Section 6.1 Certain Duties and Responsibilities................... 42
Section 6.2 Notice of Defaults.................................... 43
Section 6.3 Certain Rights of Trustee............................. 44
Section 6.4 Not Responsible for Recitals or Issuance of
Notes................................................. 45
Section 6.5 May Hold Notes........................................ 45
Section 6.6 Money Held in Trust................................... 45
Section 6.7 Compensation and Reimbursement........................ 45
Section 6.8 Disqualification; Conflicting Interests............... 46
Section 6.9 Corporate Trustee Required; Eligibility............... 46
Section 6.10 Resignation and Removal Appointment of
Successor............................................. 46
Section 6.11 Acceptance of Appointment by Successor................ 48
Section 6.12 Merger, Conversion, Consolidation or
Succession to Business................................ 48
Section 6.13 Preferential Collection of Claims Against
Company............................................... 49
</TABLE>
5
<PAGE>
<TABLE>
<C> <S> <C>
Section 6.14 Appointment of Authenticating Agent................... 49
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY............ 51
Section 7.1 Company to Furnish Trustee Names and
Addresses of Holders.................................. 51
Section 7.2 Preservation of Information; Communications
to Holders............................................ 51
Section 7.3 Reports by Trustee.................................... 51
Section 7.4 Reports by Company.................................... 52
ARTICLE 8
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE........... 52
Section 8.1 Company May Consolidate, Etc., Only on Certain Terms.. 52
Section 8.2 Successor Substituted................................. 53
ARTICLE 9
SUPPLEMENTAL INDENTURES......................... 53
Section 9.1 Supplemental Indentures Without Consent of
Holders............................................... 53
Section 9.2 Supplemental Indentures with Consent of
Holders............................................... 54
Section 9.3 Execution of Supplemental Indentures.................. 55
Section 9.4 Effect of Supplemental Indentures..................... 55
Section 9.5 Conformity with Trust Indenture Act................... 55
Section 9.6 Reference in Notes to Supplemental
Indentures............................................ 55
Section 9.7 Notice of Supplemental Indentures..................... 56
ARTICLE 10
COVENANTS................................ 56
Section 10.1 Payment of Principal, Premium and Interest............ 56
Section 10.2 Maintenance of Office or Agency....................... 56
Section 10.3 Money for Note Payments to be Held in Trust........... 57
Section 10.4 Statement by Officers as to Default................... 58
Section 10.5 Existence............................................. 59
Section 10.6 Maintenance of Properties............................. 59
Section 10.7 Payment of Taxes and Other Claims..................... 59
Section 10.8 Waiver of Certain Covenants........................... 60
Section 10.9 Book-Entry System..................................... 60
ARTICLE 11
REDEMPTION OF NOTES........................... 60
Section 11.1 Right of Redemption................................... 60
Section 11.2 Applicability of Article.............................. 60
Section 11.3 Election to Redeem; Notice to Trustee................. 60
</TABLE>
6
<PAGE>
<TABLE>
<C> <S> <C>
Section 11.4 Selection by Trustee of Notes to Be
Redeemed.............................................. 61
Section 11.5 Notice of Redemption.................................. 61
Section 11.6 Deposit of Redemption Price........................... 62
Section 11.7 Notes Payable on Redemption Date...................... 62
Section 11.8 Notes Redeemed in Part................................ 63
ARTICLE 12
CONVERSION OF NOTES 63
Section 12.1 Conversion Privilege and Conversion Price............. 63
Section 12.2 Exercise of Conversion Privilege...................... 64
Section 12.3 Fractions of Shares................................... 65
Section 12.4 Adjustment of Conversion Price........................ 65
Section 12.5 Notice of Adjustments of Conversion Price............. 70
Section 12.6 Notice of Certain Corporate Action.................... 71
Section 12.7 Company to Reserve Common Stock....................... 72
Section 12.8 Taxes on Conversions.................................. 72
Section 12.9 Covenant as to Common Stock........................... 72
Section 12.10 Cancellation of Converted Notes....................... 72
Section 12.11 Provisions in Case of Consolidation, Merger
or Sale of Assets..................................... 72
Section 12.12 Responsibility of Trustee for Conversion
Provisions............................................ 73
ARTICLE 13
SUBORDINATION OF NOTES.......................... 74
Section 13.1 Securities Subordinate to Senior
Indebtedness.......................................... 74
Section 13.2 No Payments in Certain Circumstances;
Payment Over of Proceeds Upon Dissolution, Etc........ 74
Section 13.3 Prior Payment to Senior Indebtedness Upon
Acceleration of Notes................................. 77
Section 13.4 Payment Permitted if No Default....................... 77
Section 13.5 Subrogation to Rights to Holders of Senior
Indebtedness.......................................... 78
Section 13.6 Provisions Solely to Define Relative
Rights................................................ 78
Section 13.7 Trustee to Effectuate Subordination................... 79
Section 13.8 No Waiver of Subordination Provisions................. 79
Section 13.9 Notice to Trustee..................................... 80
Section 13.10 Reliance on Judicial Order or Certificate of
Liquidating Agent..................................... 81
Section 13.11 Trustee Not Fiduciary for Holders of Senior
Indebtedness.......................................... 81
Section 13.12 Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights........ 81
Section 13.13 Article Applicable to Paying Agents................... 81
Section 13.14 Certain Conversions Deemed Payment.................... 82
ARTICLE 14
</TABLE>
7
<PAGE>
<TABLE>
<C> <S> <C>
REPURCHASE OF NOTES AT THE OPTION
OF THE HOLDER UPON A CHANGE IN CONTROL............ 82
Section 14.1 Right to Require Repurchase........................... 82
Section 14.2 Conditions to the Company's Election to Pay
the Repurchase Price in Common Stock.................. 83
Section 14.3 Notices; Method of Exercising Repurchase
Right, Etc............................................ 84
Section 14.4 Certain Definitions................................... 86
</TABLE>
8
<PAGE>
INDENTURE, dated as of February ____, 1997, between Signature Resorts,
Inc., a corporation duly organized and existing under the laws of the State of
Maryland (herein called the "Company"), having its principal office at Los
Angeles, California, and Norwest Bank Minnesota, National Association, as
Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its _____%
Convertible Subordinated Notes due _________, 2007 (herein called the "Notes")
of substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Notes, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such
1
<PAGE>
accounting principles as are generally accepted at the date of this
instrument; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Articles Six, Twelve and Fourteen,
are defined in that Article.
"Act", when used with respect to any Holder, has the meaning specified
in Section 1.4.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Note or beneficial interest therein, the rules
and procedures of the Depositary for such Global Note to the extent applicable
to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate Notes.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the City of New York
or the city in which the Corporate Trust Office of the Trustee is located are
authorized or obligated by law or executive order to close.
2
<PAGE>
"Closing Price" for any security for any day means the last reported
sale price of such security regular way on such day or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the New York Stock Exchange
or, if the security is not listed or admitted to trading on such exchange, on
the principal national securities exchange on which the security is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq National Market or Nasdaq or, if the security
is not listed or admitted to trading on any national securities exchange or
quoted on such National Market or Nasdaq, the average of the closing bid and
asked prices in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Company for that purpose.
If the security is not listed or admitted to trading on any national securities
exchange, quoted on such National Market or Nasdaq or listed in any list of bid
and asked prices in the over-the-counter market, "Closing Price" shall mean the
fair market value of the security as determined in good faith by the Board of
Directors and evidenced by Board Resolution.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company and which is not subject to redemption by the Company. However, subject
to the provisions of Section 12.11, shares issuable on conversion of Notes and
shares used to pay the Repurchase Price pursuant to Section 14.1 shall include
only shares of the class designated as Common Stock of the Company at the date
of this instrument or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument unless and until a successor Person shall have
become such pursuant to the
3
<PAGE>
applicable provisions of this Indenture and thereafter "Company" shall mean such
successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by (i) its Chairman of the Board, its
President or a Vice President, and (ii) by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Conversion Agent" has the meaning specified in Section 10.2.
"Conversion Price" has the meaning specified in Section 12.1.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered.
Initially, the Corporate Trust Office of the Trustee is located at 608 2nd
Avenue South, Northstar East Building, Minneapolis, Minnesota 55402, Attn:
Corporate Trust Department.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means, with respect to any Global Notes, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as a Depositary for such Global Notes (or any successor notes
clearing agency so registered).
"Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness).
"Disqualified Capital Stock" means with respect to any person, Capital
Stock of such person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of an event or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Notes.
4
<PAGE>
"DTC" means the Depository Trust Company, a New York corporation.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the United States Securities Exchange Act of 1934
(or any successor statute), as amended from time to time.
"Expiration Date" has the meaning specified in Section 1.4(f).
"Global Note" means a Note that is registered in the Note Registrar in
the name of a Depositary or nominee thereof.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indebtedness" has the meaning specified in Section 5.1(e).
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Junior Securities" means any Qualified Capital Stock, or any other
indebtedness of the Company which is subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in Article Thirteen.
"Maturity", when used with respect to any Note, means the date on
which the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption, obligation to repurchase or otherwise.
"Non-Recourse Debt" means indebtedness of a Person to the extent that
under the terms thereof and pursuant to applicable law, no personal recourse
could be had against such person for the payment of principal of or interest or
premium or any other amounts with respect to such indebtedness or for any claim
based on such indebtedness and that enforcement of obligations on such
indebtedness is limited solely to recourse against interests in specified
assets.
5
<PAGE>
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 3.5.
"Notes" have the meaning specified in the Recitals above.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary, of the Company, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Notes; PROVIDED that, if such Notes are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture or
provision therefore satisfactory to the Trustee has been made; and
(iii) Notes which have been paid pursuant to Section 3.5 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a bona fide purchaser in whose hands such
Notes are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the
requisite principal amount of the Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Notes
owned by the Company or any other obligor upon the Notes or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes
6
<PAGE>
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such securities and that the pledgee is not the Company or any other obligor
upon the Notes or any Affiliate of the Company or of such other obligor. The
Trustee may require, and may conclusively rely upon, an Officers' Certificate as
to whether or not any Notes are so owned.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Notes on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"Qualified Capital Stock" means any Capital Stock of the Company that
is not Disqualified Capital Stock.
"Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the January __ or July __ (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Repurchase Date" has the meaning specified in Section 14.1.
"Repurchase Price" has the meaning specified in Section 14.1.
"Responsible Officer", when used with respect to the Trustee, means
any officer assigned to and working in the corporate trust department of the
Trustee, or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his or her knowledge of and familiarity
with the particular subject.
7
<PAGE>
"Senior Indebtedness" means (a) all indebtedness of the Company,
including the principal of and premium, if any, and interest on such
indebtedness (including all interest accruing subsequent to the commencement of
any bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in such proceeding) and all fees and other
amounts payable in connection with, the following, whether absolute or
contingent, secured or unsecured, due or to become due, outstanding on the date
of the Indenture or thereafter created, incurred or assumed: (i) indebtedness of
the Company, other than the Notes, (including obligations of the Company arising
from its guarantee of the indebtedness of others) to banks, insurance companies
and other financial institutions evidenced by credit or loan agreements, notes
or other written obligations, (ii) all other indebtedness of the Company
(including obligations of the Company arising from its guarantee of indebtedness
of others) other than the Notes, whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed, which is (1) for money
borrowed, or (2) evidenced by a note, security, debenture, bond or similar
instrument or guarantee thereof, (iii) obligations of the Company as lessee
under leases required to be capitalized on the balance sheet of the lessee under
generally accepted accounting principles or in respect of any lease or related
document (including a purchase agreement) which provides that the Company is
contractually obligated to purchase or cause a third party to purchase the
leased property and thereby effectively guarantees a minimum residual value of
the leased property to the landlord and the obligations of the Company under
such lease or related document to purchase or cause a third party to purchase
such leased property, (iv) obligations of the Company under interest rate and
currency swaps, caps, floors, collars or similar agreements or arrangements, (v)
all obligations of the Company issued or assumed as the deferred purchase price
of property (but excluding any portion thereof constituting trade accounts
payable arising in the ordinary course of business), (vi) all obligations of the
Company for the reimbursement of any letters of credit (1) to the extent the
obligations underlying such letters of credit are Senior Indebtedness under
clauses (i) through (iv) above or (2) that secure the Company's obligations to
clearing institutions arising out of its merchant processing business to the
extent such obligations are incurred in the ordinary course of business in
amounts consistent with the Company's past practices, and (vii) renewals,
extensions, modifications, restatements and refundings of, and any amendments,
modifications or supplements to, or any indebtedness or obligation issued in
exchange for, any such indebtedness or obligation described in clauses (i)
through (vi) of this paragraph; provided that Senior Indebtedness shall not
include (i) indebtedness to a Subsidiary or other Affiliate of the Company, (ii)
any such indebtedness or obligation if the terms of such indebtedness or
obligation (or the terms of the instrument under which, or pursuant to which, it
is issued) expressly provided that such indebtedness or
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obligation shall not be senior in right of payment to the Notes, and (iii)
accounts payable of the Company to trade creditors.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1.02(w) of Regulation S-X
promulgated by the SEC as in effect as of the date of this Indenture.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity", when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Trading Day" means, with respect to any security, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which securities
are not traded on the exchange or market on which such security is traded.
"Trustee" means the person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as provided
in Section 9.5, provided, however, that in the event the Trust Indenture Act is
amended after such date, the Trust Indenture Act means, to the extent required
by such amendment, the Trust Indenture Act as so amended.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
Section 1.2 Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture,
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the Company shall furnish to the Trustee an Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 1.3 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a
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certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.4 Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as otherwise expressly provided herein, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
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reliance thereon, whether or not notation of such action is made upon such Note.
(e) Except for matters arising under Article Five (in which event any
record date shall be set by the Trustee), the Company may set any day as a
record date for the purpose of determining the Holders of Outstanding Notes
entitled to give, make or take any request, demand, authorization, direction,
notice, consent, waiver or other action provided or permitted by this Indenture
to be given, made or taken by Holders of Notes. If any record date is set
pursuant to this paragraph, the Holders of Outstanding Notes on such record
date, and no other Holders, shall be entitled to take the relevant action,
whether or not such Holders remain Holders after such record date; provided that
no such action shall be effective hereunder unless taken on or prior to the
applicable Expiration Date (as defined below) by Holders of the requisite
principal amounts of Outstanding Notes on such record date. Nothing in this
paragraph shall be construed to prevent the Trustee from setting a new record
date for any action for which a record date has previously been set pursuant to
this paragraph (whereupon the record date previously set shall automatically and
with no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Notes on the date such action
is taken. Promptly after receiving written notice of a record date set by the
Company pursuant to this paragraph, the Trustee, at the Company's expense, shall
cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Company in writing and to each
Holder of Notes in the manner set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of
determining the Holders entitled to join in the giving or making of (i) any
Notice of Default, (ii) any declaration of acceleration referred to in Section
5.2, (iii) any request to institute proceedings referred to in Section 5.7(b),
or (iv) any direction referred to in Section 5.12. If any record date is set
pursuant to this Section 1.4(e), the Holders on such record date, and only such
Persons, shall be entitled to join in such notice, declaration, request or
direction, whether or not such Holders remain Holders after such record date;
provided that no such action be effective hereunder unless taken on or prior to
the applicable Expiration Date by Holders of the requisite principal amount of
Notes on such record date. Nothing in this Section 1.4(e) shall be construed to
prevent the Trustee from setting a new record date for any action for which a
record date has previously been set pursuant to this Section 1.4(e) (whereupon
the record date previously set shall automatically and with no action by any
Person be cancelled and of no effect), and nothing in this Section 1.4(e) shall
be construed to render ineffective any action taken by Holders of the requisite
principal amount of Notes on the date such action is taken. Promptly after any
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record date is set pursuant to this Section 1.4(e), the Trustee, at the
Company's expense, shall cause notice of such record date, the proposed action
by Holders and the applicable Expiration Date to be given to the Company in
writing and to each Holder of Notes in the manner set forth in Section 1.6.
(f) With respect to any record date set pursuant to Sections 1.4(e) or
1.4(f), the party hereto which sets such record date may designate any day as
the "Expiration Date" and from time to time may change the Expiration Date to
any earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Notes in the manner set forth in Section 1.6, on
or prior to the existing Expiration Date. If an Expiration Date is not
designated with respect to any record date set pursuant to this Section 1.4(e),
the party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this Section 1.4(f). Notwithstanding the foregoing, no Expiration Date shall
be later than the 180th day after the applicable record date.
Section 1.5 Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with, (i) the Trustee by any
Holder or by the Company, shall be sufficient for every purpose hereunder if
made, given, furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, Attention: Ray Haverstock, or (ii) the Company by the
Trustee or by any Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to the Company at 5933 West Century Boulevard, Suite 210, Los
Angeles, California 90045 or at any other address previously furnished in
writing to the Trustee by the Company.
Section 1.6 Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Note Register, not later than
the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the
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Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by
Holders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Section 1.7 Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Section 1.8 Book-Entry System.
If the Notes cease to trade in DTC's book-entry settlement system, the
Company covenants and agrees that it shall use reasonable efforts to make such
other book-entry arrangements that it determines are reasonable for the Notes.
Section 1.9 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not effect the construction hereof.
Section 1.10 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.11 Separability Clause.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.12 Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto
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and their successors hereunder, the holders of Senior Indebtedness and the
Holders of Notes, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 1.13 Governing Law.
This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York without regards to the
conflicts of law principles as applied in such state.
Section 1.14 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any security or the last date on which a Holder has the right to
convert his Notes shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or of the Notes) payment of interest or principal
(and premium, if any) or conversion of the Notes need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date, Redemption Date or at the stated
maturity, or on such last day for conversion, provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date, Stated Maturity or last day of conversion, as the case may be.
Section 1.15 Immunity of Incorporators, Stockholders, Officers and
Directors.
No recourse shall be had for the payment of the principal of (and
premium, if any), or the interest, if any, on any Note, or for any claim based
thereon, or upon any obligation, covenant or agreement of this Indenture,
against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation, either
directly or indirectly through the Company or of any successor corporation,
whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment of penalty or otherwise; it being expressly agreed
and understood that this Indenture and all of the Notes are solely corporate
obligations, and that no personal liability whatever shall attach to, or is
incurred by, any incorporator, stockholder, officer or director, past, present
or future, of the Company or of any successor corporation, either directly or
indirectly through the Company or any successor corporation, because of the
incurring of the indebtedness hereby authorized or under or by reason of any of
the obligations, covenants or agreements contained in this Indenture or in the
Notes, or to be implied herefrom or therefrom; and that all such personal
liability is hereby expressly released and waived as a condition of, and as part
of the consideration for, the execution of this Indenture and the issuance of
the Notes.
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ARTICLE 2
NOTE FORMS
Section 2.1 Forms Generally.
The Notes and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange, the Internal
Revenue Code of 1986, as amended, and the regulations thereunder, or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes.
The definitive Notes shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any Notes exchange on
which the Notes may be listed, all as determined by the officers executing such
Notes, as evidenced by their execution of such Notes.
Section 2.2 Form of Face of Note.
The following legend shall also appear on the face of each Global
Note:
THIS SECURITY IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
REFERRED TO BELOW AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE
OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY
AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.
The following legend shall also appear on the face of each Global Note
for which the Depository Trust Company is to be the Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED
SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERENCED
IN THE INDENTURE, THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR
ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.
Signature Resorts, Inc.
_________% Convertible Subordinated Note due _____________, 2007
Signature Resorts, Inc., a corporation duly organized and existing
under the laws of Maryland (herein called the "Company", which term includes any
successor person under the Indenture hereinafter referred to), for value
received hereby promises to pay to _____________, or registered assigns, the
principal sum of _______________ Dollars on _________, 2007, and to pay interest
thereon from ____________, 1997 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semiannually on February __
and August __ in each year, commencing July __, 1997, at the rate of ________%
per annum, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest, which shall be the
January __ or July __ (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Except as otherwise provided in the
Indenture, any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Trustee, notice whereof
shall be given to Holders of Notes not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner, all as more
fully provided in said Indenture. Payment of the principal of (and premium, if
any) and interest on this Note will be made at the office or agency of the
Company maintained for that purpose in New York, New York or the city in which
the Corporate Trust Office of the Trustee is located, in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that at the option of
the Company payment of interest may be made by check mailed to the address of
the Person entitled thereto as such address shall appear in the Note Register.
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Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place. Unless the certificate of
authentication hereon has been executed by the Trustee referred to on the
reverse hereof by manual signature, this Note shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: SIGNATURE RESORTS, INC.
Attest: __________________ By: __________________
Section 2.3 Form of Reverse of Note.
This Note is one of a duly authorized issue of securities of the
Company designated as its _______% Convertible Subordinated Notes due
_____________, 2007 (herein called the "Notes"), limited in aggregate principal
amount to $100,000,000 (except for such additional principal amounts, not to
exceed $15,000,000, of Notes issued to cover over-allotments in the initial
public offering of the Notes) issued and to be issued under an Indenture, dated
as of February _____, 1997 (herein called the "Indenture"), between the Company
and Norwest Bank Minnesota, National Association, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee, the holders of Senior
Indebtedness and the Holders of the Notes and of the terms upon which the Notes
are, and are to be, authenticated and delivered. The Notes are issuable in
registered form only without coupons in denominations of $1,000 and any integral
multiple thereof.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Note is entitled, at his option, at any time after 60 days
from the latest date of original issuance of the Notes and on or before the
close of business on the last Business Day prior to _________, 2007, (except
that (i) if this Note or a portion hereof is called for redemption, then the
right of conversion in respect of this Note or such portion hereof shall
terminate (unless the Company defaults in making the payment due upon
redemption) on, the close of business on the fifth Business Day prior to the
Redemption Date, and (ii) if the Holder hereof has exercised his right to
require the Company to repurchase this Note or a portion hereof, then the right
of conversion in respect of this Note shall
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terminate at the close of business on the fifth Business Day prior to the
Repurchase Date) to convert this Note (or any portion of the principal amount
hereof which is $1,000 or an integral multiple thereof), at the principal amount
hereof, or of such portion, into fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock of the Company at a conversion price equal to $_________ for each share of
Common Stock (or at the current adjusted conversion price if an adjustment has
been made as provided in the Indenture) by surrender of this Note, duly endorsed
or assigned to the Company or in blank, to the Company at its office or agency
in New York, New York or the city in which the Corporate Trust Office of the
Trustee is located, accompanied by written notice to the Company that the Holder
hereof elects to convert this Note, or if less than the entire principal amount
hereof is to be converted, the portion hereof to be converted, and, in case such
surrender shall be made during the period from the close of business on any
Regular Record Date next preceding any Interest Payment Date to the opening of
business on such Interest Payment Date (the "Interest Period"), also accompanied
by payment in New York Clearing House Funds or other funds acceptable to the
Company of an amount equal to the interest payable on such Interest Payment Date
on the principal amount of this Note then being converted; except that in the
case of Notes or portions thereof that have been called for redemption and,
pursuant to Section 12.1 of the Indenture, as a result of such redemption the
right to convert such Notes terminates during the Interest Period, any such
Notes surrendered for conversion during such Interest Period need not be
accompanied by payment in an amount equal to such interest. Subject to the
aforesaid requirement for payment and, in the case of a conversion after the
Regular Record Date next preceding any Interest Payment Date and on or before
such Interest Payment Date, to the right of the Holder of Record of this Note
(or any Predecessor Note) at such Regular Record Date to receive an installment
of interest (with certain exceptions provided in the Indenture), no payment or
adjustment is to be made on conversion for interest accrued hereon or for
dividends on the Common Stock issued on conversion. No fractions of shares or
scrip representing fractions of shares will be issued on conversion, but instead
of any fractional interest the Company shall pay a cash adjustment as provided
in Section 12.3 of the Indenture. The conversion price is subject to adjustment
as provided in Section 12.4 of the Indenture. In addition, the Indenture
provides that in case of certain consolidations or mergers to which the Company
is a party or the transfer of all or substantially all of the assets of the
Company, the Indenture shall be amended, without the consent of any Holders of
Notes, so that this Note, if then outstanding, will be convertible thereafter,
during the period this Note shall be convertible as specified above, only into
the kind and amount of securities, cash and other property receivable upon the
consolidation, merger or transfer by a holder of the number of shares of Common
Stock into which this Note might have been
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converted immediately prior to such consolidation, merger or transfer (assuming
such holder of Common Stock failed to exercise any rights of election and
received per share the kind and amount received per share by a plurality of non-
electing shares and assuming that such note was then convertible).
The Notes are subject to redemption upon not less than 30 days' nor
more than 60 days' notice by mail, at any time on or after February ___, 2000,
as a whole or in part, at the election of the Company. The Redemption Prices
(expressed as percentages of the principal amount), and in each case, plus
accrued and unpaid interest to the date of Redemption, and subject to the rights
of Holders of record on the relevant Regular Record Date to receive interest due
on an Interest Payment Date, are as follows for the 12-month period (unless
otherwise noted) beginning on February ___ of the following years:
Year Redemption Price
---- ----------------
2000 _____%
2001 _____%
2002 _____%
2003 _____%
2004 _____%
2005 _____%
2006 100%
2007 100%
Interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Notes, or one or more Predecessor
Notes, of record at the close of business on the relevant Record Dates referred
to on the face hereof, all as provided in the Indenture.
Upon a Change in Control (as defined in the Indenture), the Company
will be required to offer to repurchase all of the Notes at 100% of their
principal amount plus accrued interest. The Company may pay the Repurchase
Price in cash, or at its option, in lieu of paying the Repurchase Price in cash,
may pay the Repurchase Price in Common Stock valued at 95% of the average of the
last reported sale price of the Common Stock for the five consecutive Trading
Days ending on and including the third Trading Day preceding the Repurchase Date
as calculated by the Company; provided that payment may not be made in Common
Stock of the Company unless the Company satisfied certain conditions with
respect to such payment as provided in the Indenture.
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In the event of redemption or conversion of this Note in part only, a
new Note or Notes for the unredeemed or unconverted portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.
The indebtedness evidenced by this Note is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Note is issued subject to the
provisions of the Indenture with respect thereto. Each holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee as his attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding. The Indenture also contains provisions permitting the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding, on
behalf of the Holders of all the Notes, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place and rate, and in the coin or currency,
herein prescribed or to convert this Note as provided in the Indenture.
As provided in and subject to the provisions of the Indenture, the
Holder of this Note shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless (i) such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, (ii) the Holders of
not less than 25% in principal amount of the
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Outstanding Notes shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity with respect thereto, and the Trustee shall not
have received from the Holders of a majority in principal amount of the Notes
Outstanding a direction inconsistent with such request, and (iv) the Trustee
shall have failed to institute any such proceeding, for 60 days after receipt of
such notice, request and offer of indemnity. The foregoing shall not apply to
any suit instituted by the Holder of this Note for the enforcement of any
payment of principal hereof, premium, if any, or interest hereon on or after the
respective due dated expressed herein or for the enforcement of the right to
convert this Note as provided in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Note
Register, upon surrender of this Note for registration of transfer at the office
or agency of the Company in the city of New York, New York, or the city in which
the Corporate Trust Office of the Trustee is located, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Note Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Notes, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made to a Holder for any such registration
of transfer or exchange, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary. All
terms used in this Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
The Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York, without regards to the
conflicts of law principles as applied in such state.
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No recourse shall be had for the payment of the principal, premium, if
any, or the interest on this Note, or for any claim based hereon, or otherwise
in respect hereof, or based on or in respect of the Indenture or any indenture
supplemental thereto, against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the considerations for the issue
hereof, expressly waived and released.
All terms used in this Note that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
Section 2.4 Form of Trustee's Certificate of Authentication.
This is one of the Notes referred to in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
____________________________
By: Authorized signatory
--------------------
Section 2.5 Form of Conversion Notice.
To Signature Resorts, Inc.:
The undersigned owner of this Note hereby irrevocably exercises the
option to convert this Note, or portion hereof (which is $1,000 or an integral
multiple thereof) below designated, into shares of Common Stock of Signature
Resorts, Inc., in accordance with the terms of the Indenture referred to in this
Note, and directs that the certificate or certificates for the shares issuable
and deliverable upon the conversion, together with any check in payment for
fractional shares and any Notes representing any unconverted principal amount
hereof, be issued in the name of and delivered to the undersigned, unless a
different name has been indicated below. If shares of Common Stock are to be
issued in the name of a person other than the undersigned, the undersigned will
pay any transfer taxes payable with respect thereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Note.
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Principal amount to be converted (in an integral multiple of $1,000,
if less than all): $_______________________
FILL IN FOR REGISTRATION OF SHARES:
----------------------------------
Please print name and address (including zip code)
Name: _______________________________
Address: _______________________________
_______________________________
Please Insert Social Security or Other Taxpayer Identifying
Number:__________________
Fill in for registration of shares of Common stock and Securities if
to be issued otherwise than to the Holder:
______________________ _________________________________
(Name) Social Security or other Taxpayer
Identifying Number
______________________
(Signature(s)
Signature(s) must be guaranteed by an Eligible Guarantor Institution with
membership in an approved signature guarantee program pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934.
______________________
Signature Guaranteed
Section 2.6 Form of Assignment
For value received_________________ hereby sell(s), assign(s) and
transfer(s) unto _________________ (please insert name and social security or
other identifying number of assignee) the within Note, and hereby irrevocably
constitutes and appoints ________________________ as attorney to transfer the
said Note on the books of the Company, with full power of substitution in the
premises.
Dated: _____________________________
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Signature(s)
Signature(s) must be guaranteed by an Eligible Guarantor Institution with member
ship in an approved signature guarantee program pursuant to Rule 17Ad-15 under
the Securities Exchange Act of 1934.
_____________________________
Signature Guaranteed
ARTICLE 3
THE NOTES
Section 3.1 Title and Terms.
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $100,000,000 (except for such
additional principal amounts, not to exceed an aggregate of $15,000,000, of
Notes issued to cover over-allotments in the initial public offering of the
Notes), except for Notes authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section
3.4, 3.5, 3.6, 9.6, 11.8 or 12.2.
The Notes shall be known and designated as the "______% Convertible
Subordinated Notes due ____________, 2007" of the Company. Their final Stated
Maturity shall be ______________, 2007, and they shall bear interest at the rate
of _____% per annum, from February ____, 1997 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, as the case
may be, payable semi-annually on February __ and August __, commencing August
__, 1997 until the principal thereof is paid or made available for payment.
The principal of (and premiums if any) and interest on the Notes shall
be payable at the office or agency of the Company in New York, New York or the
city in which the Corporate Trust Office of the Trustee is located for such
purpose and at any other office or agency maintained by the Company for such
purpose; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Note Register.
The Notes shall be redeemable as provided in Article Eleven.
The Notes shall be convertible as provided in Article Twelve.
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The Notes shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Thirteen.
The Notes shall be subject to repurchase at the option of the Holder
as provided in Article Fourteen.
Section 3.2 Denominations.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
Section 3.3 Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its Chairman
of the Board, its President or one of its Vice Presidents, under its corporate
seal reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Notes as in this Indenture provided
and not otherwise.
Each Note shall be dated the date of its authentication. No Note
shall be entitled to any benefit under this Indenture or be valid or obligatory
for any purpose unless there appears on such Note a certificate of
authentication substantially in the form provided for herein executed by the
Trustee by manual signature, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
Section 3.4 Temporary Notes.
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
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definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at any office or agency of the Company
designated pursuant to Section 10.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Notes of authorized denominations. Until so
exchanged the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes.
For purposes of this Section 3.4 each Global Note shall be considered
a definitive Note.
Section 3.5 Registration; Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agent designated pursuant to Section 10.2 being herein sometimes
collectively referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Trustee is hereby
appointed "Note Registrar" for the purpose of registering Notes and transfers of
Notes as herein provided.
Upon surrender for registration of transfer of any Note at an office
or agency of the Company designated pursuant to Section 10.2 for such purpose,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Notes of
any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under
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this Indenture, as the Notes surrendered upon such registration of transfer or
exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Note Registrar duly executed, by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 3.4, 9.6, 11.8 or 12.2 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 11.4 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
The provisions of Clauses (1), (2), (3), (4) and (5) below shall apply
only to Global Notes:
(1) Each Global Note authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Note or a
nominee thereof and delivered to such Depositary or a nominee thereof or
Custodian therefor, and each such Global Note shall constitute a single Note for
all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Note may be exchanged in whole or in part for Notes registered, and no transfer
of a Global Note in whole or in part may be registered, in the name of any
Person other than the Depositary for such Global Note or a nominee thereof
unless (A) such Depositary (i) has notified the Company that it is unwilling or
unable to continue as Depositary for such Global Note or (ii) has ceased to be a
clearing agency registered under the Exchange Act, or (B) there shall have
occurred and be continuing an Event of Default with respect to such Global Note.
(3) Subject to Clause (2) above, any exchange of a Global Note for
other Notes may be made in whole or in part, and all Notes issued in exchange
for a Global Note or any portion
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thereof shall be registered in such names as the Depositary for such Global Note
shall direct.
(4) Every Note authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Note or any portion
thereof, whether pursuant to this Article Three or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Note, unless
such Note is registered in the name of a Person other than the Depositary for
such Global Note or a nominee thereof.
(5) The Depositary or its nominee, as registered owner of a Global
Note, shall be the Holder of such Global Note for all purposes under the
Indenture and the Notes, and owners of beneficial interests in a Global Note
shall hold such interests pursuant to the Applicable Procedures. Accordingly,
any such owner's beneficial interest in a Global Note will be shown only on, and
the transfer of such interest shall be effected only through, records maintained
by the Depositary or its nominee or its Agent Members and such owners of
beneficial interests in a Global Note will not be considered the owners or
holders thereof. Neither the Company nor the Trustee will have any
responsibility or obligation to the Depositary or any of its Agent Members with
respect to (i) the accuracy of any records maintained by the Depositary, (ii)
the payment by the Depositary or any Agent Members of any amount due to any
owner of beneficial interests in a Global Note in respect of any Notes, (iii)
the delivery of any notice by the Depositary or any Agent Member, or (v) any
other action taken by the Depositary or any Agent Members.
Section 3.6 Mutilated, Destroyed, Lost and Stolen Notes.
If any mutilated Note is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Note and
(ii) such security or indemnity as may be required by them to save each of them
and any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a
new Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the
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Company in its discretion may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.7 Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in clause (i) or (ii) below:
(i) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Notes (or their respective Predecessor Notes) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Note and the date of the proposed payment, and at
the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest as
in this clause
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provided. Thereupon the Trustee shall fix a Special Record Date for the payment
of such Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and, in
the name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at his address as it appears
in the Note Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so mailed, such Defaulted Interest shall be paid to
the Persons in whose names the Notes (or their respective Predecessor Notes) are
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following clause (ii).
(ii) The Company may make payment of any Defaulted Interest in any other
lawful manner, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.7, each Note
delivered under this Indenture upon registration of, transfer of, or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
In the case of any Note which is converted after any Regular Record
Date but on or before the next Interest Payment Date, interest whose Stated
Maturity is on such Interest Payment Date shall be payable on such Interest
Payment Date notwithstanding such conversion, and such interest (whether or not
punctually paid or duly provided for) shall be paid to the Person in whose name
that Note (or one or more Predecessor Notes) is registered at the close of
business on such Regular Record Date.
Section 3.8 Persons Deemed Owners.
Prior to due presentment of a Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Note is registered as the owner of such Note for the
purpose of receiving payment of principal of (and premium, if any) and (subject
to Section 3.7) interest on such Note and for all other purposes whatsoever,
whether or not such Note be overdue, and neither the Company, the Trustee nor
any agent of the Company or the Trustee shall be affected by notice to the
contrary.
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Section 3.9 Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder which the Company may
have acquired in any manner whatsoever, and all Notes so delivered shall be
promptly cancelled by the Trustee. No Notes shall be authenticated in lieu of
or in exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the Trustee
shall be disposed of in accordance with the Trustee's usual document destruction
procedures.
Section 3.10 Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
ARTICLE 4
SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of Notes
herein expressly provided for), and the Trustee, on demand of and at the expense
of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(i) all Notes theretofore authenticated and delivered (other than (1) Notes
which have been destroyed, lost or stolen and which have been replaced or paid
as provided in Section 3.6 and (2) Notes for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as provided in
Section 10.3) have been delivered to the Trustee for cancellation; or
(ii) all such Notes not theretofore delivered to the Trustee for
cancellation (1) have become due and payable, (2) will become due and payable at
their Stated Maturity within one year, or (3) are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense, of the
Company, and, the Company, in the case of (1), (2) or (3) above, has deposited
---
or caused to be deposited with
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the Trustee as trust funds in trust for the purpose an amount sufficient to pay
and discharge the entire indebtedness on such Notes not theretofore delivered to
the Trustee for cancellation for principal (and premium, if any) and interest to
the date of such deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be; or
(iii) all outstanding Notes are delivered to the Trustee for conversion in
accordance with the provisions of this Indenture; and
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Trustee to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of clause (a) of
this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive. Except as specifically agreed in
writing, the Trustee shall not be responsible for the payment of interest upon
money deposited with it under this Indenture.
Section 4.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee. All moneys deposited with the Trustee pursuant to Section 4.1 (and
held by it or any Paying Agent) for the payment of Notes subsequently converted
shall be returned to the Company upon Company Request.
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ARTICLE 5
REMEDIES
Section 5.1 Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Thirteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of any interest upon any Note when it becomes
due and payable, and continuance of such default for a period of 30 days whether
or not such payment is prohibited by the subordination provisions contained in
Article Thirteen; or
(b) default in the payment of the principal of (or premium, if any, on) any
Note at its Maturity whether or not such payment is prohibited by the
subordination provisions contained in Article Thirteen; or
(c) failure by the Company to provide a Company Notice of Change in
Control;
(d) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section 5.1 specifically
dealt with), and continuance of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Notes, a written notice specifying such
default or breach and requiring it to be remedied and stating that such notice
is a "Notice of Default" hereunder; or
(e) a failure by the Company or any Significant Subsidiary to make any
payment in respect of any obligations (other than Non-Recourse Debt) of, or
guaranteed or assumed by, the Company or any Significant Subsidiary, for
borrowed money ("Indebtedness") in an amount in excess of $15,000,000 and
continuance of such failure for ninety (90) days, or a default by the Company or
any Significant Subsidiary with respect to any Indebtedness, which default
results in the acceleration of the Indebtedness in an amount in excess of
$15,000,000, and such Indebtedness not having been discharged or such
acceleration not having been cured, waived, rescinded or annulled within 90 days
of such acceleration; or
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(f) a final judgment or judgments for payment of money against the Company
or any Significant Subsidiary which remains undischarged for a period ending on
the later of (a) 60 days after the entry of such judgment, as extended by any
effective stay of its execution; or (b) the date on which any payment is or
becomes due pursuant to such judgment in accordance with its terms, other than
final judgment with respect to Non-recourse Debt of the Company or any of its
Significant Subsidiaries, provided that the aggregate of all such outstanding
judgments exceed $15,000,000 (excluding any amounts covered by insurance as to
which the insurer has not denied liability); or
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable Federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and in
effect for a period of 60 consecutive days; or
(h) the commencement by the Company of a voluntary case or proceeding under
any applicable Federal or state bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree or order for relief in
respect of the Company in an involuntary case or proceeding under any applicable
Federal or state bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, or the
consent by it to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of the Company or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Company in substantial
furtherance of any such action.
Section 5.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 5.1(g) or 5.1(h)) occurs and is continuing,
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then and in every such case the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Notes may declare the principal of all the
Notes to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by Holders), and upon any such declaration such
principal shall become immediately due and payable. If an Event of Default
specified in Section 5.1(g) or 5.1(h) occurs and is continuing, the principal
and any accrued interest thereon, of all Outstanding Notes shall become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
At any time after such a declaration of acceleration has been made,
the Holders of a majority in principal amount of the Outstanding Notes, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if (i) the Company has paid or deposited with
the Trustee a sum sufficient to pay
(a) all overdue interest on all Notes,
(b) the principal of (and premium, if any, on) any Notes which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate of _______% per annum,
(c) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate of _______% per annum, and
(d) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(ii) all Events of Default, other than the non-payment of the principal of
Notes which have become due solely by such declaration of acceleration, have
been cured or waived (as provided in Section 5.13).
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Section 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any interest on any Note when such
interest becomes due and payable and such default continues for a period of 30
days; or
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(b) default is made in the payment of the principal of (or premium, if any,
on) any Note at the Maturity thereof, the Company will, upon demand of the
Trustee, pay to it, for the benefit of the Holders of such Notes, the whole
amount then due and payable on such Notes for principal (and premium, if any)
and interest, and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal (and premium, if any) and on any
overdue interest, at a rate of _____% per annum, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may (i)
institute a judicial proceeding for the collection of the sums so due and
unpaid, (ii) prosecute such proceeding to judgment or final decree and may (iii)
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 5.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes and take
such other actions, including participating as a member, voting or otherwise, of
any official committee of creditors appointed in such matter and to file such
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including, without
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limitation, any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and of the Holders of Notes
allowed in such judicial proceeding; and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding; provided, however, that the
Trustee may, on behalf of such Holders, vote for the election of a trustee in
bankruptcy or similar official and may serve on a creditor's committee.
Section 5.5 Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Notes in respect of which such judgment has been recovered.
Section 5.6 Application of Money Collected.
Subject to Article Thirteen, any money collected by the Trustee
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal (or premium, if any) or interest, upon presentation of the
Notes and the notation thereon of the payment if only partially paid, and upon
surrender thereof if fully paid:
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FIRST: To the payment of all amounts due to the Trustee under
Section 6.7; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Notes for principal (and premium, if any) and interest, respectively.
THIRD: Any remaining amounts, if any, shall be repaid to the Company,
its successors or assigns, or to whomever may be lawfully entitled to the same,
or as a court of competent jurisdiction may determine.
Section 5.7 Limitation on Suits.
No Holder of any Note shall have any right to institute any action,
suit or proceeding, judicial or otherwise, with respect to this Indenture, or
for the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the Outstanding
Notes shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(d) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such action, suit or proceeding;
and
(e) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Notes; it being understood and intended that no one or
more Holders shall have any right in any manner whatever by virtue of, or by
availing itself of, any provision of this Indenture to affect, disturb or
prejudice the rights of any other Holders, or to obtain or to seek to obtain
priority or preference over any other Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all the Holders.
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Section 5.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert.
Notwithstanding any other provision in this Indenture, but subject to
the provisions of Article Thirteen, the Holder of any Note shall have the right,
which is absolute and unconditional, to receive payment of the principal of (and
premium, if any) and (subject to Section 3.7) interest on such Note on the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on the Redemption Date) and to convert such Note in accordance with
Article Twelve and to institute suit for the enforcement of any such payment and
right to convert, and such rights shall not be impaired without the prior
written consent of such Holder.
Section 5.9 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
Section 5.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
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Section 5.12 Control by Holders.
The Holders of a majority in principal amount of the Outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that (i) such direction shall not be in
conflict with (x) any rule of law, (y) this Indenture, or (z) the
indemnification provided by the Holder or Holders to the Trustee pursuant to
Section 5.7, and (ii) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.13 Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
default hereunder and its consequences, except a default
(a) in the payment of the principal of (or premium, if any) or interest on
any Note, or
(b) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected; provided, however, that no such waiver shall be
effected until all amounts then due to the Trustee under Section 6.7 have been
paid.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 5.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Notes, or to
any suit instituted by any
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Holder for the enforcement of the payment of the principal of (or premium, if
any) or interest on any Note on or after the respective Stated Maturities
expressed in such Note (or, in the case of redemption, on or after the
Redemption Date) or for the enforcement of the right to convert any Note in
accordance with Article Twelve, or to require the Company to repurchase any
Notes in accordance with the provisions of Article Fourteen.
Section 5.15 Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE 6
THE TRUSTEE
Section 6.1 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture, but need not verify the accuracy of the contents thereof.
(b) In case an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
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(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that
(i) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section 6.1;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the Outstanding
Notes relating to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; and
(iv) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 6.2 Notice of Defaults.
Within 90 days after the occurrence of any default hereunder, the
Trustee shall transmit by mail to all Holders, as their names and addresses
appear in the Note Register, notice of such default hereunder known to the
Trustee, unless such default shall have been cured or waived; provided, however,
that, except in the case of a default in the payment of the principal of (or
premium, if any) or interest on any Note, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would become,
an Event of Default.
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Section 6.3 Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be
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responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder;
(h) the permissive right of the Trustee to take or refrain from taking any
actions enumerated in this Indenture shall not be construed as a duty and the
Trustee shall not be answerable in such actions other than for its own
negligence or bad faith; and
(i) the Trustee shall not be deemed to know of any fact or event upon the
occurrence of which it may be required to take action hereunder (except with
respect to monetary defaults) unless one of its Responsible Officers shall have
actual knowledge thereof.
Section 6.4 Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes. The Trustee shall not be accountable for the use or application
by the Company of Notes or the proceeds thereof.
Section 6.5 May Hold Notes.
The Trustee, any Authenticating Agent, any Paying Agent, any Note
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Notes and, subject to Sections 6.8
and 6.13, may otherwise deal with the Company with the same rights it would have
if it were not Trustee, Authenticating Agent, Paying Agent, Note Registrar or
such other agent.
Section 6.6 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company in writing.
Section 6.7 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust);
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(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
trust, including the costs, expenses and reasonable attorneys' fees of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
Section 6.8 Disqualification; Conflicting Interests.
If the Trustee has or shall acquire any conflicting interest, within
the meaning of the Trust Indenture Act, it shall, within 90 days after
ascertaining that it has such conflicting interest, either eliminate such
conflicting interest or resign in accordance with the provisions of the Trust
Indenture Act.
Section 6.9 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000 and subject to supervision or examination by Federal and
State or District of Columbia authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article and a
successor shall be appointed pursuant to Section 6.10.
Section 6.10 Resignation and Removal Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall
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become effective until the acceptance of appointment by the successor Trustee
under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Notes, delivered to the Trustee
and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 6.8 after
written request therefor by the Company or by any Holder who has been a bona
fide Holder of a Note for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 6.9 and
shall fail to resign after written request therefor by the Company or by any
such Holder (as described in the preceding subsection (d)(i)), or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation then, in any such case, (1) the Company by a Board
Resolution may remove the Trustee, or (2) subject to Section 5.14, any Holder
who has been a bona fide Holder of a Note for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If, within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Notes delivered to the Company
and the retiring Trustee, the successor Trustee so appointed shall, forthwith
upon its acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note
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for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to all Holders as
their names and addresses appear in the Note Register. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
Section 6.11 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article Six.
Section 6.12 Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver
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the Notes so authenticated with the same effect as if such successor Trustee had
itself authenticated such Notes.
Section 6.13 Preferential Collection of Claims Against Company.
If the Trustee shall be or shall become a creditor, directly or
indirectly, secured or unsecured, of the Company or any other obligor on the
Notes, the Trustee shall be subject to and comply with the provisions of the
Trust Indenture Act regarding the collection of claims against the Company or
such other obligor.
Section 6.14 Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Notes issued upon
original issue and upon exchange, registration of transfer, partial conversion
or partial redemption or pursuant to Section 3.6, and Notes so authenticated
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder.
Wherever reference is made in this Indenture to the authentication and delivery
of Notes by the Trustee or the Trustee's certificate of authentication, such
reference shall be deemed to include authentication and delivery on behalf of
the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be subject to acceptance by the Company and shall at
all times be a corporation organized and doing business under the laws of the
United States of America, any State thereof or The District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation
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shall be otherwise eligible under this Section, without the execution or filing
of any paper or any further act on the part of the Trustee or the Authenticating
Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be subject to acceptance by the Company and shall mail written
notice of such appointment by first-class mail, postage prepaid, to all Holders
as their names and addresses appear in the Note Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.7.
If an appointment is made pursuant to this Section 6.14, the Notes may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the Notes described in the within-mentioned Indenture.
Norwest Bank Minnesota, National Association
As Trustee
By: ______________________________
Authorized Officer
By: _______________________________
As Authenticating Agent
By: _________________________________
Authorized Officer
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ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1 Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record Date, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
Excluding from any such list names and addresses received by the
Trustee in its capacity as Note Registrar.
Section 7.2 Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Note Registrar.
The Trustee may destroy any list furnished to it as provided in Section 7.1 upon
receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Notes, and the corresponding
rights and privileges of the Trustee, shall be as provided in the Trust
Indenture Act.
(c) Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders made pursuant
to the Trust Indenture Act.
Section 7.3 Reports by Trustee.
(a) On or about each May 15, the Trustee shall transmit to Holders such
reports, if any, concerning the Trustee and its actions under this Indenture as
may be required pursuant to the Trust Indenture Act in the manner provided
pursuant thereto.
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(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the Notes
are listed (if applicable), with the Commission and with the Company. The
Company will notify the Trustee when the Notes are listed on any stock exchange
(if applicable).
Section 7.4 Reports by Company.
The Company shall file with the Trustee and the Commission, and
transmit to the Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to the Trust Indenture Act; provided
that any such information, documents or reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed
with the Trustee within 15 days after the same is so required to be filed with
the Commission.
ARTICLE 8
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
or, transfer or lease all or substantially all of its properties and assets to
any Person, unless:
(i) in case the Company shall consolidate with or merge into another
Person or transfer or lease all or substantially all of its properties and
assets to any Person, the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by transfer, or which leases the
properties and assets of the Company substantially as an entirety shall be a
corporation, partnership or trust, shall be organized and validly existing under
the laws of the United States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, the
due and punctual payment of the principal of (and premium, if any) and interest
on all the Notes and the performance of every covenant of this Indenture on the
part of the Company to be performed or observed and shall have provided for
conversion rights in accordance with Article Twelve hereof;
(ii) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing; and
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(iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, complies with
this Article, and that all conditions precedent herein provided relating to such
transaction have been complied with.
Section 8.2 Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any transfer or lease all or substantially all of the
properties and assets of the Company in accordance with Section 8.1 the
successor Person formed by such consolidation or into which the Company is
merged or to which such transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein, and thereafter, except in the case of a lease, the
Company shall be relieved of all obligations and covenants under this Indenture
and the Notes.
ARTICLE 9
SUPPLEMENTAL INDENTURES
Section 9.1 Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and in
the Notes; or
(b) to add to the covenants of the Company for the benefit of the Holders,
or to surrender any right or power herein conferred upon the Company; or
(c) to secure the Notes; or
(d) to make provision with respect to the conversion rights of Holders
pursuant to the requirements of Article Twelve; or the repurchase obligations of
the Company pursuant to the requirements of Article Fourteen; or
(e) to add any additional Events of Default; or
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(f) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Notes; or
(g) to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein, or to make any other
provisions with respect to matters or questions arising under this Indenture,
provided such action pursuant to this clause (g) shall not adversely affect the
interests of the Holders.
Section 9.2 Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes, by Act of said Holders delivered to
the Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(a) (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or the premium or
interest on, any Note, (iii) reduce the amount payable upon an optional
redemption or the consideration payable to any Holder converting after a notice
of redemption has been given, (iv) modify the provisions with respect to the
repurchase right of the Holders in a manner adverse to the Holders, (v) change
the place or currency of payment of principal of, or premium or interest on, any
Note, (vii) impair the right to institute suit for the enforcement of any
payment on or with respect to any Note, (viii) adversely affect the right to
convert the Notes, or (ix) modify the subordination provisions in a manner
adverse to the Holders of the Notes, or
(b) reduce the percentage in principal amount of the Outstanding Notes the
consent of whose Holders is required for any such supplemental indenture, or the
consent of whose Holders is required for any waiver (of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or
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(c) modify any of the provisions of this Section 9.2, Section 5.13 or
Section 10.8, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 9.3 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which, in the Trustee's
sole discretion, affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
Section 9.5 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6 Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and
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shall if required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Notes so modified as to conform, in the opinion
of the Trustee and the Company, to any such supplemental indenture may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Notes.
Section 9.7 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.1 or Section 9.2,
the Company shall give notice to all Holders of Securities of such fact, setting
forth in general terms the substance of such supplemental indenture, in the
manner provided in Section 1.6. Any failure of the Company to give such notice,
or any defect therein, shall not in any way impair or affect the validity of any
such supplemental indenture.
ARTICLE 10
COVENANTS
Section 10.1 Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Notes in accordance with the terms of the
Notes and this Indenture.
Section 10.2 Maintenance of Office or Agency.
The Company hereby appoints the corporate trust office of the Trustee,
as its agent in the city of Minneapolis, Minnesota where Notes may be presented
or surrendered for payment, where Notes may be surrendered for registration of
transfer or exchange, where conversion notices, certificates and other items
required to be delivered to effect conversion may be delivered and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served.
The Company hereby also appoints the Corporate Trust Office of the
Trustee as Paying Agent for the payment of principal of (and premium, if any),
and interest on the Securities and as "Conversion Agent" for the conversion of
any of the Notes in accordance with Article Twelve, and appoints the Corporate
Trust Office of the Trustee as transfer agent where Notes may be surrendered for
registration of transfer or exchange.
The Company may at any time and from time to time vary or terminate
the appointment of any such Conversion Agent or appoint any additional
Conversion Agents with or without cause for any or all of such purposes;
provided, however, that until
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all of the Notes have been delivered to the Trustee for cancellation, or moneys
sufficient to pay the principal of and interest on Notes have been made
available for payment and either paid or returned to the Company pursuant to the
provisions of Section 10.3, the Company will maintain in the city of
Minneapolis, Minnesota an office or agency where Notes may be presented or
surrendered for payment, where Notes may be surrendered for registration of
transfer or exchange, where Notes may be surrendered for conversion and where
notices and demand to or upon the Company, in respect of the Notes and this
Indenture may be served. The Company will give prompt written notice to the
Trustee, and will give notice to Holders of Notes in the manner specified in
Section 1.6 of the appointment or termination of any such agents and of the
location and any change in the location of any such office or agency.
If at any time the Company shall fail to maintain any such required
office or agency, or shall fail to furnish the Trustee with the address thereof,
presentations and surrenders may be made and notice and demands may be served on
and Notes may be surrendered for conversion to the Corporate Trust Office of the
Trustee, and the Company hereby appoints the same as its agent to receive such
respective presentations, surrenders, notices and demands.
Section 10.3 Money for Note Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Notes, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act. Whenever the Company shall have one or more
Paying Agents, it will, prior to each due date of the principal of (and premium,
if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient
to pay the principal (and premium, if any) or interest so becoming due, such sum
to be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(i) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Notes in trust for the benefit of the Persons
entitled thereto until such sums
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shall be paid to such Persons or otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal (and
premium, if any) or interest; and
(iii) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall,
subject to applicable escheat and abandoned property law, be paid to the Company
on Company Request, or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may, at the expense of the Company, cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York and in the city in which the Corporate Trust Office of the Trustee is
located, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
Section 10.4 Statement by Officers as to Default.
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company, an Officer's Certificate stating whether or
not to the knowledge of the signers thereof the Company is in compliance with
all conditions and covenants under the Indenture (without regard to any period
of grace or requirement of notice provided hereunder).
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The Company will deliver to the Trustee, within 3 Business Days after
becoming aware of any default or Event of Default under this Indenture, an
Officers' Certificate specifying with particularity such default or Event of
Default and further stating what action the Company has taken, is taking or
proposes to take with respect thereto. For the purpose of this Section, the
term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default.
Any notice required to be given under this Section 10.4 shall be
delivered to the Trustee at its Corporate Trust Office.
Section 10.5 Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
Section 10.6 Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 10.6 shall prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
Section 10.7 Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (ii)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the real or personal property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or
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discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings and for
which disputed amounts adequate reserves in accordance with generally accepted
accounting principles have been made.
Section 10.8 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 10.2, 10.3, 10.5 and 10.6, if before
the time for such compliance the Holders of at least a majority in principal
amount of the Outstanding Notes shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
Section 10.9 Book-Entry System
If the Notes cease to trade in DTC's book-entry settlement system, the
Company covenants and agrees that it shall use reasonable efforts to make such
other book-entry arrangements that it determines are reasonable for the
Securities.
ARTICLE 11
REDEMPTION OF NOTES
Section 11.1 Right of Redemption.
The Notes may be redeemed at the election of the Company, as a whole
or from time to time in part, at any time on or after __________, 2000, at the
Redemption Prices specified in the form of Note hereinbefore set forth, together
with accrued interest to the Redemption Date.
Section 11.2 Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article Eleven.
Section 11.3 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to Section
11.1 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company of less than all the Notes, the Company shall, at least
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60 days prior to the Redemption Date fixed by the Company (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Notes to be redeemed.
Section 11.4 Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 30 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption,
by lot, pro rata, or by such other method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1,000 or any integral multiple thereof) of the principal amount of
Notes of a denomination larger than $1,000.
If any Note selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Note so selected, the converted portion of such Note shall be deemed (so far as
may be) to be the portion selected for redemption. Notes which have been
converted during a selection of Notes to be redeemed shall be treated by the
Trustee as Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and each Note Registrar
in writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Notes redeemed or to be redeemed only in part, to the portion of
the principal amount of such Notes which has been or is to be redeemed.
Section 11.5 Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed, at such Holder's address appearing
in the Note Register.
All notices of redemption shall state:
(a) the Redemption Date
(b) the Redemption Price
(c) if less than all the Outstanding Notes are to be redeemed, the
identification (and, in the case of partial
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redemption, the principal amounts) of the particular Notes to be redeemed,
(d) that on the Redemption Date the Redemption Price will become due and
payable upon each such Note to be redeemed and that interest thereon will cease
to accrue on and after said date,
(e) the Conversion Price, the date on which the right to convert the
principal of the Notes to be redeemed will terminate and the place or places
where such Notes may be surrendered for conversion, and
(f) the place or places where such Notes are to be surrendered for payment
of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 11.6 Deposit of Redemption Price.
Not less than one Business Day prior to any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.3) an amount of money (which shall be in immediately
available funds on such Redemption Date) sufficient to pay the Redemption Price
of, and (except if the Redemption Date shall be an Interest Payment Date)
accrued interest on, all the Notes which are to be redeemed on that date other
than any Notes called for redemption on that date which have been converted
prior to the date of such deposit.
If any Note called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust for
the redemption of such Note shall (subject to any right of the Holder of such
Note or any Predecessor Note to receive interest as provided in the last
paragraph of Section 3.7) be paid to the Company upon Company Request or, if
then held by the Company, shall be discharged from such trust.
Section 11.7 Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Notes shall cease to bear interest. Upon surrender of any such
Note
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for redemption in accordance with said notice, such Note shall be paid by the
Company at the Redemption Price, together with accrued interest to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Notes, or one or more Predecessor Notes, registered as such at the close
of business on the relevant Record Dates according to their terms and the
provisions of Section 3.7.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate of _______% per annum.
Section 11.8 Notes Redeemed in Part.
Any Note which is to be redeemed only in part shall be surrendered at
an office or agency of the Company designated for that purpose pursuant to
Section 10.2 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder, in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Note so surrendered.
ARTICLE 12
CONVERSION OF NOTES
Section 12.1 Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this Article
Twelve, at the option of the Holder thereof, at any time after sixty (60) days
following the latest date of original issuance of the Notes and prior to the
close of business on the last Business Day prior to February ___, 2007 (unless
earlier redeemed or repurchased), any Note or any portion of the principal
amount thereof which is $1,000 or an integral multiple of $1,000, may be
converted at the principal amount thereof, or of such portion thereof, into
fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock of the Company, at the Conversion
Price, determined as hereinafter provided, in effect at the time of conversion.
In case a Note or portion thereof is called for redemption or is delivered for
repurchase, such conversion right in respect of the Note or portion so called
shall expire at the close of business on the fifth Business Day prior to the
Redemption Date, or the fifth Business Day preceding the Repurchase Date (as
defined in Article Fourteen), as the case may
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be, unless the Company defaults in making the payment due upon redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Price") shall be initially $______ per
share of Common Stock. The Conversion Price shall be adjusted in certain
instances as provided in Section 12.4.
Section 12.2 Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any Note
to be converted shall surrender such Note, duly endorsed or assigned to the
Company or in blank, at any office or agency of the Company maintained for that
purpose pursuant to Section 10.2, accompanied by written notice to the Company
at such office or agency that the Holder elects to convert such Note or, if less
than the entire principal amount thereof is to be converted, the portion thereof
to be converted. In the case of any Note that has been converted during the
period from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on such Interest Payment Date,
interest whose Stated Maturity is on such Interest Payment Date shall be payable
on such Interest Payment Date notwithstanding such conversion and such interest
shall be paid to the Holder of such Note on such Regular Record Date. Notes
surrendered for conversion during the period from the close of business on any
Regular Record Date next preceding any Interest Payment Date to the opening of
business on such Interest Payment Date (the "Interest Period") shall be
accompanied by payment of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of Notes being surrendered for
conversion; except that in the case of Notes or portions thereof that have been
called for redemption and, pursuant to Section 12.1 hereof, as a result of such
redemption, the right to convert such Notes terminates during the Interest
Period, any such Notes surrendered for conversion during such Interest Period
need not be accompanied by payment of an amount equal to such interest. Except
as provided in the second preceding sentence and subject to the last paragraph
of Section 3.7, no payment or adjustment shall be made upon any conversion on
account of any interest accrued on the Notes surrendered for conversion or on
account of any dividends on the Common Stock issued upon conversion. All
payments required by this paragraph to be made by the Holder upon the surrender
of Notes for conversion shall be made in New York Clearing House Funds or other
funds acceptable to the Company.
Notes shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Notes for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Notes as Holders shall cease, and the Person or Persons
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entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in Section 12.3.
In the case of any Note which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Note or
Notes of authorized denominations in aggregate principal amount equal to the
unconverted portion of the principal amount of such Note.
Section 12.3 Fractions of Shares.
No fractional shares of Common Stock shall be issued upon conversion
of Notes. If more than one Note shall be surrendered for conversion at one time
by the same Holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Notes (or specified portions thereof) so surrendered. Instead of
any fractional share of Common Stock which would otherwise be issuable upon
conversion of any Note or Notes (or specified portions thereof), the Company
shall pay a cash adjustment in respect of such fraction in an amount equal to
the same fraction of the market price per share of Common Stock as reasonably
determined by the Company at the close of business on the day of conversion.
Section 12.4 Adjustment of Conversion Price.
The Conversion Price shall be subject to adjustments from time to
time as follows:
(a) In case the Company shall pay or make a dividend or other distribution
on any class of capital stock of the Company in Common Stock, the Conversion
Price in effect at the opening of business on the day following the date fixed
for the determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination. For the purposes of this paragraph (a),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but
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shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company will not pay any dividend or
make any distribution on shares of Common Stock held in the treasury of the
Company.
(b) Subject to 12.4(j), in case the Company shall issue rights, options or
warrants to all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the current
market price per share (determined as provided in paragraph (h) of this Section
12.4) of the Common Stock on the record date fixed for the determination of
stockholders entitled to receive such rights, options or warrants, the
Conversion Price in effect at the opening of business on the day following the
date fixed for such determination shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such current market price
and the denominator shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination plus the number
of shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the purposes of this
paragraph (b), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock. The Company will not issue any rights, options or
warrants in respect of shares of Common Stock held in the treasury of the
Company.
(c) In case outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(d) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock evidences of its indebtedness, shares of any class
of capital stock, cash or assets (including Notes, but excluding any (i) rights,
options or
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warrants referred to in paragraph (b) of this Section 12.4, (ii) any dividend or
distribution paid exclusively in cash, (iii) any dividend or distribution
referred to in paragraph (a) of this Section 12.4 and (iv) any merger or
consolidation to which Section 12.11 applies), the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on the
date fixed for the determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be the current market
price per share (determined as provided in paragraph (h) of this Section 12.4)
of the Common Stock on the date fixed for such determination less the then fair
market value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution filed with the Trustee) of the
portion of the assets, shares or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be such
current market price per share of the Common Stock, such adjustment to become
effective immediately prior to the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
distribution.
(e) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock cash (excluding any cash that is distributed upon a
merger or consolidation to which Section 12.11 applies or as part of a
distribution referred to in paragraph (d) of this Section 12.4) in an aggregate
amount that, combined together with (i) the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash within
the 12 months preceding the date of payment of such distribution and in respect
of which no adjustment pursuant to this paragraph (e) has been made and (ii) the
aggregate of any cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and shall be described in a
Board Resolution) of consideration payable in respect of any tender offer by the
Company or any of its Subsidiaries for all or any portion of the Common Stock
concluded within the 12 months preceding the date of payment of such
distribution and in respect of which no adjustment pursuant to paragraph (f) of
this Section 12.4 has been made, exceeds 15% of the current market price per
share of the Common Stock on the date for the determination of holders of shares
of Common Stock entitled to receive such distribution multiplied by the number
of shares of Common Stock outstanding on such date, then, and in each such case,
immediately after the close of business on such date for determination, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on the date fixed for determination of the stockholders
entitled to receive such distribution by a fraction (1) the numerator of which
shall be equal to the current market price per share (determined as provided in
paragraph (h) of this Section
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12.4) of the Common Stock on the date fixed for such determination less an
amount equal to the quotient of (x) the excess of such combined amount over such
15% and (y) the number of shares of Common Stock outstanding on such date for
determination and (2) the denominator of which shall be equal to the current
market price per share (determined as provided in paragraph (h) of this Section
12.4) of the Common Stock on such date for determination.
(f) In case a tender offer made by the Company or any Subsidiary for all
or any portion of the Common Stock shall expire and such tender offer (as
amended upon the expiration thereof) shall require the payment to stockholders
(based on the acceptance, up to any maximum specified in the terms of the tender
offer, of Purchased Shares as defined below) of an aggregate consideration
having a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and shall be described in a Board Resolution)
that combined together with (i) the aggregate of the cash plus the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive and shall be described in a Board Resolution), as of the expiration
of such tender offer, of consideration payable in respect of any other tender
offer by the Company or any Subsidiary for all or any portion of the Common
Stock expiring within the 12 months preceding the expiration of such tender
offer and in respect of which no adjustment pursuant to this paragraph (f) has
been made and (ii) the aggregate amount of any distributions to all holders of
the Company's Common Stock made exclusively in cash within 12 months preceding
the expiration of such tender offer and in respect of which no adjustment
pursuant to paragraph (e) of this Section has been made, exceeds 15% of the
current market price per share of the Common Stock (determined as provided in
paragraph (h) of this Section 12.4) as of the last time (the "Expiration Time")
tenders could have been made pursuant to such tender offer (as it may be
amended) times the number of shares of Common Stock outstanding (including any
tendered shares) as of the Expiration Time, then, and in each such case,
immediately prior to the opening of business on the day after the date of the
Expiration Time, the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price immediately prior
to close of business on the date of the Expiration Time by a fraction (1) the
numerator of which shall be equal to (x) the product of (A) the current market
price per share of the Common Stock (determined as provided in paragraph (h) of
this Section) on the date of the Expiration Time and (B) the number of shares of
Common Stock outstanding (including any tendered shares) on the Expiration Time
less the amount of cash plus the fair market value (determined as aforesaid) of
the aggregate consideration payable to stockholders based on the acceptance (up
to any maximum specified in the terms of the tender offer) of Purchased Shares,
and (2) the denominator of which shall be equal to the product of (A) the
current market price per share of the Common Stock (determined as provided in
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paragraph (h) of this Section) as of the Expiration Time and (B) the number of
shares of Common Stock outstanding (including any tendered shares) as of the
Expiration Time less the number of all shares validly tendered and not withdrawn
as of the Expiration Time (the shares deemed so accepted up to any such maximum,
being referred to as the "Purchased Shares").
(g) The reclassification of Common Stock into securities including other
than Common Stock (other than any reclassification upon a consolidation or
merger to which Section 12.11 applies) shall be deemed to involve (i) a
distribution of such securities other than Common Stock to all holders of Common
Stock (and the effective date of such reclassification shall be deemed to be
"the date fixed for the determination of stockholders entitled to receive such
distribution" and "the date fixed for such determination" within the meaning of
paragraph (d) of this Section 12.4), and (ii) a subdivision or combination, as
the case may be, of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number of shares of Common Stock
outstanding immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, and "the day upon which such subdivision or combination
becomes effective" within the meaning of paragraph (c) of this Section 12.4).
(h) For the purpose of any computation under paragraphs (b), (d), (e) and
(f) of this Section 12.4, the current market price per share of Common Stock on
any date shall be deemed to be the average of the daily Closing Prices for the
five consecutive Trading Days selected by the Company commencing not more than
ten Trading Days before the day in question.
(i) The Company may make such reductions in the Conversion Price, in
addition to those required by paragraphs (a), (b), (c), (d), (e) and (f) of this
Section, as it considers to be advisable, which determination shall be
conclusive.
(j) Notwithstanding the foregoing, (i) if the options, rights or warrants
described in Section 12.4(b) above are exercisable only upon the occurrence of
certain triggering events, then the conversion price will not be adjusted until
such triggering events occur and (ii) if such options, rights or warrants expire
unexercised, the conversion price will be readjusted to take into account only
the actual number of such options, rights or warrants which were exercised. In
addition, the provisions of Section 12.4(a), (b), (c), (d), (e) and (f) will not
apply to the issuance of Common Stock or the issuance or exercise of options to
purchase Common Stock under any stock-based employee compensation plan now
existing or hereafter adopted.
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(k) In the event of a pro rata distribution to holders of Common Stock of
rights to subscribe for additional shares of Common Stock (other than those
referred to in Section 12.4(b) above) or of evidences of indebtedness or assets
as provided in Section 12.4(d) above, the Company may, instead of making any
adjustment in the Conversion Price, make proper provision so that each Holder of
a Note who converts such Note (or a portion thereof) after the record date for
such distribution and prior to the expiration or redemption of such rights shall
be entitled to receive upon conversion, in addition to the shares of Common
Stock issuable upon conversion, an appropriate number of such rights, evidences
of indebtedness or assets, as the case may be, as if such Holders had converted
the Notes immediately before the Record Date for any such distribution.
(l) Notwithstanding any other provision of this Section 12.4, the Company
shall not be required to make any adjustment of the Conversion Price unless such
adjustment (together with any prior adjustments that were not made as a result
of this clause (l)) would require an increase or decrease of at least 1% of such
Conversion Price.
(m) Notwithstanding any other provision of this Section 12.4, no
adjustment to the Conversion Price shall reduce the Conversion Price below the
then par value per share of the Common Stock, and any such purported adjustment
shall instead reduce the Conversion Price to such par value. The Company hereby
covenants not to take any action (i) to increase the par value per share of the
Common Stock or (ii) that would or does result in any adjustment in the
Conversion Price that, if made without giving effect to the previous sentence,
would cause the Conversion Price to be less than the then par value per share of
the Common Stock; provided, that the covenant in this sentence shall be
suspended if within 10 days of determining in good faith that such action would
result in such adjustment (but not later than the Business Day following the
effectiveness of such adjustment), the Company gives a notice under Section 11.3
and effects the redemption referred to in such notice on the Redemption Date
referred to therein.
Section 12.5 Notice of Adjustments of Conversion Price.
Whenever the Conversion Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Conversion Price in accordance
with Section 12.4 and shall prepare a certificate signed by the Treasurer of the
Company setting forth the adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the Trustee and at each office or agency maintained for
the purpose of conversion of Notes pursuant to Section 10.2; and
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(ii) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall forthwith be required, and as
soon as practicable after it is required, such notice shall be mailed by the
Company to all Holders at their last addresses as they shall appear in the Note
Register.
Section 12.6 Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other distribution) on
its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require any adjustment pursuant to
Section 12.4; or
(b) the Company shall authorize the granting to the holders of its Common
Stock of rights, options or warrants to subscribe for or purchase any shares of
capital stock of any class or of any other rights (excluding stock-based
employee compensation plans); or
(c) of any reclassification of the Common Stock of the Company (other than
a subdivision or combination of its outstanding shares of Common Stock), or of
any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer for all or
a portion of the Company's outstanding shares of Common Stock (or shall amend
any such tender offer);
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Notes pursuant to Section 10.2, and
shall cause to be mailed to all Holders at their last addresses as they shall
appear in the Note Register, at least 20 days (or 10 days in any case specified
in clause (a), (b) or (e) above) prior to the applicable record or effective
date hereinafter specified, a notice stating (i) the date on which a record is
to be taken for the purpose of such dividend, distribution, rights, options or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution, rights,
options or warrants are to be determined, (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their
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shares of Common Stock for securities, cash or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up, or (iii) the date on which such tender offer
commenced, the date on which such tender offer is scheduled to expire unless
extended, the consideration offered and the other material terms thereof (or the
material terms of any amendment thereto).
Section 12.7 Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
pre-emptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Notes, the full number of shares of
Common Stock then issuable upon the conversion of all Outstanding Notes.
Section 12.8 Taxes on Conversions.
The Company will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Notes
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Note or Notes to be converted, and no such issue or delivery shall be made
unless and until the Person requesting such issue has paid to the Company the
amount of any such tax, or has established to the satisfaction of the Company
that such tax has been paid.
Section 12.9 Covenant as to Common Stock.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issue be fully paid and nonassessable
and, except as provided in Section 12.8, the Company will pay all taxes, liens
and charges with respect to the issue thereof.
Section 12.10 Cancellation of Converted Notes.
All Notes delivered for conversion shall be delivered to the Trustee
to be cancelled by or at the direction of the Trustee, which shall dispose of
the same as provided in Section 3.9.
Section 12.11 Provisions in Case of Consolidation, Merger or Sale of
Assets.
In case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the
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Company) or any sale or transfer of all or substantially all of the assets of
the Company, the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Note then outstanding shall have the right thereafter, during the period
such Note shall be convertible as specified in Section 12.1, to convert such
Note only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock of the Company into which such Note might have
been converted immediately prior to such consolidation, merger, sale or
transfer, assuming such holder of Common Stock of the Company (i) is not a
Person with which the Company consolidated or into which the Company merged or
which merged into the Company or to which such sale or transfer was made, as the
case may be ("Constituent Person"), or an Affiliate of a Constituent Person and
(ii) failed to exercise his rights of election, if any, as to the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer (provided that if the kind or amount of securities,
cash and other property receivable upon such consolidation, merger, sale or
transfer is not the same for each share of Common Stock of the Company held
immediately prior to such consolidation, merger, sale or transfer by others than
a Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("non-electing share"), then for the
purpose of this Section the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Such supplemental indenture
shall provide for adjustments which, for events subsequent to the effective date
of such supplemental indenture, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The above
provisions of this Section shall similarly apply to successive consolidations,
mergers, sales or transfers.
Section 12.12 Responsibility of Trustee for Conversion Provisions.
The Trustee, subject to the provisions of Section 6.1 and any
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder of Securities to determine whether any facts exist which may require
any adjustment of the Conversion Price, or with respect to the nature or extent
of any such adjustment when made, or with respect to the method employed herein
or in any supplemental indenture provided to be employed, in making the same, or
whether a supplemental indenture need to be entered into. Neither the Trustee,
subject to the provisions of Section 6.1, nor any Conversion Agent shall be
accountable with respect to the validity or value (or the kind or amount) of
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any Common Stock, or of any other securities or property or cash, which may at
any time be issued or delivered upon the conversion of any Note; and it or they
do not make any representation with respect thereto. Neither the Trustee,
subject to the provisions of Section 6.1, nor any Conversion Agent shall be
responsible for any failure of the Company to make or calculate any cash payment
or to issue, transfer, or deliver any shares of Common Stock or share
certificates or other securities or property or cash upon the surrender of any
Note for the purpose of conversion; and the Trustee, subject to the provisions
of Section 6.1, and any Conversion Agent shall not be responsible for any
failure of the Company to comply with any of the covenants of the Company
contained in this Article Twelve. The Trustee may conclusively rely upon the
last Treasurer's certificate filed with it pursuant to Section 12.5(i) as to the
Conversion Price then in effect.
ARTICLE 13
SUBORDINATION OF NOTES
Section 13.1 Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Note, by his
acceptance thereof, likewise covenants and agrees, that, to the event and in the
manner hereinafter set forth in this Article Thirteen (subject to the provisions
of Article Four), the indebtedness represented by the Notes and the payment of
the principal of (and premium, if any) and interest on each and all of the Notes
are hereby expressly made subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness. Whenever in this Article
Thirteen there is a reference, in any context, to the principal of any Note as
of any time, such reference shall be deemed to include reference to the
Repurchase Price or Redemption Price payable in cash in respect of such Note to
the event that such Repurchase Price or Redemption Price payable in cash is, was
or would be so payable at such time, and express mention of the Repurchase Price
and the Redemption Price in any provision of this Article Thirteen shall not be
construed as excluding the Repurchase Price or Redemption Price payable in cash
in those provisions of this Article Thirteen when such express mention is not
made. This Article Thirteen is made for the benefit of existing and future
holders of Senior Indebtedness, and such holders are made obligees hereunder and
they or each of them may enforce such provisions.
Section 13.2 No Payments in Certain Circumstances; Payment Over of
Proceeds Upon Dissolution, Etc.
No payment (with the exception of payment in Junior Securities, if
acceptable to the Note Holders in their individual discretion) on account of
principal of, premium, if any, or interest on, or redemption or repurchase of,
the Notes shall be
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made if, at the time of such payment or immediately after giving effect thereto:
(i) a default in the payment of principal, premium, if any, or interest or other
amounts due on any Senior Indebtedness occurs and is continuing (or, in the case
of Senior Indebtedness for which there is a period of grace, in the event of
such a default that continues beyond the period of grace specified in the
instrument or lease evidencing such Senior Indebtedness), unless and until such
default shall have been cured or waived in accordance with the agreements
evidencing such Senior Indebtedness or shall have otherwise ceased to exist; or
(ii) a default, other than a payment default, on any Designated Senior
Indebtedness occurs and is continuing that then permits holders of such
Designated Senior Indebtedness to accelerate the maturity thereof and the
Trustee receives a notice of the default (a "Payment Blockage Notice") from any
lender of such Designated Senior Indebtedness (or agent bank on behalf of such
lender). Notwithstanding the foregoing, the Company may make, and the Trustee
may receive and shall apply, any payment in respect of the Notes (for principal,
premium, if any, or interest or redemption or repurchase) if such payment was
made prior to the occurrence of any of the contingencies specified in clauses
(i) and (ii) above.
If the Trustee receives any Payment Blockage Notice pursuant to clause
(ii) above, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section 13.2 unless and until (A) at least 365 days shall have
elapsed since the effectiveness of the immediately prior Payment Blockage
notice, and (B) all scheduled payments of principal, premium, if any, and
interest on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions in
respect of the Notes upon the earlier of: (i) in the case of a payment default,
the date upon which the default is cured or waived in accordance with the
agreements evidencing the Senior Indebtedness with respect to which such payment
default occurred, or (ii) in the case of a nonpayment default, the earlier of
the date on which such default is cured or waived in accordance with the
agreements evidencing the Senior Indebtedness with respect to which such default
occurred or 179 days after the applicable Payment Blockage Notice is received.
In the event of (i) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (ii) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any
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assignment for the benefit of creditors or any other marshaling of assets and
liabilities of the Company, then and in any such event the holders of Senior
Indebtedness shall be entitled to receive payment in full of all amounts due or
to become due on or in respect of all Senior Indebtedness in cash or other
immediately available funds, or provision shall be made for such payment in cash
or other immediately available funds or otherwise in a manner satisfactory to
each holder of Senior Indebtedness with respect to its indebtedness, before the
Holders of the Securities are entitled to receive any payment (with the
exception of payment in Junior Securities, if acceptable to the Holders in their
individual discretion) on account of principal or (or premium, if any) or
interest on the Notes, and to that end the holders of Senior Indebtedness shall
be entitled to receive, for any application to the payment thereof, any payment
or distribution of any kind or character, whether in cash, property or
securities, which may be payable or deliverable in respect of the Notes in any
such case.
In the event that, notwithstanding the foregoing provisions of this
Section 13.2, the Trustee or the Holder of any Note shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, securities or other property, before all Senior Indebtedness is
paid in full or payment thereof provided for, and if such fact shall, at or
prior to the time of such payment or distribution, have been made known to the
Trustee or, as the case may be, such Holder, then in such event such payment or
distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words, "cash, securities or
other property" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment which shares of stock
are subordinated in right of payment to all then outstanding Senior Indebtedness
to substantially the same extent as, or to a greater event than, the Securities
are so subordinated as provided in this Article Thirteen.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the transfer of all or substantially all of its properties and assets to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, assignment for
the benefit of creditors or
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marshaling of assets and liabilities, of the Company for the purposes of this
Section 13.2 if the Person formed by such consolidation or into which the
Company is merged or which acquires by transfer all or substantially all of such
properties and assets, as the case may be, shall, as a part of such
consolidation, merger or transfer, comply with the conditions set forth in
Article Eight.
Section 13.3 Prior Payment to Senior Indebtedness Upon Acceleration of
Notes.
In the event that any Notes are declared due and payable before their
Stated Maturity, then and in such event the holders of the Senior Indebtedness
outstanding at the time such Notes so become due and payable shall be entitled
to receive (i) prompt written notice of such acceleration of the Notes, and (ii)
payment in full of all amounts due or to become due on or in respect of such
Senior Indebtedness, or, with respect to this clause (ii) provision shall be
made for such payment in money or monies worth, before the Holders of the Notes
are entitled to receive any payment (with the exception of payment in Junior
Securities, if acceptable to the Note Holders in their individual discretion) by
the Company on account of the principal of (or premium, if any) or interest on
the Notes or on account of the purchase or other acquisition of Notes.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Note prohibited by the
foregoing provisions of this Section 13.3 of such fact shall, at or prior to the
time of such payment, have been made known to the Trustee, or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the holders of Senior Indebtedness, or as a court of
competent jurisdiction shall direct, for application to the payment of any due
and unpaid Senior Indebtedness, to the extent necessary to pay all such due and
unpaid Senior Indebtedness in cash or other immediately available funds, after
giving effect to any concurrent payment to or for the holders of Senior
Indebtedness.
The provisions of this Section shall not apply to any payment with
respect to which Section 13.2 would be applicable.
Section 13.4 Payment Permitted if No Default.
Nothing contained in this Article Thirteen or elsewhere in this
Indenture or in any of the Notes shall prevent (a) the Company, at any time
except during the pendency of any case, proceeding, dissolution, liquidation or
other winding up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of the Company referred to in Section 13.2 or under the
conditions described in Section 13.3, from making
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payments at any time of principal of (premium, if any) or interest on the Notes,
or (b) the application by the Trustee of any money deposited with it hereunder
to the payment of or on account of the principal of (and premium, if any) or
interest on the Notes or the retention of such payment by the Holders, if, at
the time of such application by the Trustee, it did not have knowledge that such
payment would have been prohibited by the provisions of this Article Thirteen.
Section 13.5 Subrogation to Rights to Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Notes shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Indebtedness pursuant to the provisions of
this Article Thirteen to the rights of the holders of such Senior Indebtedness
to receive payments and distributions of cash, property and securities
applicable to the Senior Indebtedness until the principal of (and premium, if
any) and interest on the Notes shall be paid in full. For purposes of such
subrogation, no payment or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Notes or the Trustee would be entitled except for the provisions of this Article
Thirteen, and no payments over pursuant to the provisions of this Article
Thirteen to the holders of Senior Indebtedness by Holders of the Notes or the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Notes, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
Section 13.6 Provisions Solely to Define Relative Rights.
The provisions of this Article Thirteen are and are intended solely
for the purpose of defining the relative rights of the Holders of the Notes on
the one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Notes is
intended to or shall (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Notes the principal of (premium, if any) and interest on the Notes as and
when the same shall become due and payable in accordance with their terms; or
(b) affect the relative rights against the Company of the Holders of the Notes
and creditors of the Company other than the holders of Senior Indebtedness; or
(c) prevent the Trustee or the Holder of any Note from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article Thirteen of the holders of Senior
Indebtedness to receive cash,
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property, and securities otherwise payable or deliverable to the Trustee or such
Holder.
Section 13.7 Trustee to Effectuate Subordination.
Each holder of a Note by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article and appoints the Trustee
his attorney-in-fact for any and all such purposes.
Section 13.8 No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder of any Senior
Indebtedness, or by any non-compliance by the Company with the terms, provisions
and covenants of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Notes, without
incurring responsibility to the Holders of the Notes or the obligations
hereunder of the Holders of the Notes to the holders of Senior Indebtedness, do
any one or more of the following: (i) change the manner, place or terms of
payment, or the amount of interest, fees or other amounts payable in respect of,
or extend the time of payment of, or renew, increase, or otherwise alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the payment or collection of Senior
Indebtedness; (iv) exercise or refrain from exercising any rights or remedies
against the Company or any other Person; (v) give or fail to give any notice, or
take or fail to take any other action, required by law, by agreement or
otherwise to preserve the rights of any holder of Senior Indebtedness against
the Company or any other Person liable in respect of Senior Indebtedness or with
respect to any property pledged, mortgaged, or otherwise subject to a security
interest or lien securing Senior Indebtedness; (vi) perform or fail to perform
any obligation of such holders of Senior Indebtedness under any instrument or
agreement evidencing, guaranteeing, securing or otherwise affecting or relating
to Senior Indebtedness; or (vii) take or fail to take any action that might
otherwise constitute a defense available to, or a discharge of,
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the Company or any other Person liable in respect of Senior Indebtedness.
Section 13.9 Notice to Trustee
The Company shall give prompt written notice to the Trustee of any
insolvency or bankruptcy proceeding in respect of the Company, of and
proceedings for voluntary liquidation, dissolution, or other winding up of the
Company (whether or not involving insolvency or bankruptcy), or of any fact
known to the Company which would prohibit the making of any payment to or by
the Trustee in respect of the Notes. Notwithstanding the provisions of this
Article Thirteen or any other provisions of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts which would prohibit
the making of or payment to or by the Trustee in respect of the Notes, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee therefor; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 6.1, shall be entitled in all respects to assume that no
such facts exist; provided that if the Trustee shall not have received the
notice provided for in this Section 13.9 at least two Business Days prior to the
date upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of (premium, if
any) or interest on any Note), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
money and to apply the same to the purpose for which such money was received and
shall not be affected by any notice to the contrary which may be received by it
within two Business Days prior to such date.
Notwithstanding anything in this Article Thirteen to the contrary, nothing
shall prevent any payment by the Trustee to the Holders of monies deposited with
it pursuant to Section 4.1, and any such payment shall not be subject to the
provisions of Section 13.2 or 13.3.
Subject to the provision of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a holder of Senior Indebtedness (or an agent bank or a trustee therefor)
to establish that such notice has been given by a holder of Senior Indebtedness
(or any agent bank or a trustee therefor). In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness to participate in any
payment or distribution pursuant to this Article, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts
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pertinent to the rights of such Person under this Article Thirteen, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 13.10 Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article Thirteen, the Trustee, subject to the provisions of Section 6.1,
and the Holders of the Notes shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Notes, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Thirteen.
Section 13.11 Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall in
good faith mistakenly pay over or distribute to Holders of Notes or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
Section 13.12 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article Thirteen with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article Thirteen shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 6.7.
Section 13.13 Article Applicable to Paying Agents
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting
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hereunder, the term "Trustee" as used in this Article shall in such case (unless
the contest otherwise requires) be construed as extending to and including such
Paying Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
Trustee; provided that Section 13.12 shall not apply to the Company or any
Affiliate of this Company if it or such Affiliate acts as Paying Agent.
Section 13.14 Certain Conversions Deemed Payment
For the purposes of this Article Thirteen only: (1) the issuance and
delivery of Junior Securities upon conversion of Notes in accordance with
Article Twelve or upon the repurchase of Notes in accordance with Article
Fourteen shall not be deemed to constitute a payment or distribution on account
of the principal of or premium or interest on Notes or on account of the
purchase or other acquisition of Notes, and (2) the payment, issuance or
delivery of cash, property or securities (other than Junior Securities) upon
conversion of a Note shall be deemed to constitute payment on account of the
principal of such Note.
Nothing contained in this Article Thirteen or elsewhere in this
Indenture or in the Notes is intended to or shall impair, as among the Company,
its creditors (other than holders of Senior Indebtedness) and the Holders of the
Notes, the right, which is absolute and unconditional, of the Holder of any Note
to convert such Note in accordance with Article Twelve or to exchange such Note
for Common Stock in accordance with Article Fourteen, if the Company elects to
satisfy its obligation under Article Fourteen by the delivery of Common Stock.
ARTICLE 14
REPURCHASE OF NOTES AT THE OPTION
OF THE HOLDER UPON A CHANGE IN CONTROL
Section 14.1 Right to Require Repurchase.
In the event that a Change in Control (as hereinafter defined) shall
occur, then each Holder shall have the right, at the Holder's option, to require
the Company to repurchase, and upon the exercise of such right the Company shall
repurchase, all of such Holder's Notes, or any portion of the principal amount
thereof that is an integral multiple of $1,000, on the date (the "Repurchase
Date") that is 45 days after the date of the Company Notice (as defined in
Section 14.2) at a purchase price equal to 100% of the principal amount of the
Notes to be repurchased (the "Repurchase Price"), together in each case with
accrued interest to the Repurchase Date. Such right to require the repurchase
of the Notes shall not continue after a discharge of the Company from its
obligations with respect to the Notes in accordance with
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Article Four, unless a Change in Control shall have occurred prior to such
discharge. At the option of the Company, the Repurchase Price may be paid,
subject to the fulfillment by the Company of the conditions set forth below, by
delivery of shares of Common Stock. However, the failure of the Company to pay
the Repurchase Price on the Repurchase Date either in cash or by delivery of
shares of Common Stock shall constitute an Event of Default for purposes of
Section 5.1(b) hereof notwithstanding the Company's inability to comply with
provisions of or satisfy any conditions set forth in this Section 14.1. Whenever
in this Indenture (including Sections 2.2, 3.1, 5.1(b) and 5.8) there is a
reference, in any context, to the principal of any Note as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Note to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price in
any provision of this Indenture shall not be construed as excluding the
Repurchase Price in those provisions of this Indenture when such express mention
is not made; provided that for the purposes of Article Fourteen such reference
shall be deemed to include reference to the Repurchase Price only to the extent
the Repurchase Price is payable in cash.
Section 14.2 Conditions to the Company's Election to Pay the Repurchase
Price in Common Stock.
The Company may elect to pay the Repurchase Price by delivery of
shares of Common Stock pursuant to Section 14.1 if and only if the following
conditions shall have been satisfied.
(a) The shares of Common Stock deliverable in payment of the Repurchase
Price shall have a fair market value as of the Repurchase Date of not less than
the Repurchase Price. For purposes of this Section 14.1, the fair market value
of shares of Common Stock shall be determined by the Company and shall be equal
to 95% of the average of the Closing Prices Per Share for the five consecutive
Trading Days ending on and including the third Trading Day immediately preceding
the Repurchase Date.
(b) The shares of Common Stock deliverable in payment of the Repurchase
Price are, or shall have been listed on the New York Stock Exchange or other
national securities exchange or are, or shall have been, approved for quotation
on the Nasdaq National Market, in either case, prior to the Repurchase Date; and
(c) All shares of Common Stock deliverable in payment of the Repurchase
Price shall be issued out of the Company's authorized but unissued Common Stock
and, will upon issue, be duly and validly issued and fully paid and
nonassessable and free of any preemptive rights.
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If all of the conditions set forth in this Section 14.1 are not satisfied
in accordance with the terms thereof, the Repurchase Price shall be paid by the
Company only in cash.
Section 14.3 Notices; Method of Exercising Repurchase Right, Etc.
(a) Unless the Company shall have theretofore called for redemption all
the outstanding Notes, on or before the 30th day after the occurrence of a
Change in Control, the Company or, at the written request of the Company, the
Trustee, shall mail to all Holders (and the Trustee, if applicable) a notice
(the "Company Notice") as prepared by the Company of the occurrence of the
Change in Control and of the repurchase right set forth herein arising as a
result thereof. The Company shall also deliver a copy of such notice of a
repurchase right to the Trustee.
(b) Each notice of a repurchase right shall state:
(i) the Repurchase Date,
(ii) the date by which the repurchase right must be exercised,
(iii) the Repurchase Price,
(iv) a description of the procedure which a Holder must follow to
exercise a repurchase right, and
(v) the Conversion Price then in effect, the date on which the
right to convert the principal amount of the Notes to be repurchased will
terminate, and the place or places where such Notes may be surrendered for
conversion or repurchase.
No failure of the Company to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of Notes.
If any of the foregoing provisions are inconsistent with applicable
law, such law shall govern.
(c) To exercise a repurchase right, a Holder shall deliver to the Trustee
on or before the 30th day after the date of the Company Notice (i) written
notice of the Holder's exercise of such right, which notice shall set forth the
name of the Holder, the principal amount of the Notes to be repurchased, and a
statement that an election to exercise the repurchase right is being made
thereby, and (ii) the Notes with respect to which the repurchase right is being
exercised, duly endorsed for transfer to the Company. Such written notice shall
be executed by the Holder and shall be irrevocable, except that the right of the
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Holder to convert the Notes with respect to which the repurchase right is being
exercised shall continue until the close of business on the fifth Business Day
preceding the Repurchase Date.
(d) In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid the Repurchase Price
in cash as provided above, to the Holder on the Repurchase Date or as promptly
after the Repurchase Date as practicable, together with accrued and unpaid
interest to the Repurchase Date payable with respect to the Notes as to which
the repurchase right has been exercised; provided, however, that installments of
interest that mature on or prior to the Repurchase Date shall be payable in cash
to the Holders of such Notes, or one or more predecessor Notes, registered as
such at the close of business on the relevant Regular Record Date according to
the terms and provisions of Article Three.
(e) If any Note surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at the rate of _____% and
each Note shall then remain convertible into Common Stock until the principal of
such Note shall have been paid or duly provided for.
(f) Any Note which is to be repurchased only in part shall be surrendered
to the Trustee (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Note so surrendered.
(g) Any issuance of shares of Common Stock in respect of the Repurchase
Price shall be deemed to have been effected immediately prior to the close of
business on the Repurchase Date and the Person or Persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such repurchase shall be deemed to have become on the Repurchase Date the
holder or holders of record of the shares represented thereby; provided that any
surrender for repurchase on a date when the stock transfer books of the Company
shall be closed shall constitute the Person or Persons in whose name or names
the certificate or certificates for such shares are to be issued as the record
holder or holders thereof for all purposes at the opening of business on the
next succeeding day on which such stock transfer books are open. No payment or
adjustment shall be made for dividends or distributions on any Common Stock
issued upon repurchase of any Note declared prior to the Repurchase Date.
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(h) No fractional shares shall be issued upon repurchase of Notes. If
more than one Note shall be repurchased from the same Holder and the Repurchase
Price shall be payable in shares of Common Stock, the number of full shares
which shall be issuable upon such repurchase shall be computed on the basis of
the aggregate principal amount of the Notes so repurchased. Instead of any
fractional share of Common Stock which would otherwise be issuable on the
repurchase of any Note or Notes, the Company will deliver to the applicable
Holder its check for the current market value of such fractional share. The
current market value of a fraction of a share is determined by multiplying the
current market price of a full share by the fraction, and rounding the result to
the nearest cent. For purposes of this Section 14.3, the current market price
of a share of Common Stock is the Closing Price per share of the Common Stock on
the Trading Day immediately preceding the Repurchase Date.
(i) Any issuance and delivery of certificates for shares of Common Stock
on repurchase of Notes shall be made without charge to the Holder of Notes being
repurchased for such certificates or for any tax or duty in respect of the
issuance or delivery of such certificates or the securities represented thereby;
provided, however, that the Company shall not be required to pay any tax or duty
which may be payable in respect of (x) income of the Holder or (y) any transfer
involved in the issuance or delivery of certificates for shares of Common Stock
in a name other than that of the Holder of the Notes being repurchased, and no
such issuance or delivery shall be made unless and until the Person requesting
such issuance or delivery has paid to the Company the amount of any such tax or
duty or has established to the satisfaction of the Company, that such tax or
duty has been paid.
(j) All Notes delivered for repurchase shall be delivered to the Trustee,
the Paying Agent or any other agents (as shall be set forth in the Company
Notice) to be cancelled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 3.9.
Section 14.4 Certain Definitions.
For purposes of this Article:
(a) the term "beneficial owner" shall be determined in accordance with
Rule 13d-3, as in effect on the date of the original execution of this
Indenture, promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended;
(b) the term "Common Stock" shall mean capital stock of the Company that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary
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or involuntary liquidation, dissolution or winding up of the Company, to shares
of capital stock of any other class of the Company;
(c) a "Change in Control" shall be deemed to have occurred at such time
after the original issuance of the Notes as there shall occur:
(i) the acquisition by any Person of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling such
Person to exercise 50% or more of the total voting power of all shares of
capital stock of the Company entitled to vote generally in the elections of
directors (any shares of voting stock of which such Person is the beneficial
owner that are not then outstanding being deemed outstanding for purposes of
calculating such percentage) (other than any such acquisition by the Company,
any subsidiary of the Company or any employee benefit plan of the Company; or
(ii) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or any
conveyance, sale, transfer or lease, in one transaction or a series of related
transactions, of all or substantially all of the assets (other than to a wholly
owned subsidiary of the Company) of the Company to any other Person (other than
(a) any such transaction pursuant to which the holders of 50% or more of the
total voting power of all shares of capital stock of the Company entitled to
vote generally in elections of directors immediately prior to such transaction
have, directly or indirectly, at least 50% or more of the total voting power of
all shares of capital stock of the continuing or surviving corporation entitled
to vote generally in elections of directors of the continuing or surviving
corporation immediately after such transaction, or (b) a merger (x) which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock or (y) which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock into solely shares
of common stock; or
(iii) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the 12-month period immediately preceding such change (together
with any other director whose election by the Board of Directors of the Company
or whose nomination for election by the stockholders of the Company was approved
by a vote of at least a majority of the directors then in office either who were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors then in office;
87
<PAGE>
provided, however, that a Change in Control shall not be deemed to
have occurred if either (i) the Closing Price on any five Trading Days within
the period of 10 consecutive Trading Days ending immediately after the later of
the date of the Change in Control or the date of the public announcement of the
Change in Control (in the case of a Change in Control under clause (a) above) or
the period of 10 consecutive Trading Days ending immediately prior to the date
of the Change in Control (in the case of a Change in Control under clause (b)
above) shall equal or exceed 105% of the Conversion Price in effect on each such
Trading Day or (ii) at least 90% of the consideration (excluding cash payments
for fractional shares) to be paid for the Common Stock in the transaction or
transactions constituting the Change in Control consists of shares of common
stock traded on a national securities exchange or quoted on the Nasdaq National
Market (or which will be so traded or quoted when issued or exchanged in
connection with such Change in Control) (such securities being referred to as
"Publicly Traded Securities") and as a result of such transaction or
transactions the Notes become convertible solely into such Publicly Traded
Securities;
(d) the term "Person" shall include any syndicate or group which would be
deemed to be a "person" under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, as in effect on the date of the original execution of this
Indenture.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
88
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
COMPANY
Attestation as to SIGNATURE RESORTS, INC.
the Corporate Seal:
By:__________________ By:__________________
Its: ________________ Its: ________________
TRUSTEE:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By:__________________
Its: ________________
89
<PAGE>
EXHIBIT 5.1
BALLARD SPAHR ANDREWS & INGERSOLL
300 East Lombard Street, Suite 1900
Baltimore, Maryland 21202
Telephone No. (410) 528-5600
Facsimile No. (410) 528-5650
January 28, 1997
Signature Resorts, Inc.
5933 West Century Boulevard
Suite 210
Los Angeles, California 90045
Re: Signature Resorts, Inc., a Maryland Corporation, (the "Company") -
Registration Statement on Form S-1 pertaining to: (i) One Million
Eight Hundred Forty Thousand (1,840,000) shares, plus any additional
shares issued pursuant to any registration statement filed pursuant to
Rule 462(b) referred to below (the "Company Shares") of common stock,
par value one cent ($.01) per share (the "Common Stock") to be issued
and sold by the Company; (ii) Two Million Seven Hundred Sixty Thousand
(2,760,000) shares, plus any additional shares issued pursuant to any
registration statement filed pursuant to Rule 462(b) referred to below
(the "Selling Stockholders' Shares" and together with the Company
Shares, the "Shares") of Common Stock to be sold by certain
stockholders of the Company (the "Selling Stockholders"); and (iii)
One Hundred Fifteen Million Dollars ($115,000,000) aggregate principal
amount of the Company's Convertible Subordinated Notes due 2007, plus
any additional Convertible Subordinated Notes due 2007 issued pursuant
to any registration statement filed pursuant to Rule 462(b) referred
to below (the "Notes") which will be convertible into shares of Common
Stock (the "Conversion Shares")
Ladies and Gentlemen:
In connection with the registration of the Shares and the Notes under the
Securities Act of 1933 as amended (the "Act"), by the Company on Form S-1 filed
with the Securities and Exchange Commission (the "Commission") on or about
December 20, 1996 (the "Registration Statement") as amended by Amendment No. 1
filed with the Commission on or about January 10, 1997, Amendment No. 2 filed
with the Commission on or about January 14, 1997 and Amendment No. 3 filed or to
be filed on or about the date hereof, and any registration statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b) under
the Act (collectively, the "Registration Statement"), you have requested our
opinion with respect to the matters set forth below.
We have acted as special Maryland corporate counsel for the Company in
connection with the matters described herein. In our
<PAGE>
Signature Resorts, Inc.
January 28, 1997
Page 2
capacity as special Maryland corporate counsel to the Company, we have reviewed
and are familiar with proceedings taken and proposed to be taken by the Company
in connection with the authorization, issuance and sale of the Shares and the
Notes, and for purposes of this opinion have assumed such proceedings will be
timely completed in the manner presently proposed. In addition, we have relied
upon certificates and advice from the officers of the Company upon which we
believe we are justified in relying and on various certificates from the
documents recorded with, the State Department of Assessments and Taxation of
Maryland (the "SDAT"), including the charter of the Corporation (the "Charter"),
consisting of Articles of Incorporation filed with the SDAT on May 28, 1996,
Articles of Amendment filed with the SDAT on June 13, 1996, and Articles of
Amendment filed with the SDAT on August 20, 1996. We have also examined the
Bylaws of the Company adopted as of May 28, 1996, (the "Bylaws") and Resolutions
of the Board of Directors of the Company adopted on or before the date hereof
and in full force and effect on the date hereof; and such laws, records,
documents, certificates, opinions and instruments as we deem necessary to render
this opinion.
We have assumed the genuineness of all signatures and the authenticity of
all documents submitted to us as originals and the conformity to the originals
of all documents submitted to us as certified, photostatic or conformed copies.
In addition, we have assumed that each person executing any instrument,
document or certificate referred to herein on behalf of any party is duly
authorized to do so.
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that, as of the date of this letter, and
provided that the number of Company Shares does not exceed 7,400,000 and the
aggregate total offering price to the public of the Company Shares and the Notes
does not exceed $250,000,000:
(a) The Selling Stockholders' Shares have been duly authorized by all
necessary corporate action on the part of the Company, have been validly issued
and are fully paid and non-assessable.
(b) The Company Shares have been duly authorized by all necessary
corporate action on the part of the Company, and upon issuance and delivery in
accordance with and subject to the terms and conditions described in the
Registration Statement against payment of the purchase price therefore as
determined by the Board of Directors or a committee thereof, will be validly
issued and fully paid and non-assessable.
(c) The Notes have been duly authorized by the Board of Directors, and
upon issuance and delivery thereof, in accordance with and subject to the terms
and conditions described in the Registration Statement and the Indenture (as
defined in the Registration Statement) against payment of the purchase price
therefor as determined by the Board of Directors or a committee thereof, will be
validly issued.
<PAGE>
Signature Resorts, Inc.
January 28, 1997
Page 3
(d) The Conversion Shares have been duly reserved and authorized for
issuance by the Board of Directors of the Company and upon issuance and delivery
of the Conversion Shares in accordance with and subject to the terms and
conditions described in the Registration Statement, the Notes and the Indenture,
will be validly issued and fully paid and non assessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for registration of the Shares and the Notes. We also consent to
the identification of our firm as Maryland counsel to the Company in the
section of the Prospectus (which is part of the Registration Statement) entitled
"Legal Matters."
The opinions expressed herein are limited to the laws of the State of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion shall
be inferred beyond the matters expressly stated.
The opinions expressed in this letter are solely for your use and may not
be relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT 5.2
LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Telephone (213) 485-1234
Telecopy (213) 891-8763
January 28, 1997
Signature Resorts, Inc.
5933 West Century Boulevard, Suite 210
Los Angeles, California 90045
Re: Signature Resorts, Inc. -- Registration of
Convertible Subordinated Notes Due 2007
------------------------------------------
Ladies and Gentlemen:
In connection with the registration of $100,000,000 aggregate
principal amount of Convertible Subordinated Notes due 2007, plus any additional
Convertible Subordinated Notes due 2007 issued pursuant to the registration
statement filed pursuant to Rule 462(b) referred to below (collectively, the
"Notes") by Signature Resorts, Inc., a Maryland corporation (the "Company"), on
Form S-1 under the Securities Act of 1933, as amended (the "Act"), filed with
the Securities and Exchange Commission (the "Commission") on December 20, 1996
(File No. 333-18447), as amended by Amendment No. 1 filed with the Commission on
January 10, 1997, as amended by Amendment No. 2 filed with the Commission on
January 14, 1997 and as amended by Amendment No. 3 filed with the Commission on
January 28, 1997, and any registration statement for the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Act (collectively,
the "Registration Statement"), you have requested our opinion with respect to
the matters set forth below.
In our capacity as your counsel in connection with such registration,
we are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization and issuance of the Notes, and for
the purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such
legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
<PAGE>
Signature Resorts, Inc.
January 28, 1997
Page 2
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of New York, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law within the State of New
York.
Capitalized terms used herein without definition have the meanings
ascribed to them in the Registration Statement.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that as of the date hereof:
1. The Notes, when authenticated by the Trustee and executed and
delivered by or on behalf of the Company against payment therefor in accordance
with the terms of the Indenture, will constitute valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms.
The opinion rendered in paragraph one above is subject to the
following exceptions, limitations and qualifications: (i) the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting the rights and remedies of
creditors; (ii) the effect of general principles of equity, whether enforcement
is considered in a proceeding in equity or law, and the discretion of the court
before which any proceeding therefor may be brought; (iii) the unenforceability
under certain circumstances under law or court decisions of provisions providing
for the indemnification of or contribution to a party with respect to a
liability where such indemnification or contribution is contrary to public
policy; and (iv) the manner by which the acceleration of the Notes may affect
the collectibility of that portion of the stated principal amount thereof which
might be determined to constitute unearned interest thereon.
To the extent that the obligations of the Company under the Indenture
may be dependent upon such matters, we assume for purposes of this opinion that
each of the Company and the Trustee is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization; that each of
the Company and the Trustee is duly qualified to engage in the activities
contemplated by the Indenture; that the Indenture has been duly authorized,
executed and delivered by each of the Company and the Trustee and constitutes
the legal, valid and binding obligation of the Trustee, enforceable against the
Trustee in accordance with its terms; that the Trustee is in compliance,
generally and with respect to acting as a trustee under the Indenture, with all
applicable laws and regulations; and that each of the Company and the Trustee
has the requisite organizational and legal power and authority to perform its
obligations under the Indenture.
<PAGE>
Signature Resorts, Inc.
January 28, 1997
Page 3
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
<PAGE>
EXHIBIT 10.8.1
LOAN AND SECURITY AGREEMENT
between
PORT ROYAL RESORT, L.P.
and
GREYHOUND FINANCIAL CORPORATION
DATED AS OF OCTOBER 7, 1993
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
BY THIS LOAN AND SECURITY AGREEMENT entered into as of October 7, 1993
between GREYHOUND FINANCIAL CORPORATION, a Delaware corporation ("Lender") and
PORT ROYAL RESORT, L.P., a South Carolina limited partnership ("Borrower"),
hereby confirm and agree as follows:
ARTICLE I
---------
INTRODUCTION
------------
1.1 Borrower desires to obtain a revolving line of credit from
Lender, the proceeds of which shall be used for working capital purposes and for
purposes of paying and satisfying certain construction indebtedness owing from
Borrower to Lender.
1.2 Lender is willing to extend to Borrower a revolving line of
credit for the purposes stated in the preceding paragraph upon the terms and
conditions set forth herein.
ARTICLE II
----------
DEFINITIONS
-----------
Except where the context clearly requires a different interpretation,
all capitalized terms used in this Agreement shall have the meanings assigned to
them above, immediately below, or elsewhere herein.
"Additional Advance" shall mean an additional Receivables Advance
advanced by Lender to Borrower from time to time with respect to an Eligible
Instrument that then constitutes Receivables Collateral against which a previous
Receivables Advance has been made.
"Advance" shall mean, collectively and individually, a Receivables
Advance and a Working Capital Advance.
"Advance Date" shall mean each date on which an Advance is made.
"Affiliate" shall mean any person or entity directly or indirectly
Controlling, Controlled by or under common Control with the person or entity to
whom the definition is applied, including blood relatives or spouse of the
person to whom the definition applies, if such person is a natural person.
<PAGE>
"Agreement" shall mean this Loan and Security Agreement, as from time
to time modified, extended, renewed, replaced or restated.
"Applicable Environmental Laws" shall have the meaning set forth in
the Environmental Certificate.
"Applicable Usury Law" shall mean the usury law applicable pursuant to
the terms of Article XI, paragraph 11.11 hereof or such other usury law which is
applicable if the law chosen by the parties is not applicable.
"Assignments" shall mean written Assignments, in such form as Lender
shall prescribe, of specific Instruments and/or Purchaser Mortgages and the
proceeds thereof delivered to Lender concurrently with each Advance under the
terms of which Borrower transfers and assigns with full recourse all of
Borrower's right, title and interest in and to the Instrument and/or Purchaser
Mortgage, free and clear of all claims, demands, liens and encumbrances of third
parties, as collateral security for the Loan.
"Borrower" shall mean Port Royal Resort, L.P., a South Carolina
limited partnership.
"Borrowing Base (Receivables Loan)" shall mean an amount equal to the
lesser of (i) 90% of the unpaid principal balance payable under the Eligible
Instruments or (ii) 90% of the then present value assigned to the unmatured
installments of principal and interest payable under the Eligible Instruments
discounted at Lender's Prevailing Discount Rate.
"Borrowing Base (Working Capital Loan)" shall mean an amount equal to
the sum of (A) the lesser of (i) 40% of the unpaid principal balance payable
under the Eligible Instruments against which a Working Capital Advance will be
made or (ii) 40% of the then present value assigned to the unmatured
installments of principal and interest payable under the Eligible Instruments
against which a Working Capital Advance will be made, discounted at Lender's
Prevailing Discount Rate, (B) 40% of any cash down payments and principal and
interest payments then made by the Purchaser under such Eligible Instruments at
the time of such Working Capital Advance; and (C) 40% of any cash sales of Units
then made at the time of such Working Capital Advance, provided that the
proceeds of the cash sales and such cash down payments and principal and
interest payments are held and shall continue to be held in escrow by a Person
who is not an Affiliate of Borrower.
-2-
<PAGE>
"Borrowing Term (Receivables Loan)" shall mean the period of time
during which Lender is committed to make Receivables Advances under this
Agreement, which commitment shall terminate on the earlier of (i) the date which
occurs twelve (12) months after the date of the first Receivables Advance or
(ii) April 11, 1995.
"Borrowing Term (Working Capital Loan)" shall mean the period of time
during which Lender is committed to make Working Capital Advances under this
Agreement, which commitment shall terminate on the earlier of (i) the date which
occurs twelve (12) months after the date of the first Working Capital Advance or
(ii) December 11, 1994.
"Business Day" shall mean a calendar day other than a Saturday, Sunday
or legal holiday.
"Capital Expenditure" shall mean payments that are made by the
Borrower for the lease, purchase, improvement, construction or use of any
property, the value of which under GAAP is required to be capitalized and shall
include, without limitation, payments for the installment purchase of property
and payments under capitalized leases.
"Cash Flow" shall mean, for any period, the net income or loss of
Borrower, determined in accordance with GAAP (excluding the effect of any
extraordinary gains or losses from the sale of property not in the ordinary
course of business), plus each of the following items to the extent deducted
----
from the revenues of Borrower in calculating the net income: (A) depreciation;
(B) amortization; and (C) interest and taxes during such period, and less
----
Capital Expenditures to the extent paid in such period.
"Closing Date" shall have the meaning set forth in Paragraph 5.1
hereof.
"Commitment Fee" shall have the meaning set forth in Paragraph 8.16
hereof.
"Construction Loan" shall mean the loan made pursuant to the
Construction Loan Agreement.
"Construction Loan Agreement" shall mean that certain Construction
Loan Agreement of even date herewith, pursuant to which Lender has agreed,
subject to the terms and provisions thereof, to make a $2,425,000 construction
loan to Borrower, the proceeds of which are to be used to construct the Project.
-3-
<PAGE>
"Construction Loan Documents" shall have the meaning set forth in the
Construction Loan Agreement.
"Construction Mortgage" shall mean the Mortgage, Assignment of Rents
and Proceeds and Security Agreement delivered by Borrower pursuant to the
Construction Loan Agreement.
"Control" or "Controlling" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of another person or entity by any means.
"Delinquencies" shall mean, individually and collectively, an Eligible
Instrument, against which an Advance has been made, under which an installment
payment due becomes more than 59 days past due.
"Distribution" shall mean any distribution, advance, payment,
including but not limited to, loan repayments, dividends, bonuses, salary, other
compensation and management fees.
"Documents" shall mean this Agreement, the Receivables Note, the
Working Capital Note, the Construction Mortgage, the Environmental Certificate,
the Servicing Agreement, the Lockbox Agreement, the Services and Fees Agreement,
the Guarantee, the Assignments, the Subordination Agreement, and each and every
other document, instrument or writing executed or delivered by Borrower to
Lender in connection with the Loan.
"Eligible Instruments" shall mean the Instruments, each in
substantially the form of Exhibit "A" hereto, entered into by and between
-----------
Borrower and those Persons who purchase a Time-Share Interest (at least 90% of
whom shall be United States or Canadian residents), which Eligible Instruments
shall conform to the criteria and standards set forth on Exhibit "B" hereto;
-----------
provided, however, that an Instrument shall cease to be an Eligible Instrument
if (i) any installment payable thereunder becomes more than 59 days past due and
the Instrument under which such installment is payable is not replaced within
ninety (90) days following the due date of such installment or (ii) the contract
fails to continue to conform to the criteria and standards of Exhibit "B".
-----------
"Environmental Certificate" shall mean that certain Environmental
Certificate with Representations, Covenants and Warranties of even date herewith
executed by Borrower and related to the Project.
"Event of Default" has the meaning set forth in Article IX hereof.
-4-
<PAGE>
"Force Majeure" has the meaning set forth in Paragraph 9.2 of the
Construction Loan Agreement.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time, consistently applied, throughout the period involved
and with prior periods, which shall include the official interpretations thereof
by the Financial Accounting Standards Board or any successor thereto.
"GPSI" shall mean GFC Portfolio Services, Inc., an Arizona
corporation, its successors and assigns.
"Guarantee(s)" shall mean a written Guarantee and Subordination
Agreement, in such form as Lender shall prescribe, executed and delivered by a
Person (or Persons) to Lender, under the terms and conditions of which such
Person (or Persons), as Guarantor(s), shall individually and/or jointly and
severally guarantee Borrower's Performance of all of its Obligations under the
Documents and the Environmental Certificate and shall agree to subordinate any
indebtedness owed by Borrower to Guarantor(s) to the Obligations owed by
Borrower to Lender.
"Guarantor(s)" shall mean individually, a Person, and collectively
each and every Person, who executes and delivers to Lender a Guarantee pursuant
to the terms and conditions of this Agreement. The Guarantor of this Loan is
Argosy/KGI Port Royal Partners, a South Carolina general partnership.
"Impositions" shall mean any and all taxes (other than any tax
measured by net income payable by Lender to any state or political subdivision
thereof or to the U.S. under Section 11 or 1201 of the Internal Revenue Code, as
amended), in consequence of the receipt of payments provided for herein, license
fees, assessments, charges, fines, penalties, property, privilege, excise, real
estate or other taxes currently or hereafter levied or imposed by any state,
local or federal authority upon or in connection with or measured by the
Documents or the Receivables Collateral.
"Incipient Default" shall mean any act or event which after the giving
of notice or the lapse of time (or both) would constitute an Event of Default.
"Instrument" shall mean a promissory note which has arisen out of the
sale of a Time-Share Interest in Phase I or Phase II by Borrower to a Purchaser,
which note is secured by a Purchaser Mortgage.
"Loan" shall mean, collectively and individually, the Receivables Loan
and the Working Capital Loan.
-5-
<PAGE>
"Lockbox Agent" shall mean the entity designated as the Lockbox Agent
in the Lockbox Agreement, or should such entity cease to act as Lockbox Agent
under the Lockbox Agreement, such other entity as Lender may appoint.
"Lockbox Agreement" shall mean the Lockbox Agreement, in such form as
Lender shall prescribe, to be made among Borrower, Lender and the Lockbox Agent,
as from time to time modified, replaced or restated.
"Maturity Date" shall mean that date which shall occur seven (7) years
after the date on which the last Receivables Advance is made under the terms of
this Agreement.
"Maximum Loan Amount" shall mean the sum of $10,000,000.00 less the
principal amount then outstanding under the Working Capital Loan and the
Construction Loan.
"Maximum Working Capital Loan Amount" shall mean the sum of
$1,700,000.00.
"Nondisturbance Agreement" shall mean an agreement, in form and
substance satisfactory to Lender, pursuant to which the holders of any lien
interest on the streets, amenities, common areas, or other off-site improvements
forming a part of the Project agree that, notwithstanding a foreclosure or other
realization of such encumbrance, (i) the Purchasers shall have uninterrupted use
of such streets, amenities, common areas and other off-site improvements and
uninterrupted use and possession of their respective Time-Share Interests, (ii)
the rights and privileges of such Purchasers shall not be otherwise impaired,
and (iii) the governing documents of the Project, including any declarations of
condominium, shall not be modified.
"Obligations" shall mean each and every obligation, duty, covenant,
undertaking and conditions which Borrower is required or has agreed to perform
under the Documents and under the Construction Loan Documents, and each and
every other obligation of Borrower now or hereafter owing to Lender.
"Opening Prepayment Date" shall mean the date which occurs twenty-four
(24) months after the last Receivables Advance hereunder.
"Overdue Rate" shall have the same meaning as set forth in the
Receivables Note.
"Perform, Performed or Performance" shall mean the timely, faithful
and complete payment and performance of all Obligations by Borrower.
-6-
<PAGE>
"Permitted Encumbrances" shall mean each and every restriction,
reservation and easement of record and liens for taxes and assessments securing
amounts not yet due and payable, which individually and in the aggregate do not
render unmarketable the title to the property which they encumber, or liens
being contested in good faith by proceedings diligently contested, or any lien
against property to secure payment of all or a portion of the purchase price of
such property, and any encumbrance, lien or security interest described in
Exhibit "C" hereto.
- -----------
"Person" shall mean any adult individual, partnership, corporation or
other form of business entity whatsoever.
"Phase I" shall mean the initial 12 Units to be constructed on the
Project together with the infrastructure, swimming pool, recreational building,
and spa.
"Phase II" shall mean the second 12 Units to be constructed on the
Project.
"Present Value" shall mean with respect to any Eligible Instrument the
present value of the unmatured and unpaid installments of principal and interest
due thereunder, calculated using a discount rate equal to the Prevailing
Discount Rate applicable to said Eligible Instrument as provided herein.
"Prevailing Discount Rate" shall mean Lender's prevailing discount
rate at the time each Advance is made, which rate shall be Prime Rate plus 2.5%
but in no event less than 11.5%.
"Prime Rate" shall mean the rate of interest publicly announced from
time to time by Citibank, N.A., New York, New York as its corporate base rate of
interest charged to its most creditworthy commercial borrowers notwithstanding
the fact that some such borrowers may borrow at lower rates. The initial Prime
Rate shall be the rate in effect as of the first Business Day of the month of
the initial Advance and, subsequently, the Prime Rate shall be redetermined as
of the first Business Day of each month.
"Project" shall mean the time-share condominium project known as Royal
Dunes Beach Villas at Port Royal Resort, to be constructed by Borrower in
Beaufort County, South Carolina, comprised of the 24 time-share units in Phase I
and Phase II.
"Purchaser" shall mean a Person who purchases a Time-Share Interest in
the Project from Borrower.
-7-
<PAGE>
"Purchaser Mortgage" shall mean the purchase money mortgage given to
secure an Instrument.
"Real Property" shall mean that parcel of real property and all
existing and future improvements located thereon, more fully described on the
attached Exhibit "G".
-----------
"Receivables Advance" shall mean an Advance of the Receivables Loan
advanced by Lender to Borrower from time to time in accordance with the terms
and provisions of this Agreement. A Receivables Advance shall include an
Additional Advance.
"Receivables Collateral" shall mean (i) all of the Instruments which
Borrower now or hereafter assigns, transfers, endorses or delivers to Lender in
consideration for an Advance made by Lender pursuant to the terms of this
Agreement and as collateral security for the Obligation; (ii) all Instruments
against which Lender makes an Advance pursuant to the terms of this Agreement,
notwithstanding whether or not such Instrument is assigned, transferred,
endorsed or delivered to Lender; (iii) all Purchaser Mortgages, purchase
contracts, purchase agreements, guarantees and other documents or instruments
evidencing or securing the obligations of the Purchasers and/or any other person
primarily or secondarily liable on the Instruments; (iv) all policies of
insurance related to the Instruments or delivered in connection with the
Instruments (provided that the inclusion of such policies of insurance as part
of the Receivables Collateral shall not be deemed to restrict or limit the
Borrower's ability to encumber such insurance to the extent relating to or
delivered in connection with Instruments pledged to another lender, subject,
however, to the provisions of paragraph 8.27); (v) all rights under escrow
agreements relating to the Instruments and all impound and/or reserve accounts
related to the Instruments (excluding, however, any escrows set aside for
improvements to the Project); (vi) all licenses, contracts, management contracts
or agreements, franchise agreements, permits, subordination or certificates now
or hereafter required or used in connection with the ownership, operation or
maintenance of the Project (provided that the inclusion of such licenses,
contracts, management contracts and other agreements or permits as part of the
Receivables Collateral shall not be deemed to restrict or limit the Borrower's
ability to encumber such documents and agreements to the extent relating to or
delivered in connection with Instruments pledged to another lender, subject,
however, to the provisions of paragraph 8.27); (vii) all files, books and
records pertaining to any of the foregoing; and (viii) cash and non-cash
proceeds from all of the foregoing, including, without limitation, all goods,
instruments, documents, general intangibles, chattel paper and accounts wherever
located, which have been acquired with cash proceeds from any of the foregoing
and the proceeds thereof.
-8-
<PAGE>
"Receivables Loan" shall mean the line of credit loan extended by
Lender to Borrower in accordance with the terms of this Agreement in an
outstanding principal amount not to exceed at any time the Maximum Loan Amount.
"Receivables Note" shall mean the Promissory Note, in the amount of
the Receivables Loan, to be made and delivered by Borrower to Lender pursuant
hereto, in a form acceptable to Lender.
"Security Interest" shall mean a direct and exclusive first security
interest which has been perfected under the Uniform Commercial Code of the
state(s) in which any such security interest must be perfected; provided that
with respect to any portion of the Receivables Collateral not covered by the
Uniform Commercial Code, it shall mean a direct and exclusive first lien on such
property which has been perfected in the manner provided by law.
"Servicing Agent" shall mean GPSI or, should such entity cease to act
as Servicing Agent under the Servicing Agreement and Services and Fees
Agreement, such other entity as Lender may appoint.
"Servicing Agreement" shall mean the Servicing Agreement, in such form
as Lender shall prescribe, to be made among Borrower, Lender, and the Servicing
Agent, as from time to time modified, replaced or restated.
"Services and Fees Agreement" shall mean the Services and Fees
Agreement, in such form as Lender shall prescribe, to be made between Borrower
and Servicing Agent and acknowledged by Lender, as from time to time modified,
replaced or restated.
"Subordination Agreement" shall mean an agreement, in such form as
Lender shall prescribe, delivered to Lender pursuant to paragraph 5.2(iv)
hereof, as from time to time modified, replaced or restated.
"Term" shall mean the duration of this Agreement commencing as of the
year and day first above written and terminating on the date Borrower has
Performed all of its Obligations under the Documents.
"Time-Share Interest" shall mean the rights sold to a Purchaser to the
exclusive use of a Unit in the Project and the Project common areas for a one
(1) week period each year.
"Unit" shall mean a condominium unit in the Project as shown on the
recorded condominium plat therefor.
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<PAGE>
"Working Capital Advance" shall mean an Advance of the Working Capital
Loan advance by Lender to Borrower from time to time in accordance with the
terms and provisions of this Agreement.
"Working Capital Loan" shall mean a revolving line of credit loan
extended by Lender to Borrower in accordance with the terms of this Agreement in
an outstanding principal amount not to exceed at any time the Maximum Working
Capital Loan Amount.
"Working Capital Note" shall mean the Promissory Note, in the amount
of the Working Capital Loan, to be made and delivered by Borrower to Lender
pursuant hereto, in a form acceptable to Lender.
ARTICLE III
-----------
THE LOAN
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3.1 Lender hereby agrees that the Receivables Loan (including
Additional Advances of the Receivables Loan) will be disbursed to Borrower, from
time to time, in periodic Receivables Advances, but in no event after the
Borrowing Term (Receivables Loan) has expired, in amounts determined by
subtracting from the Borrowing Base (Receivables Loan) the unpaid principal
balance outstanding under the Receivables Loan at the time of each Receivables
Advance and the unpaid principal balance of the portion of the Working Capital
Loan attributable to the Instrument against which such Receivables Advance is
being made; provided that at no time shall the unpaid principal balance of the
Receivables Loan exceed the Maximum Loan Amount.
(i) Receivables Advances shall not be made more frequently
than twice per month, and each Receivables Advance shall be in an amount of
not less than One Hundred Thousand Dollars ($100,000.00). Lender shall
charge a fee of Five Hundred Dollars ($500.00) for the second Receivables
Advance made during any month and shall be entitled to deduct such fee from
the Receivables Advance so made. The foregoing fee is to be paid to Lender
strictly in consideration for Lender's agreement to make a second
Receivables Advance during any particular calendar month and shall not be
applied or credited against any other Obligations.
(ii) The Receivables Loan is a revolving line of credit under
the terms of which Borrower, during the Borrowing Term (Receivables Loan),
shall have the right to obtain Receivables Advances, repay Receivables
Advances, and obtain additional Receivables Advances so long as no Event of
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<PAGE>
Default has occurred and is continuing and so long as all other conditions
precedent to the making of a Receivables Advance have been satisfied.
(iii) No Receivables Advances will be made after the Borrowing
Term (Receivables Loan) has expired unless Lender, in its sole discretion,
shall agree in writing to make such Receivables Advances.
(iv) Borrower shall use the proceeds of the Receivables Loan
for working capital purposes and to repay the Construction Loan and the
Working Capital Loan, in full. The proceeds of the Receivables Loan shall
be used to pay and satisfy the then unpaid principal balance and all
accrued interest under the Working Capital Loan before any portion of the
Receivables Loan is paid in satisfaction of any portion of the Construction
Loan. The foregoing notwithstanding, upon the occurrence of any Event of
Default, the proceeds of the Receivables Loan may be applied by Lender in
satisfaction of the Obligations in such order and manner as Lender shall
determine.
(v) At no time during the term hereof shall the unpaid
principal balance of the Receivables Loan, together with the unpaid
principal balance of the Construction Loan and the Working Capital Loan,
exceed a total amount equal to Ten Million Dollars ($10,000,000.00), and
Lender shall have no obligation to make any Receivables Advance if such
Advance would cause the foregoing limitation to be exceeded.
3.2 Lender agrees that the Working Capital Loan will be disbursed to
Borrower, from time to time, in periodic Working Capital Advances, but in no
event after the Borrowing Term (Working Capital Loan) has expired, in an amount
determined by subtracting from the Borrower Base (Working Capital Loan) the
unpaid principal balance of the Working Capital Loan at the time of each Working
Capital Advance; provided that at no time shall the unpaid principal balance of
the Working Capital Loan exceed the Maximum Working Capital Loan Amount.
(i) Working Capital Advances shall be made no more frequently
than twice per month and each Working Capital Advance shall be in an amount
not less than One Hundred Thousand Dollars ($100,000.00). Lender shall
charge a fee of Five Hundred Dollars ($500.00) for the second Working
Capital Advance made during any month and shall be entitled to deduct such
fee from the Working Capital Advance so made. The foregoing fee is to be
paid to Lender strictly in consideration for Lender's agreement to make a
second Working Capital Advance during any particular calendar month and
shall not be applied or credited against any other Obligations.
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<PAGE>
(ii) The Working Capital Loan is a revolving line of credit
under the terms of which Borrower, during the Borrowing Term (Working
Capital Loan), shall have the right to obtain Working Capital Advances,
repay Working Capital Advances, and obtain additional Working Capital
Advances so long as no Event of Default has occurred and is continuing and
so long as all other conditions precedent to the making of a Working
Capital Advance have been satisfied. The foregoing notwithstanding, under
no circumstances shall Borrower have the right to obtain a Working Capital
Advance against Eligible Instruments arising from Phase II until all
Working Capital Advances made against Eligible Instruments arising from
Phase I have been paid in full, including all accrued interest thereon. At
such time as Borrower has received a Working Capital Advance against
Eligible Instruments arising from Phase II, Borrower shall have no further
right to obtain any Working Capital Advances against Eligible Instruments
arising from Phase I.
(iii) No Working Capital Advances will be made after the
Borrowing Term (Working Capital Loan) has expired unless Lender, in its
sole discretion, shall agree to make such Working Capital Advances.
(iv) Borrower shall use the proceeds of the Working Capital
Loan for working capital purposes.
(v) Any cash down payments and principal and interest payments
made by Purchasers that are used in calculating the Borrowing Base (Working
Capital Loan) shall be held in escrow by a Person who is not an Affiliate
of Borrower and shall not be released to Borrower unless a principal
payment under the Working Capital Loan is made in an amount equal to the
amount of the Working Capital Advance originally made against the
Instrument under which such cash down payment or principal and interest
payment was made.
(vi) At no time during the term hereof shall the unpaid principal
balance of the Working Capital Loan, together with the unpaid principal
balance of the Construction Loan and Receivables Loan, exceed a total
amount equal to Ten Million Dollars ($10,000,000.00), and Lender shall have
no obligation to make any Working Capital Advance if such Advance would
cause the foregoing limitation to be exceeded.
3.3 All Advances made pursuant to this Agreement shall be deemed to
be a single Loan.
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<PAGE>
ARTICLE IV
----------
SECURITY FOR THE LOAN
---------------------
4.1 As security for Borrower's payment and Performance of all
Obligations owed to Lender, other than those arising out of the Environmental
Certificate, Borrower hereby grants to Lender a first and exclusive Security
Interest in and to the Receivables Collateral assigned, transferred, endorsed or
delivered to Lender under this Agreement or against which an Advance is made
hereunder. Lender's Security Interest in such Receivables Collateral and the
Residual Collateral shall be absolute, continuing and applicable to all existing
and future Advances and shall secure the repayment of the Loan and the
Construction Loan and the Performance of all Obligations throughout the Term of
the Loan. At the time each Advance is made hereunder, Borrower shall deliver to
Lender (i) an executed Assignment against which an Advance is requested; (ii)
the original of each Instrument; and (iii) other documents which comprise such
Eligible Instruments. In addition, Borrower's payment and Performance of the
Working Capital Loan and Receivables Loan shall be secured by the Construction
Mortgage. Notwithstanding the foregoing, at such time as the Working Capital
Loan and the Construction Loan have been paid in full and all other obligations
due and owing to Lender under the Construction Loan Documents have been paid and
satisfied in full, and Lender has no further obligation to make any further
advances of the Construction Loan or the Working Capital Loan, and provided
there does not then exist an Event of Default or Incipient Default, Lender shall
release the Construction Mortgage, as more fully set forth in the Construction
Mortgage, even though the Receivables Loan is then outstanding.
4.2 If an Eligible Instrument which comprises a part of the
Receivables Collateral shall cease to qualify as an Eligible Instrument,
Borrower shall, within 30 days thereafter, pay to Lender an amount equal to that
portion of the Loan, together with interest, costs, and expenses, if any,
attributable to such ineligible Instrument or shall replace such ineligible
Instrument with another Eligible Instrument having a value of not less than that
portion of the Loan together with interest, costs, and expenses, if any,
attributable to the Eligible Instrument being replaced. No prepayment premium
shall be payable with respect to the payment to be made by Borrower pursuant to
the previous sentence as long as Borrower did not cause the Instrument to cease
qualifying as an Eligible Instrument. Concurrently with the delivery of the
replacement Eligible Instrument to Lender, Borrower shall deliver to Lender all
pertinent items (except for a "Request for Advance and Certification") which
Borrower is required to deliver to Lender in connection with an Advance pursuant
to Article V hereof, together with a Borrower's Certificate in form and
substance identical to Exhibit "E" hereto. Upon substitution of the replacement
-----------
Eligible Instrument for the ineligible Instrument, Lender will terminate its
Security
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<PAGE>
Interest in and reassign and endorse to Borrower, without recourse or warranty
of any kind, the replaced ineligible Instrument, together with the Purchaser
Mortgage securing the same, provided that no Event of Default or Incipient
Default has occurred and is continuing.
4.3 Reserved.
--------
4.4 In connection with a Receivables Advance but not a Working
Capital Advance, Borrower shall, at its expense, deliver to Lender, at the time
of delivery of the Assignment, a policy or policies of title insurance insuring
Lender's interest in the Purchaser Mortgage which is the subject of the
Assignment. Such policy or policies shall be in the amount of the Receivables
Advances made against or, in the case of substitutions, a portion of the
Receivables Loan attributable to the Instruments secured by the insured
Purchaser Mortgages and shall be issued by a title insurer and be in form and
substance satisfactory to Lender in its sole discretion. The title insurance
policies must reflect that the Purchaser Mortgages constitute valid liens
against the real property to which they pertain subject only to the Permitted
Encumbrances.
4.5 Borrower shall deliver or cause to be delivered to Lender, and
thereafter shall maintain in full force and effect according to the terms
thereof, Guarantees duly executed by the Guarantors identified in paragraph 2.17
hereof.
4.6 Reserved.
--------
ARTICLE V
---------
ADVANCES
--------
5.1 Lender shall have no obligation to make any Advance hereunder
until all conditions precedent set forth in the following paragraphs and
elsewhere in this Agreement have been satisfied, at Borrower's sole expense, as
determined by Lender in its reasonable discretion; provided, however, to the
-------- -------
extent such condition provides that it pertains only to a Receivables Advance
and not to a Working Capital Advance, such condition need not be satisfied as to
a Working Capital Advance. The date that Lender makes the first Working Capital
Advance after the Borrower's satisfaction of all conditions precedent shall be
referred to as the "Closing Date."
5.2 Borrower shall have delivered to Lender the following Documents,
duly executed in form and substance satisfactory to Lender (and, when required,
in recordable form):
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<PAGE>
(i) The Documents;
(ii) The Construction Loan Documents;
(iii) The Guarantee from the Guarantor;
(iv) All documents required to effectuate the purposes of
paragraphs 8.12 and 8.21(ii) hereof;
(v) A Nondisturbance Agreement which shall be filed and
recorded in such offices as Lender shall designate;
(vi) UCC Financing Statements for filing and recording, if
appropriate, as necessary to perfect Lender's Security Interest in the
Receivables Collateral and all other security for the Performance of
Borrower's Obligations which is subject to Article 9 of the Uniform
Commercial Code;
(vii) The title policy referred to in paragraph 4.4 hereof,
(viii) A favorable opinion from Borrower's independent counsel as
to such matters as Lender may reasonably require; and
(ix) A favorable opinion from each Guarantor's independent
counsel as to such matters as Lender may reasonably require.
5.3 Not less than ten (10) Business Days before the date on which the
initial Advance is to be made, Borrower shall deliver or cause to be delivered
to Lender the following additional items:
(i) With respect to Borrower and each Guarantor or Person
which is a corporation or a general or limited partnership, certified
copies of their articles, certificates and agreements of general or limited
partnership or their articles of incorporation and by-laws (and all
amendments thereto), together with evidence that Borrower and each such
Guarantor or Person is duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which they are organized,
and in each and every other jurisdiction where the nature of their
respective businesses require them to be so qualified;
(ii) With respect to Borrower and each Guarantor or Person
which is a corporation or a general or limited partnership, a copy of the
resolutions certified to be true and complete by the corporate secretary or
all of
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<PAGE>
the general partners (as the case may be), authorizing the execution,
delivery and performance of the Documents, and evidencing the authority of
all Persons executing the Documents on behalf of Borrower, the Guarantor,
and such other Persons, and if Borrower, Guarantor or such Persons are
operating under a fictitious name, a copy of the recorded certificate of
fictitious name;
(iii) As a condition to making the initial Receivables Advance
but not the Working Capital Advances, other surveys and certifications by
surveyors or engineers acceptable to Lender, showing the dimensions of the
Units within the Project, access thereto, street lines, easements and other
details.
(iv) Evidence satisfactory to Lender that the Project complies
with all applicable laws, rules and regulations and public and private
restrictions affecting the use of the Project;
(v) A copy of the registrations/consents to sell and the final
subdivision public reports/public offering statements/prospectuses and/or
approvals thereof required to be issued by or used in the State of South
Carolina and other jurisdictions where Time-Share Interests are or have
been offered or sold, together with all other approvals from regulatory
agencies having jurisdiction over the Project;
(vi) If the Project has not been registered under such act, an
opinion from Borrower's counsel that the Project does not fall within the
purview of the Interstate Land Sales Full Disclosure Act;
(vii) A copy of the purchase contract, deed, note, mortgage/deed
of trust and other documents in existence, including, without limitation,
any covenants running with the land comprising the Project, as well as any
covenants enforceable as equitable servitudes, the Project management
agreement and advertising materials, which have been or are being used by
Borrower in connection with the Project or the sale of Time-Share Interests
therein;
(viii) Copies of the insurance policies required pursuant to
paragraph 8.9 hereof;
(ix) Evidence that the Project is not located within a "special
flood hazard" area as such term is used in the National Flood Insurance Act
of 1968, as amended and supplemented by the Flood Disaster Protection Act
of 1973, and in regulations, interpretations and rulings thereunder;
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<PAGE>
(x) With respect to a Receivables Advance, the items described
in Exhibit "E" hereto;
-----------
(xi) With respect to a Working Capital Advance, the items
described in the following paragraphs of Exhibit "E" hereto: (a), (b)
-----------
(copies only), (e), (f), (g), (h), and (i);
(xii) Such other items as Lender requests which are reasonably
necessary to evaluate whether the request for the Advance satisfied the
requirements set forth herein;
(xiii) Credit references and credit bureau reports for A.J. Ball
Construction (Borrower's general contractor), Argosy Group, Inc., KOAR
Group, Inc., Herbert T. Alfree, Andrew J. Gessow, Osamu Kaneko and Steven
C. Kenninger; customer references for Sevelex Consultants, Inc., Roy Ashley
and Associates, and A.J. Ball Construction; and UCC, tax lien, litigation
and judgment searches for the following parties: (i) Borrower, (ii)
Guarantor, (iii) KGI Port Royal, Inc.; and (iv) Argosy Hilton Head, Inc.
(xiv) Copies of the forms of Instrument and Purchaser Mortgage;
and
(xv) Satisfactory operating budget for the Project owner's
association.
5.4 No material adverse change shall have occurred in the Project or
Borrower's or any Guarantor's business or financial condition since the date of
the latest financial and operating statements given to Lender by or on behalf of
Borrower or any Guarantor. Lender shall be satisfied (in Lender's sole and
absolute discretion) with the results of (i) Lender's physical inspection of the
Project and (ii) an environmental survey of the Project and, if deemed necessary
by Lender, a level one environmental assessment of the Project to be obtained at
Borrower's expense.
5.5 There shall have been no material adverse change in the
warranties and representations made by Borrower or any Guarantor in the
Documents.
5.6 Neither an Event of Default nor an Incipient Default shall have
occurred and be continuing.
5.7 The interest rate applicable to the Advance (before giving effect
to any savings clause) will not exceed the maximum contract rate permitted by
the Applicable Usury Law.
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<PAGE>
5.8 Borrower has paid the entire Commitment Fee to Lender.
5.9 The Construction Loan shall have closed and, with respect to a
Receivables Advance, Borrower shall have satisfied all of the conditions
precedent to the making of the first Advance (as the term Advance is defined in
the Construction Loan Agreement).
5.10 Reserved.
---------
5.11 Lender shall have no obligation to make any Advance until the
conditions specified in paragraphs 5.1 through 5.9 (as applicable to the
particular type of Advance) inclusive herein have been satisfied as determined
by Lender in its reasonable discretion. In the event the conditions specified in
Sections 5.1 through 5.9 (as applicable to the particular type of Advance)
hereof have not been satisfied as determined by Lender in its reasonable
discretion, on or before the Closing Date, Lender shall have no further
obligation to make the Loan or the Construction Loan and the entire Commitment
Fee (as defined in Paragraph 8.16) shall nevertheless be deemed earned by Lender
in consideration for Lender's issuing of the Commitment (as defined in Paragraph
8.16) and holding itself ready and willing to make the Loan upon the terms and
conditions set forth herein. Payment of the Commitment Fee is in addition to
Borrower's obligation under Paragraph 8.16.
5.12 Advances shall be requested in writing on the Request for
Advance and Certification, in the form of the attached Exhibit "E-l," executed
--------------
by Borrower (or, if Borrower is a corporation or partnership, by those officers
or general partners, as the case may be, or agents of Borrower named in
authorizing resolutions of Borrower from time to time delivered to Lender and
which are in form and substance satisfactory to Lender).
5.13 Advances may be disbursed by checks, drafts or wire transfer
payable to Borrower; or, at the option of Lender after Borrower's written
request, to third parties, either severally or jointly with Borrower, for the
credit or benefit of Borrower. If Advances are made by wire transfer, Borrower
shall pay to Lender, Lender's usual and customary fee for wiring such funds.
Lender can withhold such fee from the Advance so made.
5.14 Although Lender shall have no obligation to make an Advance
unless and until all applicable conditions thereto set forth herein have been
satisfied, Lender may, at its sole discretion, make Advances before that time
without waiving or releasing any of the Obligations, but Borrower shall continue
to be required to strictly Perform all such Obligations.
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<PAGE>
pay and satisfy in full the Working Capital Loan, the Construction Loan and all
amounts then due and owing to Lender under the Construction Loan Documents.
Therefore, Lender shall have the right to disburse any Receivables Advance
directly to Lender in payment or satisfaction of then outstanding Working
Capital Advances, and interest thereon, and any amounts then due to Lender under
the Construction Loan Documents.
5.16 Working Capital Advances shall be made only against cash down
payments and principal and interest payments made and to be made under Eligible
Instruments and against the proceeds of cash sales of Units, based upon the
Borrowing Base (Working Capital Loan); provided that with respect to Working
Capital Advances only, the eligibility criteria set forth in the following
subparagraphs of Exhibit "B" need not be satisfied as a condition to the making
-----------
of such Advance: (j), (k), (m) and (n) to the extent that such rescission rights
pertain only to Borrower's obligations under subparagraph (k) thereof.
ARTICLE VI
----------
RESERVED
--------
ARTICLE VII
-----------
NOTE; MAINTENANCE OF BORROWING BASE;
------------------------------------
PAYMENTS; SERVICING AND COLLECTION
----------------------------------
7.1 In connection with the Receivables Loan:
(i) In no event shall the aggregate principal amount of the
Receivables Loan outstanding at any time exceed the Maximum Loan Amount and
in the event for any reason the aggregate principal amount of the
Receivables Loan does exceed the Maximum Loan Amount, then Borrower upon
demand, shall immediately make a principal payment to Lender in an amount
equal to such excess plus accrued and unpaid interest thereon.
(ii) If for any reason the aggregate principal amount of the
Receivables Loan outstanding as of the last Business Day of any month shall
exceed the then Borrowing Base (Receivables Loan), Borrower, upon demand,
shall immediately make to Lender a principal payment in an amount equal to
such excess plus accrued and unpaid interest thereon.
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<PAGE>
(iii) The Receivables Loan shall be evidenced by the
Receivables Note and shall be repaid in immediately available funds
according to the terms thereof and such provisions of this Agreement as are
applicable.
7.2 In connection with the Working Capital Loan:
(i) In no event shall the aggregate principal amount of the
Working Capital Loan outstanding at any time exceed the Maximum Working
Capital Loan Amount and in the event for any reason the aggregate principal
amount of the Working Capital Loan does exceed the Maximum Working Capital
Loan Amount, then Borrower upon demand, shall immediately make a principal
payment to Lender in an amount equal to such excess plus accrued and unpaid
interest thereon.
(ii) If for any reason the aggregate principal amount of the
Working Capital Loan outstanding as of the last Business Day of any month
shall exceed the then Borrowing Base (Working Capital Loan), Borrower, upon
demand, shall immediately make to Lender a principal payment in an amount
equal to such excess plus accrued and unpaid interest thereon.
(iii) The Working Capital Loan shall be evidenced by the Working
Capital Note and shall be repaid in immediately available funds according
to the terms thereof and such provisions of this Agreement as are
applicable.
7.3 Borrower is not entitled to prepay, in whole or in part, the
Receivables Loan until the Opening Prepayment Date. Thereafter, if (i) Borrower
has paid all sums due and payable to Lender in connection with the Receivables
Loan, Working Capital Loan and the Construction Loan, and (ii) Borrower has
given Lender at least 30 days prior written notice of the prepayment and has
paid to Lender at the time of prepayment a prepayment premium equal to a
percentage, as set forth below, of the then principal balance of the Receivables
Loan, then Borrower shall have the option to prepay the Receivables Loan in
full, but not in part, on any date an installment is due on the Receivables
Note:
Period Premium
- ------ -------
Through the Second Anniversary Closed to Prepayment
Date of the last Receivables
Advance
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<PAGE>
After the Second Anniversary Date 3%
and through the Fourth Anniversary
Date of the last Receivables
Advance
After the Fourth Anniversary Date 2%
and through the Sixth Anniversary
Date of the last Receivables
Advance
After the Sixth Anniversary Date 1%
and through the period ending 30
days prior to the Seventh
Anniversary Date of the last
Receivables Advance
Within 30 days prior to the Seventh 0%
Anniversary Date of the last
Receivables Advance
If there should occur an acceleration of maturity following an
Event of Default and such occurrence results in prepayment of the Receivables
Loan, a prepayment premium will be required in the amount specified above; or if
occurring prior to the Opening Prepayment Date, Borrower shall pay to Lender
with the prepayment a prepayment premium equal to 5% the then principal balance
of the Receivables Loan being prepaid. A Purchaser shall be permitted to prepay
the amount owed on its Instrument without penalty. There shall be no prepayment
premium payable in connection with the prepayment, in whole or in part, of the
Working Capital Loan. If there should occur a casualty to or condemnation of
the Project and such occurrence results in a prepayment of the Receivables Loan,
no prepayment premium shall be payable in connection with such prepayment.
7.4 (a) Lockbox Agent, as agent for Lender, shall collect
payments on the Eligible Instruments used in making Borrowing Base
computations or otherwise constituting part of the Receivables Collateral
and shall remit them to Lender on the last Business Day of each and every
month according to the terms of the Lockbox Agreement; and Borrower shall
immediately forward all such payments received by it to Lockbox Agent for
Lender. However, the Obligation to make, or any requirement that Lender
receives, payments called for in the Documents shall not be deemed
satisfied until Lender actually receives such payments from Lockbox Agent.
For the purpose of determining the adequacy of such payments, Borrower will
cause
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<PAGE>
Servicing Agent to furnish to Lender at Borrower's sole cost and expense,
no later than the tenth day of each month commencing with the first full
calendar month following the first Advance, a report meeting the following
requirements: (i) shows as of the end of the prior month with respect to
each Eligible Instrument which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables Collateral
(A) all payments received during the prior month on the Eligible
Instrument, allocated as between principal, interest, late charges, taxes,
and the like, (B) the opening and closing balances during the prior month
on each such Eligible Instrument, (C) present value of the cash flow (if
required by Lender) and (D) extensions, refinances, prepayments, and other
similar adjustments; and (ii) itemizes the Eligible Instrument which are
used in making Borrowing Base computations or otherwise constitute part of
the Receivables Collateral to show delinquencies of 30, 60, 90 and in
excess of 90 days. On the basis of such reports, Lender will compute the
amount, if any, which was due and payable by Borrower on the last day of
the preceding month and will notify Borrower as soon as possible of any
amount due. If such reports are not timely received, Lender may estimate
the amount which was due and payable; and, in such event, Borrower shall
pay upon demand the amount estimated by Lender to be due and payable. If
payment is made on the basis of Lender's estimate, and reports required by
this paragraph are thereafter received by Lender, the estimated payment
amount shall be adjusted by an additional payment or a refund to the
correct amount, as the reports may indicate; such additional amount to be
paid by Borrower upon demand and such refund to be made by Lender within
five Business Days after receipt by Lender of a written request therefor by
Borrower. In addition, at each calendar quarter, Borrower shall deliver to
Lender a current list of the names addresses and phone numbers of the
Purchasers related to Eligible Instruments.
(b) Subject to the following sentence, GPSI shall act as
the Servicing Agent during the Term. Lender, subject to any restriction
contained in the Services and Fees Agreement, the Servicing Agreement or
the Lockbox Agreement, may at any time and from time to time in its
discretion substitute a successor or successors to any Servicing Agent or
Lockbox Agent acting in such capacity under the Services and Fees
Agreement, the Servicing Agreement and Lockbox Agreement, if the Servicing
Agent or Lockbox Agent is not satisfactorily performing its respective
obligations thereunder. In the event Lender substitutes a successor
Servicing Agent or Lockbox Agent pursuant to the provisions of this
paragraph, Borrower shall have the right to approve the identity of such
successor Servicing Agent or Lockbox Agent; provided that there does not
-------- ----
then exist an Event of Default or an Incipient Default and further provided
------- --------
that Borrower shall not unreasonably withhold or unduly delay its consent.
----
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7.5 Subject to Lender's rights upon the occurrence of an Event
of Default, all proceeds from the Receivables Collateral (except payments which
are identified by Purchasers as tax or maintenance and other assessment payments
and are required to be so treated by Borrower) during the Term hereof shall be
applied first to the payment of all costs, fees and expenses required by the
Documents to be paid by Borrower, second to accrued and unpaid interest due on
the Receivables Note, third to the unpaid principal balance of the Receivables
Note, and then to the other Obligations in such order and manner as Lender may
determine. Unless and until all such Obligations have been Performed, Borrower
shall have no right to any portion of the proceeds of the Receivables
Collateral.
7.6 Whether or not the proceeds from the Receivables Collateral
shall be sufficient for that purpose, Borrower shall pay when due all payments
required to be made pursuant to the Receivables Note, Working Capital Note and
other Documents; and any and all amounts payable by Borrower under the
Receivables Note, Working Capital Note and other Documents shall be paid without
notice (except as otherwise expressly provided therein), demand, counterclaim,
set-off, deduction, recoupment or defense, and without abatement, suspension,
deferment, diminution or proration by reason of any circumstance or occurrence
whatsoever, Borrower's Obligation to make such payments being absolute and
unconditional.
7.7 All payments to be made by Borrower under the Documents
shall be free of expense to Lender with respect to the amount of any
Impositions, all of which Impositions Borrower assumes and shall pay on demand
in addition to the other payments provided for in the Documents to be made by
it. Borrower's Obligation to pay Impositions shall likewise include the
Obligation to pay any increase to Lender in federal, state, or local income tax
as a result of inclusion in income of Lender of any amount required by this
paragraph to be paid to or for Lender.
ARTICLE VIII
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BORROWER'S ADDITIONAL REPRESENTATIONS,
--------------------------------------
WARRANTIES AND COVENANTS
------------------------
8.1 (a) Borrower is, and will continue to be during the Term
hereof, a limited partnership duly organized, validly existing and in good
standing under the laws of the State of South Carolina and is, and will
continue to be during the Term hereof, qualified to do business and in good
standing in each jurisdiction in which it is selling Time-Share Interests
or where the location or nature of its properties or business makes such
qualification necessary (except where failure to do so would not adversely
affect Lender's ability to realize upon the Receivables Collateral or any
other security for the
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Performance of the Obligations or materially adversely affect the business
or financial condition of Borrower or the ability of Borrower to complete
Performance of the Obligations). Borrower has, and will continue to have,
powers adequate for making and Performing under the Documents, for
undertaking and Performing the Obligations, and for carrying on its
business and owning its property. Guarantor is a general partnership duly
organized, validly existing and in good standing under the laws of the
State of South Carolina, is, and will continue during the Term hereof,
qualified to do business and in good standing in each jurisdiction where
Borrower is selling Time-Share Interests or where the location or nature of
the properties or business of Guarantor make such qualification necessary
(except where failure to do so would not adversely affect Lender's ability
to realize upon the Receivables Collateral or any other security for the
Performance of the Obligations or materially adversely affect the business
or financial condition of Borrower or the ability of Borrower to complete
Performance of the Obligations). Guarantor is the general partner of
Borrower. KGI Port Royal, Inc. ("KGI") is a corporation duly organized,
validly existing and in good standing under the laws of the State of South
Carolina and is the managing general partner of Guarantor.
(b) Borrower has good right and power to grant the Security
Interest in the Receivables Collateral and to execute and deliver this
Agreement and the other Documents and to Perform the Obligations. All
action necessary and required by Borrower's organization documents and all
applicable laws for the obtaining of the Loan and for the execution and
delivery of this Agreement and all other Documents executed and delivered
in connection with the Loan has been duly and effectively taken; and, to
the best of Borrower's knowledge, this Agreement is and shall be, and all
other Documents are and shall be, legal, valid, binding and enforceable
against Borrower in accordance with their respective terms, other than as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium, or similar laws relating to or
affecting the rights of creditors generally or general principles of equity
(except to the extent that such laws, rights, remedies or principles are
waivable by Borrower and have been waived in the Documents). To the best of
Borrower's knowledge, the Documents do not violate the Applicable Usury Law
or any other usury law known to Borrower. The execution, delivery and
Performance of the provisions of this Agreement and all the other Documents
will not violate, constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties or
assets of Borrower pursuant to any provision of: any law, regulation,
judgment, decree, order, franchise or permit applicable to Borrower;
Borrower's charter documents; or any contract or other agreement or
instrument to which Borrower is a party or by which Borrower or Borrower's
properties or
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assets are bound. No consent of any government or agency thereof, or any
other person, firm or entity not a party hereto, is or will be required as
a condition to the execution, delivery, Performance or enforceability of
the Documents.
8.2 (a) There is no action, litigation or other proceeding
pending (or, to Borrower's knowledge, threatened) before any arbitration
tribunal, court, governmental agency or administrative body against
Borrower which, if adversely determined, might adversely affect Lender's
ability to realize upon the Receivables Collateral or any other security
for the Performance of the Obligations, or materially adversely affect the
Project, the business or financial condition of Borrower, or the ability of
Borrower to complete Performance of the Obligations; or which questions the
validity of the Documents.
(b) If Borrower or a Guarantor becomes a party to any
action, litigation or other proceeding which asserts a material claim
against Borrower or a Guarantor, or Borrower becomes the subject of an
investigation by a governmental agency or administrative body with respect
to the Project, then Borrower shall within 10 days after it obtains
knowledge thereof notify Lender of such action, litigation, proceeding or
investigation and the particulars thereof. Thereafter, if requested by
Lender, Borrower shall report to Lender with respect to the status of such
matter and the particulars thereof.
8.3 (a) Except as set forth in Exhibit "F" hereto, Borrower has
-----------
sold or has offered for sale Time-Share Interests which generate Eligible
Instruments only in the States of South Carolina and Georgia and all sales
have been made at the Project or in the private residences of potential
Purchasers. Before it sells or offers for sale Time-Share Interests outside
the State of South Carolina and those listed in Exhibit "F" hereto,
-----------
Borrower shall promptly notify Lender and provide Lender with evidence that
Borrower has complied with all laws of such jurisdiction governing the
proposed conduct of Borrower.
(b) Except for violations which do not individually or in
the aggregate affect Lender's ability to realize upon the Receivables
Collateral or any other security for the Performance of the Obligations or
do not materially adversely affect the business or financial condition of
Borrower or the ability of Borrower to complete Performance of the
Obligations, Borrower has complied, and will comply, with all laws and
regulations of the United States and every state, county and municipal
jurisdiction in which Time-Share Interests have been sold or offered for
sale.
(c) Without limiting the generality of any other
representation or warranty contained herein, Borrower will not violate any
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private covenant or restriction or any zoning, use or similar law,
ordinance or regulation affecting the use or occupancy of the Project, the
violation of which could have a material adverse effect on Lender's ability
to realize upon the Receivables Collateral or any other security for the
Performance of the Obligations or materially adversely affect the business
or financial condition of the Borrower or the ability of Borrower to
complete Performance of the Obligations.
8.4 (a) Each Instrument at the time it is assigned to Lender in
connection with the Loan and this Agreement shall be an Eligible
Instrument. At the time such Instrument is assigned to Lender, Borrower
shall have performed all of its obligations to Purchasers, and there shall
be no executory obligations to Purchasers to be Performed by Borrower.
Borrower further warrants and guarantees the value and enforceability of
the Receivables Collateral. The foregoing notwithstanding, Lender
acknowledges that with respect to Instruments against which a Working
Capital Advance has been made, Borrower shall not, at the time of such
Advance, have completed the improvements that the Borrower has represented
will be available to Purchasers.
(b) Borrower shall not, without the prior written consent
of Lender, cancel or materially modify, or consent to or acquiesce in any
material modification to, or solicit the prepayment of, any Eligible
Instrument used in making Borrowing Base computations or which otherwise
constitutes part of the Receivables Collateral; or waive the timely
performance of the obligations of the Purchaser thereunder. Borrower shall
not pay or advance directly or indirectly for the account of any Purchaser
any sum owing by the Purchaser under any of the Eligible Instruments used
in making Borrowing Base computations or which otherwise constitute part of
the Receivables Collateral.
(c) Borrower at all times shall fulfill, and cause its
affiliates, agents and independent contractors at all times to fulfill, all
obligations to Purchasers under all Eligible Instruments which are used in
making Borrowing Base computations or otherwise constitute part of the
Receivables Collateral.
(d) True and complete copies of the Project governing
documents, the purchase contract, deed, note, mortgage/deed of trust, the
Instruments, advertising materials and other documents and exhibits thereto
which have been and are being used by Borrower in connection with the
Project and the sale or offering for sale of Time-Share Interests therein
have been delivered to Lender. Such documents are the only ones which have
been used in connection with the Project and the sale of Time-Share
Interests therein. Borrower shall not, without the prior written consent of
Lender, cancel
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<PAGE>
or materially modify any such documents, which consent will not be
unreasonably withheld. Borrower shall Perform all of its obligations under
the Project governing documents.
(e) All off-site roads and other off-site improvements
contained within the Project (other than private easements) will have been
dedicated to and accepted by the responsible governmental authority or
utility prior to the initial Receivables Advance. Borrower shall maintain
or cause to be maintained in good condition and repair all amenities,
common areas and private easements which have been promised or represented
as being available to Purchasers and all off-site roads and off-site
improvements which have not been dedicated to or accepted by the
responsible governmental authority or utility.
(f) Each Purchaser shall automatically be a member of the
Project's owners association or associations, if any, and shall be entitled
to vote on the affairs thereof (subject, however, to any preferential
voting rights in favor of Borrower as permitted under South Carolina time-
share laws). Each such owners association shall be governed by a Board of
Directors, which have the authority to fix and levy pro rata upon each
Purchaser annual assessments to cover the costs of maintaining and
operating the Project (including, without limitation, taxes and assessments
not levied by the appropriate taxing authority directly against owners of
Time-Share Interests) and to establish a reasonable reserve for
improvements, the replacement of items and furnishings, and contingencies.
If Borrower controls an owners association, Borrower will while it controls
such association: (i) cause such owners association to (A) discharge timely
and completely its obligations under the Project governing documents and
maintain the reserve described above; and (ii) pay to such owners
association not less often than every twelve months hereafter the
difference between (A) the cumulative total amount of the maintenance and
operating expenses incurred by such association, together with the amount
of any installment of real property taxes currently due and payable with
respect to the Project not directly levied against owners of Time-Share
Interests, through the end of the calendar month preceding the month in
which such payment is made and (B) the cumulative total amount of
assessments (less amounts thereof allocated to reserve expenses) payable to
the association by Time-Share Interest owners other than Borrower through
the end of the calendar month preceding the month in which such payment is
made.
(g) Except as otherwise permitted by the Project governing
documents, the Project owners association or the owners of Time-Share
Interests in common shall own the furnishings in the Project Units and all
the common areas in the Project and other amenities which have been
promised or
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represented as being available to Purchasers, free and clear of liens and
security interests, except for the Permitted Encumbrances and the
Construction Mortgage; and no part of the Project is subject to partition
by owners of Time-Share Interests. Borrower will maintain or cause to be
maintained in good condition and repair all common areas in the Project and
other amenities which have been promised or represented as being available
to Purchasers and which are not the responsibility of the Project owners
association to maintain and repair. Borrower will maintain a reasonable
reserve to assure compliance of the terms of the foregoing sentence.
(h) The common areas and amenities and the streets and
other off-site improvements contained within the Project are free and clear
of all liens or other encumbrances of third parties, subject to the
Permitted Encumbrances. Borrower agrees that such common areas, amenities,
streets and other off-site improvements will not, during the Term hereof,
be encumbered.
8.5 LENDER DOES NOT ASSUME AND SHALL HAVE NO RESPONSIBILITY,
OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S RELATIONSHIP BEING SOLELY THAT
OF A CREDITOR WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWED TO IT, A
COLLATERAL ASSIGNMENT FROM BORROWER OF INSTRUMENTS. EXCEPT AS REQUIRED BY LAW,
OR TO THE EXTENT NECESSARY IN ORDER FOR BORROWER TO OBTAIN A PERMIT TO SELL
TIME-SHARE INTERESTS IN A PARTICULAR STATE, BORROWER SHALL NOT, AT ANY TIME, USE
THE NAME OF OR MAKE REFERENCE TO LENDER WITH RESPECT TO THE PROJECT, THE SALE OF
TIME-SHARE INTERESTS OR OTHERWISE, WITHOUT THE EXPRESS WRITTEN CONSENT OF
LENDER.
8.6 Borrower shall undertake the collection of amounts
delinquent under each Eligible Instrument which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables Collateral, shall
bear the entire expense of such collection work, and shall diligently and timely
do such work respecting collection, including forfeiture or foreclosure
proceedings. Lender shall have no obligation to undertake any collection,
eviction or foreclosure action against the obligor under any Eligible Instrument
or to otherwise realize upon any Eligible Instrument.
8.7 Borrower shall maintain in a secure place in its offices at
the address specified below proper and accurate books, records, ledgers,
correspondence and other papers relating to the Receivables Collateral. Lender
may notify the appropriate Purchasers of the existence of Lender's interest as
assignee in the Receivables Collateral and request from such Purchasers any
information relating to
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<PAGE>
the Receivables Collateral. Borrower shall cooperate with Lender in giving such
notice and will do so under its letterhead if requested. Borrower's chief
executive office is as set forth on the signature page of this Agreement.
Borrower will not change its chief executive office without giving Lender thirty
(30) days prior written notice of such contemplated change. Borrower has not
operated under any names or fictitious names other than Port Royal Resort, L.P.
during the previous six (6) years. Borrower will not change its name or operate
under any fictitious names without first giving Lender thirty (30) days prior
written notice.
8.8 Borrower shall not, without the prior written consent of
Lender: (i) sell, convey, pledge, hypothecate, encumber or otherwise transfer
any security for the Performance of the Obligations; or (ii) permit or suffer to
exist any liens, security interests or other encumbrances on any security for
the Performance of the Obligations, except with respect to either (i) or (ii)
for the Permitted Encumbrances and liens and security interests expressly
granted to Lender.
8.9 Borrower shall obtain before funding, shall maintain during
the Term of the Loan, and shall deliver to Lender evidence of such insurance,
written by such insurers, and in such forms and such amounts, as Lender may
reasonably require.
8.10 (a) This Agreement and the other Documents, certificates,
financial statements, tax returns (including without limitation, the tax
returns of Borrower and Guarantors) and written materials furnished to
Lender by or on behalf of Borrower in connection with the transactions
contemplated herein do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to
Borrower which materially adversely affects or in the future may (so far as
Borrower can now foresee) materially adversely affect the Receivables
Collateral or any other security for the Performance of the Obligations or
the business or financial condition of Borrower or the Project which has
not been set forth in this Agreement or the other Documents, certificates,
financial statements or written materials furnished to Lender in connection
with the transactions contemplated herein.
(b) The fact that Lender's representatives may have made
certain examinations and inspections or received certain information
pertaining to the Receivables Collateral or the Project and the proposed
operation thereof does not in any way affect or reduce the full scope and
protection of the warranties, representations and Obligations contained
herein, which have induced Lender to enter into this Agreement.
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<PAGE>
8.11 (a) Borrower shall maintain a standard, modern system of
accounting and shall keep and maintain all books and records in accordance
with generally accepted accounting principles on a consistent basis.
(b) On or before the tenth day of each month, Borrower
shall furnish or cause to be furnished to Lender (i) the reports of the
Servicing Agent and Borrower required pursuant to paragraph 7.4 hereof and
(ii) a sales report for the prior month showing the number of sales of
Time-Share Interests and the aggregate dollar amount thereof, including
down payments.
(c) Borrower shall furnish or cause to be furnished to
Lender, as soon as the same are available, and in any event within 110 days
after the end of each fiscal year and within 45 days after the end of each
interim quarterly fiscal period of the subject, a copy of the current
financial statements of each of Borrower and Guarantor, and within 110 days
after the end of each fiscal year and within 45 days after the end of each
interim quarterly fiscal period of the subject, current financial
statements of the Project's owners association (the "Association"). Such
financial statements shall contain a balance sheet as of the end of the
relevant fiscal period and statements of income and cash flows for such
fiscal period (together, in each case, with the comparable figures for the
corresponding period of the previous fiscal year, if available), all in
reasonable detail, prepared in accordance with generally accepted
accounting principles consistently applied throughout the period involved
and with prior periods. All annual financial statements of Borrower and
the Association required pursuant hereto shall be audited by a certified
public accountant, and shall be certified to by said certified public
accountant. All annual financial statements of Guarantor shall be reviewed
by a certified public accountant; provided, however, that upon the giving
-------- -------
of written notice by Lender to each of Borrower and Guarantor, the annual
financial statements of Guarantor thereafter supplied to Lender (commencing
with the fiscal year ending at least 30 days beyond the giving of such
notice) shall be audited by a certified public accountant and shall be
certified to by said certified public accountant. In addition to the
foregoing, all financial statements required pursuant hereto shall be
certified correct by the individual who is the subject of such statements,
or the chief financial officer or general partner, as the case may be, of
the subject of such statements. The financial statements of Borrower shall
also contain in reasonable detail a statement of income and expenses
covering the operation of the Project. Together with such financial
statements, Borrower shall deliver to Lender a certificate signed by the
chief financial officer or managing general partner, as the case may be, of
Borrower stating that to the best of his knowledge, after inquiry, there
exists no Event of Default and no condition, event or act which, with
notice or lapse of time or both, would become an Event of Default or, if
any such Event of Default or any
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such condition, event or act exists, specifying the nature and period of
existence thereof and what action Borrower proposes to take with respect
thereto. Together with such financial statements, Borrower shall also
deliver to Lender a certificate of its chief executive officer certifying
that Borrower is in compliance with all Applicable Environmental Laws or in
the event of noncompliance, specifying the nature and period of the
existence of such noncompliance.
(d) Borrower shall deliver to Lender from time to time, as
available, and promptly upon amendment or effective date, current price
lists, sales literature, registrations/consents to sell, final public
reports/public offering statements/prospectuses, and other items requested
by Lender which relate to the Project.
(e) So long as the same shall be pertinent to the Loan, the
Project, the documents or any transactions contemplated therein, Borrower
shall at its expense (i) permit Lender and its representatives at all
reasonable times to inspect, audit and copy, as appropriate, the Project,
Borrower's facilities, activities, books of account, logs and records; (ii)
cause its employees, agents and accountants to give their full cooperation
and assistance in connection with any such visits of inspection or
financial conferences; and (iii) make available such further information
concerning its business and affairs as Lender may from time to time
reasonably request.
(f) Borrower shall annually submit to Lender within 45 days
after each is available proposed annual maintenance and operating budgets
for the Project, certified to be adequate by Borrower and a statement of
the annual assessment to be levied upon the Purchasers.
(g) Borrower shall cause to be delivered to Lender as soon
as available, and in any event no later than forty-five (45) days following
its filing with the Internal Revenue Service, the signed income tax returns
for each Guarantor for the fiscal year then ended, as filed with the
Internal Revenue Service, together with all schedules thereto; provided,
that in the event a Guarantor obtains an extension of the date for filing
such tax returns, Borrower shall cause to be delivered to Lender a signed
copy of such extension within fifteen (15) days following the filing
deadline for such return in the absence of such extension.
8.12 Borrower shall cause any and all indebtedness owed by
Borrower or secured by the Project to be subordinated to the Obligations
pursuant to subordination agreements satisfactory to Lender in form and
substance.
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8.13 Borrower shall not, without Lender's prior written consent:
(i) (other than the sale of Time-Share Interests in the ordinary course of
Borrower's business or the rental of condominium units in the Project in the
ordinary course of Borrower's business) sell, lease, transfer or dispose of its
all or substantially all of its assets to another entity; or (ii) dissolve or
liquidate, or merge or consolidate with or into any other entity, transfer to
any person or entity, the right to control, Borrower or Guarantor, turn over the
management or operation of Borrower or Guarantor to any other person or entity,
or permit any of the foregoing to occur with respect to Borrower or Guarantor.
Borrower shall have the right to retain a third-party management company to
manage the operation of the Project, provided that Lender has first approved the
identity of such management company.
8.14 Borrower is not in default of any payment on account of
indebtedness for borrowed money or of any repurchase obligations in connection
with a receivables purchase financing, or in violation of or in default under
any material term in any agreement, instrument, order, decree or judgment of any
court, arbitration or governmental authority to which it is a part or by which
it is bound.
8.15 Borrower has filed all tax returns and paid all taxes,
assessments, levies and penalties, if any, in respect thereof required to be
filed by it or paid by it to any governmental or quasi-governmental authority.
All real estate taxes and assessments have been paid which are due and owing in
connection with the common areas and the Project and other amenities which have
been promised or represented as being available to Purchasers for use by them.
Borrower shall use its best efforts to provide to Lender not more than 30 days
after such taxes and assessments would become delinquent if not paid evidence
that all taxes and assessments on the Project and common areas have been paid in
full.
8.16 Borrower shall pay to Lender on demand all reasonable out-
of-pocket costs and expenses incurred or to be incurred by Lender or its counsel
in connection with the initiation, documentation and closing of the Loan, the
making of Advances hereunder, the administration of the Loan, the protection of
the security for the Performance of the Obligations, or the enforcement of the
Obligations against Borrower or any Guarantor (including, without limitation,
travel costs, a non-refundable documentation fee of $20,000.00 (which
documentation fee shall be credited against Lender's attorneys' fees and is the
same documentation fee due and payable under the Construction Loan Agreement),
all attorneys' fees, any brokerage or similar fees, all filing and recording
fees, all charges for consumer credit reports and UCC, tax lien, judgment and
litigation searches, all revenue and documentary stamp and intangible taxes, and
all fees and expenses of the Servicing Agent and Lockbox Agent to perform the
services contemplated hereunder and under the terms of the Services and Fees
Agreement, the Servicing Agreement and Lockbox Agreement, respectively).
Borrower shall pay to Lender a non-refundable commitment fee (the
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"Commitment Fee") in the amount of One Hundred Twenty-Five Thousand Five Hundred
Dollars and NO/100 ($125,500.00), which fee was earned by Lender upon issuance
by Lender to Borrower of the Commitment Letter (the "Commitment") in connection
with the Loan, dated August 24, 1993, in consideration of Lender holding itself
ready, willing and able to make the Loan upon the terms and conditions set forth
herein. Lender acknowledges the receipt of the entire Commitment Fee. In the
event the Loan does not close on or before the Closing Date, as such date may be
extended by Lender, other than due solely to the default of Lender; (i) the
entire Commitment Fee shall nevertheless be deemed fully earned by Lender in
consideration for Lender's issuing of the Commitment and holding itself ready
and willing to make the Loan upon the terms and conditions set forth herein and
shall be due and payable upon demand and (ii) Lender shall have no further
obligation to make the Loan or the Construction Loan. The payment of the
Commitment Fee is in addition to Borrower's obligation to pay a commitment fee
under the Construction Loan Agreement. Lender acknowledges the receipt of a
$3,000 application fee (which application fee is also referenced in the
Construction Loan Agreement) which has been earned by Lender and shall not be
applied against the Commitment Fee. Lender shall act as custodian for purposes
of holding Eligible Instruments and Borrower shall pay to Lender on demand, a
custodial fee of Ten Dollars ($10.00) for each Eligible Instrument so held by
Lender, exclusive of Eligible Instruments that are substituted for ineligible
Instruments (provided that such custodial fee was paid in connection with such
ineligible Instrument) and exclusive of Instruments that have been cancelled by
the Purchaser or the Borrower. Notwithstanding the foregoing, Borrower shall
have the right to select an independent custodian to held Eligible Instruments
on Lender's behalf and as Lender's agent, so long as (i) Borrower pays all costs
charged by such independent custodian, and (ii) such independent custodian is
approved in advance, in writing by Lender.
8.17 Borrower shall INDEMNIFY, DEFEND AND HOLD HARMLESS, Lender,
its successors, assigns and shareholders (including corporate shareholders), and
the directors, officers, employees, agents and servants of the foregoing, from
any and all losses, costs, expenses (including, without limitation, court costs
and attorneys' fees), demands, claims, suits, proceedings (whether civil or
criminal), orders, judgments, penalties, fines and other sanctions arising from
or brought in connection with (i) the Project, the security for the Performance
of the Obligations, Lender's status by virtue of the Assignments, creation of
Security Interests, the terms of the Documents or the transactions related
hereto, or any act or omission of Borrower, the Servicing Agent or the Lockbox
Agent, or the employees or agents of any of them, whether actual or alleged, and
(ii) any and all brokers' commissions or finders' fees or other costs of similar
type, or claims by any broker, agent or other party in connection with this
transaction (other than fees claimed owed by a broker, finder, or other party
with whom Lender has a specific agreement). On written request by anyone covered
by the above agreement of indemnity, Borrower shall undertake, at its own cost
and expense, on behalf of such indemnitee, using
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counsel satisfactory to the indemnitee, the defense of any legal action or
proceeding to which the indemnitee shall be a party, provided that such action
or proceeding shall result from, or grow or arise out of any of the events set
forth in this paragraph.
8.18 Borrower shall not directly or indirectly invest all or any
part of the proceeds of the Loan in any investment security subject to the
margin requirements of Regulation G of the Board of Governors of the Federal
Reserve System.
8.19 Borrower shall execute or cause to be executed all Documents
and do or cause to be done all acts necessary for Lender to perfect and to
continue the perfection of the Security Interest of Lender in the Receivables
Collateral or the other security for the Performance of the Obligations or
otherwise to effect the intent and purposes of the Documents. Borrower shall
prosecute or defend any action involving the priority, validity or
enforceability of the Security Interest granted to lender; provided that, at
Lender's option, Lender may do so at Borrower's expense.
8.20 Borrower is fully familiar with all of the terms and
conditions of the Documents and is not in default thereunder. No act or event
has occurred which after notice and/or lapse of time would constitute such a
default or an Event of Default.
8.21 During the Term, Borrower shall not pay or make any
Distributions to its officers, partners, or Guarantor or to any relatives or
Affiliates of Borrower, of Guarantor or of any other of the foregoing. The
foregoing notwithstanding, on the condition that:
(i) There does not then exist an Event of Default or an
Incipient Default; and
(ii) Prior to the incurring of any obligation to make a
Distribution, Borrower has caused the proposed recipient of such
Distribution (the "Affiliated Party") to have entered into a Subordination
Agreement in form and substance satisfactory to Lender pursuant to which
the Affiliated Party agrees (A) that it shall not exercise any rights
against Borrower or against any of the collateral securing the Construction
Loan, the Working Capital Loan or the Receivables Loan unless and until the
date that all of the obligations of Borrower under and with respect to the
Construction Loan, Working Capital Loan and Receivables Loan have been
fully paid, performed and discharged; (B) that any entitlement to a
Distribution is and shall be fully subordinated as to right and time of
payment to the payment in full of the Construction Loan, the Working
Capital Loan and the Receivables Loan and (C) that upon and during the
continuance of an Event of Default or an Incipient Default, no
Distributions shall be permitted, made, demanded or accepted;
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the following Distributions shall be permitted:
(x) Such Distribution is made to the partners of Borrower
no more frequently than quarterly in an amount sufficient for the payment
of federal and state income taxes payable by such partner with respect to a
tax year of Borrower (a "Tax Year") resulting from the inclusion in such
partners' taxable income of the partner's share of taxable income of
Borrower for that Tax Year, subject to reasonable assumptions as to the
marginal tax bracket to which the partners of Borrower generally are
subject (the "Tax Amount"). Notwithstanding the foregoing, if for any
prior Tax Year of the Borrower, the Borrower had a loss for tax purposes
which, under tax laws then in effect, would offset taxable income (which
loss has not been previously used to offset taxable income in accordance
with this sentence), then for purposes of determining the Tax Amount for
the current Tax Year, the taxable income of the Borrower for the current
Tax Year shall be reduced by the amount of such loss. On or about the fifth
(5th) day prior to each date on which estimated federal income tax payments
are required to be paid by the partners of Borrower, Borrower may make a
distribution to the partners which, together with prior distributions for
the Tax Year on account of the Tax Amount, shall not exceed the applicable
percentage (which shall be 25%, 50%, 75%, and 100% for the first, second,
third and fourth calendar quarters, respectively) of a reasonable estimate
of the Tax Amount. If, at the end of the Tax Year, the aggregate estimated
quarterly distributions exceed the actual Tax Amount for such Tax Year,
future quarterly tax distributions shall cease with respect to the affected
partners until such excess amount has been fully recaptured or until the
excess amount has been repaid by the affected partners to the Borrower;
(xi) Such Distribution is made to Argosy/KGI Port Royal
Partners in an amount not in excess of $42,000 per month to reimburse
Argosy/KGI Port Royal Partners for certain overhead costs and expenses
incurred by Argosy/KGI Port Royal Partners in connection with the
acquisition, development and operation of the Project;
(xii) Such Distribution is made to KPI General Partnership
Hilton Head in an amount not in excess of $100,000 on the Closing Date in
consideration for the services rendered by the foregoing entity in raising
equity for Borrower; provided that such Distribution is paid out of
Borrower's equity and not out of the proceeds of the Construction Loan,
Receivables Loan or Working Capital Loan;
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(xiii) Such Distribution is made in an amount equal to or
less than 100% of Borrower's Cash Flow, with respect to the period in which
such Distribution is to be made; provided however, that no Distribution
-------- -------
shall be permitted under this clause (xiii) until such time as the Working
Capital Loan, Construction Loan and all other obligations under the
Construction Loan Documents have been paid in full and until such time as
Lender has no further obligation to make any advances of the Working
Capital Loan and Construction Loan; and
(xiv) Such Distribution is made in an amount necessary to
reimburse a general partner of Borrower who has made an advance for the
benefit of Borrower to pay Project costs for items and in amounts
consistent with the Borrower's budget as approved by Lender.
8.22 Borrower hereby covenants and agrees as follows during the
Term hereof:
(a) As of the end of each fiscal quarter of Borrower,
Borrower shall maintain a net worth, calculated in accordance with GAAP of
at least $2,200,000. The foregoing covenant shall be tested quarterly
beginning with the quarter year ending December 31, 1993.
(b) Marketing Expenses associated with the marketing and
sale of Time-Share Interests shall not exceed 50% of Net Sales, determined
quarterly. Net Sales shall mean gross sales of Time-Share Interests during
such quarterly period reduced only by cancellations thereof. Marketing
Expenses shall mean the aggregate of all expenses incurred in the sale and
marketing of Time-Share Interests, including without limitation, all costs
and expenses for advertising, mailing, consumer premiums, referral and lead
generation. The foregoing covenant shall be tested quarterly, commencing
December 31, 1993. Each of the tests conducted as of the end of December
1993, March 1994 and June 1994 shall cover the period from the Closing Date
through the end of the relevant quarter. Commencing with the test for
September 30, 1994, and thereafter throughout the Term hereof, the
foregoing covenant shall be tested quarterly, on a rolling twelve (12)
month basis.
(c) Borrower's general and administrative expenses shall
not exceed 10% of Net Sales. The foregoing covenant shall be tested
quarterly, commencing June 30, 1994. Each of the tests conducted as of the
end of June 1994 and September 1994 shall cover the period from the Closing
Date through the end of the relevant quarter. Commencing with the test for
December 31, 1994, and thereafter throughout the Term hereof, the foregoing
covenant shall be tested quarterly, on a rolling twelve (12) month basis.
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(d) Borrower shall not permit Delinquencies as of the end
of any three (3) consecutive calendar months during the Term to exceed
three percent (3%) of the aggregate then unpaid principal balance of all
Eligible Instruments against which an Advance has been made.
(e) Upon request by Lender, Borrower shall provide from
time to time such information as Lender may reasonably require to
determining compliance with the foregoing requirements.
8.23 Borrower shall not, without Lender's prior written consent:
(i) construct additional condominium or time-share units within or adjacent to
the Project (other than to the initial 24 Units) until such time as at least 40%
of the Time-Share Interests applicable to the initial 24 Units are sold in bona-
fide transactions to parties who are not Affiliates of Borrower or Guarantor; or
(ii) sell any time-share intervals from such additional condominium or time-
share units until at least 75% of the Time-Share Interests applicable to the
initial 24 Units are sold in bona-fide transactions to parties who are not
Affiliates of Borrower or Guarantor.
8.24 If there occurs a material adverse change in the Project or
in the financial condition of Borrower or any Guarantor or in the Receivables
Collateral or any other security for the Performance of the Obligations, which
change is not enumerated in paragraph 8.22 or 9.1, Borrower will promptly
provide Lender with assurance that neither the prospect of Performance of the
Obligations nor Lender's security therefore is imperiled. If Borrower fails to
provide Lender with assurance satisfactory to Lender in its reasonable
discretion, such failure will be considered an Event of Default.
8.25 As additional consideration to Lender, Borrower shall pay to
Lender an incentive fee equal to Forty-Eight Thousand Nine Hundred Sixty Dollars
($48,960.00) with respect to the Time-Share Interests sold by Borrower in the
Project. Such incentive fee shall be paid in installments of Five Hundred
Dollars ($500.00) per Time-Share Interest sold, (all as more fully provided in
the Construction Mortgage), commencing with all sales occurring after the date
upon which the Construction Loan is due and payable in full, and shall continue
until the entire incentive fee is paid in full. Notwithstanding anything
contained herein to the contrary, the incentive fee is payable in full by
Borrower on the first day of the 15th month after the initial advance of the
proceeds of the Construction Loan.
8.26 The Borrower is in compliance in all material respects with
all applicable federal, state or local environmental, health and safety statutes
and regulations. The Borrower has not filed any notice under any federal or
state law indicating past or present treatment, storage or disposal of a
hazardous waste or
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reporting a spill or release of a hazardous or toxic waste, substance or
constituent, or other substances into the environment. None of the operations of
Borrower are the subject of federal or state litigation or proceedings
involving, or any investigation evaluating whether any remedial action involving
a material expenditure is needed to respond to, any improper treatment, storage,
recycling, disposal or release into the environment of any hazardous or toxic
substance, waste or constituent, or other substance. The Borrower does not have
any material contingent liability in connection with any improper treatment,
storage, recycling, disposal or release into the environment of any hazardous or
toxic substance, waste or constituent. None of the operations of Borrower are
subject to any judicial or administrative proceeding alleging the violation of
any federal, state or local environmental, health or safety statute or
regulation. The Borrower does not transport any hazardous wastes, substances or
constituents.
8.27 Provided that Borrower has not then borrowed the Maximum
Loan Amount, Borrower shall not, during the Borrowing Term (Receivables Loan),
pledge, assign, or hypothecate any Eligible Instruments other than to Lender,
without Lender's prior written consent and without the execution by Lender and
any and all other lenders providing financing secured by Instruments of an
intercreditor agreement in form and substance satisfactory to Lender. After the
expiration of the Borrowing Term (Receivables Loan), Lender shall have the right
of first negotiation with Borrower in the event Borrower wishes to accept or
seek an offer from a third party to loan moneys to Borrower in exchange for a
pledge, assignment or hypothecation of any Instruments. In the event Borrower
desires to seek or obtain such an offer, Borrower shall first give Lender
written notice to that effect and give Lender the opportunity, within 10
Business Days thereafter, to issue a financing proposal to Borrower, before
Borrower enters into a binding agreement with such third party with respect to
such financing. Borrower shall have no obligation to accept any proposal made by
Lender with respect to such financing; provided that if Borrower obtains any
such financing from a lender other than Lender, any and all such lenders
providing financing secured by Instruments shall have entered into an
intercreditor agreement with Lender in form and substance satisfactory to
Lender.
8.28 All representations and warranties contained in this
Agreement are continuing and shall be deemed to be made and reaffirmed prior to
the making of each Advance under this Agreement.
8.29 The representations, warranties and covenants contained in
this Agreement shall be applicable to and binding upon Borrower during the Term
hereof, notwithstanding the fact that no Advances have yet been made hereunder.
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ARTICLE IX
----------
DEFAULT
-------
9.1 The occurrence of any of the following events or conditions
shall constitute an Event of Default by Borrower under the Documents:
(a) Lender fails to receive from Borrower when due and
payable any amount which Borrower is obligated to pay on the Note or any
other payment due under the Documents; and such failure shall continue for
seven (7) days, except for the payment of the final installment due at the
Maturity Date, for which no grace period is allowed;
(b) any material representation or warranty of Borrower
contained in the documents or in any certificate furnished under the
Documents proves to be, in any material respect, false or misleading as of
the date deemed made;
(c) there is a default in the Performance of the
Obligations set forth in paragraphs 8.8, 8.9 or 8.13 hereof or Borrower
knowingly violates or suffers or permits the violation of any of the
warranties or conditions of the policies of insurance required under
paragraph 8.9;
(d) there is a default in the Performance of the
Obligations or a violation of any term, covenant or provision of the
Documents (other than a default or violation referred to elsewhere in this
paragraph 9.1) and such default or violation continues unremedied (i) for a
period of five days after the giving of notice thereof to Borrower in the
case of a default or violation which can be cured by the payment of money
alone or (ii) in the case of any other default or violation, for a period
of (A) thirty (30) days after the giving of notice to Borrower, or (B) (in
the event such default is not capable of being cured within such thirty
(30) day period) for a period not exceeding sixty (60) days after the
giving of such notice provided Borrower is diligently and in good faith
pursuing such cure;
(e) an "Event of Default," as defined elsewhere herein or
in any of the other Documents, occurs, or an act or event occurs under any
of the Documents, which is not cured within applicable notice or grace
periods, whether or not denominated as an Event of Default, which expressly
entitles Lender to accelerate any of the Obligations or exercise its other
remedies upon the occurrence of an Event of Default hereunder;
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(f) any material default by Borrower under any other agreement
evidencing, guaranteeing, or securing borrowed money or a receivables
purchase financing has occurred and there has been an acceleration of such
indebtedness or repurchase obligations, which accelerated repayment or
repurchase obligations are in excess of $100,000 in the aggregate;
(g) any final, non-appealable judgment or decree for money
damages or for a fine or penalty against Borrower which is not paid and
discharged or stayed within 30 days thereafter and when aggregated with all
other judgment(s) or decree(s) that have remained unpaid and undischarged
or not stayed for such period is in excess of $100,000;
(h) any party holding a lien or security interest in the
Receivables Collateral, or any other security for the Performance of the
Obligations or a lien on any common areas or other amenities in the Project
commences foreclosure or similar sale thereof;
(i) (i) Borrower or any Guarantor becomes insolvent or unable
to pay its debts when due; generally fails to pay its debts when due; files
a petition in any bankruptcy, reorganization, winding-up or liquidation
proceeding or other proceeding analogous in purpose or effect relating to
such entity; applies for or consents to the appointment of a receiver,
trustee or other custodian for the bankruptcy, reorganization, winding-up
or liquidation of such entity; makes an assignment for the benefit of
creditors; or admits in writing that it is unable to pay its debts; (ii)
any court order or judgment is entered confirming the bankruptcy or
insolvency of Borrower or any Guarantor or approving any reorganization,
winding-up or liquidation of such entity or a substantial portion of its
assets; (iii) there is instituted against Borrower or any Guarantor any
bankruptcy, reorganization, winding-up or liquidation proceeding or other
proceeding analogous in purpose or effect and the same is not dismissed
within 90 days after the institution thereof; or (iv) a receiver, trustee
or other custodian is appointed for any part of the Receivables Collateral
or the Project or all or a substantial portion of the assets of Borrower or
any Guarantor;
(j) Performance by Borrower or any Guarantor of any material
obligation under any Document or Guarantee, as the case may be, is rendered
unenforceable in any material respect, or any Guarantor repudiates,
rescinds, limits or annuls its Guarantee; or
(k) An Event of Default, as defined in the Construction Loan
Agreement, occurs, or an act or event occurs under any of the Construction
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Loan Documents, whether or not denominated as an Event of Default, which
expressly entitles the Lender to exercise its remedies.
9.2 At any time after an Event of Default has occurred and while it is
continuing, Lender shall have the right to do any one or more of the following:
(a) cease to make further Advances;
(b) declare each of the Receivables Note and Working Capital
Note, together with prepayment premiums and all other sums owing by
Borrower to Lender in connection with the Documents, immediately due and
payable without notice, presentment, demand or protest, which are hereby
waived by Borrower;
(c) with respect to the Receivables Collateral, (i) institute
collection actions against all Persons obligated thereon and in default
thereunder; (ii) enter into modification agreements and make extension
agreements with respect to payments and other performances; (iii) release
Persons liable for the payment and performance thereof or the securities
for such payment and performance; and (iv) settle and compromise disputes
with respect to payments and performances claimed due thereon, all without
notice to Borrower, without being called to account therefor by Borrower
and without relieving Borrower from Performance of the Obligations;
(d) in the event Lender has previously agreed that Borrower may
act as Servicing Agent, remove Borrower as Servicing Agent and substitute
as Servicing Agent such other Person as Lender shall designate; and
(e) proceed to protect and enforce its rights and remedies
under this Agreement, the Construction Loan Documents or any other
documents and to foreclose or otherwise realize upon its security for the
Performance of the Obligations, or to exercise any other rights and
remedies available to it at law, in equity or by statute.
The rights and powers granted pursuant to this paragraph are not
intended to limit the rights and powers granted elsewhere herein.
9.3 Notwithstanding anything in the Documents to the contrary, while
an Event of Default exists, any cash received and retained by Lender in
connection with the Receivables Collateral may be applied to payment of the
Obligations in the manner provided in paragraph 9.5 hereof.
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9.4 (a) Pursuant to its rights under paragraph 9.2 hereof, following
an Event of Default, and subject to the terms and conditions hereof, Lender
may sell, assign and deliver the Receivables Collateral, or any part
thereof, at public or private sale, conducted in a commercially reasonable
manner by an officer, or agent of, or auctioneer or attorney for, Lender at
Lender's place of business or elsewhere, for cash, upon credit or future
delivery, and at such price or prices as Lender shall reasonably determine,
and Lender may be the purchaser of any or all of the Receivables Collateral
so sold. Lender may, in its reasonable discretion, at any such sale,
restrict the prospective bidders or purchasers as to number, nature of
business and investment intention, and, without limitation, may require
that the persons making such purchases represent and agree to the
satisfaction of Lender that they are purchasing the Receivables Collateral
for their account, for investment, and not with a view to the distribution
or resale of any thereof. Lender shall have no obligation to delay sale of
any Receivables Collateral for the period of time necessary to permit such
Receivables Collateral to be registered for public sale under the
Securities Act of 1933, as amended, and any applicable state securities
laws. Private sales made without registration shall not be deemed to have
been made in a commercially unreasonable manner by virtue of any terms less
favorable to the seller resulting from the private nature of such sales.
(b) Without prejudice to the right of Lender to make such sale
within such shorter period as may be reasonable under the circumstances,
foreclosure sale of all or any part of the Receivables Collateral shall be
deemed held pursuant to reasonable notice if held:
(i) 45 days after notice is given, based upon default
consisting of insolvency, bankruptcy or other default of a nature
which cannot be corrected by Borrower, or default for which no grace
period is specified herein; or
(ii) 60 days after notice of any other act, circumstance or
event which, if uncorrected, after expiration of any applicable grace
period, shall constitute a default hereunder.
Where any notice to Borrower and grace period thereafter is required under
this Agreement, such grace period shall be deducted from the 60 day notice
of foreclosure sale specified in item (ii) above, so that the maximum
period between notice to Borrower of any act, circumstance or event which,
if uncorrected after elapse of any applicable grace period, would
constitute an Event of Default and the foreclosure sale of the Receivables
Collateral based upon such Event of Default shall in no event be required
to exceed 60 days.
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(c) At any sale following an Event of Default, the Receivables
Collateral may be sold as an entirety or in partial interests. Lender shall
not be obligated to make any sale pursuant to any notice previously given.
In case of any sale of all or any part of the Receivables Collateral on
credit or for future delivery, the Receivables Collateral so sold may be
retained by Lender until the selling price is paid by the purchaser
thereof, but Lender shall not incur any liability in case of the failure of
such purchaser to take up and pay for the collateral so sold; and in case
of any such failure, such Receivables Collateral may again be sold under
and pursuant to and in compliance with the provisions hereof.
(d) In connection with sales made following an Event of Default,
Lender may, in the name and stead of Borrower or in its own name, make and
execute all conveyances, assignments and transfers of the Receivables
Collateral sold pursuant to this Agreement; and Lender is hereby appointed
Borrower's attorney-in-fact for this purpose. Nevertheless, Borrower will,
if so requested by Lender, ratify and confirm any sale or sales by
executing and delivering to Lender, or to such purchaser or purchasers, all
such instruments as may, in the judgment of Lender, be advisable for that
purpose.
(e) The receipt by Lender of the purchase money paid at any
sale made following an Event of Default shall be a sufficient discharge
therefor to any purchaser of the Receivables Collateral or any portion
thereof, and no such purchaser, after paying such purchase money and
receiving such receipt, shall be bound to see to the application of such
purchase money or any part thereof or in any manner whatsoever be
answerable for any loss, misapplication or nonapplication of any such
purchase money, or any part thereof, or be bound to inquire as to the
authorization, necessity, expediency or regularity of any such sale.
(f) Each purchaser at any sale following an Event of Default
shall hold the Receivables Collateral so sold absolutely free from every
claim or right of Borrower, including, without limitation, any equity or
right of redemption of Borrower, which Borrower hereby specifically waives
to the extent Borrower may lawfully do so. Lender, its employees and agents
shall after such sale be fully discharged from any liability or
responsibility in any matter relating to the Receivables Collateral and
such other security that is sold and resulting from any action or inaction
on the part of such purchaser or any successor-in-interest of such
purchaser.
9.5 The proceeds of any sale of all or any part of the Receivables
Collateral shall be applied in the following order or priorities: first, to the
payment of all reasonable costs and expenses of such sale, including, without
limitation,
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reasonable compensation to Lender and its agents, attorneys' fees, and all other
reasonable expenses, liabilities and advances incurred or made by Lender, its
agents and attorneys, in connection with such sale, and any other unreimbursed
expenses for which Lender may be reimbursed pursuant to the Documents; second,
to the payment of the Obligations, in such order and manner as Lender shall in
its discretion determine, with no amounts applied to payment of principal until
all interest has been paid; and third, to the payment to Borrower, its
successors or assigns, or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.
9.6 Lender may, at its option, and without any obligation to do so,
pay, perform and discharge any and all amounts, costs, expenses and liabilities
herein agreed to be paid or performed by Borrower if Borrower fails to do so
within 7 days following the giving of written notice of such failure; and for
such purposes Lender may use the proceeds of the Receivables Collateral and is
hereby appointed Borrower's attorney-in-fact. All amounts expended by Lender in
so doing or in exercising its remedies hereunder following an Event of Default
shall become part of the Obligations secured hereby, shall be immediately due
and payable by Borrower to Lender upon demand therefor, and shall bear interest
at the Overdue Rate from the dates of such expenditures until paid. Exercise by
Lender of its option under this paragraph will not cure any default of Borrower.
9.7 No remedy herein or in any other Document conferred on or reserved
to Lender is intended to be exclusive of any other remedy or remedies, but each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder, under any other Document or now or hereafter
existing at law or in equity. Notwithstanding anything herein to the contrary,
in any non-judicial, public or private sale or sales under the Uniform
Commercial Code or in any judicial foreclosure and sale of the Receivables
Collateral, the Receivables Collateral may be sold in any manner whatsoever not
prohibited by law. No delay or omission to exercise any right or power shall be
construed to be a waiver of any default or acquiescence therein or a waiver of
any right or power; and every such right and power may be exercised from time to
time and as often as may be deemed expedient. Lender's acceptance of any
performance due hereunder which does not comply strictly with the terms hereof
shall not be deemed to be a waiver of any right of Lender to strict Performance
by Borrower. Acceptance of past due amounts or partial payments shall not
constitute a waiver of full and timely payment of the Obligations. No Event of
Default, declaration of the unpaid principal of the Loan to be immediately due
and payable or exercise of any other right to remedy upon default shall stay,
waive, or otherwise affect Lender's right to receive payments on and other
proceeds of the Receivables Collateral.
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9.8 Borrower, for itself and for all who may claim through or under
it, hereby expressly waives and releases all right to have the Receivables
Collateral or any other security for the Performance of the Obligations, or any
part thereof, marshalled on any foreclosure, sale or other enforcement hereof.
9.9 While an Event of Default exists, Borrower shall, on the request
of Lender, assemble the Receivables Collateral not already in Lender's
possession and make it available to Lender at a time and place reasonably
convenient to Lender.
9.10 In the event that Borrower at any time fails to do or perform any
act, or pay any amount, or take any action, when such performance, payment or
action is required hereunder (and, if applicable, following the lapse of any
grace or compliance period in which such payment, performance or action may be
taken by Borrower hereunder), then Lender may make such payment or cause such
performance or action to be taken, and all amounts expended by Lender in making
such payment or causing such performance or action to be taken, together with
all expenses incurred by Lender in connection therewith shall be immediately due
and payable by Borrower to Lender, the payment performance of which shall be an
Obligation hereunder, and shall be secured by the Receivables Collateral. All
such amounts expended by Lender in making such payment or causing such
performance or action to be taken, together with all expenses incurred by Lender
in connection therewith, shall bear interest at the Overdue Rate from the date
incurred by Lender until paid.
ARTICLE X
---------
POWER OF ATTORNEY.
------------------
For the purpose of enabling Lender to protect and preserve its
Security Interest in the Receivables Collateral and its rights and remedies
under this Agreement and the Documents, Borrower does hereby constitute and
appoint Lender, and its successors and assigns, to be Borrower's true and lawful
attorney-in-fact upon the occurrence of an Event of Default, and during the
continuance thereof, to perform any act, take any action, execute and sign any
document, statement, instrument or other writing, and to do and perform any and
all deeds and things in the name, place, and stead of Borrower, which Lender in
its discretion shall determine necessary or required to protect and preserve its
Security Interest in the Receivables Collateral and its rights and remedies
under this Agreement and the Documents, or which Borrower is required or
obligated to perform under the terms of this Agreement or the Documents.
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ARTICLE XI
----------
CONSTRUCTION AND GENERAL RULES
------------------------------
11.1 All moneys payable hereunder or under the Documents shall be paid
to Lender at its address set forth below.
11.2 This Agreement and the other Documents exclusively and completely
state the rights and obligations of Lender and Borrower with respect to the
Loan. No modification, termination, variation, discharge or abandonment hereof
and no waiver of any of the provisions or conditions shall be valid unless in
writing and signed by duly authorized representatives of Lender and Borrower or
the successor, transfers or assigns of either, subject, however, to the
limitations on assignment herein by Borrower. This Agreement supersedes any and
all prior agreements or understandings, written or oral, between Borrower and
Lender (other than in the other Documents) concerning this transaction.
11.3 The powers and agency hereby granted by Borrower are coupled with
an interest and are irrevocable and are granted as cumulative to the remedies
for collection of the indebtedness secured hereby provided by law.
11.4 This Agreement may be executed simultaneously in any number of
identical copies each of which shall constitute an original for all purposes.
11.5 Any notice required or permitted to be given hereunder shall be
in writing and shall be (i) personally delivered to the party being notified if
an individual or to an officer or general partner if a corporation or
partnership, or (ii) transmitted by postage prepaid, certified or registered
mail (return receipt requested) to such party at its address after its signature
on the signature page hereof or such other address as the party being notified
may have otherwise designated in a notice given as provided in this paragraph.
Such notice shall be deemed to be given and effective, unless actual receipt is
expressly elsewhere specified herein, upon the date of receipt or the date
delivery is first attempted and refused if transmitted by registered or
certified mail, whichever shall first occur. A copy of any notices given to
Borrower shall also be given to:
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Leo Rose III, Esq.
Schreeder, Wheeler & Flint
The Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
and
Rick S. Kirkbride, Esq.
Stroock & Stroock & Lavan
2029 Century Park East, Suite 1800
Los Angeles, California 90067
11.6 All the covenants, promises, stipulations and agreements of
Borrower and all the rights and remedies of the Lender in this Agreement
contained shall bind Borrower, and, subject to the restrictions on merger,
consolidation and assignment herein contained, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights herein in whole or in part.
Except as may be expressly provided herein, no person or other entity shall be
deemed a third party beneficiary of this Agreement.
11.7 Subject to the provisions of Article IX hereof, if any one or
more of the provisions contained in this Agreement shall be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
11.8 Time is of the essence in the Performance of the Obligations.
11.9 All headings are inserted for convenience only and shall not
affect any construction or interpretation of this Agreement. The provisions of
this Agreement shall apply to the parties according to the context hereof and
without regard to the number or gender of words and expressions used herein.
Unless otherwise indicated, all references herein to clauses and other
subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of this Agreement; the words "herein", "hereof", "hereto",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular paragraph, clause or other subdivision hereof; and
reference to a numbered or lettered subdivision of an Article, or paragraph
shall include relevant matter within the Article or paragraph which is
applicable to but not within such numbered or lettered subdivision.
-47-
<PAGE>
11.10 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF ARIZONA. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THE
DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY
DIVISION, OR THE UNITED STATES DISTRICT COURT OF ARIZONA OR, IF LENDER INITIATES
SUCH ACTION, IN ADDITION TO THE FOREGOING COURTS, ANY COURT IN WHICH LENDER
SHALL INITIATE SUCH ACTION, TO THE EXTENT SUCH COURT HAS JURISDICTION. BORROWER
HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS
ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THIS
AGREEMENT. BORROWER WAIVES ANY CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF
ARIZONA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.
SHOULD BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY
LAW AFTER THE MAILING THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED
FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM
FOR BORROWER SET FORTH IN THIS PARAGRAPH SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT, BY LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING
BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY
SUCH JUDGMENT OR ACTION. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE DOCUMENTS OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED THEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX
ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY
SUCH CONTROVERSY SHALL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.
-48-
<PAGE>
11.11 It is the intent of the parties hereto to comply with the
Applicable Usury Law. Accordingly, notwithstanding any provisions to the
contrary in this Agreement or in any of the other Documents in no event shall
this Agreement or the Documents require the payment or permit the collection of
interest in excess of the maximum contract rate permitted by the Applicable
Usury Law. If (i) any such excess of interest otherwise would be contracted for,
charged or received from Borrower or otherwise in connection with the
Obligations or (ii) the maturity of the Obligations is accelerated in whole or
in part, or (iii) all or part of the principal or interest of the Obligations
shall be prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received in connection with the Obligations would
exceed the maximum contract rate permitted by the Applicable Usury Law, then in
any such event (A) the provisions of this paragraph shall govern and control,
(B) neither Borrower nor any other person or entity now or hereafter liable for
the payment hereof will be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum contract rate permitted by the
Applicable Usury Law, (C) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal amount of the
Obligations of Borrower or refunded to Borrower, at Lender's option, and (D) the
effective rate of interest will be automatically reduced to the maximum contract
rate permitted by the Applicable Usury Law. Without limiting the generality of
the foregoing, to the extent permitted by the Applicable Usury Law: (x) all
calculations of the rate of interest which are made for the purpose of
determining whether such rate would exceed the maximum contract rate permitted
by the Applicable Usury Law shall be made by amortizing, prorating, allocating
and spreading during the period of the full stated term of the Obligations, all
interest at any time contracted for, charged or received from Borrower or
otherwise in connection with the Obligations; and (y) in the event that the
effective rate of interest on the Obligations should at any time exceed the
maximum contract rate permitted by the Applicable Usury Law, such excess
interest that would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law shall be paid to Lender from time to time,
if and when the effective interest rate on the Obligations otherwise falls below
the maximum contract rate permitted by the Applicable Usury Law, to the extent
that interest paid to the date of calculation does not exceed the maximum
contract rate permitted by the Applicable Usury Law, until the entire amount of
interest which would have otherwise been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all the Obligations
regardless of when incurred; but, again to the extent not prohibited by the
Applicable Usury Law, should the maximum contract rate permitted by the
Applicable Usury Law be decreased because of a change in the law, such decreases
shall not apply to the Obligations regardless if resulting from an advance of
the Loan made after the effective date of such decrease.
-49-
<PAGE>
ARTICLE XII
-----------
SPECIAL PROVISIONS
------------------
12.1 Lender covenants and agrees that, notwithstanding anything to the
contrary herein or in any other Document, during the Term hereof it shall take
no action to disturb Purchasers in their use and possession of their Time-Share
Interests or otherwise to impair the rights and privileges of such Purchasers
under their Time-Share Interests or the governing documents of the Project so
long as such Purchasers are fulfilling their obligations under their respective
Instruments.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by Persons duly authorized on the day and year first above written.
"Lender"
GREYHOUND FINANCIAL
CORPORATION, a Delaware corporation
BY /S/ ^^^
-----------------------------------
Vice President
[CORPORATE SEAL]
Address:
Dial Corporate Center
Dial Tower
Phoenix, Arizona 85077
Attention: Vice-President-Law
-50-
<PAGE>
With a copy to:
Dial Corporate Center
Dial Tower
Phoenix, Arizona 85077
Attention: Vice President - Operations
Management
"Borrower"
PORT ROYAL RESORT, L.P.,
a South Carolina limited partnership
By: Argosy/KGI Port Royal Partners,
a South Carolina general partnership
Title: General Partner
By: KGI Port Royal, Inc.,
a South Carolina corporation
Title: Managing General Partner
By: /s/ Steven C. Kenninger
-------------------------------
Name: Steven C. Kenninger
Title: President
[CORPORATE SEAL]
Address:
c/o Argosy/KGI Port Royal Partners
911 Wilshire Boulevard
Suite 2150
Los Angeles, California 90017
-51-
<PAGE>
FIRST AMENDMENT TO LOAN
-----------------------
AND SECURITY AGREEMENT
----------------------
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT ("First
Amendment") is made and entered into as of the 26th day of April, 1995, by and
between PORT ROYAL RESORT, L.P., a South Carolina limited partnership
("Borrower") and FINOVA CAPITAL CORPORATION, a Delaware corporation, formerly
known as Greyhound Financial Corporation, ("Lender").
WITNESSETH:
WHEREAS, as of October 7, 1993, Borrower and Lender entered into that
Loan and Security Agreement (the "Original Agreement") pursuant to which Lender
agreed to make certain revolving loans to Borrower for the purposes set forth
therein; and
WHEREAS, Borrower and Lender have agreed to amend the Original
Agreement, pursuant to the terms and provisions of this First Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions. Except as specifically set forth in and/or modified
-----------
by this First Amendment, all capitalized terms set forth herein shall have the
same meanings as set forth in the Original Agreement. The following capitalized
terms, however, shall have the meanings set forth below, notwithstanding any
contrary definitions contained in the Original Agreement.
1.1 "Borrowing Term (Receivables Loan)" shall mean the period of
time during which Lender is committed to make Receivables Advances under
the Receivables Loan Agreement, which commitment shall terminate on May 5,
1997.
1.2 "Borrowing Term (Working Capital Loan)" shall mean the period
of time during which Lender is committed to make Working Capital Advances
under the Receivables Loan Agreement, which commitment shall terminate on
January 5, 1997.
<PAGE>
1.3 "Construction Loan Agreement" shall mean that certain
Construction Loan Agreement dated as of October 7, 1993, between Borrower
and Lender, as modified and amended pursuant to that First Amendment to
Construction Loan Agreement dated of even date herewith, pursuant to which
Lender agreed, subject to the terms and provisions thereof, to make (i) a
$2,425,000.00 construction loan, the proceeds of which were used to
construct Phase I and Phase II; and (ii) a $2,100,000.00 construction loan,
the proceeds of which are to be used to construct Phase III and Phase IV.
1.4 "Construction Mortgage" shall mean, collectively, that
certain Mortgage, Assignment of Rents and Proceeds and Security Agreement
dated as of October 7, 1993, delivered by Borrower pursuant to the
Construction Loan Agreement, as amended by that certain First Amendment to
Mortgage, Assignment of Rents and Proceeds and Security Agreement dated of
even date herewith between Borrower and Lender.
1.5 "GPSI" shall mean FINOVA Portfolio Services, Inc., an Arizona
corporation, its successors and assigns, formerly known as GFC Portfolio
Services, Inc.
1.6 "Instrument" shall mean a promissory note which has arisen
out of the sale of a Time-Share Interest in Phase I, Phase II, Phase III,
or Phase IV by Borrower to a purchaser, which note is secured by a
Purchaser Mortgage.
1.7 "Maturity Date" shall mean that date which shall occur ten
(10) years after the date on which the last Receivables Advance is made
under the terms of the Original Agreement, as modified by the First
Amendment.
1.8 "Maximum Loan Amount" shall mean the lesser of (i) Fifteen
Million Dollars ($15,000,000.00) or (ii) the amount remaining when
Seventeen Million Five Hundred Thousand Dollars ($17,500,000.00) is reduced
by the principal amount then outstanding under each of the Working Capital
Loan and the Construction Loan.
1.9 "Maximum Working Capital Loan Amount" shall mean the lesser
of (i) Three Million ($3,000,000.00) or (ii) the amount remaining when
Seventeen Million Five Hundred Thousand Dollars ($17,500,000.00) is reduced
by the principal amount then outstanding under each of the Receivables Loan
and the Construction Loan.
-2-
<PAGE>
1.10 "Opening Prepayment Date" shall mean the date which occurs
twenty-four (24) months after the date on which the last Receivables
Advance is made under the terms of the Original Agreement as amended by the
First Amendment.
1.11 "Phase III" shall mean the 16 Units and related amenities to
be constructed on the Project following completion of Phase II.
1.12 "Phase IV" shall mean the 16 Units and related amenities,
together with the picnic/play area and sand volleyball court, to be
constructed on the Project following completion of Phase III.
1.13 "Prevailing Discount Rate" shall mean Lender's prevailing
discount rate at the time each Advance is made, which rate shall be Prime
Rate plus 2% per annum, but in no event less than 12.5% per annum.
1.14 "Project" shall mean the time-share condominium project
known as Royal Dunes Beach Villas at Port Royal Resort, constructed and to
be constructed by Borrower in Beaufort County, South Carolina, comprised of
the 56 time-share units in Phase I, Phase II, Phase III, and Phase IV.
1.15 "Receivables Loan Agreement" shall mean, collectively, the
Original Agreement and the First Amendment.
1.16 "Receivables Note" shall mean the Receivables Note defined
in the Original Agreement, as modified and amended pursuant to that First
Allonge to Receivables Promissory Note of even date herewith, executed by
Borrower and Lender.
1.17 "Working Capital Note" shall mean the Working Capital Note
defined in the Original Agreement, as modified and amended pursuant to that
First Allonge to Working Capital Promissory Note of even date herewith
executed by Borrower and Lender.
2. Prepayment. The Loan may be prepaid as provided in the Original
----------
Agreement; provided however that for purposes of determining when and under what
-------- -------
circumstances a prepayment may occur, the elapsed time of the term of the Loan
shall be measured from the date on which the last Receivables Advance is made
under the terms of the Original Agreement, as amended by this First Amendment.
The foregoing notwithstanding, the provisions of Section 7.3 of the Original
Agreement shall be modified to provide for the following premium for prepayment
in the event the Receivables Loan is prepaid at any time after the sixth
anniversary date of the last
-3-
<PAGE>
Receivables Advance made under the Original Agreement as amended by the First
Amendment:
<TABLE>
<CAPTION>
Period Premium
------ -------
<S> <C>
After the Sixth Anniversary Date and 1%
through the Seventh Anniversary Date of
the last Receivables Advance
Thereafter 0%
</TABLE>
3. LIMITATION ON RECEIVABLES ADVANCES. The provisions of Section
----------------------------------
3.1 (v) of the Original Agreement shall be amended and restated in its entirety
to read as follows:
At no time during the Term shall the unpaid principal balance of the
Receivables Loan, together with the unpaid principal balance of the
Construction Loan and Working Capital Loan, exceed a total amount
equal to Seventeen Million Five Hundred Thousand Dollars
($17,500,000.00), and Lender shall have no obligation to make any
Receivables Advance if such Receivables Advance would cause the
foregoing limitation to be exceeded.
4. LIMITATION ON WORKING CAPITAL ADVANCES. The provisions of
--------------------------------------
Section 3.2 (vi) of the Original Agreement shall be amended and restated in its
entirety to read as follows:
At no time during the Term shall the unpaid principal balance of the
Working Capital Loan, together with the unpaid principal balance of
the Construction Loan and Receivables Loan, exceed a total amount
equal to Seventeen Million Five Hundred Thousand Dollars
($17,500,000.00), and Lender shall have no obligation to make any
Working Capital Advance if such Working Capital Advance would cause
the foregoing limitation to be exceeded.
5. ORDER OF WORKING CAPITAL ADVANCES. Section 3.2(ii) of the
---------------------------------
Original Agreement shall be amended with the addition of the following language:
-4-
<PAGE>
Under no circumstances shall Borrower have the right to obtain a
Working Capital Advance against Eligible Instruments arising from
Phase III until all Working Capital Advances made against Eligible
Instruments arising from each of Phase I and Phase II have been paid
in full, including all accrued interest thereon. At such time as
Borrower has received a Working Capital Advance against Eligible
Instruments arising from Phase III, Borrower shall have no further
right to obtain any Working Capital Advances against Eligible
Instruments arising from Phase I or Phase II. Furthermore, under no
circumstances shall Borrower have the right to obtain a Working
Capital Advance against Eligible Instruments arising from Phase IV
until all Working Capital Advances made against Eligible Instruments
arising from each of Phase I, Phase II and Phase III have been paid in
full, including all accrued interest thereon. At such time as Borrower
has received a Working Capital Advance against Eligible Instruments
arising from Phase IV, Borrower shall have no further right to obtain
any Working Capital Advances against Eligible Instruments arising from
Phase I, Phase II or Phase III.
6. ADDITIONAL UNITS. SECTION 8.23 of the Original Agreement shall
----------------
be amended in its entirety to read as follows:
8.23 Borrower shall not, without Lender's prior written consent: (i)
construct additional condominium or time-share units within or
adjacent to the Project (other than the 56 time-share units in Phase
I, Phase II, Phase III and Phase IV) until such time as at least 95%
of the Time-Share Interests contained within each of Phase I and Phase
II and at least 40% of the Time-Share Interests contained within each
of Phase III and Phase IV, have been sold, in bona fide transactions,
to parties who are not Affiliates of Borrower or Guarantor; or (ii)
sell any time-share intervals from such additional condominium or
time-share units until at least 95% of the Time-Share Interests
contained within each of Phase I and II and at least 75% of the
Time-Share Interests contained within each of Phase III and Phase
IV, have been sold, in bona fide transactions, to parties who are
not Affiliates of Borrower or Guarantor.
-5-
<PAGE>
7. NOTICES. SECTION 11.5 of the Original Agreement shall be amended
-------
to provide that all notices sent to Lender shall be sent to Lender at the
following address:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn: Vice President - Group Counsel
With a copy to:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn: Vice President - Operations Management
8. DOCUMENT REFERENCE. All references to the "Loan Agreement" in
------------------
the Documents and to "this Agreement", "herein", "hereof", "hereto", and
"hereunder" in the Original Agreement are hereby amended to refer to the
Original Agreement as amended by this First Amendment.
9. FEES AND EXPENSES. In addition to the fees and expenses that
-----------------
have been paid or are payable by Borrower pursuant to the Original Agreement,
Borrower shall pay to Lender (i) a loan fee (the "Working Capital Loan Fee") in
the amount of $30,000.00, which fee was earned by Lender in consideration of
Lender holding itself ready, willing and able to amend the Original Agreement
upon the terms and conditions set forth herein and (ii) a loan fee (the
"Receivables Loan Fee") in the amount of $50,000.00, which fee shall be earned
by Lender under the circumstances set forth below. The payment of the Working
Capital Loan Fee and the Receivables Loan Fee is in addition to Borrower's
obligation to pay a loan fee to Lender in consideration for the Lender's
commitment to modify and amend the Construction Loan Agreement and in addition
to all other fees and expenses required to be paid by Borrower pursuant to the
First Amendment to Construction Loan Agreement of even date herewith. Fifteen
Thousand Dollars ($15,000.00) of the Working Capital Loan Fee shall be due and
payable on the earlier of May 31, 1995 or concurrently with the making of the
first Working Capital Advance after the date of this First Amendment. The
remaining Fifteen Thousand Dollars ($15,000.00) of the Working Capital Loan Fee
shall be due and payable on the earlier of July 31, 1995 or concurrently with
the making of the second Working Capital Advance after the date of this First
Amendment. Twenty-Five Thousand Dollars ($25,000.00) of the Receivables Loan Fee
shall be due and payable concurrently with the making of the Receivables Advance
which causes the unpaid principal balance of the Receivables Loan to exceed
-6-
<PAGE>
Ten Million Dollars ($10,000,000.00) and shall be deemed earned by Lender at
that time, in consideration for Lender's agreement to make such Advance. The
remaining Twenty-Five Thousand Dollars ($25,000.00) of the Receivables Loan Fee
shall be due and payable concurrently with the making of the Receivables Advance
which causes the unpaid principal balance of the Receivables Loan to exceed
Twelve Million Five Hundred Thousand Dollars ($12,500,000.00) and shall be
deemed earned by Lender at that time, in consideration for Lender's agreement to
make such Advance. Furthermore, Borrower shall pay, on demand, all costs and
expenses arising from the preparation of this First Amendment and the closing of
the amendment to the Construction Loan Documents, or otherwise incurred by
Lender in connection with this First Amendment, including, but not limited to,
title insurance premiums, other title company charges, recording fees, all
charges for consumer credit and Bishop's reports, and U.C.C., tax lien, judgment
and litigation searches, Lender's attorneys' fees and costs, appraisal fees, if
any, survey costs, if any, inspection costs and fees, both during construction
or otherwise, escrow disbursement expenses, any revenue and/or documentary
stamps, intangible or recording taxes, out-of-pocket travel expenses incurred by
Lender or its agents and employees, brokerage commissions, all fees and expenses
of the Servicing Agent and Collection Agent in connection with this First
Amendment, and any other costs, expenses or charges that may be imposed on or
incurred by Lender as a result of this Amendment. Borrower shall indemnify and
hold Lender harmless from any and all liability for payment of any brokerage
fees. Lender shall have the right to withhold from any Advance made hereunder,
any costs, fees, expenses or reimbursements due and owing to Lender .
10. INCENTIVE FEE.
--------------
(i) As additional consideration to Lender, Borrower shall pay
to Lender an incentive fee (the "Phase III Incentive Fee") equal to Thirty
Two Thousand Six Hundred Forty Dollars ($32,640.00) with respect to the
Time-Share Interests sold by Borrower in Phase III ("Phase III Intervals").
The Phase III Incentive Fee shall be paid in installments equal to $500.00
per Phase III Interval, plus related reasonable fees and expenses (all as
set forth in the Construction Mortgage), commencing with the first sale of
a Phase III Interval occurring after payment in full of all Phase III
Advances (as defined in the Construction Loan Agreement) and continuing
until the entire Phase III Incentive Fee is paid in full. The foregoing
notwithstanding, any unpaid portion of the Phase III Incentive Fee shall be
due and payable on the Phase III Maturity Date (as defined in the
Construction Loan Agreement).
(ii) As additional consideration to Lender, Borrower shall pay to
Lender an incentive fee (the "Phase IV Incentive Fee") equal to Thirty Two
Thousand Six Hundred Forty Dollars ($32,640.00) with respect to the Time-
Share Interests sold by Borrower in Phase IV ("Phase IV Intervals"). The
-7-
<PAGE>
Phase IV Incentive Fee shall be paid in installments equal to $500.00 per
Phase IV Interval, plus related reasonable fees and expenses (all as set
forth in the Construction Mortgage), commencing with the first sale of a
Phase IV Interval occurring after payment in full of the Construction Loan
and continuing until the entire Phase IV Incentive Fee is paid in full. The
foregoing notwithstanding, any unpaid portion of the Phase IV Incentive Fee
shall be due and payable on the Phase IV Maturity Date (as defined in the
Construction Loan Agreement).
(iii) Nothing contained herein shall modify, amend or limit the
incentive fee payable by Borrower pursuant to SECTION 8.25 of the Original
Agreement; provided however that the incentive fee payable pursuant to
-------- ------- ----
SECTION 8.25 of the Original Agreement shall pertain only to Phase I and
Phase II; and further provided that as provided in Section 13 hereof,
------- -------- ----
payment in full of the remaining unpaid balance of the incentive fee as
pertaining to Phase I and Phase II shall be a condition precedent to
Lender's obligations under this First Amendment.
11. CONFIRMATION OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
----------------------------------------------------------
Borrower hereby reaffirms, as if made as of the date hereof, all of Borrower's
representations and warranties contained in the Original Agreement. Borrower
furthermore reaffirms the validity, enforceability and legality of the
Documents, and all provisions of the Documents, as modified, are hereby
confirmed and ratified. Without limiting the generality of the foregoing,
Borrower hereby reaffirms the validity and enforceability of the Security
Interest granted to Lender in the Receivables Collateral as security for
Borrower's payment and Performance of all Obligations, other than those
Obligations arising out of the Environmental Certificate with Representations,
Covenants and Warranties delivered in connection with the Construction Loan
Agreement. Borrower hereby acknowledges and agrees that the definition of
Obligations includes, without limitation, each and every obligation, duty,
covenant, undertaking and condition which Borrower is required or has agreed to
perform under the Documents and under the Construction Loan Documents, and each
and every obligation of Borrower now or hereafter owing to Lender. In the event
of a conflict or inconsistency between the provisions of the Original Agreement
and the provisions of this First Amendment, the provisions of this First
Amendment shall prevail. All terms, conditions and provisions of the Original
Agreement are continued in full force and effect and shall remain unaffected and
unchanged except as specifically amended or modified hereby. Borrower
acknowledges that as of the date hereof, it has (i) no defense, counterclaim,
offset, cross-complaint, claim or demand of any nature whatsoever which can be
asserted as a basis to seek affirmative relief or damages from Lender or as a
basis to reduce or eliminate all or any part of its liability to repay the Loan
and (ii) no other claim against Lender with respect to any aspect of the
transaction in respect to which the Loan was made.
-8-
<PAGE>
12. GUARANTOR'S RATIFICATION. As a condition precedent to the
------------------------
effectiveness of this First Amendment, Borrower shall cause the Guarantor to
execute a Ratification and Confirmation of Partnership Guarantee Agreement in
the form approved by Lender, thereby acknowledging the making of the agreements
contained herein.
13. CONDITIONS PRECEDENT. The amendments and modifications to the
--------------------
Original Agreement contained herein and Lender's obligations in this regard are
subject to the following express conditions precedent, all of which Borrower
shall satisfy on or before July 28, 1995:
13.1 The following shall be delivered to Lender all in a form,
manner and substance satisfactory to Lender:
(a) An original of this First Amendment fully executed by
the Borrower;
(b) An original of the First Allonge to Receivables
Promissory Note in a form acceptable to Lender, fully executed by
Borrower;
(c) An original of the First Allonge to Working Capital
Promissory Note in a form acceptable to Lender, fully executed by
Borrower;
(d) An original First Amendment to Mortgage, Assignment of
Rents and Proceeds and Security Agreement in a form acceptable to
Lender, fully executed by Borrower (the "First Mortgage
Modification");
(e) Ratification and Confirmation of Partnership Guarantee
Agreement in a form approved by Lender, fully executed by Guarantor;
(f) A detailed budget regarding construction of Phase III
and a preliminary budget regarding construction of Phase IV, in such
detail and containing such information as Lender shall require;
(g) An acknowledgment from each of KPI General Partnership
Hilton Head and Argosy/KGI Port Royal Partners acknowledging the
continued subordination in favor of Lender of any indebtedness owed to
them by Borrower;
-9-
<PAGE>
(h) All documents required to be executed and delivered to
Lender in connection with the amendment and modification of the
Construction Loan Agreement;
(i) Such resolutions and authorizations and such other
documents as Lender may require relating to the existence and good
standing of the Borrower and Guarantor, and the authority of any
person executing this First Amendment or any other documents on behalf
of the Borrower or Guarantor;
(j) A commitment from Chicago Title Insurance Company, the
issuer of Lender's ALTA extended coverage title insurance policy
insuring the lien of the Construction Mortgage (the "Title Policy"),
to issue an endorsement, in form satisfactory to Lender, to the Title
Policy, insuring that the Construction Mortgage, as modified pursuant
to the First Mortgage Modification, continues to be a first lien upon
the real property described therein, as security for, among other
things, the timely and faithful payment of the Phase III/IV Incentive
Fee, subject only to those exceptions contained in such title policy
and to such additional exceptions as Lender may specifically approve
in writing.
(k) Updated UCC, tax lien, litigation and judgment searches
for the following parties: (i) Borrower, (ii) Guarantor, (iii) KGI
Port Royal, Inc., (iv) Argosy Hilton Head, Inc., and (v) Royal Dunes
Beach Villas at Port Royal Resort.
(l) Evidence that Borrower has good and marketable title to
the collateral pledged to Lender, that Lender's liens and security
interest in such collateral have been duly perfected as first and
prior liens and security interests, and that there are no other
financing statements or liens filed against Borrower or on the
property of Borrower except those that are approved by Lender.
(m) Evidence that any fees due to any broker utilized by
Borrower in connection with the subject transaction have been paid,
together with evidence of the payment by Borrower of any other costs,
fees and expenses then payable in connection with the Construction
Loan and the Loan, including, without limitation, those fees, costs
and expenses described in Section 9 hereof.
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<PAGE>
(n) A satisfactory legal opinion from counsel to Borrower as
to such matters as Lender shall require.
13.2 Borrower shall have paid the remaining Incentive Fee as
respects Phase I and Phase II, in the amount of $48,960.
13.3 No Event of Default shall exist and no event or condition
shall exist which after notice or lapse of time, or both, would constitute
an Event of Default.
13.4 There shall have occurred no material adverse change in the
Real Property or in the business or financial condition of Borrower and
Guarantor since the date of the last financial statement submitted to
Lender.
13.5 Neither Borrower nor Guarantor shall have failed to disclose
to Lender any material information and no material information supplied by
Borrower or Guarantor shall be found to be misleading, misrepresented or
materially incorrect.
13.6 All representations and warranties by Borrower shall remain
true and correct, in all material respects, and all agreements the Borrower
is to have performed or complied with at such time shall have been
performed or complied with.
14. COUNTERPARTS. This First Amendment may be executed in any number
------------
of separate counterparts, each of which when taken together shall constitute one
and the same instrument notwithstanding the fact that all parties have not
signed the same counterpart.
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<PAGE>
IN WITNESS WHEREOF, these presents are executed as of the date first
indicated above.
"BORROWER"
PORT ROYAL RESORT, L.P., a South Carolina limited
partnership
By: ARGOSY/KGI PORT ROYAL PARTNERS, a South
Carolina general partnership
Its: General Partner
By: KGI PORT ROYAL, INC.,
a South Carolina corporation
Its: Managing General Partner
By: /s/ ^^???
-------------------------------
Its: President
-------------------------------
[CORPORATE SEAL]
"LENDER"
FINOVA CAPITAL CORPORATION, a
Delaware corporation
By: /s/ ^^???
-----------------------------------------
Its: Group Vice President
----------------------------------------
[CORPORATE SEAL]
-12-
<PAGE>
EXHIBIT 10.8.2
LOAN AND SECURITY AGREEMENT
BETWEEN
CYPRESS POINTE RESORTS, L.P.
AND
GREYHOUND REAL ESTATE FINANCE COMPANY
DATED AS OF DECEMBER 19, 1991
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
BY THIS LOAN AND SECURITY AGREEMENT entered into as of December
19, 1991 between GREYHOUND REAL ESTATE FINANCE COMPANY, an Arizona
corporation ("Lender"), CYPRESS POINTE RESORTS, L.P., a Delaware limited
partnership ("Borrower"), hereby confirm and agree as follows:
ARTICLE I
---------
INTRODUCTION
------------
1.1 Borrower desires to obtain a revolving line of credit from
Lender, the proceeds of which shall be used for working capital purposes.
1.2 Lender is willing to extend to Borrower a revolving line of
credit for the purposes stated in the preceding paragraph upon the terms
and conditions set forth herein.
ARTICLE II
----------
DEFINITIONS
-----------
Except where the context clearly requires a different interpretation,
all capitalized terms used in this Agreement shall have the meanings assigned to
them above, immediately below, or elsewhere herein.
2.1 "Advance" shall mean the monies or funds advanced from time
to time by Lender to Borrower in accordance with the terms and conditions
of this Agreement.
2.2 "Advance Date" shall mean each date on which an Advance is
made.
2.3 "Affiliate": any person or entity directly or indirectly
Controlling, Controlled by or under common Control with the person or
entity to whom the definition is applied, including blood relatives or
spouse of the person to whom the definition applies, if such person is a
natural person.
2.4 "Agreement" shall mean this Loan and Security Agreement, as
from time to time modified, extended, renewed, replaced or restated.
2.5 "Applicable Usury Law" shall mean the usury law applicable
pursuant to the terms of Article XI, paragraph 11.11 hereof or such other
usury law which is applicable if the law chosen by the parties is not
applicable.
<PAGE>
2.6 "Assignments" shall mean written Assignments, in such form as
Lender shall prescribe, of specific Instruments and/or Purchaser Mortgages and
the proceeds thereof delivered to Lender concurrently with each Advance under
the terms of which Borrower transfers and assigns with full recourse all of
Borrower's right, title and interest in and to the Instrument and/or Purchaser
Mortgage, free and clear of all claims, demands, liens and encumbrances of third
parties, as collateral security for the Loan.
2.7 "Borrower" shall mean Cypress Pointe Resorts, L.P., a Delaware
limited partnership.
2.8 "Borrowing Base" shall mean an amount equal to the lesser of (i)
85% of the unpaid principal balance payable under the Eligible Instruments or
(ii) 85% of the then present value assigned to the unmatured installments of
principal and interest payable under the Eligible Instruments discounted at
Lender's Prevailing Discount Rate.
2.9 "Borrowing Term" shall mean the period of time during which
Lender is committed to make Advances under this Agreement, which commitment
shall terminate on the earlier of (i) the date which occurs twelve (12) months
after the date of the first Advance or (ii) March 30, 1993.
2.10 "Business Day" shall mean a calendar day other than a Saturday,
Sunday or legal holiday.
2.11 "Collection Agent" shall mean the entity designated as Collection
Agent in the Servicing and Collection Agreement, or, should such entity cease to
act as Collection Agent under the Servicing and Collection Agreement, such other
entity as Lender may appoint.
2.12 "Construction Loan" shall mean the loan made pursuant to the
Construction Loan Agreement.
2.13 "Construction Loan Agreement" shall mean that certain
Construction Loan Agreement of even date herewith, pursuant to which Lender has
agreed, subject to the terms and provisions thereof, to make a $5,250,000
construction loan to Borrower, in a principal amount not at any time exceeding
$3,500,000, the proceeds of which are to be used to construct the Project.
2.14 "Construction Loan Documents" shall have the meaning set forth in
the Construction Loan Agreement.
2.15 "Construction Mortgage" shall mean the Mortgage, Assignment of
Rents and Proceeds and Security Agreement delivered by Borrower pursuant to the
Construction Loan Agreement.
- 2 -
<PAGE>
2.16 "Control" shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
another person or entity by any means.
2.17 "Documents" shall mean this Agreement, the Note, the Guarantee,
the Assignments, the Servicing and Collection Agreement, the Subordination
Agreement, and each and every other document, instrument or writing executed or
delivered by Borrower to Lender in connection with the Loan.
2.18 "Eligible Instruments" shall mean the Instruments, each in
substantially the form of Exhibit "A" hereto, entered into by and between
----------
Borrower and those Persons who purchase a Time-Share Interest (at least 90% of
whom shall be United States or Canadian residents), which Eligible Instruments
shall conform to the criteria and standards set forth on Exhibit "B" hereto;
-----------
provided, however, that an Instrument shall cease to be an Eligible Instrument
if (i) any installment payable thereunder becomes more than 59 days past due and
the Instrument under which such installment is payable is not replaced within
ninety (90) days following the due date of such installment or (ii) the contract
fails to continue to conform to the criteria and standards of Exhibit "B".
2.19 "Event of Default" has the meaning set forth in Article IX
hereof.
2.20 "Force Majeure" has the meaning set forth in Paragraph 9.2 of the
Construction Loan Agreement.
2.21 "Guarantee(s)" shall mean a written Guarantee & Subordination
Agreement, in such form as Lender shall prescribe, executed and delivered by a
Person (or Persons) to Lender, under the terms and conditions of which such
Person (or Persons), as Guarantor(s), shall individually and/or jointly and
severally guarantee Borrower's Performance of all of its Obligations under the
Documents and the Environmental Certificate (as defined in Article VI) and shall
agree to subordinate any indebtedness owed by Borrower to Guarantor(s) to the
Obligations owed by Borrower to Lender.
2.22 "Guarantor(s)" shall mean individually, a Person, and
collectively each and every Person, who executes and delivers to Lender a
Guarantee pursuant to the terms and conditions of this Agreement. The Guarantors
of this Loan are: Argosy Group, Inc., a Georgia corporation, and Argosy Canyon
Investments, L.P., a Delaware limited partnership.
2.23 "Impositions" shall mean any and all taxes (other than any tax
measured by net income payable by Lender to any state or political subdivision
thereof or to the U.S. under Section 11 or 1201 of the Internal Revenue Code, as
amended), in consequence of the receipt of payments provided for herein, license
fees, assessments, charges, fines, penalties, property, privilege, excise, real
estate or other taxes currently or hereafter levied or imposed by any state,
local or federal authority upon or in connection with or measured by the
Documents or the Receivables Collateral.
- 3 -
<PAGE>
2.24 "Instrument" shall mean a promissory note which has arisen out of
the sale of a Time-Share Interest by Borrower to a Purchaser, which note is
secured by a Purchaser Mortgage.
2.25 "Loan" shall mean the line of credit loan extended by Lender to
Borrower in accordance with the terms of this Agreement in a principal amount
not to exceed at any time outstanding the sum of Ten Million Dollars
($10,000,000.00).
2.26 "Lot Number 5" shall mean Lot 5, The Vinings at Cypress Pointe,
according to the plat thereof, recorded at Plat Book 23, pages 143 - 145, Public
Records of Orange County, Florida, commonly known as the Blue Tree Resort.
2.27 "Maturity Date" shall mean that date which shall occur seven (7)
years after the date on which the last Advance is made under the terms of this
Agreement.
2.28 "Maximum Loan Amount" shall mean the sum of $10,000,000.00.
2.29 "Note" shall mean the Promissory Note, in the amount of the Loan,
to be made and delivered by Borrower to Lender pursuant to Article V, paragraph
5.2 hereof in the form of Exhibit "C" hereto (with all blanks appropriately
-----------
filled in and dated as of the date the Loan is closed).
2.30 "Obligations" shall mean each and every obligation, duty,
covenant, undertaking and conditions which Borrower is required or has agreed to
perform under the Documents and under the Construction Loan Documents, and each
and every other obligation of Borrower now or hereafter owing to Lender.
2.31 "Opening Prepayment Date" shall mean the date which occurs
twenty-four (24) months after the last Advance hereunder.
2.32 "Overdue Rate" shall have the same meaning as set forth in the
Note.
2.33 "Perform, Performed or Performance" shall mean the timely,
faithful and complete payment and performance of all Obligations by Borrower.
2.34 "Permitted Encumbrances" shall mean each and every restriction,
reservation and easement of record and liens for taxes and assessments securing
amounts not yet due and payable, which individually and in the aggregate do not
render unmarketable the title to the property which they encumber, or liens
being contested in good faith by proceedings diligently contested, or any lien
against property to secure payment of all or a portion of the purchase price of
such property, and any encumbrance, lien or security interest described in
Exhibit "D" hereto.
- -----------
2.35 "Person" shall mean any adult individual, partnership,
corporation or other form of business entity whatsoever.
- 4 -
<PAGE>
2.36 "Present Value" shall mean with respect to any Eligible
Instrument the present value of the unmatured and unpaid installments of
principal and interest due thereunder, calculated using a discount rate equal to
the Prevailing Discount Rate applicable to said Eligible Instrument as provided
herein.
2.37 "Prevailing Discount Rate" shall mean Lender's prevailing
discount rate at the time each Advance is made, which rate shall be Prime Rate
plus 2% but in no event less than 13%.
2.38 "Prime Rate" shall mean the rate of interest publicly announced
from time to time by Citibank, N.A., New York, New York as its base rate of
interest charged to its most creditworthy commercial borrowers notwithstanding
the fact that some such borrowers may borrow at lower rates. The initial Prime
Rate shall be the rate in effect as of the first Business Day of the month of
the initial Advance and, subsequently, the Prime Rate shall be redetermined as
of the first Business Day of each month.
2.39 "Project" shall mean the time-share condominium project known as
Cypress Pointe Resort, to be constructed by Borrower in Orlando, Florida,
comprised of 48 timeshare units.
2.40 "Purchaser" shall mean a Person who purchases a Time-Share
Interest in the Project from Borrower.
2.41 "Purchaser Mortgage" shall mean the purchase money mortgage given
to secure an Instrument.
24.2 "Real Property" shall mean Lot 2, The Vinings at Cypress Pointe,
according to the plat thereof, recorded at Plat Book 23, pages 143-145, Public
Records of Orange County, Florida.
2.43 "Receivables Collateral" shall mean (i) all of the Instruments
which Borrower now or hereafter assigns, transfers, endorses or delivers to
Lender in consideration for an Advance made by Lender pursuant to the terms of
this Agreement and as collateral security for the Obligation; (ii) all Purchaser
Mortgages, purchase contracts, purchase agreements, guarantees and other
documents or instruments evidencing or securing the obligations of the
Purchasers and/or any other person primarily or secondarily liable on the
Instruments; (iii) all policies of insurance related to the Instruments or
delivered in connection with the Instruments; (iv) all rights under escrow
agreements relating to the Instruments and all impound and/or reserve accounts
related to the Instruments (excluding, however, any escrows set aside for
improvements to the Project); (v) all licenses, contracts, management contracts
or agreements, franchise agreements, permits, subordination or certificates now
or hereafter required or used in connection with the ownership, operation or
maintenance of the Project; (vi) all files, books and records pertaining to any
of the foregoing; and (vii) cash and non-cash proceeds from all of the
foregoing, including, without limitation, all goods, instruments. documents,
general
- 5 -
<PAGE>
intangibles, chattel paper and accounts wherever located, which have been
acquired with cash proceeds from any of the foregoing and the proceeds thereof.
2.44 "Residual Collateral" shall mean all of Borrower's right, title
and interest in and to any and all proceeds remaining following the foreclosure
or other realization by or on behalf of Lender of Lender's lien or security
interest in the Real Property and improvements thereon.
2.45 "Security Interest" shall mean a direct and exclusive first
security interest which has been perfected under the Uniform Commercial Code of
the state(s) in which any such security interest must be perfected; provided
that with respect to any portion of the Receivables Collateral not covered by
the Uniform Commercial Code, it shall mean a direct and exclusive first lien on
such property which has been perfected in the manner provided by law.
2.46 "Servicing Agent" shall mean the entity designated as Servicing
Agent in the Servicing and Collection Agreement, or, should such entity cease to
act as Servicing Agent under the Servicing and Collection Agreement, such other
entity as Lender may appoint.
2.47 "Servicing and Collection Agreement" shall mean the Servicing and
Collection Agreement, in such form as Lender shall prescribe, to be made among
Borrower, Lender, and the Servicing and Collection Agents pursuant to Article V,
paragraph 5.2 hereof, as from time to time modified, replaced or restated.
2.48 "TCR Encumbrance" shall mean that certain Mortgage and Security
Agreement bearing the date November 14, 1991 by Borrower in favor of TCR Orlando
III Limited Partnership, in the principal amount of $260,000.
2.49 "Subordination Agreement" shall mean an agreement, in such form
as Lender shall prescribe, delivered to Lender pursuant to paragraph 5.2(v)
hereof, as from time to time modified, replaced or restated.
2.50 "Term" shall mean the duration of this Agreement commencing as of
the year and day first above written and terminating on the date Borrower has
Performed all of its Obligations under the Documents.
2.51 "Time-Share Interest" shall mean the rights sold to a Purchaser
to the exclusive use of a Unit in the Project and the Project common areas for a
one (1) week period each year.
2.52 "Unit" shall mean a condominium unit in the Project as shown on
the recorded condominium plat therefor.
- 6 -
<PAGE>
ARTICLE III
-----------
THE LOAN
--------
3.1 Lender hereby agrees that the Loan will be disbursed to Borrower,
from time to time, in periodic Advances, but in no event after the Borrowing
Term has expired, in amounts determined by subtracting from the Borrowing Base
the unpaid principal balance outstanding under the Loan at the time of each
Advance; provided that at no time shall the unpaid principal balance of the Loan
exceed the Maximum Loan Amount.
3.2 Advances shall not be made more frequently than once per month,
and each Advance shall be in an amount of not less than One Hundred Thousand
Dollars ($100,000.00).
3.3 The Loan is a revolving line of credit under the terms of which
Borrower, during the Borrowing Term, shall have the right to obtain Advances,
repay Advances, and obtain additional Advances so long as no Event of Default
has occurred and is continuing.
3.4 All Advances made pursuant to this Agreement shall be deemed to
be a single Loan.
3.5 No Advances will be made after the Borrowing Term has expired
unless Lender, in its sole discretion, shall agree in writing to make such
Advances.
3.6 Borrower shall use the proceeds of the Loan for working capital
purposes and to repay in full, the Construction Loan.
ARTICLE IV
----------
SECURITY FOR THE LOAN
---------------------
4.1 As security for Borrower's payment and Performance of all
Obligations owed to Lender, other than those arising out of the Environmental
Certificate with Representations, Covenants and Warranties delivered in
connection with the Construction Loan Agreement, Borrower hereby grants to
Lender a first and exclusive Security Interest in and to (i) the Receivables
Collateral assigned, transferred, endorsed or delivered to Lender under this
Agreement and (ii) the Residual Collateral. Lender's Security Interest in such
Receivables Collateral and the Residual Collateral shall be absolute, continuing
and applicable to all existing and future Advances and shall secure the
repayment of the Loan, the Construction Loan and the Performance of all
Obligations throughout the Term of the Loan. At the time each Advance is made
hereunder, Borrower shall deliver to Lender (i) an executed Assignment against
which an Advance is requested; (ii) the original of each Instrument; and (iii)
other documents which comprise such Eligible Instruments.
- 7 -
<PAGE>
4.2 If an Eligible Instrument which comprises a part of the
Receivables Collateral shall cease to qualify as an Eligible Instrument,
Borrower shall, within 30 days thereafter, pay to Lender an amount equal to that
portion of the Loan, together with interest, costs, and expenses, if any,
attributable to such ineligible Instrument or shall replace such ineligible
Instrument with another Eligible Instrument having a value of not less than that
portion of the Loan together with interest, costs, and expenses, if any,
attributable to the Eligible Instrument being replaced. No prepayment premium
shall be payable with respect to the payment to be made by Borrower pursuant to
the previous sentence as long as Borrower did not cause the Instrument to cease
qualifying as an Eligible Instrument. Concurrently with the delivery of the
replacement Eligible Instrument to Lender, Borrower shall deliver to Lender all
pertinent items (except for a "Request for Advance and Certification") which
Borrower is required to deliver to Lender in connection with an Advance pursuant
to Article V hereof, together with a Borrower's Certificate in form and
substance identical to Exhibit "E" hereto. Upon substitution of the replacement
-----------
Eligible Instrument for the ineligible Instrument, Lender will terminate its
Security Interest in and reassign and endorse to Borrower, without recourse or
warranty of any kind, the replaced ineligible Instrument, together with the
Purchaser Mortgage securing the same, provided that no Event of Default, and no
act or event which after the giving of notice or the lapse of time (or both)
would constitute an Event of Default, has occurred and is continuing.
4.3 Reserved.
--------
4.4 Borrower shall, at its expense, deliver to Lender, at the time of
delivery of the Assignment, a policy or policies of title insurance insuring
Lender's interest in the Purchaser Mortgage which is the subject of the
Assignment. Such policy or policies shall be in the amount of the Advances made
against or, in the case of substitutions, a portion of the Loan attributable to
the Instruments secured by the insured Purchaser Mortgages and shall be issued
by a title insurer and be in form and substance satisfactory to Lender in its
sole discretion. The title insurance policies must reflect that the Purchaser
Mortgages constitute valid liens against the real property to which they pertain
subject only to the Permitted Encumbrances.
4.5 Borrower shall deliver or cause to be delivered to Lender, and
thereafter shall maintain in full force and effect according to the terms
thereof, Guarantees duly executed by the Guarantors identified in paragraph 2.17
hereof.
4.3 Reserved.
--------
ARTICLE V
---------
ADVANCES
--------
5.1 Lender shall have no obligation to make any Advance hereunder
until all conditions precedent set forth in the following paragraphs and
elsewhere in this
- 8 -
<PAGE>
Agreement have been satisfied, at Borrower's sole expense, as determined by
Lender in its reasonable discretion.
5.2 Borrower shall have delivered to Lender the following Documents,
duly executed in form and substance satisfactory to Lender (and, when required,
in recordable form):
(i) This Agreement;
(ii) The Note;
(iii) The Construction Loan Documents;
(iv) The Guarantees referred to in paragraph 2.16 hereof from
the Guarantors identified in paragraph 2.17 hereof;
(v) All documents required to effectuate the purposes of
paragraph 8.12 hereof;
(vi) The Servicing and Collection Agreement;
(vii) UCC Financing Statements for filing and recording, if
appropriate, as necessary to perfect Lender's Security Interest in the
Receivables Collateral and all other security for the Performance of
Borrower's Obligations which is subject to Article 9 of the Uniform
Commercial Code;
(viii)A favorable opinion from Borrower's independent counsel as
to such matters as Lender may reasonably require; and
(ix) A favorable opinion from each Guarantor's independent
counsel as to such matters as Lender may reasonably require.
5.3 Not less than five days before the date on which the initial
Advance is to be made, Borrower shall deliver or cause to be delivered to Lender
the following additional items:
(i) With respect to Borrower and each Guarantor or Person
which is a corporation or a general or limited partnership, certified
copies of their articles, certificates and agreements of general or limited
partnership or their articles of incorporation and by-laws (and all
amendments thereto), together with evidence that Borrower and each such
Guarantor or Person is duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which they are organized,
and in each and every other jurisdiction where the nature of their
respective businesses require them to be so qualified;
- 9 -
<PAGE>
(ii) With respect to Borrower and each Guarantor or Person which
is a corporation or a general or limited partnership, a copy of the
resolutions certified to be true and complete by the corporate secretary or
all of the general partners (as the case may be), authorizing the
execution, delivery and performance of the Documents, and evidencing the
authority of all Persons executing the Documents on behalf of Borrower, the
Guarantor, and such other Persons, and if Borrower, Guarantor or such
Persons are operating under a fictitious name, a copy of the recorded
certificate of fictitious name;
(iii) A condominium map of the Project or other surveys and
certifications by surveyors or engineers acceptable to Lender, showing the
dimensions of the Units within the Project, access thereto, street lines,
easements and other details, together with other evidence satisfactory to
Lender that the Project complies with all applicable laws, rules and
regulations and public and private restrictions affecting the use of the
Project;
(iv) A copy of the registrations/consents to sell and the final
subdivision public reports/public offering statements/prospectuses and/or
approvals thereof required to be issued by or used in the State of Florida
and other jurisdictions where Time-Share Interests are or have been offered
or sold, together with all other approvals from regulatory agencies having
jurisdiction over the Project;
(v) If the Project has not been registered under such act, an
opinion from Borrower's counsel that the Project does not fall within the
purview of the Interstate Land Sales Full Disclosure Act;
(vi) A copy of the purchase contract, deed, note, mortgage/deed
of trust and other documents in existence, including, without limitation,
any covenants running with the land comprising the Project, as well as any
covenants enforceable as equitable servitudes, the Project management
agreement and advertising materials, which have been or are being used by
Borrower in connection with the Project or the sale of Time-Share Interests
therein;
(vii) Copies of the insurance policies required pursuant to
paragraph 8.9 hereof;
(viii)Evidence that the Project is not located within a "special
flood hazard" area as such term is used in the National Flood Insurance Act
of 1968, as amended and supplemented by the Flood Disaster Protection Act
of 1973, and in regulations, interpretations and rulings thereunder;
(ix) The items described in Exhibit "F" hereto;
----------
- 10 -
<PAGE>
(x) Such other items as Lender requests which are
reasonably necessary to evaluate whether the request for the Advance
satisfied the requirements set forth herein;
(xi) Satisfactory judgment, UCC, litigation, tax lien
credit searches for Borrower, each Guarantor, Herb Alfree, Jody
Gessow and Robert & Brown Company,
(xii) Satisfactory credit reports and personal credit
references for Jody Gessow and Herb Alfree;
(xiii) Copies of the forms of Instrument and Purchaser
Mortgage.
5.4 No material adverse change shall have occurred in the
Project or Borrower's or any Guarantor's business or financial condition since
the date of the latest financial and operating statements given to Lender by or
on behalf of Borrower or any Guarantor. Lender shall be satisfied (in Lender's
sole and absolute discretion) with the results of (i) Lender's physical
inspection of the Project and (ii) an environmental survey of the Project and,
if deemed necessary by Lender, a level one environmental assessment of the
Project to be obtained at Borrower's expense.
5.5 There shall have been no material adverse change in the
warranties and representations made by Borrower or any Guarantor in the
Documents.
5.6 Neither an Event of Default nor an act or event which
after notice or lapse of time would constitute an Event of Default shall have
occurred and be continuing.
5.7 The interest rate applicable to the Advance (before giving
effect to any savings clause) will not exceed the maximum contract rate
permitted by the Applicable Usury Law.
5.8 Borrower has paid to Lender all of the Commitment Fee for
the Loan required to be paid pursuant to paragraph 8.16 hereof.
5.9 The Construction Loan shall have closed on or before
February 13, 1992 and Borrower (i) shall have satisfied, on or before March 15,
1991 (subject to delays due to acts of Force Majeure), all of the conditions
precedent to the making of the first Subsequent Advance (as defined in the
Construction Loan Agreement) and (ii) shall have drawn the first Subsequent
Advance on or before July 1, 1992 (subject to delays due to acts of Force
Majeure).
- 11 -
<PAGE>
5.10 At Lender's request, the Construction Mortgage shall be amended
to secure all of Borrower's obligations under the Documents, in the same
priority as the first advance under the Construction Loan Agreement and Borrower
shall have provided to Lender, at Borrower's sole cost and expense, a title
insurance policy, acceptable to Lender, insuring Lender as to such priority.
5.11 Lender shall have no obligation to make any Advance until the
conditions specified in paragraphs 5.1 through 5.10 inclusive herein have been
satisfied as determined by Lender in its reasonable discretion. Without limiting
the generality of the foregoing, in the event the conditions specified in
Section 5.9 hereof have not been satisfied as determined by Lender in its
reasonable discretion, on or before the dates set forth therein, Lender shall
have no further obligation to make the Loan or the Construction Loan and the
entire Commitment Fee (as defined in Paragraph 8.16) shall nevertheless be
deemed earned by Lender in consideration for Lender's issuing of the Commitment
(as defined in Paragraph 8.16) and holding itself ready and willing to make the
Loan upon the terms and conditions set forth herein. Payment of the Commitment
Fee is in addition to Borrower's obligation under Paragraph 8.16.
5.12 Advances shall be requested in writing on the Request for Advance
and Certification, in the form of the attached Exhibit "F-1" executed by
-------------
Borrower (or, if Borrower is a corporation or partnership, by those officers or
general partners, as the case may be, or agents of Borrower named in authorizing
resolutions of Borrower from time to time delivered to Lender and which are in
form and substance satisfactory to Lender).
5.13 Advances may be disbursed by checks, drafts or wire transfer
payable to Borrower; or, at the option of Lender after Borrower's written
request, to third parties, either severally or jointly with Borrower, for the
credit or benefit of Borrower. If Advances are made by wire transfer, Borrower
shall pay to Lender, Lender's usual and customary fee for wiring such funds.
Lender can withhold such fee from the Advance so made.
5.14 Although Lender shall have no obligation to make an Advance
unless and until all conditions thereto set forth herein have been satisfied,
Lender may, at its sole discretion, make Advances before that time without
waiving or releasing any of the Obligations, but Borrower shall continue to be
required to strictly Perform all such Obligations.
5.15 The proceeds of the Loan are to be used, in part, to pay and
satisfy in full the Construction Loan and all amounts due and owing to Lender
under the Construction Loan Documents. Therefore, Lender shall have the right to
disburse any Advance directly to Lender in payment or satisfaction of any
amounts then due to Lender under the Construction Loan Documents.
- 12 -
<PAGE>
ARTICLE VI
-----------
RESERVED
--------
ARTICLE VII
-----------
NOTE: MAINTENANCE OF BORROWING BASE;
------------------------------------
PAYMENTS: SERVICING AND COLLECTION
----------------------------------
7.1 The Loan shall be evidenced by the Note and shall be repaid in
immediately available funds according to the terms thereof and such provisions
of this Agreement as are applicable.
7.2 If for any reason the aggregate principal amount of the Loan
outstanding as of the last Business Day of any month shall exceed the then
Borrowing Base, Borrower, upon demand, shall immediately make to Lender a
principal payment in an amount equal to such excess plus accrued and unpaid
interest thereon.
7.3 Borrower is not entitled to prepay, in whole or in part, the Loan
until the Opening Prepayment Date. Thereafter, if (i) neither an Event of
Default nor an act or event that, with notice or lapse of time (or both) would
constitute an Event of Default, has occurred and is continuing; (ii) Borrower
has paid all sums due and payable to Lender in connection with the Loan, and
(iii) Borrower has given Lender at least 30 days prior written notice of the
prepayment and has paid to Lender at the time of prepayment a prepayment premium
equal to a percentage, as set forth below, of the then principal balance of the
Loan, then Borrower shall have the option to prepay the Loan in full, but not in
part, on any date an installment is due on the Note:
<TABLE>
<CAPTION>
Period Premium
------ -------
<S> <C>
Through the Second Anniversary Closed to Prepayment
Date of the last Advance
After the Second Anniversary Date 4%
and through the Fourth Anniversary
Date of the last Advance
After the Fourth Anniversary Date 3%
and through the Sixth Anniversary
Date of the last Advance
After the Sixth Anniversary Date 2%
and through the period ending 30 days
prior to the Seventh Anniversary Date
of the last Advance
</TABLE>
- 13 -
<PAGE>
<TABLE>
<S> <C>
Within 30 days prior to the Seventh 0%
Anniversary Date of the last Advance
</TABLE>
If there should occur an acceleration of maturity following an Event
of Default and such occurrence results in prepayment of the Loan, a prepayment
premium will be required in the amount specified above; or if occurring prior to
the Opening Prepayment Date, Borrower shall pay to Lender with the prepayment a
prepayment premium equal to 5% the then principal balance of the Loan being
prepaid. A Purchaser shall be permitted to prepay the amount owed on its
Instrument without penalty. If there should occur a casualty to or condemnation
of the Project and such occurrence results in a prepayment of the Loan, no
prepayment premium shall be payable in connection with such prepayment.
7.4 (a) Collection Agent, as agent for Lender, shall collect payments
on the Eligible Instruments used in making Borrowing Base computations or
otherwise constituting part of the Receivables Collateral and shall remit them
to Lender on the last Business Day of each and every month according to the
terms of the Servicing and Collection Agreement; and Borrower shall immediately
forward all such payments received by it to Collection Agent for Lender.
However, the Obligation to make, or any requirement that Lender receives,
payments called for in the Documents shall not be deemed satisfied until Lender
actually receives such payments from Collection Agent. For the purpose of
determining the adequacy of such payments, Borrower will cause Servicing Agent
to furnish to Lender at Borrower's sole cost and expense, no later than the
tenth day of each month commencing with the first full calendar month following
the first Advance, a report meeting the following requirements: (i) shows as of
the end of the prior month with respect to each Eligible Instrument which is
used in making Borrowing Base computations or otherwise constitutes part of the
Receivables Collateral (A) all payments received during the prior month on the
Eligible Instrument, allocated as between principal, interest, late charges,
taxes, and the like, (B) the opening and closing balances during the prior month
on each such Eligible Instrument, (C) present value of the cash flow (if
required by Lender) and (D) extensions, refinances, prepayments, and other
similar adjustments; and (ii) itemizes the Eligible Instrument which are used in
making Borrowing Base computations or otherwise constitute part of the
Receivables Collateral to show delinquencies of 30, 60, 90 and in excess of 90
days. On the basis of such reports, Lender will compute the amount, if any,
which was due and payable by Borrower on the last day of the preceding month and
will notify Borrower as soon as possible of any amount due. If such reports are
not timely received, Lender may estimate the amount which was due and payable;
and, in such event, Borrower shall pay upon demand the amount estimated by
Lender to be due and payable. If payment is made on the basis of Lender's
estimate, and reports required by this paragraph are thereafter received by
Lender, the estimated payment amount shall be adjusted by an additional payment
or a refund to the correct amount, as the reports may indicate; such additional
amount to be paid by Borrower upon demand and such refund to be made by Lender
within five Business Days after receipt by Lender of a written request therefor
by Borrower. In addition, at each calendar quarter, Borrower
- 14 -
<PAGE>
shall deliver to Lender a current list of the names addresses and phone numbers
of the Purchasers related to Eligible Instruments.
(b) Lender, subject to any restriction contained in the Servicing
and Collection Agreement, any at any time and from time to time in its
discretion substitute a successor or successors to any Servicing or Collection
Agent acting under the Servicing and Collection Agreement if the Servicing or
Collection Agent is not satisfactorily performing its obligations thereunder.
7.5 Subject to Lender's rights upon the occurrence of an Event of
Default, all proceeds from the Receivables Collateral (except payments which are
identified by Purchasers as tax or maintenance and other assessment payments and
are required to be so treated by Borrower) during the Term hereof shall be
applied first to the payment of all costs, fees and expenses required by the
Documents to be paid by Borrower, second to accrued and unpaid interest due on
the Note, third to the unpaid principal balance of the Note, and then to the
other Obligations in such order and manner as Lender may determine. Unless and
until all such Obligations have been Performed, Borrower shall have no right to
any portion of the proceeds of the Receivables Collateral.
7.6 Whether or not the proceeds from the Receivables Collateral shall
be sufficient for that purpose, Borrower shall pay when due all payments
required to be made pursuant to the Note and other Documents; and any and all
amounts payable by Borrower under the Note and other Documents shall be paid
without notice (except as otherwise expressly provided therein), demand,
counterclaim, set-off, deduction, recoupment or defense, and without abatement,
suspension, deferment, diminution or proration by reason of any circumstance or
occurrence whatsoever, Borrower's Obligation to make such payments being
absolute and unconditional.
7.7 All payments to be made by Borrower under the Documents shall be
free of expense to Lender with respect to the amount of any Impositions, all of
which Impositions Borrower assumes and shall pay on demand in addition to the
other payments provided for in the Documents to be made by it. Borrower's
Obligation to pay Impositions shall likewise include the Obligation to pay any
increase to Lender in federal, state, or local income tax as a result of
inclusion in income of Lender of any amount required by this paragraph to be
paid to or for Lender.
ARTICLE VIII
------------
BORROWER'S ADDITIONAL REPRESENTATIONS.
--------------------------------------
WARRANTIES AND COVENANTS
------------------------
8.1 (a) Borrower is, and will continue to be during the Term hereof, a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Delaware and is, and will continue to be during the
Term hereof, qualified to do business and in good standing in each jurisdiction
in which it is selling Time-Share
- 15 -
<PAGE>
Interests or where the location or nature of its properties or business makes
such qualification necessary (except where failure to do so would not adversely
affect Lender's ability to realize upon the Receivables Collateral or any other
security for the Performance of the Obligations or materially adversely affect
the business or financial condition of Borrower or the ability of Borrower to
complete Performance of the Obligations). Borrower has, and will continue to
have, powers adequate for making and Performing under the Documents, for
undertaking and Performing the Obligations, and for carrying on its business and
owning its property. Argosy Group, Inc. ("Argosy Group") is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia. Argosy Canyon Investments, L.P. ("Argosy Canyon") is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of California. Argosy Group is, and will continue during the Term
hereof, qualified to do business and in good standing in each jurisdiction where
Borrower is selling Time-Share Interests or where the location or nature of the
properties or business of Argosy Group make such qualification necessary (except
where failure to do so would not adversely affect Lender's ability to realize
upon the Receivables Collateral or any other security for the Performance of the
Obligations or materially adversely affect the business or financial condition
of Borrower or the ability of Borrower to complete Performance of the
Obligations). The sole general partner of Argosy Canyon is CanPartners
Incorporated, a California corporation. The sole limited partners of Argosy
Canyon are CanPartners Investment Partners II, L.P., a California limited
partnership, and Argosy Investments, Inc., a Georgia corporation.
(b) Borrower has good right and power to grant the Security
Interest in the Receivables Collateral and to execute and deliver this Agreement
and the other Documents and to Perform the Obligations. All action necessary and
required by Borrower's organization documents and all applicable laws for the
obtaining of the Loan and for the execution and delivery of this Agreement and
all other Documents executed and delivered in connection with the Loan has been
duly and effectively taken; and, to the best of Borrower's knowledge, this
Agreement is and shall be, and all other Documents are and shall be, legal,
valid, binding and enforceable against Borrower in accordance with their
respective terms, other than as such enforceability may be limited by
bankruptcy, insolvency, reorganization, arrangement, moratorium, or similar laws
relating to or affecting the rights of creditors generally or general principles
of equity (except to the extent that such laws, rights, remedies or principles
are waivable by Borrower and have been waived in the Documents). To the best of
Borrower's knowledge, the Documents do not violate the Applicable Usury Law or
any other usury law known to Borrower. The execution, delivery and Performance
of the provisions of this Agreement and all the other Documents will not
violate, constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the properties or assets of Borrower
pursuant to any provision of: any law, regulation, judgment, decree, order,
franchise or permit applicable to Borrower; Borrower's charter documents; or any
contract or other agreement or instrument to which Borrower is a party or by
which Borrower or Borrower's properties or assets are bound. No consent of any
government or agency thereof, or any other person, firm or entity not a party
hereto, is or will be required as a condition to the execution, delivery,
Performance or enforceability of the Documents.
- 16 -
<PAGE>
8.2 (a) There is no action, litigation or other proceeding pending
(or, to Borrower's knowledge, threatened) before any arbitration tribunal,
court, governmental agency or administrative body against Borrower which, if
adversely determined, might adversely affect Lender's ability to realize upon
the Receivables Collateral or any other security for the Performance of the
Obligations, or materially adversely affect the Project, the business or
financial condition of Borrower, or the ability of Borrower to complete
Performance of the Obligations; or which questions the validity of the
Documents.
(b) If Borrower or a Guarantor becomes a party to any action,
litigation or other proceeding which asserts a material claim against Borrower
or a Guarantor, or Borrower becomes the subject of an investigation by a
governmental agency or administrative body with respect to the Project, then
Borrower shall within 10 days after it obtains knowledge thereof notify Lender
of such action, litigation, proceeding or investigation and the particulars
thereof. Thereafter, if requested by Lender, Borrower shall report to Lender
with respect to the status of such matter and the particulars thereof.
8.3 (a) Except as set forth in Exhibit "G" hereto, Borrower has sold
-----------
or has offered for sale Time-Share Interests which generate Eligible Instruments
only in the State of Florida and all sales have been made at the Project or in
the private residences of potential Purchasers. Before it sells or offers for
sale Time-Share Interests outside the State of Florida and those listed in
Exhibit "G" hereto, Borrower shall promptly notify Lender and provide Lender
- -----------
with evidence that Borrower has complied with all laws of such jurisdiction
governing the proposed conduct of Borrower.
(b) Except for violations which do not individually or in the
aggregate affect Lender's ability to realize upon the Receivables Collateral or
any other security for the Performance of the Obligations or do not materially
adversely affect the business or financial condition of Borrower or the ability
of Borrower to complete Performance of the Obligations, Borrower has complied,
and will comply, with all laws and regulations of the United States and every
state, county and municipal jurisdiction in which Time-Share Interests have been
sold or offered for sale.
(c) Without limiting the generality of any other representation
or warranty contained herein, Borrower will not violate any private covenant or
restriction or any zoning, use or similar law, ordinance or regulation affecting
the use or occupancy of the Project, the violation of which could have a
material adverse effect on Lender's ability to realize upon the Receivables
Collateral or any other security for the Performance of the Obligations or
materially adversely affect the business or financial condition of the Borrower
or the ability of Borrower to complete Performance of the Obligations.
8.4 (a) Each Instrument at the time it is assigned to Lender in
connection with the Loan and this Agreement shall be an Eligible Instrument. At
the time such Instrument is assigned to Lender, Borrower shall have performed
all of its obligations to Purchasers, and there shall be no executory
obligations to Purchasers to be Performed by
- 17 -
<PAGE>
Borrower. Borrower further warrants and guarantees the value and enforceability
of the Receivables Collateral.
(b) Borrower shall not, without the prior written consent of
Lender, cancel or materially modify, or consent to or acquiesce in any material
modification to, or solicit the prepayment of, any Eligible Instrument used in
making Borrowing Base computations or which otherwise constitutes part of the
Receivables Collateral; or waive the timely performance of the obligations of
the Purchaser thereunder. Borrower shall not pay or advance directly or
indirectly for the account of any Purchaser any sum owing by the Purchaser under
any of the Eligible Instruments used in making Borrowing Base computations or
which otherwise constitute part of the Receivables Collateral.
(c) Borrower at all times shall fulfill, and cause its affiliates,
agents and independent contractors at all times to fulfill, all obligations to
Purchasers under all Eligible Instruments which are used in making Borrowing
Base computations or otherwise constitute part of the Receivables Collateral.
(d) True and complete copies of the Project governing documents,
the purchase contract, deed, note, mortgage/deed of trust, the Instruments,
advertising materials and other documents and exhibits thereto which have been
and are being used by Borrower in connection with the Project and the sale or
offering for sale of Time-Share Interests therein have been delivered to Lender.
Such documents are the only ones which have been used in connection with the
Project and the sale of Time-Share Interests therein. Borrower shall not,
without the prior written consent of Lender, cancel or materially modify any
such documents, which consent will not be unreasonably withheld. Borrower shall
Perform all of its obligations under the Project governing documents.
(e) All roads and other offsite improvements contained within the
Project will have been dedicated to and accepted by the responsible governmental
authority or utility prior to the initial Advance. Borrower shall maintain or
cause to be maintained in good condition and repair all amenities and common
areas which have been promised or represented as being available to Purchasers
and all roads and off-site improvements which have not been dedicated to or
accepted by the responsible governmental authority or utility.
(f) Each Purchaser shall automatically be a member of the
Project's owners association or associations, if any, and shall be entitled to
vote on the affairs thereof (subject, however, to any preferential voting rights
in favor of Borrower as permitted under Florida time-share laws). Each such
owners association shall be governed by a Board of Directors, which have the
authority to fix and levy prorata upon each Purchaser annual assessments to
cover the costs of maintaining and operating the Project (including, without
limitation, taxes and assessments not levied by the appropriate taxing authority
directly against owners of Time-Share Interests) and to establish a reasonable
reserve for improvements, the replacement of Items and furnishings, and
contingencies. If Borrower controls an owners association, Borrower will while
it controls such association:
- 18 -
<PAGE>
(i) cause such owners association to (A) discharge timely and completely its
obligations under the Project governing documents and maintain the reserve
described above; and (ii) pay to such owners association not less often than
every twelve months hereafter the difference between (A) the cumulative total
amount of the maintenance and operating expenses incurred by such association,
together with the amount of any installment of real property taxes currently due
and payable with respect to the Project not directly levied against owners of
Time-Share Interests, through the end of the calendar month preceding the month
in which such payment is made and (B) the cumulative total amount of assessments
(less amounts thereof allocated to reserve expenses) payable to the association
by Time-Share Interest owners other than Borrower through the end of the
calendar month preceding the month in which such payment is made.
(g) Except as otherwise permitted by the Project governing
documents, the Project owners association or the owners of Time-Share Interests
in common shall own the furnishings in the Project Units and all the common
areas in the Project and other amenities which have been promised or represented
as being available to Purchasers, free and clear of liens and security
interests, except for the Permitted Encumbrances; and no part of the Project is
subject to partition by owners of Time-Share Interests. Borrower will maintain
or cause to be maintained in good condition and repair all common areas in the
Project and other amenities which have been promised or represented as being
available to Purchasers and which are not the responsibility of the Project
owners association to maintain and repair. Borrower will maintain a reasonable
reserve to assure compliance of the terms of the foregoing sentence.
(h) The common areas and amenities appurtenant to sold Time-Share
Interests, and the streets and other offsite improvements contained within the
Project are free and clear of all liens or other encumbrances of third parties,
subject to the Permitted Encumbrances. The remaining portions of the common
areas and amenities are free and clear of all liens or other encumbrances of
third parties, subject to the Permitted Encumbrances and the TCR Encumbrance.
Borrower agrees that such common areas, amenities, streets and other offsite
improvements will not, during the Term hereof, be encumbered unless the holder
of such encumbrance agrees that the Purchasers shall have uninterrupted use of
all such areas, amenities, streets and improvements, notwithstanding a
foreclosure or other realization of such encumbrance.
8.5 LENDER DOES NOT ASSUME AND SHALL HAVE NO RESPONSIBILITY,
OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S RELATIONSHIP BEING SOLELY THAT
OF A CREDITOR WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWED TO IT, A
COLLATERAL ASSIGNMENT FROM BORROWER OF INSTRUMENTS. EXCEPT AS REQUIRED BY LAW,
BORROWER SHALL NOT, AT ANY TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER
WITH RESPECT TO THE PROJECT, THE SALE OF TIME-SHARE INTERESTS OR OTHERWISE,
WITHOUT THE EXPRESS WRITTEN CONSENT OF LENDER.
- 19 -
<PAGE>
8.6 Borrower shall undertake the collection of amount delinquent under
each Eligible Instrument which is used in making Borrowing Base computations or
otherwise constitutes part of the Receivables Collateral, shall bear the entire
expense of such collection work, and shall diligently and timely do such work
respecting collection, including forfeiture or foreclosure proceedings. Lender
shall have no obligation to undertake any collection, eviction or foreclosure
action against the obligor under any Eligible Instrument or to otherwise realize
upon any Eligible Instrument.
8.7 Borrower shall maintain in a secure place in its offices at the
address specified below proper and accurate books, records, ledgers,
correspondence and other papers relating to the Receivables Collateral. Lender
may notify the appropriate Purchasers of the existence of Lender's interest as
assignee in the Receivables Collateral and request from such Purchasers any
information relating to the Receivables Collateral. Borrower shall cooperate
with Lender in giving such notice and will do so under its letterhead if
requested. Borrower's chief executive office is as set forth on the signature
page of this Agreement. Borrower will not change its chief executive office
without giving Lender thirty (30) days prior written notice of such contemplated
change. Borrower has not operated under any names or fictitious names other than
Cypress Pointe Resort during the previous six (6) years. Borrower will not
change its name or operate under any fictitious names without first giving
Lender thirty (30) days prior written notice.
8.8 Borrower shall not, without the prior written consent of Lender:
(i) sell, convey, pledge, hypothecate, encumber or otherwise transfer any
security for the Performance of the Obligations; or (ii) permit or suffer to
exist any liens, security interests or other encumbrances on any security for
the Performance of the Obligations, except with respect to either (i) or (ii)
for the Permitted Encumbrances and liens and security interests expressly
granted to Lender.
8.9 Borrower shall obtain before funding, and shall maintain during
the Term of the Loan, such insurance, written by such insurers, and in such
forms and such amounts, as Lender may reasonably require.
8.10 (a) This Agreement and the other Documents, certificates,
financial statements, tax returns (including without limitation, the tax returns
of Borrower and Guarantors) and written materials furnished to Lender by or on
behalf of Borrower in connection with the transactions contemplated herein do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained herein and therein not
misleading. There is no fact known to Borrower which materially adversely
affects or in the future may (so far as Borrower can now foresee) materially
adversely affect the Receivables Collateral or any other security for the
Performance of the Obligations or the business or financial condition of
Borrower or the Project which has not been set forth in this Agreement or the
other Documents, certificates, financial statements or written materials
furnished to Lender in connection with the transactions contemplated herein.
- 20 -
<PAGE>
(b) The fact that Lender's representatives may have made
certain examinations and inspections or received certain information pertaining
to the Receivables Collateral or the Project and the proposed operation thereof
does not in any way affect or reduce the full scope and protection of the
warranties, representations and Obligations contained herein, which have induced
Lender to enter into this Agreement.
8.11 (a) Borrower shall maintain a standard, modern system of
accounting and shall keep and maintain all books and records in accordance with
generally accepted accounting principles on a consistent basis.
(b) On or before the tenth day of each month, Borrower shall
furnish or cause to be furnished to Lender (i) the reports of the Servicing
Agent and Borrower required pursuant to paragraph 7.4, hereof and (ii) a sales
report for the prior month showing the number of sales of Time-Share Interests
and the aggregate dollar amount thereof, including down payments.
(c) Borrower shall furnish or cause to be furnished to Lender,
as soon as the same are available, and in any event within 120 days of each
fiscal year and within 60 days of each interim quarterly fiscal period of
Borrower, a copy of the current financial statements of Borrower, and within 90
days at the end of each fiscal year and within 60 days of each interim quarterly
fiscal period of the subject, current financial statements of each Guarantor and
the Project's owners association (the "Association"). Such financial statements
shall contain a balance sheet as of the end of the relevant fiscal period and
statements of income and cash flows for such fiscal period (together, in each
case, with the comparable figures for the corresponding period of the previous
fiscal year, if available), all in reasonable detail, prepared in accordance
with generally accepted accounting principles consistently applied throughout
the period involved and with prior periods. All annual financial statements of
Borrower and the Association required pursuant hereto shall be audited by a
certified public accountant, and shall be certified to by said certified public
accountant. All annual financial statements of Guarantor shall be compiled by a
certified public account. In addition to the foregoing, all financial statements
required pursuant hereto shall be certified correct by the individual who is the
subject of such statements or, the chief financial officer or general partner,
as the case may be, of the subject of such statements. The financial statements
of Borrower shall also contain in reasonable detail a statement of income and
expenses covering the operation of the Project. Together with such financial
statements, Borrower shall deliver to Lender a certificate signed by the chief
financial officer or managing general partner, as the case may be, of Borrower
stating that, to the best of its knowledge after inquiry, there exists no Event
of Default and no condition, event or act, which with notice or lapse of time or
both, would become an Event of Default or, if any such Event of Default or any
such condition, event or act exists, specifying the nature and period of
existence thereof and what action Borrower proposes to take with respect
thereto.
(d) Borrower shall deliver to Lender from time to time, as
available, and promptly upon amendment or effective date, current price lists,
sales
- 21 -
<PAGE>
literature, registrations/consents to sell, final public reports/public offering
statements/prospectuses, and other items requested by Lender which relate to the
Project.
(e) So long as the same shall be pertinent to the Loan, the
Project, the documents or any transactions contemplated therein, Borrower shall
at its expense (i) permit Lender and its representatives at all reasonable times
to inspect, audit and copy, as appropriate, the Project, Borrower's facilities,
activities, books of account, logs and records; (ii) cause its employees, agents
and accountants to give their full cooperation and assistance in connection with
any such visits of inspection or financial conferences; and (iii) make available
such further information concerning its business and affairs as Lender may from
time to time reasonably request.
(f) Borrower shall annually submit to Lender within 45 days
after each is available proposed annual maintenance and operating budgets for
the Project, certified to be adequate by Borrower and a statement of the annual
assessment to be levied upon the Purchasers.
(g) Borrower shall cause to be delivered to Lender as soon as
available, and in any event no later than forty-five (45) days following its
filing with the Internal Revenue Service, the signed income tax returns for each
Guarantor for the fiscal year then ended, as filed with the Internal Revenue
Service, together with all schedules thereto; provided, that in the event a
Guarantor obtains an extension of the date for filing such tax returns, Borrower
shall cause to be delivered to Lender a signed copy of such extension within
fifteen (15) days following the filing deadline for such return in the absence
of such extension.
8.12 Borrower shall cause any and all indebtedness owed by it to its
partners or officers, the Guarantor, or the relatives and affiliates of Borrower
or the foregoing, to be subordinated to the Obligations pursuant to
subordination agreements satisfactory to Lender in form and substance.
8.13 Borrower shall not, without Lender's prior written consent: (i)
(other than the sale of Time-Share Interests in the ordinary course of
Borrower's business or the rental of condominium units in the Project in the
ordinary course of Borrower's business) sell, lease, transfer or dispose of its
all or substantially all of its assets to another entity; or (ii) dissolve or
liquidate, or merge or consolidate with or into any other entity, transfer to
any person or entity, the right to control, Borrower, Argosy Group or Argosy
Canyon, turn over the management or operation of Borrower, Argosy Group or
Argosy Canyon to any other person or entity, or permit any of the foregoing to
occur with respect to Borrower, Argosy Group or Argosy Canyon.
8.14 Borrower is not in default of any payment on account of
indebtedness for borrowed money or of any repurchase obligations in connection
with a receivables purchase financing, or in violation of or in default under
any material term in any agreement, instrument, order, decree or judgment of any
court, arbitration or governmental authority to which it is a part or by which
it is bound.
- 22 -
<PAGE>
8.15 Borrower has filed all tax returns and paid all taxes,
assessments, levies and penalties, if any, in respect thereof required to be
filed by it or paid by it to any governmental or quasi-governmental authority.
All real estate taxes and assessments have been paid which are due and owing in
connection with the common areas and the Project and other amenities which have
been promised or represented as being available to Purchasers for use by them.
Borrower shall use its best efforts to provide to Lender not more than 30 days
after such taxes and assessments would become delinquent if not paid evidence
that all taxes and assessments on the Project and common areas have been paid in
full.
8.16 Borrower shall pay to Lender on demand all reasonable out-of-
pocket costs and expenses incurred or to be incurred by Lender or its counsel in
connection with the initiation, documentation and closing of the Loan, the
making of Advances hereunder, the protection of the security for the Performance
of the Obligations, or the enforcement of the Obligations against Borrower or
any Guarantor (including, without limitation, travel costs, a non-refundable
documentation fee of $25,000.00 (which documentation fee shall be credited
against Lender's attorneys' fees), all attorneys' fees, any brokerage or similar
fees, all filing and recording fees, all charges for consumer credit reports and
UCC, tax lien, judgment and litigation searches, all revenue and documentary
stamp and intangible taxes, and all fees and expenses of the Servicing and
Collection Agents to perform the services contemplated hereunder and under the
terms of the Servicing and Collection Agreement). Borrower shall pay to Lender a
non-refundable commitment fee (the "Commitment Fee") in the amount of One
Hundred Thousand Dollars and NO/100 ($100,000.00), which fee was earned by
Lender upon issuance by Lender to Borrower of the Commitment Letter (the
"Commitment") in connection with the Loan, dated November 18, 1991, in
consideration of Lender holding itself ready, willing and able to make the Loan
upon the terms and conditions set forth herein. The Commitment Fee shall be due
and payable in full not later than the closing of the Construction Loan or
February 15, 1992, whichever occurs first. The payment of the Commitment Fee is
in addition to Borrower's obligation to pay a commitment fee under the
Construction Loan Agreement. Lender acknowledges the receipt of a $2,500
application fee which has been earned by Lender and shall not be applied against
the Commitment Fee. Lender shall act as custodian for purposes of holding
Eligible Instruments and Borrower shall pay to Lender on demand, a custodian fee
of Ten Dollars ($10.00) for each Eligible Instrument so held by Lender,
exclusive of Eligible Instruments that are substituted for ineligible
Instruments (provided that such custodian fee was paid in connection with such
ineligible Instrument) and exclusive of Instruments that have been cancelled by
the Purchaser or the Borrower. Notwithstanding the foregoing, Borrower shall
have the right to select an independent custodian to hold Eligible Instruments
on Lender's behalf and as Lender's agent, so long as (i) Borrower pays all costs
charged by such independent custodian, and (ii) such independent custodian is
approved in advance, in writing by Lender.
8.17 Borrower shall INDEMNIFY, DEFEND AND HOLD HARMLESS, Lender, its
successors, assigns and shareholders (including corporate shareholders), and the
directors, officers, employees, agents and servants of the foregoing,
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from any and all losses, costs, expenses (including, without limitation, court
costs and attorneys' fees), demands, claims, suits, proceedings (whether civil
or criminal), orders, judgments, penalties, fines and other sanctions arising
from or brought in connection with (i) the Project, the security for the
Performance of the Obligations, Lender's status by virtue of the Assignments,
creation of Security Interests, the terms of the Documents or the transactions
related hereto, or any act or omission of Borrower or the Servicing and
Collection Agents, or the employees or agents of any of them, whether actual or
alleged, and (i) any and all brokers' commissions or finders' fees or other
costs of similar type, or claims by any broker, agent or other party in
connection with this transaction (other than fees claimed owed by a broker,
finder, or other party with whom Lender has a specific agreement). On written
request by anyone covered by the above agreement of indemnity, Borrower shall
undertake, at its own cost and expense, on behalf of such indemnitee, using
counsel satisfactory to the indemnitee, the defense of any legal action or
proceeding to which the indemnitee shall be a party, provided that such action
or proceeding shall result from, or grow or arise out of any of the events set
forth in this paragraph.
8.18 Borrower shall not directly or indirectly invest all or any
part of the process of the Loan in any investment security subject to the margin
requirements of Regulation G of the Board of Governors of the Federal Reserve
System.
8.19 Borrower shall execute or cause to be executed all Documents
and do or cause to be done all acts necessary for Lender to perfect and to
continue the perfection of the Security Interest of Lender in the Receivables
Collateral or the other security for the Performance of the Obligations or
otherwise to effect the intent and purposes of the Documents. Borrower shall
prosecute or defend any action involving the priority, validity or
enforceability of the Security Interest granted to lender; provided that, at
Lender's option, Lender may do so at Borrower's expense.
8.20 Borrower is fully familiar with all of the terms and conditions
of the Documents and is not in default thereunder. No act or event has occurred
which after notice and/or lapse of time would constitute such a default or an
Event of Default.
8.21 Reserved
--------
8.22 Borrower hereby covenants and agrees as follows during the Term
hereof:
(a) As of the end of each fiscal quarter of Borrower, Borrower
shall maintain a net worth, calculated in accordance with generally accepted
accounting principles, consistently applied ("GAAP"), of at least Four Million
Dollars ($4,000,000.00).
(b) Expenses associated with the marketing and sale of Time-
Share Interests shall not exceed 50% of net sales, determined quarterly. Net
sales shall mean gross sales of Time-Share Interests during such quarterly
period reduced only by cancellations thereof.
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(c) As of the end of each fiscal quarter of Borrower, the
Borrower shall maintain a ratio of total Indebtedness (exclusive of the Loan) to
net worth, calculated in accordance with GAAP, of not more than 2 to 1.
Indebtedness shall mean all liabilities, obligations and reserves, contingent or
otherwise, which in accordance with GAAP, would be reflected as a liability on a
balance sheet or would be required to be disclosed in a financial statement,
including, without duplication: (i) all Indebtedness for Borrowed Money, (ii)
all obligations secured by any lien, charge or encumbrance on the property of
Borrower, and (iii) all guaranties, letters of credit or other contingent
obligations. Indebtedness for Borrowed Money shall mean, without duplication,
all Indebtedness (i) in respect of money borrowed, (ii) evidenced by a note,
debenture or other like written obligation to pay money, (iii) in respect of the
rent or hire of property or for the deferred purchase price of property, or (iv)
in respect of obligations under conditional sales or other title retention
agreements, and all guaranties of any or all of the foregoing.
(d) Borrower shall not enter into any leases, as a lessee, the
obligations for rental payments under which are required to be capitalized in
accordance with GAAP, to the extent that the aggregate annual obligations under
all such leases would exceed $150,000 in any fiscal year of Borrower.
(e) Upon request by Lender, Borrower shall provide from time to
time such information as Lender may reasonably require to determining compliance
with the foregoing requirements.
8.23 Borrower shall not, without Lender's prior written consent: (i)
construct additional condominium or timeshare units within or adjacent to the
Project (other than to the initial 48 Units) until such time as at least 50% of
the Timeshare Interests applicable to the initial 48 Units are sold in bona-fide
transactions to parties not affiliated to Borrower; or (ii) sell any time-share
intervals from such additional condominium or timeshare units until at least 75%
of the Time-Share Interests applicable to the initial 48 Units are sold in bona-
fide transactions to parties not affiliated to Borrower.
8.24 If there occurs a material adverse change in the Project or in
the financial condition of Borrower or any Guarantor or in the Receivables
Collateral or any other security for the Performance of the Obligations, which
change is not enumerated in paragraph 8.22 or 9.1, Borrower will promptly
provide Lender with assurance that neither the prospect of Performance of the
Obligations nor Lender's security therefore is imperiled. If Borrower fails to
provide Lender with assurance satisfactory to Lender in its reasonable
discretion, such failure will be considered an Event of Default.
8.25 As additional consideration to Lender, Borrower shall pay to
Lender an incentive fee equal to One Hundred Forty-Six Thousand Eight Hundred
Eighty Dollars ($1,46,880.00) with respect to the Time-Share Interests sold by
Borrower in the Project. Such incentive fee shall be paid in installments of
Five Hundred Dollars ($500.00) per Time-Share Interest sold, plus related
reasonable fees and expenses (all as more fully provided in the Mortgage),
commencing with all sales occurring after the date upon which
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<PAGE>
the Construction Loan is due and payable in full, and shall continue until the
entire incentive fee is paid in full. Notwithstanding anything contained herein
to the contrary, the incentive fee is payable in full by Borrower on the first
day of the 26th month after the initial advance of the proceeds of the
Construction Loan.
8.26 The Borrower is in compliance in all material respects with all
applicable federal, state or local environmental, health and safety statutes and
regulations. The Borrower has not filed any notice under any federal or state
law indicating past or present treatment, storage or disposal of a hazardous
waste or reporting a spill or release of a hazardous or toxic waste, substance
or constituent, or other substances into the environment. None of the operations
of Borrower are the subject of federal or state litigation or proceedings
involving, or any investigation evaluating whether any remedial action involving
a material expenditure is needed to respond to, any improper treatment, storage,
recycling, disposal or release into the environment of any hazardous or toxic
substance, waste or constituent, or other substance. The Borrower does not have
any material contingent liability in connection with any improper treatment,
storage, recycling, disposal or release into the environment of any hazardous or
toxic substance, waste or constituent. None of the operation of Borrower are
subject to any judicial or administrative proceeding alleging the violation of
any federal, state or local environmental, health or safety statute or
regulation. The Borrower does not transport any hazardous wastes, substances or
constituents.
8.27 Provided that Borrower has not then borrowed the Maximum Loan
Amount, Borrower shall not, during the Borrowing Term, pledge, assign, or
hypothecate any Instruments other than to Lender, without Lender's prior written
consent. During the Borrowing Term, Lender shall the right of first negotiation
with Borrower in the event Borrower wishes to accept or seek an offer from a
third party to loan moneys to Borrower in exchange for a pledge, assignment or
hypothecation of any Instruments. In the event Borrower desires to seek or
obtain such an offer, Borrower shall first give Lender written notice to that
effect and give Lender the opportunity, within 10 Business Days thereafter, to
issue a financing proposal to Borrower, before Borrower enters into a binding
agreement with such third party with respect to such financing. However, subject
to the provisions of the first sentence of this paragraph, Borrower shall have
no obligation to accept a proposal from Lender with respect to such financing.
8.28 All representations and warranties contained in this Agreement
are continuing and shall be deemed to be made and reaffirmed prior to the making
of each Advance under this Agreement.
8.29 The representations, warranties and covenants contained in this
Agreement shall be applicable to and binding upon Borrower during the Term
hereof, notwithstanding the fact that no Advances have yet been made hereunder.
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<PAGE>
ARTICLE IX
----------
DEFAULT
-------
9.1 The occurrence of any of the following events or conditions
shall constitute an Event of Default by Borrower under the Documents:
(a) Lender fails to receive from Borrower when due and payable
any amount which Borrower is obligated to pay on the Note or any other payment
due under the Documents; and such failure shall continue for seven (7) days,
except for the payment of the final installment due at the Maturity Date, for
which no grace period is allowed;
(b) any representation or warranty of Borrower contained in the
documents or in any certificate furnished under the Documents proves to be, in
any material respect, false or misleading as of the date deemed made;
(c) there is a default in the Performance of the Obligations set
forth in paragraphs 8.8, 8.9, 8.12 or 8.13 hereof or Borrower knowingly violates
or suffers or permits the violation of any of the warranties or conditions of
the policies of insurance required under paragraph 8.9;
(d) there is a default in the Performance of the Obligations or
a violation of any term, covenant or provision of the Documents (other than a
default or violation referred to elsewhere in this paragraph 9.1) and such
default or violation continues unremedied (i) for a period of five days after
the giving of notice thereof to Borrower in the case of a default or violation
which can be cured by the payment of money alone or (ii) in the case of any
other default or violation, for a period of (A) thirty (30) days after the
giving of notice to Borrower, or (B) (in the event such default is not capable
of being cured within such thirty (30) day period) for a period not exceeding
sixty (60) days after the giving of such notice provided Borrower is diligently
and in good faith pursuing such cure;
(e) an "Event of Default," as defined elsewhere herein or in any
of the other Documents, occurs, or an act or event occurs under any of the
Documents, which is not cured within applicable notice or grace periods, whether
or not denominated as an Event of Default, which expressly entitles Lender to
accelerate any of the Obligations or exercise its other remedies upon the
occurrence of an Event of Default hereunder;
(f) any material default by Borrower under any other
agreement evidencing, guaranteeing, or securing borrowed money or a receivables
purchase financing has occurred and there has been an acceleration of such
indebtedness or repurchase obligations, which accelerated repayment or
repurchase obligations are in excess of $100,000 in the aggregate:
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<PAGE>
(g) any final, non-appealable judgment or decree for money
damages or for a fine or penalty against Borrower which is not paid and
discharged or stayed within 30 days thereafter and when aggregated with all
other judgment(s) or decree(s) that have remained unpaid and undischarged or not
stayed for such period is in excess of $100,000;
(h) any party holding a lien or security interest in the
Receivables Collateral, or any other security for the Performance of the
Obligations or a lien on any common areas or other amenities in the Project
commences foreclosure or similar sale thereof;
(i) (i) Borrower or any Guarantor becomes insolvent or unable to
pay its debts when due; generally fails to pay its debts when due; files a
petition in any bankruptcy, reorganization, winding-up or liquidation proceeding
or other proceeding analogous in purpose or effect relating to such entity;
applies for or consents to the appointment of a receiver, trustee or other
custodian for the bankruptcy, reorganization, winding-up or liquidation of such
entity; makes an assignment for the benefit of creditors; or admits in writing
that it is unable to pay its debts; (ii) any court order or judgment is entered
confirming the bankruptcy or insolvency of Borrower or any Guarantor or
approving any reorganization, winding-up or liquidation of such entity or a
substantial portion of its assets; (iii) there is instituted against Borrower or
any Guarantor any bankruptcy, reorganization, winding-up or liquidation
proceeding or other proceeding analogous in purpose or effect and the same is
not dismissed within 90 days after the institution thereof; or (iv) a receiver,
trustee or other custodian is appointed for any part of the Receivables
Collateral or the Project or all or a substantial portion of the assets of
Borrower or any Guarantor;
(j) Performance by Borrower or any Guarantor of any
material obligation under any Document or Guarantee, as the case may be, is
rendered unenforceable in any material respect, or any Guarantor repudiates,
rescinds, limits or annuals its Guarantee; or
(k) An Event of Default, as defined in the Construction Loan
Agreement, occurs, or an act or event occurs under any of the Construction Loan
Documents, whether or not denominated as an Event of Default, which expressly
entitles the Lender to exercise its remedies.
9.2 At any time after an Event of Default has occurred and while it
is continuing, Lender shall have the right to do any one or more of the
following:
(a) cease to make further Advances;
(b) declare the Note, together with prepayment premiums and all
other sums owing by Borrower to Lender in connection with the Documents,
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<PAGE>
immediately due and payable without notice, presentment, demand or protest,
which are hereby waived by Borrower;
(c) with respect to the Receivables Collateral, (i) institute
collection actions against all Persons obligated thereon and in default
thereunder; (ii) enter into modification agreements and make extension
agreements with respect to payments and other performances; (iii) release
Persons liable for the payment and performance thereof or the securities for
such payment and performance; and (iv) settle and compromise disputes with
respect to payments and performances claimed due thereon, all without notice to
Borrower, without being called to account therefor by Borrower and without
relieving Borrower from Performance of the Obligations;
(d) in the event Lender has previously agreed that Borrower may
act as Servicing Agent, remove Borrower as Servicing Agent and substitute as
Servicing Agent such other Person as Lender shall designate; and
(e) proceed to protect and enforce its rights and remedies under
this Agreement, the Construction Loan Documents or any other documents and to
foreclose or otherwise realize upon its security for the Performance of the
Obligations, or to exercise any other rights and remedies available to it at
law, in equity or by statute.
The rights and powers granted pursuant to this paragraph are not
intended to limit the rights and powers granted elsewhere herein.
9.3 Notwithstanding anything in the Documents to the contrary, while
an Event of Default exists, any cash received and retained by Lender in
connection with the Receivables Collateral may be applied to payment of the
Obligations in the manner provided in paragraph 9.5 hereof.
9.4 (a) Pursuant to its rights under paragraph 9.2 hereof, following
an Event of Default, and subject to the terms and conditions hereof, Lender may
sell, assign and deliver the Receivables Collateral, or any part thereof, at
public or private sale, conducted in a commercially reasonable manner by an
officer, or agent of, or auctioneer or attorney for, Lender at Lender's place of
business or elsewhere, for cash, upon credit or future delivery, and at such
price or prices as Lender shall reasonably determine, and Lender may be the
purchaser of any or all of the Receivables Collateral so sold. Lender may, in
its reasonable discretion, at any such sale, restrict the prospective bidders or
purchasers as to number, nature of business and investment intention, and,
without limitation, may require that the persons making such purchases represent
and agree to the satisfaction of Lender that they are purchasing the Receivables
Collateral for their account, for investment, and not with a view to the
distribution or resale of any thereof. Lender shall have no obligation to delay
sale of any Receivables Collateral for the period of time necessary to permit
such Receivables Collateral to be registered for public sale under the
Securities Act of 1933, as amended, and any applicable state securities laws.
Private sales
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<PAGE>
made without registration shall not be deemed to have been made in a
commercially unreasonable manner by virtue of any terms less favorable to the
seller resulting from the private nature of such sales.
(b) Without prejudice to the right of Lender to make such sale
within such shorter period as may be reasonable under the circumstances,
foreclosure sale of all or any part of the Receivables Collateral shall be
deemed held pursuant to reasonable notice if held:
(i) 45 days after notice is given, based upon
default consisting of insolvency, bankruptcy or other default of a
nature which cannot be corrected by Borrower, or default for which
no grace period is specified herein; or
(ii) 60 days after notice of any other act,
circumstance or event which, if uncorrected, after expiration of any
applicable grace period, shall constitute a default hereunder.
Where any notice to Borrower and grace period thereafter is required under this
Agreement, such grace period shall be deducted from the 60 day notice of
foreclosure sale specified in item (ii) above, so that the maximum period
between notice to Borrower of any act, circumstance or event which, if
uncorrected after elapse of any applicable grace period, would constitute an
Event of Default and the foreclosure sale of the Receivables Collateral based
upon such Event of Default shall in no event be required to exceed 60 days.
(c) At any sale following an Event of Default, the Receivables
Collateral may be sold as an entirety or in partial interests. Lender shall not
be obligated to make any sale pursuant to any notice previously given. In case
of any sale of all or any part of the Receivables Collateral on credit or for
future delivery, the Receivables Collateral so sold may be retained by Lender
until the selling price is paid by the purchaser thereof, but Lender shall not
incur any liability in case of the failure of such purchaser to take up and pay
for the collateral so sold; and in case of any such failure, such Receivables
Collateral may again be sold under and pursuant to and in compliance with the
provisions hereof.
(d) In connection with sales made following an Event of
Default, Lender may, in the name and stead of Borrower or in its own name, make
and execute all conveyances, assignments and transfers of the Receivables
Collateral sold pursuant to this Agreement; and Lender is hereby appointed
Borrower's attorney-in-fact for this purpose. Nevertheless, Borrower will, if so
requested by Lender, ratify and confirm any sale or sales by executing and
delivering to Lender, or to such purchaser or purchasers, all such instruments
as may, in the judgment of Lender, be advisable for that purpose.
(e) The receipt by Lender of the purchase money paid at any
sale made following an Event of Default shall be a sufficient discharge therefor
to any purchaser of the Receivables Collateral or any portion thereof, and no
such purchaser, after paying such purchase money and receiving such receipt,
shall be bound to see to the application of such
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<PAGE>
purchase money or any part thereof or in any manner whatsoever be answerable for
any loss, misapplication or nonapplication of any such purchase money, or any
part thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
(f) Each purchaser at any sale following an Event of Default
shall hold the Receivables Collateral so sold absolutely free from every claim
or right of Borrower, including, without limitation, any equity or right of
redemption of Borrower, which Borrower hereby specifically waives to the extent
Borrower may lawfully do so. Lender, its employees and agents shall after such
sale be fully discharged from any liability or responsibility in any matter
relating to the Receivables Collateral and such other security that is sold and
resulting from any action or inaction on the part of such purchaser or any
successor-in-interest of such purchaser.
9.5 The proceeds of any sale of all or any part of the Receivables
Collateral shall be applied in the following order or priorities: first, to the
payment of all reasonable costs .and expenses of such sale, including, without
limitation, reasonable compensation to Lender and its agents, attorneys' fees,
and all other reasonable expenses, liabilities and advances incurred or made by
Lender, its agents and attorneys, in connection with such sale, and any other
unreimbursed expenses for which Lender may be reimbursed pursuant to the
Documents; second, to the payment of the Obligations, in such order and manner
as Lender shall in its discretion determine, with no amounts applied to payment
of principal until all interest has been paid; and third, to the payment to
Borrower, its successors or assigns, or to whomsoever may be lawfully entitled
to receive the same, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
9.6 Lender may, at its option, and without any obligation to do so,
pay, perform and discharge any and all amounts, costs, expenses and liabilities
herein agreed to be paid or performed by Borrower if Borrower fails to do so
within 7 days following the giving of written notice of such failure; and for
such purposes Lender may use the proceeds of the Receivables Collateral and is
hereby appointed Borrower's attorney-in-fact. All amounts expended by Lender in
so doing or in exercising its remedies hereunder following an Event of Default
shall become part of the Obligations secured hereby, shall be immediately due
and payable by Borrower to Lender upon demand therefor, and shall bear interest
at the Overdue Rate from the dates of such expenditures until paid. Exercise by
Lender of its option under this paragraph will not cure any default of Borrower.
9.7 No remedy herein or in any other Document conferred on or reserved
to Lender is intended to be exclusive of any other remedy or remedies, but each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder, under any other Document or now or hereafter
existing at law or in equity. Notwithstanding anything herein to the contrary,
in any non-judicial, public or private sale or sales under the Uniform
Commercial Code or in any judicial foreclosure and sale of the Receivables
Collateral, the Receivables Collateral may be sold in any manner whatsoever not
prohibited by law. No delay or omission to exercise any right or power
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<PAGE>
shall be construed to be a waiver of any default or acquiescence therein or a
waiver of any right or power; and every such right and power may be exercised
from time to time and as often as may be deemed expedient. Lender's acceptance
of any performance due hereunder which does not comply strictly with the terms
hereof shall not be deemed to be a waiver of any right of Lender to strict
Performance by Borrower. Acceptance of past due amounts or partial payments
shall not constitute a waiver of full and timely payment of the Obligations. No
Event of Default, declaration of the unpaid principal of the Loan to be
immediately due and payable or exercise of any other right to remedy upon
default shall stay, waive, or otherwise affect Lender's right to receive
payments on and other proceeds of the Receivables Collateral.
9.8 Borrower, for itself and for all who may claim through or under
it, hereby expressly waives and releases all right to have the Receivables
Collateral or any other security for the Performance of the Obligations, or any
part thereof, marshalled on any foreclosure, sale or other enforcement hereof.
9.9 While an Event of Default exists, Borrower shall, on the request
of Lender, assemble the Receivables Collateral not already in Lender's
possession and make it available to Lender at a time and place reasonably
convenient to Lender.
ARTICLE X
---------
POWER OF ATTORNEY
-----------------
For the purpose of enabling Lender to protect and preserve its
Security Interest in the Receivables Collateral and its rights and remedies
under this Agreement and the Documents, Borrower does hereby constitute and
appoint Lender, and its successors and assigns, to be Borrower's true and lawful
attorney-in-fact upon the occurrence of an Event of Default, and during the
continuance thereof, to perform any act, take any action, execute and sign any
document, statement, instrument or other writing, and to do and perform any and
all deeds and things in the name, place, and stead of Borrower, which Lender in
its discretion shall determine necessary or required to protect and preserve its
Security Interest in the Receivables Collateral and its rights and remedies
under this Agreement and the Documents, or which Borrower is required or
obligated to perform under the terms of this Agreement or the Documents.
ARTICLE XI
----------
CONSTRUCTION AND GENERAL RULES
-------------------------------
11.1 All moneys payable hereunder or under the Documents shall be paid
to Lender at its address set forth below.
11.2 This Agreement and the other Documents exclusively and completely
state the rights and obligations of Lender and Borrower with respect to the
Loan. No modification, termination, variation, discharge or abandonment hereof
and no
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<PAGE>
waiver of any of the provisions or conditions shall be valid unless in writing
and signed by duly authorized representatives of Lender and Borrower or the
successor, transfers or assigns of either, subject, however, to the limitations
on assignment herein by Borrower. This Agreement supersedes any and all prior
agreements or understandings, written or oral, between Borrower and Lender
(other than in the other Documents) concerning this transaction.
11.3 The powers and agency hereby granted by Borrower are coupled with
an interest and are irrevocable and are granted as cumulative to the remedies
for collection of the indebtedness secured hereby provided by law.
11.4 This Agreement may be executed simultaneously in any number of
identical copies each of which shall constitute an original for all purposes.
11.5 Any notice required or permitted to be given hereunder shall be
in writing and shall be (i) personally delivered to the party being notified if
an individual or to an officer or general partner if a corporation or
partnership, or (ii) transmitted by postage prepaid, certified or registered
mail (return receipt requested) to such party at its address after its signature
on the signature page hereof or such other address as the party being notified
may have otherwise designated in a notice given as provided in this paragraph.
Such notice shall be deemed to be given and effective, unless actual receipt is
expressly elsewhere specified herein, upon the date of receipt or the date three
(3) days after posting it transmitted by mail, whichever shall first occur. A
copy of any notices given to Borrower shall also be given to:
Leo Rose III, Esq.
Shreeder, Wheeler & Flint
The Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
11.6 All the covenants, promises, stipulations and agreements of
Borrower and all the rights and remedies of the Lender in this Agreement
contained shall bind Borrower, and, subject to the restriction on merger,
consolidation and assignment herein contained, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights herein in whole or in part.
Except as may be expressly provided herein, no person or other entity shall be
deemed a third party beneficiary of this Agreement.
11.7 Subject to the provisions of Article IX hereof, if any one or
more of the provisions contained in this Agreement shall be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
11.8 Time is of the essence in the Performance of the Obligations.
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11.9 All headings are inserted for convenience only and shall not
affect any construction or interpretation of this Agreement. The provisions of
this Agreement shall apply to the parties according to the context hereof and
without regard to the number or gender of words and expressions used herein.
Unless otherwise indicated, all references herein to clauses and other
subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of this Agreement; the words "herein", "hereof", "hereto",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular paragraph, clause or other subdivision hereof; and
reference to a numbered or lettered subdivision of an Article, or paragraph
shall include relevant matter within the Article or paragraph which is
applicable to but not within such numbered or lettered subdivision.
11.10 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF ARIZONA. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THE
DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY
DIVISION, OR THE UNITED STATES DISTRICT COURT OF ARIZONA OR, IF LENDER INITIATES
SUCH ACTION, IN ADDITION TO THE FOREGOING COURTS, ANY COURT IN WHICH LENDER
SHALL INITIATE SUCH ACTION, TO THE EXTENT SUCH COURT HAS JURISDICTION. BORROWER
HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS
ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THIS
AGREEMENT. BORROWER WAIVES ANY CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF
ARIZONA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.
SHOULD BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY
LAW AFTER THE MAILING THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED
FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM
FOR BORROWER SET FORTH IN THIS PARAGRAPH SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT, BY LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING
BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY
SUCH JUDGMENT OR ACTION. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE DOCUMENTS OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED THEREBY WOULD BE BASED UPON DIFFICULT AND
- 34 -
<PAGE>
COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT
OF ANY SUCH CONTROVERSY SHALL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY
A JUDGE SITTING WITHOUT A JURY.
11.11 It is the intent of the parties hereto to comply with the
Applicable Usury Law. Accordingly, notwithstanding any provisions to the
contrary in this Agreement or in any of the other Documents in no event shall
this Agreement or the Documents require the payment or permit the collection of
interest in excess of the maximum contract rate permitted by the Applicable
Usury Law. If (i) any such excess of interest otherwise would be contracted for,
charged or received from Borrower or otherwise in connection with the
Obligations or (ii) the maturity of the Obligations is accelerated in whole or
in part, or (iii) all or part of the principal or interest of the Obligations
shall be prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received in connection with the Obligations would
exceed the maximum contract rate permitted by the Applicable Usury Law, then in
any such event (A) the provisions of this paragraph shall govern and control,
(B) neither Borrower nor any other person or entity now or hereafter liable for
the payment hereof will be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum contract rate permitted by the
Applicable Usury Law, (C) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal amount of the
Obligations of Borrower or refunded to Borrower, at Lender's option, and (D) the
effective rate of interest will be automatically reduced to the maximum contract
rate permitted by the Applicable Usury Law. Without limiting the generality of
the foregoing, to the extent permitted by the Applicable Usury Law: (x) all
calculations of the rate of interest which are made for the purpose of
determining whether such rate would exceed the maximum contract rate permitted
by the Applicable Usury Law shall be made by amortizing, prorating, allocating
and spreading during the period of the full stated term of the Obligations, all
interest at any time contracted for, charged or received from Borrower or
otherwise in connection with the Obligations; and (y) in the event that the
effective rate of interest on the Obligations should at any time exceed the
maximum contract rate permitted by the Applicable Usury Law, such excess
interest that would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law shall be paid to Lender from time to time,
if and when the effective interest rate on the Obligations otherwise falls below
the maximum contract rate permitted by the Applicable Usury Law, to the extent
that interest paid to the date of calculation does not exceed the maximum
contract rate permitted by the Applicable Usury Law, until the entire amount of
interest which would have otherwise been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury law, such increases shall apply to all the Obligations
regardless of when incurred; but, again to the extent not prohibited by the
Applicable Usury Law, should the maximum contract rate permitted by the
Applicable Usury law be decreased because of a change in the law, such decreases
shall not apply to the Obligations regardless if resulting from an advance of
the Loan made after the effective date of such decrease.
- 35 -
<PAGE>
ARTICLE XII
-----------
SPECIAL PROVISIONS
------------------
12.1 Lender covenants and agrees that, notwithstanding anything to the
contrary herein or in any other Document, during the Term hereof it shall take
no action to disturb Purchasers in their use and possession of their Time-Share
Interests or otherwise to impair the rights and privileges of such Purchasers
under their Time-Share Interests or the governing documents of the Project so
long as such Purchasers are fulfilling their obligations under their respective
Instruments.
- 36 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by Persons duly authorized on the day and year first above written.
"Lender"
GREYHOUND REAL ESTATE FINANCE
COMPANY, an Arizona corporation
By /s/
---------------------------
Vice President
Address:
Dial Corporate Center
Dial Tower
Phoenix, Arizona 85077
Attention: Vice-President-Law
With a copy to:
Dial Corporate Center
Dial Tower
Phoenix, Arizona 85077
Attention: Manager, Administration,
Real Estate Finance Division
"Borrower"
CYPRESS POINTE RESORTS, L.P., a Delaware
limited partnership
By: ARGOSY GROUP, INC., a Georgia
corporation, General Partner
By: /s/ ANDREW J. GESSOW
-----------------------------------
Andrew J. Gessow, Vice President
[CORPORATE SEAL]
Address:
9665 Wilshire Boulevard
Suite 200
Beverly Hills, California 90212
- 37 -
<PAGE>
AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------
AND CONSENT AND AGREEMENT OF GUARANTORS
---------------------------------------
This Amendment to Loan and Security Agreement and Consent and
Agreement of Guarantors (this "Amendment") is made and entered into as of this
9th day of November, 1992 by and between CYPRESS POINTE RESORTS, L.P., a
Delaware limited partnership ("Borrower") and GREYHOUND REAL ESTATE FINANCE
COMPANY, an Arizona corporation ("Lender").
WITNESSETH
WHEREAS, as of December 19, 1991, Borrower and Lender executed a Loan
and Security Agreement (the "Receivables Agreement") pursuant to which Lender
agreed to make a revolving loan to Borrower for the purposes set forth therein;
and
WHEREAS, Borrower and Lender have agreed to amend the Receivables
Agreement in various aspects.
NOW THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. Definitions: The Receivables Agreement is hereby amended by
-----------
adding the following definitions to Article II thereof:
1.1 "Nonconforming Borrowing Base" shall mean an amount
equal to the lesser of (i) seventy percent (70%) of the unpaid
principal balance payable under a Nonconforming Instrument that
otherwise qualifies as an Eligible Instrument, or (ii) seventy percent
(70%) of the then present value assigned to the unmatured installments
of principal and interest payable under a Nonconforming Instrument
that qualifies as an Eligible Instrument discounted at Lender's
Prevailing Discount Rate.
1.2 "Nonconforming Instrument Ratio" shall mean a ratio, the
numerator of which is the total amount Advanced against Nonconforming
Instruments less payments received by Lender on such Nonconforming
Instruments and the denominator of which is the then unpaid principal
balance of the Loan.
<PAGE>
1.3 "Nonconforming Instruments" shall mean an Instrument as
described below but that otherwise meets the eligibility criteria set
forth on Exhibit "B":
(i) The Instrument matures over a term not exceeding
one hundred and twenty (120) months from its execution and the
Borrower has received from the Purchaser issuing such Instrument
a minimum cash down payment of ten percent 10% of the total sales
price, no part of which has been advanced or loaned to such
Purchaser by Borrower or any Guarantor, directly or indirectly;
or
(ii) The Instrument matures over a term not exceeding
sixty (60) months from its execution, interest accrues on the
unpaid principal balance of the Instrument at a rate of not less
than nine and 9/10 percent (9.9%) per annum and Borrower has
received from the Purchaser issuing such Instrument a minimum
cash down payment of twenty percent (20%) of the total sales
price, no part of which has been advanced or loaned to such
Purchaser by Borrower or any Guarantor, directly or indirectly;
or
(iii) The Instrument matures over a term not exceeding
twenty-four (24) months from the date of its execution, does not
accrue interest and the Borrower has received from the Purchaser
issuing such Instrument a minimum cash down payment of thirty-
three percent (33%) of the total sales price, no part of which
has been advanced or loaned to such Purchaser by Borrower or any
Guarantor, directly or indirectly.
2. Other Definitions. Unless otherwise defined in this Amendment,
-----------------
all capitalized terms which are used in this Amendment shall have the same
meaning as set forth in the Receivables Agreement.
3. Minimum Interest Rate. Subparagraph (d) of Exhibit "B" to the
---------------------
Receivables Agreement is hereby modified to delete from the provisions thereof
the words "12% per annum" and substitute in lieu thereof the words "10.9% per
annum."
4. Advances. A Section 3.7 shall be added to the Receivables
--------
Agreement reading as follows:
- 2 -
<PAGE>
3.7 Lender will make Advances against Nonconforming
Instruments on the condition that (i) such Instruments otherwise
qualify as Eligible Instruments, (ii) at no time during the Term shall
the total amount advanced against Nonconforming Instruments, less
payments received by Lender under such Instruments, exceed
$3,000,000.00, and (iii) Borrower is otherwise entitled to an Advance
under the provisions of the Receivables Agreement. At all times during
which the Nonconforming Instrument Ratio is in excess of thirty
percent (30%), the Nonconforming Borrowing Base shall be used for
purposes of determining the amount of Advances to be made against
Nonconforming Instruments. Borrower shall not permit the Nonconforming
Instrument Ratio to be in excess of thirty percent (30%) for a period
in excess of sixty (60) days at any time during the Term.
5. Frequency. The provisions of Section 3.2 of the Receivables
---------
Agreement shall be modified to read as follows:
3.2. Advances shall not be made more frequently than twice per
calendar month and each Advance shall be in an amount of not less than One
Hundred Thousand Dollars ($100,000.00). In consideration for Lender's
agreement to increase the frequency of Advances from one per month to two
per month, Borrower agrees to pay to Lender, concurrently with the making
of the second Advance in each calendar month, a fee equal to Five Hundred
Dollars ($500.00), with Lender being entitled to withhold such fee from the
proceeds of the Advance. The foregoing fee is to paid to Lender strictly in
consideration for Lender's agreement to increase the frequency of advances
and shall not be applied or credited against any other Obligations,
including but not limited to principal or interest due under the Note.
6. Interval Release. A Section 3.8 shall be added to the
----------------
Receivables Agreement reading as follows:
3.8 With respect to the sale of a particular Time-Share
Interest, Lender shall release such Time-Share Interest from the lien
of the Construction Mortgage and defer for a period of 75 days
following such release, the payment of the interval release fee (the
"Release Fee") described in Section 5.20(i) of the Construction
Mortgage on the conditions that:
(i) the Borrower is otherwise entitled to obtain a
release of the Time-Share Interest from the lien of the
Construction Mortgage;
- 3 -
<PAGE>
(ii) the Purchaser has delivered to the Borrower an
Instrument representing a portion of the purchase price of the
Time-Share Interest and did not pay the entire purchase price in
cash at the time of its acquisition of the Time-Share Interest;
(iii) The signed Instrument, endorsed to Lender by
Borrower, with recourse, the recorded Purchaser Mortgage securing
such Instrument, the assignment to Lender of the Purchaser
Mortgage, and the lender's policy of title insurance insuring the
lien of such Purchaser Mortgage subject only to the Permitted
Encumbrances, all as more fully set forth in the Receivables
Agreement, have been delivered by Borrower to and are in the
possession of Schreeder, Wheeler and Flint in its capacity as an
agent of First American Title Insurance Company and not in its
capacity as counsel for Borrower (the "Escrow Agent") pursuant to
a separate agreement between Lender and Escrow Agent; and
(iv) all recission rights under the Instruments have
expired.
At such time as the Instrument is at least thirty (30) days aged from
the date of its execution and at least one monthly installment payment has been
made and at such time as Borrower has delivered to Lender all other items
necessary or required in connection with an Advance against such Instrument,
Escrow Agent shall deliver to Lender the items being held by Escrow Agent
pursuant to subsection (iii) above. Lender shall thereafter evaluate the
eligibility of such Instrument. In the event such Instrument constitutes an
Eligible Instrument and in the event Borrower is otherwise entitled to an
Advance, Lender shall make an Advance against such Eligible Instrument as soon
as is reasonably convenient thereafter; subject, however, to the other
conditions for Advance set forth in the Receivables Agreement, as amended.
Lender shall be entitled to withhold from such Advance or from any other
Advance, any then due Release Fees. In the event such Instrument does not
qualify as an Eligible Instrument or Lender is otherwise not obligated to make
an Advance against such Instrument, then as soon as is reasonably convenient
thereafter, Lender shall reassign such Instrument and the Purchaser Mortgage to
Borrower, without recourse. The foregoing notwithstanding, any deferred Release
Fees shall be due and payable no later than 75 days following the release from
the
- 4 -
<PAGE>
Construction Mortgage of Time Share Interest with respect to which such Release
Fee is payable.
The definition of Receivables Collateral contained in Section 2.43 of
the Receivables Agreement shall be modified by deleting from the second and
third lines of the words "in consideration for an Advance made by Lender" so
that all Instruments assigned, transferred, endorsed or delivered to Lender, all
Purchaser Mortgages assigned to Lender and all other elements of the Receivables
Collateral definition to the extent relating or delivered in connection with
such Instruments, shall constitute Receivables Collateral, notwithstanding
whether or not Lender makes an Advance against such Instrument. Borrower hereby
reaffirms and grants to Lender a first and exclusive Security Interest in and to
the Receivables Collateral assigned, transferred, endorsed or delivered to
Lender, as the definition of Receivables Collateral has been modified pursuant
to the provisions of this Amendment, as security for Borrower's payment and
Performance of all Obligations owed to Lender, other than those arising out of
the Environmental Certificate with Representations, Covenants and Warranties
delivered in connection with the Construction Loan Agreement.
Escrow Agent shall hold the Instruments as a bailee with notice for
the benefit of Lender for purposes of perfecting Lender's Security Interest in
such Instruments.
5. Confirmation of Representations, Warranties and Agreements.
----------------------------------------------------------
Borrower hereby reaffirms as if made as of the date hereof, all of Borrower's
representations and warranties contained in the Receivables Agreement. Borrower
furthermore hereby reaffirms the validity, enforceability and legality of the
Documents and the Construction Loan Documents and all provisions of the
Documents and Construction Loan Documents are hereby confirmed and ratified.
However, in the event of a conflict or inconsistency between provisions of the
Receivable Agreement and this Amendment, the provisions of this Amendment shall
prevail.
7. Guarantor Consent. As a condition precedent to the effectiveness
-----------------
of this Amendment, Borrower shall cause the Guarantors to execute the Consent
and Agreement forming a part hereof, thereby acknowledging the making of the
agreements contained herein.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first written above.
CYPRESS POINTE RESORTS, L.P.,
a Delaware limited partnership
By: ARGOSY GROUP, INC.
a Georgia corporation,
General Partner
By /s/ ILLEGIBLE SIGNATURE
----------------------------
Its Vice President
----------------------------
Borrower
[CORPORATE SEAL]
GREYHOUND REAL ESTATE
FINANCE COMPANY, an Arizona
corporation
By /s/ ILLEGIBLE SIGNATURE
----------------------------
Its Sr. Vice President
----------------------------
Lender
- 6 -
<PAGE>
CONSENT AND AGREEMENT OF GUARANTORS
-----------------------------------
The undersigned ARGOSY GROUP, INC. a Georgia corporation, hereby
acknowledges that it executed a Corporate Guarantee and Subordination Agreement
dated as of December 19, 1991 (the "Corporate Guarantee") in favor of Greyhound
Real Estate Finance Company, an Arizona corporation ("Lender").
The undersigned ARGOSY CANYON INVESTMENTS, L.P., a California limited
partnership, hereby acknowledges that it executed a Partnership Guarantee and
Subordination Agreement dated as of December 19, 1991 (the "Partnership
Guarantee") in favor of Lender (the Corporate Guarantee and the Partnership
Guarantee, collectively the "Guarantee").
The undersigned acknowledge that Cypress Pointe Resorts, LP., a
Delaware limited partnership and Lender have executed an Amendment to Loan and
Security Agreement (the "Amendment") which resulted in an amendment to the
Receivables Agreement (as that term is defined in the Amendment). The
undersigned acknowledge that the Guarantee that each of the undersigned has
executed shall remain in full force and effect and that all references in the
Guarantee to the Receivables Agreement (regardless of the precise form of such
reference) are amended to refer to that document as amended by the Amendment.
The Guarantee executed by each of the undersigned shall continue in
full force and effect and shall remain unaffected and unchanged except as
specifically amended by this Consent and Agreement, and the same, as amended,
are hereby confirmed and ratified, and the undersigned specifically acknowledge
the validity and enforceability thereof.
Dated as of this 9th day of November, 1992.
ARGOSY GROUP, INC.,
a Georgia corporation
By /s/ ILLEGIBLE SIGNATURE
-----------------------
Its Vice President
----------------------
<PAGE>
ARGOSY CANYON
INVESTMENTS, L.P.,
a California limited partnership
By: CanPartners Incorporated,
a California corporation,
its General Partner
By
-----------------------
Its
-----------------------
ACCEPTED:
GREYHOUND REAL ESTATE
FINANCE COMPANY
By /s/ ILLEGIBLE SIGNATURE
-----------------------
Its Sr. Vice President
----------------------
- 8 -
<PAGE>
CONSENT AND AGREEMENT OF GUARANTORS
-----------------------------------
The undersigned ARGOSY GROUP, INC. a Georgia corporation, hereby
acknowledges that it executed a Corporate Guarantee and subordinate Agreement
dates as of December 19, 1991 (the "Corporate Guarantee") in favor of Greyhound
Real Estate Finance Company, an Arizona corporation ("Lender").
The undersigned ARGOSY CANYON INVESTMENTS, L.P., a California limited
partnership, hereby acknowledges that it executed a partnership Guarantee and
Subordinated Agreement dated as of December 19, 1991 (the "Partnership
Guarantee") in favor of Lender (the Corporate Guarantee and the Partnership
Guarantee, collectively the "Guarantee").
The undersigned acknowledge that Cypress Pointe Resorts, L.P., a
Delaware limited partnership and Lender have executed an Amendment to Loan and
Security Agreement (the "Amendment") which resulted in an amendment to the
Receivables Agreement (as that term is defined in the amendment). The
undersigned acknowledge that the Guarantee that each of the undersigned has
executed shall remain in full force and effect and that all references in the
Guarantee to the Receivables Agreement (regardless of the precise form of such
reference) are amended to refer to that document as amended by the Amendment.
The Guarantee executed by each of the undersigned shall continue in
full force and effect and shall remain unaffected and unchanged except as
specifically amended by this Consent and Agreement, and the same, amended, are
hereby confirmed and ratified, and the undersigned specifically acknowledge the
validity and enforceability thereof.
Dated as of this 9th day of November, 1992.
ARGOSY GROUP, INC.,
a Georgia corporation
By /s/ ILLEGIBLE SIGNATURE
-----------------------
Its Vice President
-----------------------
<PAGE>
ARGOSY CANYON
INVESTMENTS, L.P.,
a California limited partnership
By: CanPartners Incorporated, a
California corporation, its General
Partner
By /s/ ILLEGIBLE SIGNATURE
-----------------------
Its
-----------------------
ACCEPTED:
GREYHOUND REAL ESTATE
FINANCE COMPANY
By /s/
----------------------
Its
----------------------
- 8 -
<PAGE>
SECOND AMENDMENT TO LOAN
AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Second
Amendment") is made and entered into as of the 13th day of January, 1993, by and
between CYPRESS POINTE RESORTS, L.P., a Delaware limited partnership
("Borrower"), and GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
("Lender").
WITNESSETH:
WHEREAS, as of December 19, 1991, Borrower and Lender's predecessor in
interest, Greyhound Real Estate Finance Company, an Arizona corporation
("GREFCO"), entered into that Loan and Security Agreement (the "Receivables Loan
Agreement") pursuant to which Lender agreed to make a revolving loan to Borrower
for the purposes set forth therein; and
WHEREAS, Borrower and GREFCO modified and amended the Receivables Loan
Agreement pursuant to that Amendment to Loan and Security Agreement and Consent
and Agreement of Guarantors dated as of November 9, 1992 (the "First
Amendment"), whereby the Receivables Loan Agreement was modified and amended
pursuant to the terms and conditions set forth therein; and
WHEREAS, pursuant to that Assignment of even date herewith between
GREFCO and Lender, GREFCO has assigned to Lender all of its rights and
obligations under the Receivables Loan Agreement and the First Amendment and all
other documents and instruments executed in connection therewith; and
WHEREAS, Borrower and Lender have agreed to further amend the
Receivables Loan Agreement pursuant to the terms and provisions of this Second
Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions. Except as specifically set forth in and/or modified
-----------
by this Second Amendment, all capitalized terms set forth herein shall have the
meanings set forth therefor in the Receivables Loan Agreement. The following
capitalized terms shall have the meanings set forth below, notwithstanding any
contrary definitions contained in the Receivables Loan Agreement.
<PAGE>
1.1 "CONSTRUCTION LOAN AGREEMENT" shall mean that certain
Construction Loan Agreement dated as of December 19, 1991, between Borrower and
GREFCO, as modified and amended pursuant to that First Amendment to Construction
Loan Agreement of even date herewith between Borrower and Lender.
1.2 "LOAN" shall mean the line of credit loan extended by Lender
to Borrower in accordance with the terms of the Receivables Loan Agreement, as
modified by the First Amendment and this Second Amendment, in a principal amount
not to exceed at any time outstanding the Maximum Loan Amount.
1.3 "MAXIMUM LOAN AMOUNT" shall mean the sum of Thirteen Million
Five Hundred Thousand Dollars ($13,500,000.00), less the then unpaid principal
balance under the Construction Loan.
1.4 "NOTE" shall mean the Promissory Note described in SECTION
2.29 of the Receivables Loan Agreement, as modified and amended pursuant to that
Allonge to Receivables Promissory Note of even date herewith executed by
Borrower and Lender.
1.5 "PROJECT" shall mean the time-share condominium project
known as Cypress Pointe Resort, constructed and/or to be constructed by Borrower
in Orlando, Florida, comprised of 84 time-share units.
2. LIMITATION ON ADVANCES. At no time during the Borrowing Term
----------------------
shall the unpaid principal balance of the Receivables Loan, together with the
unpaid principal balance of the Construction Loan, exceed a total amount equal
to Thirteen Million Five Hundred Thousand Dollars ($13,500,000.00) (the "Advance
Limitation"), and Lender shall have no obligation to make any Advance under the
Loan if such Advance would cause the Advance Limitation to be exceeded.
3. INTERVAL RELEASES. SECTION 3.8 of the Receivables Loan
-----------------
Agreement, as added pursuant to the First Amendment, is hereby modified as
follows: the reference to SECTION 5.20(i) of the Construction Mortgage is hereby
amended and shall hereafter include SECTIONS 5.20(i) and 5.20(ii) of the
Construction Mortgage.
4. INCENTIVE FEE. As additional consideration to Lender, Borrower
-------------
shall pay to Lender an incentive fee equal to Thirty Thousand Six Hundred
Dollars ($30,600.00) with respect to the time-share interests sold by Borrower
in Building 3 (as defined in the Construction Loan Agreement) of the Project
("Building3 Intervals"). Such incentive fee shall be paid in installments of
Fifty Dollars ($50.00) per Building 3 Interval, plus related reasonable fees and
expenses (as set forth in the
- 2 -
<PAGE>
Mortgage). If not already paid, such incentive fee shall be paid in full upon
the date the Construction Loan is due and payable in full. Nothing contained
herein shall modify, amend or limit the incentive fee payable by Borrower
pursuant to SECTION 8.25 of the Receivables Loan Agreement.
5. CONFIRMATION OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
----------------------------------------------------------
Borrower hereby reaffirms, as if made as of the date hereof, all of Borrower's
representations and warranties contained in the Receivables Loan Agreement.
Borrower furthermore reaffirms the validity, enforceability and legality of the
Documents, and all provisions of the Documents as modified of even date herewith
are hereby confirmed and ratified. However, in the event of a conflict or
inconsistency between the provisions of the Receivables Loan Agreement, the
First Amendment and this Second Amendment, the provisions of this Second
Amendment shall prevail.
6. GUARANTORS' RATIFICATION. As a condition precedent to the
------------------------
effectiveness of this Second Amendment, Borrower shall cause the Guarantors to
each execute a Ratification and Confirmation of Guarantee and Subordination
Agreement in the forms attached hereto as EXHIBITS "B" and "C", thereby
acknowledging the making of the agreements contained herein.
7. DOCUMENT REFERENCE. All references to the "Loan Agreement" in
------------------
the Documents are hereby amended to refer to the Receivables Loan Agreement as
hereby amended.
8. CONTINUATION OF PROVISIONS. All terms, conditions and provisions
--------------------------
of the Receivables Loan Agreement, as modified by the First Amendment, are
continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended or modified hereby.
9. CONDITIONS PRECEDENT. The amendments and modifications to
--------------------
the Receivables Loan Agreement contained herein shall not be binding upon Lender
until Lender shall have received all of the following:
(a) An original of this Second Amendment fully executed by the
Borrower;
(b) An original of the Allonge to Receivables Promissory Note in
the form attached hereto as EXHIBIT "A ", fully executed by Borrower;
(c) Ratification and Confirmation of Corporate Guarantee and
Subordination Agreement in the form attached hereto as EXHIBIT "B ",
fully executed by Argosy Group, Inc.;
- 3 -
<PAGE>
(d) Ratification and Confirmation of Partnership Guarantee and
Subordination Agreement in the form attached hereto as Exhibit "C",
fully executed by Argosy Canyon Investments, L.P.;
(e) All documents required to be executed and delivered to Lender
in connection with the concurrent amendment and modification of the
Construction Loan Agreement; and
(f) Such resolutions and authorizations and such other documents
as Lender may require relating to the existence and good standing of the
Borrower and any Guarantor, and the authority of any person executing
this Second Amendment or any other documents on behalf of the Borrower
or Guarantors.
IN WITNESS WHEREOF, these presents are executed as of the date first
indicated above.
"BORROWER"
CYPRESS POINTE RESORTS, L.P.,
a Delaware limited partnership
By: ARGOSY GROUP, INC., a Georgia
corporation, General Partner
By /s/ ILLEGIBLE SIGNATURE
---------------------------
Its Vice President
---------------------------
"LENDER"
GREYHOUND FINANCIAL
CORPORATION, a Delaware corporation
By /s/ ILLEGIBLE SIGNATURE
---------------------------
Its Sr. Vice President
---------------------------
- 4 -
<PAGE>
THIRD AMENDMENT TO LOAN
AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Third
Amendment") is made and entered into as of the 7th day of April, 1993, by and
between CYPRESS POINTE RESORTS, L.P., a Delaware limited partnership
("Borrower"), and GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
("Lender").
WITNESSETH:
WHEREAS, as of December 19, 1991, Borrower and Lender's predecessor in
interest, Greyhound Real Estate Finance Company, an Arizona corporation
("GREFCO"), entered into that Loan and Security Agreement (the "Original
Agreement") pursuant to which Lender agreed to make a revolving loan to Borrower
for the purposes set forth therein; and
WHEREAS, Borrower and GREFCO modified and amended the Original
Agreement pursuant to that Amendment to Loan and Security Agreement and Consent
and Agreement of Guarantors dated as of November 9, 1992 (the "First
Amendment"); and
WHEREAS, pursuant to that Assignment dated as of January 13, 1993,
between GREFCO and Lender, GREFCO assigned to Lender all of GREFCO's rights and
obligations under the Original Agreement and the First Amendment and all other
documents and instruments executed in connection therewith; and
WHEREAS, pursuant to that Second Amendment to Loan and Security
Agreement dated as of January 13, 1993 ("the Second Amendment"), Lender and
Borrower amended the Original Agreement and First Amendment in certain respects;
and
WHEREAS, Borrower and Lender have agreed to further amend the Original
Agreement, First Amendment and Second Amendment pursuant to the terms and
provisions of this Third Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE>
1. Definitions. Except as specifically set forth in and/or modified
-----------
by this Third Amendment, all capitalized terms set forth herein shall have the
meanings set forth therefor in the Original Agreement, First Amendment or Second
Amendment, as the case may be. However, the following capitalized terms shall
have the meanings set forth below, notwithstanding any contrary definitions
contained in the Original Agreement, First Amendment or Second Amendment.
1.1 "BORROWING TERM" shall mean the period of time during which
Lender is committed to make advances under the Receivables Loan Agreement,
which commitment shall terminate on the earlier of (a) the date which
occurs twelve (12) months after the date of the first Advance which is made
by Lender after the date of this Third Amendment or (b) June 9, 1994.
1.2 "CONSTRUCTION LOAN AGREEMENT" shall mean that certain
Construction Loan Agreement dated as of December 19, 1991, between Borrower
and GREFCO, as modified and amended pursuant to that First Amendment to
Construction Loan Agreement, dated as of January 13, 1993 between Borrower
and Lender, as further modified and amended pursuant to the Second
Amendment to Construction Loan Agreement of even date herewith between
Borrower and Lender, and as from time to time further modified, extended,
renewed, replaced or restated.
1.3 "CONTROL" shall mean, in connection with the definition of
Affiliate, the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of another person or
entity, whether through the ownership of voting securities, by contract or
otherwise. For purposes hereof, any person or entity which owns or
controls, directly or indirectly, five percent (5%) or more of the
securities or ownership interest, whether voting or nonvoting, of any other
person or entity shall be deemed to Control such person or entity.
1.4 "LOAN" shall mean the line of credit loan extended by Lender
to Borrower in accordance with the terms of the Receivables Loan Agreement
in a principal amount not to exceed at any time outstanding the Maximum
Loan Amount.
1.5 "MATURITY DATE" shall mean that date which shall occur seven
(7) years after the date on which the last Advance is made under the terms
of the Original Agreement as modified by this Third Amendment.
1.6 "MAXIMUM LOAN AMOUNT" shall mean the sum of Twenty Million
Dollars ($20,000,000.00); provided, however, that if at any time during the
Borrowing Term the unpaid principal balance under the
- 2 -
<PAGE>
Construction Loan exceeds $2,000,000.00, then the Maximum Loan Amount shall
be reduced by the amount that the unpaid principal balance of the
Construction Loan exceeds $2,000,000.00 until the unpaid principal balance
of the Construction Loan is reduced to $2,000,000.00 or less.
1.7 "CONSTRUCTION MORTGAGE" shall mean, collectively, that
certain Mortgage, Assignment of Rents and Proceeds and Security Agreement
dated as of December 19, 1991 between Borrower and GREFCO; as amended by
that certain First Amendment to Mortgage, Assignment of Rents and Proceeds
and Security Agreement dated as of January 13, 1993 between Borrower and
Lender; and as further amended by that certain Second Amendment to
Mortgage, Assignment of Rents and Proceeds and Security Agreement of even
date herewith between Lender and Borrower.
1.8 "NOTE" shall mean the Promissory Note defined in the
Original Agreement, as modified and amended pursuant to that Second Allonge
to Receivables Promissory Note of even date herewith executed by Borrower
and Lender.
1.9 "NONCONFORMING INSTRUMENTS" shall mean those Instruments
described below and which, in all other respects, constitute Eligible
Instruments:
The Instruments provide for consecutive monthly installments of
principal and interest in U.S. funds over a term not exceeding one hundred
twenty (120) months from the date of its execution, with interest accruing
on the unpaid principal balance of the Instrument at a rate not less than
10.9% per annum and the Borrower has received from the Purchaser issuing
such Instrument a minimum cash down payment of 10% of the total sales
price, no part of which has been advanced or loaned to such Purchaser by
Borrower or any Guarantor, directly or indirectly; or
1.10 "OPENING PREPAYMENT DATE" shall mean the date which occurs
twenty-four (24) months after the date on which the last Advance is made
under the terms of the Original Agreement as amended by this Third
Amendment.
1.11 "PREVAILING DISCOUNT RATE" shall mean Lender's prevailing
discount rate at the time each Advance is made, which rate shall be Prime
Rate plus 2% per annum, but in no event less than 11.5% per annum.
- 3 -
<PAGE>
1.12 "PROJECT" shall mean the time-share condominium project known
as Cypress Pointe Resort, constructed and to be constructed by Borrower in
Orlando, Florida, comprised of 84 time-share units.
1.13 "RECEIVABLES LOAN AGREEMENT" shall mean, collectively, the
Original Agreement, the First Amendment, the Second Amendment and the Third
Amendment.
2. ADDITIONAL INSTRUMENTS. Exhibit "B" to the Original Agreement,
----------------------
constituting Eligibility Criteria, shall be amended with the addition of the
following subparagraphs:
(j) The Instrument provides for consecutive monthly installments of
principal and interest in U.S. funds over a term not exceeding sixty (60) months
from the date of its execution, with interest accruing on the unpaid principal
balance of the Instrument at a rate of not less than 9.9% per annum and Borrower
has received from the Purchaser issuing such Instrument a minimum cash down
payment of 50% of the total sales price no part of which has been advanced or
loaned to such Purchaser by Borrower or any Guarantor, directly or indirectly;
or;
(k) The Instrument provides for consecutive monthly installments of
principal and interest in U.S. funds over a term not exceeding twenty-four (24)
months from the date of its execution, does not accrue interest and the Borrower
has received from the Purchaser issuing such Instrument a minimum cash down
payment of 33% of the total sales price no part of which has been advanced or
loaned to such Purchaser by Borrower or any Guarantor, directly or indirectly.
The foregoing subcategories of Instruments are hereinafter referred
to as "Conforming Instruments."
The foregoing notwithstanding, in the event as of the end of any
calendar quarter, commencing with the calendar quarter ending on June 30, 1993,
the delinquency rate of either of the foregoing subcategories of Conforming
Instruments then constituting Receivables Collateral exceeds an amount that
Lender deems material, then upon written notice to Borrower, all Conforming
Instruments which thereafter fall within such subcategory and constitute
Receivables Collateral shall thereafter be deemed Nonconforming Instruments.
3. PREPAYMENT. The Loan may be prepaid as provided in the Original
----------
Agreement; provided however that for purposes of determining when and under what
-------- -------
circumstances a prepayment may occur, the elapsed time of the term of the
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<PAGE>
Loan shall be measured from the date on which the last Advance is made under the
terms of the Original Agreement, as amended by this Third Amendment.
4. LIMITATION ON ADVANCES. At no time during the Term shall the unpaid
----------------------
principal balance of the Loan, together with the unpaid principal balance of the
Construction Loan, exceed a total amount equal to Twenty-Two Million Dollars
($22,000,000.00) (the "Advance Limitation"), and Lender shall have no obligation
to make any Advance under the Loan if such Advance would cause the Advance
Limitation to be exceeded.
5. INTERVAL RELEASES. SECTION 3.8 of the Original Agreement, as added
-----------------
pursuant to the First Amendment, is hereby modified as follows: the reference to
SECTION 5.20(i) of the Construction Mortgage is hereby amended and shall
hereafter include SECTIONS 5.20(i) and 5.20(iii) of the Construction Mortgage.
6. FEES AND EXPENSES. In addition to the fees and expenses which have
-----------------
been paid or are payable by Borrower pursuant to SECTION 8.16 of the Receivables
Loan Agreement, Borrower shall pay to Lender a nonrefundable commitment fee (the
"Commitment Fee") in the amount of $70,000, which nonrefundable fee was earned
by Lender in consideration of Lender holding itself ready, willing and able to
amend the Receivables Loan Agreement upon the terms and conditions set forth
herein. The payment of the Commitment Fee is in addition to Borrower's
obligation to pay a commitment fee to Lender for the Lender's commitment to
modify and amend the Construction Loan Agreement and in addition to all other
fees and expenses required to be paid by Borrower pursuant to the Second
Amendment to Construction Loan Agreement of even date herewith. The Commitment
Fee shall be due and payable in full not later than the date of the next Advance
after the date hereof or on July 23, 1993, whichever shall occur first.
Furthermore, Borrower shall pay, on demand, all costs and expenses arising from
the preparation of this Third Amendment, the Closing of the amendment to the
Construction Loan Documents, the issuing of Lender's commitment to make the
Building 6 Advance, the making of the Building 6 Advance, or otherwise incurred
by Lender in connection with this Third Amendment, including, but not limited
to, title insurance premiums, other title company charges, recording fees, all
charges for consumer credit and Bishop's reports, and U.C.C., tax lien, judgment
and litigation searches, Lender's attorneys' fees and costs, appraisal fees, if
any, survey costs, if any, inspection costs and fees, both during construction
or otherwise, escrow disbursement expenses, any revenue and/or documentary
stamps, intangible or recording taxes, out-of-pocket travel expenses incurred by
Lender or its agents and employees, brokerage commissions, all fees and expenses
of the Servicing Agent and Collection Agent in connection with this Third
Amendment, a nonrefundable documentation fee of $10,000 (which constitutes the
same documentation fee due under the Construction Loan Agreement), which shall
be credited against Lender's attorneys' fees ($7,500 of which shall be payable
upon full
- 5 -
<PAGE>
execution of this Third Amendment and the balance of which shall be payable on
April 30, 1993), and any other costs, expenses or charges that may be imposed on
or incurred by Lender as a result of this Amendment.
7. RENEWAL FEE. In addition to the fees and expenses described in
------------
Section 6 above, Borrower shall pay to Lender a nonrefundable renewal fee (the
"Renewal Fee") which shall equal the product obtained when (i) one-twelfth of
one percent of the Unused Availability (as hereinafter defined), (ii) is
multiplied by the number of full or partial calendar months between March 31,
1993 and the end of the Borrowing Term. The Renewal Fee is paid in consideration
of Lender holding itself ready, willing and able to renew and extend the Loan
upon the terms and conditions set forth herein, and shall be due and payable in
full on April 15, 1993. For purposes of this Section, the term Unused
Availability shall mean the difference obtained when $13,500,000 is reduced by
the unpaid principal balance of the Loan as of March 31, 1993.
8. INCENTIVE FEE.
-------------
(i) As additional consideration to Lender, Borrower shall pay
to Lender an incentive fee (the "Building 6 Incentive Fee") equal to Sixty-
One Thousand Two Hundred Dollars ($61,200.00) with respect to the Time-
Share Interests sold by Borrower in Building 6 (as defined in the
Construction Loan Agreement) ("Building 6 Intervals"). The Building 6
Incentive Fee shall be paid in installments equal to $500 per Building 6
Interval, plus related reasonable fees and expenses (all as set forth in
the Mortgage), commencing with the first sale of a Building 6 Interval
occurring after the Building 6 Maturity Date (as defined in the
Construction Loan Agreement), and continuing until the entire Building 6
Incentive Fee is paid in full. Notwithstanding anything contained herein to
the contrary, the Building 6 Incentive Fee is payable in full by Borrower
on the first day of the 21st month after the making of the first Building 6
Advance (as defined in the Construction Loan Agreement).
(ii) The provisions of paragraph 4 of the Second Amendment,
dealing with the payment by Borrower to Lender of an Incentive Fee with
respect to Time-Share Interests sold by Borrower in Building 3 (as defined
in the Construction Loan Agreement) shall be amended in its entirety to
read as follows:
4. Incentive Fee. As additional consideration to Lender,
-------------
Borrower shall pay to Lender an incentive fee (the "Building 3 Incentive Fee")
equal to $30,600 with respect to Time-Share Interests sold by Borrower in
Building 3 (as defined in the Construction Loan
- 6 -
<PAGE>
Agreement) of the Project ("Building 3 Intervals"). The Building 3
Incentive Fee shall be paid in installments equal to $500 per Building
3 Interval, plus related fees and expenses (all as set forth in the
Mortgage), commencing with all sales occurring after October 31, 1993,
and continuing until the entire Building 3 Incentive Fee is paid in
full. Notwithstanding anything contained herein to the contrary, the
Building 3 Incentive Fee is payable in full by Borrower on the 1st
day of the 26th month after the initial Advance of the proceeds of the
Construction Loan.
(iii) Nothing contained herein shall modify, amend or limit the
incentive fee payable by Borrower pursuant to SECTION 8.25 of the
Receivables Loan Agreement with respect to the initial 48 Units of the
Project.
9. CONFIRMATION OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
----------------------------------------------------------
Borrower hereby reaffirms, as if made as of the date hereof, all of Borrower's
representations and warranties contained in the Receivables Loan Agreement.
Borrower furthermore reaffirms the validity, enforceability and legality of the
Documents, and all provisions of the Documents, as modified, are hereby
confirmed and ratified. Without limiting the generality of the foregoing,
Borrower hereby reaffirms the validity and enforceability of the Security
Interest granted to Lender in the Receivables Collateral and the Residual
Collateral as security for Borrower's payment and Performance of all
Obligations, other than those Obligations arising out of the Environmental
Certificate with Representations, Covenants and Warranties delivered in
connection with the Construction Loan Agreement. Borrower hereby acknowledges
and agrees that the definition of Obligations includes, without limitation, each
and every obligation, duty, covenant, undertaking and condition which Borrower
is required or has agreed to perform under the Documents and under the
Construction Loan Documents, and each and every obligation of Borrower now or
hereafter owing to Lender. In the event of a conflict or inconsistency between
the provisions of the Original Agreement, the First Amendment and the Second
Amendment, on the one hand, and the provisions of this Third Amendment, on the
other hand, the provisions of this Third Amendment shall prevail.
10. ASSOCIATION FINANCIAL STATEMENTS. Borrower shall supply to Lender,
--------------------------------
no later than April 30, 1993, a copy of the 1992 fiscal year-end financial
statements for each of the Association and the Borrower in the forms required by
SECTION 8.11(c) of the Original Agreement. Financial statements for the
Association and for the Borrower for subsequent fiscal years shall be delivered
within the 90-day period (as to the Association) and 120-day period (as to the
Borrower) set forth in SECTION 8.11(c).
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<PAGE>
11. SUBORDINATION. The provisions of SECTION 8.12 of the Original
-------------
Agreement shall be amended in its entirety to read as follows:
All indebtedness owed by the Borrower to its partners or
Affiliates and all other indebtedness owed by Borrower shall be
subordinated to the indebtedness of Borrower to Lender, under terms and
conditions acceptable to Lender. Such Subordination Agreement shall,
without limitation, (i) permit the payment of regularly scheduled
installments of subordinated indebtedness in the absence of an Event of
Default and (ii) prohibit the payment of any subordinated indebtedness and
prohibit the exercise of any remedies against Borrower upon and during the
continuance of an Event of Default.
12. NET WORTH. The provisions of SECTION 8.22(a) of the Original
---------
Agreement shall be amended in its entirety to read as follows:
(a) As of the end of each fiscal quarter of Borrower, Borrower
shall maintain a net worth, calculated in accordance with generally
accepted accounting principles, consistently applied ("GAAP"), of at least
Six Million Dollars ($6,000,000).
13. ADDITIONAL UNITS. The provisions of SECTION 8.23 of the Original
----------------
Agreement shall be amended in its entirety to read as follows:
8.23 Borrower shall not, without Lender's prior written consent:
(i) Construct additional condominium or time-share units within or adjacent
to the Project (other than the time-share units comprising the Project)
until at least 50% of the total Time-Share Interests in the Project have
been sold, in bona fide transactions, to parties not Affiliated with
Borrower or (ii) sell time-share intervals from such additional condominium
or time-share units until at least 75% of the total Time-Share Interests
contained within the Project have been sold, in bona fide transactions, to
parties not Affiliated with Borrower.
14. GUARANTORS' RATIFICATION. As a condition precedent to the
------------------------
effectiveness of this Third Amendment, Borrower shall cause the Guarantors to
each execute a Ratification and Confirmation of Guarantee and Subordination
Agreement in the forms attached hereto as EXHIBITS "A" and "B", thereby
acknowledging the making of the agreements contained herein.
15. DOCUMENT REFERENCE. All references to the "Loan Agreement" in the
------------------
Documents are hereby amended to refer to the Receivables Loan Agreement.
- 8 -
<PAGE>
16. CONTINUATION OF PROVISIONS. All terms, conditions and provisions
--------------------------
of the Original Agreement, First Amendment and Second Amendment are continued in
full force and effect and shall remain unaffected and unchanged except as
specifically amended or modified hereby. Without limiting the generality of the
foregoing, an Event of Default shall be deemed to exist in the event there
occurs an Event of Default under and as defined in the Construction Loan
Agreement or in the event there occurs an act or event under any of the
Construction Loan Documents, whether or not denominated as an "Event of
Default," which expressly entitles the Lender to exercise its remedies. Borrower
acknowledges that as of the date hereof, it has (i) no defense, counterclaim,
offset, cross-complaint, claim or demand of any nature whatsoever which can be
asserted as a basis to seek affirmative relief or damages from Lender or as a
basis to reduce or eliminate all or any part of its liability to repay the Loan
and (ii) no other claim against Lender with respect to any aspect of the
transaction in respect to which the Loan was made.
17. CONDITIONS PRECEDENT. The amendments and modifications to the
--------------------
Receivables Loan Agreement contained herein and Lender's obligations in this
regard are subject to the following express conditions precedent:
17.1 The following shall be delivered to Lender all in a form,
manner and substance satisfactory to Lender:
(a) An original of this Third Amendment fully executed by
the Borrower;
(b) An original of the Second Allonge to Receivables
Promissory Note in a form acceptable to Lender, fully executed by
Borrower;
(c) An original Second Modification to Mortgage, Assignment
of Rents and Proceeds and Security Agreement in a form acceptable to
Lender, fully executed by Borrower (the "Second Mortgage
Modification");
(d) Ratification and Confirmation of Corporate Guarantee and
Subordination Agreement in the form attached hereto as EXHIBIT "A",
fully executed by Argosy Group, Inc.;
(e) Ratification and Confirmation of Partnership Guarantee
and Subordination Agreement in the form attached hereto as EXHIBIT
"B", fully executed by Argosy Canyon Investments, L.P.;
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<PAGE>
(f) Current updates of those opinion letters received by Lender
in connection with the Construction Loan Agreement from Schreeder,
Wheeler & Flint and Morrison & Foerster;
(g) All documents required to be executed and delivered to Lender
in connection with the amendment and modification of the Construction
Loan Agreement;
(h) Such resolutions and authorizations and such other documents
as Lender may require relating to the existence and good standing of
the Borrower and Guarantors, and the authority of any person executing
this Second Amendment or any other documents on behalf of the Borrower
or Guarantors; and
(i) A commitment from First American Title Insurance Company, the
issuer of Lender's ALTA extended coverage title insurance policy in
connection with the Construction Loan Agreement (the "Title Policy"),
to issue an endorsement, in form satisfactory to Lender, to Lender's
Title Policy, insuring that the Construction Mortgage, as modified
pursuant to the Second Mortgage Modification, continues to be a first
lien upon the real property described therein, as security for, among
other things, the timely and faithful payment of the Building 6
Incentive Fee, subject only to those exceptions contained in such
title policy and to such additional exceptions as Lender may
specifically approve in writing.
(j) Evidence that the Real Property is environmentally acceptable
to Lender. Lender has the right to require that Borrower retain the
services of a firm acceptable to Lender and knowledgeable in
environmental matters to perform a Phase I environmental assessment
(and if requested by Lender, a site audit and regulatory compliance
evaluation) of the Real Property and surrounding area. Such
assessment, audit and evaluation (collectively, the "Investigation")
may include, but not be limited to, soil and ground water testing to
fully identify the scope of any environmental issues impacting the
subject transaction. All costs incurred in performing the
Investigation shall be borne by Borrower. The scope and results of the
Investigation must be satisfactory to Lender. All costs associated
with complying with EPA and other federal, state and local
environmental standards, as indicated by the Investigation, shall be
the sole responsibility of Borrower.
(k) Updated UCC, tax lien, litigation and judgment searches for
the following parties: (i) Borrower, (ii) Argosy Group,
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<PAGE>
Inc., (iii) Argosy Canyon Investments, L.P., (iv) Herb Alfree, (v)
Andrew J. Gessow, (vi) Vacation Ownership Marketing, Inc., dba Cypress
Pointe Marketing Company, and (vii) Essex Builders Group, together
with Bishops Reports for Andrew J. Gessow and Herb Alfree.
(1) Evidence that Borrower has good and marketable title to the
collateral pledged to Lender, that Lender's liens and security
interest in such collateral have been duly perfected as first and
prior liens and security interests, and that there are no other
financing statements or liens filed against Borrower or on the
property of Borrower except those that are approved by Lender.
(m) Evidence that any fees due to any broker utilized by Borrower
in connection with the subject transaction have been paid, together
with evidence of the payment by Borrower of any other costs, fees and
expenses then payable in connection with the Construction Loan and the
Loan, including, without limitation, those fees, costs and expenses
described in Section 6 hereof.
(n) Such documents, instruments and agreements as Lender may
require to effectuate the provisions of SECTION 11 hereof.
17.2 No Event of Default shall exist and no event or condition
shall exist which after notice or lapse of time, or both, would constitute
an Event of Default.
17.3 There shall have occurred no material adverse change in the
Real Property or in the business or financial condition of Borrower and
Guarantor since the date of the last financial statement submitted to
Lender.
17.4 Neither Borrower nor Guarantor shall have failed to
disclosure to Lender any material information and no material information
supplied by Borrower or Guarantor shall be found to be misleading,
misrepresented or materially incorrect.
17.5 All representations and warranties by Borrower shall remain
true and correct, in all material respects, and all agreements the Borrower
is to have performed or complied with at such time shall have been
performed or complied with.
17.6 Borrower and E.S. Financial, Inc. ("Servicer") shall
acknowledge, in writing, in a form acceptable to Lender, Lender's
unilateral right to terminate the Servicing Agreement between Lender,
Servicer,
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<PAGE>
Borrower and Old Kent Bank and Trust Company dated May ____, 1992, pursuant
to Section 2.5(b) thereof.
IN WITNESS WHEREOF, these presents are executed as of the date first
indicated above.
"BORROWER"
CYPRESS POINTE RESORTS, L.P.,
a Delaware limited partnership
By: ARGOSY GROUP, INC.,
a Georgia corporation,
General Parmer
By /s/ [ILLEGIBLE SIGNATURE]
--------------------------
Its Vice President
--------------------------
"LENDER"
GREYHOUND FINANCIAL CORPORATION,
a Delaware corporation
By /s/ [ILLEGIBLE SIGNATURE]
--------------------------
Its Vice President
--------------------------
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<PAGE>
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Fourth
Amendment") is made and entered into as of the 16th day of December, 1993, by
and between CYPRESS POINTE RESORTS, L.P., a Delaware limited partnership
("Borrower"), and GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
("Lender").
WITNESSETH:
WHEREAS, as of December 19, 1991, Borrower and Lender's predecessor in
interest, Greyhound Real Estate Finance Company, an Arizona corporation
("GREFCO"), entered into that Loan and Security Agreement (the "Original
Agreement") pursuant to which Lender agreed to make a revolving loan to Borrower
for the purposes set forth therein; and
WHEREAS, Borrower and GREFCO modified and amended the Original
Agreement pursuant to that Amendment to Loan and Security Agreement and Consent
and Agreement of Guarantors dated as of November 9, 1992 (the "First
Amendment"); and
WHEREAS, pursuant to that Assignment dated as of January 13, 1993,
between GREFCO and Lender, GREFCO assigned to Lender all of GREFCO's rights and
obligations under the Original Agreement and the First Amendment and all other
documents and instruments executed in connection therewith; and
WHEREAS, pursuant to that Second Amendment to Loan and Security
Agreement dated as of January 13, 1993 (the "Second Amendment"), Lender and
Borrower amended the Original Agreement and First Amendment in certain respects;
and
WHEREAS, pursuant to that Third Amendment to Loan and Security
Agreement dated as of April 7, 1993 (the "Third Amendment"), Lender and Borrower
amended the Original Agreement, First Amendment, and Second Amendment in certain
respects; and
WHEREAS, Borrower and Lender have agreed to renew and further amend
the Original Agreement, First Amendment, Second Amendment and Third Amendment
pursuant to the terms and provisions of this Fourth Amendment.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Except as specifically set forth in and/or modified
-----------
by this Fourth Amendment, all capitalized terms set forth herein shall have the
meanings set forth therefor in the Original Agreement, First Amendment, Second
Amendment or Third Amendment, as the case may be. However, the following
capitalized terms shall have the meanings set forth below, notwithstanding any
contrary definitions contained in the Original Agreement, First Amendment,
Second Amendment or Third Amendment.
1.1 "BIENNIAL YEAR" shall mean each odd-numbered calendar year
thereafter arising or each even-numbered calendar year thereafter arising.
1.2 "BORROWING BASE" shall mean an amount equal to the lesser of
(i) ninety percent (90%) of the unpaid principal balance payable under the
Eligible Instruments, or (ii) ninety percent (90%) of the then present
value assigned to the unmatured installments of principal and interest
payable under the Eligible Instruments discounted at Lender's Prevailing
Discount Rate.
1.3 "BORROWING TERM" shall mean the period of time during which
Lender is committed to make advances under the Receivables Loan Agreement,
which commitment shall terminate on the earlier of (a) the date which
occurs eighteen (18) months after the date of the first Advance which is
made by Lender after the date of this Fourth Amendment or (b) September 13,
1995.
1.4 "CONSTRUCTION LOAN AGREEMENT" shall mean that certain
Construction Loan Agreement dated as of December 19, 1991, between Borrower
and GREFCO, as modified and amended pursuant to that First Amendment to
Construction Loan Agreement, dated as of January 13, 1993 between Borrower
and Lender, and as modified and amended pursuant to that Second Amendment
to Construction Loan Agreement dated as of April 7, 1993 between Borrower
and Lender, and as further modified and amended pursuant to that Third
Amendment to Construction Loan Agreement of even date herewith between
Borrower and Lender and as from time to time further modified, extended,
renewed, replaced or restated.
1.5. "CONSTRUCTION MORTGAGE" shall mean, collectively, that
certain Mortgage, Assignment of Rents and Proceeds and Security Agreement
dated as of December 19, 1991 between Borrower and GREFCO; as amended by
that certain First Amendment to Mortgage, Assignment of Rents and
- 2 -
<PAGE>
Proceeds and Security Agreement dated as of January 13, 1993 between
Borrower and Lender; and as amended by that certain Second Amendment to
Mortgage, Assignment of Rents and Proceeds and Security Agreement dated as
of April 7, 1993 between Borrower and Lender; and as further amended by
that certain Third Amendment to Mortgage, Assignment of Rents and Proceeds
and Security Agreement of even date herewith between Lender and Borrower.
1.6. "DELINQUENCY BALANCE" shall mean, individually and
collectively, the unpaid principal balance due and owing under an
Instrument, the installment payments under which have become more than 59
days past due and against which an Advance has been made.
1.7. "ELIGIBLE INSTRUMENTS" shall mean the Instruments, each in
substantially the form of Exhibit "A" appended to the Original Agreement,
entered into by and between Borrower and those Persons who purchase a Time-
Share Interest ((i) at least eighty percent (80%) of whom shall be
residents of the United States, Canada or Puerto Rico, (ii) no more than
twenty percent (20%) of whom shall be residents of countries or territories
other than the United States, Canada or Puerto Rico, and (iii) no more than
fifteen percent (15%) of whom shall be residents of Great Britain), which
Eligible Instruments shall conform to the criteria and standards set forth
on Exhibit "B" appended to the Original Agreement, as amended; provided,
---------
however, that an Instrument shall cease to be an Eligible Instrument if (i)
-------
any installment payable thereunder, becomes more than fifty-nine (59) days
past due and the Instrument under which such installment is payable is not
replaced within ninety (90) days following the due date of such
installment, or (ii) the contract fails to continue to conform to the
criteria and standards set forth on Exhibit "B" appended to the Original
Agreement, as amended.
1.8. "FOREIGN INSTRUMENT" shall mean an Instrument delivered by
a Purchaser who is not a resident of the United States, Canada or Puerto
Rico.
1.9. "MATURITY DATE" shall mean that date which shall occur
seven (7) years after the date on which the last Advance is made under the
terms of the Original Agreement as modified by this Fourth Amendment.
1.10. "NOTE" shall mean the Promissory Note defined in the
Original Agreement, as previously modified and amended and as further
modified and amended pursuant to that Third Allonge to Receivables
Promissory Note of even date herewith executed by Borrower and Lender.
- 3 -
<PAGE>
1.11 "OPENING PREPAYMENT DATE" shall mean the date which occurs
twenty-four (24) months after the date on which the last Advance is made under
the terms of the Original Agreement as amended by this Fourth Amendment.
1.12 "PROJECT" shall mean the time-share condominium project known as
Cypress Pointe Resort, constructed and to be constructed by Borrower in Orlando,
Florida, comprised of 108 time-share units.
1.13 "RECEIVABLES LOAN AGREEMENT" shall mean collectively, the
Original Agreement, the First Amendment, the Second Amendment, the Third
Amendment and the Fourth Amendment.
1.14 "TIME-SHARE INTEREST" shall mean the rights sold to a Purchaser
to the exclusive use of a Unit in the Project and the Project common areas for a
one (1) week period during each calendar year or during each Biennial Year.
2. PREPAYMENT. The Loan may be prepaid as provided in the Original
----------
Agreement; provided however that for purposes of determining when and under what
-------- -------
circumstances a prepayment may occur, the elapsed time of the term of the Loan
shall be measured from the date on which the last Advance is made under the
terms of the Original Agreement, as amended by this Fourth Amendment.
3. INTERVAL RELEASES. SECTION 3.8 of the Original Agreement, as
-----------------
added pursuant to the First Amendment, is hereby modified as follows: the
reference to SECTION 5.20(i) of the Construction Mortgage is hereby amended and
shall hereafter include SECTIONS 5.20(i), 5.20(iii) and 5.20(iv) of the
Construction Mortgage.
4. FOREIGN INSTRUMENTS. Exhibit "B " of the Original Agreement,
-------------------
constituting Eligibility Criteria, shall be amended with the addition of the
following subparagraph:
(1) In the event the Instrument is a Foreign Instrument, such
Instrument provides for consecutive monthly installments of principal and
interest in U.S. funds over a term not exceeding sixty (60) months from the date
of its execution, with interest accruing on the unpaid principal balance of the
Foreign Instrument at a rate not less than 10.9% per annum; Borrower has
received from the Purchaser issuing such Foreign Instrument a minimum cash down
payment of thirty percent (30%) of the total sales price, no part of which has
been advanced or loaned to such Purchaser by Borrower or Guarantor, directly or
indirectly; and Borrower has the right to collect monthly payments due and owing
on such Foreign Instrument by debiting such Purchaser's credit
- 4 -
<PAGE>
card, which credit card shall be a Visa, Master Card or other
internationally recognized credit card.
5. DELINQUENCY. A SECTION 3.9 shall be added to the Original
-----------
Agreement reading as follows:
3.9 In addition to any other rights and remedies available to
Lender, Lender shall have no obligation of making an Advance against
Foreign Instruments that constitute Eligible Instruments in the event, as
of the end of any three (3) consecutive calendar months during the
Borrowing Term, the Delinquency Balance under Foreign Instruments exceeds
three percent (3%) of the aggregate then unpaid principal balance of all
Foreign Instruments against which an Advance has been made; provided,
--------
however, in the event, as of the end of any three (3) consecutive calendar
-------
months thereafter during the Borrowing Term (the "Cure Period"), the
Delinquency Balance on Foreign Instruments is equal to or less than three
percent (3%) of the aggregate then unpaid principal balance of all Foreign
Instruments against which an Advance has been made, then, subject to
satisfaction of all other conditions precedent to the making of an Advance,
Lender shall make Advances against Foreign Instruments; provided further
----------------
that in the event as of the end of any three (3) consecutive calendar
----
months during the Borrowing Term but following the Cure Period, the
Delinquency Balance under Foreign Instruments exceeds three percent (3%) of
the aggregate then unpaid principal balance of all Foreign Instruments
against which an Advance has been made, Lender shall have no further
obligation to make Advances against Foreign Instruments; it being agreed
and understood that Borrower shall be entitled to only one Cure Period
during the Borrowing Term.
6. NET WORTH. The provisions of SECTION &22(a) of the Original
---------
Agreement, as modified by the Third Amendment, shall be amended in its entirety
to read as follows:
(a) As of the end of each fiscal quarter of Borrower, Borrower
shall maintain a net worth, calculated in accordance with generally
accepted accounting principles, consistently applied ("GAAP"), of at least
Seven Million Dollars ($7,000,000).
7. FEES AND EXPENSES. In addition to the fees and expenses which
-----------------
have been paid or are payable by Borrower pursuant to SECTION 8.16 of the
Receivables Loan Agreement, Borrower shall pay to Lender, on demand, all costs
and expenses arising from the preparation of this Fourth Amendment, or otherwise
incurred by Lender in connection with this Fourth Amendment, including, but not
limited to, title insurance premiums, other title company charges, recording
fees, all charges for
- 5 -
<PAGE>
consumer credit and Bishop's reports, and U.C.C., tax lien, judgment and
litigation searches, Lender's attorneys' fees and costs, appraisal fees, if
any, survey costs, if any, inspection costs and fees, both during construction
or otherwise, escrow disbursement expenses, any revenue and/or documentary
stamps, intangible or recording taxes, out-of-pocket travel expenses incurred
by Lender or its agents and employees, brokerage commissions, all fees and
expenses of the Servicing Agent and Collection Agent in connection with this
Fourth Amendment, a nonrefundable documentation fee of $12,500 (which
constitutes the same documentation fee due under the Construction Loan
Agreement), which shall be credited against Lender's attorneys' fees and any
other costs, expenses or charges that may be imposed on or incurred by Lender
as a result of this Fourth Amendment.
8. RENEWAL FEE. In addition to the fees and expenses described in
-----------
SECTION 7 above, Borrower shall pay to Lender a nonrefundable renewal fee (the
"Renewal Fee") which shall equal the product obtained when (i) one-twelfth of
one percent of the Unused Availability (as hereinafter defined), (ii) is
multiplied by the number of full or partial calendar months between March 31,
1994 and the end of the Borrowing Term. The Renewal Fee is paid in
consideration of Lender holding itself ready, willing and able to renew and
extend the Loan upon the terms and conditions set forth herein, has been
earned, and shall be due and payable in full on March 31, 1994. For purposes of
this Section, the term Unused Availability shall mean the difference obtained
when $20,000,000 is reduced by the unpaid principal balance of the Loan as of
March 31, 1994. The Renewal Fee is in addition to Borrower's obligation to pay
a commitment fee (the "Commitment Fee") to Lender for Lender's commitment to
modify and amend the Construction Loan Agreement and in addition to all other
fees and expenses required to be paid by Borrower pursuant to the Third
Amendment to Construction Loan Agreement of even date herewith.
9. INCENTIVE FEE. As additional consideration to Lender, Borrower
-------------
shall pay to Lender an incentive fee (the "Building 5 Incentive Fee") equal to
Seventy-Three Thousand Four Hundred Forty Dollars ($73,440.00) with respect to
the Time-Share Interests sold by Borrower in Building 5 (as defined in the
Construction Loan Agreement) ("Building 5 Intervals"). The Building 5 Incentive
Fee shall be paid in installments equal to $2,325 per Building 5 Interval (or
$1,165 in the event Building 5 Interval is a Time Share Interest to be used in
a Biennial Year), plus related reasonable fees and expenses (all as set forth
in the Mortgage), commencing with the first sale of a Building 5 Interval
occurring after the earlier of (i) payment in full of all Building 5 Advances
(as defined in the Construction Loan Agreement) and accrued interest thereon or
(ii) the Building 5 Maturity Date (as defined in the Construction Loan
Agreement), and continuing until the entire Building 5 Incentive Fee is paid in
full. Notwithstanding anything contained herein to the contrary, the Building 5
Incentive Fee is payable in full by Borrower on the first day of the 281h month
after the making of the first Building 5 Advance.
- 6 -
<PAGE>
10. CONFIRMATION OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Borrower
----------------------------------------------------------
hereby reaffirms, as if made as of the date hereof, all of Borrower's
representations and warranties contained in the Receivables Loan Agreement.
Borrower furthermore reaffirms the validity, enforceability and legality of the
Documents, and all provisions of the Documents, as modified, are hereby
confirmed and ratified. Without limiting the generality of the foregoing,
Borrower hereby reaffirms the validity and enforceability of the Security
Interest granted to Lender in the Receivables Collateral and the Residual
Collateral as security for Borrower's payment and Performance of all
Obligations, other than those Obligations arising out of the Environmental
Certificate with Representations, Covenants and Warranties delivered in
connection with the Construction Loan Agreement. Borrower hereby acknowledges
and agrees that the definition of Obligations includes, without limitation, each
and every obligation, duty, covenant, undertaking and condition which Borrower
is required or has agreed to perform under the Documents and under the
Construction Loan Documents, and each and every obligation of Borrower now or
hereafter owing to Lender. In the event of a conflict or inconsistency between
the provisions of the Original Agreement, the First Amendment, the Second
Amendment and the Third Amendment, on the one hand, and the provisions of this
Fourth Amendment, on the other hand, the provisions of this Fourth Amendment
shall prevail.
11. ADDITIONAL UNITS. The provisions of SECTION 8.23 of the Original
-----------------
Agreement as amended by Section 13 of the Second Amendment shall be amended in
its entirety to read as follows:
8.23 Borrower shall not, without Lender's prior written consent:
(i) Construct additional condominium or time-share units within or adjacent
to the Project (other than the time-share units comprising the Project)
until at least 50% of the total Time-Share Interests in Building 5 have
been sold, in bona fide transactions, to parties not Affiliated with
Borrower, (ii) sell time-share intervals from such additional condominium
or time-share units until at least 75% of the total Time-Share Interests
contained within Building 5 have been sold, in bona fide transactions, to
parties not Affiliated with Borrower, or (iii) commence sales of Time-Share
Interests in Building 5 until at least 75% of the Time-Share Interests in
Building 6 (as defined in the Construction Loan Agreement) have been sold
in bona fide transactions, to parties not Affiliated with Borrower, with
Guarantor, with any partners of Borrower or with any partners of Guarantor.
12. GUARANTORS' RATIFICATION. As a condition precedent to the
------------------------
effectiveness of this Fourth Amendment, Borrower shall cause the Guarantors to
each execute a Ratification and Confirmation of Guarantee and Subordination
Agreement in
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<PAGE>
forms acceptable to Lender, thereby acknowledging the making of the agreements
contained herein.
13. DOCUMENT REFERENCE. All references to the "Loan Agreement" in the
------------------
Documents are hereby amended to refer to the Receivables Loan Agreement.
14. CONTINUATION OF PROVISIONS. All terms, conditions and provisions
--------------------------
of the Original Agreement, First Amendment, Second Amendment and Third Amendment
are continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended or modified hereby. Without limiting the
generality of the foregoing, an Event of Default shall be deemed to exist in the
event there occurs an Event of Default under and as defined in the Construction
Loan Agreement or in the event there occurs an act or event under any of the
Construction Loan Documents, whether or not denominated as an "Event of
Default," which expressly entitles the Lender to exercise its remedies. Borrower
acknowledges that as of the date hereof, it has (i) no defense, counterclaim,
offset, cross-complaint, claim or demand of any nature whatsoever which can be
asserted as a basis to seek affirmative relief or damages from Lender or as a
basis to reduce or eliminate all or any part of its liability to repay the Loan
and (ii) no other claim against Lender with respect to any aspect of the
transaction in respect to which the Loan was made. That certain letter agreement
from Lender to Borrower dated October 13, 1993 is merged into this Fourth
Amendment and such letter agreement shall, from and after the date hereof, have
no further force or effect.
15. CONDITIONS PRECEDENT. The amendments and modifications to the
--------------------
Receivables Loan Agreement contained herein and Lender's obligations in this
regard are subject to the following express conditions precedent:
15.1 The following shall be delivered to Lender all in a form,
manner and substance satisfactory to Lender:
(a) An original of this Fourth Amendment fully executed by
the Borrower;
(b) An original of the Third Allonge to Receivables
Promissory Note in a form acceptable to Lender, fully executed by
Borrower;
(c) An original Third Modification to Mortgage, Assignment
of Rents and Proceeds and Security Agreement in a form acceptable to
Lender, fully executed by Borrower (the "Third Mortgage
Modification");
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<PAGE>
(d) An original Ratification and Confirmation of Corporate
Guarantee and Subordination Agreement in a form acceptable to Lender,
fully executed by Argosy Group, Inc.;
(e) An original Ratification and Confirmation of Partnership
Guarantee and Subordination Agreement in a form acceptable to Lender,
fully executed by Argosy Canyon Investments, L.P.;
(f) Current updates of the opinion letter received by
Lender in connection with the Receivables Loan Agreement from
Schreeder, Wheeler & Flint together with an opinion letter from
Borrower's counsel with respect to the service of process and
foreclosure procedures available in the State of Florida with respect
to Purchaser who are not residents of the United States or Canada;
(g) All documents required to be executed and delivered to
Lender in connection with the amendment and modification of the
Construction Loan Agreement;
(h) Such resolutions and authorizations and such other
documents as Lender may require relating to the existence and good
standing of the Borrower and Guarantors, and the authority of any
person executing this Fourth Amendment or any other documents on
behalf of the Borrower or Guarantors; and
(i) A commitment from First American Title Insurance
Company, the issuer of Lenders ALTA extended coverage title insurance
policy in connection with the Construction Loan Agreement (the "Title
Policy"), to issue an endorsement, in form satisfactory to Lender, to
Lender's Title Policy, insuring that the Construction Mortgage, as
modified pursuant to the Third Mortgage Modification, continues to be
a first lien upon the real property described therein, as security
for, among other things, the timely and faithful payment of the
Building 5 Incentive Fee, subject only to those exceptions contained
in such title policy and to such additional exceptions as Lender may
specifically approve in writing.
(j) Evidence that the Real Property is environmentally
acceptable to Lender. Lender has the right to require that Borrower
retain the services of a firm acceptable to Lender and knowledgeable
in environmental matters to perform a Phase I environmental assessment
(and if requested by Lender, a site audit and regulatory compliance
- 9 -
<PAGE>
evaluation) of the Real Property and surrounding area. Such
assessment, audit and evaluation (collectively, the "Investigation")
may include, but not be limited to, soil and ground water testing to
fully identify the scope of any environmental issues impacting the
subject transaction. All costs incurred in performing the
Investigation shall be borne by Borrower. The scope and results of the
Investigation must be satisfactory to Lender. All costs associated
with complying with EPA and other federal, state and local
environmental standards, as indicated by the Investigation, shall be
the sole responsibility of Borrower.
(k) Updated UCC, tax lien, litigation and judgment searches
for the following parties: (i) Borrower, (ii) Argosy Group, Inc.,
(iii) Argosy Canyon Investments, L.P., (iv) Herb Alfree, (v) Andrew J.
Gessow, (vi) Vacation Ownership Marketing, Inc., dba Cypress Pointe
Marketing Company, and (vii) Essex Builders Group.
(l) Evidence that Borrower has good and marketable title
to the collateral pledged to Lender, that Lender's liens and security
interest in such collateral have been duly perfected as first and
prior liens and security interests, and that there are no other
financing statements or liens filed against Borrower or on the
property of Borrower except those that are approved by Lender.
(m) Evidence that any fees due to any broker utilized by
Borrower in connection with the subject transaction have been paid,
together with evidence of the payment by Borrower of any other costs,
fees and expenses then payable in connection with the Construction
Loan and the Loan, including, without limitation, those fees, costs
and expenses described in SECTION 7 and SECTION 8 hereof.
15.2. No Event of Default shall exist and no event or condition
shall exist which after notice or lapse of time, or both, would constitute
an Event of Default
15.3. There shall have occurred no material adverse change in the
Real Property or in the business or financial condition of Borrower and
Guarantor since the date of the last financial statement submitted to
Lender.
15.4. Neither Borrower nor Guarantor shall have failed to
disclosure to Lender any material information and no material information
supplied by Borrower or Guarantor shall be found to be misleading,
misrepresented or materially incorrect.
- 10 -
<PAGE>
l5.5. All representations and warranties by Borrower shall remain true
and correct, in all material respects, and all agreements the Borrower is to
have performed or complied with at such time shall have been performed or
complied with.
IN WITNESS WHEREOF, these presents are executed as of the date first
indicated above.
"BORROWER"
CYPRESS POINTE RESORTS, L.P.,
a Delaware limited partnership
By: ARGOSY GROUP, INC., a Georgia
corporation, General Partner
By /s/ [ILLEGIBLE SIGNATURE]
---------------------------
Its Secretary
--------------------------
"LENDER"
GREYHOUND FINANCIAL
CORPORATION, a Delaware corporation
By /s/ [ILLEGIBLE SIGNATURE]
--------------------------------
Its SENIOR VICE PRESIDENT
--------------------------------
- 11 -
<PAGE>
FIFTH AMENDMENT TO LOAN
AND SECURITY AGREEMENT
----------------------
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Fifth
Amendment") is made and entered into as of the 28th day of June, 1994, by and
between CYPRESS POINTE RESORTS, L.P., a Delaware limited partnership
("Borrower"), and GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
("Lender").
WITNESSETH:
WHEREAS, as of December 19, 1991, Borrower and Lender's predecessor in
interest, Greyhound Real Estate Finance Company, an Arizona corporation
("GREFCO"), entered into that Loan and Security Agreement (the "Original
Agreement") pursuant to which Lender agreed to make a revolving loan to Borrower
for the purposes set forth therein; and
WHEREAS, Borrower and GREFCO modified and amended the Original
Agreement pursuant to that Amendment to Loan and Security Agreement and Consent
and Agreement of Guarantors dated as of November 9, 1992 (the "First
Amendment"); and
WHEREAS, pursuant to that Assignment dated as of January 13, 1993,
between GREFCO and Lender, GREFCO assigned to Lender all of GREFCO's rights and
obligations under the Original Agreement and the First Amendment and all other
documents and instruments executed in connection therewith; and
WHEREAS, pursuant to that Second Amendment to Loan and Security
Agreement dated as of January 13, 1993 (the "Second Amendment"), Lender and
Borrower amended the Original Agreement and First Amendment in certain respects;
and
WHEREAS, pursuant to that Third Amendment to Loan and Security
Agreement dated as of April 7, 1993 (the "Third Amendment"), Lender and Borrower
amended the Original Agreement, First Amendment, and Second Amendment in certain
respects; and
WHEREAS, pursuant to that Fourth Amendment to Loan and Security
Agreement dated as of December 16, 1993 (the "Fourth Amendment"), Lender and
Borrower amended the Original Agreement, First Amendment, Second Amendment and
Third Amendment in certain respects; and
<PAGE>
WHEREAS, Borrower and Lender have agreed to further amend the Original
Agreement, First Amendment, Second Amendment, Third Amendment and Fourth
Amendment pursuant to the terms and provisions of this Fifth Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions. Except as specifically set forth in and/or modified
-----------
by this Fifth Amendment, all capitalized terms set forth herein shall have the
meanings set forth therefor in the Original Agreement, First Amendment, Second
Amendment, Third Amendment or Fourth Amendment, as the case may be. However, the
following capitalized terms shall have the meanings set forth below,
notwithstanding any contrary definitions contained in the Original Agreement,
First Amendment, Second Amendment, Third Amendment or Fourth Amendment.
1.1 "CONSTRUCTION LOAN AGREEMENT" shall mean that certain
Construction Loan Agreement dated as of December 19, 1991, between Borrower
and GREFCO, as modified and amended pursuant to that First Amendment to
Construction Loan Agreement, dated as of January 13, 1993 between Borrower
and Lender, and as modified and amended pursuant to that Second Amendment
to Construction Loan Agreement dated as of April 7, 1993 between Borrower
and Lender, as further modified and amended pursuant to that Third
Amendment to Construction Loan Agreement dated as of December 16, 1993
between Borrower and Lender, and as further modified and amended pursuant
to that Fourth Amendment to Construction Loan Agreement of even date
herewith between Borrower and Lender and as from time to time further
modified, extended, renewed, replaced or restated.
1.2. "CONSTRUCTION MORTGAGE" shall mean, collectively, that
certain Mortgage, Assignment of Rents and Proceeds and Security Agreement
dated as of December 19, 1991 between Borrower and GREFCO; as amended by
that certain First Amendment to Mortgage, Assignment of Rents and Proceeds
and Security Agreement dated as of January 13, 1993 between Borrower and
Lender, as amended by that certain Second Amendment to Mortgage, Assignment
of Rents and Proceeds and Security Agreement dated as of April 7, 1993
between Borrower and Lender; as further amended by that certain Third
Amendment to Mortgage, Assignment of Rents and Proceeds and Security
Agreement dated as of December 16, 1993 between Borrower and Lender, and as
further amended by that certain Fourth Amendment to Mortgage, Assignment of
Rents and Proceeds and Security Agreement of even date herewith between
Borrower and Lender.
- 2 -
<PAGE>
1.3 "PROJECT" shall mean the time-share condominium project
known as Cypress Pointe Resort, constructed and to be constructed by Borrower in
Orlando, Florida, comprised of 144 time-share units.
1.4 "RECEIVABLES LOAN AGREEMENT" shall mean, collectively, the
Original Agreement, the First Amendment, the Second Amendment, the Third
Amendment, the Fourth Amendment and the Fifth Amendment.
2. Fees and Expenses. In addition to the fees and expenses which
-----------------
have been paid or are payable by Borrower pursuant to Section 8.16 of the
Receivables Lean Agreement, Borrower shall pay to Lender, on demand, all costs
and expenses arising from the preparation of this Fifth Amendment, or otherwise
incurred by Lender in connection with this Fifth Amendment, including but not
limited to, title insurance premiums, other title company charges, recording
fees, all charges for consumer credit and Bishop's reports, and U.C.C., tax
lien, judgment and litigation searches, Lenders attorneys' fees and costs,
appraisal fees, if any, survey costs, if any, inspection costs and fees, both
during construction or otherwise, escrow disbursement expenses, any revenue
and/or documentary stamps, intangible or recording taxes, out-of-pocket travel
expenses incurred by Lender or its agents and employees, brokerage commissions,
all fees and expenses of the Servicing Agent and Collection Agent in connection
with this Fifth Amendment, Lender's counsel's attorneys' fees, which fees,
together with the fees payable in connection with the amendments of even date
herewith to the Construction Loan Agreement, shall not exceed $12,500, Lender's
counsel's out-of-pocket costs and expenses, and any other costs, expenses or
charges that may be imposed on or incurred by Lender as a result of this Fifth
Amendment.
3. Incentive Fee. As additional consideration to Lender, Borrower
-------------
shall pay to Lender an incentive fee (the "Building 7 Incentive Fee") equal to
Seventy-Three Thousand Four Hundred Forty Dollars ($73,440.00) with respect to
the Time-Share Interests sold by Borrower in Building 7 (as defined in the
Construction Lean Agreement) ("Building 7 Intervals"). The Building 7 Incentive
Fee shall be paid in installments equal to $2,175 per Building 7 Interval (or
$1,090 in the event Building 7 Interval is a Time Share Interest to be used in a
Biennial Year), plus related reasonable fees and expenses (all as set forth in
the Mortgage), commencing with the first sale of a Building 7 Interval occurring
after the earlier of (i) payment in full of all Building 7 Advances (as defined
in the Construction Lean Agreement) and accrued interest thereon or (ii) the
Building 7 Maturity Date (as defined in the Construction Loan Agreement), and
continuing until the entire Building 7 Incentive Fee is paid in full.
Notwithstanding anything contained herein to the contrary, the Building 7
Incentive Fee is payable in full by Borrower on the first day of the 24th month
after the making of the first Building 7 Advance.
- 3 -
<PAGE>
4. Confirmation of Representations, Warranties and Agreements.
----------------------------------------------------------
Borrower hereby reaffirms, as if made as of the date hereof, all of Borrower's
representations and warranties contained in the Receivables Loan Agreement.
Borrower furthermore reaffirms the validity, enforceability and legality of the
Documents, and all provisions of the Documents, as modified, are hereby
confirmed and ratified. Without limiting the generality of the foregoing,
Borrower hereby reaffirms the validity and enforceability of the Security
Interest granted to Lender in the Receivables Collateral and the Residual
Collateral as security for Borrower's payment and Performance of all
Obligations, other than those Obligations arising out of the Environmental
Certificate with Representations, Covenants and Warranties delivered in
connection with the Construction Loan Agreement. Borrower hereby acknowledges
and agrees that the definition of Obligations includes, without limitation, each
and every obligation, duty, covenant, undertaking and condition which Borrower
is required or has agreed to perform under the Documents and under the
Construction Loan Documents, and each and every obligation of Borrower now or
hereafter owing to Lender. In the event of a conflict or inconsistency between
the provisions of the Original Agreement, the First Amendment, the Second
Amendment, the Third Amendment and the Fourth Amendment, on the one hand, and
the provisions of this Fifth Amendment, on the other hand, the provisions of
this Fifth Amendment shall prevail.
5. Nonconforming Instruments. The provisions of Section 3.7 of the
-------------------------
Original Agreement, added to the Original Agreement pursuant to the First
Amendment, shall be amended in its entirety to read as follows:
3.7 Lender will make Advances against Nonconforming Instruments
on the condition that (i) such Instruments otherwise qualify as
Eligible Instruments, (ii) at no time during the Term shall the total
amount advanced against Nonconforming Instruments, less payments
received by Lender under such Instruments, exceed $6,000,000.00; (iii)
Borrower is otherwise entitled to an Advance under the provisions of
the Receivables Agreement and (iv) the Delinquency Balance under
Nonconforming Instruments as of the end of any preceding three (3)
consecutive calendar months during the Borrowing Tetra does not exceed
three percent (3%) of the aggregate then unpaid principal balance of
all Nonconforming Instruments against which an Advance has been made.
In the event Lender does not make an Advance against Nonconforming
Instruments as a result of the occurrence of the event set forth in
clause (iv) above, but as of the end of any three (3) consecutive
calendar months thereafter during the Borrowing Term (the
"Nonconforming Instrument Cure Period"), the Delinquency Balance on
Nonconforming Instruments is equal to or less than three percent (3%)
of the aggregate then unpaid principal balance
- 4 -
<PAGE>
of all Nonconforming Instruments against which an Advance has been
made, then, subject to the satisfaction of all other conditions
precedent to the making of an Advance, Lender shall make an Advance
against Nonconforming Instruments; provided further that in the event
as of the end of any three (3) consecutive calendar months during the
Borrowing Term but following the Nonconforming Instrument Cure Period,
the Delinquency Balance under Nonconforming Instruments exceeds three
percent (3%) of the aggregate then unpaid principal balance of all of
Nonconforming Instruments against which an Advance has been made,
Lender shall have no further obligation to make Advances against
Nonconforming Instruments; it being agreed and understood that
Borrower shall be entitled to only one Nonconforming Instrument Cure
Period during the Borrowing Term. At all times during which the
Nonconforming Instrument Ratio is in excess of thirty percent (30%),
the Nonconforming Borrowing Base shall be used for purposes of
determining the amount of Advances to be made against Nonconforming
Instruments. Borrower shall not permit the Nonconforming Instrument
Ratio to be in excess of thirty percent (30%) for a period in excess
of sixty (60) days at any time during the Term.
6. Additional Units. The provisions of Section 8.23 of the Original
----------------
Agreement as amended by Section 13 of the Second Amendment and Section 11 of the
Fourth Amendment shall be amended in their entirety to read as follows:
8.23 Borrower shall not, without Lender's prior written consent:
(i) construct additional condominium or time-share units within or
adjacent to the Project (other than the time-share units comprising
the Project) until at least 50% of the total Time-Share Interests in
each of Buildings 5 and 7 have been sold, in bona fide transactions,
to parties not Affiliated with Borrower, (ii) sell time-share
intervals from such additional condominium or time-share units until
at least 75% of the total Time-Share Interests contained within each
of Braidings 5 and 7 have been sold, in bona fide transactions, to
parties not Affiliated with Borrower, (iii) commence sales of Time-
Share Interests in Building 5 until at least 75% of the Time-Share
Interests in Building 6 (as defined in the Construction Loan
Agreement) have been sold in bona fide transactions, to parties not
Affiliated with Borrower, with Guarantor, with any partners of
Borrower or with any partners of Guarantor, (iv) commence sales of
Time-Share Interests in Building 7 until at least 75% of the Time-
Share Interests in Building 5 have been sold in bona fide
transactions, to parties not Affiliated with Borrower, with Guarantor,
with any partners of Borrower or with any partners of Guarantor, or
(v) commence construction of Building 7 until sales of Time-Share
Interests in Building 5 have commenced.
- 5 -
<PAGE>
7. Guarantors' Ratification. As a condition precedent to the
------------------------
effectiveness of this Fifth Amendment, Borrower shall cause the Guarantors to
each execute a Ratification and Confirmation of Guarantee and Subordination
Agreement in forms acceptable to Lender, thereby acknowledging the making of the
agreements contained herein.
8. Continuation of Provisions. All terms, conditions and provisions
--------------------------
of the Original Agreement, First Amendment, Second Amendment, Third Amendment
and Fourth Amendment are continued in full force and effect and shall remain
unaffected and unchanged except as specifically amended or modified hereby.
Without limiting the generality of the foregoing an Event of Default shall be
deemed to exist in the event there occurs an Event of Default under and as
defined in the Construction Loan Agreement or in the event there occurs an act
or event under any of the Construction Loan Documents, whether or not
denominated as an "Event of Default," which expressly entitles the Lender to
exercise its remedies. Borrower acknowledges that as of the date hereof, it has
(i) no defense, counterclaim, offset, cross-complaint, claim or demand of any
nature whatsoever which can be asserted as a basis to seek affirmative relief or
damages from Lender or as a basis to reduce or eliminate all or any part of its
liability to repay the Loan and (ii) no other claim against Lender with respect
to any aspect of the transaction in respect to which the Loan was made. That
certain financing proposal from Lender to Borrower dated May 1O, 1994 is merged
into this Fifth Amendment and such financing proposal shall, from and after the
date hereof, have no further force or effect.
9. Conditions Precedent. The amendments and modifications to
--------------------
the Receivables Loan Agreement contained herein and Lender's obligations in this
regard are subject to the following express conditions precedent:
9.1 The following shall be delivered to Lender all in a form,
manner and substance satisfactory to Lender:
(a) An original of this Fifth Amendment fully executed by
the Borrower;
(b) An original Fourth Modification to Mortgage, Assignment
of Rents and Proceeds and Security Agreement in a form acceptable to
Lender, fully executed by Borrower (the "Fourth Mortgage
Modification");
(c) An original Ratification and Confirmation of Corporate
Guarantee and Subordination Agreement in a form acceptable to Lender,
fully executed by Argosy Group, Inc.;
- 6 -
<PAGE>
(d) An original Ratification and Confirmation of Partnership
Guarantee and Subordination Agreement in a form acceptable to Lender,
fully executed by Argosy Canyon Investments, L.P.;
(e) Current updates of the opinion letter received by Lender
in connection with the Receivables Loan Agreement from Schreeder,
Wheeler & Flint;
(f) All documents required to be executed and delivered to
Lender in connection with the amendment and modification of the
Construction Loan Agreement;
(g) Such resolutions and authorizations and such other
documents as Lender may require relating to the existence and good
standing of the Borrower and Guarantors, and the authority of any
person executing this Fifth Amendment or any other documents on behalf
of the Borrower or Guarantors;
(h) A commitment from First American Title Insurance
Company, the issuer of Lender's ALTA extended coverage title insurance
policy in connection with the Construction Loan Agreement (the "Title
Policy"), to issue an endorsement, in form satisfactory to Lender, to
Lender's Title Policy, insuring that the Construction Mortgage, as
modified pursuant to the Fourth Mortgage Modification, continues to be
a first lien upon the real property described therein, as security
for, among other things, the timely and faithful payment of the
Building 7 Incentive Fee, subject only to those exceptions contained
in such title policy and to such additional exceptions as Lender may
specifically approve in writing;
(i) Evidence that the Real Property is environmentally
acceptable to Lender, Lender has the fight to require that Borrower
the services as a firm acceptable to Lender and knowledgeable in
environmental matters to perform a Phase I environmental assessment
(and if requested by Lender, a site audit and regulator compliance
evaluation) of the Real Property and surrounding area. Such
assessment, audit and evaluation (collectively, the "Investigation")
may include, but not be limited to, soil and ground water testing to
fully identify the scope of any environmental issues impacting the
subject transaction. All costs incurred in performing the
Investigation shall be borne by Borrower. The scope and results of the
Investigation must be satisfactory to Lender. All costs associated
with complying with EPA
- 7 -
<PAGE>
and other federal, state and local environmental standards, as
indicated by the Investigation, shall be the sole responsibility of
Borrower;
(j) Updated Dun & Bradstreet report for Borrower and updated
UCC, tax lien, litigation and judgment searches for the following
parties: (i) Borrower, (ii) Argosy Group, Inc., and (iii) Argosy
Canyon Investments, L.P.;
(k) Evidence that Borrower has good and marketable title to
the collateral pledged to Lender, that Lender's liens and security
interest in such collateral have been duly perfected as first and
prior liens and security interests, and that there are no other
financing statements or liens filed against Borrower or on the
property of Borrower except those that are approved by Lender; and
(l) Evidence that any fees due to any broker utilized by
Borrower in connection with the subject transaction have been paid,
together with evidence of the payment by Borrower of any other costs,
fees and expenses then payable in connection with the Construction
Loan and the Loan, including, without limitation, those fees, costs
and expenses described in Section 2 and Section 3 hereof.
9.2. No Event of Default shall exist and no event or condition
shall exist which after notice or lapse of time, or both, would constitute
an Event of Default
9.3 There shall have occurred no material adverse change in the
Real Property or in the business or financial condition of Borrower and
Guarantor singe the date of the last financial statement submitted to
Lender.
9.4. Neither Borrower nor Guarantor shall have failed to disclose
to Lender any material information and no material information supplied by
Borrower or Guarantor shall be found to be misleading, misrepresented or
materially incorrect.
9.5. All representations and warranties by Borrower shall remain
true and correct, in all material respects, and all agreements the Borrower is
to have performed or complied with at such time shall have been performed or
complied with.
IN WITNESS WHEREOF, these presents are executed as of the date first
indicated above.
- 8 -
<PAGE>
"BORROWER"
CYPRESS POINTE RESORTS, L.P.,
a Delaware limited partnership
By: ARGOSY GROUP, INC., a Georgia
corporation, General Partner
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
Its Vice President
"LENDER"
GREYHOUND FINANCIAL
CORPORATION, a Delaware
corporation
By /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------
Its SENIOR VICE PRESIDENT
- 9 -
<PAGE>
SIXTH AMENDMENT TO LOAN
AND SECURITY AGREEMENT
-----------------------
THIS SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Sixth
Amendment") is made and entered into as of the 16th day of December, 1994, by
and between CYPRESS POINTE RESORTS, L.P., a Delaware limited partnership
("Borrower"), and GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
("Lender").
WITNESSETH:
----------
WHEREAS, as of December 19, 1991, Borrower and Lender's predecessor in
interest, Greyhound Real Estate Finance Company, an Arizona corporation
("GREFCO"), entered into that Loan and Security Agreement (the "Original
Agreement") pursuant to which Lender agreed to make a revolving loan to Borrower
for the purposes set forth therein; and
WHEREAS, Borrower and GREFCO modified and amended the Original
Agreement pursuant to that Amendment to Loan and Security Agreement and Consent
and Agreement of Guarantors dated as of November 9, 1992 (the "First
Amendment"); and
WHEREAS, pursuant to that Assignment dated as of January 13, 1993,
between GREFCO and Lender, GREFCO assigned to Lender all of GREFCO's rights and
obligations under the Original Agreement and the First Amendment and all other
documents and instruments executed in connection therewith; and
WHEREAS, pursuant to that Second Amendment to Loan and Security
Agreement dated as of January 13, 1993 (the "Second Amendment"), Lender and
Borrower amended the Original Agreement and First Amendment in certain respects;
and
WHEREAS, pursuant to that Third Amendment to Loan and Security
Agreement dated as of April 7, 1993 (the "Third Amendment"), Lender and Borrower
amended the Original Agreement, First Amendment, and Second Amendment in certain
respects; and
WHEREAS, pursuant to that Fourth Amendment to Loan and Security
Agreement dated as of December 16, 1993 (the "Fourth Amendment"), Lender and
Borrower amended the Original Agreement, First Amendment, Second Amendment and
Third Amendment in certain respects; and
<PAGE>
WHEREAS, pursuant to that Fifth Amendment to Loan and Security
Agreement dated as of June 28, 1994 (the "Fifth Amendment"), Lender and Borrower
amended the Original Agreement, First Amendment, Second Amendment, Third
Amendment and Fourth Amendment in certain respects; and
WHEREAS, Borrower and Lender have agreed to further amend the Original
Agreement, First Amendment, Second Amendment, Third Amendment, Fourth Amendment
and Fifth Amendment pursuant to the terms and provisions of this Sixth
Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Except as specifically set forth in and/or modified
-----------
by this Sixth Amendment, all capitalized terms set forth herein shall have the
meanings set forth therefor in the Original Agreement, First Amendment, Second
Amendment, Third Amendment, Fourth Amendment or Fifth Amendment, as the case may
be. However, the following capitalized terms shall have the meanings set forth
below, notwithstanding any contrary definitions contained in the Original
Agreement, First Amendment, Second Amendment, Third Amendment or Fourth
Amendment.
1.1 "BORROWING TERM" shall mean the period of time during which
Lender is committed to make advances under the Receivables Loan Agreement,
which commitment shall terminate on the earlier of (a) the date which
occurs eighteen (18) months after the date of the first Advance which is
made by Lender after the date of this Sixth Amendment or (b) September 9,
1996.
1.2 "ELIGIBLE INSTRUMENTS" shall mean the Instruments, each in
substantially the form of Exhibit "A" appended to the Original Agreement,
entered into by and between Borrower and those Persons who purchase a Time-
Share Interest (at least seventy-five percent (75%) of whom shall be
residents of the United States, Canada or Puerto Rico), which Eligible
Instruments shall conform to the criteria and standards set forth on
Exhibit "A" appended to the Sixth Amendment, as further amended from time
to time; provided, however, that an Instrument shall cease to be an
-----------------
Eligible Instrument if (i) any installment payable thereunder, becomes more
than fifty-nine (59) days past due and the Instrument under which such
installment is payable is not replaced within ninety (90) days following
the due date of such installment, or (ii) the contract fails to continue to
conform to the criteria and standards set forth on Exhibit "A" appended to
the Sixth Amendment, as further amended from time to time.
- 2 -
<PAGE>
1.3 "MATURITY DATE" shall mean that date which shall occur ten (10)
years after the date on which the last Advance is made under the terms of
the Original Agreement as modified by this Sixth Amendment.
1.4 "MAXIMUM LOAN AMOUNT" shall mean the sum of Twenty-Five Million
Dollars ($25,000,000.00); provided, however, that if at any time during the
Borrowing Term the unpaid principal balance under the Construction Loan
exceeds $3,000,000.00, then the Maximum Loan Amount shall be reduced by the
amount that the unpaid principal balance of the Construction Loan exceeds
$3,000,000.00 until the unpaid principal balance of the Construction Loan
is reduced to $3,000,000.00 or less.
1.5 "NOTE" shall mean the Promissory Note defined in the Original
Agreement, as previously modified and amended and as further modified and
amended pursuant to that Fourth Allonge to Receivables Promissory Note of
even date herewith executed by Borrower and Lender.
1.6 "OPENING PREPAYMENT DATE" shall mean the date which occurs twenty-
four (24) months after the date on which the last Advance is made under the
terms of the Original Agreement as amended by this Sixth Amendment.
1.7 "RECEIVABLES LOAN AGREEMENT" shall mean, collectively, the
Original Agreement, the First Amendment, the Second Amendment, the Third
Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth
Amendment.
2. ADDITIONAL AMENDMENTS. The Loan Documents shall be further amended as
follows:
2.1 Exhibit "B" to the Original Agreement, constituting the
Eligibility Criteria, as subsequently amended, shall be amended and
restated in its entirety to read as set forth on the attached Exhibit "A",
-----------
incorporated herein by reference.
2.2 The following definitions shall be deleted from the Receivables
Loan Agreement:
(i) Non-Conforming Borrowing Base;
(ii) Non-Conforming Instrument Ratio;
- 3 -
<PAGE>
(iii) Non-Conforming Instruments; and
(iv) Conforming Instruments.
2.3 All references in the Receivables Loan Agreement to
Conforming Instruments shall be amended to mean Instruments.
2.4 The provisions of Section 3.7 of the Original Agreement,
added to the Original Agreement pursuant to the First Amendment and
thereafter modified pursuant to the Fifth Amendment, shall be deleted in
its entirety.
3. PREPAYMENT. The Loan may be prepaid as provided in the Original
----------
Agreement; provided however, that for purposes of determining when and under
----------------
what circumstances a prepayment may occur, the elapsed time of the term of the
Loan shall be measured from the date on which the last Advance is made under the
terms of the Original Agreement, as amended by this Sixth Amendment.
4. Limitation on Advances. At no time during the Term shall the
----------------------
unpaid principal balance of the Loan, together with the unpaid principal balance
of the Construction Loan, exceed a total amount equal to Twenty-Eight Million
Dollars ($28,000,000.00) (the "Advance Limitation"), and Lender shall have no
obligation to make any Advance under the Loan if such Advance would cause the
Advance Limitation to be exceeded.
5. RETURN OF INSTRUMENTS. To the extent the Lender has the
---------------------
obligation of returning to Borrower an Instrument in Lender's possession, Lender
will make reasonable efforts to return such Instrument to Borrower no later than
thirty (30) days following the later to occur of (i) the receipt from Borrower
of a form of reassignment acceptable to Lender or (ii) the receipt by Lender of
a servicing report from the Servicing Agent reflecting that Lender has the
obligation of returning such Instrument to Borrower.
6. FEES AND EXPENSES. In addition to the fees and expenses which
-----------------
have been paid or are payable by Borrower pursuant to Section 8.16 of the
Receivables Loan Agreements, Borrower shall pay to Lender a nonrefundable loan
fee (the "Loan Fee") in the amount of $50,000, which nonrefundable fee was
earned by Lender in consideration of Lender holding itself ready, willing and
able to amend the Receivables Loan Agreement upon the terms and conditions set
forth herein. One-half of the Loan Fee shall be due and payable in full not
later than the date of the first Advance after the date hereof or on January 31,
1995, whichever shall occur first, and the remaining one-half of the Loan Fee
shall be due and payable in full not later than the date of the second Advance
after the date hereof or on February 28, 1995,
- 4 -
<PAGE>
whichever shall occur first. Furthermore, Borrower shall pay to Lender, on
demand, all costs and expenses arising from the preparation of this Sixth
Amendment, or otherwise incurred by Lender in connection with this Sixth
Amendment, including, but not limited to, title insurance premiums, other title
company charges, recording fees, all charges for consumer credit and Bishop's
reports, and U.C.C., tax lien, judgment and litigation searches, Lender's
attorneys' fees and costs, appraisal fees, if any, survey costs, if any,
inspection costs and fees, both during construction or otherwise, escrow
disbursement expenses, any revenue and/or documentary stamps, intangible or
recording taxes, out-of-pocket travel expenses incurred by Lender or its agents
and employees, brokerage commissions, all fees and expenses of the Servicing
Agent and Collection Agent in connection with this Sixth Amendment, Lender's
counsel's attorneys' fee (which fees will not exceed $5,000.00 provided that
there are no protracted negotiations among the parties and further provided
that no significant unforeseen issues arise), Lender's counsel's out-of-pocket
costs and expenses, and any other costs, expenses or charges that may be
imposed on or incurred by Lender as a result of this Sixth Amendment.
7. CONFIRMATION OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
----------------------------------------------------------
Borrower hereby reaffirms, as if made as of the date hereof, all of Borrower's
representations and warranties contained in the Receivables Loan Agreement.
Without limiting the generality of the foregoing, Borrower represents and
warrants that there has occurred no material adverse change in the Real
Property, Receivables Collateral or Residual Collateral or in the business or
financial condition of Borrower or Guarantor since the date of the last
financial statements submitted to Lender and that neither Borrower nor
Guarantor has failed to disclose to Lender any information material to the
Loan. Borrower furthermore reaffirms the validity, enforceability and legality
of the Documents, and all provisions of the Documents, as modified, are hereby
confirmed and ratified. Without limiting the generality of the foregoing,
Borrower hereby reaffirms the validity and enforceability of the Security
Interest granted to Lender in the Receivables Collateral and the Residual
Collateral as security for Borrower's payment and Performance of all
Obligations, other than those Obligations arising out of the Environmental
Certificate with Representations, Covenants and Warranties delivered in
connection with the Construction Loan Agreement. Borrower hereby acknowledges
and agrees that the definition of Obligations includes, without limitation,
each and every obligation, duty, covenant, undertaking and condition which
Borrower is required or has agreed to perform under the Documents and under the
Construction Loan Documents, and each and every obligation of Borrower now or
hereafter owing to Lender. In the event of a conflict or inconsistency between
the provisions of the Original Agreement, the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment or the Fifth Amendment, on
the one hand, and the provisions of this Sixth Amendment, on the other hand,
the provisions of this Sixth Amendment shall prevail.
- 5 -
<PAGE>
8. GUARANTORS' RATIFICATION. As a condition precedent to the
------------------------
effectiveness of this Sixth Amendment, Borrower shall cause the Guarantors to
each execute a Ratification and Confirmation of Guarantee and Subordination
Agreement in forms acceptable to Lender, thereby acknowledging the making of the
agreements contained herein.
9. CONTINUATION OF PROVISIONS. All terms, conditions and provisions
--------------------------
of the Original Agreement, First Amendment, Second Amendment, Third Amendment,
Fourth Amendment and Fifth Amendment are continued in full force and effect and
shall remain unaffected and unchanged except as specifically amended or modified
hereby. Without limiting the generality of the foregoing, an Event of Default
shall be deemed to exist in the event there occurs an Event of Default under and
as defined in the Construction Loan Agreement or in the event there occurs an
act or event under any of the Construction Loan Documents, whether or not
denominated as an "Event of Default," which expressly entitles the Lender to
exercise its remedies. Borrower acknowledges that as of the date hereof, it has
(i) no defense, counterclaim, offset, cross-complaint, claim or demand of any
nature whatsoever which can be asserted as a basis to seek affirmative relief or
damages from Lender or as a basis to reduce or eliminate all or any part of its
liability to repay the Loan and (ii) no other claim against Lender with respect
to any aspect of the transaction in respect to which the Loan was made. That
certain financing proposal from Lender to Borrower dated November 23, 1994, and
that certain letter from Carol Sullivan & Associates, Inc. to Lender of August
16, 1994, are merged into this Sixth Amendment and such financing proposal and
letter shall, from and after the date hereof, have no further force or effect.
10. CONDITIONS PRECEDENT. The amendments and modifications to the
--------------------
Receivables Loan Agreement contained herein and Lender's obligations in this
regard are subject to the following express conditions precedent:
10.1 The following shall be delivered to Lender all in a form,
manner and substance satisfactory to Lender:
(a) An original of this Sixth Amendment fully executed by
the Borrower;
(b) An original Ratification and Confirmation of Corporate
Guarantee and Subordination Agreement in a form acceptable to
Lender, fully executed by Argosy Group, Inc.;
(c) An original Ratification and Confirmation of
Partnership Guarantee and Subordination Agreement in a form
acceptable to Lender, fully executed by Argosy Canyon Investments,
L.P.;
- 6 -
<PAGE>
(d) Current updates of the opinion letter received by
Lender in connection with the Receivables Loan Agreement from
Schreeder, Wheeler & Flint;
(e) Such resolutions and authorizations and such other
documents as Lender may require relating to the existence and good
standing of the Borrower and Guarantors, and the authority of any
person executing this Sixth Amendment or any other documents on behalf
of the Borrower or Guarantors;
(f) Updated Dun & Bradstreet report for Borrower and
updated UCC, tax lien, litigation and judgment searches for the
following parties: (i) Borrower, (ii) Argosy Group, Inc., and (iii)
Argosy Canyon Investments, L.P.;
(g) Evidence that Borrower has good and marketable title to
the collateral pledged to Lender, that Lender's liens and security
interest in such collateral have been duly perfected as first and
prior liens and security interests, and that there are no other
financing statements or liens filed against Borrower or on the
property of Borrower except those that are approved by Lender;
(h) Evidence of the payment by Borrower of any costs, fees
and expenses then payable in connection with the Loan, including,
without limitation, those fees, costs and expenses described in
Section 6 hereof; and
(i) A current analysis of the delinquency rate of Foreign
Instruments.
10.2 No Event of Default shall exist and no event or condition
shall exist which after notice or lapse of time, or both, would constitute
an Event of Default.
10.3 There shall have occurred no material adverse change in the
Real Property, the Receivables Collateral or Residual Collateral or in the
business or financial condition of Borrower and Guarantor since the date of
the last financial statement submitted to Lender.
10.4 Neither Borrower nor Guarantor shall have failed to disclose
to Lender any material information and no material information
- 7 -
<PAGE>
supplied by Borrower or Guarantor shall be found to be misleading,
misrepresented or materially incorrect.
10.5 All representations and warranties by Borrower shall remain
hue and correct, in all material respects, and all agreements the Borrower
is to have performed or complied with at such time shall have been
performed or complied with.
IN WITNESS WHEREOF, these presents are executed as of the date first
indicated above.
"BORROWER"
CYPRESS POINTE RESORTS, L.P.,
a Delaware limited partnership
By: ARGOSY GROUP, INC., a Georgia
corporation, General Partner
By /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------
Its VICE PRESIDENT
-----------------------------------
"LENDER"
GREYHOUND FINANCIAL
CORPORATION, a Delaware
corporation
By /s/ [SIGNATURE ILLEGIBLE]
------------------------------------
Its SENIOR VICE PRESIDENT
------------------------------------
- 8 -
<PAGE>
SEVENTH AMENDMENT TO LOAN
-------------------------
AND SECURITY AGREEMENT
----------------------
THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Seventh
Amendment") is made and entered into as of the 6th day of November, 1995, by and
between CYPRESS POINTE RESORTS, L.P., a Delaware limited partnership
("Borrower") and FINOVA CAPITAL CORPORATION, a Delaware corporation, formerly
known as Greyhound Financial Corporation, ("Lender").
WITNESSETH:
WHEREAS, as of December 19, 1991, Borrower and Lender's predecessor in
interest, Greyhound Real Estate Finance Company, an Arizona corporation
("GREFCO"), entered into that Loan and Security Agreement (the "Original
Agreement") pursuant to which Lender agreed to make a revolving loan to Borrower
for the purposes set forth therein; and
WHEREAS, Borrower and GREFCO modified and amended the Original
Agreement pursuant to that Amendment to Loan and Security Agreement and Consent
and Agreement of Guarantors dated as of November 9, 1992 (the "First
Amendment"); and
WHEREAS, pursuant to that Assignment dated as of January 13, 1993,
between GREFCO and Lender, GREFCO assigned to Lender all of GREFCO's rights and
obligations under the Original Agreement and the First Amendment and all other
documents and instruments executed in connection therewith; and
WHEREAS, pursuant to that Second Amendment to Loan and Security
Agreement dated as of January 13, 1993 (the "Second Amendment"), Lender and
Borrower amended the Original Agreement and First Amendment in certain respects;
and
WHEREAS, pursuant to that Third Amendment to Loan and Security
Agreement dated as of April 7, 1993 (the "Third Amendment"), Lender and Borrower
amended the Original Agreement, First Amendment, and Second Amendment in certain
respects; and
WHEREAS, pursuant to that Fourth Amendment to Loan and Security
Agreement dated as of December 16, 1993 (the "Fourth Amendment"), Lender and
<PAGE>
Borrower amended the Original Agreement, First Amendment, Second Amendment and
Third Amendment in certain respects; and
WHEREAS, pursuant to that Fifth Amendment to Loan and Security
Agreement dated as of June 28, 1994 (the "Fifth Amendment"), Lender and Borrower
amended the Original Agreement, First Amendment, Second Amendment, Third
Amendment and Fourth Amendment in certain respects; and
WHEREAS, pursuant to that Sixth Amendment to Loan and Security
Agreement dated as of December 16, 1994 (the "Sixth Amendment"), Lender and
Borrower amended the Original Agreement, First Amendment, Second Amendment,
Third Amendment, Fourth Amendment and Fifth Amendment in certain respects; and
WHEREAS, Borrower and Lender have agreed to further amend the Original
Agreement, First Amendment, Second Amendment, Third Amendment, Fourth Amendment,
Fifth Amendment and Sixth Amendment pursuant to the terms and provisions of this
Seventh Amendment to include, among other things, a working capital loan
facility.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Except as specifically set forth and/or modified by
-----------
this Seventh Amendment, all capitalized terms set forth herein shall have the
meanings set forth therefor in the Original Agreement, First Amendment, Second
Amendment, Third Amendment, Fourth Amendment, Fifth Amendment or Sixth
Amendment, as the case may be. However, the following capitalized terms shall
have the meanings set forth below, notwithstanding any contrary definitions
contained in the Original Agreement, First Amendment, Second Amendment, Third
Amendment, Fourth Amendment, Fifth Amendment or Sixth Amendment.
"Advance" shall mean, collectively and individually, a Receivables
Advance and a Working Capital Advance.
"Borrowing Base (Receivables Loan)" shall mean an amount equal to
the lesser of (i) 90% of the unpaid principal balance payable under the
Eligible Instruments or (ii) 90% of the then present value assigned to the
unmatured installments of principal and interest payable under the Eligible
Instruments discounted at Lender's Prevailing Discount Rate.
"Borrowing Base (Working Capital Loan)" shall mean an amount equal
to the sum of (A) the lesser of (i) 55% of the unpaid principal balance
payable under the Eligible Instruments against which a Working
- 2 -
<PAGE>
Capital Advance will be made or (ii) 55% of the then present value assigned
to the unmatured installments of principal and interest payable under the
Eligible Instruments against which a Working Capital Advance will be made,
discounted at Lender's Prevailing Discount Rate, (B) 55% of any cash down
payments and principal and interest payments then made by the Purchaser
under such Eligible Instruments at the time of such Working Capital
Advance; and (C) 55% of any cash sales of Units then made at the time of
such Working Capital Advance, provided that the proceeds of the cash sales
and such cash down payments and principal and interest payments are held
and shall continue to be held in Escrow by Escrow Agent.
"Borrowing Term (Receivables Loan)" shall mean the period of time
during which Lender is committed to make Receivables Advances under the
Receivables Loan Agreement, which commitment shall terminate on November
30, 1997.
--
"Borrowing Term (Working Capital Loan)" shall mean the period of time
during which Lender is committed to make Working Capital Advances under the
Receivables Loan Agreement, which commitment shall terminate on November
30, 1997.
--
"Building" shall mean either Building 10 or Building 16.
"Building 10" shall mean the 16-unit Building to be constructed on
that portion of the Real Property described in Exhibit "A" attached hereto
-----------
and by this reference incorporated herein.
"Building 16" shall mean the 40-unit Building to be constructed on
that portion of the Real Property described in Exhibit "B" attached hereto
-----------
and by this reference incorporated herein.
"Capital Expenditure" shall mean payments that are made by the
Borrower for the lease, purchase, improvement, construction or use of any
property, the value of which under GAAP is required to be capitalized and
shall include, without limitation, payments for the installment purchase of
property and payments under capitalized leases.
"Cash Flow" shall mean, for any period, the net income or loss of
Borrower, determined in accordance with GAAP (excluding the effect of any
extraordinary gains or losses from the sale of property not in the ordinary
course of business), plus each of the following items to the extent
----
deducted from the revenues of Borrower in calculating the net income: (A)
depreciation;
- 3 -
<PAGE>
(B) amortization; and (C) interest and taxes during such period, and less
----
Capital Expenditures to the extent paid in such period.
"Collateral Assignment" shall mean that certain Collateral Assignment,
Security Agreement and Account Agreement of even date with the Seventh
Amendment pursuant to which Borrower collaterally assigns to Lender all of
the Borrower's interest in the Escrow and in the agreement pursuant to
which the Escrow is maintained as security for the payment and Performance
of the Obligations.
"Construction Loan Agreement" shall mean that certain Construction
Loan Agreement dated as of December 19, 1991, between Borrower and GREFCO,
as modified and amended pursuant to that First Amendment to Construction
Loan Agreement, dated as of January 13, 1993 between Borrower and Lender,
as modified and amended pursuant to that Second Amendment to Construction
Loan Agreement dated as of April 7, 1993 between Borrower and Lender, as
further modified and amended pursuant to that Third Amendment to
Construction Loan Agreement dated as of December 16, 1993 between Borrower
and Lender, as further modified and amended pursuant to that Fourth
Amendment to Construction Loan Agreement dated as of June 28, 1994, as
further modified and amended pursuant to that Fifth Amendment to
Construction Loan Agreement dated as of May 10, 1995 between Borrower and
Lender and as further modified and amended pursuant to that Sixth Amendment
to Construction Loan Agreement of even date herewith, between Borrower and
Lender, as from time to time further modified, extended, renewed, replaced
or restated.
"Construction Mortgage" shall mean, collectively, that certain
Mortgage, Assignment of Rents and Proceeds and Security Agreement dated as
of December 19, 1991 between Borrower and GREFCO; as amended by that
certain First Amendment to Mortgage, Assignment of Rents and Proceeds and
Security Agreement dated as of January 13, 1993 between Borrower and
Lender; as amended by that certain Second Amendment to Mortgage, Assignment
of Rents and Proceeds and Security Agreement dated as of April 7, 1993
between Borrower and Lender; as further amended by that certain Third
Amendment to Mortgage, Assignment of Rents and Proceeds and Security
Agreement dated as of December 16, 1993 between Borrower and Lender; as
further amended by that certain Fourth Amendment to Mortgage, Assignment of
Rents and Proceeds and Security Agreement dated as of June 28, 1994 between
Borrower and Lender, as further amended by that certain Fifth Amendment to
Mortgage, Assignment of Rents and Proceeds and Security Agreement dated as
of May 10, 1995 between Borrower and Lender; and as further amended by that
certain Sixth Amendment to Mortgage, Assignment of
- 4 -
<PAGE>
Rents and Proceeds and Security Agreement of even date herewith between
Borrower and Lender.
"Delinquencies" shall mean, individually and collectively, an Eligible
Instrument, against which an Advance has been made, under which an
installment payment becomes more than 59 days past due.
"Distributions" shall mean any distribution, advance, payment,
including but not limited to, loan repayments, dividends, bonuses, salary,
other compensation and management fees.
"Documents" shall mean this Agreement, the Note, the Working Capital
Note, the Servicing and Collection Agreement, the Guarantee, the
Assignments, the Subordination Agreement, the Collateral Assignment, and
each and every other document, instrument or writing executed or delivered
by Borrower to Lender in connection with the Loan.
"Escrow" shall mean that certain account in the name of Escrow Agent
in which the cash payments and principal and interest payments that are
used in calculating the Borrowing Base (Working Capital Loan), together
with the original Instruments and Purchaser Mortgages pertaining thereto
are deposited, pursuant to an agreement acceptable to Lender.
"Escrow Agent" shall mean the person who is not an Affiliate of
Borrower, in whose name the Escrow is maintained, the identify of whom
shall be acceptable to Lender.
"Loan" shall mean, collectively and individually, the Receivables Loan
and the Working Capital Loan.
"Maturity Date" shall mean that date which shall occur ten (10) years
after the expiration of the Borrowing Term (Receivables Loan).
"Maximum Loan Amount" shall mean the lesser of (i)Forty Million
Dollars ($40,000,000.00) or (ii) the amount remaining when Forty-Five
Million Dollars ($45,000,000.00) is reduced by the principal amount then
outstanding under each of the Working Capital Loan and the Construction
Loan.
"Maximum Working Capital Loan Amount" shall mean the lesser of (i) One
Million Five Hundred Thousand Dollars ($1,500,000.00) or (ii) the amount
remaining when Forty-Five Million Dollars ($45,000,00000) is
- 5 -
<PAGE>
reduced by the principal amount then outstanding under each of the
Receivables Loan and the Construction Loan.
"Net Income" shall mean the net income or loss of Borrower, determined
in accordance with GAAP (excluding the effect of any extraordinary gains or
losses from the sale of property not in the ordinary course of business).
"Note" shall mean the Promissory Note defined in the Original
Agreement, as previously modified and amended and as further modified and
amended pursuant to that Fifth Allonge to Receivables Promissory Note of
even date herewith executed by Borrower and Lender.
"Opening Prepayment Date" shall mean the date which occurs twenty-four
(24) months after the date on which the last Receivables Advance is made
under the terms of the Original Agreement as amended by the Seventh
Amendment.
"Prevailing Discount Rate" shall mean Lender's prevailing discount
rate at the time each Advance is made, which shall be the Prime Rate plus
2.0% but in no event less than 12.5%.
"Project" shall mean the time-share condominium projects known as
Cypress Pointe Resort at Lake Buena Vista and Cypress Pointe II,
constructed and to be constructed by Borrower on the Real Property.
"Real Property" shall mean that parcel of real property located in
Orange County, Florida and all existing and future improvements located
thereon, more fully described on Exhibits "A", "B" and "C" of this Seventh
------------ --- ---
Amendment, exclusive of real property previously and hereafter released
from the lien of the Construction Mortgage with the consent of Lender.
"Receivables Advance" shall mean an Advance of the Receivables Loan
advanced by Lender to Borrower from time to time in accordance with the
terms and provisions of this Agreement.
"Receivables Loan" shall mean the revolving line of credit loan
extended by Lender to Borrower in accordance with the terms of this
Agreement in an outstanding principal amount not to exceed at any time the
Maximum Loan Amount.
"Receivables Loan Agreement" shall mean, collectively, the Original
Agreement, the First Amendment, the Second Amendment, the Third
- 6 -
<PAGE>
Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment
and the Seventh Amendment.
"Working Capital Advance" shall mean an Advance of the Working
Capital Loan advanced by Lender to Borrower from time to time in accordance
with the terms and provisions of this Agreement.
"Working Capital Loan" shall mean a revolving line of credit loan
extended by Lender to Borrower in accordance with the terms of this
Agreement in an outstanding principal amount not to exceed at any time the
Maximum Working Capital Loan Amount.
"Working Capital Note" shall mean the Promissory Note, in the
amount of the Working Capital Loan, to be made and delivered by Borrower to
Lender pursuant hereto, in a form acceptable to Lender, as amended, renewed
or restated.
2. Subject to the satisfaction of all of the conditions precedent
set forth in Section 7 hereof, the Original Agreement is hereby amended in the
---------
following respects:
2.1 The provisions of Section 3.1 of the Original Agreement
-----------
shall be amended and restated in their entirety to read as follows:
3.1 Lender hereby agrees that the Receivables Loan will be
disbursed to Borrower, from time to time, in periodic Receivables
Advances, but in no event after the Borrowing Term (Receivables Loan)
has expired, in amounts determined by subtracting from the Borrowing
Base (Receivables Loan) the unpaid principal balance outstanding under
the Receivables Loan at the time of each Receivables Advance;
(i) Receivables Advances shall not be made more
frequently than twice per month, and each Receivables Advance shall
be in an amount of not less that One Hundred Thousand Dollars
($100,000.00). Lender shall charge a fee of Five Hundred Dollars
($500.00) for the second Receivables Advance made during any month
and shall be entitled to deduct such fee from the Receivables
Advance so made. The foregoing fee is to be paid to Lender strictly
in consideration for Lender's agreement to make a second
Receivables Advance during any particular calendar month and shall
not be applied or credited against any other Obligations.
- 7 -
<PAGE>
(ii) The Receivables Loan is a revolving line of credit under
the terms of which Borrower, during the Borrowing Term (Receivables
Loan), shall have the right to obtain Receivables Advances, repay
Receivables Advances, and obtain additional Receivables Advances so long
as no Event of Default has occurred and is continuing and so long as all
other conditions precedent to the making of a Receivables Advance have
been satisfied.
(iii) No Receivables Advances will be made after the Borrowing
Term (Receivables Loan) has expired unless Lender, in its sole
discretion, shall agree in writing to make such Receivables Advances.
(iv) Borrower shall use the proceeds of the Receivables Loan
for working capital purposes, to make Distributions to Affiliates to the
extent permitted under this Agreement and under the Construction Loan
Documents and to repay the Construction Loan and the Working Capital
Loan, in full. The proceeds of the Receivables Loan shall be used to pay
and satisfy the then unpaid principal balance and all accrued interest
under the Working Capital Loan before any portion of the Receivables
Loan is used to make Distributions or is paid in satisfaction of any
portion of the Construction Loan. The foregoing notwithstanding, upon
the occurrence of any Event of Default, the proceeds of the Receivables
Loan may be applied by Lender in satisfaction of the Obligations in such
order and manner as Lender shall determine.
(v) At no time during the term hereof shall the unpaid
principal balance of the Receivables Loan, together with the unpaid
principal balance of the Construction Loan and the Working Capital Loan,
exceed a total amount equal to Forty-Five Million Dollars
($45,000,000.00), and Lender shall have no obligation to make any
Receivables Advance if such Advance would cause the foregoing limitation
to be exceeded.
2.2 The provisions of Section 3.2 of the Original Agreement shall be
-----------
amended and restated in their entirety to read as follows:
3.2 Lender agrees that the Working Capital Loan will be disbursed to
Borrower, from time to time, in periodic Working
- 8 -
<PAGE>
Capital Advances, but in no event after the Borrowing Term (Working Capital
Loan) has expired, in an amount determined by subtracting from the Borrowing
Base (Working Capital Loan) the unpaid principal balance of the Working
Capital Loan at the time of each Working Capital Advance; provided that at no
time shall the unpaid principal balance of the Working Capital Loan exceed
the Maximum Working Capital Loan Amount.
(i) Working Capital Advances shall be made no more frequently
than twice per month and each Working Capital Advance shall be in an
amount not less than One Hundred Thousand Dollars ($100,000.00). Lender
shall charge a fee of Five Hundred Dollars ($500.00) for the second
Working Capital Advance made during any month and shall be entitled to
deduct such fee from the Working Capital Advance so made. The foregoing
fee is to be paid to Lender strictly in consideration for Lender's
agreement to make a second Working Capital Advance during any particular
calendar month and shall not be applied or credited against any other
Obligations.
(ii) The Working Capital Loan is a revolving line of credit
under the terms of which Borrower, during the Borrowing Term (Working
Capital Loan), shall have the right to obtain Working Capital Advances,
repay Working Capital Advances, and obtain additional Working Capital
Advances so long as no Event of Default has occurred and is continuing
and so long as all other conditions precedent to the making of a Working
Capital Advance have been satisfied. The foregoing notwithstanding,
Borrower shall have no right to obtain a Working Capital Advance against
Eligible Instruments arising from any portion of the Project the
construction of which was commenced prior to the earlier of the
commencement of construction of Building 10 or Building 16. In addition,
Borrower shall have no right to obtain a Working Capital Advance against
Eligible Instruments arising from Building 16 until all Working Capital
Advances against Eligible Instruments arising from Building 10 have been
paid in full including all accrued interest thereon. At such time as
Borrower has received a Working Capital Advance against Eligible
Instruments arising from Building 16, Borrower shall have no further
right to obtain any Working Capital Advances against Eligible
Instruments arising from Building 10.
- 9 -
<PAGE>
(iii) No Working Capital Advances will be made after the
Borrowing Term (Working Capital Loan) has expired unless Lender, in its
sole discretion, shall agree to make such Working Capital Advances.
(iv) Borrower shall use the proceeds of the Working Capital
Loan for working capital purposes.
(v) Any cash down payments and principal and interest
payments made by a Purchaser under a particular Instrument that are used
in calculating the Borrowing Base (Working Capital Loan) shall be held
in Escrow by the Escrow Agent and shall not be released to Borrower
unless a principal payment under the Working Capital Loan is made in an
amount equal to the amount of the Working Capital Advance originally
made against such cash down payment and principal and interest payment.
(vi) At no time during the term hereof shall the unpaid
principal balance of the Working Capital Loan, together with the unpaid
principal balance of the Construction Loan and Receivables Loan, exceed
a total amount equal to Forty-Five Million Dollars ($45,000,000.00), and
Lender shall have no obligation to make any Working Capital Advance if
such Advance would cause the foregoing limitation to be exceeded.
2.3 Sections 3.3, 3.5 and 3.6 of the Original Agreement shall be
----------------- ---
deleted.
2.4 The provisions of Section 4.4 of the Original Agreement shall be
-----------
amended and restated in their entirety to read as follows:
4.4 In connection with a Receivables Advance but not a Working
Capital Advance, Borrower shall, at its expense, deliver to Lender, at the
time of delivery of the Assignment, a policy or policies of title
insurance insuring Lender's interest in the Purchaser Mortgage which is
the subject of the Assignment. Such policy or policies shall be in the
amount of the Receivables Advances made against or, in the case of
substitutions, a portion of the Receivables Loan attributable to the
Instruments secured by the insured Purchaser Mortgages and shall be issued
by a title insurer and be in form and substance satisfactory to Lender in
its sole discretion. The title insurance policies must reflect that the
Purchaser Mortgages constitute valid liens against the real
- 10 -
<PAGE>
property to which they pertain subject only to the Permitted Encumbrances.
2.5 The provisions of Section 5.3(ix) of the Original Agreement
---------------
shall be amended and restated in their entirety to read as follows:
With respect to a Receivables Advances, the items described in
Exhibit "F" and with respect to a Working Capital Advance, the items
-----------
described in the following paragraphs of Exhibit "F" hereto: (a), (b)
-----------
(unrecorded copies only), (e), (f), (g), (h) and (i);
2.6 The provisions of Section 5.15 of the Original Agreement shall be
------------
amended and restated in their entirety to read as follows:
5.15 The proceeds of the Receivables Loan are to be used, in
part, to pay and satisfy in full the Working Capital Loan and the
Construction Loan. To the extent of the proceeds of the Receivables Loan
arise from a particular Building, such proceeds shall be used in part, to
pay and satisfy in full the Working Capital Loan arising from the same
Building, the Construction Loan as respects such Building and all amounts
then due and owing to Lender under the Construction Loan Documents as
respects such Building. Lender shall have the right to disburse any
Receivables Advance directly to Lender in payment or satisfaction of
Working Capital Advances, and interest thereon, and any amounts then due
to Lender under the Construction Loan Documents. The foregoing
notwithstanding, upon and during the continuance of an Event of Default,
Lender shall have the right to disburse Receivables Advances against the
Obligations in such order and manner as Lender deems appropriate.
2.7 The Original Agreement shall be amended with the addition of a
Section 5.16 reading as follows:
------------
5.16 Working Capital Advances shall be made only against the
Borrowing Base (Working Capital Loan); provided that with respect to
Working Capital Advances only, the eligibility criteria set forth in the
following subparagraphs of Exhibit "B" (as modified pursuant to the Sixth
-----------
Amendment and pursuant to that certain Letter Agreement dated
May 10, 1995) need not be satisfied as a condition to the making of such
Advance: (i) only as to the requirement that the Purchaser Mortgage be
recorded, (j) and (k) with respect to the absence of executory obligation
to the Purchaser and to the extent that such rescission rights described
in subparagraph (k) pertain only to
- 11 -
<PAGE>
Borrower's obligations under subparagraph (j) thereof. Furthermore,
with respect to the eligibility criteria set forth in subparagraph (a)
of Exhibit "B", the lien and security interest in the Instrument, the
-----------
security therefore and the rights to payments therefrom shall be
applicable only insofar as Borrower has rights in the Instrument, the
security therefore and the payments therefrom.
2.8 The provisions of Section 7.1 of the Original Agreement shall
-----------
be amended and restated in their entirety to read as follows:
7.1 In connection with the Receivables Loan:
(i) In no event shall the aggregate principal amount
of the Receivables Loan outstanding at any time exceed the
Maximum Loan Amount and in the event for any reason the aggregate
principal amount of the Receivables Loan does exceed the Maximum
Loan Amount, then Borrower upon demand, shall immediately make a
principal payment to Lender in an amount equal to such excess
plus accrued and unpaid interest thereon.
(ii) If for any reason the aggregate principal amount
of the Receivables Loan outstanding as of the last Business Day
of any month shall exceed the then Borrowing Base (Receivables
Loan), Borrower, upon demand, shall immediately make to Lender a
principal payment in an amount equal to such excess plus accrued
and unpaid interest thereon.
(iii) The Receivables Loan shall be evidenced by the
Note and shall be repaid in immediately available funds according
to the terms thereof and such provisions of this Agreement as are
applicable.
2.9 The provisions of Section 7.2 of the Original Agreement shall
-----------
be amended and restated in their entirety to read as follows:
7.2 In connection with the Working Capital Loan:
(i) In no event shall the aggregate principal amount
of the Working Capital Loan outstanding at any time exceed the
Maximum Working Capital Loan Amount and in the event for any
reason the aggregate principal amount of the Working Capital Loan
does exceed the Maximum Working Capital Loan Amount, then
Borrower upon demand, shall
- 12 -
<PAGE>
immediately make a principal payment to Lender in an amount equal
to such excess plus accrued and unpaid interest thereon.
(ii) If for any reason the aggregate principal amount
of the Working Capital Loan outstanding as of the last Business
Day of any month shall exceed the then Borrowing Base (Working
Capital Loan), Borrower, upon demand, shall immediately make to
Lender a principal payment in an amount equal to such excess plus
accrued and unpaid interest thereon.
(iii) The Working Capital Loan shall be evidenced by
the Working Capital Note and shall be repaid in immediately
available funds according to the terms thereof and such
provisions of this Agreement as are applicable.
2.10 The provisions of Section 7.3 of the Original Agreement
-----------
shall be amended by amending and restating the introductory paragraph to
read as follows:
7.3 For purposes of determining when a prepayment may occur,
the elapsed time of the term of the Receivables Loan shall be measured
from the date on which the last Receivables Advance is made under the
Original Agreement amended by the Seventh Amendment. Borrower is not
entitled to prepay, in whole or in part, the Receivables Loan until
the Opening Prepayment Date. Thereafter, if (i) Borrower has paid all
sums then due and payable to Lender in connection with the Receivables
Loan, Working Capital Loan and the Construction Loan, and (ii)
Borrower has given Lender at least 30 days prior written notice of the
prepayment and has paid to Lender at the time of prepayment a
prepayment premium equal to a percentage, as set forth below, of the
then principal balance of the Receivables Loan, then Borrower shall
have the option to prepay the Receivables Loan in full, but not in
part, on any date an installment is due on the Note:
2.11 The provisions of Section 7.3 of the Original Agreement
-----------
shall be further amended to provide for the following premium for
prepayment in the event the Receivables Loan is prepaid at any time after
the sixth anniversary of the last Receivables Advance made under the
Original Agreement as amended through this Seventh Amendment:
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Period Premium
------ -------
<S> <C>
After the Sixth Anniversary Date and 2%
through the Seventh Anniversary Date
of the last Receivables Advance
Thereafter 0%
</TABLE>
There shall be no prepayment premium payable in connection with the
prepayment, in whole or in pan, of the Working Capital Loan.
2.12 The provisions of Section 7.3 of the Original Agreement shall be
-----------
further amended by substituting the words "Receivables Advance" for the word
"Advance", in each place, where the word "Advance" appears in that paragraph and
by substituting the words "Receivables Loan" for the word "Loan" in each place
where the word "Loan" appears in that paragraph other than when the word Loan is
preceded by the word "Construction" or the words "Working Capital."
2.13 The provisions of Section 7.6 of the Original Agreement shall be
-----------
amended and restated in their entirety to read as follows:
7.6 Whether or not the proceeds from the Receivables Collateral
shall be sufficient for that purpose, Borrower shall pay when due all
payments required to be made pursuant to the Note, Working Capital Note and
other Documents; and any and all amounts payable by Borrower under the
Note, Working Capital Note and other Documents shall be paid without notice
(except as otherwise expressly provided therein), demand, counterclaim,
set-off, deduction, recoupment or defense, and without abatement,
suspension, deferment, diminution or proration by reason of any
circumstance or occurrence whatsoever, Borrower's Obligation to make such
payments being absolute and unconditional.
2.14 The following language shall be added to the end of Section
-------
8.4(a) of the Original Agreement, as a part thereof:
- -----
The foregoing notwithstanding, Lender acknowledges that with
respect to Instruments against which a Working Capital Advance has been
made, Borrower shall not, at the time of such Advance, have completed the
improvements that the Borrower has represented will be available to
Purchasers.
- 14 -
<PAGE>
2.15 A Section 8.21 shall be added to the Loan Agreement reading as
------------
follows:
8.21 During the Term, Borrower shall not make any
Distributions to Andrew J. Gessow, Herb Alfree, any Guarantor, any
partner of Borrower, any partner of any Guarantor or any Affiliate of
any of the foregoing entities or individuals. The foregoing
notwithstanding, on the condition that:
(i) There does not then exist an Event of Default or an act
or event which with notice, passage of time or both would
constitute an Event of Default (an "Incipient Default"); and
(ii) Prior to the incurring of any obligation to make a
Distribution, Borrower has caused the proposed recipient of such
Distribution (the "Affiliated Party") to have entered into a
Subordination Agreement in form and substance satisfactory to
Lender pursuant to which the Affiliated Party agrees (A) that it
shall not exercise any rights against Borrower or against any of
the collateral securing the Loan or the Construction Loan unless
and until the date that all of the obligations of Borrower under
and with respect to the Loan and the Construction Loan have been
fully paid, performed and discharged; (B) that any entitlement to a
Distribution is and shall be fully subordinated as to right and
time of payment to the payment in full of the Loan and the
Construction Loan and (C) that upon and during the continuance of
an Event of Default or an Incipient Default, no Distributions shall
be permitted, made, demanded or accepted;
the following Distributions shall be permitted:
(x) Such Distribution is made in an amount equal to or less than
100% of Borrower's Cash Flow or 100% of Borrower's Net Income, whichever is
less, with respect to the period in which such Distribution is to be made.
2.16 The provisions of Section 8.22(a) of the Original Agreement shall
---------------
be amended and restated in its entirety to read as follows:
(a) As of the end of each fiscal quarter of Borrower, Borrower
shall maintain a net worth, calculated in accordance with
- 15 -
<PAGE>
generally accepted accounting principles, consistently
applied ("GAAP"), of at least $8,500,000.
2.17 The provisions of Section 8.22 of the Original Agreement
------------
shall be further modified by deleting "(e)" from the final subsection of
that section and inserting the letter "(f)" and by adding a new subsection
(e) reading as follows:
(e) Borrower shall not permit Delinquencies as of the end
of any three (3) consecutive calendar months during the Term to exceed
three percent (3%) of the aggregate then unpaid principal balance of
all Eligible Instruments against which an Advance has been made.
2.18 The provisions of Section 8.23 of the Original Agreement
------------
shall be amended and restated in its entirety to read as follows:
8.23 Borrower shall not, without Lender's prior written
consent: (i) construct additional condominium or time-share units
within or adjacent to the Project (other than the time-share units
comprising the Project) until at least 50% of the total Time-Share
Interests in Buildings 8, 10 and 16, in the aggregate, have been sold,
in bona fide transactions, to parties not Affiliated with Borrower,
(ii) sell time-share intervals from such additional condominium or
time-share units until at least 70% of the total Time-Share Interests
contained within Buildings 8, 10 and 16, in the aggregate, have been
sold, in bona fide transactions, to parties not Affiliated with
Borrower.
2.19 Section 11.5 of the Original Agreement shall be amended to
------------
provide that all notices sent to Lender shall be sent to Lender at the
following address:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn: Vice President - Group Counsel
With a copy to:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn: Vice President - Operations Management
- 16 -
<PAGE>
2.20 The provisions of Section 9.1(a) shall be amended and
--------------
restated in their entirety to read as follows:
(a) Lender fails to receive from Borrower when due and
payable any amount which Borrower is obligated to pay on the Note or
the Working Capital Note or any other payment due under the Documents;
and such failure shall continue for seven (7) days, except for the
payment of the final installment due under the Note at the Maturity
Date, for which no grace period is allowed;
2.21 The provisions of Section 9.2(b) of the Original Agreement
--------------
shall be amended in their entirety to read as follows:
(b) declare each or either of the Note and the Working
Capital Note, together with prepayment premiums and all other sums
owing by Borrower to Lender in connection with the Documents,
immediately due and payable without notice, presentment, demand or
protest, which are hereby waived by Borrower;
3. DOCUMENT REFERENCE. All references to the "Loan Agreement" in
------------------
the Documents and to "this Agreement", "herein", "hereof", "hereto", and
"hereunder" in the Original Agreement are hereby amended to refer to the
Original Agreement as amended through this Seventh Amendment.
4. FEES AND EXPENSES. In addition to the fees and expenses that
-----------------
have been paid or are payable by Borrower pursuant to the Original Agreement,
Borrower shall pay to Lender (i) a loan fee (the "Working Capital Loan Fee") in
the amount of $15,000.00, which fee was earned by Lender in consideration of
Lender holding itself ready, willing and able to amend the Original Agreement
upon the terms and conditions set forth herein and (ii) a loan fee (the
"Receivables Loan Fee") in the amount of $150,000.00, which fee was earned by
Lender in further consideration of Lender holding itself ready, willing and able
to amend the Original Agreement upon the terms and conditions set forth herein.
The payment of the Working Capital Loan Fee and the Receivables Loan Fee is in
addition to Borrower's obligation to pay a loan fee to Lender in consideration
for the Lender's commitment to modify and amend the Construction Loan Agreement
and in addition to all other fees and expenses required to be paid by Borrower
pursuant to the Sixth Amendment to Construction Loan Agreement of even date
herewith. One-half of the Working Capital Loan Fee, in the amount of $7,500,
shall be due concurrently with the making of the first Working Capital Advance
after the date of this Seventh Amendment. The remaining balance of the Working
Capital Loan Fee, in the amount of $7,500, shall be due and payable concurrently
with the making of the second Working Capital Advance after the date of
- 17 -
<PAGE>
this Seventh Amendment. The foregoing notwithstanding, unless sooner paid, the
entire Working Capital Loan Fee shall be due and payable in full on December
31, 1995. The first Fifty Thousand Dollars of the Receivables Loan Fee shall be
due and payable concurrently with the making of the Receivables Advance which
causes the unpaid principal balance of the Receivables Loan to exceed Twenty-
Five Million Dollars ($25,000,000) and may be withheld from Advance so made. An
additional Fifty Thousand Dollars ($50,000.00) of the Receivables Loan Fee
shall be due and payable concurrently with the making of the Receivables
Advance which causes the unpaid principal balance of the Receivables Loan to
exceed Thirty Million Dollars ($30,000,000.00) and may be withheld from the
Advance so made. The remaining Fifty Thousand Dollars ($50,000.00) of the
Receivables Loan Fee shall be due and payable concurrently with the making of
the Receivables Advance which causes the unpaid principal balance of the
Receivables Loan to exceed Thirty-Five Million Dollars ($35,000,000.00) and may
be withheld from the Advance so made. The foregoing notwithstanding, unless
sooner paid, the entire Receivables Loan Fee shall be due and payable on full
on March 31, 1997. Furthermore, Borrower shall pay, on demand, all costs and
expenses arising from the preparation of this Seventh Amendment and the closing
of the amendment to the Construction Loan Documents, or otherwise incurred by
Lender in connection with this Seventh Amendment, including, but not limited
to, title insurance premiums, other title company charges, recording fees, all
charges for consumer credit reports, and U.C.C., tax lien, judgment and
litigation searches, Lender's attorneys' fees and costs, appraisal fees, if
any, survey costs, if any, inspection costs and fees, both during construction
or otherwise, escrow disbursement expenses, any revenue and/or documentary
stamps, intangible or recording taxes, out-of-pocket travel expenses incurred
by Lender or its agents and employees, brokerage commissions, all fees and
expenses of the Servicing Agent and Collection Agent in connection with this
Seventh Amendment, and any other costs, expenses or charges that may be imposed
on or incurred by Lender as a result of this Amendment. Borrower shall
indemnify and hold Lender harmless from any and all liability for payment of
any brokerage fees. Lender shall have the right to withhold from any Advance
made hereunder, any costs, fees, expenses or reimbursements due and owing to
Lender.
5. CONFIRMATION OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
----------------------------------------------------------
Borrower hereby reaffirms, as if made as of the date hereof, all of Borrower's
representations and warranties contained in the Receivables Loan Agreement.
Borrower furthermore reaffirms the validity, enforceability and legality of the
Documents, and all provisions of the Documents, as modified, are hereby
confirmed and ratified; provided, however, that with respect to enforceability
-----------------
and legality, Borrower make such reaffirmation only to the best of its
knowledge. Without limiting the generality of the foregoing, Borrower
represents and warrants that there has occurred no material adverse change in
the Real Property, Receivables Collateral or Residual Collateral or in the
business or financial condition of Borrower or
- 18 -
<PAGE>
Guarantor since the date of the last financial statements submitted to Lender
and that neither Borrower nor Guarantor has failed to disclose to Lender any
information material to the Loan. All provisions of the Documents, as modified,
are hereby confirmed and ratified. Without limiting the generality of the
foregoing, Borrower hereby reaffirms the validity and enforceability of the
Security Interest granted to Lender in the Receivables Collateral and the
Residual Collateral as security for Borrower's payment and Performance of all
Obligations, other than those Obligations arising out of the Environmental
Certificate with Representations, Covenants and Warranties delivered in
connection with the Construction Loan Agreement. In the event of a conflict or
inconsistency between the provisions of the Original Agreement, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the
Fifth Amendment or the Sixth Amendment, on the one hand, and the provisions of
this Seventh Amendment, on the other hand, the provisions of this Seventh
Amendment shall prevail. All terms, conditions and provisions of the Original
Agreement, First Amendment, Second Amendment, Third Amendment, Fourth Amendment,
Fifth Amendment and Sixth Amendment are continued in full force and effect and
shall remain unaffected and unchanged except as specifically amended or modified
hereby. Borrower acknowledges that as of the date hereof, it has (i) no defense,
counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever
which can be asserted as a basis to seek affirmative relief or damages from
Lender or as a basis to reduce or eliminate all or any part of its liability to
repay the Loan and (ii) no other claim against Lender with respect to any aspect
of the transaction in respect to which the Loan was made.
6. GUARANTORS' RATIFICATION. As a condition precedent to the
------------------------
effectiveness of this Seventh Amendment, Borrower shall cause the Guarantors to
each execute a Ratification and Confirmation of Guarantee and Subordination
Agreement in forms acceptable to Lender, thereby acknowledging the making of the
agreements contained herein.
7. CONDITIONS PRECEDENT. The amendments and modifications to
--------------------
the Receivables Loan Agreement contained herein and Lender's obligations in this
regard are subject to the following express conditions precedent:
7.1 The following shall be delivered to Lender all in a form,
manner and substance satisfactory to Lender:
(a) An original of this Sixth Amendment fully executed by
the Borrower;
(b) An original Ratification and Confirmation of Corporate
Guarantee and Subordination Agreement in a form acceptable to Lender,
fully executed by Argosy Group, Inc.;
- 19 -
<PAGE>
(c) An original Ratification and Confirmation of Partnership
Guarantee and Subordination Agreement in a form acceptable to Lender,
fully executed by Argosy Canyon Investments, L.P.;
(d) Current updates of the opinion letter received by Lender
in connection with the Receivables Loan Agreement from Schreeder,
Wheeler & Flint;
(e) Such resolutions and authorizations and such other
documents as Lender may require relating to the existence and good
standing of the Borrower and Guarantors, and the authority of any
person executing this Sixth Amendment or any other documents on behalf
of the Borrower or Guarantors;
(f) Updated credit references and Dun & Bradstreet report
for Borrower and updated UCC, tax lien, litigation and judgment
searches for the following parties: (i) Borrower, (ii) Argosy Group,
Inc., and (iii) Argosy Canyon Investments, L.P.;
(g) Evidence that Borrower has good and marketable title to
the collateral pledged to Lender, that Lender's liens and security
interest in such collateral have been duly perfected as first and
prior liens and security interests, and that there are no other
financing statements or liens filed against Borrower or on the
property of Borrower except those that are approved by Lender;
(h) Evidence of the payment by Borrower of any costs, fees
and expenses then payable in connection with the Loan, including,
without limitation, those fees, costs and expenses described in
Section 4 hereof; and
---------
(i) An original of the Fifth Allonge to Receivables
Promissory Note in a form acceptable to Lender, fully executed by
Borrower;
(j) An original of the Working Capital Promissory Note in
a form acceptable to Lender, fully executed by Borrower;
(k) An original Sixth Amendment to Mortgage, Assignment of
Rents and Proceeds and Security Agreement in a form
- 20 -
<PAGE>
acceptable to Lender, fully executed by Borrower (the "Sixth Mortgage
Modification");
(l) An Acknowledgment and Agreement from the Escrow Agent
in a form acceptable to Lender pursuant to which the Escrow Agent
agrees to abide by the provisions of Section 3.2(v) of the Original
--------------
Agreement, added to the Original Agreement pursuant to this Seventh
Amendment.
(m) All documents required to be executed and delivered to
Lender in connection with the amendment and modification of the
Construction Loan Agreement;
(n) A commitment from First American Title Company, the
issuer of Lender's ALTA extended coverage title insurance policy
insuring the lien of the Construction Mortgage (the "Title Policy"),
to issue an endorsement, in form satisfactory to Lender, to the Title
Policy, insuring that the Construction Mortgage, as modified pursuant
to the Sixth Mortgage Modification, continues to be a first lien upon
the real property described therein, subject only to those exceptions
contained in such title policy and to such additional exceptions as
Lender may specifically approve in writing;
(o) An ALTA certified survey of the Real Property, other
than that portion which prior to the date hereof is already subject to
the Construction Mortgage, in a form acceptable to Lender;
(p) A Subordination Agreement, in a form acceptable to
Lender, from each of the Affiliated Parties, as defined in Section
-------
8.21 of the Original Agreement, added to the Original Agreement
----
pursuant to this Seventh Amendment;
(q) Such amendments to Lender's financing statements as
Lender shall require in order to perfect the security interest granted
to Lender pursuant to the Collateral Assignment; and
(r) An original of the Collateral Assignment, fully
executed by Borrower.
7.2 No Event of Default shall exist and no event or condition
shall exist which after notice or lapse of time, or both, would constitute
an Event of Default.
- 21 -
<PAGE>
7.3 There shall have occurred no material adverse change in the
Real Property, the Receivables Collateral or Residual Collateral or in the
business or financial condition of Borrower and Guarantor since the date of
the last financial statement submitted to Lender.
7.4 Neither Borrower nor Guarantor shall have failed to disclose
to Lender any material information and no material information supplied by
Borrower or Guarantor shall be found to be misleading, misrepresented or
materially incorrect.
7.5 All representations and warranties by Borrower shall remain
true and correct, in all material respects, and all agreements the Borrower
is to have performed or complied with at such time shall have been
performed or complied with.
8. COUNTERPARTS. This Seventh Amendment may be executed in any
------------
number of separate counterparts, each of which when taken together shall
constitute one and the same instrument notwithstanding the fact that all parties
have not signed the same counterpart.
IN WITNESS WHEREOF, these presents are executed as of the date first
indicated above.
"BORROWER"
CYPRESS POINT RESORTS, L.P.,
a Delaware limited partnership
By: ARGOSY GROUP, INC., a Georgia
corporation, General Partner
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
Its VICE PRESIDENT
------------------------------
"LENDER"
FINOVA CAPITAL CORPORATION, a
Delaware corporation
By /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------
Its VICE PRESIDENT
-----------------------------------
[CORPORATE SEAL]
- 22 -
<PAGE>
EXHIBIT 10.8.3
LOAN AND SECURITY AGREEMENT
between
SAN LUIS RESORT PARTNERS, LLC
and
FINOVA CAPITAL CORPORATION
DATED AS OF JUNE 6, 1996
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
BY THIS LOAN AND SECURITY AGREEMENT entered into as of June 6, 1996,
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender") and SAN LUIS
RESORT PARTNERS, LLC, a Georgia limited liability company ("Borrower"), hereby
confirm and agree as follows:
ARTICLE I
---------
INTRODUCTION
------------
1.1 Borrower desires to obtain certain revolving lines of credit
from Lender, the proceeds of which shall be used for working capital purposes
and for purposes of paying and satisfying certain construction indebtedness
owing from Borrower to Lender.
1.2 Lender is willing to extend to Borrower certain revolving lines
of credit for the purposes stated in the preceding paragraph upon the terms and
conditions set forth herein.
ARTICLE II
----------
DEFINITIONS
-----------
Except where the context clearly requires a different interpretation,
all capitalized terms used in this Agreement shall have the meanings assigned to
them above, immediately below, or elsewhere herein.
"Acquisition Advances" shall have the meaning set forth in the
Construction Loan Agreement.
"Advance" shall mean, collectively and individually, a Receivables
Advance and a Working Capital Advance.
"Advance Date" shall mean each date on which an Advance is made.
"Affiliate" shall mean any person or entity directly or indirectly
Controlling, Controlled by or under common Control with the person or entity to
whom the definition is applied, including blood relatives or spouse of the
person to whom the definition applies, if such person is a natural person.
Controlled, Control or Controlling shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of another person or entity by any means.
<PAGE>
"Affiliate Debt Subordination Agreement" shall mean an agreement, in
such form as Lender shall prescribe, delivered to Lender pursuant to paragraph
---------
5.2(iii) hereof, as from time to time modified, replaced or restated.
- --------
"Agreement" shall mean this Loan and Security Agreement, as from time
to time modified, extended, renewed, replaced or restated.
"AKGI" shall mean AKGI San Luis, Inc., a Georgia corporation.
"Applicable Environmental Laws" shall have the meaning set forth in
the Environmental Certificate.
"Applicable Usury Law" shall mean the usury law applicable pursuant to
the terms of Article XI, paragraph 11.11 hereof or such other usury law which
---------- ----------------
is applicable if the law chosen by the parties is not applicable.
"Acquisition Documents" shall mean that certain Option Agreement dated
as of August 25, 1995, by and between Thomas P. Williams, Chapter 7 Trustee of
Glen Ivy Resorts, Inc. as Seller ("Seller") and Argosy/KOAR Group, Inc., a
Georgia corporation as Buyer; as amended by that certain Amendment No. 1 to
Option Agreement dated as of February 2, 1996; as further amended by that
Amendment No. 2 to the Option Agreement dated as of April 2, 1996 (Argosy/KOAR
Group, Inc.'s interest in which was assigned to Borrower pursuant to the
foregoing Amendment No. 2 to Option Agreement, which assignment was consented to
by the Seller thereunder); together with that certain Agreement of Purchase and
Sales/Joint Escrow Instructions between the Borrower as buyer and the Seller as
seller, dated June 12, 1996 and all deeds, assignments and other documents
executed in connection therewith.
"Assignments" shall mean written Assignments, in such form as Lender
shall prescribe, of specific Instruments and/or Purchaser Mortgages and the
proceeds thereof delivered to Lender concurrently with each Advance under the
terms of which Borrower transfers and assigns with full recourse all of
Borrower's right, title and interest in and to the Instrument and/or Purchaser
Mortgage, free and clear of all claims, demands, liens and encumbrances of third
parties, as collateral security for the Loan.
"Association" shall mean San Luis Bay Inn Timeshare Association, Inc.,
a California non-profit corporation, and its successors and assigns, which is
the owner's association formed in connection with Real Property.
"Association Agreement" shall mean a certain Agreement Regarding San
Luis Bay Inn dated as of June 12, 1996 between Borrower and the Association, as
amended, renewed or restated.
"Availability Advance" shall mean an additional Receivables Advance
advanced by Lender to Borrower from time to time with respect to an Eligible
Instrument that then constitutes Receivables Collateral against which a previous
Receivables Advance has been made.
"Biennial Time-Share Interest" shall mean a Time-Share Interest sold
to a Purchaser for the exclusive use of a Unit in the Project and Project common
area for a one (1) week period during each odd numbered calendar year or even
numbered calendar year.
-2-
<PAGE>
"Borrower" shall mean San Luis Resort Partners, LLC, a Georgia limited
liability company.
"Borrowing Base" shall mean either the Borrowing Base (Receivables
Loan) or Borrowing Base (Working Capital Loan).
"Borrowing Base (Receivables Loan)" shall mean an amount equal to the
lesser of (i) 90% of the unpaid principal balance payable under the Eligible
Instruments or (ii) 90% of the then present value assigned to the unmatured
installments of principal and interest payable under the Eligible Instruments
discounted at Lender's Prevailing Discount Rate.
"Borrowing Base (Working Capital Loan)" shall mean an amount equal to
the sum of (A) the lesser of (i) 55% of the unpaid principal balance payable
under the Eligible Instruments against which a Working Capital Advance will be
made or (ii) 55% of the then present value assigned to the unmatured
installments of principal and interest payable under the Eligible Instruments
against which a Working Capital Advance will be made, discounted at Lender's
Prevailing Discount Rate, (B) 55% of any cash down payments and principal and
interest payments then made by the Purchaser under such Eligible Instruments at
the time of such Working Capital Advance; and (C) 55% of any cash sales of Units
then made at the time of such Working Capital Advance, provided that the
proceeds of the cash sales and such cash down payments and principal and
interest payments are held and shall continue to be held in Escrow by Escrow
Agent.
"Borrowing Term (Receivables Loan)" shall mean the period of time
during which Lender is committed to make Receivables Advances under this
Agreement, which commitment shall terminate on June 13, 1998.
"Borrowing Term (Working Capital Loan)" shall mean the period of time
during which Lender is committed to make Working Capital Advances under this
Agreement, which commitment shall terminate on June 13, 1998.
"Business Day" shall mean a calendar day other than a Saturday, Sunday
or legal holiday.
"Capital Expenditure" shall mean payments that are made by the
Borrower for the lease, purchase, improvement, construction or use of any
property, the value of which under GAAP is required to be capitalized and shall
include, without limitation, payments for the installment purchase of property
and payments under capitalized leases.
"Cash Flow" shall mean, for any period, the net income or loss of
Borrower determined in accordance with GAAP (excluding the effect of any
extraordinary gains or losses from the sale of property not in the ordinary
course of business), plus each of the following items to the extent deducted
----
from the revenues of Borrower in calculating the net income: (A) depreciation;
(B) amortization; and (C) interest and taxes during such period, and less
----
Capital Expenditures to the extent paid in such period.
"Closing Date" shall mean June 13, 1996.
-3-
<PAGE>
"Collateral Assignment" shall mean that certain Collateral Assignment
of Material Contracts of even date herewith in a form acceptable to Lender.
Without limitation, the Collateral Assignment shall collaterally assign to
Lender all of Borrower's right, title and interest in the Association Agreement
and the other agreements referenced in such Collateral Assignment.
"Collateral Assignment of Escrow" shall mean that certain Collateral
Assignment, Security Agreement and Account Agreement, in a form acceptable to
Lender, pursuant to which Borrower collaterally assigns to Lender all of the
Borrower's interest in the Escrow and in the agreement pursuant to which the
Escrow is maintained as security for the payment and Performance of the
Obligations, which shall be executed prior to the working of the first Working
Capital Advance.
"Completed" shall have the meaning set forth in the Construction Loan
Agreement.
"Construction Loan" shall mean the loan made pursuant to the
Construction Loan Agreement.
"Construction Loan Agreement" shall mean that certain Construction
Loan Agreement of even date herewith, pursuant to which Lender has agreed,
subject to the terms and provisions thereof, to make a $9,000,000 revolving
construction loan to Borrower, the proceeds of which are to be used to construct
the Project.
"Construction Loan Documents" shall have the meaning set forth in the
Construction Loan Agreement.
"Construction Mortgage" shall mean, collectively, the Mortgage, as
that term is defined in the Construction Loan Agreement.
"Construction Note" shall have the meaning set forth in the
Construction Loan Agreement.
"Deedback Intervals" shall mean no fewer than 145 fee simple Time-
Share Interests, more fully described on the attached Exhibit "A-2", purchased
-------------
by Borrower pursuant to the Acquisition Documents, fee simple title to which was
derived by Borrower's predecessor-in-interest as a result of a foreclosure or
deed in lieu of foreclosure of a deed of trust, mortgage or other security
interest recorded against such Time-Share Interest.
"Delinquencies" shall mean, individually and collectively, an Eligible
Instrument, against which an Advance has been made, under which an installment
payment due becomes more than 59 days past due.
"Distribution" shall mean any distribution, advance, payment, or loan
to any shareholder, officer, director, member or Affiliate of Borrower or of any
of the foregoing, including but not limited to, loan repayments, dividends,
bonuses, salary, other compensation and management fees. A Distribution shall
not include normal and, customary salary and fringe benefits paid to an employee
of Borrower, on an arm's-length basis, in consideration for services rendered by
such employee directly to and for the benefit of the Borrower, in an amount
commensurate with the value of the services rendered by such employee to
Borrower.
-4-
<PAGE>
"Eligible Instruments" shall mean the Instruments, each in
substantially the form of Exhibit "B" hereto, entered into by and between
-----------
Borrower and those Persons who purchase a Time-Share Interest (all of whom shall
be United States or Canadian residents), which Eligible Instruments shall
conform to the criteria and standards set forth on Exhibit "C" hereto; provided,
-----------
however, that an Instrument shall cease to be an Eligible Instrument if (i) any
installment payable thereunder becomes more than (fifty-nine) (59) days past due
and the Instrument under which such installment is payable is not replaced
within ninety (90) days following the due date of such installment or (ii) the
contract fails to continue to conform to the criteria and standards of Exhibit
-------
"C" .
- ---
"Environmental Certificate" shall mean that certain Environmental
Certificate with Representations, Covenants and Warranties of even date herewith
executed by Borrower and related to the Project.
"Escrow" shall mean that certain account in the name of Escrow Agent
in which the cash payments and principal and interest payments that are used in
calculating the Borrowing Base (Working Capital Loan), together with the
original Instruments and Purchaser Mortgages pertaining thereto are deposited,
pursuant to an agreement acceptable to Lender.
"Escrow Agent" shall mean the person who is not an Affiliate of
Borrower, in whose name the Escrow is maintained, the identify of whom shall be
acceptable to Lender.
"Event of Default" has the meaning set forth in Article IX hereof.
----------
"Force Majeure" has the meaning set forth in the Construction Loan
Agreement.
"Foreclosed Intervals" shall mean Time-Share Interests owned by
Borrower in fee simple, title to which was derived by Borrower as a result of a
foreclosure or deed in lieu of foreclosure of the Purchased Notes and Mortgages.
"FPSI" shall mean FINOVA Portfolio Services, Inc., an Arizona
corporation, its successors and assigns.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time, consistently applied, throughout the period involved
and with prior periods, which shall include the official interpretations thereof
by the Financial Accounting Standards Board or any successor thereto.
"General and Administrative Expenses" shall mean all expenses of
Borrower less (i) Marketing Expenses, (ii) interest on the Construction Loan,
the Working Capital Loan and the Receivables Loan and (iii) Borrower's cost of
Time-Share Interest sold.
"Guarantee(s)" shall mean , individually and collectively, a written
Guarantee Agreement, in such form as Lender shall prescribe, executed and
delivered by a Person (or Persons) to Lender, under the terms and conditions of
which such Person (or Persons), as Guarantor(s), shall individually and/or
jointly and severally guarantee Borrower's Performance of all of its Obligations
under the Receivables Loan Documents.
-5-
<PAGE>
"Guarantor(s)" shall mean individually, a Person, and collectively
each and every Person, who executes and delivers to Lender a Guarantee pursuant
to the terms and conditions of this Agreement. The Guarantors of this Loan are
KGK and AKGI.
"Hard Cost Advance" shall have the meaning set forth in the
Construction Loan Agreement.
"Impositions" shall mean any and all taxes (other than any tax
measured by net income payable by Lender to any state or political subdivision
thereof or to the U.S . under Section 11 or 1201 of the Internal Revenue Code,
---------- ----
as amended), in consequence of the receipt of payments provided for herein,
license fees, assessments, charges, fines, penalties, property, privilege,
excise, real estate or other taxes currently or hereafter levied or imposed by
any state, local or federal authority upon or in connection with or measured by
the Receivables Loan Documents, the Receivables Collateral or the Purchased
Notes and Mortgages Collateral.
"Incipient Default" shall mean any act or event which after the giving
of notice or the lapse of time (or both) would constitute an Event of Default.
"Instrument" shall mean a promissory note which has arisen out of the
sale of a Time-Share Interest in the Project by Borrower to a Purchaser, which
note is secured by a Purchaser Mortgage.
"KGK" shall mean KGK San Luis, Inc., a Georgia corporation.
"Loan" shall mean, collectively and individually, the Receivables Loan
and the Working Capital Loan.
"Loan Balancing Equity" shall have the meaning set forth in
Construction Loan Agreement.
"Loan Fee" shall mean either of the Receivables Loan Fee or the
Working Capital Loan Fee.
"Lockbox Agent" shall mean the entity designated as the Lockbox Agent
in the Lockbox Agreement, or should such entity cease to act as Lockbox Agent
under the Lockbox Agreement, such other entity as Lender may appoint.
"Lockbox Agreement" shall mean the Lockbox Agreement, in such form as
Lender shall prescribe, to be made among Borrower, Lender and the Lockbox Agent,
as from time to time modified, replaced or restated.
"Maturity Date" shall mean that date which shall occur seven (7) years
after the expiration of the Borrowing Term (Receivables Loan).
"Marketing Expenses" shall mean the aggregate of all expenses incurred
in the sale and marketing of Time-Share Interests, including without limitation,
all costs and expenses for advertising, mailing, consumer premiums, referral
lead generation, closing costs and sales commissions.
-6-
<PAGE>
"Material Agreements" shall mean, individually and collectively, the
Acquisition Documents, the Association Agreement and all amendments,
modifications and replacements thereof.
"Maximum Receivables Loan Amount" shall mean the lesser of (i)
Eighteen Million Dollars ($18,000,000) or (ii) Twenty Million Dollars
($20,000,000) less the principal amount then outstanding under the Working
Capital Loan and the Construction Loan.
"Maximum Working Capital Loan Amount" shall mean the lesser of (i)
Five Hundred Thousand Dollars ($500,000) or (ii) Twenty Million Dollars
($20,000,000) less the principal amount then outstanding under the Receivables
Loan and the Construction Loan.
"Net Income" shall mean the net income or loss of Borrower, determined
in accordance with GAAP (excluding the effect of any extraordinary gains or
losses from the sale of property not in the ordinary course of business).
"Net Sale" shall mean gross sales of Time-Share Interests during such
quarterly period reduced only by cancellations thereof.
"Nondisturbance Agreement" shall mean an agreement, in form and
substance satisfactory to Lender, pursuant to which the holders of any lien
interest on the streets, amenities, common areas, or other off-site improvements
forming a part of the Project agree that, notwithstanding a foreclosure or other
realization of such encumbrance, (i) the Purchasers shall have uninterrupted use
of such streets, amenities, common areas and other off-site improvements and
uninterrupted use and possession of their respective Time-Share Interests, (ii)
the rights and privileges of such Purchasers shall not be otherwise impaired,
and (iii) the governing documents of the Project, including any declarations of
condominium, shall not be modified.
"Obligations" shall mean each and every obligation, duty, covenant,
undertaking and conditions which Borrower is required or has agreed to perform
under the Receivables Loan Documents and under the Construction Loan Documents,
and each and every other obligation of Borrower now or hereafter owing to
Lender.
"Opening Prepayment Date" shall mean the date which occurs thirty-six
(36) months from the Closing Date.
"Overdue Rate" shall have the same meaning as set forth in the
Receivables Note.
"Perform, Performed or Performance" shall mean the timely, faithful
and complete payment and performance of all Obligations by Borrower.
"Permitted Encumbrances" shall mean those matters set forth on the
attached Exhibit "D".
-----------
"Person" shall mean any adult individual, partnership, corporation or
other form of business entity whatsoever.
"Phase" shall mean either of Phase I or Phase II.
-7-
<PAGE>
"Phase I" shall mean the initial 30 Units to be constructed, after the
date hereof, on the Real Property, together with other improvements set forth in
the plans and specifications, approved by Lender, with respect to such Phase.
"Phase II" shall mean the second 32 Units to be constructed, after the
date hereof, on the Real Property together with other improvements set forth in
the plans and specifications, approved by Lender, with respect to such Phase.
"Present Value" shall mean with respect to any Eligible Instrument the
present value of the unmatured and unpaid installments of principal and interest
due thereunder, calculated using a discount rate equal to the Prevailing
Discount Rate applicable to said Eligible Instrument as provided herein.
"Prevailing Discount Rate" shall mean Lender's prevailing discount
rate at the time each Advance is made, which rate shall be Prime Rate plus 2.0%
but in no event less than 12.5%.
"Prime Rate" shall mean the rate of interest publicly announced from
time to time by Citibank, N.A., New York, New York as its corporate base rate of
interest charged to its most creditworthy commercial borrowers notwithstanding
the fact that some such borrowers may borrow at lower rates. The initial Prime
Rate shall be the rate in effect as of the first Business Day of the month of
the initial Advance and, subsequently, the Prime Rate shall be redetermined as
of the first Business Day of each month.
"Project" shall mean the time-share project known as San Luis Bay Inn
located on the Real Property consisting of 68 existing Units together with 62
Units to be constructed by Borrower.
"Project Documents" shall mean all operating, management, marketing,
supervision, nondisturbance cross-use, parking and other documents relating to
the ownership, development, construction, maintenance repair, leasing,
management, marketing and operation of the Project.
"Purchased Notes and Mortgages" shall mean no fewer than 873
promissory notes, in default, more fully described on the attached Exhibit "A-
----------
3", purchased by Borrower pursuant to the Acquisition Documents, each of which
- --
is secured by a first deed of trust on a Time-Share Interest.
"Purchased Notes and Mortgages Collateral" shall mean all right, title
and interest of Borrower now owned or hereafter acquired, all benefits of
Borrower under and all monies due or to be due to Borrower under or in
connection with, the Purchased Notes and Mortgages, together with all cash and
non-cash proceeds from the Purchased Notes and Mortgages, including, without
limitation, all goods, instruments, documents, general intangibles, chattel
paper and accounts wherever located, which have been acquired from the cash
proceeds from any of the foregoing and the proceeds thereof.
"Purchaser" shall mean a Person who purchases a Time-Share Interest in
the Project from Borrower.
-8-
<PAGE>
"Purchaser Mortgage" shall mean the purchase money deed of trust given
to secure an Instrument.
"Real Property" shall mean an undivided 3,876/7,344 interest, as
tenants in common, in that certain real property legally described on the
attached Exhibit "A-1", containing approximately 16 acres located on Harford
--------------
Drive in Avila Beach, California and known as the San Luis Bay Inn.
"Receivables Advance" shall mean an Advance of the Receivables Loan
advanced by Lender to Borrower from time to time in accordance with the terms
and provisions of this Agreement. A Receivables Advance shall include an
Availability Advance.
"Receivables Collateral" shall mean (i) all of the Instruments which
Borrower now or hereafter assigns, transfers, endorses or delivers to Lender in
consideration for an Advance made by Lender pursuant to the terms of this
Agreement and as collateral security for the Obligation; (ii) all Instruments
against which Lender makes an Advance pursuant to the terms of this Agreement,
notwithstanding whether or not such Instrument is assigned, transferred,
endorsed or delivered to Lender; (iii) all Purchaser Mortgages, purchase
contracts, purchase agreements, guarantees and other documents or instruments
evidencing or securing the obligations of the Purchasers and/or any other person
primarily or secondarily liable on the Instruments; (iv) all policies of
insurance related to the Instruments or delivered in connection with the
Instruments (provided that the inclusion of such policies of insurance as part
of the Receivables Collateral shall not be deemed to restrict or limit the
Borrower's ability to encumber such insurance to the extent relating to or
delivered in connection with Instruments pledged to another lender, subject,
however, to the provisions of paragraph 8.28); (v) all rights under escrow
--------------
agreements relating to the Instruments and all impound and/or reserve accounts
related to the Instruments (excluding, however, any escrows set aside for
improvements to the Project); (vi) all licenses, contracts, management contracts
or agreements, franchise agreements, permits, subordination or certificates now
or hereafter required or used in connection with the ownership, operation or
maintenance of the Project (provided that the inclusion of such licenses,
contracts, management contracts and other agreements or permits as part of the
Receivables Collateral shall not be deemed to restrict or limit the Borrower's
ability to encumber such documents and agreements to the extent relating to or
delivered in connection with Instruments pledged to another lender, subject,
however, to the provisions of paragraph 8.28); (vii) all files, books and
--------------
records pertaining to any of the foregoing; and (viii) cash and non-cash
proceeds from all of the foregoing, including, without limitation, all goods,
instruments, documents, general intangibles, chattel paper and accounts wherever
located, which have been acquired with cash proceeds from any of the foregoing
and the proceeds thereof.
"Receivables Loan" shall mean the line of credit loan extended by
Lender to Borrower in accordance with the terms of this Agreement in an
outstanding principal amount not to exceed at any time the Maximum Receivables
Loan Amount.
"Receivables Loan Documents" shall mean this Agreement, the
Receivables Note, the Working Capital Note, the Construction Mortgage, the
Environmental Certificate, the Servicing Agreement, the Lockbox Agreement, the
Services and Fees Agreement, the Guarantee, the Assignments, the Collateral
Assignment of Escrow, the Collateral Assignment, the Affiliate Debt
Subordination Agreement, and each and every other document, instrument or
writing executed or delivered by Borrower to Lender in connection with the Loan.
-9-
<PAGE>
"Receivables Loan Fee" shall have the meaning set forth in
paragraph 8.16.
- --------------
"Receivables Note" shall mean the Receivables Promissory Note, in the
amount of the Receivables Loan, to be made and delivered by Borrower to Lender
pursuant hereto, in a form acceptable to Lender.
"Security Interest" shall mean a direct and exclusive first security
interest which has been perfected under the Uniform Commercial Code of the
state(s) in which any such security interest must be perfected; provided that
with respect to any portion of the Receivables Collateral or the Purchased Notes
and Mortgages Collateral not covered by the Uniform Commercial Code, it shall
mean a direct and exclusive first lien on such property which has been perfected
in the manner provided by law.
"Servicing Agent" shall mean FPSI or, should such entity cease to act
as Servicing Agent under the Servicing Agreement and Services and Fees
Agreement, such other entity as Lender may appoint.
"Servicing Agreement" shall mean the Servicing Agreement, in such form
as Lender shall prescribe, to be made among Borrower, Lender, and the Servicing
Agent, as from time to time modified, replaced or restated.
"Services and Fees Agreement" shall mean the Services and Fees
Agreement, in such form as Lender shall prescribe, to be made between Borrower
and Servicing Agent and acknowledged by Lender, as from time to time modified,
replaced or restated.
"Term" shall mean the duration of this Agreement commencing as of the
year and day first above written and terminating on the date Borrower has
Performed all of its Obligations under the Receivables Loan Documents.
"Time-Share Interest" shall mean the undivided interest in the Project
sold to a Purchaser which provides the right to reserve the exclusive use of a
Unit in the Project and Project Common Area for one week during each year or
alternate year.
"Unit" shall mean a dwelling unit in the Project.
"Working Capital Advance" shall mean an Advance of the Working Capital
Loan advance by Lender to Borrower from time to time in accordance with the
terms and provisions of this Agreement.
"Working Capital Loan" shall mean a revolving line of credit loan
extended by Lender to Borrower in accordance with the terms of this Agreement in
an outstanding principal amount not to exceed at any time the Maximum Working
Capital Loan Amount.
"Working Capital Loan Fee" shall have the meaning set forth in
paragraph 8.16.
- --------------
"Working Capital Note" shall mean the Working Capital Promissory Note,
in the amount of the Working Capital Loan, to be made and delivered by Borrower
to Lender pursuant hereto, in a form acceptable to Lender.
-10-
<PAGE>
ARTICLE III
-----------
THE LOAN
--------
3.1 Lender hereby agrees that the Receivables Loan (including
Availability Advances of the Receivables Loan) will be disbursed to Borrower,
from time to time, in periodic Receivables Advances, but in no event after the
Borrowing Term (Receivables Loan) has expired, in amounts determined by
subtracting from the Borrowing Base (Receivables Loan) the unpaid principal
balance outstanding under the Receivables Loan at the time of each Receivables
Advance; provided that at no time shall the unpaid principal balance of the
Receivables Loan exceed the Maximum Receivables Loan Amount.
(i) Receivables Advances shall not be made more frequently
than twice per month, and each Receivables Advance shall be in an
amount of not less that One Hundred Thousand Dollars ($100,000).
Lender shall charge a fee of Five Hundred Dollars ($500) for the
second Receivables Advance made during any month and shall be
entitled to deduct such fee from the Receivables Advance so made.
The foregoing fee is to be paid to Lender strictly in
consideration for Lender's agreement to make a second Receivables
Advance during any particular calendar month and shall not be
applied or credited against any other Obligations.
(ii) The Receivables Loan is a revolving line of credit
under the terms of which Borrower, during the Borrowing Term
(Receivables Loan), shall have the right to obtain Receivables
Advances, repay Receivables Advances, and obtain additional
Receivables Advances so long as no Event of Default has occurred
and is continuing and so long as all other conditions precedent
to the making of a Receivables Advance have been satisfied.
(iii) No Receivables Advances will be made after the
Borrowing Term (Receivables Loan) has expired unless Lender, in
its sole discretion, shall agree in writing to make such
Receivables Advances.
(iv) Borrower shall use the proceeds of the Receivables
Loan for working capital purposes and to repay the Construction
Loan and the Working Capital Loan, in full. The proceeds of the
Receivables Loan from a particular Phase shall be used to pay and
satisfy the then unpaid principal balance and all accrued
interest under the Working Capital Loan from such Phase before
any portion of the Receivables Loan is paid in satisfaction of
any portion of the Construction Loan with respect to such Phase.
The foregoing notwithstanding, upon the occurrence of any Event
of Default, the proceeds of
<PAGE>
the Receivables Loan may be applied by Lender in satisfaction of
the Obligations in such order and manner as Lender shall
determine.
(v) At no time during the term hereof shall the unpaid
principal balance of the Receivables Loan, together with the
unpaid principal balance of the Construction Loan and the Working
Capital Loan, exceed a total amount equal to Twenty Million
Dollars ($20,000,000), and Lender shall have no obligation to
make any Receivables Advance if such Advance would cause the
foregoing limitation to be exceeded.
3.2 Lender agrees that the Working Capital Loan will be disbursed to
Borrower, from time to time, in periodic Working Capital Advances, but in no
event after the Borrowing Term (Working Capital Loan) has expired, in an amount
determined by subtracting from the Borrower Base (Working Capital Loan) the
unpaid principal balance of the Working Capital Loan at the time of each Working
Capital Advance; provided that at no time shall the unpaid principal balance of
the Working Capital Loan exceed the Maximum Working Capital Loan Amount.
(i) Working Capital Advances shall be made no more
frequently than twice per month and each Working Capital Advance
shall be in an amount not less than Seventy Five Thousand Dollars
($75,000). Lender shall charge a fee of Five Hundred Dollars
($500) for the second Working Capital Advance made during any
month and shall be entitled to deduct such fee from the Working
Capital Advance so made. The foregoing fee is to be paid to
Lender strictly in consideration for Lender's agreement to make a
second Working Capital Advance during any particular calendar
month and shall not be applied or credited against any other
Obligations.
(ii) The Working Capital Loan is a revolving line of credit
under the terms of which Borrower, during the Borrowing Term
(Working Capital Loan), shall have the right to obtain Working
Capital Advances, repay Working Capital Advances, and obtain
additional Working Capital Advances so long as no Event of
Default has occurred and is continuing and so long as all other
conditions precedent to the making of a Working Capital Advance
have been satisfied. The foregoing notwithstanding, Borrower
shall have no right to obtain a Working Capital Advance against
Eligible Instruments arising from Phase II until all Working
Capital Advances made against Eligible Instruments arising from
Phase I have been paid in full, including all accrued interest
thereon. At such time as Borrower has received a Working Capital
Advance against Eligible Instruments arising from Phase II,
Borrower shall have no further right to obtain any Working
Capital Advances against Eligible Instruments arising from Phase
1.
-12-
<PAGE>
(iii) No Working Capital Advances will be made after the
Borrowing Term (Working Capital Loan) has expired unless Lender,
in its sole discretion, shall agree to make such Working Capital
Advances.
(iv) Borrower shall use the proceeds of the Working Capital
Loan for working capital purposes.
(v) Any cash down payments and principal and interest
payments made by Purchasers that are used in calculating the
Borrowing Base (Working Capital Loan) shall be held in Escrow by
the Escrow Agent and shall not be released to Borrower unless a
principal payment under the Working Capital Loan is made in an
amount equal to the amount of the Working Capital Advance
originally made against such cash down payment and principal and
interest payment.
(vi) At no time during the term hereof shall the unpaid
principal balance of the Working Capital Loan, together with the
unpaid principal balance of the Construction Loan and Receivables
Loan, exceed a total amount equal to Twenty Million Dollars
($20,000,000), and Lender shall have no obligation to make any
Working Capital Advance if such Advance would cause the foregoing
limitation to be exceeded.
(vii) Working Capital Advances made against Eligible
Instruments arising from a particular Phase shall be due and
payable in full at such time as such Phase has been Completed and
the Escrow Agent has released from Escrow the cash down payments
and principal and interest payments that were used in calculating
the Borrowing Base (Working Capital Loan) as to such Advances.
The foregoing notwithstanding, all Working Capital Advances shall
be due and payable in full on the maturity date set forth in the
Working Capital Note.
3.3 All Advances made pursuant to this Agreement shall be deemed to
be a single Loan.
ARTICLE IV
----------
SECURITY FOR THE LOAN
---------------------
4.1 As security for Borrower's payment and Performance of all
Obligations owed to Lender, other than those arising out of the Environmental
Certificate, Borrower hereby grants to Lender a first and exclusive Security
Interest in and to (i) the Receivables Collateral assigned, transferred,
endorsed or delivered to Lender under this Agreement or against which an Advance
is made hereunder and (ii)
-13-
<PAGE>
the Purchased Notes and Mortgages Collateral. Lender's Security Interest in such
Receivables Collateral and Purchased Notes and Mortgages Collateral shall be
absolute, continuing and applicable to all existing and future Advances and
shall secure the repayment of the Loan and the Construction Loan and the
Performance of all Obligations throughout the Term of the Loan. At the time each
Advance is made hereunder, Borrower shall deliver to Lender (i) an executed
Assignment against which an Advance is requested; (ii) the original of each
Instrument; and (iii) other documents which comprise such Eligible Instruments.
In addition, Borrower's payment and Performance of the Working Capital Loan and
Receivables Loan shall be secured by the Construction Mortgage.
4.2 If an Eligible Instrument which comprises a part of the
Receivables Collateral shall cease to qualify as an Eligible Instrument,
Borrower shall, within 30 days thereafter, pay to Lender an amount equal to that
portion of the Loan, together with interest, costs, and expenses, if any,
attributable to such ineligible Instrument or shall replace such ineligible
Instrument with another Eligible Instrument having a value of not less than that
portion of the Loan together with interest, costs, and expenses, if any,
attributable to the Eligible Instrument being replaced. No prepayment premium
shall be payable with respect to the payment to be made by Borrower pursuant to
the previous sentence as long as Borrower did not cause the Instrument to cease
qualifying as an Eligible Instrument. Concurrently with the delivery of the
replacement Eligible Instrument to Lender, Borrower shall deliver to Lender all
pertinent items (except for a "Request for Advance and Certification") which
Borrower is required to deliver to Lender in connection with an Advance pursuant
to Article V hereof, together with a Borrower's Certificate in form and
---------
substance identical to Exhibit "E" hereto. Upon substitution of the replacement
-----------
Eligible Instrument for the ineligible Instrument, Lender will terminate its
Security Interest in and reassign and endorse to Borrower, without recourse or
warranty of any kind, the replaced ineligible Instrument, together with the
Purchaser Mortgage securing the same, provided that no Event of Default or
Incipient Default has occurred and is continuing.
4.3 RESERVED.
---------
4.4 In connection with a Receivables Advance but not a Working
Capital Advance, Borrower shall, at its expense, deliver to Lender, at the time
of delivery of the Assignment, a policy or policies of title insurance insuring
Lender's interest in the Purchaser Mortgage which is the subject of the
Assignment. Such policy or policies shall be in the amount of the Receivables
Advances made against or, in the case of substitutions, a portion of the
Receivables Loan attributable to the Instruments secured by the insured
Purchaser Mortgages and shall be issued by a title insurer and be in form and
substance satisfactory to Lender in its sole discretion. The title insurance
policies must reflect that the Purchaser Mortgages constitute valid liens
-14-
<PAGE>
against the real property to which they pertain subject only to the Permitted
Encumbrances.
4.5 Borrower shall deliver or cause to be delivered to Lender, and
thereafter shall maintain in full force and effect according to the terms
thereof, Guarantees duly executed by the Guarantors.
ARTICLE V
---------
ADVANCES
--------
5.1 Lender shall have no obligation to make any Advance hereunder
until all conditions precedent set forth in the following paragraphs and
elsewhere in this Agreement have been satisfied, at Borrower's sole expense, as
determined by Lender in its reasonable discretion; provided, however to the
-------- -------
extent such condition provides that it pertains only to a Receivables Advance
and not to a Working Capital Advance, such condition need not be satisfied as to
a Working Capital Advance.
5.2 Borrower shall have delivered to Lender the following documents,
duly executed in form and substance satisfactory to Lender (and, when required,
in recordable form):
(i) The Receivables Loan Documents;
(ii) The Construction Loan Documents;
(iii) All documents required to effectuate the purposes of
paragraphs 8.12 and 8.21(ii) hereof;
--------------- -------
(iv) A Nondisturbance Agreement which shall be filed and
recorded in such offices as Lender shall designate;
(v) UCC Financing Statements for filing and recording, if
appropriate, as necessary to perfect Lender's Security Interest
in the Receivables Collateral and the Purchased Notes and
Mortgages Collateral and all other security for the Performance
of Borrower's Obligations which is subject to Article 9 of the
---------
Uniform Commercial Code;
(vi) The title policy referred to in paragraph 4.4 hereof;
-------------
(vii) A favorable opinion from Borrower's independent
counsel as to such matters as Lender may reasonably require; and
-15-
<PAGE>
(viii) A favorable opinion from each Guarantor's independent
counsel as to such matters as Lender may reasonably require.
5.3 Not less than ten (10) Business Days before the date on which the
initial Advance is to be made, Borrower shall deliver or cause to be delivered
to Lender the following additional items:
(i) With respect to Borrower and each Guarantor or Person
which is a corporation, general or limited partnership or limited
liability company, certified copies of their articles,
certificates and agreements of general or limited partnership,
their articles of incorporation and by-laws or their articles of
organization and operating agreement (and all amendments
thereto), together with evidence that Borrower and each such
Guarantor or Person is duly organized, validly existing, and in
good standing under the laws of the jurisdiction in which they
are organized, and in each and every other jurisdiction where the
nature of their respective businesses require them to be so
qualified;
(ii) With respect to Borrower and each Guarantor or Person
which is a corporation, a general or limited partnership or
limited liability company, a copy of the resolutions certified to
be true and complete by the corporate secretary, all of the
general partners or all of the members (as the case may be),
authorizing the execution, delivery and performance of the
Receivables Loan Documents, and evidencing the authority of all
Persons executing the Receivables Loan Documents on behalf of
Borrower, the Guarantor, and such other Persons, and if Borrower,
Guarantor or such Persons are operating under a fictitious name,
a copy of the recorded certificate of fictitious name;
(iii) [RESERVED]
(iv) Evidence satisfactory to Lender that the Project
complies with all applicable laws, rules and regulations and
public and private restrictions affecting the use of the Project;
(v) A copy of the Public Report containing such conditions
are acceptable to Lender issued by or used in the State of
Georgia and other jurisdictions where Time-Share Interests are or
have been offered or sold, together with all other approvals from
regulatory agencies having jurisdiction over the Project;
-16-
<PAGE>
(vi) If the Project has not been registered under such act,
an opinion from Borrower's counsel that the Project does not fall
within the purview of the Interstate Land Sales Full Disclosure
Act;
(vii) A copy of the purchase contract, deed, note,
mortgage/deed of trust and other documents in existence,
including, without limitation, any covenants running with the
land comprising the Project, as well as any covenants enforceable
as equitable servitudes, the Project management agreement and
advertising materials, which have been or are being used by
Borrower in connection with the Project or the sale of Time-Share
Interests therein;
(viii) Copies of the insurance policies required pursuant to
paragraph 8.9 hereof;
-------------
(ix) Evidence that the Project is not located within a
"special flood hazard" area as such term is used in the National
Flood Insurance Act of 1968, as amended and supplemented by the
Flood Disaster Protection Act of 1973, and in regulations,
interpretations and rulings thereunder;
(x) With respect to a Receivables Advance, the items
described in Exhibit "F" hereto;
-----------
(xi) With respect to a Working Capital Advance, the items
described in the following paragraphs of Exhibit "F" hereto: (a),
-----------
(b) (unrecorded copies only), (e), (f), (g), (h), and (i);
(xii) Such other items as Lender requests which are
reasonably necessary to evaluate whether the request for the
Advance satisfied the requirements set forth herein;
(xiii) UCC, tax lien, litigation and judgment searches for
Borrower and Guarantor;
(xiv) Copies of the forms of Instrument and Purchaser
Mortgage;
(xv) Satisfactory operating budget for the Project owner's
association; and
(xvi) With respect to a Working Capital Advance, the
establishment by Borrower of the Escrow, the approval by Lender
of the
-17-
<PAGE>
agreement pursuant to which the Escrow is established and
execution by Borrower and Lender of the Collateral Assignment of
Escrow.
5.4 No material adverse change shall have occurred in the Project or
Borrower's or any Guarantor's business or financial condition since the date of
the latest financial and operating statements given to Lender by or on behalf of
Borrower or any Guarantor.
5.5 Lender shall be satisfied (in Lender's sole and absolute
discretion) with the results of Lender's physical inspection of the Project.
5.6 There shall have been no material adverse change in the
warranties and representations made by Borrower or any Guarantor in the
Receivables Loan Documents.
5.7 Neither an Event of Default nor an Incipient Default shall have
occurred and be continuing.
5.8 The interest rate applicable to the Advance (before giving effect
to any savings clause) will not exceed the maximum contract rate permitted by
the Applicable Usury Law.
5.9 Borrower has paid to Lender the portion of the Loan Fee then due
to Lender.
5.10 The Construction Loan shall have closed and, with respect to the
first Receivables Advance, all conditions precedent to the first Acquisition
Advance shall have been satisfied by Borrower or waived by Lender and, with
respect to the first Working Capital Advance, all conditions precedent to the
first Hard Cost Advance shall have been satisfied by Borrower or waived by
Lender.
5.11 Borrower has received and approved all Project Documents and
has received a collateral assignment of such of the Project Documents as Lender
shall require which collateral assignment shall be accompanied consents of the
other parties thereto, if required by Lender.
5.12 Lender has received and approved all necessary approvals from
all regulatory agencies having jurisdiction over the Projects.
5.13 Lender shall have received evidence satisfactory to it that the
Real Property is environmentally acceptable to Lender.
-18-
<PAGE>
5.14 Lender shall have no obligation to make any Advance until the
conditions specified in paragraphs 5.1 through 5.13 (as applicable to the
-------------- ----
particular type of Advance) inclusive herein have been satisfied as determined
by Lender in its reasonable discretion.
5.15 Advances shall be requested in writing on the Request for
Advance and Certification, in the form of the attached Exhibit "F-1," executed
--------------
by Borrower (or, if Borrower is a corporation, partnership or limited liability
company, by those officers, general partners or members, as the case may be, or
agents of Borrower named in authorizing resolutions of Borrower from time to
time delivered to Lender and which are in form and substance satisfactory to
Lender).
5.16 Advances may be disbursed by checks, drafts or wire transfer
payable to Borrower; or, at the option of Lender after Borrower's written
request, to third parties, either severally or jointly with Borrower, for the
credit or benefit of Borrower. If Advances are made by wire transfer, Borrower
shall pay to Lender, Lender's usual and customary fee for wiring such funds.
Lender can withhold such fee from the Advance so made.
5.17 Although Lender shall have no obligation to make an Advance
unless and until all applicable conditions thereto set forth herein have been
satisfied, Lender may, at its sole discretion, make Advances before that time
without waiving or releasing any of the Obligations, but Borrower shall continue
to be required to strictly Perform all such Obligations.
5.18 The proceeds of the Receivables Loan are to be used, in part,
to pay and satisfy in full the Working Capital Loan, the Construction Loan and
all amounts then due and owing to Lender under the Construction Loan Documents.
To the extent that the proceeds of the Receivables Loan arise from a particular
Phase, such proceeds shall be used to pay and satisfy in full the Working
Capital Loan arising from the same Phase, the Construction Loan with respect to
such Phase and all amounts then due and owing to Lender under the Construction
Loan Document with respect to such Phase. Lender shall have the right to
disburse any Receivables Advance directly to Lender in payment or satisfaction
of Working Capital Advances, and interest thereon, and any amounts then due to
Lender under the Construction Loan Documents. The foregoing notwithstanding,
upon and during the continuance of an Event of Default, Lender shall have the
right to disburse Receivables Advances against the Obligations in such order and
manner as Lender deems appropriate.
5.19 Working Capital Advances shall be made only against the
Borrowing Base (Working Capital Loan); provided that with respect to Working
Capital Advances only, the eligibility criteria set forth in the following
subparagraphs of Exhibit "C" need not be satisfied as a condition to the making
-----------
of such Advance: (j),
-19-
<PAGE>
only as to the requirement that the Purchaser Mortgage be recorded, (k), (m) and
(n) to the extent that such rescission rights pertain only to Borrower's
obligations under subparagraph (k) thereof
----------------
5.20 Lender acknowledges that Borrower obtained a conditional Public
Report from the California Department of Real Estate which contains, in
substance, the following conditions:
(i) Recordation of a third amendment to the Declaration of
Covenants, Conditions and Restrictions with regard to the
Project;
(ii) The delivery to the California Department of Real
Estate of a title insurance policy covering the Deedback
Intervals;
(iii) The execution by the Borrower and the Association of
an Agreement terminating an existing trust arrangement with
respect to the Project; and
(vi) The delivery to the California Department of Real
Estate of a title policy with respect to the Real Property.
Borrower warrants and represents and, with respect to clauses (ii) and
(iv) above, covenants; that the conditions described in clauses (i) and (iii)
will be satisfied concurrently with the Borrower's acquisition of the Real
Property and the conditions described in clauses (ii) and (iv) will be satisfied
within thirty (30) days following Borrower's acquisition of the Real Property.
Borrower agrees to obtain a final Public Report from the California Department
of Real Estate, containing no conditions, no later than November 27, 1996, which
is the expiration date of Borrower's existing conditional Public Report.
ARTICLE VI
----------
RESERVED
--------
ARTICLE VII
-----------
NOTE; MAINTENANCE OF BORROWING BASE;
------------------------------------
PAYMENTS; SERVICING AND COLLECTION
----------------------------------
7.1 In connection with the Receivables Loan:
-20-
<PAGE>
(i) In no event shall the aggregate principal amount of
the Receivables Loan outstanding at any time exceed the Maximum
Receivables Loan Amount and in the event for any reason the
aggregate principal amount of the Receivables Loan does exceed
the Maximum Receivables Loan Amount, then Borrower upon demand,
shall immediately make a principal payment to Lender in an amount
equal to such excess plus accrued and unpaid interest thereon.
(ii) If for any reason the aggregate principal amount of
the Receivables Loan outstanding as of the last Business Day of
any month shall exceed the then Borrowing Base (Receivables
Loan), Borrower, upon demand, shall immediately make to Lender a
principal payment in an amount equal to such excess plus accrued
and unpaid interest thereon.
(iii) The Receivables Loan shall be evidenced by the
Receivables Note and shall be repaid in immediately available
funds according to the terms thereof and such provisions of this
Agreement as are applicable.
7.2 In connection with the Working Capital Loan:
(i) In no event shall the aggregate principal amount of
the Working Capital Loan outstanding at any time exceed the
Maximum Working Capital Loan Amount and in the event for any
reason the aggregate principal amount of the Working Capital Loan
does exceed the Maximum Working Capital Loan Amount, then
Borrower upon demand, shall immediately make a principal payment
to Lender in an amount equal to such excess plus accrued and
unpaid interest thereon.
(ii) If for any reason the aggregate principal amount of
the Working Capital Loan outstanding as of the last Business Day
of any month shall exceed the then Borrowing Base (Working
Capital Loan), Borrower, upon demand, shall immediately make to
Lender a principal payment in an amount equal to such excess plus
accrued and unpaid interest thereon.
(iii) The Working Capital Loan shall be evidenced by the
Working Capital Note and shall be repaid in immediately available
funds according to the terms thereof and such provisions of this
Agreement as are applicable.
7.3 Borrower is not entitled to prepay, in whole or in part, the
Receivables Loan until the Opening Prepayment Date. Thereafter, if (i) Borrower
has paid all sums due and payable to Lender in connection with the Receivables
Loan,
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Working Capital Loan and the Construction Loan, and (ii) Borrower has given
Lender at least 30 days prior written notice of the prepayment and has paid to
Lender at the time of prepayment a prepayment premium equal to a percentage, as
set forth below, of the then principal balance of the Receivables Loan, then
Borrower shall have the option to prepay the Receivables Loan in full, but not
in part, on any date an installment is due on the Receivables Note:
<TABLE>
<CAPTION>
Period Premium
------ -------
<S> <C>
Through the third Anniversary Date of the Closing Date Closed to Prepayment
After the third Anniversary Date and through the fourth Anniversary 3%
Date of the Closing Date
After the fourth Anniversary Date and through the fifth Anniversary 2%
Date of the Closing Date
After the fifth Anniversary Date and through the sixth Anniversary 1%
Date of the Closing Date
Thereafter 0%
</TABLE>
If there should occur an acceleration of maturity following an Event
of Default and such occurrence results in prepayment of the Receivables Loan, a
prepayment premium will be required in the amount specified above; or if
occurring prior to the Opening Prepayment Date, Borrower shall pay to Lender
with the prepayment a prepayment premium equal to 5% the then principal balance
of the Receivables Loan being prepaid. A Purchaser shall be permitted to prepay
the amount owed on its Instrument without penalty. There shall be no prepayment
premium payable in connection with the prepayment, in whole or in part, of the
Working Capital Loan. If there should occur a casualty to or condemnation of the
Project and such occurrence results in a prepayment of the Receivables Loan, no
prepayment premium shall be payable in connection with such prepayment.
7.4 (a) Lockbox Agent, as agent for Lender, shall collect payments
on the Eligible Instruments used in making Borrowing Base computations or
otherwise constituting part of the Receivables Collateral and shall remit
them to Lender on the last Business Day of each and every week according to
the terms of the Lockbox Agreement; and Borrower shall
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<PAGE>
immediately forward all such payments received by it to Lockbox Agent for
Lender. However, the Obligation to make, or any requirement that Lender
receives, payments called for in the Receivables Loan Documents shall not
be deemed satisfied until Lender actually receives such payments from
Lockbox Agent. For the purpose of determining the adequacy of such
payments, Borrower will cause Servicing Agent to furnish to Lender at
Borrower's sole cost and expense, no later than the tenth day of each month
commencing with the first full calendar month following the first Advance,
a report meeting the following requirements: (i) shows as of the end of the
prior month with respect to each Eligible Instrument which is used in
making Borrowing Base computations or otherwise constitutes part of the
Receivables Collateral (A) all payments received during the prior month on
the Eligible Instrument, allocated as between principal, interest, late
charges, taxes, and the like, (B) the opening and closing balances during
the prior month on each such Eligible Instrument, (C) present value of the
cash flow (if required by Lender) and (D) extensions, refinances,
prepayments, and other similar adjustments; and (ii) itemizes the Eligible
Instrument which are used in making Borrowing Base computations or
otherwise constitute part of the Receivables Collateral to show
delinquencies of 30, 60, 9O and in excess of 9O days. On the basis of such
reports, Lender will compute the amount, if any, which was due and payable
by Borrower on the last day of the preceding month and will notify Borrower
as soon as possible of any amount due. If such reports are not timely
received, Lender may reasonably estimate the amount which was due and
payable; and, in such event, Borrower shall pay upon demand the amount
estimated by Lender to be due and payable. If payment is made on the basis
of Lender's estimate, and reports required by this paragraph are thereafter
received by Lender, the estimated payment amount shall be adjusted by an
additional payment or a refund to the correct amount, as the reports may
indicate; such additional amount to be paid by Borrower upon demand and
such refund to be made by Lender within five Business Days after receipt by
Lender of a written request therefor by Borrower. In addition, at each
calendar quarter, upon request, Borrower shall deliver to Lender a current
list of the names addresses and phone numbers of the Purchasers related to
Eligible Instruments.
(b) Subject to the following sentence, FPSI shall act as the
Servicing Agent during the Term. Lender, subject to any restriction
contained in the Services and Fees Agreement, the Servicing Agreement or
the Lockbox Agreement, may at any time and from time to time in its
discretion substitute a successor or successors to any Servicing Agent or
Lockbox Agent acting in such capacity under the Services and Fees
Agreement, the Servicing Agreement and Lockbox Agreement, if the Servicing
Agent or Lockbox Agent is not satisfactorily performing its respective
obligations thereunder. In the event Lender substitutes a successor
Servicing Agent or Lockbox Agent pursuant to
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<PAGE>
the provisions of this paragraph, Borrower shall have the right to approve
the identity of such successor Servicing Agent or Lockbox Agent; provided
--------
that there does not then exist an Event of Default or an Incipient Default
----
and further provided that Borrower shall not unreasonably withhold or
------- -------- ----
unduly delay its consent.
7.5 Subject to Lender's rights upon the occurrence of an Event of
Default, all proceeds from the Receivables Collateral (except payments which are
identified by Purchasers as tax or maintenance and other assessment payments and
are required to be so treated by Borrower) during the Term hereof shall be
applied first to the payment of all costs, fees and expenses required by the
Receivables Loan Documents to be paid by Borrower, second to accrued and unpaid
interest due on the Receivables Note, third to the unpaid principal balance of
the Receivables Note, and then to the other Obligations arising out of the
Receivables Loan Documents in such order and manner as Lender may determine.
Unless and until all such Obligations have been Performed, Borrower shall have
no right to any portion of the proceeds of the Receivables Collateral.
7.6 Whether or not the proceeds from the Receivables Collateral shall
be sufficient for that purpose, Borrower shall pay when due all payments
required to be made pursuant to the Receivables Note, Working Capital Note and
other Receivables Loan Documents; and any and all amounts payable by Borrower
under the Receivables Note, Working Capital Note and other Receivables Loan
Documents shall be paid without notice (except as otherwise expressly provided
therein), demand, counterclaim, set-off, deduction, recoupment or defense, and
without abatement, suspension, deferment, diminution or proration by reason of
any circumstance or occurrence whatsoever, Borrower's Obligation to make such
payments being absolute and unconditional.
7.7 All payments to be made by Borrower under the Receivables Loan
Documents shall be free of expense to Lender with respect to the amount of any
Impositions, all of which Impositions Borrower assumes and shall pay on demand
in addition to the other payments provided for in the Receivables Loan Documents
to be made by it. Borrower's Obligation to pay Impositions shall likewise
include the Obligation to pay any increase to Lender in federal, state, or local
income tax as a result of inclusion in income of Lender of any amount required
by this paragraph to be paid to or for Lender.
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ARTICLE VIII
------------
BORROWER'S ADDITIONAL REPRESENTATIONS,
--------------------------------------
WARRANTIES AND COVENANTS
------------------------
8. 1 (a) Borrower is, and will continue to be during the Term hereof,
a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Georgia and is, and will continue
to be during the Term hereof, qualified to do business and in good standing
in California and in each jurisdiction in which it is selling Time-Share
Interests or where the location or nature of its properties or business
makes such qualification necessary (except where failure to do so would not
adversely affect Lender's ability to realize upon the Receivables
Collateral, the Purchased Notes and Mortgages Collateral or any other
security for the Performance of the Obligations or materially adversely
affect the business or financial condition of Borrower or the ability of
Borrower to complete Performance of the Obligations). Borrower has, and
will continue to have, powers adequate for making and Performing under the
Receivables Loan Documents, for undertaking and Performing the Obligations,
and for carrying on its business and owning its property. AKGI is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Georgia and is, and will continue during the Term
hereof, qualified to do business and in good standing in each jurisdiction
where the location or nature of the properties or business of AKGI make
such qualification necessary, to the extent such qualification is required
by such foreign jurisdiction (except where failure to do so would not
adversely affect Lender's ability to realize upon the Receivables
Collateral, the Purchased Notes and Mortgages Collateral or any other
security for the Performance of the Obligations or materially adversely
affect the business or financial condition of Borrower or the ability of
Borrower to complete Performance of the Obligations). AKGI is a member of
Borrower. KGK is a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia and is, and will continue
during the Term hereof, qualified to do business and in good standing in
each jurisdiction or where the location or nature of the properties or
business of KGK make such qualification necessary, to the extent such
qualification is required by such foreign jurisdiction (except where
failure to do so would not adversely affect Lender's ability to realize
upon the Receivables Collateral, the Purchased Notes and Mortgages
Collateral or any other security for the Performance of the Obligations or
materially adversely affect the business or financial condition of Borrower
or the ability of Borrower to complete Performance of the Obligations). KGK
is a member of Borrower.
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<PAGE>
(b) Borrower has good right and power to grant the Security
Interest in the Receivables Collateral and the Purchased Notes and
Mortgages Collateral and to execute and deliver this Agreement and the
other Receivables Loan Documents and to Perform the Obligations. All
action necessary and required by Borrower's organization documents and
all applicable laws for the obtaining of the Loan and for the
execution and delivery of this Agreement and all other Receivables
Loan Documents executed and delivered in connection with the Loan has
been duly and effectively taken; and, to the best of Borrower's
knowledge, this Agreement is and shall be, and all other Receivables
Loan Documents are and shall be, legal, valid, binding and enforceable
against Borrower in accordance with their respective terms, other than
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium, or similar laws relating to
or affecting the rights of creditors generally or general principles
of equity (except to the extent that such laws, rights, remedies or
principles are waivable by Borrower and have been waived in the
Receivables Loan Documents). To the best of Borrower's knowledge, the
Receivables Loan Documents do not violate the Applicable Usury Law or
any other usury law known to Borrower. The execution, delivery and
Performance of the provisions of this Agreement and all the other
Receivables Loan Documents will not violate, constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the properties or assets of Borrower pursuant
to any provision of: any law, regulation, judgment, decree, order,
franchise or permit applicable to Borrower; Borrower's charter
documents; or any contract or other agreement or instrument to which
Borrower is a party or by which Borrower or Borrower's properties or
assets are bound. No consent of any government or agency thereof, or
any other person, firm or entity not a party hereto, is or will be
required as a condition to the execution, delivery, Performance or
enforceability of the Receivables Loan Documents.
8.2 (a) There is no action, litigation or other proceeding
pending (or, to Borrower's knowledge, threatened) before any
arbitration tribunal, court, governmental agency or administrative
body against Borrower which, if adversely determined, might adversely
affect Lender's ability to realize upon the Receivables Collateral or
the Purchased Notes and Mortgages Collateral or any other security for
the Performance of the Obligations, or materially adversely affect the
Project, the business or financial condition of Borrower, or the
ability of Borrower to complete Performance of the Obligations; or
which questions the validity of the Receivables Loan Documents.
(b) If Borrower or a Guarantor becomes a party to any
action, litigation or other proceeding which asserts a material claim
against Borrower or a Guarantor, or Borrower becomes the subject of an
investigation by a
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<PAGE>
governmental agency or administrative body with respect to the
Project, then Borrower shall within 10 days after it obtains knowledge
thereof notify Lender of such action, litigation, proceeding or
investigation and the particulars thereof. Thereafter, if requested by
Lender, Borrower shall report to Lender with respect to the status of
such matter and the particulars thereof.
8.3 (a) Borrower has sold or has offered for sale Time-Share
Interests which generate Eligible Instruments only in the State of
Georgia and all sales have been made at the Project or in the private
residences of potential Purchasers. Before it sells or offers for sale
Time-Share Interests outside the State of Georgia, Borrower shall
promptly notify Lender and provide Lender with evidence that Borrower
has complied with all laws of such jurisdiction governing the proposed
conduct of Borrower.
(b) Except for violations which do not individually or in
the aggregate affect Lender's ability to realize upon the Receivables
Collateral or the Purchased Notes and Mortgages Collateral or any
other security for the Performance of the Obligations or do not
materially adversely affect the business or financial condition of
Borrower or the ability of Borrower to complete Performance of the
Obligations, Borrower has complied, and will comply, with all laws and
regulations of the United States and every state, county and municipal
jurisdiction in which Time-Share Interests have been sold or offered
for sale.
(c) Without limiting the generality of any other
representation or warranty contained herein, Borrower will not violate
any private covenant or restriction or any zoning, use or similar law,
ordinance or regulation affecting the use or occupancy of the Project,
the violation of which could have a material adverse effect on
Lender's ability to realize upon the Receivables Collateral or the
Purchased Notes and Mortgages Collateral or any other security for the
Performance of the Obligations or materially adversely affect the
business or financial condition of the Borrower or the ability of
Borrower to complete Performance of the Obligations.
8.4 (a) Each Instrument at the time it is assigned to Lender in
connection with the Loan and this Agreement shall be an Eligible
Instrument. At the time such Instrument is assigned to Lender,
Borrower shall have performed all of its obligations to Purchasers,
and there shall be no executory obligations to Purchasers to be
Performed by Borrower. Borrower further warrants and guarantees the
value and enforceability of the Receivables Collateral. The foregoing
notwithstanding, Lender acknowledges that with respect to Instruments
against which a Working Capital Advance has been made, Borrower shall
not, at the time of such Advance, have completed the
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<PAGE>
improvements that the Borrower has represented will be available to
Purchasers.
(b) Borrower shall not, without the prior written consent
of Lender, cancel or materially modify, or consent to or acquiesce in
any material modification to, or solicit the prepayment of, any
Eligible Instrument used in making Borrowing Base computations or
which otherwise constitutes part of the Receivables Collateral; or
waive the timely performance of the obligations of the Purchaser
thereunder. Borrower shall not pay or advance directly or indirectly
for the account of any Purchaser any sum owing by the Purchaser under
any of the Eligible Instruments used in making Borrowing Base
computations or which otherwise constitute part of the Receivables
Collateral.
(c) Borrower at all times shall fulfill, and cause its
Affiliates, agents and independent contractors at all times to
fulfill, all obligations to Purchasers under all Eligible Instruments
which are used in making Borrowing Base computations or otherwise
constitute part of the Receivables Collateral or the Purchased Notes
and Mortgages Collateral.
(d) True and complete copies of the Project governing
documents, the purchase contract, deed, note, mortgage/deed of trust,
the Instruments, advertising materials and other documents and
exhibits thereto which have been and are being used by Borrower in
connection with the Project and the sale or offering for sale of Time-
Share Interests therein have been delivered to Lender. Such documents
are the only ones which have been used in connection with the Project
and the sale of Time-Share Interests therein. Borrower shall not,
without the prior written consent of Lender, cancel or materially
modify any such documents, which consent will not be unreasonably
withheld. Borrower shall Perform all of its obligations under the
Project governing documents.
(e) All off-site roads and other off-site improvements
contained within the Project (other than private easements) will have
been dedicated to and accepted by the responsible governmental
authority or utility prior to the initial Receivables Advance.
Borrower shall maintain or cause to be maintained in good condition
and repair all amenities, common areas and private easements which
have been promised or represented as being available to Purchasers and
all off-site roads and off-site improvements which have not been
dedicated to or accepted by the responsible governmental authority or
utility.
(f) Each Purchaser shall automatically be a member of the
Project's owners association or associations, if any, and shall be
entitled to vote
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<PAGE>
on the affairs thereof (subject, however, to any preferential voting
rights in favor of Borrower as permitted under California time-share
laws). Each such owners association shall be governed by a Board of
Directors, which have the authority to fix and levy pro rata upon each
Purchaser annual assessments to cover the costs of maintaining and
operating the Project (including, without limitation, taxes and
assessments not levied by the appropriate taxing authority directly
against owners of Time-Share Interests) and to establish a reasonable
reserve for improvements, the replacement of items and furnishings,
and contingencies. If Borrower controls an owners association,
Borrower will while it controls such association: (i) cause such
owners association to (A) discharge timely and completely its
obligations under the Project governing documents and maintain the
reserve described above; and (ii) pay to such owners association not
less often than every twelve months hereafter the difference between
(A) the cumulative total amount of the maintenance and operating
expenses incurred by such association, together with the amount of any
installment of real property taxes currently due and payable with
respect to the Project not directly levied against owners of Time-
Share Interests, through the end of the calendar month preceding the
month in which such payment is made and (B) the cumulative total
amount of assessments (less amounts thereof allocated to reserve
expenses) payable to association by Time-Share Interest owners other
than Borrower through the end of the calendar month preceding the
month in which such payment is made.
(g) Except as otherwise permitted by the Project governing
documents, the Project owners association or the owners of Time-Share
Interests in common shall own the furnishings in the Project Units and
all the common areas in the Project and other amenities which have
been promised or represented as being available to Purchasers, free
and clear of liens and security interests, except for the Permitted
Encumbrances and the Construction Mortgage; and no part of the Project
is subject to partition by owners of Time-Share Interests. Borrower
will maintain or cause to be maintained in good condition and repair
all common areas in the Project and other amenities which have been
promised or represented as being available to Purchasers and which are
not the responsibility of the Project owners association to maintain
and repair. Borrower will maintain or cause the owner's association
for the Project to maintain a reasonable reserve to assure compliance
of the terms of the foregoing sentence.
(h) The common areas and amenities and the streets and
other off-site improvements contained within the Project are free and
clear of all liens or other encumbrances of third parties, subject to
the Permitted Encumbrances. Borrower agrees that such common areas,
amenities, streets
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<PAGE>
and other off-site improvements will not, during the Term hereof, be
encumbered.
8.5 LENDER DOES NOT ASSUME AND SHALL HAVE NO RESPONSIBILITY,
OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S RELATIONSHIP BEING SOLELY THAT
OF A CREDITOR WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWED TO IT, A
COLLATERAL ASSIGNMENT FROM BORROWER OF INSTRUMENTS. EXCEPT AS REQUIRED BY LAW,
OR TO THE EXTENT NECESSARY IN ORDER FOR BORROWER TO OBTAIN A PERMIT TO SELL
TIME-SHARE INTERESTS IN A PARTICULAR STATE, BORROWER SHALL NOT, AT ANY TIME, USE
THE NAME OF OR MAKE REFERENCE TO LENDER WITH RESPECT TO THE PROJECT, THE SALE OF
TIME-SHARE INTERESTS OR OTHERWISE, WITHOUT THE EXPRESS WRITTEN CONSENT OF
LENDER.
8.6 Borrower shall undertake the collection of amounts delinquent
under each Eligible Instrument which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables Collateral, shall
bear the entire expense of such collection work, and shall diligently and timely
do such work respecting collection, including forfeiture or foreclosure
proceedings. Lender shall have no obligation to undertake any collection,
eviction or foreclosure action against the obligor under any Eligible Instrument
or to otherwise realize upon any Eligible Instrument.
8.7 Borrower shall maintain in a secure place in its offices at
the address specified below proper and accurate books, records, ledgers,
correspondence and other papers relating to the Receivables Collateral and the
Purchased Notes and Mortgages Collateral. Lender may notify the appropriate
Purchasers of the existence of Lender's interest as assignee in the Receivables
Collateral and the Purchased Notes and Mortgages Collateral and request from
such Purchasers any information relating to the Receivables Collateral and the
Purchased Notes and Mortgages Collateral. Borrower shall cooperate with Lender
in giving such notice and will do so under its letterhead if requested.
Borrower's chief executive office is as set forth on the signature page of this
Agreement. Borrower will not change its chief executive office without giving
Lender thirty (30) days prior written notice of such contemplated change.
Borrower has not operated under any names or fictitious names during the
previous six (6) years. Borrower will not change its name or operate under any
fictitious names without first giving Lender thirty (30) days prior written
notice.
8.8 Borrower shall not, without the prior written consent of
Lender; (i) sell, convey, pledge, hypothecate, encumber or otherwise transfer
any security for the Performance of the Obligations; or (ii) permit or suffer to
exist any liens, security interests or other encumbrances on any security for
the Performance of the
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<PAGE>
Obligations, except with respect to either (i) or (ii) for the Permitted
Encumbrances and liens and security interests expressly granted to Lender.
8.9 Borrower shall obtain before funding, shall maintain during
the Term of the Loan, and shall deliver to Lender evidence of such insurance,
written by such insurers, and in such forms and such amounts, as Lender may
require.
8.10 (a) This Agreement and the other Receivables Loan
Documents, certificates, financial statements and written materials
furnished to Lender by or on behalf of Borrower in connection with the
transactions contemplated herein do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order
to make the statements contained herein and therein not misleading.
There is no fact known to Borrower which materially adversely affects
or in the future may (so far as Borrower can now foresee) materially
adversely affect the Receivables Collateral or the Purchased Notes and
Mortgages Collateral or any other security for the Performance of the
Obligations or the business or financial condition of Borrower or the
Project which has not been set forth in this Agreement or the other
Receivables Loan Documents, certificates, financial statements or
written materials furnished to Lender in connection with the
transactions contemplated herein.
(b) The fact that Lender's representatives may have made
certain examinations and inspections or received certain information
pertaining to the Receivables Collateral or the Purchased Notes and
Mortgages Collateral or the Project and the proposed operation thereof
does not in any way affect or reduce the full scope and protection of
the warranties, representations and Obligations contained herein,
which have induced Lender to enter into this Agreement.
8.11 (a) Borrower shall maintain a standard, modern system of
accounting and shall keep and maintain all books and records in
accordance with generally accepted accounting principles on a
consistent basis.
(b) On or before the tenth day of each month, Borrower shall
furnish or cause to be furnished to Lender (i) the reports of the
Servicing Agent and Borrower required pursuant to paragraph 7.4 hereof
-------------
and (ii) a sales report for the prior month showing the number of
sales of Time-Share Interests and the aggregate dollar amount thereof,
including down payments.
(c) Borrower shall furnish or cause to be furnished to
Lender, as soon as the same are available, and in any event within 110
days after the end of each fiscal year and within 45 days after the
end of each interim quarterly fiscal period of the subject, a copy of
the current financial statements
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of each of Borrower, Guarantor and the Project's owners association (the
"Association"). Such financial statements shall contain a balance sheet as
of the end of the relevant fiscal period and statements of income and cash
flows for such fiscal period (together, in each case, with the comparable
figures for the corresponding period of the previous fiscal year, if
available), all in reasonable detail, prepared in accordance with generally
accepted accounting principles consistently applied throughout the period
involved and with prior periods. All annual financial statements of
Borrower and the Association required pursuant hereto shall be audited by a
certified public accountant, shall be certified to by said certified public
accountant and shall be accompanied by the accountant's work papers. All
annual financial statements of Guarantor shall be reviewed by a certified
public accountant; provided, however, that upon the giving of written
-------- -------
notice by Lender to each of Borrower and Guarantor, the annual financial
statements of Guarantor thereafter supplied to Lender (commencing with the
fiscal year ending at least 30 days beyond the giving of such notice) shall
be audited by a certified public accountant and shall be certified to by
said certified public accountant and shall be accompanied by the
accountant's work papers. In addition to the foregoing, all financial
statements required pursuant hereto shall be certified correct by the
individual who is the subject of such statements, or the chief financial
officer or general partner, as the case may be, of the subject of such
statements. The financial statements of Borrower shall also contain in
reasonable detail a statement of income and expenses covering the operation
of the Project. Together with such financial statements, Borrower shall
deliver to Lender a certificate signed by the chief financial officer or
managing general partner, as the case may be, of Borrower stating that to
the best of his knowledge, after inquiry, there exists no Event of Default
and no condition, event or act which, with notice or lapse of time or both,
would become an Event of Default or, if any such Event of Default or any
such condition, event or act exists, specifying the nature and period of
existence thereof and what action Borrower proposes to take with respect
thereto. Together with such financial statements, Borrower shall also
deliver to Lender a certificate of its chief executive officer certifying
that Borrower is in compliance with all Applicable Environmental Laws or in
the event of noncompliance, specifying the nature and period of the
existence of such noncompliance.
(d) Upon request of Lender, Borrower shall deliver to
Lender from time to time, as available, and promptly upon amendment or
effective date, current price lists, sales literature,
registrations/consents to sell, final public reports/public offering
statements/prospectuses, and other items requested by Lender which relate
to the Project.
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<PAGE>
(e) So long as the same shall be pertinent to the Loan, the
Project, the documents or any transactions contemplated therein, Borrower
shall at its expense (i) permit Lender and its representatives at all
reasonable times to inspect, audit and copy, as appropriate, the Project,
Borrower's facilities, activities, books of account, logs and records; (ii)
cause its employees, agents and accountants to give their full cooperation
and assistance in connection with any such visits of inspection or
financial conferences; and (iii) make available such further information
concerning its business and affairs as Lender may from time to time
reasonably request.
(f) Borrower shall annually submit to Lender within 45 days
after each is available proposed annual maintenance and operating budgets
for the Project, certified to be adequate by Borrower and a statement of
the annual assessment to be levied upon the Purchasers.
8.12 Borrower shall cause any and all indebtedness owed by Borrower
or secured by the Project (other than the Permitted Encumbrances and other than
the lien of another construction lender who is financing the construction of
improvements on the Real Property, as contemplated by Paragraph 12.3 of the
--------------
Construction Loan Agreement), to be subordinated to the Obligations pursuant to
subordination agreements satisfactory to Lender in form and substance.
8.13 Borrower shall not, without Lender's prior written consent; (i)
(other than the sale of Time-Share Interests in the ordinary course of
Borrower's business or the rental of units in the Project in the ordinary course
of Borrower's business) sell, lease, transfer or dispose of its all or
substantially all of its assets to another entity; or (ii) dissolve or
liquidate, or merge or consolidate with or into any other entity, transfer to
any person or entity, the right to control, Borrower or Guarantor, turn over the
management or operation of Borrower or Guarantor to any other person or entity,
or permit any of the foregoing to occur with respect to Borrower or Guarantor.
Borrower shall have the right to retain a third-party management company to
manage the operation of the Project, provided that Lender has first approved the
identity of such management company. Lender approves RCI Management, Inc. as the
present manager of the Project.
8.14 Borrower is not in default of any payment on account of
indebtedness for borrowed money or of any repurchase obligations in connection
with a receivables purchase financing, or in violation of or in default under
any material term in any agreement, instrument, order, decree or judgment of any
court, arbitration or governmental authority to which it is a part or by which
it is bound.
8.15 Borrower has filed all tax returns and paid all taxes,
assessments, levies and penalties, if any, in respect thereof required to be
filed by it or paid by it to
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any governmental or quasi-governmental authority. All real estate taxes and
assessments have been paid which are due and owing in connection with the common
areas and the Project and other amenities which have been promised or
represented as being available to Purchasers for use by them. Borrower shall,
upon request of Lender, provide to Lender not more than 30 days after such taxes
and assessments would become delinquent if not paid evidence that all taxes and
assessments on the Project and common areas have been paid in full.
8.16 Borrower shall pay to Lender on demand all out-of-pocket costs
and expenses incurred or to be incurred by Lender or its counsel in connection
with the initiation, documentation and closing of the Loan, the making of
Advances hereunder , the administration of the Loan, the protection of the
security for the Performance of the Obligations, or the enforcement of the
Obligations against Borrower or any Guarantor (including, without limitation,
travel costs, all attorneys' fees, any brokerage or similar fees, all filing
and recording fees, all charges for consumer credit reports and UCC, tax lien,
judgment and litigation searches, all revenue and documentary stamp and
intangible taxes, and all fees and expenses of the Servicing Agent and Lockbox
Agent to perform the services contemplated hereunder and under the terms of the
Services and Fees Agreement, the Servicing Agreement and Lockbox Agreement,
respectively). Borrower shall pay to Lender a non-refundable loan fee (the
"Working Capital Loan Fee") in the amount of Five Thousand Dollars ($5,000)
which fee was earned by Lender in consideration of Lender holding itself ready,
willing and able to make the Working Capital Loan upon the terms and conditions
set forth herein. The Working Capital Loan Fee shall be paid in full
concurrently with the making of the first Working Capital Advance and may be
withheld from the Advance so made. Borrower shall also pay to Lender a
nonrefundable loan fee (the "Receivables Loan Fee") in the amount of One
Hundred Eighty Thousand Dollars ($180,000) which fee was earned by Lender in
consideration of Lender holding itself ready, willing and able to make the
Receivables Loan upon the terms and conditions set forth herein. The Ten
Thousand Dollar ($10,000) deposit received by Lender shall be applied against
the Receivables Loan Fee. An additional Forty Thousand Dollars ($40,000) of the
Receivables Loan Fee shall be due concurrently with the making of the first
Receivables Advance and may be withheld from the Advance so made. An additional
Twenty-Five Thousand Dollars ($25,000) of the Receivables Loan Fee shall be due
and payable concurrently with the making of second Receivables Advance and may
be withheld from the Advance so made. An additional Twenty-Five Thousand Dollars
($25,000) of the Receivables Loan Fee shall be due and payable concurrently with
the making of the third Receivables Advance and may be withheld from the Advance
so made. The foregoing notwithstanding, unless sooner paid, the entire
Receivables Loan Fee shall be due and payable in full on the earlier of (i) the
making of the Receivables Advance which causes the unpaid principal balance of
the Receivables Loan to exceed Ten Million Dollars ($10,000,000) and may be
withheld from the Advance so made or (ii) July 1, 1997. In the event the Loan
does not close on or before the Closing Date,
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as such date may be extended by Lender, other than due solely to the default of
Lender; (i) the entire Loan Fee shall nevertheless be deemed fully earned by
Lender in consideration for Lender's holding itself ready and willing to make
the Loan upon the terms and conditions set forth herein and shall be due and
payable upon demand and (ii) Lender shall have no further obligation to make the
Loan or the Construction Loan. The payment of the Loan Fee is in addition to
Borrower's obligation to pay a loan fee under the Construction Loan Agreement.
Lender shall act as custodian for purposes of holding Eligible Instruments and
Borrower shall pay to Lender on demand, a custodial fee of Ten Dollars ($10.00)
for each Eligible Instrument so held by Lender, exclusive of Eligible
Instruments that are substituted for ineligible Instruments (provided that such
custodial fee was paid in connection with such ineligible Instrument) and
exclusive of Instruments that have been canceled by the Purchaser or the
Borrower. Notwithstanding the foregoing, Borrower shall have the right to select
an independent custodian to hold Eligible Instruments on Lender's behalf and as
Lender's agent, so long as (i) Borrower pays all costs charged by such
independent custodian, and (ii) such independent custodian is approved in
advance, in writing by Lender.
8.17 Borrower shall INDEMNIFY, DEFEND AND HOLD HARMLESS, Lender, its
successors, assigns and shareholders (including corporate shareholders), and the
directors, officers, employees, agents and servants of the foregoing, from any
and all losses, costs, expenses (including, without limitation, court costs and
attorney's fees), demands, claims, suits, proceedings (whether civil or
criminal), orders, judgments, penalties, fines and other sanctions arising from
or brought in connection with (i) the Project, the security for the Performance
of the Obligations, Lender's status by virtue of the Assignments, creation of
Security Interests, the terms of the Receivables Loan Documents or the
transactions related hereto, or any act or omission of Borrower, the Servicing
Agent or the Lockbox Agent, or the employees or agents of any of them, whether
actual or alleged, and (ii) any and all brokers' commissions or finders' fees or
other costs of similar type, or claims by any broker, agent or other party in
connection with this transaction (other than fees claimed owed by a broker,
finder, or other party with whom Lender has a specific agreement). On written
request by anyone covered by the above agreement of indemnity, Borrower shall
undertake, at its own cost and expense, on behalf of such indemnitee, using
counsel satisfactory to the indemnitee, the defense of any legal action or
proceeding to which the indemnitee shall be a party, provided that such action
or proceeding shall result from, or grow or arise out of any of the events set
forth in this paragraph.
8.18 Borrower shall not directly or indirectly invest all or any part
of the proceeds of the Loan in any investment security subject to the margin
requirements of Regulation G of the Board of Governors of the Federal Reserve
System.
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8.19 Borrower shall execute or cause to be executed all Receivables
Loan Documents and do or cause to be done all acts necessary for Lender to
perfect and to continue the perfection of the Security Interest of Lender in the
Receivables Collateral, the Purchased Notes and Mortgages Collateral and the
other security for the Performance of the Obligations or otherwise to effect the
intent and purposes of the Receivables Loan Documents. Borrower shall prosecute
or defend any action involving the priority, validity or enforceability of the
Security Interest granted to lender; provided that, at Lender's option, Lender
may do so at Borrower's expense.
8.20 Borrower is fully familiar with all of the terms and conditions
of the Receivables Loan Documents and is not in default thereunder. No act or
event has occurred which after notice and/or lapse of time would constitute such
a default or an Event of Default.
8.21 During the Term, Borrower shall not pay or make any
Distributions to its officers, partners, or any Guarantor or to any relatives or
Affiliates of Borrower, of any Guarantor or of any other of the foregoing. The
foregoing notwithstanding, on the condition that:
(i) There does not then exist an Event of Default or an
Incipient Default; and
(ii) Prior to the incurring of any obligation to make a
Distribution, Borrower has caused the proposed recipient of such
Distribution (the "Affiliated Party") to have entered into an Affiliate
Debt Subordination Agreement pursuant to which the Affiliated Party agrees
(A) that it shall not exercise any rights against Borrower or against any
of the collateral securing the Construction Loan, the Working Capital Loan
or the Receivables Loan unless and until the date that all of the
obligations of Borrower under and with respect to the Construction Loan,
Working Capital Loan and Receivables Loan have been fully paid, performed
and discharged; (B) that any entitlement to a Distribution is and shall be
fully subordinated as to right and time of payment to the payment in full
of the Construction Loan, the Working Capital Loan and the Receivables Loan
and (C) that upon and during the continuance of an Event of Default or an
Incipient Default, no Distributions shall be permitted, made, demanded or
accepted;
the following Distributions shall be permitted:
(x) Such Distribution is made to each of KGK and AKGI, in their
capacity as members of the Borrower, but not to any other members of
Borrower, no more frequently than quarterly in an amount sufficient for the
payment of federal and state income taxes payable by such member with
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respect to a tax year of Borrower (a "Tax Year") resulting from the
inclusion in such member's taxable income of the member's share of taxable
income of Borrower for that Tax Year, subject to reasonable assumptions as
to the marginal tax bracket to which the members of Borrower generally are
subject (the "Tax Amount"). Notwithstanding the foregoing, if for any
prior Tax Year of the Borrower, the Borrower had a loss for tax purposes
which, under tax laws then in effect, would offset taxable income (which
loss has not been previously used to offset taxable income in accordance
with this sentence), then for purposes of determining the Tax Amount for
the current Tax Year, the taxable income of the Borrower for the current
Tax Year shall be reduced by the amount of such loss. On or about the fifth
(5th) day prior to each date on which estimated federal income tax payments
are required to be paid by the members of Borrower, Borrower may make a
distribution to the members which, together with prior distributions for
the Tax Year on account of the Tax Amount, shall not exceed the applicable
percentage (which shall be 25%, 50%, 75%, and 100% for the first, second,
third and fourth calendar quarters, respectively) of a reasonable estimate
of the Tax Amount. If, at the end of the Tax Year, the aggregate estimated
quarterly distributions exceed the actual Tax Amount for such Tax Year,
future quarterly tax distributions shall cease with respect to the affected
members until such excess amount has been fully recaptured or until the
excess amount has been repaid by the affected members to the Borrower. As a
condition to Borrower's right to make such Distribution, Borrower shall
supply to Lender such information Lender shall request to determine and
substantiate Borrower's tax liability;
(xi) Such Distribution is made in an amount equal to or less
than 100% of the lesser of Borrower's Net Income or Cash Flow, with respect
to the period in which such Distribution is to be made; provided
--------
however, that no Distribution shall be permitted under this clause (xi)
-------
until such time as the Working Capital Loan, Construction Loan and all
other obligations under the Construction Loan Documents have been paid in
full and until such time as Lender has no further obligations to make any
advances of the Working Capital Loan; and
(xii) Such Distribution is made in an amount necessary to
reimburse a member or Affiliate of Borrower who has made an advance for the
benefit of Borrower to pay Project costs for items and in amounts
consistent with the Construction Budget as approved by Lender. The
provisions of this subparagraph shall not however be used as a basis to
return to any member or Affiliate any Loan Balancing Equity contributed to
by such member or Affiliate to Borrower unless and until each of the
following conditions have been satisfied: (i) after taking into account the
making of such Distribution, Lender determines, in its sole discretion,
that the remaining undisbursed proceeds of
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the Construction Loan, plus the then existing and undisbursed balance of
the Loan Balancing Equity will be sufficient to pay the total cost for
completion of the Improvements (as defined in the Construction Loan
Agreement), (ii) the Distribution is in the amount no greater than the then
undisbursed amount of Loan Balancing Equity and (iii) both before and after
taking into account the making of such Distribution there does not exist an
Event of Default or Incipient Default, including, without limitation, a
default by virtue of Borrowers failure to comply with the net worth
covenant in Paragraph 8.22(a) hereof;
-----------------
(xiii) A Distribution made pursuant to Paragraph 10. 8(xiii)
---------------------
of the Construction Loan Agreement.
8.22 Borrower hereby covenants and agrees as follows during the Term
hereof;
(a) As of the end of each fiscal quarter of Borrower, Borrower
shall maintain a net worth, calculated in accordance with GAAP of at least
$1,000,000. The foregoing covenant shall be tested quarterly beginning with
the quarter year ending September 30, 1996.
(b) Marketing Expenses associated with the marketing and sale of
Time-Share Interests shall not exceed 50% of Net Sales, determined
quarterly. The foregoing covenant shall be tested quarterly, commencing
September 30, 1996. Each of the tests conducted as of the end of September
30, 1996, December 31, 1996 and March 31, 1997 shall cover the period from
the Closing Date through the end of the relevant quarter. Commencing with
the test for June 30, 1997, and thereafter throughout the Term hereof, the
foregoing covenant shall be tested quarterly, on a rolling twelve (12)
month basis.
(c) Borrower's General and Administrative Expenses shall not
exceed 10% of Net Sales. The foregoing covenant shall be tested quarterly,
commencing September 30, 1996. Each of the tests conducted as of the end of
September 30, 1996, December 31, 1996 and March 31, 1997 shall cover the
period from the Closing Date through the end of the relevant quarter.
Commencing with the test for June 30, 1997, and thereafter throughout the
Term hereof, the foregoing covenant shall be tested quarterly, on a rolling
twelve (12) month basis.
(d) Borrower shall not permit Delinquencies as of the end of any
three (3) consecutive calendar months during the Term to exceed three
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percent (3%) of the aggregate then unpaid principal balance of all Eligible
Instruments against which a Receivables Advance has been made.
(e) Upon request by Lender, Borrower shall provide from time to
time such information as Lender may reasonably require to determining
compliance with the foregoing requirements.
8.23 Until such time as all of the Obligations under and arising out
of the Construction Loan Documents, together with the Working Capital Loan,
excluding the Receivables Loan, have been paid and satisfied in full, and Lender
has no further obligation to make any advances of the Construction Loan or
Working Capital Loan, Borrower shall not, without the prior written consent of
Lender, develop or permit any of its Affiliates to develop a time-share resort
in San Luis Obispo County, California.
8.24 If there occurs a material adverse change in the Project or in
the financial condition of Borrower or any Guarantor or in the Receivables
Collateral or any other security for the Performance of the Obligations, which
change is not enumerated in paragraph 8.22 or 9.1 Borrower will promptly provide
-------------- ---
Lender with assurance that neither the prospect of Performance of the
Obligations nor Lender's security therefore is imperiled. If Borrower fails to
provide Lender with assurance satisfactory to Lender in its reasonable
discretion, such failure will be considered an Event of Default.
8.25 [Reserved]
8.26 Lender hereby agrees that it will promptly release from the lien
of the Construction Mortgage, an individual Time-Share Interest which is sold by
Borrower in the ordinary course of business in bona-fide, arm's-length
---------
transactions upon the satisfaction of the following terms and conditions;
(a) With respect to Time-Share Interests constituting Deedback
Intervals or Foreclosed Intervals, the payment to Lender of an interval
release payment equal to (i) $3,117 per Time-Share Interest (or $1,559
per Time-Share Interest if such Time-Share Interest is a Biennial Time-
Share Interest), with respect to a studio Unit, or (ii) $3,553 per Time-
Share Interest (or $1,777 per Time-Share Interest if such Time-Share
Interest is a Biennial Time-Share Interest), with respect to a one-bedroom
Unit; provided, however, that under no circumstances shall a particular
-------- -------
interval release payment payable with respect to Time-Share Interests
constituting a Deedback Interval or a Foreclosed Interval be less than
thirty-three percent (33%) of the gross sales price of such Time-Share
Interest;
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(b) With respect to Time-Share Interests located in Phase I, the
payment to Lender of an interval release payment equal to (i) $3,247 per
Time-Share Interest (or $1,624 per Time-Share Interest if such Time-Share
Interest is a Biennial Time-Share Interest), with respect to a one-bedroom
Unit, (ii) $4,349 per Time-Share Interest (or $2,175 per Time-Share
Interest if such Time-Share Interest is a Biennial Time-Share Interest),
with respect to a two-bedroom Unit or (iii) $4,639 per Time-Share Interest
(or $2,320 per Time-Share Interest if such Time-Share Interest is a
Biennial Time-Share Interest), with respect to a two-bedroom lockout Unit;
provided, however, that under no circumstances shall a particular interval
release payment payable with respect to Time-Share Interests located in
Phase I be less than twenty-eight percent (28%) of the gross sales price of
such Time-Share Interest;
(c) With respect to Time-Share Interests located in Phase II,
the payment to Lender of an interval release payment equal to (i) $3,247
per Time-Share Interest (or $1,624 per Time-Share Interest if such Time-
Share Interest is a Biennial Time-Share Interest), with respect to a one-
bedroom Unit or (ii) $4,639 per Time-Share Interest (or $2,320 per Time-
Share Interest if such Time-Share Interest is a Biennial Time-Share
Interest), with respect to a two-bedroom lockout Unit; provided, however,
that under no circumstances shall a particular interval release payment
payable with respect to Time-Share Interest located in Phase II be less
than twenty-four percent (24%) of the gross sales price of such Time-Share
Interest;
(d) No Event of Default or Incipient Default shall have occurred
or be continuing;
(e) The purchaser of the Time-Share Interest shall not be an
Affiliate of Borrower;
(f) Lender shall have received a written request for such
release in which Borrower certifies compliance with the items set forth
above and with all other requirements for such release; and
(g) Borrower has paid all of Lender's reasonable out-of-pocket
expenses incurred in connection with such release.
All interval release payments shall be applied as an ordinary principal payment
under the Construction Loan. No release of a Time-Share Interest pursuant hereto
shall impair or affect Lender's remaining lien on the balance of the property
subject to the Construction Mortgage or any term or provision of the Receivables
Loan Documents as they pertain to those portions of the property remaining
subject to the Construction Mortgage. Principal payments otherwise made under
the Construction Loan, the
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Working Capital Loan or the Receivables Loan and interest payable under any of
the foregoing shall not be credited against the interval release fee.
8.27 Except to the extent set forth in the Disclosure Schedule,
attached to the Environmental Certificate, the Borrower is in compliance in all
material respects with all applicable federal, state or local environmental,
health and safety statutes and regulations. The Borrower has not filed any
notice under any federal or state law indicating past or present treatment,
storage or disposal of a hazardous waste or reporting a spill or release of a
hazardous or toxic waste, substance or constituent, or other substances into the
environment. None of the operations of Borrower are the subject of federal or
state litigation or proceedings involving, or any investigation evaluating
whether any remedial action involving a material expenditure is needed to
respond to, any improper treatment, storage, recycling, disposal or release into
the environment of any hazardous or toxic substance, waste or constituent, or
other substance. The Borrower does not have any material contingent liability in
connection with any improper treatment, storage, recycling, disposal or release
into the environment of any hazardous or toxic substance, waste or constituent.
None of the operations of Borrower are subject to any judicial or administrative
proceeding alleging the violation of any federal, state or local environmental,
health or safety statute or regulation. The Borrower does not transport any
hazardous wastes, substances or constituents.
8.28 Provided that Borrower has not then borrowed the Maximum
Receivables Loan Amount, Borrower shall not, during the Borrowing Term
(Receivables Loan), pledge, assign, or hypothecate any Eligible Instruments
arising from Units other than to Lender; provided that that terms and conditions
of the financing of such Eligible Instruments is reasonably consistent with the
terms and conditions set forth in this Agreement. After the expiration of the
Borrowing Term (Receivables Loan), Lender shall have the right of first
negotiation with Borrower in the event Borrower wishes to accept or seek an
offer from a third party to loan moneys to Borrower in exchange for a pledge,
assignment or hypothecation of any Eligible Instruments arising from Units. In
the event Borrower desires to seek or obtain such an offer, Borrower shall first
give Lender written notice to that effect and give Lender the opportunity,
within 10 Business Days thereafter, to issue a financing proposal to Borrower,
before Borrower enters into a binding agreement with such third party with
respect to such financing. Borrower shall have no obligation to accept any
proposal made by Lender with respect to such financing; provided that if
Borrower obtains any such financing from a lender other than Lender, any and all
such lenders providing financing secured by Instruments shall have entered into
an intercreditor agreement with Lender in form and substance reasonably
satisfactory to Lender.
8.29 [Reserved]
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<PAGE>
8.30 [Reserved]
8.31 Each of the Material Agreements is (i) in full force and effect;
and (ii) have not been modified, amended, altered or changed in any manner
except to the extent that such modifications, amendments, alterations or changes
have been delivered to Lender prior to the date hereof. Any conditions precedent
to the Seller's obligation under the Acquisition Documents or to the
Association's obligation under the Association Agreement, which are required to
be satisfied on or prior to the Closing Date, have been satisfied or waived. The
Borrower is not in default under any of the Material Agreements and, to the best
of Borrower's knowledge, none of the other parties to the Material Agreements
will be in default of any of their respective obligations thereunder.
8.32 Borrower will keep and perform all of its material obligations
to be kept and performed by it under each of the Material Agreements and will
diligently enforce all material obligations to be kept and performed by each
other party under the Material Agreements. Without the prior written consent of
Lender, Borrower will not modify, amend, alter or change, in any material
respect, any of the Material Agreements or cancel or terminate the Material
Agreements. Borrower will do all things necessary and proper to keep each of the
Material Agreements in effect. Borrower will furnish Lender with copies of all
notices of default given or received by Borrower concurrently with the giving of
the same by Borrower or as soon as reasonably possible following the Borrower's
receipt thereof.
8.33 All representations and warranties contained in this Agreement
are continuing and shall be deemed to be made and reaffirmed prior to the making
of each Advance under this Agreement.
8.34 The representations, warranties and covenants contained in this
Agreement shall be applicable to and binding upon Borrower during the Term
hereof, notwithstanding the fact that no Advances have yet been made hereunder.
ARTICLE IX
----------
DEFAULT
-------
9.1 The occurrence of any of the following events or conditions
shall constitute an Event of Default by Borrower under the Receivables Loan
Documents:
(a) Lender fails to receive from Borrower when due and payable
any amount which Borrower is obligated to pay on the Note or any other
payment due under the Receivables Loan Documents; and such failure
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shall continue for seven (7) days, except for the payment of the final
installment due at the Maturity Date, for which no grace period is allowed;
(b) any material representation or warranty of Borrower
contained in the Receivables Loan Documents or in any certificate furnished
under the Receivables Loan Documents proves to be, in any material respect,
false or misleading as of the date deemed made or restated;
(c) there is a default in the Performance of the Obligations set
forth in paragraphs 8.8, 8.9 or 8.13 hereof or Borrower knowingly violates
---------------------------
or suffers or permits the violation of any of the warranties or conditions
of the policies of insurance required under paragraph 8.9;
-------------
(d) there is a default in the Performance of the Obligations or
a violation of any term, covenant or provision of the Receivables Loan
Documents (other than a default or violation referred to elsewhere in this
paragraph 9.1) and such default or violation continues unremedied (i) for a
-------------
period of five days after the giving of notice thereof to Borrower in the
case of a default or violation which can be cured by the payment of money
alone or (ii) in the case of any other default or violation, for a period
of (A) thirty (30) days after the giving of notice to Borrower, or (B) (in
the event such default is not capable of being cured within such thirty
(30) day period) for a period not exceeding sixty (60) days after the
giving of such notice provided Borrower is diligently and in good faith
pursuing such cure;
(e) an "Event of Defaults," as defined elsewhere herein or in
any of the other Receivables Loan Documents, occurs, or an act or event
occurs under any of the Receivables Loan Documents, which is not cured
within applicable notice or grace periods, whether or not denominated as an
Event of Default, which expressly entitles Lender to accelerate any of the
Obligations or exercise its other remedies upon the occurrence of an Event
of Default hereunder;
(f) any material default by Borrower under any other agreement
evidencing, guaranteeing, or securing borrowed money or a receivables
purchase financing has occurred and there has been an acceleration of such
indebtedness or repurchase obligations, which accelerated repayment or
repurchase obligations are in excess of $100,000 in the aggregate;
(g) any final, non-appealable judgment or decree for money
damages or for a fine or penalty against Borrower which is not paid and
discharged or stayed within 30 days thereafter and, when aggregated with
all other judgment(s) or decree(s) that have remained unpaid and
undischarged or
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not stayed for such period, the sum of such judgment and decrees is in
excess of $100,000;
(h) any party holding a lien or security interest in the
Receivables Collateral or the Purchased Notes and Mortgages Collateral, or
any other security for the Performance of the Obligations or a lien on any
common areas or other amenities in the Project commences foreclosure or
similar sale thereof;
(i) (i) Borrower or any Guarantor becomes insolvent or unable
to pay its debts when due; generally fails to pay its debts when due; files
a petition in any bankruptcy, reorganization, winding-up or liquidation
proceeding or other proceeding analogous in purpose or effect relating to
such entity; applies for or consents to the appointment of a receiver,
trustee or other custodian for the bankruptcy, reorganization, winding-up
or liquidation of such entity; makes an assignment for the benefit of
creditors; or admits in writing that it is unable to pay its debts; (ii)
any court order or judgment is entered confirming the bankruptcy or
insolvency of Borrower or any Guarantor or approving any reorganization,
winding-up or liquidation of such entity or a substantial portion of its
assets; (iii) there is instituted against Borrower or any Guarantor any
bankruptcy, reorganization, winding-up or liquidation proceeding or other
proceeding analogous in purpose or effect and the same is not dismissed
within 60 days after the institution thereof, or (iv) a receiver, trustee
or other custodian is appointed with regard to Borrower or any Guarantor,
for any part of the Receivables Collateral, the Purchased Notes and
Mortgages Collateral or the Project or for the assets of Borrower or any
Guarantor;
(j) Performance by Borrower or any Guarantor of any material
obligation under any Receivables Loan Document or Guarantee, as the case
may be, is rendered unenforceable in any material respect, or any Guarantor
repudiates, rescinds, limits or annuls its Guarantee;
(k) An Event of Default, as defined in the Construction Loan
Agreement, occurs, or an act or event occurs under any of the Construction
Loan Documents, whether or not denominated as an Event of Default, which
expressly entitles the Lender to exercise its remedies; or
(1) Notwithstanding the limitations in Paragraph 9.1(f),
----------------
above, the declaration of default with regard to the obligations of the
Borrower under any of the Material Agreements, beyond any applicable cure
or grace periods contained therein.
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9.2 At any time after an Event of Default has occurred and while it
is continuing, Lender shall have the right to do any one or more of the
following:
(a) cease to make further Advances;
(b) declare each of the Receivables Note and Working Capital
Note, together with prepayment premiums and all other sums owing by
Borrower to Lender in connection with the Receivables Loan Documents,
immediately due and payable without notice, presentment, demand or protest,
which are hereby waived by Borrower;
(c) with respect to the Receivables Collateral and the Purchased
Notes and Mortgages Collateral, (i) institute collection actions against
all Persons obligated thereon and in default thereunder; (ii) enter into
modification agreements and make extension agreements with respect to
payments and other performances; (iii) release Persons liable for the
payment and performance thereof or the securities for such payment and
performance; and (iv) settle and compromise disputes with respect to
payments and performances claimed due thereon, all without notice to
Borrower, without being called to account therefor by Borrower and without
relieving Borrower from Performance of the Obligations;
(d) in the event Lender has previously agreed that Borrower may
act as Servicing Agent, remove Borrower as Servicing Agent and substitute
as Servicing Agent such other Person as Lender shall designate; and
(e) proceed to protect and enforce its rights and remedies under
this Agreement, the Construction Loan Documents or any other documents and
to foreclose or otherwise realize upon its security for the Performance of
the Obligations, or to exercise any other rights and remedies available to
it at law, in equity or by statute.
The rights and powers granted pursuant to this paragraph are not
intended to limit the rights and powers granted elsewhere herein.
9.3 Notwithstanding anything in the Receivables Loan Documents to the
contrary, while an Event of Default exists, any cash received and retained by
Lender in connection with the Receivables Collateral or the Purchased Notes and
Mortgages Collateral may be applied to payment of the Obligations in the manner
provided in paragraph 9.5 hereof.
-------------
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<PAGE>
9.4 (a) Pursuant to its rights under paragraph 9.2 hereof, following
-------------
an Event of Default, and subject to the terms and conditions hereof, Lender
may sell, assign and deliver the Receivables Collateral or the Purchased
Notes and Mortgages Collateral or any part thereof, at public or private
sale, conducted in a commercially reasonable manner by an officer, or agent
of, or auctioneer or attorney for, Lender at Lender's place of business or
elsewhere, for cash, upon credit or future delivery, and at such price or
prices as Lender shall reasonably determine, and Lender may be the
purchaser of any or all of the Receivables Collateral or the Purchased
Notes and Mortgages Collateral so sold. Lender may, in its reasonable
discretion, at any such sale, restrict the prospective bidders or
purchasers as to number, nature of business and investment intention, and,
without limitation, may require that the persons making such purchases
represent and agree to the satisfaction of Lender that they are purchasing
the Receivables Collateral or the Purchased Notes and Mortgages Collateral
for their account, for investment, and not with a view to the distribution
or resale of any thereof Lender shall have no obligation to delay sale of
any Receivables Collateral or the Purchased Notes and Mortgages Collateral
for the period of time necessary to permit such Receivables Collateral or
the Purchased Notes and Mortgages Collateral to be registered for public
sale under the Securities Act of 1933, as amended, and any applicable state
securities laws. Private sales made without registration shall not be
deemed to have been made in a commercially unreasonable manner by virtue of
any terms less favorable to the seller resulting from the private nature of
such sales.
(b) Without prejudice to the right of Lender to make such sale
within such shorter period as may be reasonable under the circumstances,
foreclosure sale of all or any part of the Receivables Collateral or the
Purchased Notes and Mortgages Collateral shall be deemed held pursuant to
reasonable notice if held:
(i) 45 days after notice is given, based upon default
consisting of insolvency, bankruptcy or other default of a nature
which cannot be corrected by Borrower, or default for which no grace
period is specified herein; or
(ii) 60 days after notice of any other act, circumstance or
event which, if uncorrected, after expiration of any applicable grace
period, shall constitute a default hereunder.
-46-
<PAGE>
Where any notice to Borrower and grace period thereafter is required under
this Agreement, such grace period shall be deducted from the 60 day notice
of foreclosure sale specified in item (ii) above, so that the maximum
period between notice to Borrower of any act, circumstance or event which,
if uncorrected after elapse of any applicable grace period, would
constitute an Event of Default and the foreclosure sale of the Receivables
Collateral or the Purchased Notes and Mortgages Collateral based upon such
Event of Default shall in no event be required to exceed 60 days.
(c) At any sale following an Event of Default, the Receivables
Collateral and the Purchased Notes and Mortgages Collateral may be sold as
an entirety or in partial interests. Lender shall not be obligated to make
any sale pursuant to any notice previously given. In case of any sale of
all or any part of the Receivables Collateral or the Purchased Notes and
Mortgages Collateral on credit or for future delivery, the Receivables
Collateral and the Purchased Notes and Mortgages Collateral so sold may be
retained by Lender until the selling price is paid by the purchaser
thereof, but Lender shall not incur any liability in case of the failure of
such purchaser to take up and pay for the collateral so sold; and in case
of any such failure, such Receivables Collateral and the Purchased Notes
and Mortgages Collateral may again be sold under and pursuant to and in
compliance with the provisions hereof
(d) In connection with sales made following an Event of Default,
Lender may, in the name and stead of Borrower or in its own name, make and
execute all conveyances, assignments and transfers of the Receivables
Collateral and the Purchased Notes and Mortgages Collateral sold pursuant
to this Agreement; and Lender is hereby appointed Borrower's attorney-in-
fact for this purpose. Nevertheless, Borrower will, if so requested by
Lender, ratify and confirm any sale or sales by executing and delivering to
Lender, or to such purchaser or purchasers, all such instruments as may, in
the judgment of Lender, be advisable for that purpose.
(e) The receipt by Lender of the purchase money paid at any sale
made following an Event of Default shall be a sufficient discharge therefor
to any purchaser of the Receivables Collateral or the Purchased Notes and
Mortgages Collateral or any portion thereof, and no such purchaser, after
paying
-47-
<PAGE>
such purchase money and receiving such receipt, shall be bound to see to
the application of such purchase money or any part thereof or in any manner
whatsoever be answerable for any loss, misapplication or nonapplication of
any such purchase money, or any part thereof, or be bound to inquire as to
the authorization, necessity, expediency or regularity of any such sale.
(f) Each purchaser at any sale following an Event of Default
shall hold the Receivables Collateral or the Purchased Notes and Mortgages
Collateral so sold absolutely free from every claim or right of Borrower,
including, without limitation, any equity or right of redemption of
Borrower, which Borrower hereby specifically waives to the extent Borrower
may lawfully do so. Lender, its employees and agents shall after such sale
be fully discharged from any liability or responsibility in any matter
relating to the Receivables Collateral or the Purchased Notes and Mortgages
Collateral and such other security that is sold and resulting from any
action or inaction on the part of such purchaser or any successor-in-
interest of such purchaser.
9.5 The proceeds of any sale of all or any part of the Receivables
Collateral and the Purchased Notes and Mortgages Collateral shall be applied in
the following order or priorities; first, to the payment of all reasonable costs
and expenses of such sale, including, without limitation, reasonable
compensation to Lender and its agents, attorney's fees, and all other reasonable
expenses, liabilities and advances incurred or made by Lender, its agents and
attorneys, in connection with such sale, and any other unreimbursed expenses for
which Lender may be reimbursed pursuant to the Receivables Loan Documents;
second, to the payment of the Obligations, in such order and manner as Lender
shall in its discretion determine, with no amounts applied to payment of
principal until all interest has been paid; and third, to the payment to
Borrower, its successors or assigns, or to whomsoever may be lawfully entitled
to receive the same, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
9.6 Lender may, at its option, and without any obligation to do so,
pay, perform and discharge any and all amounts, costs, expenses and liabilities
herein agreed to be paid or performed by Borrower if Borrower fails to do so
within 7 days following the giving of written notice of such failure; and for
such purposes Lender may use the proceeds of the Receivables Collateral or the
Purchased Notes and Mortgages Collateral and is hereby appointed Borrower's
attorney-in-fact. All amounts
-48-
<PAGE>
expended by Lender in so doing or in exercising its remedies hereunder following
an Event of Default shall become part of the Obligations secured hereby, shall
be immediately due and payable by Borrower to Lender upon demand therefor, and
shall bear interest at the Overdue Rate from the dates of such expenditures
until paid. Exercise by Lender of its option under this paragraph will not cure
any default of Borrower.
9.7 No remedy herein or in any other Receivables Loan Document
conferred on or reserved to Lender is intended to be exclusive of any other
remedy or remedies, but each and every such remedy shall be cumulative and shall
be in addition to every other remedy given hereunder, under any other
Receivables Loan Document or now or hereafter existing at law or in equity.
Notwithstanding anything herein to the contrary, in any non-judicial, public or
private sale or sales under the Uniform Commercial Code or in any judicial
foreclosure and sale of the Receivables Collateral or the Purchased Notes and
Mortgages Collateral, the Receivables Collateral and the Purchased Notes and
Mortgages Collateral may be sold in any manner whatsoever not prohibited by law.
No delay or omission to exercise any right or power shall be construed to be a
waiver of any default or acquiescence therein or a waiver of any right or power;
and every such right and power may be exercised from time to time and as often
as may be deemed expedient. Lender's acceptance of any performance due hereunder
which does not comply strictly with the terms hereof shall not be deemed to be a
waiver of any right of Lender to strict Performance by Borrower. Acceptance of
past due amounts or partial payments shall not constitute a waiver of full and
timely payment of the Obligations. No Event of Default, declaration of the
unpaid principal of the Loan to be immediately due and payable or exercise of
any other right to remedy upon default' shall stay, waive, or otherwise affect
Lender's right to receive payments on and other proceeds of the Receivables
Collateral or the Purchased Notes and Mortgages Collateral.
9.8 Borrower, for itself and for all who may claim through or under
it, hereby expressly waives and releases all right to have the Receivables
Collateral or the Purchased Notes and Mortgages Collateral or any other security
for the Performance of the Obligations, or any part thereof, marshalled on any
foreclosure, sale or other enforcement hereof.
9.9 While an Event of Default exists, Borrower shall, on the request
of Lender, assemble the Receivables Collateral and the Purchased Notes and
Mortgages Collateral not already in Lender's possession and make it available to
Lender at a time and place reasonably convenient to Lender.
-49-
<PAGE>
9.10 In the event that Borrower at any time fails to do or perform
any act, or pay any amount, or take any action, when such performance, payment
or action is required hereunder (and, if applicable, following the lapse of any
grace or compliance period in which such payment, performance or action may be
taken by Borrower hereunder), then Lender may make such payment or cause such
performance or action to be taken, and all amounts expended by Lender in making
such payment or causing such performance or action to be taken, together with
all expenses incurred by Lender in connection therewith shall be immediately due
and payable by Borrower to Lender, the payment performance of which shall be an
Obligation hereunder, and shall be secured by the Receivables Collateral and the
Purchased Notes and Mortgages Collateral. All such amounts expended by Lender in
making such payment or causing such performance or action to be taken, together
with all expenses incurred by Lender in connection therewith, shall bear
interest at the Overdue Rate from the date incurred by Lender until paid.
ARTICLE X
---------
POWER OF ATTORNEY
-----------------
For the purpose of enabling Lender to protect and preserve its
Security Interest in the Receivables Collateral and the Purchased Notes and
Mortgages Collateral and its rights and remedies under this Agreement and the
Receivables Loan Documents, Borrower does hereby constitute and appoint Lender,
and its successors and assigns, to be Borrower's true and lawful attorney-in-
fact upon the occurrence of an Event of Default, and during the continuance
thereof, to perform any act, take any action, execute and sign any document,
statement, instrument or other writing, and to do and perform any and all deeds
and things in the name, place, and stead of Borrower, which Lender in its
discretion shall determine necessary or required to protect and preserve its
Security Interest in the Receivables Collateral and the Purchased Notes and
Mortgages Collateral and its rights and remedies under this Agreement and the
Receivables Loan Documents, or which Borrower is required or obligated to
perform under the terms of this Agreement or the Receivables Loan Documents.
ARTICLE XI
----------
CONSTRUCTION AND GENERAL RULES
------------------------------
11.1 All moneys payable hereunder or under the Receivables Loan
Documents shall be paid to Lender at its address set forth below.
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<PAGE>
11.2 This Agreement and the other Receivables Loan Documents
exclusively and completely state the rights and obligations of Lender and
Borrower with respect to the Loan. No modification, termination, variation,
discharge or abandonment hereof and no waiver of any of the provisions or
conditions shall be valid unless in writing and signed by duly authorized
representatives of Lender and Borrower or the successor, transfers or assigns of
either, subject, however, to the limitations on assignment herein by Borrower.
This Agreement supersedes any and all prior agreements or understandings,
written or oral, between Borrower and Lender (other than in the other
Receivables Loan Documents) concerning this transaction.
11.3 The powers and agency hereby granted by Borrower are coupled
with an interest and are irrevocable and are granted as cumulative to the
remedies for collection of the indebtedness secured hereby provided by law.
11.4 This Agreement may be executed simultaneously in any number of
identical copies each of which shall constitute an original for all purposes.
11.5 Any notice required or permitted to be given hereunder shall
be in writing and shall be (i) personally delivered to the party being notified
if an individual or to an officer, general partner or member if a corporation,
partnership or limited liability company, or (ii) transmitted by postage
prepaid, certified or registered mail (return receipt requested) to such party
at its address after its signature on the signature page hereof or such other
address as the party being notified may have otherwise designated in a notice
given as provided in this paragraph. Such notice shall be deemed to be given and
effective, unless actual receipt is expressly elsewhere specified herein, upon
the date of receipt or the date delivery is first attempted and refused if
transmitted by registered or certified mail, whichever shall first occur. A copy
of any notices given to Borrower shall also be given to:
Leo Rose III, Esq.
Schreeder, Wheeler & Flint
The Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
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<PAGE>
11.6 All the covenants, promises, stipulations and agreements of
Borrower and all the rights and remedies of the Lender in this Agreement
contained shall bind Borrower, and, subject to the restrictions on merger,
consolidation and assignment herein contained, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights herein in whole or in part.
Except as may be expressly provided herein, no person or other entity shall be
deemed a third party beneficiary of this Agreement.
11.7 Subject to the provisions of Article IX hereof, if any one or
----------
more of the provisions contained in this Agreement shall be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
11.8 Time is of the essence in the Performance of the Obligations.
11.9 All headings are inserted for convenience only and shall not
affect any construction or interpretation of this Agreement. The provisions of
this Agreement shall apply to the parties according to the context hereof and
without regard to the number or gender of words and expressions used herein.
Unless otherwise indicated, all references herein to clauses and other
subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of this Agreement; the words "herein", "hereof", "hereto",
"hereunder" and words of similar import, refer to this Agreement as a whole and
not to any particular paragraph, clause or other subdivision hereof; and
reference to a numbered or lettered subdivision of an Article, or paragraph
shall include relevant matter within the Article or paragraph which is
applicable to but not within such numbered or lettered subdivision.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
11.10 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF ARIZONA. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THE
RECEIVABLES LOAN DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT OF ARIZONA,
MARICOPA COUNTY DIVISION, OR THE UNITED STATES DISTRICT COURT OF ARIZONA OR, IF
LENDER INITIATES SUCH ACTION, IN ADDITION TO THE FOREGOING COURTS, ANY COURT IN
WHICH LENDER SHALL INITIATE SUCH ACTION, TO THE EXTENT SUCH COURT HAS
JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH
COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR
OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT
PURSUANT TO THIS AGREEMENT. BORROWER WAIVES ANY CLAIM THAT PHOENIX, ARIZONA OR
THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON
LACK OF VENUE. SHOULD BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER
TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS
PRESCRIBED BY LAW AFTER THE MAILING THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT
AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST BORROWER AS
DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE
EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET FORTH IN THIS PARAGRAPH SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER OF ANY JUDGMENT OBTAINED IN ANY
OTHER FORUM OR THE TAKING BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION. LENDER AND BORROWER ACKNOWLEDGE
AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE RECEIVABLES LOAN
DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED THEREBY WOULD BE
BASED UPON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT
ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED
-53-
<PAGE>
IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
Initial /s/ illegible
---------------
Initial /s/ illegible
---------------
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
11.11 It is the intent of the parties hereto to comply with the
Applicable Usury Law. Accordingly, notwithstanding any provisions to the
contrary in this Agreement or in any of the other Receivables Loan Documents in
no event shall this Agreement or the Receivables Loan Documents require the
payment or permit the collection of interest in excess of the maximum contract
rate permitted by the Applicable Usury Law. If (i) any such excess of interest
otherwise would be contracted for, charged or received from Borrower or
otherwise in connection with the Obligations or (ii) the maturity of the
Obligations is accelerated in whole or in part, or (iii) all or part of the
principal or interest of the Obligations shall be prepaid, so that under any of
such circumstances the amount of interest contracted for, charged or received in
connection with the Obligations would exceed the maximum contract rate permitted
by the Applicable Usury Law, then in any such event (A) the provisions of this
paragraph shall govern and control, (B) neither Borrower nor any other person or
entity now or hereafter liable for the payment hereof will be obligated to pay
the amount of such interest to the extent that it is in excess of the maximum
contract rate permitted by the Applicable Usury Law, (C) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount of the Obligations of Borrower or refunded to Borrower,
at Lender's option, and (D) the effective rate of interest will be automatically
reduced to the maximum contract rate permitted by the Applicable Usury Law.
Without limiting the generality of the foregoing, to the extent permitted by the
Applicable Usury Law; (x) all calculations of the rate of interest which are
made for the purpose of determining whether such rate would exceed the maximum
contract rate permitted by the Applicable Usury Law shall be made by amortizing,
prorating, allocating and spreading during the period of the full stated term of
the Obligations, all interest at any time contracted for, charged or received
from Borrower or otherwise in connection with the Obligations; and (y) in the
event that the effective rate of interest on the Obligations should at any time
exceed the maximum contract rate permitted by the Applicable Usury Law, such
excess interest that would otherwise have been collected had there been no
ceiling imposed by the Applicable Usury Law shall be paid to Lender from time to
time, if and when the effective interest rate on the Obligations otherwise falls
below the maximum contract rate permitted by the Applicable Usury Law, to the
extent that interest paid to the date of calculation does not exceed the maximum
contract rate permitted by the Applicable Usury Law, until the entire amount of
interest which would have otherwise been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all the Obligations
regardless of when incurred; but, again to the extent not prohibited by the
Applicable Usury Law, should the maximum contract rate permitted by the
Applicable Usury Law be decreased because of a change in the law, such decreases
shall not apply to the Obligations regardless if resulting from an advance of
the Loan made after the effective date of such decrease.
-55-
<PAGE>
ARTICLE XII
-----------
SPECIAL PROVISIONS
------------------
12.1 Lender covenants and agrees that, notwithstanding anything to
the contrary herein or in any other Receivables Loan Document, during the Term
hereof it shall take no action to disturb Purchasers in their use and possession
of their Time-Share Interests or otherwise to impair the rights and privileges
of such Purchasers under their Time-Share Interests or the governing documents
of the Project so long as such Purchasers are fulfilling their obligations under
their respective Instruments.
[THE SIGNATURES OF FINOVA CAPITAL CORPORATION AND
SAN LUIS RESORT PARTNERS, LLC APPEAR ON THE FOLLOWING PAGE.]
-56-
<PAGE>
Signature page for Loan and Security Agreement dated as of June 6,
1996 between FINOVA Capital Corporation and San Luis Resort Partners, LLC.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by Persons duly authorized on the day and year first above written.
"Lender"
FINOVA CAPITAL CORPORATION, a
Delaware corporation
By /s/ ??^^
----------------------------
Vice President
Address:
7272 East Indian School Road
Suite 410
Scottsdale, Arizona 85251
Attention: Vice-President-Resort Finance
With a copy to:
7272 East Indian School Road
Suite 410
Scottsdale, Arizona 85251
Attention: Vice-President-Group Counsel
____ Check here to confirm that Paragraph 11.10
has been initialed.
-57-
<PAGE>
"Borrower"
SAN LUIS RESORT PARTNERS, LLC
a Georgia limited liability company
By: AKGI San Luis, Inc., a Georgia corporation
Title: Managing Member
By: /s/ Thomas M. Smith
-----------------------
Name: Thomas M. Smith
---------------------
Title: Vice President
Address:
c/o Argosy/KOAR Group, Inc.
911 Wilshire Boulevard
Suite 2250
Los Angeles, Georgia 90017
Check here to confirm that Paragraph
----
11.10 has been initialed.
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<PAGE>
EXHIBIT 10.8.4
LOAN AND SECURITY AGREEMENT
BETWEEN
GRAND BEACH RESORT, LIMITED PARTNERSHIP
AND
GREYHOUND FINANCIAL CORPORATION
DATED AS OF OCTOBER 7, 1994
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
BY THIS LOAN AND SECURITY AGREEMENT entered into as of October 7, 1994
between GREYHOUND FINANCIAL CORPORATION, a Delaware corporation ("Lender") and
GRAND BEACH RESORT, LIMITED PARTNERSHIP, a Georgia limited partnership
("Borrower"), hereby confirm and agree as follows:
ARTICLE I
---------
INTRODUCTION
------------
1.1 Borrower desires to obtain a revolving line of credit from
Lender, the proceeds of which shall be used for working capital purposes to fund
development, sales and marketing expenses, and for purposes of paying and
satisfying certain construction indebtedness owing from Borrower to Lender.
1.2 Lender is willing to extend to Borrower a revolving line of
credit for the purposes stated in the preceding paragraph upon the terms and
conditions set forth herein.
ARTICLE II
----------
DEFINITIONS
-----------
Except where the context clearly requires a different interpretation,
all capitalized terms used in this Agreement shall have the meanings assigned to
them above, immediately below, or elsewhere herein.
"Advance" shall mean the monies or funds advanced from time to time in
accordance with the terms and conditions of this Agreement.
"Advance Date" shall mean each date on which an Advance is made.
"Affiliate" shall mean any person or entity directly or indirectly
Controlling, Controlled by or under common Control with the person or entity to
whom the definition is applied, including blood relatives or spouse of the
person to whom the definition applies, if such person is a natural person.
"Agreement" shall mean this Loan and Security Agreement, as from time
to time modified, extended, renewed, replaced or restated.
<PAGE>
"Applicable Environmental Laws" shall have the meaning set forth in
the Environmental Certificate.
"Applicable Usury Law" shall mean the usury law applicable pursuant to
the terms of Article XI, paragraph II.II hereof or such other usury law which is
applicable if the law chosen by the parties is not applicable.
"Argosy" shall mean Argosy Grand Beach, Inc., a Georgia corporation.
"Argosy/KGI" shall mean Argosy/KGI Grand Beach Investment Partnership,
a California general partnership.
"Argosy Partners" shall mean Argosy Partners, Inc., a Georgia
corporation.
"Assignments" shall mean written Assignments, in such form as Lender
shall prescribe, of specific Instruments and/or Purchaser Mortgages and the
proceeds thereof delivered to Lender concurrently with each Advance under the
terms of which Borrower transfers and assigns with full recourse all of
Borrower's right, title and interest in and to the Instrument and/or Purchaser
Mortgage, free and clear of all claims, demands, liens and encumbrances of third
parties, as collateral security for the Loan.
"Borrower" shall mean Grand Beach Resort, Limited Partnership, a
Georgia limited partnership.
"Borrowing Base" shall mean an amount equal to the lesser of (i) 90%
of the unpaid principal balance payable under the Eligible Instruments or (ii)
90% of the then present value assigned to the unmatured installments of
principal and interest payable under the Eligible Instruments discounted at
Lender's Prevailing Discount Rate.
"Borrowing Term" shall mean the period of time during which Lender is
committed to make Advances under this Agreement, which commitment shall
terminate on the earlier of (i) the date which occurs twelve (12) months after
the date of the first Advance or (ii) February 5, 1996. The Borrowing Term shall
be extended for any period of time that any Force Majeure delay prevents
commencement of construction of the Project.
"Business Day" shall mean a calendar day other than a Saturday, Sunday
or legal holiday.
-2-
<PAGE>
"Capital Expenditure" shall mean payments that are made by the
Borrower for the lease, purchase, improvement, construction or use of any
property, the value of which under GAAP is required to be capitalized and shall
include, without limitation, payments for the installment purchase of property
and payments under capitalized leases.
"Cash Flow" shall mean, for any period, the net income or loss of
Borrower, determined in accordance with GAAP (excluding the effect of any
extraordinary gains or losses from the sale of property not in the ordinary
course of business), plus each of the following items to the extent deducted
----
from the revenues of Borrower in calculating the net income: (A) depreciation;
(B) amortization; and (C) interest and taxes during such period, and less
----
Capital Expenditures to the extent paid in such period.
"Closing Date" shall have the meaning set forth in Paragraph 5.1
hereof.
"Commitment Fee" shall have the meaning set forth in Paragraph 8.16
hereof.
"Construction Loan" shall mean the loan made pursuant to the
Construction Loan Agreement.
"Construction Loan Agreement" shall mean that certain Construction
Loan Agreement of even date herewith, pursuant to which Lender has agreed,
subject to the terms and provisions thereof, to make a $5,900,000 construction
loan to Borrower, the proceeds of which are to be used to construct the Project.
"Construction Loan Documents" shall have the meaning set forth in the
Construction Loan Agreement.
"Construction Mortgage" shall mean the Mortgage, Assignment of Rents
and Proceeds and Security Agreement delivered by Borrower pursuant to the
Construction Loan Agreement.
"Control" or "Controlling" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of another person or entity by any means.
"Delinquencies" shall mean, individually and collectively, an Eligible
Instrument, against which an Advance has been made, under which an installment
payment due becomes more than 59 days past due.
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<PAGE>
"Distribution" shall mean any distribution, advance, payment,
including but not limited to, loan repayments, dividends, bonuses, salary, other
compensation and management fees.
"Documents" shall mean this Agreement, the Note, the Construction
Mortgage, the Environmental Certificate, the Servicing Agreement, the Lockbox
Agreement, the Services and Fees Agreement, the Guarantee, the Assignments, the
Subordination Agreement, and each and every other document, instrument or
writing executed or delivered by Borrower to Lender in connection with the Loan.
"Eligible Instruments" shall mean the Instruments, each in
substantially the form of Exhibit "A" hereto, entered into by and between
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Borrower and those Persons who purchase a Time-Share Interest (at least 80% of
whom shall be United States, Canadian or Puerto Rican residents), which Eligible
Instruments shall conform to the criteria and standards set forth on Exhibit "B"
-----------
hereto; provided, however, that an Instrument shall cease to be an Eligible
Instrument if (i) any installment payable thereunder becomes more than 59 days
past due and the Instrument under which such installment is payable is not
replaced within ninety (90) days following the due date of such installment or
(ii) the contract fails to continue to conform to the criteria and standards of
Exhibit "B".
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"Embassy" shall have the meaning set forth in the Construction Loan
Agreement.
"Environmental Certificate" shall mean that certain Environmental
Certificate with Representations, Covenants and Warranties of even date herewith
executed by Borrower and related to the Project.
"Event of Default" has the meaning set forth in Article IX hereof.
"Force Majeure" has the meaning set forth in Paragraph 9.2 of the
Construction Loan Agreement.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time, consistently applied, throughout the period involved
and with prior periods, which shall include the official interpretations thereof
by the Financial Accounting Standards Board or any successor thereto.
"GBP" shall mean Grand Beach Partners, L.P., a California limited
partnership.
"GPSI" shall mean GFC Portfolio Services, Inc., an Arizona
corporation, its successors and assigns.
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"Guarantee(s)" shall mean a written Guarantee and Subordination
Agreement, in such form as Lender shall prescribe, executed and delivered by a
Person (or Persons) to Lender, under the terms and conditions of which such
Person (or Persons), as Guarantor(s), shall individually and/or jointly and
severally guarantee Borrower's Performance of all of its Obligations under the
Documents and the Environmental Certificate and shall agree to subordinate any
indebtedness owed by Borrower to Guarantor(s) to the Obligations owed by
Borrower to Lender.
"Guarantor(s)" shall mean individually, a Person, and collectively
each and every Person, who executes and delivers to Lender a Guarantee pursuant
to the terms and conditions of this Agreement. The Guarantors of this Loan are
GBP, Argosy/KGI, Argosy, Argosy Partners and KGI.
"Impositions" shall mean any and all taxes (other than any tax
measured by net income payable by Lender to any state or political subdivision
thereof or to the U.S. under Section 11 or 1201 of the Internal Revenue Code, as
amended), in consequence of the receipt of payments provided for herein, license
fees, assessments, charges, fines, penalties, property, privilege, excise, real
estate or other taxes currently or hereafter levied or imposed by any state,
local or federal authority upon or in connection with or measured by the
Documents or the Receivables Collateral.
"Incentive Fee" shall having the meaning set forth in Paragraph 8.25
hereof.
"Incipient Default" shall mean any act or event which after the giving
of notice or the lapse of time (or both) would constitute an Event of Default.
"Instrument" shall mean a promissory note which has arisen out of the
sale of a Time-Share Interest in the Project by Borrower to a Purchaser, which
note is secured by a Purchaser Mortgage.
"KGI" shall mean KGI Grand Beach Investments, Inc., a California
corporation.
"Loan" shall mean the line of credit loan extended by Lender to
Borrower in accordance with the terms of this Agreement, in a principal amount
not to exceed at any time outstanding the sum of $15,000,000.
"Lockbox Agent" shall mean the entity designated as the Lockbox Agent
in the Lockbox Agreement, or should such entity cease to act as Lockbox Agent
under the Lockbox Agreement, such other entity as Lender may appoint.
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<PAGE>
"Lockbox Agreement" shall mean the Lockbox Agreement, in such form as
Lender shall prescribe, to be made among Borrower, Lender and the Lockbox Agent,
as from time to time modified, replaced or restated.
"Maturity Date" shall mean that date which shall occur seven (7) years
after the date on which the last Advance is made under the terms of this
Agreement.
"Maximum Loan Amount" shall mean the sum of $15,000,000 less the
principal amount then outstanding under the Construction Loan.
"Net Income" shall mean the net income or loss of Borrower, determined
in accordance with GAAP (excluding the effect of any extraordinary gains or
losses from the sale of property not in the ordinary course of business).
"Nondisturbance Agreement" shall mean an agreement, in form and
substance satisfactory to Lender, pursuant to which the holders of any lien
interest on the streets, amenities, common areas, or other off-site improvements
forming a part of the Project agree that, notwithstanding a foreclosure or other
realization of such encumbrance, (i) the Purchasers shall have uninterrupted use
of such streets, amenities, common areas and other off-site improvements and
uninterrupted use and possession of their respective Time-Share Interests, (ii)
the rights and privileges of such Purchasers shall not be otherwise impaired,
and (iii) the governing documents of the Project, including any declarations of
condominium, shall not be modified.
"Note" shall mean the Promissory Note to be made and delivered by
Borrower to Lender pursuant hereto, in a form acceptable to Lender.
"Obligations" shall mean each and every obligation, duty, covenant,
undertaking and conditions which Borrower is required or has agreed to perform
under the Documents and under the Construction Loan Documents, and each and
every other obligation of Borrower now or hereafter owing to Lender.
"Opening Prepayment Date" shall mean the date which occurs twenty-four
(24) months after the last Advance hereunder.
"Overdue Rate" shall have the same meaning as set forth in the Note.
"Perform, Performed or Performance" shall mean the timely, faithful
and complete payment and performance of all Obligations by Borrower.
"Permitted Encumbrances" shall mean each and every restriction,
reservation and easement of record and liens for taxes and assessments securing
amounts not yet due and payable, which individually and in the aggregate do not
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render unmarketable the title to the property which they encumber, or liens
being contested in good faith by proceedings diligently contested, or any lien
against property to secure payment of all or a portion of the purchase price of
such property, and any encumbrance, lien or security interest described in
Exhibit "C" hereto.
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"Person" shall mean any adult individual, partnership, corporation or
other form of business entity whatsoever.
"Present Value" shall mean with respect to any Eligible Instrument the
present value of the unmatured and unpaid installments of principal and interest
due thereunder, calculated using a discount rate equal to the Prevailing
Discount Rate applicable to said Eligible Instrument as provided herein.
"Prevailing Discount Rate" shall mean Lender's prevailing discount
rate at the time each Advance is made, which rate shall be Prime Rate plus 2.0%
but in no event less than 11.5%.
"Prime Rate" shall mean the rate of interest publicly announced from
time to time by Citibank, N.A., New York, New York as its corporate base rate of
interest charged to its most creditworthy commercial borrowers notwithstanding
the fact that some such borrowers may borrow at lower rates. The initial Prime
Rate shall be the rate in effect as of the first Business Day of the month of
the initial Advance and, subsequently, the Prime Rate shall be redetermined as
of the first Business Day of each month.
"Project" shall mean the time-share condominium project known as
Embassy Vacation Resort at Grand Beach, to be constructed by Borrower on the
Real Property comprised of 48 time-share units and related amenities and
improvements.
"Purchaser" shall mean a Person who purchases a Time-Share Interest in
the Project from Borrower.
"Purchaser Mortgage" shall mean the purchase money mortgage given to
secure an Instrument.
"Real Property" shall mean that parcel of real property located in
Orange County, Florida and all existing and future improvements located thereon,
more fully described on the attached Exhibit "G".
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"Receivables Collateral" shall mean (i) all of the Instruments which
Borrower now or hereafter assigns, transfers, endorses or delivers to Lender in
consideration for an Advance made by Lender pursuant to the terms of this
Agreement and as collateral security for the Obligation; (ii) all Instruments
against which Lender
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<PAGE>
makes an Advance pursuant to the terms of this Agreement, notwithstanding
whether or not such Instrument is assigned, transferred, endorsed or delivered
to Lender; (iii) all Purchaser Mortgages, purchase contracts, purchase
agreements, guarantees and other documents or instruments evidencing or securing
the obligations of the Purchasers and/or any other person primarily or
secondarily liable on the Instruments; (iv) all policies of insurance related to
the Instruments or delivered in connection with the Instruments (provided that
the inclusion of such policies of insurance as part of the Receivables
Collateral shall not be deemed to restrict or limit the Borrower's ability to
encumber such insurance to the extent relating to or delivered in connection
with Instruments pledged to another lender, subject, however, to the provisions
of paragraph 8.27); (v) all rights under escrow agreements relating to the
Instruments and all impound and/or reserve accounts related to the Instruments
(excluding, however, any escrows set aside for improvements to the Project);
(vi) all licenses, contracts, management contracts or agreements, franchise
agreements, permits, subordination or certificates now or hereafter required or
used in connection with the ownership, operation or maintenance of the Project
(provided that the inclusion of such licenses, contracts, management contracts
and other agreements or permits as part of the Receivables Collateral shall not
be deemed to restrict or limit the Borrower's ability to encumber such documents
and agreements to the extent relating to or delivered in connection with
Instruments pledged to another lender, subject, however, to the provisions of
paragraph 8.27); (vii) all files, books and records pertaining to any of the
foregoing; and (viii) cash and non-cash proceeds from all of the foregoing,
including, without limitation, all goods, instruments, documents, general
intangibles, chattel paper and accounts wherever located, which have been
acquired with cash proceeds from any of the foregoing and the proceeds thereof.
"Residual Collateral" shall mean all of Borrower's right, title and
interest in and to any and all proceeds remaining following the foreclosure or
other realization by or on behalf of Lender's lien or security interest in the
Real Property and improvements thereon.
"Resort Management" shall have the meaning set forth in the
Construction Loan Agreement.
"Resort Marketing" shall have the meaning set forth in the
Construction Loan Agreement.
"Security Interest" shall mean a direct and exclusive first security
interest which has been perfected under the Uniform Commercial Code of the
state(s) in which any such security interest must be perfected; provided that
with respect to any portion of the Receivables Collateral not covered by the
Uniform Commercial Code, it shall mean a direct and exclusive first lien on such
property which has been perfected in the manner provided by law.
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<PAGE>
"Servicing Agent" shall mean GPSI or, should such entity cease to act
as Servicing Agent under the Servicing Agreement and Services and Fees
Agreement, such other entity as Lender may appoint.
"Servicing Agreement" shall mean the Servicing Agreement, in such form
as Lender shall prescribe, to be made among Borrower, Lender, and the Servicing
Agent, as from time to time modified, replaced or restated.
"Services and Fees Agreement" shall mean the Services and Fees
Agreement, in such form as Lender shall prescribe, to be made between Borrower
and Servicing Agent and acknowledged by Lender, as from time to time modified,
replaced or restated.
"Shell" shall have the meaning set forth in the Construction Loan
Agreement.
"Subordination Agreement" shall mean an agreement, in such form as
Lender shall prescribe, delivered to Lender pursuant to paragraph 5.2(v) hereof,
as from time to time modified, replaced or restated.
"Term" shall mean the duration of this Agreement commencing as of the
year and day first above written and terminating on the date Borrower has
Performed all of its Obligations under the Documents.
"Time-Share Interest" shall mean the rights sold to a Purchaser to the
exclusive use of a Unit in the Project and the Project common areas for a one
(1) week period each year or each alternate year.
"Unit" shall mean a condominium unit in the Project as shown on the
condominium plat therefor, attached to the Declaration of Condominium to be
recorded in connection with the Project.
ARTICLE III
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THE LOAN
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3.1 Lender hereby agrees that the Loan will be disbursed to
Borrower, from time to time, in periodic Advances, but in no event after the
Borrowing Term has expired, in amounts determined by subtracting from the
Borrowing Base the unpaid principal balance outstanding under the Loan at the
time of each Advance; provided that at no time shall the unpaid principal
balance of the Loan exceed the Maximum Loan Amount.
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<PAGE>
3.2 (a) Advances shall not be made more frequently than twice per
month, and each Advance shall be in an amount of not less than One Hundred
Thousand Dollars ($100,000.00). Lender shall charge a fee of Five Hundred
Dollars ($500.00) for the second Advance made during any month and shall be
entitled to deduct such fee from the Advance so made. The foregoing fee is
to be paid to Lender strictly in consideration for Lender's agreement to
make a second Advance during any particular calendar month and shall not be
applied or credited against any other Obligations.
(b) The Loan is a revolving line of credit under the terms of
which Borrower, during the Borrowing Term, shall have the right to obtain
Advances, repay Advances, and obtain additional Advances so long as no
Event of Default has occurred and is continuing and so long as all other
conditions precedent to the making of a Advance have been satisfied.
(c) No Advances will be made after the Borrowing Term has
expired unless Lender, in its sole discretion, shall agree in writing to
make such Advances.
(d) Borrower shall use the proceeds of the Loan for working
capital purposes, to make Distributions to Affiliates to the extent
permitted under this Agreement and under the Construction Loan Documents
and to repay the Construction Loan in full.
(e) At no time during the term hereof shall the unpaid principal
balance of the Loan, together with the unpaid principal balance of the
Construction Loan exceed a total amount equal to Fifteen Million Dollars
($15,000,000.00), and Lender shall have no obligation to make any Advance
if such Advance would cause the foregoing limitation to be exceeded.
3.3 All Advances made pursuant to this Agreement shall be deemed to
be a single Loan.
ARTICLE IV
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SECURITY FOR THE LOAN
---------------------
4.1 As security for Borrower's payment and Performance of all
Obligations owed to Lender, other than those arising out of the Environmental
Certificate, Borrower hereby grants to Lender a first and exclusive Security
Interest in and to (a) the Receivables Collateral assigned, transferred,
endorsed or delivered to Lender under this Agreement or against which an Advance
is made hereunder, and (b)
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<PAGE>
the Residual Collateral. Lender's Security Interest in such Receivables
Collateral and the Residual Collateral shall be absolute, continuing and
applicable to all existing and future Advances and shall secure the repayment of
the Loan and the Construction Loan and the Performance of all Obligations
throughout the Term of the Loan. At the time each Advance is made hereunder,
Borrower shall deliver to Lender (i) an executed Assignment against which an
Advance is requested; (ii) the original of each Instrument; and (iii) other
documents which comprise such Eligible Instruments. At such time as the
Construction Loan and the Incentive Fee have been paid in full and all other
obligations due and owing to Lender under the Construction Loan Documents have
been paid and satisfied in full, and Lender has no further obligation to make
any further advances of the Construction Loan, and provided there does not then
exist an Event of Default or Incipient Default, Lender shall release the
Construction Mortgage, as more fully set forth in the Construction Mortgage,
even though the Receivables Loan is then outstanding.
4.2 If an Eligible Instrument which comprises a part of the
Receivables Collateral shall cease to qualify as an Eligible Instrument,
Borrower shall, within 30 days thereafter, pay to Lender an amount equal to that
portion of the Loan, together with interest, costs, and expenses, if any,
attributable to such ineligible Instrument or shall replace such ineligible
Instrument with another Eligible Instrument having a value of not less than that
portion of the Loan together with interest, costs, and expenses, if any,
attributable to the Eligible Instrument being replaced. No prepayment premium
shall be payable with respect to the payment to be made by Borrower pursuant to
the previous sentence as long as Borrower did not cause the Instrument to cease
qualifying as an Eligible Instrument. Concurrently with the delivery of the
replacement Eligible Instrument to Lender, Borrower shall deliver to Lender all
pertinent items (except for a "Request for Advance and Certification") which
Borrower is required to deliver to Lender in connection with an Advance pursuant
to Article V hereof, together with a Borrower's Certificate in form and
substance identical to Exhibit "E" hereto. Upon substitution of the replacement
-----------
Eligible Instrument for the ineligible Instrument, Lender will terminate its
Security Interest in and reassign and endorse to Borrower, without recourse or
warranty of any kind, the replaced ineligible Instrument, together with the
Purchaser Mortgage securing the same, provided that no Event of Default or
Incipient Default has occurred and is continuing. Such reassignment and
endorsement to Borrower shall constitute a warranty by the Lender that Lender
has not previously assigned such Instrument or Purchaser Mortgage to a third
party or voluntarily created any liens against such Instrument or Purchaser
Mortgage in favor of any third party.
4.3 Reserved.
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4.4 In connection with each Advance, Borrower shall, at its expense,
deliver to Lender, at the time of delivery of the Assignment, a policy or
policies of title
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insurance insuring Lender's interest in the Purchaser Mortgage which is the
subject of the Assignment. Such policy or policies shall be in the amount of the
Advances made against or, in the case of substitutions, a portion of the Loan
attributable to the Instruments secured by the insured Purchaser Mortgages and
shall be issued by a title insurer and be in form and substance satisfactory to
Lender in its sole discretion. The title insurance policies must reflect that
the Purchaser Mortgages constitute valid liens against the real property to
which they pertain subject only to the Permitted Encumbrances.
4.5 Borrower shall deliver or cause to be delivered to Lender, and
thereafter shall maintain in full force and effect according to the terms
thereof, Guarantees duly executed by the Guarantors identified in Article II
hereof.
4.6 Reserved.
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ARTICLE V
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ADVANCES
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5.1 Lender shall have no obligation to make any Advance hereunder
until all conditions precedent set forth in the following paragraphs and
elsewhere in this Agreement have been satisfied, at Borrower's sole expense, as
determined by Lender in its reasonable discretion. The date that Borrower
satisfies all of the conditions precedent to the making of the Loan shall be
referred to as the "Closing Date," which date shall not be later than December
15, 1994.
5.2 Borrower shall have delivered to Lender the following Documents,
duly executed in form and substance satisfactory to Lender (and, when required,
in recordable form):
(i) The Documents;
(ii) The Construction Loan Documents;
(iii) The Guarantees from the Guarantors;
(iv) All documents required to effectuate the purposes of
paragraphs 8.12 and 8.21 (ii) hereof;
(v) A Nondisturbance Agreement which shall be filed and
recorded in such offices as Lender shall designate;
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(vi) UCC Financing Statements for filing and recording, if
appropriate, as necessary to perfect Lender's Security Interest in the
Receivables Collateral and all other security for the Performance of
Borrower's Obligations which is subject to Article 9 of the Uniform
Commercial Code;
(vii) The title policy referred to in paragraph 4.4 hereof;
(viii) A favorable opinion from Borrower's independent counsel
as to such matters as Lender may reasonably require; and
(ix) A favorable opinion from each of Guarantor's independent
counsel as to such matters as Lender may reasonably require.
5.3 Not less than ten (10) Business Days before the date on which the
initial Advance is to be made, Borrower shall deliver or cause to be delivered
to Lender the following additional items:
(i) With respect to Borrower and each Guarantor or Person
which is a corporation or a general or limited partnership, certified
copies of their articles, certificates and agreements of general or limited
partnership or their articles of incorporation and by-laws (and all
amendments thereto), together with evidence that Borrower and each such
Guarantor or Person is duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which they are organized,
and in each and every other jurisdiction where the nature of their
respective businesses require them to be so qualified;
(ii) With respect to Borrower and each Guarantor or Person
which is a corporation or a general or limited partnership, a copy of the
resolutions certified to be true and complete by the corporate secretary or
all of the general partners (as the case may be), authorizing the
execution, delivery and performance of the Documents, and evidencing the
authority of all Persons executing the Documents on behalf of Borrower, the
Guarantor, and such other Persons, and if Borrower, Guarantor or such
Persons are operating under a fictitious name, a copy of the recorded
certificate of fictitious name;
(iii) As a condition to making the initial Advance, such other
surveys and certifications by surveyors or engineers as may be required by
Lender, acceptable to Lender, showing the dimensions of the Units within
the Project, access thereto, street lines, easements and other details.
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<PAGE>
(iv) Evidence satisfactory to Lender that the Project complies with
all applicable laws, rules and regulations and public and private restrictions
affecting the use of the Project;
(v) A copy of the registrations/consents to sell and the final
subdivision public reports/public offering statements/prospectuses and/or
approvals thereof required to be issued by or used in the State of Florida and
other jurisdictions where Time-Share Interests are or have been offered or sold,
together with all other approvals from regulatory agencies having jurisdiction
over the Project;
(vi) If the Project has not been registered under such act, an
opinion from Borrower's counsel that the Project does not fall within the
purview of the Interstate Land Sales Full Disclosure Act;
(vii) A copy of the purchase contract, deed, note, mortgage/deed of
trust and other documents in existence, including, without limitation, any
covenants running with the land comprising the Project, as well as any
covenants enforceable as equitable servitudes, the Project management agreement
and advertising materials, which have been or are being used by Borrower in
connection with the Project or the sale of Time-Share Interests therein;
(viii) Copies of the insurance policies required pursuant to paragraph
8.9 hereof;
(ix) Evidence that the Project is not located within a "special
flood hazard" area as such term is used in the National Flood Insurance Act of
1968, as amended and supplemented by the Flood Disaster Protection Act of 1973,
and in regulations, interpretations and rulings thereunder;
(x) The items described in Exhibit "E" hereto;
-----------
(xi) Such other items as Lender requests which are reasonably
necessary to evaluate whether the request for the Advance satisfied the
requirements set forth herein;
(xii) Credit references, credit bureau reports and customer
references for Borrower; and UCC, tax lien, litigation and judgment searches for
Borrower and GBP.
(xiii) Copies of the forms of Instrument and Purchaser Mortgage; and
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(xiv) Satisfactory operating budget for the Project owner's
association.
5.4 No material adverse change shall have occurred in the Project or
Borrower's or any Guarantor's business or financial condition since the date of
the latest financial and operating statements given to Lender by or on behalf
of Borrower or any Guarantor. Lender shall be satisfied (in Lender's sole and
absolute discretion) with the results of (i) Lender's physical inspection of the
Project and (ii) an environmental survey of the Project and, if deemed necessary
by Lender, a level one environmental assessment of the Project to be obtained at
Borrower's expense.
5.5 There shall have been no material adverse change in the warranties
and representations made by Borrower or any Guarantor in the Documents.
5.6 Neither an Event of Default nor an Incipient Default shall have
occurred and be continuing.
5.7 The interest rate applicable to the Advance (before giving effect to
any savings clause) will not exceed the maximum contract rate permitted by the
Applicable Usury Law.
5.8 Borrower has paid the entire Commitment Fee to Lender.
5.9 The Construction Loan shall have closed and Borrower shall have
satisfied all of the conditions precedent to the making of the first Advance (as
the term Advance is defined in the Construction Loan Agreement).
5.10 With respect to all Advances to be made after Borrower begins selling
Time-Shares Interests, Lender shall have approved the management agreement for
the Project.
5.11 Lender shall have no obligation to make any Advance until the
conditions specified in paragraphs 5.1 through 5.10 (as applicable to the
particular type of Advance) inclusive herein have been satisfied as determined
by Lender in its reasonable discretion. In the event the conditions specified
in Section 5.1 through 5.10 (as applicable to the particular type of Advance)
hereof have been satisfied as determined by Lender in its reasonable discretion,
on or before the Closing Date, Lender shall have no further obligation to make
the Loan or the Construction Loan and the entire Commitment Fee (as defined in
Paragraph 8.16) shall nevertheless be deemed earned by Lender in consideration
for Lender's issuing of the Commitment (as defined in Paragraph 8.16) and
holding itself ready and willing to make the Loan upon
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<PAGE>
the terms and conditions set forth herein. Payment of the Commitment Fee is in
addition to Borrower's obligation under Paragraph 8.16.
5.12 Advances shall be requested in writing on the Request for Advance
and Certification, in the form of the attached Exhibit "E-1," executed by
------------
Borrower (or, if Borrower is a corporation or partnership, by those officers or
general partners, as the case may be, or agents of Borrower named in authorizing
resolutions of Borrower from time to time delivered to Lender and which are in
form and substance satisfactory to Lender).
5.13 Advances may be disbursed by checks, drafts or wire transfer
payable to Borrower; or, at the option of Lender after Borrower's written
request, to third parties, either severally or jointly with Borrower, for the
credit or benefit of Borrower. If Advances are made by wire transfer, Borrower
shall pay to Lender, Lender's usual and customary fee for wiring such funds.
Lender can withhold such fee from the Advance so made.
5.14 Although Lender shall have no obligation to make an Advance
unless and until all applicable conditions thereto set forth herein have been
satisfied, Lender may, at its sole discretion, make Advances before that time
without waiving or releasing any of the Obligations, but Borrower shall continue
to be required to strictly Perform all such Obligations.
5.15 The proceeds of the Loan are to be used, in part, to pay and
satisfy in full the Construction Loan and all amounts then due and owing to
Lender under the Construction Loan Documents. Therefore, Lender shall have the
right to disburse any Advance directly to Lender in payment or satisfaction of
then outstanding amounts due to Lender under the Construction Loan Documents.
ARTICLE VI
----------
RESERVED
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ARTICLE VII
-----------
NOTE; MAINTENANCE OF BORROWING BASE;
------------------------------------
PAYMENTS; SERVICING AND COLLECTION
----------------------------------
7.1 In no event shall the aggregate principal amount of the Loan
outstanding at any time exceed the Maximum Loan Amount and in the event for any
reason the aggregate principal amount of the Loan does not exceed the Maximum
Loan Amount, then Borrower, upon Lender's demand, shall immediately make a
principal
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<PAGE>
payment to Lender in an amount equal to such excess plus accrued and unpaid
interest thereon.
7.2 If for any reason the aggregate principal amount of the Loan
outstanding as of the last Business Day of any month shall exceed the then
Borrowing Base, Borrower, upon Lender's demand, shall immediately make to Lender
a principal payment in an amount equal to such excess plus accrued and unpaid
interest thereon.
7.3 The Loan shall be evidenced by the Note and shall be repaid in
immediately available funds according to the terms thereof and such provisions
of this Agreement as are applicable.
7.4 Borrower is not entitled to prepay, in whole or in part, the Loan
until the Opening Prepayment Date. Thereafter, if (i) Borrower has paid all sums
due and payable to Lender in connection with the Loan and the Construction Loan,
and (ii) Borrower has given Lender at least thirty (30) days prior written
notice of the prepayment and has paid to Lender at the time of prepayment a
prepayment premium equal to a percentage, as set forth below, of the then
principal balance of the Loan, then Borrower shall have the option to prepay the
Loan in full, but not in part, on any date an installment is due on the Note:
<TABLE>
<CAPTION>
PERIOD PREMIUM
------ -------
<S> <C>
Through the Second Anniversary Date Closed to Prepayment
of the last Advance
After the Second Anniversary Date and 3%
through the Fourth Anniversary Date of
the Last Advance
After the Fourth Anniversary Date and 2%
through the Sixth Anniversary Date of
the last Advance
After the Sixth Anniversary Date and 1%
through the period ending 30 days prior
to the Seventh Anniversary Date of the
last Advance
Within 30 days prior to the Seventh 0%
Anniversary Date of the last Advance
</TABLE>
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<PAGE>
If there should occur an acceleration of maturity following an Event
of Default and such occurrence results in prepayment of the Loan, a prepayment
premium will be required in the amount specified above; or if occurring prior to
the Opening Prepayment Date, Borrower shall pay to Lender with the prepayment a
prepayment premium equal to 5% the then principal balance of the Loan being
prepaid. A Purchaser shall be permitted to prepay the amount owed on its
Instrument without penalty. If there should occur a casualty to or condemnation
of the Project and such occurrence results in a prepayment of the Loan, no
prepayment premium shall be payable in connection with such prepayment.
7.5 (a) Lockbox Agent, as agent for Lender, shall collect payments
on the Eligible Instruments used in making Borrowing Base computations or
otherwise constituting part of the Receivables Collateral and shall remit
them to Lender on the last Business Day of each and every month according
to the terms of the Lockbox Agreement; and Borrower shall immediately
forward all such payments received by it to Lockbox Agent for Lender.
However, the Obligation to make, or any requirement that Lender receives,
payments called for in the Documents shall not be deemed satisfied until
Lender actually receives such payments from Lockbox Agent. For the purpose
of determining the adequacy of such payments, Borrower will cause Servicing
Agent to furnish to Lender at Borrower's sole cost and expense, no later
than the tenth day of each month commencing with the first full calendar
month following the first Advance, a report meeting the following
requirements; (i) shows as of the end of the prior month with respect to
each Eligible Instrument which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables Collateral
(A) all payments received during the prior month on the Eligible
Instrument, allocated as between principal, interest, late charges, taxes,
and the like, (B) the opening and closing balances during the prior month
on each such Eligible Instrument, (C) present value of the cash flow (if
required by Lender) and (D) extensions, refinances, prepayments, and other
similar adjustments; and (ii) itemizes the Eligible Instrument which are
used in making Borrowing Base computations or otherwise constitute part of
the Receivables Collateral to show delinquencies of 30, 60, 90 and in
excess of 90 days. On the basis of such reports, Lender will compute the
amount, if any, which was due and payable by Borrower on the last day of
the preceding month and will notify Borrower as soon as possible of any
amount due. If such reports are not timely received, Lender may estimate
the amount which was due and payable; and, in such event, Borrower shall
pay upon demand the amount estimated by Lender to be due and payable. If
payment is made on the basis of Lender's estimate, and reports required by
this paragraph are thereafter received by Lender, the estimated payment
amount shall be adjusted by an additional payment or a refund to the
correct amount, as the reports may indicate; such additional amount to be
paid by Borrower upon
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<PAGE>
demand and such refund to be made by Lender within five Business Days after
receipt by Lender of a written request therefor by Borrower. In addition,
at each calendar quarter, Borrower shall deliver to Lender a current list
of the names addresses and phone numbers of the Purchasers related to
Eligible Instruments.
(b) Subject to the following sentence, GPSI shall act as the
Servicing Agent during the Term. Lender, subject to any restriction
contained in the Services and Fees Agreement, the Servicing Agreement or
the Lockbox Agreement, may at any time and from time to time in its
discretion substitute a successor or successors to any Servicing Agent or
Lockbox Agent acting in such capacity under the Services and Fees
Agreement, the Servicing Agreement and Lockbox Agreement, if the Servicing
Agent or Lockbox Agent is not satisfactorily performing its respective
obligations thereunder. In the event Lender substitutes a successor
Servicing Agent or Lockbox Agent pursuant to the provisions of this
paragraph, Borrower shall have the right to approve the identity of such
successor Servicing Agent or Lockbox Agent; provided that there does not
-------- ----
then exist an Event of Default or an Incipient Default and further provided
------- --------
that Borrower shall not unreasonably withhold or unduly delay its consent.
----
7.6 Subject to Lender's rights upon the occurrence of an Event of
Default, all proceeds from the Receivables Collateral (except payments which are
identified by Purchasers as tax or maintenance and other assessment payments and
are required to be so treated by Borrower) during the Term hereof shall be
applied first to the payment of all costs, fees and expenses required by the
Documents to be paid by Borrower, second to accrued and unpaid interest due on
the Note, third to the unpaid principal balance of the Note, and then to the
other Obligations in such order and manner as Lender may determine. Unless and
until all such Obligations have been Performed, Borrower shall have no right to
any portion of the proceeds of the Receivables Collateral.
7.7 Whether or not the proceeds from the Receivables Collateral shall
be sufficient for that purpose, Borrower shall pay when due all payments
required to be made pursuant to the Note and other Documents; and any and all
amounts payable by Borrower under the Note and other Documents shall be paid
without notice (except as otherwise expressly provided therein), demand,
counterclaim, set-off, deduction, recoupment or defense, and without abatement,
suspension, deferment, diminution or proration by reason of any circumstance or
occurrence whatsoever, Borrower's Obligation to make such payments being
absolute and unconditional.
7.8 All payments to be made by Borrower under the Documents shall be
free of expense to Lender with respect to the amount of any Impositions, all of
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<PAGE>
which Impositions Borrower assumes and shall pay on demand in addition to the
other payments provided for in the Documents to be made by it. Borrower's
Obligation to pay Impositions shall likewise include the Obligation to pay any
increase to Lender in federal, state, or local income tax as a result of
inclusion in income of Lender of any amount required by this paragraph to be
paid to or for Lender.
ARTICLE VIII
------------
BORROWER'S ADDITIONAL REPRESENTATIONS,
--------------------------------------
WARRANTIES AND COVENANTS
------------------------
8.1 (a) Borrower is, and will continue to be during the Term hereof,
a limited partnership duly organized, validly existing and in good standing
under the laws of the State of Georgia and is, and will continue to be
during the Term hereof, qualified to do business and in good standing in
each jurisdiction in which it is selling Time-Share Interests or where the
location or nature of its properties or business makes such qualification
necessary (except where failure to do so would not adversely affect
Lender's ability to realize upon the Receivables Collateral or any other
security for the Performance of the Obligations or materially adversely
affect the business or financial condition of Borrower or the ability of
Borrower to complete Performance of the Obligations). Borrower has, and
will continue to have, powers adequate for making and Performing under the
Documents, for undertaking and Performing the Obligations, and for carrying
on its business and owning its property. GBP is, and will continue to be
during the Term hereof, a limited partnership, duly organized, validly
existing and in good standing under the laws of the State of California.
GBP is the general partner of Borrower. Argosy/KGI is, and will continue to
be during the Term hereof, a general partnership duly organized, validly
existing and in good standing under the laws of the State of California.
Argosy/KGI is the managing general partner of GBP. KGI is, and will
continue to be during the Term hereof, a corporation, duly organized,
validly existing and in good standing under the laws of the State of
California. KGI is the managing general partner of Argosy/KGI. Argosy is,
and will continue to be during the Term hereof, a corporation, duly
organized, validly existing and in good standing under the laws of the
State of Georgia. Argosy is a general partner of Argosy/KGI. Argosy
Partners is, and will continue to be during the Term hereof, a corporation,
duly organized, validly existing and in good standing under the laws of the
State of Georgia. Argosy Partners is a general partner of Argosy/KGI.
(b) Borrower has good right and power to grant the Security
Interest in the Receivables Collateral and to execute and deliver this
Agreement and the other Documents and to Perform the Obligations. All
action necessary
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<PAGE>
and required by Borrower's organization documents and all applicable laws
for the obtaining of the Loan and for the execution and delivery of this
Agreement and all other Documents executed and delivered in connection with
the Loan has been duly and effectively taken; and, to the best of
Borrower's knowledge, this Agreement is and shall be, and all other
Documents are and shall be, legal, valid, binding and enforceable against
Borrower in accordance with their respective terms, other than as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
arrangement, moratorium, or similar laws relating to or affecting the
rights of creditors generally or general principles of equity (except to
the extent that such laws, rights, remedies or principles are waivable by
Borrower and have been waived in the Documents). To the best of Borrower's
knowledge, the Documents do not violate the Applicable Usury Law or any
other usury law known to Borrower. The execution, delivery and Performance
of the provisions of this Agreement and all the other Documents will not
violate, constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties or
assets of Borrower pursuant to any provision of: any law, regulation,
judgment, decree, order, franchise or permit applicable to Borrower;
Borrower's charter documents; or any contract or other agreement or
instrument to which Borrower is a party or by which Borrower or Borrower's
properties or assets are bound. No consent of any government or agency
thereof, or any other person, firm or entity not a party hereto, is or will
be required as a condition to the execution, delivery, Performance or
enforceability or the Documents.
8.2 (a) There is no action, litigation or other proceeding pending
(or, to Borrower's knowledge, threatened) before any arbitration tribunal,
court, governmental agency or administrative body against Borrower which,
if adversely determined, might adversely affect Lender's ability to realize
upon the Receivables Collateral or any other security for the Performance
of the Obligations, or materially adversely affect the Project, the
business or financial condition of Borrower, or the ability of Borrower to
complete Performance of the Obligations; or which questions the validity of
the Documents.
(b) If Borrower or a Guarantor becomes a party to any action,
litigation or other proceeding which asserts a material claim against
Borrower or a Guarantor, or Borrower becomes the subject of an
investigation by a governmental agency or administrative body with respect
to the Project, then Borrower shall within 10 days after it obtains
knowledge thereof notify Lender of such action, litigation, proceeding or
investigation and the particulars thereof. Thereafter, if requested by
Lender, Borrower shall report to Lender with respect to the status of such
matter and the particulars thereof.
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<PAGE>
8.3 (a) Borrower has sold or has offered for sale Time-Share Interests
which generate Eligible Instruments only in the State of Florida and all sales
have been made at the Project or in the private residences of potential
Purchasers. Before it sells or offers for sale Time-Share Interests outside the
State of Florida, Borrower shall promptly notify Lender and provide Lender with
evidence that Borrower has complied with all laws of such jurisdiction governing
the proposed conduct of Borrower.
(b) Except for violations which do not individually or in the
aggregate affect Lender's ability to realize upon the Receivables Collateral or
any other security for the Performance of the Obligations or do not materially
adversely affect the business or financial condition of Borrower or the ability
of Borrower to complete Performance of the Obligations, Borrower has complied,
and will comply, with all laws and regulations of the United States and every
state, county and municipal jurisdiction in which Time-Share Interests have
been sold or offered for sale.
(c) Without limiting the generality of any other representation or
warranty contained herein, Borrower will not violate any private covenant or
restriction or any zoning, use or similar law, ordinance or regulation affecting
the use or occupancy of the Project, the violation of which could have a
material adverse effect on Lender's ability to realize upon the Receivables
Collateral or any other security for the Performance of the Obligations or
materially adversely affect the business or financial condition of the Borrower
or the ability of Borrower to complete Performance of the Obligations.
8.4 (a) Each Instrument at the time it is assigned to Lender in
connection with the Loan and this Agreement shall be an Eligible Instrument. At
the time such Instrument is assigned to Lender, Borrower shall have performed
all of its obligations to Purchasers, and there shall be no executory
obligations to Purchasers to be Performed by Borrower. Borrower further warrants
and guarantees the value and enforceability of the Receivables Collateral.
(b) Borrower shall not, without the prior written consent of Lender,
cancel or materially modify, or consent to or acquiesce in any material
modification to, or solicit the prepayment of, any Eligible Instrument used in
making Borrowing Base computations or which otherwise constitutes part of the
Receivables Collateral; or waive the timely performance of the obligations of
the Purchaser thereunder. Borrower shall not pay or advance directly or
indirectly for the account of any Purchaser any sum owing by the Purchaser
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<PAGE>
under any of the Eligible Instruments used in making Borrowing Base computations
or which otherwise constitute part of the Receivables Collateral.
(c) Borrower at all times shall fulfill, and cause its affiliates,
agents and independent contractors at all times to fulfill, all obligations to
Purchasers under all Eligible Instruments which are used in making Borrowing
Base computations or otherwise constitute part of the Receivables Collateral.
(d) True and complete copies of the Project governing documents, the
purchase contract, deed, note, mortgage/deed of trust, the Instruments, and
other documents and exhibits thereto which have been and are being used by
Borrower in connection with the Project and the sale or offering for sale of
Time-Share Interests therein have been delivered to Lender. Such documents are
the only ones which have been used in connection with the Project and the sale
of Time-Share Interests therein. Borrower shall not, without the prior written
consent of Lender, cancel or materially modify any such documents, which consent
will not be unreasonably withheld. Borrower shall Perform all of its obligations
under the Project governing documents.
(e) All off-site roads and other off-site improvements contained
within the Project (other than private easements) will have been dedicated to
and accepted by the responsible governmental authority or utility prior to the
initial Advance. Borrower shall maintain or cause to be maintained in good
condition and repair all amenities, common areas and private easements which
have been promised or represented as being available to Purchasers and all
off-site roads and off-site improvements which have not been dedicated to or
accepted by the responsible governmental authority or utility.
(f) Each Purchaser shall automatically be a member of the Project's
owners association or associations, if any, and shall be entitled to vote on the
affairs thereof (subject, however, to any preferential voting rights in favor of
Borrower as permitted under Florida time-share laws). Each such owners
association shall be governed by a Board of Directors, which have the authority
to fix and levy pro rata upon each Purchaser annual assessments to cover the
costs of maintaining and operating the Project (including, without limitation,
taxes and assessments not levied by the appropriate taxing authority directly
against owners of Time-Share Interests) and to establish a reasonable reserve
for improvements, the replacement of items and furnishings, and contingencies.
If Borrower controls an owners association, Borrower will while it controls such
association: (i) cause such owners association to (A) discharge timely and
completely its obligations under the Project governing documents and maintain
the reserve described above; and (ii) pay to such
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<PAGE>
owners association not less often than every twelve months hereafter the
difference between (A) the cumulative total amount of the maintenance and
operating expenses incurred by such association, together with the amount
of any installment of real property taxes currently due and payable with
respect to the Project not directly levied against owners of Time-Share
Interests, through the end of the calendar month preceding the month in
which such payment is made and (B) the cumulative total amount of
assessments (less amounts thereof allocated to reserve expenses) payable to
the association by Time-Share Interest owners other than Borrower through
the end of the calendar month preceding the month in which such payment is
made.
(g) Except as otherwise permitted by the Project governing
documents, the Project owners association or the owners of Time-Share
Interests in common shall own the furnishings in the Project Units and all
the common areas in the Project and other amenities which have been
promised or represented as being available to Purchasers, free and clear of
liens and security interests, except for the Permitted Encumbrances and the
Construction Mortgage; and no part of the Project is subject to partition
by owners of Time-Share Interests. Borrower will maintain or cause to be
maintained in good condition and repair all common areas in the Project and
other amenities which have been promised or represented as being available
to Purchasers and which are not the responsibility of the Project owners
association to maintain and repair. Borrower will maintain a reasonable
reserve to assure compliance of the terms of the foregoing sentence.
(h) The common areas and amenities and the streets and other
off-site improvements contained within the Project are free and clear of
all liens or other encumbrances of third parties, subject to the Permitted
Encumbrances. Borrower agrees that such common areas, amenities, streets
and other off-site improvements will not, during the Term hereof, be
encumbered.
8.5 LENDER DOES NOT ASSUME AND SHALL HAVE NO RESPONSIBILITY,
OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S RELATIONSHIP BEING SOLELY THAT
OF A CREDITOR WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWED TO IT, A
COLLATERAL ASSIGNMENT FROM BORROWER OF INSTRUMENTS. EXCEPT AS REQUIRED BY LAW,
OR TO THE EXTENT NECESSARY IN ORDER FOR BORROWER TO OBTAIN A PERMIT TO SELL
TIME-SHARE INTERESTS IN A PARTICULAR STATE, BORROWER SHALL NOT, AT ANY TIME, USE
THE NAME OF OR MAKE REFERENCE TO LENDER WITH RESPECT TO THE PROJECT, THE SALE OF
TIME-SHARE INTERESTS OR OTHERWISE, WITHOUT THE EXPRESS WRITTEN CONSENT OF
LENDER.
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<PAGE>
8.6 Borrower shall undertake the collection of amounts delinquent
under each Eligible Instrument which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables Collateral, shall
bear the entire expense of such collection work, and shall diligently and timely
do such work respecting collection, including forfeiture or foreclosure
proceedings. Lender shall have no obligation to undertake any collection,
eviction or foreclosure action against the obligor under any Eligible Instrument
or to otherwise realize upon any Eligible Instrument.
8.7 Borrower shall maintain in a secure place in its offices at the
address specified below proper and accurate books, records, ledgers,
correspondence and other papers relating to the Receivables Collateral. Lender
may notify the appropriate Purchasers of the existence of Lender's interest as
assignee in the Receivables Collateral and request from such Purchasers any
information relating to the Receivables Collateral. Borrower shall cooperate
with Lender in giving such notice and will do so under its letterhead if
requested. Borrower's chief executive office is as set forth on the signature
page of this Agreement. Borrower will not change its chief executive office
without giving Lender thirty (30) days prior written notice of such contemplated
change. Borrower has not operated under any names or fictitious names other than
Grand Beach Resort, Limited Partnership during the previous six (6) years.
Borrower will not change its name or operate under any fictitious names without
first giving Lender thirty (30) days prior written notice.
8.8 Borrower shall not, without the prior written consent of Lender
(except in connection with the furnishing of Borrower's sales center as
contemplated in the Construction Loan Agreement): (i) sell, convey, pledge,
hypothecate, encumber or otherwise transfer any security for the Performance of
the Obligations; or (ii) permit or suffer to exist any liens, security interests
or other encumbrances on any security for the Performance of the Obligations,
except with respect to either (i) or (ii) for the Permitted Encumbrances and
liens and security interests expressly granted to Lender.
8.9 Borrower shall obtain before funding, shall maintain during the
Term of the Loan, and shall deliver to Lender evidence of such insurance,
written by such insurers, and in such forms and such amounts, as Lender may
require.
8.10 (a) This Agreement and the other Documents, certificates,
financial statements, tax returns (including without limitation, the tax
returns of Borrower and Guarantors) and written materials furnished to
Lender by or on behalf of Borrower in connection with the transactions
contemplated herein do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to
Borrower which materially adversely
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<PAGE>
affects or in the future may (so far as Borrower can now foresee)
materially adversely affect the Receivables Collateral or any other
Security for the Performance of the Obligations or the business or
financial condition of Borrower or the Project which has not been set forth
in this Agreement or the other Documents, certificates, financial
statements or written materials furnished to Lender in connection with the
transactions contemplated herein.
(b) The fact that Lender's representatives may have made certain
examinations and inspections or received certain information pertaining to
the Receivables Collateral or the Project and the proposed operation
thereof does not in any way affect or reduce the full scope and protection
of the warranties, representations and Obligations contained herein, which
have induced Lender to enter into this Agreement.
8.11 (a) Borrower shall maintain a standard, modern system of
accounting and shall keep and maintain all books and records in accordance
with generally accepted accounting principles on a consistent basis.
(b) On or before the tenth day of each month, Borrower shall
furnish or cause to be furnished to Lender (i) the reports of the Servicing
Agent and Borrower required pursuant to paragraph 7.5 hereof and (ii) a
sales report for the prior month showing the number of sales of Time-Share
Interests and the aggregate dollar amount thereof, including down payments.
(c) Borrower shall furnish or cause to be furnished to Lender,
as soon as the same are available, and in any event within 110 days after
the end of each fiscal year and within 45 days after the end of each
interim quarterly fiscal period of the subject, a copy of the current
financial statement of Borrower, and within 110 days after the end of each
fiscal year, current financial statements of the Projects's owners
association (the "Association"). Such financial statements shall contain a
balance sheet as of the end of the relevant fiscal period and statements of
income and cash flows for such fiscal period (together, in each case, with
the comparable figures for the corresponding period of the previous fiscal
year, if available), all in reasonable detail, prepared in accordance with
generally accepted accounting principles consistently applied throughout
the period involved and with prior periods. All annual financial statements
of Borrower and the Association required pursuant hereto shall be audited
by a certified public accountant, and shall be certified to by said
certified public accountant. In addition to the foregoing, all financial
statements required pursuant hereto shall be certified correct by the
individual who is the subject of such statements, or the chief financial
officer or general partner, as the case may be, of the subject of such
statements. The financial statements of Borrower shall also contain in
reasonable detail a statement of
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<PAGE>
income and expenses covering the operation of the Project. Together with
such financial statements, Borrower shall deliver to Lender a certificate
signed by the chief financial officer or managing general partner, as the
case may be, of Borrower stating that to the best of his knowledge, after
inquiry, there exists no Event of Default and no condition, event or act
which, with notice or lapse of time or both, would become an Event of
Default or, if any such Event of Default or any such condition, event or
act exists, specifying the nature and period of existence thereof and what
action Borrower proposes to take with respect thereto. Together with such
financial statements, Borrower shall also deliver to Lender a certificate
of its chief executive officer certifying that Borrower is in compliance
with all Applicable Environmental Laws or in the event of noncompliance,
specifying the nature and period of the existence of such noncompliance.
(d) Borrower shall deliver to Lender from time to time, as
available, and promptly upon amendment or effective date,
registrations/consents to sell, final public reports/public offering
statements/prospectuses, and upon request, advertising materials, current
price lists and sales literature, and other items requested by Lender which
relate to the Project.
(e) So long as the same shall be pertinent to the Loan, the
Project, the documents or any transactions contemplated therein, Borrower
shall at its expense (i) permit Lender and its representatives at all
reasonable times to inspect, audit and copy, as appropriate, the Project,
Borrower's facilities, activities, books of account, logs and records; (ii)
cause its employees, agents and accountants to give their full cooperation
and assistance in connection with any such visits of inspection or
financial conferences; and (iii) make available such further information
concerning its business and affairs as Lender may from time to time
reasonably request.
(f) Borrower shall annually submit to Lender within 45 days
after each is available proposed annual maintenance and operating budgets
for the Project, the Association and Borrower, certified to be adequate by
Borrower and a statement of the annual assessment to be levied upon the
Purchasers.
(g) Borrower shall cause to be delivered to Lender as soon as
available, and in any event no later than forty-five (45) days following
its filing with the Internal Revenue Service, the signed income tax returns
for each Guarantor for the fiscal year then ended, as filed with the
Internal Revenue Service, together with all schedules thereto; provided,
that in the event a Guarantor obtains an extension of the date for filing
such tax returns, Borrower shall cause to be delivered to Lender a signed
copy of such extension within
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fifteen (15) days following the filing deadline for such return in the
absence of such extension.
8.12 Borrower shall cause any and all indebtedness owed by Borrower to
its partners, officers, any Guarantor, relatives or affiliates of Borrower or
any of the foregoing, or secured by the Project, to be subordinated to the
Obligations pursuant to subordination agreements satisfactory to Lender in form
and substance.
8.13 Borrower shall not, without Lender's prior written consent: (i)
(other than the sale of Time-Share Interests in the ordinary course of
Borrower's business or the rental of condominium units in the Project in the
ordinary course of Borrower's business) sell, lease, transfer or dispose of its
all or substantially all of its assets to another entity; or (ii) dissolve or
liquidate, or merge or consolidate with or into any other entity, transfer to
any person or entity, the right to control, Borrower or Guarantors, turn over
the management or operation of Borrower or Guarantors to any other person or
entity, or permit any of the foregoing to occur with respect to Borrower or
Guarantors. Borrower shall have the right to retain a third-party management
company to manage the operation of the Project, provided that Lender has first
approved the identity of such management company and the terms of the agreement
under which such company is to manage the Project.
8.14 Borrower is not in default of any payment on account of
indebtedness for borrowed money or of any repurchase obligations in connection
with a receivables purchase financing, or in violation of or in default under
any material term in any agreement, instrument, order, decree or judgment of any
court, arbitration or governmental authority to which it is a part or by which
it is bound.
8.15 Borrower has filed all tax returns and paid all taxes,
assessments, levies and penalties, if any, in respect thereof required to be
filed by it or paid by it to any governmental or quasi-governmental authority.
All real estate taxes and assessments have been paid which are due and owing in
connection with the common areas and the Project and other amenities which have
been promised or represented as being available to Purchasers for use by them.
Borrower shall use its best efforts to provide to Lender not more than 30 days
after such taxes assessments would become delinquent if not paid evidence that
all taxes and assessments on the Project and common areas have been paid in
full.
8.16 Borrower shall pay to Lender on demand all reasonable
out-of-pocket costs and expenses incurred or to be incurred by Lender or its
counsel in connection with the initiation, documentation and closing of the
Loan, the making of Advances hereunder, the administration of the Loan, the
protection of the security for the Performance of the Obligations, or the
enforcement of the Obligations against Borrower or any Guarantor (including,
without limitation, travel costs, a non-
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<PAGE>
refundable documentation fee of $20,000.00 (which documentation fee shall be
credited against Lender's attorneys' fees and is the same documentation fee due
and payable under the Construction Loan Agreement), all attorneys' fees, any
brokerage or similar fees, all filing and recording fees, all charges for
consumer credit reports and UCC, tax lien, judgment and litigation searches, all
revenue and documentary stamp and intangible taxes, and all fees and expenses of
the Servicing Agent and Lockbox Agent to perform the services contemplated
hereunder and under the terms of the Services and Fees Agreement, the Servicing
Agreement and Lockbox Agreement, respectively). Borrower shall pay to Lender a
non-refundable commitment fee (the "Commitment Fee") in the amount of One
Hundred Fifty Thousand Dollars and No/100 ($150,000.00), which fee was earned by
Lender upon issuance by Lender to Borrower of the Commitment Letter (the
"Commitment") in connection with the Loan, dated May 5, 1994, in consideration
of Lender holding itself ready, willing and able to make the Loan upon the terms
and conditions set forth herein. The entire Commitment Fee shall be due and
payable in full on the first to occur of the following dates: (a) the date upon
which Lender makes the second Advance of the Loan, or (b) the sixtieth (60th)
day following the Closing. In the event the Loan does not close on or before the
Closing Date, as such date may be extended by Lender, other than due solely to
the default of Lender; (i) the entire Commitment Fee shall nevertheless be
deemed fully earned by Lender in consideration for Lender's issuing of the
Commitment and holding itself ready and willing to make the Loan upon the terms
and conditions set forth herein and shall be due and payable upon demand and
(ii) Lender conditions set forth herein and shall be due and payable upon demand
and (ii) Lender shall have no further obligation to make the Loan or the
Construction Loan. The payment of the Commitment Fee is in addition to
Borrower's obligation to pay a commitment fee under the Construction Loan
Agreement. Lender acknowledges the receipt of a $3,000 application fee (which
application fee is also referenced in the Construction Loan Agreement) which has
been earned by Lender and shall not be applied against the Commitment Fee.
Lender shall act as custodian for purposes of holding Eligible Instruments and
Borrower shall pay to Lender on demand, a custodial fee of Ten Dollars ($10.00)
for each Eligible Instrument so held by Lender, exclusive of Eligible
Instruments that are substituted for ineligible Instruments (provided that such
custodial fee was paid in connection with such ineligible Instrument) and
exclusive of Instruments that have been cancelled by the Purchaser or the
Borrower. Notwithstanding the foregoing, Borrower shall have the right to select
an independent custodian to hold Eligible Instruments on Lender's behalf and as
Lender's agent, so long as (i) Borrower pays all costs charged by such
independent custodian, and (ii) such independent custodian is approved in
advance, in writing by Lender.
8.17 Borrower shall INDEMNIFY, DEFEND AND HOLD HARMLESS, Lender, its
successors, assigns and shareholders (including corporate shareholders), and the
directors, officers, employees, agents and servants of the foregoing, from any
and all losses, costs, expenses (including, without limitation, court costs and
attorneys' fees), demands, claims, suits, proceedings (whether civil or
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criminal), orders, judgments, penalties, fines and other sanctions arising from
or brought in connection with (i) the Project, the security for the Performance
of the Obligations, Lender's status by virtue of the Assignments, creation of
Security Interests, the terms of the Documents or the transactions related
hereto, or any act or omission of Borrower, the Servicing Agent or the Lockbox
Agent, or the employees or agents of any of them, whether actual or alleged, and
(ii) any and all brokers' commissions or finders' fees or other costs of similar
type, or claims by any broker, agent or other party in connection with this
transaction (other than fees claimed owed by a broker, finder, or other party
with whom Lender has a specific agreement). On written request by anyone covered
by the above agreement of indemnity, Borrower shall undertake, at its own cost
and expense, on behalf of such indemnitee, using counsel satisfactory to the
indemnitee, the defense of any legal action or proceeding to which the
indemnitee shall be a party, provided that such action or proceeding shall
result from, or grow or arise out of any of the events set forth in this
paragraph.
8.18 Borrower shall not directly or indirectly invest all or any part
of the proceeds of the Loan in any investment security subject to the margin
requirements of Regulation G of the Board of Governors of the Federal Reserve
System.
8.19 Borrower shall execute or cause to be executed all Documents and
do or cause to be done all acts necessary for Lender to perfect and to continue
the perfection of the Security Interest of Lender in the Receivables Collateral
or the other security for the Performance of the Obligations or otherwise to
effect the intent and purposes of the Documents. Borrower shall prosecute or
defend any action involving the priority, validity or enforceability of the
Security Interest granted to lender; provided that, at Lender's option,
Lender may do so at Borrower's expense.
8.20 Borrower is fully familiar with all of the terms and conditions
of the Documents and is not in default thereunder. No act or event has occurred
which after notice and/or lapse of time would constitute such a default or an
Event of Default.
8.21
8.21.1 During the Term, Borrower shall not pay or make any
Distributions to its officers, partners, or any Guarantor or to any
relatives or Affiliates of Borrower, of any Guarantor or of any other of
the foregoing. The foregoing notwithstanding, on the condition that:
(i) There does not then exist an Event of Default or
an Incipient Default; and
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(ii) Prior to the incurring of any obligation to make a
Distribution, Borrower has caused the proposed recipient of such
Distribution (the "Affiliated Party") to have entered into a
Subordination Agreement in form and substance satisfactory to Lender
pursuant to which the Affiliated Party agrees (A) that is shall not
exercise any rights against Borrower or against any of the collateral
securing the Loan or the Construction Loan unless and until the date
that all of the obligations of Borrower under and with respect to the
Loan and the Construction Loan have been fully paid, performed and
discharged; (B) that any entitlement to a Distribution is and shall be
fully subordinated as to right and time of payment to the payment in
full of the Loan and the Construction Loan and (C) that upon and
during the continuance of an Event of Default or an Incipient Default,
no Distributions shall be permitted, made, demanded or accepted;
the following Distributions shall be permitted:
(v) Such Distribution is made to the partners of
Borrower no more frequently than quarterly in an amount sufficient for
the payment of federal and state income taxes payable by such partner
with respect to a tax year of Borrower (a "Tax Year") resulting from
the inclusion in such partners' taxable income of the partner's share
of taxable income of Borrower for that Tax Year, subject to reasonable
assumptions as to the marginal tax bracket to which the partners of
borrower generally are subject (the "Tax Amount"). Notwithstanding the
foregoing, if for any prior Tax Year of the Borrower, the Borrower had
a loss for tax purposes which, under tax law then in effect, would
offset taxable income (which loss has not been previously used to
offset taxable income in accordance with this sentence), then for
purposes of determining the Tax Amount for the current Tax Year shall
be reduced by the amount of such loss. On or about the fifth (5th) day
prior to each date on which estimated federal income tax payments are
required to be paid by the partners of Borrower, Borrower may make a
distribution to the partners which, together with prior distributions
for the Tax Year on account of the Tax Amount, shall not exceed the
applicable percentage (which shall be 25%, 50%, 75%, and 100% for the
first, second, third and fourth calendar quarters, respectively) of a
reasonable estimate of the Tax Amount. If, at the end of the Tax Year,
the aggregate estimated quarterly distributions exceed the actual Tax
Amount for such Tax Year, future quarterly tax distributions shall
cease with respect to the affected partners until such excess amount
has been fully recapture or until the
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excess amount has been repaid by the affected partners to the
Borrower; and
(w) Such Distribution is made to Argosy/KGI in an
amount not in excess of $70,000 per month to reimburse Argosy/KGI for
certain overhead costs and expenses incurred by Argosy/KGI (in the
amount of $60,000 per month) and for certain accounting and
legal expenses incurred by Argosy/KGI (in the amount of $10,000 per
month) in connection with the acquisition, development and operation
of the Project;
(x) Such Distribution is made to KPI Realty, Inc. in
an amount not in excess of $400,000 in consideration for the services
rendered by the foregoing entity in raising equity for Borrower;
provided that such Distribution is paid out of Borrower's Equity and
not out of the proceeds of the Construction Loan or Loan;
(y) Such Distribution is made in an amount equal to or
less than 100% of Borrower's Cash Flow or 100% of Borrower's Net
Income, whichever is less, with respect to the period in which such
Distribution is to be made; provided however, that no Distribution
-------- -------
shall be permitted under this clause (y) until such time as the
Construction Loan and all other obligations under the Construction
Loan Documents have been paid in full and until such time as Lender
has no further obligation to make any advances of the Construction
Loan.
(z) Such Distribution is made in an amount necessary
to reimburse or repay a general partner of Borrower who has made
an advance or loan for the benefit of Borrower to pay Project costs
for items and in amounts consistent with Borrower's budget as approved
by Lender.
The foregoing provisions shall not prevent Borrower from repaying
principal and interest due on loans made by any Affiliated Party to Borrower
provided that (i) such loans constitute a bona fide indebtedness for borrowed
money incurred by Borrower in favor of such Affiliated Party; (ii) prior to the
incurring of such indebtedness, Lender and the Affiliated Party advancing such
loan proceeds shall have entered into a subordination and standstill agreement
in a form acceptable to Lender; (iii) both before and after taking into account
the incurring of such indebtedness, there does not exist an Event of Default or
any act or event which with notice, passage of time or both would constitute an
Event of Default; (iv) both before and after taking into account the making of
such principal and interest payments, there does not exist an Event of Default
or any act or event which with notice, passage of time or both
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would constitute an Event of Default and (v) such principal and interest payment
are in an amount no greater than that set forth in the cash flow projections
submitted by Borrower to Lender and approved by Lender.
8.21.2 In the event by virtue of the provisions of Paragraph 8.21.2
hereof, Borrower is prohibited from making a Distribution to Resort Marketing or
Resort Management, the proceeds of which would be used to pay amounts due and
owing to Resort Marketing and/or by Resort Marketing to Shell under the
marketing agreements described in Paragraph 6.3(i)(m) of the Construction Loan
Agreements or to pay actual out-of-pocket expenses incurred by Resort Marketing,
such as office rent, materials, and supplies, or used to pay amounts due and
owing by Resort Management to Embassy under the management agreement described
in Section 6.3(i)(p) of the Construction Loan Agreement, Borrower shall
nevertheless be permitted to pay directly to Resort Marketing and/or Shell and
Embassy amounts otherwise payable to Resort Marketing or by Resort Marketing and
Resort Management, respectively, under the foregoing marketing agreements and
management agreement.
8.22 Borrower hereby covenant and agrees as follows during the
Term hereof:
(a) As of the end of each fiscal quarter of Borrower,
Borrower shall maintain a net worth, calculated in accordance with GAAP of
at lease $8,000,000.00. The foregoing covenant shall be tested quarterly
beginning with the quarter year ending September 30, 1994.
(b) Marketing Expenses associated with the marketing and sale
of Time-share Interests shall not exceed 50% of Net Sales, determined
quarterly. Net Sales shall mean gross sales of Time-share Interests during
such quarterly period reduced only by cancellations thereof. Marketing
Expenses shall mean the aggregate of all expenses incurred in the sale and
marketing of Time-share Interest, including without limitation, all costs
and expenses for advertising, mailing, consumer premiums, referral and lead
generation. The foregoing covenant shall be tested quarterly, commencing
September 30, 1994, and March 31, 1995 shall cover the period from the
Closing Date through the end of the relevant quarter. Commencing with the
test for June 30, 1995, and thereafter throughout the Term hereof, the
foregoing covenant shall be tested quarterly, on a rolling twelve (12)
month basis. Although the foregoing covenant shall be tested commencing
September 30, 1994, an Event of Default shall not be deemed to exist by
virtue of Borrower's violation of the foregoing covenant unless such
violation occurs based upon the tests conducted as of March, 1995 or
thereafter.
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(c) Borrower's general and administrative expenses shall not
exceed 10% of Net Sales. The foregoing covenant shall be tested quarterly,
commencing September 30, 1994. Each of the tests conducted as of the end of
September 1994, December 1994 and March 31, 1995 shall cover the period
from the Closing Date through the end of the relevant quarter. Commencing
with the test for June 30, 1995, and thereafter throughout the Term hereof,
the foregoing covenant shall be tested quarterly, on a rolling twelve (12)
month basis. Although the foregoing covenant shall be tested commencing
September 30, 1994, an Event of Default shall not be deemed to exist by
virtue of Borrower's violation of the foregoing covenant unless such
violation occurs based upon the tests conducted as of March, 1995 or
thereafter.
(d) Borrower shall not permit Delinquencies as of the end of any
three (3) consecutive calendar months during the Term to exceed three
percent (3%) of the aggregate then unpaid principal balance of all Eligible
Instruments against which an Advance has been made.
(e) Upon request by Lender, Borrower shall provide from time to
time such information as Lender may reasonably require to determining
compliance with the foregoing requirements.
8.23 Borrower shall not, without Lender's prior written consent: (1)
construct additional condominium or time-share units within or adjacent to the
Project (other than to the initial 48 Units) until such time as at least 50% of
the Time-Share Interests applicable to the initial 48 Units are sold in bona-
fide transactions to parties who are not Affiliates of Borrower or any
Guarantor; or (ii) sell any time-share intervals from such additional
condominium or time-share units until at least 50% of the Time-Share Interests
applicable to the initial 48 Units are sold in bona-fide transactions to parties
who are not Affiliates of Borrower or any Guarantor.
8.24 If there occurs a material adverse change in the Project or in
the financial condition of Borrower or any Guarantor or in the Receivables
Collateral or any other security for the Performance of the Obligations, which
change is not enumerated in paragraph 8.22 or 9.1, Borrower will promptly
provide Lender with assurance that neither the prospect of Performance of the
Obligations nor Lender's security therefore is imperiled. If Borrower fails to
provide Lender with assurance satisfactory to Lender in its reasonable
discretion, such failure will be considered an Event of Default.
8.25 As additional consideration to Lender, Borrower shall pay to
Lender an incentive fee (the "Incentive Fee") equal to Ninety Seven Thousand
Nine Hundred Twenty Dollars ($97,920,000) with respect to the Time-Share
Interests sold by Borrower in the Project. Such incentive fee shall be paid in
installments of Five
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Hundred Dollars ($500.00) per Time-Share Interest sold, (all as more fully
provided in the Construction Mortgage), commencing with all sales occurring
after the date upon which the Construction Loan is due and payable in full, and
shall continue until the entire incentive fee is paid in full. Notwithstanding
anything contained herein to the contrary, the incentive fee is payable in full
by Borrower on the first day of the 24th month after the initial advance of the
proceeds of the Construction Loan.
8.26 The Borrower is in compliance in all material respects with all
applicable federal, state or local environmental, health and safety statutes and
regulations. The Borrower has not filed any notice under any federal or state
law indicating past or present treatment, storage or disposal of a hazardous
waste or reporting a spill or release of a hazardous or toxic waste, substance
or constituent, or other substances into the environment. None of the operations
of Borrower are the subject of federal or state litigation or proceedings
involving, or any investigation evaluating whether any remedial action involving
a material expenditure is needed to respond to, any improper treatment, storage,
recycling, disposal or release into the environment of any hazardous or toxic
substance, waste or constituent, or other substance. The Borrower does not have
any material contingent liability in connection with any improper treatment,
storage, recycling, disposal or release into the environment of any hazardous or
toxic substance, waste or constituent. None of the operations of Borrower are
subject to any judicial or administrative proceeding alleging the violation of
any federal, state or local environmental, health or safety statute or
regulation. The Borrower does not transport any hazardous wastes, substances or
constituents.
8.27 Provided that Borrower has not then borrowed the Maximum Loan
Amount, Borrower shall not, during the Borrowing Term; pledge, assign, or
hypothecate any Eligible Instruments other than to Lender, without Lender's
prior written consent and without the execution by Lender and any and all other
lenders providing financing secured by Instruments of an intercreditor agreement
in form and substance satisfactory to Lender. After the expiration of the
Borrowing Term, Lender shall have the right of first negotiation with Borrower
in the event Borrower wishes to accept or seek an offer from a third party to
loan moneys to Borrower in exchange for a pledge, assignment or hypothecation of
any Instruments. In the event Borrower desires to seek or obtain such an offer,
Borrower shall first give Lender written notice to that effect and give Lender
the opportunity, within ten (10) Business Days thereafter, to issue a financing
proposal to Borrower, before Borrower enters into a binding agreement with such
third party with respect to such financing. Borrower shall have no obligation to
accept any proposal made by Lender with respect to such financing; provided that
if Borrower obtains any such financing from a lender other than Lender, any and
all such lenders providing financing secured by Instruments shall have entered
into an intercreditor agreement with Lender in form and substance reasonably
satisfactory to Lender and such other lender. The first right of negotiation
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described in this paragraph shall be inapplicable to the extent, but only to the
extent, the agreement with such third party lender pertains only to the pledge,
assignment or hypothecation of Instruments (hereinafter "Foreign Instruments")
from Persons who are not residents of the United States, Canada or Puerto Rico.
In the event Borrower obtains financing from a lender in exchange for a pledge,
assignment or hypothecation of Foreign Instruments, Lender will, upon written
request of Borrower and provided that there does not then exist an Event of
Default or Incipient Default, release its lien on any Eligible Instruments
constituing Foreign Instruments and reassign to Borrower such Instruments and
the Purchase Mortgages securing the same, on the conditon that Borrower replaces
such Foreign Instrument with another Eligible Instrument having a value not less
than the portion of the Loan together with interest, costs and expenses, if any,
attributable to the Foreign Instrument being replaced.
8.28 All representations and warranties contained in this Agreement
are continuing and shall be deemed to be made and reaffirmed prior to the making
of each Advance under this Agreement.
8.29 The representations, warranties and covenants contained in this
Agreement shall be applicable to and binding upon Borrower during the Term
hereof, notwithstanding the fact that no Advances have yet been made hereunder.
ARTICLE IX
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DEFAULT
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9.1 The occurrence of any of the following events or conditions shall
constitute an Event of Default by Borrower under the Documents:
(a) Lender fails to receive from Borrower when due and payable
any amount which Borrower is obligated to pay on the Note or any other
payment due under the Documents; and such failure shall continue for seven
(7) days, except for the payment of the final installment due at the
Maturity Date, for which no grace period is allowed;
(b) any material representation or warranty of Borrower
contained in the documents or in any certificate furnished under the
Documents proves to be, in any material respect, false or misleading as of
the date deemed made;
(c) there is a default in the Performance of the Obligations set
forth in paragraphs 8.8, 8.9 or 8.13 hereof or Borrower knowingly violates
or suffers or permits the violation of any of the warranties or conditions
of the policies of insurance required under paragraph 8.9
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(d) there is a default in the Performance of the Obligations or
a violation of any term, covenant or provision of the Documents (other than
a default or violation referred to elsewhere in this paragraph 9.1) and
such default or violation continues unremedied (i) for a period of five
days after the giving of notice thereof to Borrower in the case of a
default or violation which can be cured by the payment of money alone or
(ii) in the case of any other default or violation for a period of (A)
thirty (30) days after the giving of notice to Borrower, or (B) (in the
event such default is not capable of being cured within such thirty (30)
day period) for a period not exceeding sixty (60) days after the giving of
such notice provided Borrower is diligently and in good faith pursuing such
cure;
(e) an "Event of Default," as defined elsewhere herein or in any
of the other Documents, occurs, or an act or event occurs under any of the
Documents, which is not cured within applicable notice or grace periods,
whether or not denominated as an Event of Default, which expressly entitles
Lender to accelerate any of the Obligations or exercise its other remedies
upon the occurrence of an event of Default hereunder;
(f) the declaration of a material default by Borrower under any
other agreement evidencing, guaranteeing, or securing borrowed money or a
receivables purchase financing resulting in an acceleration of such
indebtedness or repurchase obligations, which accelerated repayment or
repurchase obligations are in excess of $100,000 in the aggregate;
(g) any final, non-appealable judgment or decree for money
damages or for a fine or penalty against Borrower which is not paid and
discharged or stayed within 30 days thereafter and when aggregated with all
other judgment(s) or decree(s) that have remained unpaid and undischarged
or not stayed for such period is in excess of $100,000;
(h) any party holding a lien or security interest in the
Receivables Collateral, or any other security for the Performance of the
Obligations or a lien on any common areas or other amenities in the
Project commences foreclosure or similar sale thereof;
(i) (i) Borrower or any Guarantor becomes insolvent or unable to
pay its debts when due; generally fails to pay its debts when due; files a
petition in any bankruptcy, reorganization, winding-up or liquidation
proceeding or other proceeding analogous in purpose or effect relating to
such entity; applies for or consents to the appointment of a receiver,
trustee or other custodian for the bankruptcy, reorganization, winding-up
or liquidation of such
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entity; makes an assignment for the benefit of creditors; or admits in
writing that it is unable to pay its debts; (ii) any court order or
judgment is entered confirming the bankruptcy or insolvency of Borrower or
any Guarantor or approving any reorganization, winding-up or liquidation of
such entity or a substantial portion of its assets; (iii) there is
instituted against Borrower or any Guarantor any bankruptcy,
reorganization, winding-up or liquidation proceeding or other proceeding
analogous in purpose or effect and the same is not dismissed within 90 days
after the institution thereof; or (iv) a receiver, trustee or other
custodian is appointed for any part of the Receivables Collateral or the
Project or all or a substantial portion of the assets of Borrower or any
Guarantor;
(j) Performance by Borrower or any Guarantor of any material
obligation under any Document or Guarantee, as the case may be, is rendered
unenforceable in any material respect, or any Guarantor repudiates,
rescinds, limits or annuls its Guarantee;
(k) An Event of Default, as defined in the Construction Loan
Agreement, occurs, or an act or event occurs under any of the Construction
Loan Documents, whether or not denominated as an Event of Default, which
expressly entitles the Lender to exercise its remedies; or
(l) Borrower breaches or defaults under that Embassy Vacation
Resorts License Agreement dated as of April 21, 1994 between Borrower and
Embassy Vacation Resorts, a division of Embassy Suites, Inc.
9.2 At any time after an Event of Default has occurred and while it
is continuing, Lender shall have the right to do any one or more of the
following:
(a) cease to make further Advances;
(b) declare the Note, together with prepayment premiums and all
other sums owing by Borrower to Lender in connection with the Documents,
immediately due and payable without notice, presentment, demand or protest,
which are hereby waived by Borrower;
(c) with respect to the Receivables Collateral, (i) institute
collection actions against all Persons obligated thereon and in default
thereunder; (ii) enter into modification agreements and make extension
agreements with respect to payments and other performances; (iii)release
Persons liable for the payment and performance thereof or the securities
for such payment and performance; and (iv) settle and compromise disputes
with respect to payments and performances claimed due thereon all without
notice
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to Borrower, without being called to account therefor by Borrower and
without relieving Borrower from Performance of the Obligations;
(d) in the event Lender has previously agreed that Borrower may
act as Servicing Agent, remove Borrower as Servicing Agent and substitute
as Servicing Agent such other Person as Lender shall designate; and
(e) proceed to protect and enforce its rights and remedies under
this Agreement, the Construction Loan Documents or any other documents and
to foreclose or otherwise realize upon its security for the Performance of
the Obligations, or to exercise any other rights and remedies available to
it at law, in equity or by statute.
The rights and powers granted pursuant to this paragraph are not
intended to limit the rights and powers granted elsewhere herein.
9.3 Notwithstanding anything in the Documents to the contrary, while
an Event of Default exists, any cash received and retained by Lender in
connection with the Receivables Collateral may be applied to payment of the
Obligations in the manner provided in paragraph 9.5 hereof.
9.4 (a) Pursuant to its rights under paragraph 9.2 hereof, following
an Event of Default, and subject to the terms and conditions hereof, Lender
may sell, assign and deliver the Receivables Collateral, or any part
thereof, at public or private sale, conducted in a commercially reasonable
manner by an officer, or agent of, or auctioneer or attorney for, Lender
at Lender's place of business or elsewhere, for cash, upon credit or future
delivery, and at such price or prices as Lender shall reasonably determine,
and Lender may be the purchaser of any or all of the Receivables Collateral
so sold. Lender may, in its reasonable discretion, at any such sale,
restrict the prospective bidders or purchasers as to number, nature of
business and investment intention, and, without limitation, may require
that the persons making such purchases represent and agree to the
satisfaction of Lender that they are purchasing the Receivables Collateral
for their account, for investment, and not with a view to the distribution
or resale of any thereof. Lender shall have no obligation to delay sale of
any Receivables Collateral for the period of time necessary to permit such
Receivables Collateral to be registered for public sale under the
Securities Act of 1933, as amended, and any applicable state securities
laws. Private sales made without registration shall not be deemed to have
been made in a commercially unreasonable manner by virtue of any terms less
favorable to the seller resulting from the private nature of such sales.
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(b) Without prejudice to the right Lender to make such sale
within such shorter period as may be reasonable under the circumstances,
foreclosure sale of all or any part of the Receivables Collateral shall be
deemed held pursuant to reasonable notice if held:
(i) 45 days after notice is given, based upon default
consisting of insolvency, bankruptcy or other default of a nature
which cannot be corrected by Borrower, or default for which no grace
period is specified herein; or
(ii) 60 days after notice of any other act, circumstance or
event which, if uncorrected, after expiration of any applicable grace
period, shall constitute a default hereunder.
Where any notice to Borrower and grace period thereafter is required under
this Agreement, such grace period shall be deducted from the 60 day notice
of foreclosure sale specified in item (ii) above, so that the maximum
period between notice to Borrower of any act, circumstance or event which,
if uncorrected after elapse of any applicable grace period, would
constitute an Event of Default and the foreclosure sale of the Receivables
Collateral based upon such Event of Default shall in no event be required
to exceed 60 days.
(c) At any sale following an Event of Default, the Receivable
Collateral may be sold as an entirety or in partial interests. Lender shall
not be obligated to make any sale pursuant to any notice previously given.
In case of any sale of all or any part of the Receivables Collateral on
credit or for future delivery, the Receivables Collateral so sold may be
retained by Lender until the selling price is paid by the purchaser
thereof, but Lender shall not incur any liability in case of the failure of
such purchaser to take up and pay for the collateral so sold; and in case
of any such failure, such Receivables Collateral may again be sold under
and pursuant to and in compliance with the provisions hereof.
(d) In connection with sales made following an Event of Default,
Lender may, in the name and stead of Borrower or in its own name, make and
execute all conveyances, assignments and transfers of the Receivables
Collateral sold pursuant to this Agreement; and Lender is hereby appointed
Borrower's attorney-in-fact for this purpose. Nevertheless, Borrower will,
if so requested by Lender, ratify and confirm any sale or sales by
executing and delivering to Lender, or to such purchaser or purchasers, all
such instruments as may, in the judgment of Lender, be advisable for that
purpose.
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(e) The receipt by Lender of the purchase money paid at any sale
made following an Event of Default shall be a sufficient discharge
therefor to any purchaser of the Receivables Collateral or any portion
thereof, and no such purchaser, after paying such purchase money and
receiving such receipt, shall bound to see to the application of such
purchase money or any part thereof or in any manner whatsoever be
answerable for any loss, misapplication or nonapplication of any such
purchase money, or any part thereof, or be bound to inquire as to the
authorization, necessity, expediency or regularity of any such sale.
(f) Each purchaser at any sale following an Event of Default
shall hold the Receivables Collateral so sold absolutely free from every
claim or right of Borrower, including, without limitation, any equity or
right of redemption of Borrower, which Borrower hereby specifically waives
to the extent Borrower may lawfully do so. Lender, its employees and agents
shall after such sale be fully discharged from any liability or
responsibility in any matter relating to the Receivables Collateral and
such other security that is sold and resulting from any action or inaction
on the part of such purchaser or any successor-in-interest of such
purchaser.
9.5 The proceeds of any sale of all or any part of the Receivables
Collateral shall be applied in the following order or priorities: first, to the
payment of all reasonable costs and expenses of such sale, including, without
limitation, reasonable compensation to Lender and its agents, attorneys' fees,
and all other reasonable expenses, liabilities and advances incurred or made by
Lender, its agents and attorneys, in connection with such sale, and any other
unreimbursed expenses for which Lender may be reimbursed pursuant to the
Documents; second, to the payment of the Obligations, in such order and manner
as Lender shall in its discretion determine, with no amounts applied to payment
of principal until all interest has been paid; and third, to the payment to
Borrower, its successors or assigns, or to whomsoever may be lawfully entitled
to receive the same, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
9.6 Lender may, at its option, and without any obligation to do so,
pay, perform and discharge any and all amounts, costs, expenses and liabilities
herein agreed to be paid or performed by Borrower if Borrower fails to do so
within 7 days following the giving of written notice of such failure; and for
such purposes Lender may use the proceeds of the Receivables Collateral and is
hereby appointed Borrower's attorney-in-fact. All amounts expended by Lender in
so doing or in exercising its remedies hereunder following an Event of Default
shall become part of the Obligations secured hereby, shall be immediately due
and payable by Borrower to Lender upon demand therefor, and shall bear interest
at the Overdue Rate from the
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<PAGE>
dates of such expenditures until paid. Exercise by Lender of its option under
this paragraph will not cure any default of Borrower.
9.7 No remedy herein or in other Document conferred on or reserved to
Lender is intended to be exclusive of any other remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder, under any other Document or now or hereafter existing at
law or in equity. Notwithstanding anything herein to the contrary, in any non-
judicial, public or private sale or sales under the Uniform Commercial Code or
in any judicial foreclosure and sale of the Receivables Collateral, the
Receivables Collateral may be sold in any manner whatsoever not prohibited by
law. No delay or omission to exercise any right or power shall be construed to
be a waiver of any default or acquiescence therein or a waiver of any right or
power, and every such right and power may be exercised from time to time and as
often as may be deemed expedient. Lender's acceptance of any performance due
hereunder which does not comply strictly with the terms hereof shall not be
deemed to be a waiver of any right of Lender to strict Performance by Borrower.
Acceptance of past due amounts or partial payments shall not constitute a waiver
of full and timely payment of the Obligations. No Event of Default, declaration
of the unpaid principal of the Loan to be immediately due and payable or
exercise of any other right to remedy upon default shall stay, waive, or
otherwise affect Lender's right to receive payments on and other proceeds of the
Receivables Collateral.
9.8 Borrower, for itself and for all who may claim through or under
it, hereby expressly waives and releases all right to have the Receivables
Collateral or any other security for the Performance of the Obligations, or any
part thereof, marshalled on any foreclosure, sale or other enforcement hereof.
9.9 While an Event of Default exists, Borrower shall, on the request
of Lender, assemble the Receivables Collateral not already in Lender's
possession and make it available to Lender at a time and place reasonably
convenient to Lender.
ARTICLE X
---------
POWER OF ATTORNEY
-----------------
For the purpose of enabling Lender to protect and preserve its
Security Interest in the Receivables Collateral and its rights and remedies
under this Agreement and the Documents, Borrower does hereby constitute and
appoint Lender, and its successors and assigns, to be Borrower's true and lawful
attorney-in-fact upon the occurrence of an Event of Default, and during the
continuance thereof, to perform any act, take any action, execute and sign any
document, statement, instrument or other writing, and to do and perform any and
all deeds and things in the name, place, and
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<PAGE>
stead of Borrower, which Lender in its discretion shall determine necessary or
required to protect and preserve its Security Interest in the Receivables
Collateral and its rights and remedies under this Agreement and the Documents,
or which is required or obligated to perform under the terms of this Agreement
or the Documents.
ARTICLE XI
----------
CONSTRUCTION AND GENERAL RULES
------------------------------
11.1 All moneys payable hereunder or under the Documents shall be paid
to Lender at its address set forth below.
11.2 This Agreement and the other Documents exclusively and completely
state the rights and obligations of Lender and Borrower with respect to the
Loan. No modification, termination, variation, discharge or abandonment hereof
and no waiver of any of the provisions or conditions shall be valid unless in
writing and signed by duly authorized representatives of Lender and Borrower or
the successor, transfers or assigns of either, subject, however, to the
limitations on assignment herein by Borrower. This Agreement supersedes any and
all prior agreements or understandings, written or oral, between Borrower and
Lender (other than in the other Documents) concerning this transaction.
11.3 The powers and agency hereby granted by Borrower are coupled with
an interest and are irrevocable and are granted as cumulative to the remedies
for collection of the indebtedness secured hereby provided by law.
11.4 This Agreement may be executed simultaneously in any number of
identical copies each of which shall constitute an original for all purposes.
11.5 Any notice required or permitted to be given hereunder shall be
in writing and shall be (i) personally delivered to the party being notified if
an individual or to an officer or general partner if a corporation or
partnership, or (ii) transmitted by postage prepaid, certified or registered
mail (return receipt requested) to such party at its address after its signature
page hereof or such other address as the party being notified may have otherwise
designated in a notice given as provided in this paragraph. Such notice shall be
deemed to be given and effective, unless actual receipt is expressly elsewhere
specified herein, upon the date of receipt or the date delivery is first
attempted and refused if transmitted by registered or certified mail, whichever
shall first occur. A copy of any notices given to Borrower shall also be given
to:
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<PAGE>
Leo Rose III, Esq.
Schreeder, Wheeler & Flint
The Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
and
Rick S. Kirkbride, Esq.
Stroock & Stroock & Lavan
2029 Century Park East, Suite 1800
Los Angeles, California 90067
11.6 All the covenants, promises, stipulations and agreements of
Borrower and all the rights and remedies of the Lender in this Agreement
contained shall bind Borrower, and, subject to the restrictions on merger,
consolidation and assignment herein contained, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights herein in whole or in part.
Except as may be expressly provided herein, no person or other entity shall be
deemed a third party beneficiary of this Agreement.
11.7 Subject to the provisions of Article IX hereof, if any one or
more of the provisions contained in this Agreement shall be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
11.8 Time is of the essence in the Performance of the Obligations.
11.9 All headings are inserted for convenience only and shall not
affect any construction or interpretation of this Agreement. The provisions of
this Agreement shall apply to the parties according to the context hereof and
without regard to the number or gender of words and expressions used herein.
Unless otherwise indicated, all references herein to clauses and other
subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of this Agreement; the words "herein", "hereof", "hereto",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular paragraph, clause or other subdivision hereof; and
reference to a numbered or lettered subdivision of an Article, or paragraph
shall include relevant matter within the Article or paragraph which is
applicable to but not within such numbered or lettered subdivision.
11.10 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF ARIZONA.
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<PAGE>
BORROWER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND
ARISING DIRECTLY OR INDIRECTLY OUT OF THE DOCUMENTS SHALL BE LITIGATED IN THE
SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY DIVISION, OR THE UNITED STATES
DISTRICT COURT OF ARIZONA OR, IF LENDER INITIATES SUCH ACTION, IN ADDITION TO
THE FOREGOING COURTS, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION, TO
THE EXTENT SUCH COURT HAS JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED
BY LENDER IN ANY OF SUCH COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES
THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS TO
WHICH NOTICES ARE TO BE SENT PURSUANT TO THIS AGREEMENT. BORROWER WAIVES ANY
CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM
OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD BORROWER, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO
SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF,
BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGEMENT MAY BE ENTERED
BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT,
PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET FORTH IN THIS
PARAGRAPH SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER OF ANY
JUDGEMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING BY LENDER OF ANY ACTION TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND BORROWER HEREBY
WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION. LENDER AND
BORROWER ACKNOWLEDGES AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY
OF THE DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED THEREBY WOULD
BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE
THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED IN A COURT
OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
11.11 It is the intent of the parties hereto to comply with the
Applicable Usury Law. Accordingly, notwithstanding any provisions to the
contrary in this Agreement or in any of the other Documents in no event shall
this Agreement or the
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<PAGE>
Documents require the payment or permit the collection of interest in excess of
the maximum contract rate permitted by the Applicable Usury Law. If (i) any such
excess of interest otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the Obligations or (ii) the maturity of
the Obligations is accelerated in whole or in part, or (iii) all or part of the
principal or interest of the Obligations shall be prepaid, so that under any of
such circumstances the amount of interest contracted for, charged or received in
connection with the Obligations would exceed the maximum contract rate permitted
by the Applicable Usury Law, then in any such event (A) the provisions of this
paragraph shall govern and control, (B) neither Borrower nor any other person or
entity now or hereafter liable for the payment hereof will be obligated to pay
the amount of such interest to the extent that it is in excess of the maximum
contract rate permitted by the Applicable Usury Law, (C) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount of the Obligations of Borrower or refunded to Borrower,
at Lender's option, and (D) the effective rate of interest will be automatically
reduced to the maximum contract rate permitted by the Applicable Usury Law.
Without limiting the generality of the foregoing, to the extent permitted by the
Applicable Usury Law: (x) all calculations of the rate of interest which are
made for the purpose of determining whether such rate would exceed the maximum
contract rate permitted by the Applicable Usury Law shall be made by amortizing,
prorating, allocating and spreading during the period of the full stated term of
the Obligations, all interest at any time contracted for, charged or received
from Borrower or otherwise in connection with the Obligations; and (y) in the
event that the effective rate of interest on the Obligations should at any time
exceed the maximum contract rate permitted by the Applicable Usury Law, such
excess interest that would otherwise have been collected had there been no
ceiling imposed by the Applicable Usury Law shall be paid to Lender from time to
time, if and when the effective interest rate on the Obligations otherwise falls
below the maximum contract rate permitted by the Applicable Usury Law, to the
extent that interest paid to the date of calculation does not exceed the maximum
contract rate permitted by the Applicable Usury Law, until the entire amount of
interest which would have otherwise been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all the Obligations
regardless of when incurred; but, again to the extent not prohibited by the
Applicable Usury Law, should the maximum contract rate permitted by the
Applicable Usury Law be decreased because of a change in the law, such decreases
shall not apply to the Obligations regardless if resulting from an advance of
the Loan made after the effective date of such decrease.
-46-
<PAGE>
ARTICLE XII
-----------
SPECIAL PROVISIONS
------------------
12.1 Lender covenants and agrees that, notwithstanding
anything to the contrary herein or in any other Document, during the Term hereof
it shall take no action to disturb Purchasers in their use and possession of
their Time-Share Interests or otherwise to impair the rights and privileges of
such Purchasers under their Time-Share Interests or the governing documents of
the Project so long as such Purchasers are fulfilling their obligations under
their respective Instruments.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by Persons duly authorized on the day and year first above
written.
"Lender"
GREYHOUND FINANCIAL
CORPORATION, a Delaware corporation
By (to be confirmed)
-------------------------------------
Sr. Vice President
[CORPORATE SEAL]
Address:
Dial Corporate Center
Dial Tower
Phoenix, Arizona 85077
Attention: Vice-President-Law
With a copy to:
Dial Corporate Center
Dial Tower
Phoenix, Arizona 85077
Attention: Vice President - Operations
Management
-47-
<PAGE>
"Borrower"
GRAND BEACH RESORT, LIMITED
PARTNERSHIP, a Georgia limited
partnership
By: Grand Beach Partners, L.P., a
California limited partnership
Title: General Partner
By: Argosy/KGI Grand Beach
Investment Partnership, a
California general partnership
Title: General Partner
By: KGI Grand Beach
Investments, Inc., a
California corporation
Title: Managing General
Partner
By: /s/ Steven C. Kenninger
------------------------
Name: STEVEN C. KENNINGER
Title: PRESIDENT
[CORPORATE SEAL]
Address:
c/o Argosy/KGI Grand Beach
Investment Partnership
911 Wilshire Boulevard
Suite 2150
Los Angeles, California 90017
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<PAGE>
FIRST AMENDMENT TO LOAN
-----------------------
AND SECURITY AGREEMENT
----------------------
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT ("First
Amendment") is made and entered into as of the 5th day of July, 1995, by and
between GRAND BEACH RESORT, LIMITED PARTNERSHIP, a Georgia limited partnership
("Borrower") and FINOVA CAPITAL CORPORATION, a Delaware corporation, formerly
known as Greyhound Financial Corporation, ("Lender").
WITNESSETH:
WHEREAS, as of October 7, 1994, Borrower and Lender entered into that
certain Loan and Security Agreement (the "Original Agreement") pursuant to which
Lender agreed to make a loan to Borrower for the purposes set forth therein;
and
WHEREAS, Borrower and Lender have agreed to amend the Original
Agreement, pursuant to the terms and provisions of this First Amendment to
include, among other things, a working capital loan facility.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Except as specifically set forth in and/or modified
-----------
by this First Amendment, all capitalized terms set forth herein shall have the
same meanings as set forth in the Original Agreement. The following capitalized
terms, however, shall have the meanings set forth below, notwithstanding any
contrary definitions contained in the Original Agreement.
"Advance" shall mean, collectively and individually, a
Receivables Advance and a Working Capital Advance.
"Availability Advance" shall mean an additional Receivables
Advance advanced by Lender to Borrower from time to time with respect to an
Eligible Instrument that then constitutes Receivables Collateral against
which a previous Receivables Advance has been made.
"Borrowing Base (Receivables Loan)" shall mean an amount equal to
the lesser of (i) 90% of the unpaid principal balance payable under the
Eligible Instruments of (ii) 90% of the then present value assigned to the
<PAGE>
unmatured installments of principal and interest payable under the Eligible
Instruments discounted at Lender's Prevailing Discount Rate.
"Borrowing Base (Working Capital Loan)" shall mean an amount
equal to the sum of (A) the lesser of (i) 55% of the unpaid principal balance
payable under the Eligible Instruments against which a Working Capital Advance
will be made or (ii) 55% of the then present value assigned to the unmatured
installments of principal and interest payable under the Eligible Instruments
against which a Working Capital Advance will be made, discounted at Lender's
Prevailing Discount Rate, (B) 55% of any cash down payments and principal and
interest payments then made by the Purchaser under such Eligible Instruments at
the time of such Working Capital Advance; and (C) 55% of any cash sales of Units
then made at the time of such Working Capital Advance, provided that the
proceeds of the cash sales and such cash down payments and principal and
interest payments are held and shall continue to be held in Escrow by Escrow
Agent.
"Borrowing Term (Receivables Loan)" shall mean the period of time
during which Lender is committed to make Receivables Advances under the
Receivables Loan Agreement, which commitment shall terminate on July 14, 1997.
"Borrowing Term (Working Capital Loan)" shall mean the period of
time during which Lender is committed to make Working Capital Advances under the
Receivables Loan Agreement, which commitment shall terminate on July 14, 1997.
"Collateral Assignment" shall mean that certain Collateral
Assignment, Security Agreement and Account Agreement of even date with the First
Amendment pursuant to which Borrower collaterally assigns to Lender all of the
Borrower's interest in the Escrow and in the agreement pursuant to which the
Escrow is maintained as security for the payment and Performance of the
Obligations.
"Construction Loan Agreement" shall mean that certain
Construction Loan Agreement dated as of October 7, 1994, between Borrower and
Lender, as modified and amended pursuant to that First Amendment to Construction
Loan Agreement dated as of May 3, 1995 and as further modified and amended
pursuant to that Second Amendment to Construction Loan Agreement of even date
herewith, pursuant to which Lender agreed, subject to the terms and provisions
thereof, to make an $8,000,000 revolving construction loan, the proceeds of
which are to be used to construct the Project.
-2-
<PAGE>
"Construction Mortgage" shall mean, collectively, that certain
Mortgage, Assignment of Rents and Proceeds and Security Agreement dated as
of July 26, 1994, delivered by Borrower pursuant to the Construction Loan
Agreement, as amended by that certain First Amendment to Mortgage,
Assignment of Rents and Proceeds and Security Agreement dated May 3, 1995
between Borrower and Lender and as further amended by that certain Second
Amnedment to Mortgage, Assignment of Rents and Proceeds and Security
Agreement dated of even date herewith between Borrower and Lender.
"Documents" shall mean this Agreement, the Note, the Working
Capital Note, the Construction Mortgage, the Environmental Certificate, the
Servicing Agreement, the Lockbox Agreement, the Services and Fees
Agreement, the Guarantee, the Assignments, the Subordination Agreement, the
Collateral Assignment, and each and every other document, instrument or
writing executed or delivered by Borrower to Lender in connection with the
Loan.
"Escrow" shall mean that certain account in the name of Escrow
Agent in which the cash down payments and principal and interest payments
that are used in calculating the Borrowing Base (Working Capital Loan) are
deposited, pursuant to an agreement acceptable to Lender.
"Escrow Agent" shall mean the person who is not an Affiliate of
Borrower, in whose name the Escrow is maintained, the identify of whom
shall be acceptable to Lender.
"GPSI" shall mean FINOVA Portfolio Services, Inc., an Arizona
corporation, its successors and assigns, formerly known as GFC Portfolio
Services, Inc.
"Loan" shall mean, collectively and individually, the Receivables
Loan and the Working Capital Loan.
"Maturity Date" shall mean that date which shall occur ten (10)
years after the expiration of the Borrowing Term (Receivables Loan).
"Maximum Loan Amount" shall mean the lesser of (i) Thirty-Five
Million Dollars ($35,000,000.00) or (ii) the amount remaining when Forty
Million Dollars ($40,000,000.00) is reduced by the principal amount then
outstanding under each of the Working capital Loan and the Construction
Loan.
-3-
<PAGE>
"Maximum Working Capital Loan Amount" shall mean the lesser of
(i) Four Million Dollars ($4,000,000.00) or (ii) the amount remaining when
Forty Million Dollars ($40,000,000.00) is reduced by the principal amount
then outstanding under each of the Receivables Loan and the Construction
Loan.
"Note" shall mean the First Amended and Restated Receivables
Promissory Note of even date herewith, in the amount of the Receivables
Loan, to be made and delivered by Borrower to Lender pursuant hereto, as
amended, renewed or restated.
"Opening Prepayment Date" shall mean the date which occurs
twenty-four (24) months after the date on which the last Receivables
Advance is made under the terms of the Original Agreement as amended by the
First Amendment.
"Phase" shall mean any of Phase I, Phase II, Phase III, Phase IV
or Phase V.
"Phase I" shall mean the initial twenty-four Units and related
amenities constructed on the Project.
"Phase II" shall mean the twenty-four Units and related amenities
to be constructed on the Project following Phase I.
"Phase III" shall mean the twenty-four Units and related
amenities to be constructed on the Project following Phase II.
"Phase IV" shall mean the twenty-four Units and related amenities
to be constructed on the Project following Phase III.
"Phase V" shall mean the thirty Units and related amenities to be
constructed on the Project following Phase IV.
"Prevailing Discount Rate" shall mean Lender's prevailing
discount rate at the time each Advance is made, which shall be the Prime
Rate plus 2.0% but in no event less than 12.5%.
"Project" shall mean the time-share condominium project known as
Embassy Vacation Resort at Grand Beach, constructed and to be constructed
by Borrower on the Real Property comprised of one hundred twenty-six (126)
time-share Units and related amenities and improvements.
-4-
<PAGE>
"Real Property" shall mean that parcel of real property located
in Orange County, Florida and all existing and future improvements located
thereon, more fully described on Exhibit "G" of the Original Agreement
and on Exhibits "A", "B", and "C" of this First Amendment.
------------ --- ---
"Receivables Advance" shall mean an Advance of the Receivables
Loan advanced by Lender to Borrower from time to time in accordance with
the terms and provisions of this Agreement. Receivables Advance shall
include an Availablity Advance.
"Receivables Loan" shall mean the revolving line of credit loan
extended by Lender to Borrower in accordance with the terms of this
Agreement in an outstanding principal amount not to exceed at any time the
Maximum Loan Amount.
"Receivables Loan Agreement" shall mean, collectively, the
Original Agreement and the First Amendment.
"Working Capital Advance" shall mean an Advance of the Working
Capital Loan advanced by Lender to Borrower from time to time in accordance
with the terms and provisions of this Agreement.
"Working Capital Loan" shall mean a revolving line of credit loan
extended by Lender to Borrower in accordance with the terms of this
Agreement in an outstanding principal amount not to exceed at any time the
Maximum Working Capital Loan Amount.
"Working Capital Note" shall mean the Promissory Note, in the
amount of the Working Capital Loan, to be made and delivered by Borrower to
Lender pursuant hereto, in a form acceptable to Lender, as amended, renewed
or restated.
2. Subject to the satisfaction of all of the conditions precedent
set forth in Section 7 hereof, the Original Agreement is hereby amended in the
following respects:
2.1 The provisions of Section 3.1 of the Original Agreement
shall be amended and restated in their entirety to read as follows:
3.1 Lender hereby agrees that the Receivables Loan
(including Availability Advances) will be disbursed to Borrower, from
time to time, in periodic Receivables Advances, but in no event after
the Borrowing Term (Receivables Loan) has expired, in amounts
-5-
<PAGE>
determined by subtracting from the Borrowing Base (Receivables Loan)
the unpaid principal balance outstanding under the Receivables Loan at
the time of each Receivables Advance;
(i) Receivables Advances shall not be made more
frequently than twice per month, and each Receivables Advance
shall be in an amount of not less than One Hundred Thousand
Dollars ($100,000.00). Lender shall charge a fee of Five Hundred
Dollars ($500.00) for the second Receivables Advance made during
any month and shall be entitled to deduct such fee from the
Receivables Advance so made. The foregoing fee is to be paid to
Lender strictly in consideration for Lender's agreement to make a
second Receivables Advance during any particular calendar month
and shall not be applied or credited against any other
Obligations.
(ii) The Receivables Loan is a revolving line of
credit under the terms of which Borrower, during the Borrowing
Term (Receivables Loan), shall have the right to obtain
Receivables Advances, repay Receivables Advances, and obtain
additional Receivables Advances so long as no Event of Default
has occurred and is continuing and so long as all other
conditions precedent to the making of a Receivables Advance have
been satisfied.
(iii) No Receivables Advances will be made after the
Borrowing Term (Receivables Loan) has expired unless Lender, in
its sole discretion, shall agree in writing to make such
Receivables Advances.
(iv) Borrower shall use the proceeds of the
Receivables Loan for working capital purposes, to make
Distributions to Affiliates to the extent permitted under this
Agreement and under the Construction Loan Documents and to repay
the Construction Loan and the Working Capital Loan, in full. The
proceeds of the Receivables Loan shall be used to pay and satisfy
the then unpaid principal balance and all accrued interest under
the Working Capital Loan before any portion of the Receivables
Loan is used to make Distributions or is paid in satisfaction of
any portion of the Construction Loan. The foregoing
notwithstanding, upon the occurrence of any Event of Default, the
proceeds of the Receivables Loan may be applied by
-6-
<PAGE>
Lender in satisfaction of the Obligations in such order and
manner as Lender shall determine.
(v) At no time during the term hereof shall the
unpaid principal balance of the Receivables Loan, together with
the unpaid principal balance of the Construction Loan and the
Working Capital Loan, exceed a total amount equal to Forty
Million Dollars ($40,000,000.00), and Lender shall have no
obligation to make any Receivables Advance if such Advance would
cause the foregoing limitation to be exceeded.
2.2 The provisions of Section 3.2 of the Original Agreement
shall be amended and restated in their entirety to read as follows:
3.2 Lender agrees that the Working Capital Loan will be
disbursed to Borrower, from time to time, in periodic Working Capital
Advances, but in no event after the Borrowing Term (Working Capital
Loan) has expired, in an amount determined by subtracting from the
Borrowing Base (Working Capital Loan) the unpaid principal balance of
the Working Capital Loan at the time of each Working Capital Advance;
provided that at no time shall the unpaid principal balance of the
Working Capital Loan exceed the Maximum Working Capital Loan Amount.
(i) Working Capital Advances shall be made no more
frequently than twice per month and each Working Capital Advance
shall be in an amount not less than One Hundred Thousand Dollars
($100,000.00). Lender shall charge a fee of Five Hundred Dollars
($500.00) for the second Working Capital Advance made during any
month and shall be entitled to deduct such fee from the Working
Capital Advance made during any month and shall be entitled to
deduct such fee from the Working Capital Advance so made. The
foregoing fee is to be paid to Lender strictly in consideration
for Lender's agreement to make a second Working Capital Advance
during any particular calendar month and shall not be applied or
credited against any other Obligations.
(ii) The Working Capital Loan is a revolving line of
credit under the terms of which Borrower, during the Borrowing
Term (Working Capital Loan), shall have the right to obtain
Working Capital Advances, repay Working Capital Advances, and
obtain additional Working Capital Advances so long as no Event of
Default has occurred and is continuing and so long as all other
conditions precedent to the making of a
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<PAGE>
Working Capital Advance have been satisfied. The foregoing
notwithstanding, Borrower shall have no right to obtain a Working
Capital Advance against Eligible Instruments arising from Phase
I. In addition, Borrower shall have no right to obtain a Working
Capital Advance against Eligible Instruments arising from Phase
III until all Working Capital Advances against Eligible
Instruments arising from Phase II have been paid in full
including all accrued interest thereon. At such time as Borrower
has received a Working Capital Advance against Eligible
Instruments arising from Phase III, Borrower shall have no
further right to obtain any Working Capital Advances against
Eligible Instruments arising from Phase II. Furthermore, Borrower
shall have no right to obtain a Working Capital Advance against
Eligible Instruments arising from Phase IV until all Working
Capital Advances made against Eligible Instruments arising from
each of Phase II and Phase III have been paid in full including
all accrued interest thereon. At such time as Borrower has
received the Working Capital Advance against Eligible Instruments
arising from Phase IV, Borrower shall have no right to obtain any
Working Capital Advances against Eligible Instruments arising
from Phase II or Phase III. In addition, Borrower shall have no
right to obtain Working Capital Advances against Eligible
Instruments arising from Phase V until all Working Capital
Advances made against Eligible Instruments arising from each of
Phase II, Phase III and Phase IV have been paid in full,
including all interest thereon. At such time as Borrower has
received a Working Capital Advance against Eligible Instruments
arising from Phase V, Borrower shall have no right to obtain any
further Working Capital Advances against Eligible Instruments
arising from Phase II, Phase III or Phase IV.
(iii) No Working Capital Advances will be made after the
Borrower Term (Working Capital Loan) has expired unless Lender,
in its sole discretion, shall agree to make such Working Capital
Advances.
(iv) Borrower shall use the proceeds of the Working
Capital Loan for working capital purposes.
(v) Any cash down payments and principal and interest
payments made by a Purchaser under a particular Instrument that
are used in calculating the Borrowing Base
-8-
<PAGE>
(Working Capital Loan) shall be held in Escrow by the Escrow
Agent and shall not be released to Borrower unless a principal
payment under the Working Capital Loan is made in an amount equal
to the amount of the Working Capital Advance originally made
against such cash down payment and principal and interest
payment.
(vi) At no time during the term hereof shall the
unpaid principal balance of the Working Capital Loan, together
with the unpaid principal balance of the Construction Loan and
Receivables Loan, exceed a total amount equal to Forty Million
Dollars ($40,000,000.00), and Lender shall have no obligation to
make any Working Capital Advance if such Advance would cause the
foregoing limitation to be exceeded.
2.3 The last sentence of Section 4.1 of the Original Agreement
shall be amended and restated in its entirety to read as follows:
At such time as the Construction Loan and Incentive Fee have
been paid in full and all other obligations due and owing to Lender
under the Construction Loan Documents have been paid and satisfied in
full, and Lender has no further obligation to make any further
advances of the Construction Loan, and provided there does not then
exist an Event of Default or Incipient Default, Lender shall release
the Construction Mortgage, as more fully set forth in the Construction
Mortgage, even though the Receivables Loan and the Working Capital
Loan are then outstanding.
2.4 The provisions of Section 4.4 of the Original Agreement
shall be amended and restated in their entirety to read as follows:
4.4 In connection with a Receivables Advance but not a
Working Capital Advance, Borrower shall, at its expense, deliver to
Lender, at the time of delivery of the Assignment, a policy or
policies of title insurance insuring Lender's interest in the
Purchaser Mortgage which is the subject of the Assignment. Such policy
or policies shall be in the amount of the Receivables Advances made
against or, in the case of substitutions, a portion of the Receivables
Loan attributable to the Instruments secured by the insured Purchaser
Mortgages and shall be issued by a title insurer and be in form and
substance satisfactory to Lender in its sole discretion. The title
insurance policies must reflect that the Purchaser Mortgages
constitute valid liens against the real
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<PAGE>
property to which they pertain subject only to the Permitted
Encumbrances.
2.5 The provisions of Section 5.3(x) of the Original Agreement
shall be amended and restated in their entirety to read as follows:
With respect to a Receivables Advances, the items described
in Exhibit "E" and with respect to a Working Capital Advance, the
-----------
items described in the following paragraphs of Exhibit "E" hereto:
-----------
(a), (b) (unrecorded copies only), (e), (f), (g), (h), and (i);
2.6 The provisions of Section 5.15 of the Original Agreement
shall be amended and restated in their entirety to read as follows:
5.15 The proceeds of the Receivables Loan from a particular
Phase are to be used, in part, to pay and satisfy in full the Working
Capital Loan in the same Phase, the Construction Loan as respects such
Phase and all amounts then due and owing to Lender under the
Construction Loan Documents as respects such Phase. Therefore, Lender
shall have the right to disburse any Receivables Advance in a
particular Phase directly to Lender in payment or satisfaction of then
outstanding Working Capital Advances in the same Phase, and interest
thereon, and any amounts then due to Lender under the Construction
Loan Documents as respects such Phase. The foregoing notwithstanding,
upon and during the continuance of an Event of Default, Lender shall
have the right to disburse Receivables Advances against the
Obligations in such order and manner as Lender deems appropriate.
2.7 The Original Agreement shall be amended with the addition of
a Section 5.16 reading as follows:
5.16 Working Capital Advances shall be made only against the
Borrowing Base (Working Capital Loan); provided that with respect to
Working Capital Advances only, the eligibility criteria set forth in
the following subparagraphs of Exhibit "B" need not be satisfied as
-----------
a condition to the making of such Advance; (j), (k), (m) and (n)
to the extent that such rescission rights described in subparagraph
(n) pertain only to Borrower's obligations under subparagraph (k)
thereof.
2.8 The provisions of Section 7.1 of the Original Agreement
shall be amended and restated in their entirety to read as follows:
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<PAGE>
7.1 In connection with the Receivables Loan:
(i) In no event shall the aggregate principal
amount of the Receivables Loan outstanding at any time exceed the
Maximum Loan Amount and in the event for any reason the aggregate
principal amount of the Receivables Loan does exceed the Maximum
Loan Amount, then Borrower upon demand, shall immediately make a
principal payment to Lender in an amount equal to such excess
plus accrued and unpaid interest thereon.
(ii) If for any reason the aggregate principal
amount of the Receivables Loan outstanding as of the last
Business Day of any month shall exceed the then Borrowing Base
(Receivables Loan), Borrower, upon demand, shall immediately make
to Lender a principal payment in an amount equal to such excess
plus accrued and unpaid interest thereon.
(iii) The Receivables Loan shall be evidenced by
the Note and shall be repaid in immediately available funds
according to the terms thereof and such provisions of this
Agreement as are applicable.
2.9 The provisions of Section 7.2 of the Original Agreement
shall be amended and restated in their entirety to read as follows:
7.2 In connection with the Working Capital Loan:
(i) In no event shall the aggregate principal
amount of the Working Capital Loan outstanding at any time exceed
the Maximum Working Capital Loan Amount and in the event for any
reason the aggregate principal amount of the Working Capital Loan
does exceed the Maximum Working Capital Loan Amount, then
Borrower upon demand, shall immediately make a principal payment
to Lender in an amount equal to such excess plus accrued and
unpaid interest thereon.
(ii) If for any reason the aggregate principal
amount of the Working Capital Loan outstanding as of the last
Business Day of any month shall exceed the then Borrowing Base
(Working Capital Loan), Borrower, upon demand, shall immediately
make to Lender a principal payment in an amount equal to such
excess plus accrued and unpaid interest thereon.
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<PAGE>
(iii) The Working Capital Loan shall be evidenced by
the Working Capital Note and shall be repaid in immediately
available funds according to the terms thereof and such
provisions of this Agreement as are applicable.
2.10 The provisions of Section 7.3 of the Original Agreement
shall be amended and restated in their entirety to read as follows:
7.3 RESERVED.
--------
2.11 The provisions of Section 7.4 of the Original Agreement
shall be amended by amending and restating the introductory paragraph to
read as follows:
7.4 For purposes of determining when a prepayment may
occur, the elapsed time of the term of the Receivables Loan shall be
measured from the date on which the last Receivables Advance is made
under the Original Agreement amended by the First Amendment Borrower
is not entitled to prepay, in whole or in part, the Receivables Loan
until the Opening Prepayment Date. Thereafter, if (i) Borrower has
paid all sums due and payable to Lender in connection with the
Receivables Loan, Working Capital Loan and the Construction Loan, and
(ii) Borrower has given Lender at least 30 days prior written notice
of the prepayment and has paid to Lender at the time of prepayment a
prepayment premium equal to a percentage, as set forth below, of the
then principal balance of the Receivables Loan, then Borrower shall
have the option to prepay the Receivables Loan in full, but not in
part, on any date an installment is due on the Note:
2.12 The provisions of Section 7.4 of the Original Agreement
shall be further amended to provide for the following premium for
prepayment in the event the Receivables Loan is prepaid at any time after
the sixth anniversary of the last Receivables Advance made under the
Original Agreement as amended by this First Amendment:
PERIOD PREMIUM
------ -------
After the Sixth Anniversary Date and 1%
through the Seventh Anniversary Date of
the last Receivables Advance
Thereafter 0%
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<PAGE>
There shall be no prepayment premium payable in connection with
the prepayment, in whole or in part, of the Working Capital Loan.
2.13 The provisions of Section 7.4 of the Original Agreement
shall be further amended by substituting the words "Receivables Advance"
for the word "Advance", in each place, where the word "Advance" appears in
that paragraph and by substituting the words "Receivables Loan" for the
word "Loan" in each place where the word "Loan" appears in that paragraph
other than when the word Loan is preceded by the word "Construction" or the
words "Working Capital."
2.14 The provisions of Section 7.7 of the Original Agreement
shall be amended and restated in their entirety to read as follows:
7.7 Whether or not the proceeds from the Receivables
Collateral shall be sufficient for that purpose, Borrower shall pay
when due all payments required to be made pursuant to the Note,
Working Capital Note and other Documents; and any and all amounts
payable by Borrower under the Note, Working Capital Note and other
Documents shall be paid without notice (except as otherwise expressly
provided therein), demand, counterclaim, set-off, deduction,
recoupment or defense, and without abatement, suspension, deferment,
diminution or proration by reason of any circumstance or occurrence
whatsoever, Borrower's Obligation to make such payments being absolute
and unconditional.
2.15 The following language shall be added to the end of Section
8.4(a) of the Original Agreement, as a part thereof:
The foregoing notwithstanding, Lender acknowledges that with
respect to Instruments against which a Working Capital Advance has
been made, Borrower shall not, at the time of such Advance, have
completed the improvements that the Borrower has represented will be
available to Purchasers.
2.16 RESERVED.
--------
2.17 The provisions of Section 8.21.1(w) (appearing on page 32 of
the Original Agreement) shall be amended and restated in their entirety to
read as follows:
Such Distribution is made to Argosy/KGI in an amount not in
excess of $75,000 per month to reimburse Argosy/KGI for certain
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<PAGE>
overhead costs and expenses incurred by Argosy/KGI (in the amount of
$65,000 per month) and for certain accounting and legal expenses
incurred by Argosy/KGI (in the amount of $10,000 per month) in
connection with the acquisition, development and operation of the
Project;
2.18 The provisions of Section 8.21.1(x) (appearing on page 32 of
the Original Agreement) shall be amended adding the following sentence to
the end of such Section:
Borrower hereby advises Lender that the Distribution
described in this Section has been made.
2.19 The provisions of Section 8.21.1(y) (appearing on page 32 of
the Original Agreement) shall be amended and restated in its entirety to
read as follows:
(y) Such Distribution is made in an amount equal to or less
than 100% of Borrower's Cash Flow or 100% of Borrower's Net Income,
whichever is less, with respect to the period in which such
Distribution is to be made; provided however, that no Distribution
-------- --------
shall be permitted under this clause (y) until such time as the
Working Capital Loan, Construction Loan and all other obligations
under the Construction Loan Documents have been paid in full and until
such time as Lender has no further obligation to make any advances of
the Working Capital Loan and Construction Loan.
2.20 The provisions of Paragraph 8.23 of the Original Agreement
shall be amended and restated in its entirety to read as follows:
8.23 Borrower shall not, without Lender's prior written
consent: (i) construct additional condominium or time-share units
within or adjacent to the Project (other than the 126 time-share units
in Phase I, Phase II, Phase III, Phase IV and Phase V) until such time
as at least 70% of the Time-Share Interests contained within each of
Phase I and Phase II and at least 50% in the aggregate of the Time-
Share Interests contained within each of Phase III Phase IV and Phase
V, have been sold, in bona fide transactions, to parties who are not
Affiliates of Borrower or Guarantor; or (ii) sell any time-share
intervals from such additional condominium or time-share units until
at least 70% of the Time-Share Interests contained within Phase I and
II and at least 70% in the aggregate of the Time-Share Interests
contained within each of
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<PAGE>
Phase III, Phase IV and Phase V, have been sold, in bona fide
transactions, to parties who are not Affiliates of Borrower or
Guarantor.
2.21 Section 11.5 of the Original Agreement shall be amended to
provide that all notices sent to Lender shall be sent to Lender at the
following address:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn: Vice President - Group Counsel
With a copy to:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn: Vice President - Operations Management
2.22 Exhibit B to the Original Agreement, constituting the
Eligibility Criteria, shall be amended by inserting the following language
in each of subparagraphs (c) and (f) thereof, immediately prior to the
existing text of each of such subparagraphs:
Subject to the provisions of subparagraphs (o) and (p)
below,...
2.23 Exhibit B to the Original Agreement, constituting
Eligibility Criteria shall be further amended by amending and restating in
full the provisions of subparagraph (d) thereof to read as follows:
(d) Subject to the provisions of subparagraphs (o) and (p)
below, the Instrument provides for consecutive monthly installments of
principal and interest in U.S. funds over a term not exceeding eighty-
four (84) months from the date of its execution (provided that if the
Instrument arises from a sale of a Time-Share Interest to a Purchaser
who is not a United States, Canadian or Puerto Rican resident, the
Instrument shall provide for consecutive monthly automatic debits
against a major United States credit card over a term not exceeding
sixty (60) months); provided, however, that Instruments whose
--------- --------
aggregate unpaid principal balance is not more than twenty-five
percent (25%) of the aggregate unpaid balance of all Eligible
Instruments against which a Receivables Advance has been made may
provide for consecutive
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<PAGE>
monthly installments of principal and interest in U.S. funds over a
term in excess of eighty-four (84) months but not exceeding one
hundred twenty (120) months from the date of its execution.
2.24 Exhibit B of the Original Agreement, constituting the
Eligibility Criteria, shall be further amended by adding a subparagraph (o)
thereof to read as follows:
(o) Notwithstanding the provisions of subparagraphs (c),
(d) and (f) above or subparagraph (p) below, the Borrower has received
from the Purchaser, notwithstanding such Purchaser's country of
residence, a minimum cash down payment of no less than thirty-three
percent (33%) of the total sales price, no part of which has been
advanced or loaned to such Purchaser by Borrower or any Guarantor,
directly or indirectly and the Instrument with respect to which such
Purchaser is the obligor is noninterest bearing and provides for
consecutive monthly installments of principal and interest in U.S.
funds over a term not exceeding twenty-four (24) months from the date
of its execution.
2.25 Exhibit B of the Original Agreement, constituting the
Eligibility Criteria, shall be further amended by adding a subparagraph (p)
thereof to read as follows:
(p) Notwithstanding the provisions of subparagraphs (c),
(d), (f) and (o) above, the Borrower has received from the Purchaser,
notwithstanding that such Purchaser's country of residence, a minimum
cash downpayment of no less than twenty percent (20%) of the total
sales price, no part of which has been advanced or loaned to such
Purchaser by Borrower or any Guarantor, directly or indirectly, and
the instrument provides for consecutive monthly installments of
principal and interest in U.S. funds over a term not exceeding forty-
two (42) months from the date of its execution, provided, however,
--------- --------
that the unpaid principal balance of Instruments meeting the
eligibility criteria set forth in this subparagraph (p) shall not
exceed $1,500,000 and any such Instruments whose unpaid balance causes
the foregoing limitation to be exceeded shall not be deemed Eligible
Instruments.
2.26 Following full execution of this First Amendment, the
provisions of that certain Letter Agreement between Borrower and Lender,
dated May 3, 1995, shall be of no further force or effect.
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<PAGE>
2.27 The provisions of Section 9.1(a) shall be amended and
restated in their entirety to read as follows:
(a) Lender fails to receive from Borrower when due and
payable any amount which Borrower is obligated to pay on the Note or
the Working Capital Note or any other payment due under the Documents;
and such failure shall continue for seven (7) days, except for the
payment of the final installment due under the Note at the Maturity
Date, for which no grace period is allowed;
2.28 The provisions of Section 9.2(b) of the Original Agreement
shall be amended in their entirety to read as follows:
(b) declare each or either of the Note and the Working
Capital Note, together with prepayment premiums and all other sums
owing by Borrower to Lender in connection with the Documents,
immediately due and payable without notice, presentment, demand or
protest, which are hereby waived by Borrower;
3. DOCUMENT REFERENCE. All references to the "Loan Agreement" in
-------------------
the Documents and to "this Agreement", "herein", "hereof", "hereto", and
"hereunder" in the Original Agreement are hereby amended to refer to the
Original Agreement as amended by this First Amendment.
4. FEES AND EXPENSES. In addition to the fees and expenses that
-----------------
have been paid or are payable by Borrower pursuant to the Original Agreement,
Borrower shall pay to Lender (i) a loan fee (the "Working Capital Loan Fee") in
the amount of $40,000.00, which fee was earned by Lender in consideration of
Lender holding itself ready, willing and able to amend the Original Agreement
upon the terms and conditions set forth herein and (ii) a loan fee (the
"Receivables Loan Fee") in the amount of $200,000.00, which fee was earned by
Lender in consideration of Lender holding itself ready, willing and able to
amend the Original Agreement upon the terms and conditions set forth herein. The
payment of the Working Capital Loan Fee and the Receivables Loan Fee is in
addition to Borrower's obligation to pay a loan fee to Lender in consideration
for the Lender's commitment to modify and amend the Construction Loan Agreement
and in addition to all other fees and expenses required to be paid by Borrower
pursuant to the First Amendment to Construction Loan Agreement of even date
herewith. One-half of the Working Capital Loan Fee shall be due and payable on
the earlier of July 28, 1995 or concurrently with the making of the first
Working Capital Advance after the date of this First Amendment. The remaining
one-half of the Working Capital Loan Fee shall be due and payable on the earlier
of August 31, 1995 or concurrently with the making of the second Working Capital
Advance after the date of this First Amendment. The first Fifty Thousand Dollars
of
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<PAGE>
the Receivables Loan Fee shall be due and payable concurrently with the making
of the Receivables Advance which causes the unpaid principal balance of the
Receivables Loan to exceed Fifteen Million Dollars ($15,000,000) and may be
withheld from Advance so made. An additional Fifty Thousand Dollars ($50,000,00)
of the Receivables Loan Fee shall be due and payable concurrently with the
making of the Receivables Advance which causes the unpaid principal balance of
the Receivables Loan to exceed Twenty Million Dollars ($20,000,000.00) and may
be withheld from the Advance so made. An additional Fifty Thousand Dollars
($50,000.00) of the Receivables Loan Fee shall be due and payable concurrently
with the making of the Receivables Advance which causes the unpaid principal
balance of the Receivables Loan to exceed Twenty-Five Million Dollars
($25,000,000.00) and may be withheld from the Advance so made. The remaining
Fifty Thousand Dollars ($50,000.00) of the Receivables Loan Fee shall be due and
payable concurrently with the making of the Receivables Advance which causes the
unpaid principal balance of the Receivables Loan to exceed Thirty Million
Dollars ($30,000,000.00) and may be withheld from the Advance so made. The
foregoing notwithstanding, unless sooner paid, the entire Receivables Loan Fee
shall be due and payable on full on July 14, 1997. Furthermore, Borrower shall
--
pay, on demand, all costs and expenses arising from the preparation of this
First Amendment and the closing of the amendment to the Construction Loan
Documents, or otherwise incurred by Lender in connection with this First
Amendment, including, but not limited to, title insurance premiums, other title
company charges, recording fees, all charges for consumer credit reports, and
U.C.C., tax lien, judgment and litigation searches, Lender's attorneys' fees and
costs, appraisal fees, if any, survey costs, if any, inspection costs and fees,
both during construction or otherwise, escrow disbursement expenses, any revenue
and/or documentary stamps, intangible or recording taxes, out-of-pocket travel
expenses incurred by Lender or its agents and employees, brokerage commissions,
all fees and expenses of the Servicing Agent and Collection Agent in connection
with this First Amendment, and any other costs, expenses or charges that may be
imposed on or incurred by Lender as a result of this Amendment. Borrower shall
indemnify and hold Lender harmless from any and all liability for payment of any
brokerage fees. Lender shall have the right to withhold from any Advance made
hereunder, any costs, fees, expenses or reimbursements due and owing to Lender.
5. CONFIRMATION OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
----------------------------------------------------------
Borrower hereby reaffirms, as if made as of the date hereof, all of Borrower's
representations and warranties contained in the Original Agreement. Borrower
furthermore reaffirms the validity, enforceability and legality of the
Documents, and all provisions of all provisions of the Documents, as modified,
are hereby confirmed and ratified, provided that with respect to enforceability,
Borrower makes such reaffirmation only to the best of its knowledge. Without
limiting the generality of the foregoing, Borrower hereby reaffirms the validity
and enforceability of the Security Interest granted to Lender in the Receivables
Collateral and the Residual Collateral as
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<PAGE>
security for Borrower's payment and Performance of all Obligations, other than
those Obligations arising out of the Environmental Certificate with
Representations, Covenants and Warranties delivered in connection with the
Construction Loan Agreement. Borrower hereby acknowledges and agrees that the
definition of Obligations includes, without limitation, each and every
obligation, duty, covenant, undertaking and condition which Borrower is required
or has agreed to perform under the Documents and under the Construction Loan
Documents, and each and every obligation of Borrower now or hereafter owing to
Lender. In the event of a conflict or inconsistency between the provisions of
the Original Agreement and the provisions of this First Amendment, the
provisions of this First Amendment shall prevail. All terms, conditions and
provisions of the Original Agreement are continued in full force and effect and
shall remain unaffected and unchanged except as specifically amended or modified
hereby. Borrower acknowledges that as of the date hereof, it has (i) no defense,
counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever
which can be asserted as a basis to seek affirmative relief or damages from
Lender or as a basis to reduce or eliminate all or any part of its liability to
repay the Loan and (ii) no other claim against Lender with respect to any aspect
of the transaction in respect to which the Loan was made.
6. GUARANTOR'S RATIFICATION. As a condition precedent to the
------------------------
effectiveness of this First Amendment, Borrower shall cause the Guarantor to
execute a Ratification and Confirmation of Partnership Guarantee Agreement and a
Ratification and Confirmation of Corporate Guarantee Agreement, as applicable,
in a form acceptable to Lender, thereby acknowledging the making of the
agreements contained herein.
7. CONDITIONS PRECEDENT. The amendments and modifications to the
--------------------
Original Agreement contained herein and Lender's obligations in this regard are
subject to the following express conditions precedent, all of which Borrower
shall satisfy on or before July 28, 1995:
7.1 The following shall be delivered to Lender all in a form,
manner and substances satisfactory to Lender:
(a) An original of this First Amendment fully executed by
the Borrower;
(b) An original of the First Amended Receivables Promissory
Note in a form acceptable to Lender, fully executed by Borrower,
(c) An original of the Working Capital Promissory Note in a
form acceptable to Lender, fully executed by Borrower;
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<PAGE>
(d) An original Second Amendment to Mortgage, Assignment of
Rent and Proceeds and Security Agreement in a form acceptable to
Lender, fully executed by Borrower (the "Second Mortgage
Modification");
(e) Ratification and Confirmation of Partnership Guarantee
Agreement and Ratification and Confirmation of Corporate Guarantee
Agreement, as applicable, in a form approved by Lender, fully executed
by Guarantor;
(f) An acknowledgment from each Guarantor acknowledging the
continued subordination in favor of Lender of any indebtedness owed to
them by Borrower;
(g) The Collateral Assignment, fully executed by Borrower,
together with such modifications to Lender's financing statements as
are necessary in that regard;
(h) An Acknowledgement and Agreement form the Escrow Agent
in a form acceptable to Lender pursuant to which the Escrow Agent
agrees to abide by the provisions of Section 3.2(v) of the Original
Agreement, added to the Original Agreement pursuant to this First
Amendment.
(i) All documents required to be executed and delivered to
Lender in connection with the amendment and modification of the
Construction Loan Agreement;
(j) Such resolutions and authorizations and such other
documents as Lender may require relating to the existence and good
standing of the Borrower and Guarantor, and the authority of any
person executing this First Amendment or any document on behalf of the
Borrower or Guarantor;
(k) A commitment from First American Title Company, the
issuer of Lender's ALTA extended coverage title insurance policy
insuring the lien of the Construction Mortgage (the "Title Policy"),
to issue an endorsement, in form satisfactory to Lender, to the Title
Policy, insuring that the Construction Mortgage, as modified pursuant
to the Second Mortgage Modification, continues to be a first lien upon
the real property described therein, subject only to those
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<PAGE>
exceptions contained in such title policy and to such additional
exceptions as Lender may specifically approve in writing.
(l) Updated UCC, tax lien, litigation and judgement
searches for the following parties; (i) Borrower, (ii) Guarantor, and
(iii) Embassy Vacation Resort at Grand Beach.
(m) Evidence that Borrower has good and marketable title to
the collateral pledge to Lender, that Lender's liens and security
interest in such collateral have been duly perfected as first and
prior liens and security interests, and that there are no other
financing statements or liens filed against Borrower or on the
property of Borrower except those that are approved by Lender.
(n) Evidence that any fee due to any broker utilized by
Borrower in connection with the subject transaction have been paid,
together with evidence of the payment by Borrower of any other costs,
fees and expenses then payable in connection with the Construction
Loan and the Loan, including, without limitation, those fees, cost and
expenses described in Section 4 hereof.
(o) A satisfactory legal opinion from counsel to Borrower
and Guarantor as to such matters as Lender shall require.
(p) Internally prepared balance sheet, income statement and
statement of cash flow of the Borrower, certificate correct by the
Borrower, which shall be current to within sixty (60) days prior to
the making of the first Advance following the date of this First
Amendment.
(q) Evidence that Borrower has included Phase III, Phase
IV and Phase V within the Public Offering Statement delivered to
Purchasers.
7.2 No Event of Default shall exist and no event condition shall
exist which after notice or lapse of time, or both, would constitute
an Event of Default.
7.3 There shall have occurred no material adverse change in the
Real Property or in the business or financial condition of Borrower
and Guarantor since the date of the last financial statement submitted
to Lender.
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<PAGE>
7.4 Neither Borrower nor Guarantor shall have failed to
disclose to Lender any material information and no material information
supplied by Borrower or Guarantor shall be found to be misleading,
misrepresented or materially incorrect.
7.5 All representations and warranties by Borrower shall
remain true and correct, in all material respects, and all agreements the
Borrower is to have performed or complied with at such time shall have been
performed or complied with.
8. COUNTERPARTS. This First Amendment may be executed in any number
------------
of separate counterparts, each of which when taken together shall constitute one
and the same instrument notwithstanding the fact that all parties have not
signed the same counterpart.
IN WITNESS WHEREOF, these presents are executed as of the date first
indicated above.
"BORROWER"
GRAND BEACH RESORT, LIMITED
PARTNERSHIP, a Georgia limited partnership
By:Grand Beach Partners, L.P., a California
limited partnership
Title: General Partner
By:Argosy/KGI Grand Beach Investment
Partnership, a California general
partnership
Title: General Partner
By:KGI Grand Beach Investments,
Inc., a California corporation
Title: Managing General Partner
By:/s/ J.V. Maneri
---------------------------------
Name: JAMES V. MANERI
Title: VICE PRESIDENT
[CORPORATE SEAL]
-22-
<PAGE>
"LENDER"
FINOVA CAPITAL CORPORATION, a
Delaware corporation
By:/s/ Jack Fields
------------------------------------------
Its: GROUP VICE PRESIDENT
----------------------------------------
[CORPORATE SEAL]
-23-
<PAGE>
EXHIBIT 10.8.5
Loan No. 95-195
LOAN AND SECURITY AGREEMENT
---------------------------
(RECEIVABLES)
-------------
THIS LOAN AND SECURITY AGREEMENT (RECEIVABLES) (this "AGREEMENT") dated
October 9, 1995, is made by and between FALL CREEK RESORT, L.P., a Georgia
limited partnership, whose address is One Fall Creek Drive, Branson, Missouri
65616 ("BORROWER"), and HELLER FINANCIAL, INC., a Delaware corporation, whose
address is 500 West Monroe Street, 15th Floor, Chicago, Illinois 60661
("LENDER").
RECITALS
--------
Borrower desires Lender to extend a secured credit facility to Borrower to
provide working capital financing for Borrower and to provide funds for its
other general corporate purposes; and
Borrower's obligations under the Receivables Loan Documents will be secured
by a first deed of trust lien on certain real property owned by Borrower and by
granting to Lender a first security interest in and lien upon certain notes
receivable payable to Borrower and certain other collateral owned by Borrower;
and
Argosy Branson, Inc., a Georgia corporation ("GUARANTOR") shall guaranty
all of the obligations of Borrower to Lender under the Loan Documents; and
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower and Lender agree as follows:
SECTION 1
---------
DEFINITION OF TERMS
-------------------
1.1 TERMS DEFINED. In addition to all other terms defined in this
-------------
Agreement, defined terms set forth in Appendix A to this Agreement when used in
----------
this Agreement shall have the meanings specified therein.
SECTION 2
---------
THE LOAN
--------
2.1 RECEIVABLES LOAN. During the Availability Period and to the extent of
----------------
Availability, Lender shall make Advances of the Receivables Loan to Borrower.
Each such
1
<PAGE>
Advance shall be in an amount not less than $100,000 and made no more frequently
than four (4) times each month nor more than one (1) time each week. Requests
for Advances shall be made at least five (5) Business Days prior to the date of
disbursement and shall be in the form of EXHIBIT C hereto. Any amounts repaid
during the Availability Period may be reborrowed during the Availability Period.
Lender shall have no obligation to make Advances hereunder to the extent any
requested Advance would cause the principal balance of the Receivables Loan to
exceed Availability, provided that Lender may elect to make Advances in excess
of Availability.
2.2 MATURITY. If not sooner paid, the entire unpaid principal balance of
--------
the Receivables Note shall be due and payable in full on the Receivables Loan
Maturity Date.
2.3 INTEREST RATE. The average monthly balance of all outstanding Advances
-------------
together with all other outstanding obligations of Borrower under this Agreement
and the other Loan Documents shall bear interest at the Interest Rate. After the
occurrence of an Event of Default and for so long as such Event of Default
continues, the Receivables Loan will bear interest at the Default Rate.
2.4 PAYMENTS.
--------
(a) MONTHLY PAYMENTS. One hundred percent (100%) of all funds
----------------
collected from the Financed Notes Receivable shall be paid to Lender by
Bank no less frequently than weekly pursuant to the Lockbox Agreement, and
applied by Lender in the following order: first to the payment of costs or
expenses incurred by Lender in collecting any amounts due to Lender in
connection with the Receivables Loan; second, to the payment of accrued and
unpaid interest; and thereafter to the reduction of the principal balance
of the Receivables Loan. If the funds received by Lender from Bank with
respect to any month are insufficient to pay interest in full, Borrower
shall pay the difference to Lender within five (5) Business Days after
written notice from Lender. Payments received by Borrower directly from any
Purchaser shall be delivered to Bank within two (2) Business Days.
(b) FINAL PAYMENT. The entire outstanding principal amount of the
-------------
Receivables Loan, together with all accrued but unpaid interest, fees, and
charges, shall be payable on the Receivables Loan Maturity Date.
2.5 PREPAYMENTS.
-----------
(a) VOLUNTARY PREPAYMENTS. Borrower may prepay the Receivables Loan in
---------------------
whole but not in part upon five (5) days' prior written notice to Lender at
any time after the end of the Availability Period upon payment of the
Prepayment Premium for the respective period in which payment in full of
the Receivables Loan occurs, whether such prepayment results from payments
by Borrower, acceleration, or otherwise.
2
<PAGE>
Notwithstanding the foregoing, partial prepayments of the Receivables Loan
resulting from a prepayment by a Purchaser of a Financed Note Receivable
shall not violate this Section 2.5(a), and no Prepayment Premium shall be
payable as a result of any such partial prepayment.
(b) MANDATORY PREPAYMENTS. If at any time a Financed Note Receivable
---------------------
ceases to be an Eligible Note Receivable for any reason other than an
installment payment thereunder becoming more than sixty (60) days past due,
Borrower shall, within ten (10) Business Days after receipt of notice,
either (i) prepay the Receivables Loan in an amount equal to the balance
due under such Financed Note Receivable, or (ii) deliver to Lender one (i)
or more Eligible Notes Receivable having an outstanding aggregate principal
balance equal to or in excess of the outstanding principal balance of such
Financed Note Receivable. If a Financed Note Receivable ceases to be an
Eligible Note Receivable by reason of an installment payment thereunder
becoming more than sixty (60) days past due on a contractual basis,
Borrower shall, by no later than the date on which such installment payment
becomes ninety (90) days past due, perform as required under either of the
foregoing clauses (i) or (ii). Thereafter, upon written request from
Borrower, Lender shall reassign and return such ineligible Note Receivable
and related Deed of Trust to Borrower.
At any time the outstanding principal balance of the Receivables Loan
exceeds 90% of the outstanding principal balance of all Financed Notes
Receivable, Borrower, within five (5) Business Days after receipt of
notice, shall prepay the Receivables Loan in an amount necessary to reduce
the principal balance of the Receivables Loan to an amount equal to or less
than such amount. No Prepayment Premium shall be due in connection with any
mandatory prepayment.
2.6 COMMITMENT FEE. The Commitment Fee shall be payable as follows: (a)
--------------
$33,333.00, less the balance of the good faith deposit paid by Borrower to
Lender pursuant to the proposal letter dated September 8, 1995 and remaining
after deducting Lender's out-of-pocket costs and expenses as provided in such
letter, is due and payable on the date of the first Advance hereunder; (b)
$33,333.00 is due and payable on the date of the second Advance hereunder; and
(c) $33,334.00 is due and payable on the date of the third Advance hereunder;
provided, however, that the entire amount of the Commitment Fee shall be paid to
Lender no later than December 31, 1995. The Commitment Fee shall be deemed fully
earned as of the Closing Date, and Lender shall be entitled to disburse all
amounts of the Commitment Fee directly to itself from an Advance when and as
such amounts are to be paid hereunder.
3
<PAGE>
SECTION 3
---------
COLLATERAL
----------
3.1 GRANT OF SECURITY INTEREST. To secure the payment and performance of
--------------------------
the Indebtedness, Borrower does hereby unconditionally and irrevocably assign,
pledge and grant to Lender a first priority continuing security interest and
lien in and to the right, title and interest of Borrower in the following
property of Borrower, whether now owned or existing or hereafter acquired
regardless of where located (collectively, the "Collateral"):
(a) The Financed Notes Receivable and all amendments, extensions,
renewals and replacements thereof;
(b) The Deeds of Trust and Purchase Documents and all amendments,
extensions, renewals and replacements of, and substitutions thereof;
(c) All deposits, accounts, accounts receivable, general intangibles
and other receivables arising under or in connection with the Pledged
Documents, together with all payments, privileges and benefits arising out
of the enforcement thereof, and all funds held in any deposit accounts
related to any of the Financed Notes Receivable;
(d) Borrower's interest, if any, in all policies of title insurance
related to the Deeds of Trust;
(e) All documents, instruments, pledged assets and chattel paper
relating to the Pledged Documents and the other properties and rights
described as Collateral herein;
(f) Borrower's interest, if any, in the proceeds of any insurance
policies, if any, covering any of the properties and rights described as
Collateral herein;
(g) All cash and other monies and property of Borrower in the
possession or under the control of Lender;
(h) Borrower's interest, if any, in Intervals covered by Financed
Notes Receivable which are subject to the Purchase Documents;
(i) All books, records, ledger cards, files, correspondence, computer
tapes, disks and software relating to the Pledged Documents or any other
Collateral described herein;
(j) All management, marketing, servicing, maintenance or other similar
contracts for the Property; and
4
<PAGE>
(k) All proceeds, extensions, additions, improvements, betterments,
renewals, substitutions and replacements of the foregoing.
3.2 SECURITY AGREEMENT. This Agreement shall be deemed a security
------------------
agreement as defined in the Code and the remedies for any violation of the
covenants, terms and conditions of the agreements herein contained shall be
cumulative and be as prescribed (i) herein, or (ii) by general law, or (iii) as
to such part of the Collateral which is also reflected in any financing
statement filed with respect to the Collateral, by the specific statutory
consequences now or hereafter enacted and specified in the Code, all at Lender's
sole election.
3.3 CROSS COLLATERALIZATION. The C&A Loan Documents and C&A Loan
-----------------------
Collateral shall also secure the Receivables Loan, and the Receivables Loan
Collateral and Receivables Loan Documents shall also secure the Construction
Loan and Acquisition Loan. Upon payment in full of all Indebtedness constituting
the Construction Loan and the Acquisition Loan, the lien and security interests
under the C&A Loan Documents will be released and terminated, and the
Receivables Loan will thereafter be secured solely by the Receivables Loan
Collateral.
SECTION 4
---------
CONDITIONS PRECEDENT TO ADVANCES
--------------------------------
The obligation of Lender to make Advances is subject to satisfaction of all of
the conditions set forth below.
4.1 CLOSING DELIVERIES. Lender shall have received, in form and substance
------------------
satisfactory to Lender, all documents, instruments and information identified on
Schedule 4. 1 and all other agreements, notes, certificates, orders,
authorizations, financing statements, and other documents which Lender may at
any time reasonably request.
4.2 DELIVERIES PRIOR TO EACH ADVANCE. Lender shall have received, in form
--------------------------------
and content satisfactory to Lender, all documents, instruments and information
identified on Schedule 4.2 and all other agreements, notes, certificates,
orders, authorizations, financing statements, and other documents which Lender
may at any time reasonably request.
4.3 SECURITY INTERESTS. Lender shall have received satisfactory evidence
------------------
that all security interests and liens granted to Lender pursuant to this
Agreement or the other Loan Documents, including, without limitation, the
Construction Deed of Trust, have been duly perfected and constitute valid liens
on the Collateral with the priority specified in the applicable Loan Documents.
4.4 REPRESENTATIONS AND WARRANTIES. The representations and warranties
------------------------------
contained herein and in the Loan Documents shall be true, correct and complete
in all material respects on and as of the date of funding of the Advance except
for any representation or warranty
5
<PAGE>
limited by its terms to a specific date and taking into account any amendments
to the Schedules or Exhibits as a result of any disclosures made by Borrower to
Lender after the Closing Date and approved by Lender.
4.5 NO DEFAULT. No Event of Default shall have occurred and be continuing.
----------
4.6 PERFORMANCE OF AGREEMENTS. Borrower shall have performed in all
-------------------------
material respects all agreements and satisfied all conditions which any Loan
Document provides shall be performed by it.
4.7 FEES AND EXPENSES. Borrower shall have paid when due all fees and
-----------------
expenses required to be paid by Borrower pursuant to this Agreement and the
other Loan Documents, including, without limitation, the Acquisition Loan
Commitment Fee, any amount of the Commitment Fee then due and any amount of the
Funding Fee then due.
SECTION 5
---------
GENERAL REPRESENTATIONS AND WARRANTIES
--------------------------------------
Borrower hereby represents and warrants to Lender as follows, which
representations and warranties shall remain true throughout the term of this
Agreement:
5.1 ORGANIZATION, STANDING, QUALIFICATION; BORROWER EXISTENCE. Borrower is
---------------------------------------------------------
a limited partnership duly formed, validly existing and in good standing under
the laws of the State of Georgia with its principal place of business at One
Fall Creek Drive, Branson, Missouri 65616.
5.2 AUTHORIZATION AND ENFORCEABILITY.
--------------------------------
(a) EXECUTION AND DELIVERY. The execution, delivery and
----------------------
performance by Borrower and Guarantor of the Loan Documents have been duly
authorized by all necessary partnership or corporate action, as applicable,
by Borrower and Guarantor and does not and will not (i) violate any
provision of the partnership agreement or articles of incorporation or
bylaws of such entity, as applicable, or any agreement, law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect to which Borrower or Guarantor are a party or are
subject; (ii) result in, or require the creation or imposition of, any lien
upon or with respect to any asset of Borrower or Guarantor other than liens
and security interests in favor of Lender; or (iii) result in a breach of,
or constitute a default by Borrower or Guarantor under, any indenture, loan
or credit agreement or any other agreement, document, instrument or
certificate to which Borrower or Guarantor are a party or by which they or
any of their assets are bound or affected.
6
<PAGE>
(b) NO OTHER APPROVALS. No approval, authorization, order,
------------------
license, permit, franchise or consent of, or registration, declaration,
qualification or filing with, any governmental authority is required in
connection with the execution, delivery and performance by Borrower and
Guarantor of any of the Loan Documents, except for such filings as are
contemplated by the Loan Documents.
(c) VALIDITY OF DOCUMENTS. The Loan Documents have been duly
---------------------
authorized and, when duly executed and delivered by Borrower and Guarantor,
will, to such Borrower's and Guarantor's knowledge, constitute legal, valid
and binding obligations of Borrower and Guarantor, enforceable against
Borrower and Guarantor in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other similar laws now or hereafter in
effect which relate to or affect the enforceability of creditors' rights
generally and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
5.3 FINANCIAL STATEMENTS AND BUSINESS CONDITION. Borrower's, General
-------------------------------------------
Partner's and Guarantor's financial statements were prepared in accordance with
GAAP and fairly present the respective financial conditions and (if applicable)
results of operations of Borrower, the General Partner and Guarantor as of the
date or dates thereof and for the periods covered thereby. Except for any such
changes heretofore expressly disclosed in writing to Lender, there has been no
material adverse change in the respective financial conditions of Borrower, the
General Partner or Guarantor from the financial conditions shown in their
respective financial statements. Borrower is able to pay all of its debts as
they become due, and Borrower shall maintain such solvent financial condition,
giving effect to all obligations, absolute and contingent, of Borrower.
Borrower's obligations under this Agreement and under the Loan Documents will
not render Borrower unable to pay its debts as they become due. The present fair
market value of its assets is greater than the amount required to pay its total
liabilities.
5.4 TAXES. Borrower has paid in full all ad valorem taxes and other taxes
-----
and assessments against the Property and knows of no basis for any additional
taxes or assessments against the Property. Borrower has filed all required tax
returns and has paid all taxes shown to be due and payable on such returns,
including interest and penalties, and all other taxes which are payable by it,
to the extent the same have become due and payable. Borrower shall collect and
pay any applicable sales or rental tax respecting rental of any Intervals and
the operation of the Property.
5.5 TITLE TO PROPERTIES; PRIOR LIENS. Borrower has good and marketable
--------------------------------
title to the Property and the Collateral. Borrower is not in default under any
of the documents evidencing or securing any indebtedness which is secured,
wholly or in part, by the Resort or any Collateral, whether or not the same are
pledged to Lender, and no event has occurred which with the giving of notice,
the passage of time or both, would constitute a default under any of the
documents evidencing or securing any such indebtedness. There are no liens or
7
<PAGE>
encumbrances against the Property other than the Permitted Exceptions and, prior
to the funding of the Acquisition Loan, the Purchase Money Mortgage, and, except
for such Permitted Exceptions and the Purchase Money Mortgage, there are and
will be no liens or encumbrances against the Collateral except in favor of
Lender.
5.6 CAPITAL STRUCTURE. The General Partner is the sole general partner of
-----------------
Borrower. Without limiting the foregoing, Andrew J. Gessow is the principal of
the General Partner with overall management responsibility and control over
Borrower and shall remain the principal of General Partner in such capacity, as
long as Borrower is obligated to Lender under this Agreement, the Loan Documents
or in any other manner whatsoever.
5.7 LITIGATION AND PROCEEDINGS. Except as disclosed in the Borrower's
--------------------------
Certificate of even date herewith from Borrower to Lender, there are no actions,
suits, proceedings, orders or injunctions pending or, to the best of Borrower's
knowledge, threatened against or affecting Borrower, General Partner or
Guarantor, at law or in equity, or before or by any governmental authority,
which could have a material adverse effect on Borrower, General Partner or
Guarantor or relate to any of the Loans or the Resort. Borrower has received no
notice from any court or governmental authority alleging that Borrower has
violated the Timeshare Act, any of the rules or regulations thereunder, or any
other applicable laws.
5.8 LICENSES AND PERMITS. Borrower possesses all requisite franchises,
--------------------
certificates of convenience and necessity, operating rights, licenses, permits,
consents, authorizations, exemptions and orders as are necessary to carry on its
business as now being conducted.
5.9 ENVIRONMENTAL MATTERS. To the best knowledge of Borrower, after due
---------------------
inquiry, neither the Resort, the Property nor any of the other C&A Loan
Collateral contains any Hazardous Materials except as disclosed in the Phase 1
Environmental Site Assessment for the Property dated October 13, 1995, prepared
by Archer Engineers. Neither Borrower nor the Resort has received notice from
any governmental agency, entity or other person with regard to Hazardous
Materials on or affecting the Resort, the Property or any other C&A Loan
Collateral; to the best knowledge of Borrower, after due inquiry, neither
Borrower nor the Resort, or any portion thereof, are in violation of any
applicable federal, state, or local environmental or health laws relating to or
affecting the Resort or any C&A Loan Collateral or Borrower. To the best
knowledge of Borrower, after due inquiry, no Unit for which an Interval has been
sold with respect to any Financed Note Receivable contains asbestos.
5.10 FULL DISCLOSURE. No information, exhibit or written report furnished
---------------
by or on behalf of Borrower to Lender in connection with any of the Loans
contains any material misstatement of fact or omits any material fact necessary
to make the statement contained herein or therein not misleading. Borrower knows
of no legal or contractual restriction which will prevent it from offering or
selling Intervals to Purchasers in any state where it is selling Intervals.
8
<PAGE>
5.11 MARGIN STOCK. The proceeds from the Receivables Loan to be evidenced
------------
by the Receivables Note will be used to provide working capital for the
operation of the Resort and the sale of Intervals, the payment of Permitted
Distributions and for other general business purposes. None of the transactions
contemplated in this Agreement (including, without limitation, the use of the
proceeds from the Receivables Loan) will violate or result in the violation of
Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations
issued pursuant thereto, including, without limitation, Regulations G, T, U and
X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter
11.
5.12 NO DEFAULTS. No default exists, and there is no violation in any
-----------
material respect of any term of any agreement, partnership agreement, charter
instrument, bylaw or other instrument to which Borrower is a party or by which
it may be bound.
5.13 COMPLIANCE WITH LAW. Borrower
-------------------
(a) is not in violation of any laws, ordinances, governmental
rules or regulations to which it is subject, the violation of which would
materially affect the Borrower, the Property, or the Resort or the ability
of Borrower to repay the Indebtedness; and
(b) has not failed to make or cause to be made any registrations
or declarations with any government or agency or department thereof,
necessary to the ownership of the Property and the Resort or to the conduct
of its business including, without limitation, the operation of the Resort
and the sale, or offering for sale, of Intervals therein; which violation
or failure to obtain or register materially adversely affects the business,
prospects, profits, properties or condition (financial or otherwise) of
Borrower. Borrower has, to the extent required by its activities and
businesses, and to the best of its knowledge after due inquiry, fully
complied with (i) all of the applicable provisions of (A) the Consumer
Credit Protection Act, as amended; (B) the Federal Trade Commission Act, as
amended; (C) the Federal Interstate Land Sales Full Disclosure Act, as
amended; (D) the Timeshare Act; (E) all other applicable federal statutes;
and (F) all rules and regulations promulgated under any of the foregoing;
and (ii) all of the applicable provisions of any law of any state in which
Borrower is selling Intervals (and the rules and regulations promulgated
thereunder) relating to the sale, offering for sale or financing of
Intervals.
5.14 EMPLOYEE BENEFIT PLANS. Borrower is in compliance in all material
----------------------
respects with all applicable provisions of ERISA, the Internal Revenue Code of
1986, as amended and all other applicable laws and the regulations and
interpretations thereof with respect to all Employee Benefit Plans. No material
liability has been incurred by Borrower which remains unsatisfied for any
funding obligation, taxes or penalties with respect to any Employee Benefit
Plan.
9
<PAGE>
5.15 REPRESENTATIONS AS TO THE RESORT AND THE PROPERTY.
-------------------------------------------------
(a) ACCESS. The Property has access, directly or over validly
------
existing and recorded easements, to one or more publicly dedicated roads
over a recorded easement and all roadways, if any, inside the Resort are
common areas under the Declaration.
(b) UTILITIES. Electric, gas, sewer, water facilities and other
---------
necessary utilities are lawfully available in sufficient capacity to
service the Property and any easements necessary to the furnishing of such
utility service have been obtained and duly recorded.
(c) AMENITIES. All amenities described in the sales prospectus
---------
and the Public Reports for the Resort are completed, or a bond insuring
their completion has been posted, and are available to the Resort and
Purchasers pursuant to validly existing lease or other use agreements,
which are in full force and effect with no default thereunder. Such
amenities include, without limitation, boat docks, swimming pools, tennis
courts, miniature golf course, picnic areas and clubhouse common areas.
Each Purchaser of an Interval has access to and the use of all of the
amenities and public utilities of the Resort as and to the extent provided
in the Declaration and the Public Reports.
(d) COSTS. All costs arising from the purchase of any equipment,
-----
inventory, or furnishings located in or on the improvements completed as of
the Closing Date at the Property have been paid.
(e) SALE OF INTERVALS. The sale, offering of sale, and financing
-----------------
of Intervals in the Resort (i) do not constitute the sale, or the offering
of sale, of Securities subject to the registration requirements of the
Securities Act of 1933, as amended, or any state securities law; (ii) do
not violate any timesharing law, statute or regulation of the State of
Missouri or any other applicable law of any state in which sales or
solicitation of sales of Intervals occur; and (iii) do not violate any
consumer credit or usury statute of any of the State of Missouri, or any
applicable law of any other state in which sales or solicitation of sales
of Intervals occur.
5.16 TIMESHARE INTERVAL EXCHANGE NETWORK. Borrower is a member and
-----------------------------------
participant, pursuant to a validly executed and, to the best of Borrower's
knowledge, enforceable agreement in writing, in Resort Condominiums
International, Inc. Borrower has paid all fees and other amounts due and owing
under such agreement and is not otherwise in default thereunder.
5.17 COLLATERAL.
----------
(a) TITLE. Borrower has good and marketable title to the Collateral,
-----
free and clear of any lien, security interest, charge or encumbrance except
for the security interest
10
<PAGE>
created by this Agreement or otherwise created in favor of Lender. No
financing statement or other instrument similar in effect covering all or
any part of the Collateral is on file in any recording office, except such
as may have been filed in favor of Lender.
(b) POWER. Borrower has the lawful right, power and authority to grant
-----
a security interest in the Collateral. This Agreement and all filings and
recordings (to the extent the security interest in the Collateral can be
perfected by filing or recording) and other actions necessary or desirable
to perfect and protect such security interest in the Collateral, create a
valid and perfected first priority security interest in the Collateral
securing the payment and performance of the Indebtedness. Borrower shall
not grant extensions of time for the payment of, compromise for less than
the full face value, release in whole or in part any Purchaser liable for
the payment of, or allow any credit whatsoever (except in the form of
upgraded Intervals) except for the amount of cash to be paid upon, any
Collateral or any instrument or document representing the Collateral.
Notwithstanding anything in this subsection to the contrary, Borrower
may replace Financed Notes Receivables with upgrades without Lender's prior
consent so long as (i) no Event of Default exists and is continuing; (ii)
such upgraded note meets all the requirements of an Eligible Note
Receivable; (iii) the aggregate principal balances of the Financed Notes
Receivables which are to be so replaced do not exceed an amount of more
than $100,000.00 outstanding at any one time; and (iv) all Collateral
pertinent to such replacement has been delivered to the Custodian.
(c) TAXES AND LIENS. Borrower has paid all taxes, levies and
---------------
other charges upon the Collateral. Borrower shall defend Lender against and
save it harmless from all claims of any Persons other than Lender with
respect to the Collateral, and this indemnity shall include all attorneys'
fees and legal expenses.
(d) NO MODIFICATION. There have been no modifications or
---------------
amendments to the Pledged Documents except as disclosed in writing to
Lender.
(e) VALID LIENS. The Deeds of Trust constitute valid and
-----------
enforceable first and prior liens and security interests on the properties
and interests covered thereby.
(f) BINDING OBLIGATIONS. On the date of the assignment and
-------------------
delivery to Lender, each Financed Note Receivable constitutes an Eligible
Note Receivable and Borrower is not aware of any facts or information which
would cause such Financed Note Receivable to be ineligible hereunder.
(g) COMMUNITY PROPERTY. The Pledged Documents were executed by
------------------
Purchasers in connection with the purchase of Intervals and, if applicable,
as to individuals, bind the marital community of married individual
Purchasers.
11
<PAGE>
5.18 PARTNER INDEBTEDNESS. Borrower has obtained the agreement in writing
--------------------
of each holder of any Partner Indebtedness that the maturity of such Partner
Indebtedness has been extended to at least December 31, 1996, and has
delivered such written evidence to Lender. Lender has also obtained the written
agreement of each holder of Partner Indebtedness to the Partner Indebtedness
Payment Schedule and has delivered a copy of such Partner Indebtedness Payment
Schedule to Lender. No other agreements exist with respect to the extension of
the maturity of the Partner Indebtedness or the Partner Indebtedness Payment
Schedule. No later than November 24, 1995, Borrower shall deliver to Lender an
amendment to the promissory note(s) evidencing the Partner Indebtedness executed
by the holders of the Partner Indebtedness and formalizing the maturity date
extension and Partner Indebtedness Payment Schedule.
SECTION 6
---------
AFFIRMATIVE COVENANTS
---------------------
So long as any portion of the Indebtedness remains unpaid, Borrower hereby
agrees with Lender as follows:
6.1 PAYMENT AND PERFORMANCE OF INDEBTEDNESS. Borrower shall pay and
---------------------------------------
promptly perform all of the obligations hereunder and under the Loan Documents.
6.2 MAINTENANCE OF INSURANCE. The Property shall at all times and for so
------------------------
long as any outstanding principal amount of the Receivables Loan is outstanding
be kept insured with such general liability, casualty and all risk property (on
a full replacement basis), and business interruption insurance coverage and such
other coverages acceptable to Lender, by carrier(s), in amounts and in form at
all times reasonably satisfactory to Lender, which carrier(s), amounts and form
shall not be changed without the prior written consent of Lender. If available,
Lender shall be named as a loss payee on all such policies, to the extent of its
interest. Lender agrees that all required insurance may be maintained by the
owners' association as required by the Declaration, provided that in the event
either such owners' association fails to maintain any insurance required under
this Section 6.2(a), then Borrower shall be required to obtain and maintain such
insurance. In the event of any casualty that affects the ability of any Unit to
be used by Purchasers, Borrower shall use its best efforts to provide such
Purchasers with alternative accommodations until such Unit is again available
for use.
6.3 CONDEMNATION. Borrower shall within three (3) business days of its
------------
receipt of notice thereof, notify Lender of any action or proceeding relating to
any condemnation or other taking, whether direct or indirect, of the Property,
or part thereof, and Borrower shall, after consultation with and subject to
Lender's reasonable approval, appear in and prosecute any such action or
proceeding. Lender shall be entitled to pursue its interest, if any, in any such
action or proceeding.
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6.4 INSPECTIONS AND AUDITS. Borrower shall, at such reasonable times
----------------------
during normal business hours and as often as may be reasonably be requested,
permit any agents or representatives of Lender to inspect the Resort and any of
Borrower's assets (including financial and accounting books and records), to
examine and make copies of and abstracts from the records and books of account
of Borrower or the timeshare unit owner's association and to discuss its
affairs, finances and accounts with any of its officers, employees or
independent public accountants (and by this provision Borrower authorizes said
accountants to discuss with Lender, its agents or representatives the affairs,
finances and accounts of Borrower). Borrower acknowledges that Lender intends to
conduct such audits on at least an annual basis and inspections on at least a
quarterly basis, provided that Lender agrees it will conduct audits no more
often than annually unless an Event of Default exists and for so long as it
continues, or Lender otherwise has a reasonable business basis for requiring an
audit to be conducted more frequently than annually. Borrower shall make
available to Lender all credit information in Borrower's possession or under
Borrower's control with respect to Purchasers as Lender may request. Audits
shall be at Borrower's expense up to a maximum of $3,000 per audit, including
all reasonable travel expenses incurred by any of Lender's employees in
performing such audits. Lender agrees that it will bear the costs of any and all
inspections.
6.5 REPORTING REQUIREMENTS. So long as the Indebtedness remains unpaid,
----------------------
Borrower shall cause the servicer under the Servicing Agreement to deliver to
Lender the monthly reports under Section 6.5(a), and Borrower shall furnish the
reports and materials under Sections 6.5(b) through (j), inclusive, to Lender:
(a) MONTHLY REPORTS. Within fifteen (15) days after the end of each
---------------
calendar month, reports showing through the end of the preceding month, (A)
the opening and closing balances on each Financed Note Receivable, (B) all
payments received on each Financed Note Receivable allocated to interest,
principal, late charges, taxes or the like, (C) the average rate of
interest for all Financed Notes Receivable, (D) an itemization of
delinquencies, extensions, refinances, prepayments and other adjustments
for each Financed Note Receivable, (E) the average remaining term for all
Financed Notes Receivable, (F) the average down payment received with
respect to all Financed Notes Receivable, and (G) the nature and status of
any claims asserted or legal action pending with respect to any Financed
Note Receivable;
(b) MONTHLY SALES REPORT. Within fifteen (15) days after the end of
--------------------
each month, a report showing all sales and cancellation of sales of
Intervals during the preceding month, certified by Borrower and in form and
content satisfactory to Lender;
(c) QUARTERLY AND SEMI-ANNUAL FINANCIAL REPORTS. Within forty-five
-------------------------------------------
(45) days after the end of each fiscal quarterly and semi-annual period,
unaudited financial statements of Borrower, certified by the chief
financial officer of Borrower;
13
<PAGE>
(d) YEAR-END FINANCIAL REPORTS. As soon as available and in any event
--------------------------
within one hundred and twenty (120) days after the end of each Fiscal Year:
(i) the audited balance sheet of Borrower and any owners' association as at
the end of such year and the related statements of income and cash flow for
such Fiscal Year; (ii) a schedule of all outstanding indebtedness of
Borrower describing in reasonable detail each such debt or loan outstanding
and the principal amount and amount of accrued and unpaid interest with
respect to each such debt or loan; and (iii) copies of reports with respect
to the financial statements from a firm of independent certified public
accountants selected by Borrower, which report shall be unqualified as to
going concern and scope of audit and shall state that such financial
statements present fairly the financial position of Borrower and such
owners' association, as applicable, as at the dates indicated and the
results of its operations and cash flow for the periods indicated in
conformity with GAAP. As soon as available and in any event within one
hundred fifty (150) days after the end of each Fiscal Year, the audited
balance sheet of Guarantor as at the end of such year and the related
statements of income and cash flow for such Fiscal Year;
(d) FINANCIAL COVENANT COMPLIANCE. Concurrently with the delivery of
-----------------------------
quarterly financial statements for Borrower, written certification of the
maintenance by Borrower of the net worth requirement set forth in Section
6.8 hereof during the preceding fiscal quarter;
(e) AUDIT REPORTS. Promptly upon receipt thereof, one (1) copy of each
-------------
other report submitted to Borrower by independent public accountants in
connection with any annual, interim or special audit made by them of the
books of Borrower;
(f) ASSOCIATION BUDGETS. Within thirty (30) days after the
-------------------
preparation thereof, copies of any annual or supplemental budget prepared
by the owners' association under the Declaration; and
(g) OTHER REPORTS. Any other reports reasonably requested by Lender.
-------------
6.6 RECORDS. Borrower shall keep adequate records and books of account
-------
reflecting all financial transactions of Borrower, including sales of Intervals,
in which complete entries will be made in accordance with GAAP.
6.7 MANAGEMENT. The manager and the management contracts for the Resort
----------
shall at all times be reasonably satisfactory to Lender. For so long as Borrower
controls the owners' association for the Resort, Borrower shall not change the
Resort manager or amend, modify or waive any provision of or terminate the
management contract for the Resort without the prior written consent of Lender,
which consent shall not be unreasonably withheld.
14
<PAGE>
6.8 Net Worth Covenant. Borrower agrees to maintain a minimum net worth,
------------------
determined in accordance with GAAP, of One Million Dollars ($1,000,000) at all
times that the Indebtedness is outstanding or Lender is obligated to make
Advances.
6.9 Maintenance. Borrower shall maintain or cause to be maintained the
-----------
Resort in good repair, working order and condition and shall make or cause to be
made all necessary replacements to the Property.
6.10 Proceeds. Immediately upon Borrower's receipt of proceeds from the
--------
sale of any of the Collateral (other than the Financed Notes Receivable or
Pledged Documents), Borrower shall deliver such proceeds to Lender in their
original form and pending delivery to Lender. Borrower will hold such proceeds
as agent for Lender and in trust for Lender.
6.11 Title. Borrower shall promptly notify Lender of any claim, action or
-----
proceeding affecting title to the Collateral, or any part thereof, or any of the
security interests granted hereunder, and, at the request of Lender, appear in
and defend, at Borrower's expense, any such claim, action or proceeding.
6.12 Use of Lender Name. Borrower will not, and will not permit any
------------------
Affiliate to, without the prior written consent of Lender, use the name of
Lender or the name of any affiliates of Lender in connection with any of their
respective businesses or activities, except in connection with internal business
matters, administration of any of the Loans and as required in dealings with
governmental agencies.
6.13 Other Documents. Borrower will maintain accurate and complete files
---------------
relating to the Notes Receivable and other Collateral to the reasonable
satisfaction of Lender, and such files will contain copies of each Note
Receivable, as amended from time to time, copies of all relevant credit
memoranda relating to such Notes Receivable and all collection information and
correspondence relating thereto.
6.14 Subordinated Obligations; Partner Indebtedness. Borrower will not,
----------------------------------------------
directly or indirectly, (a) permit any payment to be made in respect of any
indebtedness, liabilities or obligations, direct or contingent, which are
subordinated by the terms thereof or by separate instrument to the payment of
principal of, and interest on, the Receivables Note and the Construction Note
except for Permitted Distributions or otherwise in accordance with the terms of
such subordination or, with respect to the Partner Indebtedness in accordance
with a Partner Indebtedness Payment Schedule that has been approved by Lender,
(b) permit the amendment, rescission or other modification of any such
subordination provisions of any of Borrower's subordinated obligations in such a
manner as to affect adversely Lender's lien or the prior position of the
Receivables Note, or the Construction Note, or (c) permit the prepayment or
redemption, except for mandatory prepayments, of all or any part of any
subordinated obligations of Borrower except in accordance with the terms of a
Partner Indebtedness Payment Schedule that has been approved by Lender.
15
<PAGE>
6.15 Further Assurances. Borrower will execute and deliver, or cause to be
------------------
executed and delivered, such other and further agreements, documents,
instruments, certificates and assurances as, in the judgment of Lender exercised
in good faith may be necessary or appropriate to more effectively evidence or
legally secure the Indebtedness and to ensure the performance of the terms and
provisions of the Loan Documents. In addition, Borrower shall deliver to Lender
from time to time upon each request by Lender such documents, instruments or
other matters or items as Lender may require to evidence Borrower's compliance
its representations, warranties and covenants.
6.16 Credit Investigations. Lender may, provided such contact is in
---------------------
compliance with applicable law, contact any Purchaser directly, whether prior to
or after a sale of an Interval, to verify all relevant information regarding
such Purchaser and, unless Borrower performs third party credit investigations
of Purchasers and delivers to Lender copies of all credit reports, may perform,
at Borrower's expense, any and all credit investigations as Lender may deem
necessary to determine whether any such Purchaser meets the requirements to be
an Eligible Notes Receivable.
6.17 Loan Servicing. The servicing company and Servicing Agreement shall be
--------------
satisfactory to Lender in its sole discretion. Borrower may not amend or
terminate the Servicing Agreement without Lender's prior approval. The Servicing
Agreement shall be cancelable by Lender upon the occurrence of any default under
the Loan Documents. If such servicer is an Affiliate, no servicing fees shall
be paid if a default under any Loan Document has occurred and is continuing.
6.18 Custodian. Lender shall have the right at any time to utilize
---------
Custodian to maintain custody of the Collateral. Borrower agrees not to
interfere with Custodian's performance of its duties under the Custodial
Agreement or to take any action that would be inconsistent in any way with the
terms of the Custodial Agreement. Borrower shall pay all costs and expenses of
Custodian or of Lender in entering into and maintaining the Custodial Agreement.
6.19 Notice of Proceedings/Subordinated Debt Default. Borrower will deliver
-----------------------------------------------
to Lender, within ten (10) days of Borrower becoming aware of any such matter,
(i) written notice of any action, suit, proceeding, order or injunction
commenced, issued or threatened against Borrower, General Partner, Guarantor or
the Resort, at law or in equity, which involves asserted liability of $100,000
or more or otherwise could have a material adverse effect on Borrower, General
Partner, Guarantor or the Resort, or Borrower's ability to repay the Receivables
Loan, and (ii) the occurrence of any default under any indebtedness subordinated
to the Indebtedness.
6.20 Distributions. For so long as any of the Indebtedness is outstanding
-------------
or Lender has any obligation to make Advances hereunder or under the C&A Loan
Documents, Borrower shall not make any Distribution except for Permitted
Distributions.
16
<PAGE>
SECTION 7
---------
NEGATIVE COVENANTS
------------------
So long as any portion of the Indebtedness remains unpaid or Lender is committed
to lend hereunder, unless Lender otherwise consents in writing, Borrower hereby
covenants and agrees with Lender as follows:
7.1 Consolidation and Merger. Borrower will not consolidate with or merge
------------------------
into any other Person or permit any other Person to consolidate with or merge
into it.
7.2 Restrictions on Transfers. Borrower shall not, without obtaining the
-------------------------
prior written consent of Lender in Lender's sole discretion (a) transfer, sell,
pledge, convey or assign all or any portion of the Property or the Collateral
(or contract to do any of the foregoing, including, without limitation, options
to purchase and so called "installment sales contracts", "land contracts", or
"contracts for deed"), except sales of Intervals to Purchasers in arm's-length
transactions and sales of Units that do not constitute C&A Loan Collateral and
that were not constructed using proceeds of the Construction Loan, and the
replacement in the ordinary course of business of items of Collateral that have
become destroyed, damaged or obsolete; (b) permit any sale, assignment,
encumbrance, dilution or other disposition of any ownership interests in
Borrower (including any right to receive profits, losses or cash flow related to
the Resort) now held by the General Partner that would cause Andrew J. Gessow to
own less than a fifty percent (50%) interest in the General Partner or to cease
to have overall management responsibility and control over Borrower; (c) permit
any sale, assignment, encumbrance or other disposition of any ownership interest
in the Borrower that would cause Borrower to be controlled by a Person other
than the General Partner; (d) allow any transfer or encumbrance of any unsold
Interval or the interest in the underlying Units, except for sales of Intervals
to Purchasers in arm's-length transactions and Units that do not constitute C&A
Loan Collateral and the construction of which was not financed by any proceeds
of the Construction Loan. Notwithstanding the foregoing, the occurrence of an
event described in clause (b) above arising solely from either the death of
Andrew J. Gessow or operation of law shall not constitute a breach of this
Section 9 if and only to the extent that within forty-five (45) days following
any such event, Borrower identifies to Lender the person replacing Andrew J.
Gessow and such person is satisfactory to Lender in its reasonable discretion.
Intestate transfers or transfers by devise shall not constitute a transfer for
purposes of the foregoing provisions. Borrower further covenants and agrees
that, subject to the provisions of Section 10.10 of the Receivables Loan
Agreement, if Borrower obtains financing for Note Receivables (as defined in the
Receivables Loan Agreement) that are not part of the Receivables Loan Collateral
from any lender or person other than Lender, that such financing will be secured
only by the Note Receivables so financed. Borrower further covenants and agrees
that, for so long as any amount of the Construction Loan or Acquisition Loan is
outstanding or Lender has any obligation under the C&A Loan Agreement to advance
proceeds of the Construction Loan, and subject to the provisions of Section 6.16
of the Construction Loan Agreement for so long as Section 6.16 is effective, if
Borrower obtains financing for any real
17
<PAGE>
and/or personal property in the Resort that is not part of the C&A Loan
Collateral from any lender or person other than Lender, that such financing will
be secured only by the real and/or personal property so financed.
Notwithstanding the foregoing, any lender or person providing financing for both
Note Receivables and construction of any improvements may cross-collateralize
such financings but only for so long as any such construction financing or
obligation to provide construction financing remains outstanding.
7.3 Timeshare Regimen. Without Lender's prior written consent, which
-----------------
consent shall not be unreasonably withheld, Borrower shall not amend, modify,
supplement or terminate the Declaration or the covenants, conditions, easements
or restrictions against the Resort (or any portion thereof), except for
amendments that cause additional Units and Intervals to be annexed into the
timeshare regimen of the Resort, the Tenth Amendment in the form submitted to
Lender prior to the Closing Date, and any amendment changing the definition of
"Designated Season" under the Declaration, and except that if any amendment or
modification is required by law, Borrower shall implement the same and give
prompt written notice thereof to Lender.
7.4 Collateral. Borrower shall not take any action (nor permit or consent
----------
to the taking of any action) which might reasonably be anticipated to materially
impair the value of the Collateral or any of the rights of Lender in the
Collateral.
7.5 No Sales Outside of Missouri. Borrower shall not market, attempt to
----------------------------
sell or sell any Intervals outside of the State of Missouri, unless prior to
taking any such actions, Borrower has obtained the applicable Compliance
Documents. For purposes of this Section 7.5, the mere solicitation or
advertisement of Interval sales in any State other than Missouri shall not
require delivery of any Compliance Documents, provided that such solicitation or
advertisement activities shall comply with all applicable laws. No Advances with
respect to Notes Receivable arising from sales of Intervals in any State other
than Missouri will be made by Lender unless and until Lender receives and
approves the Compliance Documents for such other State.
7.6 Contracts. Borrower shall not amend, modify or assign any management,
---------
marketing, servicing, maintenance or other similar contract for the Resort.
SECTION 8
---------
Intentionally Omitted.
----------------------
SECTION 9
---------
REMEDIES
--------
9. 1 Remedies Upon Default. Upon the occurrence of an Event of Default,
---------------------
Lender may take any one or more of the following actions, all without notice to
Borrower:
18
<PAGE>
(a) ACCELERATION. Declare the unpaid balance of the Indebtedness, or
------------
any part thereof, immediately due and payable, whereupon the same shall be
due and payable.
(b) TERMINATION OF OBLIGATION TO ADVANCE. Terminate any commitment of
------------------------------------
Lender to lend under this Agreement or any of the Loan Documents in its
entirety, or any portion of any such commitment, to the extent Lender shall
deem appropriate.
(c) JUDGMENT. Reduce Lender's claim to judgment, foreclose or
--------
otherwise enforce Lender's security interest in all or any part of the
Collateral by any available judicial procedure.
(d) SALE OF COLLATERAL. Exercise all the rights and remedies of a
------------------
secured party on default under the UCC (whether or not the UCC applies to
the affected Collateral) including, without limitation, (i) require
Borrower to, and Borrower hereby agrees that it will, at its expense and
upon request of Lender forthwith, assemble all or part of the Collateral as
directed by Lender and make it available to Lender at a place to be
designated by Lender which is reasonably convenient to both parties; (ii)
enter upon any premises of Borrower and take possession of the Collateral;
and (iii) sell the Collateral or any part thereof in one or more parcels at
public or private sale, at any of the Lender's offices or elsewhere, at
such time or times, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as Lender may deem commercially
reasonable. Borrower agrees that, to the extent notice of sale shall be
required by law, ten (10) days notice of the time and place of any sale
shall constitute reasonable notification. At any sale of the Collateral, if
permitted by law, Lender may bid (which bid may be, in whole or in part, in
the form of cancellation of indebtedness) for the purchase of the
Collateral, or any portion thereof for the account of Lender. Borrower
shall remain liable for any deficiency. Lender shall not be required to
proceed against any Collateral but may proceed against Borrower directly.
To the extent permitted by law, Borrower hereby specifically waives all
rights of redemption, stay or appraisal which it has or may have under any
law now existing or hereafter enacted.
(e) RECEIVER. Apply by appropriate judicial proceedings for
--------
appointment of a receiver for the Collateral, or any part thereof, and
Borrower hereby consents to any such appointment.
(f) EXERCISE OF OTHER RIGHTS. Exercise any and all other rights
------------------------
or remedies afforded by any applicable laws or by the Loan Documents as
Lender shall deem appropriate, at law, in equity or otherwise, including,
but not limited to, the right to bring suit or other proceeding, either for
specific performance of any covenant or condition contained in the Loan
Documents or in aid of the exercise of any right or remedy granted to
Lender in the Loan Documents.
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<PAGE>
9.2 APPLICATION OF COLLATERAL; TERMINATION OF AGREEMENTS. Upon the
----------------------------------------------------
occurrence of an Event of Default, Lender may apply against the Indebtedness any
and all Collateral in its possession, any and all balances, credits, deposits,
accounts, reserves, indebtedness or other moneys due or owing to Borrower held
by Lender hereunder or under any other financing agreement or otherwise, whether
accrued or not.
9.3 WAIVERS. No waiver by Lender of any Event of Default shall be deemed
-------
to be a waiver of any other or subsequent Event of Default. No delay or omission
by Lender in exercising any right or remedy under the Loan Documents shall
impair such right or remedy or be construed as a waiver thereof or an
acquiescence therein, nor shall any single or partial exercise of any such right
or remedy preclude other or further exercise thereof, or the exercise of any
other right or remedy under the Loan Documents or otherwise. Further, Borrower
and each and every surety, endorser, guarantor and other party liable for the
payment or performance of all or any portion of the Indebtedness, severally
waive notice (except for any notice expressly required in the Loan Documents) of
the occurrence of any Event of Default, presentment and demand for payment,
protest, and notice of protest, notice of intention to accelerate, acceleration
and nonpayment, and agree that their liability shall not be affected by any
renewal or extension in the time of payment of the Indebtedness, or by any
release or change in any security for the payment or performance of the
Indebtedness, regardless of the number of such renewals, extensions, releases or
changes.
9.4 CUMULATIVE RIGHTS. All rights and remedies available to Lender under
-----------------
the Loan Documents shall be cumulative and in addition to all other rights and
remedies granted to Lender at law or in equity, whether or not the Indebtedness
is due and payable and whether or not Lender shall have instituted any suit for
collection or other action in connection with the Loan Documents.
9.5 EXPENDITURES BY LENDER. Any sums expended by or on behalf of Lender
----------------------
pursuant to the exercise of any right or remedy provided herein (including
reasonable attorneys' fees) shall become part of the Indebtedness and shall bear
interest at the Default Rate, from the date of such expenditure until the date
repaid.
SECTION 10
----------
CERTAIN RIGHTS OF LENDER
------------------------
10.1 PROTECTION OF COLLATERAL. Lender may at any time and from time to
------------------------
time take such actions as Lender deems necessary or appropriate to protect
Lender's liens and security interests in and to preserve the Collateral.
Borrower agrees to cooperate fully with all of Lender's efforts to preserve the
Collateral and Lender's liens and security interests therein and will take such
reasonable actions to preserve the Collateral and Lender's liens and security
interests therein.
20
<PAGE>
10.2 PERFORMANCE BY LENDER. If Borrower fails to perform any agreement
---------------------
contained herein or in any of the Loan Documents, Lender may, but shall not be
obligated to, cause the performance of, such agreement, and the expenses of
Lender incurred in connection therewith shall be payable by Borrower pursuant to
Section 10.3 below.
10.3 FEES AND EXPENSES. Borrower agrees to promptly pay all reasonable
-----------------
Costs incurred by Lender in connection with the documentation, modification,
workout, collection or enforcement of the Loans or any of the Loan Documents and
all such Costs shall be included as additional Indebtedness bearing interest at
the Default Rate until paid.
10.4 LENDER'S RIGHT OF SET-OFF. Upon the occurrence of an Event of Default,
-------------------------
or if Lender shall be served with garnishment process in which Borrower shall be
named as defendant, whether or not any Event of Default shall have occurred,
Lender may, but shall not be required to, set-off any indebtedness owing by
Lender to Borrower against any of the Indebtedness without first resorting to
the security hereunder and without prejudice to any other rights or remedies of
Lender or its security interest herein.
10.5 ASSIGNMENT OF LENDER'S INTEREST. Lender shall have the right to assign
-------------------------------
all or any portion of its rights in this Agreement, any of the Loan Documents to
any subsequent holder or holders of the Indebtedness.
10.6 NOTICE TO PURCHASER. Borrower authorizes both Lender and the Custodian
-------------------
(but neither Lender nor the Custodian shall be obligated) to communicate at any
time and from time to time with any Purchaser or any other Person primarily or
secondarily liable under a Financed Note Receivable with regard to the lien of
Lender thereon and any other matter relating thereto. Borrower agrees to notify
each Purchaser in writing of the assignment to Lender of its respective Financed
Note Receivable and to direct such Purchaser to remit all payments thereunder to
the Bank or to such other Person as Lender may designate.
10.7 COLLECTION OF FINANCED NOTE RECEIVABLES. Borrower shall direct and
---------------------------------------
authorize each party liable for the payment of the Financed Notes Receivable to
pay each installment thereon to Bank pursuant to the Lockbox Agreement unless
and until directed otherwise by written notice from Lender, after which such
parties are directed to make all further payments on the Financed Notes
Receivable in accordance with the directions of Lender. Following the occurrence
of an Event of Default and for so long as such Event of Default shall continue,
Lender shall have the right to (a) require that all payments due under the
Financed Notes Receivable be paid directly to Lender, and to receive, collect,
hold and apply the same in accordance with the provisions of this Agreement, and
(b) take such remedial action available to it for the enforcement of any
defaulted Note Receivable assigned to Lender including the foreclosure of any
Deed of Trust securing the payment thereof. Borrower hereby further authorizes,
directs and empowers Lender to collect and receive all checks and drafts
evidencing such payments and to endorse such checks or drafts in the name of
Borrower and upon such endorsements, to collect and receive the money therefor.
The right to endorse checks and drafts
21
<PAGE>
granted pursuant to the preceding sentence is irrevocable by Borrower, and the
banks or banks paying such checks or drafts upon such endorsements, as well as
the signers of the same, shall be as fully protected as though the checks or
drafts have been endorsed by Borrower.
Upon payment and satisfaction in full of all Indebtedness, Lender will, at
Borrower's request and sole expense, give written notice as necessary to
redirect payment of the Financed Notes Receivable as requested by Borrower.
10.8 POWER OF ATTORNEY. Borrower does hereby irrevocably constitute and
-----------------
appoint Lender as Borrower's true and lawful agent and attorney-in-fact, with
full power of substitution, for Borrower and in Borrower's name, place and
stead, or otherwise, to (a) endorse any checks or drafts payable to Borrower in
the name of Borrower and in favor of Lender as provided in Section 10.7 above;
(b) to demand and receive from time to time any and all property, rights,
titles, interests and liens hereby sold, assigned and transferred, or intended
so to be, and to give receipts for same; (c) from time to time to institute and
prosecute in the name of Borrower or otherwise, but for the benefit of Lender,
any and all proceedings at law, in equity, or otherwise, that Lender may deem
proper in order to collect, assert or enforce any claim, right or title, of any
kind, in and to the property, rights, titles, interests and liens hereby sold,
assigned or transferred, or intended so to be, and to defend and compromise any
and all actions, suits or proceedings in respect of any of the said property,
rights, titles, interests and liens; and (d) generally to do all and any such
acts and things in relation to the Collateral as Lender shall in good faith deem
advisable. Borrower hereby declares that the appointment made and the powers
granted pursuant to this Section are coupled with an interest and are and shall
be irrevocable by Borrower in any manner, or for any reason, unless and until
all obligations of Borrower to Lender have been satisfied. Notwithstanding any
provision of this Section 10.8 to the contrary, Lender agrees that for so long
as no Event of Default has occurred and is continuing, it will not exercise the
power of attorney granted under this Section 10.8 with respect to any Financed
Note Receivable, which ceases to become an Eligible Note Receivable by reason of
an installment payment thereunder becoming more than sixty (60) days past due
and is not replaced by Borrower as provided in Section 2.5(b) hereof, prior to
the expiration of the ninetieth (90th) day on which such Financed Note
Receivable becomes past due and the failure of Borrower to perform as required
pursuant to clauses (i) or (ii) of Section 2.5(b) of this Agreement.
10.9 INDEMNIFICATION OF LENDER. Borrower hereby agrees to indemnify Lender
-------------------------
and hold Lender harmless from and against any and all liabilities, indebtedness,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses,
and disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against Lender, in any way relating to or arising out of
(a) this Agreement and the Loan Documents, and/or (b) any of the transactions
contemplated therein or thereby (including, without limitation, those in any way
relating to or arising out of the violation by Borrower of any federal or state
laws including the Interstate Land Sales Act or the Timeshare Act). Upon
receiving knowledge of any suit, claim or demand asserted by a third party that
Lender believes is covered by this indemnity, and subject to the condition that
no Event of Default under this Agreement shall then exist, Lender
22
<PAGE>
shall give Borrower notice of the matter and an opportunity to defend it, at
Borrower's sole cost and expense, with legal counsel satisfactory to Lender.
Notwithstanding any defense by Borrower of any such suit, claim or demand,
Lender shall have the right to participate in any material decision affecting
the conduct or settlement of any dispute or proceeding for which indemnification
may be claimed. It is the express intention of the parties hereto that the
indemnity provided for herein is intended to and shall protect and indemnify
Lender from the consequences of Lender's own negligence (but not gross
negligence or willful misconduct), whether or not that negligence is the sole or
concurring cause of any liability, obligation, loss, damage, penalty, action,
judgment, suit, claim, cost, expense or disbursement.
10.10 LENDER'S RIGHT TO PROVIDE FINANCING. Subject to the terms and
-----------------------------------
conditions of this Section 10.10, Borrower hereby covenants with Lender that,
for so long as any Indebtedness consisting of the Construction Loan is
outstanding, Lender shall have, and Lender is hereby granted, an exclusive right
and option (the "FUNDING OPTION") to provide all secured financing for Notes
Receivable generated from the sale by Borrower or any Affiliate of Borrower to
Purchasers of Intervals with respect to Units located in buildings constructed
with proceeds of the Construction Loan. The Funding Option may be exercised or
not exercised in Lender's sole and absolute discretion. Borrower shall submit to
Lender a written request for financing under the Funding Option and Lender
shall, within fifteen (15) Business Days after receipt of such written request
notify Borrower in writing if Lender elects to exercise such Funding Option and
provide the requested financing, with the closing for such financing to occur
within thirty (30) days after Lender's election to exercise the Funding Option.
The failure of Lender to exercise the Funding Option with respect to any
Borrower request therefor shall terminate Lender's right to exercise the Funding
Option with respect to any subsequent request, and at Borrower's request, Lender
shall deliver to Borrower a writing in recordable form confirming such
termination. Any credit facility established by Lender pursuant to the Funding
Option shall be on the same terms and conditions as the Receivables Loan.
Notwithstanding anything contained herein to the contrary, it is expressly
agreed and understood that any financing to be extended pursuant to the Funding
Option shall be subject to approval by Lender's loan committee in accordance
with Lender's standard credit guidelines, and it is further expressly agreed and
understood that Lender is under no obligation to exercise the Funding Option and
that nothing in this Section 10.10 shall be deemed or construed to create any
such obligation.
SECTION 11
----------
MISCELLANEOUS
-------------
11.1 NOTICE. Any notice or other communication required or permitted to be
------
given shall be in writing addressed to the respective party as set forth below
and may be personally served, telecopied or sent by overnight courier or U.S.
Mail and shall be deemed given: (a) if served in person, when served; (b) if
telecopied, on the date of transmission if before 3:00 p.m. (Chicago time) on a
business day; provided that a hard copy of such notice is also sent pursuant to
--------
(c) or (d) below; (c) if by overnight courier, on the first business day after
delivery to the
23
<PAGE>
courier; or (d) if by U.S. Mail, certified or registered mail, return receipt
requested on the fourth (4th) day after deposit in the mail postage prepaid.
Notices to Borrower: Fall Creek Resort, L.P.
2934 Woodside Road
Woodside, California 94062
Attn: Andrew J. Gessow
with a copy to: Leo Rose III, Esq.
Schreeder, Wheeler & Flint
The Candler Building
Sixteenth Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Telecopy: (404) 681-1046
and James Maneri
7 Great Valley Parkway
Suite 225
Great Valley Corporate Center
Malvern, Pennsylvania 19355
Telecopy: (610) 889-9726
Notices to Lender: Heller Financial, Inc.
Real Estate Financial Services
Attn: Portfolio Manager, Secured Receivables
500 West Monroe St. 15th Fl.
Chicago, Illinois 60661
Telecopy: (312) 441-7119
with a copy to: Heller Financial, Inc.
Real Estate Financial Services
Attn: Group General Counsel
500 West Monroe St. 15th Fl.
Chicago, Illinois 60661
Telecopy: (312) 441-7872
11.2 SURVIVAL. All representations, warranties, covenants and agreements
--------
made by Borrower herein, in the other Loan Documents, or in any other agreement,
document, instrument or certificate delivered by or on behalf of Borrower under
or pursuant to the Loan Documents shall be considered to have been relied upon
by Lender and shall survive the delivery to Lender of such Loan Documents and
the extension of the Indebtedness (and each part thereof), regardless of any
investigation made by or on behalf of Lender.
24
<PAGE>
11.3 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS
-------------
MAY BE EXPRESSLY PROVIDED THEREIN TO THE CONTRARY) SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS AND APPLICABLE
LAWS OF THE UNITED STATES; PROVIDED, HOWEVER, THAT THE LAW OF THE STATE WHERE
THE COLLATERAL IS LOCATED SHALL APPLY AS TO MATTERS RELATING TO THE CREATION,
PERFECTION AND ENFORCEMENT OF LIENS, ENCUMBRANCES AND SECURITY INTERESTS IN SUCH
COLLATERAL.
11.4 LIMITATION ON INTEREST. In no event whatsoever shall the amount of
----------------------
interest paid or agreed to be paid to Lender pursuant to this Agreement, the
Notes or any of the Loan Documents exceed the highest lawful rate of interest
permissible under applicable law. If, from any circumstances whatsoever,
fulfillment of any provision of this Agreement, the Notes and the other Loan
Documents shall involve exceeding the lawful rate of interest which a court of
competent jurisdiction may deem applicable hereto ("EXCESS INTEREST"), then ipso
----
facto, the obligation to be fulfilled shall be reduced to the highest lawful
- -----
rate of interest permissible under such law and if, for any reason whatsoever,
Lender shall receive, as interest, an amount which would be deemed unlawful
under such applicable law, such interest shall be applied to the Receivables
Loan (whether or not due and payable), and not to the payment of interest, or
refunded to Borrower if such Receivables Loan have been paid in full. Neither
Borrower nor any guarantor or endorser shall have any action against Lender for
any damages whatsoever arising out of the payment or collection of any such
Excess Interest.
11.5 INVALID PROVISIONS. If any provision of this Agreement or any of the
------------------
other Loan Documents is held to be illegal, invalid or unenforceable under
present or future laws effective during the term thereof, such provision shall
be fully severable, this Agreement and the other Loan Documents shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof or thereof, and the remaining provisions
hereof or thereof shall remain in full force and effect.
11.6 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
---------------------------
number of counterparts, each of which shall be an original, with the same effect
as if the signature thereto and hereto were on the same instrument. This
Agreement shall become effective upon Lender's receipt of one or more
counterparts hereof signed by Borrower and Lender.
11.7 NO DUTY. All attorneys, accountants, appraisers, consultants,
-------
custodians and other professional persons retained by Lender shall have the
right to act exclusively in the interests of Lender and shall have no duty of
disclosure, duty of loyalty, duty of care or other duty or obligation of any
type or nature whatsoever to Borrower or its shareholders or any other person or
entity.
11.8 LENDER NOT FIDUCIARY. The relationship between Borrower and Lender is
--------------------
solely that of debtor and creditor, and Lender has no fiduciary or other special
relationship with
25
<PAGE>
Borrower, and no term or provision of any of the Loan Documents shall be
construed so as to deem the relationship between Borrower and Lender to be other
than that of debtor and creditor.
11.9 ACCOUNTING PRINCIPLES. Where the character or amount of any asset or
---------------------
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be determined or made in accordance
with GAAP, to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
11.10 ENTIRE AGREEMENT. This Agreement, including the Exhibits and other
----------------
Loan Documents and agreements referred to herein embody the entire agreement
between the parties hereto, supersedes all prior agreements and understandings
between the parties whether written or oral relating to the subject matter
hereof and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no oral agreements among
Lender, Borrower, the General Partner or Guarantor or between any two or more of
them. This Agreement and the Loan Documents may be modified or changed only in a
writing executed by both Lender and Borrower and/or the other affected parties.
11.11 VENUE. BORROWER AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING
-----
DIRECTLY, INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED, AT LENDER'S SOLE
DISCRETION AND ELECTION, ONLY IN COURTS HAVING A SITUS WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID COUNTY AND
STATE. BORROWER HEREBY IRREVOCABLY APPOINTS AND DESIGNATES CT CORPORATION
SYSTEM, WHOSE ADDRESS IS BORROWER, C/O CT CORPORATION SYSTEM, 208 S. LASALLE
STREET, CHICAGO, ILLINOIS 60604, AS ITS DULY AUTHORIZED AGENT FOR SERVICE OF
LEGAL PROCESS AND AGREES THAT SERVICE OF SUCH PROCESS UPON SUCH PARTY SHALL
CONSTITUTE PERSONAL SERVICE OF PROCESS UPON SUCH PARTY. IN THE EVENT SERVICE IS
UNDELIVERABLE BECAUSE SUCH AGENT MOVES OR CEASES TO DO BUSINESS IN CHICAGO,
ILLINOIS, BORROWER SHALL, WITHIN TEN (10) DAYS AFTER LENDER'S REQUEST, APPOINT A
SUBSTITUTE AGENT (IN CHICAGO, ILLINOIS) ON ITS BEHALF AND WITHIN SUCH PERIOD
NOTIFY LENDER OF SUCH APPOINTMENT. IF SUCH SUBSTITUTE AGENT IS NOT TIMELY
APPOINTED, LENDER SHALL, IN ITS SOLE DISCRETION, HAVE THE RIGHT TO DESIGNATE A
SUBSTITUTE AGENT UPON FIVE (5) DAYS NOTICE TO BORROWER. BORROWER HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST IT BY LENDER ON THE LOAN DOCUMENTS IN ACCORDANCE WITH THIS PARAGRAPH.
LENDER SHALL SEND TO BORROWER AT ITS ADDRESS FOR NOTICE SET FORTH IN SECTION
11.1 A COPY OF ANY PROCESS SERVED PURSUANT TO THIS SECTION 11.11.
26
<PAGE>
11.12 JURY TRIAL WAIVER. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE
-----------------
RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO,
THE SUBJECT MATTER OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE
BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER IS KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY MADE BY BORROWER AND LENDER, AND BORROWER
ACKNOWLEDGES THAT NEITHER LENDER NOR ANY PERSON ACTING ON BEHALF OF LENDER HAS
MADE ANY REPRESENTATIONS OF FACT TO INCLUDE THIS WAIVER OF TRIAL BY JURY OR HAS
TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. BORROWER AND
LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH OF THEM HAS ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH OF THEM
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER
AND LENDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
11.13 CONSENT TO ADVERTISING AND PUBLICITY. Borrower hereby consents that
------------------------------------
Lender may issue and disseminate to the public information describing the credit
accommodation entered into pursuant to this Agreement and the Loan Documents.
11.14 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement refers
----------------------
to action to be taken by any Person, or which such Person is prohibited from
taking, such provisions shall be applicable whether such action is taken
directly or indirectly by such Person.
11.15 HEADINGS. Section headings have been inserted in this Agreement as a
--------
matter of convenience of reference only; such section headings are not a part of
this Agreement and shall not be used in the interpretation of this Agreement.
11.16 BROKER'S FEES. There are no brokers, finders' or other similar fees
-------------
or commitments due with respect to the transactions described in this Agreement
or the Loan Documents. Borrower shall defend Lender and save and hold it
harmless from all claims of any Persons for any such fees which indemnity shall
include reasonable attorneys' fees and legal expenses.
27
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be
executed and delivered by their duly authorized officers effective as of the
date first above written.
BORROWER:
FALL CREEK RESORT, L.P., a
Georgia limited partnership
By: ARGOSY BRANSON, INC., a
Georgia corporation, its
general partner
LENDER:
HELLER FINANCIAL, INC.
By: Dan Graton
---------------------------------
Name: Dawn Graton
-------------------------------
Its: Assistant Vice President
--------------------------------
28
<PAGE>
SCHEDULE 4.1
------------
Closing Deliveries
------------------
Pursuant to Section 4.1 of the Agreement, Lender shall not be obligated to fund
the initial Advance of the Receivables Loan unless Lender shall have received,
in form and substance satisfactory to Lender, all documents, instruments and
information as follows:
1. OPINIONS OF COUNSEL. An opinion of Borrower's counsel stating: (a)
-------------------
that the Loans are not usurious under applicable laws; (a) that the Loan
Documents are validly executed, duly authorized and binding and enforceable in
accordance with their terms; (c) that the execution and delivery of the Loan
Documents and the performance of the transactions contemplated thereby do not
violate or contravene any Missouri or Georgia law, or court order, judgment or
contract to which Borrower or any General Partner is a party; and (d) such
further opinions as Lender shall require. The opinion of Borrower's counsel
shall be from an independent counsel acceptable to Lender.
2. BACKGROUND DOCUMENTS. A true and complete copy of the partnership
--------------------
agreement creating Borrower and any and all amendments thereto have been
furnished to Lender. A true and complete copy of the articles of incorporation
and by-laws of General Partner, and all other documents creating and governing
General Partner have been furnished to Lender. There are no other agreements,
oral or written, among any of the shareholders or partners, as applicable, of
General Partner relating to General Partner.
3. SURVEY. An as built survey of the Property, dated no more than sixty
------
(60) days prior to the Closing Date, prepared by a registered land surveyor in
accordance with the 1992 American Land Title Association/American Congress on
Surveying and Mapping Standards and certifying that the Property is not in a
flood hazard area as identified by the Secretary of Housing and Urban
Development and otherwise acceptable to Lender.
4. AUTHORIZATIONS. Such certified authorizations or resolutions required
--------------
to authorize Borrower to enter into and execute this Agreement, the Notes and
the other Loan Documents and to borrow the Loans from Lender.
5. MANAGEMENT AND OTHER AGREEMENTS. A copy of all management contracts,
-------------------------------
marketing, servicing, maintenance or other similar contracts for the Resort.
6. COMPLIANCE DOCUMENTS. The Compliance Documents.
---------------------
7. EVIDENCE OF INSURANCE. Evidence of policies of insurance.
----------------------
29
<PAGE>
8. ELIGIBLE NOTES RECEIVABLE. With respect to the proposed Financed
-------------------------
Notes Receivable, verification (i) that the same exist and constitute Eligible
Notes Receivable, and (ii) of the amounts due thereunder.
9. APPLICABLE LAWS. Evidence that Borrower is in compliance with all
---------------
applicable laws in connection with its sales of Intervals.
10. LOAN DOCUMENTS. All documents to be executed in connection with the
--------------
Receivables Loan, including, without limitation, the Receivables Note, the
Guaranty (Receivables), UCC-1 Financing Statements, a lockbox agreement,
assignment of management, servicing, marketing, maintenance and other similar
contracts, and such other documents as Lender may require. All C&A Loan
Documents to be executed in connection with the Construction Loan and
Acquisition Loan.
11. INTENTIONALLY OMITTED.
---------------------
12. OTHER LOAN DOCUMENTS. Copies of all loan documents between Borrower
--------------------
and any lender holding a deed of trust or mortgage lien on the Resort or any
portion thereof.
13. SUBORDINATION AGREEMENTS. A subordination agreement from all holders
------------------------
of Partner Indebtedness.
14. ENVIRONMENTAL INDEMNITY. An Environmental Indemnity Agreement,
-----------------------
executed by Borrower in favor of Lender.
15. SERVICING AGREEMENT. The fully executed Servicing Agreement together
-------------------
with an assignment thereof to Lender consented to by the servicing agent.
16. CUSTODIAL AGREEMENT. The Custodial Agreement, fully executed by the
-------------------
parties thereto.
17. PARTNER INDEBTEDNESS. Evidence satisfactory to Lender that the term
--------------------
and maturity date of the Partner Indebtedness has been extended to no sooner
than December 31, 1996. The Partner Indebtedness Payment Schedule, which must
be satisfactory to Lender in all respects.
18. OTHER ITEMS. Such other agreements, documents, instruments and
-----------
certificates as Lender may request to evidence the Indebtedness and to evidence
and perfect the liens and security interests contemplated by the Loan Documents.
19. UCC SEARCHES AND TITLE REPORT. Such searches of the applicable public
-----------------------------
records as it deems necessary under applicable law to verify that it has a first
and prior perfected lien and security interest covering all of the Collateral,
subject only to the Permitted Exceptions and
30
<PAGE>
the Purchase Money Mortgage. A title report from a title company acceptable to
Lender for the Property and copies of all exception documents listed thereon.
20. GOVERNMENT PERMITS. Copies of all applicable governmental permits,
------------------
approvals, consents, licenses, and certificates for the occupancy, and the
intended use and operation of the Resort, including the sale and marketing of
Intervals including evidence of compliance with applicable zoning and building
laws.
21. TIMESHARE DOCUMENTS. Copies of all Timeshare Documents, including,
-------------------
without limitation:
(a) registration with and permits and current approvals from the
appropriate governmental agencies to sell Intervals in the State of
Missouri;
(b) the Declaration and all amendments showing the timeshare interval
status of the Units;
(c) the certificate of good standing, articles of incorporation,
bylaws and all amendments of the Resort owners' association (the
"ASSOCIATION");
(d) all agreements entered into by the Association, including the
agreement with Borrower for payment of operating and maintenance costs and
agreements with Unit purchasers; and
(e) the form of all documents used to sell Intervals, including but
not limited to Notes Receivable, Deeds of Trust, the Purchase Documents,
the Public Reports, truth-in-lending statements, real estate contracts,
deeds and management agreements.
22. TAXES. Evidence that all taxes owed by or for which Borrower is
-----
responsible for collection have been paid, including but not limited to sales
taxes, room occupancy taxes, payroll taxes, personal property taxes, real
property taxes, and income taxes.
23. FINANCIAL STATEMENTS. Borrower's last filed federal income tax return
--------------------
and the most recent tax bills for the Property as well as the current annual
balance sheets and financial statements for Borrower, the General Partner and
Guarantor. The financial statements shall: (a) be certified correct and complete
by the appropriate persons, and (b) evidence the entity's financial condition,
which shall be satisfactory to Lender in its sole discretion.
24. CREDIT STANDARDS. Any credit standards adopted by Borrower and
----------------
utilized in approving credit of Purchasers, prior to the adoption of such
standards.
25. AFFILIATE TRANSACTIONS. Copies of any agreements (including without
----------------------
limitation leases) between Borrower and any Affiliate related in any way to non-
trade credit transactions
31
<PAGE>
involving the Resort or its operations, and any servicing, management or similar
arrangements relating to the Resort, all of which shall be satisfactory to
Lender, in its sole discretion.
26. ENGINEERING AND ENVIRONMENTAL REPORTS. An environmental Phase I site
-------------------------------------
assessment and engineering report confirming the absence of toxic or hazardous
substances and acceptable soils conditions and the structural and mechanical
integrity of the improvements at the Property.
27. CREDIT REFERENCES. Such satisfactory credit references and results of
-----------------
credit investigations as Lender may require for Borrower, the General Partner,
Guarantor and any Affiliate.
28. SUBORDINATION AND/OR NON-DISTURBANCE AGREEMENT. Subordination and/or
----------------------------------------------
Non-Disturbance Agreements for the benefit of Lender from such holders of liens
against the Property as Lender may require, which agreements shall be in form
and substance satisfactory to Lender.
32
<PAGE>
SCHEDULE 4.2
------------
DELIVERIES FOR ALL ADVANCES
---------------------------
Pursuant to Section 4.2 of the Agreement, Lender shall not be obligated to fund
any Advance unless Lender and Custodian shall have received, in form and
substance satisfactory to Lender, all documents, instruments and information as
follows:
TO LENDER AT LEAST FIVE (5)
---------------------------
DAYS PRIOR TO THE REQUESTED FUNDING DATE:
----------------------------------------
1. A Request for Advance listing all Eligible Notes Receivable to be
financed.
2. All information pertaining to the creditworthiness of any such
Purchaser available to Borrower (specifically, a copy of the credit application
and credit report with respect to such Purchaser).
3. A copy of the vehicle for downpayment.
4. A current trial balance report for the Notes Receivable to be pledged
in connection with the requested balance.
5. Such additional information as Lender may reasonably require.
TO CUSTODIAN AT LEAST FIVE (5)
------------------------------
DAYS PRIOR TO THE REQUESTED FUNDING DATE:
----------------------------------------
1. A Request for Advance listing all Eligible Notes Receivable to be
financed.
2. Originals of all Pledged Documents (except that Deeds of Trust may be
copies provided that recorded originals are delivered to the Custodian within
ten (10) days after they are returned by the recorder's office) in the forms
attached hereto as EXHIBITS D, E, and F with each Note Receivable endorsed as
follows:
"Payable to the order of Heller Financial, Inc., with recourse as
provided in the Loan and Security Agreement (Receivables) dated
October 9, 1995, between Heller Financial, Inc. and Fall Creek
Resort."
3. A recordable Assignment of Contracts, Notes Receivable, and Deeds of
Trust in the form attached hereto as EXHIBIT G covering all of the Pledged
Documents to be pledged in relation with such Advance.
33
<PAGE>
4. A mortgagee's policy of title insurance issued to Lender as the
insured, insuring each individual Deed of Trust as a valid first lien subject
only to those exceptions to title as Lender approves; provided that a commitment
for such policy shall be acceptable provided Borrower delivers the final policy
within sixty (60) days after the date of the Advance.
5. A current trial balance report for the Notes Receivable to be pledged
in connection with the requested Advance.
All documents to be delivered to Lender should be sent to:
Carol Gilday
Portfolio Administrator
Heller Real Estate Financial Services
500 West Monroe, Suite 1500
Chicago, Illinois 60661
312-441-7880
All documents to be delivered to the Custodian should be sent to:
Sheridan Benson
Comerica Bank - Dallas
1601 Elm Street, 4th Floor
Dallas, Texas 75201
214-979-8360
34
<PAGE>
APPENDIX A
----------
DEFINITION OF TERMS
-------------------
ACQUISITION LAND. The land described on Exhibit "D" attached to the C&A
---------------- ----------
Loan Agreement.
ACQUISITION LOAN. The land acquisition loan by Lender to Borrower, in the
----------------
amount of $750,000.
ACQUISITION LOAN COMMITMENT FEE. A loan commitment fee equal to one percent
-------------------------------
(1%) of the amount of the Acquisition Loan.
ACQUISITION NOTE. The Promissory Note (Acquisition) evidencing the
----------------
Acquisition Loan from Borrower to Lender dated the Closing Date, in the original
principal amount of Seven Hundred Fifty Thousand Dollars ($750,000).
ADVANCE. A disbursement by Lender in accordance with the terms of the
-------
applicable Loan Documents of any of the proceeds of (i) the Construction Loan
and/or the Borrower's Deposit, or (ii) the Receivables Loan.
AFFIDAVIT OF BORROWER. A sworn affidavit of Borrower (and such other
---------------------
parties as Lender may reasonably require) to the effect that all statements,
invoices, bills, and other expenses incident to the acquisition of the Property
and the construction of the Improvements incurred to and due by a specified
date, whether or not specified in an Approved Budget, have been paid in full,
except for (a) amounts retained pursuant to the Construction Contract, and (b)
items to be paid from the proceeds of an Advance of the Construction Loan then
being requested or in another manner satisfactory to Lender.
AFFILIATE. (a) Any person or entity which has a financial interest in
---------
Borrower, or any Guarantor or General Partner; (b) any person or entity under
common ownership with Borrower, or any Guarantor or General Partner; (c) any
person or entity in which Borrower, or any Guarantor or General Partner has a
financial interest; (d) any spouse, ancestor or lineal descendant (natural or
adopted) of Borrower, or any Guarantor or General Partner (any of (a), (b), (c)
and (d) are referred to as a "RELATED PARTY"); (e) any person or entity which
-------------
has a financial interest in any Related Party; (f) any trust for the benefit of
Borrower, or any Guarantor, General Partner or any Related Party; or (g) any
person or entity in which any Related Party has a financial interest.
APPLICATION FOR ADVANCE. A written application on an AIA and other forms as
-----------------------
set forth in Exhibit "A" attached to the C&A Loan Agreement, by Borrower (and
----------
such other parties as Lender may require) to Lender specifying by name, current
address, and amount all parties to whom Borrower is obligated for labor,
materials, or services supplied for the construction of the Improvements and all
other expenses incident to the Construction Loan, the Property, and the
1
<PAGE>
construction of the Improvements, whether or not specified in an Approved
Budget, requesting an Advance of the Construction Loan for the payment of such
items, containing an Affidavit of Borrower, and accompanied by such schedules,
affidavits, releases, waivers, statements, invoices, bills, and other documents
as Lender and Title Company may reasonably request.
APPROVED BUDGET. One or more budgets showing all construction costs of the
---------------
Improvements, including hard and soft costs, interest reserve and contingencies,
and approved by Lender pursuant to Section 2.10 of the C&A Loan Agreement.
ARCHITECT. Hudson & Associates, the architect for the Improvements.
---------
ARCHITECTURAL CONTRACT. All written agreements between Borrower and
----------------------
Architect for architectural services pertaining to construction of the
Improvements.
AVAILABILITY PERIOD. The period commencing on the Closing Date and ending
-------------------
on the last day of the eighteenth (18th) month after the Closing Date.
AVAILABILITY. The lesser of (i) $10,000,000 minus Advances of the
------------
Receivables Loan then outstanding, or (ii) an amount equal to 90% of the
aggregate outstanding principal balance of Eligible Notes Receivable to be
assigned to Lender in connection with an Advance of the Receivables Loan.
BANK. Such banking institution selected by Borrower and approved by Lender
----
to act as the lockbox agent under the Lockbox Agreement.
BORROWER. Fall Creek Resort, L.P., a Georgia limited partnership, and its
--------
successors and assigns, provided that Borrower shall be subject to all
restrictions on assignment and transfer of the Property or any part thereof or
interest therein that are contained in the Loan Documents.
BORROWER'S DEPOSIT. Such cash sums as Lender may deem necessary, from time
------------------
to time until the Construction Loan is paid in full, in addition to the
Construction Loan, for the payment of the costs of labor, materials, and
services required for the construction of the Improvements, other costs and
expenses specified in an Approved Budget, and other costs and expenses required
to be paid in connection with the construction of the Improvements in accordance
with the Plans and any Governmental Requirements.
BUSINESS DAY. Any day which is not a Saturday or Sunday or a legal holiday
------------
under the laws of the State of Illinois, State of Missouri or the United States.
C&A LOAN AGREEMENT. The Construction and Acquisition Loan Agreement of even
------------------
date herewith, between Borrower and Lender and setting forth the terms and
conditions of the Construction Loan and the Acquisition Loan.
2
<PAGE>
C&A LOAN COLLATERAL. All real and personal property securing the C&A Loan.
For purposes of this defined term only, the C&A Loan Collateral does not include
the Receivables Loan Collateral.
C&A LOAN DOCUMENTS. The C&A Loan Agreement, the Construction Deed of Trust,
the Construction Note, the Acquisition Note, the Guaranty (Construction), any
debt or lien subordination agreements or instruments that Lender may require
with respect to any indebtedness of Borrower to any person, and such other
instruments evidencing, securing, or pertaining to the C&A Loan as shall, from
time to time, be executed and delivered by Borrower, Guarantor, or any other
party to Lender pursuant to the C&A Loan Agreement, including, without
limitation, each Affidavit of Borrower, each Application for Advance, and an
Approved Budget, as any or all of the foregoing may be amended, renewed,
extended, restated or supplemented from time to time. For purposes of this
defined term only, C&A Loan Documents shall not include any Receivables Loan
Documents.
C&A LOAN MATURITY DATE. October 31, 1998.
CLOSING DATE. The date of the C&A Loan Agreement and Receivables Loan
Agreement.
CODE. The Uniform Commercial Code as in force in the state in which the
Property is located, as the same may be amended from time to time.
COLLATERAL. All C&A Loan Collateral and all Receivables Loan Collateral.
COMMITMENT FEE. A loan commitment fee with respect to the Receivables Loan
equal to one percent (1%) of the Receivables Loan.
COMPLETED IMPROVEMENTS. The improvements located on the Resort consisting
of ten (10) completed buildings, each containing six (6) units.
COMPLETION. The substantial completion of the Improvements (or, if
applicable, the Improvements Under Construction or the Planned Improvements)
substantially in accordance with the Plans, as evidenced by (i) a certificate of
occupancy (or its equivalent) permitting legal occupancy thereof issued by the
local Governmental Authorities with jurisdiction over construction of the
Improvements, (ii) a certificate of the Architect in form and substance
satisfactory to Lender, and (iii) a certificate of the Inspecting
Architects/Engineers in form and substance satisfactory to Lender.
COMPLIANCE CERTIFICATE. Certificate of Borrower certifying to the matters
set forth in Section 6.6(e) of the Receivables Loan Agreement.
COMPLIANCE DOCUMENTS. With respect to sales of Intervals in any state or
jurisdiction: (i) if required by Lender, a memorandum in substance satisfactory
to Lender from an attorney licensed in such state or jurisdiction addressing the
compliance of Borrower's sales and financing
3
<PAGE>
documents and planned sales practices with the applicable law of such state or
jurisdiction, (ii) evidence satisfactory to Lender that the governmental
authority of such state or jurisdiction having jurisdiction over sales of
timeshare intervals has issued all required approvals of Borrower's sales and
financing documents and sales practices, and (iii) copies of Borrower's sales
and financing documents as approved by such state.
CONSTRUCTION CONTRACT. All construction contracts executed by Borrower for
the construction of the Improvements, including, without limitation, contracts
between Borrower and Contractor.
CONSTRUCTION DEED OF TRUST. The Construction Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing from Borrower, as trustor, to
Stephen C. Babbit, as trustee, for the benefit of Lender, as beneficiary, dated
of even date herewith securing the payment of the Notes, and the payment and
performance of all obligations specified in the Construction Deed of Trust and
the Loan Documents, and evidencing a valid and enforceable lien on and direct
assignment of the Property.
CONSTRUCTION LOAN. The revolving construction loan by Lender to Borrower,
in the maximum amount of $3,000,000.
CONSTRUCTION NOTE. The Promissory Note (Construction) evidencing the
Construction Loan from Borrower to Lender dated the Closing Date, in the
original principal amount of Three Million Dollars ($3,000,000).
CONTRACTOR. Larry Snyder & Company, the general contractor for the
Improvements.
COSTS. All expenditures and expenses which may be paid or incurred by or on
behalf of Lender including repair costs, payments to remove or protect against
liens, attorneys' fees (including fees of Lender's inside counsel), receivers'
fees, appraisers' fees, engineers' fees, accountants' fees, independent
consultants' fees (including environmental consultants), all costs and expenses
incurred in connection with any of the foregoing, Lender's out-of-pocket costs
and expenses related to any audit (subject to the maximum amount set forth in
Section 6.4 of the Receivables Loan Agreement) of the Resort or the Collateral
or any part thereof, outlays for documentary and expert evidence, stenographers'
charges, stamp taxes, publication costs, and costs (which may be estimates as to
items to be expended after entry of an order or judgment) for procuring all such
abstracts of title, title and UCC searches, and examination, title insurance
policies, and similar data and assurances with respect to title as Lender may
deem reasonably necessary either to prosecute any action or to evidence to
bidders at any foreclosure sale of the Property the true condition of the title
to, or the value of, the Collateral or any part thereof.
CRESCENT MORTGAGE. That certain deed of trust or mortgage executed by
Borrower as trustor in favor of Crescent Mortgage Corporation as beneficiary
which will be paid off and released of record on the Closing Date with proceeds
from the Initial Advance.
4
<PAGE>
CUSTODIAL AGREEMENT. An agency and custodial agreement among Borrower,
Lender and Custodian providing for the maintenance of the Pledged Documents.
CUSTODIAN. Comerica Bank of Texas or such other Person designated by Lender
and approved by Borrower to maintain physical possession of the Pledged
Documents.
DECLARATION. The Declaration of Condominium For The Plantation at Fall
Creek, a Condominium, recorded February 22, 1993, in Book 318, Page 8179, Public
Records of Taney County, Missouri, as amended by Amendments First Through Ninth,
inclusive, all recorded in the Public Records of Taney County, Missouri, and as
hereafter further amended.
DEBTOR RELIEF LAWS. Any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar
laws affecting the rights or remedies of creditors generally, as in effect from
time to time.
DEED OF TRUST. Any deed of trust or mortgage executed and delivered by a
Purchaser, encumbering all of the right, title and interest of each such
Purchaser in and to its purchased Interval as security for such Purchaser's
obligations under any Financed Note Receivable.
DEFAULT. Any event which, with the giving of notice or the passage of time
or both, would become an Event of Default.
DEFAULT RATE. A per annum rate of interest equal to the Interest Rate plus
four percent (4%).
DISTRIBUTIONS. All distributions of any kind (including, without
limitation, payments in respect of indebtedness) made by Borrower to any
Affiliate or any of its partners or to any person having a direct or indirect
beneficial ownership interest in Borrower or such partners in respect of (i)
distributions to the partners of Borrower pursuant to the Limited Partnership
Agreement, (ii) the payment of fees, expenses and other amounts of any nature
pursuant to the Limited Partnership Agreement, (iii) the repayment of any
Partner Indebtedness, and (iv) the repayment of any other partner loans to
Borrower now or hereafter outstanding.
ELIGIBLE NOTE RECEIVABLE. Each Note Receivable satisfying all of the
following criteria:
(a) Payments due under the Note Receivable shall be fully self
amortizing. As to all Financed Notes Receivable pledged to Lender, at least
ninety percent (90%) of the total Notes Receivable securing the Loan shall
have a term of no greater than eighty-four (84) months, and up to ten
percent (10%) of such Notes Receivable may have a term of no greater than
one hundred twenty (120) months;
(b) Purchaser has made a cash down payment of at least ten percent
(10%) of the actual purchase price of the Interval and no part of such
payment has been made or loaned to Purchaser by Borrower or an Affiliate;
5
<PAGE>
(c) The terms of such Note Receivable have not been modified;
(d) No installment is more than thirty (30) days past due on a
contractual basis at the time of assignment to Lender, nor becomes more
than sixty (60) days past due on a contractual basis thereafter;
(e) The interest rate is fixed at a weighted average of not less than
13% per annum with respect to the total Notes Receivable securing the Loan
(determined as of any time);
(f) The Purchaser has uninterrupted access to the Unit with respect to
the Interval purchased and all amenities and common areas of the Resort
completed at the time of purchase of the Interval;
(g) The Unit with respect to the Interval purchased has been
completed, developed, and furnished to the specifications provided in the
purchase contract or in a manner substantially similar to the model unit;
(h) All amenities for the Resort have been completed or the completion
of such amenities has been bonded to Lender's satisfaction;
(i) The Purchaser is not an Affiliate of, related to or employed by
Borrower or Guarantor or General Partner;
(j) The Note Receivable is free and clear of adverse claims, liens and
encumbrances and subject to no claims of rescission, invalidity,
unenforceability, illegality, defense, offset or counterclaim;
(k) Purchaser has no right to rescind the purchase of the Interval;
(l) All sales and financing documents relating to the Note Receivable
have been executed and delivered to the Custodian and/or Lender and have
not been modified from the standard forms therefor approved by Lender;
(m) The terms of such Note Receivable and all related instruments
comply with all applicable federal and state laws and regulations;
(n) The Note Receivable is recognized on the books of Borrower as a
bona fide sale of a fee simple interest time-share estate in one or more
Intervals, and such sale is evidenced by Purchase Documents and secured by
a first priority mortgage or deed of trust on the purchased Interval;
(o) The Purchaser meets credit standards acceptable to Lender;
6
<PAGE>
(p) The Interval purchased and to which the Note Receivable relates is
not subject to any lien, and the Unit with respect to the Interval
purchased and to which such Note Receivable relates is not subject to any
lien not previously consented to by Lender;
(q) The outstanding principal balance of the indebtedness with respect
to any one Interval purchased as evidenced by any Note Receivable shall not
exceed $12,500, and the outstanding principal balance of the indebtedness
with respect to all Intervals purchased as evidenced by one or more Notes
Receivable made by any one Purchaser shall not exceed $37,500;
(r) The Deed of Trust securing the Note Receivable is insured under a
mortgagee title insurance policy acceptable to Lender, subject only to
those exceptions to title as Lender approves;
(s) Payments under the Note Receivable are to be in legal tender of
the United States;
(t) The Note Receivable and the Purchase Documents are valid, genuine
and enforceable;
(u) At least 90% of the outstanding principal balance of all Notes
Receivable securing the Loan arises from Purchasers who are U.S. or
Canadian residents;
(v) No obligor under the Note Receivable has assigned his or her
interest in such Note Receivable;
(w) The payments due under such Note Receivable have been made by the
obligor thereunder and not by Borrower or any Affiliate of Borrower on the
obligor's behalf; and
(x) Purchaser has not filed for relief under any bankruptcy,
insolvency or other similar laws and is not an adverse party in litigation
with Borrower or Lender.
EVENT OF DEFAULT. The occurrence of any one of the following:
(a) Borrower shall fail to make any payment of the Indebtedness or any
part thereof within ten (10) days of the date such payment is due, subject
as to the Receivables Loan, to the provisions of Section 2.4(a) of the
Receivables Loan Agreement.
(b) Borrower's failure to maintain any of the Insurance Policies
(provided that Borrower has been notified of Lender's requirements that
specific Insurance Policies be maintained); any transfer of or lien or
encumbrance imposed on the Property or any Collateral or any part thereof
or interest therein is violation of Sections 4.18 and 4.19
7
<PAGE>
(subject to the contest rights set forth in Section 4.19) of the C&A Loan
Agreement and Section 7.2 of the Receivables Loan Agreement, or any other
restriction or transfer or liens set forth in the Loan Documents (subject
to any applicable grace or cure period set forth in such Loan Document).
(c) Borrower shall fail to perform or observe any covenant, agreement,
obligation, representation or warranty contained in the Receivables Loan
Agreement, the C&A Loan Agreement, or any of the other Loan Documents,
including, without limitation, the net worth covenant set forth in Section
6.8 of the Receivables Loan Agreement, or in any of the Loan Documents
(other than any covenant or agreement obligating Borrower to pay the
Indebtedness), and such failure shall continue for thirty (30) days after
Lender delivers written notice thereof to Borrower; provided, however, if
the failure is incapable of cure within such thirty (30) day period and
Borrower shall be diligently pursuing a cure, such thirty (30) day cure
period shall be extended by an additional period not to exceed sixty (60)
days.
(d) Any representation or other statement made by or on behalf of
Borrower in the Receivables Loan Agreement, the C&A Loan Agreement, or in
any of the Loan Documents or in any instrument furnished in compliance with
or in reference to the Loan Documents shall be false, misleading or
incorrect in any material respect as of the date made.
(e) If a case is commenced or a petition is filed and not dismissed
within sixty (60) days against Borrower or General Partner or Guarantor
under any applicable liquidation, conservatorship, bankruptcy, moratorium,
insolvency, reorganization or similar law providing for the relief of
debtors and generally affecting the rights of creditors; a receiver,
liquidator or trustee of Borrower or General Partner or Guarantor or of any
material asset of Borrower or General Partner or Guarantor is appointed by
court order and such order remains in effect for more than sixty (60) days;
or if any material asset of Borrower or General Partner or Guarantor is
sequestered by court order and such order remains in effect for more than
sixty (60) days.
(f) Borrower or General Partner or Guarantor voluntarily seeks,
consents to or acquiesces in the benefit of any provision of any applicable
liquidation, conservatorship, bankruptcy, moratorium, insolvency,
reorganization or similar law providing for the relief of debtors and
generally affecting the rights of creditors, whether now or hereafter in
effect; consents to the filing of any petition against it under such law;
makes an assignment for the benefit of its creditors; admits in writing its
inability to pay its debts generally as they become due; or consents to the
appointment of a receiver, trustee, liquidator or conservator for it or any
part of its assets.
(g) The issuance, filing or levy against Borrower or General Partner
or Guarantor of one or more attachments, injunctions, executions, tax liens
or final
8
<PAGE>
judgments for the payment of money cumulatively in excess of $100,000,
which is not discharged in full or stayed within thirty (30) days after
issuance or filing.
(h) Borrower or General Partner or Guarantor shall become insolvent or
otherwise generally be unable to pay their respective debts when due.
(i) Any Unit or Units within the Property, or other material part of
the Property shall be materially damaged or destroyed and not adequately
covered by insurance, and/or the commencement of repair or replacement
shall not have occurred within forty-five (45) days after the occurrence of
the casualty and been completed within one hundred twenty (120) days
thereafter.
(j) Any default by Borrower in the payment of indebtedness for
borrowed money exceeding the amount of $50,000 for any one obligation and
$200,000 in the aggregate (other than the Loans), after the expiration of
any applicable grace or cure period, unless Borrower provides Lender with
evidence satisfactory to Lender that Borrower is diligently contesting any
such default in good faith; any other default under such indebtedness which
accelerates or permits the acceleration (after the giving of notice or
passage of time, or both) of the maturity of such indebtedness; or any
default which permits the holders of such indebtedness to elect a majority
of the Board of Directors of Borrower.
(k) The issuance of any stay order, cease and desist order or similar
judicial or nonjudicial sanction that materially adversely limits or
otherwise materially adversely affects any Interval sales activities, and,
with respect to any such sanction only, such sanction is not dismissed,
terminated or rescinded within thirty (30) days after issuance.
(l) Once construction of any building constituting an Improvement has
begun, the cessation of the construction of such Improvements for more than
twenty (20) days without the written consent of Lender, unless such
cessation is caused by an event of Force Majeure.
(m) Failure of the construction of the Improvements or any materials
for which an Advance of the Construction Loan has been requested to
substantially comply with the Plans or any Governmental Requirements and
the failure of Borrower to correct such non-compliance in accordance with
Section 4.4 of the C&A Loan Agreement.
(n) Completion of the Improvements Under Construction has not occurred
by the Improvements Under Construction Completion Date, or Completion of
the Planned Improvements has not occurred by the Planned Improvements
Completion Date.
(o) Title to all or any part of the C&A Loan Collateral during the
term of the C&A Loan (other than obsolete or worn personal property
replaced by adequate substitutes of equal or greater value than the
replaced items when new) , or the
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<PAGE>
Receivables Loan Collateral shall become vested in any party other than
Borrower, whether by operation of law or otherwise, except for the
conveyance of Intervals in arm's-length transactions.
(p) Any default or Event of Default (as defined in any Loan Document
other than the Receivables Loan Agreement or the C&A Loan Agreement) occurs
under any such Loan Document, subject to any applicable grace or cure
period.
FINANCED NOTE RECEIVABLE. Any Eligible Note Receivable as to which an
Advance of the Receivables Loan has been made and which has been assigned and
delivered to Lender as security for the Loans.
FINANCIAL REPORTS. With respect to Borrower, a current balance sheet of
assets and liabilities (including all material contingent liabilities), and
monthly statements of the operation of the Property (including a monthly sales
reports, monthly operating statements and monthly statements of delinquency of
receipts and payments) as of the last day of each month. With respect to
Guarantor, a balance sheet of assets and liabilities (including all material
contingent liabilities).
FINANCIAL STATEMENTS. All financial statements, reports, summaries and
other financial information delivered by Borrower to Lender in connection with
Lender's underwriting of the Loans and the Property.
FORCE MAJEURE. Fire, earthquake or other acts of God, strike, lockout, acts
of public enemy, riot, insurrection, or governmental regulation of the sale or
transportation of materials, supplies or labor, or any other cause or event
reasonably beyond the control of Borrower, to the extent any of the foregoing
directly affects and delays any work of construction of the Improvements,
provided, however, that no period of delay caused by Force Majeure shall in any
event exceed a period of ninety (90) days.
FUNDING FEE. A funding fee equal to the amount of one percent (1%) of the
amount of each Advance of the Construction Loan, except for any Advances of
Construction Loan proceeds used to pay construction costs of any of the
Improvements Under Construction.
GAAP. Generally accepted accounting principles, applied on a consistent
basis, set forth in Opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and/or in statements of the Financial
Accounting Standards Board which are applicable in the circumstances as of the
date in question; and the requisite that such principles be applied on a
consistent basis means that the accounting principles in a current period are
comparable in all material respects to those applied in a preceding period, with
any exceptions thereto noted.
GENERAL PARTNER. Argosy Branson, Inc.
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<PAGE>
GOVERNMENTAL AUTHORITY. The United States of America, the State of
----------------------
Missouri, the County of Taney, the municipality of Branson, and any other
governmental authorities having jurisdiction over Borrower, Guarantor, the
Property or the sale of Intervals.
GOVERNMENTAL REQUIREMENTS. All Federal, State and local rules,
-------------------------
regulations, ordinances, laws and statutes which affect the Property and
Borrower's construction of the Improvements.
GUARANTOR. Argosy Branson, Inc.
---------
GUARANTY (CONSTRUCTION). The Payment and Completion Guaranty executed by
-----------------------
Guarantor to the Lender.
GUARANTY (RECEIVABLES). The Guaranty (Receivables) executed by Guarantor
----------------------
to the Lender.
HAZARDOUS MATERIALS. Any hazardous, dangerous or toxic substance or
-------------------
material within the meaning of any federal, state or local law, regulation or
ordinance.
IMPROVEMENTS. The Improvements Under Construction, the Planned
------------
Improvements, and all other related improvements to the Property to be
constructed in accordance with the Plans, as the same may be extended by Force
Majeure.
IMPROVEMENTS UNDER CONSTRUCTION. That portion of the Improvements
-------------------------------
consisting of two (2) buildings currently under construction at the Property,
one (known as Building 11) containing six (6) condominium units and the other
(known as Building 20) containing sixteen (16) condominium units.
IMPROVEMENTS UNDER CONSTRUCTION COMPLETION DATE. The deadline for
-----------------------------------------------
Completion of the Improvements Under Construction, which is December 31, 1995,
as the same may be extended by Force Majeure.
INDEBTEDNESS. All payment obligations of Borrower to Lender under the Loan
------------
Documents or otherwise.
INITIAL ADVANCE. The first Advance of proceeds of the Construction Loan.
---------------
INSPECTING ARCHITECTS/ENGINEERS. Such employees, representatives and-
-------------------------------
agents of Lender or third parties, who will, from time to time, conduct
inspections of the Property, review Borrower's compliance with the C&A Loan
Agreement and offer other services related thereto.
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<PAGE>
INSURANCE POLICIES. The following:
------------------
(a) All-risk builder's risk insurance during the construction of the
Improvements, in an amount equal to 100% of the replacement cost of the
Improvements, providing all-risk coverage on the Improvements and
materials stored on the Property and elsewhere, and including the perils
of collapse, water damage and, if requested by Lender, flood, earthquake,
business interruption and other risks;
(b) All-risk insurance on the Property until the Construction Loan is
paid in full, as determined by Lender, in the amount of at least 100% of
the replacement cost of such Improvements or in such additional amounts as
Lender may reasonably require, providing all-risk coverage on the
Improvements, and, if requested by Lender, to include the perils of flood,
earthquake, business interruption and other risks;
(c) Comprehensive General Liability Insurance for owners and
contractors, including blanket contractual liability, products and
completed operations, personal injury (including employees), independent
contractors and explosion, hazards for not less than $2,000,000 arising
out of any one occurrence or in any increased amount reasonably required
by Lender;
(d) Workers' Compensation Insurance for contractors for statutory
limits; and
(e) Such other insurance as Lender may reasonably require.
All Insurance Policies shall be issued on forms and by companies
reasonably satisfactory to Lender and shall be delivered to Lender. All-risk
Insurance Policies shall have loss made payable to Lender as mortgagee together
with the standard mortgagee clause in a form satisfactory to Lender.
Comprehensive General Liability, Comprehensive Automobile Liability and Workers'
Compensation coverages shall have a provision giving Lender thirty (30) days'
prior notice of cancellation or material change of the coverage.
INTEREST RATE. A floating rate per annum equal to the Base Rate plus four
and one-quarter percent (4.25%) (the aggregate rate referred to as the "Interest
Rate"). "Base Rate" shall mean the rate published each business day in The Wall
--------
Street Journal for notes maturing three (3) months after issuance under the
- --------------
caption "Money Rates, London Interbank Offered Rates (LIBOR)". The Interest
Rate for each calendar month shall be fixed based upon the Interest Rate
published prior to and in effect on the first (1st) business day of such month.
Interest shall be calculated based on a 360 day year and charged for the actual
number of days elapsed.
INTERVAL. An undivided fee simple ownership interest as tenants in common
with all other purchasers with respect to any Unit with a right to use such Unit
for one week annually or biennially, together with all appurtenant rights and
interests as more particularly described in the Timeshare Documents.
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INTERVAL RELEASE FEE (ACQUISITION LOAN) AND INTERVAL RELEASE FEE
----------------------------------------------------------------
(CONSTRUCTION LOAN). Payments per Interval to be paid by Borrower to Lender
- -------------------
through Borrower's sale of Intervals located in the Improvements, which payments
shall be applied to the outstanding principal balance of the Acquisition Loan
and Construction Loan, as applicable, and upon receipt of which Lender shall
release such Interval from the Construction Deed of Trust. Notwithstanding any
other provisions of the C&A Loan Documents to the contrary, the Interval Release
Fee (Acquisition Loan) shall be in an amount so as to repay the Acquisition Loan
based on an assumed sellout rate of 85% of all available Intervals from the next
fifty (50) Units (including the Units in the Improvements Under Construction) at
the Resort, and the Interval Release Fee (Construction Loan) for Units within a
specified building shall be in an amount so as to repay the Advances of the
Construction Loan with respect to such building based on an assumed sellout rate
of 85% of all available Intervals in such building.
LENDER. Heller Financial, Inc., a Delaware corporation, and its successors
------
and assigns.
LIMITED PARTNERSHIP AGREEMENT. The First Amended and Restated Agreement of
-----------------------------
Limited Partnership, dated July 1, 1993, of Borrower.
LOAN DOCUMENTS. Collectively, the C&A Loan Documents and the Receivables
--------------
Loan Documents.
LOAN YEAR. The period from the Closing Date through the last day of the
---------
Availability Period and each twelve (12) month period thereafter.
LOANS. Collectively, the Receivables Loan, the Construction Loan and the
-----
Acquisition Loan.
LOCKBOX AGREEMENT. An agreement among Borrower, Lender and Bank providing
-----------------
for the receipt by Bank of payments on the Financed Notes Receivable and
disbursement of such payments to Lender.
MANDATORY PREPAYMENT. Any prepayment required by Section 2.5(b) of the
--------------------
Receivables Loan Agreement.
NET SALES. The aggregate purchase prices for all sales of Intervals that
---------
have made a full downpayment, exclusive of cancellations, forfeitures and
rescissions, as shown on the Financial Statements of Borrower to be delivered to
Lender as set forth herein.
NOTE RECEIVABLE. A promissory note executed by a Purchaser in favor of
---------------
Borrower in connection with Purchaser's acquisition of an Interval, together
with all amendments, extensions, modifications and replacements thereto or
thereof.
NOTES. Collectively, the Acquisition Note, the Construction Note, and the
-----
Receivables Note.
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PARTNER INDEBTEDNESS. All outstanding indebtedness of Borrower to any of
--------------------
its partners as of the Closing Date, in the principal amount of approximately
$5,500,000.
PARTNER INDEBTEDNESS PAYMENT SCHEDULE. A schedule for the repayment of
-------------------------------------
principal and all accrued interest thereon of the Partner Indebtedness.
PERMITTED DISTRIBUTIONS. All Distributions made prior to the occurrence of
-----------------------
an Event of Default, and, subsequent to the occurrence of an Event of Default,
Distributions made subsequent to any cure or waiver of such Event of Default
only in strict accordance with the terms and provisions of the Receivables Loan
Agreement; provided, however, that a Distribution in respect of the payment of
indebtedness shall be a Permitted Distribution if and only to the extent that
(i) interest payable on indebtedness (other than Partner Indebtedness) shall not
exceed the pre-default or so-called contract rate of interest in respect of such
indebtedness, (ii) principal payable on indebtedness (other than Partner
Indebtedness) shall not exceed the mandatory principal payments required under
the applicable loan documentation, and (iii) with respect to Partner
Indebtedness, principal and interest payments and all prepayments shall be made
in accordance with the terms of the Partner Indebtedness Payment Schedule.
PERMITTED EXCEPTIONS. The exceptions to title described on EXHIBIT A to the
-------------------- ---------
Receivables Loan Agreement.
PERSON. Natural persons, corporations, limited partnerships, general
------
partnerships, limited liability companies, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
PLANNED iMPROVEMENTS. That portion of the Improvements consisting of
--------------------
buildings to be constructed on the Property with proceeds of the Construction
Loan.
PLANNED IMPROVEMENTS ADVANCE. An Advance for the construction of the
----------------------------
Planned Improvements or any portion thereof.
PLANNED IMPROVEMENTS BUDGET. The Approved Budget for construction of the
---------------------------
Planned Improvements which will be submitted by Borrower to Lender, as such
budget may be approved by Lender, in accordance with Section 2.7(a) of the C&A
Loan Agreement.
PLANNED IMPROVEMENTS COMPLETION DATE. The deadline for Completion of the
------------------------------------
Planned Improvements, which is August 31, 1998, as the same may be extended by
Force Majeure.
PLANS. The final working drawings and specifications for the construction
-----
of the Improvements, which (i) with respect to the Improvements Under
Construction, have been prepared by the Architect and approved by Lender, and
(ii) with respect to the Planned Improvements, will be prepared by the Architect
and submitted by Borrower to Lender for Lender's approval in accordance with
Section 2.7(a) of the C&A Loan Agreement.
14
<PAGE>
PLEDGED DOCUMENTS. The Financed Notes Receivable, the Deeds of Trust and
-----------------
the Purchase Documents.
PREPAYMENT PREMIUM. With respect to the Receivables Loan only, the
------------------
percentage set forth below, multiplied by the amount prepaid:
<TABLE>
<CAPTION>
Loan Year Percentage
--------- ----------
<S> <C>
Second Loan Year three percent (3%)
Third Loan Year two percent (2%)
Fourth Loan Year one percent (1%)
Thereafter no premium
</TABLE>
There is no prepayment premium or penalty payable with respect to the C&A Loan.
PRODUCT COST. All costs of construction to complete buildings and deliver
------------
Units within such buildings.
PROPERTY. The land described in Exhibit "A" to the Receivables Loan
-------- ----------
Agreement and Exhibit "C" to the C&A Loan Agreement, including the Acquisition
----------
Land, together with the Improvements thereon, and certain unsold Intervals with
respect to certain Units located in buildings 9 and 10 at the Resort. The legal
description for such unsold Intervals in buildings 9 and 10 is attached as
Exhibit "E" to the C & A Loan Agreement.
- ----------
PUBLIC REPORTS. Any public reports now or hereafter filed with and approved
--------------
by any jurisdiction having control over the sale of Intervals for the Resort.
PURCHASE DOCUMENTS. Any purchase agreement and related sale and escrow
------------------
documents executed and delivered by a Purchaser to Borrower with respect to the
purchase of an Interval.
PURCHASE MONEY MORTGAGE. That certain Deed of Trust executed by Borrower as
-----------------------
trustor in favor of Fall Creek Ozark Investors, Inc. as beneficiary which
encumbers the Acquisition Land.
PURCHASER. Any Person who purchases one or more Intervals.
---------
RECEIVABLES LOAN COLLATERAL. The collateral for the Receivables Loan
---------------------------
specified in Section 3.1 of the Receivables Loan Agreement. For purposes of
this defined term only, the Receivables Loan Collateral does not include any
C&A Loan Collateral.
RECEIVABLES LOAN. The receivables loan facility in the amount of
----------------
$10,000,000 extended and made by Lender to Borrower on or about the Closing
Date.
15
<PAGE>
RECEIVABLES LOAN AGREEMENT. The Loan and Security Agreement (Receivables)
--------------------------
dated of even date herewith between Lender and Borrower and setting forth the
terms and conditions of the Receivables Loan.
RECEIVABLES LOAN DOCUMENTS. The Receivables Loan Agreement, the Receivables
--------------------------
Note, assignments, financing statements, and every other instrument or agreement
executed and delivered by Borrower to Lender evidencing, securing or otherwise
relating to the Receivables Loan, as any or all of the foregoing may be amended,
renewed, extended, restated or supplemented from time to time. For purposes of
this defined term only, Receivables Loan Documents shall not include any C&A
Loan Documents.
RECEIVABLES LOAN MATURITY DATE. October 31, 2003.
------------------------------
RECEIVABLES NOTE. The Promissory Note (Receivables) evidencing the
----------------
Receivables Loan from Borrower to Lender dated the Closing Date, in the original
principal amount of Ten Million Dollars ($10,000,000).
RESORT. That certain timeshare vacation resort located in Branson,
------
Missouri, commonly known as The Plantation at Fall Creek, including all related
common elements, limited common elements, parking areas and other amenities, as
established by the Declaration.
REVOLVING PERIOD. The period commencing on the Closing Date and ending on
----------------
the last day of the twenty-fourth (24th) month after the Closing Date.
SERVICING AGREEMENT. A servicing agreement between Lender, Borrower and a
-------------------
servicer approved by Lender providing for the servicing of the Financed Note
Receivables.
SURVEY. An as built survey of the Property, dated no more than sixty (60)
------
days prior to the Closing Date, prepared by a registered land surveyor in
accordance with the 1992 American Land Title Association/American Congress on
Surveying and Mapping Standards and certifying that the Property is not in a
flood hazard area as identified by the Secretary of Housing and Urban
Development and otherwise acceptable to Lender.
TIMESHARE ACT. Sections 407.010 to 407.140, inclusive, and 407.600 to
-------------
407.630, inclusive, of Missouri Revised Statutes, and all applicable provisions
of Chapter 448 of Missouri Revised Statutes.
TIMESHARE DOCUMENTS. Any and all documents evidencing or relating to the
-------------------
sale of Intervals by Borrower.
TITLE COMPANY. Tri-Lakes Title Co. Inc.
-------------
16
<PAGE>
TITLE INSURANCE. An ALTA title insurance policy in the amount of $3,750,000
---------------
insuring that the Construction Deed of Trust constitutes a valid lien covering
the Property having the priority required by Lender and subject only to the
Permitted Exceptions and, prior to the funding of the Acquisition Loan, the
Purchase Money Mortgage, issued by Commonwealth Land Title Company through the
Title Company to Lender.
UNIT. One individual air space unit, together with all furniture, fixtures
----
and furnishings therein, and together with any and all interest in common
elements appurtenant thereto, as provided in the Declaration.
17
<PAGE>
EXHIBIT 10.8.6
LOAN AND SECURITY AGREEMENT
between
AKGI-ROYAL PALM C.V.o.a.
and
FINOVA CAPITAL CORPORATION
DATED AS OF JULY 12, 1995
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
BY THIS LOAN AND SECURITY AGREEMENT entered into as of July 12, 1995
between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender") and AKGI -
ROYAL PALM C.V.o.a, a Netherlands Antilles limited partnership with its capital
divided into shares ("Borrower"), hereby confirm and agree as follows:
ARTICLE I
---------
INTRODUCTION
------------
1.1 Borrower desires to obtain a Receivables Loan from Lender, the
proceeds of which shall be used for working capital purposes.
1.2 Borrower furthermore desires to obtain an Acquisition Loan from
Lender, the proceeds of which shall be used for the purposes set forth herein.
1.3 Lender is willing to extend to Borrower the Receivables Loan and
the Acquisition Loan for the purposes stated in the preceding paragraph upon the
terms and conditions set forth herein.
ARTICLE II
----------
DEFINITIONS
-----------
Except where the context clearly requires a different interpretation,
all capitalized terms used in this Agreement shall have the meanings assigned to
them above, immediately below, or elsewhere herein.
"Acquisition" shall mean the transaction pursuant to which Borrower
acquired from ITOCHU all of ITOCHU's right, title and interest in and to certain
loans made to Pelican Beach Resort N.V. and to certain of its affiliates which
loans are secured by, among other things, a security interest in the Project.
"Acquisition Advance" shall mean an Advance of the Acquisition Loan
advanced by Lender to Borrower from time to time in accordance with the terms
and provisions of this Agreement.
"Acquisition Loan" shall mean a term loan extended by Lender to
Borrower in accordance with the terms of this Agreement, total advances of which
shall not at any time exceed U.S. $4,400,000.
<PAGE>
"Acquisition Note" shall mean the Promissory Note, in the amount of
the Acquisition Loan, to be made and delivered by Borrower to Lender pursuant
hereto, in a form acceptable to Lender, as from time to time modified, extended,
renewed, replaced or restated.
"Advance" shall mean, individually and collectively, a Receivables
Advance and an Acquisition Advance.
"Advance Date" shall mean each date on which an Advance is made.
"Affiliate" shall mean any person or entity directly or indirectly
Controlling, Controlled by or under common Control with the person or entity to
whom the definition is applied, including blood relatives or spouse of the
person to whom the definition applies, if such person is a natural person.
"Agreement" shall mean this Loan and Security Agreement, as from time
to time modified, extended, renewed, replaced or restated.
"Applicable Environmental Laws" shall have the meaning set forth in
the Environmental Certificate.
"Applicable Usury Law" shall mean the usury law applicable pursuant
to the terms of Article XI, paragraph 11.11 hereof or such other usury law
which is applicable if the law chosen by the parties is not applicable.
"Assignment of Leases" shall mean that certain Assignment of Leases
and Rents of even date herewith, pursuant to which, among other things, Borrower
collaterally assigns to Lender all of Borrower's right, title and interest in
and to all leases, licenses and occupancy agreements of whatever form now or
hereafter affecting all or any portion of the Project (other than the Purchaser
Leases) and all of Borrower's right, title and interest in and to all rents,
issues, properties, revenues, royalties, rights, benefits, income and deposits
of every nature of, from or relating to the Project (other than arising from the
Purchaser Leases).
"Assignments" shall mean written Assignments, in such form as Lender
shall prescribe, of specific Instruments and Purchaser Leases and the proceeds
thereof delivered to Lender concurrently with each Advance under the terms of
which Borrower transfers and assigns with full recourse all of Borrower's right,
title and interest in and to the Instrument and Purchaser Lease, free and clear
of all claims, demands, liens and encumbrances of third parties, as collateral
security for the Loan.
-2-
<PAGE>
"Availability Advance" shall mean an additional Receivables Advance
advanced by Lender to Borrower from time to time with respect to an Eligible
Instrument that then constitutes Receivables Collateral against which a previous
Receivables Advance has been made.
"Borrower" shall mean AKGI - ROYAL PALM C.V.o.a., a Netherlands
Antilles limited partnership with its capital divided into shares.
"Borrowing Base" shall mean, prior to the Transition Date, an amount
equal to the lesser of (i) 85% of the unpaid principal balance payable under the
Eligible Instruments or (ii) 85% of the then present value assigned to the
unmatured installments of principal and interest payable under the Eligible
Instruments discounted at Lender's Prevailing Discount Rate and, after the
Transition Date but retroactive to the beginning of the Term, an amount equal to
the lesser of (i) 90% of the unpaid principal balance payable under the Eligible
Instruments or (ii) 90% of the then present value assigned to the unmatured
installments of principal and interest payable under the Eligible Instruments
discounted at Lender's Prevailing Discount Rate.
"Borrowing Term (Receivables Loan)" shall mean the period of time
during which Lender is committed to make Receivables Advances under this
Agreement, which commitment shall terminate on the earlier of (i) the date which
occurs eighteen (18) months after the date of the first Receivables Advances or
(ii) April 14, 1997.
--
"Borrowing Term (Acquisition Loan)" shall mean the period of time
during which Lender is committed to make Acquisition Advances under this
Agreement (including advances of the interest reserve established under the
Acquisition Loan), which commitment shall terminate on the date which occurs six
(6) months after the date of the first Acquisition Advance.
"Business Day" shall mean a calendar day other than a Saturday, Sunday
or legal holiday under the laws of the State of Arizona.
"Capital Expenditure" shall mean payments that are made by the
Borrower for the lease, purchase, improvement, construction or use of any
property, the value of which under GAAP is required to be capitalized and shall
include, without limitation, payments for the installment purchase of property
and payments under capitalized leases.
"Cash Flow" shall mean, for any period, the net income or loss of
Borrower, determined in accordance with GAAP (excluding the effect of any
extraordinary gains or losses from the sale of property not in the ordinary
course of business), plus each of the following items to the extent deducted
----
from the revenues of
-3-
<PAGE>
Borrower in calculating the net income: (A) depreciation; (B) amortization; and
(C) interest and taxes during such period, and less Capital Expenditures to
----
the extent paid in such period.
"Closing Date" shall mean July 14, 1995, or such later date as Lender
shall designate in writing.
"Collateral Assignment" shall mean that certain Collateral Assignment
of Material Contracts, of even date herewith, as from time to time modified,
extended, renewed, replaced or restated, pursuant to which Borrower shall
collaterally assign to Lender, as further security for the payment and
Performance of the Obligations, all of the Project Documents.
"Control" or "Controlling" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of another person or entity by any means.
"Delinquencies" shall mean, individually and collectively, an Eligible
Instrument, against which an Advance has been made, under which an installment
payment due becomes more than 59 days past due.
"Distribution" shall mean any distribution, advance, payment,
including but not limited to, loan repayments, dividends, bonuses, salary, other
compensation and management fees.
"Documents" shall mean this Agreement, the Receivables Note, the
Acquisition Note, the Mortgage, the Supplemental Agreement, the Collateral
Assignment, the Environmental Certificate, the Servicing Agreement, the Lockbox
Agreement, the Services and Fees Agreement, the Guarantee, the Assignments, the
Subordination Agreement, the Assignment of Leases, and each and every other
document, instrument or writing executed or delivered by Borrower to Lender in
connection with the Loan.
"Dollars" or "$" shall mean United States Dollars.
"Eligible Foreign Instruments" shall mean a Eligible Instrument that
has been delivered by a Purchaser who is not a United States or Canadian
resident.
"Eligible Instruments" shall mean the Instruments, each in
substantially the form of Exhibit "A" hereto, entered into by and between
----------
Borrower and those Persons who purchase a Time-Share Interest (at least 80% of
whom shall be United States or Canadian residents), which Eligible Instruments
shall conform to the criteria and standards set forth on Exhibit "B" hereto;
----------
provided, however, that an Instrument
-4-
<PAGE>
shall cease to be an Eligible Instrument if (i) any installment payable
thereunder becomes more than 59 days past due and the Instrument under which
such installment is payable is not replaced within ninety (90) days following
the due date of such installment or (ii) the contract fails to continue to
conform to the criteria and standards of Exhibit "B".
-----------
"Environmental Certificate" shall mean that certain Environmental
Certificate with Representations, Covenants and Warranties of even date
herewith executed by Borrower and related to the Project, as from time to time
modified, extended, renewed, replaced or restated.
"Event of Default" has the meaning set forth in Article IX hereof.
"FPSI" shall mean FINOVA Portfolio Services, Inc., an Arizona
corporation, its successors and assigns, a wholly-owned subsidiary of Lender
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time, consistently applied, throughout the period involved
and with prior periods, which shall include the official interpretations thereof
by the Financial Accounting Standards Board or any successor thereto.
"Guarantee(s)" shall mean a written Guarantee and Subordination
Agreement, in such form as Lender shall prescribe, as from time to time
modified, extended, renewed, replaced or restated, executed and delivered by a
Person (or Persons) to Lender, under the terms and conditions of which such
Person (or Persons), as Guarantor(s), shall individually and/or jointly and
severally guarantee Borrower's Performance of all of its Obligations under the
Documents and shall agree to subordinate any indebtedness owed by Borrower to
Guarantor(s) to the Obligations owed by Borrower to Lender.
"Guarantor(s)" shall mean individually, a Person, and collectively
each and every Person, who executes and delivers to Lender a Guarantee pursuant
to the terms and conditions of this Agreement. The Guarantor of this Loan is
AKGI-Sint Maarten, N.V., a Netherlands Antilles corporation with limited
liability.
"Impositions" shall mean any and all taxes (other than any tax
measured by net income payable by Lender to any state or political subdivision
thereof or to the U.S. under Section 11 or 1201 of the Internal Revenue Code, as
amended (the "IRC")), or withholding obligations in consequence of the receipt
of payments provided for herein, license fees, assessments, charges, fines,
penalties, property, privilege, excise, real estate or other taxes currently or
hereafter levied or imposed by any state, local or federal authority (including,
without limitation, any state, local or federal authority of the United States
of America or of the Netherlands Antilles) upon
-5-
<PAGE>
or in connection with or measured by the Documents, the Receivables Collateral
or the Real Estate Collateral. Impositions shall include any amounts which must
be withheld from the proceeds of the Receivables Collateral pursuant to, without
limitation, Sections 881 and 1442 of the IRC.
"Incentive Fee" shall have the meaning set forth in Section 8.25
hereof.
"Incipient Default" shall mean any act or event which after the giving
of notice or the lapse of time (or both) would constitute an Event of Default.
"Instrument" shall mean a promissory note which has arisen out of the
sale of a Time-Share Interest in the Project by Borrower to a Purchaser, which
note is cross-defaulted with the Purchaser Lease executed by Borrower in favor
of the Purchaser delivering the Instrument.
"ITOCHU" shall mean, ITOCHU Corporation, a Japan corporation.
"Loan" shall mean, collectively and individually, the Receivables Loan
and the Acquisition Loan.
"Lockbox Agent" shall mean the entity designated as the Lockbox Agent
in the Lockbox Agreement, or should such entity cease to act as Lockbox Agent
under the Lockbox Agreement, such other entity as Lender may appoint or approve.
"Lockbox Agreement" shall mean the Lockbox Agreement, in such form as
Lender shall prescribe, to be made among Borrower, Lender and the Lockbox Agent,
as from time to time, as from time to time modified, extended, renewed, replaced
or restated.
"Loan Fee" shall have the meaning set forth in Paragraph 8.16 hereof.
"Master Lease" shall mean that certain Long Lease between the
Lieutenant Governor of the Island Territory of Sint Maarten on behalf of said
Island Territory and Pelican Beach Resort, N.V., dated December 21, 1990, and
recorded December 24, 1990 in the Public Registers of Sint Maarten at register
C, volume 107, number 13, which has been assigned by Borrower pursuant to the
Declaration of Public Auction dated July 6, 1995 with respect to the Project and
that certain Instrument de Command dated July 11, 1995 with respect to the
Project.
"Maturity Date" shall mean that date which shall occur seven (7) years
after the date on which the last Receivables Advance is made under the terms of
this Agreement.
-6-
<PAGE>
"Maximum Loan Amount" shall mean the sum of U.S. $10,000,000.00.
"Mortgage" shall mean the Deed of Mortgage of even date herewith, as
from time to time modified, extended, renewed, replaced or restated, made,
executed and delivered by Borrower to Lender, in a form acceptable to Lender,
recorded or intended to be recorded as a lien against the Project and Real
Property.
"Net Income" shall mean the net income or loss of Borrower, determined
in accordance with GAAP (excluding the effects of any extraordinary gains or
losses from the sale of property not in the ordinary course of business).
"Nondisturbance Agreement" shall mean an agreement, in form and
substance satisfactory to Lender, pursuant to which the holders of any lien or
leasehold interest on the streets, amenities, common areas, or other off-site
improvements forming a part of the Project agree that, notwithstanding a
foreclosure or other realization of such encumbrance and notwithstanding a
termination of such leasehold realization of such encumbrance and
notwithstanding a termination of such leasehold interest, (i) the Purchasers
shall have uninterrupted use of such streets, amenities, common areas and other
off-site improvements and uninterrupted use and possession of their respective
Time-Share Interests, (ii) the rights and privileges of such Purchasers shall
not be otherwise impaired, and (iii) the governing documents of the Project,
including any declarations of condominium, shall not be modified.
"Obligations" shall mean each and every obligation, duty, covenant,
undertaking and conditions which Borrower is required or has agreed to perform
under the Documents and each and every other obligation of Borrower now or
hereafter owing to Lender.
"Opening Prepayment Date" shall mean the date which occurs twenty-four
(24) months after the last Receivables Advance hereunder.
"Overdue Rate" shall have the same meaning as set forth in the
Receivables Note.
"Perform, Performed or Performance" shall mean the timely, faithful
and complete payment and performance of all Obligations by Borrower.
"Permitted Encumbrances" shall mean those encumbrances, liens and
security interests described in Exhibit "C" hereto.
-----------
"Person" shall mean any adult individual, partnership, corporation or
other form of business entity whatsoever.
-7-
<PAGE>
"Present Value" shall mean with respect to any Eligible Instrument the
present value of the unmatured and unpaid installments of principal and interest
due thereunder, calculated using a discount rate equal to the Prevailing
Discount Rate applicable to said Eligible Instrument as provided herein.
"Prevailing Discount Rate" shall mean Lender's prevailing discount
rate at the time each Advance is made, which rate shall be Prime Rate plus the
Rate Spread but in no event less than 12.5%.
"Prime Rate" shall mean the rate of interest publicly announced from
time to time by Citibank, N.A., New York, New York as its corporate base rate of
interest charged to its most creditworthy commercial borrowers notwithstanding
the fact that some such borrowers may borrow at lower rates. The initial Prime
Rate shall be the rate in effect as of the first Business Day of the month of
the initial Advance and, subsequently, the Prime Rate shall be redetermined as
of the first Business Day of each month.
"Project" shall mean the time-share condominium project known as Royal
Palm Beach Club, located on the Real Property and containing, at the date
hereof, 2,783 unsold Time-Share Interests.
"Project Documents" shall mean all management, shared use, access,
engineering, marketing, construction, operating, owners association and other
agreements relating to the use, ownership, or operation of the Project and all
of Borrower's rights, as a "declarant", "developer", "owner" and/or otherwise
under the governing documents and restrictive covenants affecting the Real
Property, including, without limitation, the deed or declaration of division,
owners' association charters or articles or certificates of incorporation,
bylaws and rules and regulations relating thereto whether now existing or
hereafter created.
"Purchaser" shall mean a Person who purchases a Time-Share Interest in
the Project from Borrower.
"Purchaser Lease" shall mean a lease delivered by Borrower, as Lessor,
to a Purchaser, as Lessee, entitling the Purchaser to use the Time-Share
Interest purchased by such Purchaser for a designated number of years.
"Rate Spread" shall mean, prior to the Transition Date, 3% per annum
and subsequent to the Transition Date, but subject to the provisions of Section
3.4 hereof, 2.5% per annum.
"Real Estate Collateral" shall mean:
-8-
<PAGE>
(i) the Real Property:
(ii) all buildings and other improvements now or hereafter
erected on the Real Property, all building materials at any time intended to be
incorporated into the improvements now or hereafter erected on the Real Property
and all fixtures, equipment, machinery, appliances, furniture, furnishings and
other articles of personal property of every kind and nature whatsoever now or
hereafter located on the Real Property, and used, intended for use or usable in
connection with the operation of the Real Property, including, without
limitation, all heating, lighting, laundry, incinerating and power equipment,
engines, pipes, pumps, tanks, motors, conduits, switchboards, plumbing,
lighting, cleaning, fire prevention, fire extinguishing, refrigerating,
ventilating and communications apparatus, air cooling and air conditioning
apparatus, elevators, escalators, shades, awnings, screens, storm doors and
windows, wall beds, stoves, ranges, refrigerators, freezers, food and beverage
preparation and serving equipment, cabinets, partitions, ducts, compressors,
canopies, furnishings, garbage and rubbish disposals, counters, bathtubs, sinks
basins, carpets, floor and wall coverings, drapes, swimming pool equipment,
inventory, merchandise and proceeds therefrom and all substitutions and
replacements therefor; it being understood and agreed that all such property is
part and parcel of the Real Property and appropriate to the use thereof, and
whether affixed or annexed to the Real Property or not, shall for the purpose of
the Documents be deemed conclusively to be a portion of the security for the
Performance of the Obligations;
(iii) all right, title and interest of Borrower, now or
hereafter acquired, to use, occupy and enjoy the Real Property;
(iv) all of Borrower's right, title and interest, now owned
or hereafter acquired, in and to all goods, materials, supplies, fixtures,
equipment, machinery, furniture, furnishings and other personal property that
are now or hereafter may be appropriate for use on (whether such items are
stored on the Real Property or elsewhere), located on, or used in connection
with the Real Property;
(v) all other property and assets of Borrower, whether now
existing or hereafter acquired or arising, and whether in any way relating to or
arising from the Real Property, including, without limitation, all personal
property, accounts, accounts receivable, contract rights, chattel paper,
inventory, instruments, documents, agreements, general intangibles, trade names,
trademarks, service marks, copyrights, designs, patents, patent applications,
patent rights, tax refund claims, computer programs of Borrower,
-9-
<PAGE>
machinery, equipment, furniture, fixtures, royalties, notes, drafts,
letters of credit, insurance policies;
(vi) all of the right, title and interest of Borrower, now
or hereafter acquired in and to all and singular the appurtenances,
tenements, hereditaments, rights of way, easements, riparian rights, water
and water rights and water rights applications as well as all rights in
ditches for the irrigation of the Real Property and shares of stock
evidencing such rights, and such other rights, liberties and privileges now
or hereafter belonging or appertaining thereto;
(vii) all income, rents, royalties, revenues, accounts,
issues, profits, fees, deposits and other proceeds of the Real Property,
together with all of the right, title and interest of Borrower, now or
hereafter acquired, as lessor or seller, as the case may be, in and to all
sales contracts, installment sales agreements and purchase money notes
pertaining to the Real Property, or any part thereof, all security
documents related to any of the foregoing, all existing and future lease
agreements, occupancy agreements, and use agreements relating to the Real
Property or any part thereof, all extensions and renewals of such leases or
other agreements, all security for the obligations of the lessees or
occupants thereunder and any and all guaranties or indemnities of or surety
or similar arrangements with respect to any such obligations;
(viii) all right, title and interest of Borrower, now or
hereafter acquired, in and to any and all strips and gores of land adjacent
to and used in connection with the Real Property and all right, title and
interest of Borrower, now owned or hereafter acquired, in, to and under the
ways, streets, sidewalks and alleys now or hereafter adjoining the Real
Property;
(ix) any licenses, contracts, consents, approvals,
management contracts or agreements, franchise agreements, insurance
policies, permits, authorizations or certificates, necessary or appropriate
for, or now or hereafter required or used in connection with the ownership,
operation, construction or maintenance of the Real Property;
(x) all intangibles, choses in action, names, logos,
trademarks, trade names and copyrights now or hereafter used in connection
with the Real Property including, without limitation, the name Port Royal
Beach Club and all variations thereof, and logos, marks and trademarks
associated therewith;
-10-
<PAGE>
(xi) all replacements, substitutions or renewals of, or
additions to, all products of, and all books, records and files relating
to, any of the foregoing;
(xii) all proceeds and payments of the conversion, voluntary
or involuntary, of any of the foregoing, into cash or otherwise, including,
without limitation, all accounts, all condemnation awards in respect to any
taking by eminent domain or otherwise payable to the extent hereinafter
provided and all proceeds of any insurance required to be maintained by
Borrower pursuant to the Documents, whether payable to Borrower or
otherwise.
Real Estate Collateral shall not include the Purchaser Leases or the rent or
other amounts payable thereunder.
"Real Property" shall mean the parcel of real property and all
existing and future improvements located thereon, located in St. Maarten,
Netherlands Antilles and more fully described on the attached Exhibit "G",
-----------
including, without limitation, the leasehold estate created by the Master Lease.
"Receivables Advance" shall mean an Advance of the Receivables Loan
advanced by Lender to Borrower from time to time in accordance with the terms
and provisions of this Agreement. A Receivables Advance shall include an
Availability Advance.
"Receivables Collateral" shall mean (i) all of the Instruments which
Borrower now or hereafter assigns, transfers, endorses or delivers to Lender in
consideration for an Advance made by Lender pursuant to the terms of this
Agreement and as collateral security for the Obligation; (ii) all Instruments
against which Lender makes an Advance pursuant to the terms of this Agreement,
notwithstanding whether or not such Instrument is assigned, transferred,
endorsed or delivered to Lender; (iii) all Purchaser Leases, purchase
contracts, purchase agreements, guarantees and other documents or instruments
evidencing or securing the obligations of the Purchasers and/or any other person
primarily or secondarily liable on the Instruments; (iv) all policies of
insurance related to the Instruments or delivered in connection with the
Instruments (provided that the inclusion of such policies of insurance as part
of the Receivables Collateral shall not be deemed to restrict or limit the
Borrower's ability to encumber such insurance to the extent relating to or
delivered in connection with Instruments pledged to another lender, subject,
however, to the provisions of paragraph 8.27); (v) all rights under escrow
agreements relating to the Instruments and all impound and/or reserve accounts
related to the Instruments (excluding, however, any escrows set aside for
improvements to the Project); (vi) all licenses, contracts, management contracts
or agreements, franchise agreements, permits, subordination or certificates now
or hereafter required or used in connection with the ownership,
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operation or maintenance of the Project (provided that the inclusion of such
licenses, contracts, management contracts and other agreements or permits as
part of the Receivables Collateral shall not be deemed to restrict or limit the
Borrower's ability to encumber such documents and agreements to the extent
relating to or delivered in connection with Instruments pledged to another
lender, subject, however, to the provisions of paragraph 8.27); (vii) all files,
books and records pertaining to any of the foregoing; and (viii) cash and non-
cash proceeds from all of the foregoing including, without limitation, all
goods, instruments, documents, general intangibles, chattel paper and accounts
wherever located, which have been acquired with cash proceeds from any of the
foregoing and the proceeds thereof.
"Receivables Loan" shall mean a revolving line of credit loan
extended by Lender to Borrower in accordance with the terms of this Agreement
in an outstanding principal amount not to exceed at any time the Maximum Loan
Amount.
"Receivables Note" shall mean the Receivables Promissory Note, in the
amount of the Receivables Loan, to be made and delivered by Borrower to Lender
pursuant hereto, in a form acceptable to Lender, as from time to time modified,
extended, renewed, replaced or restated.
"Required Sales Payments" shall have the meaning set forth in Section
5.13 of the Supplemental Agreement.
"Security Interest" shall mean a direct and exclusive first security
interest which has been perfected under the Uniform Commercial Code of the
state(s) in which any such security interest must be perfected; provided that
with respect to any portion of the Receivables Collateral or Real Estate
Collateral not covered by the Uniform Commercial Code, it shall mean a direct
and exclusive first lien on such property which has been perfected in the manner
provided by law.
"Servicing Agent" shall mean FPSI or, should such entity cease to act
as Servicing Agent under the Servicing Agreement and Services and fees
Agreement, such other entity as lender may appoint.
"Servicing Agreement" shall mean the Servicing Agreement, in such form
as Lender shall prescribe, to be made among Borrower, Lender, and the Servicing
Agent, as from time to time, as from time to time modified, extended, renewed,
replaced or restated.
"Services and Fees Agreement" shall mean the Services and Fees
Agreement, in such form as Lender shall prescribe, to be made between Borrower
and Servicing Agent and acknowledged by lender, as from time to time modified,
replaced, renewed or restated.
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"Subordination Agreement" shall mean an agreement, in such form as
Lender shall prescribe, delivered to Lender pursuant to paragraph 5.2(iii)
hereof, as from time to time, as from time to time modified, extended, renewed,
replaced or restated.
"Supplemental Agreement" shall mean that Supplemental Agreement
regarding Real Estate Collateral, of even date herewith, as from time to time
modification extended, renewed, replaced or restated made, executed and
delivered by Borrower to Lender, in a form acceptable to Lender.
"Term" shall mean the duration of this Agreement commencing as of the
year and day first above written and terminating on the date Borrower has
Performed all of its Obligations under the Documents.
"Time-Share Interest" shall mean the rights sold (whether by lease or
fee title) to a Purchaser to the exclusive use of a Unit in the Project and the
Project common areas for a one (1) week period each year.
"Transition Date" shall mean the payment in full of the Acquisition
Note; provided that if upon the occurrence of the event described above, there
-------- ----
exists an Event of Default or Incipient Default, the Transition Date shall not
occur until such Event of Default or Incipient Default has been cured or waived
in writing by Lender.
"Unit" shall mean a right of apartment as described in the Declaration
of Division.
ARTICLE III
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THE LOAN
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3.1 Lender hereby agrees that the Receivables Loan (including
Availability Advances of the Receivables Loan) will be disbursed to Borrower,
from time to time, in periodic Receivables Advances, but in no event after the
Borrowing Term (Receivables Loan) has expired, in amounts determined by
subtracting from the Borrowing Base the unpaid principal balance outstanding
under the Receivables Loan at the time of each Receivables Advance; provided
that at no time shall the unpaid principal balance of the Receivables Loan
exceed the Maximum Loan Amount.
(i) Receivables Advances shall not be made more frequently than
twice per month, and each Receivables Advance shall be in an amount of not
less than One Hundred Thousand United States Dollars (U.S. $100,000.00).
Lender shall charge a fee of Five Hundred United States Dollars
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(U.S. $500.00) for the second Receivables Advance made during any month and
shall be entitled to deduct such fee from the Receivables Advance so made.
The foregoing fee is to be paid to Lender strictly in consideration for
Lender's agreement to make a second Receivables Advance during any
particular calendar month and shall not be applied or credited against any
other Obligations.
(ii) The Receivables Loan is a revolving line of credit under
the terms of which Borrower, during the Borrowing Term (Receivables Loan),
shall have the right to obtain Receivables Advances, repay Receivables
Advances, and obtain additional Receivables Advances so long as no Event of
Default has occurred and is continuing and so long as all other conditions
precedent to the making of a Receivables Advance have been satisfied.
(iii) No Receivables Advances will be made after the Borrowing
Term (Receivables Loan) has expired unless Lender, in its sole discretion,
shall agree in writing to make such Receivables Advances.
(iv) Borrower shall use the proceeds of the Receivables Loan
for working capital purposes, which shall include, without limitation, the
permitted Distributions under Section 8.21 hereof.
(v) At no time during the term hereof shall the unpaid
principal balance of the Receivables Loan exceed the Maximum Loan Amount,
and Lender shall have no obligation to make any Receivables Advance if such
Advance would cause the foregoing limitation to be exceeded.
3.2 Lender agrees that the Acquisition Loan will be disbursed to
Borrower, from time to time, in periodic Acquisition Advances, but in no event
after the Borrowing Term (Acquisition Loan) has expired. In no event shall total
Advances of the Acquisition Loan exceed U.S. $4,400,000 and Lender shall have no
obligation to make an Acquisition Advance if the foregoing limit would be
exceeded.
(i) No Acquisition Advances will be made after the Borrowing
Term (Acquisition Loan) has expired unless Lender, in its sole discretion,
shall agree to make such Acquisition Advances.
(ii) Borrower shall use the proceeds of the Acquisition Loan
for the following purposes:
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U.S. $2,500,000 Closing the Acquisition
U.S. $ 250,000 Closing, legal and other transaction
costs incurred in connection with the
Loan
U.S. $1,200,000 Operating costs shortfalls in connection
with the Project
U.S. $ 400,000 Working capital
U.S. $ 50,000 Interest reserve
On the Closing Date, Lender will fund U.S. $2,750,000 of the
Acquisition Loan to close the Acquisition and pay closing, legal and
other transaction costs incurred in connection with the Loan. Lender
shall disburse to Borrower the portion of the Acquisition Loan to be
used for working capital and operating costs shortfalls as requested
from time-to-time by Borrower in writing (but no more frequently than
once per calendar month) provided there does not then exist an Event
of Default or Incipient Default and such request, which shall be
certified correct by the Borrower, and which shall be in such form as
Lender shall reasonably prescribe, shall be accompanied by a detailed
list of obligations which Borrower desires to pay from such Advance
and, upon request of Lender, supporting documentation. The portion of
the Acquisition Loan set aside for interest reserve may be drawn by
Lender and applied against interest payments due and owing under the
Acquisition Loan upon the occurrence during the continuance of an
Event of Default and the absence of an Event of Default, only if
Lender has received written notice from Borrower within five (5) days
prior to the due date of a particular interest payment that Lender is
to make such interest payment from the interest reserve. At such time
as the interest reserve has been exhausted, any further interest
payments due under the Acquisition Loan shall be paid by Borrower from
Borrower's own funds.
3.3 All monies payable hereunder and under the Receivables Note, the
Acquisition Note and the other Documents shall be paid in United States Dollars.
3.4 The Rate Spread shall not reduce from 3% per annum to 2.5% per
annum on the Transition Date if, at any time between the date of this Agreement
and the Transition Date, there has occurred an Event of Default by reason of the
failure of Borrower to abide by the provisions of Sections 8.21 or 8.22 hereof
or there has occurred an Event of Default as described in Section 9.1(a) hereof,
notwithstanding the fact that such Events of Default may have subsequently been
cured.
3.5 All Advances made pursuant to this Agreement shall be deemed to
be a single Loan.
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ARTICLE IV
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SECURITY FOR THE LOAN
---------------------
4.1 As security for Borrower's payment and Performance of all
Obligations owed to Lender, other than those arising out of the Environmental
Certificate, Borrower hereby grants to Lender a first and exclusive Security
Interest in all right, title, interest of Borrower in and to the (i) Receivables
Collateral assigned, transferred endorsed or delivered to Lender under this
Agreement or against which an Advance is made hereunder and (ii) Real Estate
Collateral. Lender's Security Interest in such Receivables Collateral and the
Real Estate Collateral shall be absolute, continuing and applicable to all
existing and future Advances and shall secure the repayment of the Loan and the
Performance of all Obligations throughout the Term of the Loan. At the time
each Advance is made hereunder, Borrower shall deliver to Lender (i) an executed
Assignment against which an Advance is requested; (ii) the original of each
Instrument and Purchaser Lease; and (iii) other documents which comprise such
Eligible Instruments. In addition, Borrower's payment and Performance of all
Obligations owed to Lender, other than those arising out of the Environmental
Certificate, shall be secured by the Mortgage.
4.2 If an Eligible Instrument which comprises a part of the
Receivables Collateral shall cease to qualify as an Eligible Instrument,
Borrower shall, within 30 days thereafter, pay to Lender an amount equal to that
portion of the Loan, together with interest, costs, and expenses, if any,
attributable to such ineligible Instrument or shall replace such ineligible
Instrument with another Eligible Instrument having a value of not less than that
portion of the Loan together with interest, costs, and expenses, if any,
attributable to the Eligible Instrument being replaced. No prepayment premium
shall be payable with respect to the payment to be made by Borrower pursuant to
the previous sentence as long as Borrower did not cause the Instrument to cease
qualifying as an Eligible Instrument. Concurrently with the delivery of the
replacement Eligible Instrument to Lender, Borrower shall deliver to Lender all
pertinent items (except for a "Request for Advance and Certification") which
Borrower is required to deliver to Lender in connection with an Advance pursuant
to Article V hereof, together with a Borrower's Certificate in form and
substance identical to Exhibit "D" hereto. Upon substitution of the replacement
-----------
Eligible Instrument for the ineligible Instrument, Lender will terminate its
Security Interest in and reassign and endorse to Borrower, without recourse or
warranty of any kind, the replaced ineligible Instrument, together with the
Purchaser Lease pertaining thereto, provided that no Event of Default or
Incipient Default has occurred and is continuing.
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4.3 Borrower shall deliver or cause to be delivered to Lender, and
thereafter shall maintain in full force and effect according to the terms
thereof, the Guarantee duly executed by the Guarantor.
ARTICLE V
---------
ADVANCES
--------
5.1 Lender shall have no obligation to make any Advance hereunder
until all conditions precedent set forth in the following paragraphs and
elsewhere in this Agreement have been satisfied, at Borrower's sole expense, as
determined by Lender in its reasonable discretion, except as otherwise set forth
herein.
5.2 Borrower shall have delivered to Lender the following Documents,
duly executed in form and substance satisfactory to Lender (and, when required,
in recordable form):
(i) The Documents;
(ii) A permit from the Netherlands Antilles Central Bank with
respect to Borrower's incurring of and servicing the Acquisition Loan;
(iii) All documents required to effectuate the purposes of
paragraphs 8.12 and 8.21(ii) hereof;
(iv) A Nondisturbance Agreement which shall be filed and
recorded in such offices as Lender shall designate;
(v) UCC Financing Statements for filing and recording, if
appropriate, as necessary to perfect Lender's Security Interest in the
Receivables Collateral, Real Estate Collateral, and all other security for
the Performance of Borrower's Obligations which is subject to Article 9 of
the Uniform Commercial Code. Such Financing Statements shall be recorded
with, without limitation, the California Secretary of State and the Florida
Secretary of State;
(vi) A certificate of admeasurement for the Project together
with evidence satisfactory to Lender (which evidence shall be a
certification from a Netherlands Antilles civil notary) that Lender's
Mortgage is a lien upon the Real Property and Project in a first priority
position subject only to such matters as are acceptable to Lender;
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<PAGE>
(vii) A favourable opinion from Borrower's and Guarantor's
United States and Netherlands Antilles counsel as to such matters as Lender
may reasonably require;
(viii) A favourable opinion from Lender's Netherlands
Antilles counsel as to such matters as Lender may reasonably require; and
(ix) A budget and funding schedule with respect to the
advances of that portion of the Acquisition Loan identified for working
capital and operating shortfall purposes.
5.3 Not less than ten (10) Business Days before the date on which the
initial Advance is to be made, Borrower shall deliver or cause to be delivered
to Lender the following additional items:
(i) With respect to Borrower and Guarantor, certified
copies of their articles, certificates and agreements of general or limited
partnership or their articles of incorporation and by-laws (or their
equivalent under Netherlands Antilles law) (and all amendments thereto),
together with evidence that Borrower and Guarantor are duly organized,
validly existing, and in good standing under the laws of the jurisdiction
in which they are organized, and in each and every other jurisdiction where
the nature of their respective businesses require them to be so qualified;
(ii) With respect to Borrower and Guarantor, a copy of the
resolutions certified to be true and complete by the corporate secretary or
all of the general partners (as the case may be), authorizing the
execution, delivery and performance of the Documents, and evidencing the
authority of all Persons executing the Documents on behalf of Borrower and
Guarantor and such other Persons, and if Borrower or Guarantor or such
Persons are operating under a fictitious name, a copy of the recorded
certificate of fictitious name;
(iii) Evidence satisfactory to Lender that the Project
complies with all applicable laws, bylaws, rules and regulations and public
and private restrictions affecting the use of the Project and that the
Project is zoned for its intended use, which zoning shall be final and not
subject to challenge;
(iv) Prior to sale of any Time-Share Interest within the
United States, a copy of the registrations/consents to sell and the final
subdivision public reports/public offering statements/prospectuses and/or
approvals thereof required to be issued by or used in the Netherlands
Antilles, United States and other jurisdictions where Time-Share Interests
are or have been offered or sold,
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<PAGE>
together with all other approvals from regulatory agencies having
jurisdiction over the Project;
(v) Any covenants running with the land comprising the
Project, any covenants enforceable as equitable servitudes, the Project
Documents and advertising materials which have been or are being used by
Borrower in connection with the Project or the sale of Time-Share Interests
therein;
(vi) Copies of the insurance policies required pursuant to
paragraph 8.9 hereof;
(vii) Evidence that the Project is not located within a
"special flood hazard" area as such term is defined in the National Flood
Insurance Act of 1968, as amended and supplemented by the Flood Disaster
Protection Act of 1973, and in regulations, interpretations and rulings
thereunder;
(viii) With respect to a Receivables Advance, the items
described in Exhibit "E" hereto;
-----------
(ix) A schedule of completion of deferred maintenance as
respects the Project and schedule of the manner in which Borrower will fund
the Project owner's association operating shortfalls;
(x) UCC, tax lien, litigation and judgment searches under
the names of the Borrower, Guarantor, AK - St. Maarten, LLC and Project.
(xi) Copies of the forms of Instrument and Purchaser Lease
together with a copy of the purchase contract, and other documents used in
connection with the sale of the Time-Share Interests. The Purchaser Lease
shall be in the name of the Borrower as Lessor, shall be cross-defaulted
with the Instrument, shall permit the Lessor thereunder recover clear title
to the Time-Share Interests to which it relates upon the occurrence of an
Event of Default under the Purchaser Lease or the Instruments and shall
otherwise be in form and substance satisfactory to Lender. The Instrument
shall be in favor of the Borrower as payor, shall be cross-defaulted with
the Purchaser Lease and shall otherwise be in form and substance
satisfactory to Lender; and
(xii) Evidence as to the environmental condition of the
Project. In connection therewith, the Lender shall have the right to
require the Borrower to retain the services of a firm acceptable to the
Lender and knowledgeable in environmental matters to perform an
environmental investigation of the Project and of the surrounding area.
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(xiii) Evidence that equity has been invested in Borrower in
an amount equal to U.S. $1,500,000, which equity shall not constitute the
same monies that were paid by Borrower in connection with the purchase of
the loan encumbering the Flamingo Beach Resort.
(xiv) Such other items as Lender requests which are
reasonably necessary to evaluate whether the request for the Advance
satisfied the requirements set forth herein;
5.4 No material adverse change shall have occurred in the
Project or Borrower's or any Guarantor's business or financial condition since
the date of the latest financial and operating statements given to Lender by or
on behalf of Borrower or any Guarantor. Lender shall be satisfied (in Lender's
sole and absolute discretion) with the results of Lender's physical inspection
of the Project.
5.5 There shall have been no material adverse change in the
warranties and representations made by Borrower or any Guarantor in the
Documents.
5.6 Neither an Event of Default nor an Incipient Default shall
have occurred and be continuing.
5.7 The interest rate applicable to the Advance (before giving
effect to any savings clause) will not exceed the maximum contract rate
permitted by the Applicable Usury Law.
5.8 Borrower has paid the entire Loan Fee to Lender.
5.9 Lender is satisfied, in its sole discretion, that Lender
will incur no adverse foreign tax consequences as a result of the making of the
Loan and the performance of its obligations under the Documents. Lender shall be
further satisfied, in its sole discretion, that the principal and interest
payments being made to Lender as respects the Loan and any other monies payable
to Lender under the Documents will not be subject to withholding or subject the
Lender to a withholding requirement.
5.10 Evidence satisfactory to Lender that Borrower has closed the
Acquisition, completed the foreclosure of the lien (against the Project) which
is the subject matter of the Acquisition and that Borrower owns fee simple title
to the Project (or as to that portion of the Project subject to the Master
Lease, the lessee's interest in such lease) subject only to the Permitted
Encumbrances.
5.11 Lender shall have no obligation to make any Advance until
the conditions specified in paragraphs 5.1 through 5.10 inclusive herein have
been
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satisfied as determined by Lender. In the event the conditions specified in
Sections 5.1 through 5.10 hereof have not been satisfied as determined by Lender
in its reasonable discretion, on or before the Closing Date, Lender shall have
no further obligation to make the Loan and the entire Loan Fee shall
nevertheless be deemed earned by Lender in consideration for Lender's and
holding itself ready and willing to make the Loan upon the terms and conditions
set forth herein. Payment of the Loan Fee is in addition to Borrower's
obligations under Paragraph 8.16.
5.12 Advances shall be requested in writing on the Request for
Advance and Certification, in the form of the attached Exhibit "E-1," executed
--------------
by Borrower (or, if Borrower is a corporation or partnership, by those officers
or general partners, as the case may be, or agents of Borrower named in
authorizing resolutions of Borrower from time to time delivered to Lender and
which are in form and substance satisfactory to Lender).
5.13 Advances may be disbursed by checks, drafts or wire transfer
payable to Borrower; or, at the option of Lender after Borrower's written
request, to third parties, either severally or jointly with Borrower, for the
credit or benefit of Borrower. If Advances are made by wire transfer, Borrower
shall pay to Lender, Lender's usual and customary fee for wiring such funds.
Lender can withhold such fee from the Advance so made.
5.14 Although Lender shall have no obligation to make an Advance
unless and until all applicable conditions thereto set forth herein have been
satisfied, Lender may, at its sole discretion, make Advances before that time
without waiving or releasing any of the Obligations, but Borrower shall continue
to be required to strictly Perform all such Obligations.
5.15 On or before August 31, 1995, Borrower shall deliver to Lender a
survey of Real Property, reasonably satisfactory to Lender, showing that all of
the improvements constituted in the Project are located within the confines of
the Real Property. On or before September 15, 1995, Borrower shall deliver to
Lender evidence that Borrower has obtained a business license to operate within
the Netherlands, Antilles.
5.16 Prior to the making of a Receivables Advance, Borrower shall
deliver to Lender evidence that Borrower has qualified to do business within the
state of Florida together with an opinion, satisfactory in form and content to
Lender, from Borrower's Netherlands, Antilles counsel as to the sufficiency of
the consumer documents under Netherlands, Antilles law.
5.17 On or before July 31, 1995 and as a condition precedent to
Lender's obligation to make any Advance other than the initial Advance, Borrower
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shall deliver to Lender a permit from the Netherlands Antilles Central Bank with
respect to Borrower's incurring of and servicing the Loan, in a form
satisfactory to Lender, or evidence satisfactory to Lender that such permit is
not required.
ARTICLE VI
----------
RESERVED
--------
ARTICLE VII
-----------
NOTE: MAINTENANCE OF BORROWING BASE;
------------------------------------
PAYMENTS: SERVICING AND COLLECTION
----------------------------------
7.1 In connection with the Receivables Loan:
(i) In no event shall the aggregate principal amount of the
Receivables Loan outstanding at any time exceed the Maximum Loan Amount and
in the event for any reason the aggregate principal amount of the
Receivables Loan does exceed the Maximum Loan Amount, then Borrower upon
demand, shall immediately make a principal payment to Lender in an amount
equal to such excess plus accrued and unpaid interest thereon.
(ii) If for any reason the aggregate principal amount of the
Receivables Loan outstanding as of the last Business Day of any month shall
exceed the then Borrowing Base, Borrower, upon demand, shall immediately
make to Lender a principal payment in an amount equal to such excess plus
accrued and unpaid interest thereon.
(iii) The Receivables Loan shall be evidenced by the Receivables
Note and shall be repaid in immediately available funds according to the
terms thereof and such provisions of this Agreement as are applicable.
7.2 In connection with the Acquisition Loan:
(i) In no event shall the total aggregate Advances of the
Acquisition Loan at any time exceed U.S. $4,400,000 and in the event for
any reason the total aggregate Advances of the Acquisition Loan exceed such
limit, then Borrower upon demand, shall immediately make a principal
payment to Lender in an amount equal to such excess plus accrued and unpaid
interest thereon.
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(ii) The Acquisition Loan shall be evidenced by the Acquisition
Note and shall be repaid in immediately available funds according to the
terms thereof and such provisions of this Agreement as are applicable.
7.3 Borrower is not entitled to prepay, in whole or in part, the
Receivables Loan until the Opening Prepayment Date. Thereafter, if (i) Borrower
has paid or concurrently therewith is paying the Acquisition Loan and the
Incentive Fee in full and has paid or concurrently therewith is paying in full
all other obligations, and (ii) Borrower has given Lender at least 30 days prior
written notice of the prepayment of the Receivables Loan and has paid to Lender
at the time of prepayment a prepayment premium equal to a percentage, as set
forth below, of the then principal balance of the Receivables Loan, then
Borrower shall have the option to prepay the Receivables Loan in full, but not
in part, on any date an installment is due on the Receivables Note:
Period Premium
------ -------
Through the Second Anniversary Closed to Prepayment
Date of the last Receivables
Advance
After the Second Anniversary Date 3%
and through the Fourth Anniversary
Date of the last Receivables Advance
After the Fourth Anniversary Date 2%
and through the Sixth Anniversary
Date of the last Receivables Advance
After the Sixth Anniversary Date and 1%
through the period ending 30 days
prior to the Seventh Anniversary Date
of the last Receivables Advance
Within 30 days prior to the Seventh 0%
Anniversary Date of the last Receivables
Advance
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If there should occur an acceleration of maturity following an Event
of Default and such occurrence results in prepayment of the Receivables Loan, a
prepayment premium will be required in the amount specified above; or if
occurring prior to the Opening Prepayment Date, Borrower shall pay to Lender
with the prepayment a prepayment premium equal to 5% the then principal balance
of the Receivables Loan being prepaid. A Purchaser shall be permitted to prepay
the amount owed on its Instrument without penalty. The Acquisition Loan may be
prepaid in part but not in whole prior to the payment in full of the Incentive
Fee, without penalty. The Acquisition Loan may be prepaid in whole at any time
after the payment in full of the Incentive Fee, without penalty. If there should
occur a casualty to or condemnation of the Project and such occurrence results
in a prepayment of the Receivables Loan, no prepayment premium shall be payable
in connection with such prepayment.
7.4 (a) Lockbox Agent, as agent for Lender, shall collect payments
on the Eligible Instruments used in making Borrowing Base computations or
otherwise constituting part of the Receivables Collateral and shall remit
them to Lender on the last Business Day of each and every month according
to the terms of the Lockbox Agreement; and Borrower shall immediately
forward all such payments received by it to Lockbox Agent for Lender.
However, the Obligation to make, or any requirement that Lender receives,
payments called for in the Documents shall not be deemed satisfied until
Lender actually receives such payments from Lockbox Agent. For the purpose
of determining the adequacy of such payments, Borrower will cause Servicing
Agent to furnish to Lender at Borrower's sole cost and expense, no later
than the tenth day of each month commencing with the first full calendar
month following the first Advance, a report meeting the following
requirements: (i) shows as of the end of the prior month with respect to
each Eligible Instrument which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables Collateral
(A) all payments received during the prior month on the Eligible
Instrument, allocated as between principal, interest, late charges, taxes,
and the like, (B) the opening and closing balances during the prior month
on each such Eligible Instrument, (C) present value of the cash flow (if
required by Lender) and (D) extensions, refinances, prepayments, and other
similar adjustments; and (ii) itemizes the Eligible Instrument which are
used in making Borrowing Base computations or otherwise constitute part of
the Receivables Collateral to show delinquencies of 30, 60, 90 and in
excess of 90 days. On the basis of such reports, Lender will compute the
amount, if any, which was due and payable by Borrower on the last day of
the preceding month and will notify Borrower as soon as possible of any
amount due. If such reports are not timely received, Lender may estimate
the amount which was due and payable; and, in such event, Borrower shall
pay upon demand the amount estimated by Lender to be due and payable. If
payment is made on the basis of Lender's estimate, and reports required by
this
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paragraph are thereafter received by Lender, the estimated payment amount
shall be adjusted by an additional payment or a refund to the correct
amount, as the reports may indicate; such additional amount to be paid by
Borrower upon demand and such refund to be made by Lender within five
Business Days after receipt by Lender of a written request therefor by
Borrower. In addition, at each calendar quarter, Borrower shall deliver to
Lender a current list of the names addresses and phone numbers of the
Purchasers related to Eligible Instruments.
(b) Subject to the following sentence, FPSI shall act as the
Servicing Agent during the Term. Lender, subject to any restriction
contained in the Services and Fees Agreement, the Servicing Agreement or
the Lockbox Agreement, may at any time and from time to time in its
discretion substitute a successor or successors to any Servicing Agent or
Lockbox Agent acting in such capacity under the Services and Fees
Agreement, the Servicing Agreement and Lockbox Agreement, if the Servicing
Agent or Lockbox Agent is not satisfactorily performing its respective
obligations thereunder. In the event Lender substitutes a successor
Servicing Agent or Lockbox Agent pursuant to the provisions of this
paragraph, Borrower shall have the right to approve the identity of such
successor Servicing Agent or Lockbox Agent; provided that there does not
-------- ----
then exist an Event of Default or an Incipient Default and further provided
------- --------
that Borrower shall not unreasonably withhold or unduly delay its consent.
----
7.5 Subject to the Lender's rights upon the occurrence of an Event of
Default, all proceeds from the Receivables Collateral (except payments which are
identified by Purchasers as tax or maintenance and other assessment payments and
are required to be so treated by Borrower) during the Term hereof shall be
applied first to the payment of all costs, fees and expenses required by the
Documents to be paid by Borrower, second to accrued and unpaid interest due on
the Receivables Note, third to the unpaid principal balance of the Receivables
Note, and then to the other Obligations in such order and manner as Lender may
determine. Unless and until all such Obligations have been Performed, Borrower
shall have no right to any portion of the proceeds of the Receivables
Collateral.
7.6 Whether or not the proceeds from the Receivables Collateral shall
be sufficient for that purpose, Borrower shall pay when due all payments
required to be made pursuant to the Receivables Note, Acquisition Note and other
Documents; and any and all amounts payable by Borrower under the Receivables
Note, Acquisition Note and other Documents shall be paid without notice (except
as otherwise expressly provided therein), demand, counterclaim, set-off,
deduction, recoupment or defense, and without abatement, suspension, deferment,
diminution or proration by reason of
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any circumstance or occurrence whatsoever, Borrower's Obligation to make such
payments being absolute and unconditional.
7.7 All payments to be made by Borrower under the Documents shall be
free of expense to Lender with respect to the amount of any Impositions, all of
which Impositions Borrower assumes and shall pay on demand in addition to the
other payments provided for in the Documents to be made by it. Borrower's
Obligation to pay Impositions shall likewise include the Obligation to pay any
increase to Lender in federal, state, or local income tax as a result of
inclusion in income of Lender of any amount required by this paragraph to be
paid to or for Lender.
ARTICLE VIII
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BORROWER'S ADDITIONAL REPRESENTATIONS.
--------------------------------------
WARRANTIES AND COVENANTS
------------------------
8.1 (a) Borrower is, and will continue to be during the Term hereof,
a limited partnership with its capital divided into shares, duly organized,
validly existing and in good standing under the laws of the Netherlands
Antilles and is, and will continue to be during the Term hereof, qualified
to do business and in good standing in each jurisdiction in which it is
selling Time-Share Interests or where the location or nature of its
properties or business makes such qualification necessary (except where
failure to do so would not adversely affect Lender's ability to realize
upon the Receivables Collateral, Real Estate Collateral or any other
security for the Performance of the Obligations or materially adversely
affect the business or financial condition of Borrower or the ability of
Borrower to complete Performance of the Obligations). Borrower has, and
will continue to have, powers adequate for making and Performing under the
Documents, for undertaking and Performing the Obligations, and for carrying
on its business and owning its property. Guarantor is a general partner of
Borrower and is a corporation with limited liability, duly organized,
validly existing and in good standing under the laws of the Netherlands
Antilles and is, and will continue during the Term hereof, qualified to do
business and in good standing in each jurisdiction where Borrower is
selling Time-Share Interests or where the location or nature of the
properties or business of Guarantor make such qualification necessary
(except where failure to do so would not adversely affect Lender's ability
to realize upon the Receivables Collateral, Real Estate Collateral or any
other security for the Performance of the Obligations or materially
adversely affect the business or financial condition of Borrower or the
ability of Borrower to complete Performance of the Obligations).
(b) Borrower has good right and power to grant the Security
Interest in the Receivables Collateral, Real Estate Collateral and other
security
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for the Performance of the Obligations and to execute and deliver this
Agreement and the other Documents and to Perform the Obligations. All
action necessary and required by Borrower's and Guarantor's organization
documents and all applicable laws for the obtaining of the Loan and for the
execution and delivery of this Agreement and all other Documents executed
and delivered in connection with the Loan has been duly and effectively
taken; and, to the best of Borrower's knowledge, this Agreement is and
shall be, and all other Documents are and shall be, legal, valid, binding
and enforceable against Borrower in accordance with their respective terms,
other than as such enforceability may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium, or similar laws relating to or
affecting the rights of creditors generally or general principles of equity
(except to the extent that such laws, rights, remedies or principles are
waivable by Borrower and have been waived in the Documents). To the best of
Borrower's knowledge, the Documents do not violate the Applicable Usury
Law or any other usury law applicable to Borrower. The execution, delivery
and Performance of the provisions of this Agreement and all the other
Documents will not violate, constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
properties or assets or Borrower pursuant to any provision of: any law,
regulation, judgment, decree, order, franchise or permit applicable to
Borrower or Guarantor, Borrower's or Guarantor's charter documents; or any
contract or other agreement or instrument to which Borrower or Guarantor is
a party or by which Borrower or Guarantor or Borrower's or Guarantor's
properties or assets are bound. No consent of any government or agency
thereof, or any other person, firm or entity not a party hereto, is or will
be required as a condition to the execution, delivery, Performance or
enforceability of the Documents.
8.2 (a) There is no action, litigation or other proceeding pending
(or, to Borrower's knowledge, threatened) before any arbitration tribunal,
court, governmental agency or administrative body against Borrower or
Guarantor which, if adversely determined, might adversely affect Lender's
ability to realize upon the Receivables Collateral, Real Estate Collateral
or any other security for the Performance of the Obligations, or materially
adversely affect the Project, the business or financial condition of
Borrower or Guarantor, of the ability of Borrower to complete Performance
of the Obligations; or which questions the validity of the Documents.
(b) If Borrower or a Guarantor becomes a party to any action,
litigation or other proceeding which asserts a material claim against
Borrower or a Guarantor, or Borrower becomes the subject of an
investigation by a governmental agency or administrative body with respect
to the Project, then Borrower shall within 10 days after it obtains
knowledge thereof notify Lender
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of such action, litigation, proceeding or investigation and the particulars
thereof. Thereafter, if requested by Lender, Borrower shall report to
Lender with respect to the status of such matter and the particulars
thereof.
8.3 (a) Except as set forth in Exhibit "F" hereto, Borrower has sold
-----------
or has offered for sale Time-Share Interests which generate Eligible
Instruments only in the Netherlands Antilles and all sales have been made
at the Project or in the private residences of potential Purchasers. Before
it sells or offers for sale Time-Share Interests outside the NetherLands
Antilles and those listed in Exhibit "F" hereto, Borrower shall promptly
-----------
notify Lender and provide Lender with evidence that Borrower has complied
with all laws of such jurisdiction governing the proposed conduct of
Borrower.
(b) Except for violations which do not individually or in the
aggregate affect Lender's ability to realize upon the Receivables
Collateral, the Real Estate Collateral or any other security for the
Performance of the Obligations or do not materially adversely affect the
business or financial condition of Borrower or the ability of Borrower to
complete Performance of the Obligations, Borrower has complied, and will
comply, with all applicable laws and regulations of the United States and
the Netherlands Antilles and every state, county and municipal jurisdiction
in which Time-Share Interests have been sold or offered for sale.
(c) Without limiting the generality of any other representation
or warranty contained herein, Borrower will not violate any private
covenant or restriction or any zoning, use or similar law, ordinance or
regulation affecting the use or occupancy of the Project, the violation of
which could have a material adverse effect on Lender's ability to realize
upon the Receivables Collateral, the Real Estate Collateral or any other
security for the Performance of the Obligations or materially adversely
affect the business or financial condition of the Borrower or the ability
of Borrower to complete Performance of the Obligations.
8.4 (a) Each Instrument at the time it is assigned to Lender in
connection with the Loan and this Agreement shall be an Eligible
Instrument. At the time such Instrument is assigned to Lender, Borrower
shall have performed all of its obligations to Purchasers, and there shall
be no executory obligations to Purchasers to be Performed by Borrower
(other than the obligations of Lender under the Purchaser Lease in favor of
such Purchaser). Borrower further warrants and guarantees the value and
enforceability of the Receivables Collateral.
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<PAGE>
(b) Borrower shall not, without the prior written consent of
Lender, cancel or materially modify, or consent to or acquiesce in any
material modification to, or solicit the prepayment of, any Eligible
Instrument used in making Borrowing Base computations or which otherwise
constitutes part of the Receivables Collateral; or waive the timely
performance of the obligations of the Purchaser thereunder. Borrower shall
not pay or advance directly of indirectly for the account of any Purchaser
any sum owing by the Purchaser under any of the Eligible Instruments used
in making Borrowing Base computations or which otherwise constitute part of
the Receivables Collateral.
(c) Borrower at all times shall fulfill, and cause its
Affiliates, agents and independent contractors at all times to fulfill, all
obligations to Purchasers under all Eligible Instruments which are used in
making Borrowing Base computations or otherwise constitute part of the
Receivables Collateral.
(d) True and complete copies of the Project governing documents,
the purchase contract, Purchaser Lease, the Instrument, advertising
materials and other documents and exhibits thereto which have been and are
being used by Borrower in connection with the Project and the sale or
offering for sale of Time-Share Interests therein have been delivered to
Lender. Such documents are the only ones which have been used in connection
with the Project and the sale of Time-Share Interests therein. Borrower
shall not, without the prior written consent of Lender, cancel or
materially modify any such documents, which consent will not be
unreasonably withheld. Borrower shall Perform all of its obligations under
the Project governing documents.
(e) All off-site roads and other off-site improvements contained
within the Project (other than private easements) will have been dedicated
to and accepted by the responsible governmental authority or utility prior
to the initial Receivables Advance. Borrower shall maintain or cause to be
maintained in good condition and repair all amenities, common areas and
private easements which have been promised or represented as being
available to Purchasers and all off-site roads and off-site improvements
which have not been dedicated to or accepted by the responsible
governmental authority or utility.
(f) RESERVED.
--------
(g) Borrower owns the furnishings in the Project Units and all
the common areas in the Project and other amenities which have been
promised or represented as being available to Purchasers, free and clear of
liens and security interests, except for the Permitted Encumbrances and the
Mortgage; and no part of the Project is subject to partition by owners of
Time-
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<PAGE>
Share Interests. Borrower will maintain or cause to be maintained in good
condition and repair all common areas in the Project and other amenities
which have been promised or represented as being available to Purchasers.
Borrower will maintain a reasonable reserve to assure compliance of the
terms of the foregoing sentence.
(h) The common areas and amenities and the streets and other
off-site improvements contained within the Project are free and clear of
all liens or other encumbrances of third parties, subject to the Permitted
Encumbrances. Borrower agrees that such common areas, amenities, streets
and other off-site improvements will not, during the Term hereof, be
encumbered.
8.5 LENDER DOES NOT ASSUME AND SHALL HAVE NO RESPONSIBILITY,
OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S RELATIONSHIP BEING SOLELY THAT
OF A CREDITOR WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWNED TO IT, A
COLLATERAL ASSIGNMENT FROM BORROWER OF INSTRUMENTS. EXCEPT AS REQUIRED BY LAW,
OR TO THE EXTENT NECESSARY IN ORDER FOR BORROWER TO OBTAIN A PERMIT TO SELL
TIME-SHARE INTERESTS IN A PARTICULAR JURISDICTION, BORROWER SHALL NOT, AT ANY
TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER WITH RESPECT TO THE PROJECT,
THE SALE OF TIME-SHARE INTERESTS OR OTHERWISE, WITHOUT THE EXPRESS WRITTEN
CONSENT OF LENDER.
8.6 Borrower shall undertake the collection of amounts delinquent
under each Eligible Instrument which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables Collateral, shall
bear the entire expense of such collection work, and shall diligently and timely
do such work respecting collection, including forfeiture or foreclosure
proceedings. Lender shall have no obligation to undertake any collection,
eviction or foreclosure action against the obligor under any Eligible Instrument
or to otherwise realize upon any Eligible Instrument.
8.7 Borrower shall maintain in a secure place in its offices at the
address specified below proper and accurate books, records, ledgers,
correspondence and other papers relating to the Receivables Collateral, Real
Estate Collateral and other security for the Performances of the Obligations.
Lender may notify the appropriate Purchasers of the existence of Lender's
interest as assignee in the Receivables Collateral and request from such
Purchasers any information relating to the Receivables Collateral. Borrower
shall cooperate with Lender in giving such notice and will do so under its
letterhead if requested. Borrower's chief executive
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office is as set forth in Section 11.5 hereof. Borrower will not change its
chief executive office without giving Lender thirty (30) days prior written
notice of such contemplated change. Borrower has not operated under any names or
fictitious names other than Royal Palm Beach Club during the previous six (6)
years. Borrower will not change its name or operate under any fictitious names
without first giving Lender thirty (30) days prior written notice.
8.8 Borrower shall not, without the prior written consent of Lender:
(i) sell, convey, pledge, hypothecate, encumber or otherwise transfer any
security for the Performance of the Obligations; or (ii) permit or suffer to
exist any liens, security interests or other encumbrances on any security for
the Performance of the Obligations, except with respect to either (i) or (ii)
for the Permitted Encumbrances and liens and security interests expressly
granted to Lender.
8.9 Borrower shall obtain before funding, shall maintain during the
Term of the Loan, and shall deliver to Lender evidence of such insurance,
written by such insurers, and in such forms and such amounts, as Lender may
reasonably require.
8.10 (a) This Agreement and the other Documents, certificates,
financial statements, tax returns (including without limitation, the tax
returns of Borrower and Guarantors) and written materials furnished to
Lender by or on behalf of Borrower in connection with the transactions
contemplated herein do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to
Borrower which materially adversely affects or in the future may (so far as
Borrower can now foresee) materially adversely affect the Receivables
Collateral or the Real Estate Collateral or any other security for the
Performance of the Obligations or the business or financial condition of
Borrower or the Project which has not been set forth in this Agreement or
the other Documents, certificates, financial statements or written
materials furnished to Lender in connection with the transactions
contemplated herein.
(b) The fact that Lender's representatives may have made certain
examinations and inspections or received certain information pertaining to
the Receivables Collateral or the Project and the proposed operation
thereof does not in any way affect or reduce the full scope and protection
of the warranties, representations and Obligations contained herein, which
have induced Lender to enter into this Agreement.
8.11 (a) Borrower shall maintain a standard, modern system of
accounting and shall keep and maintain all books and records in accordance
with generally accepted accounting principles, applied on a consistent
basis.
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(b) On or before the tenth day of each month, Borrower shall
furnish or cause to be furnished to Lender (i) the reports of the Servicing
Agent and Borrower required pursuant to paragraph 7.4 hereof and (ii) a
sales report for the prior month showing the number of sales of Time-Share
Interests and the aggregate dollar amount thereof, including down payments.
(c) Borrower shall furnish or cause to be furnished to Lender,
as soon as the same are available, and in any event within 120 days after
the end of each fiscal year and within 30 days after the end of each
interim quarterly fiscal period of the subject, a copy of the current
financial statements of Borrower, and within 120 days after the end of each
fiscal year of the subject, current financial statements of the Guarantor
and Project's owners association (the "Association"). Such financial
statements shall contain a balance sheet as of the end of the relevant
fiscal period and statements of income and cash flows for such fiscal
period (together, in each case, with the comparable figures for the
corresponding period of the previous fiscal year, if available), all in
reasonable detail, prepared in accordance with generally accepted
accounting principles consistently applied throughout the period involved
and with prior periods. All annual financial statements of Borrower
required pursuant hereto shall be audited by a certified public accountant
acceptable to Lender, and shall be certified to by said certified public
accountant. The annual financial statements of the Association required
pursuant hereto for first fiscal year ending after the Closing Date shall
show the results of the operations of the Association from July 6, 1995
through the end of such fiscal year and shall be audited by certified
public accountants acceptable to Lender, and shall be certified to by said
certified public accountant. All subsequently delivered annual financial
statements of the Association shall be reviewed by certified public
accountants; provided, however, that upon the giving of written notice by
-------- -------
Lender to each of the Borrower and the Association, the annual financial
statements of the Association thereafter supplied to Lender (commencing
with the fiscal year ending at least 30 days beyond the giving of such
notice) shall be audited by a certified public accountant and shall be
certified to by said certified public accountant. All annual financial
statements of Guarantor shall be reviewed by a certified public accountant;
provided, however, that upon the giving of written notice by Lender to each
-------- -------
of Borrower and Guarantor, the annual financial statements of Guarantor
thereafter supplied to Lender (commencing with the fiscal year ending at
least 30 days beyond the giving of such notice) shall be audited by a
certified public accountant and shall be certified to by said certified
public accountant. In addition to the foregoing, all financial statements
required pursuant hereto shall be certified correct by the individual who
is the subject of such statements, or the chief financial officer or
general
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partner, as the case may be, of the subject of such statements. The
financial statements of Borrower shall also contain in reasonable detail a
statement of income and expenses covering the operation of the Project.
Together with such financial statements, Borrower shall deliver to Lender a
certificate signed by the chief financial officer or managing general
partner, as the case may be, of Borrower stating that to the best of his
knowledge, after inquiry, there exists no Event of Default and no
condition, event or act which, with notice or lapse of time or both, would
become an Event of Default or, if any such Event of Default or any such
condition, event or act exists, specifying the nature and period of
existence thereof and what action Borrower proposes to take with respect
thereto. Together with such financial statements, Borrower shall also
deliver to Lender a certificate of its chief executive officer certifying
that Borrower is in compliance with all Applicable Environmental Laws or in
the event of noncompliance, specifying the nature and period of the
existence of such noncompliance.
(d) Upon written request of Lender, Borrower shall deliver to
Lender from time to time, as available, and promptly upon amendment or
effective date, current price lists, sales literature,
registrations/consents to sell, final public reports/public offering
statements/prospectuses, and other items requested by Lender which relate
to the Project.
(e) So long as the same shall be pertinent to the Loan, the
Project, the documents or any transactions contemplated therein, Borrower
shall at its expense (i) permit Lender and its representatives at all
reasonable times to inspect, audit and copy, as appropriate, the Project,
Borrower's facilities, activities, books of account, logs and records; (ii)
cause its employees, agents and accountants to give their full cooperation
and assistance in connection with any such visits of inspection or
financial conferences; and (iii) make available such further information
concerning its business and affairs as Lender may from time to time
reasonably request.
(f) Borrower shall annually submit to Lender within 45 days
after each is available proposed annual maintenance and operating budgets
for the Project, certified to be adequate by Borrower and a statement of
the annual assessment to be levied upon the Purchasers.
(g) Borrower shall cause to be delivered to Lender as soon as
available, and in any event no later than forty-five (45) days following
its filing with the Internal Revenue Service, the signed income tax returns
for each Guarantor for the fiscal year then ended, as filed with the
Internal Revenue Service, together with all schedules thereto; provided,
that in the event a Guarantor obtains an extension of the date for filing
such tax returns, Borrower
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shall cause to be delivered to Lender a signed copy of such extension
within fifteen (15) days following the filing deadline for such return in
the absence of such extension.
(h) Within sixty (60) days following the Closing Date,
Borrower shall deliver to Lender internally prepared financial statements
of the Association, current to within sixty (60) days prior to the
delivery, which statements shall be in reasonable detail, prepared in
accordance with generally accepted accounting principles consistently
applied, include a balance sheet, statement of income and statement of cash
flows and be certified correct by the Borrower. Within sixty (60) days
following the Closing Date, Borrower shall also deliver to Lender a current
operating budget for the Association which budget shall be certified
current by Borrower.
8.12 Borrower shall cause any and all indebtedness owed by Borrower
or secured by the Project to be subordinated to the Obligations pursuant to
subordination agreements satisfactory to Lender in form and substance.
8.13 Borrower shall not, without Lender's prior written consent: (i)
(other than the sale of Time-Share Interests in the ordinary course of
Borrower's business or the rental of condominium units in the Project in the
ordinary course of Borrower's business) sell, lease, transfer or dispose of its
all or substantially all of its assets to another entity; or (ii) dissolve or
liquidate, or merge or consolidate with or into any other entity, transfer to
any person or entity, the right to control, Borrower or Guarantor, turn over the
management or operation of Borrower or Guarantor to any other person or entity,
or permit any of the foregoing to occur with respect to Borrower or Guarantor.
Borrower shall have the right to retain a third-party management company to
manage the operation of the Project, provided that Lender has first approved the
identity of such management company. Lender hereby approves the management of
the Project by RMI - Royal Palm C.V.o.a, an Affiliate of Borrower.
8.14 Borrower and Guarantor are not in default of any payment on
account of indebtedness for borrowed money or of any repurchase obligations in
connection with a receivables purchase financing, or in violation of or in
default under any material term in any agreement, instrument, order, decree or
judgment of any court, arbitration or governmental authority to which it is a
part or by which it is bound.
8.15 Borrower and Guarantor have filed all tax returns and paid all
taxes, assessments, levies and penalties, if any, in respect thereof required to
be filed by it or paid by it to any governmental or quasi-governmental
authority. All real estate taxes and assessments have been paid which are due
and owing in connection with the common areas and the Project and other
amenities which have been promised or
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represented as being available to Purchaser for use by them. Borrower shall use
its best efforts to provide to Lender not more than 30 days after such taxes and
assessments would become delinquent if not paid evidence that all taxes and
assessments on the Project and common areas have been paid in full.
8.16 Borrower shall pay to Lender on demand all reasonable
out-of-pocket costs and expenses incurred or to be incurred by Lender or its
counsel in connection with the initiation, documentation and closing of the
Loan, the making of Advances hereunder, the administration of the Loan, the
protection of the security for the Performance of the Obligations, or the
enforcement of the Obligations against Borrower or any Guarantor (including,
without limitation, travel costs, all charges for consumer credit reports and
UCC, tax lien, judgment and litigation searches, all revenue and documentary
stamp and intangible taxes, and all fees and expenses of the Servicing Agent and
Lockbox Agent to perform the services contemplated hereunder and under the terms
of the Services and Fees Agreement, the Servicing Agreement and Lockbox
Agreement, respectively). Borrower shall pay to Lender a loan fee (the "Loan
Fee") in the amount of One Hundred Forty-Four Thousand and NO/100 United States
Dollars (U.S. $144,000.00), which fee was earned by Lender, in consideration of
Lender holding itself ready, willing and able to make the Loan upon the terms
and conditions set forth herein. Lender acknowledges the receipt of a deposit in
the amount of U.S. $20,000 which shall be credited against the Loan Fee at the
closing. An additional U.S. $74,000 of the Loan Fee shall be due and payable
concurrently with the making of the first Advance and may be withheld from the
Advance so made. The balance of the Loan Fee shall be due and payable on the
earlier of (i) August 31, 1995 or (ii) concurrently with the making of the first
Receivables Advance and may be withheld from the Advance so made. In the event
the Loan does not close on or before the Closing Date, as such date may be
extended by Lender, other than due solely to the default of Lender; (i) the
entire Loan Fee shall nevertheless be deemed fully earned by Lender in
consideration for Lender's holding itself ready and willing to make the Loan
upon the terms and conditions set forth herein and shall be due and payable upon
demand and (ii) Lender shall have no further obligation to make the Loan. Lender
acknowledges the receipt of a U.S. $3,000 application fee which has been earned
by Lender and shall not be applied against the Loan Fee. lender shall act as
custodian for purposes of holding Eligible Instruments and Borrower shall pay to
Lender on demand, a custodial fee of Ten United States Dollars (U.S. $10.00) for
each Eligible Instrument so held by Lender, exclusive of Eligible Instruments
that are substituted for ineligible Instruments (provided that such custodial
fee was paid in connection with such ineligible Instrument) and exclusive of
Instruments that have been cancelled by the Purchaser or the Borrower.
Notwithstanding the foregoing, Borrower shall have the right to select an
independent custodian to hold Eligible Instruments on Lender's behalf and as
Lender's agent, so long as (i) Borrower pays all costs charged by such
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independent custodian, and (ii) such independent custodian is approved in
advance, in writing by Lender.
8.17 Borrower shall INDEMNIFY, DEFEND AND HOLD HARMLESS, Lender, its
successors, assigns and shareholders (including corporate shareholders), and the
directors, officers, employees, agents and servants of the foregoing, from any
and all losses, costs, expenses (including, without limitation, court costs and
attorneys' fees), demands, claims, suits, proceedings (whether civil or
criminal), orders, judgments, penalties, fines and other sanctions arising from
or brought in connection with (i) the Project, the security for the Performance
of the Obligations, Lender's status by virtue of the Assignments, creation of
Security Interests, the terms of the Documents or the transactions related
hereto, or any act or omission of Borrower, the Servicing Agent or the Lockbox
Agent, or the employees or agents of any of them, whether actual or alleged,
(ii) any and all brokers' commissions or finders' fees or other costs of similar
type, or claims by any broker, agent or other party in connection with this
transaction (other than fees claimed owed by a broker, finder, or other party
with whom Lender has a specific agreement) and (iii) any liability which Lender
may have to withhold U.S. or foreign income or other taxes of Borrower from
payments received by the Lender as respects the Loan. On written request by
anyone covered by the above agreement of indemnity, Borrower shall undertake, at
its own cost and expense, on behalf of such indemnitee, using counsel
satisfactory to the indemnitee, the defense of any legal action or proceeding to
which the indemnitee shall be a party, provided that such action or proceeding
shall result from, or grow or arise out of any of the events set forth in this
paragraph.
8.18 Borrower shall not directly or indirectly invest all or any part
of the proceeds of the Loan in any investment security subject to the margin
requirements of Regulation G of the Board of Governors of the United States
Federal Reserve System.
8.19 Borrower shall execute or cause to be executed all Documents and
do or cause to be done all acts necessary for Lender to perfect and to continue
the perfection of the Security Interest of Lender in the Receivables Collateral,
Real Estate Collateral, or the other security for the Performance of the
Obligations or otherwise to effect the intent and purposes of the Documents.
Borrower shall prosecute or defend any action involving the priority, validity
or enforceability of the Security Interest granted to lender; provided that, at
Lender's option, Lender may do so at Borrower's expense.
8.20 Borrower is fully familiar with all of the terms and conditions
of the Documents and is not in default thereunder. No act or event has occurred
which after notice and/or lapse of time would constitute such a default or an
Event of Default.
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8.21 During the Term, Borrower shall not pay or make any
Distributions to its officers, partners, or Guarantor or to any relatives or
Affiliates of Borrower, of Guarantor or of any other of the foregoing. The
foregoing notwithstanding, on the condition that:
(i) There does not then exist an Event of Default or an
Incipient Default; and
(ii) Prior to the incurring of any obligation to make a
Distribution, Borrower has caused the proposed recipient of such
Distribution (the " Affiliated Party") to have entered into a Subordination
Agreement in form and substance satisfactory to Lender pursuant to which
the Affiliated Party agrees (A) that it shall not exercise any rights
against Borrower or against any of the collateral securing the Obligations
unless and until the date that all of the Obligations have been fully paid,
performed and discharged; (B) that any entitlement to a Distribution is and
shall be fully subordinated as to right and time of payment to the payment
in full of the Acquisition Loan and the Receivables Loan and (C) that upon
and during the continuance of an Event of Default or an Incipient Default,
no Distributions shall be permitted, made, demanded or accepted;
the following Distributions shall be permitted:
(x) Such Distribution is made to the partners of Borrower no
more frequently than quarterly in an amount sufficient for the payment of
federal and state income taxes payable by such partner with respect to a
tax year of Borrower (a "Tax Year") resulting from the inclusion in such
partners' taxable income of the partner's share of taxable income of
Borrower for that Tax Year, subject to reasonable assumptions as to the
marginal tax bracket to which the partners of Borrower generally are
subject (the "Tax Amount"). Notwithstanding the foregoing, if for any prior
Tax Year of the Borrower, the Borrower had a loss for tax purposes which,
under tax laws then in effect, would offset taxable income (which loss has
not been previously used to offset taxable income in accordance with this
sentence), then for purposes of determining the Tax Amount for the current
Tax Year, the taxable income of the Borrower for the current Tax Year shall
be reduced by the amount of such loss. On or about the fifth (5th) day
prior to each date on which estimated federal income tax payments are
required to be paid by the partners of Borrower, Borrower may make a
distribution to the partners which, together with prior distributions for
the Tax Year on account of the Tax Amount, shall not exceed the applicable
percentage (which shall be 25%, 50%, 75%, and 100% for the first, second,
third and fourth calendar quarters, respectively) of a
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reasonable estimate of the Tax Amount. If, at the end of the Tax Year, the
aggregate estimated quarterly distributions exceed the actual Tax Amount
for such Tax Year, future quarterly tax distributions shall cease with
respect to the affected partners until such excess amount has been fully
recaptured or until the excess amount has been repaid by the affected
partners to the Borrower. Borrower shall be permitted to make a
Distribution under the provisions of this clause (x) notwithstanding the
fact that the Acquisition Loan is not then paid in full.
(x) Such Distribution is made in an amount equal to or less
than 100% of Borrower's Cash Flow or 100% of Borrower's Net Income,
whichever is less, reduced by the Distribution made under clause (x) above
and clause (xii) below, with respect to the period in which such
Distribution is to be made; provided however, that no Distribution shall be
-------- -------
permitted under this clause (xi) until such time as the Acquisition Loan
has been paid in full.
(xii) Such Distribution is made in an amount equal to or less
than 100% of Borrower's Cash Flow or 100% of Borrower's Net Income,
whichever is less, reduced by the Distribution made under clause (x) and
clause (xi) above, with respect to the period in which such Distribution is
made, the proceeds of which shall be used solely to satisfy principal and
interest (at a rate not exceeding 15% per annum) accruing on bonafide
indebtedness of the Borrower to an Affiliate arising by virtue of a loan
made by such Affiliate to Borrower. Distributions permitted under this
clause (xii) may be made prior to such time as the Acquisition Loan has
been paid in full.
8.22 Borrower hereby covenants and agrees as follows during the Term
hereof:
(a) As of the end of each fiscal quarter of Borrower, Borrower
shall maintain a net worth, calculated in accordance with GAAP of at least
U.S. $1,000,000. The foregoing covenant shall be tested quarterly beginning
with the quarter year ending December 31, 1995.
(b) Marketing Expenses associated with the marketing and sale
of Time-Share Interests shall not exceed 50% of Net Sales, determined
quarterly. Net Sales shall mean gross sales of Time-Share Interests during
such quarterly period reduced only by cancellations thereof, increased by
closing cost revenues. Marketing Expenses shall mean the aggregate of all
expenses incurred in the sale and marketing of Time-Share Interest,
including without limitation, all costs and expenses for advertising,
mailing, consumer premiums, referral and lead generation. The foregoing
covenant shall be tested quarterly, commencing December 31, 1995. Each of
the tests conducted as of the end of
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December 31, 1995, March 31, 1996 and June 30, 1996 shall cover the period
from the Closing Date through the end of the relevant quarter. Commencing
with the test for September 30, 1996, and thereafter throughout the Term
hereof, the foregoing covenant shall be tested quarterly, on a rolling
twelve (12) month basis.
(c) Borrower's general and administrative expenses shall not
exceed 10% of Net Sales. The foregoing covenant shall be tested quarterly,
commencing December 31, 1995. Each of the tests conducted as of the end of
December 31, 1995, March 31, 1996 and June 30, 1996 shall cover the period
from the Closing Date through the end of the relevant quarter. Commencing
with the test for September 30, 1996, and thereafter throughout the Term
hereof, the foregoing covenant shall be tested quarterly, on a rolling
twelve (12) month basis.
(d) Borrower shall not permit the aggregate unpaid principal
balance of Delinquencies, as of the end of any three (3) consecutive
calendar months during the Term, to exceed three percent (3%) of the
aggregate then unpaid principal balance of all Eligible Instruments against
which a Receivables Advance has been made.
(e) Upon request by Lender, Borrower shall provide from time
to time such information as Lender may reasonably require to determining
compliance with the foregoing requirements.
8.23 Although responsibility for the payment of Impositions lies with
Borrower, as provided in Section 7.7, Borrower shall, throughout the Term, take
all steps necessary in order to avoid the imposition of a withholding tax
obligation under the United States Internal Revenue Code on the proceeds of
Receivables Collateral. Such steps shall include, without limitation, (i) the
qualification of the Borrower to conduct business within a state of the United
States and the maintenance of such qualification in good standing; (ii) the
maintenance by Borrower of bonafide office within such state, from which
Borrower shall conduct bonafide business activities with respect to Borrower's
operation, including, without limitation, the performance of marketing,
solicitation and other sales related activities associated with the sale of
Time-Share Units and the maintenance of certain coordinating, oversight and
decision making activities with respect to marketing, arranging for the
financing on the sale of Time-Share Units and supervision of the collection
activities with respect to the Instruments, and (iii) the providing to any
withholding agent, to Servicing Agent and to Lender, prior to the making of the
first Receivables Advance and prior to the commencement of each of Borrower's
tax years thereafter, a duly executed and completed copy of the United States
Internal Revenue Code Form 4224, Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a U.S.
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Trade or Business in the United States, which shall be certified correct by the
Borrower. Lender shall have no responsibility for the accuracy of the
information set forth in the Form 4224. Concurrently with the delivery of the
form 4224 to the Servicing Agent and to Lender, Borrower shall deliver to the
Servicing Agent and to Lender a certification that Borrower is in compliance
with the provisions of clauses (i) and (ii) above.
8.24 If there occurs a material adverse change in the Project or
in the financial condition of Borrower or any Guarantor or in the Receivables
Collateral, the Real Estate Collateral or any other security for the Performance
of the Obligations, which change is not enumerated in paragraph 8.22 or 9.1,
Borrower will promptly provide Lender with assurance that neither the prospect
of performance of the Obligations nor Lender's security therefore is imperiled.
If Borrower fails to provide Lender with assurance satisfactory to Lender in its
reasonable discretion, such failure will be considered an Event of Default.
8.25 As additional consideration to Lender, Borrower shall pay
to Lender an incentive fee (the "Incentive Fee") equal to One Hundred Eleven
Thousand United States Dollars (U.S. $111,000.00) with respect to the Time-Share
Interest sold by Borrower in the Project. Such incentive fee shall be paid in
installments of One Thousand Nine Hundred Seventy-Six United States Dollars
(U.S. $1,976.00) per Time-Share Interest sold, (all as more fully provided in
the Supplemental Agreement), commencing with all sales occurring after the date
upon which the Acquisition Loan paid in full, and continuing until the entire
Incentive Fee is paid in full. Notwithstanding anything contained herein to the
contrary, the Incentive Fee is due and payable in full by Borrower on January 14
--
1998.
8.26 The Borrower is in compliance in all material respect with
all applicable federal, state or local environmental, health and safety statutes
and regulations. The Borrower has not filed any notice under any federal or
state law indicating past or present treatment, storage or disposal of a
hazardous waste or reporting a spill or release of a hazardous or toxic waste,
substance or constituent, or other substances into the environment. None of the
operations of Borrower are the subject of federal or state litigation or
proceedings involving, or any investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to, any improper
treatment, storage, recycling, disposal or release into the environment of any
hazardous or toxic substance, waste or constituent, or other substance. The
Borrower does not have any material contingent liability in connection with any
improper treatment, storage, recycling, disposal or release into the environment
of any hazardous or toxic substance, waste or constituent. None of the
operations of Borrower are subject to any judicial or administrative proceeding
alleging the violation of any federal, state or local environmental, health or
safety
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statute or regulations. The Borrower does not transport any hazardous wastes,
substances or constituents.
8.27 Provided that Borrower has not then borrowed the Maximum Loan
Amount, Borrower shall not, during the Borrowing Term (Receivables Loan),
pledge, assign, or hypothecate any Eligible Instruments other than to Lender,
without Lender's prior written consent and without the execution by Lender and
any and all other lenders providing financing secured by Instruments of an
intercreditor agreement in form and substance satisfactory to Lender. After the
expiration of the Borrowing Term (Receivables Loan), Lender shall have the right
of first negotiation with Borrower in the event Borrower wishes to accept or
seek an offer from a third party to loan moneys to Borrower in exchange for a
pledge, assignment or hypothecation of any Instruments. In the event Borrower
desires to seek or obtain such an offer, Borrower shall first give Lender
written notice to that effect and give Lender the opportunity, within 10
Business Days thereafter, to issue a financing proposal to Borrower, before
Borrower enters into a binding agreement with such third party with respect to
such financing. Borrower shall have no obligation to accept any proposal made by
Lender with respect to such financing; provided that if Borrower obtains any
such financing from a lender other than Lender, any and all such lenders
providing financing secured by Instruments shall have entered into an
intercreditor agreement with Lender in form and substance satisfactory to
Lender.
8.28 All representations and warranties contained in this Agreement
are continuing and shall be deemed to be made and reaffirmed prior to the making
of each Advance under this Agreement.
8.29 The representations, warranties and covenants contained in this
Agreement shall be applicable to and binding upon Borrower during the Term
hereof, notwithstanding the fact that no Advances have yet been made hereunder.
ARTICLE IX
----------
DEFAULT
-------
9.1 The occurrence of any of the following events or conditions
shall constitute an Event of Default by Borrower under the Documents:
(a) Lender fails to receive from Borrower when due and payable
any amount which Borrower is obligated to pay on the Receivables Note or
Acquisition Note or any other payment due under the Documents; and such
failure shall continue for seven (7) days, except for the payment of the
final installment due under each of the Receivables Note and Acquisition
Note for which no grace period is allowed;
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(b) any material representation or warranty of Borrower
contained in the documents or in any certificate furnished under the
Documents proves to be, in any material respect, false or misleading as of
the date deemed made;
(c) there is a default in the Performance of the Obligations set
forth in paragraphs 8.8, 8.9 or 8.13 hereof or Borrower knowingly violates
or suffers or permits the violation of any of the warranties or conditions
of the policies of insurance required under paragraph 8.9;
(d) there is a default in the Performance of the Obligations or
a violation of any term, covenant or provision of the Documents (other than
a default or violation referred to elsewhere in this paragraph 9.1) and
such default or violation continues unremedied (i) for a period of five
days after the giving of notice thereof to Borrower in the case of a
default or violation which can be cured by the payment of money alone or
(ii) in the case of any other default or violation, for a period of (A)
thirty (30) days after the giving of notice to Borrower, or (B) (in the
event such default is not capable of being cured within such thirty (30)
day period) for a period not exceeding sixty (60) days after the giving of
such notice provided Borrower is diligently and in good faith pursing such
cure;
(e) an "Event of Default," as defined elsewhere herein or in any
of the other Documents, occurs, or an act or event occurs under any of the
Documents which is not cured within applicable notice or grace periods,
whether or not denominated as an Event of Default, which expressly entitles
Lender to accelerate any of the Obligations or exercise its other remedies
upon the occurrence of an Event of Default hereunder;
(f) any material default by Borrower under any other agreement
evidencing, guaranteeing, or securing borrowed money or a receivable
purchase financing has occurred and there has been an acceleration of such
indebtedness or repurchase obligations, which accelerated repayment or
repurchase obligations are in excess of U.S. $100,000 in the aggregate;
(g) any final, non-appealable judgement or decree for money
damages or for a fine or penalty against Borrower which is not paid and
discharged or stayed within 30 days thereafter and when aggregated with
all other judgement(s) or decree(s) that have remained unpaid and
undischarged or not stayed for such period is in excess of U.S. $100,000;
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<PAGE>
(h) any party holding a lien or security interest in the
Receivables Collateral, Real Estate Collateral, or any other security for
the Performance of the Obligations or a lien on any common areas of other
amenities in the Project commences foreclosure or similar sale thereof;
(i) (i) Borrower or any Guarantor becomes insolvent or unable
to pay its debts when due; generally fails to pay its debts when due;
petitions for official moratorium, files a petition in any bankruptcy,
reorganization, winding-up or liquidation proceeding or other proceeding
analogous in purpose or effect relating to such entity; applies for or
consents to the appointment of a receiver, trustee or other custodian for
the bankruptcy, reorganization, winding-up or liquidation of such entity;
make an assignment for the benefit of creditors; or admits in writing that
it is unable to pay its debts; (ii) any court order or judgement is entered
confirming the bankruptcy or insolvency of Borrower or any Guarantor or
approving any reorganization, winding-up or liquidation of such entity or a
substantial portion of its assets; (iii) there is instituted against
Borrower or any Guarantor any bankruptcy, reorganization, winding-up or
liquidation proceeding or other proceeding analogous in purpose or effect
and the same is not dismissed within 90 days after the institution thereof;
or (iv) a receiver, trustee or other custodian is appointed for any part of
the Receivable Collateral, the Real Estate Collateral or any Project or all
or a substantial portion of the assets of Borrower or any Guarantor;
(j) Performance by Borrower or any Guarantor of any material
obligation under any Document or Guarantee, as the case may be, is rendered
unenforceable in any material respect, or any Guarantor repudiates,
rescinds, limits or annuls its Guarantee;
(k) There occurs an Event of Default under the Master Lease or
the Master Lease is terminated prior to the payment and performance in full
of all of the Obligations;
(l) Any party holding a mortgagee's or beneficiary's interest
under a mortgage or deed of trust or any other lien or security interest
on any portion of the Real Estate Collateral commences a foreclosure or
sale thereof;
(m) Borrower vacates or abandons the Real Estate Collateral;
(n) The whole or a material part (as determined in Lender's sole
but reasonable discretion) of the Real Property or Project is seized or
expropriated; or
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<PAGE>
(o) The survey to be delivered to Lender pursuant to Section
5.15 hereof indicates that less than all of the improvements constituted in
the Project are located within the confines of the Real Property.
9.2 At any time after an Event of Default has occurred and while it
is continuing, Lender shall have the right to do any one or more of the
following:
(a) cease to make further Advances;
(b) declare each (or either, at Lender's option) of the
Receivables Note and Acquisition Note, together with prepayment premiums
and all other sums owing by Borrower to Lender in connection with the
Documents, immediately due and payable without notice, presentment, demand
or protest, which are hereby waived by Borrower;
(c) with respect to the Receivables Collateral, (i) institute
collection actions against all Persons obligated thereon and in default
thereunder; (ii) enter into modification agreements and make extension
agreements with respect to payments and other performances; (iii) release
Persons liable for the payment and performance thereof or the securities
for such payment and performance; and (iv) settle and compromise disputes
with respect to payments and performances claimed due thereon, all without
notice to Borrower, without being called to account therefor by Borrower
and without relieving Borrower from Performance of the Obligations;
(d) in the event Lender has previously agreed that Borrower may
act as Servicing Agent, remove Borrower as Servicing Agent and substitute
as Servicing Agent such other Person as Lender shall designate; and
(e) proceed to protect and enforce its rights and remedies under
this Agreement, the Documents or any other documents and to foreclose or
otherwise realize upon its security for the Performance of the Obligations,
or to exercise any other rights and remedies available to it at law, in
equity or by statute.
The rights and powers granted pursuant to this paragraph are not
intended to limit the rights and powers granted elsewhere herein.
9.3 Notwithstanding anything in the Documents to the contrary, while
an Event of Default exists, any cash received and retained by Lender in
connection with the Receivables Collateral may be applied to payment of the
Obligations in the manner provided in paragraph 9.5 hereof.
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9.4 (a) Pursuant to its rights under paragraph 9.2 hereof, following
an Event of Default, and subject to the terms and conditions hereof, Lender may
sell, assign and deliver the Receivables Collateral, or any part thereof, at
public or private sale, conducted in a commercially reasonable manner by an
officer, or agent of, or auctioneer or attorney for, Lender at Lender's place of
business or elsewhere, for cash, upon credit or future delivery, and at such
price or prices as Lender shall reasonably determine, and Lender may be the
purchaser of any or all of the Receivables Collateral so sold. Lender may, in
its reasonable discretion, at any such sale, restrict the prospective bidders or
purchasers as to number, nature of business and investment intention, and,
without limitation, may require that the persons making such purchases represent
and agree to the satisfaction of Lender that they are purchasing the Receivables
Collateral for their account, for investment, and not with a view to the
distribution or resale of any thereof. Lender shall have no obligation to delay
sale of any Receivables Collateral for the period of time necessary to permit
such Receivables Collateral to be registered for public sale under the
Securities Act of 1933, as amended, and any applicable state securities laws.
Private sales made without registration shall not be deemed to have been made in
a commercially unreasonable manner by virtue of any terms less favorable to the
seller resulting from the private nature of such sales.
(b) Without prejudice to the right of Lender to make such sale
within such shorter period as may be reasonable under the circumstances,
foreclosure sale of all or any part of the Receivables Collateral shall be
deemed held pursuant to reasonable notice if held:
(i) 45 days after notice is given, based upon default
consisting of insolvency, bankruptcy or other default of a nature which
cannot be corrected by Borrower, or default for which no grace period is
specified herein; or
(ii) 60 days after notice of any other act, circumstance or
event which, if uncorrected, after expiration of any applicable grace
period, shall constitute a default hereunder.
Where any notice to Borrower and grace period thereafter is required under this
Agreement, such grace period shall be deducted from the 60 day notice of
foreclosure sale specified in item (ii) above, so that the maximum period
between notice to Borrower of any act, circumstance or event which, if
uncorrected after elapse of any applicable grace period, would constitute an
Event of Default and the foreclosure sale of the Receivables Collateral based
upon such Event of Default shall in no event be required to exceed 60 days.
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(c) At any sale following an Event of Default, the Receivables
Collateral may be sold as an entirety or in partial interests. Lender shall
not be obligated to make any sale pursuant to any notice previously given.
In case of any sale of all or any part of the Receivables Collateral on
credit or for future delivery, the Receivables Collateral so sold may be
retained by Lender until the selling price is paid by the purchaser
thereof, but Lender shall not incur any liability in case of the failure of
such purchaser to take up and pay for the collateral so sold; and in case
of any such failure, such Receivables Collateral may again be sold under
and pursuant to and in compliance with the provisions hereof.
(d) In connection with sales made following an Event of Default,
Lender may, in the name and stead of Borrower or in its own name, make and
execute all conveyances, assignments and transfers of the Receivables
Collateral sold pursuant to this Agreement; and Lender is hereby appointed
Borrower's attorney-in-fact for this purpose. Nevertheless, Borrower will,
if so requested by Lender, ratify and confirm any sale or sales by
executing and delivering to Lender, or to such purchaser or purchasers, all
such instruments as may, in the judgment of Lender, be advisable for that
purpose.
(e) The receipt by Lender of the purchase money paid at any sale
made following an Event of Default shall be a sufficient discharge therefor
to any purchaser of the Receivables Collateral or any portion thereof, and
no such purchaser, after paying such purchase money and receiving such
receipt, shall be bound to see to the application of such purchase money or
any part thereof or in any manner whatsoever be answerable for any loss,
misapplication or nonapplication of any such purchase money, or any part
thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
(f) Each purchaser at any sale following an Event of Default
shall hold the Receivables Collateral so sold absolutely free from every
claim or right of Borrower, including, without limitation, any equity or
right of redemption of Borrower, which Borrower hereby specifically waives
to the extent Borrower may lawfully do so. Lender, its employees and agents
shall after such sale be fully discharged from any liability or
responsibility in any matter relating to the Receivables Collateral and
such other security that is sold and resulting from any action or inaction
on the part of such purchaser or any successor-in-interest of such
purchaser.
9.5 The proceeds of any sale of all or any part of the Receivables
Collateral shall be applied in the following order or priorities: first, to the
payment of all reasonable costs and expenses of such sale, including, without
limitation,
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reasonable compensation to Lender and its agents, attorneys' fees, and all other
reasonable expenses, liabilities and advances incurred or made by Lender, its
agents and attorneys, in connection with such sale, and any other unreimbursed
expenses for which Lender may be reimbursed pursuant to the Documents; second,
to the payment of the Obligations, in such order and manner as Lender shall in
its discretion determine, with no amounts applied to payment of principal until
all interest has been paid; and third, to the payment to Borrower, its
successors or assigns, or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.
9.6 Lender may, at its option, and without any obligation to do so,
pay, perform and discharge any and all amounts, costs, expenses and liabilities
herein agreed to be paid or performed by Borrower if Borrower fails to do so
within 7 days following the giving of written notice of such failure; and for
such purposes Lender may use the proceeds of the Receivables Collateral and is
hereby appointed Borrower's attorney-in-fact. All amounts expended by Lender in
so doing or in exercising its remedies hereunder following an Event of Default
shall become part of the Obligations secured hereby, shall be immediately due
and payable by Borrower to Lender upon demand therefor, and shall bear interest
at the Overdue Rate from the dates of such expenditures until paid. Exercise by
Lender of its option under this paragraph will not cure any default of Borrower.
9.7 No remedy herein or in any other Document conferred on or
reserved to Lender is intended to be exclusive of any other remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder, under any other Document or now or hereafter
existing at law or in equity. Notwithstanding anything herein to the contrary,
in any non-judicial, public or private sale or sales under the Uniform
Commercial Code or in any judicial foreclosure and sale of the Receivables
Collateral, the Receivables Collateral may be sold in any manner whatsoever not
prohibited by law. No delay or omission to exercise any right or power shall be
construed to be a waiver of any default or acquiescence therein or a waiver of
any right or power, and every such right and power may be exercised from time to
time and as often as may be deemed expedient. Lender's acceptance of any
performance due hereunder which does not comply strictly with the terms hereof
shall not be deemed to be a waiver of any right of Lender to strict Performance
by Borrower. Acceptance of past due amounts or partial payments shall not
constitute a waiver of full and timely payment of the Obligations. No Event of
Default, declaration of the unpaid principal of the Loan to be immediately due
and payable or exercise of any other right to remedy upon default shall stay,
waive, or otherwise affect Lender's right to receive payments on and other
proceeds of the Receivables Collateral.
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<PAGE>
9.8 Borrower, for itself and for all who may claim through or under
it, hereby expressly waives and releases all right to have the Receivables
Collateral or any other security for the Performance of the Obligations, or any
part thereof, marshalled on any foreclosure, sale or other enforcement hereof.
9.9 While an Event of Default exists, Borrower shall, on the request
of Lender, assemble the Receivables Collateral not already in Lender's
possession and make it available to Lender at a time and place reasonably
convenient to Lender.
9.10 In the event that Borrower at any time fails to do or perform
any act, or pay any amount, or take any action, when such performance, payment
or action is required hereunder (and, if applicable, following the lapse of any
grace or compliance period in which such payment, performance or action may be
taken by Borrower hereunder), then Lender may make such payment or cause such
performance or action to be taken, and all amounts expended by Lender in making
such payment or causing such performance or action to be taken, together with
all expenses incurred by Lender in connection therewith shall be immediately due
and payable by Borrower to Lender, the payment performance of which shall be an
Obligation hereunder, and shall be secured by the Receivables Collateral and
Real Estate Collateral. All such amounts expended by Lender in making such
payment or causing such performance or action to be taken, together with all
expenses incurred by Lender in connection therewith, shall bear interest at the
Overdue Rate from the date incurred by Lender until paid.
ARTICLE X
---------
POWER OF ATTORNEY
-----------------
For the purpose of enabling Lender to protect and preserve its
Security Interest in the Receivables Collateral and Real Estate Collateral and
its rights and remedies under this Agreement and the Documents, Borrower does
hereby constitute and appoint Lender, and its successors and assigns, to be
Borrower's true and lawful attorney-in-fact upon the occurrence of an Event of
Default, and during the continuance thereof, to perform any act, take any
action, execute and sign any document, statement, instrument or other writing,
and to do and perform any and all deeds and things in the name, place, and stead
of Borrower, which Lender in its discretion shall determine necessary or
required to protect and preserve its Security Interest in the Receivables
Collateral and Real Estate Collateral and other security for the Performance of
the Obligations and its rights and remedies under this Agreement and the
Documents, or which Borrower is required or obligated to perform under the terms
of this Agreement or the Documents.
-48-
<PAGE>
ARTICLE XI
----------
CONSTRUCTION AND GENERAL RULES
------------------------------
11.1 All moneys payable hereunder or under the Documents shall be paid
to Lender at its address set forth below.
11.2 This Agreement and the other Documents exclusively and completely
state the rights and obligations of Lender and Borrower with respect to the
Loan. No modification, termination, variation, discharge or abandonment hereof
and no waiver of any of the provisions or conditions shall be valid unless in
writing and signed by duly authorized representatives of Lender and Borrower or
the successor, transfers or assigns of either, subject, however, to the
limitations on assignment herein by Borrower. This Agreement supersedes any and
all prior agreements or understandings, written or oral, between Borrower and
Lender (other than in the other Documents) concerning this transaction. Solely
with respect to enforcement of the Documents within the United States of America
and solely with respect to collateral located within the United States of
America, any conflict between the Mortgage and the Supplemental Agreement shall
be resolved in favor of the Supplement Agreement; provided, however, that the
Mortgage shall control and prevail over the Supplemental Agreement with respect
to the exercise by Lender of its remedies against Borrower within the
Netherlands, Antilles or against collateral located within the Netherlands,
Antilles.
11.3 The powers and agency hereby granted by Borrower are coupled with
an interest and are irrevocable and are granted as cumulative to the remedies
for collection of the indebtedness secured hereby provided by law.
11.4 This Agreement may be executed simultaneously in any number of
identical copies each of which shall constitute an original for all purposes.
Delivery of an executed counterpart of any Document by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart thereof. Any
party delivering an executed counterpart of any Document by telefacsimile shall
also deliver a manual executed counterpart, but the failure to deliver a manual
executed counterpart shall not effect the validity, enforceability or binding
effect of such Document.
11.5 Any notice required or permitted to be given hereunder shall be
in writing and shall be (i) personally delivered to the party being notified if
an individual or to an officer, general partner or member if a corporation,
partnership or limited liability company, (ii) transmitted by postage prepaid,
certified or registered mail (return receipt requested) or (iii) transmitted by
a nationally recognized overnight courier service such as Federal Express, to
such party at its address set forth below or such other address as the party
being notified may have otherwise designated in a
-19-
<PAGE>
notice given as provided in this paragraph. Such notice shall be deemed to be
given and effective, unless actual receipt is expressly elsewhere specified
herein, upon the date of receipt or the date delivery is first attempted and
refused if transmitted by registered or certified mail, or by overnight courier
service, whichever shall first occur.
If to Borrower:
c/o Koar Group, Inc.
911 Wilshire Blvd., Suite 2250
Los Angeles, California 90017
With copies to:
Leo Rose III, Esq.
Schreeder, Wheeler & Flint
The Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
and
Rick S. Kirkbride, Esq.
Jeffer, Mangels, Butler & Marmaro
Tenth Floor
2121 Avenue of the Stars
Los Angeles, California 90067-5010
If to Lender:
7272 East Indian School Road
Suite 410
Scottsdale, Arizona 85251
Attention: Vice-President - Group Counsel
With a copy to:
7272 East Indian School Road
Suite 410
Scottsdale, Arizona 85251
Attention: Vice-President - Operation Management
11.6 All the covenants, promises, stipulations and agreements of
Borrower and all the rights and remedies of the Lender in this Agreement
contained
-50-
<PAGE>
shall bind Borrower, and, subject to the restrictions on merger, consolidation
and assignment herein contained, its successors and assigns, and shall inure
to the benefit of Lender, its successors and assigns, whether so expressed or
not. Borrower may not assign its rights herein in whole or in part. Except as
may be expressly provided herein, no person or other entity shall be deemed a
third party beneficiary of this Agreement.
11.7 Subject to the provisions of Article IX hereof, if any one or
more of the provisions contained in this Agreement shall be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
11.8 Time is of the essence in the Performance of the Obligations.
11.9 All headings are inserted for convenience only and shall not
affect any construction or interpretation of this Agreement. The provisions of
this Agreement shall apply to the parties according to the context hereof and
without regard to the number or gender of words and expressions used herein.
Unless otherwise indicated, all references herein to clauses and other
subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of this Agreement; the words "herein", "hereof", "hereto",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular paragraph, clause or other subdivision hereof; and
reference to a numbered or lettered subdivision of an Article, or paragraph
shall include relevant matter within the Article or paragraph which is
applicable to but not within such numbered or lettered subdivision.
11.10 THIS AGREEMENT SHALL BE GOVERENED BY AND CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF ARIZONA, PROVIDED, HOWEVER, THAT THE INTERNAL LAWS OF
THE NETHERLANDS ANTILLES SHALL APPLY TO THE CREATION OF LIENS AND TO ANY
FORECLOSURE, FORECLOSURE SALE OR OTHER REMEDY WITH RESPECT TO THAT PORTION OF
THE REAL ESTATE COLLATERAL CONSISTING OF REAL PROPERTY. BORROWER HEREBY AGREES
THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THE DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT OF
ARIZONA, MARICOPA COUNTY DIVISION, OR THE UNITED STATES DISTRICT COURT OF
ARIZONA OR, IF LENDER INITIATES SUCH ACTION, IN ADDITION TO THE FOREGOING
COURTS, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION, TO THE EXTENT SUCH
COURT HAS JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN
ANY OF SUCH COURTS, AND HEREBY
-51-
<PAGE>
WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS
ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THIS
AGREEMENT. BORROWER WAIVES ANY CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF
ARIZONA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.
SHOULD BORROWER AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY
LAW AFTER THE MAILING THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED
FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF
FORUM FOR BORROWER SET FORTH IN THIS PARAGRAPH SHALL NOT BE DEEMED TO PRECLUDE
THE ENFORCEMENT, BY LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE
TAKING BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY
SUCH JUDGMENT OR ACTION. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE DOCUMENTS OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED THEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX
ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY
SUCH CONTROVERSY SHALL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.
/s/ JVM INITIAL
-------
/s/ JF INITIAL
-------
11.11 It is the intent of the parties hereto to comply with the
Applicable Usury Law. Accordingly, notwithstanding any provisions to the
contrary in this Agreement or in any of the other Documents in no event shall
this Agreement or the Documents require the payment or permit the collection of
interest in excess of the maximum contract rate permitted by the Applicable
Usury Law. If (i) any such excess of interest otherwise would be contracted
for, charged or received from Borrower or otherwise in connection with the
Obligations or (ii) the maturity of the Obligations is accelerated in whole or
in part, or (iii) all or part of the principal or interest of the Obligations
shall be prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received in connection with the Obligations would
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<PAGE>
exceed the maximum contract rate permitted by the Applicable Usury Law, then in
any such event (A) the provisions of this paragraph shall govern and control,
(B) neither Borrower nor any other person or entity now or hereafter liable for
the payment hereof will be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum contract rate permitted by the
Applicable Usury Law, (C) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal amount of the
Obligations of Borrower or refunded to Borrower, at Lender's option and (D) the
effective rate of interest will be automatically reduced to the maximum contract
rate permitted by the Applicable Usury Law. Without limiting the generality of
the foregoing, to the extent permitted by the Applicable Usury Law: (x) all
calculations of the rate of interest which are made for the purpose of
determining whether such rate would exceed the maximum contract rate permitted
by the Applicable Usury Law shall be made by amortizing, prorating, allocating
and spreading during the period of the full stated term of Obligations, all
interest at any time contracted for, charged or received from Borrower or
otherwise in connection with the Obligations; and (y) in the event that the
effective rate of interest on the Obligations should at any time exceed the
maximum contract rate permitted by the Applicable Usury Law, such excess
interest that would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law shall be paid to Lender from time to time,
if and when the effective interest rate on the Obligations otherwise falls below
the maximum contract rate permitted by the Applicable Usury Law, to the extent
that interest paid to the date of calculation does not exceed the maximum
contract rate permitted by the Applicable Usury Law, until the entire amount of
interest which would have otherwise been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all the Obligations
regardless of when incurred; but, again to the extent not prohibited by the
Applicable Usury Law, should the maximum contract rate permitted by the
Applicable Usury Law be decreased because of a change in the law, such decreases
shall not apply to the Obligations regardless if resulting from an advance of
the Loan made after the effective date of such decrease.
11.12 In the event this Agreement or any of the Documents is signed
by more than one party as Borrower, the covenants, obligations, representations
and warranties of Borrower shall be joint and several as to all entities
constituting Borrower.
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<PAGE>
ARTICLE XII
-----------
SPECIAL PROVISIONS
------------------
12.1 Lender covenants and agrees that, notwithstanding anything to the
contrary herein or any in other Document, during the Term hereof it shall take
no action to disturb Purchasers in their use and possession of their Time-Share
Interests or otherwise to impair the rights and privileges of such Purchasers
under their Time-Share Interests or the governing documents of the Project so
long as such Purchasers are fulfilling their obligations under their respective
Instruments and the Purchaser Leases relating thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by Persons duly authorized on the day and year first above written.
"Lender"
FINOVA CAPITAL CORPORATION, a Delaware
corporation
By /s/ Jack Fields, III
--------------------------------------
Name: JACK FIELDS, III
Title: GROUP VICE PRESIDENT
"Borrower"
AKGI - ROYAL PALM C.V.o.a, a Netherlands
Antilles limited partnership with its
capital divided into shares
By: AKGI-Sint Maarten, N.V., a
Netherlands Antilles corporation
with limited liability
Its: Partner
By: /s/ James V. Maneri
---------------------------------
Its: MANAGING DIRECTOR
-----------------------------
X Check here to verify that Section
-----
11.10 has been initialed.
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<PAGE>
EXHIBIT 10.8.7
LOAN AND SECURITY AGREEMENT
BETWEEN
LAKE TAHOE RESORT PARTNERS, LLC
AND
FINOVA CAPITAL CORPORATION
DATED AS OF APRIL 29, 1996
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
BY THIS LOAN AND SECURITY AGREEMENT entered into as of April 29, 1996,
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender") and LAKE TAHOE
RESORT PARTNERS, LLC, a California limited liability company ("Borrower"),
hereby confirm and agree as follows:
ARTICLE I
---------
INTRODUCTION
------------
1.1 Borrower desires to obtain certain revolving lines of credit
from Lender, the proceeds of which shall be used for working capital purposes
and for purposes of paying and satisfying certain construction indebtedness
owing from Borrower to Lender.
1.2 Lender is willing to extend to Borrower certain revolving lines
of credit for the purposes stated in the preceding paragraph upon the terms and
conditions set forth herein.
ARTICLE II
----------
DEFINITIONS
-----------
Except where the context clearly requires a different interpretation,
all capitalized terms used in this Agreement shall have the meanings assigned to
them above, immediately below, or elsewhere herein.
"24-Unit Parcel" shall mean that parcel of real property located on
the southwest corner of U.S. Highway No. 50 and Ski Run Boulevard, in South Lake
Tahoe, California, more fully described on the attached Exhibit "A".
-----------
"186-Unit Parcel" shall mean that parcel of real property located on
the northeast corner of U.S. Highway No. 50 and Ski Run Boulevard, in South Lake
Tahoe, California, more fully described on the attached Exhibit "B".
-----------
"Advance" shall mean, collectively and individually, a Receivables
Advance and a Working Capital Advance.
"Advance Date" shall mean each date on which an Advance is made.
<PAGE>
"Affiliate" shall mean any person or entity directly or indirectly
Controlling, Controlled by or under common Control with the person or entity to
whom the definition is applied, including blood relatives or spouse of the
person to whom the definition applies, if such person is a natural person.
"Affiliate Debt Subordination Agreement" shall mean an agreement, in
such form as Lender shall prescribe, delivered to Lender pursuant to paragraph
---------
52(iii) hereof, as from time to time modified, replaced or restated.
- -------
"Agreement" shall mean this Loan and Security Agreement, as from time
to time modified, extended, renewed, replaced or restated.
"AKGI" shall mean AKGI Lake Tahoe Investments, Inc., a California
corporation.
"Annexable Parcel" shall mean that parcel of real property located on
the southwest corner of U.S. Highway No. 50 and Ski Run Boulevard, in South Lake
Tahoe, California, more fully described on the attached Exhibit "C".
-----------
"Applicable Environmental Laws" shall have the meaning set forth in
the Environmental Certificate.
"Applicable Usury Law" shall mean the usury law applicable pursuant to
the terms of Article XI, paragraph 11.11 hereof or such other usury law which is
---------- ---------------
applicable if the law chosen by the parties is not applicable.
"Assignments" shall mean written Assignments, in such form as Lender
shall prescribe, of specific Instruments and/or Purchaser Mortgages and the
proceeds thereof delivered to Lender concurrently with each Advance under the
terms of which Borrower transfers and assigns with full recourse all of
Borrower's right, title and interest in and to the Instrument and/or Purchaser
Mortgage, free and clear of all claims, demands, liens and encumbrances of third
parties, as collateral security for the Loan.
"Availability Advance" shall mean an additional Receivables Advance
advanced by Lender to Borrower from time to time with respect to an Eligible
Instrument that then constitutes Receivables Collateral against which a previous
Receivables Advance has been made.
"Biennial Time-Share Interest" shall mean a Time-Share Interest sold
to a Purchaser for the exclusive use of a Unit in the Project and Project common
area for a one (1) week period during each odd numbered calendar year or even
numbered calendar year.
- 2 -
<PAGE>
"Borrower" shall mean Lake Tahoe Resort Partners, LLC, a California
limited liability company.
"Borrowing Base" shall mean either the Borrowing Base (Receivables
Loan) or Borrowing Base (Working Capital Loan).
"Borrowing Base (Receivables Loan)" shall mean an amount equal to the
lesser of (i) 90% of the unpaid principal balance payable under the Eligible
Instruments or (ii) 90% of the then present value assigned to the unmatured
installments of principal and interest payable under the Eligible Instruments
discounted at Lender's Prevailing Discount Rate.
"Borrowing Base (Working Capital Loan)" shall mean an amount equal to
the sum of (A) the lesser of (i) 55% of the unpaid principal balance payable
under the Eligible Instruments against which a Working Capital Advance will be
made or (ii) 55% of the then present value assigned to the unmatured
installments of principal and interest payable under the Eligible Instruments
against which a Working Capital Advance will be made, discounted at Lender's
Prevailing Discount Rate, (B) 55% of any cash down payments and principal and
interest payments then made by the Purchaser under such Eligible Instruments at
the time of such Working Capital Advance; and (C) 55% of any cash sales of Units
then made at the time of such Working Capital Advance, provided that the
proceeds of the cash sales and such cash down payments and principal and
interest payments are held and shall continue to be held in Escrow by Escrow
Agent.
"Borrowing Term (Receivables Loan)" shall mean the period of time
during which Lender is committed to make Receivables Advances under this
Agreement, which commitment shall terminate on April 30, 1999.
"Borrowing Term (Working Capital Loan)" shall mean the period of time
during which Lender is committed to make Working Capital Advances under this
Agreement, which commitment shall terminate on April 30, 1999.
"Business Day" shall mean a calendar day other than a Saturday, Sunday
or legal holiday.
"Capital Expenditure" shall mean payments that are made by the
Borrower for the lease, purchase, improvement, construction or use of any
property, the value of which under GAAP is required to be capitalized and shall
include, without limitation, payments for the installment purchase of property
and payments under capitalized leases.
- 3 -
<PAGE>
"Cash Flow" shall mean, for any period, the net income or loss of
Borrower, determined in accordance with GAAP (excluding the effect of any
extraordinary gains or losses from the sale of property not in the ordinary
course of business), plus each of the following items to the extent deducted
----
from the revenues of Borrower in calculating the net income: (A) depreciation;
(B) amortization; and (C) interest and taxes during such period, and less
Capital Expenditures to the extent paid in such period.
"Chevron Easement" shall mean an easement executed by STRA in favor of
Borrower granting to Borrower, and its successors and assigns, a perpetual
easement over the parcel of real property located on the northeast corner of
U.S. Highway No. 50 and Ski Run Boulevard, in South Lake Tahoe, California,
more fully described in the attached Exhibit "D".
----------------
"Chevron Environmental Indemnity" shall mean certain Environmental
Agreement (Ski Run Site) dated as of July, 1995, by and among Chevron U.S.A.
Products Company, a division of Chevron U.S.A., Inc.; STRA; Richard K. Diamond,
as Chapter 11 trustee of El Dorado Improvement Corporation and Argosy/KOAR
Group, Inc. a Georgia corporation, Argosy/KOAR Group, Inc.'s interest in which
was assigned to Lake Tahoe Resort Partners, L.P. on November 14, 1995, pursuant
to Assignment and Assumption of Environmental Agreement (Ski Run Site), and Lake
Tahoe Resort Partners L.P.'s interest in which was assigned to Borrower on March
1, 1996 pursuant to that certain Assignment and Assumption of Environmental
Agreement (Ski Run Site).
"City" shall mean the City of South Lake Tahoe, California, a
California municipal corporation.
"Closing Date" shall mean April 30, 1996.
"Collateral Assignment" shall mean that certain Collateral Assignment
of Material Contracts of even date herewith in a form acceptable to Lender.
Without limitation, the Collateral Assignment shall collaterally assign to
Lender all of Borrower's right, title and interest in each of the Material
Agreements and the other agreements referenced therein together with all of
Resort Management International, Inc.'s rights under its management agreement
with Borrower.
"Collateral Assignment of Escrow" shall mean that certain Collateral
Assignment, Security Agreement and Account Agreement, in a form acceptable to
Lender, pursuant to which Borrower collaterally assigns to Lender all of the
Borrower's interest in the Escrow and in the agreement pursuant to which the
Escrow is maintained as security for the payment and Performance of the
Obligations, which shall be executed prior to the working of the first Working
Capital Advance.
- 4 -
<PAGE>
"Construction Loan" shall mean the loan made pursuant to the
Construction Loan Agreement.
"Construction Loan Agreement" shall mean that certain Construction
Loan Agreement of even date herewith, pursuant to which Lender has agreed,
subject to the terms and provisions thereof, to make a $28,000,000 revolving
construction loan to Borrower, the proceeds of which are to be used to construct
the Project.
"Construction Loan Documents" shall have the meaning set forth in the
Construction Loan Agreement.
"Construction Mortgage" shall mean, collectively, the First Mortgage
and the Second Mortgage, as each of those terms is defined in the Construction
Loan Agreement.
"Construction Note" shall have the meaning set forth in the
Construction Loan Agreement.
"Control" or "Controlling" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of another person or entity by any means.
"DDA" shall mean that certain First Amended Ski Run Project
Disposition and Development Agreement by and between STRA and Argosy/KOAR Group,
Inc., a Georgia corporation, dated as of August 4, 1995; as amended by that
certain First Addendum to First Amended Ski Run Project Disposition and
Development Agreement dated as of October, 1995 between STRA and Argosy/KOAR,
Inc., as further amended by the STRA Environmental Indemnity; as further amended
by the First Amended Ski Run Project Disposition and Development Agreement,
Operating Memorandum No. 2 dated as of April 26, 1996; and as further amended by
the First Amended Ski Run Project Disposition and Development Agreement,
Operating Memorandum No. 3 dated as of April 26, 1996, Argosy/KOAR Group, Inc.'s
interest in which was assigned to Lake Tahoe Resort Partners, L.P. on November
14, 1995, pursuant to that certain Assignment and Assumption of First Amended
Ski Run Project Disposition and Development Agreement, and Lake Tahoe Resort
Partners, L.P.'s interest in which was assigned to Borrower on March 1, 1996
pursuant to that certain Assignment and Assumption of First Amended Ski Run
Project Disposition and Development Agreement.
"Delinquencies" shall mean, individually and collectively, an Eligible
Instrument, against which an Advance has been made, under which an installment
payment due becomes more than 59 days past due.
- 5 -
<PAGE>
"Development Agreement" shall mean that certain Ski Run Project
Development Agreement by and between the City and Argosy/KOAR Group, Inc., dated
as of November 21, 1995, as amended by that certain Ski Run Project Development
Agreement, Operating Memorandum No. A dated as of April 26, 1996, Argosy/KOAR
Group, Inc.'s interest in which was assigned to Lake Tahoe Resort Partners, L.P.
on November 14, 1995 pursuant to that certain Assignment and Assumption of
Development Agreement, and Lake Tahoe Resort Partners, L.P.'s interest in which
was assigned to Borrower on March 1, 1996 pursuant to that certain Assignment
and Assumption of Development Agreement.
"Distribution" shall mean any distribution, advance, payment, or loan
to any shareholder, officer, director, member or Affiliate of Borrower or of any
of the foregoing, including but not limited to, loan repayments, dividends,
bonuses, salary, other compensation and management fees.
"Dynamic Acquisition Documents" shall mean that certain Purchase and
Sale Agreement dated as of August 18, 1994, by and among KOAR Group, Inc. and
Argosy/KOAR Group, Inc. ("KOAR/Argosy"), Richard K. Diamond as Trustee and
Dynamic Finance Corporation, as amended by that certain Implementation Agreement
relating to Purchase and Sale Agreement dated as of November 13, 1995,
KOAR/Argosy's interests in which it was assigned to Borrower by mesne
-----
conveyances.
"Dynamic Loan Documents" shall mean the documents evidencing and
securing the Dynamic Loan Facility.
"Dynamic Loan Facility" shall mean that certain One Million Eight
Hundred Thousand Dollar ($1,800,000.00) loan made by Dynamic Finance Corporation
to Borrower pursuant to the Dynamic Acquisition Document.
"Eligible Instruments" shall mean the Instruments, each in
substantially the form of Exhibit "E" hereto, entered into by and between
-----------
Borrower and those Persons who purchase a Time-Share Interest (all of whom shall
be United States or Canadian residents), which Eligible Instruments shall
conform to the criteria and standards set forth on Exhibit "F" hereto; provided,
-----------
however, that an Instrument shall cease to be an Eligible Instrument if (i) any
installment payable thereunder becomes more than 59 days past due and the
Instrument under which such installment is payable is not replaced within ninety
(90) days following the due date of such installment or (ii) the contract fails
to continue to conform to the criteria and standards of Exhibit "F".
-----------
"Environmental Certificate" shall mean that certain Environmental
Certificate with Representations, Covenants and Warranties of even date herewith
executed by Borrower and related to the Project.
- 6 -
<PAGE>
"Escrow" shall mean that certain account in the name of Escrow Agent
in which the cash payments and principal and interest payments that are used in
calculating the Borrowing Base (Working Capital Loan), together with the
original Instruments and Purchaser Mortgages pertaining thereto are deposited,
pursuant to an agreement acceptable to Lender.
"Escrow Agent" shall mean the person who is not an Affiliate of
Borrower, in whose name the Escrow is maintained, the identify of whom shall be
acceptable to Lender.
"Event of Default" has the meaning set forth in Article IX hereof.
----------
"Force Majeure" has the meaning set forth in the Construction Loan
Agreement.
"FPSI" shall mean FINOVA Portfolio Services, Inc., an Arizona
corporation, its successors and assigns.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time, consistently applied, throughout the period involved
and with prior periods, which shall include the official interpretations thereof
by the Financial Accounting Standards Board or any successor thereto.
"Garage Parcel" shall mean that parcel of real property located on the
southwest corner of U.S. Highway No. 50 and Ski Run Boulevard, in South Lake
Tahoe, California, more fully described in the attached Exhibit "G".
------------
"General and Administrative Expenses" shall mean all expenses of
Borrower less (i) Marketing Expenses, (ii) interest on the Construction Loan,
the Working Capital Loan and the Receivables Loan and (iii) Borrower's cost of
Time-Share Interest sold.
"Guarantee(s)" shall mean, individually and collectively, a written
Guarantee Agreement, in such form as Lender shall prescribe, executed and
delivered by a Person (or Persons) to Lender, under the terms and conditions of
which such Person (or Persons), as Guarantor(s), shall individually and/or
jointly and severally guarantee Borrower's Performance of all of its Obligations
under the Receivables Loan Documents.
"Guarantor(s)" shall mean individually, a Person, and collectively
each and every Person, who executes and delivers to Lender a Guarantee pursuant
to the terms and conditions of this Agreement. The Guarantors of this Loan are
KGK and AKGI.
- 7 -
<PAGE>
"Impositions" shall mean any and all taxes (other than any tax
measured by net income payable by Lender to any state or political subdivision
thereof or to the U.S. under Section 11 or 1201 of the Internal Revenue Code, as
---------- ----
amended), in consequence of the receipt of payments provided for herein, license
fees, assessments, charges, fines, penalties, property, privilege, excise, real
estate or other taxes currently or hereafter levied or imposed by any state,
local or federal authority upon or in connection with or measured by the
Receivables Loan Documents or the Receivables Collateral.
"Incentive Fee" shall have the meaning set forth in paragraph 8.25
--------------
hereof.
"Incipient Default" shall mean any act or event which after the giving
of notice or the lapse of time (or both) would constitute an Event of Default.
"Instrument" shall mean a promissory note which has arisen out of the
sale of a Time-Share Interest in Phase I, Phase II or Phase III by Borrower to a
Purchaser, which note is secured by a Purchaser Mortgage.
"KGK" shall mean KGK Lake Tahoe Development, Inc., a California
corporation.
"Loan" shall mean, collectively and individually, the Receivables Loan
and the Working Capital Loan.
"Loan Balancing Equity" shall have the meaning set forth in
Construction Loan Agreement.
"Loan Fee" shall mean either of the Receivables Loan Fee or the
Working Capital Loan Fee.
"Lockbox Agent" shall mean the entity designated as the Lockbox Agent
in the Lockbox Agreement, or should such entity cease to act as Lockbox Agent
under the Lockbox Agreement, such other entity as Lender may appoint.
"Lockbox Agreement" shall mean the Lockbox Agreement, in such form as
Lender shall prescribe, to be made among Borrower, Lender and the Lockbox Agent,
as from time to time modified, replaced or restated.
"Maturity Date" shall mean that date which shall occur seven (7) years
after the expiration of the Borrowing Term (Receivables Loan).
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<PAGE>
"Marketing Expenses" shall mean the aggregate of all expenses incurred
in the sale and marketing of Time-Share Interests, including without limitation,
all costs and expenses for advertising, mailing, consumer premiums, referral
lead generation, closing costs and sales commissions.
"Material Agreements" shall mean, individually and collectively, the
DDA (including, without limitation, the STRA Environmental Indemnity), the
Development Agreement and the Chevron Environmental Indemnity, and all
amendments, modifications and replacements thereof.
"Maximum Receivables Loan Amount" shall mean the lesser of (i) Thirty
Million Dollars ($30,000,000) or (ii) Forty Five Million Dollars ($45,000,000)
less the principal amount then outstanding under the Working Capital Loan and
the Construction Loan.
"Maximum Working Capital Loan Amount" shall mean the lesser of (i)
Four Million Dollars ($4,000,000) or (ii) Forty Five Million Dollars
($45,000,000) less the principal amount then outstanding under the Receivables
Loan and the Construction Loan.
"Net Income" shall mean the net income or loss of Borrower, determined
in accordance with GAAP (excluding the effect of any extraordinary gains or
losses from the sale of property not in the ordinary course of business).
"Net Sale" shall mean gross sales of Time-Share Interests during such
quarterly period reduced only by cancellations thereof.
"Nondisturbance Agreement" shall mean an agreement, in form and
substance satisfactory to Lender, pursuant to which the holders of any lien
interest on the streets, amenities, common areas, or other off-site improvements
forming a part of the Project agree that, notwithstanding a foreclosure or other
realization of such encumbrance, (i) the Purchasers shall have uninterrupted use
of such streets, amenities, common areas and other off-site improvements and
uninterrupted use and possession of their respective Time-Share Interests, (ii)
the rights and privileges of such Purchasers shall not be otherwise impaired,
and (iii) the governing documents of the Project, including any declarations of
condominium, shall not be modified.
"Obligations" shall mean each and every obligation, duty, covenant,
undertaking and conditions which Borrower is required or has agreed to perform
under the Receivables Loan Documents and under the Construction Loan Documents,
and each and every other obligation of Borrower now or hereafter owing to
Lender.
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<PAGE>
"Opening Prepayment Date" shall mean the date which occurs thirty-six
(36) months from the Closing Date.
"Overdue Rate" shall have the same meaning as set forth in the
Receivables Note.
"Perform, Performed or Performance" shall mean the timely, faithful
and complete payment and performance of all Obligations by Borrower.
"Permitted Encumbrances" shall mean those matters set forth on the
attached Exhibit "H". Permitted Exceptions shall include, as to the 24-Unit
-----------
Parcel and Annexable Parcel only, the lien in favor of Dynamic Finance
Corporation to secure the Dynamic Loan Facility.
"Person" shall mean any adult individual, partnership, corporation or
other form of business entity whatsoever.
"Phase" shall mean any of Phase I, Phase II or Phase III.
"Phase I" shall mean the initial 66 Units to be constructed on the
186-Unit Parcel, together with other improvements set forth in the plans and
specifications, approved by Lender, with respect to such Phase.
"Phase II" shall mean the second 40 Units to be constructed on the
186-Unit Parcel, together with other improvements set forth in the plans and
specifications, approved by Lender, with respect to such Phase.
"Phase III" shall mean the third 40 Units to be constructed on the
186-Unit Parcel, together with other improvements set forth in the plans and
specifications, approved by Lender, with respect to such Phase.
"Present Value" shall mean with respect to any Eligible Instrument the
present value of the unmatured and unpaid installments of principal and interest
due thereunder, calculated using a discount rate equal to the Prevailing
Discount Rate applicable to said Eligible Instrument as provided herein.
"Prevailing Discount Rate" shall mean Lender's prevailing discount
rate at the time each Advance is made, which rate shall be Prime Rate plus 2.0%
but in no event less than 12.5%.
"Prime Rate" shall mean the rate of interest publicly announced from
time to time by Citibank, N.A., New York, New York as its corporate base rate of
interest charged to its most creditworthy commercial borrowers notwithstanding
the fact that
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<PAGE>
some such borrowers may borrow at lower rates. The initial Prime Rate shall be
the rate in effect as of the first Business Day of the month of the initial
Advance and, subsequently, the Prime Rate shall be redetermined as of the first
Business Day of each month.
"Project" shall mean the time-share project known as Embassy Vacation
Resort at Lake Tahoe, to be constructed by Borrower on the Real Property,
comprised of the 146 Units in Phase I, Phase II and Phase III.
"Project Documents" shall mean all operating, management, marketing,
supervision, nondisturbance cross-use, parking and other documents relating to
the ownership, development, construction, maintenance repair, leasing,
management, marketing and operation of the Project.
"Purchaser" shall mean a Person who purchases a Time-Share Interest in
the Project from Borrower.
"Purchaser Mortgage" shall mean the purchase money deed of trust given
to secure an Instrument.
"Real Property" shall mean, collectively, the 186-Unit Parcel, the
Chevron Easement, the Garage Parcel, the Annexable Parcel and the 24-Unit Parcel
and all existing and future improvements located thereon.
"Receivables Advance" shall mean an Advance of the Receivables Loan
advanced by Lender to Borrower from time to time in accordance with the terms
and provisions of this Agreement. A Receivables Advance shall include an
Availability Advance.
"Receivables Collateral" shall mean (i) all of the Instruments which
Borrower now or hereafter assigns, transfers, endorses or delivers to Lender in
consideration for an Advance made by Lender pursuant to the terms of this
Agreement and as collateral security for the Obligation; (ii) all Instruments
against which Lender makes an Advance pursuant to the terms of this Agreement,
notwithstanding whether or not such Instrument is assigned, transferred,
endorsed or delivered to Lender; (iii) all Purchaser Mortgages, purchase
contracts, purchase agreements, guarantees and other documents or instruments
evidencing or securing the obligations of the Purchasers and/or any other person
primarily or secondarily liable on the Instruments; (iv) all policies of
insurance related to the Instruments or delivered in connection with the
Instruments (provided that the inclusion of such policies of insurance as part
of the Receivables Collateral shall not be deemed to restrict or limit the
Borrower's ability to encumber such insurance to the extent relating to or
delivered in connection with Instruments pledged to another lender, subject,
however, to the provisions of paragraph
---------
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<PAGE>
8.28); (v) all rights under escrow agreements relating to the Instruments and
- ----
all impound and/or reserve accounts related to the Instruments (excluding,
however, any escrows set aside for improvements to the Project); (vi) all
licenses, contracts, management contracts or agreements, franchise agreements,
permits, subordination or certificates now or hereafter required or used in
connection with the ownership, operation or maintenance of the Project (provided
that the inclusion of such licenses, contracts, management contracts and other
agreements or permits as part of the Receivables Collateral shall not be deemed
to restrict or limit the Borrower's ability to encumber such documents and
agreements to the extent relating to or delivered in connection with Instruments
pledged to another lender, subject, however, to the provisions of paragraph
---------
8.28); (vii) all files, books and records pertaining to any of the foregoing;
- ----
and (viii) cash and non-cash proceeds from all of the foregoing, including,
without limitation, all goods, instruments, documents, general intangibles,
chattel paper and accounts wherever located, which have been acquired with cash
proceeds from any of the foregoing and the proceeds thereof.
"Receivables Loan" shall mean the line of credit loan extended by
Lender to Borrower in accordance with the terms of this Agreement in an
outstanding principal amount not to exceed at any time the Maximum Receivables
Loan Amount.
"Receivables Loan Documents" shall mean this Agreement, the
Receivables Note, the Working Capital Note, the Construction Mortgage, the
Environmental Certificate, the Servicing Agreement, the Lockbox Agreement, the
Services and Fees Agreement, the Guarantee, the Assignments, the Collateral
Assignment of Escrow, the Collateral Assignment, the Affiliate Debt
Subordination Agreement, and each and every other document, instrument or
writing executed or delivered by Borrower to Lender in connection with the Loan.
"Receivables Loan Fee" shall have the meaning set forth in paragraph
---------
8.16.
- ----
"Receivables Note" shall mean the Receivables Promissory Note, in the
amount of the Receivables Loan, to be made and delivered by Borrower to Lender
pursuant hereto, in a form acceptable to Lender.
"Security Interest" shall mean a direct and exclusive first security
interest which has been perfected under the Uniform Commercial Code of the
state(s) in which any such security interest must be perfected; provided that
with respect to any portion of the Receivables Collateral not covered by the
Uniform Commercial Code, it shall mean a direct and exclusive first lien on such
property which has been perfected in the manner provided by law.
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<PAGE>
"Servicing Agent" shall mean FPSI or, should such entity cease to act
as Servicing Agent under the Servicing Agreement and Services and Fees
Agreement, such other entity as Lender may appoint.
"Servicing Agreement" shall mean the Servicing Agreement, in such form
as Lender shall prescribe, to be made among Borrower, Lender, and the Servicing
Agent, as from time to time modified, replaced or restated.
"Services and Fees Agreement" shall mean the Services and Fees
Agreement, in such form as Lender shall prescribe, to be made between Borrower
and Servicing Agent and acknowledged by Lender, as from time to time modified,
replaced or restated.
"STRA" shall mean the South Lake Tahoe Redevelopment Agency, a
California municipal corporation.
"STRA Environmental Indemnity" shall mean that certain First Amended
Ski Run Project Disposition and Development Agreement, Operating Memorandum No.
1 dated March, 1996 between STRA and Borrower. The STRA Environmental Indemnity
is included within the DDA, as that term is defined in this Agreement.
"Term" shall mean the duration of this Agreement commencing as of the
year and day first above written and terminating on the date Borrower has
Performed all of its Obligations under the Receivables Loan Documents.
"Time-Share Interest" shall mean the rights sold to a Purchaser to the
exclusive use of a Unit in the Project and the Project common areas for a one
(1) week period each year. A Time-Share Interest shall include a Biennial Time-
Share Interest.
"Unit" shall mean a dwelling unit in the Project.
"Working Capital Advance" shall mean an Advance of the Working Capital
Loan advance by Lender to Borrower from time to time in accordance with the
terms and provisions of this Agreement.
"Working Capital Loan" shall mean a revolving line of credit loan
extended by Lender to Borrower in accordance with the terms of this Agreement in
an outstanding principal amount not to exceed at any time the Maximum Working
Capital Loan Amount.
"Working Capital Loan Fee" shall have the meaning set forth in
paragraph 8.16.
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- 13 -
<PAGE>
"Working Capital Note" shall mean the Working Capital Promissory Note,
in the amount of the Working Capital Loan, to be made and delivered by Borrower
to Lender pursuant hereto, in a form acceptable to Lender.
ARTICLE III
------------
THE LOAN
--------
3.1 Lender hereby agrees that the Receivables Loan (including
Availability Advances of the Receivables Loan) will be disbursed to Borrower,
from time to time, in periodic Receivables Advances, but in no event after the
Borrowing Term (Receivables Loan) has expired, in amounts determined by
subtracting from the Borrowing Base (Receivables Loan) the unpaid principal
balance outstanding under the Receivables Loan at the time of each Receivables
Advance; provided that at no time shall the unpaid principal balance of the
Receivables Loan exceed the Maximum Receivables Loan Amount.
(i) Receivables Advances shall not be made more frequently than twice
per month, and each Receivables Advance shall be in an amount of not less
that One Hundred Thousand Dollars ($100,00000). Lender shall charge a fee
of Five Hundred Dollars ($500.00) for the second Receivables Advance made
during any month and shall be entitled to deduct such fee from the
Receivables Advance so made. The foregoing fee is to be paid to Lender
strictly in consideration for Lender's agreement to make a second
Receivables Advance during any particular calendar month and shall not be
applied or credited against any other Obligations.
(ii) The Receivables Loan is a revolving line of credit under the
terms of which Borrower, during the Borrowing Term (Receivables Loan),
shall have the right to obtain Receivables Advances, repay Receivables
Advances, and obtain additional Receivables Advances so long as no Event of
Default has occurred and is continuing and so long as all other conditions
precedent to the making of a Receivables Advance have been satisfied.
(iii) No Receivables Advances will be made after the Borrowing Term
(Receivables Loan) has expired unless Lender, in its sole discretion, shall
agree in writing to make such Receivables Advances.
(iv) Borrower shall use the proceeds of the Receivables Loan for
working capital purposes and to repay the Construction Loan and the Working
Capital Loan, in full. The proceeds of the Receivables Loan from a
particular Phase shall be used to pay and satisfy the then unpaid principal
balance and all accrued interest under the Working Capital Loan from such
Phase before
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<PAGE>
any portion of the Receivables Loan is paid in satisfaction of any portion
of the Construction Loan with respect to such Phase. The foregoing
notwithstanding, upon the occurrence of any Event of Default, the proceeds
of the Receivables Loan may be applied by Lender in satisfaction of the
Obligations in such order and manner as Lender shall determine.
(v) At no time during the term hereof shall the unpaid
principal balance of the Receivables Loan, together with the unpaid
principal balance of the Construction Loan and the Working Capital Loan,
exceed a total amount equal to Forty Five Million Dollars ($45,000,000.00),
and Lender shall have no obligation to make any Receivables Advance if such
Advance would cause the foregoing limitation to be exceeded.
3.2 Lender agrees that the Working Capital Loan will be disbursed to
Borrower, from time to time, in periodic Working Capital Advances, but in no
event after the Borrowing Term (Working Capital Loan) has expired, in an amount
determined by subtracting from the Borrower Base (Working Capital Loan) the
unpaid principal balance of the Working Capital Loan at the time of each Working
Capital Advance; provided that at no time shall the unpaid principal balance of
the Working Capital Loan exceed the Maximum Working Capital Loan Amount.
(i) Working Capital Advances shall be made no more frequently
than twice per month and each Working Capital Advance shall be in an amount
not less than One Hundred Thousand Dollars ($100,000.00). Lender shall
charge a fee of Five Hundred Dollars ($500.00) for the second Working
Capital Advance made during any month and shall be entitled to deduct such
fee from the Working Capital Advance so made. The foregoing fee is to be
paid to Lender strictly in consideration for Lender's agreement to make a
second Working Capital Advance during any particular calendar month and
shall not be applied or credited against any other Obligations.
(ii) The Working Capital Loan is a revolving line of credit under
the terms of which Borrower, during the Borrowing Term (Working Capital
Loan), shall have the right to obtain Working Capital Advances, repay
Working Capital Advances, and obtain additional Working Capital Advances so
long as no Event of Default has occurred and is continuing and so long as
all other conditions precedent to the making of a Working Capital Advance
have been satisfied. The foregoing notwithstanding, Borrower shall have no
right to obtain a Working Capital Advance against Eligible Instruments
arising from Phase II or Phase III until all Working Capital Advances made
against Eligible Instruments arising from Phase I have been paid in full,
including all accrued interest thereon. At such time as Borrower has
received a Working Capital Advance against Eligible Instruments arising
from Phase II, Borrower shall have
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<PAGE>
no further right to obtain any Working Capital Advances against Eligible
Instruments arising from Phase I. In addition, Borrower shall have no right
to obtain a Working Capital Advance against Eligible Instruments arising
from Phase III until all Working Capital Advances against Eligible
Instruments arising from Phase II have been paid in full, including all
accrued interest thereon. At such time as Borrower has received a Working
Capital Advance against Eligible Instruments arising from Phase III,
Borrower shall have no further right to obtain any Working Capital Advances
against Eligible Instruments arising from Phase I or Phase II.
(iii) No Working Capital Advances will be made after the Borrowing
Term (Working Capital Loan) has expired unless Lender, in its sole
discretion, shall agree to make such Working Capital Advances.
(iv) Borrower shall use the proceeds of the Working Capital Loan
for working capital purposes.
(v) Any cash down payments and principal and interest payments
made by Purchasers that are used in calculating the Borrowing Base (Working
Capital Loan) shall be held in Escrow by the Escrow Agent and shall not be
released to Borrower unless a principal payment under the Working Capital
Loan is made in an amount equal to the amount of the Working Capital Advance
originally made against such cash down payment and principal and interest
payment.
(vi) At no time during the term hereof shall the unpaid principal
balance of the Working Capital Loan, together with the unpaid principal
balance of the Construction Loan and Receivables Loan, exceed a total amount
equal to Forty Five Million Dollars ($45,000,000.00), and Lender shall have
no obligation to make any Working Capital Advance if such Advance would
cause the foregoing limitation to be exceeded.
(vii) Working Capital Advances made against Eligible Instruments
arising from a particular Phase shall be due and payable in full at such
time as such Phase has been Completed and the Escrow Agent has released from
Escrow the cash down payments and principal and interest payments that were
used in calculating the Borrowing Base (Working Capital Loan) as to such
Advances. The foregoing notwithstanding, all Working Capital Advances shall
be due and payable in full on the maturity date set forth in the Working
Capital Note.
3.3 All Advances made pursuant to this Agreement shall be deemed to be
a single Loan.
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<PAGE>
ARTICLE IV
----------
SECURITY FOR THE LOAN
---------------------
4.1 As security for Borrower's payment and Performance of all
Obligations owed to Lender, other than those arising out of the Environmental
Certificate, Borrower hereby grants to Lender a first and exclusive Security
Interest in and to the Receivables Collateral assigned, transferred, endorsed or
delivered to Lender under this Agreement or against which an Advance is made
hereunder. Lender's Security Interest in such Receivables Collateral shall be
absolute, continuing and applicable to all existing and future Advances and
shall secure the repayment of the Loan and the Construction Loan and the
Performance of all Obligations throughout the Term of the Loan. At the time each
Advance is made hereunder, Borrower shall deliver to Lender (i) an executed
Assignment against which an Advance is requested; (ii) the original of each
Instrument; and (iii) other documents which comprise such Eligible Instruments.
In addition, Borrower's payment and Performance of the Working Capital Loan and
Receivables Loan shall be secured by the Construction Mortgage.
4.2 If an Eligible Instrument which comprises a part of the
Receivables Collateral shall cease to qualify as an Eligible Instrument,
Borrower shall, within 30 days thereafter, pay to Lender an amount equal to that
portion of the Loan, together with interest, costs, and expenses, if any,
attributable to such ineligible Instrument or shall replace such ineligible
Instrument with another Eligible Instrument having a value of not less than that
portion of the Loan together with interest, costs, and expenses, if any,
attributable to the Eligible Instrument being replaced. No prepayment premium
shall be payable with respect to the payment to be made by Borrower pursuant to
the previous sentence as long as Borrower did not cause the Instrument to cease
qualifying as an Eligible Instrument. Concurrently with the delivery of the
replacement Eligible Instrument to Lender, Borrower shall deliver to Lender all
pertinent items (except for a "Request for Advance and Certification") which
Borrower is required to deliver to Lender in connection with an Advance pursuant
to Article V hereof, together with a Borrower's Certificate in form and
---------
substance identical to Exhibit "I" hereto. Upon substitution of the replacement
-----------
Eligible Instrument for the ineligible Instrument, Lender will terminate its
Security Interest in and reassign and endorse to Borrower, without recourse or
warranty of any kind, the replaced ineligible Instrument, together with the
Purchaser Mortgage securing the same, provided that no Event of Default or
Incipient Default has occurred and is continuing.
4.3 Reserved.
--------
4.4 In connection with a Receivables Advance but not a Working Capital
Advance, Borrower shall, at its expense, deliver to Lender, at the time of
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<PAGE>
delivery of the Assignment, a policy or policies of title insurance insuring
Lender's interest in the Purchaser Mortgage which is the subject of the
Assignment. Such policy or policies shall be in the amount of the Receivables
Advances made against or, in the case of substitutions, a portion of the
Receivables Loan attributable to the Instruments secured by the insured
Purchaser Mortgages and shall be issued by a title insurer and be in form and
substance satisfactory to Lender in its sole discretion. The title insurance
policies must reflect that the Purchaser Mortgages constitute valid liens
against the real property to which they pertain subject only to the Permitted
Encumbrances.
4.5 Borrower shall deliver or cause to be delivered to Lender, and
thereafter shall maintain in full force and effect according to the terms
thereof, Guarantees duly executed by the Guarantors.
ARTICLE V
---------
ADVANCES
--------
5.1 Lender shall have no obligation to make any Advance hereunder
until all conditions precedent set forth in the following paragraphs and
elsewhere in this Agreement have been satisfied, at Borrower's sole expense, as
determined by Lender in its reasonable discretion; provided, however, to the
-------- -------
extent such condition provides that it pertains only to a Receivables Advance
and not to a Working Capital Advance, such condition need not be satisfied as to
a Working Capital Advance.
5.2 Borrower shall have delivered to Lender the following documents,
duly executed in form and substance satisfactory to Lender (and, when required,
in recordable form):
(i) The Receivables Loan Documents;
(ii) The Construction Loan Documents;
(iii) All documents required to effectuate the purposes of
paragraphs 8.12 and 8.21(ii) hereof;
--------------- --------
(iv) A Nondisturbance Agreement which shall be filed and
recorded in such offices as Lender shall designate;
(v) UCC Financing Statements for filing and recording, if
appropriate, as necessary to perfect Lender's Security Interest in the
Receivables Collateral and all other security for the Performance of
Borrower's Obligations which is subject to Article 9 of the Uniform
---------
Commercial Code;
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<PAGE>
(vi) The title policy referred to in paragraph 4.4 hereof;
-------------
(vii) A favorable opinion from Borrower's independent counsel as to
such matters as Lender may reasonably require; and
(viii) A favorable opinion from each Guarantor's independent counsel
as to such matters as Lender may reasonably require.
5.3 Not less than ten (10) Business Days before the date on which the
initial Advance is to be made, Borrower shall deliver or cause to be delivered
to Lender the following additional items:
(i) With respect to Borrower and each Guarantor or Person which is a
corporation, general or limited partnership or limited liability company,
certified copies of their articles, certificates and agreements of general
or limited partnership, their articles of incorporation and by-laws or
their articles of organization and operating agreement (and all amendments
thereto), together with evidence that Borrower and each such Guarantor or
Person is duly organized, validly existing, and in good standing under the
laws of the jurisdiction in which they are organized, and in each and every
other jurisdiction where the nature of their respective businesses require
them to be so qualified;
(ii) With respect to Borrower and each Guarantor or Person which is
a corporation, a general or limited partnership or limited liability
company, a copy of the resolutions certified to be true and complete by
the corporate secretary, all of the general partners or all of the members
(as the case may be), authorizing the execution, delivery and performance
of the Receivables Loan Documents, and evidencing the authority of all
Persons executing the Receivables Loan Documents on behalf of Borrower, the
Guarantor, and such other Persons, and if Borrower, Guarantor or such
Persons are operating under a fictitious name, a copy of the recorded
certificate of fictitious name;
(iii) [RESERVED]
(iv) Evidence satisfactory to Lender that the Project complies with
all applicable laws, rules and regulations and public and private
restrictions affecting the use of the Project;
(v) A copy of the Public Report containing such conditions are
acceptable to Lender issued by or used in the State of California and other
jurisdictions where Time-Share Interests are or have been offered or sold,
together with all other approvals from regulatory agencies having
jurisdiction over the Project;
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<PAGE>
(vi) If the Project has not been registered under such act, an
opinion from Borrower's counsel that the Project does not fall within the
purview of the Interstate Land Sales Full Disclosure Act;
(vii) A copy of the purchase contract, deed, note, mortgage/deed
of trust and other documents in existence, including, without limitation,
any covenants running with the land comprising the Project, as well as any
covenants enforceable as equitable servitudes, the Project management
agreement and advertising materials, which have been or are being used by
Borrower in connection with the Project or the sale of Time-Share Interests
therein;
(viii) Copies of the insurance policies required pursuant to
paragraph 8.9 hereof;
-------------
(ix) Evidence that the Project is not located within a "special
flood hazard" area as such term is used in the National Flood Insurance Act
of 1968, as amended and supplemented by the Flood Disaster Protection Act
of 1973, and in regulations, interpretations and rulings thereunder;
(x) With respect to a Receivables Advance, the items described in
Exhibit "J" hereto;
-----------
(xi) With respect to a Working Capital Advance, the items
described in the following paragraphs of Exhibit "J" hereto: (a), (b)
-----------
(unrecorded copies only), (e), (f), (g), (h), and (i);
(xii) Such other items as Lender requests which are reasonably
necessary to evaluate whether the request for the Advance satisfied the
requirements set forth herein;
(xiii) Credit references and Dun and Bradstreet reports for
Borrower and Guarantor; and UCC, tax lien, litigation and judgment searches
for Borrower and Guarantor;
(xiv) Copies of the forms of Instrument and Purchaser Mortgage;
(xv) Satisfactory operating budget for the Project owner's
association; and
(xvi) With respect to a Working Capital Advance, the
establishment by Borrower of the Escrow, the approval by Lender of the
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<PAGE>
agreement pursuant to which the Escrow is established and execution by
Borrower and Lender of the Collateral Assignment of Escrow.
5.4 No material adverse change shall have occurred in the Project or
Borrower's or any Guarantor's business or financial condition since the date of
the latest financial and operating statements given to Lender by or on behalf of
Borrower or any Guarantor.
5.5 Lender shall be satisfied (in Lender's sole and absolute
discretion) with the results of (i) Lender's physical inspection of the Project;
(ii) the most recent income statement, balance sheet and statement of cash flows
(dated no earlier than December 31, 1995 for Argosy/KOAR Group, Inc.; and (iii)
the operating performance during calendar year 1995 for all time share resorts
owned by Affiliates of Argosy/KOAR Group, Inc.
5.6 Lender shall receive evidence satisfactory to it that no less than
$10,000,000 of cash has been contributed to Borrower by its members, in the form
of equity. Lender shall be satisfied with the identity of the Persons who
contributed such equity.
5.7 There shall have been no material adverse change in the warranties
and representations made by Borrower or any Guarantor in the Receivables Loan
Documents.
5.8 Neither an Event of Default nor an Incipient Default shall have
occurred and be continuing.
5.9 The interest rate applicable to the Advance (before giving effect
to any savings clause) will not exceed the maximum contract rate permitted by
the Applicable Usury Law.
5.10 Borrower has paid to Lender the portion of the Loan Fee then due
to Lender.
5.11 The Construction Loan shall have closed and all conditions to
closing shall have been satisfied by Borrower or waived by Lender and, with
respect to a Receivables Advance, Borrower shall have satisfied all of the
conditions precedent to the making of the first Advance (as the term Advance is
defined in the Construction Loan Agreement).
5.12 Borrower has received and approved all Project Documents and has
received a collateral assignment of such of the Project Documents as Lender
shall
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<PAGE>
require which collateral assignment shall be accompanied consents of the other
parties thereto, if required by Lender.
5.13 Lender has received and approved all necessary approvals from all
regulatory agencies having jurisdiction over the Projects.
5.14 Lender and Lender's Inspector (as defined in the Construction
Loan Agreement) have approved the Construction Budget (as defined in the
Construction Loan Agreement) for Phase I and the Construction Budget shall
reflect a total cost of construction of Phase I (including hard costs and soft
costs) of an amount not in excess of $22,000,000.
5.15 Lender shall have received evidence satisfactory to it that the
Real Property is environmentally acceptable to Lender.
5.16 Lender shall have no obligation to make any Advance until the
conditions specified in paragraphs 5.1 through 5.15 (as applicable to the
-------------- ----
particular type of Advance) inclusive herein have been satisfied as determined
by Lender in its reasonable discretion.
5.17 Advances shall be requested in writing on the Request for Advance
and Certification, in the form of the attached Exhibit "J-l," executed by
--------------
Borrower (or, if Borrower is a corporation, partnership or limited liability
company, by those officers, general partners or members, as the case may be, or
agents of Borrower named in authorizing resolutions of Borrower from time to
time delivered to Lender and which are in form and substance satisfactory to
Lender).
5.18 Advances may be disbursed by checks, drafts or wire transfer
payable to Borrower; or, at the option of Lender after Borrower's written
request, to third parties, either severally or jointly with Borrower, for the
credit or benefit of Borrower. If Advances are made by wire transfer, Borrower
shall pay to Lender, Lender's usual and customary fee for wiring such funds.
Lender can withhold such fee from the Advance so made.
5.19 Although Lender shall have no obligation to make an Advance
unless and until all applicable conditions thereto set forth herein have been
satisfied, Lender may, at its sole discretion, make Advances before that time
without waiving or releasing any of the Obligations, but Borrower shall continue
to be required to strictly Perform all such Obligations.
5.20 The proceeds of the Receivables Loan are to be used, in part, to
pay and satisfy in full the Working Capital Loan, the Construction Loan and all
amounts then due and owing to Lender under the Construction Loan Documents. To
the extent
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<PAGE>
that the proceeds of the Receivables Loan arise from a particular Phase, such
proceeds shall be used to pay and satisfy in full the Working Capital Loan
arising from the same Phase, the Construction Loan with respect to such Phase
and all amounts then due and owing to Lender under the Construction Loan
Document with respect to such Phase. Lender shall have the right to disburse any
Receivables Advance directly to Lender in payment or satisfaction of Working
Capital Advances, and interest thereon, and any amounts then due to Lender under
the Construction Loan Documents. The foregoing notwithstanding, upon and during
the continuance of an Event of Default, Lender shall have the right to disburse
Receivables Advances against the Obligations in such order and manner as Lender
deems appropriate.
5.21 Working Capital Advances shall be made only against the Borrowing
Base (Working Capital Loan); provided that with respect to Working Capital
Advances only, the eligibility criteria set forth in the following subparagraphs
of Exhibit "F" need not be satisfied as a condition to the making of such
-----------
Advance: (j), only as to the requirement that the Purchaser Mortgage be
recorded, (k), (m) and (n) to the extent that such rescission rights pertain
only to Borrower's obligations under subparagraph (k) thereof.
----------------
5.22 Lender acknowledges that Borrower's Public Report from the
California Department of Real Estate contains, in substance, the following
conditions:
(i) recordation of a final map;
(ii) recordation of Declarations of Covenants, Conditions and
Restrictions;
(iii) the delivery to the California Department of Real Estate of
a preliminary title report with respect to the Real Property;
(iv) The filing of articles of incorporation for the Association;
(v) The delivery by Borrower of a Subsidy Agreement, an
Assessment Buydown Agreement and a Cost Sharing Agreement as well as
security therefor;
(vi) Evidence that Lake Tahoe Vacation Ownership Resort Owners
Association holds a fidelity bond in compliance with certain California
regulations; and
(vii) The receipt by the California Department of Real Estate of a
management agreement in compliance with certain California regulations.
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<PAGE>
Borrower warrants and represents and, with respect to clauses (iii),
(v), (vi) and (vii) above, covenants, that the conditions described in clauses
(i) and (ii) will be satisfied concurrently with the closing of Borrower's
acquisition of the Property; that the condition described in clause (iii) will
be satisfied within fourteen (14) days following Borrower's acquisition of the
Real Property; that the condition described in clause (iv) has been satisfied
and that the conditions described in clauses (v), (vi) and (vii) will be
satisfied within four (4) months following the Closing Date. In connection with
clause (v), Lender shall have the right to approve the agreements described
therein which approval will be reasonably exercised by Lender; provided,
---------
however, that to the extent that such agreements require the pledging of rental
- -------
revenue from the Project, which pledge would be senior in priority to the
Construction Mortgage, Lender's approval shall be given or withheld in Lender's
sole discretion.
ARTICLE VI
----------
RESERVED
--------
ARTICLE VII
-----------
NOTE; MAINTENANCE OF BORROWING BASE;
------------------------------------
PAYMENTS; SERVICING AND COLLECTION
----------------------------------
7.1 In connection with the Receivables Loan:
(i) In no event shall the aggregate principal amount of the
Receivables Loan outstanding at any time exceed the Maximum Receivables
Loan Amount and in the event for any reason the aggregate principal amount
of the Receivables Loan does exceed the Maximum Receivables Loan Amount,
then Borrower upon demand, shall immediately make a principal payment to
Lender in an amount equal to such excess plus accrued and unpaid interest
thereon.
(ii) If for any reason the aggregate principal amount of the
Receivables Loan outstanding as of the last Business Day of any month shall
exceed the then Borrowing Base (Receivables Loan), Borrower, upon demand,
shall immediately make to Lender a principal payment in an amount equal to
such excess plus accrued and unpaid interest thereon.
(iii) The Receivables Loan shall be evidenced by the Receivables
Note and shall be repaid in immediately available funds according to the
terms thereof and such provisions of this Agreement as are applicable.
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<PAGE>
7.2 In connection with the Working Capital Loan:
(i) In no event shall the aggregate principal amount of the
Working Capital Loan outstanding at any time exceed the Maximum Working
Capital Loan Amount and in the event for any reason the aggregate principal
amount of the Working Capital Loan does exceed the Maximum Working Capital
Loan Amount, then Borrower upon demand, shall immediately make a principal
payment to Lender in an amount equal to such excess plus accrued and unpaid
interest thereon.
(ii) If for any reason the aggregate principal amount of the
Working Capital Loan outstanding as of the last Business Day of any month
shall exceed the then Borrowing Base (Working Capital Loan), Borrower, upon
demand, shall immediately make to Lender a principal payment in an amount
equal to such excess plus accrued and unpaid interest thereon.
(iii) The Working Capital Loan shall be evidenced by the Working
Capital Note and shall be repaid in immediately available funds according
to the terms thereof and such provisions of this Agreement as are
applicable.
7.3 Borrower is not entitled to prepay, in whole or in part, the
Receivables Loan until the Opening Prepayment Date. Thereafter, if (i) Borrower
has paid all sums due and payable to Lender in connection with the Receivables
Loan, Working Capital Loan and the Construction Loan, and (ii) Borrower has
given Lender at least 30 days prior written notice of the prepayment and has
paid to Lender at the time of prepayment a prepayment premium equal to a
percentage, as set forth below, of the then principal balance of the Receivables
Loan, then Borrower shall have the option to prepay the Receivables Loan in
full, but not in part, on any date an installment is due on the Receivables
Note:
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<PAGE>
<TABLE>
<CAPTION>
Period Premium
------ -------
<S> <C>
Through the third Anniversary Closed to Prepayment
Date of the Closing Date
After the third Anniversary Date 3%
and through the fourth
Anniversary Date of the Closing
Date
After the fourth Anniversary Date 2%
and through the fifth Anniversary
Date of the Closing Date
After the fifth Anniversary Date 1%
and through the sixth Anniversary
Date of the Closing Date
Thereafter 0%
</TABLE>
If there should occur an acceleration of maturity following an Event
of Default and such occurrence results in prepayment of the Receivables Loan, a
prepayment premium will be required in the amount specified above; or if
occurring prior to the Opening Prepayment Date, Borrower shall pay to Lender
with the prepayment a prepayment premium equal to 5% the then principal balance
of the Receivables Loan being prepaid. A Purchaser shall be permitted to prepay
the amount owed on its Instrument without penalty. There shall be no prepayment
premium payable in connection with the prepayment, in whole or in part, of the
Working Capital Loan. If there should occur a casualty to or condemnation of the
Project and such occurrence results in a prepayment of the Receivables Loan, no
prepayment premium shall be payable in connection with such prepayment.
7.4 (a) Lockbox Agent, as agent for Lender, shall collect
payments on the Eligible Instruments used in making Borrowing Base
computations or otherwise constituting part of the Receivables Collateral
and shall remit them to Lender on the last Business Day of each and every
week according to the terms of the Lockbox Agreement; and Borrower shall
immediately forward all such payments received by it to Lockbox Agent for
Lender. However, the Obligation to make, or any requirement that Lender
receives, payments called for in the Receivables Loan Documents shall not be
deemed satisfied until Lender actually receives such payments from Lockbox
Agent. For the purpose of determining the adequacy of such payments,
Borrower will cause Servicing Agent to furnish to Lender at Borrower's sole
cost
- 26 -
<PAGE>
and expense, no later than the tenth day of each month commencing with the
first full calendar month following the first Advance, a report meeting the
following requirements: (i) shows as of the end of the prior month with
respect to each Eligible Instrument which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables Collateral
(A) all payments received during the prior month on the Eligible
Instrument, allocated as between principal, interest, late charges, taxes,
and the like, (B) the opening and closing balances during the prior month
on each such Eligible Instrument, (C) present value of the cash flow (if
required by Lender) and (D) extensions, refinances, prepayments, and other
similar adjustments; and (ii) itemizes the Eligible Instrument which are
used in making Borrowing Base computations or otherwise constitute part of
the Receivables Collateral to show delinquencies of 30, 60, 90 and in
excess of 90 days. On the basis of such reports, Lender will compute the
amount, if any, which was due and payable by Borrower on the last day of
the preceding month and will notify Borrower as soon as possible of any
amount due. If such reports are not timely received, Lender may reasonably
estimate the amount which was due and payable; and, in such event, Borrower
shall pay upon demand the amount estimated by Lender to be due and payable.
If payment is made on the basis of Lender's estimate, and reports required
by this paragraph are thereafter received by Lender, the estimated payment
amount shall be adjusted by an additional payment or a refund to the
correct amount, as the reports may indicate; such additional amount to be
paid by Borrower upon demand and such refund to be made by Lender within
five Business Days after receipt by gender of a written request therefor by
Borrower. In addition, at each calendar quarter, upon request, Borrower
shall deliver to Lender a current list of the names, addresses and phone
numbers of the Purchasers related to Eligible Instruments.
(b) Subject to the following sentence, FPSI shall act as the
Servicing Agent during the Term. Lender, subject to any restriction
contained in the Services and Fees Agreement, the Servicing Agreement or
the Lockbox Agreement, may at any time and from time to time in its
discretion substitute a successor or successors to any Servicing Agent or
Lockbox Agent acting in such capacity under the Services and Fees
Agreement, the Servicing Agreement and Lockbox Agreement, if the Servicing
Agent or Lockbox Agent is not satisfactorily performing its respective
obligations thereunder. In the event Lender substitutes a successor
Servicing Agent or Lockbox Agent pursuant to the provisions of this
paragraph, Borrower shall have the right to approve the identity of such
successor Servicing Agent or Lockbox Agent; provided that there does not
-------------
then exist an Event of Default or an Incipient Default and further provided
----------------
that Borrower shall not unreasonably withhold or unduly delay its consent.
----
- 27 -
<PAGE>
7.5 Subject to Lender's rights upon the occurrence of an Event of
Default, all proceeds from the Receivables Collateral (except payments which are
identified by Purchasers as tax or maintenance and other assessment payments and
are required to be so treated by Borrower) during the Term hereof shall be
applied first to the payment of all costs, fees and expenses required by the
Receivables Loan Documents to be paid by Borrower, second to accrued and unpaid
interest due on the Receivables Note, third to the unpaid principal balance of
the Receivables Note, and then to the other Obligations arising out of the
Receivables Loan Documents in such order and manner as Lender may determine.
Unless and until all such Obligations have been Performed, Borrower shall have
no right to any portion of the proceeds of the Receivables Collateral.
7.6 Whether or not the proceeds from the Receivables Collateral shall
be sufficient for that purpose, Borrower shall pay when due all payments
required to be made pursuant to the Receivables Note, Working Capital Note and
other Receivables Loan Documents; and any and all amounts payable by Borrower
under the Receivables Note, Working Capital Note and other Receivables Loan
Documents shall be paid without notice (except as otherwise expressly provided
therein), demand, counterclaim, set-off, deduction, recoupment or defense, and
without abatement, suspension, deferment, diminution or proration by reason of
any circumstance or occurrence whatsoever, Borrower's Obligation to make such
payments being absolute and unconditional.
7.7 All payments to be made by Borrower under the Receivables Loan
Documents shall be free of expense to Lender with respect to the amount of any
Impositions, all of which Impositions Borrower assumes and shall pay on demand
in addition to the other payments provided for in the Receivables Loan Documents
to be made by it. Borrower's Obligation to pay Impositions shall likewise
include the Obligation to pay any increase to Lender in federal, state, or local
income tax as a result of inclusion in income of Lender of any amount required
by this paragraph to be paid to or for Lender.
ARTICLE VIII
------------
BORROWER'S ADDITIONAL REPRESENTATIONS,
--------------------------------------
WARRANTIES AND COVENANTS
------------------------
8.1 (a) Borrower is, and will continue to be during the Term
hereof, a limited liability company duly organized, validly existing and in
good standing under the laws of the State of California and is, and will
continue to be during the Term hereof, qualified to do business and in good
standing in each jurisdiction in which it is selling Time-Share Interests
or where the location or nature of its properties or business makes such
qualification necessary (except
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<PAGE>
where failure to do so would not adversely affect Lender's ability to
realize upon the Receivables Collateral or any other security for the
Performance of the Obligations or materially adversely affect the business
or financial condition of Borrower or the ability of Borrower to complete
Performance of the Obligations). Borrower has, and will continue to have,
powers adequate for making and Performing under the Receivables Loan
Documents, for undertaking and Performing the Obligations, and for carrying
on its business and owning its property. AKGI is a corporation duly
organized, validly existing and in good standing under the laws of the
State of California and is, and will continue during the Term hereof,
qualified to do business and in good standing in each jurisdiction where
Borrower is selling Time-Share Interests or where the location or nature of
the properties or business of AKGI make such qualification necessary, to
the extent such qualification is required by such foreign jurisdiction
(except where failure to do so would not adversely affect Lender's ability
to realize upon the Receivables Collateral or any other security for the
Performance of the Obligations or materially adversely affect the business
or financial condition of Borrower or the ability of Borrower to complete
Performance of the Obligations). AKGI is a member of Borrower. KGK is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California and is, and will continue during the Term
hereof, qualified to do business and in good standing in each jurisdiction
where Borrower is selling Time-Share Interests or where the location or
nature of the properties or business of KGK make such qualification
necessary, to the extent such qualification is required by such foreign
jurisdiction (except where failure to do so would not adversely affect
Lender's ability to realize upon the Receivables Collateral or any other
security for the Performance of the Obligations or materially adversely
affect the business or financial condition of Borrower or the ability of
Borrower to complete Performance of the Obligations). KGK is a member of
Borrower.
(b) Borrower has good right and power to grant the Security
Interest in the Receivables Collateral and to execute and deliver this
Agreement and the other Receivables Loan Documents and to Perform the
Obligations. All action necessary and required by Borrower's organization
documents and all applicable laws for the obtaining of the Loan and for the
execution and delivery of this Agreement and all other Receivables Loan
Documents executed and delivered in connection with the Loan has been duly
and effectively taken; and, to the best of Borrower's knowledge, this
Agreement is and shall be, and all other Receivables Loan Documents are and
shall be, legal, valid, binding and enforceable against Borrower in
accordance with their respective terms, other than as such enforceability
may be limited by bankruptcy, insolvency, reorganization, arrangement,
moratorium, or similar laws relating to or affecting the rights of
creditors generally or general principles of equity (except to the extent
that such laws, rights, remedies or principles are waivable by Borrower
- 29 -
<PAGE>
and have been waived in the Receivables Loan Documents). To the best of
Borrower's knowledge, the Receivables Loan Documents do not violate the
Applicable Usury Law or any other usury law known to Borrower. The
execution, delivery and Performance of the provisions of this Agreement and
all the other Receivables Loan Documents will not violate, constitute a
default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any of the properties or assets of Borrower pursuant to
any provision or any law, regulation, judgment, decree, order, franchise or
permit applicable to Borrower; Borrower's charter documents; or any
contract or other agreement or instrument to which Borrower is a party or
by which Borrower or Borrower's properties or assets are bound. No consent
of any government or agency thereof, or any other person, firm or entity
not a party hereto, is or will be required as a condition to the execution,
delivery, Performance or enforceability of the Receivables Loan Documents.
8.2 (a) There is no action, litigation or other proceeding pending
(or, to Borrower's knowledge, threatened) before any arbitration tribunal,
court, governmental agency or administrative body against Borrower which,
if adversely determined, might adversely affect Lender's ability to realize
upon the Receivables Collateral or any other security for the Performance
of the Obligations, or materially adversely affect the Project, the
business or financial condition of Borrower, or the ability of Borrower to
complete Performance of the Obligations; or which questions the validity of
the Receivables Loan Documents.
(b) If Borrower or a Guarantor becomes a party to any action,
litigation or other proceeding which asserts a material claim against
Borrower or a Guarantor, or Borrower becomes the subject of an
investigation by a governmental agency or administrative body with respect
to the Project, then Borrower shall within 10 days after it obtains
knowledge thereof notify Lender of such action, litigation, proceeding or
investigation and the particulars thereof. Thereafter, if requested by
Lender, Borrower shall report to Lender with respect to the status of such
matter and the particulars thereof.
8.3 (a) Borrower has sold or has offered for sale Time-Share Interests
which generate Eligible Instruments only in the State of California and all
sales have been made at the Project or in the private residences of
potential Purchasers. Before it sells or offers for sale Time-Share
Interests outside the State of California, Borrower shall promptly notify
Lender and provide Lender with evidence that Borrower has complied with all
laws of such jurisdiction governing the proposed conduct of Borrower.
- 30 -
<PAGE>
(b) Except for violations which do not individually or in the
aggregate affect Lender's ability to realize upon the Receivables
Collateral or any other security for the Performance of the Obligations or
do not materially adversely affect the business or financial condition of
Borrower or the ability of Borrower to complete Performance of the
Obligations, Borrower has complied, and will comply, with all laws and
regulations of the United States and every state, county and municipal
jurisdiction in which Time-Share Interests have been sold or offered for
sale.
(c) Without limiting the generality of any other representation or
warranty contained herein, Borrower will not violate any private covenant
or restriction or any zoning, use or similar law, ordinance or regulation
affecting the use or occupancy of the Project, the violation of which could
have a material adverse effect on Lender's ability to realize upon the
Receivables Collateral or any other security for the Performance of the
Obligations or materially adversely affect the business or financial
condition of the Borrower or the ability of Borrower to complete
Performance of the Obligations.
8.4 (a) Each Instrument at the time it is assigned to Lender in
connection with the Loan and this Agreement shall be an Eligible
Instrument. At the time such Instrument is assigned to Lender, Borrower
shall have performed all of its obligations to Purchasers, and there shall
be no executory obligations to Purchasers to be Performed by Borrower.
Borrower further warrants and guarantees the value and enforceability of
the Receivables Collateral. The foregoing notwithstanding, Lender
acknowledges that with respect to Instruments against which a Working
Capital Advance has been made, Borrower shall not, at the time of such
Advance, have completed the improvements that the Borrower has represented
will be available to Purchasers.
(b) Borrower shall not, without the prior written consent of
Lender, cancel or materially modify, or consent to or acquiesce in any
material modification to, or solicit the prepayment of, any Eligible
Instrument used in making Borrowing Base computations or which otherwise
constitutes part of the Receivables Collateral; or waive the timely
performance of the obligations of the Purchaser thereunder. Borrower shall
not pay or advance directly or indirectly for the account of any Purchaser
any sum owing by the Purchaser under any of the Eligible Instruments used
in making Borrowing Base computations or which otherwise constitute part of
the Receivables Collateral.
(c) Borrower at all times shall fulfill, and cause its
Affiliates, agents and independent contractors at all times to fulfill, all
obligations to Purchasers under all Eligible Instruments which are used in
making Borrowing Base computations or otherwise constitute part of the
Receivables Collateral.
- 31 -
<PAGE>
(d) True and complete copies of the Project governing
documents, the purchase contract, deed, note, mortgage/deed of trust, the
Instruments, advertising materials and other documents and exhibits thereto
which have been and are being used by Borrower in connection with the
Project and the sale or offering for sale of Time-Share Interests therein
have been delivered to Lender. Such documents are the only ones which have
been used in connection with the Project and the sale of Time-Share
Interests therein. Borrower shall not, without the prior written consent of
Lender, cancel or materially modify any such documents, which consent will
not be unreasonably withheld. Borrower shall Perform all of its obligations
under the Project governing documents.
(e) All off-site roads and other off-site improvements
contained within the Project (other than private easements) will have been
dedicated to and accepted by the responsible governmental authority or
utility prior to the initial Receivables Advance. Borrower shall maintain
or cause to be maintained in good condition and repair all amenities,
common areas and private easements which have been promised or represented
as being available to Purchasers and all off-site roads and off-site
improvements which have not been dedicated to or accepted by the
responsible governmental authority or utility.
(f) Each Purchaser shall automatically be a member of the
Project's owners association or associations, if any, and shall be entitled
to vote on the affairs thereof (subject, however, to any preferential
voting rights in favor of Borrower as permitted under California time-share
laws). Each such owners association shall be governed by a Board of
Directors, which have the authority to fix and levy pro rata upon each
Purchaser annual assessments to cover the costs of maintaining and
operating the Project (including, without limitation, taxes and assessments
not levied by the appropriate taxing authority directly against owners of
Time-Share Interests) and to establish a reasonable reserve for
improvements, the replacement of items and furnishings, and contingencies.
If Borrower controls an owners association, Borrower will while it controls
such association: (i) cause such owners association to (A) discharge timely
and completely its obligations under the Project governing documents and
maintain the reserve described above; and (ii) pay to such owners
association not less often than every twelve months hereafter the
difference between (A) the cumulative total amount of the maintenance and
operating expenses incurred by such association, together with the amount
of any installment of real property taxes currently due and payable with
respect to the Project not directly levied against owners of Time-Share
Interests, through the end of the calendar month preceding the month in
which such payment is made and (B) the cumulative total amount of
assessments (less amounts thereof allocated to reserve expenses)
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<PAGE>
payable to association by Time-Share Interest owners other than Borrower
through the end of the calendar month preceding the month in which such
payment is made.
(g) Except as otherwise permitted by the Project governing
documents, the Project owners association or the owners of Time-Share
Interests in common shall own the furnishings in the Project Units and all
the common areas in the Project and other amenities which have been
promised or represented as being available to Purchasers, free and clear of
liens and security, interests, except for the Permitted Encumbrances and
the Construction Mortgage; and no part of the Project is subject to
partition by owners of Time-Share Interests. Borrower will maintain or
cause to be maintained in good condition and repair all common areas in the
Project and other amenities which have been promised or represented as
being available to Purchasers and which are not the responsibility of the
Project owners association to maintain and repair. Borrower will maintain
or cause the owner's association for the Project to maintain a reasonable
reserve to assure compliance of the terms of the foregoing sentence.
(h) The common areas and amenities and the streets and other off-
site improvements contained within the Project are free and clear of all
liens or other encumbrances of third parties, subject to the Permitted
Encumbrances. Borrower agrees that such common areas, amenities, streets
and other off-site improvements will not, during the Term hereof, be
encumbered.
8.5 LENDER DOES NOT ASSUME AND SHALL HAVE NO RESPONSIBILITY,
OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S RELATIONSHIP BEING SOLELY THAT
OF A CREDITOR WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWED TO IT, A
COLLATERAL ASSIGNMENT FROM BORROWER OF INSTRUMENTS. EXCEPT AS REQUIRED BY LAW,
OR TO THE EXTENT NECESSARY IN ORDER FOR BORROWER TO OBTAIN A PERMIT TO SELL
TIME-SHARE INTERESTS IN A PARTICULAR STATE, BORROWER SHALL NOT, AT ANY TIME,
USE THE NAME OF OR MAKE REFERENCE TO LENDER WITH RESPECT TO THE PROJECT, THE
SALE OF TIME-SHARE INTERESTS OR OTHERWISE, WITHOUT THE EXPRESS WRITTEN CONSENT
OF LENDER.
8.6 Borrower shall undertake the collection of amounts delinquent
under each Eligible Instrument which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables Collateral, shall
bear the entire expense of such collection work, and shall diligently and timely
do such work respecting collection, including forfeiture or foreclosure
proceedings. Lender shall have no
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<PAGE>
obligation to undertake any collection, eviction or foreclosure action against
the obligor under any Eligible Instrument or to otherwise realize upon any
Eligible Instrument.
8.7 Borrower shall maintain in a secure place in its offices at the
address specified below proper and accurate books, records, ledgers,
correspondence and other papers relating to the Receivables Collateral. Lender
may notify the appropriate Purchasers of the existence of Lender's interest as
assignee in the Receivables Collateral and request from such Purchasers any
information relating to the Receivables Collateral. Borrower shall cooperate
with Lender in giving such notice and will do so under its letterhead if
requested. Borrower's chief executive office is as set forth on the signature
page of this Agreement. Borrower will not change its chief executive office
without giving Lender thirty (30) days prior written notice of such contemplated
change. Borrower has not operated under any names or fictitious names other than
Lake Tahoe Resort Partners during the previous six (6) years. Borrower will not
change its name or operate under any fictitious names without first giving
Lender thirty (30) days prior written notice.
8.8 Borrower shall not, without the prior written consent of Lender:
(i) sell, convey, pledge, hypothecate, encumber or otherwise transfer any
security for the Performance of the Obligations; or (ii) permit or suffer to
exist any liens, security interests or other encumbrances on any security for
the Performance of the Obligations, except with respect to either (i) or (ii)
for the Permitted Encumbrances and liens and security interests expressly
granted to Lender.
8.9 Borrower shall obtain before funding, shall maintain during the
Term of the Loan, and shall deliver to Lender evidence of such insurance,
written by such insurers, and in such forms and such amounts, as Lender may
require.
8.10 (a) This Agreement and the other Receivables Loan Documents,
certificates, financial statements and written materials furnished to
Lender by or on behalf of Borrower in connection with the transactions
contemplated herein do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to
Borrower which materially adversely affects or in the future may (so far as
Borrower can now foresee) materially adversely affect the Receivables
Collateral or any other security for the Performance of the Obligations or
the business or financial condition of Borrower or the Project which has
not been set forth in this Agreement or the other Receivables Loan
Documents, certificates, financial statements or written materials
furnished to Lender in connection with the transactions contemplated
herein.
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<PAGE>
(b) The fact that Lender's representatives may have made
certain examinations and inspections or received certain information
pertaining to the Receivables Collateral or the Project and the proposed
operation thereof does not in any way affect or reduce the full scope and
protection of the warranties, representations and Obligations contained
herein, which have induced Lender to enter into this Agreement.
8.11 (a) Borrower shall maintain a standard, modern system of
accounting and shall keep and maintain all books and records in accordance
with generally accepted accounting principles on a consistent basis.
(b) On or before the tenth day of each month, Borrower shall
furnish or cause to be furnished to Lender (i) the reports of the Servicing
Agent and Borrower required pursuant to paragraph 7.4 hereof and (ii) a
-------------
sales report for the prior month showing the number of sales of Time-Share
Interests and the aggregate dollar amount thereof, including down payments.
(c) Borrower shall furnish or cause to be furnished to Lender,
as soon as the same are available, and in any event within 110 days after
the end of each fiscal year and within 45 days after the end of each
interim quarterly fiscal period of the subject, a copy of the current
financial statements of each of Borrower, Guarantor and the Project's
owners association (the "Association"). Such financial statements shall
contain a balance sheet as of the end of the relevant fiscal period and
statements of income and cash flows for such fiscal period (together, in
each case, with the comparable figures for the corresponding period of the
previous fiscal year, if available), all in reasonable detail, prepared in
accordance with generally accepted accounting principles consistently
applied throughout the period involved and with prior periods. All annual
financial statements of Borrower and the Association required pursuant
hereto shall be audited by a certified public accountant, shall be
certified to by said certified public accountant and shall be accompanied
by the accountant's work papers. All annual financial statements of
Guarantor shall be reviewed by a certified public accountant; provided,
---------
however, that upon the giving of written notice by Lender to each of
-------
Borrower and Guarantor, the annual financial statements of Guarantor
thereafter supplied to Lender (commencing with the fiscal year ending at
least 30 days beyond the giving of such notice) shall be audited by a
certified public accountant and shall be certified to by said certified
public accountant and shall be accompanied by the accountant's work papers.
In addition to the foregoing, all financial statements required pursuant
hereto shall be certified correct by the individual who is the subject of
such statements, or the chief financial officer or general partner, as the
case may be, of the subject of such statements. The financial statements of
Borrower shall also contain in reasonable detail a statement of income and
expenses covering the operation of
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<PAGE>
the Project. Together with such financial statements, Borrower shall
deliver to Lender a certificate signed by the chief financial officer or
managing general partner, as the case may be, of Borrower stating that to
the best of his knowledge, after inquiry, there exists no Event of Default
and no condition, event or act which, with notice or lapse of time or both,
would become an Event of Default or, if any such Event of Default or any
such condition, event or act exists, specifying the nature and period of
existence thereof and what action Borrower proposes to take with respect
thereto. Together with such financial statements, Borrower shall also
deliver to Lender a certificate of its chief executive officer certifying
that (other than with respect to matters that are within the scope of the
Chevron Environmental Indemnity or the STRA Environmental Indemnity)
Borrower is in compliance with all Applicable Environmental Laws or in the
event of noncompliance, specifying the nature and period of the existence
of such noncompliance.
(d) Upon request of Lender, Borrower shall deliver to Lender
from time to time, as available, and promptly upon amendment or effective
date, current price lists, sales literature, registrations/consents to
sell, final public reports/public offering statements/prospectuses, and
other items requested by Lender which relate to the Project.
(e) So long as the same shall be pertinent to the Loan, the
Project, the documents or any transactions contemplated therein, Borrower
shall at its expense (i) permit Lender and its representatives at all
reasonable times to inspect, audit and copy, as appropriate, the Project,
Borrower's facilities, activities, books of account, logs and records; (ii)
cause its employees, agents and accountants to give their full cooperation
and assistance in connection with any such visits of inspection or
financial conferences; and (iii) make available such further information
concerning its business and affairs as Lender may from time to time
reasonably request.
(f) Borrower shall annually submit to Lender within 45 days
after each is available proposed annual maintenance and operating budgets
for the Project, certified to be adequate by Borrower and a statement of
the annual assessment to be levied upon the Purchasers.
8.12 Borrower shall cause any and all indebtedness owed by Borrower or
secured by the Project (other than the Permitted Encumbrances and other than the
lien of another construction lender who is financing the construction of
improvements on the Real Property, as contemplated by Paragraph 12.3 of the
--------------
Construction Loan Agreement), to be subordinated to the Obligations pursuant to
subordination agreements satisfactory to Lender in form and substance.
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<PAGE>
8.13 Borrower shall not, without Lender's prior written consent: (i)
(other than the sale of Time-Share Interests in the ordinary course of
Borrower's business or the rental of units in the Project in the ordinary course
of Borrower's business) sell, lease, transfer or dispose of all or substantially
all of its assets to another entity; or (ii) dissolve or liquidate, or merge or
consolidate with or into any other entity, transfer to any person or entity, the
right to control, Borrower or Guarantor, turn over the management or operation
of Borrower or Guarantor to any other person or entity, or permit any of the
foregoing to occur with respect to Borrower or Guarantor. Borrower shall have
the right to retain a third-party management company to manage the operation of
the Project, provided that Lender has first approved the identity of such
management company. Lender approves Embassy Vacation Resorts Suites, Inc. as the
present manager of the Project.
8.14 Borrower is not in default of any payment on account of
indebtedness for borrowed money or of any repurchase obligations in connection
with a receivables purchase financing, or in violation of or in default under
any material term in any agreement, instrument, order, decree or judgment of any
court, arbitration or governmental authority to which it is a part or by which
it is bound.
8.15 Borrower has filed all tax returns and paid all taxes,
assessments, levies and penalties, if any, in respect thereof required to be
filed by it or paid by it to any governmental or quasi-governmental authority.
All real estate taxes and assessments have been paid which are due and owing in
connection with the common areas and the Project and other amenities which have
been promised or represented as being available to Purchasers for use by them.
Borrower shall, upon request of Lender, provide to Lender not more than 30 days
after such taxes and assessments would become delinquent if not paid evidence
that all taxes and assessments on the Project and common areas have been paid in
full.
8.16 Borrower shall pay to Lender on demand all reasonable out-of-
pocket costs and expenses incurred or to be incurred by Lender or its counsel in
connection with the initiation, documentation and closing of the Loan, the
making of Advances hereunder, the administration of the Loan, the protection of
the security for the Performance of the Obligations, or the enforcement of the
Obligations against Borrower or any Guarantor (including, without limitation,
travel costs, all attorneys' fees, any brokerage or similar fees, all filing and
recording fees, all charges for consumer credit reports and UCC, tax lien,
judgment and litigation searches, all revenue and documentary stamp and
intangible taxes, and all fees and expenses of the Servicing Agent and Lockbox
Agent to perform the services contemplated hereunder and under the terms of the
Services and Fees Agreement, the Servicing Agreement and Lockbox Agreement,
respectively). Borrower shall pay to Lender a non-refundable loan fee (the
"Working Capital Loan Fee") in the amount of one percent (1%) of each Working
Capital Advance, which fee was earned by Lender in consideration of Lender
holding
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<PAGE>
itself ready, willing and able to make the Working Capital Loan upon the terms
and conditions set forth herein. The Working Capital Loan Fee in the amount of
one percent (1%) of each Working Capital Advance shall be payable concurrently
with the making of such Working Capital Advance and may be withheld from the
Advance so made. Borrower shall also pay to Lender a nonrefundable loan fee (the
"Receivables Loan Fee") in the amount of Three Hundred Thousand Dollars
($300,000) which fee was earned by Lender in consideration of Lender holding
itself ready, willing and able to make the Receivables Loan upon the terms and
conditions set forth herein. The Ten Thousand Dollars ($10,000) deposit received
by Lender shall be applied against the Receivables Loan Fee. An additional
Ninety Thousand Dollars ($90,000) of the Receivables Loan Fee shall be due
concurrently with the making of the first Receivables Advance and may be
withheld from the Advance so made. An additional Fifty Thousand Dollars
($50,000) of the Receivables Loan Fee shall be due and payable concurrently with
the making of the Receivables Advance which causes the unpaid principal balance
of the Receivables Loan to exceed Ten Million Dollars ($10,000,000) and may be
withheld from the Advance so made. An additional Fifty Thousand Dollars
($50,000) of the Receivables Loan Fee shall be due and payable concurrently with
the making of the Receivables Advance which causes the unpaid principal balance
of the Receivables Loan to exceed Fifteen Million Dollars ($15,000,000) and may
be withheld from the Advance so made. An additional Fifty Thousand Dollars
($50,000) of the Receivables Loan Fee shall be due and payable concurrently with
the making of the Receivables Advance which causes the unpaid principal balance
of the Receivables Loan to exceed Twenty Million Dollars ($20,000,000) and may
be withheld from the Advance so made. An additional Fifty Thousand Dollars
($50,000) of the Receivables Loan Fee shall be due and payable concurrently with
the making of the Receivables Advance which causes the unpaid principal balance
of the Receivables Loan to exceed Twenty Five Million Dollars ($25,000,000) and
may be withheld from the Advance so made. The foregoing notwithstanding, unless
sooner paid, the entire Receivables Loan Fee shall be due and payable in full on
December 31, 1998, regardless of the amount of the then unpaid principal balance
of the Receivables Loan. In the event the Loan does not close on or before the
Closing Date, as such date may be extended by Lender, other than due solely to
the default of Lender; (i) the entire Loan Fee shall nevertheless be deemed
fully earned by Lender in consideration for Lender's holding itself ready and
willing to make the Loan upon the terms and conditions set forth herein and
shall be due and payable upon demand and (ii) Lender shall have no further
obligation to make the Loan or the Construction Loan. The payment of the Loan
Fee is in addition to Borrower's obligation to pay a loan fee under the
Construction Loan Agreement. Lender shall act as custodian for purposes of
holding Eligible Instruments and Borrower shall pay to Lender on demand, a
custodial fee of Ten Dollars ($10.00) for each Eligible Instrument so held by
Lender, exclusive of Eligible Instruments that are substituted for ineligible
Instruments (provided that such custodial fee was paid in connection with such
ineligible Instrument) and exclusive of Instruments that have been canceled by
the Purchaser or the Borrower. Notwithstanding the foregoing, Borrower shall
have the
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<PAGE>
right to select an independent custodian to hold Eligible Instruments on
Lender's behalf and as Lender's agent, so long as (i) Borrower pays all costs
charged by such independent custodian, and (ii) such independent custodian is
approved in advance, in writing by Lender.
8.17 Borrower shall INDEMNIFY, DEFEND AND HOLD HARMLESS, Lender, its
successors, assigns and shareholders (including corporate shareholders), and the
directors, officers, employees, agents and servants of the foregoing, from any
and all losses, costs, expenses (including, without limitation, court costs and
attorneys' fees), demands, claims, suits, proceedings (whether civil or
criminal), orders, judgments, penalties, fines and other sanctions arising from
or brought in connection with (i) the Project, the security for the Performance
of the Obligations, Lender's status by virtue of the Assignments, creation of
Security Interests, the terms of the Receivables Loan Documents or the
transactions related hereto, or any act or omission of Borrower, the Servicing
Agent or the Lockbox Agent, or the employees or agents of any of them, whether
actual or alleged, and (ii) any and all brokers' commissions or finders' fees or
other costs of similar type, or claims by any broker, agent or other party in
connection with this transaction (other than fees claimed owed by a broker,
finder, or other party with whom Lender has a specific agreement). On written
request by anyone covered by the above agreement of indemnity, Borrower shall
undertake, at its own cost and expense, on behalf of such indemnitee, using
counsel satisfactory to the indemnitee, the defense of any legal action or
proceeding to which the indemnitee shall be a party, provided that such action
or proceeding shall result from, or grow or arise out of any of the events set
forth in this paragraph.
8.18 Borrower shall not directly or indirectly invest all or any part
of the proceeds of the Loan in any investment security subject to the margin
requirements of Regulation G of the Board of Governors of the Federal Reserve
System.
8.19 Borrower shall execute or cause to be executed all Receivables
Loan Documents and do or cause to be done all acts necessary for Lender to
perfect and to continue the perfection of the Security Interest of Lender in the
Receivables Collateral or the other security for the Performance of the
Obligations or otherwise to effect the intent and purposes of the Receivables
Loan Documents. Borrower shall prosecute or defend any action involving the
priority, validity or enforceability of the Security Interest granted to lender;
provided that, at Lender's option, Lender may do so at Borrower's expense.
8.20 Borrower is fully familiar with all of the terms and conditions
of the Receivables Loan Documents and is not in default thereunder. No act or
event has occurred which after notice and/or lapse of time would constitute such
a default or an Event of Default.
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<PAGE>
8.21 During the Term, Borrower shall not pay or make any Distributions
to its officers, partners, or any Guarantor or to any relatives or Affiliates
of Borrower, of any Guarantor or of any other of the foregoing. The foregoing
notwithstanding, on the condition that:
(i) There does not then exist an Event of Default or an
Incipient Default; and
(ii) Prior to the incurring of any obligation to make a
Distribution, Borrower has caused the proposed recipient of such
Distribution (the "Affiliated Party") to have entered into an Affiliate
Debt Subordination Agreement pursuant to which the Affiliated Party agrees
(A) that it shall not exercise any rights against Borrower or against any
of the collateral securing the Construction Loan, the Working Capital Loan
or the Receivables Loan unless and until the date that all of the
obligations of Borrower under and with respect to the Construction Loan,
Working Capital Loan and Receivables Loan have been fully paid, performed
and discharged; (B) that any entitlement to a Distribution is and shall be
fully subordinated as to right and time of payment to the payment in full
of the Construction Loan, the Working Capital Loan and the Receivables Loan
and (C) that upon and during the continuance of an Event of Default or an
Incipient Default, no Distributions shall be permitted, made, demanded or
accepted;
the following Distributions shall be permitted:
(x) Such Distribution is made to each of KGK and AKGI, in their
capacity as members of the Borrower, but not to any other members of
Borrower, no more frequently than quarterly in an amount sufficient for the
payment of federal and state income taxes payable by such member with
respect to a tax year of Borrower (a "Tax Year") resulting from the
inclusion in such members' taxable income of the member's share of taxable
income of Borrower for that Tax Year, subject to reasonable assumptions as
to the marginal tax bracket to which the members of Borrower generally are
subject (the "Tax Amount"). Notwithstanding the foregoing, if for any prior
Tax Year of the Borrower, the Borrower had a loss for tax purposes which,
under tax laws then in effect, would offset taxable income (which loss has
not been previously used to offset taxable income in accordance with this
sentence), then for purposes of determining the Tax Amount for the current
Tax Year, the taxable income of the Borrower for the current Tax Year shall
be reduced by the amount of such loss. On or about the fifth (5th) day
prior to each date on which estimated federal income tax payments are
required to be paid by the members of Borrower, Borrower may make a
distribution to the members which, together with prior distributions for
the Tax Year on account of the Tax Amount, shall not exceed
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<PAGE>
the applicable percentage (which shall be 25%, 50%, 75%, and 100% for the first,
second, third and fourth calendar quarters, respectively) of a reasonable
estimate of the Tax Amount. If, at the end of the Tax Year, the aggregate
estimated quarterly distributions exceed the actual Tax Amount for such Tax
Year, future quarterly tax distributions shall cease with respect to the
affected members until such excess amount has been fully recaptured or until the
excess amount has been repaid by the affected members to the Borrower;
(xi) Such Distribution is made in an amount equal to or less than 100%
of the lesser of Borrower's Net Income or Cash Flow, with respect to the period
in which such Distribution is to be made; provided however, that no Distribution
-------- -------
shall be permitted under this clause (xi) until such time as the Incentive Fee,
Working Capital Loan, Construction Loan and all other obligations under the
Construction Loan Documents have been paid in full and until such time as Lender
has no further obligation to make any advances of the Working Capital Loan; and
(xii) Such Distribution is made in an amount necessary to reimburse a
member or Affiliate of Borrower who has made an advance for the benefit of
Borrower to pay Project costs for items and in amounts consistent with the
Construction Budget as approved by Lender. The provisions of this subparagraph
shall not however be used as a basis to return to any member or Affiliate any
Loan Balancing Equity contributed to by such member or Affiliate to 'Borrower
unless and until each of the following conditions have been satisfied: (i) after
taking into account the making of such Distribution, Lender determines, in its
sole discretion, that the remaining undisbursed proceeds of the Construction
Loan, plus the then existing and undisbursed balance of the Loan Balancing
Equity will be sufficient to pay the total cost for completion of the
Improvements (as defined in the Construction Loan Agreement), (ii) the
Distribution is in the amount no greater than the then undisbursed amount of
Loan Balancing Equity and (iii) both before and after taking into account the
making of such Distribution there does not exist an Event of Default or
Incipient Default, including, without limitation, a default by virtue of
Borrower's failure to comply with the net worth covenant in Paragraph 8.22(a)
-----------------
hereof.
8.22 Borrower hereby covenants and agrees as follows during the Term
hereof:
(a) As of the end of each fiscal quarter of Borrower, Borrower
shall maintain a net worth, calculated in accordance with GAAP of at least
$7,500,000. The foregoing covenant shall be tested quarterly beginning with
the quarter year ending December 31, 1996.
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<PAGE>
(b) Marketing Expenses associated with the marketing and sale
of Time-Share Interests shall not exceed 50% of Net Sales, determined
quarterly. The foregoing covenant shall be tested quarterly, commencing
December 31, 1996. Each of the tests conducted as of the end of December
31, 1996 and March 31, 1997 shall cover the period from the Closing Date
through the end of the relevant quarter. Commencing with the test for June
30, 1997, and thereafter throughout the Term hereof, the foregoing covenant
shall be tested quarterly, on a rolling twelve (12) month basis.
(c) Borrower's General and Administrative Expenses shall not
exceed 10% of Net Sales. The foregoing covenant shall be tested quarterly,
commencing December 31, 1996. Each of the tests conducted as of the end of
December 31, 1996 and March 31, 1997 shall cover the period from the
Closing Date through the end of the relevant quarter. Commencing with the
test for June 30, 1997, and thereafter throughout the Term hereof, the
foregoing covenant shall be tested quarterly, on a rolling twelve (12)
month basis.
(d) Borrower shall not permit Delinquencies as of the end of
any three (3) consecutive calendar months during the Term to exceed three
percent (3%) of the aggregate then unpaid principal balance of all Eligible
Instruments against which a Receivables Advance has been made.
(e) Upon request by Lender, Borrower shall provide from time
to time such information as Lender may reasonably require to determining
compliance with the foregoing requirements.
8.23 Until such time as all of the Obligations under and arising out
of the Construction Loan Documents, together with the Working Capital Loan and
the Incentive Fee, excluding the Receivables Loan, have been paid and satisfied
in full, and Lender has no further obligation to make any advances of the
Construction Loan or Working Capital Loan, Borrower shall not, without the prior
written consent of Lender, develop or permit any of its Affiliates to develop a
time-share resort in or around the Lake Tahoe resort area.
8.24 If there occurs a material adverse change in the Project or in
the financial condition of Borrower or any Guarantor or in the Receivables
Collateral or any other security for the Performance of the Obligations, which
change is not enumerated in paragraph 8.22 or 9.1, Borrower will promptly
-------------- ---
provide Lender with assurance that neither the prospect of Performance of the
Obligations nor Lender's security therefore is imperiled. If Borrower fails to
provide Lender with assurance satisfactory to Lender in its reasonable
discretion, such failure will be considered an Event of Default.
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<PAGE>
8.25 As additional consideration to Lender, Borrower shall pay to
Lender an incentive fee (the "Incentive Fee") equal to Two Million Dollars
($2,000,000) with respect to the Time-Share Interests sold by Borrower in the
Project. Such Incentive Fee shall be paid in installments of $161 per Time-Share
Interest, sold (or $81 per Time-Share Interest sold if such Time-Share Interest
is a Biennial Time-Share Interest) until such time as Construction Loan has been
paid in full at a time when Lender has no further obligation to make any
advances of the Construction Loan whereupon the Incentive Fee shall be paid in
installments of $973 per Time-Share Interest sold (or $487 per Time-Share
Interest sold if such Time-Share Interest is a Biennial Time-Share Interest)
until such time as the Incentive Fee has been paid in full. The Incentive Fee
shall be payable in installments as provided above commencing with the first
sale. Notwithstanding anything contained herein to the contrary, the Incentive
Fee is payable in full by Borrower on December 31, 2000. A Time-Share Interest
shall be sold, for purposes of this paragraph 8.25, with respect to those Time-
--------------
Share Interests against which a Working Capital Advance has been made, at such
time as the proceeds of such sale have been released by the Escrow Agent to or
for the benefit of Borrower.
8.26 Lender hereby agrees that it will promptly release from the lien
of the Construction Mortgage, an individual Time-Share Interest which is sold by
Borrower in the ordinary course of business in bona-fide, arm's-length
---------
transactions upon the satisfaction of the following terms and conditions:
(a) Prior to the payment in full of the Construction Loan, and
prior to the termination of Lender's obligations to make advances of the
Construction Loan, the payment to Lender of an interval release payment
equal to the greater of (A) 30% of the gross sales price of such Time-Share
Interest or (B) $5,550 per Time-Share Interest (or $2,775 per Time-Share
Interest sold if such Time-Share Interest is a Biennial Time-Share
Interest), which amount shall be applied as an ordinary principal payment
under the Construction Loan;
(b) Following payment in full of the Construction Loan at a
time when Lender has no further obligation to make advances of the
Construction Loan, the payment to Lender of an interval release payment
equal to $973 per Time-Share Interest (or $487 per Time-Share Interest sold
if such Time-Share Interest is a Biennial Time-Share Interest) (which
amount shall be applied against the Incentive Fee) which payment shall
continue until the Incentive Fee has been paid in full;
(c) No Event of Default or Incipient Default shall have
occurred or be continuing;
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<PAGE>
(d) The purchaser of the Time-Share Interest shall not be an
Affiliate of Borrower;
(e) Lender shall have received a written request for such
release in which Borrower certifies compliance with the items set forth
above and with all other requirements for such release; and
(f) Borrower has paid all of Lender's reasonable out-of-pocket
expenses incurred in connection with such release.
No release of a Time-Share Interest pursuant hereto shall impair or affect
Lender's remaining lien on the balance of the property subject to the
Construction Mortgage or any term or provision of the Receivables Loan Documents
as they pertain to those portions of the property remaining subject to the
Construction Mortgage. Principal payments otherwise made under the Construction
Loan, the Working Capital Loan or the Receivables Loan and interest payable
under any of the foregoing shall not be credited against the interval release
fee.
8.27 Except to the extent set forth in the Disclosure Schedule,
attached to the Environmental Certificate, the Borrower is in compliance in all
material respects with all applicable federal, state or local environmental,
health and safety statutes and regulations. The Borrower has not filed any
notice under any federal or state law indicating past or present treatment,
storage or disposal of a hazardous waste or reporting a spill or release of a
hazardous or toxic waste, substance or constituent, or other substances into the
environment. None of the operations of Borrower are the subject of federal or
state litigation or proceedings involving, or any investigation evaluating
whether any remedial action involving a material expenditure is needed to
respond to, any improper treatment, storage, recycling, disposal or release into
the environment of any hazardous or toxic substance, waste or constituent, or
other substance. The Borrower does not have any material contingent liability in
connection with any improper treatment, storage, recycling, disposal or release
into the environment of any hazardous or toxic substance, waste or constituent.
None of the operations of Borrower are subject to any judicial or administrative
proceeding alleging the violation of any federal, state or local environmental,
health or safety statute or regulation. The Borrower does not transport any
hazardous wastes, substances or constituents.
8.28 Provided that Borrower has not then borrowed the Maximum Loan
Receivables Amount, Borrower shall not, during the Borrowing Term (Receivables
Loan), pledge, assign, or hypothecate any Eligible Instruments arising from
Units constructed with the proceeds of the Construction Loan other than to
Lender; provided that that terms and conditions of the financing of such
Eligible Instruments is reasonably consistent with the terms and conditions set
forth in this Agreement. After the expiration of the Borrowing Term (Receivables
Loan), Lender
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<PAGE>
shall have the right of first negotiation with Borrower in the event Borrower
wishes to accept or seek an offer from a third party to loan moneys to Borrower
in exchange for a pledge, assignment or hypothecation of any Eligible
Instruments arising from Units constructed with the proceeds of the Construction
Loan. In the event Borrower desires to seek or obtain such an offer, Borrower
shall first give Lender written notice to that effect and give Lender the
opportunity, within 10 Business Days thereafter, to issue a financing proposal
to Borrower, before Borrower enters into a binding agreement with such third
party with respect to such financing. Borrower shall have no obligation to
accept any proposal made by Lender with respect to such financing; provided that
if Borrower obtains any such financing from a lender other than Lender, any and
all such lenders providing financing secured by Instruments shall have entered
into an intercreditor agreement with Lender in form and substance reasonably
satisfactory to Lender.
8.29 [RESERVED]
8.30 Within forty-five (45) days following the end of each quarterly
fiscal period of Borrower, Borrower shall deliver to Lender a report, certified
correct to the best of Borrower's knowledge, setting forth the remediation
progress being made under the Chevron Environmental Indemnity and, if
applicable, the STRA Environmental Indemnity and the expected delivery date of a
"No Further Action" letter from the applicable regulatory authorities (if any
such letter is expected or anticipated) with regard to the environmental
contamination on the Real Property, together with copies of reports, laboratory
results and communications with the applicable regulatory authorities concerning
such contamination, to the extent within the possession or control of Borrower.
8.31 Each of the Material Agreements are (i) in full force and effect;
and (ii) have not been modified, amended, altered or changed in any manner
except to the extent that such modifications, amendments, alterations or changes
have been delivered to Lender prior to the date hereof. Any conditions precedent
to STRA's obligation under the DDA, which are required to be satisfied on or
prior to the Closing Date, have been satisfied or waived. Any conditions
precedent to Chevron U.S.A. Inc.'s and Chevron U.S.A. Products Company's
obligation under the Chevron Environmental Indemnity, which are required to be
satisfied on or prior to the Closing Date, have been satisfied or waived. Any
conditions precedent to STRA's obligation under the STRA Environmental
Indemnity, which are required to be satisfied on or prior to the Closing Date,
have been satisfied or waived. Any conditions precedent to City's obligation
under the Development Agreement, which are required to be satisfied on or prior
to the Closing Date, have been satisfied or waived. The Borrower is not in
default under any of the Material Agreements and, to the best of Borrower's
knowledge, none of the other parties to the Material Agreements will be in
default of any of their respective obligations thereunder upon the Borrower's
acquisition of the Real Property. To the
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<PAGE>
best of Borrower's knowledge, STRA will not be in default in the performance of
any its obligations under the Project Documents (as defined in the DDA) upon the
Borrower's acquisition of the Real Property.
8.32 Borrower will keep and perform all of its material obligations to
be kept and performed by it under each of the Material Agreements and will
diligently enforce all material obligations to be kept and performed by each
other party under the Material Agreements. Without the prior written consent of
Lender, Borrower will not modify, amend, alter or change, in any material
respect, any of the Material Agreements or cancel or terminate the Material
Agreements. Borrower will do all things necessary and proper to keep each of the
Material Agreements in effect. Borrower will furnish Lender with copies of all
notices of default given or received by Borrower concurrently with the giving of
the same by Borrower or as soon as reasonably possible following the Borrower's
receipt thereof.
8.33 Borrower shall (i) keep and perform all obligations to be kept
and performed by it under the Dynamic Loan Documents; (ii) not modify, amend,
alter or change the Dynamic Loan Documents in any material respect; (iii) not
incur any indebtedness, which if incurred, would be secured by the Dynamic Loan
Document; and (iv) furnish Lender with copies of all notices given or received
by Borrower under the Dynamic Loan Documents concurrently with the giving of the
same or as soon as is reasonably following Borrower's receipt thereof.
8.34 In the event Borrower enters into a written agreement with Promus
Hotel Corporation or its affiliates (collectively "Promus") pursuant to which
Promus agrees to provide tours to the Project, Borrower shall use its reasonable
efforts to obtain an agreement from Promus that such agreement, to the extent
related to the Project, may be collaterally assigned to Lender as security for
the payment and performance of the Obligations and Borrower shall thereafter so
collaterally assign such agreement to Lender if consent to such assignment is
obtained from Promus.
8.35 All representations and warranties contained in this Agreement
are continuing and shall be deemed to be made and reaffirmed prior to the making
of each Advance under this Agreement.
8.36 The representations, warranties and covenants contained in this
Agreement shall be applicable to and binding upon Borrower during the Term
hereof, notwithstanding the fact that no Advances have yet been made hereunder.
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<PAGE>
ARTICLE IX
----------
DEFAULT
-------
9.1 The occurrence of any of the following events or conditions
shall constitute an Event of Default by Borrower under the Receivables Loan
Documents:
(a) Lender fails to receive from Borrower when due and payable
any amount which Borrower is obligated to pay on the Note or any other
payment due under the Receivables Loan Documents; and such failure shall
continue for seven (7) days, except for the payment of the final
installment due at the Maturity Date, for which no grace period is allowed;
(b) any material representation or warranty of Borrower
contained in the Receivables Loan Documents or in any certificate furnished
under the Receivables Loan Documents proves to be, in any material respect,
false or misleading as of the date deemed made or restated;
(c) there is a default in the Performance of the Obligations
set forth in paragraphs 5.22, 8.8, 8.9, 8.13 or 8.29 hereof or Borrower
---------------------------------------
knowingly violates or suffers or permits the violation of any of the
warranties or conditions of the policies of insurance required under
paragraph 8.9;
-------------
(d) there is a default in the Performance of the Obligations
or a violation of any term, covenant or provision of the Receivables Loan
Documents (other than a default or violation referred to elsewhere in this
paragraph 9.1) and such default or violation continues unremedied (i) for
--------------
a period of five days after the giving of notice thereof to Borrower in the
case of a default or violation which can be cured by the payment of money
alone or (ii) in the case of any other default or violation, for a period
of (A) thirty (30) days after the giving of notice to Borrower, or (B) (in
the event such default is not capable of being cured within such thirty
(30) day period) for a period not exceeding sixty (60) days after the
giving of such notice provided Borrower is diligently and in good faith
pursuing such cure;
(e) an "Event of Default," as defined elsewhere herein or in
any of the other Receivables Loan Documents, occurs, or an act or event
occurs under any of the Receivables Loan Documents, which is not cured
within applicable notice or grace periods, whether or not denominated as an
Event of Default, which expressly entitles Lender to accelerate any of the
Obligations or exercise its other remedies upon the occurrence of an Event
of Default hereunder;
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<PAGE>
(f) any material default by Borrower under any other agreement
evidencing, guaranteeing, or securing borrowed money or a receivables
purchase financing has occurred and there has been an acceleration of such
indebtedness or repurchase obligations, which accelerated repayment or
repurchase obligations are in excess of $100,000 in the aggregate;
(g) any final, non-appealable judgment or decree for money
damages or for a fine or penalty against Borrower which is not paid and
discharged or stayed within 30 days thereafter and, when aggregated with
all other judgment(s) or decree(s) that have remained unpaid and
undischarged or not stayed for such period, the sum of such judgment and
decrees is in excess of $100,000;
(h) any party holding a lien or security interest in the
Receivables Collateral, or any other security for the Performance of the
Obligations or a lien on any common areas or other amenities in the Project
commences foreclosure or similar sale thereof;
(i) (i) Borrower or any Guarantor becomes insolvent or unable
to pay its debts when due; generally fails to pay its debts when due; files
a petition in any bankruptcy, reorganization, winding-up or liquidation
proceeding or other proceeding analogous in purpose or effect relating to
such entity; applies for or consents to the appointment of a receiver,
trustee or other custodian for the bankruptcy, reorganization, winding-up
or liquidation of such entity; makes an assignment for the benefit of
creditors; or admits in writing that it is unable to pay its debts; (ii)
any court order or judgment is entered confirming the bankruptcy or
insolvency of Borrower or any Guarantor or approving any reorganization,
winding-up or liquidation of such entity or a substantial portion of its
assets; (iii) there is instituted against Borrower or any Guarantor any
bankruptcy, reorganization, winding-up or liquidation proceeding or other
proceeding analogous in purpose or effect and the same is not dismissed
within 60 days after the institution thereof, or (iv) a receiver, trustee
or other custodian is appointed with regard to Borrower or any Guarantor,
for any pan of the Receivables Collateral or the Project or for the assets
of Borrower or any Guarantor;
(j) Performance by Borrower or any Guarantor of any material
obligation under any Receivables Loan Document or Guarantee, as the case
may be, is rendered unenforceable in any material respect, or any Guarantor
repudiates, rescinds, limits or annuls its Guarantee;
(k) An Event of Default, as defined in the Construction Loan
Agreement, occurs, or an act or event occurs under any of the Construction
Loan
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<PAGE>
Documents, whether or not denominated as an Event of Default, which
expressly entitles the Lender to exercise its remedies; or
(1) Notwithstanding the limitations in Paragraph 9. l(f),
-----------------
above, the declaration of default with regard to the obligations of the
Borrower under any of the Material Agreements or under the Dynamic Loan
Documents, beyond any applicable cure or grace periods contained therein.
9.2 At any time after an Event of Default has occurred and while it
is continuing, Lender shall have the right to do any one or more of the
following:
(a) cease to make further Advances;
(b) declare each of the Receivables Note and Working Capital
Note, together with prepayment premiums and all other sums owing by
Borrower to Lender in connection with the Receivables Loan Documents,
immediately due and payable without notice, presentment, demand or protest,
which are hereby waived by Borrower;
(c) with respect to the Receivables Collateral, (i) institute
collection actions against all Persons obligated thereon and in default
thereunder; (ii) enter into modification agreements and make extension
agreements with respect to payments and other performances; (iii) release
Persons liable for the payment and performance thereof or the securities
for such payment and performance; and (iv) settle and compromise disputes
with respect to payments and performances claimed due thereon, all without
notice to Borrower, without being called to account therefor by Borrower
and without relieving Borrower from Performance of the Obligations;
(d) in the event Lender has previously agreed that Borrower may
act as Servicing Agent, remove Borrower as Servicing Agent and substitute
as Servicing Agent such other Person as Lender shall designate; and
(e) proceed to protect and enforce its rights and remedies
under this Agreement, the Construction Loan Documents or any other
documents and to foreclose or otherwise realize upon its security for the
Performance of the Obligations, or to exercise any other rights and
remedies available to it at law, in equity or by statute.
The rights and powers granted pursuant to this paragraph are not
intended to limit the rights and powers granted elsewhere herein.
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<PAGE>
9.3 Notwithstanding anything in the Receivables Loan Documents to the
contrary, while an Event of Default exists, any cash received and retained by
Lender in connection with the Receivables Collateral may be applied to payment
of the Obligations in the manner provided in paragraph 9.5 hereof.
-------------
9.4 (a) Pursuant to its rights under paragraph 9.2 hereof,
-------------
following an Event of Default, and subject to the terms and conditions
hereof, Lender may sell, assign and deliver the Receivables Collateral, or
any part thereof, at public or private sale, conducted in a commercially
reasonable manner by an officer, or agent of, or auctioneer or attorney
for, Lender at Lender's place of business or elsewhere, for cash, upon
credit or future delivery, and at such price or prices as Lender shall
reasonably determine, and Lender may be the purchaser of any or all of the
Receivables Collateral so sold. Lender may, in its reasonable discretion,
at any such sale, restrict the prospective bidders or purchasers as to
number, nature of business and investment intention, and, without
limitation, may require that the persons making such purchases represent
and agree to the satisfaction of Lender that they are purchasing the
Receivables Collateral for their account, for investment, and not with a
view to the distribution or resale of any thereof. Lender shall have no
obligation to delay sale of any Receivables Collateral for the period of
time necessary to permit such Receivables Collateral to be registered for
public sale under the Securities Act of 1933, as amended, and any
applicable state securities laws. Private sales made without registration
shall not be deemed to have been made in a commercially unreasonable manner
by virtue of any terms less favorable to the seller resulting from the
private nature of such sales.
(b) Without prejudice to the right of Lender to make such sale
within such shorter period as may be reasonable under the circumstances,
foreclosure sale of all or any part of the Receivables Collateral shall be
deemed held pursuant to reasonable notice if held:
(i) 45 days after notice is given, based upon default
consisting of insolvency, bankruptcy or other default of a nature
which cannot be corrected by Borrower, or default for which no grace
period is specified herein; or
(ii) 60 days after notice of any other act, circumstance or
event which, if uncorrected, after expiration of any applicable grace
period, shall constitute a default hereunder.
Where any notice to Borrower and grace period thereafter is required under
this Agreement, such grace period shall be deducted from the 60 day notice
of foreclosure sale specified in item (ii) above, so that the maximum
period
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<PAGE>
between notice to Borrower of any act, circumstance or event which, if
uncorrected after elapse of any applicable grace period, would constitute
an Event of Default and the foreclosure sale of the Receivables Collateral
based upon such Event of Default shall in no event be required to exceed 60
days.
(c) At any sale following an Event of Default, the Receivables
Collateral may be sold as an entirety or in partial interests. Lender shall
not be obligated to make any sale pursuant to any notice previously given.
In case of any sale of all or any part of the Receivables Collateral on
credit or for future delivery, the Receivables Collateral so sold may be
retained by Lender until the selling price is paid by the purchaser
thereof, but Lender shall not incur any liability in case of the failure of
such purchaser to take up and pay for the collateral so sold; and in case
of any such failure, such Receivables Collateral may again be sold under
and pursuant to and in compliance with the provisions hereof.
(d) In connection with sales made following an Event of
Default, Lender may, in the name and stead of Borrower or in its own name,
make and execute all conveyances, assignments and transfers of the
Receivables Collateral sold pursuant to this Agreement; and Lender is
hereby appointed Borrower's attorney-in-fact for this purpose.
Nevertheless, Borrower will, if so requested by Lender, ratify and confirm
any sale or sales by executing and delivering to Lender, or to such
purchaser or purchasers, all such instruments as may, in the judgment of
Lender, be advisable for that purpose.
(e) The receipt by Lender of the purchase money paid at any
sale made following an Event of Default shall be a sufficient discharge
therefor to any purchaser of the Receivables Collateral or any portion
thereof, and no such purchaser, after paying such purchase money and
receiving such receipt, shall be bound to see to the application of such
purchase money or any part thereof or in any manner whatsoever be
answerable for any loss, misapplication or nonapplication of any such
purchase money, or any part thereof, or be bound to inquire as to the
authorization, necessity, expediency or regularity of any such
sale.
(f) Each purchaser at any sale following an Event of Default
shall hold the Receivables Collateral so sold absolutely free from every
claim or right of Borrower, including, without limitation, any equity or
right of redemption of Borrower, which Borrower hereby specifically waives
to the extent Borrower may lawfully do so. Lender, its employees and agents
shall after such sale be fully discharged from any liability or
responsibility in any matter relating to the Receivables Collateral and
such other security that is sold
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<PAGE>
and resulting from any action or inaction on the part of such purchaser or
any successor-in-interest of such purchaser.
9.5 The proceeds of any sale of all or any part of the Receivables
Collateral shall be applied in the following order or priorities: first, to the
payment of all reasonable costs and expenses of such sale, including, without
limitation, reasonable compensation to Lender and its agents, attorneys' fees,
and all other reasonable expenses, liabilities and advances incurred or made by
Lender, its agents and attorneys, in connection with such sale, and any other
unreimbursed expenses for which Lender may be reimbursed pursuant to the
Receivables Loan Documents; second, to the payment of the Obligations, in such
order and manner as Lender shall in its discretion determine, with no amounts
applied to payment of principal until all interest has been paid; and third, to
the payment to Borrower, its successors or assigns, or to whomsoever may be
lawfully entitled to receive the same, or as a court of competent jurisdiction
may direct, of any surplus then remaining from such proceeds.
9.6 Lender may, at its option, and without any obligation to do so,
pay, perform and discharge any and all amounts, costs, expenses and liabilities
herein agreed to be paid or performed by Borrower if Borrower fails to do so
within 7 days following the giving of written notice of such failure; and for
such purposes Lender may use the proceeds of the Receivables Collateral and is
hereby appointed Borrower's attorney-in-fact. All amounts expended by Lender in
so doing or in exercising its remedies hereunder following an Event of Default
shall become part of the Obligations secured hereby, shall be immediately due
and payable by Borrower to Lender upon demand therefor, and shall bear interest
at the Overdue Rate from the dates of such expenditures until paid. Exercise by
Lender of its option under this paragraph will not cure any default of Borrower.
9.7 No remedy herein or in any other Receivables Loan Document
conferred on or reserved to Lender is intended to be exclusive of any other
remedy or remedies, but each and every such remedy shall be cumulative and shall
be in addition to every other remedy given hereunder, under any other
Receivables Loan Document or now or hereafter existing at law or in equity.
Notwithstanding anything herein to the contrary, in any non-judicial, public or
private sale or sales under the Uniform Commercial Code or in any judicial
foreclosure and sale of the Receivables Collateral, the Receivables Collateral
may be sold in any manner whatsoever not prohibited by law. No delay or omission
to exercise any right or power shall be construed to be a waiver of any default
or acquiescence therein or a waiver of any right or power; and every such right
and power may be exercised from time to time and as often as may be deemed
expedient. Lender's acceptance of any performance due hereunder which does not
comply strictly with the terms hereof shall not be deemed to be a waiver of any
right of Lender to strict Performance by Borrower. Acceptance of past due
amounts or partial payments shall not constitute a waiver of full and timely
payment of the Obligations.
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<PAGE>
No Event of Default, declaration of the unpaid principal of the Loan to be
immediately due and payable or exercise of any other right to remedy upon
default shall stay, waive, or otherwise affect Lender's right to receive
payments on and other proceeds of the Receivables Collateral.
9.8 Borrower, for itself and for all who may claim through or under
it, hereby expressly waives and releases all right to have the Receivables
Collateral or any other security for the Performance of the Obligations, or any
part thereof, marshalled on any foreclosure, sale or other enforcement hereof.
9.9 While an Event of Default exists, Borrower shall, on the request
of Lender, assemble the Receivables Collateral not already in Lender's
possession and make it available to Lender at a time and place reasonably
convenient to Lender.
9.10 In the event that Borrower at any time fails to do or perform
any act, or pay any amount, or take any action, when such performance, payment
or action is required hereunder (and, if applicable, following the lapse of any
grace or compliance period in which such payment, performance or action may be
taken by Borrower hereunder), then Lender may make such payment or cause such
performance or action to be taken, and all amounts expended by Lender in making
such payment or causing such performance or action to be taken, together with
all expenses incurred by Lender in connection therewith shall be immediately due
and payable by Borrower to Lender, the payment performance of which shall be an
Obligation hereunder, and shall be secured by the Receivables Collateral. All
such amounts expended by Lender in making such payment or causing such
performance or action to be taken, together with all expenses incurred by Lender
in connection therewith, shall bear interest at the Overdue Rate from the date
incurred by Lender until paid.
ARTICLE X
---------
POWER OF ATTORNEY
-----------------
For the purpose of enabling Lender to protect and preserve its
Security Interest in the Receivables Collateral and its rights and remedies
under this Agreement and the Receivables Loan Documents, Borrower does hereby
constitute and appoint Lender, and its successors and assigns, to be Borrower's
true and lawful attorney-in-fact upon the occurrence of an Event of Default, and
during the continuance thereof, to perform any act, take any action, execute and
sign any document, statement, instrument or other writing, and to do and perform
any and all deeds and things in the name, place, and stead of Borrower, which
Lender in its discretion shall determine necessary or required to protect and
preserve its Security Interest in the Receivables Collateral and its rights and
remedies under this Agreement and the Receivables Loan Documents, or
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<PAGE>
which Borrower is required or obligated to perform under the terms of this
Agreement or the Receivables Loan Documents.
ARTICLE XI
----------
CONSTRUCTION AND GENERAL RULES
------------------------------
11.1 All moneys payable hereunder or under the Receivables Loan
Documents shall be paid to Lender at its address set forth below.
11.2 This Agreement and the other Receivables Loan Documents
exclusively and completely state the rights and obligations of Lender and
Borrower with respect to the Loan. No modification, termination, variation,
discharge or abandonment hereof and no waiver of any of the provisions or
conditions shall be valid unless in writing and signed by duly authorized
representatives of Lender and Borrower or the successor, transfers or assigns of
either, subject, however, to the limitations on assignment herein by Borrower.
This Agreement supersedes any and all prior agreements or understandings,
written or oral, between Borrower and Lender (other than in the other
Receivables Loan Documents) concerning this transaction.
11.3 The powers and agency hereby granted by Borrower are coupled with
an interest and are irrevocable and are granted as cumulative to the remedies
for collection of the indebtedness secured hereby provided by law.
11.4 This Agreement may be executed simultaneously in any number of
identical copies each of which shall constitute an original for all purposes.
11.5 Any notice required or permitted to be given hereunder shall be
in writing and shall be (i) personally delivered to the party being notified if
an individual or to an officer, general partner or member if a corporation,
partnership or limited liability company, or (ii) transmitted by postage
prepaid, certified or registered mail (return receipt requested) to such party
at its address after its signature on the signature page hereof or such other
address as the party being notified may have otherwise designated in a notice
given as provided in this paragraph. Such notice shall be deemed to be given and
effective, unless actual receipt is expressly elsewhere specified herein, upon
the date of receipt or the date delivery is first attempted and refused if
transmitted by registered or certified mail, whichever shall first occur. A copy
of any notices given to Borrower shall also be given to:
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<PAGE>
Leo Rose III, Esq.
Schreeder, Wheeler & Flint
The Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
11.6 All the covenants, promises, stipulations and agreements of
Borrower and all the rights and remedies of the Lender in this Agreement
contained shall bind Borrower, and, subject to the restrictions on merger,
consolidation and assignment herein contained, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights herein in whole or in part.
Except as may be expressly provided herein, no person or other entity shall be
deemed a third party beneficiary of this Agreement.
11.7 Subject to the provisions of Article IX hereof, if any one or
----------
more of the provisions contained in this Agreement shall be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
11.8 Time is of the essence in the Performance of the Obligations.
11.9 All headings are inserted for convenience only and shall not
affect any construction or interpretation of this Agreement. The provisions of
this Agreement shall apply to the parties according to the context hereof and
without regard to the number or gender of words and expressions used herein.
Unless otherwise indicated, all references herein to clauses and other
subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of this Agreement; the words "herein", "hereof", "hereto",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular paragraph, clause or other subdivision hereof, and
reference to a numbered or lettered subdivision of an Article, or paragraph
shall include relevant matter within the Article or paragraph which is
applicable to but not within such numbered or lettered subdivision.
11.10 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO
THE LAWS OF THE STATE OF ARIZONA. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THE
RECEIVABLES LOAN DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT OF ARIZONA,
MARICOPA COUNTY DIVISION, OR
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<PAGE>
THE UNITED STATES DISTRICT COURT OF ARIZONA OR, IF LENDER INITIATES SUCH ACTION,
IN ADDITION TO THE FOREGOING COURTS, ANY COURT IN WHICH LENDER SHALL INITIATE
SUCH ACTION, TO THE EXTENT SUCH COURT HAS JURISDICTION. BORROWER HEREBY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN,
AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS
TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THIS AGREEMENT. BORROWER WAIVES ANY
CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM
OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD BORROWER, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO
SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF,
BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED
BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT,
PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET FORTH IN THIS
PARAGRAPH SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER OF ANY
JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING BY LENDER OF ANY ACTION TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND BORROWER HEREBY
WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION. LENDER AND
BORROWER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF
THE RECEIVABLES LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
THEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE
PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
Initial /s/ illeg.
---------
Initial /s/ illeg.
---------
11.11 It is the intent of the parties hereto to comply with the
Applicable Usury Law. Accordingly, notwithstanding any provisions to the
contrary in this Agreement or in any of the other Receivables Loan Documents in
no event shall this
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<PAGE>
Agreement or the Receivables Loan Documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law. If (i) any such excess of interest otherwise would be
contracted for, charged or received from Borrower or otherwise in connection
with the Obligations or (ii) the maturity of the Obligations is accelerated in
whole or in part, or (iii) all or part of the principal or interest of the
Obligations shall be prepaid, so that under any of such circumstances the amount
of interest contracted for, charged or received in connection with the
Obligations would exceed the maximum contract rate permitted by the Applicable
Usury Law, then in any such event (A) the provisions of this paragraph shall
govern and control, (B) neither Borrower nor any other person or entity now or
hereafter liable for the payment hereof will be obligated to pay the amount of
such interest to the extent that it is in excess of the maximum contract rate
permitted by the Applicable Usury Law, (C) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount of the Obligations of Borrower or refunded to Borrower, at Lender's
option, and (D) the effective rate of interest will be automatically reduced to
the maximum contract rate permitted by the Applicable Usury Law. Without
limiting the generality of the foregoing, to the extent permitted by the
Applicable Usury Law: (x) all calculations of the rate of interest which are
made for the purpose of determining whether such rate would exceed the maximum
contract rate permitted by the Applicable Usury Law shall be made by amortizing,
prorating, allocating and spreading during the period of the full stated term of
the Obligations, all interest at any time contracted for, charged or received
from Borrower or otherwise in connection with the Obligations; and (y) in the
event that the effective rate of interest on the Obligations should at any time
exceed the maximum contract rate permitted by the Applicable Usury Law, such
excess interest that would otherwise have been collected had there been no
ceiling imposed by the Applicable Usury Law shall be paid to Lender from time to
time, if and when the effective interest rate on the Obligations otherwise falls
below the maximum contract rate permitted by the Applicable Usury Law, to the
extent that interest paid to the date of calculation does not exceed the maximum
contract rate permitted by the Applicable Usury Law, until the entire amount of
interest which would have otherwise been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all the Obligations
regardless of when incurred; but, again to the extent not prohibited by the
Applicable Usury Law, should the maximum contract rate permitted by the
Applicable Usury Law be decreased because of a change in the law, such decreases
shall not apply to the Obligations regardless if resulting from an advance of
the Loan made after the effective date of such decrease.
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<PAGE>
ARTICLE XII
-----------
SPECIAL PROVISIONS
------------------
12.1 Lender covenants and agrees that, notwithstanding anything to the
contrary herein or in any other Receivables Loan Document, during the Term
hereof it shall take no action to disturb Purchasers in their use and possession
of their Time-Share Interests or otherwise to impair the rights and privileges
of such Purchasers under their Time-Share Interests or the governing documents
of the Project so long as such Purchasers are fulfilling their obligations under
their respective Instruments.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by Persons duly authorized on the day and year first above written.
"Lender"
FINOVA CAPITAL CORPORATION, a Delaware corporation
By /s/ JACK FIELDS, III
-----------------------------------
Vice President
JACK FIELDS, III
GROUP VICE PRESIDENT
Address:
7272 East Indian School Road
Suite 410
Scottsdale, Arizona 85251
Attention: Vice-President-Resort Finance
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<PAGE>
With a copy to:
7272 East Indian School Road
Suite 410
Scottsdale, Arizona 85251
Attention: Vice-President-Group Counsel
[X] Check here to confirm that Paragraph 11.10
has been initialed.
"Borrower"
LAKE TAHOE RESORTS PARTNERS, LLC
a California limited liability company
By: AKGI Lake Tahoe Investments, Inc.
a California corporation
Its Members
By: /s/ [unreadable signature]
---------------------------------
Name:
Its:
Address:
c/o Argosy/KOAR Group, Inc.
911 Wilshire Boulevard
Suite 2250
Los Angeles, California 90017
[X] Check here to confirm that Paragraph 11.10
has been initialed.
- 59 -
<PAGE>
EXHIBIT 10.8.8
CONSTRUCTION LOAN AGREEMENT
between
LAKE TAHOE RESORT PARTNERS, LLC
and
FINOVA CAPITAL CORPORATION
DATED AS OF APRIL 29, 1996
<PAGE>
CONSTRUCTION LOAN AGREEMENT
---------------------------
BY THIS AGREEMENT made and entered into as of the 29th day of April,
1996 by LAKE TAHOE RESORT PARTNERS, LLC, whose address is 911 Wilshire
Boulevard, Suite 2250, Los Angeles, California 90017 (hereinafter called
"Borrower"), and FINOVA CAPITAL CORPORATION, a Delaware corporation, whose
address is 7272 East Indian School Road, Suite 410, Scottsdale, Arizona 85251,
Attention: Vice President - Resort Finance, with a copy to 7272 East Indian
School Road, Suite 410, Scottsdale, Arizona, 85251, Attention: Vice President -
Group Counsel (hereinafter called "Lender"), for and in consideration of the
recitals and mutual promises contained herein, confirm and agree as follows:
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower has applied to Lender for a revolving construction
loan in the amount of TWENTY EIGHT MILLION DOLLARS ($28,000,000) (the
"Construction Loan") for the purpose of constructing certain improvements (the
"Improvements"), according to final drawings, plans and specifications approved
by Lender (the "Plans and Specifications") on the Real Property (the "Real
Property"). The Improvements are to consist of 146 time-share units and related
amenities, such as, without limitation, beach front, restaurant, indoor/outdoor
swimming pool, spa, sauna, exercise room, convenience store and video arcade;
and.
WHEREAS, concurrently herewith, Borrower has executed and delivered to
Lender a Loan and Security Agreement, of even date herewith ("Receivables Loan
Agreement"), pursuant to which the Borrower has agreed, under the terms and
conditions set forth therein, to pledge to Lender certain receivables and other
collateral arising from the sale of certain ownership interests in the Real
Property and, in exchange therefor, Lender has agreed, under the terms and
conditions set forth therein, to make a revolving line of credit loan to
Borrower in the maximum amount of THIRTY MILLION DOLLARS ($30,000,000) (the
"Receivables Loan"). The proceeds of the Receivables Loan will be used, in part,
to pay and satisfy principal and interest due under the Construction Loan and
the Working Capital Loan.
WHEREAS, further pursuant to the Receivables Loan Agreement, Lender
has agreed, under the terms and conditions set forth therein, to make a
revolving working capital line of credit loan to Borrower in the maximum amount
of FOUR MILLION DOLLARS ($4,000,000) ("Working Capital Loan").
NOW, THEREFORE, for good and valuable consideration, the receipt
<PAGE>
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
-----------
Except where the context clearly requires a different interpretation,
all capitalized terms used in this Agreement shall have the following meaning:
"24-Unit Parcel" shall mean that parcel of real property located
on the southwest corner of U.S. Highway No. 50 and Ski Run Boulevard, in
South Lake Tahoe, California, more fully described on the attached Exhibit
-------
"A".
---
"186-Unit Parcel" shall mean that parcel of real property located
on the northeast corner of U.S. Highway No. 50 and Ski Run Boulevard, in
South Lake Tahoe, California, more fully described on the attached Exhibit
-------
"B".
---
"Advance" or "Advances" shall mean an advance of the Construction
Loan.
"Affiliate" shall mean any Person directly or indirectly
Controlling, Controlled by or under common Control with the Person to whom
the definition is applied, including blood relatives or spouse of the
Person to whom the definition applies, if such Person is a natural person.
Controlled, Control or Controlling, for purposes of the foregoing shall
mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of another Person by any
means.
"Affiliate Debt Subordination Agreement" shall have the meaning
set forth in Paragraph 10.8.1 hereof.
----------------
"Affiliate Indebtedness" shall have the meaning set forth in
Paragraph 6.3(q) hereof.
----------------
"Affiliated Party" shall have the meaning set forth in Paragraph
---------
10.8.1 hereof.
------
"AKGI" shall mean AKGI Lake Tahoe Investments, Inc., a California
corporation.
"Annexable Parcel" shall mean that parcel of real property
located on the southwest corner of U.S. Highway No. 50 and Ski Run
Boulevard, in South Lake Tahoe, California, more fully described on the
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<PAGE>
attached Exhibit "C".
-----------
"Applicable Environmental Laws" shall have the meaning set forth
in the Environmental Certificate.
"Applicable Usury Law" the usury law applicable pursuant to the
terms of Paragraph 15.8 hereof or such other usury law which is applicable
--------------
if the law chosen by the parties in Paragraph 15.8 hereof is not
--------------
applicable.
"Approvals" shall mean any licenses, permits, consents, approvals
or authorizations.
"Assignments" shall mean, individually and collectively, (i) that
certain Collateral Assignment of Plans and Specifications and Rights under
Architectural Contract of even date herewith, in a form acceptable to
Lender, executed by Borrower in favor of Lender pursuant to which Borrower
collaterally assigns to Lender, as security for the payment and performance
of all of the Obligations, all of the Borrower's rights under the
architectural agreement with respect to the construction of the
Improvements, together with the Plans and Specifications and all
engineering contracts and engineering specifications related thereto; (ii)
that certain Collateral Assignment, Security Agreement and Account
Agreement (re Escrow Account), in a form acceptable to Lender, pursuant to
which Borrower collaterally assigns to Lender, as security for the payment
and performance of the Obligations, all of Borrower's rights in the Escrow
(as defined in the Receivables Loan Agreement) and the agreement under
which the Escrow is maintained, which Assignment shall be executed prior to
the making of the first advance of the Working Capital Loan; (iii) that
certain Collateral Assignment of Rights under Construction Contract and
Guarantee Agreement of even date herewith, in a form acceptable to Lender,
executed by Borrower in favor of Lender pursuant to which Borrower
collaterally assigns to Lender, as security for the payment and performance
of all of the Obligations, all of Borrower's rights under the Construction
Contract with the General Contractor and under the Guarantee Agreement with
the General Contractor's corporate parent; (iv) that certain Collateral
Assignment of Engineering Specifications and Rights under Engineering
Services Contract of even date herewith, in a form acceptable to Lender,
executed by Borrower in favor of Lender pursuant to which Borrower
collaterally assigns to Lender as security for the payment and performance
of all of the Obligations, all of Borrower's rights under the Engineering
Services Contract with respect to the construction of the Improvements
together with the engineering plans and specifications related thereto; (v)
that certain Collateral Assignment of Material Contracts of even date
herewith, in a form acceptable to Lender, executed by Borrower in favor of
Lender, pursuant to which Borrower collaterally assigns
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<PAGE>
to Lender, as security for payment and performance of all the Obligations,
all of Borrower's rights under the Material Agreements and the other
agreements referenced therein; (vi) that certain Collateral Assignment of
Project Rights and Documents, of even date herewith, in a form acceptable
to Lender, executed by Borrower in favor of Lender pursuant to which
Borrower collaterally assigns to Lender, as security for the payment and
performance of the Obligations, all of Borrower's rights in certain project
rights and documents more fully described therein; and (viii) that certain
Collateral Assignment of Management Agreement, of even date herewith, in a
form acceptable to Lender, executed by Resort Management International,
Inc. in favor of Lender pursuant to which Resort Management International,
Inc. collaterally assigns to Lender, as security for the payment and
performance of all of the Obligations, all of Resort Management
International, Inc.'s rights under the its management agreement with
Borrower.
"Association" shall mean the owner's association formed in
connection with Real Property.
"Business Day" shall mean a calendar day other than a Saturday,
Sunday or other day on which banks in Phoenix, Arizona or New York, New
York are required to close.
"Capital Expenditure" shall mean payments that are made by the
Borrower for the lease, purchase, improvement, construction or use of any
Property, the value of which under GAAP is required to be capitalized and
shall include, without limitation, payments for the installment purchase of
Property and payments under capitalized leases.
"Cash Flow" shall mean, for any period, the net income or loss of
Borrower, determined in accordance with GAAP (excluding the effect of any
extraordinary gains or losses from the sale of property not in the ordinary
course of business), plus each of the following items to the extent
----
deducted from the revenues of Borrower in calculating the net income: (A)
depreciation; (B) amortization; and (C) interest and taxes during such
period, and less Capital Expenditures to the extent paid in such period.
----
"Chevron Easement" shall mean an easement executed by STRA in
favor of Borrower granting to Borrower, and its successors and assigns, a
perpetual easement over the parcel of real property located on the
northeast corner of U.S. Highway No. 50 and Ski Run Boulevard, in South
Lake Tahoe, California, more fully described in the attached Exhibit "D".
-----------
"Chevron Environmental Indemnity" shall mean certain
-4-
<PAGE>
Environmental Agreement (Ski Run Site) dated as of July, 1995, by and among
Chevron U.S.A. Products Company, a division of Chevron U.S.A., Inc.; STRA;
Richard K. Diamond, as Chapter 11 trustee of E1 Dorado Improvement
Corporation and Argosy/KOAR Group, Inc. a Georgia corporation, Argosy/KOAR
Group, Inc.'s interest in which was assigned to Lake Tahoe Resort Partners,
L.P. on November 14, 1995, pursuant to Assignment and Assumption of
Environmental Agreement (Ski Run Site), and Lake Tahoe Resort Partners
L.P.'s interest in which was assigned to Borrower on March 1, 1996 pursuant
to that certain Assignment and Assumption of Environmental Agreement (Ski
Run Site).
"City" shall mean the City of South Lake Tahoe, California a
California municipal corporation.
"Closing Date" shall mean April 29, 1996.
"Collateral" shall mean the Property upon which Lender is
granted a mortgage, deed of trust, pledge, assignment, lien, charge,
encumbrance or security interest of any kind, pursuant to the Security
Documents.
"Completion" or "Completed" or "Complete" when referring to
the Improvements (or to the Improvements within a particular Phase if the
contexts to requires), shall mean the day each of the following has
occurred: (i) Borrower has received a final and unconditional certificate
of occupancy, as to the structures constituting the Improvements (or the
Improvements within a particular Phase if the context so requires), and an
unconditional acceptance as to the balance of the Improvements (or the
Improvements within a particular Phase if the context so requires), issued
by the political subdivision authorized to issue same; (ii) Borrower has
received all Approvals required in order to permit Borrower to sell Time-
Share Interest and operate the Real Property as a time-share resort
(including, without limitation, a Public Report issued by the California
Department of Real Estate, containing such conditions as are acceptable to
Lender), (iii) Borrower has received complete "as built" plans and
specifications; (iv) Lender has received certificates of substantial
completion from Borrower's architect, with respect to all of the
Improvements (or with respect to the Improvements within a particular Phase
if the context so requires) to be constructed pursuant to the Plans and
Specifications, which certificates of substantial completion have been
approved by Lender's Inspector and indicate that all material "punchlist"
items have been completed; and (v) Borrower supplies Lender, upon request,
with evidence satisfactory to Lender that Borrower has acquired from STRA a
sufficient number of Sewer Units and TAUs as are necessary in order for
Borrower to obtain a certificate of
-5-
<PAGE>
occupancy with respect to such Completed Phase.
"Construction Budget" shall mean an AIA form construction
budget and projected monthly funding schedule with respect to the
construction of the Improvements as approved by Lender. A separate
Construction Budget shall be supplied with respect to each Phase. The
Construction Budget shall be supported by firm contracts or purchase
orders, must contain and detail all "soft" costs, and all costs for
furniture, fixtures and equipment. Lender must be satisfied that any
amounts budgeted for "construction overhead," if any, does not represent a
developer fee of any kind, except to the extent clearly disclosed in the
Construction Budget, as approved by Lender. The Construction Budget shall
include an interest reserve (the "Interest Reserve") in the amount of
$1,000,000 with respect to Phase I, in the amount of $500,000, with respect
to Phase II and in the amount of $200,000, with respect to Phase III. The
Construction Budget shall also include a contingency reserve (the
"Contingency Reserve") in the amount of $750,000 with respect to Phase I,
in the amount of $375,000 with respect to Phase II and in the amount of
$245,000 with respect to Phase III. Any Contingency Reserve that is not
used with regard to a particular Phase shall be available for use in
subsequent Phases. The Construction Budget shall not include any fees or
other amount payable to Borrower or its Affiliates, except to the extent
clearly disclosed in the Construction Budget, as approved by Lender. The
Construction Budget shall be accompanied by a final itemized breakdown of
the cost to (i) construct the Improvements, and (ii) acquire the furniture,
fixtures and equipment to be contained within the Improvements indicating
that the Construction Loan will be sufficient to pay for the construction
of the Improvements and acquisition of the furniture, fixtures and
equipment.
"Construction Loan" shall have the meaning set forth in the
Recitals hereof.
"Construction Loan Documents" shall mean this Agreement, the
Construction Note, the Security Documents, the Environmental Certificate,
the Affiliate Debt Subordination Agreement, the Guarantee, and each and
every other document, instrument or writing executed or delivered by
Borrower in connection with the Construction Loan, as the same are
hereafter amended, renewed, replaced or restated.
"Construction Note" shall mean that certain Construction
Promissory Note, of even date herewith, in the amount of $28,000,000, in a
form acceptable to Lender.
"Contingency Reserve" is defined within the definition of
-6-
<PAGE>
Construction Budget.
"DDA" shall mean that certain First Amended Ski Run Project
Disposition and Development Agreement by and between STRA and Argosy/KOAR
Group, Inc., a Georgia corporation, dated as of August 4, 1995; as amended
by that certain First Addendum to First Amended Ski Run Project Disposition
and Development Agreement dated as of October, 1995 between STRA and
Argosy/KOAR, Inc., as further amended by the STRA Environmental Indemnity;
as further amended by the First Amended Ski Run Project Disposition and
Development Agreement, Operating Memorandum No. 2 dated as of April 26,
1996; and as further amended by the First Amended Ski Run Project
Disposition and Development Agreement, Operating Memorandum No. 3 dated as
of April 26, 1996, Argosy/KOAR Group, Inc.'s interest in which was assigned
to Lake Tahoe Resort Partners, L.P. on November 14, 1995, pursuant to that
certain Assignment and Assumption of First Amended Ski Run Project
Disposition and Development Agreement, and Lake Tahoe Resort Partners,
L.P.'s interest in which was assigned to Borrower on March 1, 1996
pursuant to that certain Assignment and Assumption of First Amended Ski
Run Project Disposition and Development Agreement.
"Development Agreement" shall mean that certain Ski Run Project
Development Agreement by and between the City and Argosy/KOAR Group, Inc.,
dated as of November 21, 1995, as amended by that certain Ski Run Project
Development Agreement, Operating Memorandum No. A dated as of April 26,
1996, Argosy/KOAR Group, Inc.'s interest in which was assigned to Lake
Tahoe Resort Partners, L.P. on November 14, 1995 pursuant to that certain
Assignment and Assumption of Development Agreement, and Lake Tahoe Resort
Partners, L.P.'s interest in which was assigned to Borrower on March 1,
1996 pursuant to that certain Assignment and Assumption of Development
Agreement.
"Disbursement Request" shall have the meaning set forth in
Paragraph 24(a)(i) hereof.
------------------
"Distribution" shall mean any distribution, advance, payment or
loan to any shareholder, officer, director, member or Affiliate of Borrower
or of any of the foregoing, including, but not limited to, loan repayments,
dividends, bonuses, salary, other compensation and management fees.
"Dynamic Acquisition Documents" shall mean that certain Purchase
and Sale Agreement dated as of August 18, 1994, by and among KOAR Group,
Inc. and Argosy/KOAR Group, Inc. ("KOAR/Argosy"), Richard K. Diamond as
Trustee and Dynamic Finance Corporation, as
-7-
<PAGE>
amended by that certain Implementation Agreement relating to Purchase and
Sale Agreement dated as of November 13, 1995, KOAR/Argosy's interests in
which it was assigned to Borrower by mesne conveyances.
-----
"Dynamic Loan Documents" shall mean the documents evidencing and
securing the Dynamic Loan Facility.
"Dynamic Loan Facility" shall mean that certain One Million Eight
Hundred Thousand Dollar ($1,800,000.00) loan made by Dynamic Finance
Corporation to Borrower pursuant to the Dynamic Acquisition Document.
"Environmental Certificate" shall mean that certain Environmental
Certificate with Representations, Covenants and Warranties, of even date
herewith, executed by the Borrower and related to the Real Property.
"Equity" shall mean cash equity contributed or required to be
contributed to Borrower by its members.
"Event of Default" shall have the meaning set forth in Paragraph
---------
13.1 hereof.
----
"First Mortgage" shall mean that certain Deed of Trust,
Assignment of Rents and Proceeds and Security Agreement, of even date
herewith, in a form acceptable to Lender, to be recorded as a first
priority lien against the 186-Unit Parcel, the Garage Parcel and the
Chevron Easement, and the Improvements located and to be located on all of
the foregoing, as security for the payment and performance of all of the
Obligations.
"Force Majeure" shall mean acts of God and other natural
disasters, fires or explosions, transportation difficulties, strike, lock-
outs or other industrial disturbances, war, breakage or accident to
machinery or equipment, shortage of or inability to obtain raw materials,
any law, rule or action of any court or of any other instrumentality of the
Federal or any State or local government or any other cause or causes
beyond Borrower's reasonable control, whether similar or dissimilar to
those above; provided that the same does not arise as a result of
-------------
Borrower's failure to pay money, the same is not willfully done or brought
about by Borrower or any Affiliate and Borrower gives Lender written notice
of the occurrence of such event within ten (10) days following its
occurrence.
"GAAP" shall mean generally accepted accounting principles in
effect from time to time, consistently applied, throughout the period
involved
-8-
<PAGE>
and with prior periods, which shall include the official interpretations
thereof by the Financial Accounting Standards Board or any successors
thereto.
"Garage Parcel" shall mean that parcel of real property located
on the southwest comer of U.S. Highway No. 50 and Ski Run Boulevard, in
South Lake Tahoe, California, more fully described in the attached Exhibit
-------
"E".
---
"General and Administrative Expenses" shall mean all expenses of
Borrower less (i) Marketing Expenses, (ii) interest on the Construction
Loan, the Working Capital Loan and the Receivables Loan and (iii)
Borrower's cost of Time-Share Interest sold.
"General Contractor" shall mean, individually and collectively,
the General Contractor or General Contractors responsible for constructing
the Improvements.
"Guarantee" shall mean, individually and collectively, a written
Guarantee Agreement, in such form as Lender shall prescribe, executed and
delivered by a Person (or Persons) to Lender, under the terms and
conditions of which such Person (or Persons), as Guarantor(s), shall
individually and/or jointly and severally guarantee Borrower's Performance
of all of its Obligations under the Receivables Loan Documents.
"Guarantor" shall mean individually, a Person, and collectively
each and every Person, who executes and delivers to Lender a Guarantee
pursuant to the terms and conditions of this Agreement. The Guarantors of
this Loan are KGK and AKGI.
"Improvements" shall have the meaning set forth in the
Recitals hereto.
"Incentive Fee" shall have the meaning set forth in the
Receivables Loan Agreement.
"Incipient Default" shall mean any act or event which with
notice, passage of time or both would constitute an Event of Default.
"Interest Rate" shall mean an annual rate equal to the Prime Rate
plus 2%, to be adjusted on the first Business Day of each month.
"Interest Reserve" is defined within the definition of
Construction Budget.
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<PAGE>
"Job Progress Schedule" shall mean a schedule showing the planned
timing, progress of construction and completion date for the Improvements.
A separate Job Progress Schedule shall be prepared with respect to each
Phase.
"KGK" shall mean KGK Lake Tahoe Development, Inc., a California
corporation.
"Lender's Inspector" shall mean an independent inspector,
architect or engineer, of Lender's choosing, but retained at the cost of
Borrower, to assist Lender with all aspects of construction of the
Improvements, such as, without limitation, approving Plans and
Specifications, Job Progress Schedule, Construction Budget, draw requests,
construction contracts, and architectural contracts and making monthly
inspections as the construction of the Improvements progresses.
"Loan Balancing Equity" shall have the meaning set forth in
Paragraph 7.3 hereof.
-------------
"Loan Fee" shall have the meaning set forth in Paragraph
---------
3.1 hereof.
---
"Major Elements of Construction" an element of construction of
the Improvements the cost of which, as reflected in the Construction
Budget, exceeds $25,000.
"Major Subcontractor" shall mean a Subcontractor who is
reasonably expected to receive $100,000 or more in compensation in
connection with the construction of the Improvements.
"Marketing Expenses" shall mean the aggregate of all expenses
incurred in the sale and marketing of Time-Share Interests, including
without limitation, all costs and expenses for advertising, mailing,
consumer premiums, referral and lead generation, closing costs and sales
commissions.
"Material Agreements" shall mean, individually and collectively,
the DDA (including, without limitation, the STRA Environmental Indemnity),
the Development Agreement and the Chevron Environmental Indemnity, and all
amendments, modifications and replacements thereof.
"Maturity Date" shall have the meaning set forth in Paragraph 2.2
-------------
hereof.
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<PAGE>
"Net Income" shall mean the net income or loss of Borrower,
determined in accordance with GAAP (excluding the effect of any
extraordinary gains or losses from the sale of property not in the ordinary
course of business).
"Net Sale" shall mean gross sales of Time-Share Interests during
such quarterly period reduced only by cancellations thereof.
"Obligations" shall mean each and every obligation, duty,
covenant, undertaking and condition which Borrower is required or has
agreed to perform under the Receivables Loan Documents and the Construction
Loan Documents, and each and every obligation of Borrower now or hereafter
owing to Lender.
"Overdue Rate" a rate of interest per annum equal to four percent
(4%) above the then Interest Rate, computed on the basis of the actual
number of days elapsed using a 360 day year, provided, however, that, in no
event shall such interest rate be greater than the maximum rate permitted
under the Applicable Usury Law.
"Permitted Exceptions" shall mean those matters set forth on the
attached Exhibit "F". Permitted Exceptions shall include, as to the 24-Unit
-----------
Parcel and Annexable Parcel only, the lien in favor of Dynamic Finance
Corporation to secure the Dynamic Loan Facility.
"Person" shall mean any individual, firm, corporation, business
enterprise, trust, association, joint venture, governmental body, or other
entity, whether acting in an individual, fiduciary or other capacity.
"Phase" shall mean any of Phase I, Phase II or Phase III.
"Phase I" shall mean that portion of the Improvements consisting
of the initial 66 time-share units to be constructed on the 186-Unit Parcel
together with other Improvements set forth in the Plans and Specifications,
approved by Lender, with respect to such Phase.
"Phase II" shall mean that portion of the Improvements consisting
of the second 40 time-share units to be constructed on the 186-Unit Parcel
together with other Improvements set forth in the Plans and Specifications,
approved by Lender, with respect to such Phase.
"Phase III" shall mean that portion of the Improvements
consisting of the third 40 time-share units to be constructed on the
186-Unit
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<PAGE>
Parcel together with other Improvements set forth in the Plans and
Specifications, approved by Lender, with respect to such Phase.
"Phase I Advances" shall mean an Advance for the
construction of Phase I.
"Phase II Advances" shall mean an Advance for the construction of
Phase II.
"Phase III Advances" shall mean an Advance for the construction
of Phase III.
"Plans and Specifications" shall have the meaning set forth in
the Recitals hereto.
"Prime Rate" shall mean the rate of interest publicly announced
from time to time by Citibank, N.A. as its fluctuating "corporate base
rate" or equivalent rate of interest charged to its most creditworthy
commercial borrowers notwithstanding the fact that some borrowers of
Citibank, N.A. may borrower at rates less than such announced Prime Rate.
"Project" shall mean, collectively, the Real Property and the
Improvements.
"Project Documents" shall mean all operating, management,
marketing, supervision, nondisturbance, cross-use, parking agreements and
all other documents, instruments or agreements relating to the ownership,
development, construction, maintenance, repair, leasing, management,
marketing and operation of the Project.
"Property" shall mean all types of real, personal or mixed
property and all types of tangible or intangible property.
"Real Property" shall mean, collectively, the 186-Unit Parcel,
the Chevron Easement, the Garage Parcel, the Annexable Parcel and the 24-
Unit Parcel.
"Receivables Collateral" shall have the meaning set forth in the
Receivables Loan Agreement.
"Receivables Loan" shall have the meaning set forth in the
Recitals hereto.
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<PAGE>
"Receivables Loan Agreement" shall have the meaning set forth in
the Recitals hereto.
"Receivables Loan Documents" shall have the meaning set forth in
the Receivables Loan Agreement.
"Retention Funds" shall have the meaning set forth in Paragraph
---------
2.3(a) hereof.
------
"Second Mortgage" shall mean that certain Deed of Trust,
Assignment of Rents and Proceeds and Security Agreement, of even date
herewith, in form acceptable to Lender, to be recorded as a second priority
lien (subject to the lien securing the Dynamic Loan Facility) against the
24-Unit Parcel and the Annexable Parcel and the improvements located and to
be located on all of the foregoing.
"Security Documents" shall mean, individually and collectively,
the Assignments, the First Mortgage, the Second Mortgage and the Uniform
Commercial Code Financing Statements.
"Sewer Units" shall mean sewage treatment capacity which must be
acquired by STRA and transferred to Borrower in accordance with the terms
of the DDA.
"STRA" shall mean the South Lake Tahoe Redevelopment Agency, a
California municipal corporation.
"STRA Environmental Indemnity" shall mean that certain First
Amended Ski Run Project Disposition and Development Agreement, Operating
Memorandum No. 1 dated as of March, 1996 between STRA and Borrower. The
STRA Environmental Indemnity is included within the DDA, as that term is
defined in this Agreement.
"Subcontractor" shall mean any subcontractor, materialman or
supplier (other than the General Contractor) who is supplying labor or
materials in connection with the construction of the Improvements.
"TAUs" shall mean tourist accommodation units which must be
retired by STRA in accordance with the terms and conditions of the DDA.
"Time-Share Interests" shall have the meaning set forth in the
Receivables Loan Agreement.
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<PAGE>
"Title Policy" shall have the meaning set forth in Paragraph
---------
6.3(i)(c) hereof.
---------
"Working Capital Loan" shall have the meaning set forth in the
Recitals hereto.
2. LOAN COMMITMENT: ADVANCES
-------------------------
2.1 THE CONSTRUCTION LOAN. Subject to the conditions herein set
---------------------
forth, Lender agrees to loan to or for the benefit of Borrower, and Borrower
agrees to draw upon and borrow, in the manner and upon the terms and conditions
herein expressed, amounts that shall not exceed (i) at any one time, the sum of
$28,000,000 and, (i) in the aggregate, the sum of $39,000,000 (the "Construction
Loan"). The foregoing notwithstanding, under no circumstances shall the unpaid
principal balance of the Construction Loan, together with the unpaid principal
balance of the Receivables Loan and the Working Capital Loan exceed a total
amount equal to $45,000,000, and Lender shall have no obligation to make any
Advance hereunder if such Advance would cause the foregoing limitation to be
exceeded. The proceeds of the Construction Loan, together with Loan Balancing
Equity, shall be (i) used to construct the Improvements and pay other costs and
expenses in the amounts and to the extent set forth in the Construction Budget
and (ii) disbursed only in accordance with the Job Progress Schedule and
Construction Budget approved by Lender. Equity in the amount of $10,000,000
shall be used by Borrower to acquire the Real Property and fund operating
expenses of the Borrower incurred during the pre-development and construction
stages of Project. Anything to the contrary notwithstanding, in the event
Borrower does not satisfy all of the conditions precedent to making the first
Advance on or before the Closing Date, (i) the entire Loan Fee shall
nevertheless be deemed earned by Lender in consideration for Lender's holding
itself ready and willing to make the Construction Loan upon the terms and
conditions set forth herein and (ii) Lender shall have no further obligation to
make the Receivables Loan, the Construction Loan or the Working Capital Loan.
The retention of the Loan Fee is in addition to Borrower's obligations under
Paragraph 15.7 hereof.
- --------------
2.2 THE NOTE. The Construction Loan shall be a revolving loan and
--------
shall be evidenced by the Construction Note of Borrower, executed and delivered
simultaneously with the execution of this Agreement, in the amount of
$28,000,000, payable to Lender upon the terms and conditions contained therein.
Interest on Phase I Advances shall be paid from the interest reserve established
in connection with Phase I until such time as such interest reserve is
exhausted, whereupon, any further interest due and owing on Phase I Advances
shall be paid from Borrower's own funds. Interest on Phase II Advances shall be
paid from the interest reserve established in connection with Phase II until
such time as such interest reserve is exhausted, whereupon, any further interest
due and owing on Phase II Advances shall be paid
-14-
<PAGE>
from Borrower's own funds. Interest on Phase III Advances shall be paid from the
interest reserve established in connection with Phase III until such time as
such interest reserve is exhausted, whereupon, any further interest due and
owing on Phase III Advances shall be paid from Borrower's own funds. The
principal balance of the Construction Loan, all accrued interest and any other
sums due and owing pursuant to the Construction Loan Documents shall be due and
payable in full on (the "Maturity Date") the first day of the forty-eighth month
--------------
following the making of the first Advance (but in no event later than April 30,
2000); provided, however, that Borrower shall make principal payments through
interval release fees or otherwise as may be necessary from time to time so that
the outstanding principal balance of the Phase I Advances does not exceed Three
Million Eight Hundred Thousand Dollars ($3,800,000) on the earlier to occur of
December 31, 1998 or the sale of 3,162 Time-Share Interests in Phase I and
further provided that Borrower shall make a principal payment through interval
release fees or otherwise as may be necessary from time to time so that the
outstanding principal balance of the Phase II Advances does not exceed Five
Hundred Thousand Dollars ($500,000) on the earlier to occur of December 31, 1999
or the sale by Borrower of 2,040 Time-Share Interests in Phase II. The sale of a
Time-Share Interests is deemed to occur at such time as Borrower's deed to a
purchaser is placed of public record.
2.3 ADVANCES. Lender shall make Advances in accordance with one or
--------
more of the options described below; upon the occurrence of any event described
in this Paragraph 2.3, Lender may cease Advances under one option and thereafter
-------------
make Advances under the other option:
(a) Upon receipt by Lender of a Disbursement Request
described below, together with all of the items described in Paragraph
---------
2.4 hereof that are required by Lender in connection with that
---
Advance, Lender shall make Advances no more frequently than once per
month as construction progresses, in amounts equal to ninety percent
(90%) of expenditures for labor performed and material supplied under
the construction contract for construction of the Improvements in
accordance with the Plans and Specifications during the period
immediately preceding that Advance, together with one hundred percent
(100%) of expenditures for (i) indirect construction costs related to
the construction of the Improvements other than labor and materials,
such as permit fees, architect and engineering fees, interest and
taxes, but not including any profit to Borrower or any Affiliate of
Borrower, (ii) general conditions with respect to the General
Contractor and (iii) specific expenditures for labor performed and
material supplied under the construction contract for construction of
the Improvements in accordance with the Plans and Specifications
during the period immediately preceding that Advance, approved by
Lender on
-15-
<PAGE>
a case-by-case basis. In no event shall any portion of the
Construction Loan or Equity be advanced to pay fees or other amounts
to Borrower or any of its partners, members or Affiliates, except to
the extent provided in Paragraph 10.8.l(xi) hereof. The amount equal
--------------------
to ten percent (10%) of the expenditures for labor performed and
material supplied under the construction contract for construction of
the Improvements in accordance with the Plans and Specifications not
disbursed pursuant to the foregoing (hereinafter called the "Retention
---------
Funds") shall be disbursed upon a date to be determined at Lender's
-----
discretion but not later than fifteen (15) days after receipt by
Lender of the items specified above that are conditional to the making
of an Advance and (as to the General Contractor) receipt and approval
by Lender of the items described in Paragraph 25(a) hereof and (as to
---------------
each Subcontractor) receipt and approval by Lender of the items
described in Paragraph 2.5(b).
----------------
(b) (i) Upon the occurrence of any Event of Default, (ii) at
any time that Lender determines from its own inspection that the
Improvements are not being constructed (A) in material accordance with
the Plans and Specifications, (B) in material accordance with the Job
Progress Schedule or (C) in material conformity with cost estimates
approved by Lender or (iii) at any time Lender determines from its own
inspection that requisite and reasonably acceptable standards of
workmanship are not being met, then Lender shall have the right (which
right, in connection with the occurrence of the events set forth in
clauses (ii) and (iii) above shall be exercised only upon the giving
by Lender to Borrower of 30 days prior written notice and the failure
of Borrower within such 30-day period to remedy the cause for Lender's
actions) to take over and complete construction of the Improvements by
or through any agent, contractor or subcontractor of its selection and
may make Advances and disburse any funds deposited with Lender by
Borrower in payment of the costs, expenses, fees, attorneys' fees and
other charges, together with reasonable allowances for supervision,
incurred in connection with such taking over and completion. In the
event proceeds of the Construction Loan and amounts deposited by
Borrower are insufficient to pay all of the same, the unpaid amount
thereof shall be an indebtedness of Borrower to Lender, payable
immediately without demand or notice, shall bear interest at the
highest rate payable under the Note, and shall be secured by all of
the Security Documents.
2.4 (a) CONDITIONS TO EACH ADVANCE. When Borrower believes it is
--------------------------
entitled to an Advance, Borrower shall furnish Lender with the following
all in form satisfactory to Lender, at least ten (10) Business Days prior
to the
-16-
<PAGE>
date that the Advance is to be made:
(i) Disbursement Request (the "Disbursement Request") in the
--------------------
form of (i) AIA Form G702, (ii) AIA Form G702A and (iii) the
Borrower's Affidavit attached hereto as Exhibit 24(a)(i) hereof, fully
----------------
completed and executed. Any materials covered by a Disbursement
Request must be suitably stored at the construction site or, if
required by Lender, actually incorporated into the Improvements.
(ii) The certification by Borrower, the Borrower's supervising
architect, the General Contractor, and Lender's Inspector, that: (A)
all work (including work, the cost of which was paid from sources
other than the Construction Loan) performed is in substantial
accordance with the Plans and Specifications; (B) all governmental
licenses and permits required for the Improvements as then completed
have been obtained and will be exhibited to the Lender upon request;
(C) the Improvements (including Improvements, the cost of which was
paid from sources other than the Construction Loan) as then completed
do not violate, and, if further completed in accordance with the Plans
and Specifications, will not violate any law, ordinance, rule or
regulation or covenant, condition or restriction affecting the Real
Property; (D) the remaining undisbursed proceeds of the Construction
Loan are sufficient to pay for the completion of the Improvements; (E)
the information set forth in the Disbursement Request is true and
accurate in all material respects; (F) the Advance is in an amount not
in excess of the value of the work and materials for which such
Advance is requested.
(iii) Paid invoices and lien waivers relating to the
construction of the Improvements for all work through the date of the
previous Disbursement Request.
(iv) Evidence that any inspection required by any state, city or
other governmental authority has been completed with results
satisfactory to that authority.
(v) Certification by Borrower, the Borrower's supervisory
architect and Lender's Inspector of the percentage to which the
Improvements have been completed.
(vi) The certification by Borrower and the determination by
Lender that no Event of Default exists and no event or condition
exists that with notice or lapse of time, or both, would
-17-
<PAGE>
constitute an Event of Default.
(vii) An irrevocable commitment from Lender's title insurer to
issue an endorsement to Lender's title insurance policy, increasing
the policy amount by the amount of the contemplated Advance and
insuring that no intervening matters have affected the priority of the
First Mortgage or the Second Mortgage (which commitment shall be
supplied to Lender immediately prior to the contemplated Advance, the
provisions of the introductory portion of this Paragraph 2.4(a) to the
----------------
contrary notwithstanding).
(viii) Such other information and documents as Lender may
reasonably require.
(b) CONDITIONS TO DISBURSEMENT OF EQUITY. Loan Balancing
------------------------------------
Equity or other monies paid by Borrower in payment of the construction
costs for the Improvements shall be disbursed by Borrower, in the payment
of such construction costs, only upon satisfaction of same terms and
conditions that would be applicable if the Equity and other monies were
proceeds from the Loan and were being disbursed by Lender. Without limiting
the generality of the foregoing, such Equity and other monies shall not be
disbursed without the satisfaction of the conditions set forth in Paragraph
---------
2.4(a) hereof.
------
(c) PHASING OF ADVANCES. Lender shall have no obligation to
-------------------
make Phase I Advances unless and until each of the conditions precedent set
forth in Paragraphs 2.4 and 2.5 and in Sections 6 and 7 have been
-------------- --- ---------- -
satisfied. In no event shall the Phase I Advances exceed, in the aggregate,
the sum of $22,000,000 and Lender shall have no obligation to make any
Phase I Advances if the making of such Advances would cause the foregoing
limitation to be exceeded. In the event for any reason a Phase I Advance
exceeds the foregoing limit, then Borrower shall, upon demand, immediately
make a principal payment to Lender in an amount equal to such excess plus
accrued and unpaid interest thereon. Lender shall have no obligation to
make any Phase II Advances unless and until (i) each of the conditions
precedent set forth in Paragraphs 2.4 and 2.5 and in Sections 6 and 7 have
-------------- --- ---------- -
been satisfied; (ii) Phase I has been Completed; (iii) Lender is satisfied,
in its sole discretion, with the financial condition of Borrower and with
the pace at which sales of Time-Share Interests from Phase I are being
sold; (iv) the total cost, determined in Lender's discretion, to Complete
Phase II, together with the then unpaid principal balance of the
Construction Loan, does not exceed $28,000,000; (v) the total cost,
determined in Lender's discretion, to Complete Phase II, together with the
then unpaid principal balance of each of the Construction Loan, Receivables
-18-
<PAGE>
Loan and the Working Capital Loan does not exceed $45,000,000; (vi) there
does not then exist an Event of Default or an Incipient Default; and (vii)
Lender has received and approved the Construction Budget and Job Progress
Schedule for Phase II and the Construction Budget reflects a total cost to
construct and Complete Phase II of no more than $10,300,000. In no event
shall the Phase II Advances exceed, in the aggregate, the sum of
$10,300,000 and Lender shall have no obligation to make any Phase II
Advances if the making of such Advance would cause the foregoing limitation
to be exceeded. In the event for any reason a Phase II Advance exceeds the
foregoing limit, then Borrower shall, upon demand, immediately make a
principal payment to Lender in an amount equal to such excess plus accrued
and unpaid interest thereon. Lender shall have no obligation to make any
Phase III Advances unless and until (i) each of the conditions precedent
set forth in Paragraphs 2.4 and 2.5 and in Sections 6 and 7 hereof have
-------------- --- ---------- -
been satisfied; (ii) Phase II has been Completed; (iii) Lender is
satisfied, in its sole discretion, with the financial condition of Borrower
and with the pace at which sales of Time-Share Interest from Phases I and
II are being sold; (iv) the total cost, determined in Lender's discretion,
to Complete Phase III, together with the then unpaid principal balance of
the Construction Loan does not exceed $28,000,000; (v) the total cost,
determined in Lender's discretion, to Complete Phase III together with the
then unpaid principal balance of each of the Construction Loan, Receivables
Loan and the Working Capital Loan does not exceed $45,000,000; (vi) there
does not then exist an Event of Default or an Incipient Default; and (vii)
Lender has received and approved the Construction Budget and Job Progress
Schedule for Phase III and the Construction Budget reflects a total cost to
construct and Complete Phase III of no more than $6,700,000. In no event
shall the Phase III Advances exceed $6,700,000 and Lender shall have no
obligation to make Phase III Advances if the making of such Advance would
cause the foregoing limitation to be exceeded. In the event, for any
reason, Phase III Advance exceeds the foregoing limit, then Borrower shall,
upon demand, immediately make a principal payment to Lender in an amount
equal to such excess plus accrued and unpaid interest thereon.
2.5 (a) CONDITIONS TO DISBURSEMENT OF RETENTION FUNDS. Except as
---------------------------------------------
otherwise provided with respect to the early release of retention funds as
provided in subparagraph (b) below, upon Completion of the Improvements,
----------------
Borrower shall furnish Lender with the following, all in form and content
satisfactory to Lender, as a condition precedent to disbursement of the
remaining balance of the Retention Funds; provided, however, that to the
-------- -------
extent a particular condition pertains solely only to a particular Phase,
such condition need not be satisfied, as to such Phase, until such time as
Borrower requests the disbursement of the remaining balance of the
Retention Funds with respect to such Phase:
-19-
<PAGE>
(i) The certification by the Borrower's supervising
architect, the General Contractor, Borrower and Lender's Inspector
that the Improvements have been Completed substantially in accordance
with the Plans and Specifications;
(ii) A final and unconditional certificate of occupancy (or
its equivalent as relating to the Improvements) issued by the
political subdivision authorized to issue such certificate together
with all other necessary governmental permits and approval from the
political subdivision authorized to issue such permits and approvals
as required by such political subdivision; provided, however, that
Borrower may, in lieu of providing a final and unconditional
certificate of occupancy, provide to Lender a temporary certificate of
occupancy which provides for the issuance by the applicable governing
entity of a final and unconditional certificate of occupancy upon the
satisfaction of conditions which are deemed to be nonmaterial by
Lender, are otherwise acceptable to Lender and with respect to which
Borrower provides assurances satisfactory to Lender that such
conditions are or will be promptly satisfied;
(iii) The certification by Lender's Inspector that the
Improvements have been fully Completed substantially in accordance
with the Plans and Specifications and within the boundary lines of the
Real Property;
(iv) Full, unconditional lien waivers from all persons or
entities (including, without limitation, the General Contractor and
all Subcontractors) for all labor performed and/or materials supplied
in connection with the construction of the Improvements, subject to
the receipt of the final payment due and owing to such person;
(v) An affidavit of full payment of debts and claims executed
by the General Contractor and all Subcontractors, subject to the
receipt of the final payment due and owing to such person;
(vi) Written certification from Borrower's supervising
architect that each final punch list item for the Improvements has
been completed;
(vii) Copies of all special inspection reports, certificates or
any similar items as required by any political subdivision relating to
the Improvements;
-20-
<PAGE>
(viii) Copies of all guaranties for workmanship, and all
warranties and maintenance agreements, relating to the completed
Improvements; and
(ix) Such other information and documents as Lender may
reasonably require.
In the event all of the conditions precedent to the disbursement of
Retention Funds pursuant to this subparagraph 2.5(a) are satisfied with the
-------------------
exception of the condition set forth in clause (vi) above, Retention Funds
(other than as set forth in this sentence) will be disbursed on the condition
that an amount equal to two times the amount necessary to complete the punchlist
items (established by evidence satisfactory to Lender) shall not be disbursed
until each punchlist item for the Improvements has been completed.
(b) CONDITIONS TO DISBURSEMENT OF RETENTION FUNDS OWED TO
-----------------------------------------------------
SUBCONTRACTORS. Borrower shall furnish Lender with the following, all in a
--------------
form and content satisfactory to Lender, as a condition precedent to the
disbursement of the Retention Funds owed to a Subcontractor; provided,
--------
however, that to the extent a particular condition pertains only to a
-------
particular Phase, such condition need not be satisfied, as to such Phase,
until such time as Borrower requests the disbursement of the remaining
balance of the Retention Funds with respect to such Phase:
(i) The certification by Borrower's supervising architect,
the General Contractor, Borrower and Lender's Inspector that the
Improvements to be constructed by such Subcontractor have been
completed or the materials or work to be supplied or performed by such
Subcontractor have been fully performed and supplied, substantially in
accordance with the Plans and Specifications;
(ii) Full, unconditional lien waivers from such Subcontractor
for all labor performed or materials supplied in connection with the
construction of the Improvements, subject to the receipt of the final
payment due and owing to such Subcontractor;
(iii) An affidavit of full payment of debts and claims executed
by the Subcontractor, subject to the receipt of the final payment due
and owing to such Subcontractor;
(iv) Written certification from Borrower's supervising architect
that each final punchlist item for the Improvements to be
-21-
<PAGE>
constructed by such Subcontractor has been completed;
(v) Copies of all guaranties for workmanship and all warranties
and maintenance agreements, relating to the Improvements completed by
such Subcontractor; and
(vi) Such other information and documents as Lender may
reasonably require.
In the event all of the conditions precedent to the disbursement of Retention
Funds pursuant to this subparagraph 2.5(b) are satisfied with the exception of
-------------------
the conditions set forth in clause (iv) above, Retention Funds (other than as
set forth in this sentence) will be disbursed on the condition that an amount
equal to two times the amount necessary to complete the punchlist items
established by evidence satisfactory to Lender) shall not be disbursed until
each punchlist item for the Improvements has been completed.
2.6 INSPECTIONS ARE EXPENSE OF BORROWER. Borrower shall pay for all
-----------------------------------
inspections, whether made by Lender's Inspector or by Lender.
2.7 DISBURSEMENT OF ADVANCES. Any Advance made by Lender under any
------------------------
application for disbursement, or so much thereof as Lender may consider proper,
may be disbursed, at Lender's election, to Borrower or its order or to both
Borrower and the persons furnishing labor and/or materials, or, after the
occurrence of an Event of Default and at all times thereafter whether or not
such default is cured, directly to the persons furnishing labor and/or
materials. Lender shall have no obligation to see that the disbursements made by
it to Borrower or any designee of Borrower are actually used by that party to
pay for labor and materials furnished for construction of the Improvements.
Borrower acknowledges that Borrower assumes all risks in connection with any
disbursement to any such designee. Lender shall have the right to make any
Advance through Lender's title insurer.
2.8 RIGHT TO WITHHOLD ADVANCES. Lender may withhold from any Advance
--------------------------
or, on account of subsequently discovered evidence, withhold from a later
Advance, or require the Borrower to repay to Lender any earlier Advance, as
Lender in its discretion considers necessary to protect Lender from loss on
account of (i) materially defective work on the Improvements that has not been
remedied, (ii) any obligation required by this Agreement to have been performed
that has not been performed, (iii) liens filed against the Real Property and
Improvements or reasonable evidence that such liens will be filed, (iv) failure
of Borrower to make properly due payments to contractors or subcontractors for
material or labor, or (v) a reasonable doubt by Lender that construction of the
Improvements can be completed with the undisbursed proceeds of the Construction
Loan. Subject to the other provisions of this
-22-
<PAGE>
Agreement, any amount so withheld shall be disbursed after the basis for such
withholding has been cured or removed.
2.9 RIGHT TO WITHHOLD FROM AMOUNTS ADVANCED. Under any option for
---------------------------------------
Advances, Lender, in its discretion, may withhold any payment or portion thereof
until Lender has received releases of lien, waivers of lien or paid bills in
form satisfactory to it for the period of time through the prior Advance. Lender
shall have no obligation to require and/or obtain lien waivers or receipts, and,
although Lender requires presentation to it of lien waivers and/or receipts,
Lender shall have no responsibility for the validity thereof nor for the
correctness of the amounts indicated thereon. No Advance by Lender shall
constitute approval of any certification or relieve any person making such
certification of responsibility therefor.
2.10 ADVANCES TO PRESERVE COLLATERAL. Lender, from time to time, may
-------------------------------
make Advances in payment of insurance premiums, taxes, assessments, liens or
encumbrances existing against the Real Property and Improvements, interest
accrued and payable upon the Construction Loan, and any charges and expenses
that are the obligation of Borrower under this Agreement or any Security
Document and any charges or matters necessary to preserve the Real Property and
the Improvements or to cure any Event of Default.
2.11 ADVANCES PRIOR TO SATISFACTION OF CONDITIONS. Although Lender
--------------------------------------------
shall have no obligation to make any Advance unless and until all of the
conditions and prior performances set forth herein have been kept, fulfilled or
performed, and until all inspections, certifications, releases, waivers, or paid
bills (for the period of time through the prior Advance) or other requirements
set forth in this Section 2 have been made, delivered and complied with, Lender,
---------
at its sole discretion, may make Advances prior to that time without waiving or
releasing any of the requirements or conditions of this Agreement; but Borrower
shall continue to be strictly obligated and subject thereto, and all such
conditions, prior performances and other requirements shall nevertheless be
strictly and punctually complied with, fulfilled and performed; and,
notwithstanding any such disbursement, Lender, at its discretion, may
discontinue any further Advances at any time until all of the conditions, prior
performances and other requirements of this Agreement have been strictly
fulfilled, performed and complied with.
2.12 ADVANCES WITHOUT PREJUDICE. In the event of any dispute that, in
--------------------------
the good faith opinion of Lender, may endanger the timely completion of the
Improvements or the fulfillment of any condition precedent or covenant herein,
Lender may agree to make Advances for the account of Borrower without prejudice
to Borrower's rights, if any, to recover such funds from the party to whom paid.
Such agreement or agreements may take any form that Lender in its reasonable
discretion deems proper, including, without limitation, agreements to indemnify
a title insurer
-23-
<PAGE>
against possible assertion of lien claims and agreements to pay disputed amounts
to contractors in the event Borrower is unable or unwilling to pay the same. All
sums paid or agreed to be paid pursuant to such agreement shall be for the
account of Borrower and shall be charged as an Advance. Lender will not make an
Advance as to a disputed claim in the event Borrower posts a bond as to such
claim, within ten (10) days after Borrower's receipt of actual knowledge of the
claim, in a form and substance and from a surety acceptable to Lender.
2.13 NO OTHER RIGHT TO ADVANCES. Borrower shall have no right to any
--------------------------
Advance other than to have the same disbursed by Lender in accordance with one
or more of the disbursement provisions contained in this Agreement. Any
assignment or transfer, voluntary or involuntary, of this Agreement or any right
hereunder shall not be binding upon or in any way affect Lender without its
written consent; Lender may make Advances under one or more of the disbursement
provisions herein, notwithstanding any such assignment or transfer.
2.14 COMMITMENT TO MAKE ADVANCES. In no event shall Lender have the
---------------------------
obligation to make or Borrower have the right to demand an Advance after the
earlier of (i) the first day of the thirty-sixth (36th) month following of the
making of the first Advance or (ii) April 30, 1999.
3. LOAN FEE
--------
3.1 LOAN FEE; DEPOSIT. Borrower shall pay the Lender a loan fee
-----------------
in connection with the Construction Loan of one percent (1%) of each Advance
(the "Loan Fee") which shall be deemed fully earned by Lender on the Closing
--------
Date. The Loan Fee in the amount of one percent (1%) of each Advance shall be
payable on the earlier of forty five (45) days following the making of such
Advance or concurrently with the making of the next succeeding advance of the
Receivables Loan or Working Capital Loan and such Loan Fee may be withheld from
the advance of the Receivables Loan or Working Capital Loan so made. The payment
of the Loan Fee is in addition to Borrower's obligation under Paragraph 15.7
--------------
hereof and is an addition to Borrower's obligation to pay a loan fee under the
Receivables Loan Agreement.
4. SECURITY
--------
4.1 SECURITY FOR LOAN. Borrower shall cause the Obligation to
-----------------
be secured by the Security Documents and guaranteed by the Guarantor pursuant to
the Guarantee.
5. RESERVED
--------
6. CONDITIONS PRECEDENT FOR CLOSING
--------------------------------
-24-
<PAGE>
The obligation of Lender to make the Construction Loan, and each and
every Advance, is subject to the following express conditions precedent, all of
which shall have been satisfied prior to the recording of the First Mortgage and
Second Mortgage:
6.1 CONSTRUCTION LOAN DOCUMENTS. Borrower shall have executed (or
---------------------------
obtained the execution or issuance of) and delivered to Lender the following
documents, all in form and substance satisfactory to Lender:
(a) The Construction Loan Documents;
(b) The Receivables Loan Documents; and
(c) Such other documents, instruments and assurances as
Lender shall reasonably require to carry out and effect the intents and
purposes of this Agreement.
6.2 LOAN FEE. Lender shall have received that portion of the
--------
Loan Fee then due and payable.
6.3 DELIVERY OF OTHER ITEMS.
------------------------
(i) Borrower, at its expense, shall have obtained and
delivered to Lender the following items, all of which shall be in form and
content satisfactory to Lender in Lender's sole discretion and shall be
subject to approval in writing by Lender; provided, however, that as to
the item described in subparagraph (s), (t), (u), (y), (z), and (bb) that
pertain only to a particular Phase, such condition need not be satisfied,
as to such Phase, until such time as Borrower requests an Advance with
respect to such Phase.
(a) Evidence satisfactory to Lender that upon the Closing
Date, Borrower shall have good and marketable title to the Collateral.
(b) A current survey of the Real Property by a licensed
surveyor acceptable to Lender describing the boundaries of the Real
Property and showing all means of ingress and egress to a public
right-of-way, the location of all buildings and other improvements
(including parking areas), rights-of-way, easements and other common
facilities, and title exceptions able to be located thereon (each of
which shall be identified by docket and page or recording number where
recorded) and all other customary and relevant information pursuant to
-25-
<PAGE>
ALTA and ASCM standards and any title company requirements. Following
completion of the foundations and footings and prior to any Advance
for footings and foundations, Borrower shall furnish to Lender an
update of this survey showing the location of the footings and
foundations and the proposed Improvements which shall be within the
boundaries of the Real Property and shall not encroach on any easement
area or any building setback requirement, and Lender shall review and
approve or disapprove such updated survey within five (5) Business
Days after its receipt thereof. Following completion of the
Improvements, Borrower shall furnish to Lender an ALTA "as built"
survey showing the location of the improvements upon the Real Property
and showing all easements and other matters affecting the site. All
surveys shall be certified to Lender and the title company issuing the
Title Policy.
(c) An ALTA extended coverage mortgagee's title insurance
policy (the "Title Policy"), with such endorsements as Lender may
require, issued by a title insurance company satisfactory to Lender in
the amount of $34,500,000 insuring the lien of the First Mortgage and
the Second Mortgage to be a first and prior lien upon the Real
Property and Improvements as security for the payment and performance
of all of the Obligations, subject only to the Permitted Exceptions,
and insuring against any lien claims that could arise out of the
construction of the Improvements on the Real Property. During the
course of construction of the Improvements, Borrower shall provide
Lender with such title insurance endorsements as Lender may reasonably
require, including any endorsements Lender may reasonably require to
insure that the Improvements shall have been constructed within the
boundaries of the Real Property and in accordance with all applicable
laws, covenants and restrictions. Upon Completion of the Improvements,
Borrower shall deliver to Lender such further endorsements to the
title insurance policy as Lender may reasonably require.
(d) Evidence that the Real Property has ingress and egress to a
dedicated street or highway.
(e) Evidence of the degree to which the Real Property, or any
part thereof, lies within a "special flood hazard area" as designated
on maps prepared by the Department of Housing and Urban Development.
(f) Evidence that all utilities and services to the Real
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<PAGE>
Property and Improvements, including without limitation water, sewer,
electric and telephone, are available or will be available as
required, and will be provided in amounts that are sufficient to
service the Improvements for their intended use.
(g) Evidence that each type of off-site improvement for the Real
Property has been completed and has been certified and/or accepted by
any municipality, utility, county or other governmental entity whose
certification or acceptance thereof is required.
(h) Reserved.
(i) Copies of any Declaration of Covenants, Conditions and
Restrictions and related documents pertaining to the Real Property and
the Improvements.
(j) Evidence that all taxes and assessments levied against
or affecting the Real Property have been paid current.
(k) With respect to Borrower and each Guarantor or Person which
is a corporation, general or limited partnership or limited liability
company, certified copies of their articles, certificates and
agreements of general or limited partnership, their articles of
incorporation and by-laws or other articles of organization and
operating agreement (and all amendments thereto), together with
evidence that Borrower and each such Guarantor or Person is duly
organized, validly existing, and in good standing under the laws of
the jurisdiction in which they are organized, and in each and every
other jurisdiction where the nature of their respective businesses
require them to be so qualified. With respect to Borrower and each
Guarantor or Person which is a corporation, a general or limited
partnership or a limited liability company, a copy of the resolutions
certified to be true and complete by the corporate secretary, all of
the general partners or all of the members (as the case may be),
authorizing the execution, delivery and performance of the
Construction Loan Documents, and evidencing the authority of all
Persons executing the Construction Loan Documents on behalf of
Borrower, the Guarantor, and such other Persons, and if Borrower,
Guarantor or such Persons are operating under a fictitious name, a
copy of the recorded certificate of fictitious name. No material
change shall be made to any organizational documents previously
submitted to Lender without Lender's written approval.
(l) Evidence that any fees due to any broker utilized
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<PAGE>
by Borrower in connection with the Construction Loan, the Receivables
Loan or the Working Capital Loan have been paid, together with
evidence of the payment by Borrower of any expenses payable in
connection with the Construction Loan, the Receivables Loan and the
Working Capital Loan, including, without limitation, those set forth
in Paragraph 15.7. In any event, all broker's fees (other than fees
--------------
owed to a broker with whom Lender has a specific agreement) shall be
borne by Borrower, and Borrower and such brokers shall indemnify and
hold Lender harmless from any liability for the payment of any and all
such brokerage fees.
(m) RESERVED.
(n) A fully executed and recorded copy of the plat for the Real
Property.
(o) Evidence that the liens and security interests in the
Collateral have been duly perfected as first and prior liens and
security interests, and that there are no other financing statements
or liens filed against Borrower or on the property of Borrower, except
the Permitted Exceptions.
(p) The License Agreement between Borrower and Embassy
Vacation Resorts, Inc. with respect to the Project; a comfort letter,
in form and substance satisfactory to Lender, from Embassy Vacation
Resorts, Inc. with respect to Lender's rights under the foregoing
License Agreement; the Management Agreement between Borrower and
Resort Management International, Inc.; and the Management Agreement
between Resort Management International, Inc. and Embassy Vacation
Resorts Suites, Inc.
(q) Such documents, instruments and agreements as Lender may
require establishing that any and all indebtedness owed by Borrower to
its officers, members or partners, to Guarantor, or to any relatives,
shareholders, partners, members or Affiliates of Borrower or of
Guarantor or any of the foregoing ("Affiliate Indebtedness"), is fully
subordinated as to right and time of payment to the indebtedness to
Lender contemplated herein and in the Receivables Loan Agreement, all
as more fully provided in Paragraph 10.8 hereof.
--------------
(r) Credit references and Dun & Bradstreet reports for
Borrower and Guarantor; and UCC, tax lien, litigation and judgment
searches for Borrower and Guarantor.
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<PAGE>
(s) Two copies of the Plans and Specifications together with
evidence that the same have been approved by all applicable federal,
state and local authority.
(t) Copies of firm and binding fixed price contracts,
approved by Lender, for the General Contractor approved in writing by
Lender and no later than two weeks prior to the making of an Advance
against elements of the construction of the Improvements supplied by a
Major Subcontractor, copies of firm and binding fixed contracts
approved by Lender with respect to such elements, as set forth in the
Construction Budget, with Major Subcontractors that have been approved
in writing by Lender.
(u) Financial statements for the General Contractor covering the
year immediately preceding the date of this Agreement; evidence that
the General Contractor is licensed by and authorized to do business in
the State of California as a general contractor; and client and
project lists, customer references, and resumes for the General
Contractor.
(v) A soil report, including drainage, boring and compacting
data, bearing a date acceptable to Lender, by engineers acceptable to
Lender, indicating that the soil conditions of the Real Property are
suitable for construction of the Improvements without extraordinary
land preparation and indicating approval of the proposed foundation
design. Any recommendations in the approved soil report must be
complied with and incorporated into the Plans and Specifications.
(w) Evidence that the Real Property is properly zoned for the
Improvements and their intended use as a time-share resort and that
such zoning is final and not subject to challenge.
(x) Such insurance as required by Lender, written by insurers
and in amounts and forms satisfactory to Lender, which insurance shall
be obtained at the sole cost of Borrower.
(y) Copies of all building and other necessary or appropriate
permits issued by each federal, state and local authority having
jurisdiction over the Real Property and Improvements and its intended
uses and permitting construction of the Improvements in accordance
with the Plans and Specifications, together with evidence
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<PAGE>
reasonably satisfactory to Lender that the Real Property has available
to it all necessary permits for the use of the Real Property as a
time-share resort.
(z) Copies of all agreements between Borrower and architects,
engineers, managers or supervisors related to the construction,
maintenance, repair, leasing, management and operation of the Real
Property and Improvements, together with all other Project Documents,
together with written agreements by the persons or entities that are
parties to all of the foregoing that they will perform for Lender the
services contracted to Borrower, notwithstanding the occurrence of any
Event of Default and any foreclosure of the First Mortgage or Second
Mortgage (provided that all prior defaults under their respective
contracts are cured, and further provided that such persons or
entities continue to receive payments under their respective
contracts), and the consent of such persons or entities to the
collateral assignment by Borrower to Lender of their respective
contracts;
(aa) The Job Progress Schedule for Phase I together with the
Construction Budget for Phase I. The Construction Budget shall reflect
a total cost to construct and Complete Phase I of not more than
$22,000,000.
(bb) Evidence that all permits and licenses required to
construct and operate the Property as of the date hereof as a time-
share resort are in place and have been approved by, and issued by,
the appropriate federal, state or local agency for use by the
Borrower, all of which shall be reasonably satisfactory to Lender.
(cc) Evidence that the Improvements as completed and the
contemplated uses thereof as a time-share resort, will not violate any
applicable ordinances or statutes, (including the zoning laws), any
covenants, conditions or restrictions running with the Real Property
or any regulations or building codes of any governmental or municipal
agency having jurisdiction over the Improvements.
(dd) Evidence that the Real Property is environmentally
acceptable to Lender.
(ee) If requested in writing by Lender with respect to a
particular General Contractor (other than to the extent waived, as
provided below) or Subcontractor, a dual obligee payment and
performance bond, with respect to the General Contractor or
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<PAGE>
Subcontractor, naming Lender and Borrower as co-obligees for an amount
not less than the total price of the construction contract(s) for the
Improvements, containing a waiver of all rights under applicable state
law, if any, which requires a creditor or obligee to bring an action
against a surety under a contract within a specific number of days of
notice by the surety, written by a bonding company or companies
acceptable to Lender and dated prior to or of even date with the
construction contract to which it relates. As of the date hereof
Lender waives the requirement that a payment and performance bond be
obtained with regard to Pirini Building Company. Notwithstanding the
fact that Lender may have waived the requirement for a bond as to a
particular General Contractor or Subcontractor, Lender reserves the
right to require a bond with respect to such General Contractor or
Subcontractor in the event of the occurrence of a material adverse
change in the business or financial condition of such General
Contractor or Subcontractor. Furthermore, Lender shall be named as a
co-obligee on any payment and performance bonds that the General
Contractor requires be obtained with regard to any Subcontractor.
(ii) Lender shall have reviewed and approved (A) the results
of a physical inspection of the Real Property and (B) all governmental
licenses and permits necessary in connection with the construction and
operation of the Improvements.
(iii) Lender shall have reviewed and approved the General
Contractor and any Major Subcontractors who will participate in the
construction of the Improvements and receive a payment from such Advance,
which review shall include, without limitation, review by Lender of the
materials referred to in Paragraph 6.3(i)(u) with respect to such General
-------------------
Contractor and Major Subcontractors.
(iv) The following conditions precedent to the making of an
advance under the Receivables Loan Agreement shall have been satisfied:
52(v).
(v) Lender has received no evidence that the current zoning of
the Real Property is being challenged or is other than final.
(vi) Lender has received and approved the Material Agreements
and has received evidence satisfactory to it that the rights of Argosy/KOAR
Group, Inc. in and to each of the foregoing have been assigned to Borrower
with the consent of the other parties thereto.
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<PAGE>
(vii) Lender and STRA have reached such agreements concerning
the DDA as are acceptable to Lender. Such agreements shall include a
consent by STRA as to the collateral assignment of the DDA to Lender.
(viii) Lender has received the consent from the City with regard
to the collateral assignment to Lender of the Borrower's rights under the
Development Agreement and an acknowledgment from the City that its taxing
and bonding capacity will support the obligations of STRA under the STRA
Environment Indemnity.
(ix) Borrower has acquired, or concurrently with the Closing
will acquire, the Real Property and the prior lien of Dynamic Finance
Corporation pursuant to the Dynamic Acquisition Documents and the DDA.
(x) Lender shall receive evidence satisfactory to it that STRA
and the South Tahoe Joint Powers Financing Authority have sold and closed
the sale of the Bond Anticipation Notes described in the DDA and the
Financial Plan attached thereto and the proceeds from such sale, in an
amount no less than $8,295,000, has been deposited with Wells Fargo Bank,
as escrow agent.
(xi) Lender has received evidence from STRA that it has
approved Pirini Building Company as the General Contractor.
(xii) Lender has received and approved a letter from the
appropriate governmental authority indicating that Borrower is entitled to
obtain a "foundation only" building permit for the construction of the
Improvements, subject solely to the payment of a fee in an amount no
greater than $60,000 (and no other conditions).
(xiii) All conditions precedent to the obligations of STRA under
the DDA, which are required to be satisfied by the Closing Date, have been
satisfied or waived.
(xiv) Lender has received and approved an order from the United
States Bankruptcy Court for the Central District of California authorizing
and approving the sale of the Real Property to Borrower subject only to the
lien in favor of Dynamic Finance Corporation as to the 24-Unit parcel and
the Annexable Parcel.
(xv) Borrower has received and approved all other operating,
management, marketing, supervision, nondisturbance cross-use, parking and
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<PAGE>
other documents relating to the ownership, development, construction,
maintenance repair, leasing, management, marketing and operation of the Project
and has received a collateral assignment of such of the foregoing as Lender
shall require which collateral assignment shall be accompanied consents of the
other parties thereto if required by Lender.
(xvi) Lender has received and approved all necessary approvals
from all regulatory, agencies having jurisdiction over the Project.
6.4 OPINION OF COUNSEL. Borrower and Guarantor, at their expense,
------------------
shall have provided Lender with a written opinion by counsel acceptable to
Lender regarding such matters as Lender shall require.
6.5 REPRESENTATIONS TRUE. All representations and warranties by
--------------------
Borrower shall remain true and correct, in all material respects, and all
agreements that Borrower is to have performed or complied with by the date
hereof shall have been performed or complied with.
6.6 NO EVENT OF DEFAULT. No Event of Default exists or Incipient
-------------------
Default exists.
6.7 NO MATERIAL CHANGE. There shall have occurred no material adverse
------------------
change in Real Property or in the business or financial condition of Borrower
and Guarantor since the date of the last financial statements submitted to
Lender for its consideration in making the Construction Loan.
6.8 NO FAILURE TO DISCLOSE. Neither Borrower nor Guarantor shall have
----------------------
failed to disclose to Lender any material information and no material
information supplied by Borrower or Guarantor shall be found to be misleading,
misrepresented or materially incorrect.
7. ADDITIONAL CONDITIONS PRECEDENT
-------------------------------
The obligation of Lender to make the Construction Loan, and each and
every Advance, is subject to the following additional conditions precedent, all
of which shall have been satisfied prior to the first Advance:
7.1 OTHER CONDITIONS PRECEDENT. All of the conditions precedent
--------------------------
provided in Section 6 hereof shall have been satisfied.
---------
7.2 EQUITY. Lender shall have received evidence satisfactory to Lender
------
that no less than $10,000,000 in Equity has been contributed in cash to
Borrower. Lender has approved the identity of the parties who contributed such
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<PAGE>
Equity. As of the date hereof, Borrower has not supplied to Lender sufficient
back up documentation concerning the following expenditures which the Borrower
intends to constitute part of the Equity: $550,000 for land acquisition;
$570,000 for land acquisition; $12,000 to Argosy/KOAR; and $3,549.78 to KOAR
Group, Inc. Within thirty (30) days from the Closing Date, Borrower shall supply
to Lender evidence satisfactory to Lender as to the expenditure of the foregoing
monies and the purpose for which such monies were expended. In the event, within
the foregoing thirty (30) day period, satisfactory evidence has not been
supplied to Lender to indicate that such monies are Equity, Borrower, upon
written demand of Lender, agrees to cause its members to make an additional
Equity contribution to Borrower, within ten (10) days following such written
demand, in an amount equal to the amounts attributable to a particular item for
which satisfactory evidence has not been supplied.
7.3 DEPOSIT OF FUNDS WITH LENDER. If at any time or from time to
----------------------------
time Lender, in its sole discretion, determines that the remaining undisbursed
proceeds of the Construction Loan, plus the then existing and undisbursed
balance of the Equity are insufficient to pay the total cost for the completion
of the Improvements, Lender may demand that an amount equal to such deficiency
(the amount of such deficiency, as deposited with Lender, hereinafter "Loan
Balancing Equity") be deposited with Lender to insure such completion and
payment. Within ten (10) days after such demand, Borrower shall deposit with
Lender the amount of such deficiency as determined by Lender. All or part of the
initial or any additional deposit may be in the form of (a) cash, (b) an
irrevocable, nondocumentary stand-by letter of credit in form and substance and
from an issuer satisfactory to Lender providing that Lender shall have the
unconditional right to draw against such letter of credit at any time or (c)
other security reasonably satisfactory to Lender, in the amount of such
deficiency. All funds obtained by Lender by drawing upon any letter of credit
provided pursuant to this Paragraph 7.3 and all funds deposited by Borrower
-------------
pursuant to this Paragraph 7.3 shall accrue interest in favor of Borrower at a
-------------
passbook rate until disbursed by Lender and shall be disbursed by Lender in the
manner provided herein for Advances prior to, in conjunction with or after any
or all Advances. Borrower hereby grants to Lender a security interest in all of
Borrower's funds at any time held by Lender as additional security for the (i)
timely repayment and performance of the Construction Loan and all other
indebtedness and obligations of Borrower arising under the Construction Loan
Documents and (ii) timely repayment and performance of the Receivables Loan and
the Working Capital Loan and all other indebtedness and obligations of Borrower
arising under the Receivables Loan Documents.
7.4 REPRESENTATIONS AND WARRANTIES TRUE. All representations and
-----------------------------------
warranties by Borrower shall remain true and correct, in all material respects
and all agreements that Borrower is to have performed or complied with by the
date of the first Advance shall have been substantially performed or complied
with.
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<PAGE>
8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Lender as follows:
8.1 RECITALS CORRECT. The recitals and statements of intent
----------------
appearing in this Agreement are true and correct.
8.2 VALID EXISTENCE. Borrower is a limited liability company, duly
---------------
organized, validly existing and in good standing under the laws of the State of
California. AKGI is a corporation, duly organized, validly existing and in good
standing under the laws of the State of California and is a member of Borrower.
KGK is a corporation duly organized, validly existing and in good standing under
the laws of the State of California and is a member of Borrower.
8.3 OWNER AND AUTHORITY. Borrower has full power and authority to own
-------------------
its properties and assets and to carry on its business as now being conducted.
8.4 AUTHORIZATION. Borrower is fully authorized and permitted to enter
-------------
into this Agreement, to execute any and all documentation required herein, to
borrow the amounts contemplated herein upon the terms set forth herein and to
perform the terms of this Agreement, none of which conflicts with any provision
of law or regulation applicable to Borrower. The Construction Loan Documents
are, to the best of Borrower's knowledge, valid and binding legal obligations of
Borrower and each is enforceable in accordance with its terms, other than as
such enforceability may be subject to or limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium, similar laws relating or affecting
rights of creditors generally or general principles of equity (except to the
extent such laws, rights, remedies or principles are waivable by Borrower and
have been waived in the Construction Loan Documents). The Perfection
Certificate, delivered to Lender prior to the date hereof, was, on the date of
delivery, true and correct in all respects and no events have occurred since the
time of delivery which would make the Perfection Certificate inaccurate in any
respect.
8.5 LIENS EFFECTIVE. To the best of Borrower's knowledge, the liens,
---------------
security interests and assignments created by the Security Documents will, when
granted, be valid, effective, properly perfected and enforceable liens, security
interests and assignments.
8.6 NO BREACH. The execution, delivery and performance by Borrower of
---------
the Construction Loan Documents and all other documents and instruments relating
to the Construction Loan will not, immediately, or with notice, passage of time
or both, result in any breach of the terms or conditions of, or constitute a
default under, any agreement or instrument under which Borrower is a party or is
obligated. Borrower is not in default in the performance or observance of any
obli-
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<PAGE>
gations, covenants or conditions of any such agreement or instrument and there
exists no events which, with notice, passage of time or both, would constitute
such default.
8.7 ALL LICENSES. Borrower has obtained and there remain in full force
------------
and effect all licenses, permits, consents, approvals and authorizations
necessary or appropriate for the construction of the Improvements and all
licenses, permits, consents, approvals and authorizations necessary or
appropriate for the management and operation of the Improvements for their
intended purpose, to the fullest extent required as of the date hereof.
8.8 NO LITIGATION. No litigation, proceeding or investigation is
-------------
pending or, to the best of Borrower's knowledge, threatened which might result
in any material adverse change in the business, property or financial condition
of Borrower or Guarantor, or in any liability on the part of Borrower or
Guarantor, or which would question the validity of the Construction Loan or of
the documentation described herein, or of any action taken or to be taken
pursuant to or in connection herewith, or that might materially and adversely
affect the performance by Guarantor of the Guarantee or the performance by
Borrower of this Agreement, or of the other Construction Loan Documents.
8.9 ALL STATEMENTS CORRECT. All financial statements, profit and loss
----------------------
statements, statements as to ownership and other statements or reports
previously or hereafter given to Lender by or on behalf of Guarantor and
Borrower are and shall be true, complete and correct, in all material respects,
as of the date thereof. There has been no material adverse change in the
financial condition or the results of the operation of Borrower or Guarantor
since the latest financial statements of Borrower or Guarantor given to Lender.
8.10 TAX RETURNS FILED. Borrower and Guarantor have filed all federal,
-----------------
state and local tax returns and have paid all of their respective current
obligations before delinquent, including all federal, state and local taxes and
all other payments required under federal, state or local law.
8.11 NO ASSUMED NAMES. Borrower is not operating its business
----------------
under any assumed or fictitious name.
8.12 EQUIPMENT; MOTOR VEHICLE TITLE. As of the date of this Agreement,
------------------------------
none of the equipment comprising the Collateral is a "motor vehicle" under
applicable law with respect to which a certificate of title or similar document
or instrument has been or must be issued, or will be used or operated in a
manner which would require issuance of a certificate of title or similar
document or instrument.
8.13 GUARANTEE. To the best of Borrower's knowledge, the
---------
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<PAGE>
Guarantee constitutes a legal, and valid and binding obligation of Guarantor,
enforceable in accordance with its terms, other than as such enforceability may
be subject to or limited by bankruptcy, insolvency, reorganization, arrangement,
moratorium, similar laws relating or affecting rights of creditors generally or
general principles of equity (except to the extent such rights, laws, remedies
or principles are waivable by Guarantor and have been waived by Guarantor).
8.14 NO LABOR OR MATERIAL. Borrower warrants that no labor or material
--------------------
was furnished for construction of the Improvements which would give rise to a
lien that would be superior to the First Mortgage or Second Mortgage.
8.15 ZONING. The Real Property is properly zoned for the Improvements
------
and their intended use as a time-share resort and such zoning is final and not
subject to challenge.
8.16 BROKER. Borrower has not utilized any broker, finder or like
------
person in connection with the Construction Loan, Receivables Loan or Working
Capital Loan to whom there may be owed any commission, finder's fee or other
compensation as a result of the Closing of the Construction Loan, Receivables
Loan or Working Capital Loan.
8.17 VALIDITY OF AGREEMENTS. Each of the Material Agreements are (i)
----------------------
in full force and effect; and (ii) have not been modified, amended, altered
or changed in any manner except to the extent that such modifications,
amendments, alterations or changes have been delivered to Lender prior to
the date hereof. Any conditions precedent to STRA's obligation under the
DDA, which are required to be satisfied on or prior to the Closing Date,
have been satisfied or waived. Any conditions precedent to Chevron U.S.A.
Inc.'s and Chevron U.S.A. Products Company's obligation under the Chevron
Environmental Indemnity, which are required to be satisfied on or prior to
the Closing Date, have been satisfied or waived. Any conditions precedent
to STRA's obligation under the STRA Environmental Indemnity, which are
required to be satisfied on or prior to the Closing Date, have been
satisfied or waived. Any conditions precedent to City's obligation under
the Development Agreement, which are required to be satisfied on or prior
to the Closing Date, have been satisfied or waived. The Borrower is not in
default under any of the Material Agreements and, to the best of Borrower's
knowledge, none of the other parties to the Material Agreements will be in
default of any of their respective obligations thereunder upon Borrower's
acquisition of the Real Property. To the best of Borrower's knowledge, STRA
will not be in default in the performance of any its obligations under the
Project Documents (as defined in the DDA) upon Borrower's acquisition of
the Real Property.
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<PAGE>
8.18 REAFFIRMATION. Each request by Borrower for an Advance shall
-------------
constitute an affirmation on the part of Borrower that the representations and
warranties contained herein are true and correct as of the time of such request
and that the conditions precedent set forth in Sections 6 and 7 hereof have
----------- -
been fully satisfied. All representations and warranties made herein shall
survive the execution of this Agreement, all Advances and the execution and
delivery of all other documents and instruments in connection with the
Construction Loan, so long as Lender has any commitment to lend to Borrower
hereunder and until the Construction Loan and all indebtedness hereunder have
been paid in full and all of Borrower's obligations hereunder have been fully
discharged.
9. AFFIRMATIVE COVENANTS
---------------------
So long as Lender has any commitment to lend to Borrower hereunder and
until the Construction Loan and all other indebtedness hereunder have been paid
in full and all of Borrower's obligations hereunder have been fully discharged:
9.1 PAYMENT BY BORROWER. Borrower shall promptly pay for all labor,
-------------------
materials, equipment and fixtures used in connection with the construction of
the Improvements and all other costs relating to the Improvements.
9.2 COMMENCEMENT AND COMPLETION. Borrower shall (a) commence
---------------------------
construction of Phase I no later than 30 days following the Closing Date, and
cause Completion of Phase I to occur on or before June 30, 1997, subject however
to delays resulting from acts of Force Majeure; (b) commence construction of
Phase II no later than July I, 1997 and cause completion of Phase II to occur on
or before April 30, 1998, subject however to delays resulting from acts of Force
Majeure; (c) commence construction of Phase III no later than July 1, 1998 and
cause Completion of Phase III to occur on or before April 30, 1999, subject to
delays resulting from acts of Force Majeure; (d) permit no material deviations
to occur in the progress, timing or completion of construction of the
Improvements; (e) otherwise abide by the Job Progress Schedule in all respects;
and (f) complete the construction of the Improvements in a good and workmanlike
manner substantially according to the Plans and Specifications, free from all
liens and encumbrances (other than the Permitted Exceptions), and in accordance
with the DDA and the Development Agreement, all applicable ordinances and
statutes, including zoning laws, all covenants, conditions and restrictions
running with the land, all regulations and building codes of any governmental or
municipal agency having jurisdiction over the Improvements. A material deviation
in the progress, timing or completion of construction of the Improvements shall
be deemed to occur if there occurs a delay, at any point, of more than 30 days
in the progress, timing or completion as set forth in the Job Progress Schedule
(exclusive of delays resulting from acts of Force Majeure). Construction of a
particular Phase shall be deemed commenced upon the digging of the footings for
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<PAGE>
the foundation.
9.3 MATERIAL AGREEMENTS. Borrower will keep and perform all of its
-------------------
material obligations to be kept and performed by it under each of the Material
Agreements and will diligently enforce all material obligations to be kept and
performed by each other party under the Material Agreements. Without the prior
written consent of Lender, Borrower will not modify, amend, alter or change, in
any material respect, any of the Material Agreements or cancel or terminate the
Material Agreements. Borrower will do all things necessary and proper to keep
each of the Material Agreements in effect. Borrower will furnish Lender with
copies of all notices of default given or received by Borrower concurrently with
the giving of the same by Borrower or as soon as reasonably possible following
the Borrower's receipt thereof.
9.4 ENFORCEMENT OF CONSTRUCTION CONTRACT. Borrower shall strictly
------------------------------------
enforce all material provisions of the contract(s) for the construction of the
Improvements to ensure that the contractor is required to promptly and
diligently perform all of its obligations thereunder and in such a manner as to
preserve Lender's security in the Real Property and Improvements. No material
change, amendment or modification shall be made to such contract(s) without the
prior written consent of Lender.
9.5 LISTS OF CONTRACTORS. Borrower, promptly upon request of Lender
--------------------
from time to time, shall furnish to Lender correct lists of the General
Contractor and all Subcontractors. Each such list shall show the name, address
and telephone number of each such person, a general statement of the nature of
the work to be done, the labor and materials to be supplied, and the approximate
dollar value of such labor or work with respect to each. Lender shall have the
right to telephone or otherwise communicate with the General Contractor and each
Subcontractor to verify the facts disclosed by said list or by any Disbursement
Request, or for any other purpose.
9.6 NO SECURITY INTERESTS. No materials, equipment, fixtures or any
---------------------
other part of the Improvements, or articles of personal property placed in the
Improvements, shall be purchased or installed under any security agreement or
other arrangements wherein the seller reserves or purports to reserve the right
to remove or to repossess any such items or to consider them personal property
after their incorporation into the Improvements.
9.7 MAINTENANCE OF LICENSES AND ZONING. Borrower shall timely obtain
----------------------------------
and maintain in full force and effect all rights, permits, governmental
authorizations and licenses necessary to carry on its business, and all permits,
licenses, consents and approvals necessary for the construction, maintenance and
operation of the Improvements. Borrower shall maintain its present existence and
shall maintain
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executive personnel and management at a level of experience and ability
equivalent to present personnel and management. Borrower shall not change the
present zoning of the Real Property and shall give Lender written notice in the
event such zoning is being challenged.
9.8 MAINTENANCE OF INSURANCE. Borrower will maintain and deliver
------------------------
evidence to Lender of such insurance required by Lender, written by insurers,
and in amounts and forms satisfactory to Lender. Borrower shall maintain in full
force and effect at all times all insurance coverages required to be provided
hereunder.
9.9 PAYMENT OF BILLS; MAINTENANCE OF RECORDS. Borrower shall pay
----------------------------------------
all bills when due, keep books and records in accordance with generally accepted
accounting principles, consistently applied, and will permit a representative on
behalf of Lender to examine and audit the books of its business. Borrower shall
immediately inform Lender of any litigation involving Borrower, the adverse
determination of which might prejudice repayment of the Construction Loan.
9.10 COMPLIANCE WITH CONSTRUCTION LOAN DOCUMENTS. Borrower shall make
-------------------------------------------
all payments of interest and principal due under the Construction Loan and shall
keep and comply with all covenants, terms and provisions of the Construction
Loan Documents.
9.11 PUBLICITY. After the execution of this Agreement, any and all
---------
publicity releases to newspapers of general or limited circulation or trade
publications announcing any of the financing by Lender provided for herein shall
be issued by or subject to prior written approval by Lender. Lender, at its
option and at Borrower's expense, may erect a sign upon the Real Property
indicating that Lender is the source of the financing of the construction of the
Improvements. The foregoing notwithstanding, Lender shall not erect its own sign
upon the Real Property in the event Borrower erects a sign indicating that
Lender is the source of the financing for construction of the Improvements and
Lender has given its prior written approval as to contents of such sign. In
addition, Lender is authorized to issue appropriate press releases and cause a
tombstone to be published announcing the consummation of the Construction Loan
and the aggregate amount thereof.
9.12 MECHANIC'S LIEN FILING PERIOD. To the extent there is a procedure
-----------------------------
available under the laws of the State of California which operates to shorten
the period within which a mechanic or materialman may perfect a mechanics' or
materialman's lien against the Real Property, Borrower will comply with such
procedure.
9.13 FURTHER ASSURANCES. Borrower shall execute and deliver to Lender
------------------
such other instruments and documents and do such other acts as Lender may
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reasonably require in connection with this Loan.
9.14 INDEBTEDNESS OWED TO AFFILIATED PARTIES. Borrower shall cause any
---------------------------------------
and all Affiliate Indebtedness to be subordinated in all aspects to Borrower's
indebtedness to Lender in the manner and to the extent set forth in Paragraph
---------
10.8.
- ----
9.15 ENVIRONMENTAL MATTERS. Borrower shall furnish to Lender, promptly
---------------------
upon receipt thereof, a copy of (i) any notice of any violation or
administrative or judicial complaint or order having been filed or about to be
filed against Borrower, the Real Property or any other real property used by
Borrower alleging violations of any law, ordinance and/or regulation requiring
Borrower to take any action in connection with the release, transportation
and/or clean-up of any hazardous, toxic or dangerous waste, substance or
material ("Hazardous Materials"), or (ii) any notice from any governmental body
or any other person or entity alleging that Borrower is or may be liable for
costs associated with a response or clean-up of any Hazardous Materials or any
damages resulting from such release or transportation. Borrower, at its sole
cost and expense, shall comply in all material respects with the foregoing
notices or diligently contest in good faith by appropriate proceedings any
demands set forth in such notices and, in all events, shall at all times comply
in all material respects with, and be responsible for, all environmental laws
applicable to the Real Property and any other real property used or leased by
Borrower.
9.16 COMPLIANCE WITH LAW. Until all of Borrower's obligations under
-------------------
the Construction Loan Documents have been fully paid and discharged, Borrower
shall comply with (i) all laws, ordinances, regulations, rules, covenants,
conditions and restrictions affecting Borrower, the Real Property, the
Improvements or any other Collateral (other than where a failure to so comply
will not adversely affect Lender's ability to realize upon the Collateral,
materially adversely affect the construction of the Improvements or the
financial or business condition of the Borrower or the ability of Borrower to
complete performance of all obligations of Borrower to Lender) and (ii) all
laws, rules and regulations relating to environmental matters.
9.17 ENVIRONMENTAL PROVISIONS. Within forty-five (45) days following
------------------------
the end of each quarterly fiscal period of Borrower, Borrower shall deliver to
Lender a report, certified correct to the best of Borrower's knowledge, setting
forth the remediation progress being made under the Chevron Environmental
Indemnity and, if applicable, the STRA Environmental Indemnity and the expected
delivery date of a "No Further Action" letter from the applicable regulatory
authorities (if any such letter is expected or anticipated) with regard to the
environmental contamination on the Real Property, together with copies of
reports, laboratory results and communications with the applicable regulatory,
authorities concerning such contamination, to the extent within the possession
or control of Borrower.
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9.18 REPORTS.
--------
(a) Borrower shall maintain a standard, modern system of
accounting and shall keep and maintain all books and records in accordance
with generally accepted accounting principles on a consistent basis.
(b) Borrower shall furnish or cause to be furnished to Lender,
as soon as the same are available, and in any event within 110 days after
the end of each fiscal year and within 45 days after the end of each
interim quarterly fiscal period of the subject, a copy of the current
financial statements of each of Borrower, Guarantor and the Association.
Such financial statements shall contain a balance sheet as of the end of
the relevant fiscal period and statements of income and cash flows for such
fiscal period (together, in each case, with the comparable figures for the
corresponding period of the previous fiscal year, if available), all in
reasonable detail, prepared in accordance with GAAP. All annual financial
statements of Borrower and the Association required pursuant hereto shall
be audited by a certified public accountant, shall be certified to by said
certified public accountant and shall be accompanied by the accountant's
work papers. All annual financial statements of Guarantor shall be reviewed
by a certified public accountant; provided, however, that upon the giving
--------- -------
of written notice by Lender to each of Borrower and Guarantor, the annual
financial statements of Guarantor thereafter supplied to Lender (commencing
with the fiscal year ending at least thirty (30) days beyond the giving of
such notice) shall be audited by a certified public accountant, shall be
certified to by such public accountant and shall be accompanied by the
accountant's work papers). In addition to the foregoing, all financial
statements required pursuant hereto shall be certified correct by the
individual who is the subject of such statements, or the chief financial
officer or general partner, as the case may be, of the subject of such
statements. The financial statements of Borrower shall also contain in
reasonable detail a statement of income and expenses covering the operation
of the Real Property. Together with such financial statements, Borrower
shall deliver to Lender a certificate signed by the chief financial officer
or managing general partner, as the case may be, of Borrower stating that
to the best of his knowledge, after inquiry, there exists no Event of
Default or Incipient Default or, if any such Event of Default or Incipient
Default exists, specifying the nature and period of existence thereof and
what action Borrower proposes to take with respect thereto. Together with
such financial statements, Borrower shall also deliver to Lender a
certificate of its chief executive officer certifying that (other than with
respect to matters that are within the scope of the Chevron Environmental
Indemnity or the STRA Environmental Indemnity) Borrower is in compliance
with all Applicable Environmental Laws or in the event of noncompliance,
specifying the nature
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and period of the existence of such noncompliance.
(c) Borrower shall, at its expense, (i) permit Lender and its
representatives at all reasonable times to inspect, audit an copy, as
appropriate, the Real Estate, Borrower's facilities, activities, books of
account, logs and records; (ii) cause its employees, agents and accountants
to give their full cooperation and assistance in connection with any such
visits of inspection or financial conferences; and (iii) make available
such further information concerning its business and affairs as Lender may
from time to time reasonably request.
(d) Upon request, Borrower shall furnish to Lender reports
that Borrower has received from STRA under the DDA advising Borrower with
respect to the retirement, acquisition and transfer of TAU's and Sewer
Units under the DDA.
9.19 COVENANTS. Borrower hereby covenants and agrees as follows
---------
during the Term hereof:
(a) As of the end of each fiscal quarter of Borrower, Borrower
shall maintain a net worth, calculated in accordance with GAAP, of at least
$7,500,000. The foregoing covenant shall be tested quarterly beginning with
the quarter year ending December 31, 1996.
(b) Marketing Expenses associated with the marketing and sale
of Time-Share Interests shall not exceed 50% of Net Sales, determined
quarterly. The foregoing covenant shall be tested quarterly, commencing
December 31, 1996. Each of the tests conducted as of the end of December
31, 1996 and March 31, 1997 shall cover the period from the Closing Date
through the end of the relevant quarter. Commencing with the test for June
30, 1997, and thereafter throughout the term hereof, the foregoing covenant
shall be tested quarterly, on a rolling twelve (12) month basis.
(c) Borrower's General and Administrative Expenses shall not
exceed 10% of Net Sales. The foregoing covenant shall be tested quarterly,
commencing December 31, 1996. Each of the tests conducted as of the end of
December 31, 1996 and March 31, 1997 shall cover the period from the
Closing Date through the end of the relevant quarter. Commencing with the
test for June 30, 1997, and thereafter throughout the term hereof, the
foregoing covenant shall be tested quarterly, on a rolling twelve (12)
month basis.
9.20 NOTICES FROM GOVERNMENTAL BODIES. Borrower will
--------------------------------
immediately upon receipt thereof, give to Lender copies of any notices received
by
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Borrower from any governmental or regulatory body or entity regarding or
affecting any license, permit, consent or approval described in Paragraph
---------
6.3(xii).
- --------
9.21 DYNAMIC LOAN. Borrower shall (i) keep and perform all obligations
------------
to be kept and performed by it under the Dynamic Loan Documents; (ii) not
modify, amend, alter or change the Dynamic Loan Documents in any material
respect; (iii) not incur any additional indebtedness, which if incurred, would
be secured by the Dynamic Loan Document; and (iv) furnish Lender with copies of
all notices given or received by Borrower under the Dynamic Loan Documents
concurrently with the giving of the same or as soon as is reasonably following
Borrower's receipt thereof.
9.22 TITLE ENDORSEMENT. At such time as each Phase has been Completed,
-----------------
Borrower shall obtain, at its sole cost and expense, a lenders comprehensive
endorsement (CLTA Form 100) to Lender's title insurance policy with respect to
such Phase.
9.23 BUILDING PERMITS. On or before May 10, 1996, Borrower agrees to
----------------
obtain and deliver to Lender a copy of the "foundation only" building permit
with respect to the construction of Phase I and on or before May 15, 1996 obtain
and deliver to Lender a "full building" permit with respect to the construction
of Phase I. Other than the initial Advance made on April 30, 1996, no further
Advances shall be made until the conditions in this paragraph have been
satisfied.
10. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that so long as Lender has any
commitment to make advances of the Construction Loan and until such time as the
Construction Loan has been paid in full and all of Borrower's obligations
hereunder have been fully discharged, Borrower shall not, without receiving the
prior written consent of Lender, which consent as to Paragraphs 10.1, 10.2 and
---------------------
10.8 hereof, may be withheld is Lender's sole discretion:
- ----
10.1 DISSOLUTION, MERGER OR THE LIKE. Dissolve or liquidate, or merge
-------------------------------
or consolidate with or into any other entity, transfer to any person or entity,
the right to control Borrower or Guarantor, turn over the management or
operation of the property, assets or business of Borrower or Guarantor to any
other person or entity, or permit any of the foregoing events to occur. The
foregoing notwithstanding, Borrower may engage an independent third-party
management company to manage the Improvements, provided Lender has approved such
manager.
10.2 TRANSFER OR CONVEYANCE. Other than as permitted or
----------------------
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<PAGE>
contemplated in the First Mortgage or Second Mortgage and other than the rental,
in the ordinary course of business, of units in the Improvements, assign, sell,
transfer or otherwise convey any of its right, title and interest in any
property whether real or personal (including, without limitation, the
Collateral); guarantee or become otherwise primarily, secondarily or
contingently liable for the payment of any obligation of a third party; incur
any debt except for liabilities incurred in the ordinary course of business; or
create or suffer to be created any mortgage, pledge, security interest,
encumbrance or other lien on any property encumbered by the Security Documents.
10.3 PLANS AND SPECIFICATIONS. Make or permit any change in the Plans
------------------------
and Specifications except changes that: (i) in the case of any building or
structure, are for non-structural changes and are otherwise not of a material
nature, (ii) do not change the nature of the Improvements or reduce or adversely
affect the quality of the Improvements, (iii) do not increase the costs of the
Improvements by more than $25,000 or together with all other changes do not
increase the costs of the Improvements by more than $150,000. Proposed changes
shall be submitted on AIA Construction Change Authorization Form G713 and
accompanied by a copy of the portion of the Plans and Specifications applicable
to the changes. Prior to implementing any change order, Borrower shall deposit
with Lender sufficient cash to cover the cost of all change orders to the extent
that the costs of the Improvements, after taking into account such change order,
then to be completed is more than the remaining undisbursed proceeds of the
Construction Loan, plus the then existing and undisbursed balance of the Equity.
All such funds deposited with Lender shall be held and disbursed in the manner
provided in Paragraph 7.3 hereof and are hereby assigned to Lender as additional
-------------
security for the Construction Loan and all other indebtedness of Borrower
arising hereunder.
10.4 FISCAL YEAR. Change the times of commencement or termination of
-----------
its fiscal year or other accounting periods; or change its methods of accounting
other than to conform to generally accepted accounting principles applied on a
consistent basis.
10.5 FICTITIOUS NAMES. Conduct its business under any names (other
----------------
than Lake Tahoe Resort Partners) or use any trade names or fictitious names,
without in each case giving Lender thirty (30) days prior written notice of any
such change.
10.6 COMPETITIVE PROJECTS. Until such time as all of the Obligations
--------------------
under and arising out of the Construction Loan Documents, together with the
Working Capital Loan and the Incentive Fee, excluding the Receivables Loan, have
been paid and satisfied in full, and Lender has no further obligation to make
any advances of the Construction Loan or Working Capital Loan, Borrower shall
not, without the prior
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written consent of Lender, develop or permit any of its Affiliates to develop a
time-share resort in or around the Lake Tahoe resort area.
10.7 OTHER ACTIVITIES. Engage in any business activities or acquire
----------------
any assets, other than those activities and assets that are directly related to
the development, ownership and operation of the Real Property and the sales and
marketing of Time-Share Interests therein.
10.8 DISTRIBUTIONS. Pay or make any Distributions to its officers,
-------------
partners, members or any Guarantor or to any relatives or Affiliates of
Borrower, of any Guarantor or of any other of the foregoing. The foregoing
notwithstanding, on the condition that:
(i) There does not then exist an Event of Default or an
Incipient Default; and
(ii) Prior to the incurring of any obligation to make a
Distribution, Borrower has caused the proposed recipient of such
Distribution (the "Affiliated Party") to have entered into a
----------
Subordination Agreement in form and substance satisfactory to Lender
(the "Affiliate Debt Subordination Agreement") pursuant to which the
--------------------------------------
Affiliated Party agrees (A) that it shall not exercise any rights
against Borrower or against any of the collateral securing the
Construction Loan, the Receivables Loan or the Working Capital Loan
unless and until the date that all of the obligations of Borrower.
under and with respect to the Construction Loan, Receivables Loan and
Working Capital Loan have been fully paid, performed and discharged;
(B) that any entitlement to a Distribution is and shall be fully
subordinated as to right and time of payment to the payment in full of
the Construction Loan, the Receivables Loan and the Working Capital
Loan and (C) that upon and during the continuance of an Event of
Default or an Incipient Default, no Distributions shall be permitted,
made, demanded or accepted;
the following Distributions shall be permitted:
(x) Such Distribution is made to each of KGK and AKGI in
their capacity as members of the Borrower, but not to any other
members of Borrower, no more frequently than quarterly in an amount
sufficient for the payment of federal and state income taxes payable
by such member with respect to a tax year of Borrower (a "Tax Year")
resulting from the inclusion in such members' taxable income of the
member's share of taxable income of Borrower for that Tax Year,
subject to reasonable assumptions as to the marginal tax bracket to
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which the members of Borrower generally are subject (the "Tax
Amount"). Notwithstanding the foregoing, if for any prior Tax Year of
the Borrower, the Borrower had a loss for tax purposes which, under
tax laws then in effect, would offset taxable income (which loss has
not been previously used to offset taxable income in accordance with
this sentence), then for purposes of determining the Tax Amount for
the current Tax Year, the taxable income of the Borrower for the
current Tax Year shall be reduced by the amount of such loss. On or
about the fifth (5th) day prior to each date on which estimated
federal income tax payments are required to be paid by the members of
Borrower, Borrower may make a distribution to the members which,
together with prior distributions for the Tax Year on account of the
Tax Amount, shall not exceed the applicable percentage (which shall be
25%, 50%, 75%, and 100% for the first, second, third and fourth
calendar quarters, respectively) of a reasonable estimate of the Tax
Amount. If, at the end of the Tax Year, the aggregate estimated
quarterly distributions exceed the actual Tax Amount for such Tax
Year, future quarterly tax distributions shall cease with respect to
the affected members until such excess amount has been fully
recaptured or until the excess amount has been repaid by the affected
members to the Borrower;
(xi) Such Distribution is made in an amount equal to or less
than 100% of the lesser of Borrower's Cash Flow or Net Income, with
respect to the period in which such Distribution is to be made;
provided however, that no Distribution shall be permitted under this
-------- -------
clause (xi) until such time as the Incentive Fee, the Working Capital
Loan, the Construction Loan and all other obligations under the
Construction Loan Documents have been paid in full and until such time
as Lender has no further obligation to make any advances of the
Working Capital Loan and Construction Loan; and
(xii) Such Distribution is made in an amount necessary to
reimburse or repay a member or Affiliate of Borrower who has made an
advance or loan for the benefit of Borrower to pay Project costs for
items and in amounts consistent with the Construction Budget as
approved by Lender. The provisions of this subparagraph shall not,
however, be used as a basis to return to any member or Affiliate any
Loan Balancing Equity contributed by such member or Affiliate to
Borrower unless and until each of the following conditions have been
satisfied: (i) after taking into account the making of such
Distribution, Lender determines, in its sole discretion, that the
remaining undisbursed proceeds of the Construction Loan, plus the then
existing and undisbursed balance of the Loan Balancing Equity will be
sufficient to
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pay the total cost for completion of the Improvements, (ii) the
Distribution is in the amount no greater than the then undisbursed
amount of Loan Balancing Equity and (iii) both before and after taking
into account the making of such Distribution there does not exist an
Event of Default or Incipient Default, including, without limitation,
a default by virtue of Borrower's failure to comply with the net worth
covenant in Paragraph 9.19(a) hereof.
-----------------
11. INSPECTION BY LENDER: STOPPAGE OF CONSTRUCTION
----------------------------------------------
11.1 INSPECTION. Lender, either through its employees or its
----------
independent representatives, shall have the right, but not the obligation, to
enter at any reasonable times upon the Real Property and Improvements to
determine if the construction of the Improvements is in conformity with the
Plans and Specifications and all other requirements hereof and to examine and
make copies and extracts of any books, records, accounting data and other
documents, including without limitation all permits, licenses, consents and
approvals of governmental authorities having jurisdiction over Borrower, the
Improvements and the contractor and all subcontractors supplying labor and/or
materials in connection with the Improvements.
11.2 INDEPENDENT INSPECTOR. Borrower acknowledges that Lender will be
---------------------
hiring Lender's Inspector for the purpose of assisting Lender in approving the
Plans and Specifications, budgets, draw requests, construction contracts,
architectural contracts and for purposes of making monthly inspections as the
construction of the Improvements progresses. Borrower and Lender agree that the
fees and expenses of Lender's Inspector, and of any other independent inspector,
architect or engineer of Lender's choosing providing any service on behalf of
Lender in connection herewith shall be borne by Borrower, shall be payable on
demand, may be withheld by Lender from the proceeds of the Construction Loan,
and shall be included as a line item on Borrower's budget. Notwithstanding the
foregoing, Lender shall have no duty to supervise or inspect any of the
foregoing; any inspection by Lender shall be for the sole purpose of protecting
Lender's security and preserving Lender's rights hereunder. Failure by Lender to
inspect any work shall not constitute a waiver of any of Lender's rights
hereunder. Inspection not followed by notice of an Event of Default shall not
constitute a waiver of any Event of Default then existing. Any inspection by
Lender shall not be a representation by Lender that there has been or will be
compliance with the Plans and Specifications or that the construction is free
from defective materials or workmanship, nor shall any inspection by Lender
constitute approval of any certification given to Lender or relieve any person
making such certification of responsibility therefor.
11.3 STOPPAGE OF CONSTRUCTION. Upon discovery by Lender of any
------------------------
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material deviation from the Plans and Specifications or of defective or
unworkmanlike labor or materials being used in the construction of the
Improvements, Lender may immediately order stoppage of construction and demand
that any unsatisfactory work be replaced and that the condition be corrected,
whether or not any unsatisfactory work has already been incorporated into the
Improvements. After issuance of such an order in writing, the condition shall be
corrected within fifteen (15) days from the date of stoppage by Lender. Lender
shall have the right to withhold all further Advances until the condition is
corrected and no other work shall be done on the Improvements without the prior
written consent of Lender unless, and until, such condition has been fully
corrected.
11.4 APPOINTMENT OF LENDER. Borrower irrevocably appoints, designates,
---------------------
and authorizes Lender as its agent (said agency being coupled with an interest)
to file for record any notices of completion or any other notice that Lender
deems necessary or desirable to protect its interest hereunder or under the
Security Documents. This power of attorney is solely for the benefit and
protection of Lender, its successors and assigns and Lender shall have no
obligation to exercise this power in any event. This power of attorney is a
power coupled with an interest and shall be irrevocable so long as any part of
the Construction Loan or any indebtedness or obligations of Borrower to Lender
arising in connection with the Construction Loan remain unpaid or unperformed.
12. WAIVER; ISSUES REGARDING MORTGAGES
----------------------------------
12.1 WAIVER BY BORROWER. Borrower waives presentment, demand, protest
------------------
and notices of protest, nonpayment, partial payment and all other notices and
formalities except as expressly called for in this Agreement. Borrower consents
to and waives notice of: (i) the granting of indulgences or extensions of time
of payment, (ii) the taking or releasing of security, and (iii) the addition or
release of persons who may be or become primarily or secondarily liable for the
Construction Loan or any other indebtedness arising in connection with the
Construction Loan, or any part thereof, and all in such manner and at such time
as Lender may deem advisable.
12.2 DELAYS OR OMISSIONS BY LENDER. No delay or omission by Lender in
-----------------------------
exercising any right, power or remedy hereunder, and no indulgence given to
Borrower, with respect to any condition set forth herein, shall impair any
right, power or remedy of Lender under this Agreement, or be construed as a
waiver by Lender of, or acquiescence in, any Event of Default. Likewise, no such
delay, omission or indulgence by Lender shall be construed as a variation or
waiver of any of the terms or provisions of this Agreement. Any actual waiver by
Lender of any Event of Default shall not be a waiver of any other prior or
subsequent Event of Default or of the same Event of Default after notice to
Borrower demanding strict performance.
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12.3 RELEASE OF MORTGAGES. At such time as:
--------------------
(i) the Working Capital Loan, Construction Loan, Incentive Fee and
all other obligations due and owing to Lender under the Construction Loan
Documents (other than the Receivables Loan) have been paid and satisfied in full
and Lender has no further obligation to make any further advances of the
Construction Loan or the Working Capital Loan,
(ii) there does not then exist an Event of Default or Incipient
Default,
(iii) Borrower is desirous of developing additional portions of the
Real Property and Lender did not issue a financing proposal to Borrower, as
contemplated in Paragraph 12.5 hereof to provide such construction financing, or
--------------
if such financing proposal was issued, Borrower or Lender are unable or
unwilling to close such financing; and
(iv) Borrower is in a position to close a construction loan with
another construction lender who has agreed to finance such development,
Lender will release the Real Property and the Improvements from the lien of the
First Mortgage and the Second Mortgage concurrently with the closing by Borrower
of such construction loan (but not before). In the event Lender is obligated to
release the lien of the First Mortgage and Second Mortgage as provided in this
paragraph, Lender will, upon the request of Borrower, assign the First Mortgage
and the Second Mortgage to Borrower's construction lender provided that Lender's
representations and warranties with regard to such assignment shall be limited
to (i) the valid organization of Lender, the authority of Lender to make such
assignment and (ii) the status of Lender's title to the First Mortgage and the
Second Mortgage. In conjunction with the release by Lender of the First Mortgage
and Second Mortgage, Lender will partially terminate its financing statement
with regard to the collateral that is within the scope of the First Mortgage and
Second Mortgage together with the collateral within the scope of the Collateral
Assignment of Project Rights and Documents.
12.4 MODIFICATIONS TO SECOND MORTGAGE. At such time as Borrower has
--------------------------------
satisfied in full the indebtedness secured by the Dynamic Loan Documents,
Borrower shall, upon the request of Lender, amend the Second Mortgage so that it
secures all of the Obligations, and not simply those that arise out of the
Construction Loan Documents. In connection with such amendment, Borrower shall
supply to Lender such title endorsements to Lender's title insurance policy as
Lender shall reasonably request, at Borrower's sole cost and expense.
12.5 OTHER CONSTRUCTION FINANCING. Lender shall have the right of
----------------------------
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first negotiation with Borrower in the event Borrower wishes to accept or seek
an offer from a third party to loan moneys to Borrower for the construction of
improvements on the Real Property. In the event Borrower desires to seek or
obtain such an offer, Borrower shall first give Lender written notice to that
effect and give Lender the opportunity, within 10 Business Days thereafter, to
issue a financing proposal to Borrower, before Borrower enters into a binding
agreement with such third party with respect to such financing. Borrower shall
have no obligation to accept any proposal made by Lender with respect to such
financing; provided that if Borrower obtains any such financing from a lender
other than Lender, such lender providing financing shall have entered into a
reasonable intercreditor agreement with Lender in form and substance reasonably
satisfactory to Lender.
13. DEFAULT
-------
13.1 EVENTS OF DEFAULT. The occurrence of any of the following events
------------------
or conditions shall constitute an "Event of Default" under this Agreement:
(a) Lender fails to receive from Borrower when due and payable
(i) any amount that Borrower is obliged to pay on the Construction Note or
(ii) any other payment due under the Construction Loan Documents; and such
failure shall continue for seven (7) days (with such seven (7) day period
running, as to the Construction Note, from the later of (i) the due date of
such installment or (ii) the date of mailing of Lender's invoice with
respect to such installment), except for the final installment due under
the Construction Note for which no grace period is allowed;
(b) any material representation or warranty contained in the
Construction Loan Documents or in any certificate furnished under the
Construction Loan Documents proves to be, in any material respect, untrue,
incorrect or misleading as of the date made or restated;
(c) there is a default in the performance of any of the terms
of Paragraphs 7.2, 9.8, 9.23 or 10.2 hereof or Borrower knowingly violates
------------------------- ----
or suffers or permits the violation of any of the warranties or conditions
of the policies of insurance required under Paragraph 9.8;
-------------
(d) there is a default in the performance of any term,
covenant or provision of the Construction Loan Documents (other than a
default or violation referred to elsewhere in this Paragraph 13.1) and such
--------------
default or violation continues unremedied (i) for a period of five (5) days
after the giving of notice thereof to Borrower in the case of any default
or violation which can be cured by the payment of money alone or (ii) in
the case of any other default or violation for a period of (A) thirty (30)
days after the giving of
-51-
<PAGE>
notice thereof to Borrower or (B) (in the event such default is not capable
of being cured within such thirty (30) day period) for a period not
exceeding sixty (60) days after the giving of such notice; provided
Borrower is diligently and in good faith pursuing such cure;
(e) an "Event of Default" as defined in any of the
Construction Loan Documents occurs, or an act or event occurs under any of
the Construction Loan Documents which is not cured within applicable notice
or grace periods, whether or not denominated as an "Event of Default,"
which expressly entitles Lender to exercise its remedies;
(f) any final, non-appealable judgment or decree for money
damages or for a fine or penalty is entered against Borrower, which is not
paid and discharged or stayed within thirty (30) days thereafter and, when
aggregated with other judgments or decrees that have remained unpaid and
undischarged or unstayed for such period, the sum of such judgments and
decrees is in excess of One Hundred Thousand Dollars ($100,000);
(g) any party holding a mortgagee's or beneficiary's interest
under a mortgage or deed of trust or any other lien or security interest on
any part of the Real Property commences foreclosure or sale thereof;
(h) (i) Borrower or any Guarantor becomes insolvent or
unable to pay its debts when due; generally fails to pay its debt when due;
files a petition in any bankruptcy, reorganization, winding-up or
liquidation proceeding or other proceeding analogous in purpose or effect;
applies for or consents to the appointment of a receiver, trustee or other
custodian for the bankruptcy, reorganization, winding-up or liquidation;
makes an assignment for the benefit of creditors; or admits in writing that
it is unable to pay its debts; (ii) any court order or judgment is entered
confirming the bankruptcy or insolvency of Borrower or any Guarantor or
approving any reorganization, winding-up or liquidation of such entity or
individual or a substantial portion of its assets; (iii) there is
instituted against Borrower or any Guarantor any bankruptcy,
reorganization, winding-up or liquidation proceeding or other proceeding
analogous in purpose or effect and the same is not dismissed within 60 days
after the institution thereof; or (iv) a receiver, trustee or other
custodian is appointed with regard to Borrower or any Guarantor, for any
part of the Real Property or for the assets of Borrower or any Guarantor;
(i) Borrower vacates or abandons the Real Property;
(j) performance by Borrower or any Guarantor of any material
obligation under this Agreement or under any Loan Document is
-52-
<PAGE>
rendered unenforceable in any material respect or any Guarantor repudiates,
rescinds, limits or annuls its guarantee;
(k) any material default by Borrower under any other agreement
evidencing, guaranteeing, or securing borrowed money or a receivables
purchase financing resulting in an acceleration of such indebtedness or
repurchase obligations, which accelerated repayment or repurchase
obligations are in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate;
(1) an "Event of Default" as defined in the Receivables Loan
Agreement occurs, or an act or event occurs under any of the Receivables
Loan Documents, which is not cured within applicable notice or grace
periods, whether or not denominated as an "Event of Default," which
expressly entitles Lender to exercise its remedies; or
(m) notwithstanding the limitations in Paragraph 13.1(k)
-----------------
above, the declaration of default with regard to the obligations of the
Borrower under any of the Material Agreements or under the Dynamic Loan
Documents, beyond any applicable cure or grace periods contained therein.
13.2 REMEDIES. Upon the occurrence of any Event of Default and at any
--------
time thereafter while such Event of Default is continuing, Lender may do one or
more of the following:
(a) Cease making Advances and declare the entire Construction
Loan and all other indebtedness of Borrower hereunder immediately due and
payable, without notice or demand;
(b) Proceed to protect and enforce its rights and remedies
under this Agreement, the Construction Note, and all Security Documents;
(c) Take over and complete construction of the Improvements by
or through any agent, contractor or subcontractor of its selection, and
make Advances in payment of the costs, expenses, fees, attorneys' fees and
other charges incurred in connection with such taking over and completion,
together with reasonable allowances for supervision;
(d) Avail itself of any remedies available to Lender under the
Receivables Loan Documents; and
(e) Avail itself of any other relief to which Lender may be
legally or equitably entitled.
-53-
<PAGE>
13.3 COSTS OF ENFORCEMENT. Borrower shall pay all costs and expenses,
--------------------
including without limitation costs of title searches and title policy
commitments, court costs and attorneys' fees, incurred in enforcing payment and
performance of the Construction Loan and the other indebtedness and obligation
of Borrower hereunder or in exercising the rights and remedies of Lender
hereunder. Such court costs and attorneys' fees shall be set by the court and
not by jury, shall be included in any judgment obtained by Lender and shall be
secured by the Security Documents.
14. ACTION UPON AGREEMENT
---------------------
14.1 NO THIRD PARTY BENEFICIARY. This Agreement is made for the sole
--------------------------
protection and benefit of the parties hereto and no other person or organization
shall have any right of action hereon.
14.2 ENTIRE AGREEMENT. This Agreement embodies the entire Agreement of
----------------
the parties with regard to the subject matter hereof. There are no
representations, promises, warranties, understandings or agreements expressed or
implied, oral or otherwise, in relation thereto, except those expressly referred
to or set forth herein. Borrower acknowledges that the execution and delivery of
this Agreement is its free and voluntary act and deed, and that said execution
and delivery have not been induced by, nor done in reliance upon, any
representations, promises, warranties, understandings or agreements made by
Lender, its agents, officers, employees or representatives (other than as set
forth in the Construction Loan Documents).
14.3 MODIFICATION IN WRITING. No promise, representation, warranty or
-----------------------
agreement made subsequent to the execution and delivery of this Agreement by
either party and no revocation, partial or otherwise, or change, amendment or
addition to, or alteration or modification of, this Agreement shall be valid
unless the same shall be in writing signed by all parties hereto.
14.4 NO JOINT VENTURE. Lender and Borrower each have separate and
----------------
independent rights and obligations under this Agreement. Nothing contained
herein shall be construed as creating, forming or constituting any partnership,
joint venture, merger or consolidation of Borrower and Lender for any purpose or
in any respect.
15. GENERAL
-------
15.1 SURVIVAL OF AGREEMENT. This Agreement shall survive the making of
---------------------
the Construction Loan and shall continue so long as any part of the
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<PAGE>
Construction Loan, or any extension or renewal thereof, remains outstanding.
15.2 RIGHTS OF LENDER. All rights, powers and remedies granted Lender
----------------
herein, or otherwise available to Lender, are for the sole benefit and
protection of Lender, and Lender may exercise any such right, power or remedy at
its option and in its sole and absolute discretion without any obligation to do
so. In addition, if, under the terms hereof, Lender is given two or more
alternative courses of action, Lender may elect any alternative or combination
of alternatives, at its option and in its sole and absolute discretion. All
monies advanced by Lender under the terms hereof and all amounts paid, suffered
or incurred by Lender in exercising any authority granted herein, including
attorneys' fees, shall be secured by the Security Documents, shall bear interest
at the Overdue Rate until paid, and shall be due and payable by Borrower to
Lender immediately without demand.
15.3 INDEMNIFICATION OF LENDER. Borrower shall indemnify and hold
-------------------------
Lender harmless from and against all claims, costs, expenses, actions, suits,
proceedings, losses, damages and liabilities of any kind whatsoever, including
but not limited to attorneys' fees and expenses, arising out of any matter
relating, directly or indirectly, to the Construction Loan, to the ownership,
development, construction, or sale of the Improvements, whether resulting from
internal disputes of the Borrower, disputes between the Borrower and any
guarantor, or whether involving other third persons or entities, or out of any
other matter whatsoever related to this Agreement, the Security Documents, or
any property encumbered thereby, but excluding any claim or liability which
arises as the direct result of the gross negligence or willful misconduct of
Lender. This indemnity provision shall continue in full force and effect and
shall survive not only the making of the Construction Loan and all Advances but
shall also survive the repayment of the Construction Loan and the performance of
all the Borrower's other obligations hereunder.
15.4 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than
---------------------------
one person or entity their liability shall be joint and several. This Agreement
shall apply to the parties hereto according to the context hereof and without
regard to the number or gender of words or expressions used herein.
15.5 TIME OF ESSENCE. Time is expressly made of the essence of
---------------
all of Borrower's obligations under this Agreement.
15.6 NOTICE. Any notice, demand or any other instruments authorized by
------
this Agreement to be served on or given shall be sufficiently served or given
for all purposes (a) when personally delivered to any officer of the party to
whom it is addressed or (b) the earlier of actual receipt or the date delivery
is first attempted and refused if sent by certified or registered mail, postage
prepaid, addressed to each party at its address set forth above, or at such
other address as has been furnished in writing
-57-
<PAGE>
by a party to the other in the manner provided in this Paragraph 15.6. A copy of
--------------
any notices given to Borrower shall also be given to:
Leo Rose III, Esq.
Schreeder, Wheeler & Flint
The Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1 845
15.7 COSTS AND EXPENSES OF LENDER. Borrower shall pay, upon demand,
----------------------------
all costs and expenses arising from the preparation of this Agreement, the
closing of the Construction Loan, the issuing of Lender's commitment to make the
Construction Loan, the making of Advances, or otherwise incurred by Lender in
connection with the Construction Loan, including but not limited to title
insurance premiums, other title company charges, recording fees, Lender's
attorneys' fees and costs, appraisal fees, survey costs, inspection costs and
fees both during construction or otherwise, escrow disbursement expenses, any
intangible or recording taxes, out-of-pocket travel expenses incurred by
Lender's agents and employees, environmental assessment fees, brokerage
commissions, and any other costs, expenses or charges that may be imposed on or
incurred by Lender as a result of this transaction.
15.8 GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL
------------------------------------------
BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OR ARIZONA.
BORROWER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND
ARISING DIRECTLY OR INDIRECTLY OUT OF THE LOAN DOCUMENTS SHALL BE LITIGATED IN
THE SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY DIVISION, OR THE UNITED STATES
DISTRICT COURT OF ARIZONA OR, IF LENDER INITIATES SUCH ACTION, IN ADDITION TO
THE FOREGOING COURTS, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION, TO
THE EXTENT SUCH COURT HAS JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED
BY LENDER IN ANY OF SUCH COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES
THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS TO
WHICH NOTICES ARE TO BE SENT PURSUANT TO THIS AGREEMENT. BORROWER WAIVES ANY
CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM
OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD BORROWER, AFTER
-56-
<PAGE>
BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR
PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING
THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE
ENTERED BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS,
COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET
FORTH IN THIS PARAGRAPH SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY
LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING BY LENDER OF
ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND
BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR
ACTION. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER ANY OF THE LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED THEREBY WOULD BE BASED UPON DIFFICULT. AND COMPLEX ISSUES AND,
THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH
CONTROVERSY SHALL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.
15.9 SUBSTITUTE PERFORMANCE. In the event that Borrower at any time
----------------------
fails to do or perform any act, or pay any amount, or take any action, when such
performance, payment or action is required hereunder (and, if applicable,
following the lapse of any grace or compliance period in which such payment,
performance or action may be taken by Borrower hereunder), then Lender may make
such payment or cause such performance or action to be taken, and all amounts
expended by Lender in making such payment or causing such performance or action
to be taken, together with all expenses incurred by Lender in connection
therewith shall be immediately due and payable by Borrower to Lender, the
payment and performance of which shall be an Obligation hereunder, and shall be
secured by the Collateral. All such amounts expended by Lender in making such
payment or causing such performance or action to be taken, together with all
expenses incurred by Lender in connection therewith, shall bear interest at the
Overdue Rate from the date incurred by Lender until paid.
15.10 SUCCESSORS AND ASSIGNS. This Agreement shall, except as herein
----------------------
otherwise provided, be binding upon and inure to the benefit of the successors
and assigns of the parties hereto.
15.11 HEADINGS. The headings or captions of sections in this Agreement
--------
are for convenience and reference only and in no way define, limit or describe
the scope or intent of this Agreement or the provisions of such sections.
-57-
<PAGE>
15.12 SALES OF INTERESTS IN LOANS. Lender, at any time, shall have the
---------------------------
right to sell participation interests in the Construction Loan and in any
documents and instruments executed in connection herewith. Lender is authorized
to furnish to any participant or prospective participant any information or
document that Lender may have or obtain regarding the Construction Loan,
Borrower or any guarantor of the Construction Loan.
15.13 MARGIN REQUIREMENTS. Borrower understands that the margin
-------------------
requirements of Federal Reserve Board Regulation "G" govern Lender's lending
activities and Borrower hereby warrants and represents that Borrower will not
directly or indirectly invest all or any part of the proceeds of the
Construction Loan in any security subject to the margin requirements of
Regulation "G." The warranty and representation contained in this Paragraph
shall survive the Closing Date.
IN WITNESS WHEREOF, these presents have been executed as of the
day and year set forth above.
"Borrower"
LAKE TAHOE RESORTS PARTNERS, LLC, a California
limited liability company
By: AKGI Lake Tahoe Investments, Inc.
a California corporation
Its Members
By: /s/ Thomas M. Smith
-------------------------
Name: Thomas M. Smith
Its: Vice President
"Lender"
FINOVA CAPITAL CORPORATION, a
Delaware corporation
By: /s/ Jack Fields, III
--------------------------
Its: Jack Fields, III
----------------------
Group Vice President
-58-
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------
NINE MONTHS ENDED
(UNAUDITED)
---------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Net Income:
As reported..... $ 10,913 $ 7,062 $ 10,061
Pro forma
adjustment:
Consolidation
Transactions/Public
Offering........
The Merger......
Pro forma net
income..........
Applicable common
shares:
Average
outstanding
common shares
during the
period.......... 11,354,705 11,354,705 12,219,128
Outstanding
stock options
(a)............. 102,631
Conversion of
AVCOM common
shares based
upon an
anticipated
closing date of
the Merger of
February 7,
1997............
---------- ---------- ----------
Adjusted
weighted average
number of common
and common share
equivalents
outstanding..... 11,354,705 11,354,705 12,321,759
---------- ---------- ----------
Net income per
common share..... $ 0.96 $ 0.62 $ 0.82
========== ========== ==========
Pro forma net
income per common
share............
<CAPTION>
PRO FORMA (UNAUDITED)
-----------------------------------------------------------------------------
NINE MONTHS ENDED
---------------------------------------------------
DECEMBER 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------------- ------------------------- -------------------------
CONSOLIDATION CONSOLIDATION CONSOLIDATION
TRANSACTIONS/ TRANSACTIONS/ TRANSACTIONS/
INITIAL INITIAL INITIAL
PUBLIC PUBLIC PUBLIC
OFFERING THE MERGER OFFERING THE MERGER OFFERING THE MERGER
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Income:
As reported..... $ 10,913 $ 10,913 $ 7,062 $ 7,062 $ 10,061 $ 10,061
Pro forma
adjustment:
Consolidation
Transactions/Public
Offering........ (1,250) (1,250) (730) (730) (1,308) (1,308)
The Merger...... 1,040 1,274 (1,974)
---------- ---------- ---------- ---------- ---------- ----------
Pro forma net
income.......... $ 9,663 $ 10,703 $ 6,332 $ 7,606 $ 8,753 $ 6,779
---------- ---------- ---------- ---------- ---------- ----------
Applicable common
shares:
Average
outstanding
common shares
during the
period.......... 17,392,205 17,392,205 17,392,205 17,392,205 17,392,205 17,392,205
Outstanding
stock options
(a)............. 102,631 102,631
Conversion of
AVCOM common
shares based
upon an
anticipated
closing date of
the Merger of
February 7,
1997............ 843,942 843,942 843,942
----------- ----------- ----------- ----------- ----------- -----------
Adjusted
weighted average
number of common
and common share
equivalents
outstanding..... 17,392,205 18,236,147 17,392,205 18,236,147 17,494,836 18,338,778
----------- ----------- ----------- ----------- ----------- -----------
Net income per
common share.....
Pro forma net
income per common
share............ $ 0.56 $ 0.59 $ 0.36 $ 0.42 $ 0.50 $ 0.37
=========== =========== =========== =========== =========== ===========
</TABLE>
- ----
(a) Based on the treasury stock method.
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of
Registration Statement No. 333-18447.
January 28, 1997
Orlando, Florida
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 31, 1996, except for Note 12, as to which the
date is July 1, 1996, with respect to the consolidated financial statements of
AVCOM International, Inc. included in Amendment No. 3 to the Registration
Statement (Form S-1, No. 333-18447) and related Prospectus of Signature Resorts,
Inc. for the registration of 4,600,000 shares of its common stock and $115
million of convertible subordinated notes.
ERNST & YOUNG LLP
Phoenix, Arizona
January 28, 1997
