<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
--------------- TO
--------------- .
COMMISSION FILE NUMBER 000-21193
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SUNTERRA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 95-4582157
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
</TABLE>
1875 SOUTH GRANT STREET, SUITE 650
SAN MATEO, CALIFORNIA 94402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
650-312-7171
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
SIGNATURE RESORTS, INC.
(FORMER NAME, IF CHANGED SINCE LAST REPORT.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of common stock outstanding of the issuer's Common Stock,
par value $0.01 per share as of August 1, 1998: 35,885,279.
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<PAGE> 2
SUNTERRA CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three and six
months ended June 30, 1998 and June 30, 1997................ 3
Consolidated Balance Sheets as of June 30, 1998 and December
31, 1997.................................................... 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and June 30, 1997....................... 5
Notes to the Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................... 9
PART II. OTHER INFORMATION
Item 4. Submission to a Vote of Security Holders.................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 15
Signatures........................................................... 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Vacation ownership sales................................. $ 86,055 $ 69,961 $ 157,542 $ 130,346
Interest income.......................................... 12,696 9,527 24,771 18,041
Other income............................................. 7,500 3,668 13,687 6,664
----------- ----------- ----------- -----------
Total revenues.................................... 106,251 83,156 196,000 155,051
----------- ----------- ----------- -----------
COSTS AND OPERATING EXPENSES:
Vacation ownership cost of sales......................... 20,181 18,538 37,637 34,738
Advertising, sales and marketing......................... 38,650 31,995 72,377 59,039
Loan portfolio:
Interest expense -- treasury........................... 1,958 3,838 4,176 7,938
Other expenses......................................... 1,087 1,883 2,203 3,312
Provision for doubtful accounts........................ 3,860 1,545 6,160 3,735
General and administrative............................... 11,874 10,304 24,065 20,562
Depreciation and amortization............................ 2,647 1,506 4,810 2,665
Merger and acquisition costs............................. -- 4,204 -- 5,897
----------- ----------- ----------- -----------
Total costs and operating expenses................ 80,257 73,813 151,428 137,886
----------- ----------- ----------- -----------
Income from operations................................... 25,994 9,343 44,572 17,165
Interest expense -- other, net of capitalized interest... 9,716 1,512 16,598 2,856
Equity loss (gain) on investment in joint ventures....... 210 50 (31) 120
Minority interest in income of consolidated limited
partnership............................................ -- 99 -- 123
----------- ----------- ----------- -----------
Income before provision for income taxes and
extraordinary item..................................... 16,068 7,682 28,005 14,066
Provision for income taxes............................... 6,266 2,934 10,922 5,445
----------- ----------- ----------- -----------
Income before extraordinary item......................... 9,802 4,748 17,083 8,621
Extraordinary item, net of income taxes.................. 129 518 129 518
----------- ----------- ----------- -----------
Net income............................................... $ 9,673 $ 4,230 $ 16,954 $ 8,103
=========== =========== =========== ===========
Earnings per share:
Basic:
Income before extraordinary item....................... $ 0.27 $ 0.13 $ 0.47 $ 0.24
Extraordinary item, net of taxes....................... -- (0.01) -- (0.01)
----------- ----------- ----------- -----------
Net income............................................. $ 0.27 $ 0.12 $ 0.47 $ 0.23
=========== =========== =========== ===========
Diluted:
Income before extraordinary item....................... $ 0.27 $ 0.13 $ 0.47 $ 0.24
Extraordinary item, net of taxes....................... -- (0.01) -- (0.01)
----------- ----------- ----------- -----------
Net income............................................. $ 0.27 $ 0.12 $ 0.47 $ 0.23
=========== =========== =========== ===========
Weighted average number of common shares outstanding..... 35,885,000 35,435,000 35,880,000 35,081,000
Weighted average number of common and potentially
dilutive common shares outstanding..................... 36,448,000 36,142,000 36,580,000 35,853,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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SUNTERRA CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 86,392 $ 38,487
Cash in escrow.............................................. 25,862 9,485
Mortgages receivable, net of an allowance of $25,065 and
$22,916 at June 30, 1998 and December 31, 1997,
respectively.............................................. 372,650 331,735
Due from related parties.................................... 19,757 25,576
Other receivables, net...................................... 31,167 17,669
Income tax refund receivable................................ -- 4,719
Prepaid expenses and other assets........................... 18,276 13,047
Investments in joint ventures............................... 21,147 15,657
Real estate and development costs........................... 286,638 219,299
Property and equipment, net................................. 61,522 35,024
Intangible assets, net...................................... 89,390 50,447
---------- --------
Total assets...................................... $1,012,801 $761,145
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 15,324 $ 25,196
Accrued liabilities......................................... 73,006 68,047
Due to related parties...................................... 170 1,032
Income taxes payable........................................ 4,425 --
Deferred taxes.............................................. 27,763 23,752
Notes payable............................................... 667,258 435,208
---------- --------
Total liabilities................................. 787,946 553,235
---------- --------
Stockholders' equity:
Preferred stock (25,000,000 shares authorized and none
issued or outstanding).................................... -- --
Common stock ($0.01 par value, 100,000,000 shares authorized
and 35,885,279 outstanding at June 30, 1998 and 50,000,000
shares authorized and 35,875,287 outstanding at December
31, 1997)................................................. 359 359
Additional paid-in capital.................................. 163,153 162,969
Retained earnings........................................... 60,751 43,797
Cumulative translation adjustments.......................... 592 785
---------- --------
Total stockholders' equity........................ 224,855 207,910
---------- --------
Total liabilities and stockholders' equity........ $1,012,801 $761,145
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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SUNTERRA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 16,954 $ 8,103
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization............................. 4,810 2,665
Provision for doubtful accounts........................... 6,160 3,735
Equity (gain) loss on investment in joint ventures........ (31) 120
Minority interest in income of consolidated limited
partnership............................................ -- 123
Changes in operating assets and liabilities:
Cash in escrow............................................ (16,371) (213)
Due from related parties.................................. 360 (1,464)
Prepaid expenses and other assets......................... (4,453) (9,319)
Real estate and development costs......................... (51,933) 4,423
Other receivables, net.................................... (12,608) (7,217)
Accounts payable and accrued liabilities.................. (2,173) (15,988)
Income taxes.............................................. 8,886 (529)
Deferred income taxes..................................... 4,011 333
Due to related parties.................................... (862) (529)
--------- ---------
Net cash used in operating activities....................... (47,250) (15,757)
--------- ---------
INVESTING ACTIVITIES:
Cash paid for acquisition of subsidiaries................. (41,068) --
Property and equipment.................................... (23,745) (6,342)
Intangible assets......................................... (17,094) (4,476)
Mortgages receivable...................................... (40,384) (49,025)
--------- ---------
Net cash used in investing activities....................... (122,291) (59,843)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from notes payable............................... 2,299 22,347
Payments on notes payable................................. (38,032) (103,673)
Proceeds from publicly issued debentures.................. 140,000 138,000
Proceeds from mortgage-backed securities, net of cash
reserve................................................ 99,940 --
Proceeds from equity offering............................. -- 52,990
Net proceeds from bank line of credit..................... 15,000 0
Other..................................................... (1,568) (2,627)
--------- ---------
Net cash provided by financing activities................... 217,639 107,037
--------- ---------
Net increase in cash equivalents............................ 48,098 31,437
Effect of exchange rates on cash and cash equivalents....... (193) (214)
Cash and cash equivalents, beginning of period.............. 38,487 20,757
--------- ---------
Cash and cash equivalents, end of period.................... $ 86,392 $ 51,980
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 22,848 $ 8,697
Cash paid for taxes......................................... $ 512 $ 4,042
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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SUNTERRA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BACKGROUND
Sunterra Corporation and its wholly-owned subsidiaries (formerly "Signature
Resorts, Inc.") (the "Company") generate revenues from (i) marketing and selling
vacation ownership interests at its resort locations, which entitle the buyer to
use a fully-furnished vacation residence, generally for a one-week period each
year, in perpetuity ("Vacation Intervals"), and vacation points, which may be
redeemed for occupancy rights at participating resort locations ("Vacation
Points," and together with Vacation Intervals, "Vacation Ownership Interests"),
(ii) acquiring, developing and operating vacation ownership resorts and (iii)
providing consumer financing to individual purchasers for the purchase of
Vacation Ownership Interests at its resort locations. The Company also provides
resort management and maintenance services at resorts for which it receives fees
paid by the resorts' homeowners' associations.
In the third quarter of 1998, the Company expects to begin the rollout of
its points-based Club Sunterra exchange system. The Club Sunterra system
provides flexibility to the customer by allowing such customers to redeem points
for occupancies of varying lengths at a unit type of their choice (studio, one-,
two-, three-bedroom) within a network of resorts, rather than a week long stay
at the same resort. The rollout is expected to be completed in the second
quarter of 1999.
In the opinion of management, all adjustments considered necessary for a
fair presentation have been included and are of a normal recurring nature.
Operating results for the three and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
On July 15, 1998, the Company changed its corporate name from "Signature
Resorts, Inc.".
NOTE 2 -- EARNINGS PER SHARE
Basic earnings per share were calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share were calculated by dividing net income available to common
stockholders after assumed conversion of dilutive securities by the sum of the
weighted average number of common shares outstanding plus all additional common
shares that would have been outstanding if potentially dilutive common shares
had been issued. The following table reconciles the number of shares utilized in
the earnings per share calculations for the three and six months ended June 30,
1998 and 1997 (amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net income........................................ $ 9,673 $ 4,230 $16,954 $ 8,103
------- ------- ------- -------
Net income available to common stockholders after
assumed conversion of dilutive securities(a).... $ 9,673 $ 4,230 $16,954 $ 8,103
------- ------- ------- -------
Weighted average number of common shares
outstanding used in basic earnings per share
(EPS)........................................... 35,885 35,435 35,880 35,081
Effect of dilutive stock options.................. 563 707 700 772
------- ------- ------- -------
Weighted average number of common and potentially
dilutive common shares outstanding used in
diluted EPS(a).................................. 36,448 36,142 36,580 35,853
======= ======= ======= =======
</TABLE>
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(a) The potential effect on net income and on common shares outstanding from the
potential conversion of the Company's the 5 3/4% Convertible Subordinated
Notes due 2007 have not been included in the calculation of net income,
weighted average number of common shares, and potentially dilutive common
shares outstanding used in diluted EPS. Such effect would be anti-dilutive.
6
<PAGE> 7
SUNTERRA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3 -- NOTE OFFERING AND SECURITIZATION
On April 15, 1998, the Company completed its offering (the "Senior Note
Offering") of $140.0 million aggregate principal amount of its 9 1/4% Senior
Notes due 2006 (the "Senior Notes") at a price of 100% of the principal amount.
After deducting discounts and commissions, the net proceeds to the Company were
$136.2 million. The Company used the net proceeds of the Senior Note Offering
primarily to retire $111.1 million of existing indebtedness under its Senior
Credit Facility as well as to retire other senior indebtedness. The remainder
was used for acquisition and development and general corporate purposes.
On June 9, 1998, the Company completed its securitization of $100.3 million
aggregate principal amount of vacation ownership receivables -- backed notes
(the "Securitized Notes"). The issue is structured as three classes of fixed
rate notes rated as "AAA" "A" and "BBB". The Securitized Notes are secured by
first-mortgage liens bearing an average interest rate of 14.3% on Vacation
Ownership Interests at 14 of the Company's resorts in the United States,
primarily in California, Arizona, and Florida. At the time of issuance, the
principal balance of the mortgages receivable securing the Securitized Notes was
$106.3 million. The average rate of interest on the Securitized Notes is
approximately 6.7%. The Company issued the Securitized Notes through a
bankruptcy remote subsidiary, with no recourse to the Company for any defaults
experienced by the portfolio. The Securitization was treated as a financing
transaction for accounting purposes. The mortgages receivable and the
Securitized Notes remain on the Company's balance sheet and no gain or loss was
recognized on the transaction. The Company recognizes both the interest income
on the mortgages receivable and interest expense on the Securitized Notes.
NOTE 4 -- ACQUISITIONS
During the second quarter of 1998, the Company acquired the 22-unit Carlton
Court in London, England, for a purchase price of approximately $4.5 million.
The Company is renovating the property and intends to begin Vacation Ownership
Interest sales at the property through its LSI Grand Vacation Club by the fourth
quarter of 1998.
During the second quarter of 1998, the Company also acquired 65 units of
the 165-unit Vilar do Golf Resort, located in Quinta do Lago in the Algarve
region on Portugal's southern coast for a purchase price of approximately $8.4
million. The Company intends to begin Vacation Ownership Interest sales of the
Vilar do Golf Resort through its LSI Grand Vacation Club by the fourth quarter
of 1998.
The Company also acquired the 25-unit Sunterra Kawaguchiko Resort, located
approximately 100 miles from Tokyo, Japan, at the foot of Mount Fuji. The resort
was purchased for $1.8 million and is the Company's first resort in Asia.
NOTE 5 -- SUBSEQUENT EVENTS
In July 1998, the Company acquired Harich Tahoe Developments ("HTD"), the
developer of The Ridge at Lake Tahoe, for a purchase price of approximately
$77.5 million. As part of such acquisition, the Company concurrently sold $69.1
million face value of HTD's mortgages receivable portfolio for its $66.3 million
book value and retained a majority interest in the portfolio's excess spread.
The sale is without recourse to the Company for any defaults experienced by the
portfolio. The net purchase price, after giving effect to the concurrent sale of
the mortgages receivable, was $11.2 million.
NOTE 6 -- COMPREHENSIVE INCOME
On January 1, 1998 the Company adopted SFAS No. 130, Reporting
Comprehensive Income ("SFAS 130"). SFAS 130 establishes new standards for the
reporting and display of comprehensive income and its components. Comprehensive
income, as defined, includes all changes in equity (net assets) during a
7
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SUNTERRA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
period from non-owner sources. Adoption of this Statement had no impact on the
Company's consolidated financial position, results of operations or cash flows.
The reconciliation of net income to comprehensive net income is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1998 1997 1998 1997
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net income..................................... $9,673 $4,230 $16,954 $8,103
Foreign currency translation adjustments....... 10 38 (193) (213)
------ ------ ------- ------
Total comprehensive income................ $9,683 $4,268 $16,761 $7,890
====== ====== ======= ======
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 TO THE THREE MONTHS
ENDED JUNE 30, 1997
Total revenues for the three months ended June 30, 1998 were $106.3 million
compared with $83.2 million in the three months ended June 30, 1997, an increase
of $23.1 million, or 28%. Vacation ownership revenues increased 23% in the
second quarter of 1998, to $86.1 million from $70.0 million in the second
quarter of 1997. The increase in vacation ownership revenues reflects increased
prices for both points and intervals at the Company's resorts, increased sales
activities at certain of the Company's resorts, the recording of Vacation Points
sales at the Company's Vacation Internationale ("VI") and Global Development
Ltd.'s ("Global") points-based vacation clubs, both of which were acquired in
the fourth quarter of 1997, and the recording of Vacation Interval sales at
resorts previously owned by MMG Development Corp. ("MMG"), which were acquired
in February 1998. The Company also recorded Vacation Interval sales for the
first time at the Company's newly acquired Santa Fe, New Mexico, Gatlinburg,
Tennessee, and Miami, Florida resorts.
Interest income increased 33% to $12.7 million in the second quarter of
1998 from $9.5 million in the second quarter of 1997, reflecting the increase in
net mortgages receivable to $372.7 million from $260.8 million in the comparable
period in 1997. Other income increased 103% during the second quarter of 1998 to
$7.5 million from $3.7 million in the second quarter of 1997, reflecting a
significant increase in recurring resort management fee revenues due to a larger
number of resorts under management. At June 30, 1998, the Company managed 84
resorts, including those acquired in the VI, Global and MMG acquisitions,
compared with 33 at June 30, 1997. Other income includes rental income,
commissions on the sale of European receivables, and interest income from
short-term investments. As a percentage of total revenue, other income increased
to 7.1% during the second quarter of 1998, as compared with 6.9% in the first
quarter of 1998 and 4.4% in the second quarter of 1997.
As a percentage of total revenues, total costs and operating expenses,
excluding merger costs in 1997, improved to 76% during the second quarter of
1998 from 84% during the second quarter of 1997. The overall improvement in
margins reflects increased economies of scale, higher-margin sales to current
owner families and improving operations at acquired companies and locations.
Total costs and operating expenses, excluding merger costs in 1997, increased
15% to $80.3 million during the second quarter of 1998 from $69.6 million during
the second quarter of 1997.
As a percentage of vacation ownership sales, vacation ownership cost of
sales improved to 23.5% during the second quarter of 1998 from 26.5% in the
second quarter of 1997. This improvement was largely the result of favorable
product cost reductions at the Company's more mature resorts, along with a
greater percentage of revenue coming from the Company's comparatively lower
product cost European operations. Vacation ownership cost of sales increased 9%
to $20.2 million in the second quarter of 1998 from $18.5 million in the second
quarter of 1997.
As a percentage of vacation ownership sales, advertising, sales and
marketing expenses improved to 44.9% from 45.7%, reflecting the Company's
ability to reduce advertising, sales and marketing costs at many of the
Company's mature resorts in general, and in the Company's Orlando, Florida
resorts in particular, while absorbing the higher startup costs at recently
acquired resorts. Advertising, sales and marketing expenses increased 21% to
$38.7 million during the second quarter of 1998 from $32.0 million in the second
quarter of 1997.
Interest expense -- treasury improved to $2.0 million during the second
quarter of 1998, or 1.8% of total revenues, from $3.8 million, or 4.6%, during
the second quarter of 1997, reflecting the Company's continued practice of
prepaying higher cost hypothecated debt when allowed contractually, as well as
financing the mortgages receivable portfolio with the proceeds of securities
offerings and borrowings under the Company's bank credit facilities. Interest
expense relating to these offerings is classified as interest expense -- other.
Other loan portfolio expenses, which are primarily costs incurred in
servicing the Company's loan portfolio, decreased to $1.1 million in the second
quarter of 1998, from $1.9 million in the second quarter of 1997, due largely to
cost savings associated with combining the servicing efforts of Plantation
Resorts Group,
9
<PAGE> 10
Inc. ("PRG") and AVCOM International, Inc. ("AVCOM"), acquired by merger during
the first half of 1997.
The provision for doubtful accounts increased $2.4 million to $3.9 million
during the second quarter of 1998, from $1.5 million in the second quarter of
1997. As a percentage of total revenues, the provision for doubtful accounts was
3.6% for the second quarter of 1998, compared with 2.6% in the first quarter of
1998 and 1.8% for the second quarter of 1997. The increase in the provision as a
percentage of revenues, as compared with the prior period, is related primarily
to the Company's internal review of the aging and collectability of accrued
interest at certain of its properties during the quarter. Based on this review,
the Company increased its reserve for doubtful accounts by $1.0 million.
The allowance for doubtful accounts as a percentage of gross mortgages
receivable remained at 6.3% at June 30, 1998, unchanged from March 31, 1998, and
down from 6.5% at December 31, 1997 and 6.8% at June 30, 1997. As of June 30,
1998, approximately 4.2% of the Company's consumer loans were delinquent
(scheduled payment past due by 60 days or more), compared with 4.7% at March 31,
1998, 4.6% at December 31, 1997, and 4.3% at June 30, 1997. In addition, the
Company had commenced deed-in-lieu of foreclosure action on approximately 2.4%
of its consumer loans as of June 30, 1998, compared with 2.2% at March 31, 1998
and December 31, 1997, and 2.3% at June 30, 1997.
As a percentage of total revenues, general and administrative expenses
improved to 11.2% in the second quarter of 1998 from 12.4% in the second quarter
of 1997, reflecting the continued elimination of duplicative overhead costs in
consolidating acquisitions and greater efficiencies resulting from the Company's
larger size. General and administrative expenses increased 16% to $11.9 million
during the second quarter of 1998 from $10.3 million during the second quarter
of 1997. The increase in general and administrative expenses was due primarily
to the acquisition of several additional resorts, offset partially by savings
resulting from increased efficiencies.
Depreciation and amortization increased $1.1 million, or 73%, to $2.6
million in the second quarter of 1998 from $1.5 million in the second quarter of
1997. As a percentage of revenues, depreciation and amortization increased to
2.5% for the second quarter of 1998 from 1.8% during the second quarter of 1997.
The increase in depreciation and amortization was driven by the amortization of
goodwill associated with the Company's purchases of VI, Global, Marc Hotels &
Resorts ("Marc") and MMG, and additional depreciation expense from an increase
in capital expenditures to support a larger base of resorts.
Interest expense -- other, reported net of capitalized interest, increased
$8.2 million, to $9.7 million for the second quarter of 1998 from $1.5 million
for the second quarter of 1997. The increase was due primarily to increases in
debt from public securities offerings and borrowings under the Company's bank
credit facilities.
Excluding merger costs of $2.5 million in the second quarter of 1997 and
extraordinary charges of $0.1 million in the second quarter of 1998 and $0.5
million in the second quarter of 1997, all net of taxes, income before provision
for income taxes increased 35% to $16.1 million in the second quarter of 1998
from $11.9 million in the second quarter of 1997.
The Company's income tax rate was 39% for both periods, resulting in net
income of $9.7 million and $4.2 million for the quarters ending June 30, 1998
and 1997, respectively.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED
JUNE 30, 1997
Total revenues for the six months ended June 30, 1998 were $196.0 million
compared with $155.1 million in the first half of 1997, an increase of $40.9
million, or 26%. Vacation ownership revenues increased 21% to $157.5 million
from $130.3 million. The increase in vacation ownership revenues reflects
increased prices for both points and intervals at the Company's resorts,
increased sales activities at certain of the Company's resorts, the recording of
Vacation Points sales at the Company's VI and Global points-based vacation
clubs, both of which were acquired in the fourth quarter of 1997, and the
recording of Vacation Interval sales at MMG, which was acquired in February
1998. The Company also recorded Vacation Interval sales for the first time at
the Company's newly acquired Santa Fe, Bent Creek, Town Square and Savoy
resorts.
10
<PAGE> 11
Interest income increased 38% to $24.8 million in the first half of 1998
from $18.0 million in the first half of 1997, reflecting the increase in net
mortgages receivable to $372.7 million at June 30, 1998 from $260.8 million at
June 30, 1997. The average mortgage receivable note carries a 14.4% interest
rate and is fully amortizing over an average eight-year term. Other income
increased 104% to $13.7 million in the first half of 1998 from $6.7 million in
the first half of 1997, reflecting a significant increase in recurring resort
management fees due to a larger number of resorts under management. At June 30,
1998, the Company managed 84 resorts, including those acquired in the VI, Global
and MMG acquisitions, compared with 33 at June 30, 1997. Other income also
includes rental income, commissions on the sale of European receivables, and
interest income from short-term investments. As a percentage of total revenue,
other income increased to 7.0% in the first half of 1998, as compared with 4.3%
in the first half of 1997.
As a percentage of total revenues, total costs and operating expenses,
excluding merger costs in 1997, improved to 77% during the first half of 1998,
from 85% during the first half of 1997. The overall improvement in margins
reflects increased economies of scale, higher-margin sales to current owner
families, and improving operations at acquired companies and locations. Total
costs and operating expenses, excluding merger costs in 1997, increased 15% to
$151.4 million in the first half of 1998 from $132.0 million in the first half
of 1997.
As a percentage of vacation ownership sales, vacation ownership cost of
sales improved to 23.9% during the first half of 1998 from 26.6% during the
first half of 1997. This improvement was largely the result of favorable product
cost reductions at the Company's more mature resorts, along with a greater
percentage of revenue coming from the Company's comparatively lower product cost
European operations. Vacation ownership cost of sales increased 8% to $37.6
million in the first half of 1998 from $34.7 million in the first half of 1997.
As a percentage of vacation ownership sales, advertising, sales and
marketing expenses increased to 46% from 45%, due to higher marketing expenses
incurred to increase sales at VI, acquired during the fourth quarter of 1997. In
addition, the Company is building infrastructure in offsite sales centers in the
U.S. and Europe, the costs of which were expensed during the first half of 1998,
as well as other marketing initiatives to support the transition to a
points-based club product. Advertising, sales and marketing expenses increased
23% to $72.4 million during the first half of 1998 from $59.0 million in the
first half 1997.
Interest expense -- treasury improved to $4.2 million during the first half
of 1998, or 2.1% of total revenues, from $7.9 million, or 5.1% in the first half
of 1997, reflecting the Company's continued practice of prepaying higher cost
hypothecated debt when allowed contractually, as well as financing the mortgages
receivable portfolio with the proceeds of securities offerings and borrowings
under the Company's bank credit facilities. Interest expense relating to these
offerings is classified as interest expense -- other. Other loan portfolio
expenses decreased to $2.2 million from $3.3 million.
The provision for doubtful accounts increased $2.5 million to $6.2 million
for the first half of 1998 from $3.7 million in the first half of 1997. As a
percentage of total revenues, the provision for doubtful accounts was 3.2% for
the first half of 1998, compared with 2.4% in the first half of 1997. The
increase in the provision as a percentage of revenues, as compared with the
prior period, is related primarily to the Company's internal review of the aging
and collectability of accrued interest at certain of its properties during the
second quarter of 1998. Based on this review, the Company increased its reserve
for doubtful accounts by $1.0 million.
The allowance for doubtful accounts as a percentage of gross mortgages
receivable decreased to 6.3% at June 30, 1998, compared with 6.8% at June 30,
1997. As of June 30, 1998, approximately 4.2% of the Company's consumer loans
were delinquent (scheduled payment past due by 60 days or more), compared with
4.3% at June 30, 1997. In addition, the Company had commenced deed-in-lieu of
foreclosure action on approximately 2.4% of its consumer loans as of June 30,
1998, compared with 2.3% at June 30, 1997.
As a percentage of total revenues, general and administrative expenses
improved to 12.3% in the first half of 1998 from 13.3% in the first half of
1997, reflecting the continued elimination of duplicative overhead costs in
consolidating acquisitions and greater efficiencies resulting from the Company's
larger size. General and administrative expenses increased 17% to $24.1 million
during the first half of 1998 from $20.6 million during
11
<PAGE> 12
the first half of 1997. The increase in general and administrative expenses was
due primarily to the acquisition of additional resorts in the past year.
Depreciation and amortization increased $2.1 million, or 78%, to $4.8
million in the first half of 1998 from $2.7 million in the first half of 1997.
As a percentage of revenues, depreciation and amortization increased to 2.4% for
the first half of 1998 from 1.7% for the first half of 1997. The increase in
depreciation and amortization was due to increased amortization of goodwill
associated with the Company's purchases of VI, Global, Marc, and MMG, and
additional depreciation expense from an increase in capital expenditures to
support a larger base of resorts.
Interest expense -- other, reported net of capitalized interest, increased
$13.7 million, or 472%, to $16.6 million for the first half of 1998 from $2.9
million in the first half of 1997. The increase was due primarily to increases
in debt from public securities offerings and borrowings under its bank credit
facilities.
Excluding merger costs of $3.5 million in the first half of 1997 and
extraordinary charges of $0.1 million in the first half of 1998 and $0.5 million
in the first half of 1997, all net of taxes, income before provision for income
taxes increased 40% to $28.0 million for the six months ended June 30, 1998 from
$20.0 million for the six months ended June 30, 1997.
The Company's income tax rate was 39% for both six month periods ending
June 30, 1998 and 1997, resulting in net income of $17.0 million for the six
months ending June 30, 1998 and $8.1 million for the six months ended June 30,
1997.
YEAR 2000
The Company uses software that will be affected by the date change in the
year 2000 and recognizes that the arrival of the year 2000 poses challenges that
will require modifications of portions of its software to enable it to function
properly. As the year 2000 approaches, date sensitive systems will recognize the
year 2000 as 1900, or not at all. This may cause systems to process critical
financial and operational information incorrectly. The Company, like many other
companies, is incurring expenditures over the next few years to address this
issue. The Company has several information system improvement initiatives under
way to determine the full scope and related costs to insure that the Company's
systems continue to meet its needs and those of its customers. These initiatives
include upgrading and replacing some computer systems and the conversion of
others to be Year 2000 compliant. Although final cost estimates have yet to be
determined, it is anticipated that these Year 2000 costs will result in an
increase in Company expenses during 1998 and 1999. Suppliers, customers,
mortgage receivable servicers and creditors of the Company also face Year 2000
issues. Their failure to successfully address the Year 2000 issue could
adversely affect the Company's business or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from (i) cash sales and cash down payments from
sales of Vacation Ownership Interests, (ii) interest from its mortgages
receivable portfolio, (iii) rental of unsold Vacation Ownership Interests, (iv)
receipt of management, reservations and club fees, and (v) commissions received
on the sale of its European mortgages receivable, where the Company is paid a
commission of 14% of the face value of certain mortgages originated for a third
party financial institution. In the first half of 1998, approximately 50% of
total reported revenues were comprised of cash revenues from these sources.
Additionally, financed vacation ownership sales provide the Company with a
substantial stream of scheduled principal payments and customer prepayments of
principal from its mortgages receivable portfolio.
For the six months ended June 30, 1998 and 1997, the Company used $47.3
million and $15.8 million in cash flows from operations, respectively. Excluding
real estate and development costs, the Company generated cash flows from
operations of $4.6 million and used $20.2 million for the six months ended June
30, 1998 and June 30, 1997, respectively. Approximately 80% of the Company's
total revenues in the first half of 1998 were from vacation ownership sales
during which period the Company financed approximately 65% of its vacation
ownership sales. The Company generally chooses to finance vacation ownership
sales, and to hold the related
12
<PAGE> 13
mortgages receivable, to generate profit from such financing activities. The
Company's significant financing activity typically results in its operating
costs exceeding the initial cash proceeds received from sales of Vacation
Ownership Interests.
The Company has a number of alternatives to raise cash from its mortgages
receivable portfolio. For example, the Company may sell mortgages receivable for
cash, as the Company recently did with its acquisition of HTD; originate them
for a third party financial institution, and receive a fee, which the Company
does in its European operations; convert them into cash through a securitization
such as the one completed by the Company in June 1998; pledge them against its
bank credit facility; or pursue other alternatives.
When the Company draws on various credit facilities to meet its operating
cash outlays, the Company borrows against or otherwise pledges its mortgages
receivable. Such facilities enable the Company to generate positive cash flows
from financed sales. The Company repays its credit facilities through cash flows
from operations, the sale of mortgages receivable, the principal and interest
payment stream on its mortgages receivable portfolio, or proceeds from the
issuance of pass-through mortgage-backed securities in which the Company sells
certain mortgages receivable and their related principal and interest payments.
Consistent with its growth-oriented strategy, the Company also requires
funds to finance the development of its vacation ownership properties and the
acquisition of additional vacation ownership assets. Such assets include, but
are not limited to, developed and undeveloped vacation ownership resorts,
vacation ownership mortgages receivable portfolios, vacation ownership operating
companies and management contracts. Capital to fund this acquisition and
development activity typically has been provided from the proceeds of public and
private securities offerings and borrowings under its various credit facilities.
During the first quarter of 1998, the Company entered into a $117.5 million
senior bank credit facility (the "Senior Credit Facility"). The Senior Credit
Facility has a variable borrowing rate based on the percentage of the Company's
mortgages receivable pledged under such facility and the amount of funds
advanced thereunder. The interest rate will vary between LIBOR plus 7/8% and
LIBOR plus 1 3/8%, depending on the amount advanced against mortgages
receivable. The Senior Credit Facility has a three-year term and contains
customary covenants, representations and warranties and conditions to borrow. As
of August 7, 1998, $15 million was outstanding on the Senior Credit Facility.
In April, the Company completed its offering of $140 million aggregate
principal amount of its 9 1/4% Senior Notes due 2006. The Company used the
proceeds to retire existing indebtedness under the Senior Credit Facility. The
balance of the net proceeds were used primarily to finance the acquisition and
development of additional resorts and vacation ownership-related assets, and for
working capital and other general corporate purposes.
In June, the Company completed its securitization of $100.3 million
aggregate principal amount of vacation ownership receivables -- backed notes
(the "Securitized Notes"). The issue is structured as three classes of fixed
rate notes rated as "AAA" "A" and "BBB". The Securitized notes are secured by
first-mortgage liens bearing an average interest rate of 14.3% on Vacation
Ownership Interests at 14 of the Company's resorts in the United States,
primarily in California, Arizona, and Florida. At the time of issuance, the
principal balance of the mortgages receivable securing the Securitized Notes was
$106.3 million. The average rate of interest on the Securitized Notes is
approximately 6.7%. The Company issued the Securitized Notes through a
bankruptcy remote subsidiary, with no recourse to the Company for any defaults
experienced by the portfolio. The Securitization was treated as a financing
transaction for accounting purposes. The mortgages receivable and the
Securitized Notes remain on the Company's balance sheet and no gain or loss was
recognized on the transaction. The Company recognizes both the interest income
on the mortgages receivable and interest expense on the Securitized Notes. The
proceeds were used primarily to finance the acquisition and development of
additional resorts and vacation ownership-related assets, and for working
capital and other general corporate purposes. Pending any such additional uses,
the Company invests the excess proceeds in commercial paper, bankers'
acceptances, other short-term investment-grade securities and money-market
accounts.
13
<PAGE> 14
As of June 30, 1998, the Company had approximately $102.5 million of
additional borrowing capacity available under the Senior Credit Facility at
rates ranging from LIBOR plus 7/8% to LIBOR plus 1 3/8%. The Company also had
approximately $83.1 million of additional borrowing capacity under its
hypothecated debt lines at prime plus 2%. These hypothecated lines expire
between October 1998 and April 1999 and the Company does not intend to renew
these lines or borrow from these lines. As of June 30, 1998, excluding the
Senior Credit Facility and the Securitization, the Company had $70.3 million
outstanding under its notes payable collateralized by mortgages receivable and
$5.7 million outstanding under its notes payable collateralized by unsold
Vacation Ownership Interest inventory or other assets.
Additionally, the Company had approximately $190 million of mortgages
receivable which were unpledged to any financial institutions and which could be
sold or pledged to raise additional cash as needed. The Company is also
currently negotiating with one of its hypothecated debt lenders to sell
approximately $30 million in mortgages receivable to a lender. These receivables
are currently pledged against hypothecated debt. The Company expects to sell
these mortgages receivable at 100% of par value and retain a majority of the
portfolio's excess spread.
The Company believes that, with respect to its current operations, the
Senior Credit Facility and borrowing capacity under certain third-party lending
agreements, together with cash on hand and cash generated from operations,
future borrowings, or the sale of receivables, will be sufficient to meet the
Company's working capital and capital expenditure needs for the next twelve
months. However, depending upon conditions in the capital and other financial
markets, the Company's growth, development and expansion plans, and other
factors, the Company may from time to time consider the issuance of other debt
or equity securities, the proceeds of which would be used to finance
acquisitions, refinance debt, finance mortgages receivable or meet other
operational needs. Any debt incurred or issued by the Company may be secured or
unsecured, may bear interest at fixed or variable rates and may be subject to
such terms, as management deems prudent. As of June 30, 1998, the Company was in
compliance with all applicable covenants in its debt agreements, or had received
appropriate amendments.
The preceding discussion should be read in conjunction with the financial
statements and notes included elsewhere in this Form 10-Q. The preceding
Management's Discussion and Analysis of Financial Condition and Results of
Operations may contain forward looking statements, which include the Company's
growth and expansion plans, financing plans, future prospects and other
forecasts and statements of expectations. Actual results might differ materially
from those expressed in any forward looking statements due to, among other
things, factors related to the timing and terms the company's new product
development, mortgages receivable financing, integration of acquired properties
and companies, future acquisitions and those factors identified in the Company's
filings with the Securities and Exchange Commission, including those set forth
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997, as amended.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS
The Company submitted to stockholder vote and its stockholders approved the
following items at the Company's Annual Meeting of Stockholders held on May 15,
1998:
(a) Election of six directors of the Company:
<TABLE>
<CAPTION>
NAME TERM EXPIRING VOTES FOR WITHHELD AUTHORITY
---- ------------- ---------- ------------------
<S> <C> <C> <C>
Andrew J. Gessow......... 2001 28,934,737 23,517
Joshua S. Friedman....... 2001 28,934,587 23,667
W. Leo Kiely............. 2001 28,934,587 23,667
Michael A. Depatie....... 2001 28,944,185 14,069
Adam M. Aron............. 2000 28,934,587 23,667
J. Taylor Crandall....... 1999 28,934,587 23,667
</TABLE>
In addition to the six directors listed above, the terms of the
following four directors continued after the meeting: Osamu Kaneko, Steven
C. Kenninger, Sanford Climan and James E. Noyes.
14
<PAGE> 15
(b) Amendment of the Company's Articles of Incorporation to change the
Company's corporate name to Sunterra Corporation, by a vote of 28,906,482
"for", 26,932 "against", and 24,840 "abstain".
(c) Amendment of the Company's 1996 Equity Participation Plan, as
amended, to increase the number of shares authorized for issuance
thereunder, by a vote of 21,884,300 "for", 7,017,583 "against", and 56,371
"abstain".
(d) Amendment of the Company's Articles of Incorporation to increase
the Company's authorized share capital, by a vote of 28,720,423 "for",
211,798 "against", 3,934 "abstain", and 22,099 "broker non-votes".
(e) Ratification of the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the year ending December 31,
1998, by a vote of 28,895,926 "for", 10,723 "against", 29,505 "abstain",
and 22,100 "broker non-votes".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
10.1 Indenture dated as of May 1, 1998, by and between Sunterra
Finance L.L.C. as issuer of the bonds, Signature Resorts,
Inc as Servicer, and LaSalle National Bank as Trustee and
Back-up Servicer for Signature Resorts Vacation Ownership
Receivables-Backed Notes 1998-A
10.2 Servicing Agreement dated as of May 1, 1998, by and between
Sunterra Finance L.L.C. as issuer of the bonds, Signature
Resorts, Inc as Servicer, and LaSalle National Bank as
Trustee and Back-up Servicer for Signature Resorts Vacation
Ownership Receivables-Backed Notes 1998-A
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
(1) Current Report on Form 8-K, dated April 15, 1998, filed with the
Commission on April 21, 1998, announcing the completion of the Company's Senior
Note Offering.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 14, 1998 By: /s/ MICHAEL A. DEPATIE
------------------------------------
Michael A. Depatie
Director, Executive Vice President,
And Chief Financial Officer
(Principal Financial Officer)
Dated: August 14, 1998 By: /s/ JAMES D. WHEAT
------------------------------------
James D. Wheat
Vice President and
Corporate Controller
16
<PAGE> 1
EXHIBIT 10.1
SUNTERRA FINANCE L.L.C.
AS COMPANY,
SIGNATURE RESORTS, INC.
AS SERVICER,
LASALLE NATIONAL BANK
AS TRUSTEE AND AS BACK-UP SERVICER,
INDENTURE
DATED AS OF MAY 1, 1998
SIGNATURE RESORTS VACATION OWNERSHIP
RECEIVABLES-BACKED NOTES 1998-A
6.36% CLASS A-1 NOTES
6.85% CLASS A-2 NOTES
7.07% CLASS A-3 NOTES
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PRELIMINARY STATEMENT ............................................................................................1
GRANTING CLAUSES .................................................................................................2
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions .......................................................................................3
Section 1.2. Acts of Noteholders................................................................................3
Section 1.3. Notices, etc. to Trustee, Company and Servicer.....................................................4
Section 1.4. Notices to Noteholders; Waiver.....................................................................5
Section 1.5. Effect of Headings and Table of Contents...........................................................6
Section 1.6. Successors and Assigns.............................................................................6
Section 1.7. Severability ......................................................................................6
Section 1.8. Benefits of Indenture..............................................................................6
Section 1.9. Legal Holidays ....................................................................................6
Section 1.10. Governing Law .....................................................................................7
Section 1.11. Counterparts ......................................................................................7
ARTICLE II. NOTE FORM
Section 2.1. Form Generally ....................................................................................7
Section 2.2. Form of Class A-1, A-2 and A-3 Note................................................................7
ARTICLE III. THE NOTES
Section 3.1. Designation of Notes; Certain Related.............................................................13
Section 3.2. Denominations ....................................................................................14
Section 3.3. Execution, Authentication, Delivery and Dating....................................................14
Section 3.4. Registration, Registration of Transfer and Exchange...............................................15
Section 3.5. Limitation on Transfer and Exchange...............................................................15
Section 3.6. Mutilated, Destroyed, Lost or Stolen Notes........................................................16
Section 3.7. Payment of Principal and Interest.................................................................17
Section 3.8. Persons Deemed Owners.............................................................................17
Section 3.9. Cancellation .....................................................................................17
Section 3.10. Tax Treatment ....................................................................................18
ARTICLE IV. AUTHENTICATION AND DELIVERY OF THE NOTES
Section 4.1. General Provisions................................................................................18
Section 4.2. Security for Notes................................................................................18
Section 4.3. Delivery of Mortgage Loans........................................................................19
ARTICLE V. SATISFACTION AND DISCHARGE
Section 5.1. Satisfaction and Discharge of Indenture...........................................................20
Section 5.2. Application of Money Held in Trust................................................................21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.3. Discharge of Security Interest....................................................................21
ARTICLE VI. REMEDIES
Section 6.1. Events of Default.................................................................................21
Section 6.2. Acceleration of Maturity, Rescission and Annulment................................................22
Section 6.3. Remedies .........................................................................................24
Section 6.4. Trustee May File Proofs of Claim..................................................................25
Section 6.5. Trustee May Enforce Claims without Possession of Notes............................................26
Section 6.6. Allocation of Money Collected.....................................................................26
Section 6.7. Limitation on Suits...............................................................................27
Section 6.8. Unconditional Right of Noteholders to Receive Principal and Interest..............................27
Section 6.9. Restoration of Rights and Remedies................................................................27
Section 6.10. Rights and Remedies Cumulative....................................................................28
Section 6.11. Delay or Omission Not Waiver......................................................................28
Section 6.12. Control by Noteholders............................................................................28
Section 6.13. Waiver of Past Defaults...........................................................................28
Section 6.14. Undertaking for Costs.............................................................................29
Section 6.15. Sale of Trust Estate..............................................................................29
Section 6.16. Action on Notes...................................................................................30
Section 6.17. Company Bankruptcy................................................................................30
ARTICLE VII. THE TRUSTEE
Section 7.1. Certain Duties and Responsibilities...............................................................31
Section 7.2. Notice of Default, Cure or Waiver.................................................................32
Section 7.3. Certain Rights of Trustee.........................................................................32
Section 7.4. Not Responsible for Recitals or Issuance of Notes.................................................33
Section 7.5. May Hold Notes ...................................................................................34
Section 7.6. Money Held in Trust...............................................................................35
Section 7.7. Compensation and Reimbursement....................................................................35
Section 7.8. Corporate Trustee Requirement; Eligibility........................................................36
Section 7.9. Resignation and Removal; Appointment of Successor.................................................36
Section 7.10. Acceptance of Appointment by Successor............................................................38
Section 7.11. Merger, Conversion, Consolidation or Succession to Business of Trustee............................38
Section 7.12. Co-trustees and Separate Trustees.................................................................39
Section 7.13. Rights with Respect to the Servicer...............................................................40
Section 7.14. Servicer as Agent and Bailee of Trustee...........................................................41
Section 7.15. Representations and Warranties of the Trustee.....................................................41
ARTICLE VIII. CONSOLIDATION AND MERGER
Section 8.1. Company May Not Consolidate, etc..................................................................42
ARTICLE IX. SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Noteholders............................................42
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 9.2. Supplemental Indentures with Consent of Noteholders...............................................43
Section 9.3. Execution of Supplemental Indentures..............................................................44
Section 9.4. Effect of Supplemental Indentures.................................................................45
Section 9.5. Reference in Notes to Supplemental Indenture......................................................45
ARTICLE X. REDEMPTION OF NOTES
Section 10.1. Redemption at the Option of the Company; Election To Redeem.......................................45
Section 10.2. Notice of Redemption by the Company...............................................................46
Section 10.3. Deposit of the Redemption Price...................................................................46
Section 10.4. Notes Payable on Redemption Date..................................................................46
Section 10.5. Sale for Purposes of Redemption...................................................................47
ARTICLE XI. COVENANTS
Section 11.1. Payment of Principal and Interest.................................................................48
Section 11.2. Maintenance of Office or Agency...................................................................48
Section 11.3. Money for Note Payments To Be Held in Trust.......................................................48
Section 11.4. Corporate Existence...............................................................................49
Section 11.5. Protection of Trust Estate........................................................................50
Section 11.6. Negative Covenants................................................................................50
Section 11.7. Statement as to Compliance........................................................................51
Section 11.8. Investment Company Act............................................................................52
Section 11.9. Enforcement of Servicing Agreement and Sale Agreement.............................................52
Section 11.10. Taxes ............................................................................................52
Section 11.11. Company Ownership.................................................................................52
Section 11.12. Nonconsolidation..................................................................................52
Section 11.13. Representations and Warranties and Covenants......................................................53
Section 11.14. Opinions as to Trust Estate.......................................................................57
ARTICLE XII. ACCOUNTS, ACCOUNTINGS AND RELEASES
Section 12.1. Collection of Money...............................................................................58
Section 12.2. Accounts .........................................................................................58
Section 12.3. Reliance on Representations and Warranties........................................................61
Section 12.4. Notice of Incorrect Representations and Warranties................................................62
Section 12.5. Misrepresentations................................................................................62
Section 12.6. Mandatory Repurchase Obligation...................................................................62
Section 12.7. Subsequent Loans..................................................................................64
Section 12.8. Reports by Trustee to Noteholders.................................................................64
Section 12.9. Accounting by Trustee to Company..................................................................65
Section 12.10. Trust Estate .....................................................................................65
Section 12.11. Allocation of Losses..............................................................................66
ARTICLE XIII. APPLICATION OF MONIES
Section 13.1. Disbursements of Monies out of Collection Account.................................................66
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
APPENDIX A Standard Definitions
SCHEDULE I Schedule of Mortgage Loans
EXHIBIT A Form of Assignment of Note
EXHIBIT B Form of Lost Note Affidavit
EXHIBIT C Form of Substitute Form W-9
</TABLE>
iv
<PAGE> 6
This INDENTURE, dated as of May 1, 1998 (herein, as amended
from time to time as permitted hereby, called the "Indenture"), is entered into
by and among Sunterra Finance L.L.C., a Georgia limited liability company
(together with its permitted successors and assigns, the "Company"), Signature
Resorts, Inc., a Maryland corporation, as servicer (herein, together with its
permitted successors and assigns, called the "Servicer") and LaSalle National
Bank, a nationally chartered bank, as trustee (together with its permitted
successors and assigns, the "Trustee") and as back-up servicer (together with
its permitted successors and assigns, the "Back-up Servicer").
PRELIMINARY STATEMENT
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of three classes of Signature Resorts
Vacation Ownership Receivables-Backed Notes 1998-A, consisting of three classes
(the "Class A-1 Notes", the "Class A-2 Notes" and the "Class A-3 Notes" and,
collectively, the "Notes"). The cash proceeds from the sale of such Notes are to
be used by the Company to purchase the Mortgage Loans.
The following table sets forth the designation, Note Interest
Rate and aggregate Initial Note Principal Balance for the Class A-1 Notes, the
Class A-2 Notes and the Class A-3 Notes.
<TABLE>
<CAPTION>
Initial
Note Note
Interest Principal
Designation Rate Balance
- ----------- ---- -------
<S> <C> <C>
Class A-1 6.36% $37,470,866
Class A-2 6.85% $50,000,000
Class A-3 7.07% $12,800,614
</TABLE>
The Mortgage Loans have an Outstanding Pool Balance as of the
Cut-off Date equal to $106,671,788.
All covenants and agreements made by the Company and the
Servicer herein are for the benefit and security of the Noteholders. The Company
and the Servicer are entering into this Indenture, and the Trustee is accepting
the duties as trustee created hereby, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged.
<PAGE> 7
GRANTING CLAUSES
The Company hereby Grants to the Trustee for the exclusive
benefit of the Holders, a lien upon and a security interest (which the Company
represents and warrants will be a perfected first-priority security interest) in
all of the Company's right, title and interest in and to the Mortgage Loans,
including without limitation all interest due and principal received on or with
respect to the Mortgage Loans after the Cut-off Date, all Net Liquidation
Proceeds and Insurance Proceeds received after the Cut-off Date with respect to
any Mortgaged Property to which any Mortgage Loans relate, all security
interests in the Mortgaged Property securing such Mortgage Loans, the Mortgage
Loan Documents relating to such Mortgage Loans duly endorsed as appropriate, the
Mortgage Files, any insurance policies related to the Mortgage Loans, the rights
of the Company under the Sale Agreement, all proceeds with respect to the
foregoing, including, without limitation, all funds deposited in the Collection
Account, the related Lock-Box Account and the Reserve Account and all Permitted
Investments made with such funds, and all rights to enforce the foregoing.
Such Grants are made, however, in trust, to secure (i) the
Notes, securing all Notes of each Class equally and ratably without prejudice,
priority or distinction among the Notes of any such Class by reason of
difference in time of authentication or delivery or otherwise but, as between
each Class of Notes as a group and each other Class of Notes as a group, subject
to the subordination of payments on the Class A-2 Notes to payments on the Class
A-1 Notes and on the Class A-3 Notes to payments on the Class A-1 and Class A-2
Notes, as provided in Section 13.1 hereof, (ii) the payment of all other sums
payable under this Indenture, and (iii) compliance with the provisions of this
Indenture, all as provided in this Indenture.
Except as hereinafter provided, the Company does hereby
warrant and represent that it has not permitted and hereby covenants that it
will not permit the creation of any Lien other than the Lien of this Indenture
with respect to any part of the Trust Estate, so long as this Indenture shall
remain in effect, to anyone other than the Trustee, and that it will not, except
as provided in this Indenture, enter into any agreement amending or
supplementing any of the Mortgage Loans, the Sale Agreement, the Servicing
Agreement or the Note Purchase Agreement, execute or grant any waiver or
modification of, or consent under, the terms of any of the Mortgage Loans, the
Sale Agreement, the Servicing Agreement or the Note Purchase Agreement, settle
or compromise any claim arising under any of the Mortgage Loans, the Sale
Agreement, the Servicing Agreement or the Note Purchase Agreement or submit or
consent to the submission of any dispute, difference or other matter arising
under or in respect of any of the Mortgage Loans, the Sale Agreement, the
Servicing Agreement or the Note Purchase Agreement, to arbitration thereunder.
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The Trustee acknowledges such Grant, accepts the trusts
hereunder in accordance with the provisions of this Indenture and agrees to
perform the duties herein required. So long as any Note remains outstanding, the
Trustee shall act for the benefit of the Noteholders as their interests may
appear to the extent provided herein.
The Trustee agrees to maintain in its possession each Mortgage
File delivered to it pursuant to Section 2(b) of the Sale Agreement unless and
until such Mortgage File is released from the lien hereof pursuant to Article
Twelve hereof.
All things necessary to make this Indenture a valid agreement
of the Company in accordance with its terms have been done.
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS OF
GENERAL APPLICATION
Section 1.1. Definitions
(a) Except as otherwise expressly provided herein or unless
the context otherwise requires, the capitalized terms used in the Indenture
shall have the respective meanings specified in the Standard Definitions set
forth as Appendix A hereto, which is incorporated herein by this reference. The
definitions of such terms are equally applicable both to the singular and plural
forms of such terms.
(b) All references in this instrument to designated
"Articles," "Sections," "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions of this
instrument as originally executed or if amended or supplemented, as so amended
and supplemented. The words "herein," "hereof," "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section, Subsection or other subdivision. Reference to the Trustee's
duties under this Indenture shall include its duties as Trustee as set forth in
the Servicing Agreement.
Section 1.2. Acts of Noteholders
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
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
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instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders 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 7.1) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section 1.2.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any 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 action by the Holder of any Note shall bind 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 reliance thereon, whether or not
notation of such action is made upon such Note.
Section 1.3. Notices, etc. to Trustee, Company, Servicer and
DCR
Except as otherwise provided, any request, demand,
authorization, direction, notice, consent, waiver or Act of Noteholders or other
document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with the following parties, shall be deemed to have been
duly made upon, given or furnished to, or filed with, when delivered by hand,
sent by overnight courier or by telecopy, addressed to the appropriate parties
at their addresses designated herein or to such other address as the party to be
notified may have otherwise designated in a notice given as provided in this
Section. A hard copy of any item delivered by telecopy shall also be sent by
overnight mail on the day of such telecopy delivery.
The Company:
Sunterra Finance L.L.C.
1875 S. Grant Street, Suite 650-A
San Mateo, California 94402
Attention: Michael Depatie, CFO
With a copy to: Drew Hutton
Signature Resorts, Inc.:
1875 S. Grant Street, Suite 650
San Mateo, California 94402
Attention: Michael Depatie, CFO
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With a copy to:
Drew Hutton,
Corporate Counsel
Sellers (except All Seasons Resorts, Inc., an Arizona
corporation and All Seasons Resorts, Inc., a Texas
corporation):
1875 S. Grant Street, Suite 650
San Mateo, California 94402
Attention: Michael Depatie, CFO
With a copy to:
Drew Hutton,
Corporate Counsel
All Seasons Resorts, Inc., an Arizona corporation and
All Seasons Resorts, Inc., a Texas corporation
561 Highway 179
Sedona, Arizona 86336
Attention: Drew Hutton
The Trustee and Back-up Servicer:
LaSalle National Bank
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60674-4107
Attention: Signature Resorts 1998-A
DCR:
Duff & Phelps Credit Rating Co.
55 East Monroe Street, Suite 3800
Chicago, Illinois 60603
Attention: Asset-Backed Monitoring Group
Any Noteholder shall be entitled to receive any certificate, report or material
notice reasonably requested in writing, delivered by any Person under this
Agreement. Any notice to be provided to DCR shall be provided thereto by the
Trustee.
Section 1.4. Notices to Noteholders; Waiver
Where this Indenture provides for notice, reports and
communication to Noteholders of any event, such notice, reports or communication
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and by regular mail, or by facsimile followed by regular mail or by
overnight courier, to each Noteholder affected by such event, at its address as
it appears on the Note Register (with a copy to not more than two other Persons,
at the addresses set forth in the Note Register), not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of such
notice. Any such notice, report or communication shall only be deemed given upon
receipt at the address set forth in the Note Register. The Trustee
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hereby acknowledges receipt of Exhibit B to the Note Purchase Agreement and
agrees to include the appropriate information therein in the Note Register.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any 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 Noteholders 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
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.
Section 1.5. 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 affect the construction hereof.
Section 1.6. 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 1.7. Severability
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 1.8. Benefits of Indenture
Nothing in this Indenture or in the Notes, expressed or
implied, shall give to any Person, other than the parties hereto, any Paying
Agent which may be appointed pursuant to the provisions hereof and any of their
successors hereunder and the Noteholders, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
Section 1.9. Legal Holidays
In any case where the date of any Distribution Date shall not
be a Business Day, then (notwithstanding any other provision of the Notes or
this Indenture) payment need not be made on such date, but may be made on the
next succeeding
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Business Day with the same force and effect as if made on the nominal date of
any such Distribution Date and, assuming timely payments on such subsequent
Business Day, no interest shall accrue on the payment due on the Notes on such
Payment Date for the period from and after any such nominal date.
Section 1.10. Governing Law
This Indenture and each Note shall be construed in accordance
with and governed by the laws of the State of New York, without giving effect to
any conflict of laws principles thereof.
Section 1.11. Counterparts
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.
ARTICLE II.
NOTE FORM
Section 2.1. Form Generally
The Notes and the certificates of authentication shall be in
substantially the forms set forth in Section 2.2, 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 on which the Notes
may be listed, or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution of the Notes. Any portion
of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
Section 2.2. Form of Class A-1, A-2 and A-3 Note
[THIS NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A-1 [AND CLASS A-2]
NOTES AS DESCRIBED IN THE INDENTURE REFERRED TO HEREIN.]
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY STATE SECURITIES
LAWS AND THE COMPANY HAS NOT BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"), AND ACCORDINGLY THIS NOTE MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS EXCEPT IN A
TRANSACTION THAT IS EXEMPTED UNDER THE SECURITIES ACT (INCLUDING TRANSFER MADE
PURSUANT TO RULE 144A
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UNDER THE SECURITIES ACT) AND APPLICABLE STATE SECURITIES LAWS AND BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER
THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (D) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE
TRUSTEE WITH A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE), (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUERS) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
THE PRINCIPAL OF THIS NOTE IS PAYABLE ON THE PAYMENT DATES AND IN THE AMOUNTS
DESCRIBED HEREIN. ACCORDINGLY, THE OUTSTANDING NOTE PRINCIPAL BALANCE OF THIS
NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF AND MAY BE
ASCERTAINED ONLY BY OBTAINING A WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE
NAMED HEREIN OR ITS SUCCESSOR.
No. ________ Initial Note Principal
Balance of the Class [A-1][A-2][A-3]
Notes: $____________
Class [A-1][A-2][A-3]
PPN: ________________ Initial Note Principal Balance
of this Note $____________
SIGNATURE RESORTS VACATION OWNERSHIP
RECEIVABLES-BACKED NOTE, 1998-A
CLASS [A-1][A-2][A-3]
FINAL MATURITY DATE: [April 25, 2014]
Sunterra Finance L.L.C., a limited liability company duly organized and
existing under the laws of the State of Georgia (the "Company," which term
includes any successor entity under the Indenture referred to below), for value
received, ___________
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hereby promises to pay to ______________________, or registered assigns, the
principal sum of _______________________ Dollars ($_______________) in monthly
installments beginning on the Initial Distribution Date, and to pay interest
monthly in arrears on the unpaid portion of said principal sum (and, to the
extent that the payment of such interest shall be legally enforceable, on any
overdue installment of interest on this Note) on the twenty-fifth day of each
calendar month or, if such twenty-fifth day is not a Business Day, the Business
Day immediately following (each a "Distribution Date"), for the Interest Accrual
Period immediately preceding such Distribution Date until such unpaid principal
is fully paid, at a rate per annum equal to ___% (the "Note Interest Rate");
provided, however, that interest on any amount of principal or interest that is
not timely paid when due shall accrue interest until paid at the Note Interest
Rate. Each monthly installment of principal payable on this Note on any Payment
Date shall be payable pursuant to Section 13.1 of the Indenture until the Class
[A-1][A-2][A-3]Notes have been paid in full. Any remaining unpaid portion of the
then Outstanding Note Balance of this Note shall be due and payable no later
than the Final Maturity Date referred to above. The interest and principal so
payable on any Distribution Date shall, as provided in the Indenture, be paid to
the Person in whose name this Note is registered on the Record Date for such
Distribution Date.
The principal of and interest due on this Note are payable,
without presentment, to the Person whose name appears as the registered Holder
of this Note on the Note Register on the Record Date for the Distribution Date
by wire or other transfer in immediately available funds to the account
specified in writing by such Holder at least three Business Days prior thereto
or as otherwise provided in the Indenture, 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. Funds represented by checks returned undelivered
shall be held for payment to the Person entitled thereto, subject to the terms
of the Indenture, at the office or agency in the United States of America
designated as such by the Company for such purpose pursuant to the Indenture.
Unless the certificate of authentication hereon has been
executed by the Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
This Note is one of a duly authorized issue of Notes of the
Company designated as its Signature Resorts Vacation Ownership
Receivables-Backed Notes 1998-A, Class [A-1][A-2][A-3] Notes (herein called the
"Notes") issued under an Indenture dated as of May 1, 1998 (herein called the
"Indenture"), among the Company, Signature Resorts, Inc., as Servicer, LaSalle
National Bank, as trustee (the "Trustee," which term includes any successor
Trustee under the Indenture) and as back-up servicer (the "Back-up Servicer"),
to which Indenture reference is hereby
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<PAGE> 15
made for a statement of the respective rights thereunder of the Company, the
Trustee and the Holders of the Notes, and the terms upon which the Notes are,
and are to be, authenticated and delivered. All terms used in this Note which
are defined in the Indenture shall have the meanings assigned to them in the
Indenture. Certain provisions of the Indenture are described in this Note. The
Indenture shall govern in the event that the provisions of this Note are
inconsistent therewith.
As provided in the Indenture, the Notes are secured by certain
Mortgage Loans and by certain other collateral (the "Trust Estate") described in
the Indenture. The Notes are equally and ratably secured by the collateral
pledged therefor to the extent provided by the Indenture.
Unless earlier declared, or they otherwise become due and
payable by reason of an Event of Default, the Notes are payable only at the time
and in the manner provided in the Indenture and are not redeemable or prepayable
at the option of the Company before such time except that the Notes shall be
redeemable at the option of the Company in whole, but not in part, on any
Distribution Date at such time as the aggregate Outstanding Note Balance is
equal to or less than 15% of the Outstanding Note Balance as of the Closing
Date. The Notes shall be redeemed at a redemption price equal to the aggregate
Outstanding Note Balance thereof, plus accrued interest thereon through the
redemption date. If an Event of Default as defined in the Indenture shall occur
and be continuing, the principal of all the Notes may become or be declared due
and payable in the manner and with the effect provided in the Indenture.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note may be registered on
the Note Register of the Company, upon surrender of this Note for registration
of transfer at the office or agency of the Trustee in the United States of
America, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Trustee duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes of the same Class, of authorized denominations and for the same aggregate
Outstanding Note Balance, shall be issued to the designated transferee or
transferees.
Prior to due presentment for registration of transfer of this
Note, 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
the purpose of receiving payment as herein provided and for all other purposes
whether or not this Note be overdue, and neither the Company, the Trustee, nor
any such agent shall be affected by notice to the contrary.
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<PAGE> 16
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 with the consent of the Holders of at least
51% of the aggregate Outstanding Notes Balance of each class of Notes. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate Note Principal Balance of Outstanding Notes of one or
more Classes, on behalf of the Holders of all Notes, to waive compliance by the
Company with certain provisions of the Indenture and certain past defaults and
their consequences under the Indenture. 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 herefor or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note. The Indenture also prohibits
the Company from amending its charter without the consent of the Majority
Holders.
The Notes are issuable only in registered form without coupons
in such authorized denominations as provided in the Indenture and subject to
certain limitations therein set forth. The Notes are exchangeable for Notes of a
like Outstanding Note Balance as of the Closing Date of the same Class of a
different authorized denomination, as requested by the Holder surrendering same.
This Note and the Indenture shall be governed by and construed
in accordance with the laws of the State of New York.
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 interest on
this Note in accordance with the Indenture at the times, place and rate, and in
the coin or currency, herein prescribed.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Sunterra Finance L.L.C. has caused this
instrument to be signed, manually or in facsimile, by its Managing Member.
SUNTERRA FINANCE L.L.C.
BY
--------------------------------------
Attest:
- ----------------------------
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[FORM OF TRUSTEE'S
CERTIFICATE OF AUTHENTICATION]
This is one of the Class [A-1][A-2][A-3]Notes referred to in
the within-mentioned Indenture.
Dated:
LaSalle National Bank,
as Trustee
By______________________
Authorized Officer
ARTICLE III.
THE NOTES
Section 3.1. Designation of Notes; Certain Related Provisions
The Class A-1 Notes shall be designated generally as the
"Signature Resorts Vacation Ownership Receivables-Backed Notes 1998-A Class A-1
Notes" of the Company. The Class A-2 Notes shall be designated generally as the
"Signature Resorts Vacation Ownership Receivables-Backed Notes 1998-A Class A-2
Notes" of the Company. The Class A-3 Notes shall be designated generally as the
"Signature Resorts Vacation Ownership Receivables-Backed Notes 1998-A Class A-3
Notes" of the Company.
All Notes of each class at any time simultaneously outstanding
shall be identical in respect of place or places of payment and dates of
payments with all other Notes of such class. Notes of each class shall have the
same Note Interest Rate as all other Notes of such class.
The Stated Maturity of each Class of Notes shall be April 25,
2014. The Class A-1, Class A-2 and Class A-3 Notes shall be assigned on or
before the Closing Date ratings of "AAA", "A" and "BBB", respectively, by DCR.
The aggregate Outstanding Note Balance as of the Closing Date
of the Class A-1, Class A-2 and Class A-3 Notes that may be authenticated and
delivered hereunder is limited to $37,470,866, $50,000,000 and $12,800,614,
respectively, except for Notes authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Notes of the same class
pursuant to Sections 3.4, 3.6 or 9.5 hereof.
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Section 3.2. Denominations
The Notes are available in a minimum denomination of
$1,000,000 original principal amount and integral multiples of $100,000 in
excess thereof; provided, however, that one Note of each Class may be issued in
a denomination that includes any residual amount.
Section 3.3. Execution, Authentication, Delivery and Dating
The Notes shall be executed on behalf of the Company by its
President or one of its Vice Presidents and 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. The Notes may be printed, lithographed, typewritten,
mimeographed or otherwise produced.
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 or delivery of such Notes or did
not hold such offices at the date of authentication or delivery 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 together with a Company Order authorizing authentication thereof to the
Trustee for authentication; and, upon receipt of such Notes, the Trustee shall
authenticate and deliver such Notes as in this Indenture provided and not
otherwise. Notwithstanding anything herein to the contrary, the aggregate
original principal amount of each class of the Notes that may be authenticated
and delivered under this Indenture is limited to the aggregate Outstanding Note
Balance for that Class as of the Closing Date, except for Notes authenticated
and delivered upon registration of transfer of, or in exchange for, or in lieu
of Notes pursuant to Section 3.4, 3.6 or 9.5 hereof.
Each Note shall bear on its face the Closing Date and be dated
as of 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 to be on such
Note a certificate of authentication substantially in the form provided for
herein, executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Note shall be conclusive evidence, and
the only evidence, that such Note has been duly authenticated and delivered
hereunder.
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Section 3.4. Registration, Registration of Transfer and
Exchange
The Trustee, in its capacity as registrar of the Notes (the
"Note Registrar"), shall cause to be kept a register (the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Notes and the registration of transfers of
Notes.
Upon surrender for registration of transfer of any Note at the
Corporate Trust Office of the Trustee to be maintained as provided in Section
11.2, 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, of the same class and of a like Outstanding
Note Balance as of the Closing Date.
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denominations of the same class and of a like
Outstanding Note Balance as of the Closing Date, 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 Noteholder 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 this Indenture, as the Notes
surrendered upon such registration of such transfer or exchange.
Every Note presented or surrendered for registration of
transfer or 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 Trustee duly executed, by the Holder thereof
or his attorney duly authorized in writing. The form of assignment set forth at
Exhibit A hereof shall be deemed to be satisfactory for purposes of the last
preceding sentence.
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 9.5 not involving any
registration of transfer.
Section 3.5. Limitation on Transfer and Exchange
The Notes have not been registered or qualified under the
Securities Act of 1933 (the "1933 Act") or the securities laws of any state. No
transfer of any Note shall be made unless
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<PAGE> 21
such transfer is made pursuant to an effective registration statement under the
1933 Act and registration or qualification under applicable state securities
laws or is exempt from such registration or qualification. In the event that a
transfer is to be made in reliance upon an exemption from the 1933 Act and
applicable state securities laws, the Trustee shall require, in order to assure
compliance with the 1933 Act, that the owner desiring to effect such transfer
and such owner's prospective transferee each certify to the Company and Trustee
in writing the facts surrounding the transfer in the form of either Exhibit 1 or
Exhibit 2 to the Note Purchase Agreement. The Trustee may conclusively rely upon
a Rule 144A Representation Letter from the prospective transferee in the form
attached as Exhibit 2 to the Note Purchase Agreement or upon an investment
letter from the prospective transferee in the form attached as Exhibit 1 to the
Note Purchase Agreement to establish the availability of such exemption. Neither
the Company nor the Trustee is obligated to register or qualify the Notes under
the 1933 Act or any other securities law.
The Trustee shall have no liability to the Trust Estate or
otherwise arising from a transfer of any such Note in reliance upon a
certification or Rule 144A Representation Letter described in this Section 3.5.
Section 3.6. Mutilated, Destroyed, Lost or Stolen Notes
If (i) any mutilated Note is surrendered to the Trustee, or
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, and (ii) there is delivered to the Trustee by the Noteholder
an agreement of indemnity in form and substance reasonably satisfactory to the
Trustee to save the Company and the Trustee harmless, then, in the absence of
notice to the Company or the Note Registrar 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 exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a new Note of the same Class, tenor
and Outstanding Note Balance as of the Closing Date, bearing a number not
contemporaneously outstanding; provided, however, that if any such mutilated,
destroyed, lost or stolen Note shall have become or shall be about to become due
and payable the 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 or the Trustee may require the payment by the Holder 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).
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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 of the same Class 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 Principal and Interest
The principal of and interest due on the Notes of each Class
are payable, without presentment, to the Person whose name appears as the Holder
of such Note on the Record Date on the Note Register for the related Class by
wire or other transfer in immediately available funds to the account specified
in writing by such Holder in the Note Purchase Agreement, in the case of the
Noteholders, or otherwise specified in writing by such Holder at least three
Business Days prior to the Record Date for the Distribution Date on which wire
or other transfers are to commence. Such payment shall be in such coin or
currency of the United States of America as at the time of tender is legal
tender for the payment of public and private debts. Funds representing any such
checks returned undelivered shall be held in accordance with Section 11.3.
Payments to each Noteholder shall be made pursuant to Section 13.1 hereof. Upon
request, the Holder shall surrender such Note at the Corporate Trust Office of
the Trustee within 30 days after such payment.
Section 3.8. Persons Deemed Owners
Prior to due presentment for registration of transfer of any
Note, the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Note is registered as the owner of such Note
for the purpose of receiving payments of principal of and 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.
Section 3.9. Cancellation
All Notes surrendered to the Trustee following, or at the time
of, payment or for registration of transfer or exchange (including Notes
surrendered to any Person other than the Trustee which shall be delivered to the
Trustee) shall be promptly canceled by the Trustee. All canceled Notes held by
the Trustee shall be held by the Trustee in accordance with its standard
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retention policy unless the Company shall direct in a timely manner by a Company
Order that they be returned to it.
Section 3.10. Tax Treatment
The Company has structured this Indenture and the Notes with
the intention that the Notes will qualify under the applicable tax law as
indebtedness of the Company. The Company and each Noteholder, by acceptance of
its Note, agree to treat the Notes as debt of the Company for all purposes.
ARTICLE IV.
AUTHENTICATION AND DELIVERY OF THE NOTES
Section 4.1. General Provisions
The Notes shall be executed by the Company and delivered to
the Trustee for authentication and thereupon the same shall be authenticated and
delivered by the Trustee upon its receipt of a Company Order and upon compliance
with the conditions of Section 4.2, and upon delivery to the Trustee of the
following:
(1) a copy of the Company's Board Resolution authorizing the
execution and delivery of this Indenture and the Notes; and
(2) either (i) a certificate or other official document
evidencing the due authorization, approval or consent of any government
body or bodies, at the time having jurisdiction in the premises, and
that the authorization, approval or consent of no other governmental
body is required for valid issuance of the Notes, or (ii) an Opinion of
Counsel that no such authorization, approval or consent of any
governmental body is required.
Section 4.2. Security for Notes
The Notes shall be executed by the Company and delivered to
the Trustee for authentication and thereupon the same shall be authenticated and
delivered to the Company by the Trustee upon receipt of a Company Order and
upon:
(a) establishment for the benefit of the Trustee on behalf of
the Noteholders of the Lockbox Accounts, the Collection Account and the Reserve
Account; and
(b) delivery by the Company to the Trustee, and receipt by the
Trustee of the Mortgage Files and the Grant of all of the Company's right,
title, and interest in and to the Mortgage Loans.
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Section 4.3. Delivery of Mortgage Loans
In connection with the assignment of all of the Company's
right, title and interest in and to the Mortgage Loans and related Mortgage Loan
Documents, the Company has delivered to, and deposited with, the Trustee the
Mortgage Loans and related Mortgage Loan Documents. The Trustee acknowledges
receipt of the files representing Mortgage Loan Documents and declares that it
holds and will hold such Mortgage Loan Documents in trust for the use and
benefit of all present and future Noteholders and will submit the related
Assignments for recording within three Business Days after the Closing Date at
the expense of the Company. The Trustee shall deliver a certification on the
Closing Date, indicating that it has reviewed each Mortgage File and the
Schedule of Mortgage Loans and has determined that: except as set forth on the
schedule of exceptions attached thereto, all required documents have been
executed and received, that such documents relate to the Mortgage Loans
identified on the Schedule of Mortgage Loans, and each Mortgage File contains an
original Mortgage Note related to each such Mortgage Loan executed by the
Mortgagor listed on the Schedule of Mortgage Loans either endorsed in blank by
the original payee or showing a complete chain of title through to the Trustee.
The Trustee agrees, for the benefit of Noteholders, to review each Mortgage Loan
Document delivered to it after the Closing Date within 30 days after the Grant
of the related Mortgage Loan to the Trustee to ascertain that all required
documents related to such Mortgage Loan have been executed and received, and
that such documents relate to the Mortgage Loans identified in the Schedule of
Mortgage Loans that have been provided to it and that each related Mortgage File
contains an original Mortgage Note related to each such Mortgage Loan executed
by the Mortgagor listed on the Schedule of Mortgage Loans either endorsed in
blank by the original payee or showing a complete chain of title through to the
Trustee. If the Trustee finds any document or documents constituting a part of
the Mortgage Loan Documents to be missing or defective in any material respect,
the Trustee shall promptly so notify the Company and the Seller and request that
the Seller correct or cure such omission or defect within 90 days from the date
the Seller was notified of such omission or defect. If within such 90-day period
the Seller fails to cure such omission or defect, then the Company shall cause
the Seller to deposit the Mortgage Purchase Price for the related Mortgage Loan
in the Collection Account on the second Business Day prior to the Distribution
Date relating to the Collection Period in which such 90-day period expired or
cause to be substituted a Substitute Mortgage Loan pursuant to Section 12.6(b)
hereof. Any such repurchased Mortgage Loan, upon deposit of the related Mortgage
Purchase Price or substitution of a Substitute Mortgage Loan, shall be released
from the Trust Estate by the Trustee to the Company or its designee within one
Business Day of such deposit or substitution.
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ARTICLE V.
SATISFACTION AND DISCHARGE
Section 5.1. Satisfaction and Discharge of Indenture
This Indenture shall cease to be of further effect (except as
to any surviving rights of registration of transfer and exchange or payment)
with respect to the Notes and the Trustee, on demand of and at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes and shall pay, assign,
transfer and deliver to the Company upon Company Order all cash, securities and
other property held by it as part of the Trust Estate (except for amounts
required to pay and discharge the entire indebtedness of the Notes), when
(1) either
(A) all Notes theretofore authenticated and
delivered (other than Notes which have been destroyed, lost or
stolen and which have been replaced or paid as provided in
Section 3.6) have been delivered to the Trustee for
cancellation; or
(B) all Notes not theretofore delivered to
the Trustee for cancellation have become due and payable and
the Company has irrevocably deposited or caused to be
deposited with the Trustee, 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;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee and each
Noteholder 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 with respect to the
Notes have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the Company's obligations in Sections 3.4, 3.6, 7.7, 11.2 and 11.3,
the Trustee's obligations in Section 5.2 and the rights and immunities of the
Trustee under this Indenture shall survive until the Notes are no longer
Outstanding. Thereafter the obligations of the Company in Section 7.7 and the
Trustee in Section 5.2 and the rights and immunities of the Trustee under this
Indenture shall survive.
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Section 5.2. Application of Money Held in Trust
All monies deposited with the Trustee pursuant to Section 5.1
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 as the Trustee may determine, to the Persons entitled thereto, of
the principal and interest for whose payment such money has been deposited with
the Trustee.
Section 5.3. Discharge of Security Interest
Upon satisfaction and discharge of the Indenture as specified
in Section 5.1, the Trustee shall, on written demand of and at the expense of
the Company and upon being supplied with instruments appropriate for the
purpose, execute and the Company shall file all documents (including without
limitation UCC Form 3) necessary to discharge all liens, mortgages, chattel
mortgages and other security interests filed with any governmental board or body
with respect to the Mortgage Loans, and any other assets of the Trust Estate,
and the Trustee shall otherwise cooperate in any way necessary to restore full
unencumbered title in the Mortgage Loans to the Company or its designee.
ARTICLE VI.
REMEDIES
Section 6.1. 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 without
regard to whether it shall 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):
(1) the Company shall fail to distribute or cause to be
distributed to Holders of Notes all or part of any payment of interest
or principal required to be made under the terms of such Notes or this
Indenture when due;
(2) default in the performance, or breach of any covenant of
the Company or a Seller, as applicable, in this Indenture or the Sale
Agreement and continuance of such default or breach for a period of 30
days after the earlier of (i) the date on which the Company or such
Seller, as applicable, shall first have knowledge of such default or
breach and (ii) the date on which written notice, specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder shall have been given to the
Company or such Seller, as applicable, by the Trustee or any
Noteholder;
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(3) breach of any representation or warranty of the Company or
a Seller, as applicable, in this Indenture, the Sale Agreement or in
the Note Purchase Agreement, in each case as of the date such
representation or warranty was made;
(4) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Company or the
Seller under the Federal Bankruptcy Code or any other applicable
bankruptcy, insolvency or other similar Federal or State law, or
appointing a receiver, liquidator, assignee, trustee, or sequestrator
(or other similar official) of the Company or a Seller or of any
substantial part of its respective property, or ordering the winding up
or liquidation of its respective affairs; or
(5) the institution by the Company or a Seller of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by either of
them to the institution of bankruptcy or insolvency proceedings against
either of them, or the filing by either of them of a petition or answer
or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable Federal or State law, or the
consent by either of them to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Company or such Seller
or of any substantial part of its respective property, or the making by
either of them of an assignment for the benefit of creditors, or the
admission by either of them in writing of its respective inability to
pay its debts generally as they become due, or the taking of corporate
action by the Company or the Seller in furtherance of any such action;
or
(6) the occurrence and continuance of a Servicer Event of
Default.
Section 6.2. Acceleration of Maturity, Rescission and
Annulment
If an Event of Default of the kind specified in clause (4) or
(5) of Section 6.1 occurs, the unpaid principal amount of all of the Notes shall
automatically become immediately due and payable without notice, presentment or
demand of any kind. If an Event of Default (other than an Event of Default of
the kind specified in clause (4) or (5) of Section 6.1) occurs and is
continuing, then and in every such case the Trustee may or at the direction of
the Majority Holders (or, if the only Event of Default occurring is an Event of
Default with respect to a Seller or Servicer set forth in clauses (2), (3) or
(6) of Section 6.1, then the Holder or the Holders of 66 2/3% of the aggregate
Outstanding Note Balance of the Notes), together with the consent of at least
51% of the Holders of the Class of Notes with the highest rating from DCR
(determined as of the Delivery
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Date) which has payments of interest or principal due and owing from any prior
Distribution Date, if any, the Trustee shall declare the principal of all of the
Notes to be immediately due and payable, by a notice in writing to the Company
(and to the Trustee if given by Noteholders), and upon any such declaration such
principal (together with all accrued and previously unpaid interest) shall
become immediately due and payable. The Trustee shall give notice to each
Noteholder of such declaration. Notwithstanding the foregoing, the Trustee may
not declare the Notes to be due and payable pursuant to this Section 6.2 as a
result of an Event of Default arising solely from the Company's failure to
perform its agreements set forth in Section 7.7.
At any time after such a declaration of acceleration has been
made, but before any Sale of the Trust Estate has been made or a judgment or
decree for payment of the money due has been obtained by the Trustee as
hereinafter in this Article provided, the Holders of 66 2/3% of the aggregate
Outstanding Note Balance of the Notes, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequence if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on
all Class A-1, Class A-2 and Class A-3 Notes,
(B) the principal of any of the Class A-1,
Class A-2 or Class A-3 Notes which has become due otherwise
than by such declaration of acceleration and interest thereon
at the applicable Note Interest Rate,
(C) to the extent that payment of such
interest is lawful, interest upon overdue installments of
interest on the Class A-1, Class A-2 and Class A-3 Notes at
the rate specified therefor in the applicable Notes, and
(D) all sums paid or advanced by the Trustee
hereunder and the Back-up Servicer under the Servicing
Agreement and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the nonpayment of the
principal of the Class A-1, Class A-2 and Class A-3 Notes which have
become due solely by such acceleration, have been cured or waived as
provided in Section 6.13.
No such rescission shall affect any subsequent default or
impair any right consequent thereon.
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Subsequent to any such declaration of acceleration and so long
as such declaration and its consequences has not been rescinded and annulled,
prior to the exercise by the Trustee of the remedies set forth in Section 6.3(b)
or (c) the Trustee shall give the Noteholders ten days' notice of its intention
to take such actions.
Section 6.3. Remedies
If an Event of Default shall have occurred and be continuing,
the Trustee may, after notification to all Noteholders and, at the direction of
the Majority Holders, shall do one or more of the following:
(a) institute Proceedings for the collection of all amounts
then payable on the Notes, or under this Indenture in respect of the Notes,
whether by declaration or otherwise, enforce any judgment obtained, and collect
from the Trust Estate securing the Notes the monies adjudged due;
(b) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more Sales called and conducted in any manner
permitted by law;
(c) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the portion of the
Trust Estate securing the Notes; and
(d) exercise any remedies of a secured party under the UCC or
other applicable law and take any other appropriate action to protect and
enforce the rights and remedies of the Trustee or the Holders of the Notes
hereunder;
provided, however, except for any Sale conducted pursuant to Section 10.5, that
without the consent of the Holders of 66 2/3% of the aggregate Outstanding Note
Balance of the Notes, the Trustee may not sell or otherwise liquidate the Trust
Estate or any portion thereof unless, in the reasonable judgment of the Trustee
after consultation with a Person of national reputation in the field of
appraisal of property of the type comprising the Mortgaged Property, the
proceeds of such Sale or Proceedings or liquidation distributable to the
Noteholders will be sufficient to discharge in full the amounts then due and
unpaid upon the Notes for principal and interest. The Trustee shall have no
liability for any public Sale or private Sale conducted in reliance upon the
advice of a Person of national reputation in the field of appraisal. In the
event that the Trustee does not sell or otherwise liquidate the Trust Estate, it
shall continue to hold such Trust Estate and make distributions therefrom
pursuant to Article Thirteen hereof.
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Section 6.4. 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, relating 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 any Class of
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, to intervene in such proceeding or otherwise,
(i) to file and prove a claim for all amounts owing and unpaid
in respect of the Notes and to file such other papers or documents and
take such other action including participating as a member or
otherwise, in any committee of creditors appointed in the matter, as
may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Noteholders allowed in such judicial Proceeding;
(ii) to petition for lifting of the automatic stay and
thereupon to foreclose upon the Trust Estate as elsewhere provided
herein; and
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, or sequestrator (or other
similar official) in any such judicial Proceeding is hereby authorized by each
Noteholder 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
Noteholders, to pay to the Trustee any amount due to 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 7.7.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan or 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 Noteholder in any such
Proceeding.
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Section 6.5. Trustee May Enforce Claims without Possession of
Notes
All rights of actions 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 Proceedings 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, indemnities and advances of the Trustee, its agents and counsel,
be for the benefit of the Holders of the Notes in respect of which such judgment
has been recovered applied to payments on the Notes in the order set forth in
Section 6.6.
Section 6.6. Allocation of Money Collected
If the Notes have been declared due and payable following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, any money collected by the Trustee with respect to the
Notes pursuant to this Article (and any funds then held or thereafter received
by the Trustee) shall be applied in the following order, at the date or dates
fixed by the Trustee:
FIRST: To the payment of all amounts due the Trustee under
Section 7.7;
SECOND: If Signature Resorts, Inc. is not the Servicer
hereunder, to the Servicer, the Servicing Fee;
THIRD: (in the following order) To the payment of (i) accrued
interest on the Class A-1, Class A-2 and Class A-3 Notes, in that order,
including interest (to the extent such interest has been collected by the
Trustee or a sum sufficient therefor has been so collected and payment thereof
is legally enforceable at the rate prescribed therefor in the applicable Notes)
on overdue installments of interest, and (ii) the Outstanding Note Balances of
the Class A-1, Class A-2 and Class A-3 Notes, in that order;
FOURTH: To the payment of all reasonable costs and expenses
incurred by any Holder in connection with the enforcement of its rights
hereunder or under the Notes, ratably, without preference or priority of any
kind; and
FIFTH: To the payment of any surplus to or at the written
direction of the Company or any other person legally entitled thereto.
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Section 6.7. Limitation on Suits
No Holder shall have any right to institute any 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
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of 10% of the aggregate Outstanding Note
Balance of the 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;
(3) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
Proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 30 day period by the Majority
Holders;
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 of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided.
Section 6.8. Unconditional Right of Noteholders to Receive
Principal and Interest
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest on such Note as such principal
and interest becomes due and payable and to institute suit for the enforcement
of any such payment, and such right shall not be impaired without the consent of
such Holder.
Section 6.9. Restoration of Rights and Remedies
If the Trustee or any Noteholder 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 Noteholder, then and in every such case the Company, the
Trustee and the Noteholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to
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their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Noteholders shall continue as though no such Proceeding has been
instituted.
Section 6.10. Rights and Remedies Cumulative
No right or remedy herein conferred upon or reserved to the
Trustee or to the Noteholders 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 6.11. Delay or Omission Not Waiver
No delay or omission of the Trustee or of any Noteholder 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 Noteholders, or any of them, may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the
Noteholder or Noteholders, as the case may be.
Section 6.12. Control by Noteholders
The Holders of 51% of the aggregate Outstanding Note Balance
of each class of Notes shall have the right to direct in writing the decision
whether to conduct, and the time, method and place of conducting, any Proceeding
for any remedy available to the Trustee with respect to the Notes or exercising
any trust or power conferred on the Trustee with respect to the Notes; provided
that:
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction;
provided, however, that, subject to Section 7.1, the Trustee need not take any
action which it determines might involve it in liability or be unjustly
prejudicial to the Noteholders not consenting.
Section 6.13. Waiver of Past Defaults
The Holders of 51% of the aggregate Outstanding Note Balance
of each class of Notes may waive, in writing, any past
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Event of Default with respect to the Notes hereunder and its consequences,
except an Event of Default
(1) in the payment of the principal of or interest on any
Note, or a default described in Section 6.1 (4) or (5), or
(2) 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 thereby.
Upon any such waiver, such Event of Default shall cease to
exist and shall be deemed to have been cured for every purpose of this
Indenture. The Trustee, upon receipt thereof, shall transmit by mail to DCR
notice of such waiver specifying the date on which the Event of Default was
waived promptly after the occurrence of such waiver.
Section 6.14. 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, as Trustee and
as Back-up Servicer, for any action taken, suffered or omitted by it as Trustee
or as Back-up Servicer, 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 6.14 shall not apply to any suit instituted by the
Trustee or to any suit instituted by any Noteholder or group of Noteholders,
holding in the aggregate more than 10% in Outstanding Note Balance of all Notes,
or to any suit instituted by any Noteholder for the enforcement of the payment
of the principal of or interest on any Note when due.
Section 6.15. Sale of Trust Estate
(a) The power to effect any sale (a "Sale") of any portion of
the Trust Estate pursuant to Section 6.3 shall not be exhausted by any one or
more Sales as to any portion of the Trust Estate remaining unsold, but shall
continue unimpaired until the entire Trust Estate securing the Notes shall have
been sold or all amounts payable under this Indenture with respect thereto shall
have been paid. The Trustee may from time to time postpone any Sale by public
announcement made at the time and place of such Sale. It is hereby expressly
agreed that the Trustee is not limited to any amount fixed by law as
compensation for any Sale.
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(b) Any Noteholder may bid for and acquire any portion of the
Trust Estate securing the Notes in connection with any Sale thereof. In lieu of
paying cash for the entire purchase price therefor, any Noteholder, after
deducting the costs, charges and expenses (including reasonable attorney's fees)
incurred by the Trustee in connection with such Sale (and, in the case of any
Class A-3 Noteholder, after all amounts owing on the Class A-1 and Class A-2
Notes have been paid in full; and in the case of any Class A-2 Noteholder, after
all amounts owing on the Class A-1 Notes have been paid in full) may make
settlement for any portion of the purchase price remaining by crediting against
amounts owing on the Notes held by it or other amounts owing to such Noteholder
secured by this Indenture, the portion of the net proceeds of such Sale to which
such Noteholder would be entitled hereunder.
(c) The Servicer and the Company covenant and agree that a
Sale of the entirety of the Mortgage Loans and Mortgaged Properties by a public
Sale held not less than ten days after notice thereof is commercially
reasonable.
(d) The Trustee shall execute and deliver an appropriate
instrument of transfer, provided to it by the Servicer, transferring its
interest in any portion of the Trust Estate in connection with a Sale thereof.
In addition, the Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Company to transfer and convey its interest in any
portion of the Trust Estate in connection with a Sale thereof, and to take all
action necessary to effect such Sale. No purchaser or transferee at such a sale
shall be bound to ascertain the Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
monies.
Section 6.16. Action on Notes
The Trustee's right to seek and recover judgment on the Notes
or under this Indenture shall not be affected by the seeking, obtaining or
application of any other relief under or with respect to this Indenture. Neither
the lien of this Indenture nor any rights or remedies of the Trustee or the
Noteholders shall be impaired by the recovery of any judgment by the Trustee
against the Company or by the levy of any execution under such judgment upon any
portion of the Trust Estate or upon any of the assets of the Company.
Section 6.17. Company Bankruptcy
The Trustee agrees, and each Holder of the Notes by its
acceptance of any note shall be deemed to agree, that it will not join in any
proceeding to commence a case against the Company under the Federal Bankruptcy
Code or any other applicable bankruptcy, insolvency or similar federal or state
law without
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the consent of more than 66 2/3% of the aggregate Outstanding Note Balance of
the Notes.
ARTICLE VII.
THE TRUSTEE
Section 7.1. Certain Duties and Responsibilities
(a) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and in the
Servicing Agreement, and no implied covenants or obligations shall be
read into this Indenture or in the Servicing Agreement against the
Trustee; and
(2) 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.
(b) In case an Event of Default (of which the Trustee has
actual knowledge) 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 person would exercise
or use under the circumstances in the conduct of his own affairs.
(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 willful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect
of Subsection (a) of this Section;
(2) 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;
(3) 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 Majority Holders relating to the time, method and
place of conducting any Proceeding for any remedy available to the
Trustee, or
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exercising any trust or power conferred upon the Trustee, under this
Indenture with respect to the Notes or under the Servicing Agreement;
(4) 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, provided that nothing herein contained shall excuse the Trustee for
failure to perform its duties as Trustee under this Indenture or the
Servicing Agreement;
(5) the Trustee shall not be charged with knowledge of any
default hereunder or under the Servicing Agreement or any other fact or
circumstance upon the occurrence of which it may be required to take
action hereunder unless one of its Responsible Officers has actual
knowledge thereof; and
(6) the Trustee shall have no obligation to ascertain whether
any payment of interest on an overdue installment of interest is
legally enforceable.
(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 7.2. Notice of Default, Cure or Waiver
Promptly after the occurrence of any Event of Default known to
the Trustee, the Trustee shall transmit by mail to all Holders, as their names
and addresses appear on the Note Register, and DCR notice of such Event of
Default hereunder known to the Trustee, unless such Event of Default shall have
been cured or waived.
The Trustee shall provide to DCR and each Noteholder prompt
notice of any Event of Default known to it, and of any cure (including waiver)
thereof, together with a written explanation of the manner in which and time at
which such Event of Default was cured or waived.
Section 7.3. Certain Rights of Trustee
Subject to Section 7.1:
(a) the Trustee may, in the absence of bad faith on its part,
conclusively 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, note or other obligation,
paper
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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, request and conclusively rely upon an Officers' Certificate of the
Servicer or the Company;
(d) the Trustee may, in its reasonable judgment, consult with
in-house counsel or any other counsel nationally-recognized in securitization
with regard to legal questions arising out of or in connection with this
Indenture, 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 Noteholders pursuant to this Indenture, unless such
Noteholders shall have offered to the Trustee security or indemnity reasonably
satisfactory to it against the costs, expenses (including legal fees and
expenses) and liabilities which might be incurred by it in compliance with such
request or direction; and
(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,
note 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.
Except as otherwise agreed by it in writing, the Trustee shall
not be responsible for the payment of any interest on amounts deposited with it
hereunder.
Section 7.4. Not Responsible for Recitals or Issuance of Notes
(a) The recitals contained herein and in the Notes, except the
certificates of authentication on the Notes, shall be
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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, adequacy or condition of the Trust Estate or any part thereof, or
as to the title of the Company thereto or as to the security afforded thereby or
hereby, or as to the validity or genuineness of any securities at any time
pledged and deposited with the Trustee hereunder or 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 or of any money paid to the Company or upon Company Order or for the use
or application by the Servicer of any amounts paid to the Servicer under any
provisions hereof.
(b) Except as otherwise expressly provided herein and without
limiting the generality of the foregoing, the Trustee shall have no
responsibility or liability for or with respect to the existence or validity of
any Mortgaged Property or Mortgage Loan, the perfection of any security interest
(whether as of the date hereof or at any future time), the maintenance of or the
taking of any action to maintain such perfection, the validity of the assignment
of any portion of the Trust Estate to the Trustee or of any intervening
assignment, the review of any Mortgage Loan (it being understood that the
Trustee has not reviewed and does not intend to review the substance or form of
any such Mortgage Loan or any Mortgage Loan Document) the performance or
enforcement of any Mortgage Loan or Mortgage Loan Document, the compliance by
the Company, the Seller or the Servicer with any covenant or the breach by the
Company, the Seller or the Servicer of any warranty or representation made
hereunder or in any related document or the accuracy of any such warranty or
representation, any investment of monies in the Collection Account or Reserve
Account or any loss resulting therefrom, the acts or omissions of the Company,
the Seller, the Servicer or any Mortgagor, any action of the Servicer or the
Seller taken in the name of the Trustee, or the validity of the Servicing
Agreement or the Sale Agreement.
(c) The Trustee shall not have any obligation or liability
under any Mortgage Loan by reason of or arising out of this Indenture or the
granting of a security interest in such Mortgage Loan hereunder or the receipt
by the Trustee of any payment relating to any Mortgage Loan pursuant hereto, nor
shall the Trustee be required or obligated in any manner to perform or fulfill
any of the obligations of the Company under or pursuant to any Mortgage Loan, or
to make any payment, or to make any inquiry as to the nature or the sufficiency
of any payment received by it, or the sufficiency of any performance by any
party, under any Mortgage Loan.
Section 7.5. May Hold Notes
The Trustee, any Paying Agent, Note Registrar or any other
agent of the Company, in its individual or any other
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capacity, may become the owner or pledgee of Notes and if operative, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Note Registrar or such other agent.
Section 7.6. Money Held in Trust
Money received by the Trustee pursuant to this Indenture shall
be held in trust for the purposes set forth herein. Money held by the Trustee in
trust hereunder need not be segregated from other funds except to the extent
required herein or required by law. The Trustee shall be under no liability for
interest on any money received by it hereunder except as otherwise agreed by the
Trustee in writing with the Company except with respect to income or gain or
investments that are its obligation in its corporate capacity.
Section 7.7. Compensation and Reimbursement
The Company and the Servicer agree:
(a) to pay the Trustee the Trustee Fee, in accordance with
Section 13.1 hereof and Section 2.14 of the Servicing Agreement, as
reasonable compensation for all services rendered by it hereunder
(which Trustee's Fee shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(b) 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 the
Trustee's agents and counsel) or the Servicing Agreement, except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(c) to indemnify the Trustee, its officers, directors,
employees, custodians, nominees and agents for, and to hold them
harmless against, any loss, liability or expense incurred without
negligence or bad faith on their part, arising out of or in connection
with the acceptance or administration of this trust and performance
hereunder and under the Servicing Agreement in accordance with the
terms hereof, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder and including any
loss, liability or expense incurred by it as Back-up Servicer without
negligence or bad faith.
As security for the performance of the Company under this
Indenture, the Trustee shall have a lien and right to payment, prior to the lien
of the Noteholders and all
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other Persons, upon the Trust Estate. The Trustee shall not institute any
proceeding solely to enforce its lien which would involve the Sale or other
disposition of the Trust Estate until at least 91 days have elapsed since the
date on which all of the Notes have been paid or discharged. The Trustee shall
not be entitled to reimbursement of the expenses described in Section 7.7(b)
above pursuant to Section 13.1(a) hereof, unless, at least 30 days prior to the
related Distribution Date, the Trustee has submitted to the Servicer a written
request for such reimbursement and the Servicer has failed to comply with such
request on or prior to such Distribution Date.
Section 7.8. Corporate Trustee Requirement; Eligibility
There shall at all times be a Trustee hereunder which shall at
all times be a depository institution or trust company organized and doing
business under the laws of the United States of America or any State thereof;
authorized under such laws to exercise corporate trust powers; have a combined
capital and surplus of at least $500,000,000; and be subject to supervision or
examination by federal or state authorities; provided, however, that any
successor Trustee shall in addition be an institution with long-term, unsecured
debt obligations rated "AA" or better by DCR or any other rating acceptable to
DCR. If such corporation shall publish reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section 7.8, 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 immediately notify the Company, the
Servicer and the Noteholders. In the event of such occurrence, the Company or
the Servicer may cause the Trustee to resign immediately in the manner and with
the effect hereinafter specified in this Article.
Section 7.9. 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 become
effective until the acceptance of appointment by the successor Trustee under
Section 7.10.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company, the Servicer, DCR and to the Noteholders. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 90 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.
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(c) The Trustee may be removed at any time by Act of the
Holders of 51% of the aggregate Outstanding Note Balance of each class of Notes,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall cease to be eligible under Section 7.8
and shall fail to resign after written request therefor by the Company
or by any such Noteholder, or
(2) 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, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 6.14, any Noteholder who has been a bona
fide Holder of a Note for at least six months (provided that the Notes have been
Outstanding for at least six months, otherwise the Holder of the Note that has
been outstanding for the longest period of time) 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 the Trustee
for any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee that meets the requirements set forth in Section 7.8. If no
successor Trustee shall have been so appointed by the Company within 30 days
after such resignation or removal or by the Majority Holders pursuant to Section
7.9(f), any Noteholder who has been a bona fide Holder of Notes for at least six
months (provided that the Notes have been outstanding 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) Notwithstanding Section 7.9(e) hereof, under the following
circumstances a successor Trustee may be appointed by Act of the Holders of 51%
of the aggregate Outstanding Note Balance of each class of Notes delivered to
the Company and (unless the office of the Trustee is then vacant) any retiring
Trustee: (a) a vacancy shall exist at any time in the office of the Trustee for
any cause; (b) the Company shall not have appointed a successor Trustee within
30 days after the Trustee's resignation or removal; or (c) less than one year
shall have passed after the appointment by the Company of a successor Trustee
pursuant to Section 7.9(e). Any successor Trustee appointed by such Act of the
Majority Holders shall, forthwith upon its acceptance of such appointment,
become the successor
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Trustee and supersede the successor Trustee, if any, appointed by the Company.
(g) 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 the
Servicer, DCR and the Holders of Notes 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.
(h) The Trustee shall be paid all amounts outstanding upon
such resignation or removal and the obligations of the Company and the Servicer
in Section 7.7 hereof shall survive such resignation or removal.
Section 7.10. Acceptance of Appointment by Successor
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and the Noteholders and 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 reasonable charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trust 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, subject
nevertheless to its lien, if any, provided for in Section 7.7 (which lien may be
exercised whether or not the Notes have been paid, satisfied or discharged in
full, in accordance with the provisions of said Section 7.7). 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.
Section 7.11. Merger, Conversion, Consolidation or Succession
to Business of Trustee
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 of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be
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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 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 the Notes so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Notes.
Section 7.12. Co-trustees and Separate Trustees
At any time or times, for the purpose of meeting the legal
requirements of any jurisdiction in which any of the Trust Estate may at the
time be located, the Company and the Trustee shall have power to appoint, and,
upon the written request of the Trustee or of the Holders of Notes representing
at least 25% of the aggregate Outstanding Note Balance of any Class, the Company
shall for such purpose join with the Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to appoint,
one or more Persons approved by the Trustee either to act as co-trustee, jointly
with the Trustee, of all or any part of such Trust Estate, or to act as separate
trustee of any such property, in either case with such powers as may be provided
in the instrument of appointment, and to vest in such Person or Persons in the
capacity aforesaid, any property, title, right or power deemed necessary or
desirable, subject to the other provisions of this Section. If the Company does
not join in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default has occurred and is continuing, the
Trustee alone shall have power to make such appointment.
Should any written instrument from the Company be required by
any co-trustee or separate trustee so appointed for more fully confirming to
such co-trustee or separate trustee such property, title, right or power, any
and all such instruments shall, on request, be executed, acknowledged and
delivered by the Company.
Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
terms, namely:
(1) The Notes shall be authenticated and delivered and all
rights, powers, duties and obligations hereunder in respect of the
custody of securities, cash and other personal property held by, or
required to be deposited or pledged with, the Trustee hereunder, shall
be exercised solely by the Trustee.
(2) The rights, powers, duties and obligations hereby
conferred or imposed upon the Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and
exercised or performed by the Trustee or by
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the Trustee and such co-trustee or separate trustee jointly, as shall
be provided in the instrument appointing such co-trustee or separate
trustee, except to the extent that under any law of any jurisdiction in
which any particular act is to be performed, the Trustee shall be
incompetent or unqualified to perform such act, in which event such
rights, powers, duties and obligations shall be exercised and performed
by such co-trustee or separate trustee.
(3) The Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Company evidenced by a
Board Resolution, may accept the resignation of or remove any
co-trustee or separate trustee, appointed under this Section, and, in
case an Event of Default has occurred and is continuing, the Trustee
shall have power to accept the resignation of, or remove, any such
co-trustee or separate trustee without the concurrence of the Company.
Upon the written request of the Trustee, the Company shall join with
the Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate
trustee that has so resigned or been removed may be appointed in the
manner provided in this Section.
(4) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Trustee or
any other such trustee hereunder nor shall the Trustee be liable by
reason of any act or omission of any co-trustee or separate trustee
hereunder.
(5) Any Act of Noteholders delivered to the Trustee shall be
deemed to have been delivered to each such co-trustee and separate
trustee.
Section 7.13. Rights with Respect to the Servicer
(a) The Trustee may terminate all rights and powers of the
Servicer at any time, in accordance with the terms of the Servicing Agreement.
(b) If the Company shall have knowledge of the occurrence of
any default or event of default under the Servicing Agreement, the Company shall
promptly notify the Trustee in writing, the Noteholders and DCR thereof, and
shall specify in such notice the action, if any, the Company is taking in
respect of such event of default.
(c) Upon any termination of the original Servicer's rights and
powers pursuant to the Servicing Agreement, a successor Servicer may be
appointed in accordance with the provisions thereof, and if no successor is so
appointed the Trustee shall serve as Servicer in accordance with the provisions
of the Servicing Agreement.
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Section 7.14. Servicer as Agent and Bailee of Trustee
Solely for the purpose of perfection of the lien of this
Indenture, the Trustee hereby acknowledges that the Servicer is acting as agent
and bailee of the Trustee for the benefit of the Noteholders as secured party in
holding any items constituting a part of the Trust Estate, including any
Mortgage Loans and the Mortgage Files relating to the Mortgage Loans and monies,
which from time to time come into the possession of the Servicer (of which the
Trustee shall retain a copy, other than in connection with Mortgage Loans
released pursuant to this Indenture) provided that, with respect to any other
duties pursuant to said Servicing Agreement, the Servicer is acting as an
independent contractor. It is intended that, by the Servicer's acceptance of
such agency pursuant to the Servicing Agreement, the Trustee for the benefit of
the Noteholders, as secured party, shall be deemed to have possession of such
monies and other items for purposes of the UCC as adopted in the state in which
such property is held by the Servicer. Subject to Section 7.1 hereunder, the
Trustee shall not be liable for any act or omission of the Servicer in its
capacity as agent and bailee of the Trustee.
Section 7.15. Representations and Warranties of the Trustee
The Trustee hereby makes the following representations and
warranties on which the Company, the Servicer and Noteholders shall be entitled
to rely:
(i) The Trustee is a nationally chartered bank duly organized,
validly existing, and in good standing under the laws of its place of
organization;
(ii) The Trustee has full power, authority and legal right to
execute, deliver, and perform this Indenture and the Servicing
Agreement, and has taken all necessary action to authorize the
execution, delivery, and performance by it of this Indenture and the
Servicing Agreement;
(iii) The execution, delivery and performance by the Trustee
of this Indenture and the Servicing Agreement (a) does not violate any
provision of any law or any order, writ, judgment, or decree of any
court, arbitrator, or governmental authority applicable to the Trustee
or any of its assets, (b) does not violate any provision of the
corporate charter or by-laws of the Trustee, and (c) does not violate
any provision of, or constitute, with or without notice or lapse of
time, a default under, or result in the creation or imposition of any
Lien on, any properties included in the Trust Estate pursuant to the
provisions of any mortgage, indenture, contract, agreement, or other
undertaking to which the Trustee is a party, which violation or default
could reasonably be expected to materially and
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adversely affect the Trustee's performance or ability to perform its
duties under this Indenture and the Servicing Agreement or the
transactions contemplated in this Indenture and the Servicing
Agreement;
(iv) The execution, delivery and performance by the Trustee of
this Indenture and the Servicing Agreement does not require the
authorization, consent, or approval of, the giving of notice to, the
filing or registration with, or the taking of any other action in
respect of, any governmental authority or agency regulating the banking
and corporate trust activities of the Trustee;
(v) This Indenture and the Servicing Agreement has been duly
executed and delivered by the Trustee and constitutes the legal, valid,
and binding agreement of the Trustee, enforceable in accordance with
its terms, and the Trustee meets the requirements of Section 7.8
hereof;
(vi) The Notes have been duly authenticated by the Trustee;
and
(vii) The Trustee is currently modifying its computer systems
and applications with the intention of being year 2000 ready by August
31, 1999.
ARTICLE VIII.
CONSOLIDATION AND MERGER
Section 8.1. Company May Not Consolidate, etc.
The Company shall not consolidate or merge with or into any
other Person or convey or transfer its properties and assets substantially as an
entirety to any Person.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of
Noteholders
(a) Without the consent of the Holders of any Notes, the
Company, when authorized by a Board Resolution, the Servicer and the Trustee, at
any time and from time to time, may enter into one or more supplemental
indentures provided that such action shall not result in a reduction or
withdrawal of the then current rating on any class of Notes as confirmed by DCR
in writing, in form satisfactory to the Trustee, for any of the following
purposes; provided, further, that no such supplemental indenture shall have any
of the effects described in clauses (1)
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through (6) of the proviso to Section 9.2 hereof or adversely affect the
interest of the Holders of any Notes:
(1) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Trustee any property subject or required to
be subjected to the lien of this Indenture, or to subject additional
property to the lien of this Indenture; or
(2) to add to the conditions, limitations and restrictions on
the authorized amount, terms and purposes of issue, authentication and
delivery of the Notes, as herein set forth, additional conditions,
limitations and restrictions thereafter to be observed; or
(3) to add to the covenants of the Company, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Company; or
(4) to convey, transfer, assign, mortgage or pledge any
property to or with the Trustee; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provisions with respect to matters or questions arising under this
Indenture, which shall not be inconsistent with the provisions of this
Indenture; or
(6) to evidence the succession of the Trustee pursuant to
Article 7.
(b) Promptly after the execution by the Company and the
Trustee of any supplemental indenture pursuant to this Section, the Company
shall mail to DCR and each Noteholder, a notice setting forth in general terms
the substance of such supplemental indenture together with a copy of such
supplemental indenture. Any failure of the Company to mail such notice and copy,
or any defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
Section 9.2. Supplemental Indentures with Consent of
Noteholders
With the consent of the Holders of more than 51% of aggregate
Outstanding Note Balance of each class of 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 one or more supplemental
indentures for the purpose of adding any provisions to, or changing in any
manner or eliminating any of the provisions of, this Indenture modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided
that, unless the unanimous consent of the Noteholders is received, such action
shall not result in a
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reduction or withdrawal of the then current rating on any class of Notes as
confirmed by DCR in writing, in form satisfactory to the Trustee; and provided
further that no such supplemental indenture shall, without the consent of all
Holders of each class of Outstanding Notes affected thereby:
(1) reduce the Outstanding Note Balance of any Note or the
Note Interest Rate thereon or change the amount or priority or time of
any payment on any Note or any place of payment where, or the coin or
currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such
payment; or
(2) impair or adversely affect the Trust Estate except as
otherwise permitted herein; or
(3) modify or alter the provisions of the definition of the
term "Outstanding"; or
(4) modify or alter the provisions of the proviso to Section
6.3; or
(5) modify any of the provisions of this Section 9.2 or any
provision herein requiring the consent, waiver, approval or Act of the
Holder or Holders of any particular amount of the Outstanding Note
Balance of any Class of Notes; or
(6) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of a
Trust Estate or terminate the lien of this Indenture on any property at
any time subject hereto or deprive the Holder of any Note of the
security afforded by the lien of this Indenture.
It shall be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to this Section, the Company shall mail to
DCR and each Noteholder a notice setting forth in general terms the substance of
such supplemental indenture together with a copy of such supplemental indenture.
Any failure of the Company to mail such notice and copy, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
Section 9.3. Execution of Supplemental Indentures
In executing or accepting any supplemental indenture permitted
by this Article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to be supplied with, and prior to
executing any supplemental
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indenture pursuant to Section 9.1 the Trustee shall require (and subject to
Section 7.1 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 affects the Trustee's own
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. Reference in Notes to Supplemental Indenture
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and if required by the
Trustee shall, 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.
ARTICLE X.
REDEMPTION OF NOTES
Section 10.1. Redemption at the Option of the Company;
Election To Redeem
The Notes are redeemable at the option of the Company in
whole, but not in part, at the Redemption Price, on any Distribution Date
(hereinafter referred to as a "Redemption Date") occurring after such time as
the aggregate Outstanding Note Balance is equal to or less than 15% of the
aggregate Outstanding Note Balance as of the Closing Date.
Installments of interest and principal due on or prior to a
Redemption Date shall continue to be payable to the Holders of Notes called for
redemption as of the relevant Record Dates according to their terms and the
provisions of Section 3.7. The election of the Company to redeem any Notes
pursuant to this Section shall be evidenced by a Board Resolution directing the
Trustee to make the payment of the Redemption Price on all of the Notes to be
redeemed from monies deposited with the Trustee pursuant to Section 10.3.
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Section 10.2. Notice of Redemption by the Company
Notice of redemption pursuant to Section 10.1 shall be given
by first class mail, postage prepaid, mailed not less than 30 days prior to the
applicable Redemption Date, to the Trustee, DCR and to each Holder of
Outstanding Notes, at its address in the Note Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) that on the Redemption Date, the Redemption Price shall
become due and payable upon each such Note, and that interest thereon
shall cease to accrue on such date upon the payment of the Redemption
Price; and
(4) the place where such Notes are to be surrendered within 30
days after the Redemption Date, which shall be the office or agency of
the Company to be maintained as provided in Section 11.2.
Notice of redemption of Notes 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. Failure to give notice of redemption, or any defect therein, to any
Holder of any Note selected for redemption shall not impair or affect the
validity of the redemption of any other Note.
Section 10.3. Deposit of the Redemption Price
On or before the Business Day next preceding any Redemption
Date, the Company shall deposit with the Trustee or with the Paying Agent an
amount of monies sufficient to pay the Redemption Price of all Notes which are
to be redeemed on such Redemption Date (less any portion of such payment set
aside from monies in the Collection Account or the Reserve Account for the Notes
to be redeemed).
In the case of a redemption pursuant to which a sale under
Section 10.5 is to be held, on or before the Business Day next preceding the
related Redemption Date, the Company shall deposit with the Trustee or with the
Paying Agent an amount of money equal to the amount by which the Redemption
Price is reasonably expected to exceed the proceeds of the sale plus an amount
of money sufficient to pay the Trustee's fees and expenses reimbursable to the
Trustee in accordance with Section 7.7.
Section 10.4. Notes Payable on Redemption Date
Notice of redemption having been given as provided in Section
10.2, the Notes to be redeemed shall, on the applicable
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Redemption Date, become due and payable at the Redemption Price and on such
Redemption Date (unless the Company shall default in the payment of the
Redemption Price) such Notes shall cease to bear interest. On the Redemption
Date, the Holders of such Notes shall be paid the Redemption Price by the Paying
Agent; provided, however, that installments of principal and interest which are
due on or prior to the Redemption Date shall be payable to the Holders of such
Notes registered as such on the relevant Record Dates according to their terms
and the provisions of Section 3.7.
If the Holders of any Note called for redemption shall not be
so paid, the principal shall, until paid, continue to bear interest from the
Redemption Date at the related Note Interest Rate until payment of principal is
made.
Section 10.5. Sale for Purposes of Redemption
(a) By Company Order, the Company may direct the Trustee to
sell the Mortgage Loans securing the Notes called for redemption for the purpose
of redeeming the Notes which are to be redeemed in accordance with Section 10.1.
The Company Order shall (i) specify the time and place of the sale, terms and
the manner in which the sale is to be conducted and (ii) be accompanied by an
Officers' Certificate certifying that no Event of Default under the Indenture
with respect to the Notes to be redeemed shall be continuing. The date of any
such sale shall be the Redemption Date and the amount of the proceeds from such
sale shall equal or exceed the Redemption Price. Upon receipt of such Company
Order, the Trustee shall employ its best efforts to sell the Mortgage Loans
securing the Notes on the terms and conditions specified therein; provided,
however, the Trustee may only sell such Mortgage Loans if (x) no Event of
Default with respect to the Notes collateralized by such Mortgage Loans shall be
continuing and (y) the amounts required to have been deposited with the Trustee
or a Paying Agent pursuant to Section 10.3 shall have been so deposited. The
Trustee shall deposit all proceeds from such sale (net of the Trustee's fees and
expenses in connection with such sale, which fees and expenses shall not reduce
the amount of such proceeds below the Redemption Price) in the Collection
Account.
(b) The Trustee shall execute and deliver an appropriate
instrument of conveyance, without recourse, warranty or representation,
delivered to it by the Company transferring its interest in any portion of the
Mortgage Loans securing the Notes in connection with a sale thereof. In
addition, the Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Company to transfer and convey the Company's interest in
any portion of such Mortgage Loans in connection with a sale thereof, and to
take all action necessary to effect such sale. No purchaser or transferee at
such a sale shall be bound to ascertain the Trustee's authority, inquire into
the satisfaction of any conditions precedent or to see to the application of any
monies.
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ARTICLE XI.
COVENANTS
Section 11.1. Payment of Principal and Interest
The Company shall duly and punctually pay the principal of and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
Section 11.2. Maintenance of Office or Agency
The Company shall maintain an office or agency within the
United States of America where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company hereby initially appoints the Trustee
its office or agency for each of said purposes. The Company shall give prompt
written notice to the Trustee of the location, and of any change in the
location, of any such office or agency. If at any time the Company shall fail to
maintain any such office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office, and the Company hereby appoints the
Trustee at its Corporate Trust Office its agent to receive all such
presentations, surrenders, notices and demands.
Section 11.3. Money for Note Payments To Be Held in Trust
The Company shall 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 shall:
(1) hold all sums held by it in respect of payments on Notes
in trust for the benefit of the Noteholders entitled thereto until such
sums shall be paid to such Persons or otherwise disposed of as herein
provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Notes) in the making of any payment; and
(3) 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
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Agent to pay, to the Trustee all sums held in trust by such Paying Agent, such
sums to be held by the Trustee upon the same trusts as those upon which such
sums were held by 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.
Subject to any applicable escheat law, any money deposited
with the Trustee or any Paying Agent in trust for payment to Noteholders on any
Payment Date and remaining unclaimed for three years after such payment has
become due and payable shall be paid to the Company on Company Request; 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, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, shall 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 in which
the Corporate Trust Office 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 shall be repaid to the Company. The Trustee may also adopt and employ,
at the expense of the Company, any other reasonable means of notification of
such repayment (including, but not limited to, mailing notice of such repayment
to Noteholders whose right to or interest in monies due and payable but not
claimed is determinable from the records of any Paying Agent, at the last
address as shown on the Note Register for each such Noteholder). Notwithstanding
the foregoing, nothing herein shall be deemed to require the Trustee to give or
cause the publication of any notice of the repayment of such monies to the
Company and the Trustee shall not be liable to the Noteholders or the Trust
Estate for its failure to provide or cause such notice.
Section 11.4. Corporate Existence
The Company shall keep in full effect its existence, rights
and franchises as a limited liability company under the laws of the State of
Georgia, shall operate in accordance with, and subject to the limitations set
forth in, its operating agreement, and shall obtain and preserve its
qualification to do business as a foreign limited liability company in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Indenture or the Notes. The Company shall
promptly deliver to DCR and each Noteholder a copy of any amendment to its
charter.
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Section 11.5. Protection of Trust Estate
The Company shall from time to time execute and deliver all
such supplements and amendments hereto (a copy of which shall be provided to the
Noteholders) and all such financing statements, continuation statements,
instruments of further assurance and other instruments, and shall take such
other action as is necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust
Estate;
(ii) maintain or preserve the lien of this Indenture or carry
out more effectively the purposes hereof;
(iii) perfect, publish notice of, or protect the validity of
any Grant made or to be made by this Indenture;
(iv) enforce any of the Mortgage Loans or, where appropriate,
any security interest in the Collateral and the proceeds thereof; or
(v) preserve and defend title to the Trust Estate and the
rights of the Trustee and the Noteholders therein against the claims of
all persons and parties.
Section 11.6. Negative Covenants
So long as any Notes are Outstanding, the Company shall not:
(i) sell, transfer, exchange or otherwise dispose of any of
the Trust Estate (except as expressly permitted by Section 10.5 and
except as provided in Sections 12.3, 12.4 and 12.5); or
(ii) claim any credit on, or make any deduction from, the
principal or interest payable in respect of the Notes by reason of the
payment of any taxes levied or assessed upon any of the Trust Estate;
or
(iii) other than in accordance with the restrictions set forth
therein, amend its organizational documents without the consent of the
Majority Holders; provided, the Company shall not amend the
organizational documents if the effect of any such amendment would be
to result in a reduction or withdrawal of the then current rating of
DCR assigned to the Notes as confirmed in writing by DCR; or
(iv) issue the Class A-1, Class A-2 or Class A-3 Notes unless
such Classes have been rated at least "AAA", "A" and "BBB",
respectively, by DCR; or
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(v) (a) permit the validity or effectiveness of this Indenture
to be impaired, or permit this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be
released from any covenants or obligations of this Indenture, except as
may be expressly permitted hereby and thereby, (b) except to the extent
permitted under this Indenture, permit any lien, charge, security
interest, mortgage or other encumbrances to be created on or extended
to or otherwise arise upon or burden the Trust Estate or any part
thereof or any interest therein or the proceeds thereof or incur any
indebtedness other than the Notes, or (c) permit this Indenture to not
constitute a valid first priority perfected security interest in the
Trust Estate; or
(vi) change the location of its chief executive office without
thirty days' prior written notice to the Trustee, accompanied by such
evidence of actions taken as shall be necessary to continue the
perfection of the lien on the Collateral; or
(vii) incur any indebtedness not permitted by its operating
agreement, or assume or guaranty any indebtedness of any other entity
other than the indebtedness evidenced by the Notes; or
(viii) engage in any business not permitted by its Operating
Agreement, or
(ix) obtain or carry insurance relating to the Mortgage Loans
separate from that required by the Servicing Agreement, unless the
Trustee shall have the same rights with respect thereto as it has with
respect to the insurance required by the Servicing Agreement.
Section 11.7. Statement as to Compliance
The Company shall deliver to the Trustee, the Noteholders and
DCR, on or before each December 31, March 31, June 30 and September 30
(commencing September 30, 1998, with the written statement delivered on such
date covering the period from the Closing Date through September 30, 1998), a
written statement signed by the Chairman or the President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant
Controller of the Company, stating, as to each signer thereof, that
(1) a review of the activities of the Company during the
preceding three-month period and of performance under this Indenture
has been made under his supervision and
(2) the Company has fulfilled all its obligations under this
Indenture throughout such period, or, if there has been a default in
the fulfillment of any such
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obligation, specifying each such default known to him and the nature
and status thereof.
Section 11.8. Investment Company Act
The Company shall conduct its operations in a manner which
shall not subject it to registration as an "investment company" under the
Investment Company Act of 1940.
Section 11.9. Enforcement of Servicing Agreement and Sale
Agreement
The Company shall take all actions necessary, and diligently
pursue all remedies available to it, to enforce the obligations of the Servicer
under the Servicing Agreement and the Seller under the Sale Agreement to secure
its and the Noteholders' rights thereunder, provided that, prior to taking any
action in the name of the Trustee, it shall receive the written consent of the
Trustee.
Section 11.10. Taxes
The Company shall pay or cause to be paid all taxes when due
and payable or levied against its assets, properties or income, including any
property that is part of the Trust Estate.
Section 11.11. Company Ownership
The Company agrees that its books and records will reflect its
ownership of the Mortgage Loans and that such Mortgage Loans are subject to the
security of the Trustee on behalf of the Noteholders.
Section 11.12. Nonconsolidation
The Company agrees that so long as any Notes are Outstanding,
it will be operated such that it will not be substantively consolidated in the
bankruptcy estate of the Parent or any Affiliate thereof and will not have its
separate existence disregarded in the event of a bankruptcy of the Parent or
Affiliate thereof. Without limiting the foregoing, the Company agrees that:
(a) it will pay its own expenses, neither the Sellers nor the
Parent will guarantee any of the Company's obligations other than pursuant to
the Sale Agreement and neither the Sellers, the Parent nor any Affiliate thereof
will lend funds to the Company for the payment of expenses;
(b) it will conduct its business exclusively on its own
stationery and all correspondence by the Company will be in its own name;
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(c) it will not permit the Sellers, the Parent or any
Affiliate thereof to be involved in the daily management of the Company;
provided, however, an officer of the Parent or any such Affiliate shall not be
prohibited from serving as an officer of the Company;
(d) except in accordance with its organizational documents, it
will not engage in any intercompany transactions with the Sellers, the Parent or
any Affiliate thereof, except as provided in the Sale Agreement, the Servicing
Agreement or this Indenture;
(e) it will maintain company records and books of account
separate and distinct from the Sellers' and the Parent's corporate records and
the records of any Affiliate thereof and maintain corporate formalities and
separate business offices and telephone number;
(f) the financial statements of the Sellers, the Parent and
the Company will disclose that the assets of the Company are not available to
pay creditors of the Sellers, the Parent or any Affiliate thereof and will
reflect the separate corporate existence of the Company;
(g) it will not act as agent for the Sellers, the Parent or
any Affiliate thereof and agrees that it will not authorize the Sellers, the
Parent or any Affiliate thereof to act as its agent, except in Signature
Resorts, Inc.'s capacity as Servicer under the Servicing Agreement;
(h) its managing member shall maintain at least one
Independent Director as required in the managing member's certificate of
incorporation;
(i) it will maintain its assets separate and distinct from the
Sellers' assets, the Parent's assets and the assets of any Affiliate thereof,
and shall not permit its assets to be commingled with those of the Sellers, the
Parent or any Affiliate thereof;
(j) it shall not become contractually liable for the payment
of any liability of the Sellers or the Parent; and
(k) it will not modify or amend its operating agreement with
respect to the purpose or purposes for which it is organized.
Section 11.13. Representations, Warranties and Covenants
The Company makes the following representations, warranties
and covenants as to itself, which representations and warranties speak as of the
Closing Date and with respect to any
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Subsequent Transfer Date, such representations and warranties shall be deemed to
speak as of such Subsequent Transfer Date:
(a) Due Formation; Valid Existence; Good Standing and Limited
Purpose. The Company is a limited liability company duly organized and validly
existing in good standing under the laws of the jurisdiction of its formation;
and is duly qualified to do business as a foreign limited liability company and
in good standing under the laws of each jurisdiction where the character of its
property, the nature of its business or the performance of its obligations under
this Indenture, the Sale Agreement, the Servicing Agreement or the Note Purchase
Agreement makes such qualification necessary except where the failure to be so
qualified will not have a material adverse effect on the business of the Company
or its ability to perform its obligations under this Indenture, the Sale
Agreement, the Servicing Agreement or the Note Purchase Agreement or any other
documents or transactions contemplated hereunder or the validity or
enforceability of the Mortgage Loans.
(b) Possession of Licenses, Certificates, Franchises and
Permits. The Company holds, and at all times during the term of this Indenture,
the Sale Agreement, the Servicing Agreement or the Note Purchase Agreement will
hold, all material licenses, certificates, franchises and permits from all
governmental authorities necessary for the conduct of its business and has
received no notice of proceedings relating to the revocation of any such
license, certificate, franchise or permit, which singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect its ability to perform its obligations under this Indenture,
the Sale Agreement, the Servicing Agreement or the Note Purchase Agreement or
any other documents or transactions contemplated hereunder or the validity or
enforceability of the Mortgage Loans.
(c) Authority and Power. The Company has, and at all times
during the term of this Indenture will have, all requisite power and authority
to own its properties, to conduct its business, to execute and deliver this
Indenture, the Sale Agreement, the Servicing Agreement and the Note Purchase
Agreement and to perform all of its obligations under this Indenture, the Sale
Agreement, the Servicing Agreement and the Note Purchase Agreement. The Company
has all requisite power and authority to acquire, own and Grant to the Trustee
as part of the Trust Estate the Mortgage Loans.
(d) Authorization, Execution and Delivery; Valid and Binding.
This Indenture, the Sale Agreement, the Servicing Agreement or the Note Purchase
Agreement and all other documents and instruments required or contemplated
hereby to be executed and delivered by the Company have been duly authorized,
executed and delivered by the Company and, assuming the due execution and
delivery by the other party or parties hereto and thereto, constitute legal,
valid and binding agreements enforceable
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against the Company in accordance with their respective terms subject, as to the
enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the enforceability of creditors' rights
generally applicable in the event of the bankruptcy, insolvency or
reorganization of the Company and to general principles of equity.
(e) No Violation of Law, Rule, Regulation, etc. The execution,
delivery and performance by the Company of this Indenture, the Sale Agreement,
the Servicing Agreement or the Note Purchase Agreement and any other documents
and transactions in connection herewith to which the Company is a party do not
and will not (i) violate any of the provisions of the Certificate of Formation
or operating agreement of the Company, (ii) violate any provision of any law,
governmental rule or regulation currently in effect applicable to the Company or
its properties or by which the Company or its properties may be bound or
affected, including, without limitation, any bulk transfer laws, (iii) violate
any judgment, decree, writ, injunction, award, determination or order currently
in effect applicable to the Company or its properties or by which the Company or
its properties are bound or affected, (iv) conflict with, or result in a breach
of, or constitute a default under, any of the provisions of any material
indenture, mortgage, deed of trust, contract or other instrument to which the
Company is a party or by which it is bound or (v) result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of any
such indenture, mortgage, deed of trust, contract or other instrument.
(f) Governmental Consent. No consent, approval, order or
authorization of, and no filing with or notice to, any court or other
governmental authority in respect of the Company is required in connection with
the authorization, execution, delivery or performance by the Company of this
Indenture, the Sale Agreement, the Servicing Agreement or the Note Purchase
Agreement or any of the other documents or transactions contemplated hereunder.
(g) Defaults. The Company is not in default under any material
agreement, contract, instrument or indenture to which the Company is a party or
by which it or its properties is or are bound, or with respect to any order of
any court, administrative agency, arbitrator or governmental body which would
have a material adverse effect on the transactions contemplated hereunder; and
no event has occurred which with notice or lapse of time or both would
constitute such a default with respect to any such agreement, contract,
instrument or indenture, or with respect to any such order of any court,
administrative agency, arbitrator or governmental body.
(h) Insolvency. The Company will be solvent at all relevant
times prior to, and will not be rendered insolvent by,
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the transfer of the Mortgage Loans to the Trust Estate. Prior to the date
hereof, the Company did not, and is not about to, engage in any business or
transaction for which any property remaining with the Company would constitute
an unreasonably small amount of capital. In addition, the Company has not
incurred debts that would be beyond the Company's ability to pay as such debts
matured.
(i) Pending Litigation or Other Proceedings. There is no
pending or, to the best of the Company's knowledge, threatened action, suit,
proceeding or investigation before any court, administrative agency, arbitrator
or governmental body against or affecting the Company which, if decided
adversely, would materially and adversely affect (i) the condition (financial or
otherwise), business or operations of the Company, (ii) the ability of the
Company to perform its obligations under, or the validity or enforceability of,
this Indenture, the Sale Agreement, the Servicing Agreement or the Note Purchase
Agreement or any other documents or transactions contemplated under this
Indenture, (iii) any Mortgaged Property or title of any Mortgagor to any
Mortgaged Property or (iv) the Trustee's ability to foreclose or otherwise
enforce the liens of the Mortgage Loans.
(j) All Eligible Mortgage Loans Granted to the Trustee. Each
Mortgage Loan which has been acquired by the Company and Granted to the Trustee
was owned by the applicable Seller, prior to the Company's acquisition thereof,
free and clear of all liens other than Permitted Encumbrances and was related to
a Resort.
(k) Information. No document, certificate or report furnished
or required to be furnished by the Company pursuant to this Indenture, when
taken as a whole with the other information provided by the Indenture, contains
or will contain when furnished any untrue statement of a material fact or fails
or will fail to state a material fact necessary in order to make the statements
contained therein not misleading.
(l) Condominium Units Complete. The condominium units related
to the Mortgage Loans in the Resorts have been completed as required by
applicable state and local laws.
(m) Delivery of Insurance Proceeds. In the event that the
Company shall have received any Insurance Proceeds, to the extent such Insurance
Proceeds are not used to rebuild or repair the related Mortgaged Property, the
Company shall promptly deposit such Insurance Proceeds into the Collection
Account.
(n) No Deficiency Accumulation. As of the Closing Date, the
Company has not incurred any "accumulated funding deficiency" (as such term is
defined under the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Code) with respect to any "employee benefit plan" (as such
term is defined under ERISA) sponsored by the Company.
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(o) Taxes. The Company has timely filed all tax returns
(Federal, state and local) which are required to be filed and has paid all taxes
related thereto, other than those which are being contested in good faith.
(p) Place of Business. The principal place of business and
chief executive office of the Company are located at 1875 S. Grant Street, Suite
650-A, San Mateo, California 94402.
(q) Name. The legal name of the Company is as set forth in
this Agreement and the Company does not use any other tradenames, fictitious
names, assumed names or "doing business as" names.
(r) Subsidiaries and Consolidation. The Company has no
subsidiaries and will be operated in such a manner so as not to be substantively
consolidated in the bankruptcy estate of the Parent.
(s) No Adverse Change. Since its formation, there has been no
change in the business, operations, financial condition, properties or assets of
the Company which would have a material adverse effect on its ability to perform
its obligations under this Indenture or materially adversely affect the
transactions contemplated under this Indenture, the Sale Agreement, the
Servicing Agreement or the Note Purchase Agreement.
(t) Securities Laws. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(u) Remittance to the Servicer. In the event that any
Mortgagor should remit to the Company any payment on a Mortgage Loan, then, not
later than the Business Day following receipt thereof, the Company shall
transfer such Remittance to the Servicer.
(v) Management. The Sellers are not involved in the day-to-day
management of the Company and the Company maintains its assets separately from
the assets of the Sellers.
(w) Rating Confirmation. So long as any Notes are outstanding,
the Company shall, prior to sponsoring any trusts or issuing any other debt or
guarantees, obtain from DCR a confirmation of its ratings on the Notes.
Section 11.14. Opinions as to Trust Estate.
On or before the earliest anniversary of the Closing Date on
which a financing statement filed in connection with the Trust Estate expires,
the Company shall furnish to each Noteholder an Opinion of Counsel stating
either that, in the opinion of such counsel, such action has been taken with
respect
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to the recording, filing, re-recording and re-filing of this Indenture, any
indentures supplemental hereto and any other requisite documents, as applicable,
and with respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the first perfected Lien and
security interest created by this Indenture with respect to the Trust Estate or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest.
ARTICLE XII.
ACCOUNTS, ACCOUNTINGS AND RELEASES
Section 12.1. Collection of Money
In accordance with the terms and conditions set forth herein,
the Trustee may demand payment or delivery of, and shall receive and collect,
directly and without intervention or assistance of any fiscal agent or other
intermediary, all money and other property payable to or receivable by the
Trustee pursuant to this Indenture and in accordance with the Servicing
Agreement. The Trustee shall hold all such money and property so received by it
as part of the Trust Estate and shall apply it as provided in this Indenture. If
any default occurs in the making of any payment or performance under any
Mortgage Loan, the Trustee, upon Company or Servicer Request may, and upon the
written request of the Holders of more than 50% of the aggregate Outstanding
Note Balance of any Class of Notes shall subject to Section 7.1, take such
action as may be appropriate to enforce such payment or performance, including
the institution and prosecution of appropriate Proceedings. Any such action
shall be without prejudice to any right to claim an Event of Default under this
Indenture and to proceed thereafter as provided in Article Six.
Section 12.2. Accounts
(a) Prior to the Closing Date, the Trustee shall open and
maintain or cause to be opened and maintained, at a depository institution
(which shall initially be LaSalle National Bank), a trust account denominated
"Collection Account -- Signature Resorts Vacation Ownership Receivables-Backed
Notes 1998-A". Funds deposited in the Collection Account shall be held in trust
for the Holders of the Notes for the uses and purposes set forth herein. The
Collection Account shall at all times be an Eligible Account, shall relate
solely to the Notes, the Mortgage Loans and Permitted Investments and the
Trustee shall have the exclusive right to withdraw funds therefrom. The
Collection Account shall be segregated on the books and records of the Trustee,
and the funds deposited therein shall not be subject to, and shall be protected
from, all claims, liens, and encumbrances of any creditors or depositors of the
Trustee
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(whether made directly, or indirectly through a liquidator or receiver of the
Trustee).
So long as no Servicer Event of Default shall have occurred
and be continuing, all or any portion of the Collection Account shall be
invested by the Trustee at the Servicer's written direction in one or more
Permitted Investments with the appropriate maturity meeting the requirements set
forth below. If the Servicer does not direct the Trustee to invest funds
deposited in the Collection Account, or if a Servicer Event of Default shall
have occurred and be continuing, such funds shall be invested by the Trustee in
Permitted Investments listed in clause (v) of the definition of "Permitted
Investments" herein. All Permitted Investments shall be in the name of the
Trustee. All income or other gain from investment of monies deposited in the
Collection Account shall be deposited in the Collection Account immediately upon
receipt thereof, and any loss resulting from Permitted Investment shall be
charged to the Collection Account. The maximum permissible maturity or, if
applicable, the latest redemption date of any Permitted Investments made with
amounts that will constitute part of the Collection Account Amount for a
particular Distribution Date shall be not later than the Business Day preceding
such Distribution Date or a Redemption Date, as applicable; provided, however,
that if the Collection Account is maintained with the Trustee, for Permitted
Investments on which the Trustee is the obligor (including repurchase agreements
on which the Trustee in its commercial capacity is liable as principal), such
Permitted Investments may mature on such Distribution Date. No Permitted
Investment may be sold prior to its maturity or required redemption.
Amounts held in the Collection Account which represent the
final payment due to Noteholders on the Final Distribution Date shall, to the
extent not distributed on the Final Distribution Date, be held uninvested
pending distribution to the Noteholders in accordance with this Indenture.
On any day, based on an Officer's Certificate of the Servicer,
the Trustee shall withdraw amounts specified therein and certified to have been
deposited into the Collection Account in error and remit the same to the
Servicer or as the Servicer may direct.
(b) Prior to the Closing Date, the Trustee shall establish a
trust account denominated "Reserve Account -- Signature Resorts Vacation
Ownership Receivables-Backed Notes 1998-A" (the "Reserve Account"), which shall
have the characteristics set forth in this Section. Funds deposited in the
Reserve Account shall be held in trust by the Trustee for the Holders of the
Notes for the uses and purposes set forth herein. The Reserve Account shall at
all times be an Eligible Account, shall relate solely to the Notes and Permitted
Investments and the Trustee shall have the exclusive right to withdraw funds
therefrom. The Reserve Account shall be segregated on the books
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and records of the Trustee, and the funds deposited therein shall not be subject
to, and shall be protected from, all claims, liens, and encumbrances of any
creditors or depositors of the Trustee (whether made directly, or indirectly
through a liquidator or receiver of the Trustee).
On the Closing Date, the Company shall deposit in the Reserve
Account the Initial Reserve Account Deposit. Any deposit to the Reserve Account
shall be made by wire transfer of immediately available funds in accordance with
instructions provided by the Trustee.
With respect to each Distribution Date, after making the
distributions required pursuant to clauses "first" through "eleventh" of Section
13.1(a), after making the distributions required pursuant to clauses "first"
through "ninth" if the Trustee has received notice from the Servicer that a
Default Trigger II has occurred and is continuing, and after making the
distributions required pursuant to clauses "first" through "seventh" if the
Trustee has received notice from the Servicer that Default Trigger III has
occurred and is continuing, the Trustee shall withdraw from the Collection
Account an amount up to any positive difference between the Requisite Reserve
Amount and the amount then on deposit in the Reserve Account, and deposit such
amount in the Reserve Account.
On the second Business Day preceding each Distribution Date,
the Trustee shall (i) withdraw from the Reserve Account (to the extent of funds
on deposit therein) an amount equal to the Shortfall Amount and (ii) upon
receipt of instruction from the Servicer pursuant to Section 2.6 of the
Servicing Agreement, withdraw from the Reserve Account (to the extent of funds
on deposit therein) an amount equal to the P&I Advances for the related
Collection Period, and deposit such amounts into the Collection Account by 5:00
p.m. New York City time on the Business Day prior to the Distribution Date.
On the Business Day immediately preceding the first
Distribution Date following any date of determination on which the amount on
deposit in the Reserve Account exceeds the Requisite Reserve Amount after taking
into account the distributions to be made on such Distribution Date, as
applicable, the Trustee shall withdraw from the Reserve Account the amount of
such excess and deposit the same in the Collection Account for distribution in
accordance with Section 13.1(a).
On the Business Day immediately preceding the Final
Distribution Date hereunder the Trustee shall withdraw all amounts then on
deposit in the Reserve Account, deposit the same into the Collection Account,
and thereafter terminate the Reserve Account.
So long as no Servicer Event of Default shall have occurred
and be continuing, all or any portion of the amounts on
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deposit in the Reserve Account shall be invested by the Trustee at the
Servicer's written direction in one or more Permitted Investments with the
appropriate maturity meeting the requirements set forth below. If the Servicer
does not direct the Trustee to invest funds deposited in the Reserve Account, or
if a Servicer Event of Default shall have occurred and be continuing, such funds
shall be invested by the Trustee in Permitted Investments listed in clause (v)
of the definition of "Permitted Investments" herein. All Permitted Investments
shall be in the name of the Trustee. All income or other gain from investment of
monies deposited in the Reserve Account shall be deposited in the Reserve
Account immediately upon receipt thereof and any loss resulting from Permitted
Investment shall be charged to the Reserve Account. The maximum permissible
maturity or, if applicable, the latest redemption date of any Permitted
Investments made with amounts on deposit in the Reserve Account for a particular
Distribution Date shall be not later than two Business Days preceding such
Distribution Date; provided, however, that if the Reserve Account is maintained
with the Trustee, for Permitted Investments on which the Trustee is the obligor
(including repurchase agreements on which the Trustee in its commercial capacity
is liable as principal), such Permitted Investments may mature on such
Distribution Date; and provided, further, that all funds invested in Permitted
Investments of the type described in clause (v) of the definition of "Permitted
Investments" must be withdrawn from such Permitted Investment no later than such
Distribution Date if such investment is managed by the Trustee, and two Business
Days prior to the Distribution Date if not managed by the Trustee. No Permitted
Investment may be sold prior to its maturity or required redemption.
Section 12.3. Reliance on Representations and Warranties
The Company agrees and acknowledges that the Trustee and the
Noteholders have relied and will continue to rely upon each of the
representations and warranties in Section 11.13 above and Section 3 of the Sale
Agreement, and further agrees that such Persons are entitled to so rely thereon.
The representations and warranties in Section 11.13 above shall survive the
Grant of the Mortgage Loans to the Trustee and shall continue in full force and
effect, notwithstanding any restrictive or qualified endorsement on the Mortgage
Notes and notwithstanding subsequent termination of this Indenture. The
representations and warranties in Section 11.13 above shall be unimpaired by any
review and examination of the Mortgage Files or other documents evidencing or
relating to the Mortgage Loans or any failure on the part of the Trustee to
review or examine the Mortgage Files and such other documents and shall inure to
the benefit of any permitted transferee of the Trustee.
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Section 12.4. Notice of Incorrect Representations and
Warranties
If any party hereto during the term of this Indenture
discovers, or receives notice from the Trustee, that any of the representations
or warranties contained in Section 3 of the Sale Agreement are, in any material
respect, false, incorrect or misleading, or if any such party obtains knowledge
of any event or circumstance that would reasonably cause such party to believe
that any of such representations or warranties are, in any material respect,
false, incorrect or misleading, such party shall promptly deliver to the other
parties hereto, to DCR and the Seller notice of a breach of such representation
or warranty.
Section 12.5. Misrepresentations
If any of the representations or warranties contained in
Section 3(b) of the Sale Agreement are, in any material respect, false,
incorrect or misleading as to any Mortgage Loan, the Trustee, upon receiving
notice or otherwise obtaining knowledge of such fact, shall request the related
Seller, at its expense, to take such action as is necessary to cause such false,
incorrect or misleading representation or warranty to be, in all material
respects, true, correct and not misleading, within 90 days following the giving
of written notice to the Seller by the Trustee of such false, incorrect or
misleading representation or warranty, or following the discovery thereof by
such Seller. Such Seller will promptly deliver written notice of any such
discovery to the Trustee. Such Seller will also promptly deliver written notice
to the Trustee as to the actions taken to cure any such false, incorrect or
misleading representation or warranty.
Section 12.6. Mandatory Repurchase Obligation
(a) If within the applicable time period set forth in Section
12.5 above the applicable Seller fails to cure, in all material respects, any
representation or warranty with respect to any Mortgage Loan in Section 3(b) of
the Sale Agreement which is, in any material respect, false, incorrect or
misleading, then, the Company shall cause to be repurchased each Mortgage Loan
with respect to which such false, incorrect or misleading representation or
warranty was made (each, a "Defective Mortgage Loan") on the Distribution Date
following the first Record Date on which such Mortgage Loan became a Defective
Mortgage Loan (a "Repurchase Date").
(b) Each Defective Mortgage Loan shall be so repurchased at
the Mortgage Purchase Price therefor, which shall be paid into the Collection
Account in immediately available funds on such Repurchase Date; provided,
however, that in the case of a Defective Mortgage Loan as to which discovery of
a breach of a representation or warranty contained in Section 3(b) of the Sale
Agreement is made, or notice thereof is given, the related Seller, at its
election, may in substitution for such
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Defective Mortgage Loan pledge to the Trustee a Substitute Mortgage Loan upon
the satisfaction of the following conditions:
(i) the related Seller executes and delivers an Assignment of
the Substitute Mortgage Loan to the Company or at the direction of the
Company, to the Trustee;
(ii) the related Seller delivers, or causes to be delivered,
the Mortgage Loan Documents to the Trustee; and
(iii) the related Seller, in an Officer's Certificate,
confirms all representations and warranties of Section 3 of the Sale
Agreement and provides to the Trustee copies of all necessary filings
and recording. The Servicer shall file and record such documents.
In connection with the substitution of one or more Substitute
Mortgage Loans for one or more Defective Mortgage Loans, the Servicer shall
determine the amount (if any) by which the aggregate principal balance of all
such Substitute Mortgage Loans as of the date of substitution is less than the
aggregate Outstanding Principal Balance of all such Defective Mortgage Loans (in
each case after application of the principal portion of the Monthly Payments due
in the month of substitution that are to be distributed to Noteholders in the
month of substitution) and provide the applicable Seller with notice of the
amount of such shortfall. Such Seller shall deposit the amount of such shortfall
into the Collection Account on the day of substitution, without any
reimbursement therefor. The applicable Seller shall give notice in writing to
the Trustee of such event, which notice shall be accompanied by an Officer's
Certificate as to the calculation of such shortfall. On any date of
determination, the aggregate Outstanding Principal Balance of the Substitute
Mortgage Loans as of the related dates of substitution shall not exceed 3% of
the Outstanding Pool Balance as of the Cut-Off Date.
Upon satisfaction of such conditions, the Servicer shall add
the Substitute Mortgage Loan to, and delete the Defective Mortgage Loan from,
the Schedule of Mortgage Loans. Such substitution shall be effected prior to the
first Distribution Date that occurs more than 90 days after the related Seller
becomes aware, or should have become aware, or receives written notice from the
Trustee, of the breach referred to in Section 12.5 hereof.
(c) Upon (i) payment by the related Seller of an amount equal
to the Mortgage Purchase Price or (ii) provision by the Company of a Substitute
Mortgage Loan in accordance with Section 12.6(b), as the case may be, the
Trustee shall deliver to the related Seller such duly executed instruments as
may be necessary to release the lien of this Indenture on the Defective Mortgage
Loan. Upon the repurchase of or substitution for a Defective Mortgage Loan under
this Section 12.6, this Indenture shall terminate as to the Mortgage Loan so
repurchased or
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substituted. Upon such repurchase or substitution, the related Mortgage Loan
Documents shall be redelivered to the Seller.
Section 12.7. Subsequent Loans
(a) With respect to any Collection Period in which the Trustee
receives any Upgrade Prepayments, the Company may elect to Grant one or more
Subsequent Loans during such Collection Period in accordance with the provisions
of this Section.
(b) On any Subsequent Transfer Date, provided the conditions
set forth in paragraph (c) below are satisfied and no Event of Default shall
have occurred and be continuing, the Trustee shall withdraw from the Collection
Account an amount equal to the least of (i) the aggregate Mortgage Purchase
Price for the Subsequent Loans to be Granted on such date, (ii) any amounts
representing Upgrade Prepayments then on deposit in the Collection Account and
(iii) the Remaining Substitution/Purchase Amount; and shall pay such amount to
the applicable Seller(s) on behalf of the Company.
(c) The Trustee shall only be required to withdraw and pay any
amounts referred to in paragraph (b) above, upon the satisfaction of the
following conditions on or prior to the Subsequent Transfer Date:
(i) the Company executes and delivers a Notice of Subsequent
Loan(s) to the Trustee at least two Business Days prior to the related
Subsequent Transfer Date;
(ii) the Company delivers, or causes the related Seller(s) to
deliver, the related Mortgage Loan Documents to the Trustee;
(iii) the Company delivers to the Trustee copies of all
necessary filings and recordings which the Servicer shall file and
record; and
(iv) the Company delivers a bringdown True Sale opinion with
respect to such Subsequent Loans.
Section 12.8. Reports by Trustee to Noteholders and DCR
On each Distribution Date, the Trustee shall or cause the
Servicer to report to each Holder of Notes and DCR the amount of payments to
such Noteholders which represents principal and the amount which represents
interest, and shall contemporaneously advise the Company of all such payments.
The Trustee may satisfy its obligations under this Section 12.8 by delivering
(or by causing the Servicer to deliver) the Servicer Report to each such Holder
of the Notes. Based on notice delivered by the Servicer, on or before the 30th
day prior to the Final Distribution Date, the Trustee shall provide notice to
the Holders of Notes to be
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paid on the Final Distribution Date for such Notes. Such notice shall include
(1) a statement that if the appropriate payments are made on the Final
Distribution Date, interest shall cease to accrue as of the Final Distribution
Date and (2) a statement that following the final payment of all principal and
accrued interest on such Notes that Holders thereof are required to surrender
the same to the Trustee within 30 days.
Section 12.9. Accounting by Trustee to Company
Within five Business Days following each Distribution Date,
the Trustee shall render to the Company and each Noteholder an accounting of:
(i) the aggregate funds deposited in each of the Collection
Account and the Reserve Account subsequent to the immediately preceding
Distribution Date;
(ii) the amount of principal and the amount of interest paid
to the Holders of each Class of Notes;
(iii) any funds remaining in the Collection Account after (A)
payments of interest and principal as set forth pursuant to clause (ii)
above and (B) payments of all other amounts payable from the Collection
Account pursuant to Section 13.1(a), including an accounting of such
payments;
(iv) any discrepancy between the aggregate amount of principal
remaining on the Notes after giving effect to the principal payment on
the Notes on such Distribution Date and the aggregate amount of
principal remaining on the Notes as set forth on the Servicer Report.
Section 12.10. Trust Estate
(a) The Trustee may, and when required by the provisions of
Articles Five, Six and Twelve of this Indenture shall, execute instruments to
release property from the lien of this Indenture, or convey the Trustee's
interest in the same, in a manner and under circumstances which are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Trustee as provided in this Article Twelve shall be
bound to ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any monies.
(b) At the written request of the Company and upon being
supplied with appropriate forms therefor, the Trustee shall, at such time as
there are no Notes Outstanding and all amounts due under this Indenture have
been paid and the lien of the Indenture has been discharged in accordance with
Section 5.1 hereof, release the Trust Estate from the lien of this Indenture.
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Section 12.11. Allocation of Losses
On each Distribution Date, to the extent the sum of (i)
amounts to be distributed pursuant to clause "thirteenth" of Section 13.1 and
(ii) amounts on deposit in the Reserve Account, are insufficient to cover
Realized Losses, prior to the distributions to be made on such date pursuant to
Section 13.1, the Trustee shall allocate to the respective Notes as follows the
aggregate of all Realized Losses with respect to the Mortgage Loans that were
incurred at any time following the Cut-off Date through the end of the related
Collection Period, and in any event that were not previously allocated pursuant
to this Section 12.11 on any prior Distribution Date, but only to the extent
that the aggregate outstanding principal balance of the Notes as of such
Distribution Date (after taking into account all of the distributions to be made
on such Distribution Date pursuant to Section 13.1), exceeds the sum of (x) the
Outstanding Pool Balance and (y) amounts then on deposit in the Reserve Account,
immediately following such Distribution Date: first, to the Class A-3 Notes,
until the remaining principal balance thereof has been reduced to zero; second,
to the Class A-2 Notes, until the remaining principal balance thereof has been
reduced to zero; and third, to the Class A-1 Notes, until the remaining
principal balance thereof has been reduced to zero. Any allocation of such
Realized Losses to a class of Notes shall be made by reducing the respective
principal balances thereof by the amount so allocated. All such Realized Losses,
if any, allocated to a class of Notes shall be allocated among the respective
Notes of such class, pro rata.
ARTICLE XIII.
APPLICATION OF MONIES
Section 13.1. Disbursements of Monies out of Collection
Account
(a) On each Distribution Date, unless distributions are
governed by Section 6.6 hereof, the Trustee shall distribute, based on the
information contained in the Servicer's Report, to the extent of the amount on
deposit in the Collection Account with respect to such Distribution Date, funds
in the Collection Account as follows:
first, to the Trustee, the Trustee Fee and any reasonable
out-of-pocket expenses due to the Trustee and not previously paid by the
Servicer;
second, to the Servicer, the Servicing Fee, less any
reasonable out-of-pocket expenses due to the Trustee and not previously paid to
the Trustee by the Servicer;
third, to the Reserve Account, the amount of any unreimbursed
P&I Advances;
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fourth, to the holders of the Class A-1 Notes, the Current
Interest Amount for such class and any Unpaid Interest Shortfalls with respect
to prior Distribution Dates;
fifth, to the holders of the Class A-2 Notes, the Current
Interest Amount for such class and any Unpaid Interest Shortfalls with respect
to prior Distribution Dates;
sixth, to the holders of the Class A-3 Notes, the Current
Interest Amount for such class and any Unpaid Interest Shortfalls with respect
to prior Distribution Dates;
seventh, to the holders of the Class A-1 Notes, the Unpaid
Principal Shortfall for such class and the Class A-1 Current Principal Amount;
eighth, if Default Trigger III has occurred, to the Reserve
Account, an amount up to the difference between the amount then on deposit
therein, and the Requisite Reserve Amount;
ninth, to the holders of the Class A-2 Notes, the Unpaid
Principal Shortfall for such class and the Class A-2 Current Principal Amount;
tenth, if Default Trigger II has occurred (but Default Trigger
III is not in effect), to the Reserve Account, an amount up to the difference
between the amount then on deposit therein, and the Requisite Reserve Amount;
eleventh, to the holders of the Class A-3 Notes, the Unpaid
Principal Shortfall for such class and the Class A-3 Current Principal Amount;
twelfth, to the Reserve Account, an amount up to the
difference between the amount then on deposit therein, and the Requisite Reserve
Amount;
thirteenth, to the Company, any amounts remaining in the
Collection Account.
Distributions to Noteholders shall be made by wire or other
transfer of funds pursuant to written instructions (in the case of a Noteholder
that is a corporation, signed by an authorized officer thereof) delivered to the
Trustee at least three Business Days prior to a Distribution Date, and provided,
further, that the final distribution in retirement of the Notes shall be made as
set forth in this Indenture.
(b) The Trustee and any Paying Agent on behalf of the Company
shall comply with all requirements of the Code, Treasury Regulations and
applicable state and local law with respect to the withholding from any
distributions made by it to any Noteholder of any applicable withholding taxes
imposed thereon
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and with respect to any applicable reporting requirements in connection
therewith.
(c) To prevent backup withholding on payments made with
respect to the Notes, each Noteholder is required to provide the Trustee with
(i) the Noteholder's correct Taxpayer Identification Number ("TIN") by
completing the form set forth as Exhibit C hereto (Substitute Form W-9),
certifying that the TIN provided on the Substitute Form W-9 is correct and that
(A) such Noteholder is exempt from backup withholding, (B) the Noteholder has
not been notified by the Internal Revenue Service ("IRS") that the Noteholder is
subject to backup withholding as a result of failure to report all interest or
dividends or (C) the IRS has notified the Noteholder that the Noteholder is no
longer subject to backup withholding and (ii) if applicable, an adequate basis
for exemption. A Foreign Noteholder may qualify as an exempt recipient by
submitting to the Trustee a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that Noteholder's exempt status.
(d) The Trustee or other Note Registrar shall not permit a
transfer of a Note if such transfer would result in the Company having more than
one hundred Noteholders as reflected in the Note Register. In addition, no
entity that is a partnership, grantor trust or S corporation may acquire a Note
if (i) substantially all of the value of the interest of a person owning an
interest in such entity is attributable to the entity's (direct or indirect)
interest in the Note, and (ii) a principal purpose of the use of the tiered
arrangement is to permit the Company to satisfy the 100-person limitation in
paragraph (h)(1)(ii) of Section 1.7704-1 of the Treasury Regulations.
(e) The foregoing provisions of this Section 13.1
notwithstanding, any monies deposited in the Collection Account for purposes of
redeeming Notes pursuant to Article Ten shall, subject to Section 11.3, remain
in the Collection Account until paid or set aside for the purpose of such
redemption.
(f) (i) The rights of the Class A-2 and Class A-3 Noteholders
to receive payments on their respective Notes are expressly subordinated to the
rights of the Noteholders with earlier numerical class designations to receive
payments on their respective Notes.
(g) In making the withdrawals and payments required by Section
13.1(a) and in making the reports and accounting referred to in Section 12.8,
the Trustee shall act in accordance with the information set forth in the
Servicer Report furnished it by the Servicer for the payment of Mortgage Loans
received in the related Due Period and shall be fully protected in relying
thereon, unless a Responsible Officer of the Trustee has actual knowledge that
such information is incorrect.
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IN WITNESS WHEREOF, the Company, the Trustee and the Servicer
have caused this Indenture to be duly executed by their respective officers
thereunto duly authorized and their respective seals, duly attested, to be
hereunto affixed, all as of the day and year first above written.
COMPANY:
SUNTERRA FINANCE L.L.C.
By: Sunterra Mortgage, Inc., Its Managing Member
By: /s/ DEWEY W. CHAMBERS
--------------------------------------------
Name: Dewey W. Chambers
Title: Vice President
SERVICER:
SIGNATURE RESORTS, INC.
By: /s/ DEWEY W. CHAMBERS
--------------------------------------------
Name: Dewey W. Chambers
Title: Vice President
TRUSTEE AND BACK-UP SERVICER:
LASALLE NATIONAL BANK
By: /s/
--------------------------------------------
Name:
Title:
<PAGE> 75
EXHIBIT A
(FORM OF ASSIGNMENT OF NOTE)
For value received the undersigned hereby sells, assigns and
transfers unto ___________________ whose social security or other tax
identifying number is _______________________ a note as hereinafter described
and hereby irrevocably constitutes and appoints ___________________, attorney,
to transfer the same on the Note Register of the Trustee with full power of
substitution in the premises.
Description of Note:
Class __ Note No.___ with an Outstanding Note Balance as of
the Closing Date of $_____________ issued under that certain
Indenture dated May 1, 1998 among Sunterra Finance L.L.C. (the
"Company"), Signature Resorts, Inc. as servicer (the
"Servicer"), LaSalle National Bank, as trustee (the "Trustee")
and as back-up servicer (the "Back-up Servicer").
[SELLER/ASSIGNOR]
By: /s/
--------------------------------------------
Name:
Title:
Dated: ____________________
NOTE: The signature to this assignment must correspond with the name as
written on the face of the Note herein described in every
particular, without alterations or enlargement or any change
whatsoever.
Signature Guaranteed:
- -------------------------
NOTE: Signature(s) must be guaranteed by a participant in a signature
medallion program.
A-1
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EXHIBIT B
LOST NOTE AFFIDAVIT
STATE OF NEW YORK ) LOST NOTE
) SS.: AFFIDAVIT
COUNTY OF NEW YORK)
____________________________________________ being duly sworn, deposes and says:
That deponent is a _________________________________
That the deponent held or received the mortgage note relating to ______________
(the "Mortgage Note") at __________________ their premises located at
____________________________________ .
That to the best of deponent's knowledge the Mortgage Note was lost or
destroyed
[Deponent]
------------------------------------
Name:
Title:
B-1
<PAGE> 1
EXHIBIT 10.2
================================================================================
SUNTERRA FINANCE L.L.C.
COMPANY,
SIGNATURE RESORTS, INC.
SERVICER
AND
LASALLE NATIONAL BANK
TRUSTEE AND BACK-UP SERVICER
-----------------------------
SERVICING AGREEMENT
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DATED AS OF MAY 1, 1998
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TABLE OF CONTENTS
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PRELIMINARY STATEMENT.............................................................................................1
ARTICLE I. DEFINITIONS............................................................................................1
1.1. Defined Terms...................................................................................1
ARTICLE II. ADMINISTRATION AND SERVICING OF MORTGAGE LOANS........................................................1
2.1. Appointment of the Servicer.....................................................................1
2.2. Subservicing Agreements.........................................................................2
2.3. Servicer to Collect Payments....................................................................2
2.4. Servicing and Collection Responsibilities.......................................................3
2.5. Remittance of Funds to Lock-Box Accounts and Collection Account.................................4
2.6. Advances........................................................................................5
2.7. Liquidations....................................................................................5
2.8. Realization upon Liquidated Mortgage Loans......................................................5
2.9. Modifications...................................................................................7
2.10. Assumptions....................................................................................7
2.11. Records........................................................................................7
2.12. Indemnification; Third Party Claim.............................................................7
2.13. Fidelity Bond and Errors and Omissions Insurance; Hazard Insurance.............................8
2.14. Servicing Compensation and Trustee Expenses....................................................9
2.15. No Offset......................................................................................9
ARTICLE III. ACCOUNTINGS; STATEMENTS AND REPORTS..................................................................9
3.1. Monthly Servicer Report.........................................................................9
3.2. Certification as to Compliance; Notice of Default...............................................9
3.3. Annual Accountants' Reports....................................................................10
3.4. Financial and Business Information.............................................................10
ARTICLE IV. THE SERVICER AND BACK-UP SERVICER....................................................................12
4.1. Representations, Warranties and Certain Covenants of the Servicer..............................12
4.2. Corporate Existence; Status as Servicer; Merger................................................15
4.3. Performance of Obligations.....................................................................15
4.4. The Servicer's Resignation.....................................................................15
4.5. Liability of the Servicer......................................................................16
4.6. Representations and Warranties of the Back-up Servicer.........................................16
4.7. Performance of Back-up Servicer's Duties.......................................................17
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ARTICLE V. DEFAULT ..............................................................................................17
5.1. Events of Default..............................................................................17
5.2. Trustee to Act as Back-up Servicer; Appointment of Successor; Limitations on Liability.........19
5.3. Notification to Noteholders and DCR............................................................20
5.4. No Effect on Other Parties.....................................................................20
5.5. Rights Cumulative..............................................................................21
5.6. Directions by Noteholders and Duties of Trustee During Servicing Event of Default..............21
ARTICLE VI. MISCELLANEOUS PROVISIONS.............................................................................21
6.1. Effectiveness and Termination of Agreement.....................................................21
6.2. Amendments.....................................................................................22
6.3. Governing Law..................................................................................22
6.4. Notices........................................................................................23
6.5. Severability of Provisions.....................................................................24
6.6. Inspection and Audit Rights....................................................................24
6.7. Binding Effect.................................................................................24
6.8. Article Headings...............................................................................25
6.9. Legal Holidays.................................................................................25
6.10. Counterparts..................................................................................25
EXHIBIT A Form of Servicer Report...............................................................................A-1
APPENDIX A Standard Definitions
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THIS SERVICING AGREEMENT, dated as of May 1, 1998, is entered
into by and among Sunterra Finance L.L.C., a Georgia limited liability company
(the "Company"), Signature Resorts, Inc., a Maryland corporation, for itself and
as the Servicer hereunder (the "Servicer"), and LaSalle National Bank, a
nationally chartered bank, as trustee (the "Trustee") under the Indenture and as
back-up servicer (the "Back-up Servicer") hereunder.
PRELIMINARY STATEMENT
The Company has entered into an Indenture, dated as of the
date hereof (the "Indenture"), with the Trustee pursuant to which the Company
intends to issue three separate classes of Signature Resorts Vacation Ownership
Receivables-Backed Notes 1998-A.
The Company and the Sellers contemporaneously herewith are
entering into the Sale Agreement providing for, among other things, the sale,
assignment and contribution by the Sellers and the purchase by the Company of
certain Mortgage Loans. Pursuant to the Indenture, the Company will grant to the
Trustee a lien upon and a security interest in all Mortgage Loans now owned or
hereafter acquired pursuant to the Sale Agreements by the Company for the
benefit of the Holders from time to time of the Notes. As a precondition to the
effectiveness of such Sale Agreements, the Sale Agreements require that the
Servicer and the Company enter into this Servicing Agreement to provide for the
servicing of the Mortgage Loans. In order further to secure the Notes, the
Company is granting to the Trustee a lien upon and a security interest in, among
other things, the Company's rights derived under this Servicing Agreement and
the Sale Agreements, and the Servicer agrees that all covenants and agreements
made by the Servicer herein with respect to the Mortgage Loans and other
collateral shall also be for the benefit and security of the Trustee and all
Holders from time to time of the Notes. For its services hereunder the Servicer
is to receive a Servicing Fee as set forth in Section 2.14 with respect to the
Mortgage Loans serviced hereunder.
ARTICLE I.
DEFINITIONS
1.1. Defined Terms. Except as otherwise specified or as the
context may otherwise require, the capitalized terms used in this Servicing
Agreement shall have the respective meanings specified in the Standard
Definitions set forth as Appendix A hereto, which is incorporated herein by this
reference. The definitions of such terms are equally applicable both to the
singular and plural forms of such terms and to the masculine, feminine and
neuter genders of such terms.
ARTICLE II.
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
2.1. Appointment of the Servicer. The Servicer shall service
and administer the Mortgage Loans and perform all of its duties hereunder in
accordance with applicable law, the terms of the respective Mortgage Loans and,
to the extent consistent with the foregoing, in
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accordance with customary and usual procedures employed by institutions
servicing mortgage loans secured by vacation ownership intervals, which
institutions are considered prudent by the Servicer, and in accordance with the
Servicer's own past practices, or if a higher standard, the highest degree of
skill and attention that the Servicer exercises with respect to comparable
mortgage loans secured by vacation ownership intervals that the Servicer
services for itself.
2.2 Subservicing Agreements.
(a) The Servicer may enter into one or more Subservicing
Agreements with a Subservicer to assist the Servicer in the performance of its
duties under this Servicing Agreement; provided, however, the Servicer shall not
delegate to a Subservicer any duties related to (i) directing the Trustee with
respect to the allocation of any funds received with respect to the Mortgage
Loans and (ii) any duties related to Mortgage Loans with respect to which
Monthly P&I is 120 or more days past due (including any duties related to
foreclosure proceedings or similar matters). References in this Servicing
Agreement to actions taken or to be taken by the Servicer in servicing the
Mortgage Loans include actions taken or to be taken by a Subservicer on behalf
of the Servicer. Any Subservicing Agreement will be upon such terms and
conditions as the Servicer may reasonably agree and as are not inconsistent with
this Servicing Agreement. Except as provided in Section 5.2(c), the Servicer
shall be solely responsible for any subservicing fees.
(b) The Servicer shall be entitled to terminate any
Subservicing Agreement that may exist in accordance with the terms and
conditions of such Subservicing Agreement; provided, however, that in the event
of the termination of any Subservicing Agreement by the Servicer or the related
Subservicer, the Servicer shall either act directly as Servicer in accordance
with its duties hereunder or shall enter into a Subservicing Agreement with a
successor subservicer.
(c) Notwithstanding any Subservicing Agreement, or any of the
provisions of this Servicing Agreement other than Section 5.2(c) relating to
agreements or arrangements between the Servicer and a Subservicer, the Servicer
shall remain obligated and liable for the servicing and administering of the
Mortgage Loans in accordance with the provisions of this Servicing Agreement
without diminution of such obligation or liability by virtue of such
Subservicing Agreement and to the same extent and under the same terms and
conditions as if the Servicer alone were servicing and administering the
Mortgage Loans.
2.3 Servicer to Collect Payments.
(a) Prior to the Closing Date, the Servicer shall open and
maintain at one or more depository institutions, accounts which shall be
Eligible Accounts (the "Lock-Box Accounts") and provide the Trustee with the
name and location thereof. The Servicer may substitute a Lock-Box Bank for
another bank, but only (i) upon ten days' prior written notice from the Servicer
to the Trustee and (ii) so long as no Servicer Event of Default shall have
occurred and be continuing. Such notice shall state the name and address of the
proposed new Lock-Box Bank and shall identify the related Lock-Box Account.
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(b) The Servicer shall use its best efforts to cause each
Mortgagor to timely make all payments (other than ACH Payments) in respect of
his or her Mortgage Loan to the applicable Lock-Box Account. Any such payments
received by the Servicer shall be deposited in the Collection Account no later
than one Business Day following its receipt. ACH Payments shall be deposited in
the Collection Account no later than one Business Day following receipt thereof.
(c) All interest earned on funds received with respect to
Mortgage Loans and deposited in the Lock-Box Accounts shall be deposited in the
Collection Account within one Business Day after receipt thereof.
(d) The Trustee shall review each Servicer Report and
determine whether such Servicer Report contains information in the stated
categories or fields, but shall not be obligated to make any further examination
thereof, and shall have no other duty to supervise the Servicer and the Trustee
shall not be responsible for the actions and omissions of the Servicer. In the
event the Trustee determines that a Servicer Report is incomplete, the Trustee
shall promptly notify the Servicer and the Servicer shall, promptly upon
receiving such notice, complete such Servicer Report.
2.4 Servicing and Collection Responsibilities. In addition to
any other customary services which the Servicer may perform, the Servicer shall
perform the following servicing and collection activities:
(a) perform standard accounting services and general record
keeping services with respect to the Mortgage Loans;
(b) respond to any telephone or written inquiries of
Mortgagors concerning the Mortgage Loans;
(c) keep Mortgagors informed of the proper place and method
for making payments with respect to the Mortgage Loans;
(d) contact Mortgagors to effect collection and to discourage
delinquencies in the payment of Mortgage Loans, doing so by any lawful means,
including, but not limited to, the following:
(i) mailing of routine past due notices;
(ii) preparing and mailing collection letters;
(iii) contacting delinquent Mortgagors by telephone
to encourage payment;
(iv) mailing of reminder notices to delinquent
Mortgagors; and
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(v) initiating and pursuing termination or
foreclosure actions deemed necessary by the Servicer;
(e) report tax information to Mortgagors as required by law;
and
(f) take such other action as may be necessary or appropriate
in the discretion of the Servicer for the purpose of collecting and transferring
to the Collection Account all payments received in respect of Mortgage Loans
(except as otherwise expressly provided herein), and to carry out the duties and
obligations imposed upon the Servicer pursuant to the terms of this Section,
provided, however, that the Servicer may, in its discretion, waive any Late Fees
in connection with delinquent payments on a Mortgage Loan.
2.5 Remittance of Funds to Lock-Box Accounts and Collection
Account.
(a) On each Business Day, the Servicer shall deposit or cause
to be deposited into the Lock-Box Accounts Monthly P&I collected after the
Cut-off Date.
(b) Subject to Section 2.5(c), the Servicer shall:
(1) remit, by any commercially acceptable method, to
the appropriate party the portion of any payments by or on behalf of a
Mortgagor with respect to a Mortgage Loan representing Insurance
Proceeds to be applied to the repair or restoration of a Mortgaged
Property, Miscellaneous Payments, Late Fees and Maintenance Fees, it
being understood that such Insurance Proceeds, Miscellaneous Payments,
Late Fees and Maintenance Fees (i) need not be deposited in the
Lock-Box Accounts, and may be retained by the Servicer in one or more
segregated accounts, which shall be Eligible Accounts or applied on
behalf of Mortgagors, as the case may be, and (ii) will not be
distributed pursuant to Section 13.1 of the Indenture or otherwise paid
under any of the Notes issued pursuant to the Indenture; and
(2) not later than the Business Day following the
date of receipt by the Servicer of any payment by or on behalf of a
Mortgagor with respect to a Mortgage Loan, remit into the Collection
Account all payments received from or on behalf of Mortgagors less
Insurance Proceeds to be applied to the repair or restoration of a
Mortgaged Property and amounts described in subclause (b)(1) above, and
any Prepayments, Upgrade Prepayments and Net Liquidation Proceeds.
(c) To the extent that the Servicer determines that during any
Collection Period any Miscellaneous Payments, Late Fees, Maintenance Fees,
charges for checks returned for insufficient funds, amounts deposited in a
Lock-Box Account or the Collection Account in error or other amounts not
constituting a portion of the related Collection Account Amount have been
deposited in a Lock-Box Account or the Collection Account, the Servicer may
withdraw such amounts from the related Lock-Box Account or, if applicable,
request the Trustee to withdraw such amounts from the Collection Account and
remit them to the Servicer for application in accordance with the Servicer's
normal servicing procedures. Upon receipt of a
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request from the Servicer, the Trustee shall withdraw the appropriate amount
from the Collection Account and remit such amount to the Servicer.
(d) In the event that the Company, the Trustee or the Servicer
shall have received any Insurance Proceeds, to the extent such Insurance
Proceeds are not used to rebuild or repair the related Mortgaged Property, the
Company, the Trustee or the Servicer, as applicable, shall promptly deposit such
Insurance Proceeds into the Collection Account.
(e) No later than the Business Day after deposit in the
Lock-Box Accounts, the Servicer shall transfer all available funds related to
the Mortgage Loans from the Lock-Box Accounts to the Collection Account.
2.6 Advances. On the second Business Day preceding each
Distribution Date, the Servicer shall instruct the Trustee to withdraw from the
Reserve Account and deposit in the Collection Account, an amount equal to the
sum of the interest and principal portions due, but not collected, with respect
to Delinquent Mortgage Loans during the prior Collection Period, but shall be
obligated to do so if and only if, in its good faith business judgment, the
Servicer reasonably believes that such amount will ultimately be recovered from
future collections on the related Mortgage Loan. Such amounts are "P&I
Advances." Neither the Servicer, the Trustee nor the Back-up Servicer shall have
any obligation to make any P&I Advances from its own funds.
2.7 Liquidations.
(a) The Servicer shall, not later than the second Business Day
following the Liquidation of a Defaulted Mortgage Loan, deposit the related
Liquidation Proceeds less the related Liquidation Expenses, to the extent
thereof, in the Collection Account; provided, however, that the Servicer shall,
concurrently with such deposit, furnish to the Trustee a certificate setting
forth the basis for the Servicer's determination of the amount, if any, of such
Net Liquidation Proceeds.
(b) To the extent that Net Liquidation Proceeds in respect of
any Defaulted Mortgage Loan are to be taken into account in calculating the
Current Principal Amount in respect of any Distribution Date, such Net
Liquidation Proceeds shall be allocated first to accrued unpaid interest on the
related Mortgage Loan and second to the unpaid principal balance thereof unless
such allocation is inconsistent with the terms of the related Mortgage or
Mortgage Note, in which event such Net Liquidation Proceeds shall be allocated
in the order specified therein.
2.8 Realization upon Defaulted Mortgage Loans.
(a) In connection with Liquidations, the Servicer shall follow
such practices and procedures as it shall deem necessary or advisable and as
shall be consistent with the servicing standards set forth in Section 2.1. In
addition, the Servicer shall comply with all applicable laws in connection with
the foreclosure of any Mortgaged Property, and may
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commence and prosecute any proceedings in respect of such related Mortgage Loan
in the name of and on behalf of the Trustee.
(b) The Trustee on behalf of the Noteholders shall not acquire
any Mortgaged Property except in connection with a default or imminent default
of a Mortgage Loan. In the event a Mortgaged Property is acquired by the Trustee
on behalf of the Noteholders as a result of foreclosure proceedings, pursuant to
a power of sale to the extent permitted by law, by means of a deed-in-lieu of
foreclosure or otherwise (a "Foreclosure Property"), the Servicer on behalf of
the Trustee shall use its best efforts to sell such Foreclosure Property as soon
as possible or practicable to a Person other than the Company or the applicable
Seller and shall manage, operate, conserve and protect the Foreclosure Property
solely for the purpose of its prompt disposition. The Servicer shall use its
best efforts to sell or cause the Seller to sell such Foreclosure Property prior
to any sale of Comparable Property.
(c) Notwithstanding anything to the contrary contained herein,
the Servicer shall not obtain on behalf of the Trustee a deed as a result or in
lieu of foreclosure, and shall not otherwise acquire possession of or title to,
or take any other action with respect to, any Mortgaged Property, if the
Servicer is aware, after reasonable visual inspection, or is advised by the
Trustee (which shall have no obligation to so advise) or any Noteholder that
such Mortgaged Property or the related Resort is not in compliance with
applicable environmental laws or that there are circumstances present at such
Mortgaged Property or Resort relating to the use, management or disposal of any
hazardous substances, hazardous materials, hazardous wastes, or petroleum-based
materials for which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation and if, as a result of any such action, the Trustee on behalf of the
Noteholders would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of such
Mortgaged Property or Resort within the meaning of the Comprehensive
Environmental Responsibility Cleanup and Liability Act of 1980, as amended from
time to time, or any other similar state or local environmental statute unless
otherwise agreed to by all Noteholders and indemnity or other security
satisfactory to the Trustee has been furnished to the Trustee for the
reimbursement of all expenses to which it may be put and to protect it against
all liability to which it may become subject.
(d) Notwithstanding anything to the contrary contained herein,
in the event that a default has occurred and is continuing with respect to any
Mortgage Loan and the Servicer has determined in good faith that such Mortgage
Loan will become subject to foreclosure proceedings in the event that a
deed-in-lieu is not received from the Mortgagor, the Company may, at its option,
prepay a Defaulted Mortgage Loan at a price equal to the greater of (i) fair
market value of such Defaulted Mortgage Loan as determined in good faith by the
Servicer and (ii) the applicable Seller's inventory cost for Vacation Intervals
substantially similar to the Vacation Interval securing such Defaulted Mortgage
Loan, provided that the delinquency with respect to such Mortgage Loan has
continued for at least 120 consecutive days and the Company shall purchase such
Mortgage Loans in the order in which they became Defaulted Mortgage Loans. The
amount of any such Mortgage Loan prepayment shall be deposited into the
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Collection Account, and the Trustee, shall release or cause to be released to
the Company or its designee the related Mortgage File, and shall execute and
deliver such instruments of transfer or assignment, in each case without
recourse, as shall be necessary to vest in the Company or its designee title to
such Mortgage Loan. On any date of determination, the aggregate Outstanding
Principal Balance of such prepaid Defaulted Mortgage Loans shall not exceed 15%
of the Outstanding Pool Balance as of the Cut-off-Date.
2.9 Modifications. Notwithstanding anything to the contrary in
this Servicing Agreement, none of the Servicer, the Trustee, the Back-up
Servicer or the Company shall modify, waive or amend the terms of any Mortgage
Loan unless a default on such Mortgage Loan has occurred or is imminent or
unless such modification, amendment or waiver shall not (i) alter the interest
rate on or the principal amount of such Mortgage Loan, (ii) alter the final
maturity of, or any other terms of, such Mortgage Loan which would have a
material adverse affect on Noteholders, (iii) materially impair the Mortgaged
Property underlying such Mortgage Loan or (iv) reduce materially the likelihood
that payments of interest and principal on such Mortgage Loan shall be made when
due; provided, however, the Servicer may grant an extension of the final
maturity of a Mortgage Loan if the Servicer, in its sole discretion, determines
that (a) such Mortgage Loan is in default or default on such Mortgage Loan is
likely to occur in the foreseeable future, and (b) that the value of the
Mortgage Loan will be enhanced by such extension; provided, further, that the
Servicer shall not (1) make more than one modification per calendar year with
respect to a Mortgage Loan or (2) grant an extension for more than one calendar
month with respect to a Mortgage Loan. Notwithstanding anything to the contrary
in this Servicing Agreement, the Servicer shall upon the request of any
Mortgagor, adjust the Due Date of payment on its Mortgage Loan to another date
that is not more than 30 days earlier than and not more than 30 days later than
the original Due Date; provided, however, any such modification shall be in
accordance with Section 2.1 hereof.
2.10 Assumptions. In connection with any transfer of ownership
of a Mortgaged Property by a Mortgagor to another Person, the Servicer may
consent to the assumption by such Person of the Mortgage Loan related to such
Mortgaged Property, provided, after such assumption, the related Mortgage Loan
will be in compliance with the related Seller's underwriting guidelines. In
connection with any such assumption, the rate of interest borne by, the maturity
date of, the principal amount of, the timing of payments of principal and
interest in respect of, and all other material terms of, the related Mortgage
Loan shall not be changed.
2.11 Records. The Servicer shall maintain all data (including,
without limitation, computerized tapes or disks) relating directly to or
maintained in connection with the servicing of the Mortgage Loans (which data
and records shall be clearly marked to reflect that the Mortgage Loans have been
Granted to and constitute property of the Trustee on behalf of the Noteholders)
at the address of the Servicer set forth in Section 6.4 hereof or, upon 15 days'
notice to the Trustee, at such other place where any Servicing Officer of the
Servicer is located, and shall give the Trustee or its authorized agents access
to all such information at all reasonable times, upon reasonable notice.
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2.12 Indemnification; Third Party Claim. The Servicer agrees
to indemnify and hold the Trustee, the Back-up Servicer and the Noteholders
harmless against any and all claims, losses, penalties, fines, forfeitures,
reasonable attorneys' fees and related costs, judgments, and any other costs,
fees and expenses that the Trustee, the Back-up Servicer or the Noteholders may
sustain because of the failure of the Servicer to service the Mortgage Loans or
otherwise perform its obligation and duties hereunder in compliance with the
terms of this Servicing Agreement, or because of any act or omission by the
Servicer in connection with its maintenance and custody of any funds, documents
and records under this Servicing Agreement, or its release thereof except as
contemplated by this Servicing Agreement. Except with respect to property tax
liens, the Servicer shall immediately notify the Trustee and the Back-up
Servicer if a claim is made by a third party with respect to the Mortgage Loans,
and assume, with the consent of the Trustee and the Back-up Servicer, the
defense of any such claim and pay all expenses in connection therewith,
including counsel fees, and promptly pay, discharge and satisfy any judgment or
decree which may be entered against it, the Trustee or the Back-up Servicer.
2.13 Fidelity Bond and Errors and Omissions Insurance; Hazard
Insurance. The Servicer shall maintain or cause to be maintained errors and
omissions insurance with respect to the Servicer, its employees and agents and a
fidelity bond in such form and amount as is customary for institutions acting as
custodian of funds in respect of mortgage loans or receivables on behalf of
institutional investors. Any such fidelity bond and errors and omissions
insurance shall protect and insure the Servicer and the Trustee on behalf of the
Noteholders against losses, including forgery, theft, embezzlement, fraud,
errors and omissions and negligent acts of such persons and shall be maintained
in a form and amount that would meet the requirements of prudent institutional
mortgage loan servicers. No provision of this Section 2.13 requiring such
fidelity bond and errors and omissions insurance shall diminish or relieve the
Servicer from its duties and obligations as set forth in this Servicing
Agreement. The Servicer shall be deemed to have complied with this provision if
one of its respective Affiliates has such fidelity bond and errors and omissions
policy coverage and, by the terms of such fidelity bond and errors and omissions
policy, the coverage afforded thereunder extends to the Servicer and the Trustee
on behalf of the Noteholders. The Servicer shall cause each and every
sub-servicer for it to maintain a policy of insurance covering errors and
omissions and a fidelity bond which would meet such requirements. The Trustee,
on behalf of the noteholders, shall be named an additional insured and upon a
request of the Trustee, the Servicer shall cause to be delivered to the Trustee
a certification evidencing coverage under such fidelity bond and insurance
policy. Any such fidelity bond or insurance policy shall not be canceled or
modified in a materially adverse manner without ten days' prior written notice
to the Trustee and DCR.
The Servicer shall cause each homeowners' association at each
Resort to maintain for the related Mortgaged Property on each Mortgage Loan
liability and casualty insurance and business interruption insurance covering
$100 million per occurrence, which related policy shall name the Trustee on
behalf of the noteholder as an additional insured. In cases in which Mortgaged
Property securing any Mortgage Loan is located in a federally designated flood
area, the hazard insurance to be maintained for such Mortgage Loan shall include
flood insurance.
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Insurance proceeds received with respect to the business interruption insurance
shall be used as directed by the Servicer to minimize any damage to the Trust
Estate.
2.14 Servicing Compensation and Trustee Expenses As
compensation for the performance of its obligations under this Servicing
Agreement, the Servicer shall be entitled to receive the Servicing Fee, from
amounts on deposit in the Collection Account in accordance with Section 13.1 of
the Indenture. Any fees due and owing to a Subservicer, shall be payable by the
Servicer out of the Servicing Fee. The Servicer shall pay all expenses incurred
by it in connection with its servicing activities hereunder. In addition, on
each Distribution Date, the Servicer shall reimburse the Trustee for any
expenses described in Section 7.7(b) of the Indenture, provided, the Trustee has
submitted to the Servicer a written request for such reimbursement at least five
Business Days prior to the related Distribution Date.
2.15 No Offset. Prior to the termination of this Servicing
Agreement, the obligations of the Servicer under this Servicing Agreement shall
not be subject to any defense, counterclaim or right of offset which the
Servicer has or may have against the Trustee or the Noteholders, whether in
respect of this Servicing Agreement, any Mortgage Loan or otherwise.
ARTICLE III.
ACCOUNTINGS; STATEMENTS AND REPORTS
3.1 Monthly Servicer Report. On each Servicer Report Date, the
Servicer will deliver the Servicer Report to the Trustee. The Trustee will
deliver such Servicer Report to DCR, the Company and each Noteholder. The
Servicer Report shall be completed with the information specified therein for
the related Collection Period and shall contain such other information as may be
reasonably requested by the Trustee in writing at least five Business Days prior
to such Servicer Report Date. Each such Servicer Report shall be accompanied by
an Officer's Certificate certifying the accuracy of the computations reflected
in such Servicer Report. In the event that the Trustee shall have actual
knowledge that a default, event of servicing termination or event which would,
with the passage of time, constitute a default or event of servicing termination
has occurred during the period covered by the related Servicer Report, the
Trustee shall provide DCR and the Noteholders with an Officer's Certificate
indicating any of the foregoing events known to the Trustee at such time.
3.2 Certification as to Compliance; Notice of Default. The
Servicer shall deliver to DCR, the Trustee, the Back-up Servicer and the
Noteholders, an Officers' Certificate (i) on or before the 45th day next
succeeding each March 31, June 30, September 30 and December 31 of each year and
(ii) on or before April 15 of each year commencing in 1999:
(a) to the effect that a review of the activities of the
Servicer during the preceding three-month period, or, in the case of the
Officers' Certificate delivered on or before each April 15, during the preceding
calendar year, and of its performance under this Servicing Agreement during such
period has been made under the supervision of the officers executing such
Officers' Certificate with a view to determining whether during such period the
Servicer had performed and observed all of its obligations under this Servicing
Agreement, and either (i)
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stating that based on such review no Servicer Event of Default under this
Servicing Agreement has occurred and is continuing, or (ii) if such a Servicer
Event of Default has occurred and is continuing, specifying such Servicer Event
of Default and the nature and status thereof; and
(b) describing in reasonable detail to their knowledge any
occurrence in respect of any Mortgage Loan which would be of material
significance to a Person owning such Mortgage Loan.
3.3 Annual Accountants' Reports. On or before the sixth month
anniversary of the Closing Date and on each yearly anniversary thereafter unless
more frequently required by DCR, the Servicer at its own expense shall cause a
firm of independent public accountants to furnish a certificate or statement to
the Trustee, DCR, the Back-up Servicer and the Noteholders, to the effect that
(a) such firm has read the Indenture and this Servicing Agreement, (b) has
examined, in accordance with the uniform Single Attestation Program for Mortgage
Bankers and with certain procedures specified in such certificate or opinion,
the records and calculations set forth in the Servicer Reports delivered by the
Servicer during the reporting period and certain specified documents and records
relating to the servicing of the Mortgage Loans and the reporting requirements
with respect thereto and (c) on the basis of such examination, certifies that:
(i) nothing came to their attention which caused them
to believe that the information set forth in such Servicer Reports was
not correct except for such exceptions as such firm shall believe to be
immaterial and such other exceptions as shall be set forth in such
statement; and
(ii) the servicing and reporting requirements have
been conducted in compliance with the Indenture and this Servicing
Agreement.
For purposes of this Section 3.3, the term "firm of
independent public accountants" shall refer to any of (A) Arthur Andersen & Co.,
(B) Deloitte & Touche, (C) PRICEWATERHOUSECOOPERS, (D) Ernst & Young and (E)
KPMG Peat Marwick; provided, that such firm is independent with respect to the
Servicer within the meaning of the 1933 Act.
3.4 Financial and Business Information. The Servicer shall
deliver to the Company, the Trustee, DCR, the Back-up Servicer or any Noteholder
(and, upon the request of any Noteholder, to any prospective transferee of any
Notes):
(a) Quarterly Statements -- within 45 days after the end of
each of the first three quarterly fiscal periods in each fiscal year of the
Servicer:
(i) a consolidated balance sheet of the Servicer and
its consolidated subsidiaries as at the end of such quarter and as at
the end of the corresponding quarter in the most recently completed
fiscal year, and
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(ii) consolidated statements of income, retained
earnings and cash flow of the Servicer and its consolidated
subsidiaries for that quarter and for the portion of the fiscal year
ending with such quarter, and for the corresponding periods in the
prior fiscal year, accompanied by a certificate signed by a principal
financial officer of the Servicer stating that such financial
statements present fairly the financial condition of the Servicer and
its consolidated subsidiaries and have been prepared in accordance with
generally accepted accounting principles consistently applied;
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Servicer:
(i) a consolidated balance sheet of the Servicer and
its consolidated subsidiaries, at the end of that year, and
(ii) consolidated statements of income, retained
earnings and cash flow of the Servicer and its consolidated
subsidiaries for that year, setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail
and accompanied by an opinion of a firm of independent certified public
accountants of recognized national standing stating that such financial
statements present fairly the financial condition of the Servicer and
its consolidated subsidiaries and have been prepared in accordance with
generally accepted accounting principles consistently applied (except
for changes in application in which such accountants concur and
footnote), and that the examination of such accountants in connection
with such financial statements has been made in accordance with
generally accepted auditing standards, and accordingly included such
tests of the accounting records and such other auditing procedures as
were considered necessary in the circumstances;
(c) Accountants' Certificates -- with each set of annual
financial statements delivered pursuant to Section 3.4(b), a certificate of the
accountants who certify such financial statements, stating that they have
reviewed this Servicing Agreement insofar as it relates to accounting matters,
and whether, in making their audit, they have become aware of any Servicer Event
of Default, and, if a Servicer Event of Default exists, describing its nature;
(d) SEC and Other Reports -- promptly upon their becoming
available, one copy of each report (including the Servicer's annual report to
shareholders and reports on Form 8-K, 10-K, and 10-Q), proxy statement,
registration statement, prospectus and notice filed with or delivered to any
securities exchange, the Securities and Exchange Commission or any successor
agencies;
(e) Report on Proceedings and Servicer Event of Default -- (i)
promptly upon the Servicer's becoming aware of
any proposed or pending investigation of it by any
governmental authority or agency, or
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any court or administrative proceeding which involves or may
involve the possibility of materially and adversely affecting the properties,
business, prospects, profits or conditions (financial or otherwise) of the
Servicer and subsidiaries, as a whole,
a written notice specifying the nature of such investigation
or proceeding and what action the Servicer is taking or proposes to take with
respect thereto and evaluating its merits, or
(ii) immediately upon becoming aware of the existence
of any condition or event which constitutes a Servicer Event of
Default, a written notice describing its nature and period of existence
and what action the Servicer is taking or proposes to take with respect
thereto; and
(f) Requested Information -- with reasonable promptness, any
other data and information which may be reasonably requested from time to time
by the Trustee, any Noteholder or DCR, including without limitation any
information required to be made available at any time to any prospective
transferee of any Notes in order to satisfy the requirements of Rule 144A under
the 1933 Act.
ARTICLE IV.
THE SERVICER AND BACK-UP SERVICER
4.1 Representations, Warranties and Certain Covenants of the
Servicer. The Servicer represents and warrants as of the Closing Date and
covenants to the Trustee for the benefit of the Noteholders as follows:
(a) Due Incorporation; Valid Existence and Good Standing. The
Servicer is, and at all times during the term of this Servicing Agreement will
be, a corporation duly organized and validly existing in good standing under the
laws of the jurisdiction of its incorporation; and is, and at all times during
the term of this Servicing Agreement will be, duly qualified to do business as a
foreign corporation and in good standing under the laws of each jurisdiction
where the character of its property, the nature of its business or the
performance of its obligations under this Servicing Agreement makes such
qualification necessary except where the failure to be so qualified will not
have a material adverse effect on the business of the Servicer or its ability to
perform its obligations under this Servicing Agreement or any other documents or
transactions contemplated hereunder or the validity or enforceability of the
Mortgage Loans.
(b) Possession of Licenses, Certificates, Franchises and
Permits. The Servicer at all times during the origination or acquisition of the
Mortgage Loans held, currently holds, and at all times during the term of this
Servicing Agreement will hold, all material licenses, certificates, franchises
and permits from all governmental authorities necessary for the conduct of its
business and has received no notice of proceedings relating to the revocation of
any such license, certificate, franchise or permit, which singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
materially adversely affect (i) its business, finances or prospects or (ii) its
ability to perform its obligations under this Servicing Agreement
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or any other documents or transactions contemplated hereunder or the validity or
enforceability of the Mortgage Loans.
(c) Corporate Authority and Power. The Servicer has, and at
all times during the term of this Servicing Agreement will have, all requisite
corporate power and authority to service the Mortgage Loans, own its properties,
to conduct its business, to execute and deliver this Servicing Agreement and all
documents and transactions contemplated under this Servicing Agreement and to
perform all of its obligations under this Servicing Agreement and any other
documents or transactions contemplated hereunder.
(d) Authorization, Execution and Delivery; Valid and Binding.
This Servicing Agreement and all other documents and instruments required or
contemplated hereby to be executed and delivered by the Servicer have been duly
authorized, executed and delivered by the Servicer and, assuming the due
execution and delivery by the other party or parties hereto and thereto,
constitute legal, valid and binding agreements enforceable against the Servicer
in accordance with their respective terms subject, as to the enforcement of
remedies, to bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforceability of creditors' rights generally
applicable in the event of the bankruptcy, insolvency or reorganization of the
Servicer and to general principles of equity.
(e) No Violation of Law, Rule, Regulation, etc. The execution,
delivery and performance by the Servicer of this Servicing Agreement and any
other documents and transactions in connection herewith to which the Servicer is
party do not and will not (i) violate any of the provisions of the articles of
incorporation or by-laws of the Servicer, (ii) violate any provision of any law,
governmental rule or regulation currently in effect applicable to the Servicer
or its properties or by which the Servicer or its properties may be bound or
affected, (iii) violate any judgment, decree, writ, injunction, award,
determination or order currently in effect applicable to the Servicer or its
properties or by which the Servicer or its properties are bound or affected,
(iv) conflict with, or result in a breach of, or constitute a default under, any
of the provisions of any material indenture, mortgage, deed of trust, contract
or other instrument to which the Servicer is a party or by which it is bound or
(v) result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, mortgage, deed of trust, contract
or other instrument.
(f) Governmental Consent. No consent, approval, order or
authorization by, and no filing with or notice to, any court or other
governmental authority in respect of the Servicer is required in connection with
the authorization, execution, delivery or performance by the Servicer of this
Servicing Agreement or any of the other documents or transactions contemplated
hereunder.
(g) Defaults. The Servicer is not in default under any
agreement, contract, instrument or indenture to which the Servicer is a party or
by which it or its properties is or are bound, or with respect to any order of
any court, administrative agency, arbitrator or governmental body which would
have a material adverse effect on the transactions contemplated hereunder; and
no event has occurred which with notice or lapse of time or both would
constitute
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such a material default with respect to any such agreement, contract, instrument
or indenture, or with respect to any such order of any court, administrative
agency, arbitrator or governmental body.
(h) No Adverse Change. As of the Closing Date, there has been
no change in the business, operations, financial condition, properties or assets
of the Servicer since December 31, 1997 which would have a material adverse
effect on the Servicer's ability to perform its obligations under this Servicing
Agreement or any other documents or transactions contemplated hereunder.
(i) Pending Litigation or Other Proceedings. There is no
pending or, to the best of the Servicer's knowledge, threatened action, suit,
proceeding or investigation before any court, administrative agency, arbitrator
or governmental body against or affecting the Servicer which, if decided
adversely, would materially and adversely affect (i) the condition (financial or
otherwise), business or operations of the Servicer or (ii) the ability of the
Servicer to perform its obligations under, or the validity or enforceability of,
this Servicing Agreement or any other documents or transactions contemplated
hereunder, (iii) any Mortgaged Property or title of any Mortgagor to any
Mortgaged Property or (iv) the Trustee's ability to foreclose or otherwise
enforce the liens of the Mortgage Loans.
(j) Impairment of Insurance Coverage. The Servicer has not
taken (or omitted to take), and has no notice that the related Mortgagor has
taken (or omitted to take), any action that would impair or invalidate the
coverage provided by any hazard, title or other insurance policy relating to
such Mortgage Loan or the related Mortgaged Property.
(k) Financial Information. The Servicer has previously
delivered to the initial Noteholders the audited balance sheets and statements
of income for its fiscal year ended December 31, 1997. All such financial
information is correct and complete and presents fairly in all material respects
the financial condition of the Servicer and the results of its operations as of
the dates and for the periods referred to therein.
(l) Resale Units. Subject to Section 2.8, the Servicer agrees,
to the extent that it may reasonably do so and subject to local laws and
regulations, to sell or cause to be sold any Mortgaged Property obtained by it
for any reason whatsoever, including, without limitation, from a foreclosure,
judicial sale or deed-in-lieu of foreclosure ("Resale Units"), in a manner
consistent with its sale practices with respect to timeshare estates owned for
its own account and consistent with industry standards.
(m) Custodial Arrangements. The Servicer shall hold any
Mortgage Files in the same manner as it holds similar documents for its own
account, or as servicer for others and in accordance with customary and usual
procedures employed by institutions servicing mortgage loans secured by vacation
ownership intervals, which institutions are considered prudent by the Servicer.
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(n) Collection and Servicing Practices. The collection and
servicing practices used by the Servicer with respect to each Mortgage Loan have
been in all respects legal, proper and prudent, and consistent with those
customarily employed by institutions servicing mortgage loans secured by
vacation ownership intervals, which institutions are considered prudent by the
Servicer.
(o) Year 2000. The Servicer is currently modifying its
computer systems and applications with the intention of being Year 2000
compliant by August 31, 1999.
(p) Servicer Not to Become Mortgagor. Neither the Servicer nor
an Affiliate thereof shall become a Mortgagor.
4.2 Corporate Existence; Status as Servicer; Merger.
(a) Except as otherwise permitted by Section 4.2(b), the
Servicer shall keep in full effect its existence, rights and franchises as a
corporation under the laws of the state of its incorporation and shall obtain
and preserve its qualification to do business as a foreign corporation, in each
case to the extent necessary to protect the validity and enforceability of the
Mortgage Loans and this Servicing Agreement.
(b) The Servicer shall not consolidate with or merge into any
other Person or convey, transfer or lease all or substantially all of its assets
as an entirety to any Person unless the Person formed by such consolidation or
into which the Servicer has been merged or the Person which acquires all or
substantially all the assets of the Servicer as an entirety is a corporation
organized under the laws of a state in the United States, can lawfully perform
the obligations of the Servicer hereunder and executes and delivers to the
Trustee (i) an agreement, in form and substance reasonably satisfactory to the
Trustee and the Noteholders, which contains an assumption by such successor
entity of the due and punctual performance and observance of each covenant and
condition to be performed or observed by the Servicer under this Servicing
Agreement and (ii) an Opinion of Counsel as to the enforceability of such
agreement, provided, however, that DCR confirms in writing, at the expense of
the Servicer and prior to any such action, that such action will not cause a
downgrade or withdrawal of the then-current rating of the Notes. Upon such
merger or consolidation, the Servicer shall deliver to the successor servicer
all documents, statements, records, all funds and accounts held by it under this
Servicing Agreement and shall execute and deliver such instruments and do such
other things as may be reasonably required for fully transferring its rights,
powers, duties and obligations.
4.3 Performance of Obligations. The Servicer shall not take
any action or, to the extent within the Servicer's control, permit any action to
be taken by others, which would excuse any Person from any of its covenants or
obligations under any Mortgage Note or Mortgage, or under any other instrument
relating thereto, or which would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any Mortgage Note or Mortgage or any such instrument, without
the written consent of the Trustee and the Noteholders, except as expressly
provided herein and therein.
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4.4 The Servicer's Resignation.
(a) Subject to Section 4.2(b), the Servicer shall not resign
from the duties and obligations hereby imposed on it under this Servicing
Agreement unless and until a new servicer, reasonably acceptable to the Trustee,
the Majority Holders, DCR and the Company, enters into an agreement, in form and
substance reasonably satisfactory to the Trustee, which contains an assumption
by such successor Servicer of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Servicer under
this Servicing Agreement and the Trustee has also received an Opinion of Counsel
as to the enforceability of such agreement, provided, however, that DCR confirms
in writing, at the expense of the Servicer and prior to any such transfer, that
such transfer of servicing will not cause a downgrade or withdrawal of the
then-current rating of the Notes. No such resignation by the Servicer shall
affect the obligation of the Company to cause the repurchase of any Mortgage
Loan pursuant to Section 12.6 of the Indenture. Upon the resignation or
termination of the Servicer, the Servicer shall deliver to the successor
servicer all documents, statements, records, all funds and accounts held by it
under this Servicing Agreement and shall execute and deliver such instruments
and do such other things as may be reasonably required for fully transferring
its rights, powers, duties and obligations. No successor servicer shall be
responsible for, or shall have any liability with respect to, the acts or
omissions of the Servicer or any prior servicer occurring prior to the time that
the successor servicer becomes the successor servicer hereunder.
(b) Except as provided in subsection (a) above or Section 5.1,
the duties and obligations of the Servicer under this Servicing Agreement shall
continue until this Servicing Agreement shall have been terminated as provided
herein and shall survive the exercise by the Trustee of any right or remedy
under this Servicing Agreement or the enforcement by the Trustee or any
Noteholder of any provision of the Notes or this Servicing Agreement.
4.5 Liability of the Servicer. The Servicer shall be liable in
accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under this Servicing Agreement.
4.6 Representations and Warranties of the Back-up Servicer.
The Back-up Servicer hereby makes the following representations and warranties
on which the Company, the Servicer, the Sellers and Noteholders shall be
entitled to rely:
(a) The Back-up Servicer is a national banking association
duly organized, validly existing, and in good standing under the laws of the
United States of America.
(b) The Back-up Servicer has full power, authority and legal
right to execute, deliver, and perform this Servicing Agreement, and has taken
all necessary action to authorize the execution, delivery, and performance by it
of this Servicing Agreement.
(c) The execution, delivery and performance by the Back-up
Servicer of this Servicing Agreement (a) does not violate any provision of any
law or any order, writ, judgment, or decree of any court, arbitrator, or
governmental authority applicable to the Back-up Servicer
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or any of its assets, (b) does not violate any provision of the corporate
charter or by-laws of the Back-up Servicer, and (c) does not violate any
provision of, or constitute, with or without notice or lapse of time, a default
under, or result in the creation or imposition of any Lien on, any of its
properties pursuant to the provisions of any mortgage, indenture, contract,
agreement, or other undertaking to which the Back-up Servicer is a party, which
violation or default could reasonably be expected to materially and adversely
affect the Back-up Servicer's performance or ability to perform its duties under
this Servicing Agreement or the transactions contemplated in this Servicing
Agreement.
(d) The execution, delivery and performance by the Back-up
Servicer of this Servicing Agreement does not require the authorization,
consent, or approval of, the giving of notice to, the filing or registration
with, or the taking of any other action in respect of, any governmental
authority or agency regulating the banking and corporate trust activities of the
Back-up Servicer.
(e) This Servicing Agreement has been duly executed and
delivered by the Back-up Servicer and constitutes the legal, valid, and binding
agreement of the Back-up Servicer, enforceable in accordance with its terms.
(f) There is no pending or, to the best of the Back-up
Servicer's knowledge, threatened action, suit, proceeding or investigation
before any court, administrative agency, arbitrator or governmental body against
or affecting the Back-up Servicer which, if decided adversely, would materially
and adversely affect (i) the condition (financial or otherwise), business or
operations of the Back-up Servicer or (ii) the ability of the Back-up Servicer
to perform its obligations under, or the validity or enforceability of, this
Servicing Agreement or any other documents or transactions contemplated
hereunder, (iii) any Mortgaged Property or title of any Mortgagor to any
Mortgaged Property or (iv) the Trustee's ability to foreclose or otherwise
enforce the liens of the Mortgage Loans.
4.7 Performance of Back-up Servicer's Duties. In the event
that the Back-up Servicer shall become the Servicer hereunder, the Back-up
Servicer shall service and administer the Mortgage Loans and perform all of its
duties hereunder in accordance with customary and usual procedures employed by
institutions servicing mortgage loans secured by vacation ownership intervals,
which institutions are considered prudent by the Back-up Servicer, and in
accordance with the Back-up Servicer's own customary practices, or if a higher
standard, the highest degree of skill and attention that the Back-up Servicer
exercises with respect to comparable mortgage loans secured by vacation
ownership intervals that the Back-up Servicer services for itself.
ARTICLE V.
DEFAULT
5.1 Servicer Events of Default. If any one of the following
events ("Servicer Events of Default") shall occur and be continuing:
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(i) Any failure by the Servicer to deposit in or
credit to the Collection Account or the Lock-Box Accounts any amount
required under this Servicing Agreement to be so deposited or credited
by the Servicer and such failure continues unremedied for a period of
three Business Days;
(ii) Any failure by the Servicer to deliver to the
Trustee a Servicer Report in accordance with Section 3.1 by 4:00 p.m.,
New York City time, on the Servicer Report Date;
(iii) Any failure by the Servicer to comply with any
provision of Section 4.2;
(iv) Any failure by the Servicer to deliver to the
Trustee an accountant's report in accordance with Section 3.3 or 3.4,
which non-delivery shall continue unremedied for ten Business Days;
(v) A Trigger Event shall have occurred which has not
been cured by a Trigger Event Cure within 120 days after such Trigger
Event has occurred;
(vi) Any failure by the Servicer duly to observe or
to perform in any material respect any other covenants or agreements of
the Servicer set forth in this Servicing Agreement, which failure shall
have continued for a period of fifteen days after the earlier of (A)
written notice thereof shall have been given to the Servicer by the
Trustee or to the Servicer and the Trustee by a Noteholder or (B)
discovery of such failure by the Servicer;
(vii) Any representation, warranty or statement of
the Servicer made in this Servicing Agreement shall prove to be
incorrect in any material respect as of the time when the same shall
have been made and such incorrectness shall have a material adverse
effect on the collectibility of the Mortgage Loans or the ability of
the Servicer to perform its obligations hereunder, and, within thirty
days after the earlier of (A) written notice thereof shall have been
given to the Servicer by the Trustee or to the Servicer and the Trustee
by a Noteholder or (B) discovery of such inaccuracy by the Servicer,
the circumstance or condition in respect of which such representation,
warranty or statement was incorrect shall not have been eliminated or
otherwise cured in all material respects;
(viii) The entry of a decree or order for relief by a
court or regulatory authority having jurisdiction in respect of the
Servicer in an involuntary case under the federal bankruptcy laws, as
now or hereafter in effect, or any other present or future federal or
state bankruptcy, insolvency, rehabilitation or similar law; the
appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Servicer in respect of
any substantial part of their property, or the entering of an order for
the winding up or liquidation of the affairs of the Servicer and the
continuance of any such decree or order unstayed and in effect for a
period of sixty consecutive days, or the commencement of an involuntary
case under the federal bankruptcy laws with respect to
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the Servicer which within sixty days of the date of commencement shall
not be stayed or dismissed;
(ix) The commencement by the Servicer of a voluntary
case under the federal bankruptcy laws, as now or hereafter in effect,
or any other present or future federal or state bankruptcy, insolvency,
rehabilitation or similar law, or the consent by the Servicer to the
appointment of or the taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of
the Servicer or of any substantial part of its property, or the making
by the Servicer of an assignment for the benefit of creditors, or the
failure by the Servicer generally to pay its debts as such debts become
due or the taking of corporate action by the Servicer in furtherance of
any of the foregoing;
then, and in each and every case, so long as such Servicer Event of Default
shall not have been remedied, the Trustee may, and at the direction of the
Holders of 66 2/3% of the aggregate Outstanding Note Balance of the Notes the
Trustee shall, by written notice to the Servicer terminate all of the rights and
obligations of the Servicer under this Servicing Agreement and in and to the
Mortgage Loans and the proceeds thereof. On or after the receipt by the Servicer
of such written notice, all authority and power of the Servicer under this
Servicing Agreement, whether with respect to the Notes or the Mortgage Loans or
otherwise, shall pass to and be vested in LaSalle National Bank as Back-up
Servicer pursuant to and under this Section 5.1; and, without limitation,
LaSalle National Bank, in its capacity as Back-up Servicer, is hereby authorized
and empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments, and
to do or accomplish all other acts or things necessary or appropriate, to effect
the purposes of such notice of termination. The Servicer shall cooperate with
LaSalle National Bank, in its capacity as Back-up Servicer, in effecting the
termination of the responsibilities and rights of the Servicer under this
Servicing Agreement, including the transfer to LaSalle National Bank, in its
capacity as Back-up Servicer for administration by it of all cash amounts which
at the time are or would be required to be deposited by the Servicer in the
Lock-Box Accounts and the subsequent transfer of any other such amounts
thereafter received with respect to a Mortgage Loan within one Business Day of
receipt thereof by the Servicer. In addition, upon the Servicer's receipt of
notice of termination pursuant to this Section 5.1, the Servicer shall, promptly
upon the demand, and in any event no later than five Business Days after such
demand, of LaSalle National Bank, in its capacity as Back-up Servicer, deliver
to LaSalle National Bank, in its capacity as Back-up Servicer, all data
(including, without limitation, computerized records and software) necessary for
the servicing of the Mortgage Loans. In addition to delivering such monies and
data, the Servicer shall use its best efforts to effect the orderly and
efficient transfer of the servicing of the Mortgage Loans to LaSalle National
Bank, in its capacity as Back-up Servicer, including, without limitation,
directing Mortgagors to remit all payments in respect of the Mortgage Loans to
an account or address designated by LaSalle National Bank, in its capacity as
Back-up Servicer, or such new servicer, as the case may be.
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5.2 Trustee to Act as Back-up Servicer; Appointment of
Successor; Limitations on Liability.
(a) Upon the Servicer's receipt of notice of termination
pursuant to Section 5.1 or the Servicer's resignation pursuant to Section 4.4,
the Back-up Servicer shall be the successor in all respects to the Servicer in
its capacity as servicer under this Servicing Agreement (including the right to
withdraw funds from the Lock-Box Accounts), and shall be subject to all the
responsibilities, duties and liabilities of the Servicer pursuant to this
Servicing Agreement; provided, however, that LaSalle National Bank, in its
capacity as Back-up Servicer, shall not be responsible for, and shall have no
liability with respect to, the acts or omissions of the Servicer or any prior
servicer occurring prior to the time that LaSalle National Bank becomes the
Servicer hereunder; and, provided further, that before becoming subject to all
the responsibilities, duties and liabilities of the Servicer hereunder, the
Trustee may require that satisfactory indemnity or other security be furnished
to protect it against all liability, except liability which is adjudicated to
have resulted from its negligence or willful misconduct. As compensation
therefor, the Back-up Servicer shall be entitled to such compensation, payable
out of the Collection Account, as the Servicer would have been entitled to under
this Servicing Agreement if no such notice of termination had been given.
(b) Notwithstanding subsection (a) above, LaSalle National
Bank may, if for any reason LaSalle National Bank shall be unwilling to act as
Back-up Servicer, or shall, if it shall be legally unable so to act, appoint, or
petition a court of competent jurisdiction to appoint, any established financial
institution reasonably acceptable to the Majority Holders, whose regular
business shall include the servicing of mortgage loans secured by timeshare
estates and the appointment of which will not cause a downgrade in the ratings
assigned by DCR to the Notes, as the successor to the Servicer under this
Servicing Agreement. LaSalle National Bank shall act as Back-up Servicer until a
successor is appointed in accordance herewith. In connection with such
appointment, the Trustee may make such arrangements for the compensation of such
successor, out of payments on the Mortgage Loans, as it and such successor shall
agree; provided, however, that the Servicing Fee Percent shall not be in excess
of 1% per annum unless approved in writing by the Holders of 66 2/3 percent of
the aggregate Outstanding Note Balance of the Notes, and DCR. Pending
appointment of a successor to the Servicer hereunder, LaSalle National Bank
shall act in such capacity, subject to the protections afforded LaSalle National
Bank in subsections (a) and (c) of this Section 5.2. The Trustee and such
successor shall take such action, consistent with this Servicing Agreement, as
shall be necessary to effectuate any such succession.
(c) Notwithstanding any other provision of this Servicing
Agreement, in the event that LaSalle National Bank acts as the servicer in
accordance with this Section 5.2, it shall be entitled to terminate any existing
Subservicing Agreements and perform the duties required of the Servicer by
entering into one or more Subservicing Agreements with a Subservicer selected by
it with reasonable care. The Trustee shall pay any subservicing fees to any such
Subservicer engaged by it with the Servicing Fee.
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5.3 Notification to Noteholders and DCR. Upon any termination
of, or appointment of a successor to, the Servicer pursuant to this Article 5,
the Trustee shall give prompt written notice thereof to the Noteholders at their
respective addresses appearing in the Note Register and to DCR.
5.4 No Effect on Other Parties. Upon any termination of the
rights and powers of the Servicer from time to time pursuant to Section 5.1 or
upon any appointment of a successor to the Servicer, all the rights, powers,
duties and obligations of the Trustee, in its capacity as the Trustee hereunder,
shall remain unaffected by such termination or appointment and shall remain in
full force and effect thereafter, except as otherwise expressly provided in this
Servicing Agreement.
5.5 Rights Cumulative. All rights and remedies from time to
time conferred upon or reserved to the Trustee or the Noteholders are
cumulative, and none is intended to be exclusive of another or any right or
remedy which any such Persons may have at law or in equity. No delay or omission
in insisting upon the strict observance or performance of any provision of this
Servicing Agreement, or in exercising any right or remedy, shall be construed as
a waiver or relinquishment of such provision, nor shall it impair such right or
remedy. Every right and remedy may be exercised from time to time and as often
as deemed expedient.
5.6 Directions by Noteholders and Duties of Trustee During
Servicer Event of Default. The Holders of 66 2/3 percent of the aggregate
Outstanding Note Balance of the Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee under this
Servicing Agreement.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
6.1 Effectiveness and Termination of Agreement.
(a) The provisions of this Servicing Agreement shall become
effective on the Closing Date upon the issuance of the Notes in accordance with
the provisions of the Note Purchase Agreement.
(b) Absent a termination pursuant to Section 5.1, the
respective duties and obligations of the Servicer (except as hereinafter
provided), the Company and the Trustee created by this Servicing Agreement shall
terminate upon the final payment to the Noteholders of all amounts due on the
Notes and the discharge of the lien under the Indenture. Upon the termination of
this Servicing Agreement pursuant to this Section 6.1(b), the Servicer shall pay
(if to any Noteholder, by wire transfer in immediately available funds) any
moneys with respect to the Mortgage Loans held by the Servicer and to which the
Servicer is not entitled to the Company or any other Person entitled thereto.
(c) This Servicing Agreement shall not be automatically
terminated as a result of a Servicer Event of Default under the Indenture or any
action taken by the Trustee thereafter
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<PAGE> 25
with respect thereto, and any liquidation or preservation of the Trust Estate by
the Trustee thereafter shall be subject to the rights of the Servicer to service
the Mortgage Loans and to collect servicing compensation as provided hereunder.
6.2 Amendments.
(a) This Servicing Agreement may be amended from time to time
by the Company, the Trustee, the Back-up Servicer and the Servicer, without the
consent of any of the Noteholders, to cure any ambiguity, to correct or
supplement any provisions herein which may be inconsistent with any other
provisions herein, or to make any other provisions with respect to matters or
questions arising under this Servicing Agreement which are not inconsistent with
the provisions of this Servicing Agreement, provided that such action shall not
adversely affect in any material respect the interests of any Noteholders, the
Back-up Servicer or the Trustee, and the Trustee shall have been provided with
an Opinion of Counsel to such effect and DCR shall have confirmed in writing
that such action shall not result in a reduction or withdrawal of the then
current rating on the Class A-1, Class A-2 and Class A-3 Notes. The Trustee
shall enter into any such amendment if it has received such Opinion of Counsel
and confirmation of DCR.
(b) This Servicing Agreement may also be amended from time to
time by the Company, the Trustee, the Servicer and the Back-up Servicer, with
the consent of the Noteholders holding more than 50% of the Outstanding Note
Balance of each class of Notes, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Servicing
Agreement or of modifying in any manner the rights of the Noteholders, provided,
however, that no such amendment shall, without the consent of Noteholders
holding 100% of the Outstanding Note Balance of each class of Notes affected
thereby, (i) reduce in any manner the amount of, or delay the timing of,
payments received on the related Mortgage Loans which are required to be
deposited in the Collection Account; (ii) alter the priorities with which any
allocation of funds shall be made under this Servicing Agreement; (iii) permit
the creation of any lien on the Trust Estate (other than the lien of the
Indenture) or any portion thereof or deprive any such Noteholder of the benefit
of this Servicing Agreement with respect to the Trust Estate or any portion
thereof; or (iv) modify this Section 6.2 or Section 2.14, 4.2, 4.3 or 4.5 and
provided further that such amendment shall not result in a reduction or
withdrawal of the then current rating of the Notes as confirmed in writing by
DCR.
(c) Promptly after the execution of any amendment, the
Servicer shall send to the Trustee, the Noteholders, the Back-up Servicer and
DCR a conformed copy of each such amendment, but the failure to do so shall not
impair or affect its validity.
(d) It shall be necessary, in any consent of Noteholders under
this Section 6.2, to approve the particular form of any proposed amendment. The
manner of obtaining such consent and of evidencing the authorization of the
execution thereof by Noteholders shall be subject to such reasonable regulations
as the Trustee may prescribe.
(e) Any amendment or modification effected contrary to the
provisions of this Section 6.2 shall be void.
22
<PAGE> 26
6.3. Governing Law. This Servicing Agreement shall be
construed in accordance with the laws of the State of New York and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
6.4. Notices. All demands, notices and communications
hereunder shall be in writing and shall be delivered or mailed by first class
United States mail, postage prepaid, and addressed, in each case as follows:
The Company:
Sunterra Finance L.L.C.
1875 S. Grant Street, Suite 650-A
San Mateo, California 94402
Attention: Michael Depatie
With a copy to:
Drew Hutton
The Servicer:
Signature Resorts, Inc.
1875 S. Grant Street, Suite 650
San Mateo, California 94402
Attention: Michael Depatie, CFO
With a copy to:
Drew Hutton, Corporate Counsel
The Sellers (except All Seasons Resorts, Inc., an Arizona
corporation and All Seasons Resorts, Inc., a Texas
corporation):
1875 S. Grant Street, Suite 650
San Mateo, California 94402
Attention: Michael Depatie, CFO
With a copy to:
Drew Hutton, Corporate Counsel
All Seasons Resorts, Inc., an Arizona corporation
All Seasons Resorts, Inc., a Texas corporation
561 Highway 179
Sedona, Arizona 86336
23
<PAGE> 27
The Trustee and Back-up Servicer:
LaSalle National Bank
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60674-4107
Attention: Asset-Backed Securities
Trust Services, Signature Resorts, Inc.
1998-A
DCR:
Duff & Phelps Credit Rating Co.
55 East Monroe Street, Suite 3800
Chicago, Illinois 60603
Attention: Asset-Backed Monitoring Group
and if to any Noteholder, at its address for notices specified in the Register
for the Notes. Any of the Persons whose address is set forth above may change
the address for notices hereunder by giving notice of such change to the other
Persons. Any change of address shown on the Note Register shall, after the date
of such change, be effective to change the address for such Noteholder
hereunder. All notices and demands shall be deemed to have been given either at
the time of the delivery thereof to any officer of the Person entitled to
receive such notices and demands at the address of such Person for notices
hereunder, or on the third day after the mailing thereof to such address, as the
case may be.
6.5 Severability of Provisions. If one or more of the
provisions of this Servicing Agreement shall be for any reason whatever held
invalid, such provisions shall be deemed severable from the remaining covenants,
agreements and provisions of this Servicing Agreement and shall in no way affect
the validity or enforceability of such remaining provisions, the rights of any
parties hereto, or the rights of the Trustee or any Noteholders. To the extent
permitted by law, the parties hereto hereby waive any provision of law which
renders any provision of this Servicing Agreement prohibited or unenforceable in
any respect.
6.6 Inspection and Audit Rights. The Servicer and the Back-up
Servicer, on reasonable prior notice, shall permit any representative of the
Trustee, the Company, a Seller or any Holder of at least 10% of the Outstanding
Notes of any class, during the Servicer's normal business hours, to examine all
the books of account, records, reports and other papers of the Servicer or the
Back-up Servicer relating to the Mortgage Loans, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants selected by the Trustee or the Company, as the case may be, and to
discuss its affairs, finances and accounts relating to the Mortgage Loans with
its officers, employees and independent public accountants (and by this
provision the Servicer and Back-up Servicer hereby authorizes said accountants
to discuss with such representatives such affairs, finances and accounts), all
at such reasonable times and as often as may be reasonably requested. Any
expense incident to the exercise by the Trustee, the Back-up Servicer, or the
Company of any right under this Section 6.6
24
<PAGE> 28
shall be borne by the Company, provided that if an audit is made during the
continuance of a Servicer Event of Default, the expense incident to such audit
shall be borne by the Servicer.
6.7 Binding Effect. All provisions of this Servicing Agreement
shall be binding upon and inure to the benefit of the respective successors and
assigns of the parties hereto, and all such provisions shall inure to the
benefit of the Noteholders.
6.8 Article Headings. The article headings herein are for
convenience of reference only, and shall not limit or otherwise affect the
meaning hereof.
6.9 Legal Holidays. In the case where the date on which any
action required to be taken, document required to be delivered or payment
required to be made is not a Business Day, such action, delivery or payment need
not be made on such date, but may be made on the next succeeding Business Day.
6.10 Counterparts. This Servicing Agreement 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.
25
<PAGE> 29
IN WITNESS WHEREOF, the Company, the Servicer and the Trustee
have caused this Servicing Agreement to be duly executed by their respective
officers thereunto duly authorized as of the date and year first above written.
SUNTERRA FINANCE L.L.C.
By: Sunterra Mortgage, Inc., its Managing Member
By /s/ DEWEY W. CHAMBERS
------------------------------------------------
Name: Dewey W. Chambers
Title: Vice President
SERVICER:
SIGNATURE RESORTS, INC. as Servicer
By /s/ DEWEY W. CHAMBERS
------------------------------------------------
Name: Dewey W. Chambers
Title: Vice President
LASALLE NATIONAL BANK, as Trustee and Back-up
Servicer
By /s/
------------------------------------------------
Name:
Title:
<PAGE> 30
EXHIBIT A
Form of Monthly Servicer Report
A-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 112,254 53,905
<SECURITIES> 0 0
<RECEIVABLES> 397,715 280,160
<ALLOWANCES> 25,065 19,352
<INVENTORY> 286,638 155,553
<CURRENT-ASSETS> 0 0
<PP&E> 61,522 19,758
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,012,801 544,220
<CURRENT-LIABILITIES> 0 0
<BONDS> 478,000 138,000
0 0
0 0
<COMMON> 359 354
<OTHER-SE> 224,496 186,737
<TOTAL-LIABILITY-AND-EQUITY> 1,012,801 544,220
<SALES> 157,542 130,346
<TOTAL-REVENUES> 196,000 155,051
<CGS> 37,637 34,738
<TOTAL-COSTS> 110,014 93,777
<OTHER-EXPENSES> 31,047 32,679
<LOSS-PROVISION> 6,160 3,735
<INTEREST-EXPENSE> 20,774 10,794
<INCOME-PRETAX> 28,005 14,066
<INCOME-TAX> 10,922 5,445
<INCOME-CONTINUING> 17,083 8,621
<DISCONTINUED> 0 0
<EXTRAORDINARY> 129 518
<CHANGES> 0 0
<NET-INCOME> 16,954 8,103
<EPS-PRIMARY> 0.47<F1> 0.23<F1>
<EPS-DILUTED> 0.47 0.23
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
