<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] 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
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 95-458215-7
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1875 SOUTH GRANT STREET, SUITE 650
SAN MATEO, CALIFORNIA 94402
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 312-7171
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, par value $0.01 per value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant based upon the closing sales price of the Common Stock on March
28, 1998 as reported on the New York Stock Exchange, was approximately $555
million. At March 28, 1998 there were 35,880,507 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
================================================================================
<PAGE> 2
PART I
Unless the context otherwise indicates, the "Company" refers to Signature
Resorts, Inc. and includes its corporate and partnership predecessors and
wholly-owned subsidiaries and affiliates including AVCOM International, Inc.
("AVCOM") and its subsidiaries, which were acquired in February 1997 (the "AVCOM
Acquisition"); Plantation Resorts Group, Inc. ("PRG") and its subsidiaries,
which were acquired in May 1997 (the "PRG Acquisition"); LSI Group Holdings, plc
("LSI") and its subsidiaries, which were acquired in August 1997 (the "LSI
Acquisition"); Marc Hotels & Resorts, Inc. ("Marc"), which was acquired in
October 1997 (the "Marc Acquisition"); Vacation Internationale, Ltd. ("VI") and
its subsidiaries, which were acquired in November 1997 (the "VI Acquisition");
and Global Development Ltd. and certain of its subsidiaries (the "Global
Group"), which was acquired in December 1997 (the "Global Acquisition").
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
THE COMPANY
Signature Resorts, Inc. is the world's largest vacation ownership company,
as measured by the number of resort locations. The Company currently has 81
resort locations in eight North American and European countries. The Company
also manages units at 22 resorts in Hawaii. The Company's resort locations are
in a variety of popular vacation destinations, including California, Hawaii,
Arizona, Florida, the Caribbean, Mexico, France, the United Kingdom, Spain and
the Canary Islands. Through both internal development and strategic
acquisitions, the Company has expanded the number of its resort locations and
its owner family base from nine resort locations and approximately 25,000 owner
families at the time of its August 1996 initial public offering to its current
81 resort locations and approximately 200,000 owner families. As a result of the
successful implementation of the Company's growth and operations strategy, the
Company's revenues have grown to $337.7 million in 1997 from $219.8 million in
1996 and $168.3 million in 1995. By taking advantage of synergies resulting from
the implementation of the Company's business strategy, the Company has increased
1997 EBITDA (as defined) by 91% over 1996 EBITDA and increased EBITDA as a
percentage of total revenues to 25.3% in 1997 from 20.3% in 1996.
The Company's operations consist of (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 interests"), (ii) acquiring,
developing and operating vacation ownership resorts and (iii) providing consumer
financing to individual purchasers for the purchase of vacation interests at its
resort locations. The Company also provides resort management and maintenance
services for which it receives fees paid by the resorts' homeowners'
associations.
The Company markets resort locations as Sunterra Resorts, Embassy Vacation
Resorts and Westin Vacation Club Resorts and offers points-based vacation clubs
in Europe and North America. The Company's Sunterra Resorts are marketed under
the Company's Sunterra brand. The Company's Embassy Vacation Resorts and Westin
Vacation Club resort are operated under agreements with Promus Hotel Corporation
("Promus") (the owner of the Embassy Suites brand) and Westin Hotels & Resorts
("Westin"), respectively. The Company offers points-based vacation clubs in
Europe through its LSI and Global Group subsidiaries, and in North America
through its VI subsidiary.
The Company provides mortgage financing for approximately 75% of its
vacation ownership sales. In addition to enhancing the sales process, financing
customer receivables generates attractive profit margins and cash flows from the
spread between interest rates charged by the Company on its mortgage receivables
and the Company's cost of capital. This financing is typically collateralized by
the underlying Vacation Interval or Vacation Points.
2
<PAGE> 3
RECENT DEVELOPMENTS
Senior Notes. On March 30, 1998, the Company announced the proposed
offering of $125 million of its senior unsecured notes (the "Offering"). The
Company intends to use the net proceeds of the Offering to repay certain
existing indebtedness, for acquisitions and development and for general
corporate purposes.
Securitized Notes. On March 27, 1998, the Company announced that it intends
to securitize approximately $100 million of its mortgages receivable, of which
$50 million has been pre-committed. The Company expects to convey the mortgages
receivable to a bankruptcy remote subsidiary, which would issue notes secured by
such mortgages receivable (the "Securitized Notes"). The Securitized Notes would
be nonrecourse to the Company. The Company is finalizing negotiations and
expects to complete the securitization by May 1998. If completed, the
securitization would be treated as a financing transaction for accounting
purposes. The mortgages receivable and the Securitized Notes would remain on the
Company's balance sheet. The Company would recognize no gain or loss on the
Securitized Notes transaction.
Name Change. The Company's Board of Directors has approved, subject to
stockholder approval, a proposal to change the Company's corporate name to
"Sunterra Corporation." The name change proposal will be presented for
stockholder approval at the Company's May 15, 1998 annual meeting.
Senior Credit Facility. The Company's $100 million Senior Bank Credit
facility (the "Senior Credit Facility") was entered into on February 18, 1998.
The Senior Credit Facility has variable borrowing based on the percentage of the
Company's mortgage receivables pledged under such facility and the amount of
funds advanced thereunder. The interest rate under the Senior Credit Facility
will vary between LIBOR plus 7/8% and LIBOR plus 1 3/8%, depending on the
amount advanced against mortgage receivables. The Senior Credit Facility has a
three-year term and contains customary covenant representations and warranties
and conditions to borrow. As of March 20, 1998, approximately $87 million was
outstanding under the Senior Credit Facility. The Company is currently
negotiating with its bank syndicate to increase the amount available under the
Senior Credit Facility.
Acquisition of MMG Holding Corp. and Affiliated Companies. On February 3,
1998, the Company acquired 100% of the capital stock of MMG Holding Corp., MMG
Development Corp. and certain affiliated companies ("MMG") for approximately
$26.5 million, comprised of $18.5 million in cash and the assumption of
approximately $8.0 million of indebtedness (the "MMG Acquisition"). The acquired
assets include MMG's approximately $6.6 million mortgages receivable portfolio.
MMG is an Orlando, Florida based developer, operator and manager of vacation
ownership resorts, with sales or management operations at six resorts in the
southeastern United States. In addition, the Company assumed MMG's commitment to
purchase an additional resort in Gatlinburg, Tennessee, which the Company
purchased on February 18, 1998 and which the Company plans to convert to
vacation ownership.
Acquisition of Westin Carambola Beach Resort. On January 26, 1998, the
Company acquired the Westin Carambola Beach Resort (the "Carambola Beach
Resort") on the island of St. Croix, United States Virgin Islands for a purchase
price of approximately $13.0 million. The Carambola Beach Resort contains 156
one-bedroom suites and one two-bedroom suite located in 27 separate two-story
bungalows. The Company plans to begin vacation ownership sales and commence the
first phase of renovations at the Carambola Beach Resort during the second
quarter of 1998.
Development Agreement with Westin Hotels & Resorts. On January 19, 1998,
the Company and Westin modified their existing joint development agreement to
make their relationship non-exclusive. Under their modified relationship, the
Company and Westin each will be free to independently pursue all vacation
ownership development opportunities. Under the parties' prior exclusive
agreement, the Company and Westin each were restricted from developing four and
five star vacation ownership resorts with third parties. The Company and Westin,
however, will continue to jointly own and operate the Westin Vacation Club St.
John, located in the U.S. Virgin Islands. As part of the modification, the
Company's and Westin's representatives no longer serve on the other's board of
directors.
Additional Acquisitions and Developments. In addition to the MMG
Acquisition and the acquisition of the Carambola Beach Resort, on December 31,
1997, the Company acquired the 46 unit Coral Reef Resort in
3
<PAGE> 4
Miami, Florida, and, during the first quarter of 1998, acquired the 105 unit
Homewood Suites, located in Santa Fe, New Mexico, the 58 unit Club Mougins
Resort, located near Cannes, France and 10 units at the
4
<PAGE> 5
Sunset View Resort, located in Tenerife, Canary Islands, in individual
transactions with an aggregate purchase price of approximately $25.7 million.
The Company intends to begin vacation ownership sales at each of these
newly-acquired resorts during the second quarter of 1998. When added to the
Company's 70 resort locations at December 31, 1997, as well as the Carambola
Beach Resort and the seven resort locations acquired in the MMG Acquisition,
these acquisitions give the Company 81 current resort locations.
In addition, in March 1998, the Company received final planning, zoning and
development approval for the planned development of the 158 unit Westin Vacation
Club in Rancho Mirage, California, the Company's second joint venture with
Westin. In March 1998, the Company also received final planning, zoning and
development approval for the 58 unit Sunterra Harbor Lights Resort in San Diego,
California. The Company expects to complete the initial phase of development of
each of the Rancho Mirage and San Diego resorts and begin vacation ownership
sales at the resorts during 1999.
BUSINESS STRATEGY
The Company's objective is to capitalize on its position as the world's
largest vacation ownership company, as measured by resort locations, and its
base of approximately 200,000 owner families by continuing to (i) expand sales
at its resort locations, (ii) strategically acquire and develop resort inventory
and acquire operating companies and other vacation ownership-related assets,
(iii) improve operating margins by reducing operating costs through efficiencies
gained by operating as a large multi-resort system and (iv) develop and
introduce new vacation ownership products including its planned "Club Sunterra"
worldwide points-based vacation exchange system.
Signature has expanded to its current 81 resort locations from nine at the
time of its August 1996 initial public offering through the successful
implementation of its growth and operations strategy. The Company believes it
has achieved sufficient size to enable it to capitalize on the strategic
advantages of operating and purchasing leverage and the ability to provide
choice and flexibility to its customers. The key elements of the Company's
growth strategy are described below:
Expand Sales. The Company intends to expand sales of vacation ownership
interests at its existing resorts by adding additional inventory through the
construction of new development units and through broader marketing efforts. As
of December 31, 1997, the Company had available inventory of 29,168 Vacation
Intervals and 599,554 Vacation Points. The Company believes it is well
positioned to continue to expand its existing supply of inventory.
Acquisition and Development. Signature has achieved its leading position in
the industry by identifying and acquiring resorts in desirable locations at
prices which the Company believes will allow it to achieve excellent returns.
The Company's acquisition and development of new resort locations allows it to
add new vacation ownership inventory and increase the number of owner families
within the Company's resort system. The Company targets operating companies,
resort properties and other vacation ownership assets for potential acquisition
and development opportunities to replenish vacation ownership sales inventory
while entering new markets and creating a larger resort and customer base from
which to develop and market its products.
The Company evaluates each acquisition candidate based on certain criteria.
Each potential transaction is evaluated based on the strategic location of the
resort properties and consumer demand for vacation ownership inventory, in each
case taking into consideration the Company's existing locations and operations.
The Company analyzes the potential economic impact of each transaction to
maximize its return on investment, as well as potential strategic synergies.
Management believes that its proven acquisition and development record and
public company status give the Company a competitive advantage in acquiring
assets, businesses and operations in the fragmented vacation ownership industry.
Improve Operating Margins. As the Company continues to expand the number of
its resort locations as well as its owner family base, management believes that
it will be able to realize improved operating margins through the realization of
increased efficiencies, reduced on-site administrative requirements and reduced
operating costs through its multi-resort management system. In addition, the
Company believes that
4
<PAGE> 6
additional acquisitions will allow it to experience increased margins by
leveraging operating and corporate overhead costs over a larger revenue base.
Signature's base of approximately 200,000 owner families also provides an
established market to which to sell additional vacation and leisure products
which the Company believes will reduce marketing and advertising expenses as a
percentage of sales. Because existing owners of vacation ownership interests
are, in effect, a pre-screened pool of potential customers, repeat sales and
customer referrals increase sales while marketing expenses associated with these
sales are significantly reduced. As the Company's owner family base continues to
expand and these type of sales represent a larger percentage of overall sales,
the Company believes operating margins will continue to improve.
Develop New Vacation Ownership Products. The Company believes its growing
resort portfolio and base of approximately 200,000 owner families will enable it
to offer a wider variety of vacation ownership products. The Company's planned
Club Sunterra worldwide points-based vacation exchange system is one such
product that will allow owners to create vacations custom tailored to their
individual needs. Member families will be able to purchase an annual allotment
of "points" to use as a currency to reserve the specific resort location,
season, unit type and length of stay they desire from among Club Sunterra's
resort locations throughout the world. This type of points-based system will
provide the consumer more flexibility in their vacation plans compared to
traditional one week intervals.
In general, under a points-based vacation exchange system, members purchase
an annual allotment of points which can be redeemed for occupancy rights at the
club's participating resorts. Compared to other vacation ownership arrangements,
the points-based system provides members significant flexibility in planning
vacations as the number of points that are required for a stay at any one resort
varies depending upon a variety of factors, including the resort location, the
size of the unit, the vacation season and the length of stay. Under this system,
members can select vacations according to their schedules, space needs and
available points. Subject to certain restrictions, members are typically allowed
to carry over for one year any unused points and to "borrow" points from the
forthcoming year. In addition, members are required to pay annual fees for
certain maintenance and management costs associated with the operation of the
resorts based on the number of points to which they are entitled.
THE VACATION OWNERSHIP INDUSTRY
The Market. The resort component of the leisure industry primarily is
serviced by two separate alternatives for overnight accommodations: commercial
lodging establishments and vacation ownership resorts. Commercial lodging
consists of hotels and motels in which a room is rented on a nightly, weekly or
monthly basis for the duration of the visit and is supplemented by rentals of
privately-owned condominium units or homes. For many vacationers, particularly
those with families, a lengthy stay at a quality commercial lodging
establishment can be very expensive, and the space provided to the guest
relative to the cost (without renting multiple rooms) is not economical for some
vacationers. Also, room rates and availability at such establishments are
subject to change periodically. In addition to providing improved lifestyle
benefits to owners, vacation ownership presents an economical alternative to
commercial lodging for vacationers.
The vacation ownership industry represents one of the fastest growing
segments of the lodging industry. According to ARDA and other industry sources,
during the seventeen year period ending in 1997, worldwide vacation ownership
sales volume increased from $490 million in 1980 to an estimated $6.0 billion in
1997, a compounded annual growth rate of 15.9%.
5
<PAGE> 7
As shown in the following charts, according to ARDA, the worldwide vacation
ownership industry has expanded significantly since 1980 both in vacation
interest sales volume and number of vacation interest owners.
[CHARTS]
Source: ARDA (includes, with respect to 1995, 1996 and 1997, unpublished
estimates provided by ARDA)
ARDA reports and other industry data indicate that during the past decade
the following factors have contributed to the increased acceptance of the
vacation ownership concept among the general public and the substantial growth
of the vacation ownership industry:
- increased consumer awareness of the value and benefits of vacation
ownership, including the cost savings relative to other lodging
alternatives;
- increased flexibility of vacation ownership due to the growth of
international exchange organizations;
- improvement in the quality of accommodations and management of vacation
ownership resorts;
- increased consumer confidence resulting from new consumer protection
regulations and the entrance of brand name national lodging companies to
the industry; and
- increased availability of consumer financing for purchasers of vacation
interests.
The vacation ownership industry traditionally has been highly fragmented
and dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality. The
Company believes that one of the most significant factors contributing to the
current success of the vacation ownership industry is the entry into the market
of some of the world's major lodging, hospitality and entertainment companies.
Such major companies which now operate or are developing Vacation Interval
resorts include Marriott Ownership Resorts ("Marriott"), The Walt Disney Company
("Disney"), Hilton Hotels Corporation ("Hilton"), Hyatt Corporation ("Hyatt"),
Four Seasons Hotels & Resorts ("Four Seasons"), Inter-Continental Hotels and
Resorts ("Inter-Continental"), Promus and Westin. Unlike the Company, however,
the vacation ownership operations of each of Marriott, Disney, Hilton, Hyatt,
Four Seasons, Inter-Continental, Westin and Promus comprise only a small portion
of such companies' overall operations.
The Company believes that national lodging and hospitality companies are
attracted to the vacation ownership concept because of the industry's relatively
rapid recent growth rate and relatively high profit margins. In addition, such
companies recognize that Vacation Intervals provide an attractive alternative to
the traditional hotel-based vacation and allow the hotel companies to leverage
their brands into additional resort markets where demand exists for
accommodations beyond traditional hotels.
The Consumer. According to the most recent information compiled by ARDA,
the three primary reasons cited by consumers for purchasing vacation interests
are (i) the ability to exchange vacation interests for accommodations at other
resorts through exchange networks (cited by 75% of vacation interest
purchasers), (ii) the money savings over traditional resort vacations (cited by
72% of purchasers) and (iii) the quality service and upkeep of the resort at
which they purchased a vacation interest (cited by 80% of
6
<PAGE> 8
purchasers). According to ARDA, vacation interest purchasers have a high rate of
repeat purchases: approximately 41% of all vacation interest owners own more
than one vacation interest representing approximately 65% of the industry
inventory and approximately 51% of all owners who bought their first vacation
interest before 1985 have since purchased a second vacation interest. In
addition, ARDA indicates that customer satisfaction increases with length of
ownership, age, income, multiple location ownership and accessibility to
vacation interest exchange networks.
The Company believes it is well positioned to take advantage of current
demographic trends, primarily because of the variety and quality of its resort
locations and its participation in the RCI and II exchange networks. The Company
expects the vacation ownership industry to continue to grow as the baby-boom
generation continues to enter the 40-55 year age bracket, according to ARDA, the
age group most likely to purchase Vacation Intervals and Vacation Points.
DESCRIPTION OF THE COMPANY'S RESORT LOCATIONS
The Company has 81 resort locations, which include 35 resort locations sold
as Vacation Intervals and 46 resort locations sold in points-based vacation
exchange systems. Of the 35 resort locations sold as Vacation Intervals, 22
resort locations are currently in sales, sales have yet to begin at four resort
locations, and sales at nine resort locations have been substantially completed.
Of the 46 resort locations sold in points-based vacation exchange systems, the
Company owns or has sold, in the aggregate, all of the unit inventory at 25 of
the resort locations and owns a portion of the unit inventory at the other 21
resort locations.
Through its primary resort brands, the Company offers Vacation Intervals in
each of the three principal price segments of the market (value, upscale
(characterized by high quality accommodations and service) and luxury
(characterized by elegant accommodations and personalized service)). In
addition, the Company operates points-based vacation clubs in North America and
Europe.
Sunterra Resorts. The Company's Sunterra Resorts, includes resorts in both
the value and upscale price segments which are not affiliated with any hotel
chain. Vacation Intervals at the Company's Sunterra Resorts generally sell for
$6,000 to $25,000 and are targeted to buyers with annual incomes ranging from
$35,000 to $80,000. The Company believes its Sunterra Resorts offer buyers an
economical alternative to resorts affiliated with brand-name lodging companies
(such as Embassy Vacation Resorts and Westin Vacation Club resorts) and
traditional vacation lodging alternatives.
Embassy Vacation Resorts. The Company's Embassy Vacation Resorts are
positioned in the upscale price segment of the market and are characterized by
high quality accommodations and service. Vacation Intervals at the Company's
four Embassy Vacation Resorts generally sell for $14,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000. Embassy
Vacation Resorts are designed to provide vacation ownership accommodations that
offer the same high quality and value that is represented by the more than 140
Embassy Suites hotels throughout North America. The Company is one of two
licensees and operators of Embassy Vacation Resorts, and is currently evaluating
additional resorts that could be operated as Embassy Vacation Resorts.
Westin Vacation Club Resort. The Company's Westin Vacation Club resort is
positioned in the luxury price segment of the market and is characterized by
elegant accommodations and personalized service. Vacation Intervals at Westin
Vacation Club resort generally sell for $16,000 to $25,000 and are targeted to
buyers with annual incomes ranging from $80,000 to $250,000.
LSI's Grand Vacation Club. As a result of the LSI Acquisition, the Company
acquired LSI's Grand Vacation Club points-based system and as a result of the
Global Acquisition, the Company acquired the Global Group's Global Vacation
Club, which it is integrating into the LSI system. Grand Vacation Club allows
members to purchase an annual allotment of points that can be redeemed for
occupancy rights at Grand Vacation Club's European resorts and at other
participating resorts. The Company markets the Grand Vacation Club in the United
Kingdom, Spain, France and Austria. Points in the Grand Vacation Club can
typically be purchased for approximately $220 a point. A typical one week stay
at a Grand Vacation Club
7
<PAGE> 9
resort requires approximately 46 points. Each Grand Vacation Club member
receives a new allotment of points each year throughout the term of its
membership in the club.
VI's Vacation Time Share Program. As a result of the VI Acquisition, the
Company acquired VI's Vacation Time Share Program (the "VTS Program") which it
markets to buyers in the United States, Canada and Mexico. The VTS Program is a
points-based system much like LSI's Grand Vacation Club in that it allows
members to purchase points that are redeemed for occupancy rights at
participating VTS Program resorts. Points in the VTS Program typically can be
purchased for approximately $119 a point. A typical one week stay at a VI resort
requires approximately 91 points. Each VTS Program member receives a new
allotment of points each year throughout the term of its membership in the
program.
8
<PAGE> 10
The following tables set forth certain information, as of December 31,
1997, regarding each of the Company's 70 resort locations on such date,
including location, date acquired by the Company, the number of existing and
total potential units at the resort and, where applicable, the number of
Vacation Intervals or Vacation Points currently available for sale and occupancy
and additional expansion potential. Of the resorts set forth below, the Embassy
Vacation Resorts Poipu Point and Kaanapali Beach, the Sunterra Resorts NorthBay
at Lake Arrowhead, the Westin Vacation Club St. John, five Grand Vacation Club
Resorts and 16 Vacation Internationale Resorts are partially owned by the
Company. The exact number of units Vacation Intervals and Vacation Points
ultimately achieved may differ from the following estimates based on future land
planning and site layout considerations, as well as other factors described
under "Business and Properties."
<TABLE>
<CAPTION>
UNITS AT RESORT
---------------------------------
DATE POTENTIAL
RESORT LOCATION ACQUIRED CURRENT(a) EXPANSION(b) TOTAL
- ------------------------------ ---------------------------- -------------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
SUNTERRA RESORTS
Sunterra Resorts Cypress
Pointe....................... Lake Buena Vista, Florida November 1992 224 276(e) 500
Sunterra Resorts The
Plantation at Fall Creek..... Branson, Missouri July 1994 130 286(f) 416
Sunterra Resorts Royal
Dunes........................ Hilton Head, S. Carolina April 1994 40 15(g) 55
Sunterra Resorts San Luis
Bay.......................... Avila Beach, California June 1995 98 32(h) 130
Sunterra Resorts Royal Palm
Beach........................ St. Maarten, Netherlands July 1995 140 --(i) 140
Antilles
Sunterra Resorts Flamingo
Beach........................ St. Maarten, Netherlands July 1995 172 85(j) 257
Antilles
Sunterra Resorts Scottsdale
Villa Mirage................. Scottsdale, Arizona February 1997 64 104(k) 168
Sunterra Resorts The Ridge on
Sedona Golf.................. Sedona, Arizona February 1997 12 106(l) 118
Sunterra Resorts Sedona
Springs...................... Sedona, Arizona February 1997 40 -- 40
Sunterra Resorts Sedona
Summit....................... Sedona, Arizona February 1997 60 -- 60
Sunterra Resorts Villas at
Poco Diablo.................. Sedona, Arizona February 1997 33 -- 33
Sunterra Resorts Villas of
Sedona....................... Sedona, Arizona February 1997 40 -- 40
Sunterra Resorts NorthBay at
Lake Arrowhead(m)............ Lake Arrowhead, California February 1997 13 -- 13
Sunterra Resorts Tahoe Beach
& Ski........................ South Lake Tahoe, California February 1997 140 -- 140
Sunterra Resorts Villas on
the Lake..................... Montgomery, Texas February 1997 37 64(n) 101
Sunterra Resorts Powhatan
Plantation................... Williamsburg, Virginia May 1997 419 81(o) 500
Sunterra Resorts Greensprings
Plantation................... Williamsburg, Virginia May 1997 76 424(p) 500
Sunterra Resorts The Savoy on
South Beach.................. Miami Beach, Florida August 1997 40 28(q) 68
Sunterra Resorts Bent Creek
Golf Village................. Gatlinburg, Tennessee September 1997 -- 217(r) 217
Sunterra Resorts Coral
Reef......................... Miami Beach, Florida December 1997 -- 46(s) 46
TOTAL................................................................ ----- ----- -----
OTHER SUNTERRA AFFILIATED 1,778 1,764 3,542
RESORTS
Tahoe Seasons(t)............. South Lake Tahoe, California February 1997 21 -- 21
Other(u)..................... -- -- --
----- ----- -----
TOTAL................................................................ 21 -- 21
EMBASSY VACATION RESORTS
Embassy Vacation Resort Poipu
Point(v)..................... Kauai, Hawaii November 1994 219(w) -- 219
Embassy Vacation Resort Grand
Beach........................ Orlando, Florida January 1995 126 248(x) 374
Embassy Vacation Resort Lake
Tahoe........................ South Lake Tahoe, California May 1996 102 108(y) 210
Embassy Vacation Resort
Kaanapali Beach(z)........... Maui, Hawaii November 1997 -- 157(z) 157
TOTAL................................................................ ----- ----- -----
WESTIN VACATION CLUB 447 513 960
Westin Vacation Club St.
John(aa)..................... St. John, U.S. Virgin May 1997 48 48 96(bb)
Islands
----- ----- -----
TOTAL................................................................ 48 48 96
----- ----- -----
TOTAL VACATION UNITS AND VACATION INTERVALS................................ 2,294 2,325 4,619
<CAPTION>
VACATION INTERVAL
INVENTORY AT RESORT
-------------------------------------
CURRENT POTENTIAL
RESORT INVENTORY(C) EXPANSION(D) TOTAL
- ------------------------------ ------------ ------------ -------
<S> <C> <C> <C>
SUNTERRA RESORTS
Sunterra Resorts Cypress
Pointe....................... 779 14,076(e) 14,855
Sunterra Resorts The
Plantation at Fall Creek..... 1,116 14,586(f) 15,702
Sunterra Resorts Royal
Dunes........................ 165 765(g) 930
Sunterra Resorts San Luis
Bay.......................... 1,443 1,632(h) 3,075
Sunterra Resorts Royal Palm
Beach........................ 842 -- 842
Sunterra Resorts Flamingo
Beach........................ 1,337 4,335(j) 5,672
Sunterra Resorts Scottsdale
Villa Mirage................. 446 5,304(k) 5,750
Sunterra Resorts The Ridge on
Sedona Golf.................. 90 5,406(l) 5,496
Sunterra Resorts Sedona
Springs...................... 61 -- 61
Sunterra Resorts Sedona
Summit....................... 602 -- 602
Sunterra Resorts Villas at
Poco Diablo.................. 71 -- 71
Sunterra Resorts Villas of
Sedona....................... 220 -- 220
Sunterra Resorts NorthBay at
Lake Arrowhead(m)............ 92 -- 92
Sunterra Resorts Tahoe Beach
& Ski........................ 634 -- 634
Sunterra Resorts Villas on
the Lake..................... 1,111 3,264(n) 4,375
Sunterra Resorts Powhatan
Plantation................... 913 4,131(o) 5,044
Sunterra Resorts Greensprings
Plantation................... 819 21,624(p) 22,443
Sunterra Resorts The Savoy on
South Beach.................. 2,040 1,428(q) 3,468
Sunterra Resorts Bent Creek
Golf Village................. -- 11,067(r) 11,067
Sunterra Resorts Coral
Reef......................... -- 2,346(s) 2,346
------ ------ -------
TOTAL.................. 12,781 89,964 102,745
OTHER SUNTERRA AFFILIATED
RESORTS
Tahoe Seasons(t)............. 201 -- 201
Other(u)..................... 62 -- 62
------ ------ -------
TOTAL.................. 263 -- 263
EMBASSY VACATION RESORTS
Embassy Vacation Resort Poipu
Point(v)..................... 8,512 -- 8,512
Embassy Vacation Resort Grand
Beach........................ 1,913 12,648(x) 14,561
Embassy Vacation Resort Lake
Tahoe........................ 3,984 5,508(y) 9,492
Embassy Vacation Resort
Kaanapali Beach(z)........... -- 8,007(z) 8,007
------ ------ -------
TOTAL.................. 14,409 26,163 40,572
WESTIN VACATION CLUB
Westin Vacation Club St.
John(aa)..................... 1,715 2,448 4,163
------ ------ -------
TOTAL.................. 1,715 2,448 4,163
TOTAL VACATION UNITS AND ------ ------ -------
VACATION INTERVALS......... 29,168 118,575 147,743
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
VACATION POINTS
UNITS AT RESORT AT RESORT
----------------------------------- -------------
DATE POTENTIAL CURRENT
RESORT LOCATION ACQUIRED CURRENT(dd) EXPANSION(ee) TOTAL INVENTORY(ff)
- ------------------------------ ---------------------------- -------------- ----------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
GRAND VACATION CLUB RESORTS(cc)
The Alpine Club.............. Schladming, Austria August 1997 68 -- 68
Club del Carmen.............. Lanzarote, Canary Islands August 1997 67 -- 67
Flanesford Priory Country
Estate....................... Herefordshire, England August 1997 16 -- 16
Los Amigos Beach Club........ Costa del Sol, Spain August 1997 140 50 190
Pine Lake Resort............. Lancashire, England August 1997 100 -- 100
Royal Oasis Club at Benal
Beach........................ Costa del Sol, Spain August 1997 108 -- 108
Royal Oasis Club at La
Quinta....................... Costa del Sol, Spain August 1997 68 -- 68
White Sands Beach Club....... Menorca, Balearic Islands August 1997 48 -- 48
White Sands Country Club..... Menorca, Balearic Islands August 1997 51 -- 51
Woodford Bridge Country
Club......................... North Devon, England August 1997 72 50 122
Wychnor Park Country Club.... Stratfordshire, England August 1997 44 20 64 461,473
Burnside Park Owners Club.... Lancashire, England December 1997 14 -- 14
Kenmore Club................. Perthshire, Scotland December 1997 26 -- 26
Los Claveles................. Tenerife, Canary Islands December 1997 5 -- 5
Le Moulin de Connelles....... Normandy, France December 1997 3 -- 3
Playa Paraiso................ Mallorca, Spain December 1997 3 -- 3
Royal Sunset Beach Club...... Tenerife, Canary Islands December 1997 126 -- 126
Royal Tenerife Country
Club......................... Tenerife, Canary Islands December 1997 77 -- 77
Sahara Sunset Club........... Costa del Sol, Spain December 1997 150 -- 150
Sunset Bay Club.............. Tenerife, Canary Islands December 1997 206 -- 206
Sunset Harbour Club.......... Tenerife, Canary Islands December 1997 124 -- 124
Malibu Village............... Roussilon, France December 1997 3 -- 3
Marina Baie des Anges........ Nice, France December 1997 22 -- 22
----- ----- -----
TOTAL.................. 1,541 120 1,661
VACATION INTERNATIONALE
RESORTS
Clock Tower.................. Whistler, British Columbia November 1997 15 -- 15
Sea Mountain................. Big Island, Hawaii November 1997 28 -- 28
Elkhorn Village.............. Sun Valley, Idaho November 1997 20 -- 20
Embarcadero.................. Newport, Oregon November 1997 41 -- 41
Fairway Villa................ Oahu, Hawaii November 1997 19 -- 19
Hololani..................... Maui, Hawaii November 1997 9 -- 9
Kapaa Shore.................. Kauai, Hawaii November 1997 14 -- 14
Kihei Kai Nani............... Maui, Hawaii November 1997 6 -- 6
Kingsbury.................... Stateline, Nevada November 1997 20 -- 20
Oasis Resort................. Palm Springs, California November 1997 116 -- 116
Marina Inn................... Oceanside, California November 1997 7 -- 7 138,081
Papakea...................... Maui, Hawaii November 1997 25 -- 25
Point Brown Resort........... Ocean Shores, Washington November 1997 24 -- 24
Pono Kai..................... Kauai, Hawaii November 1997 22 -- 22
Royal Kuhio.................. Oahu, Hawaii November 1997 14 -- 14
Sea Village.................. Big Island, Hawaii November 1997 51 -- 51
The Pines.................... Sunriver, Oregon November 1997 68 -- 68
The Village at Steamboat..... Steamboat Springs, Colorado November 1997 26 263 289
Torres Mazatlan.............. Mazatlan, Mexico November 1997 126 -- 126
Vallarta Torre............... Puerto Vallarta, Mexico November 1997 64 -- 64
Valley Isle.................. Maui, Hawaii November 1997 21 -- 21
----- ----- -----
TOTAL.................. 736 263 999
<CAPTION>
VACATION POINTS
AT RESORT
-----------------------
POTENTIAL
RESORT EXPANSION(GG) TOTAL
- ------------------------------ ------------- -------
<S> <C> <C>
GRAND VACATION CLUB
RESORTS(CC)
The Alpine Club..............
Club del Carmen..............
Flanesford Priory Country
Estate.......................
Los Amigos Beach Club........
Pine Lake Resort.............
Royal Oasis Club at Benal
Beach........................
Royal Oasis Club at La
Quinta.......................
White Sands Beach Club.......
White Sands Country Club.....
Woodford Bridge Country
Club.........................
Wychnor Park Country Club.... 276,000 737,473
Burnside Park Owners Club....
Kenmore Club.................
Los Claveles.................
Le Moulin de Connelles.......
Playa Paraiso................
Royal Sunset Beach Club......
Royal Tenerife Country
Club.........................
Sahara Sunset Club...........
Sunset Bay Club..............
Sunset Harbour Club..........
Malibu Village...............
Marina Baie des Anges........
TOTAL..................
VACATION INTERNATIONALE
RESORTS
Clock Tower..................
Sea Mountain.................
Elkhorn Village..............
Embarcadero..................
Fairway Villa................
Hololani.....................
Kapaa Shore..................
Kihei Kai Nani...............
Kingsbury....................
Oasis Resort.................
Marina Inn................... 1,192,626 1,330,707
Papakea......................
Point Brown Resort...........
Pono Kai.....................
Royal Kuhio..................
Sea Village..................
The Pines....................
The Village at Steamboat.....
Torres Mazatlan..............
Vallarta Torre...............
Valley Isle..................
TOTAL..................
</TABLE>
10
<PAGE> 12
- ---------------
(a) Current units at each resort represents only those units that have received
their certificate of occupancy as of December 31, 1997. The Company
generally is able to sell 51 Vacation Intervals with respect to each unit
at its resorts (the 52nd week is generally utilized for maintenance).
(b) Potential expansion units at each resort includes, as of December 31, 1997,
(i) units then under construction that have not yet received their
certificate of occupancy and (ii) units planned to be developed on land
then owned by the Company or under option to be acquired which have not yet
received their certificate of occupancy and which were not then under
construction.
(c) Current inventory of Vacation Intervals at each resort represents only
those unsold Vacation Intervals that have received their certificate of
occupancy as of December 31, 1997.
(d) Potential expansion of Vacation Intervals at each resort includes, as of
December 31, 1997, (i) Vacation Intervals then under development that have
not yet received their certificate of occupancy and (ii) Vacation Interval
development potential on land then owned by the Company or under option to
be acquired which have not yet received their certificate of occupancy and
which were not then under construction.
(e) Includes an estimated 276 units which the Company plans to construct on
land which it owns at the Sunterra Resorts Cypress Pointe and for which all
necessary governmental approvals and permits (except building permits) have
been obtained. Should the Company elect to construct a higher percentage of
three bedroom units, rather than its current planned mix of one, two and
three bedroom units, the actual number of planned units will be lower than
is indicated above.
(f) Includes an estimated 270 units which the Company plans to construct on
land that it acquired in September 1997. An additional 16 units were
completed during the first quarter 1998.
(g) Includes the construction of 15 units that were completed in the first
quarter 1998.
(h) Includes an estimated 32 units currently under construction which should be
completed during the third quarter of 1998. The Company is considering the
acquisition of additional land near the Sunterra Resorts San Luis Bay for
the addition of an estimated 100 units, but has yet to enter into an
agreement with respect to such land or to obtain any of the necessary
governmental approvals and permits for such proposed expansion.
(i) The Company has not committed to any expansion of the Sunterra Resorts
Royal Palm Beach. The Company is considering the acquisition of additional
land adjacent to the Sunterra Resorts Royal Palm Beach for the addition of
an estimated 60 units (and a corresponding number of Vacation Intervals)
but has yet to enter into an agreement with respect to such additional land
or to obtain the necessary governmental approvals and permits for such
expansion.
(j) In May 1996, the Company acquired a five-acre parcel of land adjacent to
the Sunterra Resorts Flamingo Beach on which, as of December 31, 1997, the
Company planned to develop approximately 85 units (and create a
corresponding number of Vacation Intervals). During the first quarter of
1998, the Company increased the number of units to be developed on such
land from 85 to 127. The Company plans to begin construction on 10 units
during the second quarter 1998.
(k) Includes 64 units currently under construction and scheduled to be
completed during the second quarter of 1998. The Company plans to commence
construction on an additional 40 units during 1999. All necessary
discretionary approvals and permits have been received for all units to be
constructed at the resort.
(l) Construction began in December 1996 on Sunterra Resorts The Ridge on Sedona
Golf, which, upon completion, will consist of 118 units. The first 12 units
received certificates of occupancy during the fourth quarter 1997.
Currently, 22 of the additional 106 units are under construction and
scheduled to be completed during the third quarter of 1998. Governmental
approvals and permits have not been sought or received for the remaining
planned 84 units. Vacation Interval sales began in May 1997.
(m) The Company owns or has the power to vote 80% of the partnership interests
of Trion Capital Corporation. Trion is the General Partner of Arrowhead
Capital Partners, L.P., which is the developer of Sunterra Resorts NorthBay
at Lake Arrowhead. The General Partner is entitled to receive 1% of the
profits of Arrowhead Capital Partners, L.P., but under certain
circumstances, is entitled to receive substantially higher profits. AVCOM
has an exclusive sales and marketing contract for sales at Sunterra Resorts
NorthBay at Lake Arrowhead, and is the property manager of the resort.
Although Arrowhead Capital Partners, L.P. owns undeveloped land and
buildings under construction at the Sunterra Resorts NorthBay at Lake
Arrowhead, no definitive expansion plans have been made.
(n) Sunterra Resorts Villas on the Lake consists of 37 existing units purchased
in February 1996 currently in the final phase of renovation. Land included
in the initial purchase is able to accommodate construction of an
additional 64 units in Phase II. The Phase II construction is scheduled to
begin during the second quarter of 1998 and all necessary discretionary
government approvals and permits have been received for the additional 64
units.
(o) Includes 14 units that were completed during the fourth quarter of 1997 but
did not receive certificates of occupancy until the first quarter of 1998.
The Company's development schedule for the remaining 67 units will be
determined based on market demand and other factors.
(p) Includes 30 units that were completed and received certificates of
occupancy during the first quarter 1998. The Company's development schedule
for the remaining 394 units will be determined based on market demand and
other factors.
(q) Construction of an additional 28 units is scheduled to begin during the
second quarter of 1998.
(r) The Company acquired the Sunterra Resorts Bent Creek Golf Village and
surrounding property in September 1997. The Company plans to convert the
property into 108 units and develop an additional 109 units. Construction
of four units is in process and sales are expected to begin in the second
quarter of 1998.
(s) In December 1997, the Company purchased a 46 unit apartment complex which
it plans to convert to vacation ownership. The property is already
registered and renovations are scheduled to begin during the second quarter
of 1998.
(t) Prior to being acquired by the Company, AVCOM purchased a portfolio of
1,057 defaulted consumer notes at the Tahoe Seasons Resort in March 1996
which are secured by Vacation Intervals. Of the notes purchased, 414 notes
have been converted to inventory of which 160 Vacation Intervals have been
sold by the Company and 41 of the notes have been reaffirmed by the
original buyers. The Company intends to continue foreclosing on the
remaining notes and acquiring clear title to the applicable Vacation
Intervals.
(u) Includes weekly intervals owned by the Company at three additional
properties that are not owned or managed by the Company.
(v) The Company acquired a 30.43% partnership interest in the Embassy Vacation
Resort Poipu Point in November 1994. The Company owns, directly or
indirectly, 100% of the partnership interests in one of the two co-managing
general partners of Poipu Resort Partners L.P., a Hawaii limited
partnership ("Poipu Partnership"), the partnership which owns the Embassy
Vacation Resort Poipu Point. The managing general partner owned by the
Company holds a 0.5% partnership interest for purposes of distributions,
profits and losses. The Company also holds a 29.93% limited partnership
interest in the Poipu Partnership for purposes of distributions, profits
and losses, for a total partnership interest of 30.43%. In addition,
following repayment of any outstanding partner loans, the Company is
entitled to receive a 10% per annum return on the Founders' and certain
former limited partners' initial capital investment of approximately $4.6
million in the Poipu Partnership.
11
<PAGE> 13
After payment of such preferred return and the return of approximately
$4.6 million of capital to the Company on a pari passu basis with the
other general partner in the partnership, the Company is entitled to
receive approximately 50% of the net profits of the Poipu Partnership. In
the event certain internal rates of return specified in the Poipu
Partnership agreement are achieved, the Company is entitled to receive
approximately 55% of the net profits of the Poipu Partnership.
(w) Includes 179 units that the Company currently rents on a nightly basis,
pending their sale as Vacation Intervals.
(x) The Company is currently constructing 30 units which are expected to be
completed during the third quarter of 1998. The Company has received all
necessary governmental approvals and permits to construct an additional
218 units on land which it owns at the Embassy Vacation Resort Grand Beach
(excluding building permits which have not yet been applied for by the
Company). The Company plans to apply for and obtain these building permits
on a building-by-building basis.
(y) The Company has received all necessary governmental approvals and permits
(excluding building permits which the Company intends to apply for and
obtain on a phase-by-phase basis) to construct an additional estimated 108
units on land that it owns at the Embassy Vacation Resort Lake Tahoe. The
Company, subject to market demand, currently plans to commence
construction of an additional 40 of such units in the second quarter of
each of 1998 and 1999 and the remaining 28 units commencing in May 2000.
(z) In November 1997, a partnership of which the Company is a managing general
partner acquired the Embassy Suites Resort at Kaanapali Beach, Maui,
Hawaii. A subsidiary of the Company owns a 24% partnership interest in the
acquiring entity. The Company intends to convert 157 of the 413 suites at
the resort into vacation ownership units. Sales are expected to commence
during the second quarter of 1998.
(aa) The Company owns 50% of the entity which has acquired the unsold Vacation
Intervals at this resort. The acquisition closed in May of 1997 and sales
of Vacation Intervals commenced in the fourth quarter of 1997.
(bb) Includes 48 units which are completed and in sales. Also includes an
additional 48 units which will require the installation of utilities,
furniture, fixtures and equipment, and interior finishes before occupancy.
The Company currently anticipates beginning the renovation of such 48
additional units during the second quarter of 1998 and completing all
renovations by year-end 1998. The Company also owns adjacent land at the
St. John resort which may accommodate the development of additional units
but with respect to which no permits or approvals have been sought or
obtained. The Company has not yet determined the number of potential
additional units which may be constructed on such adjacent land or the
timing of such potential development.
(cc) Includes resorts acquired as a result of the Global Acquisition.
(dd) Represents the aggregate number of units and Vacation Intervals (as
opposed to Vacation Points) within the Company's Grand Vacation Club
system and the VTS Program. Certain of these resorts are not wholly-owned
by the Company and current units at these resorts represent only those
units owned by the Company.
(ee) Potential expansion units at each resort includes, as of December 31,
1997, (i) units currently under construction that have not yet received
their certificate of occupancy (or other equivalent certificate) and (ii)
units planned to be developed on land currently owned by Grand Vacation
Club or VI or under option to be acquired which have not yet received
their certificate of occupancy (or other equivalent certificate) and which
are not currently under construction.
(ff) Current inventory of Vacation Points represents, as of December 31, 1997,
the number of unsold Vacation Points in the Grand Vacation Club system and
VTS Program, as well as the number of points allocable to current unit
inventory owned by LSI or VI but not yet contributed to the Grand Vacation
Club system or VTS Program, respectively.
(gg) Potential expansion of Vacation Points represents, as of December 31,
1997, the estimated number of Vacation Points assignable to potential
expansion units within the Grand Vacation Club system and the VTS Program.
12
<PAGE> 14
The following table sets forth certain information, as of December 31,
1997, with respect to the Company's resorts owned on such date. All of the units
are fully-furnished, including telephones, televisions, VCRs and stereos, and
all but the studio units feature full kitchens. Most of the units contain a
washer and dryer, microwave and private outdoor barbecue grill. Many units also
include a private deck.
<TABLE>
<CAPTION>
RESORT AMENITIES
TYPES OF UNITS OFFERED --------------------------------------------
-------------------------- SWIMMING WHIRLPOOL/ RESTAURANT/
RESORTS LOCATION S 1BR 2BR 3BR 4BR TENNIS POOL JACUZZI LOUNGE
------- -------- --- --- --- --- --- ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUNTERRA RESORTS:
Sunterra Resorts Cypress Lake Buena Vista, Florida X X X X X X X
Pointe
Sunterra Resorts The Branson, Missouri X X X X X X X
Plantation at Fall
Creek
Sunterra Resorts Royal Hilton Head, South X X X
Dunes Carolina
Sunterra Resorts San Luis Avila Beach, California X X X X X
Bay
Sunterra Resorts Royal St. Maarten, Netherlands X X X X X
Palm Beach Antilles
Sunterra Resorts Flamingo St. Maarten, Netherlands X X X X X
Beach Antilles
Sunterra Resorts Scottsdale, Arizona X X X X X X
Scottsdale Villa Mirage
Sunterra Resorts The Sedona, Arizona X X X X X X X
Ridge on Sedona Golf
Sunterra Resorts Sedona Sedona, Arizona X X X X X
Springs
Sunterra Resorts Sedona Sedona, Arizona X X X X X
Summit
Sunterra Resorts Villas Sedona, Arizona X X X X
at Poco Diablo
Sunterra Resorts Villas Sedona, Arizona X X X X X
of Sedona
Sunterra Resorts NorthBay Lake Arrowhead, X X X X X
at Lake Arrowhead California
Sunterra Resorts Tahoe South Lake Tahoe, X X X X
Beach and Ski California
Sunterra Resorts Villas Lake Conroe, Texas X X X
on the Lake
Sunterra Resorts Powhatan Williamsburg, Virginia X X X X X X X
Plantation
Sunterra Resorts Williamsburg, Virginia X X X X X
Greensprings Plantation
Sunterra Resorts The Miami Beach, Florida X X X X X
Savoy on South Beach
Sunterra Resorts Bent Gatlinburg, Tennessee X X X X
Creek Golf Village
Sunterra Resorts Coral Miami Beach, Florida X X X
Reef
OTHER SUNTERRA AFFILIATED
RESORTS:
Tahoe Seasons South Lake Tahoe, X X X X X X X
California
EMBASSY VACATION RESORTS:
Embassy Vacation Resort Kauai, Hawaii X X X X X
Poipu Point
Embassy Vacation Resort Orlando, Florida X X X
Grand Beach
Embassy Vacation Resort South Lake Tahoe, X X X X X
Lake Tahoe California
Embassy Vacation Resort Maui, Hawaii, X X X X X
Kaanapali Beach
WESTIN VACATION CLUB:
Westin Vacation Club St. St. John, U.S. Virgin X X X X X X X X
John Islands
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
RESORT AMENITIES
TYPES OF UNITS OFFERED --------------------------------------------
-------------------------- SWIMMING WHIRLPOOL/ RESTAURANT/
RESORTS LOCATION S 1BR 2BR 3BR 4BR TENNIS POOL JACUZZI LOUNGE
------- -------- --- --- --- --- --- ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GRAND VACATION CLUB RESORTS:
The Alpine Club Schladming, Austria X X X X X X X
Burnside Park Owners Club Lancashire, England
Club del Carmen Lanzarote, Canary Islands X X X X X
Flanesford Priory Country Herefordshire, England X X X X
Estate
Kenmore Club Loch Tay, Scotland X X X X X X X
Los Claveles Tenerife, Canary Islands X X X X X
Le Moulin de Connelles Normandy, France X X X X X X
Los Amigos Beach Club Costa del Sol, Spain X X X X X X X X
Malibu Village Roussilon, France
Marina Baie des Anges Nice, France X X X X X X
Pine Lake Resort Lancashire, England X X X X X X
Playa Paraiso Mallorca, Spain X
Royal Oasis Club at Benal Costa del Sol, Spain X X X X X
Beach
Royal Oasis Club at La Costa del Sol, Spain X X X X X
Quinta
Royal Sunset Beach Club Tenerife, Canary Islands X X X X X X
Royal Tenerife Country Tenerife, Canary Islands X X X X X
Club
Sahara Sunset Club Costa del Sol, Spain X X X X X X
Sunset Bay Club Tenerife, Canary Islands X X X X X X
Sunset Harbor Club Tenerife, Canary Islands X X X X X
White Sands Beach Club Menorca, Spain X X X X X X
White Sands Country Club Menorca, Spain X X X X
Woodford Bridge Country North Devon, England X X X X X X
Club
Wychnor Park Country Club Stratfordshire, England X X X X X X X
VACATION INTERNATIONALE:
Clock Tower Village Whistler, British X X
Columbia
Sea Mountain Big Island, Hawaii X X X X X X
Elkhorn Village Sun Valley, Idaho X X X X X X X
Embarcadero Newport, Oregon X X X X X X
Fairway Villa Oahu, Hawaii X X X X
Hololani Maui, Hawaii X X
Kapaa Shore Kauai, Hawaii X X X X X
Kihei Kai Nani Maui, Hawaii X X
Kingsbury of Tahoe Stateline, Nevada X X X X
The Oasis Resort Palm Springs, California X X X X X X
Marina Inn Oceanside, California X X X X
Papakea Maui, Hawaii X X X X X
Point Brown Resort Ocean Shores, Washington X X X X X
Pono Kai Kauai, Hawaii X X X X X
Royal Kuhio Oahu, Hawaii X X
Sea Village Big Island, Hawaii X X X X X
The Pines Sunriver, Oregon X X X X X X
The Village at Steamboat Steamboat Springs, X X X X X X
Colorado
Torres Mazatlan Mazatlan, Mexico X X X X X X X
Vallarte Torre Puerto Vallarta, Mexico X X X X X X
Valley Isle Maui, Hawaii X X X X X
</TABLE>
14
<PAGE> 16
CUSTOMER FINANCING
A typical Vacation Interval entitles the buyer to a one-week per year stay
at one of the Company's resorts and ranges in price from approximately $6,000 to
$8,000 for a studio residence to approximately $12,000 to $25,000 for a three
bedroom residence. The Company offers consumer financing to the purchasers of
vacation interests at the Company's resort locations who make a down payment
generally equal to at least 10% of the purchase price. This financing generally
bears interest at fixed rates and is collateralized by a first mortgage on the
underlying vacation interest.
The Company has entered into agreements with lenders for the Company's
financing of customer receivables. At December 31, 1997, the Company had
approximately $199 million of additional borrowing capacity available.
At December 31, 1997, the Company's mortgage portfolio included
approximately 37,000 promissory notes totaling approximately $355 million, with
a stated maturity of typically seven to ten years and a weighted average
interest rate of 14.4% per annum. As of December 31, 1997, approximately 4.6% of
the Company's consumer loans were considered by the Company to be delinquent
(scheduled payment past due by 60 or more days). The Company had completed or
commenced foreclosure or deed-in-lieu of foreclosure (which is typically
commenced once a scheduled payment is more than 120 days past due) on an
additional approximately 2.2% of its consumer loans. As of December 31, 1997,
the Company's allowance for doubtful accounts as a percentage of gross mortgages
receivable was 6.5%, which management believes is an adequate reserve for
expected loan losses.
The Company has historically derived income from its financing activities.
Because the Company's borrowings bear interest at variable rates and the
Company's loans to purchasers of Vacation Intervals bear interest at fixed
rates, the Company bears the risk of increases in interest rates with respect to
the loans it has from its lenders. The Company may engage in interest rate
hedging activities from time to time in order to reduce the risk and impact of
increases in interest rates with respect to such loans, but there can be no
assurance that any such hedging activity will be adequate at any time to fully
protect the Company from any adverse changes in interest rates.
The Company also bears the risk of purchaser default. The Company's
practice has been to continue to accrue interest on its loans to purchasers of
Vacation Intervals until such loans are deemed to be uncollectible (which is
generally 120 days after the date a scheduled payment is due), at which point it
expenses the interest accrued on such loan, commences foreclosure proceedings
and, upon obtaining title, returns the Vacation Interval or Vacation Points to
the Company's inventory for resale. The Company closely monitors its loan
accounts and determines whether to foreclose on a case-by-case basis.
LSI currently contracts with a third-party bank to provide financing to
purchasers of points in its Grand Vacation Club. LSI is paid an upfront
commission of approximately 14% (which includes a 1% commission contingent on
the Company meeting certain volume thresholds) of the principal amount of
eligible consumer loans on a non-recourse basis.
SALES AND MARKETING
As the world's largest vacation ownership company, as measured by the
number of resort locations, the Company believes that it has acquired the skill
and expertise in the development, management and operation of vacation ownership
resorts and in the marketing of Vacation Intervals and Vacation Points. The
Company's primary means of selling Vacation Intervals and Vacation Points is
through on-site sales forces at each of its resorts. A variety of marketing
programs are employed to generate prospects for these sales efforts, which
include targeted mailings, overnight mini-vacation packages, gift certificates,
seminars and various destination-specific local marketing efforts. Additionally,
incentive premiums are offered to guests to encourage resort tours, in the form
of entertainment tickets, hotel stays, gift certificates or free meals. The
Company's sales process is tailored to each prospective buyer based upon the
marketing program that brought the prospective buyer to the resort for a sales
presentation. Prospective target customers are identified through various means
of profiling, and are intended to include current owners of Vacation Intervals
and Vacation Points. Cross-
15
<PAGE> 17
marketing targets current owners of Vacation Intervals and Vacation Points at
the Company's resort locations, both to sell additional Vacation Intervals and
Vacation Points at the owner's home resort, or to sell a Vacation Interval or
Vacation Points at another of the Company's resort locations. The Company also
sells Vacation Points through 13 off-site sales centers.
ACQUISITION PROCESS
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, real estate brokers, lodging companies or financial institutions with
which the Company has established business relationships. From time to time, the
Company is also contacted by lenders and property owners who are aware of the
Company's development, management, operations and sales expertise with respect
to Vacation Interval and Vacation Point properties.
The Company has expertise in all areas of resort development including, but
not limited to, architecture, construction, finance, management, operations and
sales. With relatively little lead time, the Company is able to analyze
potential acquisition and development opportunities. After completing an
analysis of the prospective market and the general parameters of the property or
the site, the Company generates a conceptual design to determine the extent of
physical construction or renovation that can occur on the site in accordance
with the requirements of the local governing agencies. For most properties, the
predominant factors in determining the physical design of the site include
density of units, maximum construction height, land coverage and parking
requirements. Following the preparation of such a conceptual design, the Company
analyzes other aspects of the development process, such as construction cost and
phasing, to match the projected sales flow in the relevant market. At this stage
of analysis, the Company compares sales, construction cost and phasing, debt and
equity structure, cash flow, financing and overall project cost to the
acquisition cost. The Company's procedures when considering a potential
acquisition are generally set forth below.
Economic and Demographic Analysis. To evaluate the primary economic and
demographic indicators for the resort area, the Company considers the following
factors, among others, in determining the viability of a potential new vacation
ownership resort in a particular location: (i) supply/demand ratio for vacation
ownership resorts in the relevant market, (ii) the market's growth as a vacation
destination, (iii) the ease of converting a hotel or condominium property into a
vacation ownership resort location and the resulting demand for the converted
units, (iv) the availability of additional land at or nearby the property for
future development and expansion, (v) competitive accommodation alternatives in
the market, (vi) uniqueness of location, and (vii) barriers to entry that would
limit competition. The Company examines the competitive environment in which the
proposed resort is located and all existing or to-be-developed resorts. In
addition, information respecting characteristics, amenities and financial
information at competitive resorts is collected and organized. This information
is used to assess the potential to increase revenues at the resort by making
capital improvements.
Pro Forma Operating Budget. The Company develops a comprehensive pro forma
budget for the resort location, utilizing available financial information in
addition to the other information collected from a variety of sources. The
estimated sales of units are examined, including the management fees associated
with such unit. Finally, the potential for overall capital appreciation and
alternate uses of the resort are considered, including the prospects for
obtaining liquidity through sale or refinancing of the resort location.
Environmental and Legal Review. In conjunction with each prospective
acquisition or development, the Company conducts real estate and legal due
diligence on the property. This due diligence includes an environmental
investigation and report by environmental consulting firms. The Company also
obtains a land survey of the property and inspection reports from licensed
engineers or contractors on the physical condition of the resort. In addition,
the Company conducts customary real estate due diligence, including the review
of title documents, operating leases and contracts, zoning, and governmental
permits and licenses and a determination of whether the property is in
compliance with applicable laws.
16
<PAGE> 18
OTHER OPERATIONS
Room Rental Operations. In order to generate additional revenue at certain
of its resorts that have rentable inventory of Vacation Intervals and Vacation
Points, the Company rents units with respect to such unsold or unused Vacation
Intervals and Vacation Points for use as a hotel. The Company offers these
unoccupied units both through direct consumer sales, travel agents and/or
vacation package wholesalers. In addition to providing the Company with
supplemental revenue, the Company believes its room-rental operations provide it
with a good source of lead generation for the sale of Vacation Intervals and
Vacation Points. As part of the management services provided by the Company to
Vacation Interval and Vacation Points owners, the Company receives a fee for
services provided to rent an owner's Vacation Interval in the event the owner is
unable to use or exchange the Vacation Interval. In addition, the Embassy
Vacation Resort Poipu Point was acquired as a traditional resort condominium and
the Sunterra Resorts Carambola Beach and Embassy Vacation Resort Kaanapali Beach
were acquired as traditional hotels, with the intention of converting each such
resort location to a vacation ownership property. Until such time as a unit at
each resort is sold as Vacation Intervals, the Company continues (or will
continue) to rent such unit on a nightly basis. In the future, other acquired
resorts may be operated in this fashion during the start-up of Vacation Interval
sales.
Resort Management. The Company's resorts are (i) generally managed by the
Company pursuant to management agreements with homeowner associations with
respect to each of the Company's Sunterra Resorts, (ii) managed by Promus
pursuant to management agreements with the Company with respect to the Company's
Grand Beach and Lake Tahoe Embassy Vacation Resorts are managed by Westin with
respect to the Westin Vacation Club resort. The Company manages 27 of its
Sunterra Resorts, two of its Embassy Vacation Resorts, 19 of its VI resorts and
17 of its Grand Vacation Club resorts. The Company's Marc Resorts subsidiary
manages units at an additional 22 resorts in Hawaii. The remaining resort
locations are managed by third party management companies. The Company pays
Promus a licensing fee of 2% of Vacation Interval sales at the Embassy Vacation
Resorts.
At each of the Company's managed resort locations, the Company enters into
a management agreement to provide for management and maintenance of the resort.
Pursuant to each such management agreement the Company is typically paid a
monthly management fee equal to 10% of monthly maintenance fees. The management
agreements are typically for a three-year period, renewable annually
automatically unless notice of non-renewal is given by either party. Pursuant to
each management agreement, the Company has sole responsibility and exclusive
authority for all activities necessary for the day-to-day operation of the
managed resort locations, including administrative services, procurement of
inventories and supplies and promotion and publicity. With respect to each
managed resort location, the Company also obtains comprehensive and general
public liability insurance, all-risk property insurance, business interruption
insurance and such other insurance as is customarily obtained for similar
properties. The Company also provides all managerial and other employees
necessary for the managed resort locations, including review of the operation
and maintenance of the resorts, preparation of reports, budgets and projections,
employee training, and the provision of certain in-house legal services. At the
Company's Grand Beach and Lake Tahoe Embassy Vacation Resorts, Promus provides
these services.
LSI manages each resort in its Grand Vacation Club pursuant to contracts
which typically provide for a management fee of 15% of monthly maintenance fees
to be paid to LSI.
VACATION INTERVAL OWNERSHIP
The purchase of a Vacation Interval typically entitles the buyer to use a
fully-furnished vacation residence, generally for a one-week period each year,
in perpetuity. Typically, the buyer acquires an ownership interest in the
vacation residence, which is often held as tenant in common with other buyers of
interests in the property.
The owners of Vacation Intervals manage the property through a non-profit
homeowners' association, which is governed by a board consisting of
representatives of the developer and owners of Vacation Intervals at the resort.
The board hires an agent, delegating many of the rights and responsibilities of
the homeowners'
17
<PAGE> 19
association to a management company, as described above, including grounds
landscaping, security, housekeeping and operating supplies, garbage collection,
utilities, insurance, laundry and repair and maintenance.
Each vacation interest owner is required to pay the homeowners' association
a share of all costs of maintaining the property. These charges can consist of
an annual maintenance fee plus applicable real estate taxes (generally $300 to
$700 per interval) and special assessments, assessed on an as-needed basis. If
the owner does not pay such charges, the owner's use rights may be suspended and
the homeowners' association may foreclose on the owner's Vacation Interval.
POINTS-BASED VACATION OWNERSHIP PROGRAMS
In general, under a points-based system, owners (usually referred to as
members) purchase points which act as an annual currency entitlement for
occupancy rights at any of the club's participating resorts. The Company's Club
Sunterra points-based system will operate on a basis very similar to the
standard vacation interval ownership structure in that members have a home
resort, and have a deeded, fee-simple interest in a particular unit at that home
resort. The advantages of a points-based system relate to the flexibility given
to members with respect to the usage of their points versus the usage of a
traditional interval. In traditional interval ownership, owners can generally
only use their interval for a one week stay in a specific unit size in a
specific resort or exchange through an external exchange organization (i.e. RCI
or II). Under a points-based system, members can select vacations according to
their schedules and space needs, based on their available points. Owners can
"spend" their points as they wish, for example using them all for one extended
stay or dividing them up into multiple shorter stays. Owners may also choose
between larger or smaller units which have different point values. (The number
of points required for a stay varies depending upon a variety of factors,
including the resort location, the size of the unit, the vacation season and the
length of stay.) Additionally, in a points-based system, owners can redeem their
points for a stay in any one of the resorts included in the club without having
to exchange through an external exchange company such as RCI or II. Members of
the proposed Club Sunterra points system will, however, be able to exchange
through RCI or II for vacation stays at resorts outside of their club systems if
they desire.
The Company currently operates two points-based vacation ownership
programs: the Grand Vacation Club (consisting of the Company's 25 European
resorts) and the VTS Program (consisting of 21 resorts in North America). Over
time, the Company intends to continue its expansion of the Grand Vacation Club
system in Europe. It also intends to integrate the VTS Program and the Company's
29 Sunterra Resorts into Club Sunterra. Club Sunterra will operate as an
umbrella points-based vacation exchange program for its European and North
American operations. In addition to attracting new owners, the Company will
market Club Sunterra to its existing base of owner families.
PARTICIPATION IN VACATION INTEREST EXCHANGE NETWORKS
The Company believes that its vacation interests are made more attractive
by the Company's participation in vacation interest exchange networks operated
by RCI and II. In a 1997 study sponsored by ARDA, the exchange opportunity was
cited by purchasers of vacation interests as one of the most significant factors
in determining whether to purchase a vacation interest. Participation in RCI and
II allows the Company's customers to exchange in a particular year their
occupancy right in the unit in which they own a vacation interest for an
occupancy right at the same time or a different time in another participating
resort, based upon availability and the payment of a variable exchange fee.
Members may exchange their vacation interests for occupancy rights in another
participating resort by listing their vacation interests as available with the
exchange organization and by requesting occupancy at another participating
resort, indicating the particular resort or geographic area to which the member
desires to travel, the size of the unit desired and the period during which
occupancy is desired. Both RCI and II assign ratings to each listed vacation
interest, based upon a number of factors, including the location and size of the
unit, the quality of the resort and the period during which the vacation
interest is available, and attempts to satisfy the exchange request by providing
an occupancy right in another vacation interest with a similar rating. If RCI or
II is unable to meet the member's initial request, it suggests alternative
resorts based on availability.
18
<PAGE> 20
Founded in 1974, RCI has grown to be the world's largest vacation interest
exchange organization, which has a total of more than 3,000 participating resort
facilities and over 2.2 million members worldwide. The cost of the annual
membership fee in RCI, which typically is at the option and expense of the owner
of the vacation interest, is $78 per year, plus an exchange fee of $110 and $145
for domestic and international exchanges, respectively. RCI has assigned high
ratings to the vacation interests in the Company's resort locations, and such
vacation interests have in the past been exchanged for vacation interests at
other highly-rated member resorts. Established in 1976, II has more than 1,500
participating resort facilities and over 750,000 members worldwide. The cost of
the annual membership fee in II, which typically is at the option and expense of
the owner of the vacation interest, is $68 per year, plus an exchange fee of $99
and $119 for domestic and international exchanges, respectively. II has assigned
high ratings to the vacation interests in the Company's resort properties, and
such vacation interests have in the past been exchanged for vacation interests
at other highly-rated member resorts.
COMPETITION
Although major lodging and hospitality companies such as Marriott, Disney,
Hilton, Hyatt, Four Seasons and Inter-Continental, as well as Promus and Westin,
have established or declared an intention to establish vacation ownership
operations in the past decade, the industry remains largely unbranded and highly
fragmented, with a vast majority of North America's approximately 2,000 vacation
ownership resorts being owned and operated by smaller, regional companies. Many
of these entities possess significantly greater financial, marketing, personnel
and other resources than those of the Company and may be able to grow at a more
rapid rate than the Company as result.
The Company also competes with companies with non-branded resorts such as
Central Florida Investments, Inc. ("CFI"), Vistana, Inc. ("Vistana"), Fairfield
Communities, Inc. ("Fairfield"), Silverleaf Resorts, Inc. ("Silverleaf"),
Trendwest Resorts, Inc. ("Trendwest") and ILX Incorporated ("ILX"). Under the
terms of a five-year agreement, Promus and Vistana will jointly acquire,
develop, manage and market vacation ownership resorts in North America under
Promus brand names. As part of the agreement, Promus and Vistana will designate
selected markets for development (which markets currently include Kissimmee,
Florida and Myrtle Beach, South Carolina and in which markets Vistana will have
exclusive development rights). The Company is not precluded from using the
Embassy Vacation Resort name in connection with resorts acquired during the term
of the agreement in markets not otherwise exclusive to Vistana. The Company has
been identified by Promus as the only other licensee to whom Promus may license
the Embassy Vacation Resort name. There can be no assurance that Promus will not
grant other entities a license to develop Embassy Vacation Resorts or that
Promus will not exercise its rights to terminate the Embassy Vacation Resort
licenses.
As a result of the LSI and Global Acquisitions, the Company is also subject
to competition in the European vacation ownership market, which is highly
fragmented. In addition to LSI and the Global Group, there is one other operator
in Europe operating multi-resort points clubs -- Club la Costa. LSI and the
Global Group also have competition from individual vacation ownership resorts
(including Marriott) in several of the areas in which it operates.
In addition, the Company also competes with the buyers of its Vacation
Intervals who subsequently decide to resell those intervals. While the Company
believes, based on experience at its resorts, that the market for resale of
Vacation Intervals by buyers is presently limited, such resales are typically at
prices substantially less than the original purchase price. The market price of
Vacation Intervals sold by the Company at a given resort or by its competitors
in the market in which each resort is located could be depressed by a
substantial number of Vacation Intervals offered for resale.
GOVERNMENTAL REGULATION
General. The Company's marketing and sales of vacation interests are
subject to extensive regulations by the federal government and the states and
foreign jurisdictions in which its resort properties are located and in which
vacation interests are marketed and sold. On a federal level, the Federal Trade
Commission has
19
<PAGE> 21
taken the most active regulatory role through the Federal Trade Commission Act,
which prohibits unfair or deceptive acts or competition in interstate commerce.
Other federal legislation to which the Company is or may be subject appears on
the Truth-In-Lending Act and Regulation Z, the Equal Credit Opportunity Act and
Regulation B, the Interstate and Land Sales Full Disclosure Act, Telephone
Consumer Protection Act, Telemarketing and Consumer Fraud and Abuse Prevention
Act, Fair Housing Act and the Civil Rights Act of 1964 and 1968. In addition,
many states have adopted specific laws and regulations regarding the sale of
vacation interest ownership programs. The laws of most states, including
Florida, South Carolina and Hawaii require the Company to file with a designated
state authority for its approval a detailed offering statement describing the
Company and all material aspects of the project and sale of vacation interests.
The laws of California require the Company to file numerous documents and
supporting information with the California Department of Real Estate, the agency
responsible for the regulation of vacation interests. When the California
Department of Real Estate determines that a project has complied with California
law, it will issue a public report for the project. The Company is required to
deliver an offering statement or public report to all prospective purchasers of
vacation interests, together with certain additional information concerning the
terms of the purchase. The laws of Illinois, Florida, Hawaii and Virginia impose
similar requirements. Laws in each state where the Company sells vacation
interests generally grant the purchaser of a vacation interest the right to
cancel a contract of purchase at any time within a period ranging from 3 to 15
calendar days following the earlier of the date the contract was signed or the
date the purchaser has received the last of the documents required to be
provided by the Company. Most states have other laws which regulate the
Company's activities such as real estate licensure; sellers of travel licensure;
anti-fraud laws; telemarketing laws; price gift and sweepstakes laws; and labor
laws. The Company believes that it is in material compliance with all federal,
state, local and foreign laws and regulations to which it is currently or may be
subject. However, no assurance can be given that the cost of qualifying under
vacation interest ownership regulations in all jurisdictions in which the
Company desires to conduct sales will not be significant. Any failure to comply
with applicable laws or regulations could have material adverse effect on the
Company.
In addition, certain state and local laws may impose liability on property
developers with respect to construction defects discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may recover
from the Company amounts in connection with the repairs made to the developed
property.
The marketing and sales of the Company's Grand Vacation Club points system
and its other operations are subject to national and European regulation and
legislation. Within the European Community (which includes all the countries in
which the Company conducts its operations), the European Timeshare Directive of
1994 regulates vacation ownership activities. For it to have direct effect, the
European Timeshare Directive must have been implemented by European Community
Member States prior to May 1997. As of the date of this 10-K, Spain and France
have not implemented the Directive. The terms of the Directive require the
Company to issue a disclosure statement providing specific information about its
resorts and its vacation ownership operations as well as making mandatory a 10
day rescission period and a prohibition on the taking of advance payments prior
to the expiration of that rescission period. Member States are permitted to
introduce legislation which is more protective of the consumer when implementing
the European Timeshare Directive. In the United Kingdom, where the majority of
the Company's marketing and sales operations take place, the Directive has been
implemented by way of an amendment to the Timeshare Act 1992. In the United
Kingdom, a 14 day rescission period is mandatory. There are other United Kingdom
laws which the Company is or may be subject to including the Consumer Credit Act
1974, the Unfair Terms in Consumer Contracts Regulations 1995 and the Package
Travel, Package Holidays and Package Tours Regulations 1992. While Spain and
France have no specific timeshare legislation, it is expected that they will
implement the Timeshare Directive in the near future. Until they do so, however,
the European Timeshare Directive has no direct effect in Spain or France. The
Timeshare Act 1992 does appear to have extra-territorial effect in that United
Kingdom resident purchasers buying timeshare in other European Economic Area
States may rely upon it. All the countries in which the Company operates have
consumer and other laws which regulate its activities in those countries. The
Company is member of the Timeshare Council which is the United Kingdom's self
regulating trade body for vacation ownership companies. As a member, it is
20
<PAGE> 22
obligated to comply with all laws as well as with certain codes of conduct
(including a code of conduct for the operating of points systems) promulgated by
the Timeshare Council.
Environmental Matters. Under various Environmental Laws, a current or
previous owner or operator of real estate may be required to investigate and
clean up hazardous or toxic substances or wastes or releases of petroleum
products or wastes at such property, and may be held liable to a governmental
entity or to third parties for associated damages and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such laws may impose clean-up responsibility and liability without regard to
whether the owner knew of or caused the presence of the contaminants, and the
liability under such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility. The cost of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate the contamination on such property, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. In addition, persons who arrange for the disposal or
treatment of hazardous or toxic substances at a disposal or treatment facility
also may be liable for the costs of removal or remediation of a release of
hazardous or toxic substances or wastes at such disposal or treatment facility,
whether or not such facility is owned or operated by such person. In addition,
some Environmental Laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
Finally, the owner of a site may be subject to statutory or common law claims by
third parties based on damages and costs resulting from environmental
contamination emanating from a site. In connection with its ownership and
operation of its properties, the Company potentially may be liable for such
costs. In addition, as a result of the consummation of the Acquisitions, the
Company could be held liable for the pre-existing environmental and other
liabilities of the acquired companies, if any.
Certain Environmental Laws govern the removal, encapsulation or disturbance
of asbestos-containing materials ("ACMs") when such materials are in poor
condition or in the event of construction, remodeling, renovation or demolition
of a building. Such laws may impose liability for release of ACMs and may
provide for third parties to seek recovery from owners and operators of real
properties for personal injury associated with ACMs. In connection with its
ownership and operation of its properties, the Company potentially may be liable
for such costs.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no state
or federal requirements regarding the monitoring for, presence of, or exposure
to, radon in indoor air, the EPA and the Surgeon General recommend testing
residences for the presence of radon in indoor air, and the EPA further
recommends that concentrations of radon in indoor air be limited to less than 4
picocuries per liter of air (pCI/L) (the "Recommended Action Level"). The
presence of radon in concentrations equal to or greater than the Recommended
Action Level in one or more of the Company's resorts may adversely affect the
Company's ability to sell vacation interests at such resorts and the market
value of such resort. In addition, the Company is required to disclose to
potential purchasers and owners of vacation interests at the Company's resorts
that were constructed prior to 1978 any known lead-paint hazards and failure to
so notify could impose damages on the Company.
The Company has conducted Phase I environmental assessments (which
typically involve inspection without soil sampling or groundwater analysis)
performed by independent environmental consultants at each of the resort
locations at which it has sold or owns a material amount of inventory in order
to identify potential environmental concerns. These Phase I assessments have
been carried out in accordance with accepted industry practices, and generally
have included a preliminary investigation of the sites and identification of
publicly known conditions concerning properties in the vicinity of the sites,
physical site inspections, review of aerial photographs and relevant
governmental records where readily available, interviews with knowledgeable
parties, investigation for the presence of above ground and underground storage
tanks presently or formerly at the sites, a visual inspection of potential
lead-based paint and suspect friable ACMs where appropriate, and the preparation
and issuance of written reports.
The Company's assessments of its resorts have not revealed any
environmental liability that the Company believes would have a material adverse
effect on the Company's business, assets or results of operations, nor is
21
<PAGE> 23
the Company aware of any such material environmental liability. Nevertheless, it
is possible that the Company's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which the
Company is unaware. The Company believes that its properties are in compliance
in all material respects with all Environmental Laws regarding hazardous or
toxic substances or wastes. The Company does not believe that continued
compliance with applicable Environmental Laws or regulations will have a
material adverse effect on the Company or its financial condition or results of
operations.
In connection with the acquisition and development of the Embassy Vacation
Resort Lake Tahoe and the Sunterra Resorts San Luis Bay, several areas of
environmental concern have been identified. The areas of concern at the Embassy
Vacation Resort Lake Tahoe relate to possible soil and groundwater contamination
that has migrated onto the resort site from an upgradient source; in addition,
residual contamination may exist on the resort site as a result of leaking
underground storage tanks that were removed prior to the Company's acquisition
of the resort site. California regulatory authorities are monitoring the
off-site contamination and have required or are in the process of requiring the
responsible parties to undertake remedial action. The Company has been
indemnified by Chevron (USA), Inc. for certain costs and expenses in connection
with the off-site contamination. The Company does not believe that it will be
held liable for this contamination and does not anticipate incurring material
costs in connection therewith; however, there can be no assurance that the
indemnitor will meet its obligations in a complete and timely manner. Sunterra
Resorts San Luis Bay is located in an area of Avila Beach, California which has
experienced soil and groundwater contamination resulting from a nearby oil
refinery. California regulatory authorities have required the installation of
groundwater monitoring wells on the beach near the resort site (among other
locations). As of the present time, the Company does not believe that any
remedial operations action has been undertaken with this matter. It is possible
that the Company's operations could be adversely impacted, including possible
temporary interference with access to the resort site, once remediation is
underway. The Company does not believe that it is liable for this contamination
and does not anticipate incurring material costs in connection therewith;
however, there can be no assurance that claims will not be asserted against the
Company with respect to this matter.
The Company is not aware of environmental liability that would have a
material adverse effect on the Company's business, assets or results of
operations, nor has the Company been notified by any governmental authority or
any third party, and is not otherwise aware, of any material noncompliance,
liability or other claim relating to hazardous or toxic substances or petroleum
products in connection with any of its present or former properties. The Company
believes that it is in compliance in all material respects with all
Environmental Laws. No assurance, however, can be given that the Company is
aware of all environmental liabilities or that no prior owner, operator or third
party caused a material environmental condition at such property not currently
known to the Company. See "-- Possible Environmental Liabilities."
Other Regulations. Under various state and federal laws governing housing
and places of public accommodation the Company is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management of the Company believes that its facilities are substantially in
compliance with present requirements of such laws, and the Company may incur
additional costs of compliance. Additional legislation may impose further
burdens or restriction on owners with respect to access by disabled persons. The
ultimate amount of the cost of compliance with such legislation is not currently
ascertainable, and, while such costs are not expected to have a material effect
on the Company, such costs could be substantial. Limitations or restrictions on
the completion of certain renovations may limit application of the Company's
growth strategy in certain instances or reduce profit margins on the Company's
operations.
EMPLOYEES
As of December 31, 1997, the Company had approximately 4,150 employees. The
Company believes that its employee relations are good. Except for certain
employees located at the St. Maarten, Netherlands Antilles resorts, none of the
Company's employees are represented by a labor union.
22
<PAGE> 24
The Company sells Vacation Intervals and Vacation Points at its resorts
through approximately 1,250 independent sales agents. Such independent sales
agents provide services to the Company under contract and, the Company believes,
are not employees of the Company. Accordingly, the Company does not withhold
payroll taxes from the amounts paid to such independent contractors. Although
the Internal Revenue Service has made inquiries regarding the Company's
classification of its sales agents at its Branson, Missouri resort, no formal
action has been taken and the Company has requested that the inquiry be closed.
In the event the Internal Revenue Service or any state or local taxing authority
were to successfully classify such independent sales agents as employees of the
Company, rather than as independent contractors, and hold the Company liable for
back payroll taxes, such reclassification may have a material adverse effect on
the Company.
INSURANCE
The Company carries comprehensive liability, fire, hurricane, storm,
earthquake and business interruption insurance with respect to the Company's
resorts locations, with policy specifications, insured limits and deductibles
customarily carried for similar properties which the Company believes are
adequate. In September 1995 and July 1996, the Company's St. Maarten resorts
were damaged by a hurricane. With respect to such September 1995 damage, the
Company has recovered amounts from its insurance carriers sufficient to cover
100% of the property damage losses and is in the process of recovering amounts
for business interruption. There are, however, certain types of losses (such as
losses arising from acts of war) that are not generally insured because they are
either uninsurable or not economically insurable. Should an uninsured loss or a
loss in excess of insured limits occur, the Company could lose its capital
invested in a resort, as well as the anticipated future revenues from such
resort and would continue to be obligated on any mortgage indebtedness or other
obligations related to the property. Any such loss could have a material adverse
effect on the Company.
TRADEMARKS AND COMPANY NAME
While the Company owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights and other intellectual property
rights, including the "Sunterra" and "Own Your World" service marks which, in
the aggregate, are of material importance to its business, it is believed that
the Company's business, as a whole, is not materially dependent upon any one
intellectual property or related group of such properties. The Company is
licensed to use certain technology and other intellectual property rights owned
and controlled by others, and, similarly, other companies are licensed to use
certain technology and other intellectual property rights owned and controlled
by the Company.
The Company's Board of Directors has approved, subject to stockholder
approval, a proposal to change the Company's corporate name to "Sunterra
Corporation." The name change proposal will be presented for stockholder
approval at the Company's May 15, 1998 annual meeting.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Certain statements in this
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the
"10-K") that are not historical fact constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Discussions containing such forward-looking statements may be found in the
material set forth under "Business and Properties," as well as within this 10-K
generally. In addition, when used in this 10-K the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements as a result of the risk factors set forth below
and the matters set forth in this 10-K generally. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
23
<PAGE> 25
RISK OF INCREASING LEVERAGE; LIQUIDITY
The Company has, and after giving effect to the Offering will continue to
have, significant levels of indebtedness. At December 31, 1997, after giving pro
forma effect to the Offering and the application of the estimated net proceeds
therefrom and the incurrence of an additional $92 million of secured
indebtedness subsequent to December 31, 1997, the Company and its subsidiaries
would have had approximately $574.9 million of outstanding indebtedness
(including trade payables of $25.2 million), of which $108.2 million would have
been secured or structurally senior in right of payment to the Notes and $341.7
million would have been subordinated in right of payment to the notes offered in
the Offering (the "Notes"). In addition, subject to the restrictions contained
in documents governing the Senior Credit Facility, the Notes, the Company's
9 3/4% Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes") and
the Company's 5 3/4% Convertible Notes due 2007 (the "Convertible Notes"), the
Company may incur additional senior or other indebtedness from time to time to
finance acquisitions or capital expenditures or for other general corporate
purposes.
For the year ended December 31, 1997, the Company had $50.0 million in
negative cash flows from operations. On a pro forma basis for the Offering, the
Company's concurrent offerings of the Convertible Notes and 2,400,000 shares of
common stock of the Company (the "Common Stock") sold in February 1997
(together, the "Concurrent Offerings") and the Company's offering of the Senior
Subordinated Notes in August 1997 (the "Senior Subordinated Note Offering") and
the application of the proceeds therefrom, cash flows from operations would have
been insufficient to service the Company's interest costs by an aggregate of
$52.4 million. Because the Company typically finances 90% of the purchase price
of the vacation interests it sells, it typically incurs significant operating
costs in excess of the actual cash proceeds initially received from the sale of
vacation interests. To meet the Company's cash requirements to finance these
customer receivables, the Company borrows funds available under its credit
facilities. The Company expects to repay its credit facilities with proceeds
from the issuance of pass-through mortgage-backed securities under which the
Company sells the mortgages receivable and principal and interest payments from
its portfolio of mortgages receivable. The Company may also sell or factor
additional mortgages receivable or borrow under existing or future lines of
credit. There can be no assurance that the Company will be able to successfully
securitize any of its mortgages receivable or otherwise sell, factor or finance
such mortgages receivable on terms favorable to the Company, if at all or that
the inability to do so would not have a material adverse effect on the Company's
results of operations.
The level of the Company's indebtedness could have important consequences
to the holders of the Notes, including, but not limited to, the following: (i)
the Company's ability to obtain future financing for working capital, capital
expenditures, acquisitions, product development or other corporate purposes may
be materially limited or impaired; (ii) a significant portion of the Company's
cash flow from operations may be dedicated to the interest on its indebtedness,
thereby reducing the funds available to the Company to conduct its operations
and future business opportunities; (iii) significant amounts of the Company's
borrowings will bear interest at variable rates, which could result in higher
interest expense in the event of interest rate increases; (iv) the agreements
governing the Company's indebtedness contain financial and restrictive
covenants, the failure to comply with which may result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company; (v) the indebtedness outstanding under the Senior Credit Facility is
secured and matures prior to the maturity of the Notes; (vi) the Company may be
substantially more leveraged than certain of its competitors, which may place
the Company at a competitive disadvantage; and (vii) the Company's substantial
degree of leverage may limit its flexibility to adjust to changing market
conditions, reduce its ability to withstand competitive pressures and make it
more vulnerable to a downturn in general economic conditions or in its business.
The Company's ability to make scheduled payments or to refinance its debt
obligations will depend upon its future financial and operating performance,
which may be affected by prevailing economic conditions and financial, business
and other factors, certain of which are beyond its control, including interest
rates, increased operating costs, regulatory developments and the ability of the
Company to repatriate cash generated outside of the United States without
incurring a substantial tax liability. There can be no assurance that the
24
<PAGE> 26
Company's operating results, cash flow and capital resources will be sufficient
for payment of its indebtedness in the future.
25
<PAGE> 27
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
A principal component of the Company's strategy is to continue to grow by
acquiring additional resort locations and/or vacation ownership operating
companies. The Company's future growth and financial success will depend upon a
number of factors, including its ability to identify attractive resort
acquisition opportunities, consummate the acquisitions of such resorts on
favorable terms, convert such resorts to use as vacation ownership resort
locations and profitably sell Vacation Intervals and Vacation Points at such
resort locations. There can be no assurance that the Company will be successful
with respect to such factors and any failure to be successful could have a
material adverse effect on the Company's results of operations. Acquisitions
involve a number of special risks, including the diversion of management's
attention to the assimilation of the operations from other business concerns,
difficulties in the integration of operations and systems, the assimilation and
retention of the personnel of the acquired companies and potential adverse
short-term effects on operating results. The Company's ability to execute its
growth strategy depends to a significant degree on the existence of attractive
acquisition opportunities (which, in the past, have included completed or nearly
completed resort properties), its ability both to consummate acquisitions on
favorable terms and to obtain additional debt and equity capital and to fund
such acquisitions and any necessary conversion and marketing expenditures.
Currently, there are potential buyers of resort real estate which are well
capitalized competing to acquire resort properties which the Company may
consider attractive resort acquisition opportunities. There can be no assurance
that the Company will be able to compete against such other buyers successfully
or that the Company will be successful in consummating any such future financing
transactions on terms favorable to the Company. The Company's ability to obtain
and repay any indebtedness at maturity may depend on refinancing, which could be
adversely affected if the Company cannot effect the sale of additional debt or
equity through public offerings or private placements on terms favorable to the
Company. Factors which could affect the Company's access to the capital markets,
or the cost of such capital, include changes in interest rates, general economic
conditions, the perception in the capital markets of the vacation ownership
industry and the Company's business, results of operations, leverage, financial
condition and business prospects.
RISKS RELATED TO DEVELOPMENT OF A POINTS-BASED VACATION EXCHANGE SYSTEM
The Company currently is developing its Club Sunterra points-based vacation
exchange system which will offer points-based exchanges throughout the Company's
worldwide network of resorts. The Company has not previously developed or
operated a company-wide points-based vacation exchange system and no assurance
can be given as to management's ability to efficiently develop or operate such a
company-wide system. Although management believes such system will be developed
and placed into operation in the second half of 1998, there can be no assurance
that such system will be developed and placed into operation by such time. Risks
associated with the development and operation of the Company's Club Sunterra
company-wide points-based vacation exchange system, and expansion of LSI's and
VI's existing points-based systems, may include the risks that: such development
and/or expansion may be abandoned; the North American and European points-based
vacation exchange systems cannot be efficiently combined or operated with the
Company's current vacation ownership operations; the North American and European
points-based vacation exchange systems may be or become subject to extensive
regulation by federal, state and local jurisdictions, or the equivalent thereof
in Europe, possibly making such points-based system uneconomical or
unprofitable; and financing may not be available on favorable terms for
development of a North American points-based vacation exchange system or the
expansion of a European points-based vacation exchange system.
RISKS RELATED TO CERTAIN ACQUISITIONS
Uncertainty as to Future Financial Results. The Company believes that the
acquisitions of AVCOM, PRG, LSI, Marc, VI and Global (collectively, the
"Acquisitions") each offer opportunities for long-term efficiencies in
operations that should positively affect future results of the combined
operations of the Company. However, until the Company is able to offset earnings
dilution resulting from the issuance of Common Stock in certain of the
Acquisitions with the positive effect of expected long-term efficiencies, the
Acquisitions may adversely affect the Company's financial performance in 1998
and future years. In addition, the combined companies will be more complex and
diverse than the Company prior to the Acquisitions, and
25
<PAGE> 28
the combination and continued operation of their distinct business operations
present difficult challenges for the Company's management due to the increased
time and resources required in the management effort.
In order to maintain and increase profitability, the combined companies
will need to successfully integrate and streamline overlapping functions. There
can be no assurance that such integration will be successfully accomplished or,
if successfully accomplished, that such integration will not be more costly to
accomplish than contemplated by the Company. The difficulties of such
integration may be increased by the necessity of coordinating geographically
separate organizations. The integration of certain operations (such as customer
service, loan servicing and loan processing) following the Acquisitions will
require the dedication of management resources which may distract attention from
the day-to-day business of the combined companies in the short and long term.
Failure to effectively accomplish the integration of the acquired company's
operations could have an adverse effect on the Company's results of operations
and financial condition.
Accounting Treatment. The AVCOM, PRG and LSI Acquisitions have been
accounted for by the Company by the pooling-of-interests method of accounting.
Under this method of accounting, the recorded assets and liabilities of the
Company, AVCOM, PRG and LSI have been carried forward at their book values to
the Company and the reported income of the Company, AVCOM, PRG and LSI for prior
periods has been combined and restated as income of the Company. Although the
Company has received an opinion from its independent public accountants that the
Acquisitions will qualify for pooling-of-interests accounting treatment,
opinions of accountants are not binding upon the Commission, and there can be no
assurance that the Commission will not successfully assert a contrary position.
In such case, the purchase method of accounting would be applicable. Under the
purchase method, the book value of AVCOM's, PRG's and LSI's assets would be
increased to their fair values, which could result in higher operating costs and
expenses as the excess of the purchase price over the fair value of AVCOM's,
PRG's and LSI's assets would be amortized and expensed over a period of years,
which would adversely affect the Company's future earnings. The VI, Marc and
Global Acquisitions have been accounted for using the purchase method of
accounting.
VARIABILITY OF QUARTERLY RESULTS, POSSIBLE VOLATILITY OF STOCK PRICE
The Company's earnings may be impacted by the timing of the implementation
of the Company's acquisition and development strategy. Additionally, the Company
has historically experienced and expects to continue to experience seasonal
fluctuations in its gross revenues and net income from the sale of Vacation
Intervals and Vacation Points. This seasonality may cause significant variations
in quarterly operating results. If sales of Vacation Intervals and Vacation
Points are below seasonal normalties during a particular period, the Company's
annual operating results could be materially adversely affected. In addition,
the combination of (i) the possible delay in generating revenue between the time
that the Company acquires an additional resort and the commencement of Vacation
Interval and Vacation Points sales and (ii) the expenses associated with
start-up unit or room-rental operations, interest expense, amortization and
depreciation expenses from such acquisitions may materially adversely impact
earnings.
Due to the foregoing and other factors, the Company believes that its
quarterly and annual revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not be
relied upon as indications of future performance. Because of the above factors,
it is possible that the Company's operating results will be below the
expectations of securities market analysts and investors, which could have an
adverse effect on the market value of the Company's Common Stock. Numerous
factors, including announcements of fluctuations in the Company's or its
competitors' operating results and market conditions for hospitality and
vacation ownership industry securities in general, could have a significant
impact on the future price of the Common Stock. In addition, the securities
market in recent years has experienced significant price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of companies. These broad fluctuations may adversely affect the market price of
the Common Stock.
26
<PAGE> 29
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The indenture pursuant to which the Notes will be issued will contain, and
the indenture for the Senior Subordinated Notes does contain, certain covenants
that, among other things, limit the ability of the Company and its Restricted
Subsidiaries to (i) incur additional indebtedness, (ii) pay dividends or make
other distributions with respect to capital stock of the Company and its
Restricted Subsidiaries, (iii) create certain liens, (iv) sell certain assets of
the Company or its Restricted Subsidiaries and (v) enter into certain mergers
and consolidations. In addition, certain of the Company's other Senior
Indebtedness contain other and more restrictive covenants that, among other
things, restrict the following: the making of investments, loans, and advances
and the paying of dividends and other restricted payments; the incurrence of
additional indebtedness; the granting of liens, other than certain permitted
liens; mergers, consolidations and sales of all or a substantial part of the
Company's business or property; the sale of assets; and the making of capital
expenditures.
Certain of the Company's other indebtedness that is not subordinated by its
terms in right of payment to any indebtedness or other obligation of the Company
("Senior Indebtedness"), including the Senior Credit Facility, also require the
Company to maintain certain financial ratios, including interest coverage,
leverage and fixed charge ratios. There can be no assurance that these
requirements will be met in the future. If they are not, the holders of the
indebtedness under certain of the Company's other Senior Indebtedness may be
entitled to declare such indebtedness immediately due and payable.
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
Risks associated with the Company's development, construction and
redevelopment/conversion activities, and expansion activities may include the
risks that: acquisition and/or development opportunities may be abandoned;
construction costs of a resort may exceed original estimates, possibly making
the resort uneconomical or unprofitable; sales of Vacation Intervals at a newly
completed resort may not be sufficient to make the resort profitable; financing
may not be available on favorable terms for development of, or the continued
sales of Vacation Intervals at, a resort; and construction may not be completed
on schedule, resulting in decreased revenues and increased interest expense. The
failure of the Company to successfully complete its development, construction,
redevelopment, conversion and expansion activities may have a material adverse
effect on the Company's results of operations.
In addition, the Company's construction activities typically are performed
by third-party contractors, and, accordingly, the timing, quality and completion
of which cannot be controlled by the Company. Nevertheless, construction claims
may be asserted against the Company for construction defects and such claims may
give rise to liabilities. New development activities, regardless of whether or
not they are ultimately successful, typically require a substantial portion of
management's time and attention. Development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations, the ability of the Company to coordinate construction
activities with the process of obtaining such permits and authorizations, and
the ability of the Company to obtain the financing necessary to complete the
necessary acquisition, construction, and/or conversion work at the resorts. The
Company currently does not have the financing available to complete all of its
planned expansion as set forth in "-- Description of the Company's Resort
Locations."
RISKS ASSOCIATED WITH PARTNERSHIP INVESTMENTS
The Company owns, and may in the future acquire, certain resorts through
partnerships or other joint ventures. Property ownership through a partnership
or other joint venture involves additional risks, including requirements of
partner or venturer consents for major decisions (including approval of
budgets), capital contributions and entry into material agreements. If the
Company and its partner or venturer are unable to agree on major decisions,
either partner or venturer may elect to invoke a buy/sell right, which could
require the Company to either sell its interest in such partnership or venture
or to buy out the interest of its partner or venturer at a time when the Company
is not prepared to do so. In addition, under certain circumstances, the other
partner or venturer can require the Company to purchase such partner's or
venturer's interest or sell its
27
<PAGE> 30
interest to the other partner or venturer, and in either case, such purchase or
sale could have a material adverse effect on the Company. If a dispute arises
under these types of partnerships or joint ventures, an adverse
28
<PAGE> 31
resolution could have a material adverse effect on the operations of the
Company. In addition, as a general partner or venturer, the Company will be
subject to certain fiduciary obligations which may obligate it to act in a
manner which is not necessarily in the best interest of the Company.
Additionally, as a matter of partnership law, if other partners or venturers
fail to honor their obligation (including as a result of insolvency), the
Company may incur losses in excess of its pro rata share of the partnership or
venture. See "-- Description of the Company's Resort Locations."
LIMITED OPERATING HISTORY
The Company was formed in May 1996 in order to effectuate the consolidation
of the Company's predecessor partnerships, limited liability companies and
corporations (the "Consolidation Transactions") and the Company's initial public
offering (the "Initial Public Offering"), each of which was consummated in
August 1996. Although predecessors of the Company have operating histories in
the vacation ownership and hospitality industries, the Company has limited
operating history as an integrated entity both prior to and following the
Acquisitions, has limited experience operating as a public company and no
experience operating a company-wide points-based vacation exchange system, any
of which could result in an adverse impact on the Company's operations and
future profitability. The Company conducts its management operations out of a
number of geographically diverse locations. As the Company grows and diversifies
into additional geographic markets, including new markets entered as a result of
the Acquisitions, no assurance can be given as to management's ability to
efficiently manage operations and control functions without a centrally located
management team.
GENERAL ECONOMIC CONDITIONS, CONCENTRATION IN VACATION OWNERSHIP INDUSTRY
Any downturn in economic conditions or any price increases (e.g., airfares)
related to the travel and tourism industry could depress discretionary consumer
spending and have a material adverse effect on the Company's business. Any such
economic conditions, including recession, may also adversely affect the future
availability of attractive financing rates for the Company or its customers and
may materially adversely affect the Company's business. Furthermore, adverse
changes in general economic conditions may adversely affect the collectibility
of the Company's loans to vacation interest buyers. Because the Company's
operations are conducted solely within the vacation ownership industry, any
adverse changes affecting the vacation ownership industry such as an oversupply
of vacation ownership units, a reduction in demand for vacation ownership units,
changes in travel and vacation patterns, changes in governmental regulations of
the vacation ownership industry and increases in construction costs or taxes, as
well as negative publicity for the vacation ownership industry, could have a
material adverse effect on the Company's operations.
RISKS ASSOCIATED WITH CUSTOMER FINANCING
The Company offers financing to the purchasers of vacation interests at the
Company's resort locations who make a down payment generally equal to at least
10% of the purchase price. This financing generally bears interest at fixed
rates and is collateralized by a first mortgage on the underlying vacation
interest. The Company has entered into agreements with lenders for the financing
of customer receivables. As of December 31, 1997, the Company had approximately
$199 million of additional borrowing capacity available thereunder.
Under these arrangements, the Company pledges as security promissory notes
to these lenders, who typically lend the Company 85% to 90% of the principal
amount of such promissory notes. Payments under these promissory notes are made
by the buyer/borrowers directly to a third-party payment processing center and
such payments are credited against the Company's outstanding balance with the
respective lenders. The Company does not presently have binding agreements to
extend the terms of such existing financing arrangements or for any replacement
financing arrangements upon the expiration of such funding commitments (which
have varying borrowing periods ranging from 18 to 20 months after the initial
commitment date), and there can be no assurance that alternative or additional
arrangements can be made on terms that are satisfactory to the Company.
Accordingly, future sales of vacation interests may be limited by both the
availability of funds to finance the initial negative cash flow that results
from sales that are financed by the
28
<PAGE> 32
Company and by reduced demand which may result if the Company is unable to
provide financing through unaffiliated lenders to buyers of vacation interests.
If the Company is required to sell its customer receivables to lenders,
discounts from the face value of such receivables may be required by such
lenders, if lenders are available at all. The inability to finance the Company's
mortgages receivable on terms favorable to the Company or at all could have a
material adverse effect on the Company's results of operations.
The Company has historically derived income from its financing activities.
At December 31, 1997, the Company's mortgage portfolio included approximately
37,000 promissory notes totaling approximately $355 million, with a stated
maturity of typically seven to ten years and a weighted average interest rate of
14.4% per annum. Additionally, at December 31, 1997, the weighted average
maturity of all outstanding consumer loans was approximately 8.4 years and the
total borrowings secured by promissory notes were approximately $91 million,
bearing a weighted average interest rate of 10.3%. However, because the
Company's borrowings bear interest at variable rates and the Company's loans to
buyers of vacation interests bear interest at fixed rates (which, as of December
31, 1997, equal 14.4% per annum on a weighted average basis), the Company bears
the risk of increases in interest rates with respect to the loans it has from
its lenders. The promissory notes are prepayable at any time without penalty. To
the extent interest rates on the Company's borrowings decrease, the Company
faces an increased risk that customers will pre-pay their loans and reduce the
Company's income from financing activities. See "-- Customer Financing."
RISKS OF HEDGING ACTIVITIES AND EXCHANGE RATE FLUCTUATIONS
The Company does not engage in speculative or profit motivated hedging
activities. However, to manage risks associated with the Company's borrowings
bearing interest at variable rates, the Company may from time to time purchase
interest rate caps, interest rate swaps or similar instruments. As of and for
the fiscal year ending December 31, 1997, the Company was not engaging in any
interest rate hedging transactions. The nature and quantity of any future
hedging transactions for the variable rate debt will be determined by the
management of the Company based on various factors, including market conditions,
and there have been no limitations placed on management's use of certain
instruments in such hedging transactions. No assurance can be given that any
such hedging transactions will offset the risks of changes in interest rates, or
that the costs associated with hedging activities will not increase the
Company's operating costs.
The Company's international operations subject the Company to certain
risks, including increased exposure to currency exchange rate fluctuations.
Although the Company does not currently engage in foreign currency hedging
transactions, as it continues to expand its international operations, exposure
to losses in foreign currency transactions may increase or occur. The Company
may choose to limit such exposure by the purchase of forward foreign exchange
contracts or similar hedging strategies. However, there can be no assurance that
any currency hedging strategy would be successful in avoiding exchange-related
losses. In addition, there can be no assurance that such exchange-related losses
would not have a material adverse effect on the Company's future international
revenue and, consequently, on the Company's business, operating results and
financial condition.
RISKS ASSOCIATED WITH CUSTOMER LOAN DEFAULT
The Company bears the risk of defaults by buyers who financed the purchase
of their vacation interests through the Company. As of December 31, 1997,
approximately 4.6% of the Company's consumer loans were considered by the
Company to be delinquent (scheduled payment past due by 60 or more days). The
Company had completed or commenced foreclosure or deed-in-lieu of foreclosure
(which is typically commenced once a scheduled payment is more than 120 days
past due) on an additional approximately 2.2% of its consumer loans. As of
December 31, 1997, the Company's allowance for doubtful accounts as a percentage
of gross mortgages receivable was 6.5%, which management believes is an adequate
reserve for expected loan losses.
If a buyer of a vacation interest defaults on the consumer loan made by the
Company and the Company has pledged the mortgage receivable as collateral to a
lending institution, the Company generally must take back the mortgage with
respect to such vacation interest and replace it with a performing mortgage. In
29
<PAGE> 33
connection with the Company taking back any such vacation interest, the
relatively substantial associated marketing costs, other than certain sales
commissions, will not have been recovered by the Company and they must be
incurred again after their vacation interest has been returned to the Company's
inventory for resale (commissions paid in connection with the sale of vacation
interests may be recoverable from the Company's sales personnel and from
independent contractors upon default in accordance with contractual arrangements
with the Company, depending upon the amount of time that has elapsed between the
sale and the default and the number of payments made prior to such default).
Although private mortgage insurance or its equivalent is available to cover
vacation interests, the Company has never purchased such insurance and has no
present intention of doing so. In addition, although the Company in many cases
may have recourse against vacation interest purchasers, sales personnel and
independent contractors for the purchase price paid and for commissions paid,
respectively, no assurance can be given that the vacation interest purchase
price or any commissions will be fully or partially recovered in the event of a
buyer default under such financing arrangements. The Company is subject to the
costs and delays associated with the foreclosure process and no assurance can be
given that the value of the underlying vacation interests being foreclosed upon
at the time of resale will exceed the purchase price of the defaulted loans,
taking into consideration the costs of foreclosure and resale or that the costs
of any such foreclosures will not have a material adverse effect on the
Company's results of operations. See "-- Customer Financing."
COMPETITION
The Company is subject to significant competition at each of its resorts
from other entities engaged in the business of resort development, sales and
operation, including vacation interest ownership, condominiums, hotels and
motels. Many of the world's most recognized lodging, hospitality and
entertainment companies have begun to develop and sell vacation interests in
resort properties. Other major companies that now operate or are developing or
planning to develop vacation ownership resorts include Marriott, Disney, Hilton,
Hyatt, Four Seasons, Inter-Continental and Westin. Many of these entities
possess significantly greater financial, marketing, personnel and other
resources than those of the Company and may be able to grow at a more rapid rate
or more profitably as a result. See "-- Competition."
The Company also competes with companies with non-branded resorts such as
CFI, Vistana, Fairfield, Silverleaf, Trendwest and ILX. Under the terms of an
exclusive five year agreement, Promus and Vistana will jointly acquire, develop
and manage and market vacation ownership resorts in North America under Promus
brand names. As part of the exclusive agreement, Promus and Vistana will
designate selected markets for development (which markets currently include
Kissimmee, Florida and Myrtle Beach, South Carolina, and in which markets
Vistana will have exclusive development rights). The Company is not precluded
from using the Embassy Vacation Resort name in connection with resorts acquired
during the term of the agreement in markets not otherwise exclusive to Vistana.
There can be no assurance that Promus will not grant other entities a license to
develop Embassy Vacation Resorts or that Promus will not exercise its rights to
terminate the Embassy Vacation Resort licenses. Promus has indicated that it
intends to expand its branded vacation ownership business only with the Company
and Vistana and that additional Embassy Vacation Resort properties to be
developed or acquired by the Company and licensed by Promus are under
discussion. See "-- Competition."
In addition, the Company also competes with the buyers of its Vacation
Intervals who subsequently decide to resell those intervals. While the Company
believes, based on experience at its resorts, that the market for resale of
Vacation Intervals by buyers is presently limited, such resales are typically at
prices substantially less than the original purchase price. The market price of
Vacation Intervals sold by the Company at a given resort or by its competitors
in the market in which each resort is located could be depressed by a
substantial number of Vacation Intervals offered for resale.
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO QUALIFY
RESORTS
The attractiveness of vacation interest ownership is enhanced significantly
by the availability of exchange networks that allow vacation interest owners to
exchange in a particular year the occupancy right in their vacation interest for
an occupancy right in another participating network resort. According to ARDA,
the
30
<PAGE> 34
ability to exchange vacation interests was cited by buyers as a primary reason
for purchasing a vacation interest. Resort Condominiums International ("RCI")
and Interval International ("II") provide broad-based vacation interest exchange
services and the Company's resort locations are currently qualified for
participation in either the RCI and II exchange networks.
If such exchange networks cease to function effectively, or if the
Company's resorts are no longer included in such exchange networks, the
Company's sales of vacation interests could be materially adversely affected.
See "-- Participation in Vacation Interest Exchange Networks."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of Messrs. Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger (the
"Founders"), who serve as the Company's Chairman, Chief Executive Officer and
President, respectively, as well as the abilities of James E. Noyes and Michael
A. Depatie, the Company's Chief Operating Officer and Chief Financial Officer,
respectively. The Company's success in Europe depends to a large extent upon the
experience and abilities of Ian Ganney and Richard Harrington, LSI's founders,
who serve as LSI's Chairman and Chief Executive Officer, respectively.
The loss of the services of any of the Founders or Messrs. Noyes, Depatie,
Ganney or Harrington could have a material adverse effect on the Company, its
operations and its business prospects. The Company does not maintain "keyman"
life insurance with respect to any of the Founders or Messrs. Noyes, Depatie,
Ganney and Harrington. The Company's success is also dependent upon its ability
to attract and maintain qualified development, acquisition, marketing,
management, administrative and sales personnel for which there is keen
competition among the Company's competitors. In addition, the cost of retaining
such key personnel could escalate over time. There can be no assurance that the
Company will be successful in attracting and/or retaining such personnel.
APPLICABILITY OF FEDERAL SECURITIES LAWS TO THE SALE OF VACATION INTERVALS
It is possible that the vacation interests may be deemed to be a security
as defined in Section 2(1) of the Securities Act. If the vacation interests were
determined to be a security for such purpose, their sale would require
registration under the Securities Act. The Company has not registered the sale
of the vacation interests under the Securities Act and does not intend to do so
in the future. If the sale of the vacation interests were found to have violated
the registration provisions of the Securities Act, purchasers of the vacation
interests would have the right to rescind their purchases of vacation interests.
If a substantial number of purchasers sought rescission and were successful, the
Company's business, results of operations and financial condition could be
materially adversely affected. The Company has been advised by its vacation
ownership counsel, Schreeder, Wheeler & Flint, LLP, that in the opinion of such
counsel, based on its review of the Company's Vacation Interval programs and the
sales practices utilized in such program, the Vacation Intervals do not
constitute a security within the meaning of Section 2(1) of the Securities Act.
REGULATION OF MARKETING AND SALES OF VACATION INTERESTS; OTHER LAWS
The Company's marketing and sales of vacation interests and other
operations are subject to extensive regulation by the federal government and the
states and foreign jurisdictions in which its resorts are located and in which
vacation interests are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which the Company is or may be
subject appears in the Truth-in-Lending Act and Regulation Z, the Equal
Opportunity Credit Act and Regulation B, the Interstate Land Sales Full
Disclosure Act, Telephone Consumer Protection Act, Telemarketing and Consumer
Fraud and Abuse Prevention Act, Fair Housing Act and the Civil Rights Acts of
1964 and 1968. In addition, many states have adopted specific laws and
regulations regarding the sale of vacation ownership programs. The laws of most
states, including Florida, California, Arizona, South Carolina, Virginia and
Hawaii, require the Company to file with a designated state authority for its
approval a detailed offering statement describing the Company and all material
aspects of the project and sale of vacation
31
<PAGE> 35
interests. Laws in each state where the Company sells vacation interests
generally grant the purchaser of a vacation interest the right to cancel a
contract of purchase at any time within a period ranging from three to fifteen
calendar days following the earlier of the date the contract was signed or the
date the purchaser has received the last of the documents required to be
provided by the Company. Most states have other laws which regulate the
Company's activities, such as real estate licensure; seller's of travel
licensure; anti-fraud laws; telemarketing laws; price, gift and sweepstakes
laws; and labor laws. The Company believes that it is in material compliance
with all federal, state, local and foreign laws and regulations to which it is
currently subject. However, no assurance can be given that the cost of
qualifying under vacation ownership regulations in all jurisdictions in which
the Company desires to conduct sales will not be significant or that the Company
is in fact in compliance with all applicable federal, state, local and foreign
laws and regulations. Any failure to comply with applicable laws or regulations
could have a material adverse effect on the Company. See "-- Governmental
Regulation."
Certain state and local laws may impose liability on property developers
with respect to construction defects discovered or repairs made by future owners
of such property. Pursuant to such laws, future owners may recover from the
Company amounts in connection with the repairs made to the developed property.
In addition, from time to time, potential buyers of vacation interests
assert claims with applicable regulatory agencies against vacation interest
salespersons for unlawful sales practices. Such claims could have adverse
implications for the Company in negative public relations and potential
litigation and regulatory sanctions. However, the Company does not believe that
such claims will have a material adverse effect on the Company or its business.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state, local and foreign environmental, health,
safety and land use laws, ordinances, regulations and similar requirements
(collectively, "Environmental Laws"), the owner or operator of real property may
be liable for the costs of removal or remediation of certain hazardous or toxic
substances or wastes located on or in, or emanating from, such property, as well
as related costs of investigation and associated damages. Such laws may impose
liability without regard to whether the owner knew of, or caused, the presence
of such hazardous or toxic substances or wastes. The presence of such substances
or wastes, or the failure to properly remediate them, may adversely affect an
owner's ability to sell or lease a property or to borrow using such real
property as collateral. In addition, certain Environmental Laws impose liability
on prior owners or operators of property to the extent that hazardous or toxic
substances or wastes were present during or resulted from such owner's or
operator's prior ownership or operation. Transfer of the property may not
relieve an owner of such liability. Thus, a company could incur liability for
contamination at or from previously owned properties. Other Environmental Laws
may require the removal or encapsulation of asbestos-containing material when
such material is in poor condition or in the event of construction, demolition,
remodeling or renovation, or impose specific requirements pertaining to the
removal of underground storage tanks. Noncompliance with these and other
Environmental Laws could adversely impact operations at a property. Further, the
owner or operator of a site may be subject to common law claims by third parties
based on damages resulting from violations of Environmental Laws or from
contamination associated with the site. The Company is not aware of
environmental liability that would have a material adverse effect on the
Company's business, assets or results of operations, nor has the Company been
notified by any governmental authority or any third party, and is not otherwise
aware, of any material noncompliance, liability or other claim relating to
hazardous or toxic substance or petroleum products in connection with any of its
present or former properties. The Company believes that it is in compliance in
all material respects with all Environmental Laws. No assurance, however, can be
given that the Company is aware of all environmental liabilities or that no
prior owner, operator or third party caused a material environmental condition
at any such property not currently known to the Company. See "-- Governmental
Regulation -- Environmental Matters."
COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO DISABLED
PERSONS
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons on a variety of public
32
<PAGE> 36
accommodations and facilities. These requirements did not become effective until
after January 1, 1991. Although the Company believes that its resorts are
substantially in compliance with laws governing the accessibility of its
facilities to disabled persons, a determination that the Company is not in
compliance with the ADA could result in a judicial order requiring compliance,
imposition of fines or an award of damages to private litigants. The Company is
likely to incur additional costs of complying with the ADA; however, such costs
are not expected to have a material adverse effect on the Company's results of
operations or financial condition. Additional legislation may impose further
burdens or restrictions on property owners with respect to access by disabled
persons. If a homeowners' association at a resort was required to make
significant improvements as a result of non-compliance with the ADA, vacation
interests owners may default on their mortgages and/or cease making required
homeowners' association assessment payments. The Company is not aware of any
non-compliance with the ADA, the Fair Housing Act or similar laws that
management believes would have a material adverse effect on the Company's
business, assets or results of operations.
NATURAL DISASTERS; UNINSURED LOSS
In 1992, prior to the Company's purchase of an interest in the Embassy
Vacation Resort Poipu Point, the resort was substantially destroyed by Hurricane
Iniki. The resort was rebuilt with insurance proceeds before the Company
acquired its interest in the resort, but could suffer similar damage in the
future. In September 1995 and July 1996, the Company's St. Maarten resorts were
damaged by hurricanes and could suffer similar damage in the future. In
addition, the Company's other resorts which are or will be located in Hawaii,
Florida, Mexico and the Caribbean (including the St. John resort which was
damaged by Hurricane Marilyn in 1995) may be subject to hurricanes and damaged
as a result thereof. The Company's resorts located in California and Hawaii may
be subject to damage resulting from earthquakes. The Company currently maintains
insurance coverage which, in management's opinion, is at least as comprehensive
as the coverage maintained by other prudent entities in the Company's line of
business. However, there are certain types of losses (such as losses arising
from acts of war and civil unrest) that are not generally insured because they
are either uninsurable or not economically insurable and for which the Company
does not have insurance coverage. Should an uninsured loss or a loss in excess
of insured limits occur, the Company could lose its capital invested in a
resort, as well as the anticipated future revenues from such resort and would
continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any such loss could have a material adverse effect on
the Company.
EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDERS
The Founders hold substantial amounts of shares of Common Stock (Messrs.
Kaneko, Gessow and Kenninger hold 9.7%, 10.1% and 3.1%, respectively, as of the
date hereof) which may allow them, collectively, to exert substantial influence
over the election of directors and the management and affairs of the Company.
Accordingly, if such persons vote their shares of Common Stock in the same
manner, they may have sufficient voting power to determine the outcome of
various matters submitted to the stockholders for approval, including mergers,
consolidations and the sale of substantially all of the Company's assets. Such
control may result in decisions which are not in the best interest of the
Company.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. Any payment of future cash dividends will be in the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect of the payment of dividends
and other factors that the Company's Board of Directors deems relevant. On
October 27, 1997, the Company completed a three-for-two stock split in the form
of a Common Stock dividend.
RISKS RELATED TO INTERNATIONAL OPERATIONS
The Company expects that international operations will account for an
increasingly significant percentage of the Company's operations. As a result,
the Company is subject to a number of risks, including, among other
33
<PAGE> 37
things, difficulties relating to administering its business globally, managing
foreign operations, currency fluctuations, restrictions against the repatriation
of earnings, export requirements and restrictions and multiple and possibly
overlapping tax structures. These risks could have a material adverse effect on
the Company's business, results of operations and financial condition.
Additionally, changes in inflation, interest rates, taxation, regulation or
other social, political, economic or diplomatic developments affecting the
countries in which the Company has (or intends to have) international operations
could have a material adverse effect on the Company's business, operating
results and financial condition.
POTENTIAL CONFLICTS OF INTEREST
Because affiliates of Messrs. Kaneko and Kenninger have operations in the
lodging industry other than those with respect to the development and operation
of vacation ownership resorts, potential conflicts of interest exist. Affiliates
of KOAR Group, Inc. ("KOAR"), a Los Angeles based real estate acquisition and
development company and predecessor of the Company which is owned by Messrs.
Kaneko and Kenninger, have developed and currently act as the managing general
partner of partnerships which own hotels that are franchised as Embassy Suites
hotels (one of which, the Embassy Suites Lake Tahoe, is located in a market
served by the Company) and a residential condominium project overlooking the
ocean in Long Beach, California (a market in which the Company may operate in
the future). Messrs. Kaneko and Kenninger will continue to devote a portion of
their time to KOAR's hotel and other businesses and to meeting their duties and
responsibilities to investors in such entities. In addition, the Founders will
continue to devote a portion of their time to certain funds, limited liability
companies or partnerships with investments in commercial or residential real
estate developments that do not present a prospect for conversion to vacation
ownership or resort related use. The Company's Board of Directors (including the
Company's independent directors) has determined that the Company does not
presently intend to invest in such commercial or residential real estate
developments that do not present a prospect for conversion to vacation ownership
or resort related use.
Additionally, notwithstanding their covenants not to compete, the Founders
have the right to pursue certain activities which could divert their time and
attention from the Company's business and result in conflicts with the Company's
business. The Founders are evaluating the acquisition of other hotel properties
in Hawaii, which at a future date may be converted to accommodate vacation
ownership operations. However, any such acquisition from the Founders would be
subject to the approval of the Company's independent directors and the Founders
are prohibited from actively engaging in the vacation ownership business outside
of the Company.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS
Certain provisions of the Company's articles of incorporation, as amended,
(the "Charter") and bylaws, as amended, (the "Bylaws"), as well as Maryland
corporate law, may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that a stockholder might consider to be in the
stockholder's best interest. For example, such provisions may (i) deter tender
offers for Common Stock, which offers may be beneficial to stockholders or (ii)
deter purchases of large blocks of Common Stock, thereby limiting the
opportunity for stockholders to receive a premium for their Common Stock over
then-prevailing market prices. These provisions include the following:
Preferred Shares. The Charter authorizes the Board of Directors to issue
preferred stock in one or more classes and to establish the preferences and
rights (including the right to vote and the right to convert into Common Stock)
of any class of preferred stock issued. No preferred stock is issued or
outstanding.
Staggered Board. The Board of Directors of the Company has three classes of
directors each serving a staggered term so that the directors' terms currently
will expire in 1998, 1999 and 2000. Directors for each class will be chosen for
a three-year term upon the expiration of the term of the current class. The
affirmative vote of two-thirds of the outstanding Common Stock is required to
remove a director.
Maryland Business Combination Statute. Under the Maryland General
Corporation Law ("MGCL"), certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any person who
owns, directly or indirectly, 10% or more of the voting power of the
corporation's shares of
34
<PAGE> 38
capital stock (an "Interested Stockholder") must be approved by a supermajority
(i.e., 80%) of voting shares. In addition, an Interested Stockholder may not
engage in a business combination for five years following the date he or she
became an Interested Stockholder.
Maryland Control Share Acquisition. Maryland law provides that "Control
Shares" of a corporation acquired in a "Control Share Acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the votes
eligible under the statute to be cast on the matter. "Control Shares" are voting
shares of beneficial interest which, if aggregated with all other such shares of
beneficial interest previously acquired by the acquiror, would entitle the
acquiror directly or indirectly to exercise voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third, (ii) one-third or more but less than a majority or (iii) a
majority of all voting power. Control Shares do not include shares of beneficial
interest the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval. A "Control Share Acquisition" means
the acquisition of Control Shares, subject to certain exceptions.
If voting rights are not approved at a meeting of stockholders then,
subject to certain conditions and limitations, the issuer may redeem any or all
of the Control Shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for Control Shares are approved at a
stockholders meeting and the acquiror becomes entitled to vote a majority of the
shares of beneficial interest entitled to vote, all other stockholders may
exercise appraisal rights.
RISK OF TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY
The Company sells vacation interests at its resort locations through
independent sales agents. Such independent sales agents provide services to the
Company under contract and, the Company believes, are not employees of the
Company. Accordingly, the Company does not withhold payroll taxes from the
amounts paid to such independent contractors. Although the Internal Revenue
Service has made inquiries regarding the Company's classification of its sales
agents at its Branson, Missouri resort, no formal action has been taken and the
Company has requested that the inquiry be closed. In the event the Internal
Revenue Service or any state or local taxing authority were to successfully
classify such independent sales agents as employees of the Company, rather than
as independent contractors, and hold the Company liable for back payroll taxes,
such reclassification may have a material adverse effect on the Company.
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 expected to incur 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 to 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 have a material adverse effect on the Company's business or results of
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently subject to litigation and claims respecting
employment, tort, contract, construction and commissions, among others. In the
judgment of the Company's management, none of such lawsuits or claims against
the Company is likely to have a material adverse effect on the Company or its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's equity holders during
the fourth quarter of 1997.
35
<PAGE> 39
PART II
ITEM 5. MARKET FOR REGISTRATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "OWN." Prior to February 6, 1998, the Common Stock was quoted on the
Nasdaq National Market under the symbol "SIGR." The following table sets forth,
the high and low sale prices for the Common Stock for each quarter during the
fiscal year ended December 31, 1997 and for the third and fourth quarter during
the fiscal year ended December 31, 1996 (the Company's Initial Public Offering
was consummated in August 1996), in each case as adjusted for the Stock Split.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Fourth Quarter..................................... $31.75 $20.75
Third Quarter...................................... $32.00 $20.92
Second Quarter..................................... $23.50 $13.00
First Quarter...................................... $25.08 $14.50
YEAR ENDED DECEMBER 31, 1996:
Fourth Quarter..................................... $25.75 $17.17
Third Quarter...................................... $16.33 $ 9.25
</TABLE>
On March 28, 1998, there were approximately 125 holders of record of the
Company's Common Stock and the approximate number of beneficial stockholders is
2,375.
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock. The
Company currently intends to retain future earnings to finance its operations
and fund the growth of its business. Any payment of future dividends will be at
the discretion of the Board of Directors of the Company and will depend upon,
among other things, the Company's earnings, financial condition, capital
requirements level of indebtedness, contractual restrictions in respect of the
payment of dividends and other factors that the Company's Board of Directors
deems relevant.
In connection with the PRG Acquisition in May 1997, the Company issued
3,601,844 shares of its Common Stock to former PRG stockholders. Such securities
were issued by the Company in reliance upon an exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof.
Additionally, in connection with the LSI Acquisition in August 1997, the
Company issued 1,996,401 shares of its Common Stock to former LSI stockholders.
Such securities were issued by the Company in reliance upon an exemption from
the registration requirements of the Securities Act provided by Section 4(2)
thereof.
Finally, in connection with the Marc Acquisition in October 1997, the
Company issued 212,717 shares of Common Stock to former Marc stockholders. Such
securities were issued by the Company in reliance upon an exemption from the
registration requirements of the Securities Act prohibited by Section 4(2)
thereof.
36
<PAGE> 40
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth summary consolidated financial data of the
Company. For all of the periods presented, the financial data presented below
gives effect to the AVCOM, PRG and LSI Acquisitions by combining the historical
information of AVCOM, PRG, LSI and the Company and restating the historical
financial data of the Company using the pooling-of-interests method of
accounting.
Prior to its acquisition by the Company on February 7, 1997, AVCOM
recognized a net loss of $12.4 million for the year ended December 31, 1996. As
a result of the pooling-of-interests accounting treatment, this net loss has
been reflected in the Company's consolidated financial statements for the year
ended December 31, 1996, reducing the Company's 1996 reported consolidated net
income. In addition, as a result of the Company's 1997 acquisitions, the Company
incurred $10.0 million of non-recurring merger-related costs, reducing the
Company's 1997 reported consolidated net income.
The financial data presented below includes the effect of the Consolidation
Transactions and the Initial Public Offering, both of which were consummated on
August 20, 1996. The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements for the Company and the
notes thereto, each of which are contained elsewhere in this 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
----------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Vacation Interval and Vacation Point
sales................................. $68,867 $116,356 $139,426 $182,300 $281,063
Interest income.......................... 12,770 15,965 20,339 25,415 42,856
Other income............................. 1,110 1,547 8,553 12,132 13,774
------- -------- -------- -------- --------
Total revenues................... 82,747 133,868 168,318 219,847 337,693
------- -------- -------- -------- --------
Costs and operating expenses:
Vacation Interval and Vacation Point cost
of sales.............................. 18,548 33,082 39,810 48,218 71,437
Advertising, sales and marketing......... 32,711 54,098 62,258 89,040 126,739
Loan portfolio:
Interest expense -- treasury.......... 7,435 8,224 10,077 13,482 13,032
Other expenses........................ 840 1,466 2,034 4,523 5,522
Provision for doubtful accounts(a).... 1,703 2,045 3,666 8,311 8,579
General and administrative(a)............ 6,852 12,629 19,263 37,436 42,254
Resort property valuation allowance(a)... -- -- -- 2,620 --
Depreciation and amortization(a)......... 616 1,196 2,514 5,027 6,499
Merger-related costs(a)(b)............... -- -- -- -- 9,973
------- -------- -------- -------- --------
Total costs and operating
expenses....................... 68,705 112,740 139,622 208,657 284,035
------- -------- -------- -------- --------
Income from operations................... 14,042 21,128 28,696 11,190 53,658
Interest expense -- other, net........... 519 1,517 1,728 3,763 9,394
Equity loss on investment in joint
venture............................... -- 271 1,649 299 639
Minority interest in income of
consolidated limited partnership...... -- -- -- 199 181
------- -------- -------- -------- --------
Income before provision (benefit)
for income taxes and
extraordinary item............. 13,523 19,340 25,319 6,929 43,444
------- -------- -------- -------- --------
Provision (benefit) for income taxes from
continuing operations................. 3,064 2,768 4,020 (4,105) 17,196
Provision for deferred income taxes
resulting from the cumulative effect
of previously non-taxable acquired
entities.............................. -- -- -- -- 5,960
------- -------- -------- -------- --------
Total provision (benefit) for income
taxes................................. 3,064 2,768 4,020 (4,105) 23,156
------- -------- -------- -------- --------
Income before extraordinary item...... 10,459 16,572 21,299 11,034 20,288
Extraordinary item, net of tax........... -- -- -- -- 766
------- -------- -------- -------- --------
Net income....................... $10,459 $ 16,572 $ 21,299 $ 11,034 $ 19,522
======= ======== ======== ======== ========
Pro forma net income(c).................. $ 8,249 $ 11,954 $ 15,310 $ 4,380 $ 19,522
</TABLE>
37
<PAGE> 41
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE PRICES)
<S> <C> <C> <C> <C> <C>
OTHER DATA (UNAUDITED FOR ALL PERIODS):
EBITDA(d)................................. $ 22,622 $ 31,553 $ 41,553 $ 44,622 $ 85,424
Ratio of earnings to fixed charges(e)..... 2.5 2.4 2.7 1.1 2.3
Number of resorts at period end........... 5 16 20 31 70
Number of Vacation Intervals sold......... 5,917 10,695 10,024 11,946 17,271
Number of Vacation Intervals in inventory
at period end.......................... 2,830 6,915 23,439 30,399 29,168
Average price of Vacation Intervals
sold................................... $ 11,639 $ 10,078 $ 12,298 $ 13,146 $ 13,885
Number of Vacation Points in inventory at
period end............................. -- 233,802 205,943 291,674 599,554(f)
Number of Vacation Points sold............ -- 65,325 102,270 132,878 194,055(g)
Average price of Vacation Points sold..... $ -- $ 198 $ 181 $ 186 $ 213(h)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents, including
escrow................................. $ 16,451 $ 17,015 $ 22,779 $ 22,469 $ 47,972
Mortgages receivable, net................. 78,079 102,470 147,405 215,518 331,735
Total assets.............................. 136,607 210,218 295,771 445,884 761,145
Total debt................................ 87,839 123,009 177,032 236,122 435,208
Stockholders' equity...................... 34,232 61,187 75,448 126,425 207,910
</TABLE>
- ---------------
(a) Non-recurring costs for the year ended December 31, 1997, are merger costs
relating to the AVCOM, PRG and LSI Acquisitions. Non-recurring costs for the
year ended December 31, 1996 include costs incurred at AVCOM for (i) an
increase in the provision for doubtful accounts of $2.0 million, (ii) $9.1
million in severance costs, lease cancellations, litigation reserves and
other integration costs and a reserve for losses associated with certain
property management and related contracts, (iii) a $2.6 million write-down
of certain property to estimated fair market value, and (iv) a $0.7 million
charge relating to amortization of start-up costs over a period of one year.
(b) Merger-related costs include expenses related to fees paid to financial
advisors, legal fees, and other transaction expenses in connection with the
AVCOM, PRG and LSI Acquisitions.
(c) Reflects the effect on the historical statement of operations data, assuming
the combined Company had been treated as a C corporation rather than as
individual limited partnerships and limited liability companies for federal
income tax purposes, and reflects actual net income for December 31, 1997.
(d) EBITDA represents net income before interest expense-treasury, interest
expense-other, income taxes, non-recurring costs and depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA should not be construed as a substitute for income from
operations, net income or cash flows from operating activities in analyzing
the Company's operating performance, financial position and cash flows. The
EBITDA measure presented herein may not be comparable to EBITDA as presented
by other companies. The following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income................................ $ 10,459 $ 16,572 $ 21,299 $ 11,034 $ 19,522
Interest expense-treasury................. 7,435 8,224 10,077 13,482 13,032
Interest expense-other.................... 519 1,517 1,728 3,763 9,394
Capitalized interest expense included in
Vacation Interval and Vacation Point
cost of sales........................... 529 1,276 1,915 1,718 3,082
Income taxes (benefit).................... 3,064 2,768 4,020 (4,105) 23,156
Non-recurring costs....................... -- -- -- 14,381(a) 9,973(a)
Depreciation and amortization............. 616 1,196 2,514 4,349(a) 6,499
Extraordinary item, net of tax............ -- -- -- -- 766
-------- -------- -------- -------- --------
EBITDA........................... $ 22,622 $ 31,553 $ 41,553 $ 44,622 $ 85,424
======== ======== ======== ======== ========
</TABLE>
38
<PAGE> 42
(e) The ratio of earnings to fixed charges has been computed by dividing
earnings before income tax, plus fixed charges (excluding capitalized
interest) and amortization of previously capitalized interest by fixed
charges. Fixed charges consist of interest and other finance expenses and
capitalized interest.
(f) Includes 461,473 Vacation Points in Grand Vacation Club and 138,081 Vacation
Points in VTS Program. Vacation Points assumed through the Global
Acquisition have been converted to the Grand Vacation Club at a rate of ten
to one.
(g) Includes 180,426 Vacation Points sold by the Grand Vacation Club and 13,629
Vacation Points sold by VTS Program. Vacation Points assumed through the
Global Acquisition have been converted into the Grand Vacation Club at a
rate of ten to one.
(h) Calculated as the weighted average price per Vacation Point of Grand
Vacation Club ($220 per Vacation Point) and VTS Program ($119 per Vacation
Point). Vacation Points assumed through the Global Acquisition have been
converted to the Grand Vacation Club at a rate of ten to one.
39
<PAGE> 43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the preceding
Selected Financial Data and the Company's Financial Statements and the notes
thereto and the other financial data included elsewhere in this 10-K.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in "Business and Properties."
RESULTS OF OPERATIONS
The following discussion of the results of operations includes the
Company's corporate and partnership predecessors and wholly-owned subsidiaries
and affiliates including AVCOM, PRG, LSI and their subsidiaries. The AVCOM, PRG
and LSI Acquisitions were accounted for using pooling-of-interests accounting
treatment for business combinations. Under such accounting treatment, the
results of operations are restated to include the operations of each acquired
entity of the years ended December 31, 1997, 1996 and 1995. The following
discussion also includes the results of operations for Marc, VI and the Global
Group. The Marc, VI and Global Acquisitions were each accounted for using the
purchase method of accounting for the business combinations.
Prior to its acquisition by the Company on February 7, 1997, AVCOM
recognized a net loss of $12.4 million for the year ended December 31, 1996. As
a result of applying pooling-of-interests accounting treatment to the AVCOM
Acquisition, this net loss has been reflected in the Company's consolidated
financial statements for the year ended December 31, 1996, reducing the
Company's 1996 reported consolidated net income. In addition, as a result of the
Company's 1997 acquisitions, the Company incurred $10.0 million of non-recurring
merger-related costs, reducing the Company's 1997 reported consolidated net
income. Therefore, to allow for a more meaningful comparison of the 1997 and
1996 financial results and management's discussion and analysis of such
financial results, reported total revenues and operating expenses have been
adjusted for non-recurring charges resulting from the AVCOM, PRG and the LSI
Acquisitions. The following table details the adjustments to reported total
revenues and costs and operating expenses for such non-recurring charges and
revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total reported revenues..................................... $168.3 $219.8 $337.7
Other income(a)............................................. -- (1.7) --
------ ------ ------
Adjusted total revenues........................... $168.3 $218.1 $337.7
====== ====== ======
Total reported costs and expenses........................... $139.6 $208.7 $284.0
Provision for doubtful accounts(b).......................... -- (2.0) --
General and administrative expenses(b)...................... -- (9.1) --
Resort property valuation allowance(b)...................... -- (2.6) --
Merger-related costs(c)..................................... -- -- (10.0)
Amortization of start-up costs(b)........................... -- (0.7) --
------ ------ ------
Adjusted total costs and expenses................. $139.6 $194.3 $274.0
====== ====== ======
Adjusted operating income......................... $ 28.7 $ 23.8 $ 63.7
====== ====== ======
</TABLE>
- ---------------
(a) For the year ended December 31, 1996, the Company recognized $1.7 million of
other income as the result of the settlement of certain receivables from the
former owners of the St. Maarten Resorts.
(b) As the result of the AVCOM Acquisition, the Company recognized the following
non-recurring charges for the year ended December 31, 1996: (i) $2.0 million
in the provision for doubtful accounts; (ii) $9.1 million in general and
administrative expenses for severance costs, lease cancellations, litigation
reserves, and a reserve for losses associated with certain property
management and related expenses; (iii) $2.6 million in resort property
valuation allowance for the write-down of certain property to fair
40
<PAGE> 44
market value; and (iv) $0.7 million in depreciation and amortization for the
amortization of startup costs over a period of one year.
(c) For the year ended December 31, 1997, the Company recognized $10.0 million
in non-recurring merger costs for the AVCOM, PRG and LSI Acquisitions. These
charges include investment banking, legal, accounting and other professional
fees.
The following table sets forth certain operating information, as adjusted
for the non-recurring charges and revenues described above.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Vacation Interval and Vacation Point sales.................. 82.8% 83.6% 83.2%
Interest income............................................. 12.1% 11.6% 12.7%
Other income................................................ 5.1% 4.8% 4.1%
------- ------- -------
Total revenues.............................................. 100.0% 100.0% 100.0%
AS A PERCENTAGE OF VACATION INTERVAL AND VACATION POINT
SALES:
Vacation Interval and Vacation Point cost of sales.......... 28.6% 26.4% 25.4%
Advertising, sales and marketing............................ 44.7% 48.8% 45.1%
AS A PERCENTAGE OF TOTAL REVENUES:
General and administrative.................................. 11.4% 13.0% 12.5%
SELECTED OPERATING DATA:
Vacation Intervals sold..................................... 10,024 11,946 17,271
Vacation Points sold........................................ 102,270 132,878 194,055(a)
Average sales price per Vacation Interval................... $12,298 $13,146 $13,885
Average sales price per Vacation Point...................... $ 181 $ 186 $ 213(b)
Number of Vacation Intervals in inventory at end period..... 23,439 30,399 29,168
Number of Vacation Points in inventory at end period........ 205,943 291,674 599,554(c)
Number of resorts at period end(d).......................... 20 31 70
</TABLE>
- ---------------
(a) Includes 180,426 Vacation Points sold by the Grand Vacation Club and 13,629
Vacation Points sold by the VTS Program. Vacation Points assumed through the
Global Acquisition have been converted into the Grand Vacation Club at a
rate of ten to one.
(b) Calculated as the weighted average price per Vacation Point of Grand
Vacation Club ($220 per Vacation Point) and the VTS Program ($119 per
Vacation Point). Vacation Points assumed through the Global Acquisition have
been converted to the Grand Vacation Club at a rate of ten to one.
(c) Includes 461,473 Vacation Points in Grand Vacation Club and 138,081 Vacation
Points in the VTS Program. Vacation Points assumed through the Global
Acquisition have been converted to the Grand Vacation Club at a rate of ten
to one.
(d) Includes resort locations of AVCOM, PRG and LSI acquired by the Company in
1997 and accounted for by the pooling-of-interests method.
COMPARISON OF 1996 TO 1997
The following discussion of financial results adjusts the reported
statement of operations data for the non-recurring charges incurred during the
years ended December 31, 1997 and 1996. For the year ended December 31, 1997,
the Company recognized $10.0 million in non-recurring merger-related expenses
for the acquisition by merger of AVCOM, PRG and LSI and a $6.0 million charge to
record deferred taxes related to cumulative temporary differences between
financial and tax reporting for entities acquired in the PRG Acquisition that
were previously taxed as partnerships at the partner level. For the year ended
December 31, 1996, the Company incurred the following non-recurring charges
related to the AVCOM Acquisition: (i) general and administrative expense
increased by $9.1 million for severance costs, lease cancellations,
41
<PAGE> 45
litigation reserves, reserves for losses associated with certain property
management and related contracts; (ii) provision for doubtful accounts increased
by $2.0 million; (iii) resort property valuation allowance increased by $2.6
million to write down certain property to market value for projects initiated by
AVCOM which were subsequently abandoned; and (iv) depreciation and amortization
increased by $0.7 million related to the amortization of start-up costs over a
period of one year. Also, in 1996, the Company recognized $1.7 million of other
income as the result of a settlement of certain receivables from the former
owners of the St. Maarten resorts.
In 1997, total reported revenues were $337.7 million, compared with
adjusted total revenues of $218.1 million in 1996, an increase of $119.6
million, or 55%. This increase was due primarily to a 53% increase in Vacation
Interval sales, a 66% increase in Vacation Points sales, and a 69% increase in
interest income. The growth in Vacation Interval sales was due to both an
increase in the number of Vacation Intervals sold to 17,271 in 1997 from 11,946
in 1996, an increase of 45%, and an increase in the average price of Vacation
Intervals sold to $13,885 in 1997 from $13,146 in 1996, a 6% increase. The
average sales price will change from period to period depending upon the mix of
resorts in sales and the types of intervals sold.
Vacation Points sales during 1997 increased 66% to $41.1 million from $24.7
million in 1996. The number of Vacation Points sold in 1997 increased 46%, to
194,055, from 132,878 in 1996, while the average price per Vacation Point sold
increased 15% to $213 from $186 in 1996. The increase in the number of Vacation
Points sold in 1997 is the result of a 57% increase in Vacation Points sold in
LSI, along with the addition of Vacation Points sales by VI, which was acquired
in November 1997, and the Global Group, which was acquired in December 1997. The
decrease in average price per Vacation Point sold reflects a lower sales price
per point in the Global Group and VI compared with LSI. The average price per
Vacation Point sold at LSI remained essentially unchanged from 1996 to 1997.
Interest income increased 69% to $42.9 million from $25.4 million in 1996.
The increase is the result of an increase in portfolio interest income from
increased gross mortgages receivable, and interest income from investments.
Gross mortgages receivable increased $121.9 million, or 52%, to $354.7 million
in 1997 from $232.8 million in 1996. Interest income from investments increased
by $4.9 million in 1997. Other income, which includes rental income, management
fees, commissions on the sale of European receivables, and other interest
income, increased $3.4 million to reported other income of $13.8 million in 1997
from adjusted other income of $10.4 million in 1996, an increase of 33%.
Vacation Interval and Vacation Point cost of sales, as a percentage of
Vacation Interval and Vacation Point sales, was 25% for 1997, compared with 26%
for the prior year as the Company continued to purchase and construct vacation
units at a discount to historical development costs, reducing the unit cost on
average for each vacation interest sold.
Advertising, sales and marketing expenses increased $37.7 million to $126.7
million for 1997 from $89.0 million for 1996. As a percentage of Vacation
Interval and Vacation Point sales, advertising, sales and marketing expenses
decreased to 45% for 1997 from 49% for 1996. The decrease resulted primarily
from decreased expenses at the resorts acquired in the AVCOM Acquisition as well
as from the company-wide application of best marketing practices taken from the
Company's best performing resorts.
Interest expense-treasury decreased as a percentage of reported total
revenues to 4% in 1997 from 6% of adjusted total revenues in the prior year. The
Company began financing mortgages receivable with the proceeds from the
Concurrent Offerings and the Senior Subordinated Note Offering, rather than with
hypothecation debt. Interest expense relating to these offerings is classified
as interest expense-other. Other loan portfolio expenses increased $1.0 million
during 1997 to $5.5 million from $4.5 million during the prior year. However, as
a percentage of gross mortgages receivable, other loan portfolio expense
decreased to 1.6% in 1997 from 1.9% in 1996.
The provision for doubtful accounts increased $2.3 million during 1997 to
$8.6 million at year end from an adjusted $6.3 million at the end of 1996. The
allowance for doubtful accounts as a percentage of gross mortgages receivable
decreased to a reported 6.5% at December 31, 1997 from an adjusted 6.6% at
42
<PAGE> 46
December 31, 1996. The charge off rate as a percentage of the average mortgages
receivable loan balance was 0.7% for 1997 compared to 2.1% for 1996.
General and administrative expenses increased to a reported $42.3 million
in 1997 from adjusted general and administrative expenses of $28.3 million in
1996, an increase of 49%. General and administrative expenses were 13% of 1997
reported total revenues and 1996 adjusted total revenues. The increase in
general and administrative expenses was the result of (i) the addition of a
number of senior officers and key executives in order to build the management
and organizational infrastructure necessary to efficiently manage the Company's
growth, (ii) increased overhead due to the acquisition of additional resorts,
and (iii) added salary, travel and office expenses attributable to the growth in
the size of the Company.
Depreciation and amortization increased $2.2 million, or 51%, to a reported
$6.5 million during 1997 from adjusted depreciation and amortization of $4.3
million in 1996, reflecting an increase in capital expenditures and intangible
assets. Depreciation and amortization was 1.9% of reported total revenues in
1997 and 2.0% of adjusted total revenues in 1996.
Interest expense-other, reported net of capitalized interest of $6.8
million and $6.7 million at December 31, 1997 and 1996, respectively, increased
$5.6 million, or 147%, to $9.4 million for 1997 from $3.8 million in 1996. The
increase was due primarily to the interest on the Convertible Notes and the
Senior Subordinated Notes issued in 1997.
As a result of the factors discussed above and the $2.6 million resort
property valuation allowance, total costs and operating expenses increased by
$79.7 million, or 41%, to an adjusted $274.0 million in 1997 from an adjusted
$194.3 million in 1996. Total adjusted costs and operating expenses as a
percentage of reported total revenues was 81% in 1997. This represents a
decrease of 8% from adjusted total costs and operating expenses as a percentage
of adjusted total revenues of 89% in 1996.
In addition, as a result of the factors discussed above, adjusted income
before provision for income taxes and extraordinary item and non-recurring costs
increased 172% to $53.4 million in 1997 from $19.6 million for 1996. An
extraordinary item of $0.8 million, net of income taxes, was charged to net
income in 1997 as the result of the early retirement of notes payable to
financial institutions.
For 1997, income taxes increased $27.3 million over 1996, reflecting a
change in the Company's status to a C corporation subsequent to its August 1996
initial public offering, as well as a $6.0 million charge to income tax expense
taken in the fourth quarter resulting from recording deferred taxes for
previously non-taxable entities acquired in the PRG Acquisition. Previously, the
Company's predecessor entities only incurred federal income taxes with regard to
AVCOM and foreign income taxes with respect to LSI and the Company's
wholly-owned subsidiaries located in St. Maarten, Netherlands Antilles.
Income before extraordinary item and non-recurring charges (net of taxes)
was $20.3 million for 1997, an increase of $9.3 million, or 85%, from $11.0
million in 1996. Net income was $19.5 million for 1997, compared with $11.0
million for 1996, an increase of $8.5 million or 77%. Assuming the Company had
been taxed as a C corporation in 1996, pro forma net income would have been $4.4
million, compared with $19.5 million net income for 1997, an increase of 343%.
COMPARISON OF 1995 TO 1996
The following discussion of financial results adjusts the reported
statement of operations data for the following non-recurring charges and
revenues. In 1996, the Company incurred the following non-recurring charges
related to the AVCOM Acquisition: (i) general and administrative expense
increased by $9.1 million for severance costs, lease cancellations, litigation
reserves, reserves for losses associated with certain property management and
related contracts; (ii) provision for doubtful accounts increased by $2.0
million; (iii) resort property valuation allowance increased by $2.6 million to
write down certain property to market value for projects initiated by AVCOM
which were subsequently abandoned; and (iv) depreciation and amortization
increased by $0.7 million related to the amortization of startup costs over a
period of one year. Also, in 1996, the Company recognized $1.7 million of other
income as the result of a settlement of certain receivables from the former
owners of the St. Maarten resorts.
43
<PAGE> 47
For 1996, the Company achieved adjusted total revenues of $218.1 million,
compared with reported total revenues of $168.3 million for 1995, an increase of
$49.8 million or 30%. The increase was due to the growth of Vacation Intervals
sold to 11,946 in 1996 from 10,024 in 1995, a 19% increase, coupled with a 7%
increase in the average sales price to $13,146 in 1996 from $12,298 in 1995. The
growth in Vacation Intervals sold was due to the commencement of sales at
Sunterra Resorts San Luis Bay, Sedona Summit and Scottsdale Villa Mirage and
Embassy Vacation Resort Lake Tahoe, combined with a full year of Vacation
Interval sales at Sunterra Resorts Royal Palm Beach and Flamingo Beach. The
average price per Vacation Point sold at the Company's European resorts
increased 3% to $186 for 1996 from $181 in 1995. In addition, Vacation Point
sales at the Company's European resorts increased 30% to 132,878 sold in 1996
from 102,270 sold in 1995.
Interest income increased $5.1 million, or 25%, due to an increase in gross
mortgages receivable to $232.8 million in 1996 from $160.7 million in 1995.
Other income, which includes rental income, management fees, other interest
income, commission on the sale of European receivables, and portfolio income
from the $10.2 million portfolio acquired with the two St. Maarten resorts in
1995, increased $1.8 million to an adjusted $10.4 million in 1996 from a
reported $8.6 million in 1995.
As a percentage of Vacation Interval and Vacation Point sales, Vacation
Interval and Vacation Point cost of sales decreased to 26% in 1996, compared
with 29% in 1995, as the Company was able to purchase and construct vacation
units at a discount to historical development costs, reducing the unit cost and
points cost on average for each Vacation Interval and Vacation Point sold.
Advertising sales and marketing expenses increased $26.7 million to $89.0
million in 1996 from $62.3 million in 1995. As a percentage of Vacation Interval
and Vacation Point sales, advertising, sales and marketing expenses increased to
49% for 1996 from 45% in 1995. The increase was primarily due to advertising,
sales and marketing expenses incurred at AVCOM which were 58% and 42% of total
Vacation Interval and Vacation Point sales in 1996 and 1995, respectively.
Interest expense-treasury increased $3.4 million to $13.5 million in 1996
from $10.1 million in 1995, as the result of notes payable to financial
institutions and notes payable to related parties increasing from $177.0 million
to $236.1 million, or 33%, and the prime rate increasing during the year. Other
expenses increased 125% to $4.5 million in 1996 from $2.0 million in 1995. Other
expenses increased to 2% of adjusted total revenues in 1996 from 1% of reported
total revenues in 1995. The provision for doubtful accounts increased by $2.6
million to an adjusted $6.3 million from a reported $3.7 million in 1995.
General and administrative expenses increased $9.0 million to an adjusted
$28.3 million in 1996 from reported general and administrative expenses of $19.3
million in 1995. As a percentage of adjusted total revenues, adjusted general
and administrative expenses were 13% in 1996. This amount compares to reported
general and administrative expenses as a percentage of reported total revenues
of 11% in 1995. The increase in adjusted general and administrative expenses was
the result of (i) the addition of a number of senior officers and key executives
in connection with building the Company's management and organizational
infrastructure necessary to efficiently manage the Company's future growth, (ii)
the Company's expenses and reporting obligations as a public company, (iii)
increased overhead due to the acquisition and development of additional resorts,
and (iv) added salary, travel, and office expenses attributable to the then
current and planned growth of the Company.
Depreciation and amortization increased $1.8 million, or 72%, to an
adjusted $4.3 million in 1996 from a reported depreciation and amortization of
$2.5 million in 1995, reflecting an increase in capital expenditures and
intangible assets.
As a result of the factors discussed above, costs and operating expenses
for 1996 increased by $54.7 million to an adjusted $194.3 million in 1996 from a
reported $139.6 million in 1995. Adjusted costs and operating expenses increased
to 89% of adjusted total revenues in 1996, compared with 83% of reported costs
and operating expenses as a percentage of reported total revenues in 1995.
Equity loss on investment in joint venture decreased to $0.3 million in
1996 from $1.6 million in 1995 due to increased Vacation Interval sales and
higher hotel occupancy at Embassy Vacation Poipu Point during
44
<PAGE> 48
1996. In 1996, 1,146 Vacation Intervals were sold at the Embassy Vacation Poipu
Point, while 281 Vacation Intervals were sold at the Embassy Vacation Poipu
Point in 1995.
Income before provision for income taxes decreased to $6.9 million in 1996
from $25.3 million in 1995, primarily due to the significant charges incurred by
AVCOM during the fourth quarter of 1996, as discussed previously. However,
income before provision for taxes for the Company (excluding AVCOM) increased
17%, to $27.3 million in 1996, from $23.4 million in 1995. AVCOM's (loss) income
before provision for taxes decreased to $(20.4) million in 1996 from $1.9
million in 1995, primarily as a result of $13.6 million of non-recurring charges
related to accrued expenses and the write-down and write-off of certain assets
of AVCOM.
Provision (benefit) for income taxes changed from an expense of $4.0
million in 1995 to a tax benefit of $4.1 million in 1996. The 1996 tax benefit
results from the recognition of AVCOM's operating loss carryforward. Previously,
the Company's predecessor entities incurred federal income taxes only with
respect to AVCOM, as well as foreign income taxes with respect to LSI and the
Company's wholly-owned subsidiaries in St. Maarten, Netherlands Antilles.
As a result of the factors discussed above, net income decreased 48% to
$11.0 million in 1996 from $21.3 million in 1995.
The Company has grown significantly from its August 1996 Initial Public
Offering from nine to 70 resort locations at December 31, 1997. This growth has
been achieved in part through the acquisition for cash of individual properties
and operating companies and by the issuance of Common Stock for operating
companies which were accounted for using the pooling-of-interests method of
accounting for business combinations. An indication of the change in the
financial results of the Company as a result of these acquisitions is shown in
the table below which reconciles the Company's total revenues, EBITDA and income
before provision for income taxes as reported for the years ended December 31,
1996 and 1995 in its Annual Reports on Form 10-K to the restated and combined
amounts for the same periods reflecting pooling-of-interests accounting:
<TABLE>
<CAPTION>
EFFECT OF REPORTED
FORM 10-K POOLING TRANSACTIONS HEREIN
--------- -------------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Total revenues....................................... $95,054 $124,793 $219,847
EBITDA............................................... 27,678 16,944 44,622
Income before provision for income taxes............. 17,243 (10,314) 6,929
YEAR ENDED DECEMBER 31, 1995
Total revenues....................................... $72,608 $ 95,710 $168,318
EBITDA............................................... 19,057 22,496 41,553
Income before provision for income taxes............. 11,554 13,765 25,319
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations from the sale of vacation
ownership interests, the financing of the sales of vacation interest units, the
rental of unsold vacation interests, and the receipt of management fees. With
respect to the sale of vacation interests, the Company generates cash from (i)
vacation ownership interests, (ii) the receipt of down payments from customers,
and (iii) the financing of mortgages receivable ranging from 85% to 90% of the
amount borrowed. The Company generates cash from the financing of vacation
interests from the interest charged on mortgages receivable, which averaged
approximately 14.4% for the year ended December 31, 1997.
The Company's $100 million Senior Credit Facility was entered into on
February 18, 1998. 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 of
advances against mortgages receivable. The Senior Credit Facility has a
three-year term and contains customary covenants, representations and
45
<PAGE> 49
warranties and conditions to borrow the funds. As of March 20, 1998,
approximately $87 million was outstanding under the Senior Credit Facility. The
Company is currently negotiating with its bank syndicate to increase the amount
available under the Senior Credit Facility.
The Company expects to securitize approximately $100 million of its
mortgages receivable, of which $50 million has been pre-committed. The Company
expects to convey the mortgages receivable to a bankruptcy remote subsidiary,
which would issue the Securitized Notes. The Securitized Notes would be
nonrecourse to the Company. The Company is finalizing negotiations and expects
to complete the securitization by May 1998. If completed, the securitization
would be treated as a financing transaction for accounting purposes. The
mortgages receivable and the Securitized Notes would remain on the Company's
balance sheet. The Company would recognize no gain or loss on the Securitized
Notes transaction.
For the year ended December 31, 1997, the Company had $50.0 million in
negative cash flows from operations. Because the Company typically finances 90%
of the purchase price of the vacation interests it sells, it typically incurs
significant operating costs in excess of the actual cash proceeds initially
received from the sale of a vacation interest. To meet the Company's cash
requirements to finance these customer receivables, the Company borrows funds
available under its credit facilities. The Company expects to repay its credit
facilities with proceeds from the issuance of pass-through mortgage-backed
securities under which the Company sells the mortgages receivable and principal
or interest payments from its portfolio of mortgages receivable. The Company may
also sell or factor additional mortgages receivable or borrow under existing or
future lines of credit.
In August 1997, the Company consummated the $200.0 million Senior
Subordinated Note Offering. After deducting underwriters discounts and expenses,
and giving effect to original issue discount of approximately $1.5 million, the
net proceeds to the Company were $191.0 million. The Company has exchanged new
registered notes (the "Senior Subordinated Exchange Notes") for the
privately-issued Senior Subordinated Notes, such exchange being registered with
the Securities and Exchange Commission. The form and terms of the Senior
Subordinated Exchange Notes are identical to the Senior Subordinated Notes,
except that the Senior Subordinated Exchange Notes are registered under the
Securities Act of 1933, as amended.
In February 1997, the Company consummated its public offering of $138.0
million aggregate principal amount of Convertible Notes and its offering of 6.0
million shares of Common Stock (comprised of 2.4 million newly-issued shares
sold by the Company and 3.6 million secondary shares sold by certain selling
stockholders). The net proceeds to the Company from the sale of the 2.4 million
newly-issued shares of Common Stock and from the sale of the $138.0 million
aggregate principal amount of Convertible Notes, based on a public price of 100%
of the principal amount thereof, in each case after deducting underwriting
discounts and expenses, were $53.2 million and $134.9 million, respectively. The
Convertible Notes may be exchanged for shares of the Company's Common Stock at
any time prior to maturity on January 15, 2007 at a conversion price of $30.417
per share, subject to adjustment under certain circumstances as stated in the
related indenture.
The Company requires funds to finance the future acquisition and
development of vacation ownership resorts and properties and to finance customer
purchases of vacation interests. Such capital has been provided by secured
financings on vacation ownership inventory, secured financings on mortgages
receivable generally funded by third-party lenders and unsecured notes
(including the Convertible Notes and the Senior Subordinated Notes issued in
1997). As of December 31, 1997, the Company had approximately $199 million of
additional borrowing capacity under certain third-party lending agreements. As
of December 31, 1997, the Company had $91.0 million outstanding under its notes
payable secured by mortgages receivable and $6.2 million outstanding under its
notes payable secured by unsold vacation interest inventory or other assets.
During 1997, the Company spent approximately $137 million for expansion and
development activities at the Company's resort locations. The Company funded
these expenditures primarily with the net proceeds of the Concurrent Offerings,
the Senior Subordinated Note Offering, available capacity on credit facilities,
and cash generated from operations.
46
<PAGE> 50
The Company expects to incur approximately $20 million in 1998 to complete
projects currently under construction. For a description of potential expansion
plans, see "Business and Properties -- Description of the Company's Resort
Locations."
The Company intends to pursue a growth-oriented strategy. From time to
time, the Company may acquire, among other things, additional vacation ownership
properties, resorts and completed vacation interests; land upon which additional
vacation ownership resorts may be built; management contracts; loan portfolios
of vacation interval mortgages; portfolios which include properties or assets
which may be integrated into the Company's operations; and operating companies
providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to the Company's operations
in the vacation ownership industry.
In the future, in addition to the financing activities described, the
Company may issue corporate debt, equity securities, or collateralized
mortgage-backed securities to finance its acquisition activities. Any debt
incurred or issued by the Company may be secured or unsecured, fixed or variable
rate interest, and may be subject to such terms as management deems prudent.
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 generated from operations, future borrowings, and
securities offerings, will be sufficient to meet the Company's working capital
and capital expenditure needs for the period ended December 31, 1998. However,
depending upon conditions in the capital and other financial markets, other
factors and the Company's growth, development and expansion plans, 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 mortgage receivables or for other purposes.
AVCOM ACQUISITION AND RELATED EXPENSES
In February 1997, the Company consummated the AVCOM Acquisition, acquiring
AVCOM for 1,324,554 shares of the Company's Common Stock, representing on a pro
forma basis approximately 4.4% of the shares of the Company's Common Stock
outstanding following such acquisition. Based upon the closing price of the
Common Stock on February 7, 1997, the 1,324,554 shares issued in the AVCOM
Acquisition were valued at an aggregate of approximately $32.2 million. The
Company also assumed approximately $68.3 million in debt and $53.7 million of
mortgages receivable in the AVCOM Acquisition. The Company has accounted for the
AVCOM Acquisition under the pooling-of-interests method of accounting for
business combinations.
Transaction costs relating to the negotiation of, preparation for, and
consummation of the AVCOM Acquisition and the combination of certain operations
of the Company and AVCOM resulted in a one-time charge to the Company's earnings
of $1.7 million in the first quarter of 1997. This charge includes the fees and
expenses payable to financial advisors, legal fees and other transaction
expenses related to the AVCOM Acquisition.
PRG ACQUISITION AND RELATED EXPENSES
On May 15, 1997, the Company consummated its merger with PRG, a developer,
marketer and operator of two vacation ownership resorts in Williamsburg,
Virginia. The PRG Acquisition was consummated through the issuance of 3,601,844
shares of the Company's Common Stock, representing on a pro forma basis
approximately 10.7% of the shares of the Company's Common Stock outstanding
following such merger. Based upon the closing price of the Common Stock on May
15, 1997, the shares issued in the PRG Acquisition were valued at an aggregate
of $59.1 million. The Company also assumed approximately $58.4 million of debt,
$66.0 million of mortgages receivable and $5.7 million in cash in the PRG
Acquisition. The Company has accounted for the PRG Acquisition under the
pooling-of-interests method of accounting for business combinations.
47
<PAGE> 51
The Company recorded a one-time charge of $4.2 million during the second
quarter 1997 for charges related to the PRG Acquisition including fees paid to
financial advisors, legal, and other transaction-related expenses. Certain
entities acquired in the PRG Acquisition were taxed as partnerships at the
partner level. As a result of the PRG Acquisition, the Company recorded a
deferred tax liability for cumulative temporary differences between financial
and tax reporting. This liability was established through a charge to the
Company's provision for income taxes in 1997.
LSI ACQUISITION AND RELATED EXPENSES
On August 28, 1997, the Company consummated the LSI Acquisition, acquiring
100% of LSI's capital stock in exchange for 1,996,401 newly issued shares of the
Company's Common Stock, representing on a pro forma basis approximately 5.6% of
the shares of the Company's Common Stock outstanding as of June 30, 1997. Based
upon the closing price of the Common Stock on August 28, 1997, the 1,996,401
shares issued in the LSI Acquisition were valued at an aggregate of
approximately $48.2 million. In addition to the Common Stock issued in the LSI
Acquisition, the Company also assumed $0.5 million in debt, $1.7 million of
mortgages receivable and $6.0 million in cash. The Company also paid cash
consideration of approximately $1 million to a former LSI shareholder. The
Company has accounted for the LSI Acquisition under the pooling-of-interests
method of accounting for business combinations.
Transaction costs relating to the negotiation of and preparation for the
LSI Acquisition and the anticipated combination of certain operations resulted
in a one-time charge to the Company's earnings of $4.1 million in the third
quarter of 1997. These charges include the fees and expenses payable to
financial advisors, legal fees and other transaction expenses related to the LSI
Acquisition.
MARC HOTELS & RESORTS ACQUISITION
On October 10, 1997, the Company consummated the Marc Acquisition acquiring
100% of the capital stock of Marc Resorts for 212,717 newly issued shares of the
Company's Common Stock. The Company has accounted for the Marc Acquisition using
the purchase method of accounting for business combinations.
VACATION INTERNATIONALE ACQUISITION
On November 7, 1997, the Company consummated its acquisition of 100% of the
capital stock of VI for approximately $24.3 million, comprised of $8.0 million
in cash and promissory notes and the assumption of approximately $16.3 million
of long-term indebtedness. The Company has accounted for the VI Acquisition
using the purchase method of accounting for business combinations.
ACQUISITION OF EMBASSY SUITES RESORT AT KAANAPALI BEACH
On November 14, 1997, a partnership of which the Company is a managing
general partner consummated its acquisition of the Embassy Suites Resort at
Kaanapali Beach, Maui, Hawaii for approximately $78 million. The acquiring
entity is a partnership formed by a wholly-owned subsidiary of the Company (as
the managing general partner), the Whitehall Street Real Estate Limited
Partnership VII and Apollo Real Estate Advisors, L.P. The Company's subsidiary
owns a 24% partnership interest in the acquiring entity.
ACQUISITION OF GLOBAL GROUP
On December 5, 1997, the Company consummated its acquisition of the
European vacation ownership business of the Global Group through an asset
purchase for cash consideration of approximately $18 million. The Company
assumed no debt as part of this transaction, but assumed approximately $7.0
million in current liabilities and acquired assets valued at approximately $15.8
million. The Company has accounted for the Global Acquisition using the purchase
method of accounting.
48
<PAGE> 52
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 expected to incur 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 to Company expenses during 1998 and 1999. Suppliers,
customers, mortgages receivable servicers and creditors of the Company also face
Year 2000 issues. Their failure to successfully address the Year 2000 issue
could have a material adverse effect on the Company's business or results of
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the information set forth on Index to Financial Statements appearing on
page F-1 of this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 12, 1996, Ernst & Young LLP advised the Company that it was
resigning as independent auditors for the Company. Ernst & Young LLP had been
retained since the Company's inception and there have been no disagreements
between the Company and Ernst & Young LLP with respect to accounting principles
or practices, financial statement disclosure, auditing scope or procedures,
which if not resolved to Ernst & Young LLP's satisfaction, would have resulted
in a reference to the subject matters of the disagreement in its audit report.
Since the Company's inception, Ernst & Young LLP's report on the Company's
financial statements did not contain an adverse opinion or a disclaimer of
opinion, nor were the opinions qualified or modified as to uncertainty, audit
scope, or accounting principles, nor were there any events of the type requiring
disclosure under Item 304(a)(l)(v) of Regulation S-K under the Securities Act.
On September 17, 1996, the Company retained the accounting firm of Arthur
Andersen LLP as auditors for the fiscal year ending December 31, 1996 following
Board of Directors approval, which was obtained on September 16, 1996. The
decision to retain Arthur Andersen LLP was based upon the prior relationship
with a predecessor of the Company as auditors for the fiscal year ending
December 31, 1994 and Arthur Andersen LLP's experience in the Company's
industry, and was not motivated by any disagreements between the Company and
Ernst & Young LLP concerning any accounting principles and/or policy matters.
From the Company's inception to September 17, 1996, the Company did not consult
with Arthur Andersen LLP with respect to the matters described in Item 304(a)(2)
of Regulation S-K.
49
<PAGE> 53
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information, as of March 31, 1998,
concerning each person who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Osamu Kaneko......................... 50 Chairman of the Board
Andrew J. Gessow..................... 40 Director and Chief Executive Officer
Steven C. Kenninger.................. 45 Director and President
Michael A. Depatie................... 41 Director, Executive Vice President and Chief
Financial Officer
James E. Noyes....................... 51 Director and Chief Operating Officer
Charles C. Frey...................... 43 Senior Vice President, Accounting and Administration
Loren V. Gallagher................... 51 Senior Vice President, Asia
Genevieve Giannoni................... 34 Senior Vice President, Operations
Michael V. Paulin.................... 56 Senior Vice President, Hospitality Management
Dewey W. Chambers.................... 40 Vice President and Treasurer
Andrew D. Hutton..................... 33 Vice President, General Counsel and Secretary
Timothy D. Levin..................... 41 Vice President, Architecture
David D. Philp....................... 36 Vice President, Acquisitions
Peter J. Shoobridge.................. 32 Vice President, Business Development
James D. Wheat....................... 40 Vice President and Corporate Controller
Adam M. Aron......................... 43 Director
Sanford R. Climan.................... 42 Director
J. Taylor Crandall................... 43 Director
Joshua S. Friedman................... 42 Director
W. Leo Kiely III..................... 51 Director
</TABLE>
OSAMU KANEKO has served as a Chairman of the Board of the Company since
June 1996, previously serving as Chief Executive Officer of the Company from
June 1996 to July 1997 and as Co-Chief Executive Officer from July 1997 to
February 1998. Mr. Kaneko, a Japanese national, received a B.A. degree from
Indiana State University in 1971. From 1974 to 1986, Mr. Kaneko was the
Executive Vice President of Hasegawa Komuten (USA) Inc., the American subsidiary
of Hasegawa Komuten Ltd., a Japanese real estate development company. In this
capacity, Mr. Kaneko was responsible for the development of income producing
properties in Hawaii, including resort condominiums and hotels. In 1985, Mr.
Kaneko co-founded KOAR Group, Inc. ("KOAR") (a real estate acquisition and
development company) with Mr. Kenninger and since that time has served as its
Chief Executive Officer.
ANDREW J. GESSOW has served as a Director of the Company since its
inception in May 1996 and as Chief Executive Officer since February 1998,
previously serving as Co-Chief Executive Officer since July 1997 and as
President since June 1996. Mr. Gessow founded Argosy Group Inc. ("Argosy")(a
real estate acquisition and development company and one of the Company's
predecessor entities) in 1990 and served as its President from 1990 through
August 1996. Prior thereto, Mr. Gessow served as a Partner with Trammell Crow
Company (a real estate development, management and investment company) and was
President of Trammell Crow Residential Services, Florida and West Coast from
1987 to 1990. From 1981 through 1987, Mr. Gessow was Founder and President of
Travel, Inc., and Home Search, Inc. which he co-founded with Citicorp Venture
Capital. Mr. Gessow received a B.B.A. degree in Finance from Emory University in
1978 and a M.B.A. degree from Harvard Business School in 1980.
STEVEN C. KENNINGER has served as a Director of the Company since its
inception and as President of the Company since February 1998. Previously, Mr.
Kenninger served as Chief Operating Officer and Secretary of the Company from
June 1996 to February 1998. Mr. Kenninger co-founded KOAR with Mr. Kaneko in
1985
50
<PAGE> 54
and most recently served as its President. Mr. Kenninger was a practicing
attorney at the law firm of Paul, Hastings, Janofsky & Walker, located in Los
Angeles, California from 1977 through 1981 and at the law firm of Riordan &
McKinzie, located in Los Angeles, California from 1981 through 1985, where he
was a partner. Mr. Kenninger received a B.S. degree in Mechanical Engineering
from Purdue University in 1974 and received a J.D. degree from Stanford Law
School in 1977. Mr. Kenninger is a member of the Board of Visitors of the
Stanford Law School and has been a member of the State Bar of California since
1977.
MICHAEL A. DEPATIE has served as a Director of the Company since October
1997 and as Executive Vice President and Chief Financial Officer of the Company
since November 1996. Prior to joining the Company, Mr. Depatie was Senior Vice
President of Finance and Chief Financing Officer of La Quinta Inns, Inc. (a
hotel operating company) from July 1992 to August 1996. From April 1989 through
June 1992, Mr. Depatie was co-founder and Senior Vice President of Finance of
Summerfield Hotel Corporation (a hotel operating company). From April 1988
through April 1989, Mr. Depatie was founder and Managing General Partner of
Pacwest Capital Partners. From June 1984 through April 1988, Mr. Depatie served
as Senior Vice President of Finance and Development of The Residence Inn
Company. Mr. Depatie received a B.A. degree from Michigan State University in
1979 and a M.B.A. degree from Harvard Business School in 1983.
JAMES E. NOYES has served as a Director of the Company since July 1996 and
as Chief Operating Officer since February 1998. Previously, Mr. Noyes served as
Executive Vice President of the Company since July 1996. Prior to joining the
Company, from 1989 through June 1996 Mr. Noyes served as President of The Trase
Miller Group (a travel technology services company), the parent company of MTI
Vacations, Inc., with interests in vacation packaging, travel technology and
specialized teleservices, and previously served as its Vice President of
Marketing and Sales since 1980. Mr. Noyes served in various management positions
for Wilson Sporting Goods from 1976 to 1980. Mr. Noyes is a director of Preview
Travel, Inc. and Ball Horticultural, Inc. (a horticultural supply company). Mr.
Noyes received a B.A. degree in 1970 from Dartmouth College and received a
M.B.A. degree in 1974 from Stanford Business School.
CHARLES C. FREY has served as Senior Vice President, Accounting and
Administration of the Company since January 1997. Previously, he served as
Senior Vice President and Treasurer of the Company since July 1996. Prior
thereto, Mr. Frey had served as Senior Vice President of Administration and
Treasurer of Argosy (one of the Company's predecessor entities) since 1992.
Prior thereto, Mr. Frey was Vice President and Chief Financial Officer of
Trammell Crow Residential Services-Florida from 1986 to 1992. Mr. Frey is a
Certified Public Accountant and a licensed real estate broker in Florida. He
received a B.S. degree in Accounting and Economics from the Indiana University
of Pennsylvania in 1977.
LOREN V. GALLAGHER has served as Senior Vice President, Asia of the Company
since January 1997. Prior to joining the Company, Mr. Gallagher held executive
management positions with Vacation Resorts International (a vacation ownership
management company) from 1979 through December 1996, most recently serving as
its President and Chief Operating Officer. In addition, Mr. Gallagher was a
practicing attorney from 1983 to 1996, specializing in real estate acquisition
and vacation ownership. Prior thereto, he was an independent real estate broker
in California from 1977 to 1979 and was a licensed real estate sales associate
at Coldwell-Banker from 1975 to 1977. He is a licensed real estate broker in
California and is a member of the State Bar of California. Mr. Gallagher
received a B.A. degree from Winona State University, M.A. degrees from San Diego
State University and National Chengchi University in Taiwan (Chinese language),
and a J.D. degree from Loyola Law School.
GENEVIEVE GIANNONI has served as Senior Vice President, Operations of the
Company since July 1996. Ms. Giannoni joined Argosy (one of the Company's
predecessor entities) in May 1992 as Director of Marketing, became a Vice
President in 1993, and Senior Vice President, Operations in 1994. Prior to
joining Argosy, Ms. Giannoni was a marketing director at Trammell Crow
Residential Services-Florida from 1987 to 1992. Ms. Giannoni is a licensed real
estate agent in Florida. She received a B.A. degree from Rollins College in 1985
and graduated from the Crummer Management Program at Rollins College in 1990.
MICHAEL V. PAULIN has served as Senior Vice President, Hospitality
Management of the Company since January 1998. Mr. Paulin also serves as
President of the Company's Marc Hotels & Resorts subsidiary which he founded in
1987 and the Company acquired in October 1997. Prior to forming Marc Hotels &
Resorts,
51
<PAGE> 55
Mr. Paulin served as Senior Vice President of Aston Hotels & Resorts form 1978
to 1987 and Vice President of Colony Hotels from 1970 to 1978. From 1964 to
1970, Mr. Paulin was President and Founder of World Wide Living, Inc., tourist
apartment, home, and yacht rentals provider. Mr. Paulin has served as Chairman
of the Hawaii Hotel Association and Chairman of the Pacific Asia Travel
Association. Mr. Paulin received a B.S. degree in Business Economics and
International Trade from the University of Southern California in 1963.
DEWEY W. CHAMBERS has served as Vice President and Treasurer of the Company
since January 1997. Prior to joining the Company, Mr. Chambers served as Vice
President -- Treasurer of La Quinta Inns, Inc. from 1992 through December 1996.
Prior thereto, Mr. Chambers served with the accounting firm of KPMG Peat
Marwick, L.L.P. from 1983 to 1992, most recently as Senior Manager. Mr. Chambers
is a Certified Public Accountant. Mr. Chambers received a B.B.A. degree in
Finance from the University of Oklahoma in 1980 and a B.B.A. degree in
Accounting from the University of Texas at San Antonio in 1983.
ANDREW D. HUTTON has served as Vice President and General Counsel of the
Company since October 1996 and as Secretary of the Company since February 1998.
Prior to joining the Company, from 1991 through October 1996, Mr. Hutton
practiced corporate securities and finance law with the law firm of Latham &
Watkins, located in Los Angeles, California. Mr. Hutton received a J.D. degree
from the University of Minnesota Law School in 1991 and received B.S. and B.A.
degrees from the University of Kansas in 1988. Mr. Hutton has been a member of
the State Bar of California since 1991.
TIMOTHY D. LEVIN has served as Vice President, Architecture of the Company
since July 1996. Prior thereto, Mr. Levin was Vice President, Architecture, of
KOAR since December 1995. From 1989 through December 1995, Mr. Levin was
President of Sevelex Consultants, Inc., a project management and design
consulting firm affiliated with Messrs. Kaneko and Kenninger. Mr. Levin was the
senior design and production manager at Carl Wahlquist AIA Architects, Inc. from
1983 through 1988. Mr. Levin is a member of the American Institute of Architects
and has been a licensed General Contractor in the State of California since
1980. Mr. Levin received his Bachelor of Architecture degree from Southern
California Institute of Architecture in 1986.
DAVID D. PHILP has served as Vice President, Acquisitions of the Company
since September 1997, previously serving as Senior Director of Acquisitions
since February 1996. Prior to joining the Company, Mr. Philp was a Director of
Development for Doubletree Hotels Corporation from October 1994 through August
1995 and from 1991 through September 1994 was a Director of the Hospitality
Consulting Group for Kenneth Leventhal & Company. Prior thereto, Mr. Philp was a
Manager of Development for IDG Development (a real estate development company)
from 1990 to 1991, was a Senior Consultant for the accounting firm of Pannell
Kerr Forster from 1987 to 1990 and held operations management positions with
Hyatt Hotels Corporation from 1984 to 1987. He received a B.A. degree from the
Cornell University School of Hotel Administration in 1984.
PETER J. SHOOBRIDGE has served as Vice President of Business Development of
the Company since September 1997. From January 1994 to September 1997 he served
as Chief Financial Officer and from July 1996 to September 1997, as Director of
Business Development of LSI Group Holdings Plc, which was acquired by the
Company in August 1997. Prior to joining LSI, Mr. Shoobridge served with the
accounting firm of BDO Sloy Hayward in London, England from January 1984 to
August 1987, most recently as manager in the Corporate Finance department. Mr.
Shoobridge holds a degree in music from the Royal Northern College of Music in
Manchester, England, and is a member of the Institute of Chartered Accountants
in England and Wales.
JAMES D. WHEAT has served as Vice President and Corporate Controller of the
Company since November 1997. Prior to joining the Company, Mr. Wheat served with
Raychem Corporation (a materials science manufacturing company) from 1991 to
November 1997 as internal auditor, division controller and external reporting
manager. Mr. Wheat is a Certified Public Accountant, Certified Management
Accountant, Certified Internal Auditor and is a licensed real estate broker in
California. He received a B.B.A. degree from the University of Michigan in 1980
and a M.B.A. degree from The Wharton School of Business at the University of
Pennsylvania in 1985.
52
<PAGE> 56
ADAM M. ARON has served as Director of the Company since October 1997. Mr.
Aron has served as Chairman of the Board and Chief Executive Officer of Vail
Resorts, Inc. since July 1996. Prior to joining Vail Resorts, Mr. Aron served as
President and Chief Executive Officer of Norwegian Cruise Line Ltd. from July
1993 to July 1996, as Senior Vice President of Marketing for United Airlines
from November 1990 to July 1993 and as Senior Vice President of Marketing for
Hyatt Hotels Corporation from 1987 to 1990. Mr. Aron also serves as a director
of Florsheim Group, Inc. Mr. Aron holds a B.A. degree from Harvard College and a
M.B.A. degree from Harvard Business School.
SANFORD R. CLIMAN has served as a Director of the Company since August
1996. In June 1997, Mr. Climan returned to Creative Artists Agency, Inc.
("CAA"), a leading literary and talent agency, as a member of its senior
executive team. Mr. Climan was formerly a member of CAA's senior executive team
from June 1986 to September 1995. From October 1995 through May 1997, Mr. Climan
was Executive Vice President and President Worldwide Business Development of
Universal Studios, Inc. From 1979 to 1986, Mr. Climan held various positions in
the entertainment industry. Mr. Climan also serves as a director of PointCast,
Inc. (an internet computer software company). Mr. Climan received a B.A. degree
from Harvard College in 1977, a M.B.A. degree from Harvard Business School in
1979 and a Master of Science in Health Policy and Management from the Harvard
School of Public Health in 1979.
J. TAYLOR CRANDALL has served as a Director of the Company since October
1997. Mr. Crandall has served as Vice President and Chief Financial Officer of
Keystone, Inc., the principal investment vehicle of Robert M. Bass of Fort
Worth, Texas since October 1996 and as President, Director and sole stockholder
of Acadia MGP, Inc. (managing general partner of Acadia Investment Partners,
L.P., the sole general partner of Acadia Partners, L.P. (an investment
partnership)) since 1992. Mr. Crandall also serves as a director of Bell &
Howell Company, Quaker State, Specialty Foods Corporation and Washington Mutual.
Mr. Crandall holds a B.A. degree from Bowdoin College, where he has served as a
trustee.
JOSHUA S. FRIEDMAN has served as a Director of the Company since August
1996. Mr. Friedman is a founder of Canyon Partners Incorporated, a private
merchant banking firm and an affiliate of Canpartners Incorporated, and has been
a Managing Partner of Canyon Partners Incorporated since its inception in 1990.
From 1984 through 1990, Mr. Friedman served with Drexel Burnham Lambert
Incorporated (an investment banking firm), most recently as Executive Vice
President and Co-Director, Capital Markets. Mr. Friedman also serves as a
director of First Aviation Services, Inc. (an aircraft services supplier) and
several privately held companies and charitable organizations. Mr. Friedman
received a B.A. degree from Harvard College in 1976, a M.A. degree from Oxford
University in 1978, a J.D. degree from Harvard Law School in 1982 and a M.B.A.
degree from Harvard Business School in 1982.
W. LEO KIELY III has served as a Director of the Company since August 1996.
Mr. Kiely has been President and Chief Operating Officer of Coors Brewing
Company since 1993. From 1982 through 1993, Mr. Kiely held various executive
positions with Frito-Lay Inc., a subsidiary of PepsiCo, most recently serving as
President of Frito-Lay's Central Division. Prior to joining Frito-Lay, Mr. Kiely
was President of Ventura Coastal Corporation, a division of Seven-Up
Corporation, from 1979 through 1982. Mr. Kiely also serves as a director of Bell
Sports, Inc. (a bicycle helmet manufacture). He is also on the advisory boards
of the National Association of Manufacturers and several educational and
charitable organizations. Mr. Kiely received a B.A. degree from Harvard College
in 1969 and a M.B.A. degree from the Wharton School of Business at the
University of Pennsylvania in 1971.
On August 5, 1996, an action was filed in California state court against
KEN/KOAR LAX Partners, L.P., which was affiliated with Messrs. Kaneko and
Kenninger (the "LAX Partnership"), the owner of the Embassy Suites hotel located
at Los Angeles International Airport, by the secured lender on the hotel. The
complaint sought judicial foreclosure of the loan, appointment of a receiver and
certain other relief. The LAX Partnership subsequently sold its interest in the
Embassy Suites hotel, and the Chapter 11 proceeding was dismissed concurrently
with the closing of such transaction. The Company has no interest in the hotel
or the LAX Partnership. Following the consummation of the sale, neither Mr.
Kaneko nor Mr. Kenninger holds any interest in or obligation related to the
hotel.
53
<PAGE> 57
COMPLIANCE WITH SECTION 16(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires certain of the Company's directors and officers, and
persons who own more than 10% of a registered class of the Company's equity
securities ("Insiders"), to file with the Securities and Exchange Commission
(the "Commission") initial reports of ownership and reports of changes in
ownership of Common Stock. Insiders are required by the Commission's regulations
to furnish the Company with copies of all Section 16(a) reports filed by such
persons.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations from the
Insiders that no other reports were required, during the year ended December 31,
1997, all Section 16(a) filing requirements applicable to Insiders were complied
with.
ITEM 11. EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth the annual base salary and
other annual compensation which the Company paid in 1997 and would have paid in
1996 on an annualized basis to the Company's Chief Executive Officer and each of
the other four most highly compensated executive officers whose cash
compensation exceeded $100,000 in salary and bonus (the "Named Executive
Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
----------------------------------------------------- COMPENSATION
FISCAL OTHER ANNUAL SECURITIES UNDERLYING
NAME AND CURRENT PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($)(2) COMPENSATION($)(3) OPTIONS/SARS(#)(4)
- -------------------------------------- ------ --------- ----------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
Osamu Kaneko, Chairman of the Board... 1997 $280,000 $280,000 $ 2,500 --
1996 $280,000 $ 0 $ 2,500 225,000
Andrew J. Gessow, Director and Chief
Executive Officer................ 1997 $280,000 $280,000 $ 2,500 --
1996 $280,000 $ 0 $ 2,500 225,000
Steven C. Kenninger, Director and
President........................ 1997 $280,000 $280,000 $ 2,500 --
1996 $280,000 $ 0 $ 2,500 225,000
James E. Noyes, Director and Chief
Operating Officer................ 1997 $289,000 $271,000 $14,500 --
1996 $280,000 $120,000 $14,500 562,500
Michael A. Depatie, Director,
Executive Vice President and Chief
Financial Officer................ 1997 $280,000 $200,000 $ 2,500 --
1996 $280,000 $ 0 $ 2,500 562,500
</TABLE>
- ---------------
(1) Certain Named Executive Officers served the Company in different capacities
during 1996 and 1997. For a description of the various positions held by
Messrs. Gessow, Kaneko, Kenninger and Noyes, see "Directors and Executive
Officers of the Registrant" above.
(2) Amounts stated include bonus amounts earned in 1997 by the Named Executive
Officers and paid in 1998. See "Employment Agreements and Covenants Not to
Compete" below for a discussion of annual performance bonuses payable to key
employees and executive officers.
(3) Represents automobile lease payments ($12,000 with respect to Mr. Noyes) and
insurance premiums for customary life and health benefits ($2,500 with
respect to each of Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie).
(4) The indicated options to purchase 1,800,000 shares of Common Stock were
granted to the Named Executive Officers in 1996. No options were granted to
any of the Named Executive Officers in 1997.
54
<PAGE> 58
The following table contains information concerning the value of stock
options issued under the Company's 1996 Equity Participation Plan and held by
the Named Executive Officers as of December 31, 1997. No stock options were
granted to or exercised by any of the Named Executive Officers during 1997.
DECEMBER 31, 1997 OPTION YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)
NAME AND PRINCIPAL OCCUPATION EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------------------------- ------------------------- -------------------------
<S> <C> <C>
Osamu Kaneko, Chairman of the Board.... 75,000/150,000 $940,875/$1,881,750
Andrew J. Gessow, Director and Chief
Executive Officer.................... 75,000/150,000 $940,875/$1,881,750
Steven C. Kenninger, Director and
President............................ 75,000/150,000 $940,875/$1,881,750
James E. Noyes, Director and
Chief Operating Officer.............. 281,250/281,250 $3,902,344/$3,902,344
Michael A. Depatie, Director, Executive
Vice President and
Chief Financial Officer.............. 225,000/337,500 $1,567,875/$2,351,813
</TABLE>
COMPENSATION OF DIRECTORS
The Company pays its directors who are not officers of the Company
("Independent Directors") a fee of $1,000 per meeting of the Board of Directors
and any committee thereof (including telephonic meetings) for their services as
directors. In addition, the Company grants options to purchase 15,000 shares of
Common Stock (subject to adjustment) at a price equal to fair market value on
the date of grant to each such Independent Director to vest in equal portions
over a term of three years from the date of election as an Independent Director.
Each Independent Director who is still a member of the Board of Directors at the
end of the three year vesting period of the initial grant of options will
receive a grant of additional options to purchase 15,000 shares of Common Stock
at the fair market value of the Common Stock on the date of the grant, with such
options to vest over an additional three year period. In addition to such option
grants, the Independent Directors will be reimbursed for expenses of attending
each meeting of the Board of Directors. Officers of the Company who are
directors will not be paid any director fees but will be reimbursed for expenses
of attending meetings of the Board of Directors.
EMPLOYMENT AGREEMENTS AND COVENANTS NOT TO COMPETE
In 1996, each of Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie
entered into an employment agreement with the Company for a term of two years,
subject to extension. The employment agreement for each of such executives
provides for an annual salary of $280,000 per year for the first year and at
such salary as may be determined by the Compensation Committee thereafter, with
annual performance bonuses determined by the Compensation Committee in
connection with the achievement of performance criteria to be determined (except
with respect to Mr. Noyes, who will receive a guaranteed quarterly bonus of
$30,000 for each quarter he is employed by the Company). In 1996, pursuant to
their employment agreement each of Messrs. Kaneko, Gessow, Kenninger, Noyes and
Depatie received options to purchase 225,000, 225,000, 225,000, 562,500 and
562,500 shares of Common Stock, respectively. In addition, pursuant to their
employment agreement each of Messrs. Kaneko, Gessow, Kenninger, Noyes and
Depatie shall receive severance payments equal to base compensation and bonus at
the most recent annual amount for the longer of the balance of the employment
term or two years upon the death, disability, termination or resignation of such
executive, unless such executive resigns without "good cause" or unless the
Company terminates such executive as a result of gross negligence, willful
misconduct, fraud or a material breach of the employment agreement. Each such
executive will have "good cause" to terminate his employment with the Company in
the event of any reduction in his compensation or benefits, material breach or
material default by the Company under his employment agreement or following the
merger or change in control of the Company.
55
<PAGE> 59
Each of Messrs. Gessow, Kenninger, Noyes and Depatie have agreed to devote
substantially full time to the business of the Company and not engage in any
competitive businesses. In particular, the foregoing individuals are prohibited
from managing, consulting or participating in any way in any vacation ownership
business or from acquiring any property with the intent to convert the property
to a vacation ownership operation, unless the Independent Directors of the
Company determine that such investment is in the best interest of the Company.
Such noncompetition provisions shall survive for two years following any
termination of employment. Such individuals are not, however, prohibited from
investing in residential or commercial real estate with no prospect to be
converted to vacation ownership or resort related use or, acquiring hotels,
including hotels which may compete directly with properties of the Company.
In March 1998, in connection with Mr. Kaneko's new status as non-executive
Chairman of the Board, the Company amended its employment agreement with Mr.
Kaneko to provide that he shall devote at least 50% of his time to the Company's
business. Correspondingly, Mr. Kaneko's annual salary was reduced to $140,000
per year. Mr. Kaneko is allowed to devote the remainder of his time to acquire,
develop or manage other investments in non-resort residential or commercial real
estate that do not present a prospect for conversion to vacation ownership or
resort-related use.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the following table is the beneficial ownership of the
Company's Common Stock as of March 28, 1998 for all current directors, the Named
Executive Officers, all directors and executive officers as a group and
beneficial holders of more than 5% of the Company's Common Stock. Pursuant to
the rules of the Securities Exchange Commission, in calculating percentage
ownership, each person is deemed to beneficially own his own shares subject to
options exercisable within 60 days, but options owned by others (even if
exercisable within 60 days) are deemed not to be outstanding shares. Percentage
ownership is based on 35,880,507 shares of Common Stock outstanding on March 28,
1998 in addition to shares acquirable pursuant to options which will become
exercisable within 60 days of March 28, 1998.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER(A) POSITION OWNED CLASS
--------------------------- -------- ------------ --------
<S> <C> <C> <C>
Directors and Named Executive
Officers:
Osamu Kaneko(b).................... Chairman of the Board 3,487,855(c) 9.7%
Andrew J. Gessow(d)................ Director and Chief Executive 3,606,306(c) 10.1%
Officer
Steven C. Kenninger(b)............. Director and President 1,092,867(c)(e) 3.1%
Michael A. Depatie................. Director, Executive Vice President 237,682(f) *
and Chief Financial Officer
James E. Noyes..................... Director and Chief Operating 318,750(g) *
Officer
Adam M. Aron....................... Director -- *
Sanford R. Climan.................. Director 12,375(h) *
J. Taylor Crandall................. Director -- *
Joshua S. Friedman(i).............. Director 7,500(j) *
W. Leo Kiely, III.................. Director 7,500(j) *
All directors and executive
officers as a
group (19 persons)............... 9,149,529(k) 25.5%
5% Beneficial Owners:
Putnam Investments, Inc.(l)........ N/A 4,161,207 11.6%
One Post Office Square
Boston, Massachusetts 02109
Pilgrim Baxter & Associates,
Ltd.(m).......................... N/A 3,219,680 9.0%
825 Duportail Road
Wayne, Pennsylvania 19087
</TABLE>
- ---------------
* Less than 1%.
56
<PAGE> 60
(a) Except as otherwise indicated, each beneficial owner has the sole power to
vote and to dispose of all shares of Common Stock owned by such beneficial
owner.
(b) The address of such person is 5933 West Century Blvd., Suite 210, Los
Angeles, California 90045.
(c) Includes presently exercisable options to purchase 75,000 shares of Common
Stock.
(d) The address of such person is 2934 Woodside Road, Woodside, California
94062.
(e) With the exception of presently exercisable options to purchase 75,000
shares of Common Stock, the shares indicated are held by Mr. Kenninger
through a trust under which Mr. Kenninger may be deemed presently to share
beneficial ownership with his co-trustee spouse.
(f) Includes (i) presently exercisable options to acquire 225,000 shares of
Common Stock and (ii) 12,682 shares of Common Stock which Mr. Depatie
presently may be deemed to have, or to share, beneficial ownership with an
affiliated corporation he controls.
(g) Represents presently exercisable options to purchase shares of Common Stock
and options which will become exercisable within 60 days of March 28, 1998.
(h) Includes presently exercisable options to purchase 7,500 shares of Common
Stock.
(i) Canpartners Incorporated ("Canyon") holds 65,507 shares and is the sole
general partner of CPI Securities L.P. ("CPI"), which holds 426,643 shares.
Mr. Friedman, Mitchell R. Julis and R. Christian B. Evensen are the sole
shareholders and directors of Canyon and may be deemed to share beneficial
ownership of the shares held by Canyon and CPI. Such persons disclaim
beneficial ownership of the shares. The 492,150 shares held by Canyon and
CPI do not include 154,035 shares held by Mr. Friedman's wife, 154,035
shares held by Mr. Julis, 154,035 shares held by Mr. Evensen's wife, 10,771
shares held by an irrevocable trust for the benefit of Mr. Evensen's
children, 10,771 shares held by an irrevocable trust for the benefit of Mr.
Friedman's children and 10,771 shares held by Mr. Julis' son. The beneficial
ownership of such shares is disclaimed by Canyon. Taken as a group, the
entities and persons named in this note hold an aggregate of 1,018,361
shares, or 2.8% of the Common Stock outstanding.
(j) Represents presently exercisable options to purchase shares of Common Stock.
(k) Includes 842,570 shares which may be acquired upon the exercise of presently
exercisable options or options which will become exercisable within 60 days
of March 28, 1998.
(l) Information based solely on a Schedule 13G filed with the Commission on
January 27, 1998 by, among others, Putnam Investments, Inc. ("PI"). Of the
shares beneficially owned by PI, Putnam Investment Management, Inc. ("PIM")
beneficially owns 3,730,005 (or 10.4%) of the outstanding shares of Common
Stock and The Putnam Advisory Company, Inc. ("PAC") beneficially owns
431,202 (or 1.2%) of the outstanding shares of Common Stock. The shares of
Common Stock reported as being beneficially owned by PI consist of
securities beneficially owned by subsidiaries of PI which are registered
investment advisers, which in turn include securities beneficially owned by
clients of such investment advisers, which clients may include investment
companies registered under the Investment Company Act and/or employee
benefit plans, pension funds, endowment funds or other institutional
clients. PI, which is a wholly-owned subsidiary of Marsch & McLennan
Companies, Inc. ("M&MC"), wholly owns two registered investment advisers:
PIM, which is the investment adviser to the Putnam family of mutual funds
and PAC, which is the investment adviser to Putnam's institutional clients.
Both subsidiaries have dispository power over the shares as investment
managers, but each of the mutual fund's trustees have voting power over the
shares held by each fund, and PAC has shared voting power over the shares
held by the institutional clients. M&MC and PI disclaim beneficial ownership
of the shares of Common Stock reported as being beneficially owned by PI.
(m) Information based solely on Schedule 13G filed with the Commission of
February 13, 1998 by Pilgram Baxter & Associates, Ltd.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
Affiliates of Messrs. Kaneko and Kenninger currently have managing general
partner or similar interests in entities which own investment properties which
the Company does not consider to be competitive with its
57
<PAGE> 61
timeshare business (the "KOAR Interests"). These properties include a 225-unit
condominium project in Long Beach, California which is being marketed for whole
share unit sales or long-term residential use rather than vacation use (and with
respect to which the KOAR Interests currently own 74 of the total 225 units, the
balance having been sold to third parties); and several retail centers and a
proposed office development project. Messrs. Kaneko and Kenninger are also
currently the constituent general partners of a number of partnerships in which
they owe fiduciary duties to limited partners who invested over $80 million of
equity therein (which partnerships include certain Embassy Suites hotels which
are still owned by partnerships controlled by Affiliates of Messrs. Kaneko and
Kenninger (the "Prior Partnerships")). Messrs. Kaneko and Kenninger are
authorized by the Company to meet their duties and responsibilities to the Prior
Partnerships pursuant to the terms thereof, including the sale, refinancing,
restructuring and packaging of the Prior Partnerships, and including with
respect to the formation of public or private entities for such purpose,
including a public real estate investment trust ("REIT") for one or all of the
Embassy Suites hotels in the Prior Partnerships (provided, that Messrs. Kaneko
and Kenninger agree not to serve as an officer or employee of such REIT).
Messrs. Kaneko and Kenninger agree to continue to retain third party management
companies to manage these properties (e.g., Promus Hotels manages all such
Embassy Suites hotels), and to employ personnel not employed by the Company to
carry out the day-to-day responsibilities of managing and overseeing these
properties. However, Messrs. Kaneko and Kenninger reserve the right to do what
is reasonably necessary within these constraints to carry out their duties and
responsibilities to the Prior Partnerships pursuant to the terms thereof. The
Company does not believe that such activities detract materially from Messrs.
Kaneko's and Kenninger's services to the Company. See "Employment Agreements and
Covenants Not To Compete" for additional information regarding such persons'
obligations to the Company.
In addition, the Company also competes with the buyers of its Vacation
Intervals who subsequently decide to resell those intervals. While the Company
believes, based on experience at its resorts, that the market for resale of
Vacation Intervals by buyers is presently limited, such resales are typically at
prices substantially less than the original purchase price. The market price of
Vacation Intervals sold by the Company at a given resort or by its competitors
in the market in which each resort is located could be depressed by a
substantial number of Vacation Intervals offered for resale.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
2.1 Plan and Agreement of Merger dated as of September 22, 1996
by and between Signature Resorts, Inc. and AVCOM
International, Inc. as amended (incorporated by reference to
Exhibit 2 to Registrant's Registration statement on Form S-4
(No. 333-16339))
2.2 Agreement and Plan of Merger dated as of May 15, 1997 by and
among Signature Resorts, Inc., Primavera Acquisition Corp.
and Plantation Resorts Group, Inc. (incorporated by
reference to Exhibit 2.1 to Registrant's current report on
Form 8-K filed with the Commission on May 29, 1997)
2.3 Agreement for Purchase and Sale of the Entire Issued Share
Capital of LSI Group Holdings plc dated as of June 5, 1997
between Signature Resorts, Inc. and shareholders of LSI
Group Holdings plc (incorporated by reference to Exhibit 2.3
to Amendment No. 1 on Form S-3 to Registrant's Registration
Statement on Form S-1 (No. 333-30285))
</TABLE>
58
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
2.4 Amendment to the Agreement for Purchase and Sale of the
Entire Issued Share Capital of LSI Group Holdings plc dated
as of August 28, 1997 between Signature Resorts, Inc. and
shareholders of LSI Group Holdings plc (incorporated by
reference to Exhibit 2.2 to Registrant's current report on
Form 8-K filed with the Commission on September 12, 1997)
3.1 Articles of Incorporation, as amended, of Signature Resorts,
Inc. (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form S-1 (No.
333-06027))
3.2 Bylaws of Signature Resorts, Inc., as amended (incorporated
by reference to Exhibit 3.2 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996)
4.1 Indenture dated as of January 15, 1997 by and between
Signature Resorts, Inc. and Norwest Bank Minnesota, National
Association, as trustee, for the 5 3/4% Convertible
Subordinated Notes of Signature Resorts, Inc. due 2007
(incorporated by reference to Exhibit 4 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
4.2 Indenture dated as of August 1, 1997 by and between
Signature Resorts, Inc. and Norwest Bank Minnesota, National
Association, as trustee, for the 9 3/4% Senior Subordinated
Notes of Signature Resorts, Inc. due 2007 (incorporated by
reference to Exhibit 4.2 to Amendment No. 1 on Form S-3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.1.1 Registration Rights Agreement dated as of August 20, 1996 by
and among Signature Resorts, Inc. and the persons named
therein (incorporated by reference to Exhibit 10.1 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.1.2 Registration Rights Agreement dated as of May 15, 1997 by
and among Signature Resorts Inc. and the persons named
therein (incorporated by reference to Exhibit 4 to
Registrant's current report on Form 8-K filed with the
Commission on May 29, 1997)
10.1.3 Registration Rights Agreement dated as of August 28, 1997 by
and among Signature Resorts, Inc. and Ian K. Ganney and
Richard Harrington (incorporated by reference to Exhibit
10.10 to Amendment No. 1 on Form S-3 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
10.1.4 Registration Rights Agreement dated as of August 8, 1997 by
and among Signature Resorts, Inc. and the persons named
therein relating to the 9 3/4% Senior Subordinated Notes due
2007 of Signature Resorts, Inc. (incorporated by reference
to Exhibit 10.11 to Amendment No. 1 on Form S-3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
*10.1.5 Registration Rights Agreement dated as of October 10, 1997
by and among Signature Resorts, Inc. and Michael V. Paulin,
Rosemarie Paulin, Maya K. Paulin and Annemarie H. Paulin.
10.2.1 Employment Agreement between Signature Resorts, Inc. and
Osamu Kaneko (incorporated by reference to Exhibit 10.2.1 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.2 Employment Agreement between Signature Resorts, Inc. and
Andrew J. Gessow (incorporated by reference to Exhibit
10.2.2 to Registrant's Registration Statement on Form S-1
(No. 333-30285))
10.2.3 Employment Agreement between Signature Resorts, Inc. and
Steven C. Kenninger (incorporated by reference to Exhibit
10.2.3 to Registrant's Registration Statement on Form S-1
(No. 333-30285))
10.2.4 Employment Agreement between Signature Resorts, Inc. and
James E. Noyes (incorporated by reference to Exhibit 10.2.4
to Registrant's Registration Statement on Form S-1 (No.
333-06027))
10.2.5 Employment Agreement between Signature Resorts, Inc. and
Michael A. Depatie (incorporated by reference to Exhibit
10.2.5 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
10.2.6 Option Agreement between Signature Resorts, Inc. and Osamu
Kaneko (incorporated by reference to Exhibit 10.2.6 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
</TABLE>
59
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
10.2.7 Option Agreement between Signature Resorts, Inc. and Andrew
J. Gessow (incorporated by reference to Exhibit 10.2.7 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.8 Option Agreement between Signature Resorts, Inc. and Steven
C. Kenninger (incorporated by reference to Exhibit 10.2.8 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.9 Option Agreement between Signature Resorts, Inc. and James
E. Noyes (incorporated by reference to Exhibit 10.2.9 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.10 Option Agreement between Signature Resorts, Inc. and Michael
A. Depatie (incorporated by reference to Exhibit 10.2.10 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
*10.2.11 Form of Amendment No. 1 to Employment Agreement between
Signature Resorts, Inc. and Osamu Kaneko
10.3.1 1996 Equity Participation Plan of Signature Resorts, Inc.
(incorporated by reference to Exhibit 10.3 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.3.2 First Amendment to 1996 Equity Participation Plan of
Signature Resorts, Inc. dated as of May 16, 1997
(incorporated by reference to Exhibit 10.3.2 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
10.3.3 Second Amendment to 1996 Equity Participation Plan of
Signature Resorts, Inc. dated as of October 24, 1997
(incorporated by reference to Exhibit 10.1 to Registrant's
Registration statement on Form S-8 (No. 333-15361))
10.3.4 Signature Resorts, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.5 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.3.5 First Amendment to Employee Stock Plan of Signature Resorts,
Inc. effective as of November 1, 1997 (incorporated by
reference to Exhibit 10.2 to Registrant's Registration
Statement on Form S-8 (No. 333-15361))
10.4 Agreement of Limited Partnership of Pointe Resort Partners,
L.P. (subsequently renamed Poipu Resort Partners L.P.) dated
October 11, 1994 (incorporated by reference to Exhibit 10.4
to Registrant's Registration Statement on Form S-1 (No.
333-06027))
10.5 Joint Development Agreement dated as of January 16, 1998
between Westin Hotel Company and Signature Resorts, Inc.
(incorporated by reference to Exhibit 10.1 to Registrant's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 20, 1998))
10.6.1 Loan and Security Agreement between Port Royal Resort, L.P.,
and FINOVA Capital Corporation (as successor in interest to
Greyhound Capital Corporation) dated as of October 7, 1993
and as amended by the First Amendment to Loan and Security
Agreement dated as of April 26, 1995 (incorporated by
reference to Exhibit 10.8.1 to Registrant's Registration
Statement on Form S-1 (No. 333-18447))
10.6.2 Loan and Security Agreement between Signature Resorts, Inc.
(as successor in interest to Cypress Pointe Resorts, L.P.),
and FINOVA Capital Corporation (as successor in interest to
Greyhound Real Estate Finance Company) dated as of December
19, 1991 and as amended by (i) the First Amendment to Loan
and Security Agreement and Consent and Agreement of
Guarantors dated as of November 9, 1992, (ii) the Second
Amendment to Loan and Security Agreement dated as of January
13, 1993, (iii) the Third Amendment to Loan and Security
Agreement dated as of April 7, 1993, (iv) the Fourth
Amendment to Loan and Security Agreement dated as of
December 16, 1993, (v) the Fifth Amendment to Loan and
Security Agreement dated as of June 28, 1994, (vi) the Sixth
Amendment to Loan and Security Agreement dated December 16,
1994, and (vii) the Seventh Amendment to Loan and Security
Agreement dated as of November 6, 1995 (incorporated by
reference to Exhibit 10.8.2 to Registrant's Registration
Statement on Form S-1 (No. 333-18447))
</TABLE>
60
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
10.6.3 Loan and Security Agreement between Signature Resorts, Inc.
(as successor in interest to San Luis Resort Partners, LLC),
and FINOVA Capital Corporation dated as of June 6, 1996
(incorporated by reference to Exhibit 10.8.3 to Registrant's
Registration Statement on Form S-1 (No. 333-18447))
10.6.4 Loan and Security Agreement between Grand Beach Resort,
Limited Partnership, and FINOVA Capital Corporation (as
successor in interest to Greyhound Financial Corporation)
dated as of October 7, 1994 and as amended by the First
Amendment to Loan and Security Agreement dated as of July 5,
1995 (incorporated by reference to Exhibit 10.8.4 to
Registrant's Registration Statement on Form S-1 (No.
333-18447))
10.6.5 Loan and Security Agreement (Receivables) between Signature
Resorts, Inc. (as successor in interest to Fall Creek
Resort, L.P.), and Heller Financial, Inc., dated as of
October 9, 1995 (incorporated by reference to Exhibit 10.8.5
to Registrant's Registration Statement on Form S-1 (No.
333-18447))
10.6.6 Loan and Security Agreement between AKGI-St. Maarten NV (as
successor in interest to AKGI-Royal Palm C.V.o.a.), and
FINOVA Capital Corporation dated as of July 12, 1995
(incorporated by reference to Exhibit 10.8.6 to Registrant's
Registration Statement on Form S-1 (No. 333-18447))
10.6.7 Loan and Security Agreement between Lake Tahoe Resort
Partners, LLC, and FINOVA Capital Corporation dated as of
April 29, 1996 (incorporated by reference to Exhibit 10.8.7
to Registrant's Registration Statement on Form S-1 (No.
333-18447))
10.6.8 Construction Loan Agreement between Lake Tahoe Resort
Partners, LLC, and FINOVA Capital Corporation dated as of
April 29, 1996 (incorporated by reference to Exhibit 10.8.8
to Registrant's Registration Statement on Form S-1 (No.
333-18447))
10.6.9 Lender's Certification and Consent from Resort Capital
Corporation to Signature Resorts, Inc. dated as of August
15, 1996 (incorporated by reference to Exhibit 10.8.1 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
10.6.10 Lender's Certification and Consent from FINOVA Capital
Corporation to Signature Resorts, Inc. dated as of August
15, 1996 (incorporated by reference to Exhibit 10.6.2 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
10.6.11 Assumption Agreement between FINOVA Capital Corporation and
Signature Resorts, Inc. dated as of August 15, 1996
(incorporated by reference to Exhibit 10.8.3 to Registrant's
Registration Statement on Form S-4 (No. 333-16339))
10.6.12 Assumption Agreement between Resort Capital Corporation and
Signature Resorts, Inc. dated as of August 15, 1996
(incorporated by reference to Exhibit 10.8.4 to Registrant's
Registration Statement on Form S-4 (No. 333-16339))
10.6.13 Assumption Agreement between FINOVA Capital Corporation and
AKGI-Sint Maarten, N.V. dated as of August 15, 1996
(incorporated by reference to Exhibit 10.8.5 to Registrant's
Registration Statement on Form S-4 (No. 333-16339))
*10.6.14 Credit Agreement dated as of February 18, 1998 by and among
Signature Resorts, Inc., certain lender parties thereto,
NationsBank of Texas, N.A., as administrative lender and
Societe Generale, as document agent
*10.6.15 Amendment to Various Loan and Commitment Agreements dated as
of February 18, 1998, by and between FINOVA Capital
Corporation, the Company, Lake Tahoe Resort Partners, LLC,
Grand Beach Resort, Limited Partnership, Port Royal Resort
L.P., AKGI-Sint Maarten, N.V., All Seasons Resorts, Inc.,
AVCOM International, Inc. and Kabushiki Gaisha Kei, L.L.C.
*10.6.16 Loan Agreement between Powhatan Associates and Marine
Midland Bank dated as of June 28, 1995
*10.6.17 Loan and Security Agreement dated as of December 17, 1990,
as amended, between Greyhound Real Estate Finance Company
and Powhatan Associates
</TABLE>
61
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
*10.6.18 Development and Receivables Loan and Security Agreement by
and between FINOVA Capital Corporation and Greensprings
Associates dated as of June 30, 1995 and as amended by the
Amendment to Development and Receivables Loan and Security
Agreement dated as of July 15, 1996
</TABLE>
62
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
10.7 Amended Consulting Agreement dated as of August 1, 1997 by
and between Signature Resorts, Inc., Resort Services, Inc.
and Dr. Kay F. Gow and Robert T. Gow (incorporated by
reference to Exhibit 10.12 to Amendment No. 1 on Form S-3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
16.1 Letter from Ernst & Young LLP regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to
Registrant's current report on Form 8-K filed with the
Commission on September 18, 1996)
21 Subsidiaries of Signature Resorts, Inc. (incorporated by
reference to Exhibit 21 to Registrant's Registration
Statement on Form S-3 (No. 333-46511))
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Ernst & Young LLP
*23.3 Consent of KPMG
*23.4 Consent of Schreeder, Wheeler & Flint, LLP
*27.1 Financial Data Schedule (for the fiscal year ended December
31, 1997)
*27.2 Financial Data Schedule (for the fiscal quarters ended March
31, June 30 and September 30, 1997)
*27.3 Financial Data Schedule (for the fiscal quarter ended
September 30, 1996 and for the fiscal year ended December
31, 1996)
</TABLE>
- ---------------
* Filed herewith
(b) Reports on Form 8-K.
(i) The Company's Current Report on Form 8-K filed with the Commission
on October 6, 1997;
(ii) The Company's amended Current Report on Form 8-K/A filed with the
Commission on October 10, 1997;
(iii) The Company's amended Current Report on Form 8-K/A filed with
the Commission on October 22, 1997; and
(iv) The Company's Current Report on Form 8-K filed with the
Commission on December 24, 1997;
(c) The exhibits required by Item 601 of Regulation S-K have been listed
above.
(d) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
62
<PAGE> 67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURE RESORTS, INC.
(Registrant)
By: /s/ ANDREW D. HUTTON
------------------------------------
Andrew D. Hutton
Vice President, General Counsel and
Secretary
Dated: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the Registrant in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ OSAMU KANEKO Chairman of the Board March 30, 1998
- --------------------------------------------------------
Osamu Kaneko
/s/ ANDREW J. GESSOW Director and Chief Executive March 30, 1998
- -------------------------------------------------------- Officer (Principal Executive
Andrew J. Gessow Officer)
/s/ STEVEN C. KENNINGER Director and President March 30, 1998
- --------------------------------------------------------
Steven C. Kenninger
/s/ MICHAEL A. DEPATIE Director, Executive Vice March 30, 1998
- -------------------------------------------------------- President and Chief Financial
Michael A. Depatie Officer (Principal Financial
Officer)
/s/ JAMES E. NOYES Chief Operating Officer and March 30, 1998
- -------------------------------------------------------- Director
James E. Noyes
/s/ CHARLES C. FREY Senior Vice President and March 30, 1998
- -------------------------------------------------------- Chief Accounting Officer
Charles C. Frey (Principal Accounting
Officer)
/s/ ADAM M. ARON Director March 30, 1998
- --------------------------------------------------------
Adam M. Aron
/s/ SANFORD R. CLIMAN Director March 30, 1998
- --------------------------------------------------------
Sanford R. Climan
/s/ J. TAYLOR CRANDALL Director March 30, 1998
- --------------------------------------------------------
J. Taylor Crandall
</TABLE>
63
<PAGE> 68
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSHUA S. FRIEDMAN Director March 30, 1998
- --------------------------------------------------------
Joshua S. Friedman
/s/ W. LEO KILEY III Director March 30, 1998
- --------------------------------------------------------
W. Leo Kiley III
</TABLE>
64
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Signature Resorts, Inc. and Subsidiaries
Report of Independent Certified Public Accountants.......... F-2
Report of Independent Auditors.............................. F-3
Independent Auditors' Report................................ F-4
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-5
Consolidated Statements of Income for each of the three
years ended December 31, 1997............................. F-6
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1997............................. F-7
Consolidated Statements of Equity for each of the three
years ended December 31, 1997............................. F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Signature Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Signature
Resorts, Inc. (a Maryland Corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the 1996 and 1995 financial statements of LSI
Group Holdings plc and the 1995 financial statements of AVCOM International,
Inc. and subsidiaries, both companies acquired during 1997 in transactions
accounted for as pooling of interests, as discussed in Note 1. Such statements
are included in the consolidated financial statements of Signature Resorts, Inc.
and subsidiaries, and reflect total assets and total revenues of 5 percent and
13 percent in 1996, respectively, and total revenues of 34 percent in 1995, of
the related consolidated totals. These statements were audited by other auditors
whose reports have been furnished to us and our opinion, insofar as it relates
to amounts included for LSI Group Holdings plc and AVCOM International, Inc. and
subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Signature Resorts, Inc. and subsidiaries as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Orlando, Florida
January 26, 1998 (except with respect
to the matters discussed in Note 6, as to which the
date is February 18, 1998, and Note 13, as to which
the dates are February 3 and February 18, 1998)
F-2
<PAGE> 71
REPORT OF INDEPENDENT AUDITORS
Board of Directors
AVCOM International, Inc.
We have audited the consolidated balance sheet of AVCOM International, Inc.
(Company) as of December 31, 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for the year then ended (not
separately presented herein). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AVCOM International, Inc. as of December 31, 1995, and the consolidated results
of its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Phoenix, Arizona
May 31, 1996, except for
Note 12, as to which the
date is July 1, 1996
F-3
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
LSI Group Holdings Plc
We have audited the consolidated balance sheet of LSI Group Holdings Plc
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, equity, and cash flows for each of the years in the
three-year period ended December 31, 1996 (not presented separately herein).
These financial statements are the responsibility of Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LSI Group
Holdings Plc and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles in the United States of America.
KPMG
Chartered Accountants
Registered Auditors
Preston, England
March 27, 1997
F-4
<PAGE> 73
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash and cash equivalents................................... $ 38,487 $ 20,757
Cash in escrow.............................................. 9,485 1,712
Mortgages receivable, net of an allowance of $22,916 and
$17,328 at December 31, 1997 and 1996, respectively....... 331,735 215,518
Due from related parties.................................... 25,576 11,897
Other receivables, net...................................... 17,669 11,847
Income tax refund receivable................................ 4,719 --
Prepaid expenses and other assets........................... 13,047 14,738
Investment in joint ventures................................ 15,657 7,397
Real estate and development costs........................... 219,299 142,870
Property and equipment, net................................. 35,024 14,612
Intangible assets, net...................................... 50,447 4,536
-------- --------
Total assets...................................... $761,145 $445,884
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 25,196 $ 24,418
Accrued liabilities......................................... 68,047 49,198
Due to related parties...................................... 1,032 1,656
Income taxes payable........................................ -- 3,268
Deferred taxes.............................................. 23,752 3,259
Notes payable............................................... 435,208 236,122
-------- --------
Total liabilities................................. 553,235 317,921
-------- --------
Commitments and Contingencies (Note 8)......................
Minority interest in consolidated limited partnership....... -- 1,538
-------- --------
Stockholders' equity:
Preferred stock (25,000,000 shares authorized; none issued
or outstanding)........................................ -- --
Common stock ($0.01 par value, 50,000,000 shares
authorized; 35,875,287 and 33,011,106 shares
outstanding at December 31, 1997 and 1996,
respectively).......................................... 359 330
Additional paid-in capital................................ 162,969 101,978
Retained earnings......................................... 43,797 23,544
Cumulative foreign currency translation adjustment........ 785 573
-------- --------
Total stockholders' equity........................ 207,910 126,425
-------- --------
Total liabilities and stockholders' equity........ $761,145 $445,884
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 74
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Vacation Interval and Vacation Point sales.................. $281,063 $182,300 $139,426
Interest income............................................. 42,856 25,415 20,339
Other income................................................ 13,774 12,132 8,553
-------- -------- --------
Total revenues..................................... 337,693 219,847 168,318
-------- -------- --------
COSTS AND OPERATING EXPENSES:
Vacation Interval and Vacation Point cost of sales.......... 71,437 48,218 39,810
Advertising, sales, and marketing........................... 126,739 89,040 62,258
Loan portfolio:
Interest expense-treasury................................. 13,032 13,482 10,077
Other expenses............................................ 5,522 4,523 2,034
Provision for doubtful accounts........................... 8,579 8,311 3,666
General and administrative.................................. 42,254 37,436 19,263
Resort property valuation allowance......................... -- 2,620 --
Depreciation and amortization............................... 6,499 5,027 2,514
Merger-related costs........................................ 9,973 -- --
-------- -------- --------
Total costs and operating expenses................. 284,035 208,657 139,622
-------- -------- --------
Income from operations...................................... 53,658 11,190 28,696
Interest expense-other (net of capitalized interest of
$6,774, $6,723, and $3,315 in 1997, 1996 and 1995,
respectively)............................................. 9,394 3,763 1,728
Equity loss on investment in joint ventures................. 639 299 1,649
Minority interest in income of consolidated limited
partnership............................................... 181 199 --
-------- -------- --------
Income before provision (benefit) for income taxes and
extraordinary item........................................ 43,444 6,929 25,319
-------- -------- --------
Provision (benefit) for income taxes from continuing
operations................................................ 17,196 (4,105) 4,020
Provision for deferred income taxes resulting from the
cumulative effect of previously non-taxable acquired
entities.................................................. 5,960 -- --
-------- -------- --------
Total provision (benefit) for income taxes.................. 23,156 (4,105) 4,020
-------- -------- --------
Income before extraordinary item............................ 20,288 11,034 21,299
Extraordinary item, net of income taxes..................... 766 -- --
-------- -------- --------
Net income.................................................. $ 19,522 $ 11,034 $ 21,299
======== ======== ========
Pro forma income data (unaudited):
Income before provision for income taxes.................... -- $ 6,929 $ 25,319
Pro forma provision for income taxes........................ -- 2,549 10,009
-------- -------- --------
Pro forma net income........................................ -- $ 4,380 $ 15,310
======== ======== ========
EARNINGS PER SHARE:
Basic:
Income before extraordinary item..................... $ 0.57 $ 0.41 $ 0.89
Extraordinary item, net of income taxes.............. (0.02) -- --
-------- -------- --------
Net income........................................... $ 0.55 $ 0.41 $ 0.89
======== ======== ========
Diluted:
Income before extraordinary item..................... $ 0.56 $ 0.40 $ 0.89
Extraordinary item, net of income taxes.............. (0.02) -- --
-------- -------- --------
Net income........................................... $ 0.54 $ 0.40 $ 0.89
======== ======== ========
Pro forma earnings per share: (unaudited)
Basic..................................................... -- $ 0.16 $ 0.64
Diluted................................................... -- $ 0.16 $ 0.64
Weighted average number of common shares outstanding........ 35,373 27,232 23,955
Weighted average number of common and potentially dilutive
common shares outstanding................................. 36,180 27,640 23,955
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 75
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 19,522 $ 11,034 $ 21,299
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 6,499 5,027 2,514
Provision for doubtful accounts......................... 8,579 8,311 3,666
Resort property valuation allowance..................... -- 2,620 --
Equity loss on investment in joint venture.............. 639 299 1,649
Minority interest in income of consolidated limited
partnership............................................ 181 199 --
Other................................................... -- 573 (566)
Changes in operating assets and liabilities, net of
effect of acquisitions:
Cash in escrow..................................... (6,916) 1,037 473
Due from related parties........................... (12,504) (1,712) (4,083)
Prepaid expenses and other assets.................. 2,068 (5,878) (3,753)
Real estate and development costs.................. (65,595) (73,086) (19,012)
Other receivables, net............................. (4,448) (2,017) (5,797)
Accounts payable and accrued liabilities........... (10,398) 36,499 14,204
Income taxes....................................... (6,518) 1,653 353
Deferred income taxes.............................. 19,481 (8,605) 497
Due to related parties............................. (636) (250) 1,267
--------- --------- --------
Net cash (used in) provided by operating activities......... (50,046) (24,296) 12,711
--------- --------- --------
INVESTING ACTIVITIES:
Cash (paid) received for acquisition of subsidiaries........ (31,296) -- 129
Investment in joint venture................................. (8,899) (63) --
Property and equipment...................................... (19,973) (8,214) (4,601)
Intangible assets........................................... (1,637) (2,206) (2,608)
Mortgages receivable........................................ (108,942) (76,424) (48,601)
--------- --------- --------
Net cash used in investing activities....................... (170,747) (86,907) (55,681)
--------- --------- --------
FINANCING ACTIVITIES:
Proceeds from notes payable................................. 28,088 170,394 98,733
Payments on notes payable................................... (167,229) (101,436) (46,890)
Proceeds from subordinated and convertible notes, net of
debt issuance costs....................................... 325,176 -- --
Proceeds from notes payable to related parties.............. -- 5,606 3,711
Payments on notes payable to related parties................ -- (15,074) (1,343)
Proceeds from stock offerings............................... 52,643 73,324 885
Acquisition of minority limited partners' interests......... -- (7,465) --
Distributions............................................... (738) (14,413) (9,241)
Other....................................................... 648 420 2,447
--------- --------- --------
Net cash provided by financing activities................... 238,588 111,356 48,302
--------- --------- --------
Net increase in cash and cash equivalents................... 17,795 153 5,332
Effect of exchange rates on cash and cash equivalents....... (65) 574 (41)
Cash and cash equivalents, beginning of period.............. 20,757 20,030 $ 14,739
--------- --------- --------
Cash and cash equivalents, end of period.................... $ 38,487 $ 20,757 $ 20,030
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 18,508 $ 24,127 $ 14,466
Cash paid for taxes......................................... $ 7,918 $ 1,629 $ 2,753
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Stock issued in connection with acquisition of Marc
Resorts................................................... $ 6,010 -- --
Costs incurred in conjunction with debt issuances........... $ 12,824 -- --
Tax benefit resulting from exercise of common stock
options................................................... $ 1,469 -- --
Stock issued and goodwill recorded in connection with the
acquisition of investment in joint venture................ -- $ 4,989 --
Deferred taxes recorded in connection with the Consolidation
Transactions.............................................. -- $ 9,464 --
Interest accrued on deferred installment gains in connection
with the Consolidation Transactions....................... -- $ 820 --
Net assets of predecessor partnership acquired in exchange
for 17,032,058 shares of common stock in connection with
the Consolidation Transactions............................ -- $ 37,380 --
Assignment to venturers of receivable due from related party
recorded as a reduction of venturers' equity.............. -- $ 3,449 --
Write-off of receivable from related party recorded as a
reduction of stockholders' equity......................... -- $ 3,890 --
Conversion of convertible notes payable to AVCOM common
stock..................................................... -- $ 400 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 76
CONSOLIDATED STATEMENTS OF EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL GENERAL LIMITED
SHARES PAID-IN RETAINED MEMBERS PARTNERS' PARTNERS'
OUTSTANDING AMOUNT CAPITAL EARNINGS EQUITY (DEFICIT) EQUITY EQUITY
----------- ------ ---------- -------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............ 6,923 $ 69 $ 2,703 $27,326 $ -- $3,329 $ 27,722
------ ---- -------- ------- ------- ------ --------
Issuance of Common Stock................ -- 20 157 -- -- -- --
Distributions........................... -- -- -- (4,811) (2,437) (43) (1,950)
Net income.............................. -- -- -- 12,437 1,004 516 7,342
Other................................... -- -- 1,035 655 1 374 --
------ ---- -------- ------- ------- ------ --------
BALANCE AT DECEMBER 31, 1995............ 6,923 89 3,895 35,607 (1,432) 4,176 33,114
------ ---- -------- ------- ------- ------ --------
Distributions of partnership equity and
other equity interests................ -- -- -- (7,191) (5,394) -- (1,633)
Conversion of convertible notes payable
to AVCOM common stock................. -- -- 400 -- -- -- --
Proceeds from the sale of common stock
to the public, net of offering costs,
including 16,212 shares issued in
exchange for partners' and members'
equity................................ 25,268 253 73,071 -- -- -- --
Stock issued and goodwill recorded in
connection with the acquisition of
investment in joint venture........... 820 8 4,981 -- -- -- --
Acquisition of minority limited
partners' interests................... -- -- (7,465) -- -- -- --
Deferred taxes recorded in connection
with the consolidation transactions... -- -- (9,464) -- -- -- --
Net income (loss)....................... -- -- -- 3,875 3,568 (164) 3,755
Exchange of partners' and members'
equity for stock in connection with
the consolidation transactions........ -- (20) 37,380 (1,370) 3,258 (4,012) (35,236)
Assignment to venturers' of receivable
due from related party................ -- -- -- (3,449) -- -- --
Write-off of receivable from related
party................................. -- -- -- (3,890) -- -- --
Other................................... -- -- (820) (38) -- -- --
------ ---- -------- ------- ------- ------ --------
BALANCE AT DECEMBER 31, 1996............ 33,011 330 101,978 23,544 -- -- --
------ ---- -------- ------- ------- ------ --------
Net income.............................. -- -- -- 19,522 -- -- --
Proceeds from the sale of common stock,
net of offering costs................. 2,400 24 52,619 -- -- -- --
Common stock issued in connection with
purchase of subsidiary................ 213 2 6,008 -- -- -- --
Distributions........................... -- -- -- (738) -- -- --
Other................................... 251 3 2,364 1,469 -- -- --
------ ---- -------- ------- ------- ------ --------
BALANCE AT DECEMBER 31, 1997............ 35,875 $359 $162,969 $43,797 $ -- $ -- $ --
====== ==== ======== ======= ======= ====== ========
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY
TRANSLATIONS
ADJUSTMENTS TOTAL EQUITY
------------ ------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1994............ $ 40 $ 61,189
---- --------
Issuance of Common Stock................ -- 177
Distributions........................... -- (9,241)
Net income.............................. -- 21,299
Other................................... (41) 2,024
---- --------
BALANCE AT DECEMBER 31, 1995............ (1) 75,448
---- --------
Distributions of partnership equity and
other equity interests................ -- (14,218)
Conversion of convertible notes payable
to AVCOM common stock................. -- 400
Proceeds from the sale of common stock
to the public, net of offering costs,
including 16,212 shares issued in
exchange for partners' and members'
equity................................ -- 73,324
Stock issued and goodwill recorded in
connection with the acquisition of
investment in joint venture........... -- 4,989
Acquisition of minority limited
partners' interests................... -- (7,465)
Deferred taxes recorded in connection
with the consolidation transactions... -- (9,464)
Net income (loss)....................... -- 11,034
Exchange of partners' and members'
equity for stock in connection with
the consolidation transactions........ -- --
Assignment to venturers' of receivable
due from related party................ -- (3,449)
Write-off of receivable from related
party................................. -- (3,890)
Other................................... 574 (284)
---- --------
BALANCE AT DECEMBER 31, 1996............ 573 126,425
---- --------
Net income.............................. -- 19,522
Proceeds from the sale of common stock,
net of offering costs................. -- 52,643
Common stock issued in connection with
purchase of subsidiary................ -- 6,010
Distributions........................... -- (738)
Other................................... 212 4,048
---- --------
BALANCE AT DECEMBER 31, 1997............ $785 $207,910
==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. NATURE OF BUSINESS
Signature Resorts, Inc. and its wholly-owned subsidiaries ("the Company")
generate revenues from the sale and financing of vacation ownership interests in
its resorts, which entitle the buyer to use a fully-furnished vacation
residence, generally for a one-week period each year, in perpetuity (Vacation
Intervals). The Company's principal operations consist of (i) acquiring,
developing and operating vacation ownership resort locations, (ii) marketing and
selling Vacation Intervals in certain of its resorts, (iii) marketing and
selling vacation points at certain of its resort locations which may be redeemed
for occupancy rights at participating resorts ("Vacation Points") and (iv)
providing consumer financing to individual purchasers of Vacation Intervals and
Vacation Points at its resorts. The Company also provides resort management and
maintenance services at its resorts for which it receives fees paid by the
resorts' homeowners' associates.
The Company was incorporated in May 1996. On August 20, 1996, the Company
consummated an initial public offering of a portion of its Common Stock (the
"Initial Public Offering") by offering 9,056,250 shares to the public. The gross
proceeds from the public offering were $84.5 million. The Company incurred $11.2
million of costs associated with this offering. Concurrent with the Initial
Public Offering, certain predecessor limited partnerships, limited liability
companies and corporations (the "Entities") exchanged their direct or indirect
interest in, and obligations of the entities, for 16,211,558 shares of the
Company's common stock (the "Consolidation Transactions"). The accompanying
consolidated financial statements reflect the financial position and results of
operations of the Entities since the date they were acquired or formed, which
range from November 1986 to June 1996. Concurrent with the Initial Public
Offering, the Company exchanged 820,500 shares of Common Stock with the former
holders of interests in the Embassy Vacation Resort at Poipu Point, Koloa,
Kauai, Hawaii.
On February 7, 1997 the Company consummated its acquisition by merger of
AVCOM International, Inc. ("AVCOM") and its subsidiaries (the "AVCOM
Acquisition"). AVCOM is the parent company of All Seasons Resorts, Inc., a
developer, marketer and operator of vacation ownership resorts in Arizona,
California and Texas. Under the terms of the AVCOM merger agreement, the Company
issued 1,324,554 shares of its common stock in exchange for all the outstanding
capital stock of AVCOM. The AVCOM Acquisition has been treated as a
pooling-of-interests and is reflected in the accompanying consolidated financial
statements as if it took place at the beginning of the earliest period
presented.
On May 15, 1997, the Company consummated its acquisition by merger ("the
PRG Acquisition") of Plantation Resorts Group, Inc. ("PRG"), a Williamsburg,
Virginia, based developer, owner and operator of vacation ownership resorts in
Williamsburg, Virginia. PRG was incorporated in April 1997 through a private
placement of its common stock in which certain predecessor joint ventures and
corporations (the "PRG Entities") exchanged their interests for shares of PRG's
common stock (the "PRG Exchange"). The PRG Acquisition was consummated through
the issuance of 3,601,844 shares of the Company's common stock. The PRG
Acquisition has been treated as a pooling-of-interests and is reflected in the
accompanying consolidated financial statements as if it took place at the
beginning of the earliest period presented.
On August 28, 1997, the Company consummated its acquisition by merger of
100% of the capital stock of LSI Group Holdings plc ("LSI"), in exchange for
1,996,401 newly-issued shares of the Company's common stock and approximately
$1.0 million in cash (the "LSI Acquisition"). United Kingdom-based LSI is a
developer, owner and operator of vacation ownership resorts located in Europe.
Through its Grand Vacation Club, LSI operates a points-based club system. The
LSI Acquisition has been treated as a pooling-of-interests and is reflected in
the accompanying consolidated financial statements as if it took place at the
beginning of the earliest period presented.
F-9
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Total revenues and net income for the Company, AVCOM, PRG, and LSI are
shown in the following table (amounts in millions) for the years ended 1996 and
1995, which represent the periods prior to the poolings, which occurred in 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues
Consolidated......................................... $219.8 $168.3
AVCOM................................................ 48.4 34.3
PRG.................................................. 48.4 38.8
LSI.................................................. 27.9 22.6
Net income (loss)
Consolidated......................................... $ 11.0 $ 21.3
AVCOM................................................ (12.4) 1.0
PRG.................................................. 7.0 7.5
LSI.................................................. 2.3 1.8
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The accompanying financial statements
include the combined accounts of Signature Resorts, Inc., AVCOM, PRG, LSI and
the Company's wholly-owned subsidiaries that were acquired or formed prior to
August 20, 1996, which became wholly-owned subsidiaries in connection with the
Consolidation Transactions. As a result, the combined accounts are now referred
to as consolidated financial statements for the historical periods presented.
All significant intercompany transactions and balances have been eliminated from
these consolidated financial statements.
The Consolidation Transactions have been accounted for as a reorganization
of entities under common control. Accordingly, the net assets of the Entities
were recorded at the Entities' historical cost. In addition, the accompanying
consolidated financial statements reflect the historical results of operations
of the predecessor partnerships on a combined basis.
Cash and Cash Equivalents -- Cash and cash equivalents consist of cash,
money market, and all highly liquid investments purchased with an original
maturity of three months or less.
Cash in Escrow -- Cash in escrow is restricted cash consisting of deposits
received on sales of vacation intervals and vacation points that are held in
escrow until a certificate of occupancy is obtained or the legal rescission
period has expired.
Real Estate and Development Costs -- Real estate is valued at the lower of
cost or net realizable value. Development costs include both hard and soft
construction costs and together with real estate costs are allocated to Vacation
Intervals and Vacation Points. Interest, taxes, and other carrying costs
incurred during the construction period are capitalized.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful life of 3
to 7 years. Buildings are amortized over the estimated useful life of 39 to 40
years.
Depreciation and amortization expense related to property and equipment was
$2.8 million, $1.5 million and $1.0 million in 1997, 1996 and 1995,
respectively.
Intangible Assets -- Organizational costs incurred in connection with the
formation of the Company have been capitalized and are being amortized on a
straight-line basis over a period of three to five years. Start-up
F-10
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
costs relate to costs incurred to develop marketing programs prior to receiving
regulatory approval to market the related property and are being amortized on a
straight-line basis over a period of one year.
Financing and loan origination fees incurred in connection with obtaining
funding for the Company have been capitalized and are being amortized over the
life of the respective loans. Debt issuance costs in connection with the 9.75%
Senior Subordinated Notes due 2007 (the "Senior Notes") and the 5.75%
Convertible Subordinated Notes due 2007 (the "Convertible Notes") are being
amortized on the effective interest method over the 10 year life of the notes.
Goodwill recorded in connection with the acquisition of the Investment in
Joint Venture is being amortized by a fixed amount per interval as intervals are
sold. Goodwill in connection with the acquisition of subsidiaries is being
amortized over the estimated useful lives of 10 to 40 years.
At each balance sheet date, the Company evaluates the realizability of its
goodwill based upon expectations of nondiscounted cash flows and operating
income. Based upon its most recent analysis, the Company believes that no
material impairment of its goodwill exists at December 31, 1997.
Foreign Currency Translation -- Financial statements for the Company's
subsidiaries outside the United States are translated into U.S. dollars at
year-end exchange rates for assets and liabilities and weighted average exchange
rates for income and expenses. The resulting translation adjustments are
recorded as a separate component of equity.
Revenue Recognition -- The Company recognizes sales of Vacation Intervals
and Vacation Points on an accrual basis after a binding sales contract has been
executed, a 10% minimum down payment has been received, the rescission period
has expired, construction is substantially complete, and certain minimum sales
levels have been achieved. If all the criteria are met except that construction
is not substantially complete, then revenues are recognized on the
percentage-of-completion (cost to cost) basis. For sales that do not qualify for
either accrual or percentage-of-completion accounting, all revenue is deferred
using the deposit method.
Income Taxes -- Prior to August 20, 1996, the Entities were taxed either as
a corporation at the corporate level, as an S corporation taxable at the
shareholder level, or as a partnership taxable at the partner level. The Company
became subject to federal, state, and foreign income taxes from the effective
date of the Initial Public Offering. The pro forma net income per common and
common equivalent share uses the historical net income of the Company as
adjusted by the unaudited pro forma provision for income taxes to reflect the
net income per common and common equivalent share, as if the Company had been
treated as a C corporation rather than as individual limited partnerships and
limited liability companies for federal income tax purposes for the years ended
December 31, 1996 and 1995.
As a result of the AVCOM Acquisition, AVCOM's results of operations have
been included in the accompanying consolidated financial statements under the
pooling-of-interests method of accounting. During each period presented, AVCOM
was taxed as a C corporation.
Prior to the PRG Acquisition, certain of the PRG Entities were not subject
to federal and state income taxes at the consolidated level for all periods
presented. In connection with the PRG Exchange and the PRG Acquisition, the PRG
Entities became subject to federal and state income taxes from the date of
incorporation. As a result, the pro forma provision for income taxes assumes the
PRG Entities were treated as C corporations for federal income tax purposes.
As a result of the LSI Acquisition, LSI's results have been included in the
accompanying consolidated financial statements under the pooling-of-interests
method of accounting. During each period presented, LSI was subject to income
taxes levied by the various local and country taxing authorities in the foreign
countries in which it operates.
F-11
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
The Company accounts for income taxes using an asset and liability approach
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Deferred tax assets and liabilities are measured by applying enacted statutory
tax rates applicable to the future years in which the related deferred tax
assets or liabilities are expected to be settled or realized. Income tax expense
consists of the taxes payable for the current period and the change during the
period in deferred tax assets and liabilities.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Long-Lived Assets -- In March 1995, the Financial Accounting Standards
Board issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of (SFAS 121), which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
121 also addresses the accounting for the expected disposition of long-lived
assets. The Company adopted SFAS 121 during the year ended December 31, 1996.
The impact of adopting SFAS 121 was to reduce net income by $2.6 million in 1996
and has been recorded as a resort property valuation allowance to reduce real
estate and development costs. During 1997, there was no change in the resort
property valuation allowance.
Stock-Based Compensation -- In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS 123). SFAS 123 was adopted during the year ended December 31, 1996. SFAS
123 requires that the Company's financial statements include certain disclosures
about stock-based employee compensation arrangements and permits the adoption of
a change in accounting for such arrangements. Changes in accounting for
stock-based compensation are optional and the Company has adopted only the
disclosure requirements (see Note 10, "Stock Options").
Newly Issued Accounting Standards -- During February 1997, the Financial
Accounting Standards Board issued SFAS No. 128 (SFAS 128), Earnings Per Share.
The statement establishes standards for computing and presenting earnings per
share (EPS) and applies to publicly held common stock or potential common stock.
The statement simplifies the standards for computing EPS previously found in APB
Opinion No. 15, Earnings Per Share (Opinion 15). It replaces presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to Opinion 15. The Company implemented SFAS No. 128 in the
fourth quarter of 1997.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(SFAS 130). SFAS 130 establishes standards for reporting and the display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income as defined includes all changes in equity (net assets) during a period
from nonowner sources. Examples of items to be included in comprehensive income,
which are excluded from net income, include foreign currency translation
adjustments and unrealized gain/loss on available-for-sale securities. The
disclosures prescribed by SFAS 130 must be made beginning with the first quarter
of fiscal 1999.
F-12
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information (SFAS 131). This statement establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The company is in the process of reassessing current business segment reporting
to determine if changes in reporting will be required in adopting this new
standard. Any required disclosures prescribed by SFAS 131 will first be adopted
in the Company's 1999 annual report.
In February 1998, the FASB issued Statement No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits (SFAS 132). This statement
establishes standards for footnote disclosure requirements relating to pension
and other retiree benefits. The Company is currently in the process of
reassessing current retiree benefit disclosures to determine if changes in
footnote disclosure will be required in adopting this new standard. The new
standard will not have a financial impact on the company. Any required
disclosures prescribed by SFAS 132 will first be adopted in the Company's 1998
annual report.
Reclassifications -- Certain reclassifications were made to the 1996 and
1995 accompanying consolidated financial statements to conform to the 1997
presentation.
3. MORTGAGES RECEIVABLE, NET
The Company provides financing to the purchasers of Vacation Intervals and
Vacation Points which are collateralized by their interest in such Vacation
Intervals and Vacation Points. The mortgages receivable generally bear interest
at the time of issuance of between 12% and 17%, which remain fixed over the term
of the loan, which typically averages seven to ten years. The mortgages
receivable may be prepaid at any time without penalty. The weighted average rate
of interest on outstanding mortgages receivable is 14.4% as of December 31,
1997.
As of December 31, 1997, approximately 4.6% of the Company's consumer loans
were considered by the Company to be delinquent (scheduled payment past due 60
or more days). In addition, the Company had commenced deed-in-lieu of
foreclosure or foreclosure action on approximately 2.2% of its consumer loans as
of December 31, 1997.
At December 31, 1997 and 1996, approximately $5.8 million and $4.4 million,
respectively, of mortgages receivable are non-interest bearing. These mortgages,
which generally have a stated maturity of one to three years, have not been
discounted as management has determined that the effect would not be material to
the accompanying consolidated financial statements.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $4.1 million and $2.5 million at December 31, 1997 and
1996, respectively. The accrued interest receivable at December 31, 1997 and
1996 is net of an allowance for doubtful accounts of $1.0 million and $0.2
million, respectively, and is included in other receivables, net.
F-13
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
The following schedule reflects the scheduled principal maturities of
mortgages receivable (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1998........................................................ $ 50,564
1999........................................................ 46,367
2000........................................................ 44,615
2001........................................................ 43,907
2002........................................................ 41,760
Thereafter.................................................. 127,438
--------
Total principal maturities of mortgages receivable.......... 354,651
Less allowance for doubtful accounts........................ (22,916)
--------
Net principal maturities of mortgages receivable............ $331,735
========
</TABLE>
The activity in the mortgages receivable allowance for doubtful accounts is
as follows (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Balance, beginning of the period......................... $17,328 $13,271
Decrease in allowance for purchased mortgages
receivable............................................. (718) (400)
Increase in allowance for company acquired............... 1,265 --
Provision for mortgages receivable doubtful accounts..... 7,234 8,311
Receivables charged off.................................. (2,193) (3,854)
------- -------
Balance, end of the period..................... $22,916 $17,328
======= =======
</TABLE>
The provision for doubtful accounts for 1997 includes $1,345,000 for other
receivables.
4. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated Vacation Interval and
Vacation Point cost of sales consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Land................................................. $ 74,527 $ 54,614
Development costs, excluding capitalized interest.... 370,151 248,972
Capitalized interest................................. 20,050 13,276
--------- ---------
Total real estate and development costs.... 464,728 316,862
Less accumulated Vacation Interval and Vacation Point
cost of sales...................................... (242,809) (171,372)
Less resort property valuation allowance............. (2,620) (2,620)
--------- ---------
Net real estate and development costs...... $ 219,299 $ 142,870
========= =========
</TABLE>
As of December 31, 1997, the Company commenced sales of Vacation Intervals
at certain properties, or phases of certain properties, that are expected to be
completed during 1998. The estimated cost to complete the projects, or the
specific phases of the projects, is approximately $20 million.
F-14
<PAGE> 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
5. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following
(amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Organizational costs..................................... $ 2,569 $ 2,569
Start-up costs........................................... 1,933 2,433
Debt issuance costs...................................... 15,257 933
Loan origination fees.................................... 1,265 2,712
Financing fees........................................... 1,704 1,620
Goodwill................................................. 35,227 41
------- -------
Total intangible assets.................................. 57,955 10,308
Less accumulated amortization............................ (7,508) (5,772)
------- -------
Net intangible assets.................................. $50,447 $ 4,536
======= =======
</TABLE>
Amortization expense was $3.7 million, $3.5 million and $1.6 million in
1997, 1996 and 1995, respectively. In addition, $2.0 million of amortized
intangibles were retired from the related asset and accumulated amortization
accounts in 1997.
6. NOTES PAYABLE
Notes payable consists of the following at December 31 (amounts in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revolving lines of credit not to exceed $241 million in the
aggregate (limited by eligible collateral), with interest
payable monthly at prime plus 2% to prime plus 3% (10.5% to
11.5% at December 31, 1997), payable in monthly installments
of principal and interest equal to 100% of all proceeds of
the receivables collateral collected during the month but
not less than the accrued interest, with any remaining
principal due seven to ten years after the date of the last
advance related to mortgages receivable, collateralized by
specific mortgages receivable............................... $ 62,676 $ 91,617
Revolving line of credit not to exceed $20 million,
collateralized by certain mortgages receivable with interest
payable at prime plus 1.5% to prime plus 1.75% (10.0% to
10.25% at December 31, 1997) or LIBOR plus 4.25% (9.97% at
December 31, 1997), payable in monthly installments of
principal and interest equal to 100% of all proceeds of the
receivables collateral collected during the month but not
less than the accrued interest, with any remaining principal
from September 2000 to October 2003......................... 11,931 14,654
Revolving line of credit of $100.0 million and $40 million
during 1997 and 1996, respectively, with interest payable
monthly at LIBOR plus 2.75% (8.47% at December 31, 1997)
payable in monthly installments of principal and interest
equal to 100% of all proceeds of the receivables collateral
collected during the month but not less than the accrued
interest, with any remaining principal due June 1998........ -- 37,226
</TABLE>
F-15
<PAGE> 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Construction loan payable not to exceed $47 million in the
aggregate, with monthly interest payable at prime plus 2%
(10.5% at December 31, 1997) principal payable with a
portion of the proceeds received on the sale of Vacation
Intervals, collateralized by specific land and unsold
interval inventory, due from January 1998 to April 2004..... 2,694 16,476
Mortgages receivable, sold with option to repurchase,
collateralized by certain mortgages receivable.............. 4,823 6,281
Bonds payable, due April 2004 with interest at 7.75%,
payable from collections of mortgages receivable,
collateralized by mortgages receivable...................... 11,572 17,460
Endpaper loan, due dates from December 2002 to June 2005
with interest at prime plus 1.25% (9.75% at December 31,
1997), payable from collections of mortgages receivable,
collateralized by mortgages receivable...................... -- 5,259
Various acquisition notes payable with interest rates
ranging from 6.75% to 11.5% and due dates ranging from
January 1998 to February 2014, collateralized by certain
real property and proceeds from the sale of Vacation
Intervals................................................... -- 5,999
Noninterest bearing land loans payable from proceeds of
Vacation Intervals sold with final maturity of May 1999..... 433 3,995
Other notes payable......................................... 3,079 37,155
9.75% Senior Subordinated Notes with semi-annual interest
payments due April and October and principal due October
2007........................................................ 200,000 --
5.75% Convertible Subordinated Notes with semi-annual
interest payments due January and July and principal due
January 2007................................................ 138,000 --
-------- --------
Total notes payable......................................... $435,208 $236,122
======== ========
</TABLE>
On February 18, 1998, the Company consummated a $100.0 million Senior Bank
Credit Facility (the "Credit Facility"). The 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 of advances against mortgages receivable. The Credit Facility has
a three year term and contains covenants, representations and warranties and
conditions to borrow on the funds.
The Convertible Notes are convertible into Common Stock at any time prior
to maturity, unless previously redeemed, at a conversion price of $30.417 per
share, subject to adjustment under certain events.
At December 31, 1997, under the terms of the revolving lines of credit
agreements, the Company may typically borrow from 85% to 90% of the balances of
the pledged mortgages receivable. A total of approximately $199 million is
available under these certain agreements.
The loans contain certain covenants, the most restrictive of which require
certain of the consolidated entities to maintain a minimum net worth and require
certain expenses to not exceed certain percentages of sales. At December 31,
1997, the Company was in compliance with all covenants.
F-16
<PAGE> 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Dividends are restricted by certain of the Company's debt agreements which
require tangible net worth of at least $140 million.
The expected maturities of the remaining long-term debt are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
DUE IN FISCAL YEAR
------------------
<S> <C>
1998..................... $ 29,537
1999..................... 28,794
2000..................... 18,108
2001..................... 11,503
2002..................... 9,223
2003 and thereafter...... 338,043
--------
$435,208
========
</TABLE>
7. RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1996, respectively, the Company, had accrued $7.0
million and $4.4 million as a receivable from various homeowners' associations
at its resorts. At December 31, 1997 and 1996, respectively, the Company had
accrued $1.0 million and $1.6 million as a payable to the homeowners'
associations at its resorts. The Company generally accrues receivables from
homeowners' associations for management fees and certain other expenses.
Payables to the homeowners' associations consist primarily of maintenance fees
for units owned by the Company. All of these amounts are classified as due from
and due to related parties in the accompanying consolidated balance sheets.
As of December 31, 1997, the Company had accounts receivable and notes
receivable of $2.7 million and $11.8 million, respectively, from the Company's
joint ventures in Poipu Point, Hawaii, Kaanapali, Hawaii and St. John, U.S.
Virgin Islands. As of December 31, 1996, these accounts receivable and notes
receivable balances were $0.3 million and $2.0 million, respectively. The
accounts receivable relate to certain reimbursable operating and development
expenses. The notes receivable represent loans made to the projects for start-up
and development activities.
8. COMMITMENTS AND CONTINGENCIES
The Company is currently subject to litigation and claims regarding
employment, tort, contract, construction, and commission disputes, among others.
In the judgment of management, none of such litigation or claims against the
Company is likely to have a material adverse effect on the Company's financial
statements or its business.
The Company owns a partnership interest in the Embassy Vacation Resort at
Poipu Point, Koloa, Kauai, Hawaii. Under the terms of the partnership agreement,
the Company could be required to purchase the other partner's interest. At
December 31, 1997, the Company does not believe that the events requiring such
purchase are likely to occur.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values for its financial
instruments. The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and cash in escrow: The carrying amount reported
in the balance sheet for cash and cash equivalents and cash in escrow
approximates their fair value because of the short maturity of these
instruments.
F-17
<PAGE> 86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Mortgages receivable: The carrying amount reported in the balance sheet for
mortgages receivable approximates its fair value because the weighted average
interest rate on the portfolio of mortgages receivable approximates current
interest rates to be received on similar current mortgages receivable.
Notes payable: The carrying amount reported in the balance sheet for notes
payable approximates its fair value because the interest rates on these
instruments approximate current interest rates charged on similar current
borrowings.
10. STOCK OPTIONS
The Company issued 1,054,500 and 2,653,500 stock options during 1997 and
1996, respectively. The Company accounts for these options under APB Opinion No.
25, Accounting for Stock Issued to Employees, under which no compensation cost
has been recognized. Under SFAS 123, the Company's net income would have been
$16.9 million and basic and diluted earnings per share would have been, $0.48
and $0.47, respectively, on an unaudited pro forma basis for the year ended
December 31, 1997. The Company's unaudited, pro forma net income would have been
$1.6 million, and basic and diluted unaudited earnings per share would have been
$0.06 on an unaudited pro forma basis for the year ended December 31, 1996. SFAS
123 would not have affected the Company's net income and earnings per share for
the year ended December 31, 1995. A summary of the Company's stock options for
the years ended December 31, 1997 and 1996 is presented in the following table:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Outstanding options, beginning
of year...................... 2,653,500 $10.29 --
Granted........................ 1,054,500 23.99 2,653,500 $10.29
Exercised...................... (250,180) 9.33 -- --
Forfeited...................... (168,413) 16.42 -- --
Expired........................ -- -- -- --
---------- ------ ---------- ------
Outstanding options, end of
year......................... 3,289,407 $14.45 2,653,500 $10.29
Exercisable at end of year..... 817,528 $10.50 522 $10.18
========== ====== ========== ======
Weighted average fair value of
options granted.............. $ 5.32 $ 4.23
</TABLE>
All stock options issued by the Company were issued to employees at fair
market value on the grant date. The options range from 3 to 5 years for full
maturity and the exercise prices range from $8.00 to $28.25.
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions:
risk free interest rate of 6.0%, expected dividend yield of zero, expected
volatility of 35%, and expected lives of 4.1 years in 1997 and 5 years in 1996.
Options to purchase an aggregate of 2,653,500 shares of Common stock were
granted to directors, executive officers and other employees of the Company in
1996 and were outstanding on January 1, 1997. The number of options granted
exceeded the limit of 2,625,000 shares approved under the 1996 Equity
Participation Plan by 28,500 shares. The options that were granted in excess of
the limit were granted subject to the approval of the Company's stockholders of
an amendment to such plan increasing the number of shares of Common stock
reserved for issuance thereunder from 2,625,000 shares to 3,750,000 shares.
On May 16, 1997, shareholders approved a new limit of 3,750,000 total
shares reserved for issuance under the Company's 1996 Equity Participation Plan.
As of December 31, 1997 the number of shares available for option grants was
460,593 under the plan.
F-18
<PAGE> 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
11. EMPLOYEE BENEFIT PLANS
The Company has established the Signature Resorts, Inc. Employee Stock
Purchase Plan to assist eligible employees to acquire stock ownership in the
Company and to encourage them to remain in the employment of the Company. The
Employee Stock Purchase Plan is intended to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended, and generally allows eligible employees to purchase common
stock at 85% of fair market value, subject to dollar limitations. The Company
has reserved a maximum of 750,000 shares of Common Stock for issuance pursuant
to the Employee Stock Purchase Plan. As of December 31, 1997 and 1996, an
aggregate of 2,482 and no shares, respectively, had been issued pursuant to the
Employee Stock Purchase Plan.
The Company also has established a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended. Subject to certain limitations, the 401(k) Plan allows
participating employees to defer up to 10% of their eligible compensation on a
pre-tax basis. Although the 401(k) Plan allows the Company to make discretionary
matching contributions of up to 50% of employee contributions, the Company did
not make any such matching contributions during 1997 or 1996.
12. INCOME TAXES
Prior to August 20, 1996, the Entities were taxed either as a corporation
at the corporate level, as an S corporation taxable at the shareholder level, or
as a partnership taxable at the partner level. In addition, PRG entities were
taxed as a corporation at the corporate level or as a partnership at the partner
level. Accordingly, the table below summarizes the unaudited pro forma provision
for income taxes that would have been reported had the Company been treated as a
C corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes for the years ended December
31, 1996 and 1995. AVCOM's and LSI's actual deferred income taxes and provision
for income taxes are included in the pro forma schedules and 1996 actual
schedule on the next page. The Company's actual income tax provision is
presented for the periods subsequent to August 20, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1996 1995
------- ------- ------------ ------------
(PRO FORMA) (PRO FORMA)
(UNAUDITED) (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal.................................... $ 2,194 $ 2,785 $ 4,990 $ 5,654
State...................................... 461 481 846 711
Foreign.................................... 2,533 1,240 1,233 1,645
------- ------- ------- -------
Total current provision for income taxes..... 5,188 4,506 7,069 8,010
------- ------- ------- -------
Deferred:
Federal.................................... 16,125 (7,182) (3,675) 1,363
State...................................... 1,843 (1,393) (809) 594
Foreign.................................... -- (36) (36) 42
------- ------- ------- -------
Total deferred provision (benefit) for income
taxes...................................... 17,968 (8,611) (4,520) 1,999
------- ------- ------- -------
Provision (benefit) for income taxes......... $23,156 $(4,105) $ 2,549 $10,009
======= ======= ======= =======
</TABLE>
F-19
<PAGE> 88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
The reconciliation between the statutory provision for income taxes and the
actual provision (benefit) for income taxes is shown as follows (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1996 1995
------- ------- ------------ ------------
(PRO FORMA) (PRO FORMA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Income tax at U.S. federal statutory
rate............................... $15,205 $ 2,357 $2,357 $ 8,862
State tax, net of federal benefit.... 1,738 163 163 1,037
Difference in foreign tax rates...... (994) (34) (34) (56)
Write-off of receivable from related
party.............................. -- (1,478) -- --
Non-deductible expenses.............. 3,192 598 63 166
Deferred income taxes recorded upon
acquisition of previously
non-taxable entities............... 5,960 -- -- --
Other................................ (895) -- -- --
Non-taxable income from entities..... (1,050) (5,711) -- --
------- ------- ------ -------
Provision (benefit) for income
taxes........................... $23,156 $(4,105) $2,549 $10,009
======= ======= ====== =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the net deferred tax liabilities were as follows (amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 8,867 $ 5,659
Fixed assets and inventory................................ 1,305 3,389
Accrued expenses.......................................... 4,152 2,386
Adjustment to basis of partnership property............... 3,474 --
Net operating loss carryover.............................. 29,439 15,763
Capital loss carryover.................................... 367 --
Federal benefit of state deferred tax..................... -- --
Foreign tax credit carryover.............................. 62 332
Minimum tax credit carryover.............................. 5,776 1,629
-------- --------
Total gross deferred tax assets................... 53,442 $ 29,158
-------- --------
Valuation Allowance......................................... (2,367) --
-------- --------
Total net deferred tax asset...................... $ 51,075 $ 29,158
-------- --------
Deferred tax liabilities:
Installment sales......................................... (73,818) (27,191)
Percentage of completion.................................. (160) (4,370)
Other..................................................... (849) (856)
-------- --------
Total deferred tax liabilities.................... $(74,827) $(32,417)
-------- --------
Net deferred taxes..................................... $(23,752) $ (3,259)
======== ========
</TABLE>
At December 31, 1997, the Company has available approximately $79 million
of unused net operating loss carryforwards (the "NOLs") that may be applied
against future taxable income. These NOLs expire on various dates from 2004
through 2012.
F-20
<PAGE> 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
During the fourth quarter of 1997, the Company changed its estimate
regarding its tax provision by $6.0 million or $0.17 per share to reflect the
tax effects of certain acquired entities, primarily PRG, that were either
previously non-taxable or were taxed in foreign jurisdictions.
13. SUBSEQUENT EVENTS
On February 3, 1998, the Company acquired 100% of the capital stock of MMG
Holding Corp., MMG Development Corp. and certain affiliated companies for
approximately $26.5 million, comprised of $18.5 million in cash and the
assumption of approximately $8.0 million of debt. The acquired assets include
MMG's approximately $6.6 million mortgages receivable portfolio. MMG is an
Orlando, Florida based developer, operator and manager of vacation ownership
resorts, with sales or management operations at six resorts. In addition, on
February 18, 1998, the Company consummated MMG's commitment to purchase an
additional resort in Gatlinburg, Tennessee. The Company will account for the
acquisition using the purchase method of accounting for business combinations.
In January 1998, the Company acquired the Westin Carambola Beach Resort
(the "Carambola Beach Resort") on the island of St. Croix, United States Virgin
Islands for a cash purchase price of $13 million. The Carambola Beach Resort
contains 156 one-bedroom suites and one two-bedroom suite. The Company will
account for the acquisition using the purchase method of accounting for business
combinations.
In January 1998, the Company announced that it and Westin Hotels & Resorts
("Westin") modified their existing joint development agreement to make the
relationship non-exclusive between the parties. Under their modified
relationship, the Company and Westin each will be free to independently pursue
all vacation ownership development opportunities. Under the parties' prior
exclusive agreement, the Company and Westin each were restricted from developing
four and five star vacation ownership resorts with third parties. The Company
and Westin, however, will continue to jointly own and operate the Westin
Vacation Club St. John located in the U.S. Virgin Islands. As part of the
modification, the Company's and Westin's representatives no longer serve on the
other's board of directors.
14. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment, which includes the
development, acquisition, marketing, sales, financing and management of vacation
ownership resorts. The Company's areas of operation outside of the United States
include Mexico, Canada, Netherlands Antilles, United Kingdom, Spain, Austria and
France. The Company's customers are not concentrated in any specific geographic
region and no single customer accounts for a significant amount of the Company's
sales.
F-21
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Information about the Company's operations in different geographic
locations is shown below (amounts in thousands):
<TABLE>
<CAPTION>
UNITED STATES FOREIGN TOTAL
------------- ------- --------
<S> <C> <C> <C>
1997
Total revenues.................................. $270,296 $67,397 $337,693
Income before provision for income taxes........ 31,177 12,267 43,444
Identifiable assets............................. 701,509 59,636 761,145
1996
Total revenues.................................. $179,003 $40,844 $219,847
Income before provision for income taxes........ 356 6,573 6,929
Identifiable assets............................. 412,339 33,545 445,884
1995
Total revenues.................................. $138,925 $29,393 $168,318
Income before provision for income taxes........ 18,162 7,157 25,319
Identifiable Assets............................. 267,162 28,609 295,771
</TABLE>
NOTE 15. ACQUISITIONS
On October 10, 1997, the Company consummated its acquisition (the "Marc
Acquisition") of Hawaii-based Marc Hotels & Resorts, Inc. ("Marc Resorts"),
acquiring 100% of the capital stock of Marc Resorts for 212,717 newly issued
shares of the Company's Common Stock. Marc Resorts is a Hawaiian hospitality
management company and operator of hotels, resort condominiums and all-suite
resorts with 22 managed resort locations on Hawaii's five major islands. The
Company accounted for the Marc Acquisition using the purchase method of
accounting for business combinations.
On November 7, 1997, the Company consummated its acquisition of 100% of the
capital stock of Vacation Internationale, Ltd. ("VI") and its subsidiaries for
approximately $24.3 million, comprised of $8.0 million in cash and promissory
notes and the assumption of approximately $16.3 million of long-term
indebtedness (the "VI Acquisition"). VI is a Bellevue, Washington based
developer and operator of vacation ownership resorts. VI's vacation time share
program includes 21 resort locations in the Western United States, Hawaii,
Mexico and Canada. The Company accounted for the VI Acquisition using the
purchase method of accounting for business combinations.
On November 14, 1997, a partnership of which the Company is a managing
general partner consummated its acquisition of the Embassy Suites Resort at
Kaanapali Beach, Maui, Hawaii for approximately $78 million. The acquiring
entity is a partnership formed by a wholly-owned subsidiary of the Company (as
the managing general partner), the Whitehall Street Real Estate Limited
Partnership VII and Apollo Real Estate Advisors, L.P. The Company's subsidiary
owns a 24% partnership interest in the acquiring entity. The Company accounts
for this investment under the equity method of accounting.
On December 5, 1997, the Company consummated its acquisition of the
European vacation ownership business of Global Development Ltd. ("Global") and
certain of its affiliated companies through an asset purchase for cash
consideration of approximately $18 million. Global has 13 resort locations in
Europe. The Company assumed no long-term debt as part of this transaction, but
assumed approximately $7.0 million in liabilities and acquired assets valued at
approximately $15.8 million. The Company accounted for the asset purchase using
the purchase method of accounting.
F-22
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Assets acquired and liabilities assumed in connection with the Company's
acquisitions are as follows (amounts in thousands):
<TABLE>
<S> <C>
Assets acquired in acquisitions:
Cash in escrow............................................ $ 857
Mortgages receivable, net................................. 14,509
Due from related parties.................................. 1,175
Other receivables, net.................................... 2,719
Prepaid expenses and other................................ 377
Real estate and development costs......................... 10,834
Property and equipment, net............................... 3,202
Goodwill in conjunction with acquisitions................. 35,186
-------
Total assets acquired in acquisitions............. $68,859
=======
Liabilities assumed in acquisitions:
Accounts payable.......................................... $ 8,666
Accrued liabilities....................................... 21,359
Due to related parties.................................... 12
Deferred income taxes..................................... 1,012
Notes payable............................................. 227
Cumulative translation adjustments........................ 277
-------
Total liabilities assumed in acquisitions......... $31,553
=======
</TABLE>
The following tables sets forth certain unaudited pro forma information for
the Company's acquisitions as if they had occurred as of the beginning of 1997
and 1996 (amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS TOTAL
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Year ended December 31, 1997
Total revenues......................... $337,693 $ 53,094 $390,787
Net Income............................. 19,522 (2,951) 16,571
Basic EPS.............................. $ 0.55 $ 0.47
Diluted EPS............................ $ 0.54 0.46
Year ended December 31, 1996
Total revenues......................... $219,847 $ 74,014 $293,861
Net Income............................. 11,034 261 11,295
Basic EPS.............................. $ 0.41 $ 0.41
Diluted EPS............................ $ 0.40 0.41
</TABLE>
F-23
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 16. EARNINGS PER SHARE
Basic earnings per share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share was calculated by dividing 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 each of the three years in the period ended December 31,
1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(AMOUNT IN THOUSANDS)
<S> <C> <C> <C>
Net income............................................ $19,522 $11,034 $21,299
======= ======= =======
Net income available to common stockholders after
assumed conversion of dilutive securities(a)........ $19,522 $11,034 $21,299
======= ======= =======
Weighted average number of common shares used in basic
EPS................................................... 35,373 27,232 23,955
Effect of dilutive stock options...................... 807 408 --
------- ------- -------
Weighted average number of common shares and dilutive
potential common shares used in diluted EPS(a)...... 36,180 27,640 23,955
======= ======= =======
</TABLE>
(a) The potential effect on net income and on common stock shares related
to the Convertible Notes have not been included in the calculation of net income
or weighted average number of common shares and dilutive potential common shares
outstanding used in diluted EPS because the effect would be anti-dilutive.
F-24
<PAGE> 1
Page 1
EXHIBIT 10.1.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of October 10, 1997, by and among Michael V. Paulin, Rosemarie
Paulin, Maya K. Paulin and Annemarie H. Paulin (collectively, the "Holders") and
Signature Resorts, Inc., a Maryland corporation (the "Company").
This Agreement is made in connection with the acquisition by the
Company of 100% of the capital stock of Marc Hotels & Resorts, Inc., a Hawaii
corporation ("Marc"), pursuant to an Agreement and Plan of Merger, dated August
21, 1997 (the "Merger Agreement"), under which a wholly-owned subsidiary of the
Company will merge with and into Marc (the "Merger"). As a result of the Merger,
the Holders will exchange of their interests in Marc for an aggregate number of
shares of common stock, $0.01 par value per share (the "Common Stock"), of the
Company as determined pursuant to section 1.3 of the Merger Agreement. As used
herein the term "Registrable Shares" shall refer to such number of shares of
Common Stock upon original issuance thereof, and at all times subsequent
thereto, until the earlier to occur of such time as (i) a registration statement
of the Company that covers such Registrable Shares has been declared effective
and any such Registrable Shares have been disposed of in accordance with such
effective registration statement and (ii) such earlier time as all such shares
are tradeable without restriction under any applicable rules and regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
"Merger Date" shall be the closing date of the Merger.
The parties hereby agree as follows:
1. Shelf Registration.
(a) The Company shall prepare or amend and file with the
Securities and Exchange Commission (the "Commission"), a registration statement
for an offering to be made on a continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), covering the
Registrable Shares (the "Shelf Registration"). The Shelf Registration shall be
on Form S-1 or another appropriate form (e.g. Form S-3 after having established
eligibility therefor) permitting registration of the Registrable Shares for
resale by the Holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Company shall use
commercially reasonable efforts (subject in all cases to any procedures and
limitations which may be imposed by the staff of the Commission) to (i) file the
Shelf Registration with the Commission within 30 days following the Merger Date,
(ii) cause the Shelf Registration to be declared effective under the Securities
Act as soon as practicable following the Merger Date, and (iii) keep the Shelf
Registration continuously effective under the Securities Act for a period (the
"Effectiveness Period") of the shorter of (A) two years from the Merger Date,
(B) the date when all Registrable Shares are tradeable without restriction under
any applicable rules and regulations under the Exchange Act and (C) the date
when all Registrable Shares covered by the Shelf Registration have been disposed
of in accordance with the Shelf Registration.
(b) The Company may require in its sole discretion that
Registrable Shares proposed to be sold pursuant to the Shelf Registration
effected pursuant to this Section 1 be sold in trades, which shall be block
trades if requested by the approved underwriter(s) or broker-dealer, through
approved underwriter(s), or broker-dealers, selected by the Company. In the
event that the Company has either given Notice or at such time gives Notice of
an
<PAGE> 2
Page 2
Underwritten Offering (each as defined in Section 2 below) in which the Holder
is offered the opportunity to participate and the Company provides with such
Notice a statement signed in the name of the Company that the Company reasonably
anticipates the completion of such Underwritten Offering within 45 days of the
date of the Notice, the Company may require that the Holders discontinue public
sales of such Holder's Registrable Securities (other than through such
Underwritten Offering) for the shorter of the 45-day period set forth in such
Notice or the period ending on the date of the closing of such Underwritten
Offering. In the event any of the Registrable Shares covered by the Shelf
Registration effected pursuant to this Section 1 are sold in such an
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will manage such offering will be selected in accordance with
Section 6 below.
(c) The Company may include in any such Shelf Registration
referred to in this Section 1 other shares of Common Stock of the Company held
by other security holders of the Company who have registration rights.
2. Incidental Registration. If, at any time or from time to time
during a period of two years following the Merger Date, the Company shall
propose to file a registration statement (a "Registration Statement") with the
Commission with respect to the proposed sale by the Company of shares of its
Common Stock (or securities exchangeable or convertible therefor) to an
underwriter(s) for reoffering to the public (an "Underwritten Offering") (other
than in connection with an offering on Form S-4 or Form S-8 or successor forms
of such registration statements under the Act) and the Shelf Registration has
not been declared effective, then the Company shall in each case give written
notice (the "Notice") of such proposed filing to the Holders not less than 30
days before the anticipated filing date, which shall offer to the Holders the
opportunity to include in such Registration Statement such number of Registrable
Shares as each Holder may request. Upon written request by any Holder given
within 15 days after the giving of the Notice, the Company shall include in any
Registration Statement relating to the Common Stock of the Company all or such
portion of the Registrable Shares as the Holders may request. Neither the
delivery of the Notice by the Company nor of such request by the Holders shall
obligate the Company to file such Registration Statement and, notwithstanding
the filing of such Registration Statement, the Company may, at any time prior to
the effective date thereof, determine not to offer the securities to which such
Registration Statement relates, without liability or obligation to the Holders.
As a condition to any Holder including any Registrable Shares in any
Registration Statement pursuant to this Section 2, such Holder agrees to effect
sales of such Registrable Shares thereunder solely under the plan of
distribution established by the Company and set forth therein.
3. Company's Obligations. In connection with the Company's
obligation to effect a Shelf Registration pursuant to Section 1, or in the event
the Company files a Registration Statement in connection with an Underwritten
Offering pursuant to Section 2, it shall:
(a) Notify the Holders as to the filing thereof and of all
amendments or supplements thereto filed prior to the effective date of such
Shelf Registration or Registration Statement;
(b) Notify the Holders, promptly after the Company shall
receive notice thereof, of the time when such Shelf Registration or Registration
Statement became
<PAGE> 3
Page 3
effective or any amendment or supplement to any prospectus forming a part of
such Shelf Registration or Registration Statement has been filed;
(c) Notify the Holders promptly of any request by the
Commission for the amending or supplementing of such Shelf Registration or
Registration Statement or prospectus or for additional information;
(d) Prepare and file with the Commission any amendments or
supplements to such Shelf Registration or Registration Statement and the
prospectus which may be necessary or advisable to keep such Registration
Statement effective and to comply with the provisions of the Securities Act with
respect to the offer of the Registrable Shares covered by such Registration
Statement during the period required for the distribution of such securities,
which, in the case of a Registration Statement filed pursuant to Section 2 in
connection with an Underwritten Offering, such period shall not be in excess of
120 days from the effective date of the Registration Statement or post-effective
amendment pursuant to which such Registrable Shares may be sold;
(e) Prepare and promptly file with the Commission and
promptly notify the Holders of the filing of such amendment or supplement to
such Shelf Registration or Registration Statement and the prospectus as may be
necessary to correct any statements therein or omission therefrom if, at any
time when a prospectus relating to such Registrable Shares is required to be
delivered under the Securities Act, any event with respect to the Company shall
have occurred as a result of which any prospectus would include an untrue
statement of material fact or omit to state any material fact necessary to make
the statements therein not misleading;
(f) In case the Holders or any underwriter(s) for the
Holders are required to deliver a prospectus, prepare promptly upon request such
amendment or amendments to such Shelf Registration or Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 9(a)(3) of the Securities Act;
(g) Advise the Holders promptly after the Company shall
receive notice or obtain knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of any such Shelf Registration or
Registration Statement or amendment thereto or of the initiation or threatening
of any proceedings for that purpose, and promptly use its maximum reasonable
efforts to prevent the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued;
(h) Use its maximum reasonable efforts to qualify such
Registrable Shares for sale under the securities or blue sky laws of such states
within the United States as the Holders may reasonably designate, except that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business in any such state or to take any action which
would subject it to general service of process in any such jurisdiction where it
is not then so subject; and
(i) Furnish to the Holders, as soon as available, copies
of any such Shelf Registration or Registration Statement and each preliminary or
final prospectus, or supplement or amendment required to be prepared thereto,
all in such quantities required as
<PAGE> 4
Page 4
they may from time to time reasonably request.
Each Holder of Registrable Shares agrees by acquisition of
such Registrable Shares that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(e) hereof, such Holder
will forthwith discontinue disposition of Registrable Shares until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3(e) hereof, or until it is advised in writing by the Company that the
use of the prospectus may be resumed, and has received copies of any additional
or supplemental filings that are incorporated by reference in the prospectus,
and, if so directed by the Company, such Holder will deliver to the Company all
copies, other than permanent file copies, then in such Holder's possession of
the prospectus covering such Registrable Shares current at the time of receipt
of such notice.
4. Holders' Obligation to Furnish Information. In connection with
the Company's obligation to effect a Shelf Registration pursuant to Section 1,
or in the event the Company files a Registration Statement in connection with an
Underwritten Offering pursuant to Section 2, each Holder shall furnish
information to the Company concerning such Holder's holdings of securities of
the Company and the proposed method of sale or other disposition of the
Registrable Shares and such other information and undertakings as shall be
required in connection with the preparation and filing of the Shelf
Registration, any Registration Statement or any post-effective amendment
covering all or part of the Registrable Shares in order to insure full
compliance with the Securities Act and the Exchange Act. Each Holder further
agrees to enter into such undertakings and take such other action relating to
the conduct of the proposed offering which the Company or the underwriter(s) may
reasonably request as being necessary to ensure compliance with the federal and
state securities laws and the rules or other requirements of the National
Association of Securities Dealers, Inc. ("NASD") or otherwise to effectuate the
offering.
5. Expenses. The Company shall pay all expenses (the
"Registration Expenses") incident to each registration of the Registrable Shares
under Sections 1 and 2, including, without limitation, all registration, filing
and NASD fees, all fees and expenses of complying with state securities or blue
sky laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, premiums and other costs of policies of insurance purchased by the
Company at its option against liabilities arising out of the public offering of
such Registrable Shares, but excluding underwriting discounts and commissions
and fees and expenses of underwriter(s), selling brokers, dealer managers or
similar securities industry professionals relating to the distribution of the
Registrable Shares, transfer taxes, fees and disbursements of counsel for any
selling shareholder(s) and other selling expenses, if any.
6. Selection of Underwriter. In the event of any Registration
Statement filed in connection with an Underwritten Offering pursuant to Section
2 and in the event any of the Registrable Shares covered by the Shelf
Registration effected pursuant to Section 1 are to be sold in an Underwritten
Offering, the investment banker or investment bankers and manager or managers
that will manage the offering will be selected by the Company.
7. Priority in Incidental Registration. If in connection with an
Underwritten
<PAGE> 5
Page 5
Offering registered pursuant to Section 2, the managing underwriter(s) of such
Underwritten Offering informs the Company and the Holders by letter of its
belief that the number of securities requested to be included in such
Registration Statement exceeds the number which should be sold in such
Underwritten Offering, then the Company will include in such Registration
Statement, to the extent of the number which the Company is so advised should be
sold in such Underwritten Offering, (i) first, all shares of Common Stock
proposed to be sold by the Company for its own account and (ii) second, the
number of Registrable Shares proposed by the Holders to be included in the
registration that, in the opinion of such managing underwriter(s), can be sold
without adversely affecting the price or probability of success of such
Underwritten Offering, allocated pro rata among such Holders, on the basis of
the relative amount of Registrable Shares requested to be included in such
Registration Statement; provided that in all cases the Holders of Registrable
Shares shall be entitled to include in any such registration an aggregate of up
to 25% of the total number of shares sold in any such Underwritten Offering.
8. Underwritten Offerings. In the event that Registrable Shares
are to be distributed through an Underwritten Offering, each Holder offering
Registrable Shares in such Underwritten Offering shall be a party to the
underwriting agreement between the Company and such underwriter(s) and may, at
its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriter(s) shall also be made to and for the benefit of such Holder.
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriter(s), other than representations,
warranties or agreements regarding the Holders, the Registrable Shares, and the
Holders' intended method of distribution and any other representations required
by law. Any representations or warranties to or agreements with the
underwriter(s) made by the Holders shall also be made to and for the benefit of
the Company.
9. Indemnification.
(a) By the Company. In the event of any registration of
the Registrable Shares of the Company under the Securities Act, the Company
will, and hereby does, indemnify and hold harmless the Holders with respect to
the Registrable Shares included in such registration, its directors, officers,
underwriters and each other person, if any, who controls any Holder within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Company or such Holder or any such
director or officer or underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in which
they were made not misleading, and the Company will reimburse such Holder and
each such director, officer, underwriter and controlling person for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or proceeding; provided
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability (or action or
<PAGE> 6
Page 6
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such Registration Statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such underwriter or such Holder, as the case may be, specifically for use in the
preparation thereof and; provided further that the Company shall not be liable
to any person in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
such person's failure to send or give a copy of the final prospectus, as the
same may be then supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to written confirmation of the sale of the Registrable Shares to such
person if such statement or omission was corrected in such final prospectus as
amended or supplemented. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such underwriter or such
Holder or any such director, official, underwriter or controlling person and
shall survive the transfer of such securities by such Holder.
(b) Indemnification by the Holders. Each Holder agrees
that, as a condition to including any Registrable Shares in any Registration
Statement filed pursuant to Section 1 or 2, that each such Holder with
Registrable Shares included in such Registration Statement will and hereby does,
indemnify and hold harmless (in the same manner and to the same extent as set
forth in paragraph (a) of this Section 9) the Company, each director of the
Company, each officer of the Company, each other person who participates as an
underwriter in the offering or sale of such securities and each other person, if
any, who controls the Company or any such underwriter within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Holder
specifically for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by such Holder.
The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above with respect to information so furnished in writing by such persons
specifically for inclusion in any prospectus or registration statement or any
amendment or supplement thereto, or any preliminary prospectus.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 9,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action; provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section 9, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an
<PAGE> 7
Page 7
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the party in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof, the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that
specified in paragraphs (a) through (c) of this Section 9 (with appropriate
modifications) shall be given by the Company and the Holders with respect to any
required registration or other qualification of securities under any Federal or
state law or regulation or any governmental authority other than the Act.
(e) Indemnification Payment. The indemnification required
by this Section 9 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in
this Agreement shall for any reason be unavailable or insufficient (other than
by reason of exceptions provided in those sections) to an indemnified party
under paragraphs (a), (b) and (d) of this Section 9 in respect to any loss,
claim, damage or liability, or any action in respect thereof, or referred to
therein, then each indemnifying party shall, in lieu of indemnifying such party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative fault of the Company
on the one hand and any Holder on the other, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or such Holder, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 9 were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to in this Section 9 shall be deemed to
include, for purposes of this Section 9, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any action or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
10. Rule 144. So long as the Company has any securities
registered under
<PAGE> 8
Page 8
Section 12 of the Exchange Act, the Company will file the reports required to be
filed by it under the Exchange Act and the rules and regulations adopted by the
Commission thereunder (or, if the Company is not required to file such reports,
will upon the request of Holders of a majority of the Registrable Shares, make
publicly available other information for a period of up to four months) and will
take such further action as such Holders may reasonably request, all to the
extent required from time to time to enable the Holders to sell Registrable
Shares without registration under the Securities Act within the limitation of
the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of such Holders, the
Company will deliver to such Holders a written statement as to whether it has
complied with such requirements.
11. Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of Holders of a
majority of the Registrable Shares.
12. Notices. Any notice from one party to the other shall be in
writing and either delivered personally or by certified or registered mail,
postage prepaid, or by telegram, telecopier, or by overnight mail delivery by a
nationally recognized courier, and shall be deemed given when so delivered
personally or, if mailed or given by telegram or telecopier or overnight mail,
upon receipt thereof by the addressees, as follows:
If to the Company:
Signature Resorts, Inc.
Attention: Andrew D. Hutton, Esq.
5933 Century Boulevard, Suite 210
Los Angeles, California 90045
Telephone: (310) 348-1000
Telecopy: (310) 348-1010
with a copy to:
Edward H. Brown, Esq.
Schreeder, Wheeler & Flint
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303
If to any Holder:
At its address as it appears on the register of holders of
Common Stock maintained by the Company.
13. Assignment. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns as hereinafter set forth in this Section 13. In
addition, and whether or not any express assignment shall have been made, the
provisions of this Agreement which are for the
<PAGE> 9
benefit of the Holders shall also be for the benefit of and enforceable by any
subsequent holder ("Subsequent Holders") of any Registrable Shares, except any
Subsequent Holder with respect to Registrable Shares acquired in a public
offering pursuant to a Registration Statement or an exemption from registration
under Rule 144 under the Securities Act.
14. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
15. Governing Law. The validity of this Agreement and all matters
relating to its interpretation and performance shall be interpreted in
accordance with the laws of the State of California applicable to contracts made
and fully performed therein, but without regard to principles of conflicts of
law. The courts in Los Angeles, California shall have exclusive jurisdiction
over any controversy arising under this Agreement and venue in Los Angeles is
appropriate.
16. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
17. Entire Agreement; Amendment. This Agreement contains all of
the terms agreed upon by the parties with respect to the subject matter herein
and there are no representations or understandings between the parties except as
provided in this Agreement. This Agreement may not be amended or modified in any
way except by a written amendment duly executed by each of the parties.
IN WITNESS WHEREOF, the parties have caused this Registration
Rights Agreement to be executed and delivered as of the date first above
written.
SIGNATURE RESORTS, INC.
By /s/ DEWEY W. CHAMBERS
--------------------------------
Title: Vice President and Treasurer
HOLDERS
/s/ MICHAEL V. PAULIN
-----------------------------------
Michael V. Paulin
/s/ ROSEMARIE PAULIN
-----------------------------------
Rosemarie Paulin
/s/ MAYA K. PAULIN
-----------------------------------
Maya K. Paulin
/s/ ANNEMARIE PAULIN
-----------------------------------
Annemarie Paulin
<PAGE> 1
Page 1
EXHIBIT 10.2.11
FORM OF AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (the
"Amendment") is dated as of _________, 1998, between Signature Resorts, Inc., a
Maryland corporation (the "Company"), and Osamu Kaneko (the "Executive").
WHEREAS, the Company and the Executive previously have entered
into that Employment Agreement, dated August 20, 1996 (the "Agreement"),
pursuant to which the Company currently employs the Executive pursuant to the
terms and conditions of the Agreement; and
WHEREAS, the Company and the Executive each have determined that
it would be to the advantage and best interest of the Company and the Executive
to enter into the Amendment and modify certain of the Executive's and the
Company's obligations and responsibilities under the Agreement; and
WHEREAS, this Amendment amends and restates the Agreement in its
entirey and shall supersede the Agreement in all respects;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. Term. The employment of the Executive by the Company as provided in
Section 1 will commence on ________, 1998 and will terminate at 12:01 a.m. on
________, 2000 (the "Expiration Date") unless automatically extended or sooner
terminated as hereinafter provided (such period, the "Employment Period").
Unless terminated by the Executive or the Company prior to ________, 2000,
this Agreement shall automatically renew on the terms set forth herein for a
second two-year period. If so renewed, no later than ________, 2002, the
Company shall notify the Executive with written notice as to whether the Company
intends to further renew or extend the Agreement (including proposals for such
further renewal which the Executive may accept, reject or negotiate, at his
discretion).
3. Position, Duties and Responsibilities.
(a) Position. The Executive hereby agrees to serve as Chief
Executive Officer of the Company's wholly-owned Japanese subsidiary, created or
to be created by the Company to conduct the Company's resort acquisition,
development and operations business in Japan and other Asian countries. The
Executive shall devote his best efforts and at least 50% of his full business
time and attention to the performance of services to the Company in his capacity
as Chief Executive Officer of
<PAGE> 2
Page 2
the Company's wholly-owned Japanese subsidiary and as may reasonably be
requested by the Company's Board of Directors. The Company shall retain full
direction and control of the means and methods by which the Executive performs
the above services.
(b) Place of Employment. During the term of this Agreement, the
Executive shall perform the services required by this Agreement at the Company's
place of business in the Tokyo, Japan and/or the Los Angeles, California
metropolitan area; provided, however, that the Company will require the
Executive to travel extensively to other locations on the Company's business.
(c) Other Activities. Except with the prior written approval of
the Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive during the Employment Period, will not (i) accept any
other employment, (ii) serve on the board of directors or similar body of any
other business entity (except as otherwise set forth below), or (iii) engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be competitive with, or that might place
him in a competing position to, that of the Company or any of its affiliates.
Notwithstanding the foregoing, the Company agrees that the Executive (or
affiliates of the Executive) shall be permitted (i) to undertake the activities
set forth in Section 8 and (ii) to make any other passive personal investment
that is not in a business activity that is directly or indirectly competitive
with the Company.
4. Compensation and Related Matters.
(a) Salary. During the Employment Period, the Company shall pay
the Executive a salary of not less than $140,000 during the first full year and
at such salary as determined by the Compensation Committee of the Board during
the second and subsequent years of the Executive's employment with the Company.
All salary is to be paid consistent with the standard payroll practices of the
Company (e.g., timing of payments and standard employee deductions, such as
income tax withholdings, social security, etc.). The Executive's performance and
salary shall be subject to review at the end of each fiscal year and increase
consistent with the standard practices of the Company.
(b) Business Expenses. The Company shall reimburse the Executive
in connection with the conduct of the Company's business upon presentation of
sufficient evidence of such expenditures consistent with the Company's policies
as in place from time to time.
(c) Other Benefits. The Executive shall be entitled to
participate in or receive health, welfare, life insurance, long-term disability
insurance, bonus plan and similar benefits as the Company provides generally
from time to time to its executives. Except as otherwise set forth in this
Section 4 and except with respect to the Company's obligations under any stock
option agreements previously entered into with the Executive, nothing herein
is intended, or shall be construed to require the Company to
<PAGE> 3
Page 3
institute or continue any, or any particular, plan or benefits.
(d) Bonus. The Compensation Committee of the Board shall
establish, monitor, and oversee an incentive bonus program for the Executive
which will provide for payment of a cash bonus to the Executive in an amount up
to 100% of the Executives then current base annual salary if certain performance
objectives established by the Compensation Committee for the Executive (such as
specified targets of growth in revenues and earnings per share) are achieved.
The Executive shall have the opportunity to be considered for additional
performance-based bonus compensation at the sole and absolute discretion of the
Board, upon notification to the Executive; however, the Company makes no
commitment to the Executive that any performance-based bonus compensation will
be paid to the Executive.
(e) Fringe Benefits. The Executive will be entitled to fringe
benefits as may be determined or granted from time-to-time by the Board.
(f) Vacation. The Executive shall be entitled to four vacation
weeks (20 days) in each calendar year on a pro-rated basis. The Executive will
be entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the
Board will review the Executive's job performance and will provide the Executive
a written review of the Executive's job performance during the prior year and
implement any Board determined revisions to the Executive's base salary, the
Executive's merit bonus, the Executive's title and/or the Executive's
responsibility at the Company; provided, however, that the provisions set forth
in this Agreement with respect to the Executive's compensation and the terms and
conditions of the Executive's employment at the Company cannot be modified by
the Board in a manner which would result in less favorable or beneficial terms
or conditions thereof being imposed on the Executive without the Executive's
full concurrence and consent.
5. Termination. The Executive's employment hereunder shall be, or may
be, as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate
upon his death.
(b) Disability. The Executive's employment hereunder shall
terminate on the Executive's physical or mental disability or infirmity which,
in the opinion of a competent physician selected by the Board, renders the
Executive unable to perform his duties under this Agreement for more than 120
days during any 180-day period.
(c) Cause. The Company may terminate the Executive's employment
hereunder for "Cause." Cause shall mean (i) Employee's material breach of any of
the terms of this Agreement, (ii) his conviction of a crime involving moral
turpitude or constituting a felony under the laws of any state, the District of
Columbia or of the
<PAGE> 4
Page 4
United States, or (iii) his gross negligence, willful misconduct or fraud in the
performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason.
Notwithstanding the term of this Agreement having a duration of two years and
Sections 2 and 4 hereof referring to extensions of this Agreement and the annual
salary to be paid to the Executive during each of the first five full years of
his employment with the Company, nothing in this Agreement should be construed
as to confer any right of the Executive to be employed by the Company for a
fixed or definite term. Subject to Section 6 hereof, the Executive hereby agrees
that the Company may dismiss him under this Section 5(d) without regard (i) to
any general or specific policies (whether written or oral) of the Company
relating to the employment or termination of its employees, or (ii) to any
statements made to the Executive, whether made orally or contained in any
document, pertaining to the Executive's relationship with the Company.
Notwithstanding anything to the contrary contained herein, including Sections 2
and 4, the Executive's employment with the Company is not for any specified
term, is at will and may be terminated by the Company at any time by delivery of
a notice of termination to the Executive, for any reason, with or without cause,
without liability except with respect to the payments provided for by Section 6.
(e) Voluntary Resignation. The Executive may voluntarily resign
his position and terminate his employment with the Company at any time by
delivery of a written notice of resignation to the Company (the "Notice of
Resignation"). The Notice of Resignation shall set forth the date such
resignation shall become effective (the "Date of Resignation"), which date
shall, in any event, be at least ten (10) days and no more than thirty (30) days
from the date the Notice of Resignation is delivered to the Company. At its
option, the Company may reduce such notice period to any length, upon thirty
(30) days written notice to the Executive.
(f) Notice. Any termination of the Executive's employment by the
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
that shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated by reason of his disability, the date of
the opinion of the physician referred to in Section 5(b), above, (iii) if the
Executive's employment is terminated by the Company for Cause pursuant to
subsection 5(c) above, or without Cause by the Company pursuant to subsection
5(d) above, the date specified in the Notice of Termination and (iv) if the
Executive voluntarily resigns pursuant to subsection 5(e) above, the date of the
Notice of Resignation.
<PAGE> 5
Page 5
(h) Termination Obligations.
(i) The Executive hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by the
Executive in the course of or incident to his employment, belongs to the
Company and shall be promptly returned to the Company upon termination
of the Employment Period. "Personal property" includes, without
limitation, all books, manuals, records, reports, notes, contracts,
lists, blueprints, and other documents, or materials, or copies thereof
(including computer files), and all other proprietary information
relating to the business of the Company. Following termination, the
Executive will not retain any written or other tangible material
containing any proprietary information of the Company.
(ii) Upon termination of the Employment Period, the
Executive shall be deemed to have resigned from all offices and
directorships then held with the Company or any affiliate.
(iii) The representations and warranties contained herein
and the Executive's obligations under Sections 5(h), 7, 8, 9 and 15
through 18 shall survive termination of the Employment Period and the
expiration of this Agreement.
(i) Release. In exchange for the Company entering into the
Agreement, the Executive agrees that, at the time of his resignation or
termination from the Company, he will resign from the Board and will execute a
release acceptable to the Company of all liability of the Company and its
officers, shareholders, employees and directors to the Executive in connection
with or arising out of his employment with the Company, except with respect to
any then-vested rights under any stock option agreement and except with respect
to any Severance Payments which may be payable to him under the terms of the
Agreement.
6. Compensation Upon Termination.
(a) Death. If the Executive's employment shall be terminated
pursuant to Section 5(a), the Company shall pay the Executive monthly his base
salary payable pursuant to Section 4(a) and one-twelfth of any bonus payable
pursuant to Section 4(d) at the most recent annual amount received, or entitled
to be received, by the Executive (the "Severance Payment") for a period of two
years following the Date of Termination. At the Executive's own expense, the
Executive's dependents shall also be entitled to any continuation of health
insurance coverage rights under any applicable law.
(b) Disability. If the Executive's employment shall be terminated
by reason of disability pursuant to Section 5(c), the Executive shall receive
the Severance Payment for the lesser of two years or the duration of such
disability; provided that payments so made to the Executive during the
disability shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment under any
<PAGE> 6
Page 6
disability benefit plan of the Company. At the Executive's own expense, the
Executive and his dependents shall also be entitled to any continuation of
health insurance coverage rights under any applicable law.
(c) Cause. If the Executive's employment shall be terminated for
Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive his
salary and any bonus then payable pursuant to Section 4(d)) through the Date of
Termination. At the Executive's own expense, the Executive and his dependents
shall also be entitled to any continuation of health insurance coverage rights
under any applicable law.
(d) Other Terminations by the Company. If the Company shall
terminate the Executive's employment without cause pursuant to Section 5(d)
hereof, the Company shall pay the Executive the Severance Payment for a period
of two (2) years from the Date of Termination. The Executive and his dependents
shall also be entitled to any continuation of health insurance coverage rights
under any applicable law.
(e) Voluntary Resignation. If the Executive terminates his
employment with the Company pursuant to Section 5(g) hereof for "Good Cause",
the Company shall pay the Executive the Severance Payment for a period of two
years from the Date of Resignation. If the Executive terminates his employment
with the Company pursuant to Section 5(g) hereof without "Good Cause," the
Company shall have no obligation to compensate the Executive following the Date
of Resignation. In any event, at the Executive's own expense, the Executive and
his dependents shall be entitled to any continuation of health insurance
coverage rights under any applicable law.
For purposes of this Agreement, "Good Cause" shall mean, without
the express written consent of Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by Executive to the Company that he intends to terminate
his employment hereunder for one of the reasons set forth below:
(i) Any material alteration, reduction or diminution in the
duties, responsibilities and status of Executive's
position;
(ii) a material breach by the Company of any provision of this
Agreement; and
(iii) the occurrence of a "Change in Control."
As used in this Agreement, "Change in Control" means the
occurrence of any of the following: (i) the adoption of a plan relating to the
liquidation or dissolution of the Company, (ii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any person or group, other than any of Osamu Kaneko,
Andrew J. Gessow and Steven C. Kenninger or their affiliates (the "Principals"),
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Securities Exchange Act of 1934), directly or indirectly, of
<PAGE> 7
Page 7
more than 50% of the total voting power of the total outstanding voting stock of
the Company on a fully diluted basis or (iii) the consummation of the first
transaction (including, without limitation, any merger or consolidation) the
result of which is that any person or group, other than the Principals, becomes
the beneficial owner (as defined above), directly or indirectly, of more than
50% of the total voting power of the total outstanding voting stock of the
Company.
The Executive understands that any voluntary resignation by him
as a result of any personal or family reasons not otherwise set forth in this
Section 6(e) shall not constitute "Good Cause."
(f) The Company will be entitled to offset and reduce each month
the amount of the monthly Severance Payment otherwise payable to the Executive
hereunder by the amount of the Executive's prior month's earnings (if any) from
post-Company full time employment (including both salary, bonus and other cash
or cash equivalent compensation) at a subsequent full time employer or in
connection with a full time consulting practice or other self-employment or any
full time venture founded by the Executive; provided, however, that the Company
shall not be entitled to any Severance Payment offset or reduction as a result
of any earnings or income generated by the Executive from part-time consulting
work, unless and until such consulting work becomes a full time endeavor.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of any stock option agreement between the Company and the Executive
that have vested as of the date of such Termination.
(h) Any Severance Payment made pursuant to this Section 6 shall
be payable in equal monthly installments over the required duration set forth in
Sections 6(a) through 6(e).
(i) The continuing obligation of the Company to make the
Severance Payment to the Executive is expressly conditioned upon the Executive
complying and continuing to comply with his obligations and covenants under
Sections 7 and 8 of this Agreement following termination of employment with the
Company.
7. Confidentiality and Non-Solicitation Covenants.
(a) Confidentiality. In addition to the agreements set forth in
Section 5(h)(i), the Executive hereby agrees that the Executive will not, during
the Employment Period or at any time thereafter directly or indirectly disclose
or make available to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his employment with the
Company, all Confidential Information in his possession that is in written or
other tangible form (together with all copies or duplicates
<PAGE> 8
Page 8
thereof, including computer files) shall be returned to the Company and shall
not be retained by the Executive or furnished to any third party, in any form
except as provided herein; provided, however, that the Executive shall not be
obligated to treat as confidential, or return to the Company copies of any
Confidential Information that (i) was publicly known at the time of disclosure
to the Executive, (ii) becomes publicly known or available thereafter other than
by any means in violation of this Agreement or any other duty owed to the
Company by any person or entity or (iii) is lawfully disclosed to the Executive
by a third party. As used in this Agreement the term "Confidential Information"
means: information disclosed to the Executive or known by the Executive as a
consequence of or through his relationship with the Company, about the owners,
customers, employees, business methods, public relations methods, organization,
procedures or finances, including, without limitation, information of or
relating to owner or customer lists of the Company and its affiliates.
(b) Non-Solicitation. In addition, the Executive hereby agrees
that during the Employment Period and at all times thereafter, regardless of the
reason or circumstances of termination of employment with the Company, the
Executive will not, either on his own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation, (i)
carry on or be engaged or interested directly or indirectly in, or solicit, the
manufacture or sale of goods or provision of services to any person, firm or
corporation which, at any time during the Employment Period has been or is a
customer of or in the habit of dealing with the Company in its business, (ii)
endeavor directly or indirectly to canvas or solicit in competition with Company
or to interfere with the supply of orders for goods or services from or by any
person, firm or corporation which during the Employment Period has been or is a
supplier of goods or services to Company or (iii) directly or indirectly solicit
or attempt to solicit away from Company any of its officers or employees or
offer employment to any person who, on or during the 6 months immediately
preceding the date of such solicitation or offer, is or was an officer or
employee of Company.
8. Covenant Not to Compete.
(a) The Executive agrees that during the Employment Period he
will devote at least 50% of his full business time to the business of the
Company and not engage in any competitive businesses. Subject to such full-time
requirement and the restrictions set forth below in this Section 8 and Section
3(c) above, the Executive shall be permitted to continue his existing business
investments and activities and may pursue additional business investments;
provided that the Executive not serve as officer of any public company resulting
from such business investments. The Executive agrees that he shall not (i)
invest in, manage, consult or participate in any way in any other timeshare
business (in either an active or passive manner), (ii) participate in or advise
any business wherein timeshare is a relevant business segment or (iii) act for
or on behalf of any business that intends to enter or participate in the
timeshare business, in each case unless the independent members of the Company's
Board of Directors determine that such action is in the best interest of the
Company. Notwithstanding the
<PAGE> 9
Page 9
foregoing, the Executive may purchase stock as a stockholder in any publicly
traded company, including any company which is involved in the timeshare
business; provided that the Executive does not own (together or separately or
through his affiliates) more than 5% of any company (other than the Company) in
the timeshare business. In addition, the Executive shall not invest (directly or
indirectly) in any timeshare property in the hospitality business (including any
condominium project) or any property where the business plan therefor includes
an intention to convert the property to timeshare, unless the independent
members of the Company's Board of Directors determine that such an investment is
in the best interest of the Company.
(b) Notwithstanding anything to the contrary in this Section 8 or
elsewhere in this Agreement, the Executive and/or affiliates thereof is
permitted, at his option, to pursue the development of a timeshare resort on
that certain property located on Harbor Island, San Diego, California, owed by
the Port of San Diego. In the event the Executive or affiliate thereof so
acquires such an interest, the Company has the option, at its election (which
the Company may exercise at any time), to require the Executive or affiliate
thereof to sell such interest to the Company at a price not to exceed 50% of the
cumulative actual, direct cost incurred by the Executive or affiliate thereof in
pursuing the development or acquisition of such property. In addition, at the
direction of the independent members of the Company's Board of Directors, at any
time following the decision by the Company not to acquire such interest, the
Executive agrees to sell his interest in such property, and to divest himself of
any interest in any affiliate possessing any controlling or managing interest
therein, within six months after receipt of notice from the Company to do so,
unless the independent members of the Board determine that such investment by or
interest held by the Executive is in the best interest of the Company.
(c) The provisions of this Section 8 shall survive for two years
following any termination of employment, regardless of whether the termination
is for "Good Cause" or otherwise.
9. Injunctive Relief and Enforcement. In the event of breach by the
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following mediation
or attempted mediation as set forth in Section 16 below (unless the Company is
suffering irreparable injury, in which case Section 16 will not prevent the
Company from seeking injunctive relief against the Executive in any court or
forum), the Company shall be entitled to institute legal proceedings to enforce
the specific performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law and not otherwise limited by this Agreement. The Executive
acknowledges, however, that the remedies at law for any breach by him of the
provisions of Sections 5(h)(i), 7 or 8 may be inadequate. In addition, in the
event the agreements set forth in Sections 5(h)(i), 7 or 8 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
extending for too great a period of time or over too great a geographical area
or by reason of being too extensive in any other respect, each such agreement
shall be
<PAGE> 10
Page 10
interpreted to extend over the maximum period of time for which it may be
enforceable and to the maximum extent in all other respects as to which it may
be enforceable, and enforced as so interpreted, all as determined by such court
in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: Osamu Kaneko
c/o Signature Resorts, Inc.
5933 West Century Boulevard, Suite 210
Los Angeles, California 90045
If to the Company: Signature Resorts, Inc.
1875 South Grant Street, Suite 650
San Mateo, California 94402
Attention: Andrew D. Hutton
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and
the
<PAGE> 11
Page 11
rights of the parties determined in accordance with the laws of the State of
Maryland (without reference to the choice of law provisions of Maryland), except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
16. Mediation. Subject to any irreparable injury being suffered by the
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or relating to this
Agreement, or the breach thereof, the parties agree that such dispute shall be
resolved by final and binding mediation in Los Angeles, California, before a
mediator and on terms and conditions mutually acceptable to the parties;
provided, however, that if the parties cannot agree on the terms and conditions
of such mediation, such terms and conditions shall be established by the
mediator. Any award issued as a result of such mediation shall be final and
binding between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought. The fees
and expenses relating to such mediation (with the exception of the Executive's
attorneys' fees, if any) or any action to enforce a mediation award shall be
paid by the Company.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL
BE LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND
(II) CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER
INDIRECT OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE
EXECUTIVE MAY RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS
OWED (BUT NOT YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS
NATURAL TERM OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED
PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER
THE DATE(S) THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. Entire Agreement. This Agreement contains the entire agreement and
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
<PAGE> 12
Page 12
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
20. The Executive's Acknowledgment. The Executive acknowledges (a) that
he has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Amendment to
the Agreement as of the date and year first above written.
SIGNATURE RESORTS, INC.
Name:
Title:
EXECUTIVE
Osamu Kaneko
<PAGE> 1
EXHIBIT 10.6.14
Execution Counterpart
================================================================================
$100,000,000
CREDIT AGREEMENT
AMONG
SIGNATURE RESORTS, INC.,
CERTAIN LENDERS PARTY HERETO,
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER,
AND
SOCIETE GENERALE, AS DOCUMENTATION AGENT
FEBRUARY 18, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
Definitions
Section 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Amendments and Renewals . . . . . . . . . . . . . . . . . . . . . 25
Section 1.3 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 2
Advances
Section 2.1 The Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.2 Manner of Borrowing and Disbursement . . . . . . . . . . . . . . 26
Section 2.3 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.5 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.6 Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . 31
Section 2.7 Non-Receipt of Funds by the Administrative Lender . . . . . . . . 32
Section 2.8 Payment of Principal of Advances . . . . . . . . . . . . . . . . 32
Section 2.9 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.10 Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.11 LIBOR Lending Offices . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.12 Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.13 Calculation of LIBOR Rate . . . . . . . . . . . . . . . . . . . . 35
Section 2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2.15 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to the Initial Advance and the Initial
Issuance of Letters of Credit . . . . . . . . . . . . . . . . . 44
Section 3.2 Conditions Precedent to All Advances and Letters of Credit . . . . 46
Section 3.3 Conditions Precedent to Conversions and Continuations . . . . . . 48
ARTICLE 4
Representations and Warranties
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.1 Representations and Warranties . . . . . . . . . . . . . . . . . . 48
Section 4.2 Survival of Representations and Warranties, etc . . . . . . . . . . 57
ARTICLE 5
General Covenants
Section 5.1 Preservation of Existence and Similar Matters . . . . . . . . . . . 57
Section 5.2 Business; Compliance with Applicable Law . . . . . . . . . . . . . 57
Section 5.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . 57
Section 5.4 Accounting Methods and Financial Records . . . . . . . . . . . . . 58
Section 5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.6 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . 58
Section 5.7 Visits and Inspections . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 5.9 INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.10 Environmental Law Compliance . . . . . . . . . . . . . . . . . . . 60
Section 5.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 5.12 Management of Projects . . . . . . . . . . . . . . . . . . . . . . 62
Section 5.13 Obligations to Purchasers . . . . . . . . . . . . . . . . . . . . . 62
Section 5.14 Owners Associations . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 5.15 Note Receivable Information . . . . . . . . . . . . . . . . . . . . 63
Section 5.16 Maintenance of Borrowing Base . . . . . . . . . . . . . . . . . . . 63
Section 6.1 Borrowing Base Report . . . . . . . . . . . . . . . . . . . . . . . 64
Section 6.2 Eligible Notes Receivable Report . . . . . . . . . . . . . . . . . 64
Section 6.4 Annual Financial Statements and Information; Certificate of
No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 6.5 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . 66
Section 6.6 Copies of Other Reports and Notices . . . . . . . . . . . . . . . . 66
Section 6.7 Notice of Litigation, Default and Other Matters . . . . . . . . . . 67
Section 6.8 ERISA Reporting Requirements . . . . . . . . . . . . . . . . . . . 67
ARTICLE 7
Negative Covenants
Section 7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.3 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.4 Liquidation, Merger . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.5 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.6 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.7 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.8 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 7.9 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.10 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.11 Minimum Interest Coverage Ratio . . . . . . . . . . . . . . . . . . 72
Section 7.12 Minimum Tangible Net Worth . . . . . . . . . . . . . . . . . . . . 72
Section 7.13 Maximum Senior Debt to Total Capital . . . . . . . . . . . . . . . 72
Section 7.14 Maximum Total Debt to Total Capital . . . . . . . . . . . . . . . . 72
Section 7.15 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 7.16 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.17 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.18 Amendment of Organizational Documents . . . . . . . . . . . . . . . 73
Section 7.19 Amendments and Waivers of Subordinated Debt . . . . . . . . . . . . 73
Section 7.20 Use of Lenders' Name . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.21 Servicing and Collection Agreement . . . . . . . . . . . . . . . . 73
Section 7.22 Custodial Agreement . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 7.23 Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE 9
Changes in Circumstances
Section 9.1 LIBOR Basis Determination Inadequate . . . . . . . . . . . . . . . 78
Section 9.2 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 9.3 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.4 Effect On Base Rate Advances . . . . . . . . . . . . . . . . . . . 80
Section 9.5 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 9.6 Replacement Lender . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE 10
Agreement Among Lenders
Section 10.1 Agreement Among Lenders . . . . . . . . . . . . . . . . . . . . . . 81
Section 10.2 Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . 84
Section 10.3 Benefits of Article . . . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE 11
Miscellaneous
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 11.3 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 11.4 Calculation by the Lenders Conclusive and Binding . . . . . . . . . 86
Section 11.5 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 11.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 11.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 11.9 Interest and Charges . . . . . . . . . . . . . . . . . . . . . . . 89
Section 11.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 11.11 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . 90
Section 11.12 Exception to Covenants . . . . . . . . . . . . . . . . . . . . . . 90
Section 11.13 No Liability of Issuing Bank . . . . . . . . . . . . . . . . . . . 90
Section 11.14 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 11.15 No Liability of Lenders to Purchasers . . . . . . . . . . . . . . . 92
SECTION 11.16 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 11.17 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 11.18 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 92
</TABLE>
- iv -
<PAGE> 6
Schedules and Exhibits
Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing
Schedule 8: Intellectual Property and Disputes Relating Thereto
Schedule 9: Labor Relations
Schedule 10: List of Specified Resorts
Exhibit A: Revolving Credit Note
Exhibit B: Swing Line Note
Exhibit C: Security Agreement
Exhibit D: Borrowing Base Report
Exhibit E: Compliance Certificate
Exhibit F: Assignment Agreement
Exhibit G: Subsidiary Guaranty
Exhibit H: Notice of Borrowing
Exhibit I: Assignment of Pledged Documents
- v -
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of February 18, 1998, among
SIGNATURE RESORTS, INC., a Maryland corporation (the "Borrower"), the Lenders
from time to time party hereto, NATIONSBANK OF TEXAS, N.A., a national banking
association, as administrative agent for the Lenders, and SOCIETE GENERALE, as
documentation agent for the Lenders.
BACKGROUND
The Lenders have been requested to provide the Borrower the funds
required to (a) refinance certain existing debt of the Borrower and its
Subsidiaries (as hereinafter defined), (b) finance acquisitions permitted
hereunder, (c) finance eligible mortgage loans, and (d) finance the ongoing
working capital and general corporate requirements of the Borrower and its
Subsidiaries. The Lenders have agreed to provide such financing, subject to
the terms and conditions set forth below.
In consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Defined Terms. For purposes of this Agreement:
"Acquisition" means any transaction pursuant to which the Borrower or
any of its Subsidiaries, (a) whether by means of a capital contribution or
purchase or other acquisition of Capital Stock, (i) acquires more than 50% of
the Capital Stock in any Person pursuant to a solicitation by the Borrower or
such Subsidiary of tenders of Capital Stock of such Person, or through one or
more negotiated block, market, private or other transactions, or a combination
of any of the foregoing, or (ii) makes any corporation a Subsidiary of the
Borrower or such Subsidiary, or causes any corporation, other than a Subsidiary
of the Borrower or such Subsidiary, to be merged into the Borrower or such
Subsidiary (or agrees to be merged into any other corporation other than a
wholly-owned Subsidiary (excluding directors' qualifying shares) of the
Borrower or such Subsidiary), or (b) purchases all or substantially all of the
business or assets of any Person or of any operating division of any Person.
"Administrative Lender" means NationsBank of Texas, N.A., a national
banking association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 10.1(b) hereof.
<PAGE> 8
"Advance" means a Revolving Credit Advance or a Swing Line Advance and
"Advances" means Revolving Credit Advances and Swing Line Advances.
"Affiliate" means, as applied to any Person, any other Person that,
directly or indirectly, through one or more Persons, Controls or is Controlled
By or Under Common Control with, that Person.
"Agreement" means this Credit Agreement, as amended, modified,
supplemented or restated from time to time.
"Agreement Date" means the date of this Agreement.
"Applicable Environmental Laws" means applicable laws pertaining to
health or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA").
"Applicable Law" means (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
the laws of the United States of America, including without limitation 12 USC
Sections 85 and 86(a), as amended from time to time, and any other statute of
the United States of America now or at any time hereafter prescribing the
maximum rates of interest on loans and extensions of credit, and the laws of the
State of Texas, including, without limitation, Art. 1H, if applicable, and if
Art. 1H is not applicable, Art. 1D and any other statute of the State of Texas
prescribing maximum rates of interest with respect to extensions of credit;
provided that the parties hereto agree that the provisions of Chapter 346 of the
Texas Finance Code, as amended, shall not apply to Advances, this Agreement, the
Notes or any other Loan Documents.
"Applicable LIBOR Rate Margin" means the following per annum
percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C> <C>
(a) Sum of (i) aggregate outstanding Advances and (ii) aggregate 1.375%
Reimbursement Obligations is greater than or equal to 75% of
Eligible Notes Receivable
</TABLE>
- 2 -
<PAGE> 9
<TABLE>
<S> <C> <C>
(b) Sum of (i) aggregate outstanding Advances and (ii) aggregate 1.125%
Reimbursement Obligations is greater than or equal to 65% but
less than 75% of Eligible Notes Receivable
(c) Sum of (i) aggregate outstanding Advances and (ii) aggregate 0.875%
Reimbursement Obligations is less than 65% of Eligible Notes
Receivable
</TABLE>
The Applicable LIBOR Rate Margin payable by the Borrower on the LIBOR Advances
outstanding hereunder shall be subject to reduction or increase, as applicable
and as set forth in the table above, on a monthly basis, retroactively as of
the first day of each month and for such month, based upon the aggregate
outstanding Advances and Reimbursement Obligations as of the last day of the
immediately preceding month and the Eligible Notes Receivable as of the last
day of the immediately preceding month (as reflected in the Borrowing Base
Report, as of the last day of such month, to be delivered to the Lenders
pursuant to Section 6.1 hereof).
"Art. 1D" means Article 5069-1D, Title 79, Revised Civil Statutes of
Texas, 1925, as amended.
"Art. 1H" means Article 5069-1H, Title 79, Revised Civil Statutes of
Texas, 1925, as amended.
"Art. 1.04" means Article 5069-1.04, Title 79, Revised Civil Statutes
of Texas, as amended.
"Assignees" means any assignee of a Lender pursuant to an Assignment
Agreement and shall have the meaning ascribed thereto in Section 11.6 hereof.
"Assignment Agreement" has the meaning specified in Section 11.6
hereof.
"Assignment of Pledged Documents" means an Assignment of Pledged
Documents, in substantially the form of Exhibit I hereto, pursuant to which the
Borrower and each Restricted Subsidiary transfers and assigns to the
Administrative Lender (for the benefit of the Lenders), all of the right, title
and interest of the Borrower and each Restricted Subsidiary in and to each Note
Receivable and the other Pledged Documents with respect to each such Note
Receivable, free and clear of all Liens, as security for the Obligations.
"Authorized Signatory" means such senior personnel of the Borrower as
may be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower, and to request
Advances and Letters of Credit hereunder.
"Average Quarterly Delinquency Rate" means the ratio (expressed as a
percentage), calculated on a monthly basis as of the last day of each month, of
(i) the aggregate outstanding
- 3 -
<PAGE> 10
principal balance, as of the date of calculation, of all notes receivable of
the Borrower and its Subsidiaries generated from, or attributable to, the
Specified Resorts, with respect to which notes receivable any scheduled payment
is more than sixty (60) days past due, to (ii) the aggregate outstanding
principal balance, as of the date of calculation, of all notes receivable of
the Borrower and its Subsidiaries generated from, or attributable to, the
Specified Resorts; provided, however, that notes receivable of the Borrower or
of any Subsidiary that are, at the time of such calculation, included in any
Securitization shall be excluded entirely from the foregoing calculation.
"Base Rate Advance" means any Advance bearing interest at the Base
Rate Basis.
"Base Rate Basis" means, for any day, a per annum interest rate equal
to the higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on
such day or (b) the Prime Rate on such day. The Base Rate Basis shall be
adjusted automatically without notice as of the opening of business on the
effective date of each change in the Prime Rate or the Federal Funds Rate, as
the case may be, to account for such change.
"Borrower" has the meaning specified in the introductory provision
hereof.
"Borrowing Base" means, the following amounts, during the following
periods of time and under the following circumstances:
(i) during the period of time from the Agreement Date
through, and including, the date of consummation of the first Securitization to
be consummated by the Borrower after the Agreement Date, the Borrowing Base
shall be an amount equal to 85% of the aggregate unpaid principal balance, at
the time in question, of Eligible Notes Receivable;
(ii) during the period of time from the date of
consummation of the first Securitization to be consummated by the Borrower
after the Agreement Date through, and including, the date of consummation of
the second Securitization to be consummated by the Borrower after the Agreement
Date, the Borrowing Base shall be an amount equal to the lesser of (i) 85% of
the aggregate unpaid principal balance, at the time in question, of Eligible
Notes Receivable and (ii) an amount equal to the product of (x) 100%, minus two
(2) times the Credit Enhancement Percentage with respect to such Securitization
and (y) the aggregate unpaid principal amount, at the time in question, of
Eligible Notes Receivable; and
(iii) thereafter, the Borrowing Base shall be an
amount equal to the lesser of (i) 85% of the aggregate unpaid principal
balance, at the time in question, of Eligible Notes Receivable and (ii) an
amount equal to the product of (x) 100%, minus two (2) times the maximum Credit
Enhancement Percentage with respect to the Borrower's two most recent
Securitizations and (y) the aggregate unpaid principal amount, at the time in
question, of Eligible Notes Receivable.
- 4 -
<PAGE> 11
This Note has been negotiated in substantial part in the State of Texas
and all questions with respect to the Note and the rights and liabilities of the
parties will be governed by the laws of Texas in all respects, including
matters of construction, validity, enforcement and performance, regardless of
the choice of law provisions of Texas or any other jurisdiction. Any and all
disputes between the parties which may arise pursuant to this Note not resolved
by then will be heard and determined before an appropriate federal or state
court located in Houston, Texas. The parties hereto acknowledge that such
courts have the jurisdiction to interpret and enforce the provisions of this
Note and the parties waive any and all objections that they may have as to
personal jurisdiction or venue in any of the above courts.
JALATE, LTD.,
a California corporation
By:
-------------------------------------
Frederick A. Findley
Vice President and Chief
Financial Officer
Accepted:
/s/ WILLIAM M. DEARMAN
- ----------------------------------------
William M. DeArman
-5-
<PAGE> 12
"Borrowing Base Report" means a report, signed by an Authorized
Signatory, in substantially the form of Exhibit D, appropriately completed.
"Business Day" means a day on which commercial banks are open (a) for
the transaction of business in Dallas, Texas and New York, New York, and, (b)
with respect to any LIBOR Advance, for the transaction of international
business (including dealings in U.S. dollar deposits) in London, England.
"Capital Expenditures" means, for any period, expenditures made by the
Borrower and the Restricted Subsidiaries to acquire or construct fixed assets,
plant and equipment (including renewals, improvements and replacements during
such period and the aggregate amount of items leased or acquired under
Capitalized Lease Obligations at the cost of the item, but excluding capital
expenditures made with insurance proceeds to the extent used to replace or
repair damaged fixed assets, plant and equipment) computed in accordance with
GAAP, consistently applied, provided however, that the term "Capital
Expenditures" shall not include (i) Investments permitted hereunder, (ii)
Acquisitions permitted hereunder or (iii) expenditures made by the Borrower or
the Restricted Subsidiaries to acquire or construct time-share residential real
estate projects that are acquired or constructed for the purpose of creating,
maintaining or enhancing the Borrower's inventory of Time-Share Interests.
"Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital
stock in any Person that is a corporation, and each class of partnership
interest (including, without limitation, general, limited and preference units)
in any Person that is a partnership.
"Capitalized Lease Obligations" means that portion of any obligation
of the Borrower or any Restricted Subsidiary as lessee under a lease which at
the time are recorded as capitalized lease obligations on the balance sheet of
the Borrower or such Restricted Subsidiary prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and
each Restricted Subsidiary (a) cash (which, after the occurrence of an Event of
Default, shall exclude any cash proceeds of Accounts), (b) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (c) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight
bank deposits, in each case with any Lender or with any domestic commercial
bank having capital and surplus in excess of $500,000,000, (d) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (b) and (c) entered into with any financial
institution meeting the qualifications specified in clause (c) above, (e)
commercial paper issued by any Lender or the parent corporation of any Lender,
and commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation, or P-1
or the equivalent thereof by Moody's Investors Service, Inc., and
- 5 -
<PAGE> 13
in each case maturing within six months after the date of acquisition, and (f)
a readily redeemable "money market mutual fund" advised by a bank described in
clause (c) hereof, or an investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, that has and maintains an investment policy
limiting its investments primarily to instruments of the types described in
clauses (a) through (e) hereof and having on the date of such Investment total
assets of at least One Hundred Million Dollars ($100,000,000.00).
"Change of Control" means the occurrence of any of the following
events after the Agreement Date: (a) any Person or any Persons acting together
which would constitute a "group" (a "Group") for purposes of Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision thereto, other than the Group whose nominees constituted a
majority of the board of directors of the Borrower as of the close of business
on the Agreement Date, together with any Affiliates or Related Persons thereof,
shall beneficially own (as defined in Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act or any successor provision thereto) at least
30% of the aggregate voting power of all classes of Capital Stock of the
Borrower entitled to vote generally in the election of directors of the
Borrower; (b) any Person or Group, other than any Person or Group whose
nominees constituted a majority of the board of directors of the Borrower as of
the close of business on the Agreement Date, together with any Affiliates or
Related Persons thereof, shall succeed in having sufficient of its or their
nominees elected to the Board of Directors of the Borrower, such that such
nominees, when added to any existing director remaining on the Board of
Directors of the Borrower after such election who is an Affiliate or Related
Person of such Group, shall constitute a majority of the Board of Directors of
the Borrower; or (c) any "change of control" or "change in control" or similar
term howsoever defined in any agreement governing any other Indebtedness of the
Borrower or any of its Subsidiaries.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means any collateral granted at any time by any Person to
the Administrative Lender for the benefit of the Lenders to secure the
Obligations.
"Collateral Document" means any document under which Collateral is
granted and any document related thereto.
"Commitment Fee" has the meaning specified in Section 2.4(a) hereof.
"Commitment" means $100,000,000, as reduced from time to time pursuant
to Section 2.6 hereof.
"Compliance Certificate" means a certificate, signed by an Authorized
Signatory, in substantially the form of Exhibit E, appropriately completed.
"Control" or "Controlled By" or "Under Common Control" means
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether
- 6 -
<PAGE> 14
through ownership of voting securities, by contract or otherwise); provided,
however, that in any event any Person which beneficially owns, directly or
indirectly, 10% or more (in number of votes) of the securities having ordinary
voting power for the election of directors of a corporation shall be
conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any Person
not an individual, all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) which are under common
control with such Person and which, together with such Person, are treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code; provided,
however, that the Subsidiaries of the Borrower shall be deemed to be members of
the Borrower's Controlled Group.
"Credit Enhancement Percentage" means, with respect to the
Securitization in question, the highest overall credit enhancement (expressed
as a percentage) that was, or would have been, required in order to attain a
"BBB" rating (or its equivalent) by the applicable rating agency(ies) involved
on all securities issued in connection with such Securitization (assuming that
all securities that were issued in connection therewith were so rated), as such
Credit Enhancement Percentage shall be communicated to the Administrative
Lender by such rating agency(ies); provided, however, that if such Credit
Enhancement Percentage shall, for any reason whatsoever, not be communicated to
the Administrative Lender by such rating agency(ies) with respect to any such
Securitization, the Administrative Lender shall determine such Credit
Enhancement Percentage with respect to such Securitization based upon the
information available to the Administrative Lender at such time.
"Custodial Agreement" means collectively, one or more agency and
custodial agreement(s) among the Borrower, each Restricted Subsidiary that owns
any of the Notes Receivable included, from time to time, in the Borrowing Base,
the Administrative Lender and the Custodian, providing for the maintenance of
the Pledged Documents, as such agreement(s) may, from time to time, be amended,
modified, supplemented and/or restated with the written consent of the
Administrative Lender.
"Custodian" means LaSalle National Bank or such other Person(s) as may
be designated from time to time by the Administrative Lender, following notice
thereof to the Borrower, to maintain physical possession of the Pledged
Documents.
"Debtor Relief Laws" means any applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization or similar debtor relief Laws affecting the rights of creditors
generally from time to time in effect.
"Deed of Trust" means any deed of trust or mortgage executed and
delivered by a Purchaser, encumbering all the right, title and interest of each
such Purchaser in and to its purchased Time-Share Interest as security for the
Purchaser's obligations under any Note Receivable.
- 7 -
<PAGE> 15
"Default" means an Event of Default and/or any of the events specified
in Section 8.1, regardless of whether there shall have occurred any passage of
time or giving of notice that would be necessary in order to constitute such
event an Event of Default.
"Default Rate" means a simple per annum interest rate equal to (a)
with respect to Base Rate Advances the lesser of (i) the Highest Lawful Rate or
(ii) the Prime Rate plus 2.00% or (b) with respect to LIBOR Advances, the
lesser of (i) the Highest Lawful Rate or (ii) the LIBOR Basis plus 2% in excess
of the Applicable Rate Margin then in effect.
"Determining Lenders" means, on any date of determination, any
combination of the Lenders having more than 50% of the aggregate amount of the
Advances (which for purposes of the calculation shall include for each Lender
an amount equal to the product of such Lender's Specified Percentage multiplied
by the aggregate amount of Swing Line Advances outstanding) then outstanding;
provided, however, that if there are no Advances outstanding hereunder,
"Determining Lenders" shall mean any combination of Lenders whose Specified
Percentages aggregate more than 50%.
"Dividend" means, as to any Person, (a) any declaration or payment of
any dividend (other than a stock dividend) on, or the making of any
distribution on account of, any shares of Capital Stock of, or other similar
interest in, such Person and (b) any purchase, redemption, or other acquisition
or retirement for value of any shares of Capital Stock of, or similar interest
in, such Person.
"Dollar" or "$" means the lawful currency of the United States of
America.
"Domestic Subsidiary" means any Subsidiary of the Borrower other than
a Foreign Subsidiary.
"EBIT" means, for any period, determined in accordance with GAAP on a
consolidated basis for the Borrower and the Restricted Subsidiaries, the sum of
(a) Pretax Net Income (excluding therefrom, to the extent included in
determining Pretax Net Income, any items of extraordinary gain, including net
gains on the sale of assets other than asset sales in the ordinary course of
business, and adding thereto, to the extent included in determining Pretax Net
Income, any items of extraordinary loss, including net losses on the sale of
assets), plus (b) interest expense, plus (c) non-recurring charges incurred as
a result of business combinations utilizing the pooling accounting method to
the extent that such charges would be permitted to be capitalized utilizing the
purchase accounting method.
"EBITDA" means, for any period, determined in accordance with GAAP on
a consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) depreciation, amortization and other non-cash charges (to the extent
included in determining EBIT).
- 8 -
<PAGE> 16
"Eligible Notes Receivable" means at the time of any determination
thereof, the Notes Receivable of the Borrower and the Restricted Subsidiaries
(at least 85% of which the Purchasers in respect thereof are residents of the
United States, Puerto Rico, the United States Virgin Islands or Canada) which
are reasonably acceptable to the Determining Lenders in their discretion for
the purposes of determining the Borrowing Base and as to which the following
requirements have been fulfilled with respect to each Note Receivable:
(a) The Borrower or a Restricted Subsidiary has lawful and
absolute title to such Note Receivable;
(b) The interests of the Borrower or the applicable Restricted
Subsidiary(ies) in such Note Receivable and the Pledged Documents relating
thereto are subject to a first priority security interest in favor of the
Administrative Lender pursuant to the Collateral Documents, prior to the rights
of, and enforceable against, all other Persons;
(c) The Note Receivable shall not have a term of greater than
one-hundred twenty (120) months and the Note Receivable shall be payable in
equal monthly payments in amounts sufficient to repay in full the principal
balance thereof and accrued interest thereon during such term; provided,
however, that Notes Receivable having terms greater than one-hundred twenty
(120) months but not greater than one-hundred eighty (180) months may be
included as Eligible Notes Receivable to the extent that such longer term Notes
Receivable otherwise satisfy the criteria for inclusion as Eligible Notes
Receivable and the aggregate outstanding principal balance of such longer term
Notes Receivable does not, at any time, exceed fifteen percent (15%) of the
aggregate outstanding principal balance of all Eligible Note Receivable
included in the Borrowing Base;
(d) The Purchaser in respect of such Note Receivable shall have
timely made at least the first regularly scheduled installment payment due
thereon;
(e) The Purchaser in respect of such Note Receivable has made a
cash down payment of at least ten percent (10%) of the aggregate actual
purchase price of all Time-Share Interests purchased by such Purchaser, all of
the Notes Receivable with respect to such Purchaser qualify as, and are
included as, Eligible Notes Receivable and as Collateral hereunder and no part
of such cash down payment by such Purchaser has been made or loaned to the
Purchaser by the Borrower or any of its Subsidiaries or an Affiliate of the
Borrower or any of its Subsidiaries;
(f) The terms of such Note Receivable have not been restructured,
rewritten or otherwise modified in any manner that would reduce the interest
rate with respect thereto, reduce the principal amount thereof, reduce the
amount of any scheduled payment(s) with respect thereto, extend the maturity
date thereof (unless such extension was granted solely for the purpose of
upgrading the applicable Purchaser to a larger Unit and/or an additional
Time-Share Interest in the Project), release or impair any collateral securing
same, release or impair any obligations or duties of any Purchaser with respect
thereto or in any manner that would
- 9 -
<PAGE> 17
otherwise result in such Note Receivable not qualifying as an Eligible Note
Receivable hereunder;
(g) No installment of such Note Receivable is more than fifty-nine
(59) days past due;
(h) The Unit in respect of such Note Receivable has been
completed, developed, and furnished pursuant to the specifications provided in
the Purchase Documents or a certificate of occupancy or a bond insuring the
completion thereof has been posted;
(i) The Purchaser is not an Affiliate of, related to or employed
by, the Borrower or any of its Subsidiaries nor is the Purchaser in default
under any Note Receivable or other obligation of such Purchaser to the Borrower
or to any of the Borrower's Subsidiaries;
(j) The Note Receivable is free and clear of all Liens, and
subject to no claims of rescission, invalidity, unenforceability, illegality,
defense, discount, offset or counterclaim;
(k) The Purchaser in respect of such Note Receivable has no right
to rescind the purchase of the Time-Share Interest;
(l) All sales and financing documents relating to the Note
Receivable have been executed and delivered to the Administrative Lender and
have not been modified from the standard forms theretofore approved by the
Administrative Lender;
(m) The terms of such Note Receivable and all related instruments
comply with all Laws;
(n) The Note Receivable is recognized on the books of the Borrower
or the applicable Restricted Subsidiary, as applicable, as a bona fide sale of
a fee simple interest time-share estate in one or more Time-Share Interests,
and such sale is evidenced by Purchase Documents and secured by a first
priority mortgage or deed of trust on the purchased Time-Share Interest, which
mortgage or deed of trust has been assigned of record by the Borrower or the
applicable Restricted Subsidiary to the Administrative Lender;
(o) The Time-Share Interest purchased and to which the Note
Receivable relates is not subject to any Lien (other than Liens for ad valorem
taxes that are not yet due and payable, Liens for association assessments that
are not yet due and payable and Liens in favor of the Administrative Lender),
and either (i) the Unit with respect to the Time-Share Interest purchased and
to which such Note Receivable relates is not subject to any Lien (other than
Liens for ad valorem taxes that are not yet due and payable, Liens for
association assessments that are not yet due and payable and Liens in favor of
the Administrative Lender) or (ii) the Time-Share Interest purchased and to
which the Note Receivable relates has been permanently and irrevocably released
from any such Lien (including, without limitation, any after-acquired property
provisions thereof) with respect to such Unit;
- 10 -
<PAGE> 18
(p) The Deed of Trust securing the Note Receivable is insured
under a mortgagee title insurance policy in favor of the Administrative Lender
acceptable to the Administrative Lender, subject only to those exceptions to
title as the Administrative Lender approves;
(q) Payments under the Note Receivable are to be in legal tender
of the United States;
(r) The Note Receivable and the other Purchase Documents are
valid, genuine and enforceable against the Purchaser;
(s) The Purchaser in respect of the Note Receivable has not
assigned his or her obligations under such Note Receivable or rights in the
applicable Time-Share Interest, except to the extent that any such Purchaser
has assigned its interest in a Time-Share Interest to such Purchaser's former
spouse in connection with divorce proceedings between such Purchaser and such
former spouse or to a member of such Purchaser's immediate family and, in
either case, such Purchaser remains primarily liable with respect to such Note
Receivable;
(t) The payments due under such Note Receivable have been made by
the Purchaser in respect thereof and not by the Borrower or any of its
Subsidiaries or any Affiliate of the Borrower or any of its Subsidiaries on
such Purchaser's behalf;
(u) The Purchaser in respect of such Note Receivable is not
subject to any Debtor Relief Laws and is not an adverse party in any Litigation
(and has not threatened any Litigation) with the Borrower or any of its
Subsidiaries or any Lender;
(v) The Borrower or the applicable Restricted Subsidiary, as
applicable, has performed all of its obligations to the Purchasers in respect
of such Note Receivable, and there shall be no executory obligations to such
Purchaser to be performed by the Borrower or the applicable Restricted
Subsidiary; and
(w) The Project containing the Unit subject to such Note
Receivable is located in the United States of America or in such other
jurisdiction(s) as may, from time to time, be designated in writing by the
Determining Lenders.
"Equity" means shares of capital stock or partnership, profits,
capital or member interest, or options, warrants or any other right to
subscribe for or otherwise acquire capital stock or a partnership, profits,
capital or member interest, of the Borrower or any Subsidiary of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.
"ERISA Event" means, with respect to the Borrower and its
Subsidiaries, (a) a Reportable Event (other than a Reportable Event not subject
to the provision for 30-day notice to the PBGC pursuant to regulations issued
under Section 4043 of ERISA), (b) the withdrawal
- 11 -
<PAGE> 19
of any such Person or any member of its Controlled Group from a Plan subject to
Title IV of ERISA during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent
to terminate under Section 4041(c) of ERISA, (d) the institution of proceedings
to terminate a Plan by the PBGC, (e) the failure to make required contributions
which could result in the imposition of a lien under Section 412 of the Code or
Section 302 of ERISA, or (f) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any Plan or
the imposition of any liability under Title IV of ERISA other than PBGC
premiums due but not delinquent under Section 4007 of ERISA.
"Event of Default" means any of the events specified in Section 8.1,
provided that any requirement for notice or lapse of time has been satisfied.
"Federal Funds Rate" means, for any day, the rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Business Day
next succeeding such day, provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average of the quotations
for the day for such transactions received by the Administrative Lender from
three Federal funds brokers of recognized standing selected by it.
"Fee Letter" has the meaning specified in Section 2.4(b) hereof.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
organized under the laws of any state of the United States of America, the
District of Columbia or the United States Virgin Islands.
"GAAP" means generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants, or their successors
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis shall mean
that the accounting principles applied in a current period are comparable in
all material respects to those applied in a preceding period.
"Guarantor" means each direct and indirect Restricted Domestic
Subsidiary of the Borrower and each direct and indirect Restricted Foreign
Subsidiary of the Borrower which has executed a Subsidiary Guaranty.
"Guaranty" or "Guaranteed", means (a) as applied to an obligation of
another Person, (i) a guaranty, direct or indirect, in any manner, of any part
or all of such obligation, and (ii) an
- 12 -
<PAGE> 20
agreement, direct or indirect, contingent or otherwise, the practical effect of
which is to assure in any way the payment or performance (or payment of damages
in the event of nonperformance) of any part or all of such obligation,
including, without limiting the foregoing, any reimbursement obligations with
respect to amounts which may be drawn by beneficiaries of outstanding letters
of credit and (b) an agreement, direct or indirect, contingent or otherwise, to
maintain the net worth, working capital, earnings or other financial
performance of another Person; provided, however, Guaranty does not mean (y)
the endorsement of instruments for collection or deposit in the ordinary course
of business and (z) customary indemnities given in connection with asset sales
in the ordinary course of business.
"Hedge Agreements" means any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap, swap or
collar protection agreements, and forward rate currency or interest rate
options, as the same may be amended or modified and in effect from time to
time, and any and all cancellations, buy backs, reversals, terminations or
assignments of any of the foregoing.
"Highest Lawful Amount" means at the particular time in question the
maximum amount of interest which, under Applicable Law, the Lenders are then
permitted to charge on the Obligations at the Highest Lawful Rate.
"Highest Lawful Rate" means at the particular time in question the
maximum rate of interest which, under Applicable Law, the Lenders are then
permitted to charge on the Obligations. If the maximum rate of interest which,
under Applicable Law, the Lenders are permitted to charge on the Obligations
shall change after the date hereof, the Highest Lawful Rate shall be
automatically increased or decreased, as the case may be, from time to time as
of the effective time of each change in the Highest Lawful Rate without notice
to the Borrower. For purposes of determining the Highest Lawful Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be (a)
the weekly rate ceiling described in and computed in accordance with the
provisions of Art. 1H, or (b) either the quarterly ceiling or the annualized
ceiling computed pursuant to Art. 5069-ID.008, Title 79, Revised Civil Statutes
of Texas, as amended; provided, however, that at any time the weekly rate
ceiling, the quarterly ceiling or the annualized ceiling shall be less than 18%
per annum or more than 24% per annum, the provisions of Art. 5069-1D.009(a) and
(b), Title 79, Revised Civil Statutes of Texas, as amended, shall control for
purposes of such determination, as applicable.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations under conditional
sale or other title retention agreements relating to property or assets
purchased by such Person, (d) all obligations issued or assumed as the deferred
purchase price of property or services, (e) all obligations secured by any Lien
on any property or asset owned by such Person (other than accounts payable
arising in the ordinary
- 13 -
<PAGE> 21
course of business), whether or not the obligation secured thereby shall have
been assumed (provided that, unless such obligations shall have been assumed,
for purposes of this definition the amount of such Indebtedness at any time
shall be deemed to equal the fair market value of such property or asset at
such time), (f) the principal portion of all obligations of such Person under
any synthetic lease, tax retention operating lease, off-balance sheet loan or
similar off-balance sheet financing product where such transaction is
considered borrowed money indebtedness for tax purposes but is classified as an
Operating Lease in accordance with GAAP, (g) to the extent not otherwise
included, all Capitalized Lease Obligations of such Person, all obligations of
any general partnership, joint venture or other Person to the extent that the
Person in question is liable, whether contractually, as a matter of applicable
law or otherwise, for such obligations, all obligations in respect of letters
of credit, bankers' acceptances and similar instruments, all obligations under
Hedge Agreements, and all obligations in respect of payment, performance and
similar bonds, (h) the Net Exposure Under Securitizations, (i) an amount equal
to eight times the annual rental payment(s) under, or in connection with, any
Operating Lease entered into as part of, or in connection with, any sale and
leaseback transaction and (j) any Guaranty of such Person of any obligation of
another Person constituting obligations of a type set forth above.
"Indemnified Matters" has the meaning specified in Section 5.9(a)
hereof.
"Indemnitees" has the meaning specified in Section 5.9(a) hereof.
"Intangible Assets" means those assets which are treated as intangible
pursuant to GAAP, and in any event including, without limitation: (a)
obligations, if any, owing by Affiliates to the Borrower or to any Restricted
Subsidiary, (b) accounts, notes or mortgages receivable which are deemed by the
Borrower, any of the Restricted Subsidiaries or the Administrative Lender to be
uncollectible or which should be subject to a reserve for bad debts in
accordance with GAAP or which are subject to claims or set-offs (to the extent
of such claim or set-off); (c) leases and leasehold improvements; (d) any asset
which is intangible or lacks intrinsic and marketable value or collectibility,
including without limitation goodwill, noncompetition agreements, patents,
copyrights, trademarks, franchises or organization or research and development
costs; (e) organizational and experimental expense; and (f) unamortized debt
discount and expense.
"Interest Coverage Ratio" means the ratio of EBITDA to Interest
Expense, calculated for the four consecutive fiscal quarters ending on the date
of calculation.
"Interest Expense" means, for any period, determined in accordance
with GAAP on a consolidated basis for the Borrower and the Restricted
Subsidiaries, interest expense (including interest expense pursuant to
Capitalized Lease Obligations).
"Interest Period" means the period beginning on the day any LIBOR
Advance is made and ending one, two, three or six months thereafter (as the
Borrower shall select); provided, however, that all of the foregoing provisions
are subject to the following:
- 14 -
<PAGE> 22
(a) if any Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day, unless, with respect to a LIBOR Advance, the result of
such extension would be to extend such Interest Period into another calendar
month, in which event such Interest Period shall end on the immediately
preceding Business Day;
(b) any Interest Period with respect to a LIBOR Advance that
begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of a calendar month;
and
(c) the Borrower may not select any Interest Period which ends
after the Maturity Date.
"Investment" means any acquisition of all or substantially all assets
of any Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than loans or advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution to, or
investment in any other Person, including without limitation the purchase of
accounts receivable of any other Person.
"Issuing Bank" means NationsBank of Texas, N.A., a national banking
association, in its capacity as issuer of the Letters of Credit.
"Law" means any statute, law, ordinance, regulation, rule, order,
writ, injunction, or decree of any Tribunal.
"Lender" means each financial institution shown on the signature pages
hereof so long as such financial institution maintains a portion of the
Commitment or is owed any part of the Obligations (including the Administrative
Lender in its individual capacity), and each Assignee that hereafter becomes a
party hereto pursuant to Section 11.6 hereof, subject to the limitations set
forth therein.
"L/C Cash Collateral Account" has the meaning specified in Section
2.15(g) hereof.
"L/C Related Documents" has the meaning specified in Section 2.15(e)
hereof.
"Letter of Credit" has the meaning specified in Section 2.15(a)
hereof.
"Letter of Credit Agreement" has the meaning specified in Section
2.15(b) hereof.
"Letter of Credit Facility" has the meaning specified in Section
2.15(a) hereof.
- 15 -
<PAGE> 23
"LIBOR Advance" means an Advance which the Borrower requests to be
made as a LIBOR Advance or which is reborrowed as a LIBOR Advance, in
accordance with the provisions of Section 2.2 hereof.
"LIBOR Basis" means a simple per annum interest rate equal to the
lesser of (a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus
the Applicable LIBOR Rate Margin. The LIBOR Basis shall, with respect to LIBOR
Advances subject to reserve or deposit requirements, be subject to premiums for
such reserve or deposit requirements assessed by each Lender to the extent
incurred by such Lender, which are payable directly to each Lender. Once
determined, the LIBOR Basis shall remain unchanged during the applicable
Interest Period.
"LIBOR Lending Office" means, with respect to a Lender, the office
designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such
other office of the Lender or any of its Affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.
"LIBOR Rate" means, for any LIBOR Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "LIBOR Rate" shall mean, for any LIBOR Advance
for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates.
"Lien" means, with respect to any property, any mortgage, lien,
pledge, collateral assignment, hypothecation, charge, security interest, title
retention agreement, levy, execution, seizure, attachment, garnishment or other
similar encumbrance of any kind in respect of such property, whether or not
choate, vested or perfected.
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
investigation by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust, unfair competition,
securities, Tax or other Law, or under or pursuant to any contract, agreement
or other instrument.
"Loan Documents" means this Agreement, the Notes, the Security
Agreements, any other Collateral Document, the Subsidiary Guaranty, the
Administrative Lender Fee Letter, any Hedge Agreements entered into with any
Lender, the Assignments of Pledged Documents, and any other document or
agreement executed or delivered from time to time by the Borrower, any
- 16 -
<PAGE> 24
Subsidiary of the Borrower or any other Person in connection herewith or as
security for the Obligations.
"Material Adverse Effect" means any act or circumstance or event that
(a) could reasonably be expected to be material and adverse to the business,
financial condition, results of operations, or business prospects of the
Borrower and its Restricted Subsidiaries taken as a whole, or (b) in any manner
whatsoever does or could reasonably be expected to materially and adversely
affect the validity or enforceability of any Loan Document.
"Maturity Date" means February 17, 2001, or the earlier date of
termination in whole of the Commitment pursuant to Section 2.6 or 8.2 hereof.
"Multiemployer Plan" means, as to any Person, at any time, a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which such Person or any member of its Controlled Group is making, or is
obligated to make contributions or has made, or been obligated to make,
contributions within the past five (5) years.
"NationsBank" means NationsBank of Texas, N.A., a national banking
association, in its capacity as a Lender hereunder, but not in its capacity as
Administrative Lender hereunder.
"Necessary Authorization" means any right, franchise, license, permit,
consent, approval or authorization from, or any filing or registration with,
any Tribunal or any Person necessary or appropriate to enable the Borrower or
any Subsidiary of the Borrower to maintain and operate its business and
properties.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer
or other disposition of any asset by any Person, the amount of cash received by
such Person in connection with such transaction (including cash proceeds of any
property received in consideration of any such sale, lease, transfer or other
disposition) after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly attributable to such transaction
or to the asset that is the subject thereof: (i) reasonable brokerage
commissions, legal fees, finder's fees, financial advisory fees, accounting
fees, underwriting fees, investment banking fees and other similar commissions
and fees, in each case, to the extent paid or payable by such Person; (ii)
filing, recording or registration fees or charges or similar fees or charges
paid by such Person; (iii) taxes paid or payable by such Person or any
shareholder, partner or member of such Person to governmental taxing
authorities as a result of such sale or other disposition; and (iv) payment of
the outstanding principal amount of, premium or penalty, if any, and interest
on any Indebtedness that is secured by a Lien on the asset in question and that
is required to be repaid under the terms thereof as a result of such asset
sale.
"Net Exposure Under Securitization" means, for any date of
calculation, the sum of (i) any and all obligations and liabilities of the
Borrower or any Restricted Subsidiary under, or in connection with, any
Securitization, as of such date of calculation, to the extent that same
constitute liabilities of the Borrower or of such Restricted Subsidiary under
GAAP or would,
- 17 -
<PAGE> 25
under GAAP, constitute liabilities of the Borrower or of such Restricted
Subsidiary if such Securitization were treated as an on balance sheet
transaction and (ii) the fair market value of any and all property of the
Borrower or of any Restricted Subsidiary that is pledged or encumbered, or as
to which the interest(s) of the Borrower or any Restricted Subsidiary are
subordinated or otherwise impaired, as security for or as a credit enhancement
or otherwise in connection with, any Securitization.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, after provisions for taxes and extraordinary
items, determined in accordance with GAAP.
"Net Worth" means, as of any date of calculation, for the Borrower and
the Restricted Subsidiaries, on a consolidated basis, determined in accordance
with GAAP, the consolidated total stockholders' equity of the Borrower and the
Restricted Subsidiaries.
"Note Receivable" means a promissory note executed by a Purchaser in
favor of the Borrower or a Restricted Subsidiary which has arisen out of the
sale of a Time-Share Interest to a Purchaser, which note is secured by a Deed
of Trust.
"Notes" means, collectively, the Revolving Credit Notes and the Swing
Line Note.
"Notice of Borrowing" has the meaning specified in Section 2.2(a)
hereof.
"Notice of Issuance" has the meaning specified in Section 2.15(b)
hereof.
"Obligations" means (a) all obligations of any nature (whether matured
or unmatured, fixed or contingent, including the Reimbursement Obligations) of
the Borrower or any other Obligor to any Lender or the Administrative Lender
under any of the Loan Documents as they may be amended from time to time, and
(b) all obligations of the Borrower or any other Obligor for losses, damages,
expenses or any other liabilities of any kind that any Lender may suffer by
reason of a breach by the Borrower or any other Obligor of any obligation,
covenant or undertaking with respect to any Loan Document payable by the
Borrower or any other Obligor under any Loan Document.
"Obligor" means the Borrower and each Guarantor.
"Operating Lease" means any operating lease, as defined in the
Financial Accounting Standard Board Statement of Financial Accounting Standards
No. 13, dated November, 1976 or otherwise in accordance with GAAP, of the
Borrower and/or any of the Restricted Subsidiaries.
"Participant" has the meaning specified in Section 11.6(c) hereof.
"Participation" has the meaning specified in Section 11.6(c) hereof.
- 18 -
<PAGE> 26
"Payment Date" means the last day of the Interest Period for any LIBOR
Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
(a) Any Lien in favor of the Lenders to secure the Obligations
hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet
delinquent, and (ii) Liens for taxes, assessments, governmental charges,
levies, homeowners' association dues or other claims that are not yet
delinquent or that are being diligently contested in good faith by appropriate
proceedings in accordance with Section 5.6 hereof and for which adequate
reserves shall have been set aside on such Person's books, but only so long as
no foreclosure, restraint, sale or similar proceedings have been commenced with
respect thereto;
(c) Liens of carriers, landlords, warehousemen, mechanics,
laborers and materialmen incurred in the ordinary course of business for sums
not yet due or being contested in good faith, if such reserve or appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or similar
legislation;
(e) Easements, right-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere in any material
respect with the ordinary conduct of the business of such Person;
(f) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been
secured, provided that (i) such Person shall have established adequate reserves
for such judgments or awards, (ii) such judgments or awards shall be fully
insured (subject to customary deductibles) and the insurer shall not have
denied coverage, or (iii) such judgments or awards shall have been bonded to
the satisfaction of the Determining Lenders;
(g) Any Liens which secure Indebtedness that is permitted by
Section 7.1 (b) hereof; provided, however, that (i) none of such Liens shall
cover or apply to any of the Collateral, (ii) the fair market value of the
property covered by any such Lien shall not, at the time of the grant or
creation of such Lien, exceed, in the case of property other than notes
receivable or accounts receivable, 200% of the principal amount of the
Indebtedness secured by such Lien and (iii) none of such Liens shall secure any
Subordinated Debt;
- 19 -
<PAGE> 27
(h) Liens arising from filing Uniform Commercial Code financing
statements for precautionary purposes relating solely to true leases of
personal property permitted by this Agreement under which the Borrower or any
of its Subsidiaries is a lessee;
(i) Any zoning or similar law or right reserved to or vested in
any Tribunal to control or regulate the use of any real property;
(j) Any Lien in favor of any Lender to secure any obligations owed
to such Lender in respect of any Hedge Agreement;
(k) Liens incurred or deposits made to secure the performance of
bids, trade contracts (other than for Indebtedness), statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business; and
(l) any replacements or renewals of Liens (but no increases in the
Indebtedness secured thereby) permitted by clauses (h) and (i) hereof.
"Person" means an individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of
ERISA (including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.
"Pledged Documents" means, collectively, the Notes Receivable, the
Deeds of Trust and the Purchase Documents.
"Pretax Net Income" means net profit (or loss) before taxes of the
Borrower and the Restricted Subsidiaries, on a consolidated basis, determined
in accordance with GAAP.
"Prime Rate" means, at any time, the prime interest rate announced or
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of
creditworthiness and being quoted at such time by the Reference Lender as its
"prime rate;" it being understood that such rate may not be the lowest rate of
interest charged by the Reference Lender.
"Projects" means those time-share residential real estate projects
constructed by the Borrower or any of its Subsidiaries in which the Borrower or
any of its Subsidiaries sells Time-Share Interests and as to which any of the
Notes Receivable generated therefrom constitute Collateral hereunder.
- 20 -
<PAGE> 28
"Purchase Documents" means any purchase agreement and related sale and
escrow documents executed and delivered by a Purchaser to the Borrower or any
of its Subsidiaries with respect to the purchase of a Time-Share Interest.
"Purchaser" means a Person who purchases a Time-Share Interest in a
Project from the Borrower or any of its Subsidiaries or any other obligor in
respect of the Note Receivable executed in connection therewith.
"Quarterly Date" means the last day of each March, June, September and
December, beginning March 31, 1998.
"Reference Lender" means NationsBank; provided that if the commitments
of NationsBank hereunder shall terminate and if NationsBank shall have no
Advances and Letters of Credit outstanding hereunder, NationsBank shall cease
to be the Reference Lender, and Administrative Lender (after consultation with
Borrower) shall, with notice to Borrower and Lenders, designate another Lender
as the Reference Lender.
"Reimbursement Obligations" means, in respect of any Letter of Credit
as at any date of determination, the sum of (a) the maximum aggregate amount
which is then available to be drawn under such Letter of Credit plus (b) the
aggregate amount of all drawings under such Letter of Credit not theretofore
reimbursed by the Borrower.
"Related Person" means (a) any Affiliate of the Borrower, (b) any
individual or entity who directly or indirectly holds 10% or more of any class
of Capital Stock of the Borrower, (c) any relative of such individual by blood,
marriage or adoption not more remote than first cousin and (d) any officer or
director of the Borrower.
"Release Date" means the date on which the Notes have been paid, all
other Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.
"Reportable Event" has the meaning set forth in Section 4043(b) of
ERISA.
"Restricted Domestic Subsidiary" means each Domestic Subsidiary which
has executed a Subsidiary Guaranty and has delivered to the Lenders such board
resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall have reasonably requested.
"Restricted Foreign Subsidiary" means each Foreign Subsidiary (i)
which either has executed and delivered a Subsidiary Guaranty or with respect
to which at least 65% of whose Capital Stock has been pledged to the
Administrative Lender, for the benefit of the Lenders, pursuant to
documentation acceptable to the Administrative Lender and (ii) as to which the
Lenders have received such board resolutions, officer's certificates and
opinions of counsel as the Administrative Lender shall have reasonably
requested.
- 21 -
<PAGE> 29
"Restricted Payments" means, collectively, (i) Dividends and (ii) any
(A) payment or prepayment of principal, premium or penalty on any Subordinated
Debt of the Borrower or any Subsidiary of the Borrower or any defeasance,
redemption, purchase, repurchase or other acquisition or retirement for value,
in whole or in part, of any Subordinated Debt (including, without limitation,
the setting aside of assets or the deposit of funds therefor) and (B)
prepayment of interest on any Subordinated Debt.
"Restricted Subsidiary" means any Restricted Domestic Subsidiary or
any Restricted Foreign Subsidiary.
"Revolving Credit Advance" means an Advance made pursuant to Section
2.1(a) hereof.
"Revolving Credit Notes" means the promissory notes of the Borrower
evidencing Revolving Credit Advances, substantially in the form of Exhibit A
hereto, together with any extensions, renewals or amendments thereof or
thereto, and any substitutions therefor.
"Rights" means rights, remedies, powers and privileges.
"Security Agreement" means any Collateral Transfer of Notes and Liens
(Security Agreement), substantially in the form of Exhibit C hereto, as
amended, modified, renewed, supplemented or restated from time to time.
"Securitization" means a sale or hypothecation of Notes Receivable by
the Borrower in which the proceeds thereof are utilized to repay in full all
outstanding Advances attributable to such Notes Receivable pursuant to
documentation reasonably acceptable to the Administrative Lender.
"Securitization Subsidiary" means any subsidiary of the Borrower which
is organized for the sole purpose of facilitating a Securitization and which
performs no business and has no other assets outside of those necessary to
consummate a Securitization.
"Senior Debt" means, as of the date of any determination, the
remainder of (a) Total Debt minus (b) Subordinated Debt.
"Servicing Agent" means, collectively, the Person(s) that are
initially named as the servicer(s) under the Servicing and Collection
Agreement, or, should such Person(s) cease to act as Servicing Agent under the
Servicing and Collection Agreement, such other entity as the Borrower and each
Restricted Subsidiary that is a party to the Servicing and Collection Agreement
may appoint with the prior written consent of the Administrative Lender.
"Servicing and Collection Agreement" means, collectively, the
Servicing and Collection Agreement(s), in such form as the Administrative
Lender shall prescribe, to be made among the Borrower, each Restricted
Subsidiary that owns any of the Notes Receivable included in the
- 22 -
<PAGE> 30
Borrowing Base, the Administrative Lender and the Servicing Agent, as from time
to time modified, replaced or restated.
"Solvent" means, with respect to any Person, that the fair value of
the assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time,
such liabilities will be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability discounted to
present value at rates believed to be reasonable by such Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll,
P.C., or such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage
indicated beside its name on the signature pages hereof, or if applicable,
specified in its most recent Assignment Agreement.
"Specified Resorts" means, collectively, the time-share residential
real estate projects described or referred to in Schedule 10 attached hereto.
"Subordinated Debt" means, collectively, (i) the 5.75% Convertible
Subordinated Notes, issued by the Borrower as of January 15, 1997, in the
aggregate original principal amount of $138,000,000, due in 2007, (ii) the
9.75% Senior Subordinated Notes, issued by the Borrower as of August 1, 1997,
in the aggregate original principal amount of $200,000,000, due October 1, 2007
and (iii) any other Indebtedness of the Borrower or any Subsidiary of the
Borrower having maturities and terms, and which is subordinated to payment of
the Obligations in a manner, approved in writing by the Administrative Lender
and the Determining Lenders, with only such changes or amendments as are not
prohibited by Section 7.19 hereof.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, trust or estate or other Person of which (or in which) more than 50%
of:
(a) the outstanding capital stock having voting power to elect a
majority of the Board of Directors of such corporation (irrespective of whether
at the time capital stock of any other class or classes of such corporation
shall or might have voting power upon the occurrence of any contingency),
(b) the interest in the capital or profits of such partnership or
joint venture,
(c) the beneficial interest of such trust or estate, or
- 23 -
<PAGE> 31
(d) the equity interest of such other Person,
is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's
Subsidiaries; provided, however, that (i) no Person shall be deemed to be a
Subsidiary of the Borrower solely by virtue of the fact that certain shares of
the stock of such Person have been pledged to the Borrower and (ii) the
Securitization Subsidiary shall not be deemed to be a Subsidiary for purposes
of this Agreement.
"Subsidiary Guaranty" means a guaranty, substantially in the form of
Exhibit G hereto, executed and delivered by each Guarantor, as such
guaranty(ies) may be amended, supplemented, modified, renewed or otherwise
restated from time to time.
"Swing Line Advance" means an Advance made pursuant to Section 2.1(b)
hereof.
"Swing Line Bank" means NationsBank of Texas, N.A. and any successors
thereto appointed in accordance with Section 10.1(b) hereof.
"Swing Line Facility" has the meaning specified in Section 2.1(b)
hereof.
"Swing Line Note" means the Swing Line Note of the Borrower payable to
the order of the Swing Line Bank, substantially in the form of Exhibit B
hereto, together with any extensions, renewals or amendments thereof or
thereto, and any substitutions therefor.
"Tangible Net Worth" means the sum of the following for the Borrower
and the Restricted Subsidiaries, on a consolidated basis, determined in
accordance with GAAP, (a) Net Worth minus (b) the sum of the following (without
duplication in respect of items already deducted in arriving at Net Worth):
Intangible Assets, and any write-up in the book value of assets resulting from
revaluation thereof subsequent to December 31, 1996.
"Taxes" has the meaning specified in Section 2.14 hereof.
"Time-Share Interest" means an undivided fee simple ownership interest
as tenants in common with all other Purchasers with respect to any Unit with
respect to the exclusive right to use such Unit and the common areas for the
Project with respect to such Unit for a specified length of time, on an annual
or a biennial basis.
"Total Capital" means, as of any date of determination, the sum of (a)
Total Debt plus (b) Tangible Net Worth.
"Total Debt" means, as of any date of determination, determined for
the Borrower and the Restricted Subsidiaries on a consolidated basis, without
duplication, (i) indebtedness for borrowed money, (ii) obligations evidenced by
bonds, debentures, notes or other similar instruments, (iii) obligations to pay
the deferred purchase price of property or services other than trade payables
incurred in the ordinary course of business, (iv) obligations in respect of
letters
- 24 -
<PAGE> 32
of credit, banker's acceptances and similar instruments, (v) obligations under
Hedge Agreements, (vi) Capitalized Lease Obligations, (vii) obligations in
respect of payment, performance and similar bonds, and (viii) Net Exposure
Under Securitization.
"Tribunal" means any state, commonwealth, federal, foreign,
territorial, or other court or government body, subdivision, agency,
department, commission, board, bureau, or instrumentality of a governmental or
other regulatory or public body or authority.
"UCC" means the Uniform Commercial Code of Texas, as amended from time
to time, and the Uniform Commercial Code applicable in such other states as any
Collateral may be located.
"Unit" means a residential unit in a Project as shown on the recorded
condominium plat therefor or other evidence thereof, as required or permitted
under applicable Law.
"Unused Portion" means an amount equal to the result of (a) the
Commitment minus (b) the sum of (i) the outstanding Revolving Credit Advances
plus (ii) the outstanding Reimbursement Obligations in respect of the Letters
of Credit.
Section 1.2 Amendments and Renewals. Each definition of an
agreement in this Article 1 shall include such agreement as amended to date,
and as amended or renewed from time to time in accordance with its terms, but
only with the prior written consent of the Determining Lenders or all the
Lenders as required pursuant to Section 11.11 hereof.
Section 1.3 Construction. The terms defined in this Article 1
(except as otherwise expressly provided in this Agreement) for all purposes
shall have the meanings set forth in Section 1.1 hereof, and the singular shall
include the plural, and vice versa, unless otherwise specifically required by
the context. All accounting terms used in this Agreement which are not
otherwise defined herein shall be construed in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, unless otherwise
expressly stated herein.
ARTICLE 2
Advances
Section 2.1 The Advances.
(a) Revolving Credit Advances. Each Lender severally agrees, upon
the terms and subject to the conditions of this Agreement, to make Revolving
Credit Advances to the Borrower from time to time until the Maturity Date in an
aggregate amount not to exceed its Specified Percentage of the Commitment less
its Specified Percentage of the aggregate amount of all Reimbursement
Obligations then outstanding (assuming compliance with all conditions to
drawing), for the purposes set forth in Section 5.8 hereof. Subject to Section
2.9 hereof,
- 25 -
<PAGE> 33
Revolving Credit Advances may be repaid and then reborrowed. Notwithstanding
any provision in any Loan Document to the contrary, in no event shall the
principal amount of all outstanding Revolving Credit Advances exceed the lesser
of (i) the result of (A) the Borrowing Base minus (B) the aggregate outstanding
Reimbursement Obligations and Swing Line Advances and (ii) the Commitment. Any
Revolving Credit Advance shall, at the option of the Borrower as provided in
Section 2.2 hereof (and, in the case of LIBOR Advances, subject to the
provisions of Article 9 hereof), be made as a Base Rate Advance or a LIBOR
Advance; provided that there shall not be outstanding, at any one time, more
than five LIBOR Advances.
(b) The Swing Line Loans. The Borrower may request Swing Line
Bank to make, and Swing Line Bank agrees to make, on the terms and conditions
hereinafter set forth, advances ("Swing Line Advances") to the Borrower from
time to time on any Business Day during the period from the date hereof until
the Maturity Date in an aggregate amount not to exceed at any time outstanding
the lesser of (i) the Commitment, less the sum of (A) the aggregate principal
amount of Revolving Credit Advances then outstanding plus (B) the aggregate
principal amount of all Reimbursement Obligations then outstanding, and (ii)
$10,000,000 (assuming compliance with all conditions to drawing) (the "Swing
Line Facility"). Each Swing Line Advance shall be in an amount not less than
$100,000 and in multiples thereof. Each Swing Line Advance shall be a Base
Rate Advance. Within the limits of the Swing Line Facility, Swing Line
Advances may be repaid and then reborrowed.
Section 2.2 Manner of Borrowing and Disbursement.
(a) In the case of Base Rate Advances, the Borrower, through an
Authorized Signatory, shall give the Administrative Lender prior to 11:00 a.m.,
Dallas, Texas time, on the date of any proposed Base Rate Advance irrevocable
written notice, or irrevocable telephonic notice followed immediately by
written notice, in substantially the form of Exhibit H hereto (a "Notice of
Borrowing") (provided, however, that the Borrower's failure to confirm any
telephonic notice in writing shall not invalidate any notice so given), of its
intention to borrow a Base Rate Advance hereunder. Such notice of borrowing
shall specify the requested funding date, which shall be a Business Day, and
the amount of the proposed aggregate Base Rate Advances to be made by Lenders.
(b) In the case of LIBOR Advances, the Borrower, through an
Authorized Signatory, shall give the Administrative Lender at least three
Business Days' irrevocable written notice, or irrevocable telephonic notice
followed immediately by written notice (provided, however, that the Borrower's
failure to confirm any telephonic notice in writing shall not invalidate any
notice so given) pursuant to a Notice of Borrowing, of its intention to borrow
a LIBOR Advance hereunder. Notice shall be given to the Administrative Lender
prior to 11:00 a.m., Dallas, Texas time, in order for such Business Day to
count toward the minimum number of Business Days required. LIBOR Advances
shall in all cases be subject to Article 9 hereof. For LIBOR Advances, the
notice of borrowing shall specify the requested funding date, which shall be a
Business Day, the amount of the proposed aggregate LIBOR Advances to be made by
Lenders and the Interest Period selected by the Borrower, provided that no such
Interest Period shall
- 26 -
<PAGE> 34
extend past the Maturity Date, or prohibit or impair the Borrower's ability to
comply with Section 2.5 or 2.8 hereof.
(c) In the case of Swing Line Advances, the Borrower, through an
Authorized Signatory, shall give the Swing Line Bank and the Administrative
Lender prior to 12:00 noon, Dallas, Texas time, on the date of any proposed
Swing Line Advance irrevocable written notice or irrevocable telephonic notice
followed immediately by written notice (provided, however, that the Borrower's
failure to confirm any telephonic notice in writing shall not invalidate any
notice so given), of its intention to borrow or reborrow a Swing Line Advance.
Such notice of borrowing shall specify the requested funding date, which shall
be a Business Day, and the amount of the proposed Swing Line Advance.
(d) Subject to Sections 2.1 and 2.9 hereof, the Borrower shall
have the option (i) to convert at any time all or any part (subject to the
requirements contained herein as to the minimum amounts of LIBOR Advances) of
the outstanding Base Rate Advances to LIBOR Advances and all or any part of the
outstanding LIBOR Advances to Base Rate Advances or (ii) upon expiration of any
Interest Period applicable to a LIBOR Advance, to continue all or any portion
of such LIBOR Advance equal to $5,000,000 and integral multiples of $1,000,000
in excess of that amount as a LIBOR Advance and the succeeding Interest
Period(s) of such continued LIBOR Advance shall commence on the last day of the
Interest Period of the LIBOR Advance to be continued; provided, however, (A)
LIBOR Advances may only be converted into Base Rate Advances on the expiration
date of the Interest Period applicable thereto and (B) notwithstanding anything
in this Agreement to the contrary, no outstanding Advance may be continued as,
or converted into, a LIBOR Advance when any Default or Event of Default has
occurred and is continuing. At least two Business Days prior to a proposed
conversion/continuation date, the Borrower, through an Authorized Signatory,
shall give the Administrative Lender irrevocable written notice, or irrevocable
telephonic notice followed immediately by written notice (provided, however,
that the Borrower's failure to confirm any telephonic notice in writing shall
not invalidate any notice so given), stating (i) the proposed
conversion/continuation date (which shall be a Business Day), (ii) the amount
of the Advance to be converted/continued, (iii) in the case of a conversion to,
or a continuation of, a LIBOR Advance, the requested Interest Period, and (iv)
in the case of a conversion of a Base Rate Advance to a LIBOR Advance or
continuation of a LIBOR Advance, stating that no Default or Event of Default
has occurred and is continuing. If the Borrower shall fail to give any notice
in accordance with this Section 2.2(d), the Borrower shall be deemed
irrevocably to have requested that such LIBOR Advance be converted to a Base
Rate Advance in the same principal amount. Notice shall be given to the
Administrative Lender prior to 11:00 a.m., Dallas, Texas time, in order for
such Business Day to count toward the minimum number of Business Days required.
(e) The aggregate amount of Base Rate Advances to be made by the
Lenders on any day shall be in a principal amount which is at least $2,000,000
and which is an integral multiple of $500,000; provided, however, that such
amount may equal the unused amount of the applicable Commitment. The aggregate
amount of LIBOR Advances having the same Interest
- 27 -
<PAGE> 35
Period and to be made by the Lenders on any day shall be in a principal amount
which is at least $5,000,000 and which is an integral multiple of $1,000,000.
(f) The Administrative Lender shall promptly notify the Lenders of
each notice (other than with respect to a Swing Line Advance) received from the
Borrower pursuant to this Section. Each Lender shall, not later than 2:00
p.m., Dallas, Texas time, on the date of any Advance, deliver to the
Administrative Lender, at its address set forth herein, such Lender's Specified
Percentage of such Advance in immediately available funds in accordance with
the Administrative Lender's instructions. Prior to 3:00 p.m., Dallas, Texas
time, on the date of any Advance hereunder, the Administrative Lender shall,
subject to satisfaction of the conditions set forth in Article 3, disburse the
amounts made available to the Administrative Lender by the Lenders by (i)
transferring such amounts by wire transfer pursuant to the Borrower's
instructions, or (ii) in the absence of such instructions, crediting such
amounts to the account of the Borrower maintained with the Administrative
Lender. All Advances shall be made by each Lender according to its Specified
Percentage.
(g) The Swing Line Bank shall, not later than 1:30 p.m., Dallas,
Texas time, on the date of any Swing Line Advance, deliver to the
Administrative Lender at its address set forth herein, the amount of such Swing
Line Advance in immediately available funds in accordance with the
Administrative Lender's instructions. Prior to 2:00 p.m., Dallas, Texas time,
on the date of any Swing Line Advance, the Administrative Lender shall, subject
to the conditions set forth in Article 3, disburse the amount made available to
the Administrative Lender by the Swing Line Bank by (i) transferring such
amounts by wire transfer pursuant to the Borrower's instruction or (ii) in the
absence of such instructions, crediting such amounts to the account of the
Borrower maintained with the Administrative Lender. Forthwith upon demand by
the Swing Line Bank and in any event upon the making of the request or the
granting of the consent specified by Section 8.2 to authorize the
Administrative Lender to declare the Advances due and payable pursuant to the
provisions of Section 8.2, each Lender, including the Swing Line Bank,
notwithstanding the failure of the Borrower at such time to satisfy each
condition specified in Article 3, shall make by 12:00 noon (Dallas, Texas time)
on the first Business Day following receipt by such Lender of notice from the
Swing Line Bank, a Revolving Credit Advance which is a Base Rate Advance in an
amount equal to the product of (i) the Specified Percentage of such lender
times (ii) the aggregate outstanding principal amount of the Swing Line
Advances. The proceeds of such Revolving Credit Advances shall be applied by
the Administrative Lender to repay the outstanding Swing Line Advances.
Section 2.3 Interest.
(a) On Base Rate Advances.
(i) The Borrower shall pay interest on the outstanding
unpaid principal amount of the Base Rate Advances outstanding from
time to time, until such Base Rate Advances are due (whether at
maturity, by reason of acceleration, by scheduled reduction, or
otherwise) and repaid at a simple interest rate per annum equal to the
Base Rate Basis
- 28 -
<PAGE> 36
for the Base Rate Advances as in effect from time to time. If at any
time the Base Rate Basis would exceed the Highest Lawful Rate,
interest payable on the Base Rate Advances shall be limited to the
Highest Lawful Rate, but the Base Rate Basis shall not thereafter be
reduced below the Highest Lawful Rate until the total amount of
interest accrued on the Base Rate Advances equals the amount of
interest that would have accrued if the Base Rate Basis had been in
effect at all times.
(ii) Interest on the Base Rate Advances shall be computed
on the basis of a year of 365 or 366 days, as appropriate, for the
actual number of days elapsed, and shall be payable in arrears on each
Quarterly Date and on the Maturity Date.
(b) On LIBOR Advances.
(i) The Borrower shall pay interest on the unpaid
principal amount of each LIBOR Advance, from the date such Advance is
made until it is due (whether at maturity, by reason of acceleration,
by scheduled reduction, or otherwise) and repaid, at a rate per annum
equal to the LIBOR Basis for such LIBOR Advance. The Administrative
Lender, whose determination shall be controlling in the absence of
manifest error, shall determine the LIBOR Basis on the second Business
Day prior to the applicable funding date and shall notify the Borrower
and the Lenders of such LIBOR Basis.
(ii) Subject to Section 11.9 hereof, interest on each
LIBOR Advance shall be computed on the basis of a 360-day year for the
actual number of days elapsed, and shall be payable in arrears on the
applicable Payment Date and on the Maturity Date; provided, however,
that if the Interest Period for such LIBOR Advance exceeds three
months, interest shall also be due and payable in arrears on each
three-month anniversary of the commencement of such Interest Period
during such Interest Period.
(c) On Swing Line Advances.
(i) The Borrower shall pay interest on the outstanding
principal amount of each Swing Line Advance, from the date each Swing
Line Advance is made until it is due (whether at maturity, by
acceleration or otherwise) or repaid, at a rate per annum equal to the
Base Rate Basis in effect from time to time. If at any time the Base
Rate Basis would exceed the Highest Lawful Rate, interest payable on
the Swing Line Advances shall be limited to the Highest Lawful Rate,
but the Base Rate Basis shall not thereafter be reduced below the
Highest Lawful Rate until the total amount of interest accrued on the
Swing Line Advances equals the amount of interest that would have
accrued if the Base Rate Basis had been in effect at all times.
(ii) Interest on each Swing Line Advance shall be computed
on the basis of a year of 365 or 366 days, as applicable, for the
number of days elapsed, and shall be payable quarterly in arrears on
each Quarterly Date and on the Maturity Date.
- 29 -
<PAGE> 37
(d) Interest After an Event of Default. (i) After an Event of
Default (other than an Event of Default specified in Section 8.1(f) or (g)
hereof) and during any continuance thereof, at the option of Determining
Lenders and provided that the Administrative Lender has given notice to the
Borrower of the decision to charge interest at the Default Rate, and (ii) after
an Event of Default specified in Section 8.1(f) or (g) hereof and during any
continuance thereof, automatically and without any action or notice by the
Administrative Lender or any Lender, the Obligations shall bear interest at a
rate per annum equal to the Default Rate. Such interest shall be payable on
the earlier of demand or the Maturity Date, and shall accrue until the earlier
of (i) waiver or cure (to the satisfaction of the Determining Lenders) of the
applicable Event of Default, (ii) agreement by the Lenders to rescind the
charging of interest at the Default Rate, or (iii) payment in full of the
Obligations. The Lenders shall not be required to accelerate the maturity of
the Advances, to exercise any other rights or remedies under the Loan
Documents, or to give notice to the Borrower of the decision to charge interest
at the Default Rate.
Section 2.4 Fees.
(a) Commitment Fee. Subject to Section 11.9 hereof, the Borrower
agrees to pay to the Administrative Lender, for the ratable account of the
Lenders, a commitment fee (the "Commitment Fee") on the daily average Unused
Portion during the period commencing on the Agreement Date and ending on the
Maturity Date, at the following per annum percentages, applicable in the
following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C> <C>
(a) Sum of (i) aggregate outstanding Advances and (ii) aggregate 0.375%
Reimbursement Obligations is greater than or equal to 75% of
Eligible Notes Receivable
(b) Sum of (i) aggregate outstanding Advances and (ii) aggregate 0.250%
Reimbursement Obligations is less than 75% of Eligible Notes
Receivable
</TABLE>
The Commitment Fee shall be subject to reduction or increase, as applicable and
as set forth in the table above, on a monthly basis, retroactively as of the
first day of each month and for such month, based upon the aggregate
outstanding Advances and Reimbursement Obligations as of the last day of the
immediately preceding month and the Eligible Notes Receivable as of the last
day of the immediately preceding month (as reflected in the Borrowing Base
Report, as of the last day of such month, to be delivered to the Lenders
pursuant to Section 6.1 hereof). The fee shall be (i) payable in arrears on
each Quarterly Date and on the Maturity Date, (ii) fully earned when due and,
subject to Section 11.9 hereof, nonrefundable when paid and (iii) subject to
Section 11.9 hereof, computed on the basis of a year of 365 or 366 days, as
appropriate, for the actual number of days elapsed.
- 30 -
<PAGE> 38
(b) Other Fees. Subject to Section 11.9 hereof, the Borrower
agrees to pay to the Administrative Lender, for the account of the
Administrative Lender, the fees on the dates and in the amounts specified in
the letter agreement (the "Fee Letter"), dated as of the Agreement Date,
between the Borrower and the Administrative Lender.
Section 2.5 Prepayments.
(a) Voluntary LIBOR Advance Prepayments. Upon three Business
Days' prior telephonic notice (to be promptly followed by written notice) by an
Authorized Signatory to the Administrative Lender, LIBOR Advances may be
voluntarily prepaid but only so long as the Borrower concurrently reimburses
the Lenders in accordance with Section 2.9 hereof. Any notice of prepayment
shall be irrevocable.
(b) Mandatory Prepayment. On or before the date of any reduction
of the Commitment, the Borrower shall prepay applicable outstanding Advances in
an amount necessary to reduce the sum of outstanding Advances and Reimbursement
Obligations to an amount less than or equal to the Commitment as so reduced.
On any date that the aggregate principal amount of outstanding Advances and
Reimbursement Obligations exceed the Borrowing Base, the Borrower shall
immediately prepay Advances in an amount equal to such excess amount and all
interest attributable to such excess amount. To the extent required by the
immediately preceding two sentences, the Borrower shall first prepay all Base
Rate Advances and shall thereafter prepay LIBOR Advances. To the extent that
any prepayment requires that a LIBOR Advance be repaid on a date other than the
last day of its Interest Period, the Borrower shall reimburse each Lender in
accordance with Section 2.9 hereof. To the extent that outstanding Advances
exceed the Commitment after any reduction thereof, the Borrower shall repay any
such excess amount and all accrued interest attributable to such excess
Advances on the date of such reduction.
(c) Payments, Generally. Any prepayment of any LIBOR Advance
shall be accompanied by interest accrued on the principal amount being prepaid.
Any voluntary partial payment of a Base Rate Advance shall be in a principal
amount which is at least $2,000,000 and which is an integral multiple of
$500,000 (unless constituting a payment of all outstanding Base Rate Advances).
Any voluntary partial payment of a LIBOR Advance shall be in a principal amount
which is at least $5,000,000 and which is an integral multiple of $1,000,000
(unless constituting a payment of all outstanding LIBOR Advances), and to the
extent that any prepayment of a LIBOR Advance is made on a date other than the
last day of its Interest Period, the Borrower shall reimburse each Lender in
accordance with Section 2.9 hereof. Any voluntary partial payment of a Swing
Line Advance shall be in a principal amount which is at least $100,000 or an
integral multiple thereof.
Section 2.6 Reduction of Commitment.
(a) Voluntary Reduction. The Borrower shall have the right, upon
not less than ten Business Days' notice by an Authorized Signatory to the
Administrative Lender (if telephonic,
- 31 -
<PAGE> 39
to be confirmed by telex or in writing on or before the date of reduction or
termination), which shall promptly notify the Lenders, to terminate or reduce
the Commitment, in whole or in part, without premium or penalty except as
provided in the next sentence. Each partial termination shall be in an
aggregate amount which is at least $5,000,000 and which is an integral multiple
of $1,000,000, and no voluntary reduction of the Commitment shall cause any
LIBOR Advance to be repaid prior to the last day of its Interest Period unless
the Borrower shall reimburse each Lender in accordance with Section 2.9 hereof.
(b) Mandatory Reduction. The Commitment shall be automatically
reduced to zero on the Maturity Date.
(c) General Requirements. Upon any reduction of the Commitment
pursuant to this Section, the Borrower shall immediately make a repayment of
applicable Advances in accordance with Section 2.5(b) hereof. The Borrower
shall reimburse each Lender in connection with any such payment in accordance
with Section 2.9 hereof to the extent applicable. The Borrower shall not have
any right to rescind any termination or reduction. Once reduced, the
Commitment may not be increased or reinstated.
Section 2.7 Non-Receipt of Funds by the Administrative Lender.
Unless the Administrative Lender shall have been notified by a Lender no later
than the date that such Lender receives notice of a proposed Revolving Credit
Advance from the Administrative Lender pursuant to Section 2.2(e) hereof that
such Lender does not intend to make the proceeds of such Revolving Credit
Advance available to the Administrative Lender, the Administrative Lender may
assume that such Lender has made such proceeds available to the Administrative
Lender on such date, and the Administrative Lender may in reliance upon such
assumption (but shall not be required to) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made
available to the Administrative Lender by such Lender, the Administrative
Lender shall be entitled to recover such amount on demand from such Lender (or,
if such Lender fails to pay such amount forthwith upon such demand, from the
Borrower) together with interest thereon in respect of each day during the
period commencing on the date such amount was available to the Borrower and
ending on (but excluding) the date the Administrative Lender receives such
amount from (a) the Lender, at a per annum rate equal to the lesser of (i) the
Highest Lawful Rate or (ii) the Federal Funds Rate or (b) the Borrower, at the
per annum rate applicable at the time to such Revolving Credit Advance.
Notwithstanding Section 10.1(f), no Lender shall be liable for any other
Lender's failure to fund a Revolving Credit Advance hereunder.
Section 2.8 Payment of Principal of Advances. To the extent not
otherwise required to be paid earlier as provided herein, the principal amount
of the Advances, all accrued interest and fees thereon, and all other
Obligations related thereto, shall be due and payable in full on the Maturity
Date.
Section 2.9 Reimbursement. Whenever any Lender shall sustain or
incur (other than through a default by that Lender) any losses (inclusive of
any such losses attributable to
- 32 -
<PAGE> 40
change(s) in the LIBOR Rate during the applicable period(s), but exclusive of
any losses of any other anticipated profits on the part of such Lender) or
reasonable out-of-pocket expenses actually incurred in connection with (a)
failure by the Borrower to borrow (including any failure to continue or convert
into) any LIBOR Advance after having given notice of its intention to borrow
(or to continue or convert) in accordance with Section 2.2 hereof (whether by
reason of the Borrower's election not to proceed or the non-fulfillment of any
of the conditions set forth in Article 3 hereof) or (b) any prepayment for any
reason of any LIBOR Advance in whole or in part (including a prepayment
pursuant to Section 9.3(b) hereof) on other than the last day of an Interest
Period applicable to such LIBOR Advance, the Borrower agrees to pay to any such
Lender, within 30 days after demand by such Lender, an amount sufficient to
compensate such Lender for all such losses (inclusive of any such losses
attributable to change(s) in the LIBOR Rate during the applicable period(s),
but exclusive of any losses of any other anticipated profits on the part of
such Lender) and out-of-pocket expenses, subject to Section 11.9 hereof. Such
losses shall include, without limiting the generality of the foregoing,
reasonable expenses incurred by such Lender in connection with the
re-employment of funds prepaid, repaid, converted or not borrowed, converted or
paid, as the case may be. A certificate as to any amounts payable to any
Lender under this Section 2.9 submitted to the Borrower by such Lender shall
certify that such amounts were actually incurred by such Lender and shall show
in reasonable detail an accounting of the amount payable and the calculations
used to determine in good faith such amount and shall be conclusive absent
manifest or demonstrable error. Nothing in this Section 2.9 shall provide the
Borrower or any Subsidiary of the Borrower the right to inspect the records,
files or books of any Lender.
Section 2.10 Manner of Payment.
(a) Each payment (including prepayments) by the Borrower of the
principal of or interest on the Advances, fees, and any other amount owed under
this Agreement or any other Loan Document shall be made not later than 12:00
noon (Dallas, Texas time) on the date specified for payment under this
Agreement to the Administrative Lender at the Administrative Lender's office,
in lawful money of the United States of America constituting immediately
available funds.
(b) If any payment under this Agreement or any other Loan Document
shall be specified to be made upon a day which is not a Business Day, it shall
be made on the next succeeding day which is a Business Day, unless, with
respect to a payment due in respect of a LIBOR Advance, such Business Day falls
in another calendar month, in which case payment shall be made on the preceding
Business Day. Any extension of time shall in such case be included in
computing interest and fees, if any, in connection with such payment.
(c) Without waiving any other rights or recourse that the Borrower
may otherwise have against any Lender for such Lender's breach of its
obligations hereunder, the Borrower agrees to pay principal, interest, fees and
all other amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.
- 33 -
<PAGE> 41
(d) If some but less than all amounts due from the Borrower are
received by the Administrative Lender, the Administrative Lender shall apply
such amounts in the following order of priority: (i) to the payment of the
Administrative Lender's reasonable expenses incurred on behalf of the Lenders
then due and payable, if any; (ii) to the payment of all other fees then due
and payable; (iii) to the payment of interest then due and payable on the
Advances; (iv) to the payment of all other amounts not otherwise referred to in
this clause (d) then due and payable under the Loan Documents; and (v) to the
payment of principal then due and payable on the Advances.
(e) Each payment by the Borrower in respect of obligations
relating to the Revolving Credit Advances and the Letters of Credit (whether
for principal, interest, fees or otherwise) shall be made to the Administrative
Lender for the account of the Lenders pro rata in accordance with their
respective Specified Percentages. Each payment by the Borrower in respect of
obligations relating to Swing Line Advances (whether for principal, interest,
fees or otherwise) shall be made to the Administrative Lender for the account
of the Swing Line Bank.
Section 2.11 LIBOR Lending Offices. Each Lender's initial LIBOR
Lending Office is set forth opposite its name in Schedule 1 attached hereto.
Each Lender shall have the right at any time and from time to time to designate
a different office of itself or of any Affiliate of such Lender as such
Lender's LIBOR Lending Office, and to transfer any outstanding LIBOR Advance to
such LIBOR Lending Office. No such designation or transfer shall result in any
liability on the part of the Borrower for increased costs or expenses resulting
solely from such designation or transfer (except any such transfer which is
made by a Lender pursuant to Section 9.2 or 9.3 hereof, or otherwise for the
purpose of complying with Applicable Law, to the extent that Applicable Law, or
any relevant construction or interpretation thereof, changes after the
Agreement Date). Increased costs for expenses resulting from a change in law
occurring subsequent to any such designation or transfer shall be deemed not to
result solely from such designation or transfer.
Section 2.12 Sharing of Payments. Any Lender obtaining a payment
(whether voluntary or involuntary, due to the exercise of any right of set-off,
or otherwise) on account of its Advances or its participation in the Letters of
Credit (other than pursuant to Sections 2.4(b), 2.14, 2.15(d), 9.3 or 9.5 or in
respect of Swing Line Advances) in excess of its Specified Percentage of all
payments made by the Borrower with respect to Advances and the Letters of
Credit shall purchase from each other Lender such participation in the Advances
made by such other Lender or its participation in the Letters of Credit as
shall be necessary to cause such purchasing Lender to share the excess payment
pro rata according to Specified Percentages with each other Lender; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, the purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
The Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section, to the fullest extent permitted by law, may
exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
- 34 -
<PAGE> 42
Section 2.13 Calculation of LIBOR Rate. The provisions of this
Agreement relating to calculation of the LIBOR Rate are included only for the
purpose of determining the rate of interest or other amounts to be paid
hereunder that are based upon such rate, it being understood that each Lender
shall be entitled to fund and maintain its funding of all or any part of a
LIBOR Advance as it sees fit.
Section 2.14 Taxes.
(a) Any and all payments by the Borrower hereunder shall be made,
in accordance with Section 2.10, free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender and the Administrative Lender, (i) taxes imposed on, based upon
or measured by its overall net income, net worth or capital, and franchise
taxes, doing business taxes or minimum taxes imposed on it, (A) by the
jurisdiction under the laws of which such Lender or the Administrative Lender
(as the case may be) is organized or in which it has its applicable lending
office or any political subdivision thereof; or (B) by any other jurisdiction,
or any political subdivision thereof, other than those imposed solely by reason
of (1) an asserted relation of such jurisdiction to the transactions
contemplated by this Agreement, (2) the activities of the Borrower in such
jurisdiction or (3) the activities in connection with the transactions
contemplated by this Agreement of a Lender or the Administrative Lender; (ii)
taxes imposed by reason of failure by the Lender or the Administrative Lender
to comply with the requirements of paragraph (e) of this Section 2.14; and
(iii) in the case of any Lender, any Taxes in the nature of transfer, stamp,
recording or documentary taxes resulting from a transfer (other than as a
result of foreclosure) by such Lender of all or any portion of its interest in
this Agreement, the Notes or any other Loan Documents; (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by Law
to deduct or withhold any Taxes from or in respect of any sum payable hereunder
to any Lender or the Administrative Lender, (x) the sum payable shall be
increased as may be necessary so that after making all required deductions for
Taxes (including deductions applicable to additional sums payable under this
Section 2.14) such Lender or the Administrative Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (y) the Borrower shall make such deductions and (z) the
Borrower shall pay the full amount of Taxes deducted to the relevant taxation
authority or other authority in accordance with Applicable Law.
(b) In addition, the Borrower agrees to pay any and all stamp and
documentary taxes and any and all other excise and property taxes, charges and
similar levies (other than Taxes described in clause (iii) of the first
sentence of Section 2.14(a)) that arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) The Borrower will indemnify each Lender and the Administrative
Lender for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.14) paid by such Lender
- 35 -
<PAGE> 43
or the Administrative Lender (as the case may be) and all liabilities
(including penalties, additions to tax, interest and reasonable expenses)
arising therefrom or with respect thereto whether or not such Taxes or Other
Taxes were correctly or legally asserted, other than penalties, additions to
tax, interest and expenses arising as a result of gross negligence or wilful
misconduct on the part of such Lender or the Administrative Lender, provided,
however, that the Borrower shall have no obligation to indemnify such Lender or
the Administrative Lender unless and until such Lender or the Administrative
Lender shall have delivered to the Borrower a certificate certifying that such
Taxes or Other Taxes (and/or penalties, additions to tax, interest and
reasonable expenses) were actually incurred by such Lender or the
Administrative Lender and showing in reasonable detail an accounting of the
amount payable and the calculations used to determine in good faith such
amount, which certificate shall be conclusive absent manifest or demonstrable
error. Nothing in this Section 2.14 shall provide the Borrower or any
Subsidiary of the Borrower the right to inspect the records, files or books of
any Lender or the Administrative Lender. This indemnification shall be made
within 30 days from the date such Lender or the Administrative Lender (as the
case may be) makes written demand therefor.
(d) As soon as practicable after the date of any payment of Taxes,
the Borrower will furnish to the Administrative Lender the original or a
certified copy of a receipt evidencing payment thereof. For purposes of this
Section 2.14 the terms "United States" and "United States Person" shall have
the meanings set forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees
that:
(i) it shall, no later than the Agreement Date (or, in
the case of a Lender which becomes a party hereto pursuant to Section
11.6after the Agreement Date, the date upon which such Lender becomes
a party hereto) and at such times as necessary in the reasonable
determination of the Borrower, deliver to the Borrower through the
Administrative Lender, with a copy to the Administrative Lender:
(A) if any lending office is located in the United States
of America, two (2) accurate and complete signed
originals of Internal Revenue Service Form 4224 or
any successor thereto ("Form 4224"),
(B) if any lending office is located outside the United
States of America, two (2) accurate and complete
signed originals of Internal Revenue Service Form
1001 or any successor thereto ("Form 1001"),
in each case indicating that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees
for the account of such lending office or lending offices under this
Agreement free from withholding of United States Federal income tax;
(ii) if at any time such Lender changes its lending office
or lending offices or selects an additional lending office it shall,
at the same time or reasonably promptly
- 36 -
<PAGE> 44
thereafter but only to the extent the forms previously delivered by it
hereunder are no longer effective, deliver to the Borrower through the
Administrative Lender, with a copy to the Administrative Lender, in
replacement for the forms previously delivered by it hereunder:
(A) if such changed or additional lending office is
located in the United States of America, two (2)
accurate and complete signed originals of Form 4224;
or
(B) otherwise, two (2) accurate and complete signed
originals of Form 1001,
in each case indicating that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees
for the account of such changed or additional lending office under
this Agreement free from withholding of United States Federal income
tax;
(iii) it shall, before or promptly after the occurrence of
any event (including the passing of time but excluding any event
mentioned in clause (ii) above) requiring a change in the most recent
Form 4224 or Form 1001 previously delivered by such Lender and if the
delivery of the same be lawful, deliver to the Borrower through the
Administrative Lender with a copy to the Administrative Lender, two
(2) accurate and complete original signed copies of Form 4224 or Form
1001 in replacement for the forms previously delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrower
to that effect, deliver to the Borrower such other forms or similar
documentation as may be required from time to time by any applicable
law, treaty, rule or regulation in order to establish such Lender's
tax status for withholding purposes; and
(v) it shall notify the Borrower after any event
(including an amendment to, or a change in any applicable law or
regulation or in the written interpretation thereof by any regulatory
authority or any judicial authority, or by ruling applicable to such
Lender of any governmental authority charged with the interpretation
or administration of any law) shall occur that results in such Lender
no longer being capable of receiving payments under this Agreement
without any deduction or withholding of United States federal income
tax.
(f) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.14 shall survive the payment in full of principal
and interest hereunder.
(g) Each Lender (and the Administrative Lender with respect to
payments to the Administrative Lender for its own account) agrees that (i) it
will take all reasonable actions by all usual means to maintain all exemptions,
if any, available to it from United States withholding
- 37 -
<PAGE> 45
taxes (whether available by treaty, existing administrative waiver or by virtue
of the location of any Lender's lending office), (ii) it will use reasonable
best efforts (consistent with its internal policy and legal and regulatory
restrictions) to change the jurisdiction of its lending office, if the making
of such a change would avoid the need for, or reduce the amount of, any such
additional amounts which may thereafter accrue and would not, in the reasonable
judgment of such Lender, be materially disadvantageous to such Lender, and
(iii) otherwise cooperate with the Borrower to minimize amounts payable by the
Borrower under this Section 2.14; provided, however, the Lenders and the
Administrative Lender shall not be obligated by reason of this Section 2.14(g)
to contest the payment of any Taxes or Other Taxes or to disclose any
information regarding its tax affairs or tax computations or reorder its tax or
other affairs or tax or other planning. Subject to the foregoing, to the
extent the Borrower pays sums pursuant to this Section 2.14 and the Lender or
the Administrative Lender receives a refund of any or all of such sums, such
refund shall be applied to reduce any amounts then due and owing under this
Agreement or, to the extent that no amounts are due and owing under this
Agreement at the time such refunds are received, the party receiving such
refund shall promptly pay over all such refunded sums to the Borrower, provided
that (i) no Event of Default is in existence at such time or (ii) all of the
Obligations have been fully and finally paid or satisfied. At such time, if
any, that such Default or Event of Default is cured or waived, the party
receiving such refund shall promptly pay over all such refunded sums to the
Borrower.
(h) If the Borrower becomes obligated to pay additional amounts
described in this Section 2.14 to any Lender, the Borrower may designate a
financial institution reasonably acceptable to the Administrative Lender to
replace such Lender by purchasing for cash and receiving an assignment of such
Lender's pro rata share of the Commitment and the Rights of such Lender under
the Loan Documents without recourse to or warranty by, or expense to, such
Lender, for a purchase price equal to the outstanding amounts owed to such
Lender (including such additional amounts owing to such Lender pursuant to this
Section 2.14). Upon execution of an Assignment Agreement, such other financial
institution shall be deemed to be a "Lender" for all purposes of this Agreement
as set forth in Section 11.6 hereof.
Section 2.15 Letters of Credit.
(a) The Letter of Credit Facility. The Borrower may request the
Issuing Bank, on the terms and conditions hereinafter set forth, to issue, and
the Issuing Bank shall, if so requested, issue, letters of credit (the "Letters
of Credit") for the account of the Borrower or any other Obligor from time to
time on any Business Day from the date of the initial Advance until the
Maturity Date in an aggregate maximum amount (assuming compliance with all
conditions to drawing) not to exceed, at any time outstanding, the least of (i)
$20,000,000 (the "Letter of Credit Facility"), (ii) the remainder of the
Borrowing Base minus the aggregate principal amount of Advances then
outstanding and the aggregate amount of all drawings under Letter(s) of Credit
not theretofore reimbursed by the Borrower, and (iii) the Commitment. No
Letter of Credit shall have an expiration date (including all rights of
renewal) later than the earlier of (i) the Maturity Date or (ii) one year after
the date of issuance thereof. Immediately upon the issuance of each Letter of
Credit, the Issuing Bank shall be deemed to have sold and transferred to each
- 38 -
<PAGE> 46
Lender, and each Lender shall be deemed to have purchased and received from the
Issuing Bank, in each case irrevocably and without any further action by any
party, an undivided interest and participation in such Letter of Credit, each
drawing thereunder and the obligations of the Borrower under this Agreement in
respect thereof in an amount equal to the product of (x) such Lender's
Specified Percentage times (y) the maximum amount available to be drawn under
such Letter of Credit (assuming compliance with all conditions to drawing).
Within the limits of the Letter of Credit Facility, and subject to the limits
referred to above, the Borrower may request the issuance of Letters of Credit
under this Section 2.15(a), repay any Advances resulting from drawings
thereunder pursuant to Section 2.15(c) and request the issuance of additional
Letters of Credit under this Section 2.15(a).
(b) Request for Issuance. Each Letter of Credit shall be issued
upon notice, given not later than 11:00 a.m. (Dallas, Texas time) on the fourth
Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to the Issuing Bank. Each Letter of Credit shall be
issued upon notice given in accordance with the terms of any separate agreement
between the Borrower and the Issuing Bank in form and substance reasonably
satisfactory to the Borrower and the Issuing Bank providing for the issuance of
Letters of Credit pursuant to this Agreement and containing terms and
conditions not inconsistent with this Agreement (a "Letter of Credit
Agreement"), provided that if any such terms and conditions are inconsistent
with this Agreement, this Agreement shall control. Each such notice of
issuance of a Letter of Credit by the Borrower (a "Notice of Issuance") shall
be in writing or by telecopier, specifying therein, in the case of a Letter of
Credit, the requested (A) date of such issuance (which shall be a Business
Day), (B) maximum amount of such Letter of Credit, (C) expiration date of such
Letter of Credit, (D) name and address of the beneficiary of such Letter of
Credit, and (E) form of such Letter of Credit and specifying such other
information as shall be required pursuant to the relevant Letter of Credit
Agreement. If the requested terms of such Letter of Credit are acceptable to
the Issuing Bank in its reasonable discretion, the Issuing Bank will, upon
fulfillment of the applicable conditions set forth in Article 3 hereof, make
such Letter of Credit available to the Borrower at its office referred to in
Section 11.1 or as otherwise agreed with the Borrower in connection with such
issuance.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of
a draft drawn under any Letter of Credit shall constitute for all purposes of
this Agreement the making by the Issuing Bank of an Advance, which shall bear
interest at the Base Rate Basis, in the amount of such draft (but without any
requirement for compliance with the conditions set forth in Article 3 hereof).
In the event that a drawing under any Letter of Credit is not reimbursed by the
Borrower by 11:00 a.m. (Dallas, Texas time) on the first Business Day after
such drawing, the Issuing Bank shall promptly notify Administrative Lender and
each other Lender. Each such Lender shall, on the first Business Day following
such notification, make a Revolving Credit Advance (or if, as a result of any
Debtor Relief Law, the Lenders are prohibited from making a Revolving Credit
Advance, each Lender shall fund its participation purchased pursuant to Section
2.15(a) by making such amount available to the Administrative Lender), which
shall bear interest at the Base Rate Basis, and shall be used to repay the
applicable portion of the Issuing Bank's Advance with respect to such Letter of
Credit, in an amount equal to the amount of its
- 39 -
<PAGE> 47
participation in such drawing for application to reimburse the Issuing Bank
(but without any requirement for compliance with the applicable conditions set
forth in Article 3 hereof) and shall make available to the Administrative
Lender for the account of the Issuing Bank, by deposit at the Administrative
Lender's office, in same day funds, the amount of such Revolving Credit Advance
(or such participation). In the event that any Lender fails to make available
to the Administrative Lender for the account of the Issuing Bank the amount of
such Revolving Credit Advance (or such participation), the Issuing Bank shall
be entitled to recover such amount on demand from such Lender together with
interest thereon at a rate per annum equal to the lesser of (i) the Highest
Lawful Rate or (ii) the Federal Funds Rate.
(d) Increased Costs. If after the Agreement Date any change in
any Law or in the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof shall either (i)
impose, modify or deem applicable any reserve, special deposit or similar
requirement against letters of credit or guarantees issued by, or assets held
by, or deposits in or for the account of, the Issuing Bank or any Lender or any
corporation controlling the Issuing Bank or any Lender or (ii) impose on the
Issuing Bank or any Lender or any corporation controlling the Issuing Bank or
any Lender any other condition regarding this Agreement or any Letter of
Credit, and the result of any event referred to in the preceding clause (i) or
(ii) shall be to increase the cost to the Issuing Bank or any corporation
controlling the Issuing Bank of issuing or maintaining any Letter of Credit or
to any Lender or any corporation controlling such Lender of purchasing any
participation therein or making any Advance pursuant to Section 2.15(c), then,
within 30 days after demand by the Issuing Bank or such Lender (which demand
shall be made not later than one year after the Issuing Bank or applicable
Lender receives notice of the relevant change), the Borrower shall, subject to
Section 11.9 hereof, pay to the Issuing Bank or such Lender, from time to time
as specified by the Issuing Bank or such Lender, additional amounts that shall
be sufficient to compensate the Issuing Bank or such Lender or any corporation
controlling such Lender for such increased cost. A certificate as to the
amount of such increased cost, submitted to the Borrower by the Issuing Bank or
such Lender, shall certify that such increased costs were actually incurred by
the Issuing Bank or such Lender and shall show in reasonable detail an
accounting of the amount payable and the calculation used to determine in good
faith such amount and shall be conclusive absent manifest or demonstrable
error. In determining such amount, the Issuing Bank or such Lender may use any
reasonable averaging or attribution method. Nothing in this Section 2.15(d)
shall provide the Borrower or any Subsidiary of the Borrower the right to
inspect the records, files or books of the Issuing Bank or any Lender. If the
Borrower becomes obligated to pay additional amounts described in this Section
2.15(d) to any Lender, the Borrower may designate a financial institution
reasonably acceptable to the Administrative Lender to replace such Lender by
purchasing for cash and receiving an assignment of such Lender's pro rata share
of the Commitments and the Rights of such Lender under the Loan Documents
without recourse to or warranty by, or expenses to, such Lender, for a purchase
price equal to the outstanding amounts owing to such Lender (including such
additional amounts owing to such Lender pursuant to this Section 2.15(d). Upon
execution of an Assignment Agreement, such other financial institution shall be
deemed to be a "Lender" for all purposes of this Agreement as set forth in
Section 11.6 hereof. The obligations of the Borrower under this Section
2.15(d) shall survive termination of
- 40 -
<PAGE> 48
this Agreement. The Issuing Bank or any Lender claiming any additional
compensation under this Section 2.15(d) shall use reasonable efforts
(consistent with legal and regulatory restrictions) to reduce or eliminate any
such additional compensation which may thereafter accrue and which efforts
would not, in the reasonable judgment of the Issuing Bank or such Lender, be
otherwise disadvantageous.
(e) Obligations Absolute. The obligations of the Borrower under
this Agreement with respect to any Letter of Credit, any Letter of Credit
Agreement and any other agreement or instrument relating to any Letter of
Credit or any Advance pursuant to Section 2.15(c) shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the
following circumstances:
(i) any lack of validity or enforceability of this
Agreement, any other Loan Document, any Letter of Credit Agreement,
any Letter of Credit or any other agreement or instrument relating
thereto (collectively, the "L/C Related Documents");
(ii) (A) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations of
the Borrower in respect of the Letters of Credit or any Advance
pursuant to Section 2.15(c) or (B) any other amendment or waiver of or
any consent to departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary
or any transferee of a Letter of Credit (or any Persons for whom any
such beneficiary or any such transferee may be acting), the Issuing
Bank, any Lender or any other Person, whether in connection with this
Agreement, the transactions contemplated hereby or by the L/C Related
Documents or any unrelated transaction;
(iv) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect, except to the extent finally determined by
a court of competent jurisdiction to be the result of the gross
negligence or willful misconduct of the Issuing Bank in connection
therewith;
(v) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or certificate that does not comply
with the terms of the Letter of Credit, except to the extent finally
determined by a court of competent jurisdiction to be the result of
the gross negligence or willful misconduct of the Issuing Bank in
connection therewith;
(vi) any exchange, release or non-perfection of any
Collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any
- 41 -
<PAGE> 49
of the Obligations of the Borrower in respect of the Letters of Credit
or any Advance pursuant to Section 2.15(c); or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, including, without
limitation, any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Borrower or a guarantor,
except to the extent finally determined by a court of competent
jurisdiction to be the result of the gross negligence or willful
misconduct of the Issuing Bank in connection therewith.
(f) Compensation for Letters of Credit.
(i) Credit Fee. Subject to Section 11.9 hereof, the
Borrower shall pay to the Administrative Lender for the ratable
account of each Lender a fee (which shall be payable quarterly in
arrears on each Quarterly Date and on the Maturity Date) equal to a
rate per annum equal to the product of the Applicable LIBOR Rate
Margin in effect from time to time multiplied by the average daily
amount available for drawing under all outstanding Letters of Credit.
Subject to Section 11.9 hereof, such fee shall be computed on the
basis of a 360-day year for the actual number of days elapsed.
(ii) Fronting Fee. Subject to Section 11.9 hereof, the
Borrower shall pay to the Administrative Lender for the account of the
Issuing Bank a fronting fee (which shall be payable in arrears on each
Quarterly Date and on the Maturity Date) in an amount equal to 0.10%
per annum on the average daily amount available for drawing under all
outstanding Letters of Credit, computed, subject to Section
11.9hereof, on the basis of a 360-day year for the actual number of
days elapsed.
(iii) Other Fees. Subject to Section 11.9 hereof, the
Borrower shall pay, with respect to each amendment, renewal or
transfer of each Letter of Credit and each drawing made thereunder,
reasonable documentary and processing charges in accordance with the
Issuing Bank's standard schedule for such charges in effect at the
time of such amendment, renewal, transfer or drawing, as the case may
be.
(g) L/C Cash Collateral Account.
(i) Upon the Maturity Date or the occurrence, and during
the continuance, of an Event of Default and demand by the
Administrative Lender pursuant to Section 8.2(c), the Borrower will
promptly pay to the Administrative Lender in immediately available
funds an amount equal to the maximum amount then available to be drawn
under the Letters of Credit then outstanding. Any amounts so received
by the Administrative Lender shall be deposited by the Administrative
Lender in a deposit account maintained by the Issuing Bank (the "L/C
Cash Collateral Account").
- 42 -
<PAGE> 50
(ii) As security for the payment of all Reimbursement
Obligations and for any other Obligations, the Borrower hereby grants,
conveys, assigns, pledges, sets over and transfers to the
Administrative Lender (for the benefit of the Issuing Bank and
Lenders), and creates in the Administrative Lender's favor (for the
benefit of the Issuing Bank and Lenders) a Lien in, all money,
instruments and securities at any time held in or acquired in
connection with the L/C Cash Collateral Account, together with all
proceeds thereof. The L/C Cash Collateral Account shall be under the
sole dominion and control of the Administrative Lender and the
Borrower shall have no right to withdraw or to cause the
Administrative Lender to withdraw any funds deposited in the L/C Cash
Collateral Account. At any time and from time to time, upon the
Administrative Lender's request, the Borrower promptly shall execute
and deliver any and all such further instruments and documents,
including UCC financing statements, as may be necessary, appropriate
or desirable in the Administrative Lender's judgment to obtain the
full benefits (including perfection and priority) of the security
interest created or intended to be created by this paragraph (ii) and
of the rights and powers herein granted. The Borrower shall not
create or suffer to exist any Lien on any amounts or investments held
in the L/C Cash Collateral Account other than the Lien granted under
this paragraph (ii).
(iii) The Administrative Lender shall (A) apply any funds
in the L/C Cash Collateral Account on account of Reimbursement
Obligations when the same become due and payable, (B) after the
Maturity Date, apply any proceeds remaining in the L/C Cash Collateral
Account first to pay any unpaid Obligations then outstanding hereunder
and then to refund any remaining amount to the Borrower.
(iv) The Borrower, no more than once in any calendar
month, may direct the Administrative Lender to invest the funds held
in the L/C Cash Collateral Account (so long as the aggregate amount of
such funds exceeds any relevant minimum investment requirement) in (A)
Cash and Cash Equivalents or direct obligations of the United States
or any agency thereof, or obligations guaranteed by the United States
or any agency thereof and (B) one or more other types of investments
permitted by the Determining Lenders, in each case with such
maturities as the Borrower, with the consent of the Determining
Lenders, may specify, pending application of such funds on account of
Reimbursement Obligations or on account of other Obligations, as the
case may be. In the absence of any such direction from the Borrower,
the Administrative Lender shall invest the funds held in the L/C Cash
Collateral Account (so long as the aggregate amount of such funds
exceeds any relevant minimum investment requirement) in one or more
types of investments with the consent of the Determining Lenders with
such maturities as the Borrower, with the consent of the Determining
Lenders, may specify, pending application of such funds on account of
Reimbursement Obligations or on account of other Obligations, as the
case may be. All such investments shall be made in the Administrative
Lender's name for the account of the Lenders, subject to the ownership
interest therein of the Borrower. The Borrower recognizes that any
losses or taxes with respect to such investments shall be borne solely
by the Borrower, and the Borrower agrees to hold the Administrative
Lender and the Lenders harmless from any
- 43 -
<PAGE> 51
and all such losses and taxes. Administrative Lender may liquidate
any investment held in the L/C Cash Collateral Account in order to
apply the proceeds of such investment on account of the Reimbursement
Obligations as provided in Section 2.15(g)(iii) hereof (or on account
of any other Obligation then due and payable, as the case may be)
without regard to whether such investment has matured and without
liability for any penalty or other fee incurred (with respect to which
the Borrower hereby agrees to reimburse the Administrative Lender) as
a result of such application.
(v) After the establishment of the L/C Cash Collateral
Account pursuant to Section 2.15(g)(i) hereof, the Borrower shall pay
to the Administrative Lender the fees customarily charged by the
Issuing Bank with respect to the maintenance of accounts similar to
the L/C Cash Collateral Account.
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to the Initial Advance and the
Initial Issuance of Letters of Credit. The obligation of each Lender to make
the initial Revolving Credit Advance, the obligation of the Issuing Bank to
issue the initial Letter of Credit and the obligation of the Swing Line Bank to
make the initial Swing Line Advance are subject to (i) receipt by the
Administrative Lender of the following items which are to be delivered, in form
and substance satisfactory to each Lender, with a copy (except for the Notes
and this Agreement) for each Lender, and (ii) satisfaction of the following
conditions which are to be satisfied:
(a) A loan certificate of each Obligor certifying as to the
accuracy of its representations and warranties in the Loan Documents with
respect to such Obligor, and including a certificate of incumbency with respect
to each Authorized Signatory, and including (i) a copy of the articles or
certificate of incorporation or similar organizational documents of such
Obligor, certified to be true, complete and correct by the secretary of state
of its state of organization, (ii) a copy of the true, complete and correct
Bylaws or similar governance documents of such Obligor, and (iv) a copy of a
certificate of good standing and a certificate of existence for its state of
organization and each state in which the nature of its business requires it to
be qualified;
(b) a duly executed Revolving Credit Note payable to the order of
each Lender and in an amount for each Lender equal to its Specified Percentage
of the Commitment;
(c) the duly executed Swing Line Note payable to the order of the
Swing Line Bank, in the principal amount of $10,000,000;
(d) opinions of counsel to each Obligor addressed to the Lenders
and in form and substance reasonably acceptable to the Administrative Lender,
dated the Agreement Date, and
- 44 -
<PAGE> 52
addressing the matters set forth in Sections 4.1(a), (b), (c), (e), (f), (h),
(m), (n), (o) and (p), as deemed appropriate by the Administrative Lender, and
if the Projects have not been registered under the Federal Interstate Land
Sales Full Disclosure Act, stating that the Projects do not fall within the
purview of the Federal Interstate Land Sales Full Disclosure Act, and covering
such other matters incident to the transactions contemplated hereby as the
Administrative Lender or Special Counsel may reasonably request;
(e) reimbursement for the Administrative Lender for Special
Counsel's reasonable and customary fees (on an hourly basis) and expenses
rendered through the date hereof, to the extent invoiced;
(f) evidence that all proceedings of each Obligor taken in
connection with the transactions contemplated by this Agreement and the other
Loan Documents shall be reasonably satisfactory in form and substance to the
Lenders and Special Counsel; and the Lenders shall have received copies of all
documents or other evidence which the Administrative Lender, Special Counsel or
any Lender may reasonably request in connection with such transactions;
(g) any fees or expenses required to be paid on or before the
Agreement Date pursuant to the Fee Letter;
(h) Security Agreements, appropriately completed and duly executed
by each of the Obligors, dated as of the Agreement Date, granting a Lien in all
Collateral covered thereby, together with related financing statements, and
insurance certificates listing Administrative Lender, as its interest may
appear, as loss payee and additional insured and otherwise in a form required
by the Collateral Documents;
(i) the duly executed Servicing and Collection Agreement;
(j) the duly executed Custodial Agreement, together with evidence
of delivery to the Custodian of the original counterpart of each Note
Receivable included in the Borrowing Base, together with allonges, in form and
substance acceptable to the Administrative Lender, duly executed by the
Borrower or the applicable Restricted Subsidiary owning such Note Receivable
and Assignments of Pledged Documents appropriately completed and duly executed
by the Borrower or the applicable Restricted Subsidiary owning such Pledged
Documents;
(k) simultaneously with the making of the initial Revolving Credit
Advance, executed UCC-3 Termination Statements to be filed in appropriate
jurisdictions to terminate all Liens against the Collateral, or any portion
thereof (other than Permitted Liens, if any);
(l) copies of the form of Purchase Documents which have been or
are being used in connection with the Projects;
- 45 -
<PAGE> 53
(m) there shall have occurred no material adverse change in the
business, assets or financial condition of the Borrower and its Subsidiaries,
taken as a whole, since December 31, 1996;
(n) each of the Subsidiary Guaranties, duly executed by the
Guarantor party thereto;
(p) a mortgagee title insurance policy [or if such mortgagee title
insurance policy has not been issued, a binding, irrevocable and unconditional
(other than for conditions acceptable to the Administrative Lender) commitment
to issue such mortgagee title insurance policy] in favor of the Administrative
Lender, in form and substance acceptable to the Administrative Lender, covering
each Deed of Trust;
(q) in form and substance reasonably satisfactory to the Lenders
and Special Counsel, such other documents, instruments and certificates as the
Administrative Lender or any Lender may reasonably require in connection with
the transactions contemplated hereby, including without limitation, evidence of
the status, organization or authority of the Borrower or any Subsidiary of the
Borrower, and the enforceability of the Obligations; and
(r) The Borrower shall have delivered a Borrowing Base Report
reflecting Eligible Notes Receivable as of a date after December 29, 1997.
Section 3.2 Conditions Precedent to All Advances and Letters of
Credit. The obligation of each Lender to make each Revolving Credit Advance
hereunder (including the initial Revolving Credit Advance), the obligation of
the Issuing Bank to issue each Letter of Credit (including the initial Letter
of Credit) and the obligation of the Swing Line Bank to make each Swing Line
Advance (including the initial Swing Line Advance) are subject to fulfillment
of the following conditions immediately prior to or contemporaneously with each
such Advance or issuance:
(a) With respect to each Advance and each issuance of a Letter of
Credit, all of the representations and warranties of each Obligor under the
Loan Documents, which, pursuant to Section 4.2 hereof, are made at and as of
the time of each such Advance or issuance, shall be true and correct at such
time in all material respects, both before and after giving effect to the
application of the proceeds of the Advance or Letter of Credit;
(b) The incumbency of the Authorized Signatories shall be as
stated in the certificate of incumbency delivered in the Borrower's loan
certificate pursuant to Section 3.1(a) or as subsequently modified and
reflected in a certificate of incumbency delivered to the Administrative
Lender. The Lenders may, without waiving this condition, consider it fulfilled
and a representation by the Borrower made to such effect if no written notice
to the contrary, dated on or before the date of such Advance or Letter of
Credit, is received by the Administrative Lender from the Borrower prior to the
making of such Advance or issuance of such Letter of Credit;
- 46 -
<PAGE> 54
(c) There shall not exist a Default or Event of Default hereunder
that has not been waived or cured to the satisfaction of the Determining
Lenders or all Lenders, as required pursuant to Section 11.11 hereof;
(d) The aggregate Advances and Letters of Credit, after giving
effect to such proposed Advance or Letter of Credit, shall not exceed the
maximum principal amount then permitted to be outstanding hereunder;
(e) No order, judgment, injunction or decree of any Tribunal shall
purport to enjoin or restrain any Lender or the Issuing Bank from making any
Advance or issuing any Letter of Credit;
(f) (i) There shall not be pending, or to the knowledge of the
Borrower, threatened any Litigation against or affecting the Borrower or any
Subsidiary of the Borrower or any property of the Borrower or any Subsidiary of
the Borrower that has not been disclosed in writing by the Borrower pursuant to
Section 4.1(h) or 6.7(a) prior to the making of the last preceding Advance or
the issuance of the last preceding Letter of Credit (or in the case of the
initial Advances and Letters of Credit, prior to the Agreement Date) that could
reasonably be expected to have a Material Adverse Effect, (ii) there shall not
be pending, or to the knowledge of the Borrower, threatened any Litigation
against or affecting the Borrower or any Subsidiary of the Borrower or any
property of the Borrower or any Subsidiary of the Borrower that (x) was
disclosed by the Borrower only after the Agreement Date, (y) was disclosed by
the Borrower as threatened Litigation prior to the Agreement Date but
subsequently became pending Litigation or (z) was not disclosed by the
Borrower, that could reasonably be expected to have a Material Adverse Effect
and (iii) there shall have occurred no development in any Litigation against or
affecting the Borrower or any Subsidiary of the Borrower or any property of the
Borrower or any Subsidiary of the Borrower that could reasonably be expected to
have a Material Adverse Effect;
(g) There shall have occurred no material adverse change in the
business, assets, financial condition, results of operations or business
prospects of the Borrower and its Subsidiaries, taken as a whole, since
December 31, 1996;
(h) The Borrower shall have delivered a current Borrowing Base
Report evidencing that there is availability under the Commitment after taking
into account the projected Advance or Letter of Credit; and
(i) The Average Quarterly Delinquency Rate shall not exceed eight
percent (8.0%).
Notwithstanding anything herein to the contrary, the obligation of
each Lender to make a Revolving Credit Advance pursuant to Section 2.15(c) (or
to fund its participation in respect of Letters of Credit pursuant to Section
2.15(c)) shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, (i) the occurrence of any
- 47 -
<PAGE> 55
Default or Event of Default, (ii) the failure of the Borrower to satisfy any
condition set forth in this Section 3.2 or (iii) any other circumstance,
happening or event whatsoever.
Section 3.3 Conditions Precedent to Conversions and
Continuations. The obligation of the Lenders to convert any existing Base Rate
Advance into a LIBOR Advance or to continue any existing LIBOR Advance is
subject to the condition precedent that on the date of such conversion or
continuation no Default or Event of Default shall have occurred and be
continuing or would result from the making of such conversion or continuation.
The acceptance of the benefits of each such conversion and continuation shall
constitute a representation and warranty by the Borrower to each of the Lenders
that no Default or Event of Default shall have occurred and be continuing or
would result from the making of such conversion or continuation.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties. The Borrower hereby
represents and warrants to each Lender as follows:
(a) Organization; Power; Qualification. The respective
jurisdiction of organization or incorporation and percentage ownership by the
Borrower of the Subsidiaries listed on Schedule 4 are true and correct as of
the Agreement Date. Schedule 4 is a complete and accurate listing as of the
Agreement Date, showing with respect to the Borrower and each Subsidiary of the
Borrower (a) its mailing address, which is its principal place of business, (b)
the classes of its Capital Stock and the number and amount of its Capital Stock
authorized and outstanding, (c) each record and beneficial owner of 5% or more
of the outstanding Capital Stock of each Restricted Subsidiary, and (d) all
outstanding options, rights, rights of conversion, redemption, purchase or
repurchase, rights of first refusal and similar rights relating to the Capital
Stock of the Restricted Subsidiaries. All of the outstanding Capital Stock of
the Borrower and each Subsidiary of the Borrower is validly issued, fully paid
and non-assessable. Each of the Borrower and its Subsidiaries is a corporation
or other legal Person duly organized, validly existing and in good standing
under the laws of its state of incorporation or organization. Each of the
Borrower and its Subsidiaries has the legal power and authority to own its
properties and to carry on its business as now being and hereafter proposed to
be conducted. Each of the Borrower and its Subsidiaries is authorized to do
business, duly qualified and in good standing as set forth in Schedule 7 and no
qualification or authorization is necessary in any other jurisdictions in which
the character of its properties or the nature of its business requires such
qualification or authorization, except where the failure to be so qualified or
authorized could not reasonably be expected to have a Material Adverse Effect.
(b) Authorization. The Borrower has legal power and has taken all
necessary legal action to authorize it to borrow and request Letters of Credit
hereunder. Each of the Borrower and its Subsidiaries has legal power and has
taken all necessary legal action to execute, deliver
- 48 -
<PAGE> 56
and perform the Loan Documents to which it is party in accordance with the
terms thereof, and to consummate the transactions contemplated thereby. Each
Loan Document has been duly executed and delivered by the Borrower or the
Subsidiary of the Borrower executing it. Each of the Loan Documents to which
the Borrower or any of its Subsidiaries is a party is a legal, valid and
binding obligation of the Borrower or such Subsidiary, as applicable,
enforceable in accordance with its terms, subject, to enforcement of remedies,
to the following qualifications: (i) equitable principles generally, and (ii)
Debtor Relief Laws (insofar as any such law relates to the bankruptcy,
insolvency or similar event of the Borrower or any Subsidiary of the Borrower).
(c) Compliance with Other Loan Documents and Contemplated
Transactions. The execution, delivery and performance by the Borrower and its
Subsidiaries of the Loan Documents to which they are respectively a party, and
the consummation of the transactions contemplated thereby, do not and will not
(i) require any consent or approval necessary on or prior to the Agreement Date
not already obtained, except to the extent that the failure to obtain any such
consent or approval could not reasonably be expected to have a Material Adverse
Effect, (ii) violate any Applicable Law, (iii) conflict with, result in a
breach of, or constitute a default under the certificate of incorporation,
by-laws or other similar organizational or governance document of the Borrower
or any Subsidiary of the Borrower, (iv) conflict with, result in a breach of,
or constitute a default under any Necessary Authorization, indenture, agreement
or other instrument, to which the Borrower or any Subsidiary of the Borrower is
a party or by which they or their respective properties may be bound, the
result of which could reasonably be expected to have a Material Adverse Effect,
or (v) result in or require the creation or imposition of any Lien (other than
Liens in favor of the Lenders to secure the Obligations hereunder) upon or with
respect to any property now owned or hereafter acquired by the Borrower or any
Subsidiary of the Borrower.
(d) Business. The Borrower and its Subsidiaries are engaged
primarily in the business of acquiring, developing and operating time share
resorts and other time-share activities, providing financing for the purchase
of Units or other interests in its time-share resorts and other leisure
activities (exclusive of gaming) and activities directly related to the
foregoing.
(e) Licenses, etc. All Necessary Authorizations have been duly
obtained, and are in full force and effect without any known conflict with the
rights of others and free from any unduly burdensome restrictions, unless the
failure to obtain or have in effect such Necessary Authorizations could not
reasonably be expected to result in a Material Adverse Effect. The Borrower
and its Subsidiaries are and will continue to be in compliance in all material
respects with all provisions thereof. No circumstance exists which could
reasonably be expected to impair the utility of the Necessary Authorization or
the right to renew such Necessary Authorization the effect of which could
reasonably be expected to have a Material Adverse Effect. No Necessary
Authorization is the subject of any pending or, to the best of the Borrower's
knowledge, threatened challenge, suspension, cancellation or revocation, the
effect of which could reasonably be expected to have a Material Adverse Effect.
- 49 -
<PAGE> 57
(f) Compliance with Law. The Borrower and its Subsidiaries are in
compliance in all respects with all Applicable Laws, except where the failure
to so comply could not reasonably be expected to have a Material Adverse
Effect.
(g) Title to Properties. The Borrower and its Restricted
Subsidiaries have good and indefeasible title to, or a valid leasehold interest
in, all of their material assets. None of their assets is subject to any
Liens, except Permitted Liens. No financing statement or other Lien filing
(except relating to Permitted Liens) is on file in any state or jurisdiction
that names the Borrower or any of its Restricted Subsidiaries as debtor or
covers (or purports to cover) any assets of the Borrower or any of its
Restricted Subsidiaries. The Borrower and its Restricted Subsidiaries have not
signed any such financing statement or filing, nor any security agreement
authorizing any Person to file any such financing statement or filing (except
relating to Permitted Liens).
(h) Litigation. Except as reflected on Schedule 3 hereto, as of
the Agreement Date there is no Litigation pending against, or, to the
Borrower's current actual knowledge, threatened against the Borrower, or in any
other manner relating directly and adversely to the Borrower or any of its
Subsidiaries, or any of their respective properties, in any court or before any
arbitrator of any kind or before or by any governmental body in which the
amount claimed (in excess of applicable insurance) exceeds $500,000.
(i) Taxes. All material federal, state and other tax returns of
the Borrower and its Subsidiaries required by law to be filed have been duly
filed or extensions have been timely filed, and all material federal, state and
other Taxes upon the Borrower, its Subsidiaries or any of their properties,
income, profits and assets, which are due and payable, have been paid, unless
the same are being diligently contested in accordance with Section 5.6 hereof.
The charges, accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of their Taxes are, in the reasonable judgment of the
Borrower, adequate.
(j) Financial Statements; Material Liabilities.
(i) The Borrower has heretofore delivered to Lenders (a)
the audited consolidated balance sheets of the Borrower and its
Subsidiaries as at December 31, 1996, and the related statements of
earnings and changes in investment and statement of cash flows for the
twelve-month period then ended, and (b) unaudited consolidated balance
sheets of the Borrower and its Subsidiaries as at June 30, 1997, and
the related statements of earnings and statement of cash flows for the
six-month period then ended. Such financial statements were prepared
in conformity with GAAP (except for the absence of footnotes) and
fairly present, in all material respects, the financial position of
the Borrower and its Subsidiaries as at the date thereof and the
combined results of operations and cash flows for the period covered
thereby.
(ii) The projected financial statements of the Borrower
and its Subsidiaries delivered to the Lenders prior to or on the
Agreement Date were prepared in good faith
- 50 -
<PAGE> 58
and management of the Borrower believes them to be based on reasonable
assumptions (which assumptions have been included in the most recent
projections furnished to the Lenders prior to the Agreement Date) and
to fairly present in all material respects the projected financial
condition of the Borrower and its Subsidiaries and the projected
results of operations as of the dates and for the periods shown for
the Borrower and its Subsidiaries, it being recognized by the Lenders
that such projections as to future events are not to be viewed as
facts and that actual results during the period or periods covered by
any such projections may differ from the projected results.
(iii) The financial statements of the Borrower and its
Subsidiaries delivered to the Lenders pursuant to Section 6.1, 6.2 and
6.3 hereof fairly present in all material respects their respective
financial condition and their respective results of operations as of
the dates and for the periods shown, all in accordance with GAAP,
subject to normal year-end adjustments. The latest of such financial
statements reflects all material liabilities, direct and contingent,
of the Borrower and each Subsidiary of the Borrower that are required
to be disclosed in accordance with GAAP. As of the date of the latest
of such financial statements, there were no Guaranties, liabilities
for Taxes, forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments that are
substantial in amount that are required to be reflected but that are
not reflected on such financial statements or the footnotes thereto.
(k) No Adverse Change. Since December 31, 1996, no event or
circumstance has occurred or arisen which is reasonably likely to have a
Material Adverse Effect.
(l) ERISA. None of the Borrower or its Controlled Group maintains
or contributes to any Plan subject to Title IV of ERISA other than those
disclosed to the Administrative Lender in writing. Each such Plan (other than
any Multiemployer Plan) is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and any other applicable Law, except
to the extent that failure to so comply would not reasonably be expected to
have a Material Adverse Effect. With respect to each Plan (other than any
Multiemployer Plan) of the Borrower and each member of its Controlled Group,
all reports required under ERISA or any other Applicable Law to be filed with
any Tribunal, the failure of which to file could reasonably be expected to
result in liability of the Borrower or any member of its Controlled Group in
excess of $100,000, have been duly filed. All such reports are true and
correct in all material respects as of the date given. No Plan of the Borrower
or any member of its Controlled Group has been terminated under Section 4041(c)
of ERISA nor has any accumulated funding deficiency (as defined in Section
412(a) of the Code) been incurred (without regard to any waiver granted under
Section 412 of the Code), nor has any funding waiver from the Internal Revenue
Service been received or requested the result of which could reasonably be
expected to have a Material Adverse Effect. None of the Borrower or any member
of its Controlled Group has failed to make any contribution or pay any amount
due or owing as required under the terms of any such Plan, or by Section 412 of
the Code or Section 302 of ERISA by the due date under Section 412 of the Code
and Section 302 of ERISA, the result of which could reasonably be expected to
have a Material Adverse Effect. There has been no ERISA Event or
- 51 -
<PAGE> 59
any event requiring disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA
with respect to any Plan (other than any Multiemployer Plan) or its related
trust of the Borrower or any member of its Controlled Group since the effective
date of ERISA. The present value of the benefit liabilities, as defined in
Title IV of ERISA, of each Plan subject to Title IV of ERISA (other than a
Multiemployer Plan) of the Borrower and each member of its Controlled Group
does not exceed by more than $500,000 the present value of the assets of each
such Plan as of the most recent valuation date using each such Plan's actuarial
assumptions at such date. There are no pending, or to the Borrower's knowledge
threatened, claims, lawsuits or actions (other than routine claims for benefits
in the ordinary course) asserted or instituted against, and neither the
Borrower nor any member of its Controlled Group has knowledge of any threatened
litigation or claims against, the assets of any Plan or its related trust or
against any fiduciary of a Plan with respect to the operation of such Plan, the
result of which could reasonably be expected to have a Material Adverse Effect.
None of the Borrower or, to the Borrower's knowledge, any member of its
Controlled Group has engaged in any prohibited transactions, within the meaning
of Section 406 of ERISA or Section 4975 of the Code, in connection with any
Plan the result of which could reasonably be expected to have a Material
Adverse Effect. None of the Borrower or any member of its Controlled Group has
incurred or reasonably expects to incur (A) any liability under Title IV of
ERISA (other than premiums due under Section 4007 of ERISA to the PBGC), (B)
any withdrawal liability (and no event has occurred which with the giving of
notice under Section 4219 of ERISA would result in such liability) under
Section 4201 of ERISA as a result of a complete or partial withdrawal (within
the meaning of Section 4203 or 4205 of ERISA) from a Multiemployer Plan, as
defined in Section 1.1 of this Agreement but without regard to the five-year
limitation provided therein or (C) any liability under Section 4062 of ERISA to
the PBGC or to a trustee appointed under Section 4042 of ERISA. None of the
Borrower, any member of its Controlled Group, or any organization to which the
Borrower or any member of its Controlled Group is a successor or parent
corporation within the meaning of ERISA Section 4069(b), has engaged in a
transaction within the meaning of ERISA Section 4069, the result of which could
reasonably be expected to have a Material Adverse Effect. None of the Borrower
or any member of its Controlled Group maintains or has established any Plan,
which is a welfare benefit plan within the meaning of Section 3(1) of ERISA and
which provides for continuing benefits or coverage for any participant or any
beneficiary of any participant after such participant's termination of
employment, except as may be required by any Applicable Law, the result of
which could reasonably be expected to have a Material Adverse Effect. Each of
Borrower and its Controlled Group which maintains a Plan which is a welfare
benefit plan within the meaning of Section 3(1) of ERISA has complied in all
material respects with any applicable notice and continuation requirements of
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the
regulations thereunder. None of the Borrower or any member of its Controlled
Group maintains, has established, or has ever participated in a multiemployer
welfare benefit arrangement within the meaning of Section 3(40)(A) of ERISA.
(m) Compliance with Regulations G, T, U and X. The Borrower is
not engaged principally or as one of its important activities in the business
of extending credit for the purpose of purchasing or carrying any margin stock
within the meaning of Regulations G, T, U and X
- 52 -
<PAGE> 60
of the Board of Governors of the Federal Reserve System, and no part of the
proceeds of the Advances or Letters of Credit will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock. No more than 25% of the assets of the Borrower and
its Subsidiaries are margin stock. None of the Borrower and its Subsidiaries
nor any agent acting on their behalf, has taken or will knowingly take any
action which would cause this Agreement or any other Loan Documents to violate
any regulation of the Board of Governors of the Federal Reserve System or to
violate the Securities Exchange Act of 1934, in each case as in effect now or
as the same may hereafter be in effect.
(n) Authorization. The Borrower and its Subsidiaries are not
required to obtain any Necessary Authorization on or prior to the Agreement
Date that has not already been obtained from, or effect any material filing or
registration that has not already been effected with, any Tribunal or any other
Person in connection with the execution and delivery of this Agreement or any
other Loan Document, or the performance thereof, in accordance with their
respective terms, including any borrowings hereunder, except for the filing of
financing statements (and other similar notices) containing a description of
the Collateral with certain Tribunals.
(o) Absence of Default. The Borrower and its Subsidiaries are in
compliance in all material respects with all of the provisions of their
certificate of incorporation and by-laws (or similar organizational and
governance documents), and no event has occurred or failed to occur, which has
not been remedied or waived, the occurrence or non-occurrence of which
constitutes, or which with the passage of time or giving of notice or both
would constitute, (i) an Event of Default or (ii) a default by the Borrower or
any of its Subsidiaries under any indenture, agreement or other instrument, or
any judgment, decree or order to which the Borrower or any of its Subsidiaries
or by which they or any of their respective properties is bound, except to the
extent that such default could not reasonably be expected to have a Material
Adverse Effect.
(p) Governmental Regulation. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act or the
Investment Company Act of 1940. Neither the entering into or performance by
the Borrower of this Agreement nor the issuance of the Notes violates any
provision of such act or requires any consent, approval, or authorization of,
or registration with, the Securities and Exchange Commission or any other
Tribunal pursuant to any provisions of such act.
(q) Environmental Matters. Neither the Borrower nor any
Subsidiary has any current actual knowledge that any substance deemed hazardous
by any Applicable Environmental Law, has been installed (i) on any real
property fee title to which is now owned by the Borrower or any of its
Subsidiaries or (ii) by Borrower or any of its Subsidiaries on any real
property leased by the Borrower or any of its Subsidiaries, in either case in a
manner which does not comply with Applicable Environmental Laws, except to the
extent that the failure to so comply could not reasonably be expected to have a
Material Adverse Effect. The Borrower and its Subsidiaries are not in
violation of or subject to any existing, pending or, to the best of the
Borrower's knowledge, threatened investigation or inquiry by any Tribunal or to
any remedial
- 53 -
<PAGE> 61
obligations under any Applicable Environmental Laws, the effect of which could
reasonably be expected to have a Material Adverse Effect. The Borrower and its
Subsidiaries have not obtained and are not required to obtain any permits,
licenses or similar authorizations other than certificates of occupancy and
building permits and other authorizations that have been obtained to construct,
occupy, operate or use any buildings, improvements, fixtures, and equipment
forming a part of any real property owned or leased by the Borrower or any
Subsidiary of the Borrower by reason of any Applicable Environmental Laws,
except to the extent that the failure to so obtain could not reasonably be
expected to have a Material Adverse Effect. The Borrower and its Subsidiaries
undertook, at the time of acquisition of fee title to any real property,
reasonable inquiry into the previous ownership and uses of such real property
consistent with good commercial or customary practice. The Borrower and its
Subsidiaries have taken reasonable steps to determine, and the Borrower and its
Subsidiaries have no current actual knowledge, that any hazardous substances or
solid wastes have been disposed of or otherwise released (i) on or to the real
property fee title to which is owned by the Borrower or any of its Subsidiaries
or (ii) by Borrower or any of its Subsidiaries on or to any real property
leased by Borrower or any of its Subsidiaries, all within the meaning of the
Applicable Environmental Laws, the effect of which could reasonably be expected
to have a Material Adverse Effect. To the extent required to do so by any
Applicable Environmental Laws, the Borrower and its Subsidiaries have disposed
of all hazardous substances and solid wastes (if any), all within the meaning
of the Applicable Environmental Laws, generated in their respective businesses
in compliance with all Applicable Environmental Laws, except to the extent that
the failure to so comply could not reasonably be expected to have a Material
Adverse Effect.
(r) Certain Fees. No broker's, finder's or other fee or
commission will be payable by the Borrower (other than to the Lenders
hereunder) with respect to the making of the Commitments or the Advances
hereunder. The Borrower agrees to indemnify and hold harmless the
Administrative Lender and each Lender from and against any claims, demand,
liability, proceedings, costs or expenses asserted with respect to or arising
in connection with any such fees or commissions payable by the Borrower.
(s) Patents, Etc. Except as reflected on Schedule 8 hereto, the
Borrower and its Subsidiaries have collectively obtained or applied for all
patents, trademarks, service marks, trade names, copyrights, licenses and other
rights, free from burdensome restrictions, that are necessary for the operation
of their business as presently conducted and as proposed to be conducted,
except to the extent that the failure to so obtain or apply could not
reasonably be expected to have a Material Adverse Effect. Except as reflected
on Schedule 8 hereto, nothing has come to the current actual knowledge of the
Borrower or any of its Subsidiaries to the effect that (i) any process, method,
part or other material presently contemplated to be employed by the Borrower or
any Subsidiary of the Borrower may infringe any patent, trademark, service
mark, trade name, copyright, license or other right owned by any other Person,
or (ii) there is pending or overtly threatened any claim or litigation against
or affecting the Borrower or any Subsidiary of the Borrower contesting its
right to sell or use any such process, method, part or other material, which
could reasonably be expected to have a Material Adverse Effect.
- 54 -
<PAGE> 62
(t) Disclosure. All factual information furnished by the Borrower
or any of its Subsidiaries in writing to the Administrative Lender or any
Lender in connection with this Agreement, the other Loan Documents or any
transaction contemplated herein or therein is, and all other factual
information hereafter furnished by or on behalf of the Borrower or any of its
Subsidiaries in writing to the Administrative Lender or any Lender will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading at
such time in light of the circumstances under which such information was
provided. There is no fact known to the Borrower and not known to the public
generally that could reasonably be expected to have a Material Adverse Effect,
which has not been set forth in this Agreement or in the documents,
certificates and statements furnished to the Lenders by or on behalf of the
Borrower prior to the date hereof in connection with the transaction
contemplated hereby.
(u) Solvency. The Borrower is, and Borrower and its Subsidiaries
on a consolidated basis are, Solvent.
(v) Labor Relations. Except as provided on Schedule 9, neither
the Borrower nor any Subsidiary is a party to a collective bargaining agreement
or similar agreement, and the Borrower and each Subsidiary is in compliance in
all material respects with all Laws respecting employment and employment
practices, terms and conditions of employment, wages and hours and other laws
related to the employment of its employees, except where the failure to comply
could not reasonably be expected to result in a Material Adverse Effect, and
there are no arrears in the payment of wages, withholding or social security
taxes, unemployment insurance premiums or other similar obligations of the
Borrower or any Subsidiary or for which the Borrower or any Subsidiary may be
responsible other than in the ordinary course of business, except for such
unpaid or unwithheld arrears which could not reasonably be expected to result
in a Material Adverse Effect. There is no strike, work stoppage or labor
dispute with any union or group of employees pending or overtly threatened
involving Borrower or any Subsidiary that could reasonably be expected to have
a Material Adverse Effect.
(w) Consolidated Business Entity. The Borrower and its
Subsidiaries are engaged in the business of developing and operating time-
share resorts and other leisure activities (exclusive of gaming). These
operations require financing on a basis such that the credit supplied can be
made available from time to time to the Borrower and various of its
Subsidiaries, as required for the continued successful operation by the
Borrower and its Subsidiaries as a whole. The Borrower and its Subsidiaries
expect to derive benefit (and the board of directors of the Borrower and its
Subsidiaries have determined that the Borrower and its Subsidiaries may
reasonably be expected to derive benefit), directly or indirectly, from the
credit extended by the Lenders hereunder, both in their separate capacities and
as members of the group of companies, since the successful operation and
condition of the Borrower and its Subsidiaries is dependent on the continued
successful performance of the functions of the group as a whole.
- 55 -
<PAGE> 63
(x) Time-Share Interest Exchange Network. Borrower and its
Subsidiaries are members and participants, pursuant to validly executed and
enforceable written agreements in Resort Condominiums International, L.L.C. and
Interval International. Borrower and its Subsidiaries have paid all fees and
other amounts due and owing under such agreements and are not otherwise in
default in any material respect thereunder.
(y) Time-Share Interests. The sale, offering of sale, and
financing of Time-Share Interests in the Projects (i) do not constitute the
sale, or the offering of sale, of securities subject to registration
requirements of the Securities Act of 1933, as amended, or any state or foreign
securities Law, (ii) except to the extent that any such violation(s), either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, do not violate any time-sharing or other Law of any
state or foreign country in which sales or solicitation of Time-Share Interests
occur, and (iii) except to the extent that any such violation(s), either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, do not violate any consumer credit or usury Laws of
any state or foreign country in which sales or solicitation of Time-Share
Interests occur. Except to the extent that any such failure(s), either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, the Borrower and its Subsidiaries have not failed to
make or cause to be made any registrations or declarations with any Tribunal
necessary to the ownership of the Projects or to the conduct of its business,
including, without limitation, the operation of the Projects and the sale, or
offering for sale, of Time-Share Interests therein. Except to the extent that
any such noncompliance(s), either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, Borrower and its
Subsidiaries have, to the extent required by its activities and businesses,
fully complied with (i) all of the applicable provisions of (A) the Consumer
Credit Protection Act, as amended, (B) the Federal Trade Commission Act, as
amended, (C) the Federal Interstate Land Sales Full Disclosure Act, as amended,
(D) any other Laws of any Tribunal otherwise applicable, and (E) all rules and
regulations promulgated under any of the foregoing. True and complete copies of
the Purchase Documents and other documents requested by the Administrative
Lender which have been and are being used by the Borrower and its Subsidiaries
in connection with the Projects and the sale or offering for sale of Time-Share
Interests therein have been delivered to the Administrative Lender. The
Time-Share Interests in the Projects constitute undivided interests in real
property under the Laws of the jurisdictions in which the applicable Units are
located.
(z) Common Areas. To the extent that the Borrower or any of its
Subsidiaries are legally obligated to construct same, the common areas and
amenities appurtenant to sold Time-Share Interests, and the streets and other
off-site improvements contained within the Projects have been completed or a
bond insuring the completion thereof has been obtained and such interests in
such common areas are free and clear of all Liens except Permitted Liens.
(aa) Subordinated Debt. The terms, provisions, covenants and
requirements contained in the documents, instruments and agreements relating to
the Subordinated Debt are not more restrictive than the comparable terms,
provisions, covenants and requirements contained in this Agreement and the
other Loan Documents. All of the Obligations constitute senior indebtedness
- 56 -
<PAGE> 64
under the documents, instruments and agreements evidencing or relating to the
Subordinated Debt and, as such, all of the Obligations are expressly superior
in right of payment to the Subordinated Debt.
Section 4.2 Survival of Representations and Warranties, etc. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at and
as of the date of each Advance and the date of issuance of each Letter of
Credit, and each shall be true and correct in all material respects when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof or (b) previously waived in writing by the Determining Lenders with
respect to any particular factual circumstance or permitted by the terms of
this Agreement. All such representations and warranties shall survive, and not
be waived by, the execution hereof by any Lender, any investigation or inquiry
by any Lender, or by the making of any Advance or the issuance of any Letter of
Credit under this Agreement.
ARTICLE 5
General Covenants
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 5.1 Preservation of Existence and Similar Matters. The
Borrower shall, and shall cause each Subsidiary of the Borrower to:
(a) except as otherwise permitted pursuant to Section 7.4 hereof,
preserve and maintain, or timely obtain and thereafter preserve and maintain,
its existence, rights, franchises, licenses, authorizations, consents,
privileges and all other Necessary Authorizations from any Tribunal, the loss
of which could reasonably be expected to have a Material Adverse Effect; and
(b) except as otherwise permitted pursuant to Section 7.4 hereof,
qualify and remain qualified and authorized to do business in each jurisdiction
in which the character of its properties or the nature of its business requires
such qualification or authorization, unless the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The
Borrower and its Subsidiaries shall (a) engage primarily in the businesses set
forth in Section 4.1(d) hereof, and (b) comply in all respects with the
requirements of all Applicable Law, except where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.
Section 5.3 Maintenance of Properties. To the maximum extent
that the Borrower and/or any Subsidiary of the Borrower has the right, power or
authority (whether as a matter of contract, at law or otherwise) to do so, the
Borrower shall, and shall cause each Subsidiary
- 57 -
<PAGE> 65
of the Borrower to, maintain or cause to be maintained all its properties
(whether owned or held under lease) in reasonably good repair, working order
and condition, taken as a whole, and from time to time make or cause to be made
all appropriate (in the reasonable judgment of the Borrower) repairs, renewals,
replacements, additions, betterments and improvements thereto, except where the
failure to so maintain, repair, renew, replace or improve could not reasonably
be expected to have a Material Adverse Effect.
Section 5.4 Accounting Methods and Financial Records. The
Borrower shall, and shall cause each Subsidiary of the Borrower to, maintain a
system of accounting established and administered in accordance with GAAP, keep
adequate records and books of account in which complete entries will be made
and all transactions reflected in accordance with GAAP, and keep accurate and
complete records of its respective assets. The Borrower and each of its
Subsidiaries shall maintain its fiscal year in the manner in existence on the
Agreement Date.
Section 5.5 Insurance. The Borrower shall, and shall cause each
Restricted Subsidiary of the Borrower to, maintain insurance from responsible
companies in such amounts and against such risks as shall be customary and
usual in the industry for companies of similar size and capability. Each
insurance policy shall (a) provide for at least 30 days' prior notice to the
Administrative Lender of any proposed termination or cancellation of such
policy, whether on account of default or otherwise and (b) otherwise contain
the requirements for insurance set forth in the Security Agreements.
Section 5.6 Payment of Taxes and Claims. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, pay and discharge all material
Taxes to which they are subject prior to the date on which penalties attach
thereto, and all lawful material claims for labor, materials and supplies
which, if unpaid, might become a Lien upon any of its properties; except that
no such Tax or claim need be paid which is being diligently contested in good
faith by appropriate proceedings and for which adequate reserves shall have
been set aside on the appropriate books, but only so long as no Lien shall
attach with respect thereto and no foreclosure, distraint, sale or similar
proceedings shall have been commenced. The Borrower shall, and shall cause
each Subsidiary of the Borrower to, timely file all information returns (or
extensions of such filing deadlines) required by federal, state or local tax
authorities.
Section 5.7 Visits and Inspections. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, promptly permit representatives
of the Administrative Lender or any Lender from time to time after reasonable
notice by the Administrative Lender or any Lender to (a) visit and inspect the
properties of the Borrower and its Subsidiaries as often as the Administrative
Lender or any Lender shall reasonably deem advisable, (b) audit, inspect and
make extracts from and copies of the Borrower's and each such Subsidiary's
books and records, and (c) discuss with the Borrower's and each such
Subsidiary's appropriate directors, officers, employees and auditors its
business, assets, liabilities, financial positions, results of operations and
business prospects, provided that such representatives of the Administrative
Lender or any Lender shall keep confidential all information obtained pursuant
to this Section 5.7 to the extent required by Section 11.14. The Borrower
shall pay the reasonable expenses related to up to
- 58 -
<PAGE> 66
three (3) such inspections and audits performed by the Administrative Lender
per twelve-month period. Prior to the occurrence of an Event of Default, all
such visits and inspections shall be conducted during normal business hours.
Following the occurrence and during the continuance of an Event of Default,
such visits and inspections shall be conducted at any time requested by the
Administrative Lender or any Lender without any requirement for reasonable
notice.
Section 5.8 Use of Proceeds. The proceeds of the Advances and
the Letters of Credit shall be used by the Borrower (a) to refinance certain
existing debt of the Borrower and its Subsidiaries, (b) to finance Acquisitions
permitted under Section 7.6 hereof, (c) to finance eligible mortgage loans, (d)
to finance the ongoing working capital and general corporate requirements of
the Borrower and its Subsidiaries, and (e) for other legitimate corporate
purposes not otherwise prohibited hereunder.
SECTION 5.9 INDEMNITY.
(a) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD
HARMLESS THE ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR RESPECTIVE
AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS
(INCLUDING, WITHOUT LIMITATION, THOSE RETAINED IN CONNECTION WITH THE
SATISFACTION OR ATTEMPTED SATISFACTION OF ANY OF THE CONDITIONS SET FORTH
HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST
ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
PROCEEDINGS (WHETHER CIVIL OR CRIMINAL), JUDGMENTS, SUITS, CLAIMS, REASONABLE
COSTS, REASONABLE EXPENSES AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL FOR SUCH INDEMNITEES IN CONNECTION WITH ANY
INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH
INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO), IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL
AND WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS AND REGULATIONS, UNDER
COMMON LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT, TORT OR OTHERWISE, ARISING
FROM OR CONNECTED WITH THE PAST, PRESENT OR FUTURE OPERATIONS OF THE BORROWER,
ITS SUBSIDIARIES OR THEIR RESPECTIVE PREDECESSORS IN INTEREST, OR THE PAST,
PRESENT OR FUTURE ENVIRONMENTAL CONDITION OF PROPERTY OF THE BORROWER OR ITS
SUBSIDIARIES), RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR
TRANSACTION RELATING OR ATTENDANT THERETO, THE MANAGEMENT OF THE ADVANCES OR
LETTERS OF CREDIT, INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN
PART,
- 59 -
<PAGE> 67
OF ANY ORDINARY OR MERE NEGLIGENCE OF ADMINISTRATIVE LENDER OR ANY LENDER
(OTHER THAN THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT OR OTHER LENDER
AGAINST THE ADMINISTRATIVE LENDER OR ANY LENDER AND NOT THE BORROWER OR ANY OF
ITS SUBSIDIARIES), OR THE USE OR INTENDED USE OF THE PROCEEDS OF THE ADVANCES
OR LETTERS OF CREDIT HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF ANY
POTENTIAL MATTER COVERED HEREBY, OR THE PROJECTS, OR ANY LENDER'S STATUS BY
VIRTUE OF THE ASSIGNMENT OF PLEDGED DOCUMENTS, OR ANY ACT OR OMISSION BY THE
BORROWER, ANY OF ITS SUBSIDIARIES, THE CUSTODIAN OR THE SERVICING AGENT, OR THE
EMPLOYEES OR AGENTS OF ANY OF THEM, OR ANY ACT OR OMISSION BY ALL BROKERS,
AGENTS OR OTHER SALESMEN OF TIME-SHARE INTERESTS, BUT EXCLUDING (I) ANY CLAIM
OR LIABILITY THAT ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILFUL
MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF
COMPETENT JURISDICTION, AND (II) MATTERS RAISED BY ONE LENDER OR PARTICIPANT
AGAINST ANOTHER LENDER OR PARTICIPANT OR BY ANY SHAREHOLDERS OF A LENDER OR A
PARTICIPANT AGAINST A LENDER OR A PARTICIPANT OR THE RESPECTIVE MANAGEMENT OF
SUCH LENDER OR PARTICIPANT (COLLECTIVELY, "INDEMNIFIED MATTERS"). TO THE
EXTENT THAT ANY INDEMNIFIED MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH
INDEMNITEES SHALL USE THE SAME LEGAL COUNSEL UNLESS ANY INDEMNITEE IN ITS
REASONABLE DISCRETION DETERMINES THAT CONFLICTS EXIST OR MAY ARISE IN
CONNECTION WITH SUCH REPRESENTATION.
(b) WITHOUT DUPLICATION, THE BORROWER SHALL PERIODICALLY, UPON
REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL
REASONABLE EXPENSES (INCLUDING THE REASONABLE COST OF ANY INVESTIGATION AND
PREPARATION) INCURRED IN CONNECTION WITH ANY INDEMNIFIED MATTER. THE
REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER THIS SECTION SHALL
BE IN ADDITION TO ANY LIABILITY WHICH THE BORROWER MAY OTHERWISE HAVE, SHALL
EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH INDEMNITEE, AND SHALL BE
BINDING UPON AND INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND
PERSONAL REPRESENTATIVES OF THE BORROWER, THE ADMINISTRATIVE LENDER, THE
LENDERS AND ALL OTHER INDEMNITEES. THIS SECTION SHALL SURVIVE ANY TERMINATION
OF THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS.
Section 5.10 Environmental Law Compliance. The use which the
Borrower or any Subsidiary of the Borrower intends to make of any real property
which is owned or leased by it will not result in the disposal or other release
of any hazardous substance or solid waste on or to such real property which is
in violation of Applicable Environmental Laws, the effect of which could
reasonably be expected to have a Material Adverse Effect. As used herein, the
- 60 -
<PAGE> 68
terms "hazardous substance" and "release" as used in this Section shall have
the meanings specified in CERCLA (as defined in the definition of Applicable
Environmental Laws), and the terms "solid waste" and "disposal" shall have the
meanings specified in RCRA (as defined in the definition of Applicable
Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as
to broaden or lessen the meaning of any term defined thereby, such broader or
lesser meaning shall apply subsequent to the effective date of such amendment;
and provided further, to the extent that any other law applicable to the
Borrower, any Subsidiary or any of their respective properties establishes (to
the exclusion of the applicability of CERCLA and RCRA) a meaning for "hazardous
substance," "release," "solid waste," or "disposal" which is broader or lesser
than that specified in either CERCLA or RCRA, such broader or lesser meaning
shall apply. The Borrower agrees to indemnify and hold the Administrative
Lender and each Lender harmless from and against, and to reimburse them with
respect to, any and all claims, demands, causes of action, loss, damage,
liabilities, reasonable costs and reasonable expenses (including reasonable
attorneys' fees and courts costs) of any kind or character, known or unknown,
fixed or contingent, asserted against or incurred by any of them at any time
and from time to time by reason of or arising out of (a) the failure of the
Borrower or any Subsidiary to perform any of their obligations hereunder
regarding asbestos or Applicable Environmental Laws, (b) any violation on or
before the Release Date of any Applicable Environmental Law in effect on or
before the Release Date, and (c) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (including without
limitation the presence on such real property or release from such real
property of hazardous substances or solid wastes disposed of or otherwise
released on or prior to the Release Date), resulting from or in connection with
the ownership of the real property, regardless of whether the act, omission,
event or circumstance constituted a violation of any Applicable Environmental
Law at the time of its existence or occurrence; provided that, the Borrower
shall not be under any obligation to indemnify the Administrative Lender or any
Lender to the extent that any such liability arises as the result of the gross
negligence or wilful misconduct of such Person, as finally judicially
determined by a court of competent jurisdiction. The provisions of this
paragraph shall survive the Release Date and shall continue thereafter in full
force and effect.
Section 5.11 Further Assurances. At any time or from time to time
upon request by the Administrative Lender, the Borrower or any Subsidiary of
the Borrower shall execute and deliver such further documents and do such other
acts and things as the Administrative Lender may reasonably request in order to
effect fully the purposes of this Agreement and the other Loan Documents and to
provide for payment of the Obligations in accordance with the terms of this
Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, the Borrower agrees to (a) update and deliver to the Administrative
Lender supplements to Schedules 3 and 4 hereto at the time of delivery of the
financial statements set forth in Sections 6.1 and 6.2 hereof if the
information provided therein is not complete and correct, and (b) update and
deliver to the Administrative Lender Schedule 1 to the Security Agreements
promptly upon discovery that the information provided therein is not complete
and correct.
- 61 -
<PAGE> 69
Section 5.12 Management of Projects. To the maximum extent that
the Borrower and/or any Subsidiary of the Borrower has the right, power or
authority (whether as a matter of contract, at law or otherwise) to do so, the
Borrower shall, and shall cause each of its Subsidiaries to, maintain managers
and management contracts with respect to each Project which are reasonably
satisfactory to the Administrative Lender; provided, however, that the Borower
and each Subsidiary of the Borrower shall be deemed to be reasonably
satisfactory to the Administrative Lender as managers of the Projects for
purposes of this Section 5.12. The Borrower shall not change the manager of
any Project (except to the extent that the Borrower replaces the existing
manager with a manager that is a Subsidiary of the Borower) or materially
amend, modify or waive any provision of or terminate the management contract
for any Project without the prior written consent of the Administrative Lender.
Section 5.13 Obligations to Purchasers. The Borrower shall, and
shall cause each of its Subsidiaries to, fulfill all obligations to the
Purchasers under Eligible Notes Receivable which are used in making the
Borrowing Base computations or otherwise constitute part of the Collateral.
Section 5.14 Owners Associations. The Borrower shall, and shall
cause each of its Subsidiaries to, cause each Purchaser to automatically be a
member of each Project's owners association or associations, if any, and shall
be entitled to vote on the affairs thereof (subject, however, to any
preferential voting rights in favor of the Borrower or any of its Subsidiaries
as permitted under applicable time- share Laws). Each such owners association
shall have the authority to fix and levy pro rata upon each Purchaser annual
assessments to cover the costs of maintaining and operating such Project
(including, without limitation, taxes and assessments not levied by the
appropriate taxing authority directly against owners of Time-Share Interests)
and to establish a reasonable reserve for improvements, the replacement of
property and furnishings, and contingencies. If the Borrower or any of its
Subsidiaries controls an owners association, the Borrower or any of its
Subsidiaries will while it controls such association: (i) cause such owners
association to discharge timely and completely its obligations under such
Project's governing documents and maintain the reserve described above and (ii)
to the extent requested to do so by the Administrative Lender, pay or loan to
such owners association, not less often than is necessary to provide sufficient
funding for such owners association in order to maintain, preserve and maximize
the ownership, quality, safety, marketability, value and appearance of the
applicable Project, the difference between (A) the cumulative total amount of
the maintenance and operating expenses incurred by such association, together
with the amount of any installment of real property taxes currently due and
payable with respect to such Project not directly levied against owners of
Time-Share Interests, through the end of the calendar month preceding the month
in which such payment or loan is made and (B) the cumulative total amount of
assessments (less amounts thereof allocated to reserve expenses) payable to the
association by Time-Share Interest owners other than the Borrower or its
Subsidiaries, as appropriate, through the end of the calendar month preceding
the month in which such payment or loan is made.
- 62 -
<PAGE> 70
Section 5.15 Note Receivable Information. The Borrower shall, and
shall cause each of its Subsidiaries to, maintain accurate and complete files
relating to the Notes Receivable with respect to the Projects and other
Collateral, and such files will contain copies of each Note Receivable, copies
of all relevant credit memoranda relating to such Notes Receivable and all
collection information and correspondence related thereto.
Section 5.16 Maintenance of Borrowing Base. The Borrower shall,
and shall cause each of its Restricted Subsidiaries to, at all times maintain
the Borrowing Base at an amount equal to or greater than the aggregate
principal amount of all outstanding Revolving Credit Advances, Swing Line
Advances and Reimbursement Obligations. Without waiving or otherwise modifying
the foregoing requirements of this Section 5.16, if any Note Receivable is
included in the Borrowing Base as an Eligible Note Receivable and such Note
Receivable thereafter fails to meet the criteria for inclusion as an Eligible
Note Receivable, the Borrower shall have the right to obtain a release of the
nonqualifying Note Receivable from the Liens hereunder in favor of the
Administrative Lender and the Lenders if immediately prior to, and after giving
effect to, such proposed release, (i) the Borrower is in compliance with the
requirements of this Section 5.16, and (ii) no Default or Event of Default
exists hereunder or under any of the other Loan Documents. Without waiving or
otherwise modifying the foregoing requirements of this Section 5.16, if any
Note Receivable is included as Collateral hereunder and such Note Receivable is
thereafter included in a Securitization, the Borrower shall have the right to
obtain a release of such Note Receivable from the Liens hereunder in favor of
the Administrative Lender and the Lenders if immediately prior to, and after
giving effect to, such proposed release, (i) the Borrower is in compliance with
the requirements of this Section 5.16, and (ii) no Default or Event of Default
exists hereunder or under any of the other Loan Documents. Without waiving or
otherwise modifying the foregoing requirements of this Section 5.16, if a Note
Receivable is not past-due or otherwise in default and such Note Receivable
ceases to qualify as an Eligible Note Receivable solely by virtue of (i) the
reduction of the amount of any scheduled payment(s) with respect thereto or
(ii) the extension of the maturity date thereof, a Note Receivable received by
the Borrower or a Restricted Subsidiary in substitution or replacement therefor
shall not fail to qualify as an Eligible Note Receivable solely by virtue of
the fact that the Purchaser in respect of such substitution or replacement Note
Receivable has not made at least the first regularly scheduled payment due
thereon.
ARTICLE 6
Information Covenants
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled), the Borrower shall furnish or cause to be furnished to
each Lender or shall notify each Lender of the following events:
- 63 -
<PAGE> 71
Section 6.1 Borrowing Base Report. Within 15 days after the end
of each month of each fiscal year, the Borrowing Base Report setting forth (a)
a certification of Eligible Notes Receivable, (b) calculation of the Borrowing
Base, and (c) an asset portfolio report in form and substance satisfactory to
the Administrative Lender.
Section 6.2 Eligible Notes Receivable Report. Within 30 days
after the second fiscal quarter and the last fiscal quarter of each fiscal
year, a report showing through the end of such fiscal quarter, (a) the opening
and closing balances on each Eligible Note Receivable, (b) all payments
received on each Eligible Note Receivable allocated to interest, principal,
late charges, taxes or the like, (c) the average rate of interest for all
Eligible Notes Receivable, (d) an itemization of delinquencies, prepayments and
any other adjustments for each Eligible Note Receivable, (e) the average down
payment received with respect to all Eligible Notes Receivable, and (g) the
nature and status of any claims asserted or legal action pending with respect
to any Eligible Note Receivable.
Section 6.3 Quarterly Financial Statements and Information.
(a) Within 45 days after the end of each fiscal quarter of each
fiscal year, the consolidated and consolidating balance sheets of the Borrower
and its Subsidiaries as at the end of such fiscal quarter and the related
consolidated and consolidating statements of income for such fiscal quarter and
for the elapsed portion of the year ended with the last day of such fiscal
quarter, and consolidated and consolidating statements of cash flow for the
elapsed portion of the year ended with the last day of such fiscal quarter, all
of which shall be certified by the president, chief financial officer or
treasurer of the Borrower, to, in his or her opinion acting solely in his or
her capacity as an officer of the Borrower, present fairly in all material
respects, in accordance with GAAP (except for the absence of footnotes), the
financial position and results of operations of the Borrower and its
Subsidiaries as at the end of and for such fiscal quarter, and for the elapsed
portion of the year ended with the last day of such fiscal quarter, subject
only to normal year-end adjustments.
- 64 -
<PAGE> 72
(b) Within 45 days after the end of each fiscal quarter of each
fiscal year, the consolidated and consolidating balance sheets of the Borrower
and the Restricted Subsidiaries as at the end of such fiscal quarter and the
related consolidated and consolidating statements of income for such fiscal
quarter and for the elapsed portion of the year ended with the last day of such
fiscal quarter, and consolidated and consolidating statements of cash flow for
the elapsed portion of the year ended with the last day of such fiscal quarter,
all of which shall be certified by the president, chief financial officer or
treasurer of the Borrower, to, in his or her opinion acting solely in his or
her capacity as an officer of the Borrower, present fairly in all material
respects, in accordance with GAAP (except for the absence of footnotes), the
financial position and results of operations of the Borrower and the Restricted
Subsidiaries as at the end of and for such fiscal quarter, and for the elapsed
portion of the year ended with the last day of such fiscal quarter, subject
only to normal year-end adjustments.
Section 6.4 Annual Financial Statements and Information;
Certificate of No Default.
(a) Within 90 days after the end of each fiscal year, a copy of
(i) the consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as of the end of the current and prior fiscal years and (ii) the
consolidated and consolidating statements of earnings and consolidated
statements of changes in shareholders' equity, and statements of cash flow as
of and through the end of such fiscal year, all of which are prepared in
accordance with GAAP, and certified by independent certified public accountants
reasonably acceptable to the Lenders (provided, however, any former big six
public accounting firm shall be acceptable to the Lenders), whose opinion shall
be in scope and substance in accordance with generally accepted auditing
standards and shall be unqualified as to scope of audit and going concern.
(b) Within 90 days after the end of each fiscal year, a copy of
(i) the consolidated and consolidating balance sheets of the Borrower and the
Restricted Subsidiaries, as of the end of the current and prior fiscal years
and (ii) the consolidated and consolidating statements of earnings and
consolidated statements of changes in shareholders' equity, and statements of
cash flow as of and through the end of such fiscal year, all of which shall be
certified by the president, chief financial officer or treasurer of the
Borrower, to, in his or her opinion acting solely in his or her capacity as an
officer of the Borrower, conform to the presentation of the audited financial
statements to be delivered pursuant to Section 6.4(a) hereof and to present
fairly in all material respects, in accordance with GAAP (except for the
absence of footnotes), the financial position and results of operations of the
Borrower and the Restricted Subsidiaries as at the end of and for such fiscal
year.
(c) As soon as available, but in any event within 30 days after
December 31, 1997 and within 30 days after the end of each fiscal year
thereafter, a copy of the annual consolidated financial projections (including
pro forma income statements, balance sheets and statements of cash flow) of the
Borrower and the Restricted Subsidiaries for the succeeding fiscal year.
- 65 -
<PAGE> 73
Section 6.5 Compliance Certificate. At the time financial
statements are furnished pursuant to Sections 6.3 and 6.4 hereof, the
Compliance Certificate, completed as provided therein, executed by the
president, the chief financial officer, or treasurer of the Borrower.
Section 6.6 Copies of Other Reports and Notices.
(a) Promptly upon their becoming available, a copy of (i) all
material final reports or letters submitted to the Borrower or any Subsidiary
of the Borrower by accountants in connection with any annual, interim or
special audit, including without limitation any final report prepared in
connection with the annual audit referred to in Section 6.2 hereof, and, if
requested by the Administrative Lender, any other comment letter submitted to
management in connection with any such audit, (ii) each financial statement,
report, notice or proxy statement sent by the Borrower to stockholders
generally, (iii) each regular, periodic or other report and any registration
statement (other than statements on Form S-8) or prospectus (or material
written communication in respect of any thereof) filed by the Borrower or any
Subsidiary of the Borrower with any securities exchange, with the Securities
and Exchange Commission or any successor agency, (iv) all press releases
concerning material financial aspects of the Borrower or any Subsidiary of the
Borrower, and (v) forms of Purchase Documents and, to the extent requested by
the Administrative Lender, other documents being used in connection with the
Projects to the extent different from those delivered pursuant to Section
3.1(l) hereof;
(b) Promptly upon becoming aware (i) that the holder(s) of any
note(s) or other evidence of indebtedness or other security of the Borrower or
any Subsidiary of the Borrower in excess of $500,000 in the aggregate has given
notice or taken any action with respect to a breach, failure to perform,
claimed default or event of default thereunder, (ii) of the occurrence or
non-occurrence of any event which constitutes or which with the passage of time
or giving of notice or both could constitute a material breach by the Borrower
or any Subsidiary of the Borrower under any material agreement or instrument
other than this Agreement to which the Borrower or any Subsidiary of the
Borrower is a party or by which any of their respective properties may be
bound, or (iii) of any event, circumstance or condition which could reasonably
be expected to be classified as a Material Adverse Effect, a written notice
specifying the details thereof (or the nature of any claimed default or event
of default) and what action is being taken or is proposed to be taken with
respect thereto;
(c) Promptly upon becoming aware that any party to any Capitalized
Lease Obligations or Operating Lease, in each case, in excess of $500,000, has
given notice or taken any action with respect to a breach, failure to perform,
claimed default or event of default thereunder, a written notice specifying the
details thereof (or the nature of any claimed default or event of default) and
what action is being taken or is proposed to be taken with respect thereto;
(d) Promptly upon receipt thereof, information with respect to and
copies of any notices received from any Tribunal relating to any order, ruling,
law, information or policy that relates to a breach of or noncompliance with
any Law, or could reasonably be expected to result
- 66 -
<PAGE> 74
in the payment of money by the Borrower or any Subsidiary of the Borrower in an
amount of $500,000 or more in the aggregate, or otherwise have a Material
Adverse Effect, or result in the loss or suspension of any Necessary
Authorization where such loss could reasonably be expected to have a Material
Adverse Effect; and
(e) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial position, projections, results of
operations or business prospects of the Borrower and its Subsidiaries, as the
Administrative Lender or any Lender may reasonably request.
Section 6.7 Notice of Litigation, Default and Other Matters.
Prompt notice of the following events after the Borrower has knowledge or
notice thereof:
(a) The commencement of all Litigation and investigations by or
before any Tribunal, and all actions and proceedings in any court or before any
arbitrator involving claims (i) for damages (including punitive damages) in
excess of $500,000 (after deducting the amount with respect to the Borrower or
any Subsidiary of the Borrower is insured), against or in any other way
relating directly to the Borrower, any Subsidiary of the Borrower, or any of
their respective properties or businesses or (ii) which otherwise could affect
any Collateral and which could reasonably be expected to have a Material
Adverse Effect; and
(b) Promptly upon the happening of any condition or event of which
the Borrower has current actual knowledge which constitutes a Default, a
written notice specifying the nature and period of existence thereof and what
action is being taken or is proposed to be taken with respect thereto.
Section 6.8 ERISA Reporting Requirements.
(a) Promptly and in any event (i) within 30 days after the
Borrower or any member of its Controlled Group has current actual knowledge
that any ERISA Event described in clause (a) of the definition of ERISA Event
or any event described in Section 4063(a) of ERISA with respect to any Plan of
the Borrower or any member of its Controlled Group has occurred, and (ii)
within 10 days after the Borrower or any member of its Controlled Group has
current actual knowledge that any other ERISA Event with respect to any Plan of
the Borrower or any member of its Controlled Group has occurred or a request
for a minimum funding waiver under Section 412 of the Code has been made with
respect to any Plan of the Borrower or any member of its Controlled Group, a
written notice describing such event and describing what action is being taken
or is proposed to be taken with respect thereto, together with a copy of any
notice of such event that is given to the PBGC;
(b) Promptly and in any event within three Business Days after
receipt thereof by the Borrower or any member of its Controlled Group from the
PBGC, copies of each notice received by the Borrower or any member of its
Controlled Group of the PBGC's intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
- 67 -
<PAGE> 75
(c) Promptly and in any event within 30 days after the filing
thereof by the Borrower or any member of its Controlled Group with the United
States Department of Labor or the Internal Revenue Service, copies of each
annual report (including Schedule B thereto, if applicable) with respect to
each Plan subject to Title IV of ERISA of which Borrower or any member of its
Controlled Group is the "plan sponsor";
(d) Promptly, and in any event within 10 Business Days after
receipt thereof, a copy of any correspondence the Borrower or any member of its
Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief
financial officer of the Borrower or such member of its Controlled Group
setting forth details as to the events giving rise to such potential withdrawal
liability and the action which the Borrower or such member of its Controlled
Group is taking or proposes to take with respect thereto;
(e) Notification within 30 days of any material increases in the
benefits provided under any existing Plan which is not a Multiemployer Plan, or
the establishment of any new Plans, or the commencement of contributions to any
Plan to which the Borrower or any member of its Controlled Group was not
previously contributing, which could reasonably be expected in any such case to
result in an additional material liability to the Borrower;
(f) Notification within three Business Days after the Borrower or
any member of its Controlled Group knows that the Borrower or any such member
of its Controlled Group has filed or intends to file a notice of intent to
terminate any Plan under a distress termination within the meaning of Section
4041(c) of ERISA and a copy of such notice; and
(g) Within three Business Days after receipt of written notice of
commencement thereof, notice of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any member of
its Controlled Group with respect to any Plan, except those which, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
ARTICLE 7
Negative Covenants
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 7.1 Indebtedness. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, create, assume, incur or otherwise become
or remain obligated in respect of, or permit to be outstanding, or suffer to
exist any Indebtedness, except:
- 68 -
<PAGE> 76
(a) Indebtedness under the Loan Documents; and
(b) Other Indebtedness, if, and only to the extent that,
immediately prior to, and after giving effect to, the incurrence of such
Indebtedness, no Default or Event of Default exists.
Section 7.2 Liens. The Borrower shall not, and shall not permit
any Restricted Subsidiary to, create, assume, incur, permit or suffer to exist,
directly or indirectly, any Lien on any of its assets, whether now owned or
hereafter acquired, except Permitted Liens.
Section 7.3 Investments. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, make any Investment, except that the
Borrower and any Restricted Subsidiary may purchase or otherwise acquire and
own:
(a) Cash and Cash Equivalents;
(b) Accounts receivable that arise in the ordinary course of
business and are payable on standard terms;
(c) Investments in existence on the Agreement Date which are
described on Schedule 5 hereto;
(d) Investments which are Acquisitions permitted pursuant to
Section 7.6 hereof;
(e) Investments in the form of Hedge Agreements entered into with
any Lender;
(f) Investments in Subsidiaries of the Borrower which are
Restricted Subsidiaries;
(g) Guaranties of Indebtedness (i) of any Person other than the
Borrower or a Restricted Subsidiary to the extent that (x) the aggregate amount
of such Guaranties by the Borrower and the Restricted Subsidiaries does not
exceed ten percent (10%) of the combined total assets of the Borrower and the
Restricted Subsidiaries and (y) immediately prior to and after giving effect to
any such proposed Guaranty there shall not exist a Default or Event of Default
and (ii) of the Borrower or of a Restricted Subsidiary to the extent that such
Guaranty, and the Indebtedness guaranteed thereby, are permitted by Section 7.1
hereof;
(h) Investments in joint ventures provided that (i) immediately
prior to and after giving effect to any such proposed Investment there shall
not exist a Default or Event of Default, (ii) the Administrative Lender shall
have received at least 10 Business Days prior to the date of such Investment a
Compliance Certificate setting forth the covenant calculations, both
immediately prior to and after giving effect to the proposed Investment, and
(iii) the joint venture shall be in the business described in Schedule 4.1(d)
hereof or other activities directly related thereto;
- 69 -
<PAGE> 77
(i) Investments in, or with respect to, any Person other than the
Borrower or a Restricted Subsidiary to the extent that (i) the aggregate amount
of such Investments by the Borrower and the Restricted Subsidiaries does not at
any time exceed ten percent (10%) of the combined total assets of the Borrower
and the Restricted Subsidiaries and (ii) immediately prior to and after giving
effect to any such proposed Investment there shall not exist a Default or Event
of Default; and
(j) Other Investments not to exceed $7,500,000 in the aggregate
amount outstanding at any time.
Section 7.4 Liquidation, Merger. The Borrower shall not, and
shall not permit any Restricted Subsidiary to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up, except that a Restricted Subsidiary may
liquidate or dissolve into the Borrower or a Restricted Subsidiary; or
(b) enter into any merger or consolidation unless (i) with respect
to a merger or consolidation involving the Borrower, the Borrower shall be the
surviving corporation, or if the merger or consolidation involves a Restricted
Subsidiary and not the Borrower, such Restricted Subsidiary shall be the
surviving corporation, (ii) such transaction shall not be utilized to
circumvent compliance with any term or provision herein and (iii) no Default or
Event of Default shall then be in existence or occur as a result of such
transaction.
Section 7.5 Sales of Assets. The Borrower shall not, and shall
not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise
dispose of, any of its assets except (a) inventory and Time-Share Interests in
the ordinary course of business, (b) obsolete or worn- out assets, (c) sales of
tangible assets in which the Net Cash Proceeds from the disposition thereof are
reinvested, within 90 days before or after such disposition, in productive
tangible assets of a similar nature of the Borrower and the Restricted
Subsidiaries, (d) asset sales between Obligors, (e) sales of Notes Receivable
(other than Notes Receivable included as Collateral hereunder) to unrelated
third parties for full and fair consideration, (f) other asset sales not to
exceed $5,000,000 in the aggregate amount during any one fiscal year and (g)
other dispositions that constitute grants by the Borrower or a Restricted
Subsidiary of Permitted Liens.
Section 7.6 Acquisitions. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, make any Acquisitions; provided, however,
if immediately prior to and after giving effect to the proposed Acquisition
there shall not exist a Default or Event of Default, the Borrower or any
Restricted Subsidiary may make Acquisitions so long as (i) such Acquisition
shall not be opposed by the board of the directors of the Person being
acquired, (ii) Lenders shall have received written notice at least 10 Business
Days prior to the date of such Acquisition, (iii) the Administrative Lender
shall have received at least 10 Business Days prior to the date of such
Acquisition a Compliance Certificate setting forth the covenant calculations
both immediately prior to and after giving effect to the proposed Acquisition,
(iv) the assets, property
- 70 -
<PAGE> 78
or business acquired shall be in the business described in Section 4.1(d)
hereof and, (v) either (x) contemporaneously with the consummation of such
Acquisition, the Person being acquired shall become a Restricted Subsidiary or
(y) such Acquisition would be permitted as an Investment under Section 7.3(i).
Section 7.7 Capital Expenditures. The Borrower shall not, and
shall not permit any Restricted Subsidiary to, make or commit to make any
Capital Expenditures during any fiscal year in an aggregate amount in excess of
$10,000,000.
Section 7.8 Restricted Payments. The Borrower shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly declare,
pay or make any Restricted Payments except (a) Dividends payable by a
Restricted Subsidiary to the Borrower or to a Guarantor, (b) scheduled payments
of principal and interest on the Subordinated Debt; provided, however, the
Borrower shall not, and shall not permit any Restricted Subsidiary to, declare,
pay or make any Restricted Payments permitted by clauses (a) and/or (b) of this
Section 7.8 unless there shall exist no Default or Event of Default prior to or
after giving effect to any such proposed Restricted Payment, and (c) Dividends
payable by the Borrower in respect of its Capital Stock, if, and to the extent
that, (i) no Default or Event of Default shall exist prior to or after giving
effect to the declaration and/or payment of any such Dividend(s) and (ii) the
aggregate amount of all such Dividends declared and/or paid by the Borrower
during any fiscal year of the Borrower does not exceed the sum of (x)
$10,000,000, plus (y) 50% of the Net Income of the Borrower (excluding from the
calculation thereof any Net Income attributable to any Subsidiary of the
Borrower other than the Restricted Subsidiaries) for the immediately preceding
fiscal year of the Borrower.
Section 7.9 Affiliate Transactions. The Borrower shall not, and
shall not permit any Restricted Subsidiary to, at any time engage in any
transaction with an Affiliate other than in the ordinary course of business and
on terms no less advantageous to the Borrower or such Restricted Subsidiary
than would be the case if such transaction had been effected with a
non-Affiliate. The Borrower shall not, and shall not permit any Restricted
Subsidiary to, incur or suffer to exist any Indebtedness, or any Guaranty of
any such Indebtedness, to any Affiliate, unless such Affiliate shall (i) be a
Restricted Subsidiary, (ii) subordinate the payment and performance thereof to
the Obligations on terms and conditions and pursuant to documentation
satisfactory to the Determining Lenders or (iii) pledge the applicable
Indebtedness to the Administrative Lender pursuant to documentation acceptable
to the Administrative Lender.
Section 7.10 Compliance with ERISA. The Borrower shall not, and
shall not permit any Subsidiary to, directly or indirectly, or permit any
member of its Controlled Group to directly or indirectly, (a) terminate any
Plan so as likely to result in any material (in the reasonable opinion of the
Determining Lenders) liability to the Borrower or any member of its Controlled
Group taken as a whole, (b) permit to exist any ERISA Event, or any other event
or condition with respect to a Plan which could reasonably be expected to have
a Material Adverse Effect, (c) make a complete or partial withdrawal (within
the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as likely
to result in any material (in the reasonable
- 71 -
<PAGE> 79
opinion of the Determining Lenders) liability to the Borrower or any member of
its Controlled Group taken as a whole, (d) enter into any new Plan or modify
any existing Plan so as to increase its obligations thereunder which could
reasonably be expected to have a Material Adverse Effect, or (e) permit the
present value of all benefit liabilities, as defined in Title IV of ERISA,
under any Plan (other than a Multiemployer Plan) of the Borrower or any member
of its Controlled Group that is subject to Title IV of ERISA (using the
actuarial assumptions utilized by each such Plan) to exceed the fair market
value of Plan assets allocable to such benefits by more than $200,000, all
determined as of the most recent valuation date for such Plan.
Section 7.11 Minimum Interest Coverage Ratio. The Borrower shall
not permit the Interest Coverage Ratio to be less than 2.50 to 1 at the end of
any fiscal quarter.
Section 7.12 Minimum Tangible Net Worth. The Borrower shall not
permit the Tangible Net Worth to be less than an amount equal to the sum of (a)
$155,000,000, plus (b) 50% of cumulative Net Income of the Borrower and the
Restricted Subsidiaries for the period from, but not including, June 30, 1997
through the date of calculation (but excluding from the calculation of such
cumulative Net Income the effect, if any, of any fiscal quarter (or portion of
a fiscal quarter not then ended) of the Borrower or any Restricted Subsidiary
for which Net Income was a negative number), plus (c) 75% of the Net Cash
Proceeds received by the Borrower after June 30, 1997 as a result of any
offering of Equity or pursuant to any conversion or exchange of convertible
Indebtedness or preferred Capital Stock into common Capital Stock of the
Borrower, plus (d) an amount equal to 75% of the tangible net worth of any
Person that becomes a Restricted Subsidiary or is merged into or consolidated
with the Borrower or any Restricted Subsidiary after June 30, 1997 or
substantially all of the assets of which are acquired by the Borrower or any
Restricted Subsidiary after June 30, 1997, (in each case determined as of the
date that such Person becomes a Restricted Subsidiary or is merged into or
consolidated with the Borrower or a Restricted Subsidiary or that such assets
are so acquired), provided that the purchase price paid therefor is paid in
equity securities of the Borrower or any Subsidiary of the Borrower.
Section 7.13 Maximum Senior Debt to Total Capital. The Borrower
shall not permit the ratio of Senior Debt to Total Capital to exceed 0.35 to 1
at the end of any fiscal quarter.
Section 7.14 Maximum Total Debt to Total Capital. The Borrower
shall not permit the ratio of Total Debt to Total Capital to exceed (a) 0.70 to
1 at December 31, 1997 and (b) 0.65 to 1 at the end of any fiscal quarter
thereafter.
Section 7.15 Sale and Leaseback. The Borrower shall not, and
shall not permit any Subsidiary of the Borrower to, enter into any arrangement
whereby it sells or transfers any of its assets, and thereafter rents or leases
such assets, except to the extent that the fair market value of the asset(s)
covered by all such arrangements entered into during any fiscal year of the
Borrower does not, in the aggregate, exceed $2,000,000.
- 72 -
<PAGE> 80
Section 7.16 Business. Neither the Borrower nor any Restricted
Subsidiary shall conduct any business other than the business described in
Section 4.1(d) hereof.
Section 7.17 Fiscal Year. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, change its fiscal year except to a fiscal
year ending December 31.
Section 7.18 Amendment of Organizational Documents. The Borrower
shall not, and shall not permit any Restricted Subsidiary to, amend its
articles of incorporation or bylaws (or similar organizational or governance
documents) in any manner that could reasonably be expected to (a) result in a
Material Adverse Effect or (b) impair or affect the Rights of the
Administrative Lender or any Lender under any Loan Documents or in respect of
any Collateral.
Section 7.19 Amendments and Waivers of Subordinated Debt. The
Borrower shall not, and shall not permit any Restricted Subsidiary to, change
or amend (or take any action or fail to take any action the result of which is
an effective amendment or change) or accept any waiver or consent with respect
to, any document, instrument or agreement relating to any Subordinated Debt
that would result in (a) an increase in the principal, interest, overdue
interest, fees or other amounts payable under the Subordinated Debt, (b) an
acceleration in any date fixed for payment or prepayment of principal,
interest, fees or other amounts payable under the Subordinated Debt (including,
without limitation, as a result of any redemption), (c) a reduction in any
percentage of holders of the Subordinated Debt required under the terms of the
Subordinated Debt to take (or refrain from taking) any action under the
Subordinated Debt, (d) a change in any financial covenant under the
Subordinated Debt making such financial covenant more restrictive, (e) a change
in any default or event of default (however designated) under the Subordinated
Debt which makes such default or event of default more restrictive, (f) a
change in the definition of "Change of Control" as provided in the Subordinated
Debt which would result in such definition being more restrictive than such
definition in this Agreement, (g) a change in any of the subordination
provisions of the Subordinated Debt, (h) a change in any covenant, term or
provision in the Subordinated Debt which would result in such term or provision
being more restrictive than the terms of this Agreement and the other Loan
Documents or (i) a change in any term or provision of the Subordinated Debt
that could have, in any material respect, an adverse effect on the interest of
the Lenders.
Section 7.20 Use of Lenders' Name. The Borrower shall not, and
shall not permit any Subsidiary to, use the name of any Lender or any Affiliate
of any Lender in connection with any of their respective businesses or
activities, except in connection with internal business matters, administration
of any of the Advances and as required in dealings with any Tribunal.
Section 7.21 Servicing and Collection Agreement. The Borrower
shall not, and shall not permit any Restricted Subsidiary to, amend, modify or
terminate the Servicing and Collection Agreement; provided, however, that the
Person(s) serving as servicer(s) and/or collector(s) thereunder may be replaced
with other Person(s) who are reasonably acceptable to the Administrative
Lender. The Servicing and Collection Agreement shall be cancelable by the
Administrative Lender upon the occurrence of an Event of Default.
- 73 -
<PAGE> 81
Section 7.22 Custodial Agreement. The Borrower shall not, and
shall not permit any Restricted Subsidiary to, (a) amend, modify or terminate
the Custodial Agreement or (b) interfere with the Custodian's performance of
its duties under the Custodial Agreement or take any action that would be
inconsistent with the Custodial Agreement.
Section 7.23 Notes Receivable. The Borrower shall not, and shall
not permit any Restricted Subsidiary to, amend, modify or waive any terms of
any Note Receivable included in the Borrowing Base or permit any departure from
the obligations thereunder unless, and only to the extent that, (a) at the time
of any such amendment, modification or waiver, no default, event of default or
breach (howsoever designated) exists under, or with respect to, the applicable
Note Receivable, and (b) either (x) such amendment, modification or waiver does
not, and could not reasonably be expected to, result in such Note Receivable
not constituting an Eligible Note Receivable hereunder or (y) such amendment,
modification or waiver is evidenced by a replacement Note Receivable that is an
Eligible Note Receivable.
ARTICLE 8
Default
Section 8.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event, and whether
voluntary, involuntary, or effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) Any representation or warranty made under any Loan Document
shall prove to have been incorrect or misleading in any material respect when
made;
(b) The Borrower shall fail to pay any (i) principal under any
Note when due or (ii) interest under any Note or any fees payable hereunder or
any other costs, fees, expenses or other amounts payable hereunder or under any
other Loan Document within two Business Days after the date due;
(c) The Borrower or any Restricted Subsidiary shall default in the
performance or observance of any agreement or covenant contained in Section 5.1
or Article 7;
(d) The Borrower or any Restricted Subsidiary shall default in the
performance or observance of any other agreement or covenant contained in this
Agreement not specifically referred to elsewhere in this Section 8.1, and such
default shall not be cured within a period of fifteen days after the earlier of
notice from the Administrative Lender thereof or actual notice thereof by the
Borrower or such Restricted Subsidiary;
(e) There shall occur any default or breach in the performance or
observance of any agreement or covenant in any of the Loan Documents (other
than this Agreement) and such
- 74 -
<PAGE> 82
default shall not be cured within a period of thirty days after the earlier of
notice from the Administrative Lender thereof or actual notice thereof by an
officer of any Obligor;
(f) There shall be commenced an involuntary proceeding or an
involuntary petition shall be filed in a court having competent jurisdiction
seeking (i) relief in respect of any Obligor or any Subsidiary of the Borrower,
or a substantial part of the property or the assets of such Obligor or
Subsidiary of the Borrower, under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable Federal, state or
foreign bankruptcy law or other similar law, (ii) the appointment of a
receiver, liquidator, assignee, trustee, custodian, sequestrator or similar
official of any Obligor or any Subsidiary of the Borrower, or of any
substantial part of their respective properties, or (iii) the winding-up or
liquidation of the affairs of any Obligor or any Subsidiary of the Borrower,
and any such proceeding or petition shall continue unstayed and in effect for a
period of forty-five days;
(g) Any Obligor or any Subsidiary of the Borrower shall (i) file a
petition, answer or consent seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other applicable Federal,
state or foreign bankruptcy law or other similar law, (ii) consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of any Obligor or
any Subsidiary of the Borrower or of substantially all of its properties, (iii)
file an answer admitting the material allegations filed against it in any such
proceeding, (iv) make a general assignment for the benefit of creditors, (v)
become unable, admit in writing its ability or fail generally to pay its debts
as they become due, or (vi) any Obligor or any Subsidiary of the Borrower shall
take any corporate action in furtherance of any of the actions described in
this Section 8.1(g);
(h) A final judgment or judgments shall be entered by any court
against any Obligor for the payment of money which exceeds $500,000 in the
aggregate for all Obligors, or a warrant of attachment or execution or similar
process shall be issued or levied against property of any Obligor which,
together with all other such property of the Borrower and its Subsidiaries
subject to any such process, exceeds in value $500,000 in the aggregate, and if
such judgment or award is not insured or, within 30 days after the entry, issue
or levy thereof, such judgment, warrant or process shall not have been paid or
discharged or stayed pending appeal, or if, after the expiration of any such
stay, such judgment, warrant or process shall not have been paid or discharged;
(i) With respect to any Plan of the Borrower or any member of its
Controlled Group: (i) the Borrower, any such member, or any other
party-in-interest or disqualified person (other than any Lender) shall engage
in transactions which in the aggregate would reasonably be expected to result
in a direct or indirect liability to the Borrower or any member of its
Controlled Group under Section 409 or 502 of ERISA or Section 4975 of the Code;
(ii) the Borrower or any member of its Controlled Group shall incur any
accumulated funding deficiency, as defined in Section 412 of the Code, or
request a funding waiver from the Internal Revenue Service for contributions;
(iii) the Borrower or any member of its Controlled Group
- 75 -
<PAGE> 83
shall incur any withdrawal liability as a result of a complete or partial
withdrawal within the meaning of Section 4203 or 4205 of ERISA, or any other
liability with respect to a Plan, unless the amount of such liability has been
funded within the Plan or pursuant to one or more insurance contracts; (iv) a
termination of a Multiemployer Plan, as defined in Section 1.1 hereof but
without regard to the five-year limitation set forth therein, shall occur
pursuant to Section 4041A of ERISA; (v) the Borrower or any member of its
Controlled Group shall fail to make a required contribution by the due date
under Section 412 of the Code or Section 302 of ERISA which would result in the
imposition of a lien under Section 412 of the Code or Section 302 of ERISA;
(vi) the Borrower, any member of its Controlled Group or any Plan sponsor shall
notify the PBGC of an intent to terminate, or the PBGC shall institute
proceedings to terminate, any Plan (other than a Multiemployer Plan) subject to
Title IV of ERISA; (vii) a Reportable Event shall occur with respect to a Plan
(other than a Multiemployer Plan) subject to Title IV of ERISA, and within 15
days after the reporting of such Reportable Event to the Administrative Lender,
the Administrative Lender shall have notified the Borrower in writing that the
Determining Lenders have made a determination that, on the basis of such
Reportable Event, there are reasonable grounds for the termination of such Plan
by the PBGC or for the appointment by the appropriate United States District
Court of a trustee to administer such Plan and as a result thereof an Event of
Default shall have occurred hereunder; (viii) a trustee shall be appointed by a
court of competent jurisdiction to administer any Plan (other than a
Multiemployer Plan) or the assets thereof; or (ix) any ERISA Event with respect
to a Plan (other than a Multiemployer Plan) subject to Title IV of ERISA shall
have occurred, and 30 days thereafter (A) such ERISA Event, other than such
event described in clause (f) of the definition of ERISA Event herein, (if
correctable) shall not have been corrected and (B) the then present value of
such Plan's benefit liabilities, as defined in Title IV of ERISA, shall exceed
the then current value of assets accumulated in such Plan; provided, however,
that the events listed in subsections (i) - (ix) above shall constitute Events
of Default only if the maximum aggregate liability which the Borrower or any
member of its Controlled Group has a reasonable likelihood of incurring under
the applicable provisions of ERISA resulting from an event or events exceeds
$500,000.
(j) The Borrower or any Restricted Subsidiary shall default in the
payment of any Indebtedness or any lease obligations in an aggregate amount of
$500,000 or more beyond any grace period provided with respect thereto, or any
other event or condition shall exist under any agreement or instrument under
which any such Indebtedness or lease obligation is created or evidenced beyond
any applicable grace period, if the effect of such event or condition is to
permit or cause the holder of such Indebtedness or lease obligation (or a
trustee on behalf of any such holder) to (i) cause any such Indebtedness or
lease obligation to be prepaid or to become due prior to its date of maturity
or (ii) require the Borrower or any Restricted Subsidiary to purchase, prepay
or redeem any such Indebtedness or lease obligation;
(k) Any real property lease where the Borrower or any Restricted
Subsidiary is the lessee shall terminate or cease to be effective, and
termination or cessation thereof, together with all other leases, if any, which
have been terminated or cease to be effective, could reasonably be expected to
have a Material Adverse Effect; provided, however, that termination or
cessation
- 76 -
<PAGE> 84
of a lease shall not constitute an Event of Default if another lease reasonably
satisfactory to the Determining Lenders is contemporaneously substituted
therefor;
(l) Any provision of any Loan Document shall for any reason cease
to be valid and binding on or enforceable against any party to it (other than
the Administrative Lender or any Lender) other than in accordance with its
terms, or any such party (other than the Administrative Lender or any Lender)
shall so assert in writing;
(m) Any Collateral Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid and perfected first
priority Lien in any Collateral subject thereto; or
(n) A Change of Control shall occur.
Section 8.2 Remedies. If an Event of Default shall have occurred
and shall be continuing:
(a) With the exception of an Event of Default specified in Section
8.1(f) or (g) hereof, the Administrative Lender shall, upon the direction of
the Determining Lenders, terminate the Commitments and/or declare the principal
of and interest on the Advances and all Obligations and other amounts owed
under the Loan Documents to be forthwith due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived, anything in the Loan Documents to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in
Section 8.1(f) or (g) hereof, such principal, interest and other amounts shall
thereupon and concurrently therewith become due and payable and the Commitments
shall forthwith terminate, all without any action by the Administrative Lender,
any Lender or any holders of the Notes and without presentment, demand, protest
or other notice of any kind, all of which are expressly waived, anything in the
Loan Documents to the contrary notwithstanding.
(c) If any Letter of Credit shall be then outstanding, the
Administrative Lender may, and upon the direction of the Determining Lenders
shall, demand upon the Borrower to, and forthwith upon such demand, the
Borrower shall, pay to the Administrative Lender in same day funds at the
office of the Administrative Lender for deposit in the L/C Cash Collateral
Account, an amount equal to the maximum amount available to be drawn under the
Letters of Credit then outstanding.
(d) The Administrative Lender and the Lenders may exercise all of
the Rights granted to them under the Loan Documents or under Applicable Law.
(e) The Rights of the Administrative Lender and the Lenders
hereunder shall be cumulative, and not exclusive.
- 77 -
<PAGE> 85
ARTICLE 9
Changes in Circumstances
Section 9.1 LIBOR Basis Determination Inadequate. If with
respect to any proposed LIBOR Advance for any Interest Period, (i) any Lender
determines that deposits in dollars (in the applicable amount) are not being
offered to that Lender in the relevant market for such Interest Period or (ii)
the Determining Lenders determine that the LIBOR Rate for such proposed LIBOR
Advance does not adequately cover the cost to any Lender(s) of making and
maintaining such proposed LIBOR Advance for such Interest Period, such Lender
or Determining Lenders, as the case may be, shall forthwith give notice thereof
to the Borrower, whereupon until such Lender or Determining Lenders, as the
case may be, notify the Borrower that the circumstances giving rise to such
situation no longer exist, the obligation of the applicable Lender(s) to make
LIBOR Advances shall be suspended; provided, however, such Lender or the
Determining Lenders, as the case may be, shall promptly notify the Borrower if
the circumstances giving rise to such situation no longer exist.
Section 9.2 Illegality. If any change in applicable law, rule or
regulation, or adoption thereof, or any change in any interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its LIBOR Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall make it unlawful or impossible for
such Lender (or its LIBOR Lending Office) to make, maintain or fund its LIBOR
Advances, such Lender shall so notify the Borrower and the Administrative
Lender. Before giving any notice to the Borrower pursuant to this Section, the
notifying Lender shall designate a different LIBOR Lending Office or other
lending office if such designation will avoid the need for giving such notice
and will not, in the sole judgment of the Lender, be materially disadvantageous
to the Lender. Upon receipt of such notice, notwithstanding anything contained
in Article 2 hereof, the Borrower shall repay in full the then outstanding
principal amount of each LIBOR Advance owing to the notifying Lender, together
with accrued interest thereon and any reimbursement required under Section 2.9
hereof, on either (a) the last day of the Interest Period applicable to such
Advance, if the Lender may lawfully continue to maintain and fund such Advance
to such day, or (b) immediately, if the Lender may not lawfully continue to
fund and maintain such Advance to such day or if the Borrower so elects.
Concurrently with repaying each affected LIBOR Advance owing to such Lender if
the Borrower does not terminate this Agreement, notwithstanding anything
contained in Article 2 hereof, the Borrower may, without any requirement to
satisfy the conditions precedent set forth in Section 3.1, 3.2 or 3.3, borrow a
Base Rate Advance from such Lender, and such Lender shall make such Base Rate
Advance, in an amount such that the outstanding principal amount of the
Advances owing to such Lender shall equal the outstanding principal amount of
the Advances owing immediately prior to such repayment.
- 78 -
<PAGE> 86
Section 9.3 Increased Costs.
(a) If after the Agreement Date any change in or adoption of any
law, rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof or compliance by any
Lender (or its LIBOR Lending Office) with any request or directive (whether or
not having the force of law) of any such authority, central bank or compatible
agency:
(i) shall subject a Lender (or its LIBOR Lending Office)
to any Tax (net of any tax benefit engendered thereby) with respect to
its LIBOR Advances or its obligation to make such Advances, or shall
change the basis of taxation of payments to a Lender (or to its LIBOR
Lending Office) of the principal of or interest on its LIBOR Advances
or in respect of any other amounts due under this Agreement, as the
case may be, or its obligation to make such Advances (except for
changes in the rate of tax on the overall net income, net worth or
capital of the Lender and franchise taxes, doing business taxes or
minimum taxes imposed upon such Lender); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors
of the Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, a Lender's LIBOR Lending Office or shall impose on the
Lender (or its LIBOR Lending Office) or on the London interbank market
any other condition affecting its LIBOR Advances or its obligation to
make such Advances (but excluding any reserves or deposits that are
included in the calculation of LIBOR Basis);
and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material, then, within 30 days after demand by a Lender, the Borrower agrees to
pay to such Lender such additional amount as will compensate such Lender for
such increased costs or reduced amounts, subject to Section 11.9 hereof. The
affected Lender will as soon as practicable notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, which will entitle
such Lender to compensation pursuant to this Section and will designate a
different LIBOR Lending Office or other lending office if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the reasonable judgment of the affected Lender made in good faith, be
disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under this
Section and setting forth the additional amounts to be paid to it hereunder
shall certify that such amounts or costs were actually incurred by such Lender
and shall show in reasonable detail an accounting of the amount payable and the
calculations used to determine in good faith such amount and shall be
conclusive absent manifest or demonstrable error. In determining such amount,
a Lender may
- 79 -
<PAGE> 87
use any reasonable averaging and attribution methods. Nothing in this Section
9.3 shall provide the Borrower or any Subsidiary of the Borrower the right to
inspect the records, files or books of any Lender. If a Lender demands
compensation under this Section, the Borrower may at any time, upon at least
five Business Days' prior notice to the Lender, after reimbursement to the
Lender by the Borrower in accordance with this Section of all costs incurred,
prepay in full the then outstanding LIBOR Advances of the Lender, together with
accrued interest thereon to the date of prepayment, along with any
reimbursement required under Section 2.9 hereof. Concurrently with prepaying
such LIBOR Advances, the Borrower may borrow a Base Rate Advance from the
Lender, and the Lender shall make such Base Rate Advance, in an amount such
that the outstanding principal amount of the Advances owing to such Lender
shall equal the outstanding principal amount of the Advances owing immediately
prior to such prepayment.
Section 9.4 Effect On Base Rate Advances. If notice has been
given pursuant to Section 9.1, 9.2 or 9.3 hereof suspending the obligation of a
Lender to make LIBOR Advances, or requiring LIBOR Advances of a Lender to be
repaid or prepaid, then, unless and until the Lender notifies the Borrower that
the circumstances giving rise to such repayment no longer apply, all Advances
which would otherwise be made by such Lender as LIBOR Advances shall be made
instead as Base Rate Advances.
Section 9.5 Capital Adequacy. If after the Agreement Date, (a)
the introduction of or any change in or in the interpretation of any law, rule
or regulation or (b) compliance by a Lender with any law, rule or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) adopted or promulgated after the
Agreement Date affects or would affect the amount of capital required or
expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's commitment or Advances
hereunder and other commitments or advances of such Lender of this type, then,
within 30 days after demand by such Lender, subject to Section 11.9, the
Borrower shall immediately pay to such Lender, from time to time as specified
by such Lender, additional amounts sufficient to compensate such Lender with
respect to such circumstances, to the extent that such Lender reasonably
determines in good faith such increase in capital to be allocable to the
existence of such Lender's Commitments hereunder. A certificate as to any
additional amounts payable to any Lender under this Section 9.5 submitted to
the Borrower by such Lender shall certify that such amounts were actually
incurred by such Lender or corporation controlling such Lender and shall show
in reasonable detail an accounting of the amount payable and the calculations
used to determine in good faith such amount and shall be conclusive absent
manifest or demonstrable error. In determining such amount, such Lender or a
corporation controlling such Lender may use any reasonable averaging and
attribution methods. Notwithstanding the foregoing, nothing in this Section
9.5 shall provide the Borrower or any Subsidiary of the Borrower the right to
inspect the records, files or books of any Lender or any corporation
controlling such Lender.
Section 9.6 Replacement Lender. If (i) any Lender is unable or
unwilling to make, maintain or fund any LIBOR Advance pursuant to Section 9.1
or 9.2 or (ii) the Borrower
- 80 -
<PAGE> 88
becomes obligated to pay additional amounts to any Lender described in Section
9.3 or 9.5, the Borrower may designate a financial institution reasonably
acceptable to the Administrative Lender to replace such Lender by purchasing
for cash and receiving an assignment of such Lender's pro rata share of such
Lender's Commitment and the Rights of such Lender under the Loan Documents
without recourse to or warranty by, or expense to, such Lender, for a purchase
price equal to the outstanding amounts owing to such Lender (including such
additional amounts owing to such Lender pursuant to Section 9.2, 9.3 or 9.5).
Upon execution of an Assignment Agreement, such other financial institution
shall be deemed to be a "Lender" for all purposes of this Agreement as set
forth in Section 11.6 hereof.
ARTICLE 10
Agreement Among Lenders
Section 10.1 Agreement Among Lenders. The Lenders agree among
themselves that:
(a) Administrative Lender. Each Lender hereby appoints the
Administrative Lender as its nominee in its name and on its behalf, to receive
all documents and items to be furnished hereunder; to act as nominee for and on
behalf of all Lenders under the Loan Documents; to, except as otherwise
expressly set forth herein, take such action as may be requested by the
Determining Lenders, provided that, (i) unless and until the Administrative
Lender shall have received such requests, the Administrative Lender may take
such administrative action, or refrain from taking such administrative action,
as it may deem advisable and in the best interests of the Lenders, and (ii) the
Administrative Lender shall not be required to take any action that exposes the
Administrative Lender to personal liability or that is contrary to any Loan
Document or Applicable Law; to arrange the means whereby the proceeds of the
Advances of the Lenders are to be made available to the Borrower; to distribute
promptly to each Lender information, requests and documents received from the
Borrower hereunder and not otherwise provided to such Lender by the Borrower or
any other Person, and each payment (in like funds received) with respect to any
of such Lender's Advances, or the ratable amount of fees or other amounts; and
to deliver to the Borrower requests, demands, approvals and consents received
from the Lenders. Administrative Lender agrees to promptly distribute to each
Lender, at such Lender's address set forth below information, requests,
documents and payments received from the Borrower and not otherwise provided to
such Lender by the Borrower or any other Person. The Administrative Lender
shall have no fiduciary relationship in respect of any Lender by reason of this
Agreement or any other Loan Document. The Administrative Lender shall have no
duties or responsibilities except those expressly set forth in this Agreement.
The duties of the Administrative Lender are mechanical and administrative in
nature.
(b) Replacement of Administrative Lender. Should the
Administrative Lender or any successor Administrative Lender ever cease to be a
Lender hereunder, or should the Administrative Lender or any successor
Administrative Lender ever resign as Administrative Lender, or should the
Administrative Lender or any successor Administrative Lender ever be
- 81 -
<PAGE> 89
removed with cause or without cause by the action of all Lenders (other than
the Administrative Lender), then the Lender appointed by the other Lenders
(with the consent of the Borrower, which consent shall not be unreasonably
withheld) shall forthwith become the Administrative Lender, and the Borrower
and the Lenders shall execute such documents as any Lender may reasonably
request to reflect such change. If the Administrative Lender also then serves
in the capacity of the Swing Line Bank or the Issuing Bank, such resignation or
removal shall constitute resignation or removal of the Swing Line Bank and the
Issuing Bank. Any resignation or removal of the Administrative Lender or any
successor Administrative Lender shall become effective upon the appointment by
the Lenders of a successor Administrative Lender; provided, however, if no
successor Administrative Lender shall have been so appointed and shall have
accepted such appointment within 30 days after the retiring Administrative
Lender's giving of notice of resignation or the Lenders' removal of the
retiring Administrative Lender, then the retiring Administrative Lender may, on
behalf of the Lenders, appoint a successor Administrative Lender, which shall
be a commercial bank organized under the Laws of the United States of America
or of any State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as the Administrative
Lender hereunder by a successor Administrative Lender, such successor
Administrative Lender shall thereupon succeed to and become vested with all the
rights and duties of the retiring Administrative Lender, and the retiring
Administrative Lender shall be discharged from its duties and obligations under
the Loan Documents, provided that if the retiring or removed Administrative
Lender is unable to appoint a successor Administrative Lender, the
Administrative Lender shall, after the expiration of a 60 day period from the
date of notice, be relieved of all obligations as Administrative Lender
hereunder. Notwithstanding any Administrative Lender's resignation or removal
hereunder, the provisions of this Article shall continue to inure to its
benefit as to any actions taken or omitted to be taken by it while it was the
Administrative Lender under this Agreement.
(c) Expenses. Each Lender shall pay its pro rata share, based on
its Specified Percentage, of any expenses paid by the Administrative Lender
directly and solely in connection with any of the Loan Documents if
Administrative Lender does not receive reimbursement therefor from other
sources within 60 days after the date incurred. Any amount so paid by the
Lenders to the Administrative Lender shall be returned by the Administrative
Lender pro rata to each paying Lender to the extent later paid by the Borrower
or any other Person on the Borrower's behalf to the Administrative Lender.
(d) Delegation of Duties. The Administrative Lender may execute
any of its duties hereunder by or through officers, directors, employees,
attorneys or agents, and shall be entitled to (and shall be protected in
relying upon) advice of counsel concerning all matters pertaining to its duties
hereunder.
(e) Reliance by Administrative Lender. The Administrative Lender
and its officers, directors, employees, attorneys and agents shall be entitled
to rely and shall be fully protected in relying on any writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telex or
teletype message, statement, order, or other document or conversation
- 82 -
<PAGE> 90
reasonably believed by it or them in good faith to be genuine and correct and
to have been signed or made by the proper Person and, with respect to legal
matters, upon opinions of counsel selected by the Administrative Lender. The
Administrative Lender may, in its reasonable judgment, deem and treat the payee
of any Note as the owner thereof for all purposes hereof.
(f) Limitation of Administrative Lender's Liability. Neither the
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Documents or be
responsible for the consequences of any error of judgment, except for its or
their own gross negligence or wilful misconduct. Except as aforesaid, the
Administrative Lender shall be under no duty to enforce any rights with respect
to any of the Advances, or any security therefor. The Administrative Lender
shall not be compelled to do any act hereunder or to take any action towards
the execution or enforcement of the powers hereby created or to prosecute or
defend any suit in respect hereof, unless indemnified to its reasonable
satisfaction against loss, cost, liability and expense unless expressly
provided to the contrary herein. The Administrative Lender shall not be
responsible in any manner to any Lender for the effectiveness, enforceability,
genuineness, validity or due execution of any of the Loan Documents, or for any
representation, warranty, document, certificate, report or statement made
herein or furnished in connection with any Loan Documents, or be under any
obligation to any Lender to ascertain or to inquire as to the performance or
observation of any of the terms, covenants or conditions of any Loan Documents
on the part of the Borrower. TO THE EXTENT NOT REIMBURSED BY THE BORROWER,
EACH LENDER HEREBY SEVERALLY INDEMNIFIES AND HOLDS HARMLESS THE ADMINISTRATIVE
LENDER, PRO RATA ACCORDING TO ITS SPECIFIED PERCENTAGE, FROM AND AGAINST ANY
AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES AND/OR DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER WHICH MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THE
ADMINISTRATIVE LENDER (IN SUCH CAPACITY) IN ANY WAY WITH RESPECT TO ANY LOAN
DOCUMENTS OR ANY ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE LENDER UNDER THE
LOAN DOCUMENTS (INCLUDING ANY NEGLIGENT ACTION OF THE ADMINISTRATIVE LENDER),
EXCEPT TO THE EXTENT THE SAME ARE FINALLY DETERMINED BY A COURT OF COMPETENT
JURISDICTION TO RESULT FROM GROSS NEGLIGENCE OR WILFUL MISCONDUCT BY THE
ADMINISTRATIVE LENDER. THE INDEMNITY PROVIDED IN THIS SECTION 10.1(F) SHALL
SURVIVE TERMINATION OF THIS AGREEMENT.
(g) Liability Among Lenders. No Lender shall incur any liability
(other than the sharing of expenses and other matters specifically set forth
herein and in the other Loan Documents) to any other Lender, except for acts or
omissions in bad faith.
- 83 -
<PAGE> 91
(h) Rights as Lender. With respect to its commitment hereunder,
the Advances made by it and the Notes issued to it, the Administrative Lender
shall have the same rights as a Lender and may exercise the same as though it
were not the Administrative Lender, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative Lender in
its individual capacity. The Administrative Lender or any Lender may accept
deposits from, act as trustee under indentures of, and generally engage in any
kind of business with, the Borrower and any of its Affiliates, and any Person
who may do business with or own securities of the Borrower or any of its
Affiliates, all as if the Administrative Lender were not the Administrative
Lender hereunder and without any duty to account therefor to the Lenders.
Section 10.2 Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Administrative Lender
or any other Lender and based upon the financial statements referred to in
Sections 4.1(j), 6.1, and 6.2 hereof, and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon the Administrative Lender or any other
Lender and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents. Each
Lender also acknowledges that its decision to fund the initial Revolving Credit
Advances shall constitute evidence to the Administrative Lender that such
Lender has deemed all of the conditions set forth in Section 3.1 to have been
satisfied.
Section 10.3 Benefits of Article. None of the provisions of this
Article shall inure to the benefit of any Person other than Lenders and, with
respect to Section 10.1(b), the Borrower; consequently, no such other Person
shall be entitled to rely upon, or to raise as a defense, in any manner
whatsoever, the failure of the Administrative Lender or any Lender to comply
with such provisions.
ARTICLE 11
Miscellaneous
Section 11.1 Notices.
(a) All notices and other communications under this Agreement
shall be in writing (except in those cases where giving notice by telephone is
expressly permitted) and shall be deemed to have been given on the date
personally delivered or sent by telecopy (answerback received) or by facsimile
transmission, or three days after deposit in the mail, designated as certified
mail, return receipt requested, postage-prepaid, or one day after being
entrusted to a reputable commercial overnight delivery service, addressed to
the party to which such notice is directed at its address determined as
provided in this Section. All notices and other communications under this
Agreement shall be given to the parties hereto at the following addresses:
- 84 -
<PAGE> 92
(i) If to the Borrower, at:
Signature Resorts, Inc.
1875 S. Grant Street, Suite 650
San Mateo, California 94402
Attn: Chief Financial Officer, Treasurer
and General Counsel
Telephone: 650-312-7171
Facsimile: 650-312-7174
With a copy to:
Leo Rose III
Schreeder, Wheeler & Flint, LLP
The Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Telephone: 404-681-3450
Facsimile: 404-681-1046
(ii) If to the Administrative Lender, at:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Tom Blake
Senior Vice President
Telephone: 214-508-0193
Facsimile: 214-508-0980
(iii) If to a Lender, at its address shown below its name
on the signature pages hereof, or if applicable, set
forth in its Assignment Agreement.
(b) Any party hereto may change the address to which notices shall
be directed by giving 10 days' written notice of such change to the other
parties.
Section 11.2 Expenses. The Borrower shall promptly pay:
- 85 -
<PAGE> 93
(a) all reasonable out-of-pocket expenses of the Administrative
Lender in connection with the preparation, negotiation, execution and delivery
of this Agreement and the other Loan Documents, the transactions contemplated
hereunder and thereunder, and the making of Advances hereunder, including
without limitation the reasonable fees and disbursements of Special Counsel;
(b) all reasonable out-of-pocket expenses and reasonable
attorneys' fees of the Administrative Lender in connection with the
administration of the transactions contemplated in this Agreement and the other
Loan Documents and the preparation, negotiation, execution and delivery of any
waiver, amendment or consent by the Administrative Lender relating to this
Agreement or the other Loan Documents; and
(c) all reasonable costs, out-of-pocket expenses and reasonable
attorneys' fees of the Administrative Lender and each Lender incurred for
enforcement, collection, restructuring, refinancing and "work-out", or
otherwise incurred in obtaining performance under the Loan Documents, which in
each case shall include without limitation fees and expenses of consultants,
counsel for the Administrative Lender and any Lender, and administrative fees
for the Administrative Lender.
Section 11.3 Waivers. The rights and remedies of the Lenders
under this Agreement and the other Loan Documents shall be cumulative and not
exclusive of any rights or remedies which they would otherwise have. No
failure or delay by the Administrative Lender or any Lender in exercising any
right shall operate as a waiver of such right. The Lenders expressly reserve
the right to require strict compliance with the terms of this Agreement in
connection with any funding of a request for an Advance or issuance of a Letter
of Credit. In the event that any Lender decides to fund an Advance at a time
when the Borrower is not in strict compliance with the terms of this Agreement,
such decision by such Lender shall not be deemed to constitute an undertaking
by the Lender to fund any further requests for Advances or preclude the Lenders
from exercising any rights available under the Loan Documents or at law or
equity. Any waiver or indulgence granted by the Lenders shall not constitute a
modification of this Agreement, except to the extent expressly provided in such
waiver or indulgence, or constitute a course of dealing by the Lenders at
variance with the terms of the Agreement such as to require further notice by
the Lenders of the Lenders' intent to require strict adherence to the terms of
the Agreement in the future. Any such actions shall not in any way affect the
ability of the Administrative Lender or the Lenders, in their discretion, to
exercise any rights available to them under this Agreement or under any other
agreement, whether or not the Administrative Lender or any of the Lenders are a
party thereto, relating to the Borrower.
Section 11.4 Calculation by the Lenders Conclusive and Binding.
Any mathematical calculation required or expressly permitted to be made by the
Administrative Lender or any Lender under this Agreement shall be made in its
reasonable judgment and in good faith, and shall when made, absent manifest
error, be controlling.
- 86 -
<PAGE> 94
Section 11.5 Set-Off. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence and during the continuation of an Event of Default, each
Lender and any subsequent holder of any Note, and any assignee of any Note is
hereby authorized by the Borrower at any time or from time to time, without
notice to the Borrower or any other Person, any such notice being hereby
expressly waived, to set-off, appropriate and apply any deposits (general or
special (except trust and escrow accounts), time or demand, including without
limitation Indebtedness evidenced by certificates of deposit, in each case
whether matured or unmatured) and any other Indebtedness at any time held or
owing by such Lender or holder to or for the credit or the account of the
Borrower, against and on account of the Obligations and other liabilities of
the Borrower to such Lender or holder, irrespective of whether or not (a) the
Lender or holder shall have made any demand hereunder, or (b) the Lender or
holder shall have declared the principal of and interest on the Advances and
other amounts due hereunder to be due and payable as permitted by Section 8.2.
Any sums obtained by any Lender or by any assignee or subsequent holder of any
Note shall be subject to pro rata treatment of all Obligations and other
liabilities hereunder. Any Lender exercising any Rights under this Section
11.5 shall give the Borrower prompt notice thereof after such exercise.
Section 11.6 Assignment.
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder or under the other Loan Documents without the prior
written consent of the Lenders.
(b) No Lender shall be entitled to assign or grant a participation
in its interest in this Agreement, its Notes or its Advances, except as set
forth in this Agreement.
(c) Without the consent of the Borrower, any Lender may at any
time sell participations in all or any part of its Advances and Reimbursement
Obligations (collectively, "Participations") to any banks or other financial
institutions ("Participants") provided that neither such Participation nor any
agreement relating thereto shall confer on any Person (other than the parties
hereto) any right to vote on, approve or sign amendments or waivers, or any
other independent benefit or any legal or equitable right, remedy or other
claim under this Agreement or any other Loan Documents, other than the right to
vote on, approve, or sign amendments or waivers or consents with respect to
items that would result in (i) any increase in the commitment of any
Participant; or (ii)(A) the extension of the date of maturity of, or (B) the
extension of the due date for any payment of principal, interest or fees
respecting, or (C) the reduction of the amount of any installment of principal
or interest on or the change or reduction of any mandatory reduction required
hereunder, or (D) a reduction of the rate of interest on, the Advances, the
Letters of Credit, or the Reimbursement Obligations to which such Participant
is entitled; or (iii) the release of security for the Obligations, including
without limitation any guarantee, except pursuant to this Agreement or the
other Loan Documents; or (iv) the reduction of any fees payable hereunder to
which such Participant is entitled. Notwithstanding the foregoing, the
Borrower agrees that the Participants shall be entitled to the benefits of
Article 9
- 87 -
<PAGE> 95
hereof as though they were Lenders and the Lenders may, subject to Section
11.14 hereof, provide copies of all financial information received from the
Borrower to such Participants.
(d) Each Lender may assign to one or more financial institutions
organized under the laws of the United States, or any state thereof, or under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country,
which is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business (each, an "Assignee") its rights
and obligations under this Agreement and the other Loan Documents; provided,
however, that (i) each such assignment shall be subject to the prior written
consent of the Administrative Lender and Borrower, which consent shall not be
unreasonably withheld (provided, however, notwithstanding anything herein to
the contrary, no consent of the Borrower is required for any assignment during
any time that an Event of Default has occurred and is continuing or for any
assignment at any time by a Lender to any Affiliate of such Lender or to any
other Lender), (ii) no such assignment shall be in an amount of Commitments
less than $10,000,000 unless such lesser amount represents the entirety of the
Commitments of the applicable Lender, (iii) the applicable Lender,
Administrative Lender and applicable Assignee shall execute and deliver to the
Administrative Lender an Assignment and Acceptance Agreement (an "Assignment
Agreement") in substantially the form of Exhibit F hereto, together with the
Notes subject to such assignment, (iv) the Assignee executing the Assignment,
shall deliver to the Administrative Lender a processing fee of $3,500 and (v)
each such assignment shall be a constant, not a varying, percentage of the
assigning Lender's Rights and obligations in respect of the Advances. Upon
such execution, delivery and acceptance from and after the effective date
specified in each Assignment, which effective date shall be at least three
Business Days after the execution thereof, (A) the Assignee thereunder shall be
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment, have the rights and obligations of
a Lender hereunder and (B) the applicable Lender shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment, relinquish such rights (excluding any rights to indemnity which
would have survived the termination of this Agreement, which rights of
indemnity shall apply to both the assigning Lender and the Assignee) and be
released from such obligations under this Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary,
any Lender may assign and pledge all or any portion of its Advances and Notes
to any Federal Reserve Bank as collateral security pursuant to Regulation A of
F.R.S. Board and any Operating Circular issued by such Federal Reserve Bank;
provided, however, that no such assignment under this clause (e) shall release
the assignor Lender from its obligations hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a
Lender and an Assignee, and any Note or Notes subject to such assignment, the
Borrower shall, within five Business Days after its receipt of such Assignment
Agreement, at no expense to the Borrower, execute and deliver to the
Administrative Lender in exchange for the surrendered Notes new Notes to the
order of such Assignee in an amount equal to the portion of the Advances and
Commitments assigned to it pursuant to such Assignment Agreement and new Notes
to the order
- 88 -
<PAGE> 96
of the assignor Lender in an amount equal to the portion of the Advances and
Commitments retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Notes, shall be dated the effective date of such Assignment Agreement and shall
otherwise be in substantially the form of Exhibit A.
(g) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.6, disclose to the assignee or Participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower, provided such Person agrees in writing to
handle such information in accordance with the standards set forth in Section
11.14 hereof.
(h) Except as specifically set forth in this Section 11.6, nothing
in this Agreement or any other Loan Documents, expressed or implied, is
intended to or shall confer on any Person other than the respective parties
hereto and thereto and their successors and assignees permitted hereunder and
thereunder any benefit or any legal or equitable right, remedy or other claim
under this Agreement or any other Loan Documents.
(i) Notwithstanding anything in this Section 11.6 to the contrary,
no Assignee or Participant (nor the assigning or participating Lender) shall be
entitled to receive (whether individually or collectively) any greater payment
under Section 2.14 or Section 9.3 or Section 9.5 than such assigning or
participating Lender would have been entitled to receive with respect to the
interest assigned or participated to such Assignee or Participant.
Section 11.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all such separate counterparts shall together constitute but one and the same
instrument.
Section 11.8 Severability. Any provision of this Agreement which
is for any reason prohibited or found or held invalid or unenforceable by any
court or governmental agency shall be ineffective to the extent of such
prohibition or invalidity or unenforceability without invalidating the
remaining provisions hereof in such jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 11.9 Interest and Charges. It is not the intention of any
parties to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, no Lender shall ever be entitled to receive, collect or apply,
as interest on the Obligations, any amount in excess of the Highest Lawful
Amount. If any Lender or participant ever receives, collects or applies, as
interest, any such excess, such amount which would be excessive interest shall
be deemed a partial repayment of principal and treated hereunder as such; and
if principal is paid in full, any remaining excess shall be paid to the
Borrower. In determining whether or not the interest paid or payable, under
any specific contingency, exceeds the Highest Lawful Amount, the Borrower and
the Lenders shall, to the maximum extent permitted under Applicable Law, (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary
- 89 -
<PAGE> 97
prepayments and the effect thereof, and (c) amortize, prorate, allocate and
spread in equal parts, the total amount of interest throughout the entire
contemplated term of the Obligations so that the interest rate is uniform
throughout the entire term of the Obligations; provided, however, that if the
Obligations are paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period
of existence thereof exceeds the Highest Lawful Amount, the Lenders shall
refund to the Borrower the amount of such excess or credit the amount of such
excess against the total principal amount of the Obligations owing, and, in
such event, the Lenders shall not be subject to any penalties provided by any
laws for contracting for, charging or receiving interest in excess of the
Highest Lawful Amount or the Highest Lawful Rate. This Section shall control
every other provision of all agreements pertaining to the transactions
contemplated by or contained in the Loan Documents.
Section 11.10 Headings. Headings used in this Agreement are for
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
Section 11.11 Amendment and Waiver. The provisions of this
Agreement may not be amended, modified or waived except by the written
agreement of the Borrower and the Determining Lenders; provided, however, that
no such amendment, modification or waiver shall be made (a) without the consent
of all Lenders, if it would (i) increase the Specified Percentage or commitment
of any Lender, or (ii) extend or postpone the date of maturity of, extend the
due date for any payment of principal or interest on, reduce the amount of any
installment of principal or interest on, or reduce the rate of interest on, any
Revolving Credit Advance, the Reimbursement Obligations or other amount owing
under any Loan Documents to which such Lender is entitled, or (iii) release any
security for or guaranty of the Obligations (except pursuant to this Agreement
or the other Loan Documents), or (iv) reduce the fees payable hereunder to
which such Lender is entitled, or (v) revise this Section 11.11, or (vi) waive
the date for payment of any principal, interest or fees hereunder or (vii)
amend the definition of Determining Lenders; (b) without the consent of the
Swing Line Bank, if it would alter the rights, duties or obligations of the
Swing Line Bank; (c) without the consent of the Administrative Lender, if it
would alter the rights, duties or obligations of the Administrative Lender; or
(d) without the consent of the Issuing Bank, if it would alter the rights,
duties or obligations of the Issuing Bank. Neither this Agreement nor any term
hereof may be amended orally, nor may any provision hereof be waived orally but
only by an instrument in writing signed by the Administrative Lender and, in
the case of an amendment, by the Borrower.
Section 11.12 Exception to Covenants. Neither the Borrower nor any
Subsidiary of the Borrower shall be deemed to be permitted to take any action
or fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the permissible limits of any of
the covenants contained herein if such action or omission would result in the
breach of any other covenant contained herein.
Section 11.13 No Liability of Issuing Bank. The Borrower assumes
all risks of the acts or omissions of any beneficiary or transferee of any
Letter of Credit with respect to its use of such Letter of Credit. NEITHER THE
ISSUING BANK NOR ANY LENDER NOR ANY
- 90 -
<PAGE> 98
OF THEIR RESPECTIVE OFFICERS OR DIRECTORS SHALL BE LIABLE OR RESPONSIBLE FOR:
(A) THE USE THAT MAY BE MADE OF ANY LETTER OF CREDIT OR ANY ACTS OR OMISSIONS
OF ANY BENEFICIARY OR TRANSFEREE IN CONNECTION THEREWITH; (B) THE VALIDITY,
SUFFICIENCY OR GENUINENESS OF DOCUMENTS, OR OF ANY ENDORSEMENT THEREON, EVEN IF
SUCH DOCUMENTS SHOULD PROVE TO BE IN ANY OR ALL RESPECTS INVALID, INSUFFICIENT,
FRAUDULENT OR FORGED; (C) PAYMENT BY THE ISSUING BANK AGAINST PRESENTATION OF
DOCUMENTS THAT DO NOT COMPLY WITH THE TERMS OF A LETTER OF CREDIT, INCLUDING
FAILURE OF ANY DOCUMENTS TO BEAR ANY REFERENCE OR ADEQUATE REFERENCE TO THE
LETTER OF CREDIT, EXCEPT FOR ANY PAYMENT MADE UPON THE ISSUING BANK'S GROSS
NEGLIGENCE OR WILFUL MISCONDUCT; OR (D) ANY OTHER CIRCUMSTANCES WHATSOEVER IN
MAKING OR FAILING TO MAKE PAYMENT UNDER ANY LETTER OF CREDIT, INCLUDING,
WITHOUT LIMITATION, ANY SUCH CIRCUMSTANCES INVOLVING THE SIMPLE OR MERE
NEGLIGENCE OF THE ISSUING BANK EXCEPT THAT THE BORROWER SHALL HAVE A CLAIM
AGAINST THE ISSUING BANK, AND THE ISSUING BANK SHALL BE LIABLE TO THE BORROWER,
TO THE EXTENT OF ANY DIRECT, BUT NOT CONSEQUENTIAL, DAMAGES SUFFERED BY THE
BORROWER THAT A COURT OF COMPETENT JURISDICTION DETERMINES WERE CAUSED BY (I)
THE ISSUING BANK'S WILFUL MISCONDUCT OR GROSS NEGLIGENCE OR (II) THE ISSUING
BANK'S WILFUL FAILURE TO MAKE LAWFUL PAYMENT UNDER A LETTER OF CREDIT AFTER THE
PRESENTATION TO IT OF A DRAFT AND CERTIFICATES STRICTLY COMPLYING WITH THE
TERMS AND CONDITIONS OF THE LETTER OF CREDIT. In furtherance and not in
limitation of the foregoing, the Issuing Bank may accept documents that appear
on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
Section 11.14 Confidentiality. Each Lender and the Administrative
Lender agrees (on behalf of itself and each of its directors, officers,
employees and representatives) to use reasonable precautions to keep
confidential, in accordance with customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Borrower pursuant
to this Agreement which is identified by the Borrower as being confidential at
the time the same is delivered to the Lenders or the Administrative Lender,
provided that nothing herein shall limit the disclosure of any such information
(a) to the extent required by statute, rule, regulation or judicial process,
(b) to counsel for any Lender or the Administrative Lender, (c) to bank
examiners, auditors or accountants of any Lender, (d) to the Administrative
Lender or any other Lender, (e) in connection with any Litigation to which any
one or more of Lenders is a party, provided, further, that, unless specifically
prohibited by Applicable Law or court order, each Lender shall, prior to
disclosure thereof, notify Borrower of any request for disclosure of any such
non-public information (i) by any Tribunal or representative thereof (other
than any such request in connection with an examination of such Lender's
financial condition by such governmental agency) or (ii) pursuant to legal
process, or (f) to any Assignee or Participant (or prospective
- 91 -
<PAGE> 99
Assignee or Participant) so long as such Assignee or Participant (or
prospective Assignee or Participant) agrees in writing to handle such
information in accordance with the provisions of this Section 11.14.
Section 11.15 No Liability of Lenders to Purchasers. The Lenders
do not assume and shall have no responsibility, obligation or liability to the
Purchasers, the Lenders' relationship being solely that of a creditor who has
taken, as security for Indebtedness owed to it, an Assignment of Pledged
Documents.
SECTION 11.16 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS) AND THE
UNITED STATES OF AMERICA. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS, TEXAS,
AND BORROWER AND EACH SURETY, GUARANTOR, ENDORSER AND ANY OTHER PARTY EVER
LIABLE FOR PAYMENT OF ANY MONEY PAYABLE WITH RESPECT TO THE LOAN DOCUMENTS,
JOINTLY AND SEVERALLY WAIVE THE RIGHT TO BE SUED ELSEWHERE. WITHOUT EXCLUDING
ANY OTHER JURISDICTION, THE BORROWER, THE ADMINISTRATIVE LENDER AND EACH LENDER
EACH AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS,
TEXAS, SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND HEREBY SUBMITS WITH RESPECT TO
ITSELF AND ITS PROPERTY TO THE JURISDICTION OF ANY SUCH COURT FOR THE PURPOSE
OF ANY SUIT, ACTION, PROCEEDING OR JUDGMENT RELATING TO OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT.
SECTION 11.17 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY
AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS AGREEMENT
AND MAKING ANY ADVANCES HEREUNDER.
SECTION 11.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER
WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE
- 92 -
<PAGE> 100
PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- 93 -
<PAGE> 101
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date
first set forth above.
BORROWER: SIGNATURE RESORTS, INC.
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Dewey W. Chambers
------------------------------------
Vice President and Treasurer
------------------------------------
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: /s/ TOM BLAKE
------------------------------------
Tom Blake
Senior Vice President
DOCUMENTATION AGENT: SOCIETE GENERALE, as Documentation Agent
By: /s/ J. BLAINE SCHAUM
------------------------------------
Name: J. Blaine Schaum
------------------------------------
Title: Regional Manager
------------------------------------
2029 Century Park East, Suite 2900
Los Angeles, California 90067
- 94 -
<PAGE> 102
LENDERS: NATIONSBANK OF TEXAS, N.A., as a Lender,
Swing Line Bank and Issuing Bank
Specified Percentage:
30.00%
By: /s/ TOM BLAKE
------------------------------------
Tom Blake
Senior Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Tom Blake
Senior Vice President
- 95 -
<PAGE> 103
SOCIETE GENERALE, as a Lender
Specified Percentage:
25.00%
By: /s/ J. BLAINE SCHAUM
------------------------------------
Name: J. Blaine Schaum
------------------------------------
Title: Regional Manager
------------------------------------
2029 Century Park East, Suite 2900
Los Angeles, California 90067
- 96 -
<PAGE> 104
CREDIT LYONNAIS NEW YORK BRANCH
Specified Percentage:
15.00%
By: /s/ RODRICK ROHRBACH
------------------------------------
Name: Rodrick Rohrbach
------------------------------------
Title: Senior Vice President
------------------------------------
1301 Avenue of the Americas
New York, New York 10019
- 97 -
<PAGE> 105
BT COMMERCIAL CORPORATION
Specified Percentage:
15.00%
By: /s/ Rita Dagdelen-Keskinyan
------------------------------------
Name: Rita Dagdelen-Keskinyan
------------------------------------
Title: Senior Vice President
------------------------------------
14 Wall Street, 3rd Floor
New York, New York 10005
- 98 -
<PAGE> 106
BANK OF HAWAII
Specified Percentage:
15.00%
By: /s/ Joseph T. Donalson
------------------------------------
Name: Joseph T. Donalson
------------------------------------
Title: Vice President
------------------------------------
----------------------------------------
----------------------------------------
- 99 -
<PAGE> 1
Exhibit 10.6.15
AMENDMENT TO VARIOUS LOAN AND COMMITMENT AGREEMENTS
This Amendment to Various Loan and Commitment Agreements and Loan and
Security Agreements (this "Amendment") is entered into as of this 18th day of
February, 1998 by and between FINOVA CAPITAL CORPORATION, a Delaware
corporation, formerly known as Greyhound Financial Corporation ("Lender"),
SIGNATURE RESORTS, INC., a Maryland corporation ("Signature"), LAKE TAHOE RESORT
PARTNERS, LLC, a California limited liability company ("Lake Tahoe"), GRAND
BEACH RESORT, LIMITED PARTNERSHIP, a Georgia limited partnership ("Grand
Beach"), PORT ROYAL RESORT L.P., a South Carolina limited partnership ("Port
Royal"), AKGI-SINT MAARTEN, N.V., a Netherlands Antilles corporation, ("AKGI"),
ALL SEASONS RESORTS, INC., an Arizona corporation ("All Seasons"), AVCOM
INTERNATIONAL, INC., a Delaware corporation ("Avcom"), and KABUSHIKI GAISHA KEI,
L.L.C., a California limited liability company ("KGK").
R E C I T A L S
A. Lender's predecessor-in-interest, Greyhound Real Estate Finance
Company, an Arizona corporation ("GREFCO"), and Cypress Pointe Resorts, L.P., a
Delaware limited partnership ("Cypress"), entered into that Construction Loan
Agreement dated as of December 19, 1991 pursuant to which GREFCO agreed to make
a construction loan to Cypress for the purposes more particularly described
therein (such Construction Loan Agreement, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing, is hereinafter referred to
collectively as the "Cypress Construction Loan Agreement"). GREFCO and Cypress
also entered into that Loan and Security Agreement dated as of December 19,
1991 pursuant to which Lender agreed to make receivables and working capital
loans to Cypress (such Loan and Security Agreement, together with any and all
renewals, extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing, is hereinafter referred to
collectively as the "Cypress Receivables Loan Agreement"). Pursuant to that
Assignment dated as of January 13, 1993 by and between GREFCO and Lender,
GREFCO assigned to Lender all of GREFCO's rights and obligations under the
Cypress Construction Loan, the Cypress Construction Loan Agreement, the Cypress
Receivables Loan and the Cypress Receivables Loan Agreement, and all documents
and instruments executed in connection therewith.
B. Lender and San Luis Resort Partners, L.L.C., a Georgia limited
liability company ("San Luis"), entered into that Construction Loan Agreement
dated as of June 6, 1996 pursuant to which Lender agreed to make a construction
loan to San Luis for the purposes more particularly set forth therein (such
Construction Loan Agreement, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications,
whether now or hereafter existing, is hereinafter referred to collectively as
<PAGE> 2
the "San Luis Construction Loan Agreement"). San Luis and Lender also entered
into that Loan and Security Agreement dated as of June 6, 1996 pursuant to which
Lender agreed to make receivables and working capital loans to San Luis for the
purposes more specifically described therein (such Loan and Security Agreement,
together with any and all renewals, extensions, amendments, replacements,
restatements, supplements or modifications, whether now or hereafter existing,
is hereinafter referred to collectively as the "San Luis Receivables Loan
Agreement").
C. Lender and Lake Tahoe entered into that Construction Loan Agreement
dated as of April 29, 1996 pursuant to which Lender agreed to make a
construction loan to Lake Tahoe for the purposes more particularly set forth
therein (such Construction Loan Agreement, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing, is hereinafter referred to
collectively as the "Lake Tahoe Construction Loan Agreement"). Lake Tahoe and
Lender also entered into that Loan and Security Agreement dated as of April 29,
1996 pursuant to which Lender agreed to make receivables and working capital
loans to Lake Tahoe for the purposes more specifically described therein (such
Loan and Security Agreement, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications, whether
now or hereafter existing, is hereinafter referred to collectively as the "Lake
Tahoe Receivables Loan Agreement").
D. Lender and Grand Beach entered into that Construction Loan Agreement
dated as of October 7, 1994 pursuant to which Lender agreed to make a
construction loan to Grand Beach for the purposes more particularly set forth
therein (such Construction Loan Agreement, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing, is hereinafter referred to
collectively as the "Grand Beach Construction Loan Agreement"). Grand Beach and
Lender also entered into that Loan and Security Agreement dated as of October 7,
1994 pursuant to which Lender agreed to make receivables and working capital
loans to Grand Beach for the purposes more specifically described therein (such
Loan and Security Agreement, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications, whether
now or hereafter existing, is hereinafter referred to collectively as the "Grand
Beach Receivables Loan Agreement").
E. Lender and Port Royal entered into that Construction Loan Agreement
dated as of October 7, 1993 pursuant to which Lender agreed to make a
construction loan to Port Royal for the purposes more particularly set forth
therein (such Construction Loan Agreement, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing, is hereinafter referred to
collectively as the "Port Royal Construction Loan Agreement"). Port Royal and
Lender also entered into that Loan and Security Agreement dated as of October
7, 1993 pursuant to which Lender agreed to make receivables loan to Port Royal
for the purposes more specifically described therein (such Loan and Security
Agreement, together with any
2
<PAGE> 3
and all renewals, extensions, amendments, replacements, restatements,
supplements or modifications, whether now or hereafter existing, is hereinafter
referred to collectively as the ("Port Royal Receivables Loan Agreement").
F. Lender and KGK entered into that Loan and Security Agreement dated
as of December 1, 1995, pursuant to which Lender agreed to make to KGK a
receivables loan for the purposes and upon the terms and conditions set forth
therein (such Loan Agreement, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications, whether
now or hereafter existing, are hereinafter referred to collectively as the KGK
Loan Agreement").
G. Lender and AKGI-Royal Palm, C.V.o.a., a Netherlands Antilles limited
partnership ("Royal Palm"), entered into that Loan and Security Agreement dated
as of July 12, 1995, pursuant to which Lender agreed to make to Royal Palm an
acquisition and development loan (the "Royal Palm A&D Loan") and a receivables
loan (the "Royal Palm Receivables Loan"). The Loan and Security Agreement,
together with any and all renewals, extensions, amendments, replacements,
restatements, supplements or modifications, whether now or hereafter existing,
is hereinafter collectively referred to as the "Royal Palm Loan Agreement." The
obligations of Royal Palm under the Royal Palm A&D Loan and the Royal Palm
Receivables Loan are guaranteed by AKGI pursuant to that Corporate Guarantee
Agreement dated as of July 12, 1995.
H. Lender and AKGI-Flamingo, C.V.o.a., a Netherlands Antilles limited
partnership ("Flamingo"), entered into that Loan and Security Agreement dated
as of September 1, 1995, pursuant to which Lender agreed to make to Flamingo an
acquisition and development loan (the "Flamingo A&D Loan") and a receivables
loan (the "Flamingo Receivables Loan"). The Loan and Security Agreement,
together with any and all renewals, extensions, amendments, replacements,
restatements, supplements or modifications, whether now or hereafter existing,
is hereinafter collectively referred to as the "Flamingo Loan Agreement." The
obligations of Flamingo under the Flamingo A&D Loan and the Flamingo
Receivables Loan are guaranteed by AKGI pursuant to the terms and conditions of
that Corporate Guarantee Agreement dated as of September 1, 1995 (the "Flamingo
Guarantee").
I. Resort Capital Corporation ("RCC") and Fall Creek Resort, L.P., a
Georgia limited partnership ("Fall Creek"), entered into that Commitment
Agreement dated as of May 21, 1993 pursuant to which Lender agreed to purchase
certain portfolios of promissory notes and mortgages then existing and
thereafter arising from sales by Fall Creek to individuals purchasing interval
estates in specific condominium parcels developed by Fall Creek as a time share
condominium project known as The Plantation at Fall Creek (the "Fall Creek
Purchase") for the purposes and upon the terms and conditions set forth therein
(such Commitment Agreement, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modification, whether
now or hereafter existing, is hereinafter referred to collectively as the "Fall
Creek Commitment Agreement").
3
<PAGE> 4
J. Pursuant to that Private Placement Memorandum dated as of May 28,
1996, Signature solicited and received the consent and agreement of the general
partner and limited partner of Cypress and the members of San Luis to exchange
their respective interests in Cypress and San Luis for shares of common stock
in Signature (the "Consent Solicitation"). Pursuant to the Consent
Solicitation, the general partner and limited partner of Cypress and the
members of San Luis have exchanged their respective interests in such entities
for shares of common stock in Signature. Essentially simultaneously therewith,
each of the corporate partners or members of Cypress and San Luis were merged
with and into Signature, and each of the interests of the partners and members
of Cypress and San Luis were transferred to Signature. As of the date of this
Agreement, Signature constitutes the surviving corporation of such mergers and
interest transfers.
K. Further, pursuant to the Consent Solicitation, Signature solicited
and received the consent and agreement of the general partners and limited
partners of Royal Palm and Flamingo to exchange their respective interests in
Royal Palm and Flamingo for shares of common stock in Signature. As a result,
all of the outstanding shares of stock of AKGI were transferred to and are held
by Signature, and Royal Palm and Flamingo were dissolved into AKGI (the "AKGI
Merger"). As a result of the AKGI Merger as described in the Deed of
Acknowledgment executed in connection with Royal Palm dated on or about August
15, 1996 (the "Royal Palm Deed of Acknowledgment") and in the Deed of
Acknowledgment executed in connection with Flamingo dated on or about August
15, 1996 (the "Flamingo Deed of Acknowledgment"), AKGI succeeded as a matter of
law to all rights and privileges of Royal Palm and Flamingo and became directly
responsible and liable for all liabilities and obligations of Royal Palm and
Flamingo.
L. Pursuant to that Private Placement Memorandum dated as of May 28,
1996, Signature solicited and received the consent and agreement of the general
and limited partners of Fall Creek to exchange their respective interests in
Fall Creek for shares of common stock in Signature (the "Fall Creek Consent
Solicitation"). Pursuant to the Fall Creek Consent Solicitation, the general
and limited partners of Fall Creek have exchanged their respective interests in
such entities for shares of common stock in Signature. Essentially
simultaneously therewith, each of the general and limited partners of Fall
Creek were merged with and into Signature, and each of the interests of the
general and limited partners of Fall Creek were transferred to Signature.
Signature constitutes the surviving corporation of such interest transfers.
M. Signature and Avcom completed a merger pursuant to that certain
Agreement and Plan of Merger by and between Signature and Avcom, dated
September 22, 1996, as amended by that First Amendment to Agreement and Plan of
Merger dated November 15, 1996, and that Second Amendment to Agreement and Plan
of Merger dated December 18, 1996 and that certain Certificate of Merger of ASP
Acquisition Corp. in to Avcom to be filed with the Delaware Secretary of State
(the "Merger Transaction") whereby
4
<PAGE> 5
a wholly owned subsidiary of Signature, ASP Acquisition Company, a Delaware
corporation, merged into Avcom with the result that Avcom became the sole
surviving entity of such merger and a wholly owned subsidiary of Signature. All
Seasons remains a wholly owned subsidiary of Avcom.
N. Pursuant to that certain Assumption Agreement dated as of August 15,
1996, Signature assumed all of the liabilities and obligations of Cypress under
the Cypress Construction Loan Agreement and the Cypress Receivables Loan
Agreement. Pursuant to the aforementioned Assumption Agreement, Signature also
assumed all of the liabilities and obligations of San Luis under the San Luis
Construction Loan Agreement and the San Luis Receivables Loan Agreement.
O. Pursuant to that certain Assumption Agreement dated as of August 15,
1996, AKGI assumed all of the liabilities and obligations of Royal Palm under
the Royal Palm Loan Agreement and under the Flamingo Loan Agreement.
P. Pursuant to that certain Assumption Agreement dated as of August 15,
1996 between Signature and RCC, Signature assumed all liabilities and
obligations of Fall Creek as seller under the Fall Creek Purchase and the Fall
Creek Commitment Agreement.
Q. Lender has succeeded to the rights of RCC under the Fall Creek
Purchase and Fall Creek Commitment Agreement.
R. Signature is the owner of all the constituent members of Lake Tahoe.
S. Signature is the owner of all the constituent general and limited
partners of Grand Beach.
T. Signature is the owner of all the constituent general and limited
partners of Port Royal.
U. Signature is the owner of all the constituent general and limited
partners of KGK.
V. Signature, Lake Tahoe, Grand Beach, Port Royal, KGK and Lender
desire and intend by this Amendment to modify certain of the covenants
contained within the Signature Loan Agreements (as defined below).
W. Lender and AKGI desire and intend by this Amendment to set forth
their understanding concerning certain covenant and reporting requirements that
are required of AKGI in respect of the two attachments that are recorded as
liens against the Real Property as that term is defined in the Royal Palm Loan
Agreement ("Attachments").
5
<PAGE> 6
X. Lender and Signature desire and intend by this Amendment to set
forth their mutual understanding concerning certain portfolio replacement
obligations required of Signature under the Fall Creek Commitment Agreement.
Y. Signature, Avcom, All Seasons and Lender desire to set forth their
mutual understanding concerning the governing law under the All Seasons
Purchase Documents and the All Seasons Loan Documents, as defined below.
NOW, THEREFORE, in consideration of the foregoing Recitals and all of
the covenants contained in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lender, Signature, Lake Tahoe, Grand Beach, Port Royal AKGI, KGK, Avcom and All
Seasons hereby jointly and severally state, confirm and agree as follows:
A G R E E M E N T
1. DEFINITIONS. The following terms shall have the meaning ascribed
to them below.
1.1 "All Seasons Loan Documents" shall have the same meaning as
the term "Loan Documents", as defined in that certain Ratification
Agreement dated February 7, 1997 among Lender, FINOVA Portfolio Services,
Inc., All Seasons, AVCOM and Signature.
1.2 "All Seasons Purchase Documents" shall have the same meaning
as the term "Purchase Documents", as defined in that certain Ratification
Agreement dated February 7, 1997 among Lender, FINOVA Portfolio Services,
Inc., All Seasons, AVCOM and Signature.
1.3 "Attachments" shall have the meaning set forth in the
Recitals to this Agreement.
1.4 "Cost of Time-Share Interest Sold" shall mean the "vacation
interval and point cost of sale" line item as reflected in Signatures' and
the Signature Affiliates' financial statements prepared in accordance with
GAAP.
1.5 "GAAP" shall mean generally accepted accounting principles
as in effect from time to time, which shall include the official
interpretations thereof by the Financial Accounting Standards Board or any
successor thereto.
6
<PAGE> 7
1.6 "General and Administrative Expenses" shall mean the
"general and administrative expense" line item reflected on Signature's and
the Signature Affiliates' financial statements, prepared in accordance with
GAAP.
1.7 "Indebtedness" shall mean all liabilities, obligations and
reserves, contingent or otherwise, which in accordance with GAAP, would be
reflected as a liability on a balance sheet would be required to be
disclosed in a financial statement.
1.8 "Marketing Expense" shall mean the aggregate of all expenses
incurred by Signature and the Signature Affiliates in the sale and
marketing of Time-Share Interest including, without limitation, all costs
and expenses for advertising, mailing, consumer premiums, referral lead
generation, closing costs and sales commissions.
1.9 "Net Sales" shall mean the gross sale of Time-Share
Interests during any period reduced only by cancellations thereof.
1.10 "Signature Affiliates" means, individually and
collectively, Lake Tahoe, Grand Beach, Port Royal, and KGK.
1.11 "Signature Loan Agreements" shall mean, individually and
collectively, the Cypress Construction Loan Agreement, the Cypress
Receivables Loan Agreement, the San Luis Construction Loan Agreement, the
San Luis Receivables Loan Agreement, the Lake Tahoe Construction Agreement,
the Lake Tahoe Receivables Loan Agreement, the Grand Beach Construction
Loan Agreement, the Grand Beach Receivables Loan Agreement, the Port Royal
Construction Loan Agreement, the Port Royal Receivables Loan Agreement and
the KGK Loan Agreement.
1.12 "Signature Loan Documents" shall have the meaning set forth
in paragraph 4 hereof.
1.13 "Tangible Net Worth" means shall mean, with respect to any
date of determination, Signature's net worth as determined in accordance
with GAAP plus the pre-tax LIFO reserves, minus each of (i) general
intangibles (including without limitation, customer lists, franchise
agreements, licenses, goodwill, non-competition agreements, subscription
lists, and organizational expenses), (ii) monies due from officers or
directors, (iii) direct or indirect loans to stockholders, Signature
Affiliates or other affiliates, (iv) security deposits, (v) prepaid costs
and expenses, and (vi) "other assets" under Signature's financial
statements pursuant to GAAP.
1.14 "Time-Share Interest" shall mean the rights sold to a
consumer for the exclusive use of a timeshare unit and the common areas
associated therewith,
7
<PAGE> 8
in real property owned by Signature or a Signature Affiliate, for a one week
period during each year or alternate year.
2. Amendments.
2.1 Net Worth Covenant. The net worth covenant contained in
(i) Section 9.19(a) of the Cypress Construction Loan
Agreement, as amended,
(ii) Section 8.22(a) of the Cypress Receivables Loan
Agreement, as amended,
(iii) Section 9.19(a) of the Port Royal Construction
Loan Agreement, as amended,
(iv) Section 8.22(a) of the Port Royal Receivables
Loan Agreement;
(v) Section 9.19(a) of the Grand Beach Construction
Loan Agreement,
(vi) Section 8.22(a) of the Grand Beach Receivables
Loan Agreement,
(vii) Section 9.19(a) of the San Luis Construction
Loan Agreement.
(viii) Section 8.22(a) of the San Luis Receivables Loan
Agreement,
(ix) Section 9.19(a) of the Lake Tahoe Construction
Loan Agreement,
(x) Section 8.22(a) of the Lake Tahoe Receivables
Loan Agreement, and
(xi) Section 8.22(a) of the KGK Loan Agreement, shall
be amended and restated in their entirety as follows:
"Signature shall maintain and each of the Signature
Affiliates shall cause Signature to maintain, a Tangible
Net Worth of not less than
8
<PAGE> 9
Ninety Million Dollars ($90,000,000) which covenants shall be tested
on a quarterly basis."
2.2 Marketing Expense. The marketing and sales covenant contained in
(i) Section 9.19(b) of the Cypress Construction Loan
Agreement, as amended,
(ii) Section 8.22(b) of the Cypress Receivables Loan
Agreement, as amended,
(iii) Section 9.19(b) of the Port Royal Construction Loan
Agreement, as amended,
(iv) Section 8.22(b) of the Port Royal Receivables Loan
Agreement;
(v) Section 9.19(b) of the Grand Beach Construction Loan
Agreement;
(vi) Section 8.22(b) of the Grand Beach Receivables Loan
Agreement,
(vii) Section 9.19(b) of the San Luis Construction Loan
Agreement,
(viii) Section 8.22(b) of the San Luis Receivables Loan
Agreement,
(ix) Section 9.19(b) of the Lake Tahoe Construction Loan
Agreement, and
(x) Section 8.22(b) of the Lake Tahoe Receivables Loan
Agreement
shall be amended and restated in their entirety as follows:
"The cumulative aggregate Marketing Expenses of Signature and the
Signature Affiliates shall not exceed fifty percent (50%) of the
cumulative aggregate of Net Sales of Signature and the Signature
Affiliates, which covenant shall be tested on a consolidated quarterly
basis."
9
<PAGE> 10
2.3 KGK Marketing Expense. The KGK Loan Agreement shall be amended
with the addition of the following marketing covenant:
"The cumulative aggregate Marketing Expenses of Signature and the
Signature Affiliates shall not exceed fifty percent (50%) of the
cumulative aggregate Net Sales of Signature and the Signature
Affiliates, which covenants shall be tested on the consolidated
quarterly basis."
2.3 G and A Expense. The general and administrative expense covenant
contained in
(i) Section 9.19(c) of the Port Royal Construction Loan
Agreement, as amended,
(ii) Section 8.22(c) of the Port Royal Receivables Loan Agreement;
(iii) Section 9.19(c) of the Grand Beach Construction Loan
Agreement,
(iv) Section 8.22(c) of the Grand Beach Receivables Loan Agreement,
(v) Section 9.19(c) of the San Luis Construction Loan Agreement,
(vi) Section 8.22(c) of the San Luis Receivables Loan Agreement,
(ix) Section 9.19(c) of the Lake Tahoe Construction Loan
Agreement, and
(x) Section 8.22(c) of the Lake Tahoe Receivables Loan Agreement
shall be amended and restated in their entirety as follows:
"The cumulative aggregate General and Administrative Expenses
of Signature and the Signature Affiliates shall not exceed
sixteen percent (16%) of the cumulative aggregate total
revenues of Signature and the
10
<PAGE> 11
Signature Affiliates, which covenant shall be tested on a
consolidated quarterly basis."
2.5 Cypress G and A Expense. The Cypress Construction Loan Agreement
and the Cypress Receivables Loan Agreement shall be amended with the
additional following general and administrative expense covenant:
"The cumulative aggregate General and Administrative Expenses of
Signature and the Signature Affiliates shall not exceed sixteen
percent (16%) of the cumulative aggregate total revenue of
Signature and the Signature Affiliates, which covenant shall be
tested on a consolidated quarterly basis."
2.6 KGK G and A Expense. The KGK Loan Agreement shall be amended
with the addition of the following General and Administrative Expense
covenant:
"The cumulative aggregate General and Administrative Expenses of
Signature and the Signature Affiliates shall not exceed sixteen
percent (16%) of the cumulative aggregate total revenue of
Signature and the Signature Affiliates, which covenant shall be
tested on a consolidated quarterly basis."
2.7 Cost of Sale. Each Signature Loan Agreement shall be amended
with the addition of the following additional financial covenants:
"The cumulative aggregate Cost of Time-Share Interest Sold of
Signature and the Signature Affiliates shall not exceed
twenty-eight (28%) of the cumulative aggregate Net Sales of
Signature and the Signature Affiliates, which covenant shall be
tested on a consolidated quarterly basis."
2.8 Other Financial Covenants. The following financial covenants
shall be deleted from the following Signature Loan Agreements:
<TABLE>
<CAPTION>
Description of
Name of Agreement Paragraph No. Covenant
<S> <C> <C>
Cypress Construction Loan Agreement 9.19(c) Debt to Net Worth
Cypress Receivables Loan Agreement 8.22(c) Debt to Net Worth
Cypress Receivables Loan Agreement 8.22(d) Capital Leases
Cypress Construction Loan Agreement 10.9 Distributions
Cypress Receivables Loan Agreement 8.21 Distributions
Port Royal Construction Loan Agreement 10.8 Distributions
Port Royal Receivables Loan Agreement 8.21 Distributions
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
<S> <C> <C>
Grand Beach Construction Loan Agreement 10.8 Distribution
Grand Beach Receivables Loan Agreement 8.21 Distributions
Lake Tahoe Construction Loan Agreement 10.8 Distributions
Lake Tahoe Receivables Loan Agreement 8.21 Distributions
San Luis Construction Loan Agreement 10.8 Distributions
San Luis Receivables Loan Agreement 8.21 Distribution
KGK Loan Agreement 8.21 Distribution
</TABLE>
2.9 Attachments. The Royal Palm Loan Agreement is hereby amended to
require the following:
On February 27, 1998 and on the last business day of each
succeeding month thereafter, until the Attachments are satisfied
in full or released, AKGA shall give to Lender a written report
concerning the status of the Attachments, updating Lender on any
relevant developments concerning the Attachments since the last
update report. In addition AKGI shall promptly respond to any
inquiries of Lender concerning the Attachments. In the event the
holder of the Attachments initiates any efforts to foreclose or
realize upon the same, AKGI shall promptly give Lender written
notice of such action and shall promptly pay the Attachments in
full prior to the conclusion of such foreclosure or other
realization process.
2.10 Fall Creek Accounts. The Fall Creek Commitment Agreement is
hereby amended to require the following:
Within thirty (30) days following the date hereof, Signature
shall deliver to Lender title insurance policies in a form and
from an underwriter satisfactory to Lender insuring Lender's
title as to those accounts set forth in the attached Exhibit A.
Within thirty five (35) days following the date hereof Signature
shall repurchase from Lender any accounts set forth in the
attached Exhibit A with respect to which an acceptable title
insurance policy has not been delivered, for an amount equal to
the unpaid balance of such account plus Servicing Fees (as
defined in the Fall Creek Commitment Agreement).
2.11 All Seasons Choice of Laws. Signature, All Seasons and Avcom
hereby jointly and severally agree that the All Seasons Purchase Documents and
the All Seasons Loan Documents are hereby governed by and construed in
accordance with the internal laws of the State of Arizona and the All Seasons
Loan Documents and All Seasons Purchase Documents are hereby amended
accordingly.
12
<PAGE> 13
3. AKGI. AKGI shall not be considered a Signature Affiliate for
purposes of this Amendment and the financial covenants binding upon AKGI shall
be as set forth in the existing agreements between Lender and AKGI.
4. Document Reference. All references to the "Loan Agreement" in
the documents executed in connection with the Signature Loan Agreements (the
"Signature Loan Documents") and to "this Agreement", "herein", "hereof",
"hereto", and "hereunder" in any of the Signature Loan Agreements are hereby
amended to refer to the relevant Signature Loan Agreement as amended through
this Amendment.
5. Fees and Expenses. Signature and each Signature Affiliate
jointly and severally agree to pay, on demand, all costs and expenses of Lender
arising from the preparation of this Amendment and the closing of this
Amendment or otherwise incurred by Lender in connection with this Amendment.
6. Authority. Signature, each Signature Affiliate, AKGI, All
Seasons and AVCOM jointly and severally warrant and represent to Lender that
the person executing this Amendment on behalf of Signature, Such Signature
Affiliate, AKGI, All Seasons or AVCOM, as the case may be, is fully authorized
and empowered to do so and that this Amendment, as executed and delivered, is
binding and enforceable against Signature, each Signature Affiliate, AKGI, All
Seasons and AVCOM.
7. Confirmation of Representations, Warranties and Agreements.
7.1 Signature and the Signature Affiliates jointly and severally
reaffirm the validity, enforceability and legality of the Signature Loan
Documents and all provisions of the Signature Loan Documents, as modified, are
hereby confirmed and ratified; provided, however, that with respect to
enforceability and legality, such reaffirmation only to the best of Signature's
and each Signature Affiliate's knowledge. Signature and the Signature Affiliates
jointly and severally acknowledge that as of the date hereof, they have (i) no
defense, counterclaim, offset, cross-complaint, claim or demand of any nature
whatsoever which can be asserted as a basis to seek affirmative relief or
damages from Lender or as a basis to reduce or eliminate all or any part of its
liability to repay the loans which are the subject matter of the Signature Loan
Documents and (ii) no other claim against Lender with respect to any aspect of
the transaction in respect to which such loans were made.
7.2 AKGI reaffirms the validity, enforceability and legality of the
Royal Palm Loan Agreement and the documents executed in connection therewith
and the Flamingo Loan Agreement and the documents executed in connection and
all provisions of the aforementioned agreements and documents are hereby
confirmed and ratified; provided, however, that with respect to enforceability
and legality, such reaffirmation only to the best of AKGI's knowledge. AKGI
acknowledges that as of the date hereof, it has (i) no defense, counterclaim,
offset, cross-complaint, claim or demand of any nature whatsoever which can
13
<PAGE> 14
be asserted as a basis to seek affirmative relief or damages from Lender or as
a basis to reduce or eliminate all or any part of its liability to repay the
loans which are the subject matter of the Royal Palm Loan Agreement or the
Flamingo Loan Agreement and (ii) no other claim against Lender with respect to
any aspect of the transaction in respect to which such loans were made.
7.3 Signature reaffirms the validity, enforceability and legality of
the Fall Creek Purchase and the Fall Creek Commitment Agreement and all
documents executed in connection thereunder and all provisions of the
aforementioned agreements are hereby confirmed and ratified; provided, however,
that with respect to enforceability and legality, such reaffirmation only to
the best of Signature's knowledge. Signature acknowledges that as of the date
hereof, it has (i) no defense, counterclaim, offset, cross-complaint, claim or
demand of any nature whatsoever which can be asserted as a basis to seek
affirmative relief or damages from Lender or as a basis to reduce or eliminate
all or any part of its liability to repay the loans or other obligations which
are the subject matter of the Fall Creek Purchase and Fall Creek Commitment
Agreement and (ii) no other claim against Lender with respect to any aspect of
the transaction in respect to which such loans or other obligations were made.
7.4 Signature, All Seasons and AVCOM jointly and severally reaffirm
the validity, enforceability and legality of the All Seasons Loan Documents and
the All Seasons Purchase Documents and all provisions of the All Seasons Loan
Documents and the All Seasons Purchase Documents are hereby confirmed and
ratified; provided, however, that with respect to enforceability and legality,
such reaffirmation only to the best of Signature's, All Season's and AVCOM's
knowledge. Signature, All Season and AVCOM jointly and severally acknowledge
that as of the date hereof, they have (i) no defense, counterclaim, offset,
cross-complaint, claim or demand of any nature whatsoever which can be asserted
as a basis to seek affirmative relief or damages from Lender or as a basis to
reduce or eliminate all or any part of its liability to repay the loans or
other obligations which are the subject matter of the All Seasons Loan
Documents and the All Seasons Purchase Documents and (ii) no other claim
against Lender with respect to any aspect of the transaction in respect to
which such loans or other obligations were made.
8. Counterparts. This Amendment may be executed in any number of
separate counterparts, each of which when taken together shall constitute one
and the same instrument notwithstanding the fact that all parties have not
signed the same counterpart. Delivery of an executed counterpart of this
Amendment by telefacsimile shall be equally as effective as delivery of a
manually executed counterpart of this Amendment. Any party delivering an
executed counterpart of this Amendment by telefacsimile shall also deliver a
manually executed counterpart of this Amendment, but the failure to deliver a
manually executed counterpart shall not affect the validity, enforceability,
and binding effect of this Amendment.
14
<PAGE> 15
SIGNATURE RESORTS, INC., a Maryland
corporation
By: /s/ DEWEY W. CHAMBERS
----------------------------------
Its: DEWEY W. CHAMBERS
---------------------------------
VICE PRESIDENT AND TREASURER
PORT ROYAL RESORT, L.P.
a South Carolina limited partnership
By: Argosy/KGI Port Royal Partners,
a South Carolina general partnership
By: KGI Port Royal, Inc.
a South Carolina corporation,
General Partner
/s/ DEWEY W. CHAMBERS
-----------------------------
By: Dewey W. Chambers
Its: Vice President
LAKE TAHOE RESORTS PARTNERS, LLC, a
California limited liability company
By: AKGI Lake Tahoe Investments, Inc.
a California corporation
Its Member
By: /s/ DEWEY W. CHAMBERS
-----------------------------
Name: Dewey W. Chambers
Its: Vice President
15
<PAGE> 16
GRAND BEACH RESORT, LIMITED PARTNERSHIP,
a Georgia limited partnership
By: Grand Beach Partners, L.P.,
a California limited partnership
Title: General Partner
By: Argosy/KGI Grand Beach Investment
Partnership, a California general
partnership
Title: General Partner
By: KGI Grand Beach Investments, Inc.,
a California corporation
Title: Managing General Partner
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Name: Dewey W. Chambers
Title: Vice President
AKGI-SINT MAARTEN, N.V., a Netherlands
Antille corporation
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Name: Dewey W. Chambers
Title: Vice President
ALL SEASONS RESORTS, INC., an Arizona
corporation
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Name: Dewey W. Chambers
Title: Vice President
16
<PAGE> 17
AVCOM INTERNATIONAL, INC., a Delaware
corporation
By: /s/ DEWEY W. CHAMBERS
----------------------------------
Name: Dewey W. Chambers
Title: Vice President
KABUSHIKI GAISHA KEI LLC, a California
limited liability company
By: Argosy Partners, Inc., a Georgia corporation
Its: Member
By: /s/ DEWEY W. CHAMBERS
----------------------------------
Name: Dewey W. Chambers
Title: Vice President
FINOVA CAPITAL CORPORATION, a
Delaware corporation
By: /s/
---------------------------------
Its:
-----------------------------
<PAGE> 18
CONSENT OF GUARANTORS
By their execution below, the Guarantors below consent and agree to the
terms, covenants and conditions set forth in this Amendments, and agree that
their respective obligations under each of the Guaranty Agreements executed by
the undersigned in favor of FINOVA Capital Corporation shall remain in full
force and effect and continue to guarantee the obligations described
thereunder, notwithstanding the making of the agreements set forth in this
Amendment.
GRAND BEACH PARTNERS, L.P.,
a California limited partnership
By: ARGOSY/KGI GRAND BEACH
INVESTMENT PARTNERSHIP, a California general
partnership, its General Partner
By: KGI GRAND BEACH INVESTMENTS,
INC., a California corporation, its
Managing General Partner
By /s/ DEWEY W. CHAMBERS
-------------------------------
Its Vice President
ARGOSY/KGI GRAND BEACH INVESTMENT
PARTNERSHIP, a California general partnership
By: KGI GRAND BEACH INVESTMENTS, INC., a
California corporation, its Managing General
Partner
By /s/ DEWEY W. CHAMBERS
-------------------------------
Its Vice President
ARGOSY GRAND BEACH, INC., a Georgia
corporation
By /s/ DEWEY W. CHAMBERS
-------------------------------
Its Vice President
<PAGE> 19
KGI GRAND BEACH INVESTMENTS, INC., a
California corporation
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Its: Vice President
ARGOSY PARTNERS, INC., a Georgia
corporation
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Its: Vice President
ARGOSY/KGI PORT ROYAL PARTNERS, a South
Carolina general partnership
By: KGI PORT ROYAL, INC., a South
Carolina corporation, its Managing
General Partner
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Its: Vice President
KGK LAKE TAHOE DEVELOPMENT, INC., a
Delaware corporation
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Its: Vice President
AKGI LAKE TAHOE INVESTMENTS, INC., a
California corporation
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Its: Vice President
18
<PAGE> 20
AKGI-FLAMINGO, C.V.o.a., a Netherlands Antilles
limited partnership with its capital divided into shares
By: AKGI-SINT MAARTEN, N.V., a Netherlands
Antilles corporation with limited liability, its
General Partner
By /s/ DEWEY W. CHAMBERS
-----------------------------------------------
Its Vice President
AKGI-ROYAL PALM, C.V.o.a., a Netherlands
Antilles limited partnership with its capital
divided into shares
By: AKGI-SINT MAARTEN, N.V., a Netherlands
Antilles corporation with limited liability, its
General Partner
By /s/ DEWEY W. CHAMBERS
-----------------------------------------------
Its Vice President
<PAGE> 21
ADDITIONAL REVOLVING CREDIT NOTE
--------------------------------
Dallas, Texas $12,000,000 February 19, 1998
SIGNATURE RESORTS, INC., a Maryland corporation (the "Borrower"), for
value received, promises to pay to the order of NationsBank of Texas, N.A.
("Lender"), at the principal office of NationsBank of Texas, N.A. in Dallas
County, Texas, in lawful money of the United States of America, the principal
sum of TWELVE MILLION and NO/100 DOLLARS ($12,000,000), or such lesser sum as
shall be due and payable from time to time hereunder, as hereinafter provided.
All terms used but not defined herein shall have the meanings set forth in the
Credit Agreement described below.
Principal of and interest on the unpaid principal balance of advances
under this Additional Revolving Credit Note (the "Note") from time to time
outstanding shall be due and payable as set forth in the Credit Agreement and
the other Loan Documents.
This Note is issued pursuant to and evidences additional Revolving Credit
Advances under a Credit Agreement, dated as of January 9, 1998, among the
Borrower, NationsBank of Texas, N.A., as Administrative Lender, and the lenders
parties thereto (as amended, restated, supplemented, renewed, extended or
otherwise modified from time to time, "Credit Agreement"), to which reference
is made for a statement of the rights and obligations of the Lender and the
duties and obligations of the Borrower in relation thereto; but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal sum of and interest on this Note when due.
THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW), AND OF THE UNITED STATES OF AMERICA. THE
BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS,
TEXAS SHALL HAVE JURISDICTION OVER THE PROCEEDINGS IN CONNECTION WITH THIS NOTE
AND THE OTHER LOAN DOCUMENTS.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR
<PAGE> 22
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SIGNATURE RESORTS, INC.
By: /s/ DEWEY W. CHAMBERS
-----------------------------------
Name: Dewey W. Chambers
Title: Vice President and Treasurer
2
<PAGE> 1
EXHIBIT 10.6.16
LOAN AGREEMENT
AGREEMENT between POWHATAN ASSOCIATES, a Virginia joint venture (the
"Company"), and MARINE MIDLAND BANK, a New York bank (the "Bank").
Recitals
A. The Company and the Bank are parties to a Loan Agreement dated as of
September 21, 1990, as amended (the "1990 Loan Agreement") pursuant to which
the Company could obtain loans of up to $10,000,000.00 in the aggregate from
the Bank.
B. The Company and the Bank are also parties to a Loan Agreement dated
as of October 25, 1993, as amended (the "1993 Loan Agreement"), pursuant to
which the Company could obtain loans of up to $8,000,000.00 in the aggregate
from the Bank.
C. The Company and the Bank are also parties to a Loan Agreement dated
as of January 10, 1995 (the "Prior 1995 Loan Agreement"), pursuant to which the
Bank agreed to make loans of up to $6,000,000.00 in the aggregate to the
Company.
D. The parties now wish to enter into a new loan agreement,
consolidating the 1990 Loan Agreement, 1993 Loan Agreement and Prior 1995 Loan
Agreement and pursuant to which the Bank will make loans of up to
$20,000,000.00 in the aggregate to the Company.
Agreement
ARTICLE I. The Credit
1.1 THE CREDIT. The Bank agrees on the terms and conditions and relying
on the representations and warranties in this Agreement to lend to the Company,
and the Company agrees to borrow from the Bank, from time to time, such sums
("Loan" or, collectively, "Loans") not exceeding $20,000,000.00 (the "Credit")
as the Company may request from time to time on or before the first anniversary
of the date of this Agreement, and during such additional periods as a
supplement or amendment to this Agreement or a separate agreement between the
parties may provide.
1.2 THE NOTES.
(a) Variable-Rate Note: The portion of the Credit that is not
evidenced by Fixed-Rate Notes shall be evidenced by a note of the Company
bearing a variable rate of interest and substantially in the form of Exhibit A
to this
<PAGE> 2
- 2 -
Agreement and any amendment, modification, replacement or extension thereof
(the "Variable-Rate Note"). The Variable-Rate Note shall be in modification and
extension but not replacement of the Secured Term Notes of the Company, payable
to the order of the Bank, dated as of September 21, 1990, October 25, 1993, and
January 10, 1995.
(b) Fixed-Rate Notes: The portion of the Credit that is not
evidenced by the Variable-Rate Note shall be evidenced by a note or notes of
the Company bearing a fixed rate of interest and substantially in the form of
Exhibit B to this Agreement and any amendments, modifications, replacements or
extensions thereof (a "Fixed-Rate Note" or, collectively, "Fixed-Rate Notes"
and, together with the Variable-Rate Note, the "Notes").
1.3 Interest.
(a) Variable-Rate Loans: Each Loan evidenced by the Variable-Rate
Note (a "Variable-Rate Loan") shall accrue interest before and after maturity
from the date the Variable-Rate Loan is made, on the balance of principal from
time to time unpaid, at an annual rate (the "Variable Rate") equal to the Prime
Rate plus one and one-half percent (1 1/2%). The Variable Rate shall change
simultaneously with each change in the Prime Rate. In no event shall the
Variable Rate on the Variable-Rate Note exceed the maximum rate allowed by law.
Interest shall be calculated on the basis of one three hundred sixtieth
(1/360th) of the Variable Rate in effect for each calendar day the balance of
principal is unpaid. Accrued interest shall be payable monthly on the tenth day
of each month beginning the month after the month in which this Agreement is
executed and when the principal of the Variable-Rate Note is paid in full.
(b) Fixed-Rate Loans: Each Loan evidenced by a Fixed-Rate Note
(a "Fixed-Rate Loan") shall accrue interest before and after maturity from the
date the Fixed-Rate Loan is made, on the balance of principal from time to time
unpaid, at an annual rate (the "Fixed-Rate") equal to the "asked" yield on U.S.
Treasury Notes or Bonds with maturities equivalent to the requested term of the
Fixed-Rate Loan, as most recently quoted in The Wall Street Journal, plus three
percent (3%). In no event shall the Fixed Rate on any Fixed-Rate Note exceed
the maximum rate allowed by law. Interest shall be calculated on the basis of
one three hundred and sixtieth (1/360th) of the Fixed Rate in effect for each
calendar year the balance of principal is unpaid. Accrued interest shall be
payable monthly on the tenth day of each month beginning the first such day
after the Fixed-Rate Note is executed and delivered to the Bank and when the
principal of the Fixed-Rate Note is paid in full.
<PAGE> 3
-3-
1.4 DEFINITIONS. The following terms have the following meanings:
(a) "Compliance Certificate" -- a certificate of the chief financial
officer of the Company in the form of Exhibit C to this Agreement.
(b) "Designee" -- Wellington Financial Corp.
(c) "Disposal" -- the intentional or unintentional abandonment,
discharge, deposit, injection, dumping, spilling, leaking, storing, burning,
thermal destruction or placing of any substance so that it or any of its
constituents may enter the Environment.
(d) "Environment" -- any water, including but not limited to surface
water, ground water and water vapor; any land, including land surface or
subsurface; stream sediments; air; fish, wildlife and plants; and all other
natural resources or environmental media.
(e) "Environmental Laws" -- all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances, regulations, codes and rules relating to the
protection of the Environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances and the policies, guidelines, procedures, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
(f) "Environmental Permits" -- all licenses, permits, approvals,
authorizations, consents or registrations required by any applicable
Environmental Laws and all applicable judicial and administrative orders in
connection with the ownership, lease, purchase, transfer, closure, use and/or
operation of the Property and/or as may be required for the storage, treatment,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances.
(g) "Environmental Questionnaire" -- a questionnaire concerning (i)
activities and conditions affecting the Environment at any property of the
Company comprising the Project or (ii) the enforcement or possible enforcement
of any Environmental Law against the Company.
(h) "Environmental Report" -- a written report prepared for the Bank
by an environmental consulting or environmental engineering firm.
<PAGE> 4
(i) "Guaranties" -- the Unlimited Continuing Guaranties of the
Guarantors dated December 21, 1990, as amended and reaffirmed from time to time.
(j) "Guarantors" -- Williamsburg Vacations, Inc., Bush
Construction Corporation and Offsite International, Inc.
(k) "Hazardous Substances" -- without limitation, any explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances and any other
material defined as a hazardous substance in Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42 U.S.C. Section 9601(14)).
(l) "Lock Box Agent" -- Central Fidelity Bank, who, pursuant to
the Lock Box Agreement, will process payments on the Promissory Notes pledged
to the Bank and perform any other services specified in the Lock Box Agreement.
(m) "Lock Box Agreement" -- the separate Lock Box, Collection and
Servicing Agreement among the Company, the Bank and the Lock Box Agent dated
December 21, 1990, as amended, pursuant to which the Lock Box Agent will
process payments on the Promissory Notes pledged to the Bank.
(n) "Mortgage" -- a deed of trust that secures a Promissory Note
and encumbers a Timeshare Estate and that is given to the Company by a
Timeshare Purchaser.
(o) "Pre-Sold Timeshare Estate" -- a Timeshare Estate in a Unit
construction of which has not been completed but which has been sold to a
Timeshare Purchaser.
(p) "Prime Rate" -- the rate of interest publicly announced by
the Bank from time to time as its prime rate and is a base rate for calculating
interest on certain loans.
(q) "Project" -- the timeshare development commonly known as
Powhatan Plantation, located at 3601 Ironbound Road, State Route 615,
Williamsburg, Virginia 23185.
(r) "Promissory Note" -- a note given to the Company by a
Timeshare Purchaser to finance the purchase of a Timeshare Estate (a "Purchase")
and secured by a Mortgage.
(s) "Qualified Promissory Note and Mortgage" -- a Promissory Note
and the Mortgage securing it that meet all of the following criteria:
<PAGE> 5
- 5 -
(i) The credit of the Timeshare Purchaser who executed the
Promissory Note and Mortgage is acceptable to the Bank in its sole discretion.
(ii) All terms of the Purchase are acceptable to the Bank.
The down payment shall not be less than ten percent (10%) of the total sale
price.
(iii) The forms of Promissory Note and Mortgage are
acceptable to the Bank and comply with all applicable laws and regulations.
(iv) All other documents relating to the Purchase,
including without limitation disclosure statements, purchase contracts and
deeds, are acceptable to the Bank and comply with all applicable laws and
regulations.
(v) The Promissory Note and Mortgage are genuine and
enforceable according to their terms and are the only such instruments executed
with respect to the financing of the Purchase.
(vi) The Mortgage evidences a valid first lien on and
security interest in the Timeshare Estate described in the Mortgage.
(vii) The Timeshare Purchaser who executed the Promissory
Note and Mortgage had full and unimpaired capacity to contract.
(viii) The Company has no knowledge of, or reason to believe
in the existence of, any fact or circumstance that might render the Promissory
Note or Mortgage less valuable than it appears on its face to be.
(ix) Before the Promissory Note was pledged to the Bank, no
more than two payments on the Promissory Note were 30 or more days delinquent in
any 12-month period. When the Promissory Note is pledged to the Bank and at all
times while pledged to the Bank, no payment is 60 or more days delinquent.
Nothing in this subsection shall be construed to require that any Promissory
Note be in existence for any specified period of time in order to be considered
a Qualified Promissory Note.
(x) A policy of title insurance in form and content
satisfactory to the Bank that insures the holder of the Mortgage to the full
Unpaid Principal Balance of the Promissory Note secured by the Mortgage and
shows that the Mortgage is a first lien on the Timeshare Estate described in the
Mortgage has been issued or, with the prior approval of the Bank, a commitment
to issue such a policy has been issued.
<PAGE> 6
- 6 -
(t) "Release" - the same meaning as that given to the term in
Section 101(22) of the Comprehensive, Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601(22)) and the regulations
promulgated thereunder.
(u) "Security Agreement" - the Pledge Security Agreement
between the Company and the Bank dated December 21, 1990, as amended and
reaffirmed from time to time.
(v) "Timeshare Estate" - the fee simple interest in a Unit
purchased by a Timeshare Purchaser.
(w) "Timeshare Purchaser" - a person who purchases a Timeshare
Estate in the Project.
(x) "Unit" - a residential unit in the Project.
(y) "Unpaid Principal Balance" - the amount of the principal of
a Promissory Note that remains unpaid.
ARTICLE II. LOANS AND PAYMENTS.
2.1 LOANS.
(a) Minimum Amount: No Variable-Rate Loan shall be in an amount
less than $100,000.00, provided that no Variable-Rate Loan under Section 2.10 of
this Agreement shall be less than $500,000.00, and no Fixed-Rate Loan shall be
in an amount less than $1,000,000.00.
(b) Collateral Ratio: No Loan shall at the time it is made
exceed ninety percent (90%) of the aggregate Unpaid Principal Balance of the
Qualified Promissory Notes to be pledged to the Bank in conjunction with the
Loan or cause the Unpaid Principal Balance of all Loans or other extensions of
credit made by the Bank to the Company under this Agreement or under any other
loan agreement or arrangement to exceed ninety percent (90%) of the aggregate
Unpaid Principal Balance of all Qualified Promissory Notes pledged by the
Company to the Bank to secure indebtedness. In addition, no Loan shall, at the
time it is made, cause the aggregate Unpaid Principal Balance of Qualified
Promissory Notes and Mortgages relating to Pre-Sold Timeshare Estates pledged to
the Bank to exceed $3,000,000.00.
(c) Reborrowing: Except as set forth in Section 2.10, any
amount of the Credit that becomes available for reborrowing before the first
anniversary of this Agreement (or any extension of the borrowing period pursuant
to Section 1.1 of this Agreement) because of payments or prepayments of the
amount of the Credit outstanding may be reborrowed as a Variable-Rate Loan or a
Fixed-Rate Loan or both, regardless of whether such
<PAGE> 7
-7-
payments or prepayments were made with respect to the Variable-Rate Note or
the Fixed-Rate Notes.
2.2 LOAN REQUESTS. On or before the first anniversary of the date of this
Agreement and during such additional periods as a supplement or amendment to
this Agreement or a separate agreement between the parties may provide, the
Company may request a Loan under the Credit by delivering to the Bank or the
Designee a Borrower's Certificate and Loan Request in the form of Exhibit D to
this Agreement ("Borrower's Certificate"), accompanied by (a) copies of the
Qualified Promissory Notes and Mortgages proposed to be pledged and assigned to
the Bank and (b) copies of such other documents related to the transactions
evidenced by the Qualified Promissory Notes and Mortgages as the Bank may
require, including without limitation credit applications, credit reports,
purchase contracts, disclosure statements, a copy of the title insurance policy
or commitment referred to in Section 1.4(s)(x) of this Agreement and RESPA
statements (if required). If the Loan requested is a Fixed-Rate Loan, the
Company shall indicate in the Borrower's Certificate the desired term of the
Fixed-Rate Loan, which may not exceed five years.
2.3 CONDITIONS TO EACH LOAN. The Bank or the Designee will use its best
efforts to review the Company's Borrower's Certificate and the accompanying
documents within five business days after their receipt. The Bank will notify
the Company that the request is approved or that the request is not approved
and, if the Loan requested is a Fixed-Rate Loan, indicate the Fixed Rate on the
Fixed-Rate Loan. The request shall be approved if all of the terms and
conditions of this Agreement have been complied with and all certifications in
the Borrower's Certificate are in all respects true, without qualification. If
the request is approved, the Company shall (a) endorse the Promissory Notes to
the order of the Bank without restrictions or limitations and deliver the
Promissory Notes to the Bank; (b) deliver to the Bank recorded assignments, or
satisfactory evidence of the recording of assignments, of all Mortgages; and
(c) furnish the Bank with a policy or commitment of title insurance insuring
for the benefit of the Bank each Mortgage submitted to the Bank to the full
Unpaid Principal Balance of the Promissory Note secured by the Mortgage and
showing that each Mortgage is a first lien upon the Timeshare Estate
described in the Mortgage. The Company shall provide the notice required by
Va. Code Section 55-389 promptly after recordation of each Qualified Mortgage.
2.4 DISBURSEMENT OF LOANS. The Bank shall advance the requested Loan on
(a) approval of the Loan by the Bank; (b) receipt of all of the items described
in Section 2.3, in form and content satisfactory to the Bank in its sole
discretion; and (c) the facts stated in the Borrower's Certificate being true.
<PAGE> 8
-8-
2.5 REQUESTS FOR CONVERSION. On or before the first anniversary of the
date of this Agreement, the Company may from time to time, at least five
business days before it wishes the conversion to be made, request that an amount
(not less than $1,000,000.00) of the Credit evidenced by the Variable-Rate Note
be converted to a Fixed-Rate Loan (a "Conversion") by delivering to the Bank a
Conversion Request and Certificate in the form of Exhibit E to this Agreement.
No Conversion may be made unless, at the time of the Conversion, the collateral
ratio requirement described in Section 2.1(b) of this Agreement is satisfied.
2.6 MAKING OF CONVERSION. On or before the date a Conversion is to be
made, the Company shall execute and deliver to the Bank a Fixed-Rate Note in a
principal amount equal to the amount of the requested Conversion, for the
requested term and bearing the Fixed Rate determined in accordance with Section
1.3(b) of this Agreement and shall pay a conversion fee in the amount of
one-half of one percent (1/2%) of the amount of the Conversion. On receipt of
the Fixed-Rate Note, the Bank shall endorse its records and the schedule to the
Variable-Rate Note to reflect the deduction of the principal amount of the
Fixed-Rate Note from the principal amount owing under the Variable-Rate Note.
2.7 MATURITY OF FIXED-RATE NOTES. If the principal of and accrued
interest on a Fixed-Rate Note is not fully paid on or before its maturity date,
the Fixed-Rate Note shall, in accordance with its terms, become a variable-rate
Note that will mature on the fifth anniversary of the date of the Fixed-Rate
Note. The Company, however, at least ten business days before the maturity date
of the Fixed-Rate Note, may request the Bank to extend the maturity of the
Fixed-Rate Loan evidenced by the Fixed-Rate Note. If the Bank in its sole
discretion approves the request, the Company shall deliver to the Bank a new
Fixed-Rate Note in a principal amount equal to the sum of the unpaid principal
of and accrued interest on the Fixed-Rate Note being replaced, bearing the
then-current Fixed Rate and maturing no later than the fifth anniversary of the
date of the Fixed-Rate Note being replaced.
2.8 PROMISSORY NOTE AND MORTGAGE PROCEEDS -- MANDATORY PREPAYMENTS. All
payments of every kind on the Promissory Notes securing the Credit shall be
remitted directly by the obligors of the Promissory Notes to the Lock Box Agent
for the account of the Bank pursuant to the Lock Box Agreement. Except as
otherwise permitted under the Lock Box Agreement, any remittances received by
the Bank from the Lock Box Agent shall be allocated to repayment of the Note or
Notes then outstanding in accordance with the monthly trial balance report
provided by the Company pursuant to Section 5.2(c) of this Agreement. The
repayment amount allocable to a particular Note shall be applied first to
accrued interest on that Note, then to any costs or expenses owed
<PAGE> 9
- 9 -
to the Bank and then to the principal of the Loan or Loans evidenced by that
Note as the Bank may determine in its sole discretion, as a mandatory
prepayment. If as of any monthly interest payment date the remittances received
by the Bank from the Lock Box Agent that are allocable to a particular Note,
after any deductions pursuant to the Lock Box Agreement, are less than the
amount of accrued interest on that Note due on that date, the Company shall pay
the difference to the Bank within five calendar days of receiving notice of the
shortfall from the Bank. On payment in full of a Note, the Company may request
from the Bank, and the Bank shall deliver to the Company, written notice
authorizing the Company to notify Timeshare Purchasers to make payments on the
Promissory Notes associated with that Note directly to the Company, and the
Company shall be permitted to receive such payments subject to the terms of the
Security Agreement.
2.9 VOLUNTARY PREPAYMENTS. The Company shall not be permitted to prepay
all or any portion of its principal indebtedness evidenced by the Variable-Rate
Note from the date of this Agreement until the first anniversary of that date
and shall not be permitted to prepay all or any portion of any fixed-Rate Note
for one year after its date; provided, however, the foregoing does not apply to
mandatory prepayments received and applied as described in Section 2.8 of this
Agreement. On and after the first anniversary of the date of this Agreement in
the case of the Variable-Rate Note or, in the case of any Fixed-Rate Note, the
first anniversary of the date of the Fixed-Rate Note, prepayment in full shall
be permitted on any interest payment date, provided that the Company also pays
to the Bank at the same time any unpaid accrued interest and a prepayment
premium determined as follows:
<TABLE>
<CAPTION>
PREPAYMENT PERIOD PREMIUM
- ---------------- -------
<S> <C>
First Anniversary 2% of the then-outstanding
through day before principal indebtedness on the
Second Anniversary Note
Second Anniversary 1% of the then-outstanding
through day before principal indebtedness on the
Third Anniversary Note
Third Anniversary 1% of the then-outstanding
through day before principal indebtedness on the
Fourth Anniversary Note
Fourth Anniversary 0
and thereafter
</TABLE>
<PAGE> 10
-10-
2.10 LOANS WITHOUT ADDITIONAL COLLATERAL.
(a) If at any time the aggregate unpaid principal balance of all
the Notes outstanding falls below ninety percent (90%) of the aggregate Unpaid
Principal Balance of all Qualified Promissory Notes held by the Bank to secure
repayment of the Credit, the Company may, no more than once each calendar
quarter, request a Loan (or Loans, if the excess is attributable to Qualified
Promissory Notes allocable to more than one Note) of no more than the amount of
the excess (the "Excess") without pledging and assigning additional Qualified
Promissory Notes and Mortgages to the Bank.
(b) To the extent that the Excess is in the Qualified Promissory
Notes allocable to the Variable-Rate Note under Section 2.8, the requested Loan
shall be a Variable-Rate Loan in an amount up to the amount of that portion of
the Excess.
(c) To the extent that the Excess is in the Qualified Promissory
Notes allocable to one or more Fixed-Rate Notes under Section 2.8, the
requested Loan shall be a Fixed-Rate Loan. The Fixed-Rate Note evidencing the
Fixed-Rate Loan shall bear the then-current Fixed Rate, shall be for the term
selected by the Company and shall be in an amount up to the amount of that
portion of the Excess. For purposes of mandatory prepayment under Section 2.8,
the new Fixed-Rate Note shall be included in the pro rata allocation of receipts
from the Lock Box Agent.
(d) Except for the requirement that the Company provide
additional Qualified Promissory Notes and Mortgages in the amount of a
requested Loan, the requirements of Sections 2.2, 2.3 and 2.4 of this Agreement
shall apply to requests for Loans under this Section 2.10, including the
requirement for payment of the fee described in Section 2.4.
2.11 COMMITMENT FEE. The Company shall pay the Bank a loan commitment
fee of $90,000.00 and requests the Bank to deduct the commitment fee from the
proceeds of the first Loan made under this Agreement.
2.12 USE OF PROCEEDS. The Company will use the proceeds of the first
Loan made under this Agreement to repay its outstanding indebtedness under the
1990 Loan Agreement, 1993 Loan Agreement and Prior 1995 Loan Agreement and its
indebtedness to PaineWebber Real Estate Securities, Inc. and the proceeds of
subsequent Loans for working capital and other business purposes.
<PAGE> 11
- 11 -
ARTICLE III. CONDITIONS TO THIS AGREEMENT
This Agreement shall take effect only if the following conditions are
satisfied at or before the date of this Agreement.
3.1 COMPANY ACTION. The Company shall have taken all necessary and
appropriate joint venture action authorizing the Credit, and execution and
delivery of this Agreement and the Notes and the taking of all action required
of the Company by this Agreement; and the Company shall have furnished to the
Bank certified copies of documents evidencing such action as the Bank may
reasonably request.
3.2 GUARANTOR ACTION. Each of the Guarantors shall have taken all
necessary and corporate action, and its Board of Directors shall have adopted
resolutions, approving the borrowing by the Company and authorizing the
execution and delivery of a reaffirmation of its Guaranty; and the Guarantor
shall have furnished to the Bank certified copies of those resolutions and such
other corporate documents as the Bank may reasonably request.
3.3 COMPANY DOCUMENTS. There shall have been furnished to the Bank (a) a
certified copy of the joint venture agreement of the Company; (b) a fictitious
name certificate from the Clerk of the Circuit County of the City of
Williamsburg and the County of James City certificate of incumbency specifying
the officers of the Company and containing and certifying to their specimen
signatures; and (c) a certificate of an authorized officer of the appropriate
Guarantor evidencing the joint venturers' authorization of the transactions
contemplated by this Agreement and certifying as to the incumbency of the
authorized signers for the Company, together with their specimen signatures, as
of the date of this Agreement.
3.4 GUARANTOR DOCUMENTS. There shall have been furnished to the Bank with
respect to each Guarantor (a) copies of any amendments to its certificate of
incorporation and by-laws made since those documents were last furnished to the
Bank, certified by its secretary as of the date of this Agreement; (b) a good
standing certificate and franchise tax report from the Secretary of the
Commonwealth of Virginia; and (c) a certificate of incumbency specifying its
officers, together with their specimen signatures.
3.5 OPINION. Independent counsel for the Company, Wolcott, Rivers,
Wheary, Basnight & Kelly, P.C., shall have furnished to the Bank their
favorable opinion dated the date of this Agreement and in the form of EXHIBIT F.
3.6 SECURITY AGREEMENT. The Company shall have furnished to the Bank, all
in form and content satisfactory to
<PAGE> 12
- 12 -
the Bank, the Security Agreement granting to the Bank a security interest in
all of the Promissory Notes it pledges to the Bank pursuant to Section 2.3 of
this Agreement and such UCC-1 financing statements as the Bank may reasonably
require. The Company acknowledges and reaffirms that the Security Agreement
secures all of the indebtedness of the Company to the Bank, including without
limitation loans and advances made by the Bank to the Company under the 1990
Loan Agreement, the 1993 Loan Agreement and the Prior 1995 Loan Agreement.
3.7 CERTIFICATE OF OCCUPANCY. There shall have been furnished to the Bank
a copy of certificate or certificates of occupancy with respect to those
portions of the Project that are completed, or similar documentation acceptable
to the Bank in its sole discretion.
3.8 INTERVAL EXCHANGE ORGANIZATION. There shall have been furnished to
the Bank a copy of the contract or contracts affiliating the Project with
Resort Condominiums International, Inc.
3.9 PROPERTY AND LIABILITY INSURANCE. There shall have furnished to the
Bank currently-effective property and liability insurance policies or
certificates, with endorsements and cancellation notice provisions deemed
necessary by the Bank, in form and content satisfactory to the Bank, insuring
the Project and, in the case of the property insurance, naming the Bank as loss
payee on the Project as its interests may appear.
3.10 ENVIRONMENTAL QUESTIONNAIRE. The Company shall have furnished to the
Bank an Environmental Questionnaire in form acceptable to the Bank.
3.11 LOCK BOX AGREEMENT. The Lock Box Agreement shall have been executed
and delivered to the Bank.
3.12 PAYMENT AND PERFORMANCE BONDS. There shall have been furnished to the
Bank copies of payment and performance bonds, together with copies of
transmittal letters to the Virginia Real Estate Board, assuring the completion
of Units in which Pre-Sold Timeshare Estates are located.
3.13 OTHER MATTERS. All matters incidental to the execution and delivery
of this Agreement and the Variable-Rate Note and all action required by this
Agreement shall be satisfactory to the Bank and its counsel, and this Agreement
shall then be in effect.
<PAGE> 13
-13-
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Company makes the following representations and warranties, which
shall be deemed to be continuing representations and warranties so long as any
indebtedness of the Company to the Bank, including indebtedness for fees and
expenses, remains unpaid:
4.1 COMPANY'S GOOD STANDING AND AUTHORITY. The Company is a joint
venture duly organized, validly existing and in good standing under the laws of
the Commonwealth of Virginia; has powers and authority to transact the business
in which it is engaged; is duly licensed or qualified and in good standing in
each jurisdiction in which the conduct of its business requires licensing or
qualification; and has all necessary power and authority to enter into, execute,
deliver and perform this Agreement, the Notes, the Security Agreement and any
other document executed by it in connection with this Agreement, all of which
have been duly authorized by all proper and necessary joint venture action.
4.2 GUARANTORS' GOOD STANDING AND AUTHORITY. Each Guarantor is a
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Virginia; has powers and authority to transact the
business in which it is engaged; is duly licensed or qualified and in good
standing in each jurisdiction in which the conduct of its business requires
licensing or qualification; and has all necessary power and authority to enter
into, execute, deliver and perform its Guaranty and any other document executed
by it in connection with this Agreement, all of which have been duly authorized
by all proper and necessary corporate and shareholder action; and each
Guarantor is a joint venturer of the Company under a Joint Venture Agreement
dated as of November 19, 1986.
4.3 VALID AND BINDING OBLIGATIONS. This Agreement and the Notes,
Security Agreement, Mortgage assignments and Promissory Note endorsements and
any other document executed by the Company in connection with this Agreement,
when executed, delivered or both, will constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their terms, except
as enforcement may be limited by state or federal bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the rights of
creditors generally. The Guaranties constitute the legal, valid and binding
obligations of the Guarantors, enforceable in accordance with their terms,
except as enforcement may be limited by state or federal bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
rights of creditors generally.
4.4 GOOD TITLE. The Company and each of the Guarantors has good and
marketable title to all of its assets,
<PAGE> 14
-14-
none of which is subject to any mortgage, indenture, pledge, lien, conditional
sale contract, security interest, encumbrance, claim, trust or charge except as
referred to in the financial statements described in this Agreement or as may
be set forth in a schedule to this Agreement, or in favor of the Bank. At the
time the Company pledges Promissory Notes to the Bank and assigns Mortgages to
the Bank, the Company has absolute title to those Promissory Notes and
Mortgages, free and clear of all liens and encumbrances, and no other person or
entity has any interest in them.
4.5 NO PENDING LITIGATION. There are not any actions, suits or
proceedings (whether or not purportedly on behalf of the Company or any
Guarantor) or investigations pending or to the knowledge of the Company
threatened, against the Company or any Guarantor or any basis therefor, which
if adversely determined would in any case or in the aggregate materially
adversely affect the property, assets (including without limitation all
Promissory Notes and Mortgages pledged and assigned to the Bank), financial
condition or business of the Company or any Guarantor or materially impair the
right or ability of the Company or any Guarantor to carry on its operations
substantially as now conducted or anticipated to be conducted in the future, or
which question the validity of this Agreement, any of the Notes, the Promissory
Notes and Mortgages pledged and assigned to the Bank, the Security Agreement,
the Guaranties or any other documents required by this Agreement or any action
taken or to be taken pursuant to any of the foregoing.
4.6 NO CONSENT OR FILING. No consent, license, approval or
authorization of, or registration, declaration or filing with, any court,
governmental body or authority or other person or entity is required in
connection with (a) the valid execution, delivery or performance of this
Agreement, the Notes, the Security Agreement, the Guaranties or any other
documents required by this Agreement; (b) the endorsement of Promissory Notes
to the Bank and the assignment of Mortgages to the Bank; or (c) any of the
transactions contemplated thereby, other than the recording of the Mortgages
assigned to the Bank and any filings made pursuant to the Virginia Uniform
Commercial Code.
4.7 LAWS AND REGULATIONS. The Company and each of the Guarantors has
been and will continue to be in full compliance with all applicable laws and
regulations, including, without limitation those providing for or requiring
disclosure of terms, charges or fees of any kind, respecting the offering,
advertising and promotion of the Timeshare Estates in the Project, the
construction or conversion of the Units in the Project and the development of
the timeshare plan in the Project or the negotiation, sale and financing of the
Timeshare Estates.
<PAGE> 15
- 15 -
4.8 PERMITS, LICENSES AND APPROVALS. The Company has obtained all
necessary governmental permits, licenses and approvals with respect to the
Project, the timeshare plan and the Timeshare Estates to be sold, all of which
are current and in force.
4.9 NO VIOLATIONS. The Company and each of the Guarantors is not in
violation of any term of its certificate of incorporation (or, in the case of
the Company, its governing instrument) or of any mortgage, borrowing agreement
or other instrument or agreement pertaining to indebtedness for borrowed money.
The Company and each of the Guarantors is not in violation of any term of any
other indenture, instrument or agreement to which it is a party or by which it
may be bound, resulting or which might reasonably be expected to result in a
material and adverse effect on its business or assets. The Company and each of
the Guarantors is not in violation of any order, writ, judgment, injunction or
decree of any court of competent jurisdiction or of any statute or rule or
regulation of any competent governmental authority. The execution and delivery
of this Agreement, the Notes, the Security Agreement, the Corporate Guaranty
and other documents required by this Agreement and the performance of all of
them is and will be in compliance with the foregoing and will not result in any
violation or result in the creation of any mortgage, lien, security interest,
charge or encumbrance on any properties or assets except in favor of the Bank.
There exists no fact or circumstance not disclosed in this Agreement or in the
documents furnished in connection with this Agreement that materially adversely
affects or in the future (so far as the Company can now reasonably foresee) may
materially adversely affect the condition, business or operations of the
Company or any Guarantor.
4.10 INTERVAL EXCHANGE ORGANIZATION. The Project is affiliated and in good
standing with Resort Condominiums International, Inc.
4.11 FINANCIAL STATEMENTS. The Company has furnished to the Bank and
audited financial statement showing the Company's condition as of December 31,
1994, prepared by Frederick B. Hill & Company, P.C., which statement represents
correctly and fairly the results of its operations and transactions as of the
dates and for the period referred to and which has been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the intervals involved. From the date of the financial statement to the date of
this Agreement, there have not been any materially adverse changes in the
financial condition disclosed in the financial statement. None of the property
or assets shown in financial statements delivered to the Bank has been
materially adversely affected as the result of any fire, explosion, accident,
flood, drought, storm, earthquake, condemnation, requisition, statutory or
regulatory
<PAGE> 16
- 16 -
change, act of God or act of public enemy or other casualty, whether or not
insured.
4.12 TAX RETURNS. The Company and each Guarantor has filed all federal and
other tax returns required to be filed and has paid all taxes required by those
returns through its fiscal year ending December 31, 1994. The Company has not
received any assessments by the Internal Revenue Service or other taxing
authority for additional unpaid taxes.
4.13 PROMISSORY NOTES AND MORTGAGES. All Promissory Notes the Company
pledges to the Bank and all Mortgages the Company assigns to the Bank are
Qualified Promissory Notes and Mortgages.
4.14 ENVIRONMENTAL MATTERS.
(a) Any Environmental Questionnaire provided to the Bank was and is
accurate and complete and does not omit any material fact the omission of which
would make the information in the Environmental Questionnaire materially
misleading.
(b) No above-ground or underground storage tanks containing Hazardous
Substances are or have been located on any property comprising the Project.
(c) No Property owned, leased or operated by the Company is or has
been used for the Disposal of any Hazardous Substance or for the treatment,
storage or Disposal of Hazardous Substances.
(d) No Release of a Hazardous Substance has occurred or is threatened
on, at, from or near any property owned, leased or operated by the Company.
(e) The Company is not subject to any existing, pending or threatened
suit, claim, notice of violation or request for information under any
Environmental Law.
(f) The Company is in compliance with all Environmental Laws.
4.15 ALTERNATE USE PERIODS. Section 8(1) of the Project and Time-Share
Instrument for Powhatan Plantation dated January 22, 1984, as amended, which
section sets forth the Company's obligation to provide to a Timeshare Purchaser
whose Timeshare Estate is in a Unit that has not become available for occupancy
during the designated time period alternative and equivalent accommodations in a
Unit or the fair rental value of the Unit for the designated time period, is in
full force and effect and has not been modified to reduce or eliminate the
obligations of the Company set forth therein.
<PAGE> 17
-17-
ARTICLE V. AFFIRMATIVE COVENANTS
During the term of this Agreement, and so long thereafter as any
indebtedness of the Company to the Bank, including any indebtedness for fees
and expenses, remains unpaid, the Company will:
5.1 PAYMENTS. Duly and punctually pay (a) the principal of and interest
on all indebtedness incurred by it under this Agreement in the manner set forth
in this Agreement and (b) all costs and expenses required by this Agreement to
be paid or reimbursed by the Company. Without limiting Section 2.8 of this
Agreement, any payments the Company receives on or with respect to the
Promissory Notes and Mortgages pledged and assigned to the Bank (x) shall be
held by the Company in trust for the Bank in the same medium in which
received; (y) shall not be commingled with any assets of the Company; and (z)
shall be delivered to the Bank in the form received, properly endorsed to
permit collection, not later than the next business day following the day of
their receipt.
5.2 FINANCIAL INFORMATION. Furnish to the Bank (a) within 60 days after
the end of each quarter of each of its fiscal years an unaudited financial
statement of the Company as of the end of that quarter, which statement shall
consist in each case of a balance sheet (which may be prepared using tax basis
figures), an operating statement and surplus reconciliation covering the period
from the end of the Company's immediately preceding fiscal year to the end of
such quarter, all in such detail as the Bank may request, together with a
Compliance Certificate; (b) within 120 days after the end of each of its fiscal
years and as of the end of each such year, audited financial statements of the
Company and Bush Construction Corporation and unaudited financial statements of
Williamsburg Vacations, Inc. and Offsite International, Inc., which shall
consist of a balance sheet and an operating statement and surplus
reconciliation covering the period of the Company's or the Guarantor's
immediately preceding fiscal year, prepared and certified by independent
certified public accountants satisfactory to the Bank, together (in the case of
the Company) with a Compliance Certificate; (c) within fifteen days after the
end of each calendar month, a statement in form and content satisfactory to the
Bank that sets forth for each obligor on a Promissory Note pledged to the Bank
the original face amount of the Promissory Note, the present outstanding
balance of the Promissory Note as of the immediately preceding month, a
designation of those Promissory Notes on which there is any default and such
other information concerning the obligor's account as the Bank may request in
its sole discretion; and (d) such additional information, reports or statements
as the Bank may reasonably request regarding the financial and business affairs
of the Company or any Guarantor.
<PAGE> 18
-18-
5.3 NOTICE. Promptly notify the Bank in writing of (a) any pending or
future audits of the Company's or any Guarantor's federal income tax returns by
the Internal Revenue Service as soon as the Company has knowledge thereof and
the results of each such audit after its completion and (b) any default by the
Company or any Guarantor in the performance of, or any modifications to, any
agreement, mortgage, indenture or instrument to which the Company or the
Guarantor is a party or which is binding on the Company or the Guarantor and of
any default by the Company or the Guarantor in the payment of any of its
indebtedness. The Company shall not, however, be required to notify the Bank of
modifications of those documents or agreements pertaining to its or any
Guarantor's transactions in the ordinary course of business (not concerning its
indebtedness for borrowed money) which do not materially and adversely affect
the business or assets of the Company or the Guarantor.
5.4 TAXES. Promptly pay and discharge all its taxes, assessments and
other governmental charges (including any charged or assessed on the issuance
of any Notes) before the date on which penalties attach, establish adequate
reserves for the payment of taxes and assessments and make all required
withholding and other tax deposits; provided, however, that nothing in this
Agreement shall be interpreted to require the payment of any tax, assessment
or charge so long as its validity is being contested in good faith and by
appropriate proceedings diligently conducted.
5.5 INSURANCE. (a) Keep all its property so insurable insured at all
times with responsible insurance carriers against fire, theft and other risks
(including flood, if required) in coverage, form and amount satisfactory to the
Bank and (b) keep adequately insured at all times in reasonable amounts with
responsible insurance carriers against liability on account of damage to
persons or property and under all applicable worker's compensation laws.
5.6 LITIGATION. Promptly notify the Bank in writing as soon as the
Company has knowledge thereof of the institution or filing of any litigation,
action, suit, claim, counterclaim or administrative proceeding against or
investigation of the Company to which the Company or any Guarantor is a party
by or before any regulatory body or governmental agency (a) the outcome of
which may materially and adversely affect the finances or operations of the
Company or any Guarantor or the Company's ability to fulfill its obligations
under this Agreement or which involves more than $50,000.00 unless adequately
covered by insurance; (b) which questions the validity of this Agreement, any
of the Notes, the Security Agreement, the Qualified Promissory Notes and
Mortgages, the Guarantees or any action taken or to be taken pursuant to the
foregoing; or (c) which is related to the Project in any way; and
<PAGE> 19
-19-
furnish or cause to be furnished to the Bank such information regarding the
same as the Bank may request.
5.7 STANDING. Maintain its joint venture existence in good standing and
remain or become licensed or qualified and in good standing in each
jurisdiction in which the conduct of its business requires qualification or
licensing.
5.8 NET WORTH. Maintain at all times a consolidated tangible net worth of
the Company and all of its subsidiaries of not less than $12,000,000.00, such
consolidated tangible net worth to be determined in accordance with generally
accepted accounting principles consistently applied in conformity with the
audited financial statements of the Company furnished to the Bank.
5.9 BOOKS AND RECORDS - RIGHT OF INSPECTION. Keep proper books and
records in accordance with generally accepted accounting principles
consistently applied and notify the Bank promptly in writing of any proposed
change in the location of those books and records and permit the Bank at all
times to inspect the Project and the books and records of the Company.
5.10 COMPLIANCE WITH LAW. Comply with all applicable laws, including
without limitation all Environmental Laws, and all applicable governmental
rules and regulations.
5.11 CONTINUE BUSINESS. Engage primarily in the business conducted by it
on the date of this Agreement.
5.12 MAINTENANCE OF THE PROJECT. So long as it is in control of the
association responsible for the management, upkeep and repair of the Project,
cause the association to keep the Project properly maintained and repaired,
suffer no waste, impairment or deterioration of the land or improvements
constituting the Project, pay all taxes, assessments and other charges levied
on the Project and keep the Project fully insured in a sum not less than the
full insurable value and with an insurer or insurers acceptable to the Bank.
5.13 LOCK BOX AGREEMENT. Comply at all times with the Lock Box Agreement.
5.14 PROMISSORY NOTES AND MORTGAGES. Notify the Bank within five days
after learning that any Promissory Note and Mortgage pledged and assigned to
the Bank has caused to be a Qualified Promissory Note and Mortgage.
5.15 LOCK BOX REPORTS. In connection with the receipt of payments on
Promissory Notes and Mortgages and the deposit of those payments in the
Depository Account (as defined in the Lock
<PAGE> 20
- 20 -
Box Agreement) by the Lock Box Agent, the Company will deliver or cause to be
delivered to the Bank the following:
(a) A daily transaction report reflecting all transactions (cash or
otherwise) affecting the Promissory Notes and Mortgages.
(b) A monthly trust activity statement summarizing deposit and
withdrawal activity in the Depository Account, with supporting documentation.
(c) A detailed report, provided at least monthly and in such form as
the Bank and the Company may agree from time to time, relating to the accounts
represented by the Promissory Notes and Mortgages, including a list of (i) all
accounts for which the Lock Box Agent is collecting funds; (ii) all payments
made on each account since the date of the last report; (iii) defaults in
payment; and (iv) such other information as the Bank may reasonably request.
5.16 ENVIRONMENTAL MATTERS.
(a) Promptly notify the Bank of the Disposal of any Hazardous
Substance at any property comprising the Project or of any release or
threatened Release of a Hazardous Substance from any such property.
(b) At the Bank's request, provide at the Company's expense updated
Environmental Questionnaires and/or Environmental Reports concerning the
Project.
(c) Deliver promptly to the Bank (i) copies of any documents
received from the United States Environmental Protection Agency or any state,
county or municipal environmental or health agency concerning Company's
operations with respect to the Project and (ii) copies of any documents
submitted by Company to the United States Environmental Protection Agency or
any state, county or municipal environmental or health agency concerning its
operations with respect to the Project.
5.17 OTHER ACTS. Execute and deliver, or cause to be executed and
delivered, to the Bank all further documents and perform all other acts and
things the Bank deems necessary or appropriate to protect or perfect any
mortgage or security interests in any property directly or indirectly securing
payment of any indebtedness of the Company to the Bank.
ARTICLE VI. NEGATIVE COVENANTS
During the term of this Agreement and so long thereafter as any of the
indebtedness of the Company to the Bank,
<PAGE> 21
-21-
including any indebtedness for fees and expenses, remains unpaid, the Company,
without the prior written consent of the Bank, will not:
6.1 ENCUMBRANCES. Create, incur, assume or suffer to exist any mortgage,
lien, security interest, pledge or other encumbrance on any of the Promissory
Notes and Mortgages pledged and assigned to the Bank, whether now or hereafter
pledged or assigned, except in favor of the Bank or as listed on a schedule to
this Agreement.
6.2 GUARANTIES. Become a guarantor, surety or otherwise liable for the
debts or other obligations of any other person, whether by agreement to
purchase the indebtedness of any other person, or by agreement for the
furnishing of funds to any other person, through the purchase of goods,
supplies or services (or by way of stock purchase, capital contribution, advance
or loan) for the purpose of paying or discharging the indebtedness of any other
person, or otherwise, with the exception of (i) the guaranty of certain
obligations of Greensprings Associates, a Virginia joint venture, to FINOVA
Capital Corporation, a Delaware corporation, in the amount of $6,800,000 under
a Development and Receivables Loan Agreement dated as of June 30, 1995, (ii)
the guaranty of certain obligations of Greensprings Plantation, Inc., a
Virginia corporation, to NationsBank of Virginia, N.A., in the maximum
principal amount of $9,671,500; and (iii) the obligation to purchase certain
time-share obligations under certain conditions from Powhatan Associates
Mortgage Trust I, a Delaware business trust, under the Warranty and Servicing
Agreement dated as of April 1, 1993.
6.3 SALE OF ASSETS. Convey, sell, transfer, lease or sell and lease back
all or any substantial portion of its property, assets or business to any other
person, except in the ordinary course of business; provided, that this section
shall not be deemed to prohibit the transfer or promissory notes and mortgages
to business trusts in connection with the securitization of assets of the
Company.
6.4 INVESTMENTS AND LOANS. Make or suffer to exist any investments in, or
loans or advances to, any other person (including, without limitation,loans or
advances to its shareholders, directors, officers or employees) in excess of
$500,000.00 in the aggregate at any one time outstanding, with the exception of
(i) the mortgage notes of Powhatan Village Corporation having an outstanding
principal balance of $1,592,310 and $400,000, respectively, as of August 31,
1993, and advances in the further amount of $211,533.13 and (ii) up to
$2,000,000 outstanding at any one time of advances to Offsite International,
Inc. of marketing fees with respect to sold Timeshare Estates not yet released
from escrow and (iii) advances to Greensprings Plantation, Inc. as of December
31, 1994, in the total amount of
<PAGE> 22
-22-
$ for payment of indebtedness and development expenses.
6.5 Communication with Obligors. Communicate with obligors on the
Promissory Notes and Mortgages pledged and assigned to the Bank if there exists
an Event of Default or an event which with the giving of notice or lapse of
time or both would constitute an Event of Default and the Bank instructs the
Company not to so communicate; provided, however, that the Company shall have
no right at any time to collect payments from obligors.
6.6 Promissory Notes and Mortgages. Agree to any extension, deferral,
modification, waiver or any other change in the terms of any Promissory Note
and Mortgage pledged and assigned to the Bank unless authorized in writing by
the Bank.
6.7 Hazardous Substances. Suffer, cause or permit the Disposal of
Hazardous Substances at any property comprising the Project.
ARTICLE VII. Default
7.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an event of default ("Event of Default"):
(a) Nonpayment. Nonpayment after the same becomes due whether by
acceleration or otherwise of principal of or interest on any Note, any costs
and expenses or any other fee or premium provided for under this Agreement.
(b) Negative Covenants. Default in the observance of any of the
covenants of the Company in Article VI of this Agreement.
(c) Other Covenants. Default in the observance of any of the
covenants of the Company in this Agreement other than in Article VI, or in any
other agreement with the Bank, which is not remedied within ten calendar days
after notice by the Bank to the Company.
(d) Promissory Notes and Mortgages. Any Promissory Note and
Mortgage which the Company has pledged and assigned to the Bank to secure the
Credit ceases to be a Qualified Promissory Note and Mortgage and the Company
fails within ten calendar days after the Bank sends notice thereof, at the
Company's option, either to (i) pay the Bank an amount equal to the unpaid
principal balance of the subject Promissory Note or (ii) submit to the Bank one
or more Qualified Promissory Notes not previously pledged to the Bank, the
Unpaid Principal Balance
<PAGE> 23
- 23 -
of which is not less than the Unpaid Principal Balance of the Promissory Notes
it replaces, together with the Mortgages associated with the replacement
Qualified Promissory Notes. Further, if the Unit in which is located a Pre-Sold
Timeshare Estate that is the subject of a Qualified Promissory Note and
Mortgage is not completed and ready for occupancy by the Timeshare Purchaser
within two years after the Timeshare Purchaser's execution and delivery of the
Promissory Note and Mortgage to the Company, then the Company shall, within ten
days after the Bank's demand, pay for or replace the Promissory Note and
Mortgage (with a Qualified Promissory Note and Mortgage that does not relate to
a Pre-Sold Timeshare Estate) in the manner set forth above, whether or not the
Promissory Note and Mortgage has ceased to be a Qualified Promissory Note and
Mortgage.
(e) Voluntary Insolvency Proceedings. If the Company or a Guarantor
(i) files a petition for liquidation, adjudication as a bankrupt or relief as a
debtor; (ii) files a petition or answer seeking reorganization or an
arrangement or similar relief under any bankruptcy, insolvency or similar laws
of the United States or any state thereof or of any foreign jurisdiction; (iii)
consents to the filing of a petition in any liquidation, bankruptcy or
reorganization proceeding; (iv) consents to the appointment of a receiver or
trustee or officer performing similar functions with respect to any substantial
part of its property; (v) makes a general assignment for the benefit of its
creditors; or (vi) executes a consent to any other type of insolvency
proceeding (under the Bankruptcy Code or otherwise) or any formal or informal
proceeding for the dissolution or liquidation of, the settlement of claims
against, or the winding up of the affairs of, the Company or the Guarantor.
(f) Involuntary Insolvency Proceedings. The appointment of a
receiver, trustee, custodian or officer performing similar functions for the
Company or a Guarantor or for any of its assets, the filing against the Company
or a Guarantor of a petition for liquidation or adjudication as a bankrupt or
insolvent or for reorganization under any bankruptcy or similar laws of the
United States or of any state thereof or of any foreign jurisdiction or the
institution against the Company or a Guarantor of any other type of insolvency
proceeding (under the Bankruptcy Code or otherwise) or of any formal or
informal proceeding for the dissolution or liquidation of, the settlement of
claims against, or the winding up of the affairs of, the Company or a
Guarantor, and the failure to have the appointment vacated or the petition or
proceeding dismissed within 30 days after the appointment, filing or
institution.
(g) Representations. If any certificate, statement, representation,
warranty or financial statement furnished by or on behalf of the Company or a
Guarantor pursuant
<PAGE> 24
- 24 -
to or in connection with this Agreement (including without limitation
representations and warranties contained in this Agreement) or as an inducement
to the Bank to enter into this Agreement or any other lending agreement with the
Company shall prove to have been false in any material respect at the time as
of which the facts set forth were certified or to have omitted any substantial
contingent or unliquidated liability or claim against the Company or a
Guarantor, or if on the date of this Agreement there shall have been any
materially adverse change in any of the facts disclosed by any such statement or
certificate, that was not disclosed by the Company to the Bank at or before the
time of execution.
(h) Other Indebtedness and Agreements. Nonpayment by the
Company or a Guarantor of any indebtedness for borrowed money (other than the
indebtedness evidenced by the Notes) owing by the Company or a Guarantor when
due (or, if permitted by the applicable document, within any applicable grace
period), whether the indebtedness becomes due by scheduled maturity, required
prepayment, acceleration, demand or otherwise, or failure to perform any term,
covenant or agreement to be performed by the Company or a Guarantor under any
agreement or instrument (other than this Agreement) evidencing, securing or
relating to any indebtedness owing by the Company or a Guarantor when required
to be performed if the effect of the failure is to permit the holder to
accelerate the maturity of the indebtedness.
(i) Judgments. If any judgment or judgments (other than any
judgment for which the Company or a Guarantor is fully insured) against the
Company or a Guarantor remains unpaid, unstayed on appeal, undischarged,
unbonded or undismissed for a period of 30 days.
7.2 EFFECTS OF AN EVENT OF DEFAULT.
(a) On the happening of one or more Events of Default (except a
default under Section 7.1(e) or 7.1(f) of this Agreement), the Bank may declare
any obligations it may have under this Agreement, including without limitation
any obligation to make Loans or Conversions, to be canceled and the principal of
any Note or all the Notes to be immediately due and payable, together with all
interest thereon and fees and expenses accruing under this Agreement Upon such
declaration, the Bank's obligations under this Agreement shall be immediately
canceled, and the affected Note or Notes shall become immediately due and
payable without presentation, demand or further notice of any kind to the
Company.
(b) On the happening of one or more Events of Default under
Section 7.1(e) or 7.1(f) of this Agreement, the Bank's obligations under this
Agreement, including without limitation any obligation to make Loans or
Conversions, shall be
<PAGE> 25
-25-
canceled immediately, automatically and without notice, and all of the Notes
shall become immediately due and payable without presentation, demand or
notice of any kind to the Company.
(c) Before or after the happening of any Event of Default, the Bank may
notify the obligors on the Promissory Notes and Mortgages securing the Credit
that they have been assigned to the Bank and that all payments are to be made
directly to the Bank or the Designee. The Bank may foreclose any Mortgages in
default in its own name. If any applicable law requires that the Company
foreclose a Mortgage, the Company appoints the Bank its attorney in fact to
foreclose the Mortgage. If the bank foreclose a Mortgage, it may, but is not
obligated to, obtain an appraisal of the subject Timeshare Estate and bid the
appraised amount at any public sale of the Timeshare Estate. If the Bank
obtains an appraisal and bids the amount of the appraisal, the Company shall
only be credited with the appraised amount.
ARTICLE VIII. EXPENSES
8.1 COUNSEL FEES AND TAXES. To reimburse the Bank for its counsel fees
and other expenses for the preparation of this Agreement and related
documentation, the Company will pay the Bank $5,000.00. The Company will also
reimburse the Bank for any taxes the Bank may be required to pay in connection
with the execution and delivery of this Agreement and any other documents
executed in connection with this Agreement.
8.2 OTHER COSTS AND EXPENSES. The Company will pay on demand to the Bank
all of the costs and expenses, including without limitation reasonable counsel
fees and disbursements, incurred by the Bank (a) in connection with the
performance of this Agreement and all related agreements and other documents;
(b) in connection with all amendments, releases, consents and waivers related
to this Agreement and all related agreements and other documents; and (c) in
collecting any amount owing under this Agreement or other documents or in
realizing on or protecting any collateral securing the Company's performance
under this Agreement or any related agreement or other documents, including
without limitation, if the Bank retains counsel for any advice, suit, appeal,
insolvency or other proceeding under the Federal Bankruptcy Code or otherwise
or for any purpose relating to this Agreement, counsel fees and disbursements.
ARTICLE IX. MISCELLANEOUS
9.1 AMENDMENTS AND WAIVERS. This Agreement represents the entire
understanding between the parties with respect to the subject matter of this
Agreement and supersedes all prior negotiations between the parties. No
modification, rescission,
<PAGE> 26
-26-
waiver, release or amendment of any provision of this Agreement shall be made
except by a written agreement signed by authorized officers of the Company and
the Bank.
9.2 DELAYS AND OMISSIONS. No course of dealing and no delay or omission
by the Bank in exercising any right or remedy under this Agreement or with
respect to any indebtedness of the Company to the Bank shall operate as a
waiver thereof or of any other right or remedy, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. The Bank may (but shall not be obligated
to) remedy any default by the Company under this Agreement or with respect to
any other person in any reasonable manner without waiving the default remedied
and without waiving any other prior or subsequent default by the Company and
shall be reimbursed for its expenses in remedying the default. All rights and
remedies of the Bank under this Agreement are cumulative.
9.3 SUCCESSORS AND ASSIGNS. The Company and the Bank as used in this
Agreement includes their legal representatives, successors and assigns.
9.4 NOTICES. Any notice or demand to be given under this Agreement shall
be duly given if delivered or mailed as follows:
To the Company -- Powhatan Associates
4029 Ironbound Road
Suite 100
Williamsburg, VA 23187
Attention: Dr. Kay F. Gow
Fax No.: (804) 299-8690
With a copy to -- Wolcott, Rivers, Wheary,
Basnight & Kelley, P.C.
110 Sovran Bank Building
One Columbus Center
Virginia Beach, VA 23462
Attention: Joseph R. Mayes, Esq.
Fax No.: (804) 497-7267
To the Bank -- Marine Midland Bank
Timeshare Department
One Marine Midland Center -- 13th
Floor
Buffalo, NY 14240
Attention: Alton H. Lyles
Fax No.: (716) 841-5551
<PAGE> 27
-27-
With a copy to -- Phillipe, Lytle, Hitchcock, Blaine & Huber
3400 Marine Midland Center
Buffalo, NY 14203
Attention: Raymond H. Seitz, Esq.
Fax No.: (716) 852-6100
and shall be deemed effective, if delivered, upon delivery and if mailed, upon
deposit in an official depository maintained by the United States Postal
Service for the collection of mail.
9.5 Governing Law. This Agreement, the transactions described in this
Agreement and the obligations of the Bank and the Company shall be construed
under and governed by the internal laws of the State of New York without regard
to principles of conflicts of laws, except to the extent that the laws of
another state apply to the real estate law aspects of the assignment of
Mortgages by the Company to the Bank.
9.6 Counterparts. This Agreement may be executed in any number of
counterparts and by the Bank and the Company on separate counterparts, each of
which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same Agreement.
9.7 Titles. Titles to the sections of this agreement are solely for the
convenience of the Bank and the Company and are not an aid in the
interpretation of this Agreement or any part of this Agreement.
9.8 Inconsistent Provisions. The terms of this Agreement and any
related agreements, instruments or other documents shall be cumulative except
to the extent they are specifically inconsistent with each other, in which case
the terms of this Agreement shall prevail.
9.9 Course of Dealing. Without limitation of the foregoing, the Bank
shall have the right at all times to enforce the provisions of this Agreement
and all other documents executed in connection with this Agreement in strict
accordance with their terms, notwithstanding any course of dealing or
performance by the Bank in refraining from so doing at any time and
notwithstanding any custom in the banking trade. Any delay or failure by the
Bank at any time or times in enforcing its rights under such provisions in
strict accordance with their terms shall not be construed as having created a
course of dealing or performance modifying or waiving the specific provisions
of this Agreement.
9.10 Indemnification. The Company shall indemnify the Bank against, and
hold the Bank harmless from, any and all claims, losses, judgments, costs and
expenses (including, without
<PAGE> 28
-28-
limitation, attorney's fees and disbursements) resulting from the Bank's
entering into this Agreement or from any action or inaction pertaining to the
Project or the Promissory Notes and Mortgages pledged and assigned to the Bank.
The Company shall also indemnify the Bank and hold it harmless from any
liability for commissions or compensation in the nature of a finder's fee to
any broker or other person or firm for which the Company or any of its
employees or representatives may be responsible by reason of this Agreement on
the transactions contemplated by this Agreement.
9.11 ENVIRONMENTAL INDEMNIFICATION. The Company shall indemnify, defend
and hold harmless the Bank from and against any and all liabilities, claims,
damages, penalties, expenditures, losses or charges, including but not limited
to all costs of investigation, monitoring, legal representation, remedial
response, removal, restoration or permit acquisition, which may now or in the
future be undertaken, suffered, paid, awarded, assessed or otherwise incurred
by the Bank or any other person or entity as a result of the presence, Release
or threatened Release of Hazardous Substances on, in, under or near any property
comprising the Project. The liability of the Company under this section is not
limited by any exculpatory provisions in this Agreement or any other documents
securing the Loans and shall survive repayment of the Loans or any transfer or
termination of this Agreement regardless of the means of transfer or
termination.
9.12 NO LIABILITY. The Bank shall not be liable in any way for the
completeness or accuracy of any Environmental Report or the information
contained in it. The Bank has no duty to warn the Company or any other person
about any actual or potential environmental contamination or other problem that
may have become apparent or will become apparent to the Bank.
9.13 CONSENT TO JURISDICTION. Any action or proceeding to enforce or
arising out of this Agreement, any of the Notes, the Security Agreement or any
document executed in connection with this Agreement may be commenced in the
Supreme Court of New York in the county, or in the District Court of the United
States in the district, in which the Bank has an office, and a summons and
complaint commencing an action or proceeding in any such court shall be
properly served and shall confer personal jurisdiction if served personally or
by registered mail to the Company or as otherwise provided by the laws of the
State of New York or the United States.
9.14 WAIVER OF RIGHT TO TRIAL BY JURY. Each party to this Agreement
expressly waives any right to trial by jury of any claim, demand, action or
cause of action (i) arising under this Agreement or any other instrument,
document or agreement executed or delivered in connection with this Agreement
or (ii) in any way
<PAGE> 29
- 29 -
connected with or related or incidental to the dealings of the parties with
respect to this Agreement or any other instrument, document or agreement
executed or delivered in connection with this Agreement or the transactions
related to this Agreement, in each case whether now existing or hereafter
arising, and whether sounding in contract or tort or otherwise. Any such claim,
demand, action or cause of action shall be decided by court trial without a
jury, and any party may file an original counterpart or a copy of this section
with any court as written evidence of the consent of the parties to the waiver
of their right to trial by jury.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their authorized officers as of June 28, 1995.
POWHATAN ASSOCIATES, a Virginia
joint venture, by its joint
venturer Williamsburg Vacations,
Inc., a Virginia corporation
By: /s/ KAY F. GOW
----------------------------------
Kay F. Gow, President
MARINE MIDLAND BANK
By /s/ ALTON H. LYLES
----------------------------------
Alton H. Lyles
Assistant Vice President
<PAGE> 30
EXHIBIT A
VARIABLE-RATE SECURED TERM NOTE
$20,000,000.00 June 28, 1995
FOR VALUE RECEIVED, the undersigned promises to pay to MARINE MIDLAND
BANK (the "Bank"), or its order, on June 28, 2000, at its office at One Marine
Midland Center, Buffalo, New York, the principal sum of Twenty Million Dollars
($20,000,000.00) or the aggregate unpaid principal amount of all Variable-Rate
Loans made by the Bank to the undersigned from time to time pursuant to a Loan
Agreement between the undersigned and the Bank dated the date of this Note
("Loan Agreement"), whichever is less, together with interest on the balance of
the principal of this Note from time to time unpaid at an annual rate ("Rate")
equal to the Bank's Prime Rate plus one and one-half percent (1 1/2%). "Prime
Rate" means the rate of interest publicly announced by the Bank from time to
time as its prime rate and is a base for calculating interest on certain loans.
All Loans may be inscribed by the Bank on the attached schedule or
any continuations of the schedule (the "Schedule"). Each entry on the Schedule
shall be prima facie evidence of the facts set forth. No failure by the Bank to
make, and no error by the Bank in making, any entry on the Schedule shall affect
the undersigned's obligation to repay the full principal amount advanced by the
Bank to or for the account of the undersigned or the undersigned's obligation to
pay interest.
After maturity (whether by acceleration or otherwise), all loans
shall continue to bear interest at the Rate. In no event shall the Rate exceed
the maximum rate allowed by law. The Rate shall change simultaneously with each
change in the Prime Rate. Interest shall be calculated on the basis of 1/360th
of the Rate in effect for each calendar day the balance of principal is unpaid.
Accrued interest shall be payable monthly on the tenth day of each month,
beginning July 10, 1995, and when the principal of this Note is paid in full.
No failure by the holder of this Note to exercise, and no delay in
exercising, any right or remedy under this Note shall operate as a waiver
thereof, and no single or partial exercise by the holder of any right or remedy
under this Note shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. The rights and remedies of the holder are
cumulative and not exclusive of any other rights or remedies the holder may
otherwise have.
Reference is made to the Loan Agreement for provisions as to
prepayment, collateral and acceleration. The undersigned
<PAGE> 31
-2-
expressly waives any requirements of presentment, protest or notice of dishonor.
This Note shall be governed by the internal laws of the State of New York
without regard to principles of conflicts of laws. The undersigned shall pay
all costs and expenses incurred by the holder in enforcing this Note,
including, without limitation, reasonable attorneys' fees and legal expenses.
This Note modifies and extends, but does not replace, the Secured Term
Note of the Company dated as of September 21, 1990, in the original principal
amount of $10,000,000.00; the Secured Term Note of the Company dated as of
October 25, 1993, in the original principal amount of $8,000,000.00; and the
Secured Term Note of the Company dated as of January 10, 1995, in the original
principal amount of $6,000,000.00.
POWHATAN ASSOCIATES, A Virginia
joint venture, by its joint
venturer Williamsburg Vacations,
Inc., a Virginia corporation
By _____________________________
Kay F. Gow, President
<PAGE> 1
EXHIBIT 10.6.17
LOAN AND SECURITY AGREEMENT
BY THIS LOAN AND SECURITY AGREEMENT entered into as of the date set
forth at the end hereof, GREYHOUND REAL ESTATE FINANCE COMPANY, an Arizona
corporation ("Lender"), and POWHATAN ASSOCIATES, a Virginia joint venture
("Borrower"), confirm and agree as follows:
I. DEFINITIONS
Unless the context clearly otherwise requires, the capitalized terms
used in this Agreement shall have the meaning given to them in this Article I or
elsewhere in this Agreement:
1.1 "Advance": an advance of the Loan made from time to time
as provided in this Agreement.
1.2 "Agents": collectively, the Collection Agent and any
Servicing Agent; "Collection Agent": the entity referred to in Supplement I, or
should such entity cease to act as collection agent under the Collection
Agreement, its successor as collection agent under the Collection Agreement; and
"Servicing Agent": any entity other than Borrower who, at the direction or with
the consent of Lender, is performing the servicing obligations required to be
performed by Borrower under paragraph 5.4(a).
1.3 "Agreement": this "Loan and Security Agreement," as from
time to time supplemented, modified, extended, renewed, replaced or restated
(all references to exhibits or supplements shall be deemed to incorporate such
document in this Agreement).
1.4 "Applicable Usury Law": the usury law applicable under the
terms of paragraph 8.10 or such other usury law which is applicable if the law
chosen by the parties is not.
1.5 "Assignments": written assignments from time to time
delivered to Lender by Borrower of specific Instruments and/or Purchaser
Mortgages and their proceeds.
1.6 "Borrowing Base": an amount equal to the lesser of:
(a) 90% of the then unpaid principal balance of the
Eligible Instruments; or
(b) 90% of the present value of the contractual cash
flow, discounted at the highest of (i) the applicable interest rate under the
terms of the Note, (ii) a discount rate equal to Prime on the first day of the
month in which the calculation is made plus 2-3/4%, or (iii) 16%.
1.7 "Borrowing Term": the period commencing on the date
1
<PAGE> 2
of this Agreement and ending at the close of Lender's normal business day (or,
if such is not a normal business day of Lender, on the next business day of
Lender) on May 1, 1992.
1.8 "Documents": the Note, the Guarantees, the Subordination
Agreements, the Assignments, the Collection Agreement, the "Environmental
Certificate" required under paragraph 4.1(b)(vii), this Agreement and the
other documents and instruments executed in connection with the Loan, together
with any and all renewals, extensions, amendments, restatements or replacements
thereof, whether now or hereafter existing.
1.9 "Eligible Instrument": an Instrument which conforms to the
additional standards set forth in Exhibit 1 and has been assigned to Lender
under this Agreement. An Instrument that has qualified as an Eligible Instrument
shall cease to be an Eligible Instrument upon the date of the occurrence of any
of the following: (a) any one installment due with respect to an Eligible
Instrument becomes more than 59 days past due, or (b) the Eligible Instrument
otherwise fails to continue to meet the requirements of an Eligible Instrument.
1.10 "Event of Default": the meaning set forth in paragraph
7.1.
1.11 "Guarantee": a "Guarantee and Subordination Agreement"
made and delivered to Lender under paragraph 4.1(b)(ii), as from time to time
modified, replaced or restated.
1.12 "Guarantors": each and every person or entity now or
hereafter guaranteeing all or any portion of the Obligations, including without
limitation, the persons or other entities described in Supplement I.
1.13 "Instrument": a promissory note which has arisen out of
the sale of a Time-Share Estate by Borrower to a Purchaser and is secured by a
Purchaser Mortgage.
1.14 "Loan": the loan made under this Agreement.
1.15 "Maturity Date": the date set forth in Supplement I.
1.16 "Maximum Loan Amount": the amount set forth in Supplement
I.
1.17 "Note": the "Promissory Note" to be made and delivered by
Borrower to Lender under paragraph 4.1(b)(i), as from time to time modified,
renewed, extended, replaced or restated.
1.18 "Obligations": each obligation, duty, covenant,
undertaking and condition of Borrower contained in the Documents
2
<PAGE> 3
and each other obligation of Borrower now or hereafter owing to Lender.
1.19 "Opening Prepayment Date": the date set forth in
Supplement I.
1.20 "Overdue Rate": the meaning given to it in the Note.
1.21 "Performance" or "Perform": full, timely and faithful
performance and compliance or to do the same.
1.22 "Permitted Encumbrances": each restriction, reservation
and easement of record, inchoate mechanics' liens and inchoate liens for taxes
and assessments, which individually and in the aggregate do not render title to
the property which they encumber unmarketable or materially lessen the value of
the property.
1.23 "Prime": the meaning given to it in the Note.
1.24 "Project": the time-share resort or portion of it
described in Supplement I.
1.25 "Purchaser": a purchaser of a Time-Share Estate from
Borrower.
1.26 "Purchaser Mortgage": the purchase money mortgage or deed
of trust given to secure an Instrument.
1.2.7 "Receivables Collateral" (a) the Instruments which are,
now or hereafter, assigned, endorsed or delivered to Lender under this Agreement
or against which an Advance has been made; (b) all purchase contracts, Purchaser
Mortgages, guarantees and other documents or instruments evidencing or securing
the obligations of the Purchasers and/or any other person primarily or
secondarily liable on such Instruments; (c) all policies of insurance related to
such Instruments or delivered in connection with them; (d) if any, all rights
under escrow agreements and all impound and/or reserve accounts pertaining to
the foregoing; (e) all files, books and records of Borrower pertaining to any of
the foregoing; and (f) the proceeds from the foregoing.
1.28 "Security Interest": a perfected, direct and exclusive
first security interest under the Uniform Commercial Code of the State(s) in
which any such security interest needs to be perfected; provided that with
respect to any portion of the Receivables Collateral not covered by the Uniform
Commercial Code, it shall mean a direct and exclusive first lien on such
property which has been perfected against third parties in the manner provided
by law.
3
<PAGE> 4
1.29 "Servicing and Collection Agreements": collectively, the
Collection Agreement and any Servicing Agreement; "Collection Agreement": the
"Collection Agreement" to be made among Borrower, Lender and Collection Agent
under paragraph 4.1(b)(iv), as from time to time modified, replaced or restated;
and "Servicing Agreement": any agreement entered into at the direction or with
the consent of Lender whereby a third party undertakes in writing to perform the
servicing obligations required to be performed by Borrower under paragraph
5.4(a).
1.30 "Subordination Agreement": a subordination made and
delivered to Lender under paragraph 4.1(b)(iii), as from time to time modified,
replaced or restated.
1.31 "Term": the duration of this Agreement commencing on its
date and ending when all of the Obligations shall have been Performed.
1.32 "Time-Share Estate": the estate described in Supplement
I, with a right to the exclusive use of a dwelling unit in the Project and a
right to the non-exclusive use of the Project common areas for a one (1) week
period each year.
II. LOAN COMMITMENT; USE OF PROCEEDS
2.1 Subject to the terms and conditions of this Agreement,
Lender will from time to time make Advances to Borrower in amounts equal to (a)
the then Borrowing Base less (b) the then unpaid principal balance of the Loan;
provided, at no time shall the unpaid principal balance of the Loan exceed the
Maximum Loan Amount.
2.2 The Loan is a revolving line of credit against which
during the Borrowing Term, subject to the terms and conditions of this
Agreement, Borrower shall have the right to obtain Advances, repay Advances and
obtain additional Advances; however, all of the Advances shall be viewed as a
single loan. Borrower shall not be entitled to obtain Advances after the
expiration of the Borrowing Term unless Lender, in its sole and absolute
discretion, agrees in writing with Borrower to make Advances thereafter on terms
and conditions satisfactory in all respects to Lender. This Agreement and
Borrower's liability for Performance of the Obligations shall continue, however,
until the end of the Term.
2.3 Borrower will use the proceeds of the Loan only for
Borrower's business purposes set forth in Supplement I.
III. SECURITY
3.1 To secure Performance of all of the Obligations, Borrower
hereby grants to Lender a Security Interest in and assigns to Lender the
Receivables Collateral. The Security Interest shall
4
<PAGE> 5
be absolute, continuing and applicable to all existing and future Advances and
to all Obligations; and all of the Receivables Collateral shall secure
Performance of the Obligations throughout the Term. Borrower will
unconditionally deliver and endorse to Lender, with full recourse, all
Instruments against which Advances are sought and will execute and deliver to
Lender recordable absolute Assignments with respect to such Instruments. Lender
is and shall be the attorney-in-fact of Borrower with respect to the collection
and remittance of payments on the Receivables Collateral with full power and
authority to give instructions with respect to the collection and remittance of
such payments and to endorse payment items; provided, however, that unless an
Event of Default has occurred and is continuing, Lender shall have no right to
take any of the actions specified in paragraph 7.2(c). Borrower has its chief
executive office and principal place of business at the address set forth in
Supplement I and will promptly notify Lender of any change in such address. Upon
Performance of the obligations, Lender will re-assign and/or endorse to
Borrower, without recourse or warranty of any kind, the Receivables Collateral.
3.2 If a previously Eligible Instrument that is part of the
Receivables Collateral ceases to qualify as, or is otherwise determined not to
be, an Eligible Instrument, then within 30 days after Lender notifies Borrower
of such event or Borrower otherwise obtains knowledge of such event, whichever
is earlier, Borrower will either (i) pay to Lender an amount equal to the
Borrowing Base of the ineligible Instrument, together with interest, costs and
expenses, attributable to the ineligible Instrument, or (ii) replace such
ineligible Instrument with an Eligible Instrument against which an Advance could
be made in an amount not less than the Borrowing Base of the ineligible
Instrument being replaced. Simultaneously with the delivery of the replacement
Instrument to Lender, Borrower will deliver to Lender all of the items (except
for a "Request for Advance and Certification") required to be delivered by
Borrower to Lender under paragraph 4.2, together with a "Borrower's Certificate"
in form and substance identical to Exhibit 2. If no Event of Default and no act
or event which after notice and/or lapse of time would constitute an Event of
Default has occurred and is continuing, then upon the substitution of Eligible
Instruments for ineligible Instruments, Lender will reassign and/or endorse to
Borrower the ineligible Instruments by execution and delivery to Borrower of a
recordable assignment in the form of Exhibit 6D and endorsement of the
Instrument to Borrower without recourse or warranty of any kind.
3.3 Borrower will deliver or cause to be delivered to Lender
and thereafter throughout the Term will maintain or cause to be maintained in
full force and effect according to their terms the security documents required
to be delivered to Lender under this Agreement, including, without limitation,
the Guarantees from each of the Guarantors and the Subordination Agreements from
all persons
5
<PAGE> 6
required to subordinate to the Loan under paragraph 6.12.
3.4 At the time of delivery of an Assignment, Borrower will,
at its expense, deliver to Lender a policy or policies of title insurance
insuring Lender's interest in the Purchaser Mortgages which are the subject of
the Assignment. Such policy or policies shall be in the amount of the Advances
made against or, in the case of substitutions, the portion of the Loan
attributable to the Instruments secured by the insured Purchaser Mortgages; and
shall be issued by a title insurer and be in form and substance satisfactory to
Lender in its sole discretion.
IV. ADVANCES
4.1 (a) Lender shall have no obligation to make the initial
Advance unless and until the conditions set forth in the following subparagraphs
and in paragraphs 9.2(c) and 9.3 have been satisfied at the expense of Borrower,
as determined by Lender in its discretion, on or before the date specified in
Supplement I.
(b) Borrower shall have delivered to Lender the following
loan documents, duly executed, delivered and in form (including, when
appropriate, form required for recording or filing) and substance satisfactory
to Lender:
(i) a "Promissory Note" in form and substance
identical to Exhibit 3;
(ii) A "Guarantee and Subordination Agreement" with
respect to each Guarantor jointly and severally guaranteeing
Performance of the Obligations and subordinating to the Obligations the
indebtedness of Borrower owing to such Guarantor;
(iii) a "Subordination Agreement" with respect to
each person (other than a Guarantor) required to subordinate to the
Loan under paragraph 6.12;
(iv) a "Collection Agreement" providing for the
collection of the Instruments constituting part of the Receivables
Collateral;
(v) UCC financing statements for filing and/or
recording, as appropriate, where necessary to perfect the Security
Interest in the Receivables Collateral and all other security for the
Performance of the Obligations which is subject to Article 9 of the
Uniform Commercial Code;
(vi) a favorable opinion from independent legal
counsel to Borrower and Guarantors in form and substance substantially
identical to Exhibit 4;
6
<PAGE> 7
(vii) an "Environmental Certificate" in form and
substance substantially identical to Exhibit 5;
(viii) this Agreement; and
(ix) such other documents as Lender may reasonably
require.
(c) Borrower shall have delivered to Lender in form and
substance satisfactory to Lender at least ten (10) business days prior to the
date of the Advance, except for the documents required by item (b)(ii) of
Exhibit 6 which must be delivered at least three (3) business days prior to the
date of the Advance:
(i) if Borrower is a corporation or a partnership,
evidence that Borrower is duly organized, validly existing and in good
standing under the laws of the State in which it has been organized and
is duly qualified to do business and in good standing in each
jurisdiction in which it is required under paragraph 6.1 to be so;
(ii) if Borrower is a corporation or a partnership,
a copy of the resolutions of Borrower, certified to be true and
complete by the corporate secretary of Borrower and at least one other
officer of Borrower or all the partners of Borrower, as the case may
be, authorizing the execution, delivery and Performance of the
Documents and evidencing the authority of all persons signing the
Documents on behalf of Borrower to do so; and, if Borrower is a
partnership, a copy of the partnership agreement and, as the case may
be, a copy of the recorded certificate of fictitious name or
certificate of limited partnership;
(iii) a condominium map of the Project or other
surveys and certifications by surveyors or engineers acceptable to
Lender, showing dimensions of the Project, access thereto, street
lines, easements and other details, together with other evidence
satisfactory to Lender that the Project complies with all applicable
laws, rules and regulations and public and private restrictions
affecting the use of the Project;
(iv) a copy of the registrations/consents to sell
and the final subdivision public reports/public offering
statements/prospectuses and/or approvals thereof required to be issued
by or used in the State in which the Project is located and/or other
jurisdictions where Time-Share Estates have been offered for sale or
sold;
(v) if the Project has not been registered under
such act and Lender requests such an opinion, a copy of an advisory
opinion issued by the federal Office of Interstate
7
<PAGE> 8
Land Sales Registration that the Project does not fall within the
purview of the Interstate Land Sales Full Disclosure Act;
(vi) a copy of the purchase contract, deed, note,
mortgage/deed of trust and other documents and exhibits, including,
without limitation, the exchange network affiliation contract, the
Project governing documents, the Project management agreement and
advertising materials, which have been or are being used by Borrower in
connection with the Project or the promotion or sale of Time-Share
Estates;
(vii) the insurance policies required under
paragraph 6.9 and evidence of fidelity insurance coverage for all
persons handling assessment payments made to the Powhatan Plantation
Owners Association ("Association");
(viii) evidence that the Project is not located
within a "special flood hazard" area as such term is used in the
National Flood Insurance Act of 1968, as amended and supplemented by
the Flood Disaster Protection Act of 1973, and in regulations,
interpretations and rulings thereunder;
(ix) evidence that the Project conforms to all
existing environmental laws, rules and regulations, if any, including,
without limitation, if requested by Lender, a Phase I Environmental
Assessment completed in accordance with Lender's requirements;
(x) the items described in Exhibit 6; and
(xi) such other items as Lender requests which are
reasonably necessary to evaluate the request for the Advance and the
satisfaction of its conditions precedent.
(d) No material adverse change shall have occurred in the
Project or in Borrower's business or financial condition since the date of the
latest financial and operating statements given to Lender by or on behalf of
Borrower.
(e) There shall have been no change in the warranties and
representations made by Borrower in the Documents.
(f) Neither an Event of Default nor an act or event which
after notice and/or lapse of time would constitute an Event of Default shall
have occurred and be continuing.
(g) The interest rate applicable to the Advance (before
giving effect to any savings clause) will not exceed the maximum amount
permitted by the Applicable Usury Law.
(h) Borrower shall have paid to Lender all fees for the
Loan required to be paid on or before the time of the Advance.
8
<PAGE> 9
(i) If required by Lender, Lender shall have received a
favorable opinion from Lender's special counsel as to the matters set forth in
paragraphs 6.1(b) (as to the second sentence), 6.3(b) (to counsel's knowledge
after due inquiry) , 6.4(a) (assuming proper completion and due execution and
delivery) , and 6.4(e) (as to membership in and authority of the Association),
and to such other matters as Lender shall reasonably require.
4.2 Lender shall have no obligation to make any Advance after
the initial Advance until the conditions specified in (a) paragraphs
4.1(c)(x)-(xi) and (b) paragraphs 4.1(d)-(h) have been satisfied as determined
by Lender in its discretion.
4.3 Advances shall not be made more frequently or in amounts
less than that provided in Supplement I.
4.4 Advances shall be requested in writing by Borrower or, if
Borrower is a corporation or partnership, by those officers or general partners,
as the case may be, or agents of Borrower named in authorizing resolutions of
Borrower from time to time delivered to Lender and which are in form and
substance satisfactory to Lender.
4.5 Advances shall be disbursed to Borrower by wire transfer
to Borrower in accordance with the instructions set forth in Supplement I or
such other instructions as Borrower may give by notice to Lender; or at the
option of Lender, to Borrower or others according to Borrower's written
instructions given by notice to Lender.
4.6 Although Lender shall have no obligation to make an
Advance unless and until all of the conditions precedent have been satisfied,
Lender may, at its sole discretion, make Advances prior to that time without
waiving or releasing any of the Obligations, but Borrower shall continue to be
required to strictly Perform all such Obligations.
V. NOTE; MAINTENANCE OF BORROWING BASE; PAYMENTS; SERVICING AND
COLLECTION
5.1 The Loan shall be evidenced by the Note and shall be
repaid according to its terms and such provisions of this Agreement as are
applicable. Payments of the Loan and Note shall be made in immediately available
funds.
5.2 Subject to Borrower's rights under paragraph 3.2 to
provide replacement Eligible Instruments, if for any reason the aggregate
principal amount of the Loan outstanding at any time shall exceed the then
Borrowing Base, Borrower, without notice or demand, will immediately make to
Lender a principal payment in an amount equal to such excess plus accrued and
unpaid interest thereon.
9
<PAGE> 10
5.3 Except as provided in this paragraph, Borrower will not be
entitled to prepay the Loan, in whole or in part, until the Opening Prepayment
Date. Borrower may prepay the Loan in full, but not in part, at any time prior
to the Opening Prepayment Date if (a) Lender fails to approve a written request
by Borrower to extend the Borrowing Term or to increase the Maximum Loan Amount,
(b) such prepayment is required in good faith by another institutional lender
providing additional financing to Borrower, and (c) at the time of the
prepayment Borrower pays to Lender a prepayment premium equal to 4% of the then
unpaid principal balance of the Loan. Thereafter, if (a) neither an Event of
Default nor an act or event that, with notice or lapse of time or both, would
constitute an Event of Default, has occurred and is continuing, (b) Borrower has
paid all sums due and payable to Lender in connection with the Loan, and (c)
Borrower has given Lender at least 30 days prior written notice of the
prepayment and paid to Lender at the time of prepayment a prepayment premium
equal to a percentage, determined as set forth in Schedule A, of the then
principal balance of the Loan, then Borrower shall have the option to prepay the
Loan in full, but not in part. If there should occur a casualty to or
condemnation of the Project or an acceleration of maturity following an Event of
Default and such occurrence results in prepayment of the Loan or if prepayments
result from other than voluntary, unsolicited prepayment (including payments
received through collection) of the Receivables Collateral, a prepayment premium
will be required in the amount specified in Schedule A of the then principal
balance of the Loan being prepaid.
5.4 (a) Collection Agent, as agent for Lender, shall collect
payments on the Instruments constituting part of the Receivables Collateral and
remit them to Lender on the last day of each month according to the terms of the
Collection Agreement; and Borrower will immediately forward all such payments
received by it to Collection Agent for the account of Lender. The Obligation to
make, or any requirement that Lender receive, payments called for in the
Documents will not be deemed satisfied until Lender actually receives such
payments from Collection Agent. For the purpose of determining the adequacy of
such payments, Borrower will furnish or will cause any Servicing Agent to
furnish to Lender at Borrower's sole cost and expense, no later than the 10th
day of each month commencing with the first full calendar month following the
date of the initial Advance, a report, substantially in the format of Exhibit 7,
showing through the last day of the preceding month, as to the Instruments which
constitute part of the Receivables Collateral, opening and closing balances on
each, all payments received on each Instrument which constitutes part of the
Receivables Collateral, allocated as between principal, interest, late charges,
taxes, or the like, present value calculations, average consumer interest rate
and an itemization of delinquent accounts, extensions, refinances, prepayments,
and other similar adjustments. On the basis of such reports, Lender will compute
the amount, if any, which is due and payable by Borrower and will
10
<PAGE> 11
notify Borrower in writing as soon as possible of any amount due. If such
reports are not timely received, Lender may estimate the amount which was due
and payable; and, in such event, Borrower will pay upon demand the amount
estimated by Lender to be due and payable. If payment is made on the basis of
Lender's estimate and thereafter the required reports are received by Lender,
the estimated payment amount shall be adjusted by an additional payment or a
refund to the correct amount, as the reports may indicate; such additional
amount to be paid by Borrower upon demand and such refund to be made by Lender
within 5 business days after receipt of written request therefor by Borrower. At
the end of each calendar quarter, Borrower will deliver to Lender a current list
of the names, addresses and phone numbers of the obligors on each of the
Instruments constituting part of the Receivables Collateral. Borrower shall also
promptly deliver to Lender such other reports with respect to Instruments
constituting part of the Receivables Collateral as Lender may from time to time
request.
(b) If Borrower defaults in its obligations under
paragraph 5.4(a), Lender may appoint a Servicing Agent to perform such
obligations at the expense of Borrower. Lender, subject to any restriction
thereon contained in the Collection Agreement and any Servicing Agreement, may
at any time and from time to time in its discretion appoint a successor or
successors to any Agent acting under the Collection Agreement and any Servicing
Agreement if such Agent is not in Performance of its obligations thereunder.
(c) Borrower will, at its expense, make available to
Lender all services necessary for an orderly takeover at the time of Lender's
appointment of a Servicing Agent, including without limitation, providing all of
Lender's papers, records and files in the format maintained by Borrower, all
supplies and other properties of Lender, and all media on which data supplied by
Lender is stored for processing. without limiting the generality of any other
provision of this Agreement, Borrower acknowledges that any failure or delay on
its part in the delivery of such items to Lender is and will be deemed to cause
irreparable injury to Lender, not adequately compensable in damages, and for
which Lender has no adequate remedy at law; and Borrower accordingly agrees that
Lender may, in such event, seek and obtain specific performance or other
injunctive relief in any court of competent jurisdiction.
5.5 Subject to Lender's rights under Article VII, all proceeds
from the Receivables Collateral (except payments which are identified by
Purchasers as tax and insurance impounds or maintenance and other assessment
payments and are required to be so treated by Borrower) during the Term shall be
applied first to the payment of all costs, fees and expenses required by the
Documents to be paid by Borrower, second to accrued and unpaid interest due on
the Note, third to the unpaid principal balance of the Note, and then to the
other Obligations in such order and manner as Lender may determine. Unless and
until all the Obligations have been
11
<PAGE> 12
Performed, Borrower shall have no right to any portion of the proceeds of the
Receivables Collateral.
5.6 Whether or not the proceeds from the Receivables
Collateral shall be sufficient for that purpose, Borrower will pay when due all
payments required to be made under the Note or the other Documents; and any and
all amounts payable by Borrower under the Note or the other Documents shall be
paid without notice (except as otherwise expressly provided therein), demand,
counterclaim, set-off, deduction, recoupment or defense, and without abatement,
suspension, deferment, diminution or pro-ration by reason of any circumstance or
occurrence whatsoever, Borrower's Obligation to make such payments being
absolute and unconditional.
VI. BORROWER'S ADDITIONAL REPRESENTATIONS, WARRANTIES AND
COVENANTS
6.1 (a) Borrower is, and will be, duly organized, validly
existing and in good standing as an entity of the kind specified in Supplement I
under the laws of the State specified in Supplement I. Borrower also is, and
will be, qualified to do business and in good standing in each jurisdiction in
which it is selling Time-Share Estates or where the location or nature of its
properties used or its business makes such qualification necessary (except where
failure to do so would not adversely affect Lender's ability to realize upon the
Receivables Collateral or any other security for the Performance of the
Obligations or materially adversely affect the business or financial condition
of Borrower or the ability of Borrower to complete Performance of the
Obligations). Borrower has, and will have, powers adequate for making and
Performing under the Documents, for undertaking and Performing the Obligations,
and for carrying on its business and owning its property.
(b) Borrower has good right and power to grant the
Security Interest in the Receivables Collateral, to execute and deliver the
Documents and to perform the Obligations. All action necessary and required by
Borrower's governance documents and all applicable laws for the obtaining of the
Loan and the execution and delivery of the Documents has been duly and
effectively taken; and the Documents are and shall be, legal, valid, binding and
enforceable against Borrower in accordance with their respective terms, and do
not violate the usury laws of the State specified in Supplement I. The
execution, delivery and Performance of the provisions of the Documents will not
violate, constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the properties or assets of Borrower
under the terms or provisions of any law, regulation, judgment, decree, order,
franchise or permit applicable to Borrower, its governance documents, or any
contract or other agreement or instrument to which Borrower is a party or by
which Borrower or its properties or assets are bound. No consent of any
government or
12
<PAGE> 13
agency thereof, or any other person, firm or entity not a party to this
Agreement is or will be required as a condition to the execution, delivery,
Performance or enforceability of the Documents.
6.2 (a) There is no action, litigation or other proceeding
pending or, to Borrower's knowledge, threatened before any arbitration tribunal,
court, governmental agency or administrative body against or affecting Borrower
or the Project, which, if adversely determined, might adversely affect Lender's
ability to realize upon the Receivables Collateral or any other security for the
Performance of the Obligations, or materially adversely affect the Project, the
business or financial condition of Borrower, or the ability of Borrower to
complete Performance of the Obligations; or which questions the validity of the
Documents.
(b) If Borrower becomes a party to any action, litigation
or other proceeding which asserts a material claim against Borrower, or Borrower
becomes the subject of an investigation by a governmental agency or
administrative body with respect to the Project, then Borrower will within 10
days after it obtains knowledge thereof notify Lender of such action,
litigation, proceeding or investigation and its particulars. Thereafter, if
requested by Lender, Borrower will report to Lender on the status of such matter
and its particulars.
6.3 (a) Except as set forth in Supplement I, Borrower has sold
or offered for sale Time-Share Estates only in the State in which the Project is
located and all sales have been made at the Project. Before it sells or offers
for sale Time-Share Estates in jurisdictions other than the State in which the
Project is located and those other jurisdictions which are listed in Supplement
I. Borrower will promptly notify Lender and provide it with evidence that it has
complied with all laws of such jurisdiction governing the proposed conduct of
Borrower.
(b) Except for violations which do not individually or
in the aggregate affect Lender's ability to realize upon the Receivables
Collateral or any other security for the Performance of the Obligations or do
not materially adversely affect the business or financial condition of Borrower
or the ability of Borrower to complete Performance of the Obligations, Borrower
has complied, and will comply, with all laws and regulations of the United
States and the State, County and, if any, municipal jurisdiction, in which the
Project is located and each State or other jurisdiction in which Time-Share
Estates have been sold or offered for sale.
(c) Without limiting the generality of any other
representation or warranty in this Agreement, use and occupancy of the Project
as a Time-Share Estate resort will not violate any private covenant or
restriction or any zoning, use or similar law, ordinance or regulation affecting
the use or occupancy of the
13
<PAGE> 14
Project. Borrower will not, without Lender's prior written consent, seek,
consent to or otherwise acquiesce in any change in any private restrictive
covenant, zoning law or other public or private restriction, which change would
limit the use of the Project or reduce its fair market value.
6.4 (a) Each Instrument at the time it is assigned to Lender
under this Agreement shall be an Eligible Instrument. Borrower has Performed all
of its obligations to Purchasers, and there are no executory obligations to
Purchasers to be Performed by Borrower other than the completion and furnishing
of certain dwelling units in the Project. Borrower further warrants and
guarantees the value of each Instrument is at least equal to the value assigned
in making the Borrowing Base computations and the enforceability of the
Receivables Collateral.
(b) Borrower, without the prior written consent of Lender,
will not cancel or materially modify, or consent to or acquiesce in any material
modification to, or solicit the prepayment of any Instrument constituting part
of the Receivables Collateral; or waive the timely performance of the
obligations of the Purchaser under any such Instrument. Borrower will not pay or
advance directly or indirectly for the account of any Purchaser any sum owing by
the Purchaser under any of the Instruments constituting part of the Receivables
Collateral.
(c) Borrower at all times will fulfill and will cause its
affiliates, agents and independent contractors at all times to fulfill all
obligations of any nature whatsoever to Purchasers under all Instruments
constituting part of the Receivables Collateral.
(d) True and complete copies of the Project governing
documents, the purchase contract, deed, advertising materials and other
documents and exhibits thereto which have been and are being used by Borrower in
connection with the Project and the sale or offering for sale of Time-Share
Estates have been delivered to Lender. Such documents are the only ones which
have been used in connection with the Project and the sale of Time-Share
Estates. Borrower, without the prior written consent of Lender, will not cancel
or materially modify any such documents. Borrower will perform all of its
obligations under the Project governing documents.
(e) Upon and after closing of the Time-Share Estate
purchased, each Purchaser will automatically be a member of the Association and
will be entitled to vote on the affairs thereof. The Association will at all
times be governed by a board of directors. Until the time ("Developer Control
Termination Date") Borrower conveys fee simple title to the Project, excluding
the units, Borrower shall be responsible for all costs ("Project Operations
Costs") associated with the control, management and
14
<PAGE> 15
operations of the Project, except "time-share estate occupancy expenses" which
are all costs and expenses incurred in the interior use and occupancy of
completed Time-Share Estate units, including, but not limited to maintenance and
housekeeping charges, repairs, refurbishing costs, insurance premiums, properly
allocated labor and overhead costs, utility charges and deposits and the cost of
periodic repair and replacement to wall and window treatments, and furnishings,
including furniture and appliances. The Association board has the authority to
fix and levy pro rata upon each Purchaser annual assessments to meet time-share
estate occupancy expenses. From and after the Developer Control Termination
Date, the Association board will have the authority to fix and levy pro rata
upon each Purchaser annual assessments to cover all costs associated with the
control, management and operations of the Project; provided, however, that from
and after such date, Borrower shall at its expense complete all of the amenities
and facilities comprising the Project and shall use its best efforts to cause
the Association board to pay the Project Operations Costs. The obligations of
Borrower under this Paragraph are in addition to and not in limitation of its
other Obligations under the Documents, including, without limitation, its
Obligations under Paragraphs 6.3(b), 6.4 (c) and 6.4 (f).
(f) Except as otherwise permitted by the Project governing
documents, the Association or the owners of Time-Share Estates in common will at
all times own the furnishings in the Project dwelling units and all the common
areas in the Project and other amenities which have been promised or represented
as being available to Purchasers, free and clear of liens and security interests
except for the Permitted Encumbrances; and no part of the Project is subject to
partition by the owners of Time-Share Interests except as permitted by Virginia
Code Section 55-373(c). Borrower will maintain or cause to be maintained in good
condition and repair all common areas in the Project and other amenities which
have been promised or represented as being available to Purchasers and which are
not the responsibility of the Association to maintain and repair. Borrower will
maintain a reasonable reserve to assure compliance with the terms of the
foregoing sentence.
(g) No proceedings or negotiations have been commenced
or are pending with respect to the condemnation or acquisition by eminent domain
(or deed of agreement in lieu thereof) of the Project, or any part thereof; and
there has been no loss or damage to any dwelling unit or common areas in the
Project by reason of fire or any other casualty which has not been repaired.
(h) Borrower will maintain or cause to be maintained in
full force and effect an affiliation contract with a reputable exchange network
which covers the Project and is consistent with representations made to
Purchasers concerning
15
<PAGE> 16
exchange privileges.
6.5 LENDER DOES NOT ASSUME AND SHALL HAVE NO RESPONSIBILITY,
OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S RELATIONSHIP BEING THAT ONLY OF
A CREDITOR WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWED TO IT, A COLLATERAL
ASSIGNMENT FROM BORROWER OF INSTRUMENTS. EXCEPT AS REQUIRED BY LAW, BORROWER
WILL NOT, AT ANY TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER WITH RESPECT
TO THE PROJECT, THE SALE OF TIME-SHARE ESTATES OR OTHERWISE, WITHOUT THE EXPRESS
WRITTEN CONSENT OF LENDER.
6.6 Borrower will undertake the collection of amounts
delinquent under each Instrument constituting part of the Receivables
Collateral, bear the entire expense of such collection work, and diligently and
timely do such work respecting collection, including forfeiture or foreclosure
proceedings. Lender shall have no obligation to undertake any collection,
eviction or foreclosure action against the obligor under any Instrument or
otherwise realize upon any Instrument.
6.7 Borrower will maintain a secure place in its offices at
the address specified in Supplement I proper and accurate books, records,
ledgers, correspondence and other papers relating to the Receivables Collateral.
6.8 Borrower, without the prior written consent of Lender,
will not: (a) sell, convey, pledge, hypothecate, encumber or otherwise transfer
(i) any security for the Performance of the Obligations; or (b) permit or suffer
to exist any liens, security interests or other encumbrances on any security for
the Performance of the Obligations, except for the Permitted Encumbrances and
liens and security interests expressly granted to Lender.
6.9 (a) Borrower will obtain and deliver to Lender before the
making of the first Advance, and maintain throughout the Term, such insurance,
written by such insurers and in such forms and amounts, as Lender may reasonably
require.
(b) Borrower will use its best efforts to cause fidelity
insurance coverage to be maintained with respect to all persons handling monies
belonging to the Association.
(c) Borrower will maintain such other insurance with
respect to its business and properties as is normally maintained by prudent
persons engaged in similar businesses or owning similar properties similarly
situated.
6.10 (a) The Documents, certificates, financial statements and
written materials furnished to Lender by or on behalf of Borrower in connection
with the transactions contemplated by this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the
16
<PAGE> 17
statements contained in them not misleading. There is no fact known to Borrower
which materially adversely affects or in the future may (so far as Borrower can
now foresee) materially adversely affect the Receivables Collateral or any other
security for the Performance of the Obligations or the business or financial
condition of Borrower or the Project which has not been set forth in the
Documents, certificates, financial statements or written materials furnished to
Lender in connection with the transactions contemplated by this Agreement.
(b) The fact that Lender's representatives may have made
certain examinations and inspections of or received certain information
pertaining to the Receivables Collateral or the Project and its proposed
operation does not in any way affect or reduce the full scope and protection of
the warranties, representations and obligations contained in this Agreement,
which have induced Lender to enter into this Agreement.
6.11 (a) Borrower will maintain a standard, modern system of
accounting and will keep and maintain all books and records in accordance with
generally accepted accounting principles on a consistent basis.
(b) Borrower will timely furnish or cause to be
furnished to Lender the reports required by paragraph 5.4(a). If required by
Lender, Borrower will furnish to Lender on or before the 10th day of each month
a sales report for the prior month showing such information as Lender shall
reasonably request.
(c) Borrower will furnish or cause to be furnished to
Lender, as soon as available, and in any event within the time period specified
in Schedule B, the financial statements of Borrower and other persons and
entities identified on Schedule B.
(d) Borrower will use its best efforts to deliver to
Lender from time to time, as available, and promptly upon amendment or change in
effective date, current Time-Share Estate price lists, sales literature,
registrations/consents to sell, final subdivision plats, public reports/public
offering statements/prospectuses, and other items requested by Lender which
relate to the Project.
(e) So long as the same shall be pertinent to the Loan,
the Project, the Documents or any transactions contemplated by them, Borrower
will at its expense (i) permit Lender and its representatives at all reasonable
times to inspect, audit and copy, as appropriate, the Project, Borrower's
facilities, activities, books of account, logs and records, (ii) cause its
employees, agents and accountants to give their full cooperation and assistance
in connection with any such visits of inspection or financial conferences and
(iii) make available such further information concerning its business and
affairs as Lender may from time to time reasonably request.
17
<PAGE> 18
(f) Borrower will use its best efforts to cause to be
made available to Lender for inspection, auditing and copying, upon Lender's
request, the books of account, logs and records of the Association. Borrower
will promptly notify Lender if, to its knowledge, the Association is insolvent.
6.12 Borrower will cause any and all indebtedness owing by it
to its shareholders, directors, officers or partners or the relatives and
affiliates of Borrower or the foregoing to be subordinated in all aspects to the
Obligations; provided, however, that such subordination shall not extend to
reasonable salaries and fees which are for services actually rendered and are
paid while no Event of Default exists.
6.13 Borrower will not, without Lender's prior written
consent: (a) sell, lease, transfer or dispose of all or substantially all of its
assets to another entity; or (b) if a corporation or partnership, consolidate
with or merge into another entity, permit any other entity to merge into it or
consolidate with it, or permit or suffer to exist any transfer of the ownership
of, or power to control, Borrower or any entity directly or indirectly
controlling Borrower.
6.14 Borrower is not in default of any payment on account of
indebtedness for borrowed money or of any repurchase obligations in connection
with a receivables purchase financing, or in violation of or in default under
any material term in any agreement, instrument or order, decree or judgment of
any court, arbitration or governmental authority to which it is a party or by
which it is bound.
6.15 Borrower has filed all tax returns and paid all taxes,
assessments, levies and penalties, if any, in respect thereof required to be
filed by it or paid by it to any governmental or quasi-governmental authority or
subdivision. All real estate taxes and assessments have been paid which are due
and owing in connection with the Project and the amenities which have been
promised or represented as being available to Purchasers for use by them.
Borrower will use its best efforts to provide to Lender not more than 30 days
after such taxes and assessments would become delinquent if not paid evidence
that all taxes and assessments on the dwelling units and common areas in the
Project have been paid in full.
6.16 Borrower will pay to Lender non-refundable loan fees in
the amounts and at the times provided in Supplement I. Borrower will pay on
demand any and all reasonable out-of-pocket costs and expenses incurred or to be
incurred by Lender in connection with the initiation, documentation and closing
of the Loan, the making of Advances, the protection of the security for the
Performance of the Obligations, or the enforcement of the Obligations against
Borrower, including, without limitation, travel costs, attorneys'
18
<PAGE> 19
fees (not to exceed the $10,000 documentation fee for the initial
documentation), filing and recording fees, charges for credit reports obtained
by Lender prior to closing of the Loan, charges for credit reports obtained by
Lender with respect to Purchasers and reasonably deemed necessary by Lender,
revenue and documentary stamp and intangible taxes, and fees and expenses of
Agent(s) to perform the services contemplated by this Agreement and under the
Servicing and Collection Agreement(s).
6.17 Borrower will INDEMNIFY, SAVE AND HOLD HARMLESS, and
defend Lender, its successors, assigns and shareholders (including corporate
shareholders), and the directors, officers, employees, agents and servants of
the foregoing, for, from and against any and all losses, costs, expenses
(including, without limitation, court costs and reasonable attorneys' fees),
demands, claims, suits, proceedings (whether civil or criminal), orders,
judgments, penalties, fines and other sanctions arising from or brought in
connection with (a) the Project, the security for the Performance of the
Obligations, Lender's status by virtue of the Assignments, creation of Security
Interests, the terms of the Documents or the transactions related to them, or
any act or omission of Borrower or any Agent, or the employees or agents of any
of them, whether actual or alleged, and (b) any and all brokers' commissions or
finders' fees or other costs of similar type, or claims by any broker, agent or
other party in connection with this transaction. On written request by an
indemnitee, Borrower will undertake, at its own cost and expense, on behalf of
such indemnitee, using counsel satisfactory to the indemnitee, the defense of
any legal action or proceeding to which such person or entity shall be a party,
provided that such action or proceeding shall result from, or grow or arise out
of any of the events set forth in this paragraph.
6.18 Borrower will not directly or indirectly invest all or
any part of the proceeds of the Loan in any investment security subject to the
margin requirements of Federal Reserve Regulation G.
6.19 Borrower will execute or cause to be executed all
documents and do or cause to be done all acts necessary for Lender to perfect
and to continue the perfection of the Security Interest of Lender in the
Receivables Collateral or the other security for the Performance of the
Obligations or otherwise to effect the intent and purposes of the Documents.
Borrower will prosecute or defend any action involving the priority, validity or
enforceability of the Security Interest granted to Lender; provided, that, at
Lender's option, Lender may do so at Borrower's expense.
6.20 Borrower is fully familiar with all of the terms and
conditions of the Documents and is not in default under them. No act or event
has occurred which after notice and/or lapse of time would constitute such a
default or an Event of Default.
19
<PAGE> 20
6.21, The representations, warranties and covenants contained
in this Article VI are in addition to, and not in derogation of, the
representations and warranties elsewhere contained in the Documents.
6.22 The representations and warranties contained in this
Agreement are continuing and shall be deemed to be made and reaffirmed prior to
the making of each Advance.
VII. DEFAULT
7.1 The occurrence of any of the following events or
conditions shall constitute an Event of Default under the Documents:
(a) Lender fails to receive from Borrower when due and
payable (i) any amount that Borrower is obliged to pay on the Note or (ii) any
other payment due under the Documents; and such failure shall continue for 5
business days after written notice to Borrower, except for the payment of the
final payment due at the Maturity Date for which no grace period is allowed;
(b) any representation or warranty of Borrower contained
in the Documents or in any certificate furnished under the Documents proves to
be, in any material respect, false or misleading as of the date deemed made;
(c) there is a default in the Performance of the
Obligations set forth in paragraph 3.2, 6.8(a), 6.9(a), 6.12 or 6.13;
(d) there is a default in the Performance of the
Obligations or a violation of any term, covenant or provision of the Documents
(other than a default or violation referred to elsewhere in this paragraph 7.1)
and such default or violation continues unremedied (i) for a period of 5
business days after written notice to Borrower in the case of a default under or
violation of paragraph 6.8(b) or any other default or violation which can be
cured by the payment of money alone or (ii) for a period of 30 business days
after notice to Borrower in the case of any other default or violation;
(e) an "Event of Default", as defined elsewhere in the
Documents, occurs, or an act or event occurs under any of the Documents, whether
or not denominated as an "Event of Default", which expressly entitles Lender to
accelerate any of the Obligations and/or exercise its other remedies available
upon the occurrence of an Event of Default under this Loan Agreement;
(f) any material default by Borrower under any other
agreement evidencing, guaranteeing, or securing borrowed money or a receivables
purchase financing has occurred permitting
20
<PAGE> 21
the acceleration of such indebtedness or repurchase obligations, which
accelerated repayment or repurchase obligations are in excess of $100,000.00 in
the aggregate;
(g) any final, non-appealable judgment or decree for
money damages or for a fine or penalty is entered or made against Borrower which
is not paid and discharged or stayed within 30 days thereafter and when
aggregated with all other judgment(s) or decree(s) that have remained unpaid and
undischarged or stayed for such period is in excess of $100,000.00;
(h) any party holding any security for the Performance of
the Obligations or a lien (other than a lien created by a Purchaser solely with
respect to its Time-Share Estate) on any part of the Project commences
foreclosure or similar sale thereof;
(i) (i) Borrower becomes insolvent or unable to pay its
debts when due; generally fails to pay its debts when due; files a petition in
any bankruptcy, reorganization, winding-up or liquidation proceeding or other
proceeding analogous in purpose or effect relating to such entity; applies for
or consents to the appointment of a receiver, trustee or other custodian for
the bankruptcy, reorganization, winding-up or liquidation of such entity; makes
an assignment for the benefit of creditors; or admits in writing that it is
unable to pay its debts; (ii) any court order or judgment is entered confirming
the bankruptcy or insolvency of Borrower or approving any reorganization,
winding-up or liquidation of such entity or a substantial portion of its assets;
(iii) there is instituted against Borrower any bankruptcy, reorganization,
winding-up or liquidation proceeding or other proceeding analogous in purpose or
effect and the same is not dismissed within 60 days after its institution; or
(iv) a receiver, trustee or other custodian is appointed for any part of the
Receivables Collateral or the Project or all or a substantial portion of the
assets of Borrower;
(j) the Project, or any material part thereof, becomes
damaged, condemned or taken and is not promptly repaired or restored;
(k) Performance by Borrower of any material obligation
under any Document is rendered unenforceable in any material respect;
(1) there occurs a material adverse change in the Project
or in the business or financial condition of Borrower or in the Receivables
Collateral or any other security for the Performance of the Obligations, which
change is not enumerated in this paragraph 7.1 and as the result of which Lender
in good faith deems the prospect of Performance of the Obligations impaired or
its security therefor imperiled; or
21
<PAGE> 22
(m) any of the events enumerated in paragraphs 7.1(f),
(g), (i), (k) or (1) occurs with respect to any Guarantor.
7.2 At any time after an Event of Default has occurred and
while it is continuing, Lender may, at its option, but without obligation, do
any one or more of the following:
(a) cease to make further Advances;
(b) declare the Note, together with prepayment premiums
and all other sums owing by Borrower to Lender in connection with the Documents,
immediately due and payable without notice, presentment, demand or protest,
which are hereby waived by Borrower;
(c) with respect to the Receivables Collateral, (i)
institute collection actions against Purchasers and other persons obligated,
(ii) enter into modification agreements and make extension agreements with
respect to payments and other performances, (iii) release persons liable for the
payment and performance or the securities for such payment and performance, and
(iv) settle and compromise disputes with respect to payments and performances
claimed due, all without notice to Borrower, without being called to account by
Borrower and without relieving Borrower from Performance of the Obligations; and
(d) proceed to protect and enforce its rights and
remedies under the Documents and to foreclose or otherwise realize upon its
security for the Performance of the Obligations, or to exercise any other rights
and remedies available to it at law, in equity or by statute.
The rights and powers granted under this paragraph are not intended to limit the
rights and powers granted elsewhere in this Agreement.
7.3 Notwithstanding anything in the Documents to the
contrary, while an Event of Default exists, any cash received and retained by
Lender in connection with the Receivables Collateral may be applied to payment
of the Obligations in the manner provided in paragraph 7.5.
7.4 (a) Following an Event of Default, Lender may sell,
assign and deliver the Receivables Collateral, or any part thereof, at public or
private sale, conducted in a commercially reasonable manner by any officer, or
agent of, or auctioneer or attorney for, Lender at Lender's place of business or
elsewhere, for cash, upon credit or future delivery, and at such price or prices
as Lender shall reasonably determine, and Lender may be the purchaser of any or
all of the Receivables Collateral. Lender may, in its reasonable discretion, at
any such sale, restrict the prospective bidders or purchasers as to number,
nature of business and investment intention, and, without limitation, may
require that the
22
<PAGE> 23
persons making such purchases represent and agree to the satisfaction of Lender
that they are purchasing the Receivables Collateral for their account, for
investment, and not for distribution or resale. Lender shall have no obligation
to delay sale of any Receivables Collateral for the period of time necessary to
permit such Receivables Collateral to be registered for public sale under the
Securities Act of 1933, as amended, and any applicable state securities laws.
Private sales made without registration shall not be deemed to have been made in
a commercially unreasonable manner by virtue of any terms less favorable to the
seller resulting from the private nature of such sales.
(b) Without prejudice to the right of Lender to make such
sale within such shorter period as may be reasonable under the circumstances,
foreclosure sale of all or any part of the Receivables Collateral shall be
deemed held pursuant to reasonable notice if held 45 days after notice that an
Event of Default has occurred.
(c) At any sale following an Event of Default, the
Receivables Collateral may be sold as an entirety or in partial interests.
Lender shall not be obligated to make any sale under any notice previously
given. In case of any sale of all or any part of the Receivables Collateral on
credit or for future delivery, the Receivables Collateral may be retained by
Lender until the selling price is paid by the purchaser, but Lender shall not
incur any liability in case of the failure of such purchaser to take up and pay
for the Receivables Collateral, and in case of any such failure, such
Receivables Collateral may again be sold in compliance with the provisions of
this paragraph 7.4.
(d) In connection with sales made following an Event of
Default, Lender may, in the name and stead of Borrower or in its own name, make
and execute all conveyances, assignments and transfers of the Receivables
Collateral sold under this Agreement; and Lender is hereby appointed Borrower's
attorney-in-fact for this purpose. Nevertheless, Borrower will, if so requested
by Lender, ratify and confirm any sale or sales by executing and delivering to
Lender, or to such purchaser or purchasers, all such instruments as may, in the
judgment of Lender, be advisable for that purpose.
(e) The receipt by Lender of the purchase money paid at
any sale made following an Event of Default shall be a sufficient discharge
therefor to any purchaser of the Receivables Collateral or any portion of it,
and no such purchaser, after paying such purchase money and receiving such
receipt, shall be bound to see to the application of such purchase money or any
part of it or in any manner whatsoever be answerable for any loss,
misapplication or nonapplication of any such purchase money, or any part
thereof, or be bound to inquire as to the authorization, necessity, expediency
or regularity of any such sale.
23
<PAGE> 24
(f) Each purchaser at any sale following an Event of
Default shall hold the Receivables Collateral absolutely free from every claim
or right of Borrower, including, without limitation, any equity or right of
redemption of Borrower, which Borrower hereby specifically waives to the extent
Borrower may lawfully do so. Lender, its employees and agents shall after such
sale be fully discharged from any liability or responsibility in any matter
relating to the Receivables Collateral and such other security that is sold and
resulting from any action or inaction on the part of such purchaser or any
successor-in-interest of such purchaser.
7.5 The proceeds of any sale of all or any part of the
Receivables Collateral shall be applied in the following order or priorities:
first, to the payment of all costs and expenses of such sale, including, without
limitation, reasonable compensation to Lender and its agents, reasonable
attorneys' fees, and all other expenses, liabilities and advances incurred or
made by Lender, its agents and attorneys, in connection with such sale, and any
other unreimbursed expenses for which Lender may be reimbursed under the
Documents; second, to the payment of the Obligations, in such order and manner
as Lender shall in its discretion determine, with no amounts applied to payment
of principal until all interest has been paid; and third, to the payment to
Borrower, its successors or assigns, or to whomsoever may be lawfully entitled
to receive the same, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
7.6 Lender may, at its option, and without any obligation to
do so, pay, perform and discharge any and all amounts, costs, expenses and
liabilities agreed to be paid or performed by Borrower or any other person in
any of the Documents if Borrower or such person fails to do so; and for such
purposes Lender may use the proceeds of the Receivables Collateral and is hereby
appointed Borrower's attorney-in-fact. All amounts expended by Lender in so
doing or in exercising its remedies under the Documents following an Event of
Default shall become part of the Obligations, shall be immediately due and
payable by Borrower to Lender upon demand therefor, shall bear interest at the
Overdue Rate from the dates of such expenditures until paid, and shall be
secured by the security for the Performance of the Obligations. Exercise by
Lender of its option under this paragraph will not cure any default of Borrower.
7.7 No remedy in any Document conferred on or reserved to
Lender is intended to be exclusive of any other remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given under any Document or now or hereafter existing at law or in
equity. Notwithstanding anything herein to the contrary, in any non-judicial,
public or private sale or sales under the Uniform Commercial Code or in any
judicial foreclosure and sale of the Receivables Collateral, the Receivables
Collateral may be sold in any manner whatsoever not
24
<PAGE> 25
prohibited by law so long as such sale is commercially reasonable. No delay or
omission to exercise any right or power shall be construed to be a waiver of any
default or acquiescence therein or a waiver of any right or power; and every
such right and power may be exercised from time to time and as often as may be
deemed expedient. Lender's acceptance of any performance due under any Document
which does not comply strictly with this Agreement shall not be deemed to be a
waiver of any right of Lender to strict Performance by Borrower. Acceptance of
past due amounts or partial payments shall not constitute a waiver of full and
timely payment of the Obligations. No Event of Default, declaration of the
unpaid principal of the Loan to be immediately due and payable or exercise of
any other right or remedy upon default shall stay, waive, or otherwise affect
Lender's right to receive payments on and other proceeds of the Receivables
Collateral.
7.8 Borrower, for itself and for all who may claim through or
under it, hereby expressly waives and releases all right to have the Receivables
Collateral or any other security for the Performance of the obligations, or any
part thereof, marshalled on any foreclosure, sale or other enforcement hereof.
7.9 While an Event of Default exists, Borrower will, on the
request of Lender, assemble the Receivables Collateral not already in Lender's
possession and make it available to Lender at a time and place reasonably
convenient to Lender.
VIII. CONSTRUCTION AND GENERAL TERMS
8.1 All moneys payable under the Documents shall be paid to
Lender at its address set forth on the signature page, unless otherwise
designated in the Documents or by Lender by notice.
8.2 The Documents exclusively and completely state the rights
and obligations of Lender and Borrower with respect to the Loan. No
modification, variation, termination, discharge or abandonment of the Documents
and no waiver of any of their provisions or conditions shall be valid unless in
writing and signed by duly authorized representatives of Lender and Borrower.
The Documents supersede any and all prior representations, warranties and/or
inducements, written or oral, made by Lender concerning this transaction,
including any commitment for financing, which are null and void and of no force
or effect whatsoever.
8.3 The powers and agency hereby granted by Borrower are
coupled with an interest and are irrevocable and are granted as cumulative to
the remedies provided by law for enforcement of the Obligations.
8 . 4 This Agreement may be executed simultaneously in any
number of identical copies each of which shall constitute an
25
<PAGE> 26
original for all purposes.
8.5 Except as otherwise expressly provided in a Document, any
notice required or permitted to be given in the Documents to which Lender and
Borrower are parties shall be in writing and shall be (a) personally delivered
to the party being notified if an individual or to an officer or general partner
if a corporation or partnership, (b) sent by overnight express carrier, or (c)
sent by telecopy, to Lender or Borrower at its address and/or telecopy number as
set forth on the signature page of this Agreement, or at such other address or
telecopy number as either party may designate for such purpose in a notice given
to the other party. Such notice shall be deemed received upon the earliest of
the following to occur: (a) upon personal delivery; (b) on the next Business Day
following the day sent, if sent by overnight express courier; and (c) on the day
sent, or if such day is not a Business Day then on the next Business Day after
the day sent, if sent by telecopy. As used in this paragraph the term "Business
Day" means any day other than a Saturday, Sunday or a day on which banks in
Phoenix, Arizona are required to close.
8.6 All the covenants, promises, stipulations and agreements
of Borrower and all the rights and remedies of the Lender contained in this
Agreement shall bind Borrower, and, subject to the restrictions on merger,
consolidation and assignment herein contained, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights herein in whole or in part.
Except as may be expressly provided in this Agreement, no person or other entity
shall be deemed a third-party beneficiary of this Agreement.
8.7 Subject to the provisions of Article VII of this
Agreement, if any one or more of the provisions contained in the Documents shall
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
8.8 Time is of the essence in the Performance of the
Obligations.
8.9 All headings are inserted for convenience only and shall
not affect any construction or interpretation of the Documents. The provisions
of the Documents shall apply to the parties according to the context and without
regard to the number or gender of words and expressions used. Unless otherwise
indicated, all references in a Document to clauses and other subdivisions refer
to the corresponding paragraphs, clauses and other subdivisions of the
Documents. Reference to a numbered or lettered subdivision of an Article, or
paragraph shall include relevant matter within the Article or paragraph which is
applicable to but not within such numbered or lettered subdivision.
26
<PAGE> 27
8.10 This Agreement has been delivered in the State of
Arizona. Except as otherwise expressly provided in a Document, the provisions of
the Documents and all rights and obligations of the parties shall be governed by
and construed in accordance with the internal laws of the Commonwealth of
Virginia and to the extent they preempt such laws, the laws of the United
States; provided that if any covenant, agreement or waiver on the part of
Borrower or right or remedy of Lender shall be invalid or unenforceable under
such laws but would be valid and enforceable under the internal laws of the
State set forth in Supplement I, then the internal laws of such State shall
apply. Borrower (a) hereby irrevocably submits itself to the process,
jurisdiction and venue of the courts of the State of Arizona, Maricopa County,
and to the process, jurisdiction, and venue of the United States District Court
for Arizona, for the purposes of suit, action or other proceedings arising out
of or relating to any of the Documents or their subject matter brought by Lender
and (b) without limiting the generality of the foregoing, hereby waives and
agrees not to assert by way of motion, defense or otherwise in any such suit,
action or proceeding any claim that Borrower is not personally subject to the
jurisdiction of the above-named courts, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.
8.11 It is the intent of the parties to comply with the
Applicable Usury Law. Accordingly, notwithstanding any provisions to the
contrary in the Documents in no event shall the Documents require the payment or
permit the collection of interest in excess of the maximum amount permitted by
the Applicable Usury Law. If (a) any such excess of interest otherwise would be
contracted for, charged or received from Borrower or otherwise in connection
with the Obligations or (b) the maturity of the Obligations is accelerated in
whole or in part, or (c) all or part of the principal or interest of the
Obligations shall be prepaid, so that under any of such circumstances the amount
of interest contracted for, charged or received in connection with the
Obligations would exceed the maximum amount permitted by the Applicable Usury
Law, then in any such event (1) the provisions of this paragraph shall govern
and control, (2) neither Borrower nor any other person or entity now or
hereafter liable for payment will be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount permitted by
the Applicable Usury Law, (3) any such excess which may have been collected
shall be either applied as a credit against the then unpaid principal amount of
the Obligations or refunded to Borrower, at Lender's option, and (4) the
effective rate of interest will be automatically reduced to the maximum amount
permitted by the Applicable Usury Law. Without limiting the generality of the
foregoing, to the extent permitted by the Applicable Usury Law: (x) all
calculations of the rate of interest which are made for the purpose of
determining whether such rate would exceed the maximum amount permitted by the
Applicable Usury Law shall be made by amortizing, prorating, allocating and
27
<PAGE> 28
spreading during the period of the full stated term of the Obligations, all
interest at any time contracted for, charged or received from Borrower or
otherwise in connection with the Obligations; and (y) in the event that the
effective rate of interest on the Obligations should at any time exceed the
maximum amount permitted by the Applicable Usury Law, such excess interest that
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to Lender from time to time, if and when the
effective interest rate on the Obligations otherwise falls below the maximum
amount permitted by the Applicable Usury Law, to the extent that interest paid
to the date of calculation does not exceed the maximum amount permitted by the
Applicable Usury Law, until the entire amount of interest which would have
otherwise been collected had there been no ceiling imposed by the Applicable
Usury Law has been paid in full. Should the maximum amount permitted by the
Applicable Usury Law be increased at any time hereafter because of a change in
the law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all Obligations regardless of when incurred; but, again
to the extent not prohibited by the Applicable Usury Law, should the maximum
amount permitted by the Applicable Usury Law be decreased because of a change in
the law, such decreases shall not apply to the Obligations regardless if
resulting from an advance of the Loan made after the effective date of such
decrease.
8.12 Without limiting the generality of any other provision in
the Documents, in the event it becomes necessary for either Lender or Borrower
to employ legal counsel or to bring an action at law or other proceeding to
enforce any of the terms, covenants, or conditions of the Documents, the
prevailing party in any such action or proceeding shall be entitled to recover
its costs and expenses incurred, including its reasonable attorneys' fees from
the other party.
IX. SPECIAL PROVISIONS
9.1 (a) In addition to the Events of Default described in
paragraph 7.1, the occurrence of any of the following events or conditions shall
constitute an Event of Default under the Documents:
(i) Borrower's debt-to-equity ratio at any time
exceeds 5.5 to 1 as reflected in its financial statements prepared in
accordance with generally accepted accounting principles, the
calculation of which excludes any debt incurred in connection with
time-share receivables financing;
(ii) during any fiscal quarter Borrower's marketing
and/or selling expenses exceed 50% of its gross sales revenue generated
from the sale of Time-Share Estates;
28
<PAGE> 29
(iii) less than 15% of the Association assessments
and/or dues is at any time set aside as a reserve for capital
improvements, the replacement of capital items and furnishings and
contingencies in the Project;
(iv) the Annualized Delinquency Percentage on the
Instruments assigned to Lender by Borrower exceeds 10%, where
"Annualized Delinquency Percentage" means the total number of
Instruments assigned to Lender which have been replaced or cancelled
since the date of this Agreement plus the number of such Instruments in
which installments have become more than 59 days past due, divided by
the total number of Instruments assigned to Lender since the date of
this Agreement divided by the number of months since the initial
Advance multiplied by 12; or
(v) an Event of Default as described in paragraph
9.2(b) exists.
(b) The annual financial statements of Borrower required
under paragraph 6.11(c) shall be accompanied by a certificate signed by a
venturer of Borrower substantially in the form of Exhibit 8 certifying that no
Event of Default has occurred under any of items (i)-(iv) of paragraph 9.1(a)
hereof, and setting forth in reasonable detail the calculations upon which the
certification is based.
9.2 (a) Lender and Borrower entered into a Purchase Agreement
dated as of October 23, 1987, as amended by instruments dated June 10, 1988 and
December 16, 1988 ("Purchase Agreement"), under which Lender has committed to
purchase receivables from Borrower at an aggregate price not to exceed
$15,000,000, subject to the terms and conditions of the Purchase Agreement.
Lender and Borrower also entered into a Loan and Security Agreement dated as of
October 31, 1989 ("1989 Loan Agreement") under which Lender committed to make a
revolving line of credit loan to Borrower in a maximum principal amount
outstanding at any time not to exceed $10,000,000, subject to the terms and
conditions of the 1989 Loan Agreement.
(b) An Event of Default under the Documents shall constitute
an "Event of Default" as that term is defined in the Purchase Agreement and the
1989 Loan Agreement; and an "Event of Default" as that term is defined in the
Purchase Agreement or the 1989 Loan Agreement shall constitute an Event of
Default under this Agreement.
(c) Without limiting the generality of any other provision of
this Agreement, the Security Interest granted by Borrower and all other security
for the Performance of the Obligations secures Performance of Borrower's
Obligations now or hereafter existing under the Purchase Agreement and the 1989
Loan Agreement and all other documents now or hereafter executed in connection
with the Purchase Agreement or the 1989 Loan Agreement
29
<PAGE> 30
and the transactions contemplated thereby ("Other Financings Obligations"); and
all Borrower's Obligations under the Documents are and shall at all times be
secured by all the security for the Performance of the Other Financings
Obligations. In this regard, as a condition precedent to the making of the
initial Advance, Borrower shall have caused that Credit Line Deed of Trust
executed by Borrower for the benefit of Lender, dated October 23, 1987, as
amended by instruments dated June 10, 1988, December 16, 1988 and October 31,
1989 ("Greyhound Deed of Trust") (all of which have been recorded in the Clerk's
Office of the City of Williamsburg, and James City County, Virginia) ("Clerk's
Office") and securing the Other Financings Obligations to be amended so as also
to secure the Obligations under the Documents. The total principal and interest
of the Loan and the Other Financing Obligations secured by the Greyhound Deed of
Trust shall not exceed $15,000,000.00. The Greyhound Deed of Trust shall
encumber the unsold Time-Share Estate inventory in the Project, subject only to
the Permitted Encumbrances and other exceptions to title described on Exhibit B
to the Third Amendment to the Greyhound Deed of Trust ("Authorized Exceptions");
shall contain a non-disturbance provision protecting the ownership rights of
the Purchasers so long as such Purchasers are not in default of the obligations
under the Instruments creating such rights; and shall contain a provision for
the partial release of Time-Share Estates at no cost to Borrower. The Authorized
Exceptions shall include the following monetary liens: Credit Line Second Deed
of Trust dated as of June 24, 1985, executed by Williamsburg Vacations, Inc. in
favor of Security Pacific Finance Corp. ("Sec Pac"), as assumed by Borrower and
amended and restated and recorded in the Clerk's Office; and that certain first
Credit Line Deed of Trust dated as of June 10, 1988 executed by Borrower in
favor of Crestar Bank ("Crestar") " formerly United Virginia Bank and recorded
in the Clerk's Office. As an additional condition precedents to the making of
the initial Advance, Borrower shall have delivered to Lender a subordination
agreement with respect to the deed of trust held by Berkeley Federal Savings and
Loan Association of New Jersey ("Berkeley"); a title policy issued by a title
company satisfactory to Lender (or an endorsement to Lawyers Title Insurance
Corporation Loan Policy No. 82-02-300729) in form and substance satisfactory to
Lender, insuring for Lender a third lien position in the amount of the Loan
subject only to the Authorized Exceptions; estoppel letters from Berkeley, Sec
Pac and Crestar; and an amendment to the existing Intercreditor Agreement among
such institutions and Lender.
(d) If an Event of Default exists and Lender is entitled
to apply the proceeds of the Receivables Collateral to the Obligations, it shall
apply such proceeds first to the Obligations under the Documents, and it may
apply any remaining excess of such proceeds to the other Obligations, including,
without limitation, the Other Financings Obligations, in such order and manner
as it may determine. The proceeds of the Greyhound Deed of Trust may be applied
to the Obligations in such order and manner as Lender may
<PAGE> 31
determine. The proceeds of any other security for each of the Other Financings
Obligations, which is intended to be security primarily for the Other Financings
Obligations, shall be first applied to the Other Financings Obligations and then
to the other Obligations in such order and manner as Lender may determine.
9.3 As additional conditions precedent to the making of the
first Advance, Lender shall have received evidence satisfactory to it (which may
include non-disturbance agreements binding existing lienholders) that each
purchaser of a Time-Share Estate has a right, which cannot be disturbed by any
third party, to use the amenities which are part of the Project so long as the
Purchaser is not in default of its obligations to pay the purchase price of its
Time-Share Estate, to pay the normal assessments to the Project owner's
association and to comply with reasonable covenants, conditions and restrictions
with respect to the use of such amenities.
9.4 All Impositions imposed upon Lender by reason of the
Documents or Instruments shall be promptly paid by Borrower. Lender may,
however, at its option, pay the same, and Borrower, within five days from the
date of demand by Lender, shall immediately reimburse Lender for such sums so
expended, together with interest at the Overdue Rate. AS used in this paragraph,
"Impositions" means any and all taxes (other than any tax measured by net income
payable by Borrower to the Commonwealth of Virginia or any political subdivision
thereof or to any State of the United States or political subdivision thereof or
to the United States under Section 11 or 1201 of the Internal Revenue Code, as
amended, in consequence of the receipt of payments provided for in the
Documents), license fees, assessments, charges, fines, penalties, property,
privilege, excise, real estate or other taxes currently or hereafter levied or
imposed by the Commonwealth of Virginia, the United States of America or any
political subdivision of either thereof, upon or in connection with or measured
by the Documents or any sale, rental, use, payments, delivery or transfer of
title under the terms of the Instruments.
9.5 (a) In addition to all other fees required to be in
connection with the Loan, Borrower shall pay to Lender a fee ("Custodial Fee")
equal to $8.00 per each Instrument which is delivered to Lender in connection
with the Loan and for which Lender maintains physical custody. The Custodial Fee
for an Instrument shall be paid by Borrower to Lender at the time the Instrument
is assigned to Lender. After the Custodial Fee is paid for an Instrument, no fee
shall be payable to Lender for any Instrument which is delivered to Lender
pursuant to paragraph 3.2 in replacement of an Instrument for which Borrower has
paid the Custodial Fee. Furthermore, no Custodial Fee shall be payable by
Borrower with respect to an Instrument which is in the physical custody of a
third party mutually acceptable to Borrower and Lender. In lieu of the Custodial
Fee, Borrower may elect to pay to
31
<PAGE> 32
Lender a fee in a fixed amount of $5,500. 00 ("In Lieu Fee"). Such election
shall be made by delivery of a written notice to Lender Of Borrower's election
and payment to Lender of the In Lieu Fee on or before the date the first
Custodial Fee payment is due.
(b) If Borrower has not elected to pay the In Lieu Fee in the manner
provided in subparagraph (a), Borrower may demand by written notice ("Custodial
Change Notice") to Lender that Lender utilize a third party Custodian
("Custodian") mutually satisfactory to Lender and Borrower to maintain custody
of Instruments delivered to Lender in connection with the Loan according to a
written arrangement ("Custodial Agreement") mutually satisfactory to Lender and
Borrower after Lender's receipt of the Custodial Change Notice. Borrower shall
be responsible for all fees of the Custodian, but it shall not be responsible
for the payment of any Custodial Fee for an Instrument delivered to Lender after
Lender's receipt of the Custodial Change Notice and execution of the Custodial
Agreement by Lender, Borrower and Custodian unless and until actual physical
custody (other than for purposes of taking some action before return of custody
to Custodian or Borrower) of that Instrument is given to Lender. If a Custody
Agreement is not entered into by Borrower, Lender and Custodian for any reason,
Borrower shall not be relieved of its obligation to pay the Custodial Fee.
SUPPLEMENT 1
1.2 Collection Agent: Central Fidelity Bank, a Virginia banking corporation.
1.12 Guarantors: Kay F. Gow, Robert T. Gow, David E. Legere, Patricia A.
Legere, Williamsburg Vacations, Inc., a Virginia corporation, Bush
Construction Corporation, a Virginia corporation, and Offsite
International, Inc., a Virginia corporation.
1.15 Maturity Date: 120 months from the date of the last Advance.
1.16 Maximum Loan Amount: the lesser of (a) $10,000,000 and (b) a principal
amount which when added to (i) the unreturned portion of Lender's
investment under the Purchase Agreement, (ii) the principal balance of the
loan ("1989 Loan") made under the 1989 Loan Agreement, and (iii) the
remaining committed and undisbursed balance of the 1989 Loan equals
$32,000,000.
1.19 Opening Prepayment Date: the date three (3) years after the date of the
final Advance.
1.24 Project: Powhatan Plantation, 3601 Ironbound Road, State Route 615,
Williamsburg (James City County) , Virginia, consisting of Phases I, IIA,
IIB, IIB Extended III, V and (subject to amendment of Greyhound's Deed of
Trust to include inventory in such phases) subsequent phases.
1.32 Time-Share Estate: an undivided one-fifty-second (1/52) co-tenancy
interest in a unit in the Project.
2.3 Uses of Loan: working capital purposes.
3.1 Principal Place of Business/Chief Executive Office: 4029
32
<PAGE> 33
Ironbound Road, Williamsburg, VA 23185.
4.1 Date by which Initial Advance Conditions Must Be Satisfied:
June 1, 1991.
4.3 Frequency: weekly; Minimum Amount: 100,000
4.5 Wire Transfer Instructions:
Bank Name and Federal Res. No.: Central Fidelity Bank, 051000253
Bank Address: 125 Independence Blvd., Virginia Beach, Virginia 23462
Account Name: Wolcott, Rivers, Wheary, Basnight & Kelly, P.C.,
Williamsburg Vacations, Inc., Special Fiduciary Account.
Account No.: 090029606
Attention: Debbie LaVasseur or Susan Brown (804-455-5701)
6.1(a) Nature of Legal Entity: a joint venture.
State of Organization: Virginia.
6.1(b) State of Usury Representation: Virginia.
6.3(a) Other Jurisdiction Time-Share Estates Offered for Sale: None.
Other Jurisdiction Where Time-Share Estates Sold: None.
6.7 Location of Records: 4029 Ironbound Road, Williamsburg, Virginia 23185.
6.16 Fees: $100,000 Commitment Fee and $10,000 Documentation Fee; $50,000
of the Commitment Fee and $-O- of the Documentation Fee
received; $30,000 of the Commitment Fee and $10,000 of the
Documentation Fee to be paid on or before the making of the
initial Advance, but in any event no later than December 31,
1990; and the $20,000 balance of the Commitment Fee to be paid
in installments after Advances in excess of $8,000,000 in the
aggregate have been made, with each installment to be equal to
1.0% of each Advance of Loan funds in excess of $8,000,000 in
the aggregate and to be paid when the Advance is paid.
(Therefore, the $20,000.00 would be paid in full when Advances
of $10,000,000 in the aggregate have been made.) If not sooner
paid, the unpaid balance of the Commitment Fee shall be paid to
Lender when Borrower would under Item 1.16 of this Supplement I
have a right to a Maximum Loan Amount equal to $10,000,000.00,
subject to the other terms and conditions of this Agreement. If
Lender makes Advances more frequently than once a calendar
month, Borrower will pay Lender a disbursement fee (which is in
addition to all other fees required herein), at the time of the
second and each additional Advance in a calendar month, equal to
the greater of $500 or .25% of the amount of the additional
Advance.
8.10 State of Alternate Choice of Law: Arizona.
33
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names, personally or by their duly authorized
representatives, all as of the 17th day of December, 1990.
POWHATAN ASSOCIATES, a Virginia GREYHOUND REAL ESTATE FINANCE COMPANY,
joint venture an Arizona corporation, "Lender",
By: Williamsburg Vacations, Inc., By /s/ JACK FIELDS, III
a Virginia corporation, ---------------------------
a joint venturer
Its Senior Vice President
------------------------
ATTEST:
By /s/ KAY F. GOW By /s/
--------------------------- ---------------------------
Its President Attorney
--------------------------
Address of Borrower: Address:
c/o Williamsburg Vacation, Inc. Greyhound Tower
4029 Ironbound Road Mail Station 1001
Williamsburg, VA 23185 Phoenix, Arizona 85077
Telecopy No. 804-229-8690 Attn: Manager
Administration,
Real Estate Finance Division
Telecopy No. 602-248-5531
34
<PAGE> 35
AMENDMENT TO
LOAN AND SECURITY AGREEMENT
BY THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") dated as
of July 22, 1992, POWHATAN ASSOCIATES, a Virginia joint venture ("Borrower"),
and GREYHOUND REAL ESTATE FINANCE COMPANY, an Arizona corporation ("Lender"),
for good and valuable consideration, the receipt of which is hereby
acknowledged, hereby confirm and agree as follows:
ARTICLE 1 - INTRODUCTION
1.1 Borrower and Lender previously entered into a Loan and Security
Agreement dated as of December 17, 1990 ("Original Loan Agreement") as amended
by letter agreements dated as of May 8, 1992, and June 4, 1992 (collectively
"Existing Amendments"; the original Loan Agreement, as amended by the Existing
Amendments, "Loan Agreement") relating to a revolving line of credit loan in a
maximum principal amount of not to exceed $10,000,000.00 ("Loan").
1.2 Borrower and Lender wish to amend further the Loan Agreement, among
other ways, to change the discount rate applicable to the determination of the
borrowing base of certain receivables, to extend the term during which Loan
advances may be obtained, to modify the maturity date with respect to the
repayment of Loan advances, to cause the Loan advances to be evidenced by
different Notes dependent upon when the Loan advances were made, to increase the
maximum principal amount of the revolving line of credit loan to $30,000,000.00,
to change the conditions upon which receivables delinquencies over 60 days will
result in an Event of Default, and to provide certain additional collateral for
the Loan, all as more fully set forth below.
ARTICLE 2 - AGREEMENT
2.1 Except as otherwise defined herein or unless the context otherwise
requires, capitalized terms used in this Amendment shall have the meaning given
to them in the Loan Agreement.
2.2 The Loan Agreement is amended as follows:
a. Paragraph 1.6 is deleted in its entirety and the following
substituted in its place:
1.6 "Borrowing Base":
(a) with respect to an Eligible Instrument allocated to
the 1990 Note, an amount equal to the lesser of:
1
<PAGE> 36
(i) 90% of the then unpaid principal balance of the
Eligible Instruments; or
(ii) 90% of the present value of the contractual cash
flow, discounted at the highest of (1) the applicable
interest rate under the terms of the 1990 Note, (2) a
discount rate equal to Prime on the first day of the
month in which the calculation is made plus 2-3/4%,
or (3) 16%.
(b) with respect to an Eligible Instrument allocated to the
1992 Note, an amount equal to the lesser of:
(i) 90% of the then unpaid principal balance of the
Eligible Instruments; or
(ii) 90% of the present value of the contractual cash
flow, discounted at the highest of (1) the applicable
interest rate under the terms of the 1992 Note, (2) a
discount rate equal to Prime on the first day of the
month in which the calculation is made plus 2-1/4%,
or (3) 14%.
b. Paragraph 1.7 is deleted in its entirety and the following
substituted in its place:
1.7 "Borrowing Term": the period commencing on the date hereof
and ending on the close of Lender's normal business day on
January 11, 1994.
C. Paragraph 1.15 is deleted in its entirety and the following
substituted in its place:
1.15 "Maturity Date": with respect to the 1990 Note and the
1992 Note, the date specified in Supplement I.
d. Paragraph 1.17 is deleted in its entirety and the following is
substituted in its place:
1.17 "Note": collectively the 1990 Note and the 1992 Note.
e. Paragraph 1.20 is deleted in its entirety and the following is
substituted in its place:
1.20 "Overdue Rate": with respect to indebtedness evidenced by
the 1992 Note, the meaning given to it
2
<PAGE> 37
in the 1992 Note; otherwise, the meaning given to it in the
1990 Note.
f. Paragraph 1.23 is deleted in its entirety and the following is
substituted in its place:
1.23 "Prime": the rate of interest publicly announced, from time
to time, by Citibank, N.A. , New York, New York ("Citibank"), as
the base rate of interest charged by Citibank to its most
creditworthy commercial borrowers notwithstanding the fact that
some borrowers may borrow from Citibank at rates of interest
less than such announced prime rate.
g. The following are added as new paragraphs 1.32, 1.33, 1.34 and
1.35:
1.32 "1990 Note": the "Promissory Note" in the face amount of
$10,000,000 made and delivered by Borrower to Lender and
evidencing solely the Advances made prior to July 22, 1992.
1.33 "1992 Note": the "Promissory Note" in the face amount of
$30,000,000 made and delivered by Borrower to Lender and
evidencing solely the Advances made from and after July 22,
1992.
1.34 "Instrument allocated to the 1990 Note": an Instrument
against which an Advance evidenced by the 1990 Note was made or,
if such Instrument has been directly or indirectly replaced as
part of the Receivables Collateral, the replacement Instrument.
1.35 " Instrument allocated to the 1992 Note": an Instrument
against which an Advance evidenced by the 1992 Note was made, or
if such Instrument has been directly or indirectly replaced as
part of the Receivables Collateral, the replacement Instrument.
h. Paragraph 2.1 is deleted in its entirety and the following
substituted in its place:
2.1 Subject to the terms and conditions of this Agreement,
Lender will from time to time make Advances to Borrower against
Eligible Instruments. An Advance shall be made against an
Eligible Instrument only once, at the time it is assigned to
Lender. The Advance made against an Eligible Instrument shall be
in an amount equal to the then Borrowing Base of such Eligible
Instrument; provided, however, that the aggregate outstanding
3
<PAGE> 38
principal balance of all Advances shall not exceed the Maximum
Loan Amount at any time. No Advances shall be made against
Instruments assigned to Lender pursuant to paragraph 3.2.
i. The first sentence of Paragraph 3.2 is deleted in its entirety
and the following is inserted in its place:
If a previously Eligible Instrument that is part of the Receivables
Collateral ceases to qualify as, or is otherwise determined not to
be, an Eligible Instrument, then within 30 days after Lender
notifies Borrower of such event or Borrower otherwise obtains
knowledge of such event, whichever is earlier, Borrower will either
(i) pay to Lender an amount equal to the Borrowing Base (calculated
immediately before its ineligibility) of the ineligible Instrument,
together with interest, costs and expenses, attributable to the
ineligible Instrument, or (ii) replace such ineligible Instrument
with an Eligible Instrument against which an Advance could be made
in an amount not less than the Borrowing Base (calculated
immediately before its ineligibility) of the ineligible Instrument
being replaced.
j. Paragraph 5.1 is deleted in its entirety and the following
substituted in its place:
5.1 Advances of the Loan made prior to July 22, 1992, shall be
evidenced by the 1990 Note. Advances of the Loan made from and
after July 22, 1992, shall be evidenced by the 1992 Note. The
Loan shall be repaid according to the terms of the Note and such
provisions of this Agreement as are applicable. Payments of the
Loan and Note shall be made in immediately available funds.
k. Paragraph 5.2 is deleted in its entirety and the following
substituted in its place:
5.2 Subject to Borrower's rights under paragraph 3.2 to provide
replacement Eligible Instruments, if for any reason (a) the
outstanding principal balance of the 1990 Note shall exceed at
any time the then Borrowing Base of all Eligible Instruments
allocated to the 1990 Note or (b) the outstanding principal
balance of the 1992 Note shall exceed at any time the then
Borrowing Base of all Eligible Instruments allocated to the 1992
Note, Borrower, without notice or demand, will immediately make
to Lender a principal payment in an amount equal to such excess
plus accrued and unpaid interest thereon.
4
<PAGE> 39
l. The following is added as an additional sentence at the end of
Paragraph 5.5:
Notwithstanding anything in this paragraph to the contrary with
respect to the application of proceeds of its Receivables
Collateral to the Note (but subject to Lender's rights under
paragraph 7.5), so long as no Event of Default exists, proceeds
of Instruments allocated to the 1990 Note shall not be applied
to interest and principal owing with respect to the 1992 Note;
proceeds of Instruments allocated to the 1992 Note shall not be
applied to interest and principal owing with respect to the 1990
Note; Lender will reassign to Borrower the Instrument allocated
to the 1990 Note and the related portion of the Receivables
Collateral when the 1990 Note has been repaid in full; and
Lender will reassign to Borrower the Instruments allocated to
the 1992 Note and the related portions of the Receivables
Collateral when the 1992 Note has been paid in full.
m. Subparagraph (a) of Paragraph 7.1 is deleted in its entirety and
the following is substituted in its place:
(a) Lender fails to receive from Borrower when due and payable
(i) any amount that Borrower is obliged to pay on the 1990 Note
or the 1992 Note or (ii) any other payment due under the
Documents; and such failure shall continue for 5 business days
after written notice to Borrower, except for the payment of the
final payments due at the respective Maturity Dates of the 1990
Note and the 1992 Note for which no grace period is allowed;
n. Subparagraph (iv) of Paragraph 9.1(a) is deleted in its entirety
and the following is substituted in its place:
(iv) the Delinquency Percentage on the Instruments assigned to
Lender by Borrower exceeds 3% for three (3) consecutive months,
where "Delinquency Percentage" means the quotient of the
aggregate unpaid principal balance of all Instruments assigned
to Lender in which installments have become more than 59 days
past due, divided by the monthly average unpaid principal
balance of all Instruments assigned to Lender. This Event of
Default is cured when the delinquency percentage on the
instruments assigned to Lender by Borrower is three percent (3%)
or less for 3 consecutive months;
o. Paragraph 9.2 is amended by adding the following as a new
subparagraph (e):
5
<PAGE> 40
(e) Notwithstanding anything in any Document or other agreement
between Lender and Borrower to the contrary, the sum of (i) the
unreturned portion of Lender's investment under the Purchase
Agreement, (ii) one-half of the unpaid principal balance of the
loan made pursuant to the 1989 Loan Agreement and (iii) the
unpaid principal balance of the Loan shall not exceed
$30,000,000 at any time.
p. The first three (3) sentences of paragraph 9.5(a) are deleted in
their entirety and the following inserted in their place:
In addition to all other fees required to be paid in connection
with the Loan, Borrower shall pay to Lender a fee ("Custodial
Fee") per each Instrument which is delivered to lender in
connection with the Loan and for which Lender maintains physical
custody, determined as follows:
(i) $8.00 per each Instrument delivered to Lender
prior to July 22, 1992, other than in connection with
an Advance made from and after that date; and
(ii) $10.00 per each Instrument delivered to Lender
from and after July 22, 1992, or in connection with
an Advance made from and after that date.
The Custodial Fee for an Instrument shall be paid by Borrower to
Lender at the time the Instrument is assigned to Lender. After
the Custodial Fee is paid for an Instrument, no fee shall be
payable to Lender for any Instrument which is delivered to
Lender pursuant to paragraph 3.2 in replacement of an Instrument
for which Borrower has paid the Custodial Fee.
q. The following is added as a new Paragraph 9.6:
9.6(a) Borrower's subsidy of the operations of the Powhatan
Plantation Owners' Association in any year shall not exceed the
budgeted subsidy for Borrower for such association's 1992 fiscal
year, increased for the actual unsold inventory contributions
and for any fixed statutory requirements actually paid in such
year. If the Borrower's subsidy in any fiscal year of such
association exceeds the 1992 fiscal year budgeted subsidy, after
increases for actual unsold inventory contributions and for any
6
<PAGE> 41
* then Lender will release to Borrower within five (5) business
days, and will use its best efforts to release to Borrower
within three (3) business days,
fixed statutory requirements actually paid, by more than 10% of
the 1992 budgeted subsidy, Lender shall have the right to
withhold payment of the distribution of the excess Loss Reserve
(as defined in the Purchase Agreement) to which Borrower is
otherwise entitled pursuant to paragraph 3.4(c) of the Purchase
Agreement. If Lender withholds payment of the excess Loss
Reserve, Lender agrees to review the subsidy situation with
Borrower on a semi-annual basis in order to determine if a
release of the withheld funds is warranted. If Borrower's
subsidy to the Powhatan Plantation Owners' Association for the
then current year meet Lender's requirements at the time of the
review,* the excess Loss Reserve and any interest accrued
thereon If Borrower's subsidy to the Owners' Association is
still in excess of Lender's requirements at the time of the
review, the subsidy situation will be reviewed again at the next
semiannual review. During any period in which the Lender is
withholding the excess Loss Reserves, the excess Loss Reserves
will continue to earn interest for Borrower in the manner
required for the Loss Reserve generally under the terms of the
Purchase Agreement.**
(b) Without limiting the generality of paragraph 9.2, Borrower
acknowledges that Lender has a security interest in the Loss
Reserve; that such security interest shall continue in the
excess Loss Reserve which Lender may hold pursuant to paragraph
9.6(a); by virtue of such security interest, the Loss Reserve
(including excess Loss Reserve and interest earned therein) held
by Lender shall be security for the Obligations and Other
Financing Obligations; and, if an Event of Default exists,
Lender may exercise its remedies with respect to the Loss
Reserve (including excess Loss Reserve and interest earned
therein) held by Lender and apply the proceeds to the
Obligations and Other Financing Obligations.
r. Item 1.15 of Supplement I is deleted in its entirety and the
following is substituted in its place:
1.15 Maturity Date: with respect to the 1990 Note, 120 months
from the date of the last Advance evidenced by the 1990 Note;
and with respect to the 1992 Note, 120 months from the date of
the last Advance evidenced by the 1992 Note.
**The chief financial officer of the Borrower shall certify to
Lender the amounts actually paid for unsold inventory and fixed
statutory requirements and shall submit such certification to
Lender along with the audited financial statements of the
Owners' Association submitted within 120 days of fiscal year
end.
7
<PAGE> 42
s. Item 1. 16 of Supplement I is deleted in its entirety and the
following is substituted in its place:
1.16 Maximum Loan Amount: at the time of determination, a
principal amount which when added to (i) the unreturned portion
of Lender's investment under the Purchase Agreement and (ii)
one-half of the principal balance of the loan made under the
1989 Loan Agreement equals $30,000,000.
2.3 Borrower will pay to Lender (a) a non-refundable loan commitment
fee in the amount of $52,975.00 and (b) a non-refundable documentation fee equal
to $5,000.00 ("Fees"). Lender acknowledges receipt of $26,000.00 of the Fees.
Borrower will pay $31,975.00 balance of the Fees on or before the making of the
first Advance occurring on or after July 22, 1992, but not later than August 15,
1992. Borrower acknowledges that Lender has earned the Fees.
2.4 Subject to the remaining provisions of this paragraph, Borrower
will on demand pay or, at Lender's election, reimburse Lender for all Lender's
out-of-pocket expenses in connection with the documentation and closing of this
Amendment. Borrower shall have no responsibility for Lender's attorneys' fees
incurred in connection with the documentation and closing of this Amendment;
however, Borrower will pay or reimburse Lender or Lender's attorneys for all
reasonable out-of-pocket expenses of Lender's attorneys incurred in connection
with the documentation and closing of this Amendment. Borrower will indemnify,
hold harmless and defend Lender, and its officers, directors, employees, agents,
affiliates, successors and assigns for, from and against loss, expense, demand
and liability arising out of any claim for a broker's fee with respect to the
transaction contemplated by this Amendment.
2.5 Borrower confirms and restates to Lender that as of the date hereof
all its representations and warranties set forth in the Loan Agreement, as
amended hereby, and the other documents executed by Borrower evidencing,
securing or otherwise pertaining to the Loan ("Loan Documents"). Borrower
further acknowledges that Lender has performed and is not in default of its
obligations under the Loan Documents and that there are no offsets, defenses or
counterclaims with respect to any of Borrower's obligations under the Loan
Documents.
2.6 Borrower will execute and deliver such further instruments and do
such things as in the sole and absolute judgment of Lender are necessary or
desirable to effect the intent of this Amendment and to secure to Lender the
benefits of all rights and remedies conferred upon Lender by the terms of this
Amendment and any other documents executed in connection herewith.
8
<PAGE> 43
2.7 This Amendment shall not be binding upon Lender unless and until
the following conditions have been satisfied at Borrower's expense:
(a) Borrower has delivered to Lender the following documents and
other items, all of which shall be properly completed and executed and shall
otherwise be satisfactory in form and substance to Lender it its sole and
absolute discretion:
(i) a certificate from the venturers of Borrower
authorizing (A) the execution and delivery of this Amendment
and the other documents called for in this Amendment or
requested by Lender pursuant to paragraph 2.6 ("Modification
Documents") and (B) the transaction contemplated hereby;
(ii) a corporate resolution from each venturer of
Borrower authorizing (A) the execution and delivery of this
Amendment and the other documents called for in this Amendment
or requested by Lender pursuant to paragraph 2.6 ("Modification
Documents") and (B) the transaction contemplated hereby;
(iii) a corporate resolution from each corporate
Guarantor authorizing (A) the execution and delivery of the
documents required by this Amendment to be executed by it and
(B) the performance of its obligations under those documents;
(iv) an "Amendment No. 1 to Note" in form and
substance identical to Exhibit A;
(v) a "Promissory Note" in form and substance
identical to Exhibit B;
(vi) a "Consent of Guarantor and Amendment to
Guarantee" in form and substantially identical to Exhibit C
executed by each Guarantor ("Guarantee Amendment");
(vii) the security agreement required pursuant to
paragraph 2.2 of the Loan Agreement;
(viii) an opinion from counsel to Borrower and each
Guarantor as to such matters as Lender may require, which
counsel shall be reasonably satisfactory to Lender;
9
<PAGE> 44
(ix) an amendment to the Greyhound Deed of Trust
providing that it secures the Obligations as modified by this
Amendment;
(x) a subordination agreement from Berkeley with
respect to its deed of trust on the Project, providing that
such deed of trust is subordinate to the Greyhound Deed of
Trust (as amended to secure the Obligations as modified by this
Amendment);
(xi) a title policy issued by a title company
satisfactory to Lender (or an endorsement to Lawyers Title
Insurance Corporation Loan Policy No. 82-02-300729) in form and
substance satisfactory to Lender, insuring for Lender a second
lien position subject only to the Authorized Exceptions (other
than the lien in favor of Crestar, which has been released);
(xii) estoppel letters from Berkeley, Sec Pac, Bush
Construction Corporation and Off-Site International, Inc.; and
(xiii) an amendment to the existing Intercreditor
Agreement among Berkeley, Sec Pac, Marine Midland Bank, N.A.
and Lender.
(b) Lender shall have obtained with respect to Borrower and each
Guarantor current credit or Dunn and Bradstreet reports, reference
checks, and lien, litigation and judgment searches, the results of
which must be satisfactory to Lender;
(c) Lender shall have received evidence satisfactory to it (which
may include non-disturbance agreements binding existing
lienholders) that each purchaser of a Time-Share Estate has a
right, which cannot be disturbed by any third party, to use the
amenities which are part of the Project so long as the Purchaser is
not in default of its obligations to pay the purchase price of its
Time-Share Estate, to pay the normal assessments to the Project
owner's association and to comply with reasonable covenants,
conditions and restrictions with respect to the use of such
amenities; and
(d) Lender has received the Fees.
2.8 This Amendment may not be amended or otherwise modified except in a
writing duly executed by the parties hereto.
2.9 If any one or more of the provisions of this Amendment is
10
<PAGE> 45
held to be invalid, illegal or unenforceable in any respect or for any reason
(all of which invalidating laws are waived to the fullest extent possible), the
validity, legality and enforceability of any remaining portions of such
provision(s) in every other respect and of the remaining provision(s) of this
Amendment shall not be in any respect impaired.
2.10 This Amendment constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes all
prior written or oral understandings and agreements between the parties in
connection therewith.
2.11 All Schedules and Exhibits referred to herein are herein
incorporated by this reference.
2.12 This Amendment may be executed in one or more counterparts, and
any number of which having been signed by all the parties hereto shall be taken
as one original.
2.13 Borrower is by this paragraph notified that the address and
telecopy number of Lender for notice purposes is:
address: Dial Corporate Center
Dial Tower
Phoenix, AZ 85077
(Attn: General Counsel, Station 1141)
Telecopy No.: (602) 207-5036
2.14 Borrower and Lender hereby ratify and confirm the Loan Agreement,
as amended hereby, in all respects; and, except as expressly amended hereby, the
Loan Agreement shall remain in full force and effect.
IN WITNESS WHEREOF this instrument is executed as of the date set
forth above.
"BORROWER"
POWHATAN ASSOCIATES, a Virginia joint
venture
By: Williamsburg Vacations, Inc., a
Virginia corporation,
a joint venturer
By: /s/ Kay F. Gow, President
--------------------------------
Kay F. Gow, President
11
<PAGE> 46
"LENDER"
GREYHOUND REAL ESTATE FINANCE COMPANY
an Arizona corporation
By: /s/ D. A. LUTTENEGGER
----------------------------------
Print Name: D. A. Luttenegger
--------------------------
Title: Vice President-Credit
-------------------------------
12
<PAGE> 47
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
BY THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment")
dated as of April 13, 1993, POWHATAN ASSOCIATES, a Virginia joint venture
("Borrower") and GREYHOUND FINANCIAL CORPORATION, a Delaware corporation,
successor in interest to Greyhound Real Estate Finance Company, an Arizona
corporation ("Lender"), for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, hereby confirm and agree as
follows:
ARTICLE 1 - INTRODUCTION
1.1 Borrower and Lender previously entered into a Loan and Security
Agreement dated as of December 17, 1990 ("Original Loan Agreement") as amended
by letter agreements dated as of May 8, 1992, and June 4, 1992 and an Amendment
to Loan and Security Agreement (the "First Amendment") dated as of July 22, 1992
(collectively "Existing Amendments"; and the Original Loan Agreement, as amended
by the Existing Amendments, "Loan Agreement") relating to a revolving line of
credit loan in a maximum principal amount of not to exceed $30,000,000.00
("Loan").
1.2 Borrower and Lender wish to amend further the Loan Agreement, in
connection with a Credit Agreement of even date herewith by and between Borrower
and Lender (the "Credit Agreement") and certain documents executed in connection
therewith (collectively with the Credit Agreement, the "Credit Documents").
ARTICLE 2 - AGREEMENT
2.1 Except as otherwise defined herein or unless the context otherwise
requires, capitalized terms used in this Amendment shall have the meaning given
to them in the Loan Agreement.
2.2 The Loan Agreement is amended as follows:
a. Paragraph 1.6 is deleted in its entirety and the following
substituted in its place:
1.6 "Borrowing Base": an amount equal to the lesser of:
(a) 90% of the then unpaid principal balance of the
Eligible Instruments; or
1
<PAGE> 48
(b) 90% of the present value of the contractual cash
flow, discounted at the highest of (i) the applicable
interest rate under the terms of the Note, (ii) a
discount rate equal to Prime on the first day of the
month in which the calculation is made plus 2-1/4%, or
(iii) 14%.
b. Paragraph 1.15 is deleted in its entirety and the following
substituted in its place:
1.15 "Maturity Date": the date specified in Supplement I.
C. Paragraph 1.17 is deleted in its entirety and the following is
substituted in its place:
1.17 "Note": the "Amended and Restated Promissory Note" in the
face amount of $31,000,000 made and delivered by Borrower to
Lender, dated April 13, 1993.
d. Paragraph 1.20 is deleted in its entirety and the following is
substituted in its place:
1.20 "Overdue Rate": the meaning given to it in the Note.
e. Paragraphs 1.32, 1.33, 1.34 and 1.35 of the First Amendment are
deleted in their entirety. Paragraph 1.32 of the Original Loan
Agreement is hereby reaffirmed to the extent the First Amendment
may have affected such paragraph.
f. Paragraph 5.1 is deleted in its entirety and the following
substituted in its place:
5.1 The Loan shall be evidenced by the Note, and shall be repaid
according to the terms of the Note and such provisions of this
Agreement as are applicable. Payments of the Loan and Note shall
be made in immediately available funds.
g. Paragraph 5.2 is deleted in its entirety and the following
substituted in its place:
5.2 Subject to Borrower's rights under paragraph 3.2 to
provide replacement Eligible Instruments, if for any reason the
outstanding principal balance of the Note shall exceed at any
time the then Borrowing Base of all Eligible Instruments,
Borrower, without notice or demand, will
2
<PAGE> 49
immediately make to Lender a principal payment in an amount
equal to such excess plus accrued and unpaid interest thereon.
h. The last sentence of Paragraph 5.5 is deleted in its entirety.
i. Subparagraph (a) of Paragraph 7.1 is deleted in its entirety and
the following is substituted in its place:
(a) Lender fails to receive from Borrower when due and payable
(i) any amount that Borrower is obliged to pay on the Note or
(ii) any other payment due under the Documents; and such failure
shall continue for 5 business days after written notice to
Borrower, except for the payment of the final payment due at the
Maturity Date for which no grace period is allowed;
j. The second sentence of Paragraph 9.2(a) is deleted in its
entirety and the following is substituted in its place:
Lender and Borrower have also entered into a Credit Agreement
dated as of April 13, 1993 ("Credit Agreement") under which
Lender agreed to provide a credit enhancement facility in
connection with the offering (as defined in the Credit
Agreement), through its issuance of a guaranty in an aggregate
amount not to exceed $2,200,000.00 (the "Lender Guaranty").
k. Paragraphs 9.2(b) and 9.2(c) are amended by deleting each
reference to "1989 Loan Agreement" and substituting the following
in its place: "Credit Agreement (exclusive of the Lender's Fee
obligation thereunder)". Paragraph 9.2(c) is further amended by
deleting the last sentence and the next to the last sentence of
such paragraph.
1. Paragraph 9.2(e) is deleted in its entirety and the following is
substituted in its place:
(e) Notwithstanding anything in any Document or other agreement
between Lender and Borrower to the contrary, the sum of (i) the
unreturned portion of Lender's investment under the Purchase
Agreement, (ii) the amount Lender is obligated to pay and/or has
paid (without reimbursement by Borrower) under the Lender
Guaranty at the tine of measurement and (iii) the unpaid
principal balance of the Loan, shall not exceed $31,000,000 at
any time.
3
<PAGE> 50
m. The following is added as a new Paragraph 9.7:
9.7(a) one-half (50.0%) of the amount of the Loss Reserve (as
defined in paragraph 3.3 of the Purchase Agreement) which would
otherwise be payable to Borrower during 1993 shall be retained
in a reserve account by Lender and shall continue to serve as
collateral for Borrower's obligations under the Purchase
Agreement; provided, however, that Lender shall release 100% of
all such retained reserves at such time as borrowings under the
Loan, as modified (originating from and after February 1, 1993),
reach a level equal to the amount paid by Borrower to release
the Receivables Collateral required by the Credit Agreement
(exclusive of any participants' interest therein) and there then
exists no Event of Default under the Purchase Agreement.
(b) Without limiting the generality of paragraph 9.2, Borrower
acknowledges that Lender has a security interest in the Loss
Reserve; that such security interest shall continue in the
excess Loss Reserve which Lender may hold pursuant to paragraph
9.7(a); by virtue of such security interest, the Loss Reserve
(including excess Loss Reserve and interest earned therein) held
by Lender shall be security for the Obligations and Other
Financing Obligations; and, if an Event of Default exists,
Lender may exercise its remedies with respect to the Loss
Reserve (including excess Loss Reserve and interest earned
therein) held by Lender and apply the proceeds to the
Obligations and Other Financing obligations.
n. The following is added as a new paragraph 9.8:
9.8 Borrower agrees to pay to Lender a non-utilization fee upon
the termination of the Borrowing Term under the Loan (i.e.
January 11, 1994) equal to 1/2 of 1% (.50%) of the difference
between (a) $30,000,000 and (b) the sum of: (i) the original
Lender Guaranty amount ($2,200,000), (ii) the outstanding
principal amount under the Loan (as modified) as of the date of
Closing (as defined in the Credit Agreement) and all borrowing
under the Loan from February 1, 1993 through the expiration of
the Borrowing Term and (iii) the unreturned portion of Lender's
investment under the Purchase Agreement as of the Closing (as
defined in the Credit Agreement) ("Non-Utilization Fee");
4
<PAGE> 51
o . Item 1.15 of Supplement I is deleted in its entirety and the
following is substituted in its place:
1.15 Maturity Date: 120 months from the date of the last Advance
evidenced by the Note.
p. Item 1.16 of Supplement I is deleted in its entirety and the
following is substituted in its place:
1.16 Maximum Loan Amount: at the time of determination, a
principal amount which when added to (i) the unreturned portion
of Lender's investment under the Purchase Agreement and (ii) the
amount Lender is obligated to pay and/or has paid (without
reimbursement by Borrower) under the Lender Guaranty at the time
of measurement, equals $31,000,000.
2.3 Borrower shall pay to Lender a documentation fee of $35,000.00 for
Lender's legal fees or expenses for the negotiation, documentation and closing
of the Credit Agreement, the Modification Agreement and the documents executed
in connection therewith. Borrower previously paid $5,000 to Lender. At Closing,
Borrower shall pay an additional $10,000 toward this obligation. The remaining
$20,000 shall be paid to Lender in increments of $5,000 each from the next four
receivables fundings under the Loan after Closing (as defined in the Credit
Agreement), but in no event later than four months following the Closing.
2.4 Borrower will indemnify, hold harmless and defend Lender, and its
officers, directors, employees, agents, affiliates, successors and assigns for,
from and against loss, expense, demand and liability arising out of any claim
for a broker's fee with respect to the transaction contemplated by this
Amendment.
2.5 Borrower represents, warrants and covenants, with the express
understanding that, but for the truth of such representations, warranties and
covenants, Lender would not enter into this Amendment, which representations,
warranties and covenants shall continue in full force and effect until the final
payment, satisfaction and discharge of all obligations of Borrower under the
Loan Agreement and certain documents executed in connection therewith (the "Loan
Documents"), as modified by the Modification Documents (as defined in paragraph
2.7.c(i)), that:
2.5.1 Borrower affirms to Lender the accuracy, as of the date
hereof, of each and every representation and warranty contained in the Loan
Documents made at the time each of the Loan Documents was originally executed
and delivered as if such representations and warranties were being made upon
Borrower's execution of this Amendment;
5
<PAGE> 52
2.5.2 The Loan Documents and the Modification Documents to which
Borrower is a party are legal, valid and binding agreements and obligations of
Borrower enforceable in accordance with their respective terms, except to the
extent that enforcement may be limited by the effect of bankruptcy,
reorganization and other similar laws affecting the enforcement of creditors'
rights generally, without offsets, counterclaims or defenses which would defeat
or otherwise affect the collectibility by Lender of any of Borrower's
obligations thereunder and, without offsets, counterclaims and defenses which
would defeat or otherwise affect the collectibility by Lender of the obligations
of any third party thereunder;
2.5.3 The execution, delivery and performance by Borrower of the
Modification Documents has been (or will be as of the execution thereof by
Borrower) duly authorized by all necessary actions and, to the best of its
knowledge, will not violate any law or regulation of the United States of
America, State of Virginia, or any other governmental authority, of Borrower's
organizational documents, or result in the breach of, or require any consent
under, any agreement or instrument of any description to which Borrower is a
party or by which Borrower or its property may be bound or affected;
2.5.4 The current principal balance of the Note as of April 13,
1993, is $4,911,179.25 and this balance is true and correct and the Note
constitutes legal, valid and binding obligations of Borrower. Borrower
acknowledges that these figures are true and correct and that there are no
offsets thereto, and no defenses of Borrower to or in connection with the Loan
Documents, as modified; and
2.5.5 Neither Lender nor any of its respective present or former
employees, officers, directors or agents, at any time have directed or
participated in or attempted to direct or participate in, any of the business
dealings of the Borrower in any capacity other than that of a creditor and
lender.
2.6 Borrower will execute and deliver such further instruments and do
such things as in the sole and absolute judgment of Lender are necessary or
desirable to effect the intent of this Amendment and to secure to Lender the
benefits of all rights and remedies conferred upon Lender by the terms of this
Amendment and any other documents executed in connection herewith.
2.7 This Amendment shall not be binding upon Lender unless and until
the following conditions have been satisfied at Borrower's expense:
a. Borrower has delivered to Lender the following documents and
other items, all of which shall be properly completed and executed
and shall otherwise be
6
<PAGE> 53
satisfactory in form and substance to Lender in its sole and
absolute discretion:
(i) a certificate from the venturers of Borrower
authorizing (A) the execution and delivery of this Amendment and
the other documents called for in this Amendment or requested by
Lender pursuant to paragraph 2.6 ("Modification Documents") and
(B) the transaction contemplated hereby;
(ii) a copy of all amendments to Borrower's joint
venture agreement since the last agreement was previously provided
to Lender by Borrower;
(iii) a corporate resolution from each venturer of
Borrower authorizing (A) the execution and delivery of the
Modification Documents and (B) the transaction contemplated hereby;
(iv) a corporate resolution from each corporate
Guarantor authorizing (A) the execution and delivery of the
documents required by this Amendment to be executed by it and (B)
the performance of its obligations under those documents;
(v) copies of all amendments to the organizational
documents (including, without limitation, articles and certificates
of incorporation and by-laws) from the previous copies of such
documents provided to Lender, for each corporate venturer of
Borrower and each corporate Guarantor;
(vi) an Amended and Restated Promissory Note in the
original principal amount of $31,000,000;
(vii) an "Amended and Restated Guaranty" in form and
substantially identical to EXHIBIT A (for individual Guarantors)
and EXHIBIT B (for corporate Guarantors) executed by each Guarantor
("Amended Guaranty") (also a Credit Document);
(viii) an opinion from counsel to Borrower and each
Guarantor as to such matters as Lender may require, which counsel
shall be reasonably satisfactory to Lender;
(ix) a sixth amendment to the Greyhound Deed of Trust
providing that it secures the Obligations as modified by this
Amendment;
7
<PAGE> 54
(x) a subordination agreement and amendment from
Berkeley with respect to its deed of trust on the Project;
(xi) an unconditional commitment for issuance of a
title policy issued by a title company satisfactory to Lender (or
an endorsement to Lawyers Title Insurance Corporation Loan Policy
No. 82-02-300729) in form and substance satisfactory to Lender,
insuring for Lender a first lien position;
(xii) estoppel letters from Berkeley, Marine Midland
Bank, N.A., Bush Construction Corporation and Offsite
International, Inc.; and
(xiii) a second amendment to the existing Amended and
Restated Intercreditor Agreement among Marine Midland Bank, N.A.
and Lender and certain other parties.
b. Lender has received the fee of $10,000 as required under
paragraph 2.3.
c. All obligations of Borrower under a Loan and Security Agreement
dated as of October 31, 1989 (the "1989 Note"), and a promissory
note dated December 17, 1990, as amended by an Amendment No. 1 to
Note dated July 22, 1992 (the "1990 Note"), shall have been
satisfied as required by the terms of the Credit Agreement. Upon
such satisfaction, Borrower shall receive the original 1989 Note
and the 1990 Note marked "paid".
d. All of the conditions to closing set forth in the Credit
Agreement have been satisfied, and the Offering (as defined in the
Credit Agreement) shall have been completed.
2.8 This Amendment may not be amended or otherwise modified except in a
writing duly executed by the parties hereto.
2.9 If any one or more of the provisions of this Amendment is held to
be invalid, illegal or unenforceable in any respect or for any reason (all of
which invalidating laws are waived to the fullest extent possible), the
validity, legality and enforceability of any remaining portions of such
provision(s) in every other respect and of the remaining provision(s) of this
Amendment shall not be in any respect impaired.
2.10 This Amendment constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes all
prior written or oral understandings and agreements between the parties in
connection therewith.
8
<PAGE> 55
2.11 All Schedules and Exhibits referred to herein are herein
incorporated by this reference.
2.12 This Amendment may be executed in one or more counterparts, and
any number of which having been signed by all the parties hereto shall be taken
as one original.
2.13 Borrower and Lender hereby ratify and confirm the Loan Agreement,
as amended hereby, in all respects. Except as modified, restated or superseded
hereby or by the other Modification Documents, all terms and conditions of the
Loan Documents shall remain in full force and effect. In the event of any
inconsistency, ambiguity or conflict between this Amendment and any other
Modification Documents, the terms of this Amendment shall prevail. In the event
of any inconsistency, ambiguity or conflict between either this Agreement or the
other Modification Documents and any of the Loan Documents, the terms of this
Amendment and/or the other Modification Documents, as the case may be, shall
prevail.
IN WITNESS WHEREOF this instrument is executed as of the date set forth
above.
"BORROWER"
POWHATAN ASSOCIATES, a Virginia joint
venture
By: Williamsburg Vacations, Inc.,
a Virginia corporation,
a joint venturer
By: /s/ KAY F. GOW, PRESIDENT
-----------------------------
Kay F. Gow, President
"LENDER"
GREYHOUND FINANCIAL CORPORATION,
a Delaware corpora
By: /s/ JACK FIELDS, III
---------------------------------
Print Name: Jack Fields, III
-------------------------
Title: Senior Vice President
------------------------------
9
<PAGE> 56
THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT
BY THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment")
dated as of March 21, 1994, POWHATAN ASSOCIATES, a Virginia joint venture
("Borrower"), and GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
("Lender") (successor in interest to Greyhound Real Estate Finance Company, an
Arizona corporation) , for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, hereby confirm and agree as
follows:
ARTICLE I - INTRODUCTION
1.1 Borrower and Lender previously entered into a Loan and Security
Agreement dated as of December 17, 1990 ("Original Loan Agreement") as amended
by letter agreements dated as of May 8, 1992, and June 4, 1992, an Amendment to
Loan and Security Agreement (the "First Amendment") dated as of July 22, 1992, a
Second Amendment to Loan and Security Agreement dated April 13, 1993, and a
Letter Agreement dated September 15, 1993 ("September 15 Letter Amendment")
(collectively "Existing Amendments"; and the Original Loan Agreement, as amended
by the Existing Amendments, "Loan Agreement") relating to a revolving line of
credit loan in a maximum principal amount not to exceed Thirty-One Million
Dollars ($31,000,000) ("Loan").
1.2 Borrower and Lender wish to amend further the Loan Agreement for
purposes of, among other things, increasing the financing available to Borrower
thereunder.
ARTICLE 2 - AGREEMENT
2.1 Except as otherwise defined herein or unless the context otherwise
requires, capitalized terms used in this Amendment shall have the meaning given
to them in the Loan Agreement.
2.2 The Loan Agreement is amended as follows:
a. Paragraph 1.6 is deleted in its entirety and the following
substituted in its place:
1.6 "Borrowing Base": an amount equal to the lesser of:
(a) Ninety percent (90%) of the then unpaid principal
balance of the Eligible Instruments; or
(b) Ninety percent (90%) of the present value of the
contractual cash flow, discounted at the highest of (i) the
applicable interest rate under
<PAGE> 57
the terms of the Note, (ii) a discount rate equal to Prime on
the first day of the month in which the calculation is made plus
two percent (2.0%), or (iii) twelve percent (12%).
b. Paragraph 1.7 is deleted in its entirety and the following is
substituted in its place:
1.7 "Borrowing Term": shall mean the period commencing on the date of
this Agreement and ending on the close of Lender's business day (or, if such is
not a normal business day of Lender, on the next business day of Lender) on the
earlier of (a) the date which is twenty-four (24) months after the date of the
first Advance of the Loan after March 21, 1994, or (b) May 10, 1996.
c. The following are added as new paragraphs 1.14A, 1.14B, 1.14C
and 1.14D immediately after paragraph 1.14:
1.14A "Loan Segment A Advances" means all Advances which are
made prior to March 21, 1994.
1.14B "Loan Segment A Receivables" means that portion of the
Receivables Collateral consisting of all Instruments assigned, endorsed
and/or delivered to Lender prior to March 21, 1994, in connection with
Advances made prior to that date, all Instruments substituted therefor
pursuant to paragraph 3.2, and the other Receivables Collateral
pertaining thereto.
1.14C "Loan Segment B Advances" means Advances which are made on
or after March 21, 1994.
1.14D "Loan Segment B Receivables Collateral" means all
Instruments which constitute part of the Receivables Collateral and are
assigned, endorsed and/or delivered to Lender on or after March 21,
1994, in connection with Advances made on or after that date, all
Instruments substituted therefor pursuant to paragraph 3.2, and other
Receivables Collateral pertaining thereto.
d. paragraph 1.17 is deleted in its entirety and the following
is substituted in its place:
1.17 "Note": the "Amended and Restated Promissory Note" in the
face amount of Thirty-One Million Dollars ($31,000,000) made and
delivered by Borrower to Lender, dated April 13, 1993, as amended by an
Amendment No. 1 to Promissory Note dated March 21, 1994.
e. Paragraph 1.29 is amended by changing the definition of
"Collection Agreement" to read "'Collection Agreement':
2
<PAGE> 58
the 'Collection Agreement' or 'Collection Agreements' from time to time
made among Borrower, Lender and Collection Agent."
f. Paragraph 5.2 is deleted in its entirety and the following
is substituted in its place:
5.2 Subject to Borrower's rights under paragraph 3.2 to provide
replacement Eligible Instruments, if for any reason either (a) the
unpaid principal balance of the Loan Segment A Advances exceeds the
Borrowing Base of the Eligible Instruments which are part of Loan
Segment A Receivables Collateral or (b) the unpaid principal balance of
the Loan Segment B Advances exceeds the Borrowing Base of the Eligible
Instruments which are part of the Loan Segment B Receivables Collateral,
then Borrower will immediately make to Lender a principal payment in an
amount equal to such excess plus accrued and unpaid interest thereon.
g. Paragraph 5.3 is deleted in its entirety and the following is
substituted in its place:
5.3 Except as provided in this paragraph, Borrower will not be
entitled to prepay the Loan in whole or in part. Borrower may prepay
the Loan Segment A Advances and the Loan Segment B Advances in full, but
not in part, at any time prior to the Opening Prepayment Date applicable
thereto if (a) Lender fails to approve a written request by Borrower to
extend the Borrowing Term or to increase the Maximum Loan Amount, (b)
such prepayment is required in good faith by another institutional
lender providing additional financing to Borrower, and (c) at the time
of the prepayment Borrower pays to Lender a prepayment premium equal to
four percent (4%) of the portion of the then unpaid principal balance of
the Loan being prepaid pursuant to this sentence. Borrower shall have
the option to prepay the Loan Segment A Advances and the Loan Segment B
Advances, as the case may be, after the applicable Opening Prepayment
Date, if (a) neither an Event of Default nor an act or event that, with
notice or lapse of time or both, would constitute an Event of Default,
has occurred and is continuing, (b) Borrower has paid to Lender all
other sums due and payable in connection with the Loan at the time of
prepayment of the Loan segment being prepaid, and (c) Borrower has given
Lender at least thirty (30) days prior written notice of the prepayment
and paid to Lender at the time of prepayment a prepayment premium equal
to a percentage, determined as set forth in SCHEDULE A, of the principal
amount being prepaid; provided, however, that in no event may Loan
Segment B Advances be prepaid pursuant to the terms of this sentence
prior to the opening Prepayment Date
3
<PAGE> 59
applicable thereto. If there should occur a casualty to or condemnation
of the Project or an acceleration of maturity following an Event of
Default and such occurrence results in prepayment of the Loan or if
prepayments result from other than voluntary, unsolicited prepayment
(including payments received through collection) of the Receivables
Collateral, a prepayment premium will be required in the amount
specified in SCHEDULE A of the then principal balance of the Loan
Segment A Advances and Loan Segment B Advances being prepaid.
h. Paragraph 5.4(a) is amended by deleting the words "last day"
where they appear in the first sentence and inserting the words "the
fifteenth (15th) day and the last day (or if such day is not a business
day of Collection Agent, on the preceding business day of Collection
Agent) and by adding the following additional sentence at the end
thereof: "Notwithstanding anything in this Agreement to the contrary,
the payments on the Loan Segment A Advances and Loan Segment B Advances
shall be collected through separate lockbox arrangements, and the
reports required pursuant to this paragraph should be prepared
separately with respect to the Loan Segment A Receivables and the Loan
Segment B Receivables."
i. Paragraph 5.5 is amended by inserting the following as a
third sentence at the end thereof:
Notwithstanding anything to the contrary in the first sentence of this
paragraph or any other provision of the Documents to the contrary, but
subject to Lender's rights under Article VII: (a) before application to
accrued and unpaid interest and principal owing with respect to Loan
Segment B Advances, proceeds of the principal and interest payments with
respect to Loan Segment A Receivables Collateral will be applied first
to the interest on and principal of Loan Segment A Advances; and (b)
before application to accrued and unpaid interest and principal owing
with respect to Loan Segment A Advances, proceeds of the principal and
interest payments with respect to Loan Segment B Receivables Collateral
will be applied first to interest on and principal of Loan Segment B
Advances.
j. Paragraph 9.2(e) is deleted in its entirety and the following
is substituted in its place:
9.2 (e) Notwithstanding anything in any Document or other
agreement between Lender and Borrower to the contrary, the sum of (i)
the unreturned portion of Lender's investment under the Purchase
Agreement and (ii) the unpaid principal balance of the Loan, shall not
exceed Forty Million Dollars ($40,000,000) at any time.
4
<PAGE> 60
k. The following is added as a new paragraph 9.9:
9.9 Borrower will enter into and maintain in full force and
effect an agreement (the "Oversight and Agency agreement") with Lender
and GFC Portfolio Services, Inc. ("GPSI") which shall provide for
oversight and other services to be performed by GPSI with respect to the
Receivables Collateral and the servicing obligations of Borrower under
the Documents. All fees and charges of GPSI with respect to such
services shall be the sole responsibility of Lender.
1. Item 1.16 of Supplement I is deleted in its entirety and the
following is substituted in its place:
1.16 Maximum Loan Amount: at the time of determination, a
principal amount which when added to the unreturned portion of Lender's
investment under the Purchase Agreement equals Forty Million Dollars
($40,000,000).
m. Item 1.19 of Supplement I is deleted in its entirety and the
following is substituted in its place:
1.19 Opening Prepayment Date: with respect to Loan Segment A
Advances, the date three (3) years after the date of the last such
Advance (which date is acknowledged to be January 11, 1994); and with
respect to Loan Segment B Advances, two (2) years after the date of the
last Advance.
n. Schedule A is deleted in its entirety and SCHEDULE A hereto
is substituted in its place.
o. Paragraph (e) of Exhibit 1 is amended to read as follows:
(e) No payment is more than twenty-nine (29) days delinquent
(i.e., overdue more than twenty-nine (29) days past its due date
scheduled in the Instrument).
2.3 Borrower shall pay to Lender a commitment and renewal fee equal to
Ninety Thousand Dollars ($90,000) ("Commitment Fee"). Lender acknowledges that
Twenty-Five Thousand Dollars ($25,000) of the Commitment Fee has been received,
and the Sixty-Five Thousand Dollar ($65,000) balance of the Commitment Fee shall
be due and payable upon the making of the first Advance after the date hereof,
but not later than April 3, 1994. Borrower shall pay to Lender a documentation
fee of Five Thousand Dollars ($5,000) ("Documentation Fee") for Lender's legal
fees for the negotiation, documentation and closing of this Amendment and the
documents executed in connection therewith, together with all expenses incurred
by Lender and its counsel in connection therewith. Such Documentation Fee and
5
<PAGE> 61
expenses shall be paid to Lender upon the making of the first Advance after the
date hereof, but in no event later than April 3, 1994.
2.4 Borrower will indemnify, hold harmless and defend Lender, and its
officers, directors, employees, agents, affiliates, successors and assigns for,
from and against loss, expense, demand and liability arising out of any claim
for a broker's fee with respect to the transaction contemplated by this
Amendment.
2.5 Borrower represents, warrants and covenants, with the express
understanding that, but for the truth of such representations, warranties and
covenants, Lender would not enter into this Amendment, which representations,
warranties and covenants shall continue in full force and effect until the final
payment, satisfaction and discharge of all obligations of Borrower under the
Loan Agreement and certain documents executed in connection therewith (the "Loan
Documents"), as modified by the Modification Documents, that:
2.5.1 Borrower affirms to Lender the accuracy, as of the date
hereof, of each and every representation and warranty contained in the
Loan Documents made at the time each of the Loan Documents was
originally executed and delivered as if such representations and
warranties were being made upon Borrower's execution of this Amendment;
2.5.2 The Loan Documents and the Modification Documents to which
Borrower is a party are legal, valid and binding agreements and
obligations of Borrower enforceable in accordance with their respective
terms, except to the extent that enforcement may be limited by the
effect of bankruptcy, reorganization and other similar laws affecting
the enforcement of creditors' rights generally, without offsets,
counterclaims or defenses which would defeat or otherwise affect the
collectibility by Lender of any of Borrower's obligations thereunder
and, without offsets, counterclaims and defenses which would defeat or
otherwise affect the collectibility by Lender of the obligations of any
third party thereunder;
2.5.3 The execution, delivery and performance by Borrower of
the Modification Documents has been (or will be as of the execution
thereof by Borrower) duly authorized by all necessary actions and, to
the best of its knowledge, will not violate any law or regulation of the
United States of America, State of Virginia, or any other governmental
authority, of Borrower's organizational documents, or result in the
breach of, or require any consent under, any agreement or instrument of
any description to which Borrower is a party or by which Borrower or its
property may be bound or affected;
2.5.4 The principal balance of the Note as of February 28, 1994
(which is the unpaid principal balance of all Loan
6
<PAGE> 62
Segment A Advances as of such date), is Fourteen Million Twelve Thousand
One Hundred Three Dollars and Thirty-Four Cents ($14,012,103.34), and
this balance is true and correct and the Note constitutes legal, valid
and binding obligations of Borrower. Borrower acknowledges that these
figures are true and correct and that there are no offsets thereto, and
no defenses of Borrower to or in connection with the Loan Documents, as
modified; and
2.5.5 Neither Lender nor any of its respective present or former
employees, officers, directors or agents, at any time has directed or
participated in or attempted to direct or participate in, any of the
business dealings of the Borrower in any capacity other than that of a
creditor and lender.
2.6 Borrower will execute and deliver such further instruments and do
such things as in the sole and absolute judgment of Lender are necessary or
desirable to effect the intent of this Amendment and to secure to Lender the
benefits of all rights and remedies conferred upon Lender by the terms of this
Amendment and any other documents executed in connection herewith.
2.7 This Amendment shall not be binding upon Lender unless and until the
following conditions have been satisfied at Borrower's expense:
a. ;Borrower has delivered to Lender the following documents and
other items, all of which shall be properly completed and executed and
shall otherwise be satisfactory in form and substance to Lender in its
sole and absolute discretion:
(i) a certificate from the venturers of Borrower authorizing
(A) the execution and delivery of this Amendment and the
other documents called for in this Amendment or
requested by Lender pursuant to paragraph 2.6
("Modification Documents") and (B) the transaction
contemplated hereby;
(ii) a copy of all amendments to Borrower's joint venture
agreement since the last agreement was previously
provided to Lender by Borrower;
(iii) a corporate resolution from each venturer of Borrower
authorizing (A) the execution and delivery of the
Modification Documents and (B) the transaction
contemplated hereby;
(iv) a corporate resolution from each corporate Guarantor
authorizing (A) the execution and delivery of the
documents required by this Amendment to be executed by
it and (B) the
7
<PAGE> 63
performance of its obligations under those documents;
(v) copies of all amendments to the organizational documents
(including, without limitation, articles and
certificates of incorporation and by-laws) from the
previous copies of such documents provided to Lender,
for each corporate venturer of Borrower and each
corporate Guarantor;
(vi) an "Amendment No. 1 To Promissory Note";
(vii) a "Consent of Guarantors and Amendment To Guaranty" for
individual and corporate Guarantors executed by each
Guarantor ("Guaranty Amendment");
(viii) an Amendment to Collection Agreement pertaining to the
Loan Segment A Receivables Collateral and a Collection
Agreement pertaining to the Loan Segment B Receivables
collateral;
(ix) an Oversight and Agency Agreement;
(x) an opinion from counsel to Borrower and each Guarantor
as to such matters as Lender may require, which counsel
shall be reasonably satisfactory to Lender;
(xi) a seventh amendment to the Greyhound Deed of Trust
providing that it secures the Obligations as modified by
this Amendment;
(xii) a subordination agreement and amendment from Berkeley
with respect to its deed of trust on the Project;
(xiii) an unconditional commitment for issuance of a title
policy issued by a title company satisfactory to Lender
(or an endorsement to Lawyers Title Insurance
Corporation Loan Policy No. 82-02-300729) in form and
substance satisfactory to Lender, insuring for Lender a
first lien position;
(xiv) estoppel letters from Berkeley Federal Savings Bank,
Marine Midland Bank, N.A., Bush Construction Corporation
and Offsite International, Inc.; and
(xv) a third amendment to (or restatement of) the
8
<PAGE> 64
existing Amended and Restated Intercreditor Agreement
among Marine Midland Bank, N.A., Lender and certain
other parties.
b. Lender has received the Sixty-Five Thousand Dollar ($65,000)
balance of the Commitment Fee and the entire Documentation Fee.
2.8 Lender shall have completed a site inspection of the Project on or
before May 20, 1994, with Borrower to pay Lender's reasonable expenses incurred
in connection therewith. Lender shall have no obligation to make further
Advances if such inspection reveals conditions at the Project which Lender
reasonably determines materially and adversely impair the value of the Project,
the Receivables Collateral, Lender's security under the Greyhound Deed of Trust
or the prospects that the Loan will be repaid as provided in the Loan Agreement,
as amended hereby.
2.9 Borrower and Lender agree that the Greyhound Deed of Trust shall be
subject and subordinate to any and all working capital or construction
financing, in an amount not to exceed Two Million Dollars ($2,000,000), deemed
necessary or desirable to Borrower for the continued development or operation of
the Project.
2.10 This Amendment may not be amended or otherwise modified except in a
writing duly executed by the parties hereto.
2.11 If any one or more of the provisions of this Amendment is held to
be invalid, illegal or unenforceable in any respect or for any reason (all of
which invalidating laws are waived to the fullest extent possible), the
validity, legality and enforceability of any remaining portions of such
provision(s) in every other respect and of the remaining provision(s) of this
Amendment shall not be in any respect impaired.
2.12 This Amendment constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes all
prior written or oral understandings and agreements between the parties in
connection therewith.
2.13 All Schedules and Exhibits referred to herein are herein
incorporated by this reference.
2.14 This Amendment may be executed in one or more counterparts, and any
number of which having been signed by all the parties hereto shall be taken as
one original.
2.15 Borrower and Lender hereby ratify and confirm the Loan Agreement,
as amended hereby, in all respects. Except as modified, restated or superseded
hereby or by the other Modification Documents, all terms and conditions of the
Loan Documents shall remain in full force and effect. Borrower acknowledges that
the waiver contained in the September 15 Letter Amendment with respect to the
9
<PAGE> 65
disbursement fee provided for in the last sentence of item 6.16 of Supplement I
was a one-time waiver limited to the September 1993 Advance described therein.
In the event of any inconsistency, ambiguity or conflict between this Amendment
and any other Modification Documents, the terms of this Amendment shall prevail.
In the event of any inconsistency, ambiguity or conflict between either this
Agreement or the other Modification Documents and any of the Loan Documents, the
terms of this Amendment and/or the other Modification Documents, as the case may
be, shall prevail.
IN WITNESS WHEREOF this instrument is executed as of the date set forth
above.
BORROWER: POWHATAN ASSOCIATES, a Virginia
joint venture
By: Williamsburg Vacations, Inc., a
Virginia corporation, a Virginia
corporation, a joint venturer
By: /s/ KAY F. GOW
------------------------------------
Kay F. Gow, President
LENDER: GREYHOUND FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ JEFF OWINGS
------------------------------------
Type/Print Name: Jeff Owings
Title: Vice President
10
<PAGE> 66
FOURTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
BY THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment")
dated as of June 29, 1994, POWHATAN ASSOCIATES, a Virginia joint venture
("BORROWER"), and GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
("Lender") (successor in interest to Greyhound Real Estate Finance Company, an
Arizona corporation), for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, hereby confirm and agree as
follows:
ARTICLE 1 - INTRODUCTION
1.1 Borrower and Lender previously entered into a Loan and Security
Agreement dated as of December 17, 1990 ("Original Loan Agreement") as amended
by letter agreements dated as of May 8, 1992, and June 4, 1992, an Amendment to
Loan and Security Agreement dated as of July 22, 1992, a Second Amendment to
Loan and Security Agreement dated April 13, 1993, a Letter Agreement dated
September 15, 1993, and a Third Amendment to Loan and Security Agreement dated
as of March 21, 1994 (collectively, "Existing Amendments"; and the Original Loan
Agreement, as amended by the Existing Amendments, "Loan Agreement") relating to
a revolving line of credit loan in a maximum principal amount not to exceed
Forty Million Dollars ($40,000,000) ("Loan").
1.2 Borrower and Lender wish to amend further the Loan Agreement for
purposes of, among other things, allowing for availability advances under
certain circumstances, changing the terms of repayment of the Loan, and
releasing certain guarantors.
ARTICLE 2 - AGREEMENT
2.1 Except as otherwise defined herein or unless the context otherwise
requires, capitalized terms used in this Amendment shall have the meaning given
to them in the Loan Agreement.
2.2 The Loan Agreement is amended as follows:
a. Paragraphs 1.14A, 1.14B, 1.14C and 1.14D are deleted in
their entirety and the following paragraphs are substituted in their
place:
1.14A "Loan Segment A Advances" means all Advances which are
made against the Loan Segment A Receivables Collateral.
1.14B "Loan Segment A Receivables Collateral" means (a) that
portion of the Receivables Collateral consisting of all Instruments
assigned, endorsed and/or delivered to Lender prior to March 21, 1994,
in connection with Advances made prior to that date; (b) that portion of
the Receivables Collateral consisting of Instruments which were
originally
<PAGE> 67
sold by Borrower under the terms of the Purchase Agreement (as defined in
paragraph 9.4) and have been repurchased by Borrower from Lender pursuant to the
terms of that letter agreement dated as of June 29, 1994, between Lender and
Borrower; (c) all Instruments substituted for the Instruments described in items
(a) and (b) above pursuant to paragraph 3.2; and (d) the other Receivables
Collateral not consisting of Instruments pertaining exclusively thereto.
1.14C "Loan Segment B Advances" means Advances which are made against
the Loan Segment B Receivables Collateral.
1.14D "Loan Segment B Receivables Collateral" means all Instruments and
other collateral which constitute part of the Receivables Collateral and are not
part of the Loan Segment A Receivables Collateral.
b. Paragraph 1.17 is deleted in its entirety and the following is
substituted in its place:
1.17 "Note": the "Amended and Restated Promissory Note" in the face
amount of Forty Million Dollars ($40,000,000) made and delivered by Borrower to
Lender, dated April 13, 1993, as amended by an Amendment No. 1 to Promissory
Note dated March 21, 1994, and an Amendment No. 2 to Promissory Note dated as of
June 29, 1994.
c. Paragraph 9.8 is amended by adding the following sentence at the
end thereof:
"The fee payable pursuant to this paragraph shall be a one-time fee
payable only upon expiration of the Borrowing Term as in effect on April 14,
1993, and shall not be payable again upon the expiration of any extension of
such Borrowing Term."
d. The following are added as new paragraphs 9.10 and 9.11:
"9.10 Notwithstanding anything in paragraph 2-1 to the contrary, during
the Borrowing Term Borrower shall be entitled to Availability Advances against
Loan Segment A Receivables Collateral (but not Loan Segment B Receivables
Collateral). Borrower shall pay to Lender at time of each Availability Advance a
fee equal to 1.0% of the amount of such Availability Advance. The term
"Availability Advance" means an Advance made against an Eligible Instrument
after the first Advance made against such Instrument; provided that neither any
readvance of Refundable Segment A Proceeds pursuant to paragraph 9.11 nor the
substitution of an Eligible Instrument for an ineligible Instrument pursuant to
paragraph 3.2 shall be deemed to be an Availability Advance for purposes of
this
2
<PAGE> 68
paragraph 9. 10, but the first and every subsequent Advance against such
substituted Eligible Instrument shall be deemed to be an Availability Advance."
"9.11 Notwithstanding anything in the Loan Agreement to the contrary
and regardless of whether the Borrowing Term has expired, but subject to the
provisions of this paragraph, Lender shall re-advance to Borrower each month a
portion ("Refundable Segment A Proceeds") of the proceeds of the Loan Segment A
Receivables Collateral which were received by Lender during the preceding month
if, but only if, the following conditions precedent are satisfied at the time
of, and after giving effect to, such refund:
(a) neither an Event of Default nor any act or event which after
notice and/or lapse of time would constitute an Event of Default has
occurred and is continuing;
(b) the proceeds have not resulted from a casualty or
condemnation; and
(c) Lender has received (i) a written request for the
re-advance, (ii) the reports for the preceding month required pursuant
to paragraph 5.3, and (iii) a certificate signed by Borrower setting
forth the amount of the Refundable Segment A Proceeds available to be
readvanced to Borrower and the calculation of that amount, setting forth
the amount requested to be re-advanced, and certifying that all
conditions precedent to the refund are satisfied.
The Refundable Segment A Proceeds which Lender is required to re-advance in any
month shall be determined according to the following schedule based upon the
LTVR at the end of the preceding month:
(a) if the LTVR is greater than 80%, none;
(b) if the LTVR is 80% or less but greater than 70%, up to
30% of the excess at the end of the preceding month of
(i) 80% of the then unpaid principal balance of all
Eligible Instruments (including Eligible Instruments
substituted pursuant to paragraph 3.2) which are part
of the Loan Segment A Receivables Collateral over (ii)
the then unpaid principal balance of the Loan Segment A
Advances;
(c) if the LTVR is 70% or less but greater than 60%, up to
40% of the excess at the
3
<PAGE> 69
end of the preceding month of (i) 70.% of the then
unpaid principal balance of all Eligible Instruments
(including Eligible Instruments substituted pursuant to
paragraph 3.2) which are part of the Loan Segment A
Receivables Collateral over (ii) the then unpaid
principal balance of the Loan Segment A Advances; and
(d) if the LTVR is 60% or less, up to 50% of the excess at
the end of the preceding month of (i) 60% of the then
unpaid principal balance of all Eligible Instruments
(including Eligible Instruments substituted pursuant to
paragraph 3.2) which are part of the Loan Segment A
Receivables Collateral over (ii) the then unpaid
principal balance of the Loan Segment A Advances.
As used in this paragraph, when determining the Refundable Segment A
Proceeds, the term "LTVR" shall mean the then ratio, expressed as a
percentage, of the unpaid principal balance of the Loan Segment A
Advances to the unpaid principal balance of all Eligible Instruments
(including Eligible Instruments substituted pursuant to paragraph 3.2)
which are part of Loan Segment A Receivables Collateral. The Refundable
Segment A Proceeds shall be re-advanced by Lender to Borrower by wire
transfer within three (3) business days after Lender receives the
information required pursuant to the first sentence of this paragraph
and the amount re-advanced shall be deemed a Loan Segment A Advance.
Without limiting the generality of any other provision of this
Agreement, Lender shall be entitled to charge its reasonable and
customary fee in connection with each wire transfer of Refundable
Segment A Proceeds, which currently is Twenty-Five Dollars ($25.00).
e. Item 1.12 of Supplement I is deleted in its entirety and
the following is substituted in its place:
1.12 Guarantors: Williamsburg Vacations, Inc., a Virginia
corporation, Bush Construction Corporation, a Virginia corporation, and
Offsite International, Inc.
f. Item 1.19 of Supplement I is deleted in its entirety and
the following is substituted in its place:
1.19 Opening Prepayment Date. with respect to Loan Segment A
Advances, February 1, 1996; and with respect to Loan Segment B Advances,
two (2) years after the date of the last Advance.
4
<PAGE> 70
g. Schedule A is deleted in its entirety and Schedule A hereto is
substituted in its place.
2.3 Borrower shall pay to Lender a documentation fee of Four Thousand
Dollars ($4,000) ("Documentation Fee") for Lender's legal fees for the
negotiation, documentation and closing of this Amendment and the documents
executed in connection therewith, together with all reasonable expenses incurred
by Lender and its counsel in connection therewith. Such Documentation Fee and
expenses shall be paid to Lender upon the execution of this Amendment, but in no
event later than June 29, 1994.
2.4 Borrower will indemnify, hold harmless and defend Lender, and its
officers, directors, employees, agents, affiliates, successors and assigns for,
from and against loss, expense, demand and liability arising out of any claim
for a broker's fee with respect to the transaction contemplated by this
Amendment.
2.5 Borrower represents, warrants and covenants, with the express
understanding that, but for the truth of such representations, warranties and
covenants, Lender would not enter into this Amendment, which representations,
warranties and covenants shall continue in full force and effect until the final
payment, satisfaction and discharge of all obligations of Borrower under the
Loan Agreement and certain documents executed in connection therewith (the "Loan
Documents"), as modified by the Modification Documents, that:
2.5.1 Borrower affirms to Lender the accuracy, as of the date
hereof, of each and every representation and warranty contained in the
Loan Documents made at the time each of the Loan Documents was
originally executed and delivered as if such representations and
warranties were being made upon Borrower's execution of this Amendment;
2.5.2 The Loan Documents and the Modification Documents to which
Borrower is a party are legal, valid and binding agreements and
obligations of Borrower enforceable in accordance with their respective
terms, except to the extent that enforcement may be limited by the
effect of bankruptcy, reorganization and other similar laws affecting
the enforcement of creditors' rights generally, without offsets,
counterclaims or defenses which would defeat or otherwise affect the
collectibility by Lender of any of Borrower's obligations thereunder
and, without offsets, counterclaims and defenses which would defeat or
otherwise affect the collectibility by Lender of the obligations of any
third party thereunder;
2.5.3 The execution, delivery and performance by Borrower of the
Modification Documents have been (or will be as of the execution thereof
by Borrower) duly authorized by
5
<PAGE> 71
al1 necessary actions and,, to the best of its knowledge, will not
violate any law or regulation of the United States of America, State of
Virginia, or any other governmental authority, of Borrower's
organizational documents, or result in the breach of, or require any
consent under, any agreement or instrument of any description to which
Borrower is a party or by which Borrower or its property may be bound or
affected;
2.5.4 Borrower acknowledges that there are no offsets thereto,
and no defenses of Borrower to or in connection with the Loan Documents,
as modified; and
2.5.5 Neither Lender nor any of its respective present or former
employees, officers, directors or agents, at any time has directed or
participated in or attempted to direct or participate in, any of the
business dealings of the Borrower in any capacity other than that of a
creditor and lender.
2.6 Borrower will execute and deliver such further instruments
and do such things as in the sole and absolute judgment of Lender are
necessary or desirable to effect the intent of this Amendment and to
secure to Lender the benefits of all rights and remedies conferred upon
Lender by the terms of this Amendment and any other documents executed
in connection herewith.
2.7 This Amendment shall not be binding upon Lender unless and
until the following conditions have been satisfied at Borrower's
expense:
a. Borrower has delivered to Lender the following documents and
other items, all of which shall be properly completed and executed and
shall otherwise be satisfactory in form and substance to Lender in its
sole and absolute discretion:
(i) a certificate from the venturers of Borrower
authorizing (A) the execution and delivery of
this Amendment and the other documents called
for in this Amendment or requested by Lender
pursuant to paragraph 2.6 ("Modification
Documents") and (B) the transaction contemplated
hereby;
(ii) a copy of all amendments to Borrower's joint
venture agreement since the last agreement was
previously provided to Lender by Borrower;
(iii) a corporate resolution from each venturer of
Borrower authorizing (A) the execution and
delivery of the Modification Documents and (B)
the transaction contemplated hereby;
6
<PAGE> 72
(iv) a corporate resolution from each corporate
Guarantor authorizing (A) the execution and
delivery of the documents required by this
Amendment to be executed by it and (B) the
performance of its obligations under those
documents;
(v) copies of all amendments to the organizational
documents (including, without limitation,
articles and certificates of incorporation and
by-laws) from the previous copies of such
documents provided to Lender, for each corporate
venturer of Borrower and each corporate
Guarantor;
(vi) an "Amendment No. 2 To Promissory Note";
(vii) a "Consent of Guarantors and Amendment To
Guaranty" for the corporate Guarantors executed
by each such Guarantor ("Guaranty Amendment");
(viii) an opinion from counsel to Borrower and each
corporate Guarantor as to such matters as Lender
may require, which counsel shall be reasonably
satisfactory to Lender;
b. Lender has received the entire Documentation Fee; and
c. Borrower has repurchased from Lender all of the Instruments
owned by Lender pursuant to the Purchase Agreement.
2.8 Any obligations of Borrower under the Loan Agreement with respect to
the Purchase Agreement (including, without limitation, maintenance of the Loss
Reserve) and the liability of Robert T. Gow and Kay F. Gow and David E. Legere
and Patricia Legere under the Guarantees executed by them shall terminate when
this Amendment becomes binding upon Lender, at which time Lender shall deliver
to such individuals their respective Guarantees.
2.9 This Amendment may not be amended or otherwise modified except in a
writing duly executed by the parties hereto.
2.10 If any one or more of the provisions of this Amendment is held to
be invalid, illegal or unenforceable in any respect or for any reason (all of
which invalidating laws are waived to the fullest extent possible), the
validity, legality and enforceability of any remaining portions of such
provision(s) in every other respect and of the remaining provision(s) of this
Amendment shall not be in any respect impaired.
7
<PAGE> 73
2.11 This Amendment Constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes all
prior written or oral understandings and agreements between the parties in
connection therewith.
2.12 All Schedules and Exhibits referred to herein are herein
incorporated by this reference.
2.13 This Amendment may be executed in one or more counterparts, and any
number of which having been signed by all the parties hereto shall be taken as
one original.
2.14 Borrower and Lender hereby ratify and confirm the Loan Agreement,
as amended hereby, in all respects. Except as modified, restated or superseded
hereby or by the other Modification Documents, all terms and conditions of the
Loan Documents shall remain in full force and effect. In the event of any
inconsistency, ambiguity or conflict between this Amendment and any other
Modification Documents, the terms of this Amendment shall prevail. In the event
of any inconsistency, ambiguity or conflict between either this Amendment or the
other Modification Documents and any of the Loan Documents, the terms of this
Amendment and/or the other Modification Documents, as the case may be, shall
prevail.
IN WITNESS WHEREOF, this instrument is executed as of the date set forth
above.
BORROWER: POWHATAN ASSOCIATES, a Virginia
joint venture
By: Williamsburg Vacations, Inc.,
a Virginia corporation, a
joint venturer
By: /s/ KAY F. GOW
------------------------------------
Kay F. Gow, President
LENDER: GREYHOUND FINANCIAL CORPORATION, a
Delaware corporation
By: /s/
-------------------------------------
Type/Print Name:
------------------------
Title:
------------------------------
8
<PAGE> 74
FIFTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
BY THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment")
dated as of August 21, 1995, POWHATAN ASSOCIATES, a Virginia joint venture
("Borrower"), and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender")
(formerly Greyhound Financial Corporation and successor in interest to Greyhound
Real Estate Finance Company, an Arizona corporation) , for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
hereby confirm and agree as follows:
ARTICLE 1 INTRODUCTION
1.1 Borrower and Lender previously entered into a Loan and Security
Agreement dated as of December 17, 1990 ("Original Loan Agreement") as amended
by letter agreements dated as of May 8, 1992, and June 4, 1992, an Amendment to
Loan and Security Agreement dated as of July 22, 1992, a Second Amendment to
Loan And Security Agreement dated April 13, 1993, a Letter Agreement dated
September 15, 1990, a Third Amendment to Loan and Security Agreement dated as of
March 21, 1994, and a Fourth Amendment to Loan and Security Agreement dated as
of June 29, 1994 (collectively, "Existing Amendments; and the Original Loan
Agreement, as amended by the Existing Amendments, "Loan Agreement") relating to
a revolving line of credit loan in a maximum principal amount not to exceed
Forty Million Dollars ($40,000,000) ("Loan").
1.2 Borrower and Lender wish to amend further the Loan Agreement for
purposes of, among other things, allowing for availability advances under
certain circumstances.
ARTICLE 1 - AGREEMENT
2.1 Except as otherwise defined herein or unless the context otherwise
requires, capitalized terms used in this Amendment shall have the meaning given
to them in the Loan Agreement.
2.2 The Loan Agreement is amended by deleting paragraphs 9.10 and 9.11
and inserting the following in their place:
9.10 Notwithstanding anything in paragraph 2.1 to the contrary, during
the Borrowing Term Borrower shall be entitled to Availability Advances against
the Receivables Collateral. Borrower shall pay to Lender at time of each
Availability Advance a fee equal to 1.0% of the amount of such Availability
Advance. The term "Availability Advance" means an Advance made against an
Eligible Instrument after the first Advance made against such Instrument;
provided that neither any readvance of Refundable Receivables Collateral
Proceeds pursuant to paragraph 9.11 nor the substitution of an Eligible
Instrument for an ineligible Instrument pursuant to paragraph 3.2 shall be
deemed to be an Availability Advance for purposes of this paragraph 9.10, but
the first and every subsequent Advance against such substituted Eligible
Instrument shall be
<PAGE> 75
deemed to be an Availability Advance."
9.11 Notwithstanding anything in the Loan Agreement to the contrary, and
regardless of whether the Borrowing Term has expired, but subject to the
provisions of this paragraph, Lender shall readvance to Borrower each month a
portion ("Refundable Receivables Collateral Proceeds") of the proceeds of the
Receivables Collateral which were received by Lender during the preceding month
if, but only if, the following conditions precedent are satisfied at the time
of, and after giving effect to, such refund:
(a) neither an Event of Default nor any act or event which after notice
and/or lapse of time would constitute an Event of Default has occurred and is
continuing;
(b) the proceeds have not resulted from a casualty or condemnation; and
(c) Lender has received (i) a written request for the readvance, (ii)
the reports for the preceding month required pursuant paragraph 5.3, and (iii) a
certificate signed by Borrower setting forth the amount of the Refundable
Receivables Collateral Proceeds available to be readvanced to Borrower and the
calculation of that amount, setting forth the amount requested to be
re-advanced, and certifying that all conditions precedent to the refund are
satisfied.
The Refundable Receivables Collateral Proceeds which Lender is required
to re-advance in any month shall be determined according to the following
schedule based upon the LTVR at the end of the preceding month:
(a) if the LTVR is greater than 80%, none;
(b) if the LTVR is 80% or less but greater than 70%, up to 30% of
the excess at the end of the preceding month of (i) 80% of the
then unpaid principal balance of all Eligible Instruments
(including Eligible Instruments substituted pursuant to
paragraph 3. 2) over (ii) the then unpaid principal balance of
the Loan;
(c) if the LTVR is 70% or less but greater than 60%, up to 40% of
the excess at the end of the preceding month of (i) 70% of the
then unpaid principal balance of all Eligible Instruments
(including Eligible Instruments substituted pursuant to
paragraph 3.2) over (ii) the then unpaid principal balance of
the Loan; and
(d) if the LTVR is 60% or less, up to 50% of the excess at the end
of the preceding month of (i) 60% of the then unpaid principal
balance of all Eligible Instruments (including Eligible
Instruments substituted pursuant to paragraph 3.2) over (ii) the
then unpaid principal balance of the Loan.
2
<PAGE> 76
balance of the Loan.
As used in this paragraph, when determining the Refundable Receivables
Collateral Proceeds, the term "LTVR" shall mean the then ratio, expressed as a
percentage, of the unpaid principal balance of the Loan to the unpaid principal
balance all Eligible Instruments (including Eligible Instruments substituted
pursuant to paragraph 3.2). The Refundable Receivables Collateral Proceeds shall
be re-advanced by Lender to Borrower by wire transfer within three (3) business
days after Lender receives the information required pursuant to the first
sentence of this paragraph and the amount re-advanced shall be deemed an
Advance. Without limiting the generality of any other provision of this
Agreement, Lender shall be entitled to charge its reasonable and customary fee
in connection with each wire transfer of Refundable Receivables Collateral
Proceeds, which currently is Twenty-Five Dollars ($25.00).
2.3 Borrower will indemnify, hold harmless and defend Lender, and its
officers, directors, employees, agents, affiliates, successors and assigns for,
from and against loss, expense, demand and liability arising out of any claim
for a broker's fee with respect to the transaction contemplated by this
Amendment.
2.4 Borrower represents, warrants and covenants, with the express
understanding that, but for the truth of such representations, warranties and
covenants, Lender would not enter into this Amendment, which representations,
warranties and covenants shall continue in full force and effect until the final
payment, satisfaction and discharge of all obligations of Borrower under the
Loan Agreement and certain documents executed in connection therewith (the "Loan
Documents"), as modified by the Modification Documents, that:
2.4.1 Borrower affirms to Lender the accuracy, as of the date
hereof, of each and every representation and warranty contained in the
Loan Documents made at the time each of the Loan Documents was
originally executed and delivered as if such representations and
warranties were being made upon Borrower's execution of this Amendment;
2.4.2 The Loan Documents and the Modification Documents to which
Borrower is a party are legal, valid and binding agreements and
obligations of Borrower enforceable in accordance with their respective
terms, except to the extent that enforcement may be limited by the
effect of bankruptcy, reorganization and other similar laws affecting
the enforcement of creditors' rights generally, without offsets,
counterclaims or defenses which would defeat or otherwise affect the
collectibility by Lender of any of Borrower's obligations thereunder
and, without offsets, counterclaims and defenses which would defeat - or
otherwise affect the collectibility by Lender of the obligations of any
third party thereunder;
3
<PAGE> 77
2.4.3 The execution, delivery and performance by Borrower of the
Modification Documents have been (or will be as of the execution thereof
by Borrower) duly authorized by all necessary actions and, to the best
of its knowledge, will not violate any law or regulation of the United
States of America, State of Virginia, or any other governmental
authority, of Borrower's organizational documents, or result in the
breach of, or require any consent under, any agreement or instrument of
any description to which Borrower is a party or by which Borrower or its
property may be bound or affected;
2.4.4 Borrower acknowledges that there are no offsets thereto,
and no defenses of Borrower to or in connection with the Loan Documents,
as modified; and
2.4.5 Neither Lender nor any of its respective present or former
employees, officers, directors or agents, at any time has directed or
participated in or attempted to direct or participate in, any of the
business dealings of the Borrower in any capacity other than that of a
creditor and lender.
2.5 Borrower will execute and deliver such further instruments and do
such things as in the sole and absolute judgment of Lender are necessary or
desirable to effect the intent of this Amendment and to secure to Lender the
benefits of all rights and remedies conferred upon Lender by the terms of this
Amendment and any other documents executed in connection herewith.
2.6 This Amendment shall not be binding upon Lender unless and until the
following conditions have been satisfied at Borrower's expense:
Borrower has delivered to Lender the following documents and
other items, all of which shall be properly completed and executed and
shall otherwise be satisfactory in form and substance to Lender in its
sole and absolute discretion:
(i) a certificate from the venturers of Borrower authorizing (A)
the execution and delivery of this Amendment and the other
documents called for in this Amendment or requested by Lender
pursuant to paragraph 2.5 ("Modification Documents") and (B)
the transaction contemplated hereby;
(ii) a copy of all amendments to Borrower's joint venture
agreement since the last agreement was previously provided to
Lender by Borrower;
(iii) a corporate resolution from each venturer of Borrower
authorizing (A) the execution and delivery of the Modification
Documents and (B) the transaction contemplated hereby;
(iv) a corporate resolution from each corporate Guarantor
authorizing (A) the execution and delivery of
4
<PAGE> 78
the documents required by this Amendment to be executed by it
and (B) the performance of its obligations under those
documents;
(v) copies of all amendments to the organizational documents
(including, without limitation, articles and certificates of
incorporation and by-laws) from the previous copies of such
documents provided to Lender, for each corporate venturer of
Borrower and each corporate Guarantor;
(vi) a "Consent of Guarantors and Amendment To Guaranty" for the
corporate Guarantors executed by each such Guarantor ("Guaranty
Amendment");
(vii) an opinion from counsel to Borrower and each corporate
Guarantor as to such matters as Lender may require, which
counsel shall be reasonably satisfactory to Lender;
2.7 This Amendment may not be amended or otherwise modified except in a
writing duly executed by the parties.
2.8 If any one or more of the provisions of this Amendment is held to
be invalid, illegal or unenforceable in any respect or for any reason (all of
which invalidating laws are waived to the fullest extent possible), the
validity, legality and enforceability of any remaining portions of such
provisions) in every other respect and of the remaining provisions) of this
Amendment shall not be in any respect impaired.
2.9 This Amendment constitutes the entire agreement and understanding of
the parties with respect to its subject matter and supersedes all prior written
or oral understandings and agreements between the parties in connection
therewith.
2.10 All Schedules and Exhibits referred to herein are herein
incorporated by this reference.
2.11 This Amendment may be executed in one or more counterparts, and any
number of which having been signed by all the parties hereto shall be taken as
one original.
2.12 Borrower and Lender hereby ratify and confirm the Loan Agreement,
as amended hereby, in all respects. Except as modified, restated or superseded
hereby or by the other Modification Documents, all terms and conditions of the
Loan Documents shall remain in full force and effect. In the event of any
inconsistency, ambiguity or conflict between this Amendment and any other
Modification Documents, the terms of this Amendment shall prevail. In the event
of any inconsistency, ambiguity or conflict between either this Amendment or the
other Modification Documents and any of the Loan Documents, the terms of this
Amendment and/or the other Modification Documents, as the case may be, shall
5
<PAGE> 79
prevail.
IN WITNESS WHEREOF, this instrument is executed as of the date set forth
above.
BORROWER: POWHATAN ASSOCIATES, a Virginia
joint venture
By: Williamsburg Vacations, Inc.,
a Virginia corporation, a
joint venturer
By: /s/ KAY F. GOW
-------------------------------------
Kay F. Gow, President
LENDER: FINOVA CAPITAL CORPORATION (formerly
Greyhound Financial Corporation), a
Delaware corporation
By: /s/ DIANNE M. KATSCHER
------------------------------------
Type/Print Name: Dianne M. Katscher
Title: Vice President
-6-
<PAGE> 80
SIXTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
BY THIS SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment")
dated as of August 22, 1996, POWHATAN ASSOCIATES, a Virginia joint venture
("Borrower"), and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender")
(fka Greyhound Financial Corporation and successor in interest to Greyhound Real
Estate Finance Company, an Arizona corporation), for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
hereby confirm and agree as follows:
ARTICLE
I-INTRODUCTION
1.1 Borrower and Lender previously entered into a Loan and Security
Agreement dated as of December 17, 1990 ("Original Loan Agreement") as amended
by letter agreements dated as of May 8, 1992, and June 4, 1992, an Amendment to
Loan and Security Agreement dated as of July 22, 1992, a Second Amendment to
Loan And Security Agreement dated April 13, 1993, a Letter Agreement dated
September 15, 1990, a Third Amendment to Loan and Security Agreement dated as of
March 21, 1994, a Fourth Amendment to Loan and Security Agreement dated as of
June 29, 1994, a Fifth Amendment to Loan and Security Agreement dated as of
August 21, 1995 and a letter agreement dated July 23, 1996 (collectively,
"Existing Amendments; and the Original Loan Agreement, as amended by the
Existing Amendments, "Loan Agreement") relating to a revolving line of credit
loan in a maximum principal amount not to exceed Forty Million Dollars
($40,000,000) ("Loan").
1.2 Borrower and Lender wish to amend further the Loan Agreement for
purposes of extending the term during which Loan advances may be obtained.
ARTICLE 2 - AGREEMENT
2.1 Except as otherwise defined herein or unless the context otherwise
requires, capitalized terms used in this Amendment shall have the meaning given
to them in the Loan Agreement.
2.2 The Loan Agreement is amended by deleting paragraph 1.7 and
inserting the following in its place:
1.7 "Borrowing Term": the period commencing on the date hereof
and ending on the close of Lender's normal business day on August 31,
1998.
2.3 Borrower will indemnify, hold harmless and defend Lender, and its
officers, directors, employees, agents, affiliates, successors and assigns for,
from and against loss, expense, demand and
<PAGE> 81
liability arising out of any claim for a broker's fee with respect to the
transaction contemplated by this Amendment.
2.4 Borrower represents, warrants and covenants, with the express
understanding that, but for the truth of such representations, warranties and
covenants, Lender would not enter into this amendment, which representations,
warranties and covenants shall continue in full force and effect until the
final payment, satisfaction and discharge of all obligations of Borrower under
the Loan Agreement and certain documents executed in connection therewith (the
"Loan Documents"), as modified by the Modification Documents, that:
2.4.1 Borrower affirms to Lender the accuracy, as of the date
hereof, of each and every representation and warranty contained in the
Loan Documents made at the time each of the Loan Documents was
originally executed and delivered as if such representations and
warranties were being made upon Borrower's execution of this Amendment;
2.4.2 The Loan Documents and the Modification Documents to which
Borrower is a party are legal, valid and binding agreements and
obligations of Borrower enforceable in accordance with their respective
terms, except to the extent that enforcement may be limited by the
effect of bankruptcy, reorganization and other similar laws affecting
the enforcement of creditors' rights generally, without offsets,
counterclaims or defenses which would defeat or otherwise affect the
collectability by Lender of any of Borrower's obligations thereunder
and, without offsets, counterclaims and defenses which would defeat or
otherwise affect the collectability by Lender of the obligations of any
third party thereunder;
2.4.3 The execution, delivery and performance by Borrower of the
Modification Documents have been (or will be as of the execution thereof
by Borrower) duly authorized by all necessary actions and, to the best
of its knowledge, will not violate any law or regulation of the United
States of America, State of Virginia, or any other governmental
authority, of Borrower's organizational documents, or result in the
breach of, or require any consent under, any agreement or instrument of
any description to which Borrower is a party or by which Borrower or its
property may be bound or affected;
2.4.4 Borrower acknowledges that there are no offsets thereto, and
no defenses of Borrower to or in connection with the Loan Documents, as
modified; and
2.4.5 Neither Lender nor any of its respective present or former
employees, officers, directors or agents, at any time has directed or
participated in or attempted to direct or participate in, any of the
business dealings of Borrower in any capacity other than that of a
creditor and lender.
-2-
<PAGE> 82
2.5 Borrower will execute and deliver such further instruments and do such
things as in the sole and absolute judgment of Lender are necessary or desirable
to effect the intent of this Amendment and to secure to Lender the benefits of
all rights and remedies conferred upon Lender by the terms of this Amendment and
any other documents executed in connection herewith.
2.6 Borrower will on demand pay or, at Lender's election, reimburse Lender
for all brokers' fees and all Lender's reasonable attorneys' fees, plus such
attorney's reasonable out-of-pocket expenses and other out-of-pocket expenses
incurred in connection with the documentation and closing of the transaction
contemplated by this Amendment. Borrower will pay to Lender a receivables loan
renewal fee ("Renewal Fee") in the amount of Thirty Thousand Dollars ($30,000).
Borrower shall pay the Renewal Fee upon the first Advance of the Loan on or
after the date hereof, but not later than September 30, 1996. Borrower
acknowledges that the Renewal Fee was carried and is non-refundable.
2.7 This Amendment shall not be binding upon Lender unless and until
the following conditions have been satisfied at Borrower's expense not later
than September 30, 1996:
2.7.1 Borrower has delivered to Lender the following documents and
other items, all of which shall be properly completed and executed and
shall otherwise be satisfactory in form and substance to Lender in its
sole and absolute discretion:
(i) a certificate from the venturers of Borrower authorizing (A)
the execution and delivery of this Amendment and the other
documents called for in this Amendment or requested by Lender
pursuant to this Amendment ("Modification Documents") and (B) the
transaction contemplated hereby;
(ii) a copy of all amendments to Borrower's joint venture
agreement since the last agreement was previously provided to
Lender by Borrower;
(iii) a corporate resolution from each venturer of Borrower
authorizing (A) the execution and delivery of the Modification
Documents and (B) the transaction contemplated hereby;
(iv) a corporate resolution from each corporate Guarantor
authorizing (A) the execution and delivery of the documents
required by this Amendment to be executed by it and (B) the
performance of its obligations under those documents;
(v) copies of all amendments to the organizational documents
(including, without limitation, articles and certificates of
incorporation and by-laws) from the previous copies of such
-3-
<PAGE> 83
documents provided to Lender, for each corporate venturer of
Borrower and each corporate Guarantor;
(vi) this Amendment;
(vii) an "Eighth Amendment to Credit Line Deed of Trust"
executed by Borrower, Lender and Daniel F. Layman, Jr., as
Trustee;
(viii) an Endorsement to the Title Policy No. 82-02-300729;
(ix) a "Consent of Guarantors and Amendment To Guaranty" for the
corporate Guarantors executed by each such Guarantor ("Guaranty
Amendment");
(x) estoppel certificates from Bush Construction Corporation,
Offsite International, Inc., Marine Midland Bank and Liberty
Bank;
(xi) an opinion from counsel to Borrower and each corporate
Guarantor as to such matters as Lender may require, which
counsel shall be reasonably satisfactory to Lender; and
(xii) such other documents and items as Lender may require.
2.7.2 Lender shall have received the following, the results of
which shall be satisfactory to Lender:
(i) updated lien, litigation, judgment and bankruptcy searches
on Borrower, Guarantors and the Project owners association(s);
and
(ii) a certified copy of all changes to the consumer documents
and Project governing documents not previously delivered to
Lender, together with evidence that the Project is currently
registered with the Virginia Real Estate Commission.
2.7.3 Lender shall have received the Renewal Fee.
2.7.4 Borrower shall have paid or reimbursed Lender for all
Lender's out-of-pocket expenses to the extent then payable pursuant to
Paragraph 2.6.
2.8 This Amendment may not be amended or otherwise modified except in a
writing duly executed by the parties.
2.9 If any one or more of the provisions of this Amendment is held to be
invalid, illegal or unenforceable in any respect or for any reason (all of which
invalidating laws are waived to the fullest extent possible), the validity,
legality and enforceability of any remaining portions of such
-4-
<PAGE> 84
provisions) in every other respect and of the remaining provisions) of this
Amendment shall not be in any respect impaired.
2.10 This Amendment and the Modification Documents constitute the
entire agreement and understanding of the parties with respect to the subject
matter thereof and supersede all prior written or oral understandings and
agreements between the parties in connection therewith,
2.11 All Schedules and Exhibits referred to herein arc herein
incorporated by this reference.
2.12 This Amendment may be executed in one or more counterparts, and any
number of which having been signed by all the parties hereto shall be taken as
one original.
2.13 Borrower and Lender hereby ratify and confirm the Loan Agreement,
as amended hereby, in all respects. Except as modified, restated or superseded
hereby or by the other Modification Documents, all terms and conditions of the
Loan Documents shall remain in full force and effect. In the event of any
inconsistency, ambiguity or conflict between this Amendment and any other
Modification Documents, the terms of this Amendment shall prevail. In the event
of any inconsistency, ambiguity or conflict between either this Amendment or the
other Modification Documents and any of the Loan Documents, the terms of this
Amendment and/or (the other Modification Documents, as the case may be, shall
prevail.
IN WITNESS WHEREOF, this instrument is executed as of the date set
forth above.
BORROWER: POWHATAN ASSOCIATES, a Virginia
joint venture
BY: Williamsburg Vacations, Inc., a
Virginia corporation,
a joint venturer
By: /s/ KAY F. GOW
--------------------------------------
Kay F. Gow, President
LENDER: FINOVA CAPITAL CORPORATION (formerly
Greyhound Financial Corporation),
a Delaware corporation
By: /s/
--------------------------------------
Type/Print Name:
-------------------------
Title:
-----------------------------------
-5-
<PAGE> 1
EXHIBIT 10.6.18
DEVELOPMENT AND RECEIVABLES
LOAN AND SECURITY AGREEMENT
This DEVELOPMENT AND RECEIVABLES LOAN AND SECURITY AGREEMENT is entered
into as of June 30, 1995, by and between FINOVA CAPITAL CORPORATION, a Delaware
corporation, and GREENSPRINGS ASSOCIATES, a Virginia joint venture.
1. DEFINITIONS
As used in this Agreement and the other Documents (as defined below) unless
otherwise expressly indicated in this Agreement or the other Documents, the
following terms shall have the following meanings (such meanings to be
applicable equally both to the singular and plural terms defined).
1.1 "Advances": the Development Loan Advances and the Receivables Loan
Advances: and "Advance": one of the Advances.
1.2 "Affidavit of Borrower": a sworn Affidavit of Borrower (and such
other parties as Lender may require) in the form of EXHIBIT J-1C, to
accompany a Development Loan Advance Request.
1.3 "Affiliate": with respect to any individual or entity, any other
individual or entity that directly or indirectly, through one or
more intermediaries, controls, or is controlled by, or is under
common control with, such individual or entity.
1.4 "Agents": the Servicing Agent and the Lockbox Agent.
1.5 "Agreement": this Development and Receivables Loan and Security
Agreement, as it may be from time to time renewed, amended, restated
or replaced.
1.6 "Applicable Usury Law": the usury law chosen by the parties pursuant
to the terms of paragraph 9.10 or such other usury law which is
applicable if such usury law is not.
1.7 "Architect/Engineer": an architect, design professional or engineer
employed by Borrower to perform architectural, design or
engineering services.
1.8 "Architect/Engineer Agreement": a contract (written or oral, now or
hereafter in effect) between Borrower and an Architect/Engineer for
the performance of architectural, design or engineering services in
connection with the Improvements as approved by Lender in writing
and modified from time to time with Lender's prior written consent,
not to be unreasonably withheld.
1.9 "Articles of Organization": the charter, articles, operating
agreement, joint venture agreement, partnership agreement, by-laws
<PAGE> 2
and any other written documents evidencing the formation,
organization and continuing existence of an entity.
1.10 "Availability Advances": an Advance which is made against an
Eligible Instrument after the first Advance made against such
Instrument and is based upon the difference at such time between
the Borrowing Base of such Instrument and the unpaid principal
balance of the Receivables Loan attributable to such Instrument:
provided that neither any readvance of Refundable Receivables
Collateral Proceeds (as defined in paragraph 2.5) pursuant to
paragraph 2.5 nor the substitution of an Eligible Instrument for an
ineligible Instrument pursuant to paragraph 3.2 shall be deemed to
be an Availability Advance for purposes of this paragraph 1.10, but
the first and every subsequent Advance against such substituted
Eligible Instrument shall be deemed to be an Availability Advance.
1.11 "Borrower": Greensprings Associates, a Virginia joint venture
between Greensprings Plantation Resort, Inc., a Virginia
corporation, Plantation Group, L.L.C., a Virginia limited liability
company, and Offsite International Inc., a Virginia corporation;
and, subject to the restrictions on assignment and transfer
contained in this Agreement, its successors and assigns.
1.12 "Borrower's Assignments": collectively, a written assignment or
assignments, including, without limitation, the Time-Share Program
Governing Documents Assignment, which may be separate from and/or
included within the Borrower's Mortgage, executed by Borrower and
creating in favor of Lender, as security for the Performance of the
Obligations, a perfected. direct, and first assignment of, subject
only to the Permitted Encumbrances: all leases, sales contracts,
rents and sales and other proceeds pertaining to or arising from the
Real Property or any business of Borrower conducted thereon; the
Architect/Engineer Agreement(s); the Plans and Specifications; the
Construction Contract(s); all marketing agreements for the sale of
Time-Share Interests in the Time-Share Project; any and all special
rights and privileges of Borrower under the Declaration which are
not enjoyed by all other owners of property governed by the
Declaration; and all other Contracts, Intangibles, Licenses and
Permits; as such assignments may be from time to time renewed,
amended, restated or replaced.
1.13 "Borrower's Mortgage": a credit line deed of trust to be executed
and delivered by Borrower and under the terms of which Borrower has
conveyed or granted in favor of Lender, as security for the
Performance of the Obligations, a perfected, direct and first
priority lien, subject only to the Permitted Encumbrances, upon the
Real Property, as it may be from time to time renewed, amended,
restated or replaced.
1.14 "Borrower's Security Agreement": a written security agreement which
may be separate from and/or included within the Borrower's
-2-
<PAGE> 3
Mortgage or this Agreement, to be executed by Borrower and creating
in favor of Lender, as security for the Performance of the
Obligations, a perfected, direct and first security interest,
subject only to the Permitted Encumbrances, in the Personal
Property, as it may be from time to time renewed, amended, restated
or replaced.
1.15 "Borrower's Security Documents": the Borrower's Mortgage, the
Borrower's Security Agreement, the Borrower's Assignments, this
Agreement and all other documents now or hereafter securing the
Obligations, as they may be from time to time renewed, amended,
restated or replaced.
1.16 "Borrowing Base": with respect to an Eligible Instrument, an amount
equal to the lesser of:
(a) ninety percent (90%) of the unpaid principal balance of such
Eligible Instrument; or
(b) ninety percent (90%) of the present value of the unmatured
installments of principal and interest under such Eligible
Instrument, discounted at the higher of (i) the applicable
interest rate under the terms of the Receivables Loan Note or
(ii) the Discount Rate.
1.17 "Business Day": any day other than a Saturday, Sunday or a day on
which banks in Phoenix, Arizona are required to close.
1.18 "Collateral": the Real Property, Personal Property, Receivables
Collateral , Insurance Policies, and any and all other property now
or hereafter serving as security for the Performance of the
Obligations, and all products and proceeds thereof.
1.19 "Completion":
(a) completion of the Work, in accordance with the Plans and
Specifications, the Construction Contract(s), all applicable
laws, regulations and private restrictions, the Documents,
sound construction, engineering and architectural principles
and commonly accepted safety-standards, free of liens and
free of defective materials and workmanship;
(b) expiration of the statutory period in which mechanics' liens
and similar liens can be filed on account of the
Work; and
(c) receipt by Lender of the following in form and substance
satisfactory to it: (i) a certificate of completion from
Borrower and Architect(s)/Engineer(s) and, if Lender elects,
from Lender's Inspector to the effect that the Work has been
so completed, all utilities necessary to serve the
-3-
<PAGE> 4
Real Property have been connected and are operating, the
Improvements are fully furnished and ready for occupancy
for the intended time-share purposes, and final payment
is due under all Construction Contracts between Borrower
and all Contractors; (ii) a certificate of occupancy (or
its equivalent) from the appropriate governmental
authority having jurisdiction over the Work which has
the effect of allowing the use of Improvements for the
intended timeshare purposes; (iii) if applicable laws
provide that the recording of a notice of completion
will cause the expiration upon a date certain of the
statutory period within which mechanics' and similar
liens can be filed, verification of the recording of
such notice in the manner prescribed by such laws; (iv)
final lien waivers; (v) the as-built survey required
pursuant to paragraph 6.4(h) after substantial
completion of the Work; and (vi) the title policy
endorsements required pursuant to paragraph 6.4(i) after
substantial completion of the Work.
1.20 "Construction Budget": a detailed budget cost itemization
prepared by Borrower and approved in writing by Lender, for
each Development Loan Component, each of which specifies by
item the cost and source of payment of: (a) all labor,
materials and services necessary for Completion of the related
Work Component in accordance with the Plans and
Specifications, the Construction Contract(s), the Documents,
all applicable laws, regulations and private restrictions,
sound construction, engineering and architectural principles,
and commonly accepted safety standards; (b) interest on such
Development Loan Component; and (c) all other expenses
incidental to such Development Loan Component and the
Completion of the Work. The Construction Budget shall include
within the Costs of the Work to be paid from the Construction
Loan an interest reserve and a contingency reserve determined
to be adequate by Lender, but in no event shall the interest
reserve and contingency reserve be in an aggregate amount less
than Five Hundred Thousand Dollars ($500,000). The
Construction Budget approved by Lender as of the date of this
Agreement is attached as Exhibit N.
1.21 "Construction Contract": a contract (written or oral, now or
hereafter in effect) between Borrower and a Contractor,
between a Contractor and any other person or entity relating
in any way to the construction of the Improvements, including
the performing of labor and the furnishing of equipment,
materials or services (other than architectural or engineering
services), as approved by Lender in writing and modified from
time to time with Lender's prior written consent.
1.22 "Contractor": a contractor employed by Borrower to provide
labor and/or to furnish equipment, materials or services for
any portion of the Work.
-4-
<PAGE> 5
1.23 "Contracts, Intangibles, Licenses and Permits": the property
so described in EXHIBIT M.
1.24 "Declaration": collectively, the Time-Share Declaration and
any and all other declarations of covenants, conditions and
restrictions governing the Real Property.
1.25 "Default Rate": the "Default Rate" as defined in and
determined under the Notes.
1.26 "Development Loan": the loan made pursuant to paragraph
2.1(a).
1.27 "Development Loan Advance": an advance of the proceeds of the
Development Loan by Lender on behalf of Borrower in accordance
with the terms and conditions of this Agreement.
1.28 "Development Loan Borrowing Term": the period commencing on
the date of this Agreement and ending on the close of the
Business Day (or if not a Business Day, the first Business Day
thereafter) which is the earlier of (a) the date eighteen (18)
months from the date of the first Development Loan Advance or
(b) February 2, 1997.
1.29 "Development Loan Components": the Facilities Construction
Component and the Time-Share Building (Phase I) Construction
Component; and "Development Loan Component": one of the
Development Loan Components.
1.30 "Development Loan Fee": Sixty-Eight Thousand Dollars
($68,000).
1.31 "Development Loan Maturity Date": the date (or if not a
Business Day, the first Business Day thereafter) which is the
earlier of (a) thirty-six (36) months from the date of the
last Development Loan Advance or (b) February 2, 2000.
1.32 "Development Loan Note": the "Development Loan Promissory
Note" in form and substance identical to EXHIBIT D-1 to be
made and delivered by Borrower to Lender pursuant to paragraph
4.1A(a)(i), as it may be from time to time renewed,
amended, restated or replaced.
1.33 "Discount Rate": thirteen percent (13%).
1.34 "Documents": the Notes, the Guaranty(ies), the Subordination
Agreement(s), the Lockbox Agreement, the Servicing Agreement,
the Environmental Certificate, this Agreement, the Borrower's
Security Documents, the Oversight Agreement, and all other
documents now or hereafter executed in connection with the
Loans, as they may be from time to time renewed, amended,
restated or replaced.
1.35 "Eligible Instrument": an Instrument which conforms to the
standards set forth in EXHIBIT B. An Instrument that has
-5-
<PAGE> 6
qualified as an Eligible Instrument shall cease to be an
Eligible Instrument upon the date of the first occurrence of
any of the following: (a) any installment due with respect to
that Instrument becomes more than fifty-nine (59) days past
due unless cured to Lender's satisfaction or (b) that
Instrument otherwise fails to continue to conform to the
standards set forth in EXHIBIT B.
1.36 "Environmental Certificate": an environmental certificate
executed by Borrower and such other persons or parties as
required by Lender in form and substance identical to EXHIBIT
C as it may be from time to time renewed, amended, restated
or replaced.
1.37 "Event of Default": the meaning set forth in paragraph 7.1.
1.38 "Facilities": an amenity complex consisting of an outdoor pool
complex, two (2) tennis courts fenced and lighted, an athletic
center with indoor swimming pool and weight room, a sales
facility, a maintenance facility and infrastructure.
1.39 "Facilities Construction Component": that portion of the
Development Loan, not to exceed the Maximum Facilities
Development Loan Amount, allocated in the Construction Budget
to the construction of the Facilities, but in all events
excluding the Interest Reserve Fund.
1.40 "Force Majeure Event": an "act of God," a fire, a strike, a
governmental order and/or injunction which is issued by a
court of competent jurisdiction for reasons other than for
Borrower's acts or omissions which would constitute a default
under this Agreement, or a similar event beyond Borrower's
reasonable control.
1.41 "Guarantor": each person or entity now or hereafter
guaranteeing all or any part of the Obligations (which is
initially limited to Greensprings Plantation Resort, Inc.,
Offsite International, Inc., Plantation Group, L. L. C.,
Powhatan Associates, John J. Digges, Robert T. Gow and Kay F.
Gow, David E. Legere and Patricia A. Legere, Marc B. Sharp and
Wilma R. Sharp, Stephen E. Ball and Michele Z. Ball).
1.42 "Guaranty": a primary, joint and several guarantee and
subordination agreement made by a Guarantor of the
Obligations, as it may be from time to time renewed, amended,
restated or replaced. The Guaranties will exclude the
Receivables Loan Obligations from the Obligations guaranteed
and will be limited, as to the Construction Loan Obligations
guaranteed by those Guarantors who are natural persons, all as
more fully set forth in Exhibit P.
1.43 "Improvements": the improvements to be constructed upon, added
to or made to the Real Property as part of the Work,
consisting
-6-
<PAGE> 7
of (a) the Facilities and the Time-Share Building (Phase I)
and (b) furniture, furnishings, fixtures and/or equipment
necessary for the Improvements; and all as set forth in the
Plans and Specifications and the Construction Contract(s) and
as described in the Construction Budget.
1.44 "Incipient Default": an event which after notice and/or lapse
of time would constitute an Event of Default,
1.45 "Instrument": a purchase money promissory note which has
arisen out of the sale of a Time-Share Interest by Borrower to
a Purchaser, is made payable by such Purchaser to Borrower,
and is secured by a Purchaser Mortgage.
1.46 "Insurance Policies": the insurance policies that Borrower is
required to maintain and deliver pursuant to paragraph 6.10.
1.47 "Interest Reserve Advance": a Development Loan Advance (or
portion thereof) made to pay accrued and unpaid interest on
the Development Loan.
1.48 "Interest Reserve Fund": that portion of the Development Loan
which is allocated within the Construction Budget for the
monthly payment of interest accrued on the Development Loan.
1.49 "Lender": FINOVA Capital Corporation and its successors and
assigns.
1.50 "Lender's Inspector": the meaning given to it in paragraph
8.1.
1.51 "Loans": the Development Loan and the Receivables Loan; and
"Loan": one of the Loans.
1.52 "Lockbox Agent": Central Fidelity Bank, a Virginia
corporation, or its successor as lockbox agent under the
Lockbox Agreement.
1.53 "Lockbox Agreement": an agreement to be made among Lender,
Borrower and Lockbox Agent, which provides for Lockbox Agent
to collect through a lockbox payments under Instruments
constituting part of the Receivables Collateral and to remit
them to Lender, as it may be from time to time renewed,
amended, restated or replaced.
1.54 "Maximum Development Loan Amount": the sum of the Maximum
TimeShare Building (Phase I) Component Amount plus the Maximum
Facilities Construction Component Amount plus the Interest
Reserve Fund, which shall not exceed Six Million Eight Hundred
Thousand Dollars ($6,800,000).
1.55 "Maximum Development Loan Component Amounts": the Maximum
Facilities Construction Component Amount and the Maximum
TimeShare Building (Phase I) Construction Component Amount;
and
-7-
<PAGE> 8
"Maximum Development Loan Component": one of the Maximum
Development Loan Components.
1.56 "Maximum Facilities Construction Component Amount": Five
Million Six Hundred Thousand Dollars ($5,600,000).
1.57 "Maximum Receivables Loan Amount": subject to the provisions
of paragraph 2.6. Thirty-Five Million Dollars ($35,000,000).
1.58 "Maximum Time-Share Building (Phase I) Construction Component
Amount": Seven Hundred Thousand Dollars ($700,000),
1.59 "Minimum Project Equity": a cash expenditure to be made by
Borrower for the purpose of paying a portion of the
Construction Costs, which expenditure shall be equal to the
difference between the unpaid cost of Completion of the Work
and the Maximum Development Loan Amount, but in no event less
than One Million Seven Hundred Fifty Thousand Dollars
($1,750,000),
1.60 "Minimum Required Time-Share Approvals": all approvals
required from governmental agencies in order to sell
Time-Share Interests and offer them for sale at the Time-Share
Project,
1.61 "Notes": the Development Loan Note and the Receivables Loan
Note, and "Note": one of the Notes.
1.62 "Obligations": all obligations, agreements, duties, covenants
and conditions of Borrower to Lender which Borrower is now or
hereafter required to Perform under the Documents.
1.63 "Oversight Agent": FINOVA Portfolio Services, Inc., an Arizona
corporation and a wholly-owned subsidiary of Lender, or its
successor as Oversight Agent under the Oversight Agreement.
1.64 "Oversight Agreement": the agreement to be made among Lender,
Borrower, Servicing Agent and Oversight Agent, which provides
for Oversight Agent to perform for the benefit of Lender
certain oversight functions with respect to the servicing of
the Receivables Collateral, as it may be from time to time
renewed, amended, restated or replaced.
1.65 "Partial Release Fee": with respect to a Time-Share Interest
to be released from the Borrower's Mortgage, an amount to be
paid at the time of each release and to be determined as
provided in the Borrower's Mortgage.
1.66 "Performance" or "Perform": full, timely and faithful
performance.
1.67 "Permitted Encumbrances": the rights, restrictions,
reservations, encumbrances, easements and liens of record
which Lender has agreed to accept as set forth in EXHIBIT E.
-8-
<PAGE> 9
1.68 "Personal Property": the property described in Exhibit M.
1.69 "Plans and Specifications": the architectural, structural,
mechanical, electrical and other plans and specifications for
the construction of the Improvements and the completion of the
rest of the Work prepared by Architect(s)/Engineer(s), as
approved by Lender as modified from time to time with Lender's
prior written consent.
1.70 "Powhatan Assignment": a written assignment to be executed by
Powhatan Associates ("Powhatan"), which creates in favor of
Lender, as security for the performance of the Obligations, a
perfected, direct. first and exclusive assignment of, and
security interest in all of Powhatan's right, title and
interest in any and all excess cash flow generated by the
Powhatan Associates Mortgage Trust I, as more fully described
in the Powhatan Assignment.
1.71 "Prepayment Premium": the meaning given to it in paragraph
5.3(a).
1.72 "Principal Work-Related Items": the Plans and Specifications
and all agreements between Borrower and third parties
pertaining to the Work, including, without limitation,
Construction Contract(s) and Architect/Engineer Agreement(s),
as approved by Lender in writing and modified from time to
time with Lender's prior written consent.
1.73 "Property": the Real Property and Personal Property.
1.74 "Purchaser Mortgage": the purchase money deed of trust given
to secure an Instrument.
1.75 "Purchase Contract": a purchase contract pursuant to which
Borrower has agreed to sell and a third party has agreed to
purchase a Time-Share Interest.
1.76 "Purchaser": a purchaser who has executed a Purchase Contract.
1.77 "Real Property": the real property described in Exhibit L.
1.78 "Receivables Assignment": a written assignment of specific
Instruments and/or Purchaser Mortgages and their proceeds,
executed by Borrower in the form of Exhibit A.
1.79 "Receivables Collateral": (a) the Instruments which are now or
hereafter assigned, endorsed or delivered to Lender pursuant
to this Agreement or against which an Advance has been made;
(b) all rights under all documents evidencing, securing or
otherwise pertaining to such Instruments; (c) the Insurance
Policies; (d) all Borrower's rights under all escrow
agreements and accounts pertaining to any of the foregoing;
(e) to the extent of Borrower's interest therein, all
reservation systems pertaining
-9-
<PAGE> 10
to the use of Time-Share Interests; (f) all contracts for the
construction of Units as to which Instruments are being
financed by Lender prior to completion of the Units, together
with bonds, plans and specifications, and architectural ,
engineering and other design professional contracts related to
the construction of such Units; (g) all data bases, files,
books and records of Borrower pertaining to any of the
foregoing; and (h) the cash and non-cash proceeds of all of
the foregoing, including, without limitation (whether or not
acquired with cash proceeds), all accounts, chattel paper,
contract rights, documents, general intangibles, instruments,
and equipment, inventory and other goods (as defined in the
Uniform Commercial Code).
1.80 "Receivables Loan": the loan made pursuant to paragraph
2.1(b).
1.81 "Receivables Loan Advance": an advance of the proceeds of the
Receivables Loan by Lender on behalf of Borrower in accordance
with the terms and conditions of this Agreement. An
Availability Advance is a Receivables Loan Advance.
1.82 "Receivables Loan Borrowing Term": subject to the provisions
of paragraph 2.6, the period commencing on the date of this
Agreement and ending on the close of the Business Day (or if
not a Business Day, the first Business Day thereafter) on the
earlier of (a) the date thirty-six (36) months from the date
of the first Receivables Loan Advance or (b) December 2, 1998.
1.83 "Receivables Loan Fee": Three Hundred Fifty Thousand Dollars
($350,000).
1.84 "Receivables Loan Maturity Date": the date (or if not a
Business Day, the first Business Day thereafter) which is one
hundred twenty (120) months from the date of the last
Receivables Loan Advance.
1.85 "Receivables Loan Note": the "Receivables Loan Promissory
Note" in form and substance identical to Exhibit D-2 to be
made and delivered by Borrower to Lender pursuant to paragraph
4.1(a)(iii), as it may be from time to time renewed,
amended, restated or replaced.
1.86 "Required Completion Assurance Deposit": the definition given
to it in paragraph 6.4(1).
1.87 "Required Completion Date": August 31, 1996, plus such
additional time which is necessary to achieve Completion of
the Work and is due solely to the occurrence of one or more
Force Majeure Events, but in no event later than the
expiration of the Development Loan Borrowing Term.
1.88 "Resolution": a resolution of a corporation certified as true
and correct by an authorized officer of such corporation, a
certificate signed by the manager of a limited liability
company
-10-
<PAGE> 11
and such members whose approval is required, or a partnership
certificate signed by all of the general partners of such
partnership and such other partners whose approval is
required.
1.89 "Security Interest": a perfected, direct and first security
interest, subject only to the Permitted Encumbrances, in and
charge upon the property intended to be covered by it.
1.90 "Servicing Agent": Borrower or its successor as Servicing
Agent under the Servicing Agreement.
1.91 "Servicing Agreement": an agreement to be made between Lender
and Servicing Agent, which provides for Servicing Agent to
perform for the benefit of Lender accounting, reporting and
other servicing functions with respect to the Instruments
constituting part of the Receivables Collateral, as it may be
from time to time renewed, amended, restated or replaced.
1.92 "Subordination Agreement(s)": the subordination agreement(s)
made and delivered pursuant to paragraph 6.13, as it/they may
be from time to time renewed, amended, restated or replaced.
1.93 "Term": the duration of this Agreement, commencing on the date
as of which this Agreement is entered into and ending when all
of the Obligations shall have been Performed.
1.94 "Third Party Consents": those consents which Lender requires
Borrower to obtain, or which Borrower is contractually or
legally obligated to obtain, from others in connection with
the transaction contemplated by the Documents.
1.95 "Time-Share Association": Greensprings Plantation Resort
Owners Association, a Virginia non-stock corporation, the
association provided for in the Time-Share Declaration to
manage the Time-Share Program and in which all owners of
Time-Share Interests are members.
1.96 "Time-Share Building (Phase I)": a time-share building
consisting of four (4) units, each of which is a 4-bedroom
unit capable of being locked off into two 2-bedroom units to
be built as part of the Improvements.
1.97 "Time-Share Building (Phase I) Construction Component": that
portion of the Development Loan, not to exceed the Maximum
Time-Share Building (Phase I) Construction Component Amount,
allocated in the Construction Budget to the construction of
the Time-Share Building (Phase I), but in all events excluding
the Interest Reserve Fund.
1.98 "Time-Share Declaration": that Time-Share Instrument for
Greensprings Plantation Resort, A Vacation Ownership Resort,
which is to be recorded in the real estate records of the
county where
-11-
<PAGE> 12
the Real Property is located, as more fully described in
EXHIBIT E and when so recorded will establish the Time-Share
Program.
1.99 "Time-Share Interest": the estate described in EXHIBIT F in
the Time-Share Project.
1.100 "Time-Share Management Agreement": the management agreement
from time to time entered into between the Time-Share
Association and the Time-Share Manager for the management of
the Time-Share Program.
1.101 "Time-Share Management Agreement Assignment": a written
assignment to be executed and delivered to Lender (and
thereafter re-delivered as appropriate) by each Borrower and
each Affiliate of Borrower if any of them is the Time-Share
Manager and granting to Lender, granting to Lender as security
for the performance of the Obligations, a perfected, direct
and first assignment of the Time-Share Management Agreement,
and as it may be from time to time renewed, amended, replaced
or restated.
1.102 "Time-Share Manager": the person from time to time employed by
Time-Share Association to manage the Time-Share Program.
1.103 "Time-Share Program": the program by which Purchasers may own
Time-Share Interests in fee simple, enjoy their respective
Time-Share Interests on a recurring basis, and share the
expenses associated with the operation and management of such
program.
1.104 "Time-Share Program Consumer Documents": the Purchase
Contract, Instrument, Purchaser Mortgage, deed of conveyance,
credit application, credit disclosures, rescission right
notices, final subdivision public reports/prospectuses/public
offering statements, exchange affiliation agreement and other
documents used or to be used by Borrower in connection with
the sale of Time-Share Interests.
1.105 "Time-Share Program Governing Documents": the Declaration, the
Articles of Organization for the Time-Share Association, any
and all rules and regulations from time to time adopted by the
Time-Share Association, the Time-Share Management Agreement
and any subsidy agreement by which Borrower is obligated to
subsidize shortfalls in the budget of the Time-Share Program
in lieu of paying assessments.
1.106 "Time-Share Program Governing Documents Assignment": a written
assignment to be executed BY Borrower to Lender, which grants
to Lender, as security for the Performance of the Obligations,
a perfected, direct and first assignment of and security
interest in, subject only to the Permitted Encumbrances,
Borrower's rights in, to and under the Time-Share Program
Governing Documents, as it may be from time to time renewed,
amended, restated or replaced.
-12-
<PAGE> 13
1.107 "Time-Share Project": the time share resort or part of the
resort described in EXHIBIT F and such other time share
resorts or part thereof as Borrower may request and Lender may
from time to time approve in writing.
1.108 "Title Insurer (Borrower's Mortgage)": a title company which
is acceptable to Lender and issues the Title Policy
(Borrower's Mortgage).
1.109 "Title Insurer (Purchaser)": a title company which is
acceptable to Lender and issues a Title Policy (Purchaser).
1.110 "Title Policy (Borrower's Mortgage)": an ALTA policy of title
insurance in an amount not less than the Maximum Development
Loan Amount, insuring Lender's interest in the Borrower's
Mortgage as a perfected, direct, first and exclusive lien on
the Real Property, subject only to the Permitted Encumbrances,
issued by Title Insurer (Borrower's Mortgage) and in form and
substance acceptable to Lender.
1.111 "Title Policy (Purchaser Mortgage)": a policy of title
insurance in an amount not less than the Borrowing Base of an
Instrument, insuring Lender's interest in the Purchaser
Mortgage securing such Instrument as a perfected, direct,
first and exclusive lien on the Time-Share Interest encumbered
thereby, subject only to the Permitted Encumbrances, issued by
Title Insurer (Purchaser) and in form and substance acceptable
to Lender.
1.112 "Uncovered Cost of the Work": the amount equal to the excess
(if any) of (a) the remaining unpaid cost of Completion of the
Work over (b) the committed and undisbursed portion of the
Development Loan and the remaining balance of any Required
Completion Assurance Deposits held by Lender.
1.113 "Unit": a dwelling unit in the Time-Share Project.
1.114 "Work": the construction of the Improvements and the
acquisition and installation of any and all furniture,
furnishings, fixtures and/or equipment required for the
time-share use of the Time-Share Project or by the terms of
this Agreement or shown on or described in the Plans and
Specifications or the Construction Contract(s) or as costs on
the Construction Budget.
1.115 "Work Components": the Time-Share Building (Phase I) and the
Facilities; and "Work Component": one of the Work Components.
1.116 "Work Progress Schedule": the schedule for the Completion of
the Work and parts thereof, as approved by Lender in writing.
The Work Progress Schedule approved by Lender on the date
hereof is attached as Exhibit 0.
-13-
<PAGE> 14
1.117 "Work-Related Advance": a Development Loan Advance made for
the purpose of paying or reimbursing Borrower for costs of the
Work, excluding interest on the Development Loan.
1.118 "Work-Related Advance Request": the written application of
Borrower on Lender's standard forms made by Borrower and
such other parties as Lender may require specifying by
name and amount all parties to whom Borrower is obligated for
labor, materials, equipment or services supplied for the
performance of the Work and all other expenses incidental to
the Development Loan, the Real Property and the Completion of
the Work, and requesting a Development Loan Advance for
payment of such items, accompanied by an Affidavit of Borrower
and such schedules, affidavits, releases, waivers,
statements, invoices, bills and other documents as Lender may
reasonably request. Work-Related Advance Requests under the
Facilities Construction Loan Component and the Time-Share
Construction Loan Component, respectively, shall be submitted
on separate forms, indicating for which such component the
Advance is being requested, but when submitted together shall
constitute a single request for Development Loan Advance for
the purposes of paragraph 4.2(b).
2. LOAN COMMITMENT: USE OF PROCEEDS
2.1 (a) Development Loan Commitment: Determination of
Development Loan Advance Amounts; Retainage. Lender
hereby agrees, if Borrower has Performed all the
Obligations then due, to make Development Loan Advances.
Subject to the provisions of paragraph 4.4, the amount
of each Interest Reserve Advance shall be in the amount
of interest then accrued and unpaid on the Development
Loan. The amount of each Work-Related Advance shall be
an amount equal to the costs of the Work covered by the
applicable Work-Related Advance Request and allocated
within the relevant Construction Budget for payment out
of the Development Loan less an amount equal to the sum
of (a) ten percent (10%) of the costs of such Work
("Basic Retainage") and (b) any additional retainage
("Additional Retainage") required under the Construction
Contract(s); provided, however, that Work-Related
Advances shall be made for stored or ordered materials
not yet incorporated into the Improvements only upon
terms and conditions set forth in EXHIBIT R. The Basic
Retainage shall apply to all "hard" costs of the Work
but not to "soft" costs of the Work, and in no event
shall the Basic Retainage apply to the costs of
furniture and furnishings. The Additional Retainage
shall be disbursed as part of the next Advance occurring
after Lender has reasonably determined that a Contractor
is entitled to it under the applicable Construction
Contract. The Basic Retainage for each Work Component
shall be disbursed at the time of Substantial Completion
(as that term is defined in AIA Document A201, 1987
edition) of that Work Component to
-14-
<PAGE> 15
the extent Contractor(s) are then entitled to it under
the Construction Contract(s) between Borrower and such
Contractor(s) prior to final payment, subject to
Lender's right to keep such portion of the Basic
Retainage as it may determine to be necessary to ensure
Completion of the Work, with such retained portion to be
disbursed promptly after Completion of the Work. Lender
shall have no obligation to make any Development Loan
Advance if after giving effect to such Advance the sum
of (i) the unpaid principal balance of any Development
Loan Component, (ii) the committed and undisbursed
portion of such Development Loan Component, and (iii)
the Uncovered Cost of the Work attributable to the Work
Component being constructed with the proceeds of such
Development Loan Component exceeds the Maximum
Development Loan Component Amount for such Development
Loan Component.
(b) Receivables Loan Commitment: Determination of
Receivables Loan Advance Amounts. Lender hereby agrees,
if Borrower has Performed all of the Obligations then
due, to make Receivables Loan Advances to Borrower for
the purposes specified in paragraph 2.3(b). The maximum
amount of a Receivables Loan Advance shall be equal to
(i) the Borrowing Base of the Eligible Instruments less
(ii) the then unpaid principal balance of the
Receivables Loan; provided, however, at no time shall
the unpaid principal balance of the Receivables Loan
exceed the Maximum Receivables Loan Amount; provided,
further, that until the Development Loan is paid in
full, the amount of any Receivables Loan Advance shall
not include any amount which would constitute an
Availability Advance.
(c) Limitation on Total Amount of Advances. Lender shall
have no obligation to make any Advance if after giving
effect to the Advance the sum of (i) the unpaid
principal balances of the Development Loan and the
Receivables Loan, (ii) the committed and undisbursed
portion of the Development Loan, and (iii) the Uncovered
Cost of the Work exceeds Forty Million Dollars
($40,000,000).
(d) Limitation on Advances During Deferral of Conditions.
Lender shall have no obligation to make any Advance,
prior to the fulfillment of the conditions for which
compliance may be deferred under paragraph 4.1A(d) of
this Agreement, if after giving effect to the Advance
the sum of the unpaid principal balance of the
Development Loan and the Receivables Loan exceeds Two
Million Six Hundred Thousand Dollars ($2,600,000).
2.2 (a) Development Loan Non-Revolving. The Development Loan
shall be non-revolving. All Development Loan Advances
shall be viewed as a single loan. Borrower shall not be
entitled to obtain Development Loan Advances after the
expiration of
-15-
<PAGE> 16
the Development Loan Borrowing Term unless Lender, in
its discretion, agrees in writing with Borrower to make
the Development Loan Advances thereafter on terms and
conditions satisfactory to Lender.
(b) Receivables Loan Revolver. The Receivables Loan is a
revolving line of credit; however, all of the
Receivables Loan Advances shall be viewed as a single
loan. Borrower shall not be entitled to obtain
Receivables Loan Advances after the expiration of the
Receivables Loan Borrowing Term unless Lender, in its
discretion, agrees in writing with Borrower to make
Receivables Loan Advances thereafter on terms and
conditions satisfactory to Lender.
(c) Continuation of Obligations Throughout Term. Whether or
not Borrower's right to obtain Advances has terminated,
this Agreement and Borrower's liability for Performance
of the Obligations shall continue until the end of the
Term.
2.3 (a) Use of Development Loan Advances. Borrower will use
Development Loan Advances only to pay or reimburse for
the line-item expenses shown in the Construction Budget.
If the amount needed by Borrower for any line item
expense set forth in the Construction Budget is less
than the budgeted amount of the line item expense, such
excess may be reallocated to other line items as
approved by Lender in writing, such approval not to be
unreasonably withheld.
(b) Use of Receivables Loan Advances. Borrower will use the
proceeds of the Receivables Loan only for working
capital and other business purposes, including, without
limitation, repayment of the Development Loan.
2.4 Minimum Borrowing Requirements. Until the earlier to occur of
the end of the Receivables Loan Borrowing Term or a date one
(1) year following the date on which the Development Loan has
been paid in full, Borrower shall assign to Lender, and shall
request Receivables Loan Advances under, Receivables
Collateral representing an aggregate minimum percentage
("Minimum Assignment Percentage") of the deferred purchase
price (i.e. that part of the purchase price not paid at
closing) of all Time-Share Interests from time to time sold in
the Time-Share Project and financed by Borrower or an
Affiliate of Borrower ("Seller Financed Time-Share
Interests"), as follows:
(a) until the then outstanding principal balance of the
Receivables Loan is not less than Ten Million Dollars
($10,000,000), the Minimum Assignment Percentage shall
be at least seventy-five percent (75%); and
(b) thereafter, the Minimum Assignment Percentage shall be
that percentage necessary to maintain (i) the
outstanding
-16-
<PAGE> 17
principal balance of the Receivables Loan at not less
than Ten Million Dollars ($10,000,000) and (ii) the
percentage which the deferred purchase price of all
Seller Financed Time-Share Interests assigned to Lender
bears to the deferred purchase price of all Seller
Financed Time-Share Interests at fifty percent (50%).
2.5 Readvances of Receivables Collateral Process. Notwithstanding
anything in the Loan Agreement to the contrary, after the
Borrowing Term has expired, but subject to the provisions of
this paragraph, Lender shall re-advance to Borrower each month
a portion ("Refundable Receivables Collateral Proceeds") of
the proceeds of the Receivables Collateral which were received
by Lender during the preceding month if, but only if, the
following conditions precedent are satisfied at the time of,
and after giving effect to, such refund:
(a) neither an Event of Default nor Incipient Default has
occurred and is continuing:
(b) the proceeds have not resulted from a casualty or
condemnation; and
(c) Lender has received (i) a written request for the
readvance, (ii) the reports for the preceding month
required pursuant to paragraph 5.4(b), and (iii) a
certificate signed by Borrower setting forth the amount
of the Refundable Receivables Collateral Proceeds
available to be re-advanced to Borrower and the
calculation of that amount, setting forth the amount
requested to be re-advanced, and certifying that all
conditions precedent to the refund are satisfied.
The Refundable Receivables Collateral Proceeds which Lender is
required to re-advance in any month shall be determined
according to the following schedule based upon the LTVR at the
end of the preceding month:
(a) if the LTVR is greater than 80%, none:
(b) if the LTVR is 80% or less but greater than 70%, up to
30% of the excess at the end of the preceding month of
(i) 80% of the then unpaid principal balance of all
Eligible Instruments (including Eligible Instruments
substituted pursuant to paragraph 3.2) over (ii) the
then unpaid principal balance of the Receivables Loan:
(c) if the LTVR is 70% or less but greater than 60%, up to
40% of the excess at the end of the preceding month of
(i) 70% of the then unpaid principal balance of all
Eligible Instruments (including Eligible Instruments
substituted
-17-
<PAGE> 18
pursuant to paragraph 3.2) over (ii) the then unpaid
principal balance of the Receivables Loan; and
(d) if the LTVR is 60% or less, up to 50% of the excess at
the end of the preceding month of (i) 60% of the then
unpaid principal balance of all Eligible instruments
(including Eligible Instruments substituted pursuant to
paragraph 3.2) over (ii) the then unpaid principal
balance of the Receivables Loan.
As used in this paragraph, when determining the Refundable
Receivables Collateral Proceeds, the term "LTVR" shall mean
the then ratio, expressed as a percentage, of the unpaid
principal balance of the Receivables Loan to the unpaid
principal balance of all Eligible Instruments (including
Eligible Instruments substituted pursuant to paragraph 3.2).
The Refundable Receivables Collateral Proceeds shall be
re-advanced by Lender to Borrower by wire transfer within
three (3) Business Days after Lender receives the information
required pursuant to the first sentence of this paragraph and
the amount re-advanced shall be deemed a Receivables Loan.
Without limiting the generality of any other provision of this
Agreement, Lender shall be entitled to charge its reasonable
and customary fee in connection with each wire transfer of
Refundable Receivables Collateral Proceeds, which currently is
Twenty-Five Dollars ($25.00).
2.6 Restrictions on Right to Receivables Loan Advances After
Specified Date and in Excess of Thirty Million Dollars. At
least thirty (30), but not more than ninety (90), days prior
to requesting (a) the first Receivables Loan Advance which
would cause the outstanding principal balance of the
Receivables Loan to exceed Thirty Million Dollars
($30,000,000) or (b) the first Receivables Loan Advance which
would be made on or after a date twenty-four (24)months from
the initial Receivables Loan Advance, whichever of such
Receivables Loan Advances is the first to occur, Borrower will
give Lender notice of its intention to do so. As an additional
condition precedent to such Receivables Loan Advance, (a)
Lender shall have received the required notice and Borrower
shall have delivered to Lender (or at Lender's option, Lender
shall have obtained) such items as Lender may require
[including, without limitation, the current searches, credit
bureau reports and financial statements of the type described
in paragraph 4.1A(c)(i)-(ii) and opinions as to such matters
as Lender may reasonably require, in form and from counsel to
Borrower satisfactory to Lender] in order to determine whether
the conditions set forth in paragraphs 4.1F(a)-(c), inclusive,
have been satisfied: and (b) Lender and Borrower shall have
agreed in writing to the minimum required tangible net worth
Borrower will be required to maintain after that date. The
costs of any UCC, tax lien, litigation, judgment and
bankruptcy searches and credit bureau and Dun & Bradstreet
reports required by Lender shall be paid by Lender; but
otherwise, the items required pursuant to the
-18-
<PAGE> 19
terms of the preceding sentence will be provided at Borrower's
expense.
2.7 Option to Prepay the Loans. In addition to its rights to
prepay the Loans as may be set forth elsewhere in this
Agreement or the Notes, subject to the terms and conditions of
this paragraph, Borrower may prepay the Loans in full but not
in part if Lender sells or assigns its entire interest in
either of the Loans or the Collateral, except for an
assignment for security purposes, to any person other than an
Affiliate of Lender. If Borrower wishes to exercise such
option, it must give Lender notice ("Loan Transfer Prepayment
Notice") of its intention to do so within ninety (90) days
after notice ("Loan Transfer Notice") is given to Borrower
that such a sale or transfer has occurred and must prepay both
Loans in full but not in part, together with a Prepayment
Premium calculated at the time of prepayment as if the
prepayment was an involuntary prepayment made pursuant to
paragraph 5.3(c), within one hundred twenty (120) days after
the Loan Transfer Notice is given to Borrower. If Borrower
fails to give the Loan Transfer Notice or to prepay the Loans,
together with the applicable Prepayment Premium, within the
period applicable pursuant to the preceding sentence, then
Borrower's option under this paragraph shall terminate:
provided that termination of such option shall not affect
Borrower's rights to prepay the Loans as may be set forth
elsewhere in this Agreement or the Notes.
3. SECURITY
3.1 Grant of Security Interest in Receivables Collateral. To
secure the Performance of all of the Obligations, Borrower
hereby grants to Lender a Security Interest in and assigns to
Lender the Receivables Collateral. Such Security Interest
shall be absolute, continuing and applicable to all existing
and future Advances and to all of the Obligations. All of the
Receivables Collateral shall secure repayment of the Loans and
the Performance of the other Obligations. Borrower will
unconditionally assign and deliver to Lender. with full
recourse, all Instruments which are part of the Receivables
Collateral. Lender is hereby appointed Borrower's
attorney-in-fact to take any and all actions in Borrower's
name and/or on Borrower's behalf deemed necessary or
appropriate by Lender with respect to the collection and
remittance of payments (including the endorsement of payment
items) received on account of the Receivables Collateral;
provided, however, that Lender shall not take any action which
is described in paragraph 7.2(c) unless an Event of Default
exists.
3.2 Ineligible Instruments. If (a) a previously Eligible
Instrument which is part of the Receivables Collateral ceases
to be an Eligible Instrument ("Ineligibility Event") and (b)
as a result of such Ineligibility Event, the outstanding
principal balance of the Receivables Loan exceeds the
Borrowing Base of all Eligible Instruments, then within thirty
(30) days thereafter Borrower will
-19-
<PAGE> 20
either (i) make to Lender a principal payment in an amount
equal to the positive remainder ("Borrowing Base Shortfall"),
if any, obtained by subtracting the Borrowing Base of all
Eligible Instruments from the unpaid principal balance of the
Receivables Loan, together with interest, costs and expenses
attributable thereto, or (ii) replace any one or more of such
ineligible Instruments with one or more Eligible Instruments
having an aggregate Borrowing Base not less than the Borrowing
Base Shortfall. Simultaneously with the delivery of the
replacement Eligible Instrument to Lender for an ineligible
Instrument, Borrower will deliver to Lender all of the items
(except for a "Request for Advance and Certification")
required to be delivered by Borrower to Lender pursuant to
paragraph 4.1, together with a "Borrower's Certificate" in
form and substance identical to EXHIBIT G. Lender will
reassign and/or endorse to Borrower, without recourse or
warranty of any kind, the ineligible Instrument causing the
Ineligibility Event if:
(a) no Event of Default or Incipient Default exists; and
(b) (i) Borrower has made any principal payment or
replacement with an Eligible Instrument as required
above in connection with the Ineligibility Event, or
(ii) there is no Borrowing Base Shortfall and Borrower
has requested Lender in writing to release the
ineligible Instrument.
Borrower will prepare the reassignment instrument, which shall
be in form and substance identical to EXHIBIT G-1, and shall
deliver it to Lender for execution, and Lender will send
Borrower the reassignment instrument and the Instruments being
re-assigned within ten (10) Business Days after satisfaction
of the conditions specified in the foregoing sentence.
3.3 Maintenance of Security. Borrower will deliver or cause to be
delivered to Lender and will maintain or cause to be
maintained in full force and effect throughout the Term
(except as otherwise expressly provided in such Document), the
Borrower's Security Documents and all other security required
to be given to Lender pursuant to the terms of this Agreement.
3.4 Partial Releases from Borrower's Mortgage. Borrower shall be
entitled to the release of Time-Share Interests from the
Borrower's Mortgage according to the terms and conditions of
the Borrower's Mortgage.
4. ADVANCES
4.1A General Conditions Precedent to Initial Advance. Lender's
obligation to make the initial Advance shall be subject to and
conditioned upon the terms and conditions set forth in the
following subparagraphs and elsewhere in this Agreement having
been satisfied:
-20-
<PAGE> 21
(a) Documents. Borrower shall have delivered to Lender the
following Documents, duly executed, delivered and in
form and substance satisfactory to Lender:
(i) this Agreement;
(ii) the Development Loan Promissory Note;
(iii) the Receivables Loan Promissory Note;
(iv) the Guaranties:
(v) the Subordination Agreements;
(vi) the Borrower's Mortgage;
(vii) the Borrower's Security Agreement;
(viii) the Borrower's Assignments;
(ix) the Powhatan Assignment:
(x) the Environmental Certificate:
(xi) UCC financing statements for filing and/or
recording, as appropriate, where necessary to
perfect the Security Interest in the Collateral;
(xii) a favorable opinion or opinions from independent
counsel for Borrower in form and substance
substantially identical to Exhibit I:
(xiii) a favorable opinion or opinions from independent
counsel for Guarantors in the form and substance
substantially identical to EXHIBIT I:
(xiv) the Lockbox Agreement;
(xv) the Servicing Agreement:
(xvi) Oversight Agreement;
(xvii) the Title Policy (Borrower's Mortgage):
(xviii) the Third Party Consents; and
(xix) agreements executed by all persons owning or
having a lien on any real property intended to
be available to owners of Time-Share Interests
which assure the satisfaction of the condition
specified in paragraph 4.1A(b)(xxvii).
-21-
<PAGE> 22
(b) Organizational, Time-Share Project and Other Due
Diligence Documents. Borrower shall have delivered to
Lender at least ten (10) Business Days (unless a longer
period is expressly specified) prior to the date of the
Advance:
(i) the Articles of Organization of Borrower, each
of the Guarantor(s), any other surety for the
Obligations and, if applicable, their respective
managers, members and partners, to the extent
any such entity is not a natural person;
(ii) the Resolutions of Borrower, each of the
Guarantor(s) which is not an individual , any
other surety for the Obligations and, if
applicable, their respective managers, members
and partners, to the extent any such entity is
not a natural person;
(iii) a Phase I environmental assessment of the Real
Property;
(iv) evidence that all taxes and assessments on the
Property have been paid;
(v) a title commitment or preliminary title report
for the issuance of the Title Policy (Borrower's
Mortgage), together with copies of all documents
referred to therein;
(vi) unless waived in writing by Lender, at least
fifteen (15) Business Days prior to such
Advance, a 1988 ALTA/ACSM survey map of the Real
Property prepared by a licensed land surveyor
acceptable to Lender, showing the Real Property,
evidence of access to the Real Property, all
easements necessary to the operation and use of
the Real Property, and such other details as
Lender may reasonably require, and a copy of the
recorded condominium map for the Time-Share
Project:
(vii) at least fifteen (15) Business Days prior to
such Advance, all licenses and certificates for
the construction of the Improvements and the use
and operation (exclusive of certificates of
occupancy or other licenses and certificates
dependent upon completion of construction of the
Improvements) of the Time-Share Project and Real
Property for time-share and other intended uses,
including certificates of occupancy and
environmental permits:
-22-
<PAGE> 23
(viii) evidence the Real Property is zoned for
time-share and other intended uses;
(ix) at least fifteen (15) Business Days prior to
such Advance, the Minimum Required Time-Share
Approvals;
(x) at least fifteen (15) Business Days prior to
such Advance, a copy of the Time-Share Program
Consumer Documents and the Time-Share Program
Governing Documents;
(xi) the Insurance Policies;
(xii) at least fifteen (15) Business Days prior to
such Advance, evidence that the Real Property is
not located within a flood prone area or, if
within a flood zone, evidence that flood
insurance has been obtained;
(xiii) at least fifteen (15) Business Days prior to
such Advance, evidence of the current and
continued availability of utilities necessary to
serve the Real Property for time-share and other
intended uses;
(xiv) at least fifteen (15) Business Days prior to
such Advance, evidence of access to and parking
for the Real Property adequate for time-share
and other intended uses;
(xv) evidence that Borrower has invested in the
Property an amount equal to the Minimum Project
Equity;
(xvi) at least fifteen (15) days prior to such
Advance, a soils test report with respect to the
suitability of the soils on the Real Property
for purposes of constructing the Improvements;
(xvii) at least fifteen (15) Business Days prior to
such Advance, if required by Lender, a pro forma
balance sheet of Borrower, showing the projected
financial condition of Borrower immediately
following the closing of, and first Advance
under, the Loans;
(xviii) at least fifteen (15) Business Days prior to
such Advance, a flood and drainage study with
respect to the Real Property and the
Improvements;
-23-
<PAGE> 24
(xix) at least fifteen (15) Business Days prior to
such Advance, the Architect/Engineer Agreement
for each Architect/Engineer and such
certificates as Lender may require from each
Architect/Engineer regarding the adequacy of the
Plans and Specifications (including, without
limitation, their compliance with the Americans
With Disabilities Act and all other applicable
laws and regulations) and the Construction
Budget and such other matters as Lender may deem
pertinent:
(xx) at least fifteen (15) Business Days prior to
such Advance, Plans and Specifications complete
in all respects (subject only to Lender's
approval):
(xxi) at least fifteen (15) Business Days prior to
such Advance, the Construction Budget complete
in all respects (subject only to Lender's
approval);
(xxii) at least fifteen (15) Business Days prior to
such Advance, a detailed draw schedule;
(xxiii) at least fifteen (15) Business Days prior to
such Advance, the Work Progress Schedule
complete in all respects (subject only to
Lender's approval);
(xxiv) at least fifteen (15) Business Days prior to
such Advance, a list of all Contractors with
whom Borrower has contracted (i.e. direct
contractors) and all subcontractors and
materialmen, all whom must be satisfactory to
Lender:
(xxv) at least fifteen (15) Business Days prior to
such Advance, fixed price Construction Contracts
necessary for Completion of the Work between
Borrower and Contractors and for all
subcontractors performing major portions of the
Work; and such certificates as Lender may
request from the direct Contractors regarding
the adequacy of the Budget and such other
matters as Lender may reasonably deem
appropriate; all information as Lender may
reasonably require regarding all direct
Contractors, and, if required by Lender, the
subcontractors performing major portions of the
Work (which, if available, may consist of
financial statements for the last two years and
federal employer tax identification numbers);
(xxvi) at least fifteen (15) Business Days prior to
such Advance, all building permits, licenses
and, if any, architectural committee approvals
necessary
-24-
<PAGE> 25
for the construction of the Improvements and
Completion of the Work:
(xxvii) evidence satisfactory to it that owners of
Time-Share Interests shall have the right to use
all amenities within the Time-Share Project upon
the same terms and conditions as owners of other
time-share interests in the Time-Share Project
and that each owner of a Time-Share Interest
which has been sold by Borrower has a right,
which cannot be disturbed by any third party, to
use the amenities which are part of the
Time-Share Project so long as the owner is not
in default of its obligations to pay the
purchase price of its Time-Share Interest, to
pay the normal assessments to the Time-Share
Project owner's association and to comply with
reasonable covenants, conditions and
restrictions with respect to the use of such
amenities;
(xxviii) the items described in paragraph 4.1B if the
Advance includes a Work-Related Advance;
(xxix) the items described in paragraph 4.1F if the
Advance includes a Receivables Loan Advance; and
(xxx) such other items as Lender requests which are
reasonably necessary to evaluate the request for
the Advance and the satisfaction of the
conditions precedent to the Advance.
(c) Lender shall have received the following in form and
substance satisfactory to Lender:
(i) current lien, litigation, judgment and
bankruptcy searches for Borrower, Guarantors and
the Time-Share Association conducted in such
jurisdictions as Lender deems appropriate;
(ii) credit bureau reports and Dun & Bradstreet
reports on Borrower and Guarantors,
respectively;
(iii) current financial statements of all Guarantors
in form and detail satisfactory to Lender, and
such financial statements must be satisfactory
to Lender in its sole discretion; provided that
Lender acknowledges that current financial
statements for Powhatan Associates have been
received and are satisfactory; and
(iv) the report of Lender's Inspector with respect to
the Construction Budget, Plans and Specifi-
-25-
<PAGE> 26
cations, Contracts, Work Progress Schedule, and
other construction-related items.
(d) Deferral of Satisfaction of Certain Conditions. Subject
to the provisions of paragraph 2.1(d) limiting the
unpaid principal balance of the Loans under such
circumstances, so long as Borrower is not in default of
its obligations under paragraph 6.5(b) and has approved
the form and substance of all Documents for which
execution and delivery has been deferred, Borrower may
defer satisfaction of the conditions specified in items
4.1A(a)(viii) (to the extent of the Time-Share Program
Governing Documents Assignment only) 4.1A(b)(vii) (to
the extent of the Minimum Required Time-Share Approvals
only), (ix) and (x) until October 15, 1995. With respect
to the maintenance facility and amenity complex,
Borrower may defer satisfaction of the conditions
specified in items 4.1A(b)(vii), (xix), (xx), (xxv), and
(xxvi) and Lender shall make no Advance for such
improvements until satisfaction of those conditions.
4.1B Additional Conditions Precedent for Initial Work-Related
Advance. For the initial Work-Related Advance, Lender's
obligation to make such Advance shall be subject to the
additional terms and conditions set forth in the following
subparagraphs and elsewhere in this Agreement:
(a) Borrower shall have satisfied all conditions set forth
in paragraph 4.1A; and
(b) Borrower shall have satisfied the terms and conditions
set forth in EXHIBIT J-1, including delivery to Lender
of the items called for therein at least ten (10)
Business Days prior to the date of such Work-Related
Advance or such longer period as may be described in
EXHIBIT J-1.
4.1C Additional Conditions Precedent for Subsequent Work-Related
Advance. For each Work-Related Advance after the initial
Work-Related Advance, Lender's obligation to make such Advance
shall be subject to the terms and conditions set forth in
EXHIBIT J-1, including delivery to Lender of the items called
for therein at least ten (10) Business Days prior to the date of
such Work-Related Advance.
4.1D Additional Conditions Precedent for Initial Receivables Loan
Advances. For the initial Receivables Loan Advance, Lender's
obligation to make such Receivables Loan Advance shall be
subject to the additional terms and conditions set forth in the
following subparagraphs and elsewhere in this Agreement:
(a) Borrower shall have satisfied all conditions set forth
in paragraph 4.1A;
-26-
<PAGE> 27
(b) Borrower shall have satisfied the terms and conditions
set forth in EXHIBIT J-2, including delivery to Lender
of the items called for therein at least three (3)
Business Days prior to the date of such Receivables Loan
Advance; and
(c) such legal opinions as Lender may require in its
discretion from Borrower's and Lender's counsel.
4.1E Additional Conditions Precedent for Subsequent Receivables Loan
Advances. For each Receivables Loan Advance after the initial
Receivables Loan Advance, Lender's obligation to make such
Receivables Loan Advance shall be subject to the terms and
conditions set forth in paragraph 2.6 and/or in EXHIBIT J-2,
including delivery of the items called for therein at least
three (3) Business Days prior to the date of such Receivables
Loan Advance.
4.1F General Conditions Precedent to All Advances. Lender's
obligation to fund any Advance is subject to and conditioned
upon the additional terms and conditions set forth in the
following subparagraphs remaining satisfied at the time of such
Advance:
(a) No material adverse change shall have occurred in the
Time-Share Project or in the business or financial
condition of Borrower or any Guarantor since the date of
the latest financial and operating statements given to
Lender by or on behalf of Borrower or any Guarantor.
(b) There shall have been no material , adverse change in
the warranties and representations made in the Documents
by Borrower, any Guarantor and/or any surety for the
performance of the Obligations.
(c) Neither an Event of Default nor Incipient Default shall
have occurred and be continuing.
(d) The interest rate applicable to the Advance (before
giving effect to any savings clause) will not exceed the
maximum rate permitted by the Applicable Usury Law.
(e) Borrower shall have paid to Lender so much of the
Receivables Loan Fee and the Development Loan Fee and
all other fees, as are required to be paid at the time
of the Advance.
(f) Borrower shall not be entitled to any Receivables Loan
Advance or any subsequent Development Loan Advance
unless on or before August 15, 1995, all Documents have
been executed by persons required to do so and the
initial Development Loan Advance has been made.
-27-
<PAGE> 28
4.1G Conditions Satisfied at Borrower's Expense. The conditions to
Advances shall be satisfied by Borrower at its expense.
4.2 Advance Requests.
(a) Receivables Loan Advances shall be made in amounts not
less than One Hundred Thousand Dollars ($100,000).
Requests for Receivables Loan Advances shall be made no
more than twice in any calendar month, Borrower shall
pay an administrative fee, as a withholding from the
second Advance under the Receivables Loan in any
calendar month, in an amount equal to the greater of (i)
$500, and (ii) one quarter of one percent (0.25%) of the
amount of such second Advance.
(b) Development Loan Advances (other than Interest Reserve
Advances) shall be made in amounts not less than Two
Hundred Fifty Thousand Dollars ($250,000) or, if the
undisbursed portion of a Development Loan Component is
less, the final Development Loan Advance of such
Development Loan Component may be in such lesser amount.
Development Loan Advances shall be made no more
frequently than once per calendar month; provided,
however, that two such Advances may be made in a
calendar month, so long as one such Advance is an
Interest Reserve Advance.
4.3 Disbursement of Advances. Advances may be payable to Borrower;
or if requested by Borrower and approved in writing by Lender,
to others, either severally or jointly with Borrower, for the
credit or benefit of Borrower. Advances shall be disbursed by
wire transfer or, at Borrower's option exercised by written
request to Lender, by check or drafts. Borrower will pay
Lender's reasonable charge in connection with any wire transfer,
which is currently Twenty-Five Dollars ($25). Lender may, at its
option, withhold from any Advance any sum (including costs and
expenses) then due to it under the terms of the Documents or
which Borrower would be obligated to reimburse Lender pursuant
to the Documents if first paid directly by Lender.
4.4 Interest Reserve Advances. If neither an Event of Default nor an
Incipient Default exists and subject to the terms and conditions
applicable to Interest Reserve Advances, during the Development
Loan Borrowing Term and, in Lender's discretion, after
expiration of the Development Loan Borrowing Term to the extent
that the Interest Reserve Fund has not been exhausted, Lender
will charge the Interest Reserve Fund for monthly interest
billings on the Development Loan until it has been exhausted. If
the Interest Reserve Fund is exhausted, Borrower will pay to
Lender the monthly installments of interest on the Note in
accordance with the terms of the Note.
4.5 No Waiver. Although Lender shall have no obligation to make an
Advance unless and until all of the conditions precedent to the
-28-
<PAGE> 29
Advance have been satisfied, Lender may, at its discretion, make
Advances prior to that time without waiving or releasing any of
the Obligations.
5. NOTES; MAINTENANCE OF BORROWING BASE; PRE-PAYMENTS; SERVICING AND
COLLECTION
5.1 Repayment of Loans. The Development Loan and the Receivables
Loan shall be evidenced by the Development Loan Note and the
Receivables Loan Note, respectively, and shall be repaid in
immediately available funds according to the terms of such Notes
and the Documents.
5.2 (a) Development Loan Minimum Required Principal Payments.
Until principal , interest and other sums due under the
Documents have been paid, exclusive of principal,
interest and other charges on the Receivables Loan Note,
Borrower will make to Lender at the time of each partial
release of a Time-Share Interest from the Borrower's
Mortgage a principal payment equal to the Partial
Release Fee required to be paid in connection with such
partial release. On each of the first and second
anniversary dates of the last Advance under the
Development Loan, Borrower will make to Lender a
principal payment on the Development Loan in an amount
equal to the positive remainder, if any, obtained by
subtracting the maximum allowable Development Loan
principal balance for such anniversary date set forth
below from the then outstanding principal balance of the
Development Loan:
<TABLE>
<CAPTION>
Anniversary of Maximum Principal
Last Advance Balance
-------------- -----------------
<S> <C>
1 $4,500,000
2 $2,750,000
</TABLE>
(b) Receivables Loan Minimum Required Principal Payments. If
for any reason the aggregate principal amount of the
Receivables Loan outstanding at any time shall exceed
the then Borrowing Base of all Eligible Instruments,
Borrower, without notice or demand, will immediately
make to Lender a principal payment in an amount equal to
such excess plus accrued and unpaid interest on such
principal payment, subject to Borrower's right to
provide sufficient Eligible Instruments or make
principal payments as provided in paragraph 3.2(b).
5.3 (a) Prohibitions on Prepayment; Prepayment Premiums. Except
as expressly provided below, by Lender in writing in its
discretion or as otherwise provided in paragraph 2.7 or
the Notes, Borrower will not be entitled to prepay, in
whole or in part, either of the Loans. Commencing on the
date which
-29-
<PAGE> 30
is two (2) years after the date of last Receivables Loan
Advance ("Receivable Loan Opening Prepayment Date") if
neither an Event of Default nor an Incipient Default has
occurred and is continuing, then Borrower shall have the
option to prepay the Receivables Loan in full but not in
part on any date an installment is due on the
Receivables Loan Note upon sixty (60) days prior written
notice and the simultaneous payment of a prepayment
premium ("Prepayment Premium"), which shall be
determined in accordance with the following prepayment
premium schedule (expressed as a percentage of the
unpaid principal balance of the Receivables Loan on the
date of prepayment):
<TABLE>
<CAPTION>
Year Prepayment Premium
---- ------------------
<S> <C>
1-2 Prepayment Not Permitted
3-4 4%
5 3%
6 2%
7 and thereafter 1%
</TABLE>
"Year" as used above refers to the twelve (12) month
period commencing on the Receivables Loan Opening
Prepayment Date with the second year commencing on the
first anniversary of that event and each succeeding year
commencing on the appropriate anniversary of that event,
provided that the last year shall end on the maturity
date of the Receivables Loan.
(b) Exceptions to Prepayment Prohibitions. Notwithstanding
anything in paragraph 5.3(a) to the contrary, the
following shall not be prepayments prohibited pursuant
to paragraph 5.3(a) or to require the payment of any
Prepayment Premium: (i) principal payments scheduled
under the Notes [including, without limitation, those
payments required pursuant to paragraphs 5.2(a) and
(unless due to an intentional misrepresentation or
breach of warranty concerning the Receivables Collateral
qualifying as Eligible Instruments) 5.2 (b)]; (ii)
repayments of the Development Note made with proceeds of
Receivables Loan Advances; and (iii) prepayments of the
Receivables Loan resulting from prepayments of the
Receivables Collateral by Purchasers which have not been
solicited by Borrower in breach of its Obligations under
this Agreement.
(c) Prepayment Premium Payable for Involuntary Prepayments.
A Prepayment Premium determined in accordance with the
schedule set forth in paragraph 5.3(a) shall be payable
regardless of whether the prepayment of the Development
Loan or Receivables Loan is voluntary or is required
-30-
<PAGE> 31
because repayment of such Loan has been accelerated
pursuant to any of Lender's rights under the Documents
(including, without limitation, any right to accelerate
following (i) casualty or condemnation to the Property
or (ii) an Event of Default). If an involuntary
prepayment occurs during a period for which no
Prepayment Premium has been specifically scheduled in
paragraph 5.3(a), the applicable Prepayment Premium
shall be four percent (4%).
5.4 (a) Intentionally Omitted.
(b) Lockbox Collections and Servicing. Lockbox Agent shall
collect payments on the Instruments constituting part of
the Receivables Collateral and remit collected payments
to Lender on the fifteenth (15th) and last days (or if
such day is not a Business Day, on the preceding
Business Day) of each and every month after the date of
the first Receivables Loan Advance, according to the
terms of the Lockbox Agreement. Payments shall not be
deemed received by Lender until Lender actually receives
such payments from Lockbox Agent. Servicing Agent shall
furnish to Lender at Borrower's sole cost and expense,
no later than the fifteenth (15th) day of each month
commencing with the first full calendar month following
the date of this Agreement, a report, substantially in
the format of EXHIBIT K, which: (i) shows as of the end
of the prior month with respect to each Instrument which
constitutes part of the Receivables Collateral (A) all
payments received, allocated between principal and
interest, (B) the closing balances, (C) present value,
and (D) consumer interest rates; and (ii) indicates
delinquencies of thirty (30), sixty (60), ninety (90)
days and in excess of ninety (90) days. Borrower will
pay without notice or demand any amount which was due
and payable by Borrower on the last Business Day of the
preceding month covered by such reports within five (5)
Business Days of Borrower's knowledge of such amounts.
If such reports are not timely received, Lender may
estimate the amount which was due and payable. Borrower
will pay upon demand the amount determined by Lender in
good faith to be due and payable. If payment is made on
the basis of Lender's estimate and thereafter reports
required by this paragraph are received by Lender, the
estimated payment amount shall be adjusted by an
additional payment or a refund to the correct amount, as
the reports may indicate; such additional amount to be
paid by Borrower upon demand and such refund to be made
by Lender within five (5) Business Days after receipt of
written request therefor by Borrower. At the end of each
calendar quarter, Borrower will deliver or cause the
Servicing Agent to deliver to Lender a current list of
the names, addresses and phone numbers of the obligors
on each of the Instruments constituting part of the
Receivables
-31-
<PAGE> 32
Collateral. Borrower will also deliver or cause
Servicing Agent to deliver to Lender, promptly after
receipt of a written request for them, such other
reports with respect to Instruments constituting part
of the Receivables Collateral as Lender may from time
to time reasonably require.
(c) Oversight Agreement. Borrower will enter into and
perform and cause Servicing Agent to enter into and
perform their respective obligations under the
Oversight Agreement. All fees and charges of Oversight
Agent for services provided under the Oversight
Agreement shall be the sole responsibility of Lender.
(d) Replacement of Agents. Lender, subject to any
additional restriction thereon contained in the Lockbox
Agreement or the Servicing Agreement may at any time
and from time to time substitute a successor or
successors to any Agent acting under the Lockbox
Agreement or the Servicing Agreement; provided such
Agent has acted negligently in the performance of its
duties or responsibilities.
5.5 Application of Proceeds. Any and all payments received by
Lender with respect to the Obligations (including, without
limitation, payments made with proceeds of the Collateral but
excluding funds set aside/held in escrow prior to the
expiration of a Purchaser's statutory rescission rights) shall
be first applied to the payment of all late charges, costs,
fees and expenses required by the Documents to be paid by
Borrower ("First Priority Application"); then to accrued and
unpaid interest on the Loans in such order and manner as
Lender may determine; and then to principal of the Loans in
such order and manner as Lender may determine. Notwithstanding
anything in the preceding sentence to the contrary, after the
First Priority Application, remaining proceeds of the payments
made pursuant to paragraph 5.2(a) shall be applied first to
the principal balance of the Development Loan Note, and then
to accrued and unpaid interest due under the Development Loan
Note. The provisions of this paragraph are subject to the
parties rights and obligations under Article VII and the other
Documents as to the application of proceeds of the Collateral
following an Event of Default.
5.6 Borrower's Unconditional Obligation to Make Payments. Whether
or not the proceeds from the Collateral shall be sufficient
for that purpose, Borrower will pay when due all payments
required to be made pursuant to any of the Documents,
Borrower's Obligation to make such payments being absolute and
unconditional.
6. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 (a) Good Standing. Borrower and each of its venturers are,
and will remain at all times, duly organized, validly
existing
-32-
<PAGE> 33
and in good standing under the laws of Virginia and are
authorized and will remain at all times authorized, to
do business in Virginia and in each jurisdiction in
which Borrower is at any time selling Time-Share
Interests or where at any time the location or nature of
its properties or its business makes such qualification
necessary. Borrower has and will maintain full authority
to Perform the Obligations and to carry on its business
and own its property.
(b) Power and Authority; Enforceability. Borrower has and
will maintain full power and authority to execute and
deliver the Documents and to Perform the Obligations.
All action necessary and required by Borrower's Articles
of Organization and all applicable laws for Borrower to
obtain the Loans, to execute and deliver the Documents
which have been or will be executed and delivered in
connection with the Loans and to perform the Obligations
has been duly and effectively taken. The Documents are
and shall be, legal, valid, binding and enforceable
against Borrower; and do not violate the Applicable
Usury Law or constitute a default or result in the
imposition of a lien under the terms or provisions of
any agreement to which Borrower is a party. No consent
of any governmental agency or any other person not a
party to this Agreement is or will be required as a
condition to the execution, delivery, or enforceability
of the Documents.
(c) Borrower's Principal Place of Business. Borrower's
principal place of business is located in the
Commonwealth of Virginia, and Borrower will not move its
principal place of business except upon not less than
sixty (60) days prior written notice to Lender.
6.2 No Litigation. There is no action, litigation or other
proceeding pending or, to Borrower's knowledge, threatened
before any arbitration tribunal, court, governmental agency or
administrative body against Borrower, which might materially
adversely affect the Performance of the Obligations, the
Time-Share Project, the business or financial condition of
Borrower, the Collateral, or the ability of Borrower to Perform
the Obligations. Borrower will promptly notify Lender if any
such action, litigation or proceeding is commenced or
threatened.
6.3 (a) Adequacy of Principal Work-Related Items. The Principal
Work-Related Items delivered to Lender are adequate (or
will be adequate at the time required to be delivered to
Lender pursuant to this Agreement) and will continue at
all times to be adequate for Completion of the Work. The
Principal Work-Related Items delivered to Lender are in
full force and effect; no third party bound thereby is
in default of its obligations thereunder or has
threatened to
-33-
<PAGE> 34
terminate Borrower's rights thereunder; Borrower has
paid all sums and performed all other obligations it has
under them; and no third party bound thereby has any
defense to the enforcement of Borrower's rights
thereunder. No moratorium or other legal impediment
exists or, to the knowledge of Borrower, is threatened
with respect to the issuance of any permit or approval
necessary to use the Time-Share Project for intended
time-share purposes upon Completion of the Work.
(b) Adequacy of Construction Budget. Borrower will cause the
Construction Budget to accurately and completely set
forth the types and estimated maximum amounts of all
costs which must be incurred for Completion of the Work
to occur.
(c) Adequacy of Streets and Utilities. All streets,
easements, and utilities (including potable water, storm
and sanitary sewer, gas, electric, telephone and cable
television facilities and garbage removal) necessary for
the Completion of the Work and use of the Real Property
for intended time-share purposes have been completed,
paid for in full and are available at the boundaries of
the Real Property. All water and sewer treatment plants
and power generation facilities intended to serve the
Real Property have been constructed and are operational;
and upon Completion of the Work, will have adequate
capacity and size to serve the intended time-share use
of the Real Property.
(d) Status of Work; Break in Priority. To the extent work,
equipment, materials, services or work of any kind has
been performed or provided with respect to the Real
Property that may give rise to any mechanics or similar
statutory lien which will have priority to the lien of
the Borrower's Mortgage (including, without limitation,
the destruction or removal of existing Improvements,
site work, clearing, grubbing, draining or fencing of
the Real Property), such work, equipment, materials and
services must be fully disclosed in writing to Lender
and Title Insurer (Borrower's Mortgage) prior to
recordation of the Borrower's Mortgage, such work,
equipment, materials and services must be satisfactory
to Lender and Lender's Inspector, and Title Insurer
(Borrower's Mortgage) must insure the priority of the
Borrower's Mortgage over all such liens.
6.4 Work-Related Covenants. Borrower will:
(a) cause the progress of the Work to occur in substantial
compliance with the Work Progress Schedule, subject to
Force Majeure Events, all in accordance with the Plans
and Specifications, Construction Contract(s), applicable
laws, regulations and private restrictions, the
Documents, sound
-34-
<PAGE> 35
construction engineering and architectural principles
and commonly accepted safety standards, lien free and
free from defective materials and workmanship; and cause
Completion of the Work to occur on or before the
Required Completion Date.
(b) (i) pay when due all costs, expenses and claims
pertaining to the Work; (ii) deliver to Lender during
the course of the Work in order to monitor and/or
provide assurance that the Work is proceeding lien free
in accordance with the Plans and Specifications, the
Construction Contract(s), applicable laws, regulations
and private restrictions, the Documents, sound
construction; engineering and architectural principles
and commonly accepted safety standards: bills of sale,
conveyances and paid invoices pertaining to the Work;
all waivers and releases of lien or claims on the Real
Property and/or the Improvements in connection with the
Work which Lender may determine to be necessary or may
otherwise reasonably request for its protection; from
persons acceptable to Lender, additional engineering or
architectural studies and reports as Lender or Lender's
Inspector may reasonably require; and (iii) record all
notices of commencement/ completion and similar notices
permitted by applicable laws and regulations which have
the effect of shortening periods within which mechanics
and similar liens may be filed;
(c) allow Lender, Lender's Inspector and/or its agents and
employees to inspect the Work at all reasonable times,
with the costs of such inspections to be borne by
Borrower to the extent provided in paragraph 6.16(a);
(d) not enter into any Architect/Engineer Agreement or
Construction Contract with respect to the Improvements
except upon terms and with such parties as Lender may
approve in writing, such approval not to be unreasonably
withheld;
(e) deliver all Principal Work-Related Items to Lender
promptly after obtaining them (or at such earlier time
as may be required pursuant to paragraph 4.1);
(f) not amend any of the Principal Work-Related Items except
with Lender's prior written approval. not to be
unreasonably withheld, and for change orders which (i)
do not change the cost of Completion of the Work by more
than Ten Thousand Dollars ($10,000) individually or
Fifty Thousand Dollars ($50,000) in the aggregate beyond
that shown in the Construction Budget as originally
approved by Lender and (ii) do not affect the design,
structural integrity or quality of the Improvements;
-35-
<PAGE> 36
(g) perform all its obligations and preserve its rights
under the Principal Work-Related Items and secure the
performance of the other parties to the Principal
Work-Related Items;
(h) deliver to Lender promptly after substantial completion
of the Improvements, a survey certified to Lender, Title
Insurer (Borrower's Mortgage) and Title Insurer
(Purchaser Mortgage) by a licensed surveyor or engineer
acceptable to Lender, showing such Improvements and that
the location thereof is entirely within the property
lines of the Real Property and does not encroach upon,
breach, or violate any set back line, easement or
similar restriction and meeting ALTA standards and other
reasonable requirements of the Lender, Title Insurer
(Borrower's Mortgage) and Title Insurer (Purchaser
Mortgage);
(i) deliver to Lender: prior to each Work-Related Advance,
at Lender's option, an endorsement ("date down
endorsement") issued by the Title Insurer (Borrower's
Mortgage) insuring Lender against any loss by reason of
defects in, mechanic's or similar statutory liens upon
or unmarketability of the title to the Real Property, as
well as insuring that the Borrower's Mortgage, at the
time of each Work-Related Advance, constitutes a valid
first lien upon the Real Property, subject only to the
Permitted Encumbrances; promptly after the construction
of the foundation for any building forming part of the
Improvements, an endorsement insuring that such
foundation is located on the Real Property within all
side and set-back lines and does not encroach upon any
easements, rights-of-way (public or private) or upon any
adjoining landowner's property; and promptly after
substantial completion of the Improvements has occurred,
an endorsement insuring that the Improvements are
located upon the Real Property within all side and
setback lines and do not encroach upon any easements,
rightsof-way (public or private) or upon any adjoining
landowner's property; and upon Completion of the Work, a
date down endorsement;
(j) after obtaining knowledge or receiving notice thereof,
correct or cause to be corrected (i) any material defect
in the Work, (ii) any material departure in the
completion of the Work from the Plans and Specifications
or the Construction Contract(s) (unless expressly
permitted in this Agreement or consented to in writing
by Lender), any applicable laws, regulations or private
restrictions, sound, construction, engineering or
architectural principles or commonly accepted safety
standards or (iii) any encroachment of any part of the
Improvements on any building line, easement linee or
restricted area, or any adjacent landowner's property;
-36-
<PAGE> 37
(k) promptly deliver to Lender any and all notices received
by Borrower that it is not complying with applicable
laws, regulations and private restrictions pertaining to
the Work or that the Work is not being completed in
accordance with the Plans and Specifications, the
Construction Contract(s), sound construction,
engineering and architectural principles and commonly
accepted safety standards,
(1) if at any time there exists or appears likely to exist
any Uncovered Cost of the Work, Borrower will notify
Lender within fifteen (15) Business Days (and in any
event prior to the next Advance) after obtaining
knowledge thereof; within the earlier of such fifteen
(15) Business Day period or fifteen (15) Business Days
after Lender's demand that it do so, Borrower will
deliver to Lender a cash deposit ("Required Completion
Assurance Deposit") equal to the Uncovered Cost of the
Work; in the event of any dispute, the necessity for and
amount of the Required Completion Assurance Deposit
shall be determined by Lender; the Required Completion
Assurance Deposit shall be deposited in an
interest-bearing account, such interest accruing to the
benefit of Borrower, provided that Lender will disburse
the Required Completion Assurance Deposit to pay and/or
reimburse Borrower for the costs of the Work prior to
any further disbursement of the Development Loan for
such purpose, but subject to the terms and conditions of
this Agreement pertaining to the disbursement of
Development Loan Advances; and Lender is hereby granted
a security interest in all Required Completion Assurance
Deposits, together with interest accruing thereon, from
time to time held by Lender;
(m) cause all materials supplied for or intended to be
utilized in the Completion of the Work, but previously
not affixed to or incorporated into the Improvements, to
be stored on the Real Property with adequate safeguards,
as reasonably required by Lender, to prevent loss,
theft, damage or commingling with other materials; and
(n) promptly after receipt by Borrower (but in no event
later than the Required Completion Date), deliver to
Lender copies of all certificates of acceptance and/or
occupancy relating to the Work.
6.5 (a) Compliance with Laws. Borrower has complied, and will
comply, with all applicable laws and regulations,
including, without limitation, all laws and regulations
of the state in which the Time-Share Project is located
and all other governmental jurisdictions in which the
TimeShare Project is located or in which Time-Share
Interests will be sold or offered for sale.
-37-
<PAGE> 38
Share Project is located or in which Time-Share
Interests will be sold or offered for sale.
(b) Sales Activities. Borrower has not yet sold any
Time-Share Interest or offered any.' Time-Share Interest
for sale. Borrower will not sell any Time-Share Interest
or offer any Time-Share Interest for sale in any
jurisdiction, unless: (i) Borrower has delivered to
Lender true and complete copies of the Minimum Required
Time-Share Approvals, all other approvals required to be
obtained by Borrower in such jurisdiction prior to
engaging in its proposed conduct, and all other evidence
required by Lender that Borrower has complied with all
laws of such jurisdiction governing its proposed
conduct; and (ii) Borrower has delivered to Lender the
Time-Share Program Consumer Documents and the TimeShare
Program Governing Documents which Borrower will be using
in connection with the Time-Share Project and the sale
or offering for sale of Time-Share Interests and such
documents have been approved by Lender, which approval
shall not be unreasonably withheld. Borrower will submit
to the appropriate department of the Commonwealth of
Virginia not later than August 15, 1995, an application
for the issuance of the Minimum Required Time-Share
Approvals which complies with applicable' laws and
regulations and will thereafter diligently pursue
approval of such application and the issuance of the
Minimum Required Time-Share Approvals. Not later than
October 15, 1995, Borrower will deliver to Lender the
Minimum Required Time-Share Approvals, the Time-Share
Program Governing Documents and Time-Share Program
Consumer Documents (which have, to the extent required,
been approved for use in the Commonwealth of Virginia)
and will take all steps necessary to commence the sale
of Time-Share Interests in the Commonwealth of Virginia,
and from and after October 15, 1995, Borrower will
maintain an active marketing program for the sale of
Time-Share Interests in conformance with all applicable
laws and regulations and consistent with the provisions
of this paragraph and the terms and conditions of
Borrower's Mortgage pertaining to the sale of Time-Share
Interests.
(c) Time-Share Interest Not a Security. Borrower has not
sold or offered for sale any Time-Share Interest as an
investment. Neither the sale nor the offering for sale
of any Time-Share Interest would constitute the sale or
the offering of a security for sale under any applicable
law.
(d) Zoning Compliance. Neither time-share use nor other
transient use and occupancy of the Real Property
violates or will violate or constitute a non-conforming
use or require a variance under any private covenant or
restriction or any zoning, use or similar law, ordinance
or
-38-
<PAGE> 39
6.6 (a) Eligible Instruments. Each Instrument which is assigned
to Lender pursuant to this Agreement and against which
an Advance is requested shall be an Eligible Instrument
at the time of assignment. Borrower has performed all of
its obligations to Purchasers, and there are no
executory obligations to Purchasers to be performed by
Borrower, except for Completion of the Work. Borrower
further warrants and guarantees the enforceability of
the Receivables Collateral.
(b) No Modification of Receivables Collateral or Payments by
Borrower. Without the prior written consent of Lender,
Borrower will not cancel or materially modify, or
consent to or acquiesce in any material modification
(including. without limitation, any change in the
interest rate or amount, frequency or number of
payments) to, or solicit the prepayment of, any
Instrument which constitutes part of the Receivables
Collateral; or waive the timely performance of the
obligations of the Purchaser under any such Instrument
or its security; or release the security for any such
Instrument. Borrower will not pay or advance directly or
indirectly for the account of any Purchaser any sum
required to be deposited or owing by the Purchaser
either under any Purchase Contract or under any
Instrument which constitutes part of the Receivables
Collateral.
(c) Fulfillment of Obligations to Purchasers. Borrower at
all times will fulfill and will cause its Affiliates,
agents and independent contractors at all times to
fulfill all obligations to Purchasers. Borrower will
perform all of its obligations under the Time-Share
Program Consumer Documents and the Time-Share Program
Governing Documents.
(d) No Modification of Time-Share Documents. Borrower,
without the prior written consent of Lender, will not
cancel or materially modify any of the Time-Share
Program Consumer Documents or the Time-Share Program
Governing Documents.
(e) Associations: Assessments and Reserves. Upon and after
closing of the Time-Share Interest purchased, each
Purchaser will automatically be a member of the
Time-Share Association and will be entitled to vote on
the affairs thereof. The Time-Share Association will at
all times be governed by a board of directors. Until the
time ("Developer Control Termination Date") Borrower
conveys fee simple title to the Time-Share Project,
excluding the units, Borrower shall be responsible for
all costs ("Project Operation Costs") associated with
the control, management and operations of the Time-Share
Project, except "time-share interest occupancy expenses"
which are all costs and expenses incurred in the
interior use and occupancy of completed Time-Share
Interest units,
-39-
<PAGE> 40
including, but not limited to maintenance and
housekeeping charges, repairs. refurbishing costs,
insurance premiums, properly allocated labor and
overhead costs, utility charges and deposits and the
cost of periodic repair and replacement to wall and
window treatments, and furnishings, including furniture
and appliances. The Time-Share Association board has the
authority to fix and levy pro rata upon each Purchaser
annual assessments to meet timeshare interest occupancy
expenses. From and after the Developer Control
Termination Date, the Time-Share Association board will
have the authority to fix and levy pro rata upon each
Purchaser annual assessments to cover all costs
associated with the control, management and operations
of the Time-Share Project; provided, however, that from
and after such date, Borrower shall at its expense
complete all of the amenities and facilities comprising
the Project and shall use its best efforts to cause the
Time-Share Association board to pay the Project
Operation Costs. The obligations of Borrower under this
Paragraph are in addition to and not in limitation of
its other Obligations under the Documents, including
without limitation, its Obligations under paragraphs
6.5(a), 6.6(c) and 6.6(f).
(f) Title and Condition of Amenities. Subject to the
provisions of the Time Share Program Governing Documents
as and when the same are recorded, the Time-Share
Association or the owners of Time-Share Interests in
common will at all times own the furnishings in the
Time-Share Project dwelling units and all the common
areas in the Time-Share Project and other amenities
which have been promised or represented as being
available to Purchasers, free and clear of liens and
security interests except for the Permitted
Encumbrances; and no part of the Time-Share Project is
subject to partition by the owners of Time-Share
Interests except as permitted by Virginia Code Section
55-373(c). Borrower will maintain or cause to be
maintained in good condition and repair all common areas
in the Time-Share Project and other amenities which have
been promised or represented as being available to
Purchaser and which are not the responsibility of the
Time-Share Association to maintain and repair. Borrower
will maintain a reasonable reserve to assure compliance
with the terms of the foregoing sentence.
6.7 Collection of Receivables Collateral. Borrower will undertake
the diligent and timely collection of amounts delinquent under
each Instrument which constitutes part of the Receivables
Collateral and will bear the entire expense of such collection.
Lender shall have no obligation to undertake any action to
collect under any Instrument.
-40-
<PAGE> 41
6.8 Notice of Lender's Interest. Borrower will notify persons bound
thereby of the existence of Lender's interest as assignee in the
Receivables Collateral. Borrower will deliver such notice under
its letterhead and will cause such notice to comply with Va.
Code Section 55-389.
6.9 (a) Restrictions on Additional Indebtedness. Without the
prior written consent of Lender not to be unreasonably
withheld, and subject to the additional restrictions set
forth in subparagraph (b) below. Borrower will not incur
any additional debt (including without limitation any
contingent or guarantor liability), except for the
following ("Permitted Debt"): (i) short term accounts
payable incurred in connection with the operation of the
Time-Share Project; (ii) construction financings for
subsequent time-share phases of the Greensprings
Plantation Resort which are not secured by any of the
Collateral and cannot subject any of the Collateral to a
mechanics' or similar lien and in connection with which
the construction lenders have executed non-disturbance
agreements which are satisfactory to Lender and provide
non-disturbance rights of the type described in
paragraph 4.1A(b)(xxvii): and (iii) receivables
financings which are not secured by any of the
Collateral and are funded when Borrower is not in
default of its obligations Lender paragraph 2.4. Without
limiting the generality of the foregoing, as a condition
to approval of any third party loan or financing which
is not Permitted Debt, Lender may require evidence that
such third party has executed non-disturbance agreements
which are satisfactory to Lender and provide
non-disturbance rights of the type described in
paragraph 4.1A(b)(xxvii). Notwithstanding anything in
this paragraph 6.9(a) to the contrary, the provisions of
the preceding sentences of this paragraph 6.9 will
terminate when the Development Loan has been paid in
full and Lender has no further obligation to make
Development Loan Advances: provided, however, that such
termination shall not affect the restrictions set forth
in paragraph 2.4 or 6.9(b).
(b) Restrictions on Liens or Transfers. Borrower, without
the prior written consent of Lender not to be
unreasonably withheld, will not: (i) sell, convey,
lease, pledge, hypothecate, encumber or otherwise
transfer any security for the Performance of the
Obligations; (ii) permit or suffer to exist any liens,
security interests or other encumbrances on any of the
Collateral, except for the Permitted Encumbrances and
liens and security interests expressly granted to
Lender; (iii) sell, lease, transfer or dispose of all or
substantially all of its assets to another entity, or
(iv) permit or suffer to exist any transfer of any of
the ownership interests or control of Borrower or any of
its venturers. As a condition to
-41-
<PAGE> 42
approval of any lien, security interest or other charge
upon any of the Collateral, Lender may require that the
third party execute a subordination agreement
satisfactory to Lender and that Borrower deliver to
Lender such information as Lender may reasonably request
with respect to such third party loan and/or financing.
6.10 Insurance. Borrower will pay the cost of and will maintain and
deliver to Lender evidence of insurance policies required by
Lender which are written by insurers and are in amounts and on
forms reasonably satisfactory to Lender.
6.11 (a) No Misrepresentations. The Documents and all
certificates, financial statements and written materials
furnished to Lender by or on behalf of Borrower in
connection with the Loans do not contain any untrue
statement of a material fact or omit to state a fact
which materially adversely affects or in the future may
materially adversely affect the Collateral, the
Time-Share Project, the business or financial condition
of Borrower, or the ability of Borrower to Perform the
Obligations.
(b) Reliance. Lender's examination, inspection, or receipt
of information pertaining to the Collateral or the
Time-Share Project and its proposed operation shall not
in any way be deemed to reduce the full scope and
protection of the warranties, representations and
Obligations contained in this Agreement.
6.12 (a) Sales Reports. On or before the fifteenth (15th) day of
each month, Borrower will cause to be furnished to
Lender (i) the reports required pursuant to paragraph
5.4(a) and (ii)if requested by Lender, a sales report
for the prior month showing the number of sales and
closing of Time-share Interests and the aggregate dollar
amount thereof, including down payments.
(b) Financial Information. Borrower will furnish or cause to
be furnished to Lender within one hundred twenty (120)
days after each fiscal year of the subject, a copy of
the current annual financial statements of Borrower,
each Guarantor and, subject to the best efforts of
Borrower, the Time-Share Association. Such financial
statements shall contain a balance sheet as of the end
of the relevant fiscal period and statements of income
and of cash flow for such fiscal period (together. in
each case, with the comparable figures for the
corresponding period of the previous fiscal year), all
in reasonable detail. All financial statements shall be
prepared in accordance with generally accepted
accounting principles, consistently applied. All
financial statements of Borrower and the Time-Share
Association shall be certified by the chief
-42-
<PAGE> 43
financial officer of such entity. Annual statements of
Borrower and the Time-Share Association shall be audited
and certified by a recognized firm of certified public
accountants reasonably satisfactory to Lender. Together
with such financial statements, Borrower will deliver to
Lender a certificate signed by Borrower's chief
financial officer stating that there exists no Event of
Default or Incipient Default or, if any such Event of
Default or Incipient Default exists, specifying the
nature and period of its existence and what action
Borrower proposes to take with respect to it. Such
certificate shall state specifically that Borrower is in
compliance with paragraphs 6.9(a), and 6.18 through
6.23, inclusive, and shall set forth in reasonable
detail the calculations upon which such certification is
based.
(c) Time-Share Project and Sales Information. Borrower will
deliver to Lender from time to time, as available, and
promptly upon amendment or effective date: current price
lists, sales literature, registrations/consents to sell,
and final subdivision public reports/public offering
statements/prospectuses. Borrower will deliver to Lender
any changes which Borrower proposes or any other person
having the power to do so proposes be made to the
Time-Share Program Consumer Documents and/or the
Time-Share Program Governing Documents last delivered to
Lender, together with a description and explanation of
the changes; and other items requested by Lender which
relate to the Time-Share Interests.
(d) Right to Inspect. Borrower will at its expense permit
Lender and its representatives at all reasonable times
to inspect the Time-Share Project and to inspect, audit
and copy Borrower's books and records.
(e) Time-Share Association Budgets. Borrower will submit to
Lender, (i) with respect to the budget for the
Time-Share Association's 1996 fiscal year, by September
30, 1995, and (ii) with respect to budgets for
subsequent years annually within ten (10) days after
each is available, proposed annual maintenance and
operating budgets of the Time-Share Association,
certified to be adequate by the Time-Share Manager (or
if there is not a Time-Share Manager, by an authorized
officer of the Association) and a statement of the
annual assessment to be levied upon the owners of
Time-Share Interests: and will use its best efforts to
cause to be made available to Lender for inspection,
auditing and copying, upon Lender's request, the books
and records of the Time-Share Association.
-43-
<PAGE> 44
(f) Additional Information. Borrower will make available
such further information as Lender may from time to time
reasonably request.
6.13 Subordination of Indebtedness Owing to Affiliates. Borrower will
cause any and all indebtedness owing by it to its venturers,
Guarantors, or the shareholders, directors, officers, partners,
members, relatives and Affiliates of Borrower or the foregoing
and all liens, security interests and other charges on the
assets of Borrower, including, without limitation, the
Collateral, to be fully subordinated in all aspects to the
Obligations pursuant to written agreements satisfactory to
Lender: provided, however, that if neither an Event of Default
nor an Incipient Default then exists or will exist after giving
effect to such payment, such subordination shall not extend to
(i) reasonable salaries and fees at normal and customary rates
for services actually rendered and other distributions expressly
permitted pursuant to the terms of this Agreement or (ii)
regularly scheduled payments in accordance with the written
agreements described in this paragraph. Any such creditor shall
execute a written subordination agreement in form and substance
satisfactory to Lender.
6.14 No Default for Third Party Obligations. Borrower is not in
default under any other agreement evidencing, guaranteeing or
securing borrowed money or a receivables purchase financing or
in violation of or in default under any material term in any
other material agreement, instrument, order, decree or judgment
of any court, arbitration or governmental authority to which it
is a party or by which it is bound.
6.15 Payment of Taxes. Borrower has filed and will file all tax
returns and has paid and will pay all taxes, assessments, levies
and penalties, if any, required to be filed by it or paid by it
to any governmental or quasi-governmental authority or
subdivision, including real estate taxes and assessments
relating to the Time-Share Project or the Collateral. Borrower
will provide to Lender not more than thirty (30) days after such
taxes and assessments become due evidence that all taxes and
assessments on the Units and Time-Share Project common areas and
related amenities have been paid in full.
6.16 Fees, Costs and Expenses.
(a) Loan Fees and Documentation Fee. Borrower will pay to
Lender the Development Loan Fee and the Receivables Loan
Fee. The Development Loan Fee and Receivables Loan Fee
have been earned and shall be non-refundable. Lender
acknowledges receipt of Ten Thousand Dollars ($10,000)
of the Receivables Loan Fee. Borrower will pay the
entire Development Loan Fee and Ninety Thousand Dollars
of the Receivables Loan Fee at the time of the initial
Development Loan Advance, but not later than July 15,
1995. Borrower
-44-
<PAGE> 45
will pay the balance of the Receivables Loan Fee in five
(5) payments of $50,000, one of such payments payable on
each of the dates on which an Advance is made which
causes the then outstanding principal balance of the
Receivables Loan to exceed $10,000.000, $15,000,000,
$20,000,000, $25,000,000, and $30,000,000 respectively,
but the full amount of the Receivables Loan Fee shall be
payable not later than (i) the date thirty (30) months
after the initial Receivables Loan Advance or (ii) the
last day of the Receivables Loan Borrowing Term,
whichever first occurs. Borrower will pay on demand any
and all costs and expenses incurred by Lender (exclusive
of Lender's employee's expenses, but inclusive of travel
expenses) in connection with the initiation,
documentation and closing of the Loans, the making of
Advances, the protection of the Collateral, or the
enforcement of the Obligations against Borrower,
including, without limitation, all attorneys' and other
professionals' fees (including, without limitation,
reasonable out-of-pocket expenses and reasonable and
normal charges of such attorneys' and professionals for
photocopy, telecopy and computer services, and staff
overtime), consumer credit reports [not to exceed ten
percent (10%) of the Instruments assigned to Lender at
the time of such Assignment if current (no more than six
months old) credit reports are provided by Borrower at
such time and not to exceed twenty-five percent (25%) of
such Instruments if current credit reports are not
provided by Borrower], and revenue, documentary stamp,
documentary transaction and intangible taxes. However,
Borrower will have no obligation to pay or reimburse
Lender for Lender's attorneys' fees (excluding
reasonable out-of-pocket expenses and reasonable and
normal charges for photocopy and telecopy services)
which are incurred in connection with the Original
Services, or are otherwise incurred in connection with
the closing of the first Advance and are in excess of
Fifteen Thousand Dollars ($15,000), unless caused by the
negligence of Borrower or third parties, the lack of
diligence or cooperation by Borrower or third parties in
the negotiation of the Documents and the closing of the
first Advance, changes requested by Borrower to the
commitment letter from Lender to Borrower dated June 30,
1995, and accepted on June 30 1995, or circumstances
which would not reasonably have been foreseen by Lender
or its counsel. Furthermore, Borrower will have no
obligation to pay or reimburse Lender for the fees and
costs (including out-of-pocket expenses and charges for
photocopy and telecopy services) of Lender's Inspector
in excess of Three Thousand Dollars ($3,000) for the
services described in subparagraphs 8.1(a), (b) and (d),
unless caused by the negligence or lack of diligence or
cooperation by Borrower or third parties.
-45-
<PAGE> 46
(b) Custodial Fee. In addition to all other fees required to
be paid in connection with the Loan, Borrower shall pay
to Lender a fee ("Custodial Fee") equal to Ten Dollars
($10) per each Instrument which is delivered to Lender
in connection with the Loan and is in the physical
custody of Lender. The Custodial Fee for an Instrument
shall be paid by Borrower to Lender at the time the
Instrument is assigned to Lender. After the Custodial
Fee is paid for an Instrument, no fee shall be payable
to Lender pursuant to paragraph 3.2 in replacement for
an Instrument for which Borrower has paid the Custodial
Fee. Once a Custodial Fee has been paid to Lender,
Borrower shall not be entitled to any reimbursement of
any portion hereof.
(c) Availability Advance Fee. Borrower will pay to Lender,
at the time of any Advance, a fee ("Availability Fee")
equal to one percent (1.0%) of the amount of such
Advance which constitutes an Availability Advance.
6.17 Indemnification. Borrower will INDEMNIFY, PROTECT, HOLD
HARMLESS, and defend Lender, its successors, assigns and
shareholders (including corporate shareholders), and the
directors, officers, employees, servants and agents of the
foregoing, for, from and against (a) any and all liability,
damage, penalties, or fines, loss, costs or expenses (including,
without limitation, court costs, and attorneys' fees), (b) any
and all claims and demands whatsoever asserted against it and
arising from or brought in connection with the Time-Share
Project, the Collateral, Lender's status by virtue of the
Documents, creation of Security Interests, the terms of the
Documents or the transactions related thereto, or any act or
omission of Borrower or any Agent, or their respective employees
or agents, whether actual or alleged unless such act or omission
is caused by Lender's gross negligence or willful misconduct,
and (c) any and all brokers' commissions or finders' fees or
other costs of similar type by any party in connection with any
of the Loans. On written request by a person or other entity
covered by the above agreement of indemnity, Borrower will
undertake, at its own cost and expense, on behalf of such
indemnitee, using counsel satisfactory to the indemnitee, the
defense of any legal action or proceeding to which such person
or entity shall be a party. At Lender's option, Lender may at
Borrower's expense prosecute or defend any action involving the
priority, validity or enforceability of the Security Interests
in the security for the Performance of the Obligations.
6.18 Limitations on Distributions and Loans. Except for advances to
Offsite International , Inc., in an amount from time to time
approved in writing by Lender in respect of marketing fees for
Time-Share Interests sold but not yet released from escrow and
which may otherwise be paid to Offsite International , Inc.
pursuant to paragraph 6.13, Borrower will not make distributions
(inclusive of the making of loans to or investments in any of
its
-46-
<PAGE> 47
venturers and/or any other Affiliate of Borrower but exclusive
of the repayment of loans from any of its venturers and/or any
other Affiliate of Borrower) unless (a) the Development Loan is
repaid in full and (b) after giving effect to such distribution,
there exists neither an Event of Default nor an Incipient
Default; and when permitted, distributions by Borrower shall be
limited to the lesser of (A) one hundred percent (100%) of
Borrower's net income or (B) one hundred percent (100%) of
Borrower's net cash flow, in each case measured from December
31, 1995. As used above, "net income" shall be determined in
accordance with generally accepted accounting principles applied
on a consistent basis, and "net cash flow" shall mean for any
period the net income or loss of the subject determined in
accordance with generally accepted accounting principles
consistently applied (excluding the effect of any extraordinary
gains or losses from sales of property not in the ordinary
course of business), plus (a) depreciation, (b) amortization and
(c) other non-cash expenses during such period to the extent
deducted from revenues in calculating net income and less
capital expenditures to the extent paid in such period. The
foregoing notwithstanding, Borrower may pay salaries and fees to
its venturers and to other Affiliates of Borrower, subject to
the restrictions set forth in paragraph 5.13: and may make
quarterly distributions to its venturers in an aggregate amount
not exceeding the federal income tax liability of such venturers
with respect to income of Borrower for the preceding quarter
attributable to such venturers, but taking into account any
losses realized or reasonably expected to be realized during any
preceding or subsequent quarter for the same calendar year. Such
distributions shall be calculated based upon the marginal tax
rate which would be applicable if the taxpayer has no other
taxable income, deductions or credits.
6.19 Limitation on Marketing Expenses. Borrower will not incur
marketing expenses with respect to sales of the Time-Share
Interests that exceed an amount equal to forty-five percent
(45%) of all net sales of Time-Share Interests. Compliance with
this covenant will be tested as of the end of each of its fiscal
quarters on a twelve (12) month rolling basis. For purposes of
this Agreement, "marketing expenses" for any period means the
aggregate of all costs and expenses for commissions and sales
relating to Time-Share Interests sold during such period,
including, without limitation, advertising, mailing, consumer
premiums, sales referrals and lead generation of sales leads,
and "net sales" for any period shall mean the gross sales
prices of all Time-Share Interests sold during such period
reduced by the gross sales prices of Time-Share Interests that
are canceled or rescinded during such period.
6.20 Limitation on General and Administrative Expenses. Borrower
shall not incur general and administrative expenses in excess of
ten percent (10%) of net sales. For purposes hereof, "general
and
-47-
<PAGE> 48
administrative expenses" are defined as all Borrower's operating
expenses less marketing expenses.
6.21 Net Worth Maintenance. Borrower must maintain a tangible net
worth, determined in accordance with generally accepted
accounting principles, in an amount not less than One Hundred
Twenty-Five Thousand Dollars ($125,000).
6.22 Minimum Average Sales Price. Borrower will maintain an average
gross sales price of not less than Thirteen Thousand Dollars
($13,000) per annual Time-Share Interest and Six Thousand Five
Hundred Dollars ($6,500) per biannual Time-Share Interest,
tested as of the end of each of its calendar quarters through
June 30, 1996 for the period beginning on the date of this
Agreement. Borrower will maintain Fourteen Thousand Dollars
($14,000) per annual Time-Share Interest sold and not less than
Seven Thousand Dollars ($7,000) per biannual Time-Share Interest
sold, tested as of the end of each of its fiscal quarters
beginning September 30, 1996 on a twelve (12) month rolling
basis.
6.23 Minimum Net Sales. Borrower will not permit net sales of
Time-Share Interests for the Time-Share Project to be less than
the volumes determined according to the following schedule
during the periods set forth in such schedule:
<TABLE>
<CAPTION>
For 6 Month Periods Ending Minimum Sales
<S> <C>
June 30, 1996 $7,000,000
December 31, 1996 $13,000,000
June 30, 1997 $7,000,000
December 31, 1997 $13,000,000
</TABLE>
6.24 Payment of Impositions. All Impositions imposed upon Lender by
reason of the Documents or Instruments shall be promptly paid by
Borrower upon demand. If Lender has not received evidence
satisfactory to it from Borrower that such taxes have been paid
by Borrower within five (5) days after demand was made upon
Borrower to make such payment, Lender may, at its option, pay
the same, and Borrower shall immediately reimburse Lender for
such sums so expended, together with interest at the Default
Rate. As used in this paragraph, "Impositions" means any and all
taxes (other than any tax measured by net income payable by
Borrower to the Commonwealth of Virginia or any political
subdivision thereof or to any State of the United States or
political subdivision thereof or to the United States under
Section 11 or 1201 of the Internal Revenue Code, as amended, in
consequence of the receipt of payments provided for in the
Documents), license fees, assessments, charges, fines,
penalties, property, privilege,
-48-
<PAGE> 49
excise, real estate or other taxes currently or hereafter levied
or imposed by the Commonwealth of Virginia, the United States of
America or any political subdivision of either thereof, upon or
in connection with or measured by the Documents or any sale,
rental, use, payments, delivery or transfer of title under the
terms of the Instruments.
6.25 Perfection of Security Interests. Borrower will execute or cause
to be executed all documents and do or cause to be done all acts
necessary for Lender to perfect or evidence and to continue the
perfection of the Security Interest of Lender in the Collateral
or otherwise to effect the intent and purposes of the Documents.
6.26 Survival and Additional Representations, Warranties and
Covenants. The representations, warranties and covenants
contained in this Article VI are in addition to, and not in
derogation of, the representations and warranties contained
elsewhere in the Documents and shall be deemed to be made and
reaffirmed prior to the making of each Advance.
7. DEFAULT
7.1 Events of Default. The occurrence of any of the following events
or conditions shall constitute an Event of Default by Borrower
under the Documents:
(a) failure of Lender to receive from Borrower within five
(5) Business Days of the date when due and payable any
amount payable under either Note, except for a payment
due at the Maturity Date of a Note for which no grace
period is allowed;
(b) failure of Lender to receive from Borrower within thirty
(30) days of the date when due and payable any payment
due under the Documents not referred to in item (a)
above;
(c) any representation or warranty which is made by a person
other than Lender and is contained in the Documents or
in any certificate furnished to Lender under the
Documents by or on behalf of Borrower (other than by
Lender's Inspector) proves to be, in any material
adverse respect, false or misleading as of the date
deemed made;
(d) a default in the Performance of the Obligations set
forth in paragraph 3.2, 3.6, 6.9(a), 6.9(b)(i),
6.9(b)(iii), 6.9(b)(iv) or 6.10;
(e) a default in the Performance of the Obligations or a
violation of any term, covenant or provision of the
Documents (other than a default or violation referred to
elsewhere in this paragraph 7.1) which continues
unremedied (i) for a period of thirty (30) days after
notice of such
-49-
<PAGE> 50
default or violation to Borrower in the case of a
default under or violation of paragraph 6.9(b)(ii),
6.13, 6.18, 6.19, 6.20, 6.21. 6.22 and 6.23 or any
default or violation which can be cured by the payment
of money alone or (ii) for a period of thirty (30)
Business Days after notice to Borrower in the case of
any other default or violation, plus, only if the
default is not reasonably susceptible to cure within
such thirty (30) Business Day period but Borrower has
within such period begun efforts to effect such cure and
continues to diligently pursue such cure. such
additional period of time as may be required for
Borrower to effect such cure, but in no event shall the
combined period exceed sixty (60) calendar days after
the original notice to Borrower;
(f) an "Event of Default," as defined in the Powhatan
Assignment, any of the Borrower's Assignments or the
Borrower's Mortgage;
(g) any default by Borrower under any other agreement
evidencing, guaranteeing or securing borrowed money or a
receivables purchase financing involving an obligation
in excess of One Hundred Thousand Dollars ($100,000) to
make a payment of principal or interest or to repurchase
receivables or any other material default by Borrower
permitting the acceleration of the payment or repurchase
obligations of Borrower, which payment or repurchase
obligations entitled to be accelerated are in excess of
One Hundred Thousand Dollars ($100,000) in the
aggregate;
(h) any final, non-appealable judgment or decree for money
damages or for a fine or penalty against Borrower which
is not paid and discharged or stayed within thirty (30)
days thereafter and when aggregated with all other
judgment(s) or decree(s) that have remained unpaid and
undischarged or stayed for such period is in excess of
One Hundred Thousand Dollars ($100,000);
(i) any party holding a lien or security interest in any
Collateral (other than a lien created by Purchaser
solely with respect to its Time-Share Interest)
commences foreclosure or similar sale thereof;
(j) Borrower shall (i) generally not be paying its debts as
they become due. (ii) file, or consent by answer or
otherwise to the filing against it of a petition for
relief or reorganization, arrangement or liquidation or
any other petition in bankruptcy or insolvency under the
laws of any jurisdiction, (iii) make an assignment for
the benefit of its creditors, (iv) consent to the
appointment of a custodian, receiver, trustee or other
officer with similar powers for itself or any
substantial part of its property,
-50-
<PAGE> 51
(v) be adjudicated insolvent, (vi) dissolve or commence
to wind-up its affairs or (vii) take any action for
purposes of the foregoing; or a petition for relief or
reorganization, arrangement or liquidation or any other
petition in bankruptcy or insolvency or the appointment
of a custodian under the laws of any jurisdiction is
filed against it or a custodian is appointed for
Borrower, the Collateral or any material part of its
properties and such proceeding is not dismissed and
appointment vacated within ninety (90) days thereafter:
(k) any of the events enumerated in paragraphs 7.1(b), (c),
(e), (g), (h), (i) or (j) occurs with respect to any
Guarantor or other surety for the Performance of the
Obligation:
(1) failure of Lender to receive from Borrower, within
thirty (30)days of the date Borrower knows of such
change, notice of any material change in any
representations or warranties in the Documents or
otherwise made in connection with either of the Loans;
(m) an order or decree has been entered by any court of
competent jurisdiction enjoining the construction or
intended use of the Time-Share Project or any portion
thereof as a time-share resort and judgment is not
vacated within ninety (90) days after Borrower has
obtained knowledge or notice thereof;
(n) at any time prior to Completion of the Work, Borrower
(i) abandons the Work or (ii) delays construction or
suffers construction to be delayed for any period of
time, for any reason whatsoever not covered by item (i)
above so that Completion of the Work cannot be
accomplished in the ordinary course of construction, in
the reasonable judgment of Lender, on or before the
Required Completion Date; or
(o) during three (3) consecutive months the unpaid principal
balance of Instruments which constitute part of the
Receivables Collateral and become more than fifty-nine
(59) days past due exceeds three percent (3%) of the
unpaid principal balance of all Eligible Instruments on
the first of such month; provided, however, that the
same shall not constitute an Event of Default hereunder
so long as such delinquent principal balance does not
exceed three percent (3%) of the unpaid principal
balance of all Eligible Instruments for any of the three
(3) consecutive months following the third month for
which such delinquency test was not met.
7.2 Remedies. At any time after an Event of Default has occurred and
while it is continuing, Lender may but without obligation, in
-51-
<PAGE> 52
addition to the rights and powers granted elsewhere in the
Documents and not in limitation thereof, do any one or more of
the following:
(a) cease to make further Advances;
(b) declare the Notes (or either of them), together with
prepayment premiums and all other sums owing by Borrower
to Lender in connection with the Documents, immediately
due and payable without notice, presentment, demand or
protest, which are hereby waived by Borrower;
(c) with respect to the Receivables Collateral, (i)
institute collection, foreclosure and other enforcement
actions against Purchasers and other persons obligated
on the Receivables Collateral, (ii) enter into
modification agreements and make extension agreements
with respect to payments and other performances, (iii)
release persons liable for performance, (iv) settle and
compromise disputes with respect to payments and
performances claimed due, all without notice to
Borrower, without being called to account therefor by
Borrower and without relieving Borrower from Performance
of the Obligations, and (v) receive, collect, open and
read all mail of Borrower for the purpose of obtaining
all items pertaining to the Receivables Collateral;
(d) apply the then balance of the Required Completion
Assurance Deposits to the satisfaction of the
Obligations in such order and manner as Lender may
determine:
(e) (i) continue and/or cause Completion of the Work: (ii)
take exclusive possession of the Property or any part
thereof: (iii) expend such funds as Lender may deem
appropriate, including the Required Completion Assurance
Deposit(s) (if any), any other funds of Borrower held by
Lender and any sums which may remain unadvanced
hereunder, to continue and/or cause Completion of the
Work; (iv) demand and receive performances due under the
Principal Work-Related Items and the other Contracts,
Intangibles, Licenses and Permits: (v) make such changes
to the scope of the Work and to the Principal
Work-Related Items and other Contracts, Intangibles,
Licenses and Permits as may be necessary or desirable in
Lender's judgment: (vi) file claims, institute
enforcement actions and otherwise prosecute and defend
all actions or proceedings relating to the Work, the
Principal Work-Related Items and the other Contracts,
Intangibles, Licenses and Permits as Lender may
determine to be necessary or desirable in Lender's
judgment; (vii) pay, settle or compromise all existing
bills and claims which are or may be liens against any
of the Property or as Lender may deem to be necessary or
desirable in Lender's
-52-
<PAGE> 53
judgment for the continuance or Completion of the Work
related thereto or the clearance of title, all without
notice to Borrower; (viii) execute in Borrower's name
all applications, certificates, notices and other
instruments and give all instructions and communications
which may be required or permitted by the Principal
Work-Related Items and other Contracts, Intangibles,
Licenses and Permits, as determined by Lender; (ix)
cancel or surrender any of the Principal Work-Related
Items and the other Contracts, Intangibles and Deposits
and enter into new contracts for the Completion of the
Work and any changes to the scope of the Work; (x) do
any and every act with respect to the Completion of the
Work, the Principal Work-Related Items and the other
Contracts, Intangibles, Licenses and Permits which
Borrower may do in its behalf; (xi) employ such
contractors, subcontractors, suppliers, agents,
attorneys, architects, accountants, appraisers, security
guards and inspectors as Lender may in its judgment deem
necessary or desirable to accomplish any of the above
purposes; and (xii) receive, collect, open and read all
mail of Borrower for the purpose of obtaining all items
pertaining to the Work, the Principal Work-Related Items
and the other Contracts, Intangibles, Licenses and
Permits; and
(f) proceed to protect and enforce its rights and remedies
under the Documents and to foreclose or otherwise
realize upon its security for the Performance of the
Obligations, or to exercise any other rights and
remedies available to it at law, in equity or by
statute.
7.3 Application of Proceeds During an Event of Default.
Notwithstanding anything in the Documents to the contrary, while
an Event of Default exists, any Required Completion Assurance
Deposits and any cash received and retained by Lender in
connection with the Receivables Collateral may be applied to
payment of the Obligations in the manner provided in paragraph
7.5.
7.4 Uniform Commercial Remedies: Sale: Assembly of Collateral.
(a) UCC Remedies; Sale of Receivables Collateral. Lender
shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code of the
Commonwealth of Virginia and all other rights and
remedies accorded to a Secured Party at equity or law.
Any notice of sale or other disposition of the
Receivables Collateral given not less than ten (10)
Business Days prior to such proposed action in
connection with the exercise of Lender's rights and
remedies shall constitute reasonable and fair notice of
such action. Lender may postpone or adjourn any such
sale from time to time by announcement at the time and
place of sale stated on the notice of sale or by
announcement of any adjourned sale, without being
required to give a further
-53-
<PAGE> 54
notice of sale. Any such sale may be for cash or, unless
prohibited by applicable law, upon such credit or
installment as Lender may determine. Borrower shall be
credited with the net proceeds of such sale only when
such proceeds are actually received by Lender in good
current funds. Despite the consummation of any such
sale, Borrower shall remain liable for any deficiency on
the Obligations which remains outstanding following such
sale. All net proceeds recovered pursuant to a sale
shall be applied in accordance with the provisions of
paragraph 7.5.
(b) Lender's Right to Execute Conveyances. Lender may, in
the name of Borrower or in its own name, make and
execute all conveyances, assignments and transfers of
the Receivables Collateral sold in connection with the
exercise of Lender's rights and remedies; and Lender is
hereby appointed Borrower's attorney-in-fact for this
purpose.
(c) Obligation to Assemble Collateral. Upon request of
Lender when an Event of Default exists, Borrower shall
assemble the Personal Property, Receivables Collateral
not already in Lender's possession and make it available
to Lender at a time and place designated by Lender.
7.5 Application of Proceeds. The proceeds of any sale of all or any
part of the Receivables Collateral made in connection with the
exercise of Lender's rights and remedies shall be applied in the
following order of priorities: first, to the payment of all
costs and expenses of such sale, including without limitation,
reasonable compensation to Lender and its agents, attorneys'
fees, and all other expenses, liabilities and advances incurred
or made by Lender, its agents and attorneys, in connection with
such sale, and any other unreimbursed expenses for which Lender
may be reimbursed pursuant to the Documents; second, to the
payment of all late charges required by the Documents to be paid
by Borrower, in such order and manner as Lender shall in its
discretion determine; third, to the payment of the other
Obligations, in such order and manner as Lender shall in its
discretion determine, with no amounts applied to payment of
principal until all interest has been paid; and third, to the
payment to Borrower, its successors or assigns, or to whosoever
may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct, of any surplus then remaining
from such proceeds.
7.6 Lender's Right to Perform. Lender may, at its option, and
without any obligation to do so, pay, perform and discharge any
and all obligations (including, without limitation, the
Obligations under paragraph 6.10) agreed to be paid or performed
in the Documents by Borrower or any surety for the Performance
of the Obligations if (a) such person fails to do so and (b)(i)
an Event of Default exists or (ii) in the opinion of Lender,
such action must be taken because an emergency exists or to
preserve any of the Collateral
-54-
<PAGE> 55
or its value. For such purposes Lender may use the proceeds of
the Receivables Collateral. All amounts expended by Lender in so
doing or in exercising its remedies under the Documents
following an Event of Default shall become part of the
Obligations, shall be immediately due and payable by Borrower to
Lender upon demand, and shall bear interest at the Default Rate
from the dates of such expenditures until paid.
7.7 Non-Exclusive Remedies. No remedy in any Document conferred on
or reserved to Lender is intended to be exclusive of any other
remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given
under any Document or now or hereafter existing at law or in
equity. No delay or omission to exercise any right or power
shall be construed to be a waiver of or acquiescence to any
default or a waiver of any right or power; and every such right
and power may be exercised from time to time and as often as may
be deemed expedient.
7.8 Waiver of Marshalling. Borrower, for itself and for all who may
claim through or under it, hereby expressly waives and releases
all right to have the Collateral, or any part of the Collateral,
marshalled on any foreclosure, sale or other enforcement of
Lender's rights and remedies.
7.9 Attorney-in-Fact. For the purpose of exercising its rights and
remedies under paragraphs 7.2(c), 7.2(d) and 7.6. Lender may do
so in Borrower's name or its name and is hereby appointed as
Borrower's attorney-in-fact to take any and all actions in
Borrower's name and/or on Borrower's behalf as Lender may deem
necessary or appropriate in its discretion in the accomplishment
of such purposes.
8. LENDER'S INSPECTOR
8.1 Retention of Lender's Inspector. Lender may retain an
architectural/engineering firm ("Lender's Inspector") to do the
following: (a) until Completion of the Work and the making of
the last Work-Related Advance (including the disbursement of the
Basic Retainage and Additional Retainage), review the Principal
Work-Related Items, the other Contracts, Intangibles, Licenses
and Permits and the budget proposed to be the Construction
Budget and any changes to such items; (b) inspect the Real
Property prior to commencement of the Work for purposes of
determining the condition of the Real Property and any existing
improvements; (c) until Completion of the Work and the making of
the last Work-Related Advance (including the disbursement of the
Basic Retainage and Additional Retainage), make monthly
inspections of the Real Property and Work (whether or not
Development Loan proceeds are to be used to pay or reimburse
Borrower for the costs of such Work) so that Lender may monitor
whether Borrower is in compliance with the terms and conditions
of this Agreement, and certifying that each Development
-55-
<PAGE> 56
Loan Advance Request is not in excess of the Work completed and
the amount to which Borrower is entitled under the terms and
conditions of this Agreement; and (d) provide evidence
satisfactory to Lender prior to the funding of any Development
Loan Advance that (subject to completion thereof as part of the
Work as contemplated by this Agreement), all necessary street,
easements and utilities are available to the boundary of the
Real Property and that the respective lines and treatment or
generator plants are of adequate capacity and size for the
intended timeshare use of the Property. Furthermore, Lender may
require an inspection of the Work by Lender's Inspector (a)
prior to each Development Loan Advance; (b) at least once each
month during the course of Completion of the Work; (c) upon
Completion; and (d) until Completion of the Work and the making
of the last Work-Related Advance (including the disbursement of
the Basic Retainage and Additional Retainage), at such other
times as Lender may, in its judgment, deem necessary due to
actual or suspected noncompliance with the Plans and
Specifications, Construction Contract(s), the Documents, any
law, regulation or private restriction, sound architectural,
engineering or construction principles or commonly accepted
safety standards, or Borrower's failure to satisfy the
requirements of the Documents.
8.2 No Duty of Lender to Supervise, Etc. Lender shall have no duty
to supervise or to review and inspect the Principal Work-Related
Items, the other Contracts, Intangibles, Licenses and Permits,
any budget proposed to be the Construction Budget, any books and
records pertaining thereto or any changes to such items or the
construction of the Work. Any inspection made by Lender shall be
for the sole purpose of determining whether the Obligations are
being Performed and preserving Lender's rights under these
Documents. If Lender, or Lender's Inspector acting on behalf of
Lender, should review or inspect the Principal Work-Related
Items, the other Contracts, Intangibles, Licenses and Permits,
the Construction Budget, any books and records pertaining
thereto or any changes to such items or the construction of the
Work, Lender and Lender's Inspector shall have no liability or
obligation to Borrower or any third person arising out of such
inspection; and neither Borrower nor any third person shall be
entitled to rely upon any such inspection or review. Inspection
not followed by notice of an Event of Default shall not
constitute (a) waiver of any Event of Default then existing; (b)
an acknowledgment or representation by Lender or Lender's
Inspector that there has been or will be compliance with the
Principal Work-Related Items, the other Contracts, Intangibles,
Licenses and Permits, Construction Budget, applicable laws,
regulations and private restrictions, sound construction,
engineering or architectural principles or commonly accepted
safety standards, or that the construction is lien free or free
from defective materials or workmanship; or (c) a waiver of
Lender's right thereafter to insist that Completion of the Work
occur in accordance with the Principal Work-Related Items, the
other Contracts, Intangibles, Licenses and Permits,
-56-
<PAGE> 57
Construction Budget, the Documents, applicable laws, regulations
and restrictions, sound construction, engineering or
architectural principles or commonly-accepted safety standards
and free from defective materials and workmanship. Lender and
Lender's Inspector owe no duty of care to Borrower or any third
person to protect against, or inform Borrower or any third
person of, the existence of negligence, faulty, inadequate or
defective design or construction of the Work. Without limiting
the generality of the foregoing, Lender will deliver or cause to
be delivered to Borrower, within a reasonable time after their
delivery to Lender, copies of any written reports of Lender's
Inspector.
9. CONSTRUCTION AND GENERAL TERMS
9.1 Payment Location. All monies payable under the Documents shall
be paid to Lender at its address set forth in paragraph 9.5 of
this Agreement in lawful monies of the United States of America,
unless otherwise designated in the Documents or by Lender by
notice.
9.2 Entire Agreement. The Documents exclusively and completely state
the rights and obligations of Lender and Borrower with respect
to the Loans. No modification, variation, termination,
discharge, abandonment, or waiver of any of the provisions or
conditions of the Documents shall be valid unless in writing and
signed by duly authorized representatives of the party sought to
be bound by such action. The Documents supersede any and all
prior representations, warranties and/or inducements, written or
oral, heretofore made by Lender concerning this transaction,
including any commitment for financing.
9.3 Powers Coupled with an Interest. The powers and agency hereby
granted by Borrower are coupled with an interest and are
irrevocable until the Obligations have been paid in full and are
granted as cumulative to Lender's other remedies for collection
and enforcement of the Obligations.
9.4 Counterparts. Any Document may be executed in counterpart, and
any number of copies of such Document which have been executed
by all parties shall constitute one original.
9.5 Notices. All notices, requests or demands required or permitted
to be given under the Documents shall be in writing, and shall
be deemed effective (a) upon hand delivery, if hand delivered;
or (b) one (1) Business Day after such are deposited for
delivery via Federal Express or other nationally recognized
overnight courier service addressed as shown below, or to such
other address as either party may, from time to time, designate
in writing. Written notice may be given by telecopy to the
telecopier number shown below or to such other telecopier number
as either party may designate, from time to time, in writing,
provided that such notice shall not be deemed effective unless
it is confirmed within
-57-
<PAGE> 58
twenty-four (24) hours by hand delivery or courier delivery of a
copy of such notice in accordance with the requirements set
forth above.
If to Lender: FINOVA Capital Corporation
7272 East Indian School Road
Suite 410
Scottsdale, Arizona 85251
Attn: Vice President-Group Counsel
Telecopy: (602) 874-6445
If to Borrower: Greensprings Associates
c/o Greensprings Plantation Resort, Inc.
4029 Ironbound Road. Suite 100
Williamsburg, Virginia 23188
Attn: Kay F. Gow, President
Telecopy: (804) 229-8690
9.6 Successors and Assigns. All the covenants of Borrower and all
the rights and remedies of the Lender contained in the Documents
shall bind Borrower, and, subject to the restrictions on merger,
consolidation and assignment contained in the Documents, its
successors and assigns, and shall inure to the benefit of
Lender, its successors and assigns, whether so expressed or not.
Borrower may not assign its rights in the Documents in whole or
in part. Except as may be expressly provided in a Document, no
person or other entity shall be deemed a third party beneficiary
of any provision of the Documents.
9.7 Severability. If any provision of any Document is held to be
invalid, illegal or unenforceable under present or future laws,
the legality, validity and enforceability of the remaining
provisions of the Documents shall not in any way be affected or
impaired thereby. In lieu of each such illegal, invalid or
unenforceable provision, there shall be added to the Document
affected, a provision that is legal, valid and enforceable and
as similar in terms to such illegal invalid and unenforceable
provision as may be possible.
9.8 Time of Essence. Time is of the essence in the Performance of
the Obligations.
9.9 Miscellaneous. All headings are inserted for convenience only
and shall not affect any construction or interpretation of the
Documents. Unless otherwise indicated, all references in a
Document to clauses and other subdivisions refer to the
corresponding paragraphs, clauses and other subdivisions of the
Document; the words "herein," "hereof," "hereto," hereunder" and
words of similar import refer to the Document as a whole and not
to any particular paragraph, clause or other subdivision; and
reference to a numbered or lettered subdivision of an Article,
or paragraph shall include relevant matter within the Article or
-58-
<PAGE> 59
paragraph which is applicable to but not within such numbered or
lettered subdivision. All Schedules and Exhibits referred to
in this Agreement are incorporated in this Agreement by
reference.
9.10 (a) CHOICE OF LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
THEREIN, THE DOCUMENTS AND THE RIGHTS, DUTIES AND OBLIGATIONS OF
THE PARTIES THERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF
VIRGINIA AND TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH
COMMONWEALTH, THE LAWS OF THE UNITED STATES; PROVIDED, HOWEVER,
THAT IF ANY COVENANT, AGREEMENT OR WAIVER ON THE PART OF
BORROWER OR RIGHT OR REMEDY OF LENDER SHALL BE INVALID OR
UNENFORCEABLE UNDER THE INTERNAL LAWS OF THE COMMONWEALTH OF
VIRGINIA, THEN THE INTERNAL LAWS OF THE STATE OF ARIZONA SHALL
APPLY.
(b) CHOICE OF JURISDICTION; WAIVER OF VENUE. BORROWER: (A)
HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS, JURISDICTION
AND VENUE OF THE COURTS OF THE STATE OF ARIZONA, MARICOPA
COUNTY, AND TO THE PROCESS, JURISDICTION, AND VENUE OF THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA, FOR
THE PURPOSES OF SUIT, ACTION OR OTHER PROCEEDINGS ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE SUBJECT MATTER HEREOF
(EXCEPT AS MAY BE SPECIFICALLY PROVIDED TO THE CONTRARY IN
BORROWER'S MORTGAGE), AND, IF LENDER INITIATES SUCH ACTION, ANY
FEDERAL OR STATE COURT WHICH IS LOCATED IN THE COMMONWEALTH OF
VIRGINIA OR OTHER JURISDICTION WHERE BORROWER HAS ASSETS AND HAS
SUBJECT MATTER JURISDICTION, AND THE CHOICE OF SUCH VENUE SHALL
IN ALL INSTANCES BE AT LENDER'S ELECTION; AND (B) WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND
AGREES NOT TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN
ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT BORROWER IS
NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED
COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. BORROWER HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM.
(c) INDUCEMENT TO LENDER. ALL OF THE PROVISIONS SET FORTH IN
THIS PARAGRAPH ARE A MATERIAL INDUCEMENT FOR LENDER'S MAKING THE
LOANS TO BORROWER.
[Borrower (initials ________)]
9.11 Compliance With Applicable Usury Law. It is the intent of the
parties hereto to comply with the Applicable Usury Law.
Accordingly, notwithstanding any provisions to the contrary in
the Documents, in no event shall this Agreement or the Documents
require the payment or permit the collection of interest in
excess of the maximum contract rate permitted by the Applicable
Usury Law.
-59-
<PAGE> 60
9.12 NO RELATIONSHIP WITH PURCHASERS. LENDER DOES NOT HEREBY ASSUME
AND SHALL HAVE NO RESPONSIBILITY, OBLIGATION OR LIABILITY TO
PURCHASERS, LENDER'S RELATIONSHIP BEING THAT ONLY OF A CREDITOR
WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWED TO IT, A
COLLATERAL ASSIGNMENT FROM BORROWER OF THE INSTRUMENTS. EXCEPT
AS REQUIRED BY LAW AND FOR FILINGS MADE WITH THE SECURITIES &
EXCHANGE COMMISSION OR ANY STOCK EXCHANGE ON WHICH BORROWER'S
STOCK IS TRADED, BORROWER WILL NOT, AT ANY TIME, USE THE NAME OF
OR MAKE REFERENCE TO LENDER WITH RESPECT TO THE TIME-SHARE
PROJECT, THE SALE OF TIME-SHARE INTERESTS OR OTHERWISE, WITHOUT
THE EXPRESS WRITTEN CONSENT OF LENDER.
9.13 NO JOINT VENTURE. THE RELATIONSHIP OF BORROWER AND LENDER IS
THAT OF DEBTOR AND CREDITOR, AND IT IS NOT THE INTENTION OF
EITHER OF SUCH PARTIES BY THIS OR ANY OTHER INSTRUMENT BEING
EXECUTED IN CONNECTION WITH THE LOANS TO ESTABLISH A
PARTNERSHIP, AND THE PARTIES HERETO SHALL NOT UNDER ANY
CIRCUMSTANCES BE CONSTRUED TO BE PARTNERS OR JOINT VENTURERS.
9.14 Standards Applied to Lender's Actions. Unless otherwise
specifically stipulated elsewhere in the Documents, if a matter
is left in the Documents to the decision, requirement, request,
determination, judgment, opinion, approval, consent,
satisfaction, acceptance, agreement, option or discretion of
Lender, its employees, Lender's counsel or any agent for or
contractor of Lender, such action shall be deemed to be
exercisable by Lender or such other person in its sole and
absolute discretion and according to standards established in
its sole and absolute discretion. Without limiting the
generality of the foregoing, "option" and "discretion" shall be
implied by use of the words "if" or "may."
9.15 Meaning of Subordination. "Any subordinations required to be
given under the Documents by third parties to Lender shall
include the subordination of and the deferral of the right to
receive payments on the subordinated obligations except to the
extent expressly permitted in this Agreement; the remittances to
Lender of all prohibited payments received by the third party;
the subordination of all liens, security interests, assignments
and other encumbrances and claims held by the third party on or
against any of Borrower's property to Lender's interest
(whenever acquired) in such property; and an agreement on the
part of the third party not to exercise any remedies against
Borrower so long as all obligations under the Documents have not
been fully satisfied.
9.16 Scope of Reimbursable Attorney's Fees. As used in the Documents,
the term "attorneys' fees" includes the reasonable fees of
attorneys licensed to practice law in any jurisdiction, law
clerks, paralegals, investigators and others not admitted to the
bar but performing services under the supervision of a licensed
attorney, and the expenses incurred by them in the performance
of their services. As used in the Documents, attorneys' fees
-60-
<PAGE> 61
incurred by Lender in the enforcement of any remedy or covenant
include, without limitation, attorneys' fees incurred in any
foreclosure of the Security Documents, in protecting or
sustaining the lien or priority of the collateral, or in any
proceeding arising from or connected with any such matter,
including any bankruptcy, receivership, injunction or other
similar proceeding, or any appeal from or petition for review of
any such matter, and with or without litigation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective name, personally or by their duly authorized
representatives as of the date above written.
LENDER FINOVA CAPITAL CORPORATION, a
Delaware corporation
By: /s/ JACK FIELDS, III
------------------------------------
Type/Print Name: Jack Fields, III
-----------------------
Title: Group Vice President
---------------------------------
BORROWER GREENSPRINGS ASSOCIATES. a Virginia
joint venture
BY: GREENSPRINGS PLANTATION RESORT,
INC., a Virginia corporation,
joint venturer
By: /s/ KAY F. GOW
------------------------------------
Kay F. Gow
President
-61-
<PAGE> 62
AMENDMENT TO DEVELOPMENT AND RECEIVABLES
LOAN AND SECURITY AGREEMENT AND
RELATED DOCUMENTS
BY THIS AMENDMENT TO DEVELOPMENT AND RECEIVABLES LOAN AND SECURITY
AGREEMENT AND RELATED DOCUMENTS ("Amendment"), dated as of July 15, 1996,
GREENSPRINGS ASSOCIATES, a Virginia joint venture ("Borrower") and FINOVA
CAPITAL CORPORATION, a Delaware corporation ("Lender"), for good and valuable
consideration, the receipt of which is hereby acknowledged, hereby confirm and
agree as follows:
ARTICLE
1. - INTRODUCTION
1.1 Lender and Borrower entered into a Development and Receivables Loan
and Security Agreement dated as of June 30, 1995 (the "Loan Agreement")
providing for, among other loans, a development loan ("Loan") in the maximum
amount of Six Million Eight Hundred Thousand Dollars ($6,800,000). As of June
30, 1996, $4,316,876.79 has been advanced under the Development Loan and
Borrower has made payments against such loan in an aggregate amount of
$1,215,995.80, leaving an outstanding principal balance, before giving effect to
the modifications contained herein, for the Development Loan of THREE MILLION
ONE HUNDRED THOUSAND EIGHT HUNDRED EIGHTY AND 99/100 DOLLARS ($3,100,880.99).
1.2 Borrower and Lender wish to amend the Loan Agreement and certain of
the other Documents, all as hereinafter provided.
ARTICLE 2. - AGREEMENT
2.1 Definitions. Except as otherwise defined herein, or unless the
context otherwise requires, capitalized terms used in this Amendment shall have
the meaning given to them in the Loan Agreement.
2.2 Amendment to Loan Agreement. The Loan Agreement is amended as
follows:
(a) Section 1.28 is deleted in its entirety and the following
is inserted in its place:
1.28 "Development Loan Borrowing Term": the period
commencing on the date of this Agreement and ending on May 31,
1997 (or if not a Business Day, on the first Business Day
thereafter).
(b) Section 1.29 is deleted in its entirety and the following is
inserted in its place:
<PAGE> 63
1.29 "Development Loan Components": the Facilities
Construction Component, the Time-Share Building (Phase I)
Construction Component and the Interest Reserve Fund; and
"Development Loan Component": one of the Development Loan
Components.
(c) Section 1.30 is deleted in its entirety, and the following
is inserted in its place:
1.30 "Development Loan Fee": Eighty-Eight Thousand
Dollars ($88,000).
(d) Section 1.31 is deleted in its entirety, and the following
is inserted in its place:
1.31 "Development Loan Maturity Date": the date (or if
not a Business Day, the first Business Day thereafter) which is
the earlier of (a) forty-eight (48) months from the date of the
last Development Loan Advance or (b) June 1, 2001.
(e) Section 1.54 is deleted in its entirety, and the following
is inserted in its place:
1.54 "Maximum Development Loan Amount": the sum of the
Maximum Time-Share Building (Phase I) Component Amount plus the
Maximum Facilities Construction Component Amount plus the
Interest Reserve Fund, which shall not exceed, in the aggregate,
Eight Million Eight Hundred Thousand Dollars ($8,800,000).
(f) Section 1.56 is deleted in its entirety, and the following is
inserted in its place:
1.56 "Maximum Facilities Construction Component Amount":
Seven Million Six Hundred Thousand Dollars ($7,600,000).
(g) Section 1.87 is deleted in its entirety, and the following
is inserted in its place:
1.87 "Required Completion Date": May 31, 1997, plus such
additional time which is necessary to achieve Completion of the
Work and is due solely to the occurrence of one or more Force
Majeure Events, but in no event later than the expiration of the
Development Loan Borrowing Term.
-2-
<PAGE> 64
(h) Section 5.2(a) is deleted in its entirety, and the following
is inserted in its place:
(a) Development Loan Minimum Required Principal
Payments. Until principal, interest and other sums due under the
Documents have been paid, exclusive of principal, interest and
other charges on the Receivables Loan Note, Borrower will make
to Lender at the time of each partial release of a Time-Share
Interest from the Borrower's Mortgage a principal payment equal
to the Partial Release Fee required to be paid in connection
with such partial release. On each of the first, second, third
and fourth annual anniversary dates of the last Advance under
the Development Loan, Borrower will make to Lender a principal
payment on the Development Loan in an amount equal to the
positive remainder, if any, obtained by subtracting the maximum
allowable Development Loan principal balance for such
anniversary date set forth below from the then outstanding
principal balance of the Development Loan.
<TABLE>
<CAPTION>
Year After Last Maximum Outstanding
Advance Balance
-------------- -------------------
<S> <C>
1 $6,000,000
2 $4,000,000
3 $2,000,000
4 $0
</TABLE>
(i) The fourth sentence of Subsection 6.16(a) is amended by
adding at the end thereof, "...provided, any portion of the Development
Fee resulting from an increase in the Maximum Development Loan Amount
from $6,800,000 to $8,800,000 shall be paid on or before July 15, 1996.
(j) Exhibit D-1, the Development Loan Promissory Note, is
amended as provided in Section 2.3, below.
(k) Exhibit J-1 is amended by deleting subsections A(5) and A(7)
in their entirety and inserting the following in their respective place:
A(5) Waiver of Liens for the general contractor (Exhibit
J-1E) and all subcontractors paid in excess of $25,000 since the
previous Work-Related Advance (Exhibit J-1G).
****
-3-
<PAGE> 65
A(7) A requisition from subcontractors paid in excess of
$25,000 since the previous Work-Related Advance in form and
substance identical to Exhibit J1-G hereof.
2.3 Other Amendments. Except to the extent any of the other Loan
Documents have been expressly amended in connection with this Amendment, each
and all of such Loan Documents shall be and hereby are amended, such that any
and all references in any of the other Loan Documents to the 'Loan" or to any
other Loan Documents shall refer to the Loan as increased pursuant hereto and to
such Loan Documents, as amended pursuant hereto or in any of the documents
executed in connection herewith.
2.4 Expenses. Borrower will on demand pay or, at Lender's election,
reimburse Lender for all reasonable attorneys' fees (estimated at the amount of
$3,500) and other Out-of-pocket expenses of Lender in connection with the
documentation and closing of the transaction contemplated hereby. In reliance
upon the representation and warranty made by Lender in the following sentence,
Borrower will indemnify, hold harmless and defend Lender, and its officers,
directors, employees, agents, affiliates, successors and assigns for, from and
against loss, expense, demand and liability arising out of any claim for a
broker's fee with respect to the transaction contemplated by this Amendment.
Lender represents and warrants to Borrower that it has not dealt with any
broker.
2.5 Confirmation. Borrower confirms and restates to Lender as of the
date of execution of this Amendment of all its representations and warranties
set forth in the Loan Agreement and the other Documents. Borrower agrees that
all liens and security interests previously granted by it to Lender are
reaffirmed for the benefit of Lender and shall secure the Loan, as increased
pursuant hereto. Borrower further acknowledges as of the date of its actual
execution of this Amendment that Lender has performed and is not in default of
its obligations under the Loan Documents and that there are no offsets, defenses
or counterclaims with respect to any of Borrower's obligations under the Loan
Documents.
2.6 . This Amendment shall not be binding upon Lender unless and until
the following conditions have been satisfied on or before July 31, 1996:
(a) Borrower has delivered to Lender the following documents and
other items, all of which shall be properly completed and executed and
shall otherwise be satisfactory in form and substance to Lender in its
sole and absolute discretion:
(i) a resolution or certificate from each corporation or
partnership comprising Borrower authorizing (A) the execution
and delivery of this Amendment and the other documents called
for in this Amendment or requested by Lender pursuant to this
paragraph ("Modification Documents") and (B) the transaction
contemplated hereby;
-4-
<PAGE> 66
(ii)a resolution or certificate, as the case may be,
from each corporate or partnership Guarantor authorizing (A) the
execution and delivery of the documents required by this
Amendment to be executed by it and (B) the performance of its
obligations under those documents;
(iii) a "Consent of Guarantor and Amendment to
Guarantee" executed by each Guarantor;
(iv) a "Amendment No. 1 to Development Loan Promissory
Note" executed by Borrower in form and substance identical to
EXHIBIT A;
(v) a "Consent of Guarantor and Amendment to Guaranty"
executed by each Guarantor in form and substance substantially
identical to EXHIBIT B;
(vi) an "Amendment to Credit Line Deed of Trust and
Security Documents and Ratification and Confirmation of Powers
of Attorney" in form and substance identical to EXHIBIT C (the
"Deed of Trust Amendment");
(vii) an opinion from counsel to Borrower and each
Guarantor as to such matters as Lender may require, which
counsel shall be reasonably satisfactory to Lender; and
(viii) such other documents and items as Lender may
reasonably require.
(b) Lender shall have received an endorsement to Ticor Title
Insurance Company Policy No. L9 184517 ("Title Insurance Policy")
reflecting the Deed of Trust Amendment, and dating down the Title
Insurance Policy to the date of recording of the Deed of Trust
Amendment.
(c) Borrower shall have paid Lender the sum of $20,000 as and
for a portion of the Development Fee pursuant to Subsection 6.16(a) of
the Loan Agreement.
Waiver by Lender of any of the foregoing as a condition to the effectiveness of
this Amendment shall not relieve Borrower of the obligation to satisfy such
condition as promptly as possible thereafter.
2.7 Written Amendment. This Amendment may not be amended or otherwise
modified except in a writing duly executed by the parties hereto.
-5-
<PAGE> 67
2.8 Severability. If any one or more of the provisions of this Amendment
is held to be invalid, illegal or unenforceable in any respect or for any reason
(all of which invalidating laws are waived to the fullest extent possible), the
validity, legality and enforceability of any remaining portions of such
provision(s) in every other respect and of the remaining provisions) of this
Amendment shall not be in any respect impaired. In lieu of each such
unenforceable provision, there shall be added automatically as a part of this
Amendment a provision that is legal, valid and enforceable and is as similar in
terms to such unenforceable provisions as may be possible.
2.9 Entire Agreement. This Amendment constitutes the entire agreement
and understanding of the parties with respect to the subject matter hereof and
this Amendment, and the Loan Documents, as amended hereby, supersedes all prior
written or oral understandings and agreements between the parties in connection
with its subject matter.
2.10 Schedules. All Schedules and Exhibits referred to herein are herein
incorporated by this reference.
2.11 Counterparts. This Amendment may be executed in one or more
counterparts, and any number of which have been signed by all the parties hereto
shall be taken as one original.
-6-
<PAGE> 68
2.12 Loan Agreement. Borrower and Lender ratify and confirm the Loan
Agreement, as amended by this Amendment, in all respects; and, except as
expressly amended by this Amendment, the Loan Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, this instrument is executed to be effective as of
the date set forth above.
BORROWER: GREENSPRINGS ASSOCIATES,
a Virginia joint venture
BY: GREENSPRINGS PLANTATION RESORT,
INC., a Virginia corporation,
joint venturer
By: /s/ KAY F. GOW
----------------------------
Kay F. Gow
President
LENDER: FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ JACK FIELDS, III
--------------------------------------
Type/Print Name: JACK FIELDS, III
-------------------------
Title: GROUP VICE PRESIDENT
-----------------------------------
-7-
<PAGE> 1
[ARTHUR ANDERSEN LLP LETTERHEAD]
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into Signature Resorts,
Inc.'s previously filed Registration Statement File No. 333-15361, Registration
Statement File No. 333-30285, Registration Statement File No. 333-46511 and
Registration Statement File No. 333-47215.
March 25, 1998,
Orlando, Florida
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated May 31, 1996,
except for Note 12, as to which the date is July 1, 1996, with respect to the
consolidated financial statements of AVCOM International, Inc. as of December
31, 1995 and for the year then ended, included in this Annual Report on Form
10-K for the year ended December 31, 1997 filed on or about March 25, 1998, of
Signature Resorts, Inc., in the previously filed Registration Statements (Form
S-8 No. 333-15361, Form S-3 No. 333-30285, Form S-3 No. 333-46511 and Form S-8
No. 333-47215) of Signature Resorts, Inc.
Ernst & Young LLP
Phoenix, Arizona
March 25, 1998
<PAGE> 1
[KPMG LETTERHEAD]
EXHIBIT 23.3
The Board of Directors and Shareholders
LSI Group Holdings Plc
Pine Lake Resort
CARNFORTH Our ref mjb/017
Lancashire
LA6 1JZ Contact
25 March 1998
Dear Sirs
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Form 10-K of Signature
Resorts, Inc. filed on or about 26 March 1998 of our report dated 27 March 1997
(copy attached), with respect to the consolidated financial statements of LSI
Group Holdings Plc at 31 December 1995 and 1996 and for each of the years in
the three-year period ended 31 December 1996. We also consent to the
incorporation by reference of the above report in Signature Resorts Inc.'s
previously filed Registration Statement File No. 333-15361, No. 333-30285, No.
333-46511 and No. 333-47215.
Yours sincerely,
KPMG
Chartered Accountants
<PAGE> 1
EXHIBIT 23.4
CONSENT OF EXPERT
We hereby consent to the reference to our firm in Signature Resorts, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, under
the caption "Applicability of Federal Securities Laws to the Sale of Vacation
Interests" in the section entitled "Business and Properties."
SCHREEDER, WHEELER & FLINT, LLP
Dated: March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 47,972
<SECURITIES> 0
<RECEIVABLES> 357,311
<ALLOWANCES> 22,916
<INVENTORY> 219,299
<CURRENT-ASSETS> 0
<PP&E> 35,024
<DEPRECIATION> 0
<TOTAL-ASSETS> 761,145
<CURRENT-LIABILITIES> 0
<BONDS> 338,000,000
0
0
<COMMON> 359
<OTHER-SE> 207,551
<TOTAL-LIABILITY-AND-EQUITY> 761,145
<SALES> 281,063
<TOTAL-REVENUES> 337,693
<CGS> 71,437
<TOTAL-COSTS> 198,176
<OTHER-EXPENSES> 65,068
<LOSS-PROVISION> 8,579
<INTEREST-EXPENSE> 22,426
<INCOME-PRETAX> 43,444
<INCOME-TAX> 23,156
<INCOME-CONTINUING> 20,288
<DISCONTINUED> 0
<EXTRAORDINARY> 766
<CHANGES> 0
<NET-INCOME> 19,522
<EPS-PRIMARY> 0.55<F1>
<EPS-DILUTED> 0.54
<FN>
<F1>FOR THE PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 134,100 53,905 121,008
<SECURITIES> 0 0 0
<RECEIVABLES> 317,548 274,169 246,288
<ALLOWANCES> 20,331 19,352 18,371
<INVENTORY> 174,991 155,553 154,244
<CURRENT-ASSETS> 0 0 0
<PP&E> 30,062 19,758 17,226
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 711,028 544,220 571,371
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 338,000,000 138,000,000 138,000,000
0 0 0
0 0 0
<COMMON> 356 354 354
<OTHER-SE> 195,072 186,737 183,059
<TOTAL-LIABILITY-AND-EQUITY> 711,028 544,220 571,371
<SALES> 79,915 69,961 60,385
<TOTAL-REVENUES> 94,234 83,156 71,895
<CGS> 19,579 18,538 16,200
<TOTAL-COSTS> 55,297 50,533 43,244
<OTHER-EXPENSES> 17,063 18,045 14,633
<LOSS-PROVISION> 2,278 1,545 2,190
<INTEREST-EXPENSE> 7,243 5,350 5,444
<INCOME-PRETAX> 12,353 7,683 6,384
<INCOME-TAX> 4,941 2,935 2,511
<INCOME-CONTINUING> 7,412 4,748 3,873
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 248 518 0
<CHANGES> 0 0 0
<NET-INCOME> 7,164 4,230 3,873
<EPS-PRIMARY> 0.20 0.12 0.12<F1>
<EPS-DILUTED> 0.20 0.12 0.11
<FN>
<F1>FOR THE PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996
<CASH> 22,469 25,969
<SECURITIES> 0 0
<RECEIVABLES> 227,415 205,322
<ALLOWANCES> 17,328 13,832
<INVENTORY> 142,870 128,694
<CURRENT-ASSETS> 0 0
<PP&E> 14,612 12,477
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 445,884 410,494
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 330 330
<OTHER-SE> 126,095 134,469
<TOTAL-LIABILITY-AND-EQUITY> 445,884 410,494
<SALES> 182,300 47,083
<TOTAL-REVENUES> 219,847 55,797
<CGS> 48,218 11,988
<TOTAL-COSTS> 137,258 34,718
<OTHER-EXPENSES> 50,104 10,963
<LOSS-PROVISION> 8,311 1,316
<INTEREST-EXPENSE> 17,245 4,806
<INCOME-PRETAX> 6,929 3,994
<INCOME-TAX> (4,105) (115)
<INCOME-CONTINUING> 11,034 4,109
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,034 4,109
<EPS-PRIMARY> 0.41 0.15<F1>
<EPS-DILUTED> 0.40 0.14
<FN>
<F1>FOR THE PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
