<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 1998
REGISTRATION NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 6552 95-4582157
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
1875 SOUTH GRANT STREET, SUITE 650, SAN MATEO, CALIFORNIA 94402
(650) 312-7171
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ANDREW D. HUTTON
VICE PRESIDENT AND GENERAL COUNSEL
SIGNATURE RESORTS, INC.
1875 SOUTH GRANT STREET, SUITE 650, SAN MATEO, CALIFORNIA 94402
(650) 312-7171
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JOHN M. NEWELL, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000, LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
----------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434 of
the Securities Act of 1933, please check the following box: [_]
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value
per Share................... 212,717 Shares $24.813 $5,278,147 $1,557
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low trading prices of the Common
Stock on the New York Stock Exchange on February 17, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 18, 1998
212,717 SHARES
[LOGO OF SIGNATURE RESORTS]
SIGNATURE RESORTS, INC.
COMMON STOCK
The shares of Common Stock, par value $0.01 per share ("Common Stock"), of
Signature Resorts, Inc., a Maryland corporation (the "Company" or "Signature"),
which may be offered hereby (the "Registered Offering") are held by certain
stockholders of the Company (the "Registering Stockholders"). See "Registering
Stockholders." The Company will not receive any of the proceeds from the sale
of any shares offered hereby. The Registering Stockholders received such shares
of Common Stock in private placement transactions and the Company has agreed to
file and maintain a shelf registration statement relating to such shares in
order to permit the Registering Stockholders to resell such shares from time-
to-time in public transactions. In connection with this transaction, the
Company will bear expenses estimated at $37,000.
The Common Stock is listed on the New York Stock Exchange under the symbol
"OWN." Prior to February 6, 1998, the Common Stock was listed on the Nasdaq
National Market under the symbol "SIGR." On February 17, 1998, the last
reported sales price for the Company's Common Stock was $24 13/16 per share.
SEE "RISK FACTORS" COMMENCING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Any distribution of the shares covered by this Prospectus may be effected
from time to time in one or more transactions (which may involve block
transactions) on the New York Stock Exchange, in negotiated transactions or in
a combination of such methods of sale, at fixed prices, at prices related to
the prevailing market prices or at negotiated prices. The Registering
Stockholders will effect any such transactions with or through one or more
broker-dealers which may act as agent or principal, and if required by the
Company, through block trades or offerings through underwriters. Any such
broker-dealer may receive compensation in the form of underwriting discounts,
concessions or commissions from the Registering Stockholders and/or the
purchaser of the shares for whom it may act as agent or to whom it may sell as
principals or both. With respect to any shares sold by a Registering
Stockholder, the Registering Stockholder and/or any broker-dealer effecting the
sales may be deemed to be an "underwriter" within the meaning of Section 2(11)
of the Securities Act of 1933, as amended (the "Securities Act"), and any
commissions received by the broker-dealer and any profit on the resale of
shares as principal may be deemed to be underwriting discounts or commissions
under the Securities Act. Additionally, the Registering Stockholders may pledge
or make gifts of their shares and such shares may also be sold by the pledgees
or transferees. See "Plan of Distribution."
-----------
The date of this Prospectus is , 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS REGISTERED OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus, or in any document incorporated by reference
herein, as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified by such reference.
The Company is also subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Copies of the Registration Statement and reports, proxy statements and other
information concerning the Company may be obtained from the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: Seven World Trade Center, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the public
reference section of the Commission at its Washington address upon payment of
the fees prescribed by the Commission or may be examined without charge at the
offices of the Commission. Electronic filings made through the Electronic Data
Gathering Analysis and Retrieval System are publicly available through the
Commission's Website (http://www.sec.gov). In addition, such reports, proxy
statements and other information concerning the Company can be inspected and
copied at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005 on which the Common Stock of the Company is traded.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which the Company has filed with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference in, and
shall be deemed to be a part of, this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
(c) The Company's amended Quarterly Report on Form 10-Q/A for the
quarter ended March 31, 1997, filed with the Commission on October
6, 1997;
(d) The Company's Proxy Statement dated April 11, 1997 related to the
Annual Meeting of Stockholders held on May 16, 1997;
(e) The Company's Current Report on Form 8-K filed with the Commission
on May 30, 1997;
(f) The Company's amended Current Report on Form 8-K/A filed with the
Commission on July 29, 1997;
(g) The Company's Current Report on Form 8-K filed with the Commission
on September 9, 1997;
(h) The Company's Current Report on Form 8-K filed with the Commission
on September 12, 1997;
(i) The Company's Current Report on Form 8-K filed with the Commission
on October 6, 1997;
(j) The Company's amended Current Report on Form 8-K/A filed with the
Commission on October 10, 1997;
(k) The Company's amended Current Report on Form 8-K/A filed with the
Commission on October 22, 1997;
(l) The Company's Current Report on Form 8-K filed with the Commission
on December 24, 1997;
(m) The Company's Current Report on Form 8-K filed with the Commission
on January 20, 1998; and
(n) The Company's Current Report on Form 8-K filed with the Commission
on February 5, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby shall be deemed to be
incorporated by reference into this Prospectus and to be a part thereof from
the respective dates of filing of such documents. Any statement contained in
this Prospectus or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated or deemed to be
incorporated by reference in this Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus except as so modified or superseded.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide without charge to any
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the foregoing documents incorporated
herein by reference (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference therein). Requests should
be directed to the attention of Andrew D. Hutton, Vice President and General
Counsel, Signature Resorts, Inc., 1875 South Grant Street, Suite 650, San
Mateo, California 94402 (Telephone: (650) 312-7171).
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data,
included elsewhere or incorporated by reference in this Prospectus. Unless
the context otherwise indicates, the "Company" means 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 by a subsidiary of
Signature Resorts, Inc. on February 7, 1997 in the merger with AVCOM (the
"AVCOM Merger"), Plantation Resorts Group, Inc. ("PRG") and its
subsidiaries, which were acquired by a subsidiary of Signature Resorts,
Inc. on May 15, 1997 (the "PRG Merger") and LSI Group Holdings Plc ("LSI")
and its subsidiaries, which were acquired by Signature Resorts, Inc. on
August 28, 1997 (the "LSI Acquisition"). This Prospectus contains forward-
looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors." Except
as indicated to the contrary, all information in this Prospectus has been
restated to reflect the Company's three-for-two stock split in the form of
a Common Stock dividend paid on October 27, 1997 to stockholders of record
on October 10, 1997. See "Recent Developments--Three-for-Two Stock Split."
THE COMPANY
The Company is the world's largest developer and operator of vacation
ownership resorts. The Company is devoted exclusively to vacation ownership
operations and, as of the date of this Prospectus, the Company's properties
consist of 77 vacation ownership resort locations in eight North American
and European countries. Through its Marc Hotels & Resorts subsidiary, the
Company manages an additional 22 resorts in Hawaii.
The Company's principal operations currently consist of (i) acquiring,
developing and operating vacation ownership resorts, (ii) marketing and
selling vacation ownership interests in its North American resorts, which
typically entitle the buyer to use a fully-furnished vacation residence,
generally for a one-week period each year in perpetuity ("Vacation
Intervals"), (iii) marketing and selling vacation points at its European
resort locations and the 21 North American resort locations acquired by the
Company through its acquisition of Vacation Internationale, Ltd. which may
be redeemed for occupancy rights at participating resorts ("Vacation
Points") and (iv) providing consumer financing to individual purchasers for
the purchase of Vacation Intervals 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' associations.
The Company's principal executive offices are located at 1875 South Grant
Street, Suite 650, San Mateo, California 94402, and its telephone number is
(650) 312-7171.
RECENT DEVELOPMENTS
Acquisition of MMG Holding Corp. and Affiliated Companies. On February 3,
1998, the Company announced that it had 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 indebtedness. 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 Orlando, Ft.
Lauderdale and Deerfield Beach, Florida; Banner Elk, North Carolina; and
Gatlinburg and Pigeon Forge, Tennessee. In addition, Signature has assumed
MMG's commitment to purchase an additional resort in Gatlinburg, Tennessee.
Fourth Quarter and 1997 Year End Results. On January 27, 1998, the Company
announced total revenues for the three months ended December 31, 1997 of $88.4
million, a 32% increase over the $66.9 million pro forma
3
<PAGE>
total revenues for the comparable period of 1996. Recurring net income for the
three months ended December 31, 1997 was $10.2 million, a 392% increase over
the $2.1 million pro forma recurring net income for the comparable period of
1996. Recurring net income margins for the quarter increased to 11.6% from 3.1%
pro forma recurring net income margins for the comparable period of 1996.
On a diluted per share basis, recurring net income increased 367% to $0.28
for the fourth quarter of 1997 from $0.06 pro forma recurring net income for
the fourth quarter of 1996. EBITDA for the fourth quarter of 1997 increased
183% to $23.6 million from pro forma EBITDA of $8.4 million for the fourth
quarter of 1996. EBITDA margins increased in the quarter to 26.7% from 12.5%
pro forma EBITDA margins for the comparable period of 1996.
Interval sales during the fourth quarter of 1997 increased to 3,666 intervals
sold from 3,573 intervals sold during the fourth quarter of 1996. The average
sales price for intervals sold increased 18% to $15,539 during the fourth
quarter of 1997 from $13,171 during the comparable period of 1996. The average
sales price will change from period to period depending upon the mix of resorts
in sales and the types of units sold (studio, one, two and three bedrooms).
Point sales revenue during the fourth quarter of 1997 increased 43% to $13.8
million from $9.7 million during the comparable period of 1996. The increase in
interval and point sales revenues is, in a large part, the result of continued
strong sales trends at the Company's resorts as well as the Company recording
points sales at the Vacation Internationale and Global Group resorts which the
Company acquired during the fourth quarter of 1997.
Reported net income of $4.2 million and reported diluted earnings per share
of $0.12 for the fourth quarter of 1997 differ from recurring net income of
$10.2 million and recurring diluted earnings per share of $0.28, reflecting a
one-time non-cash charge of $6.0 million during the fourth quarter of 1997 for
deferred taxes resulting from the change in tax status of PRG from a
partnership to a "C" Corporation for federal income tax purposes. Pro forma
reported net loss of ($6.1) million and pro forma reported diluted loss per
share of ($0.18) for the fourth quarter of 1996 differ from pro forma recurring
net income of $2.1 million and pro forma recurring earnings per share of $0.06,
reflecting non-recurring charges of $13.5 million ($8.2 net of tax) incurred in
the fourth quarter of 1996 due to the write down of certain AVCOM assets to net
realizable value, severance related costs and an increase in reserves for
mortgages receivable.
On January 27, 1998, the Company also announced total revenues for the twelve
months ended December 31, 1997 were $337.7 million, a 53% increase over the
$220.1 million pro forma total revenues for the twelve months ended December
31, 1996. Recurring net income for the twelve months ended December 31, 1997
was $32.2 million, a 128% increase over the $14.2 million pro forma recurring
net income for 1996. Recurring net income margins for 1997 increased to 9.5%
from 6.4% pro forma net income margins for 1996.
On a diluted per share basis, recurring net income increased 117% to $0.89
for 1997 from $0.41 pro forma recurring net income for 1996. EBITDA for 1997
increased 100% to $82.3 million from the pro forma EBITDA of $41.1 million for
1996. EBITDA margins increased for 1997 to 24.4% from 18.7% pro forma EBITDA
margins for 1996.
Interval sales during the twelve months ended December 31, 1997 increased 45%
to 17,271 intervals sold from 11,946 intervals sold during the twelve months
ended December 31, 1996. The average sales price for intervals sold increased
6% to $13,885 during 1997 from $13,146 during 1996. The average sales price
will change from period to period depending upon the mix of resorts in sales
and the types of units sold (studio, one, two and three bedrooms). Point sales
revenue during the twelve months ended December 31, 1997 increased 63% to $41.3
million from $25.3 million during 1996.
Reported net income of $19.5 million and reported diluted earnings per share
of $0.54 for the twelve months ended December 31, 1997 differ from recurring
net income of $32.2 million and recurring diluted earnings per share of $0.89,
reflecting (i) one-time merger-related charges of $10.0 million ($6.0 million
net of tax) incurred
4
<PAGE>
during 1997 in connection with the acquisitions of AVCOM and LSI, (ii) $6.0
million of deferred taxes resulting from the change in tax status of PRG from a
partnership to a "C" Corporation for federal income tax purposes and (iii) $0.7
million, net of tax, for costs associated with the early extinguishment of
debt. Pro forma reported net income for $6.6 million and pro forma reported
earnings per share of $0.19 for 1996 differ from pro forma recurring net income
and pro forma recurring diluted earnings per share of $14.2 million and $0.41,
respectively, reflecting net non-recurring charges of $14.4 million ($8.6
million net of tax) incurred during 1996 due to the write down of certain AVCOM
assets to net realizable value, severance related costs and an increase in
reserves for mortgage receivables. The Company also received non-recurring
revenue of $1.7 million ($1.0 million net of tax) in 1996 resulting from the
collection of a note receivable obtained in the Company's 1995 purchase of the
Flamingo Beach Club Resort.
The Company's total mortgage receivables balance at December 31, 1997 was
$354.7 million, an increase of 52.3% from $232.8 million in total mortgage
receivables at December 31, 1996. The Company's allowance for doubtful accounts
as a percentage of gross mortgages receivable decreased to 6.5% at December 31,
1997 from 7.4% at December 31, 1996. The Company reported an allowance for
doubtful accounts of 6.2% of gross mortgages receivable at December 31, 1996 in
its 1996 Form 10-K prior to the later adjustments required to restate the
Company's historical financial statements to reflect the pooling of interests
accounting treatment for the Company's acquisitions by merger of AVCOM, PRG and
LSI. The increased allowance at December 31, 1996 reported in the Company's
restated financials was largely the result of additional reserves reported by
these acquired entities prior to their acquisition by Signature.
At December 31, 1997, approximately 4.0% of the Company's consumer loans were
considered by the Company to be delinquent (past due by 60 but not more than
120 days), which is comparable to the 4.1% delinquency rate at December 31,
1996. An additional approximately 2.0% of the Company's consumer loans were 120
days or more past due at December 31, 1997. At December 31, 1996, 1.2% of the
Company's consumer loans were more than 120 days past due.
Acquisition of Westin Carambola Beach Resort. On January 26, 1998, the
Company announced the consummation of its acquisition of the Westin Carambola
Beach Resort (the "Carambola Beach Resort") on the island of St. Croix, United
States Virgin Islands for a purchase price of $13 million. The Carambola Beach
Resort contains 156 one-bedroom suites and one two-bedroom suite located in 27
detached 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 announced that it and Westin Hotels & Resorts ("Westin") had 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 at St. John,
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. See "Risk
Factors--Risks Related to Westin Agreement; Limited Control of Resorts" and
"Business--Westin Vacation Club Resorts."
Acquisition of European Vacation Ownership Business of Global Development
Ltd. On December 5, 1997, the Company consummated its acquisition of the
European vacation ownership business of Global Development Ltd. and certain of
its affiliated companies (the "Global Group") through an asset purchase for
cash consideration of approximately $18 million. The Global Group has 13 resort
locations in France (3),
5
<PAGE>
United Kingdom (4), Austria (1), mainland Spain (1), and the Canary Islands
(4). The Company assumed no long-term 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 Global Group sells Vacation
Intervals and vacation points at its resorts. Its Global Vacation Club allows
its members to use annual allotments of points as a currency to reserve each
year the specific resort, season, unit type and length of stay at any of the
club's 13 resorts. The asset purchase will be accounted for using the purchase
method of accounting.
Acquisition of Embassy Suites Resort at Kaanapali Beach, Maui. 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 Embassy Suites Resort at
Kaanapali Beach is a 413-suite, full service resort hotel located on the beach
in Kaanapali, Maui, Hawaii. Upon the receipt of necessary governmental
approvals, the Company intends to convert the first phase of hotel suites to
vacation ownership units. The Company expects to operate the resort with
approximately 256 hotel suites and approximately 157 one-bedroom and two-
bedroom vacation ownership units. Vacation ownership sales at the resort are
anticipated to commence in the first half of 1998.
Acquisition of Vacation Internationale, Ltd. On November 7, 1997, the Company
consummated its acquisition of 100% of the capital stock of Vacation
Internationale, Ltd. ("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. Founded in 1974, VI is a Bellevue,
Washington based developer and operator of vacation ownership resorts. VI's
Vacation Time Share Program includes 21 owned, managed or affiliated resorts in
the Western United States, Hawaii, Mexico and Canada. The acquired assets
include VI's approximately $12.8 million mortgages receivable portfolio. VI's
club program allows its approximately 31,000 member families to use their
annual allotments of points as a currency to reserve each year the specific
resort, season, unit type and length of stay at any of the club's 21 resorts.
The VI acquisition will be accounted for using the purchase method of
accounting for business combinations.
Three-for-Two Stock Split. On October 27, 1997, the Company effected a three-
for-two stock split in the form of a common stock dividend on the Company's
Common Stock, par value $.01 per share ("Common Stock"). Stockholders of record
on October 10, 1997 (the "Record Date") received one additional share of Common
Stock for every two shares owned on the Record Date. Fractional shares were
paid in cash.
Acquisition of Marc Hotels & Resorts. 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 one of Hawaii's leading hospitality management companies and
operators of hotels, resort condominiums and all-suite resorts with 22 managed
resort locations on Hawaii's five major islands. The Marc Acquisition will be
accounted for using the purchase method of accounting for business
combinations.
Creation of Sunterra Resorts Brand. On September 24, 1997, the Company
announced the creation of "Sunterra Resorts," the Company's new flagship brand
of vacation ownership resorts. Initially, 19 formerly non-branded properties
will assume the Sunterra Resorts name and will become the Company's third
vacation ownership brand in North America, joining the Embassy Vacation Resorts
and Westin Vacation Club brands. The introduction of the Sunterra Resorts brand
marks the first step in the evolution of the Company's planned "Club Sunterra"
points-based vacation club. The Company plans to continue its introduction of
the Sunterra brand to its owner families and the traveling public and by year-
end 1998 intends to create Club Sunterra, a complete points-based vacation club
with multiple worldwide products, internal exchange and flexible lengths of
stay.
6
<PAGE>
THE REGISTERED OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Registering
Stockholders.............................. 212,717 shares
Common Stock to be outstanding after
the Registered Offering................... 35,880,086 shares(1)
Use of Proceeds............................ The Company will not receive any
proceeds from the sale of Common
Stock by the Registering
Stockholders in the Registered
Offering. See "Use of Proceeds."
New York Stock Exchange symbol............. "OWN"
</TABLE>
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(1) Does not include 4,536,990 shares of Common Stock initially issuable upon
conversion of the Company's 5 3/4% Convertible Subordinated Notes due 2007
(the "Convertible Notes"), 3,496,220 shares of Common Stock reserved for
issuance upon exercise of options granted pursuant to the Company's 1996
Equity Participation Plan and 747,518 shares of Common Stock reserved for
issuance pursuant to the Company's Employee Stock Purchase Plan. Holders of
shares of the Company's Common Stock are not entitled to vacation ownership
interests at any of the Company's resorts.
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following material risk factors should be carefully considered in evaluating
the Company and its business before purchasing any of the shares of Common
Stock offered hereby. The Company cautions the reader that this list of
material risk factors may not be exhaustive.
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Certain statements in this
Prospectus that are not historical fact constitute "forward- looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Discussions containing such forward-looking statements may be found
in the material set forth under "Summary," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as within the Prospectus generally. In addition, when used
in the Prospectus the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below and the matters set forth in
the Prospectus generally. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.
RISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS
The Company will have significant interest expense and principal repayment
obligations under its indebtedness. As of September 30, 1997, the Company and
its consolidated subsidiaries had an aggregate of $445.9 million of long-term
debt. See "Consolidated Capitalization." Total debt to total capitalization
was 65.1% and 69.5% at December 31, 1996 and September 30, 1997, respectively.
Prior to the Note Offering, the Company financed Vacation Interval sales
through the hypothecation of its consumer mortgages receivable. Under such
hypothecation arrangements, third party lenders loaned the Company up to 90%
of the par value of its consumer mortgages receivable. Consumer mortgages
receivable payments, consisting of principal and interest, are paid to the
third party lenders. The Company's cash flows from consumer mortgages
receivable are sufficient to service the underlying hypothecated notes, which
totaled $81.2 million at September 30, 1997.
For the year ended December 31, 1996, the Company had $30.2 million in
negative cash flows from operations. Due to the significant growth of the
Company during the year ended December 31, 1996, cash flows from operations
included a use of cash for real estate and development costs totaling $71.9
million. In light of the foregoing, and after giving effect to the Note
Offering, cash flows from operations would not have been sufficient to service
the Company's debt with respect to the Convertible Notes and the Senior
Subordinated Notes. Excluding the real estate and development costs, however,
cash flows from operations would have been $41.7 million, and based on an
aggregate of $28.4 million in interest costs on the Convertible Notes and the
Senior Subordinated Notes, 68.1% of cash flows from operations would be
required to service the Company's debt under such notes.
Future development by the Company at its resorts will be financed with
existing cash, indebtedness obtained pursuant to the Company's existing credit
facilities or credit facilities obtained by the Company in the future. The
agreements with respect to such credit facilities do contain or in the future
could contain restrictive covenants, including covenants limiting capital
expenditures, incurrence of debt and sales of assets and requiring the Company
to achieve certain financial ratios, some of which could become more
restrictive over time. The Indenture also contains restrictive covenants,
including covenants limiting the incurrence of indebtedness, the payments of
dividends or other distributions and sales of assets. See "Description of
Notes--Certain Covenants." The Company is restricted from paying dividends by
certain of its debt agreements which require tangible net worth of at least
$140 million. The Indenture also limits the Company's ability to pay
dividends. See "Description of Notes--Certain Covenants--Limitation on
Restricted Payments." Subsequent acquisition
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activities will be financed primarily by new financing arrangements. Portions
of the Company's indebtedness currently are, and in the future may be, secured
by mortgages on the Company's resorts, as well as other assets of the Company.
Among other consequences, the leverage of the Company and such restrictive
covenants and other terms of the Company's debt instruments could impair the
Company's ability to obtain additional financing in the future, to make
acquisitions and to take advantage of significant business opportunities that
may arise. In addition, the Company's leverage may increase its vulnerability
to adverse general economic and vacation ownership industry conditions and to
increased competitive pressures.
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
Growth by Acquisition. A principal component of the Company's strategy is to
continue to grow by acquiring additional resorts. The Company's future growth
and financial success will depend upon a number of factors, including its
ability to identify attractive resort acquisition opportunities, consummate
the acquisitions of such resorts on favorable terms, convert such resorts to
use as vacation ownership resorts and profitably sell Vacation Intervals at
such resorts. There can be no assurance that the Company will be successful
with respect to such factors. The Company's ability to execute its growth
strategy depends to a significant degree on the existence of attractive resort
acquisition opportunities (which, in the past, have included completed or
nearly completed resort properties), its ability both to consummate
acquisitions on favorable terms and to obtain additional debt and equity
capital and to fund such acquisitions and any necessary conversion and
marketing expenditures. Currently, there are numerous potential buyers of
resort real estate which are better capitalized than the Company competing to
acquire resort properties which the Company may consider attractive resort
acquisition opportunities. There can be no assurance that the Company will be
able to compete against such other buyers successfully or that the Company
will be successful in consummating any such future financing transactions or
equity offerings on terms favorable to the Company. The Company's ability to
obtain and repay any indebtedness at maturity may depend on refinancing, which
could be adversely affected if the Company cannot effect the sale of
additional debt or equity through public offerings or private placements on
terms favorable to the Company. Factors which could affect the Company's
access to the capital markets, or the cost of such capital, include changes in
interest rates, general economic conditions, the perception in the capital
markets of the vacation ownership industry and the Company's business, results
of operations, leverage, financial condition and business prospects.
Risks Related to the Growth of Embassy Vacation Resorts. An important part
of the Company's growth strategy is to acquire and develop additional Embassy
Vacation Resorts. See "Business--Embassy Vacation Resorts." There can be no
assurance that Promus will elect to continue licensing the Embassy Vacation
Resort name to the Company with respect to possible future resorts. Under the
terms of an exclusive five-year agreement, Promus and Vistana, Inc. will
jointly acquire, develop, manage and market vacation ownership resorts in
North America under Promus brand names. As part of the exclusive agreement,
Promus and Vistana, Inc. will designate selected markets for development
(which markets include Kissimmee, Florida and Myrtle Beach, South Carolina,
and in which markets Vistana, Inc. 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, Inc. 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
licensees. On January 7, 1997, Promus announced that it intended 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."
Risks Related to Development of a Points-Based Vacation Club System. The
Company intends to develop and operate a North American points-based vacation
club system and expand the European points-based Grand Vacation Club system
operated by LSI and acquired by the Company in the LSI Acquisition. The
Company has
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not previously developed or operated a points-based vacation club system and
no assurance can be given as to management's ability to efficiently develop or
operate such a system.
RISKS RELATED TO THE AVCOM MERGER, PRG MERGER AND LSI ACQUISITION
Uncertainty as to Future Financial Results. The Company believes that the
AVCOM Merger, PRG Merger and LSI Acquisition (collectively, the
"Acquisitions") offer opportunities for long-term efficiencies in operations
that should positively affect future results of the combined operations of the
Company, AVCOM, PRG and LSI. However, until the Company is able to offset
earnings dilution resulting from the issuance of Common Stock in the
Acquisitions with the positive effect of expected long-term efficiencies, the
Acquisitions may adversely affect the Company's financial performance in 1997
and future years. In addition, the combined companies will be more complex and
diverse than the Company prior to the Acquisitions, and 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. While management and the Board of
Directors of the Company believe that the combinations can be effected in a
manner which will realize the value of the companies, management has limited
experience in combinations of this size.
In order to maintain and increase profitability, the combined companies will
need to successfully integrate and streamline overlapping functions with
respect to AVCOM and PRG (LSI is operated as a separate European unit). 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
AVCOM's and PRG's operations could have an adverse effect on the Company's
results of operations and financial condition.
AVCOM Merger, PRG Merger and LSI Acquisition and Related Expenses. Transaction
costs relating to the negotiation of and preparation for the Acquisitions and
the anticipated combination of certain operations resulted in a one-time charge
to the Company's earnings of approximately $4.1 million and $10.0 million,
respectively, for the three and nine months ended September 30, 1997. These
charges include fees and expenses payable to financial advisors, lawyers,
accountants and other transaction expenses related to the Acquisitions. There
can be no assurance that the Company will not incur additional charges in
subsequent quarters to reflect costs associated with the Acquisitions.
Accounting Treatment. The 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 are carried forward at their book values to the Company, income of the
Company includes the income (or loss) of the Company, AVCOM, PRG and LSI for
the entire fiscal year in which the Acquisitions occurred, 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.
VARIABILITY OF QUARTERLY RESULTS; POSSIBLE VOLATILITY OF STOCK PRICE
The Company's earnings may be impacted by the timing of the completion of
the acquisition and development of future resorts and the potential impact of
weather or other natural disasters at the Company's
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resort locations (e.g., hurricanes in Hawaii, St. Maarten and St. John and
earthquakes in California). See "--Natural Disasters; Uninsured Loss."
Furthermore, the Company has historically experienced and expects to continue
to experience seasonal fluctuations in its gross revenues and net income from
the sale of Vacation Intervals. This seasonality may cause significant
variations in quarterly operating results. If sales of Vacation Intervals are
below seasonal normalities during a particular period, the Company's annual
operating results could be materially adversely affected. In addition, the
combination of (i) the possible delay in generating revenue after the
acquisition by the Company of additional resorts prior to the commencement of
Vacation Interval sales and (ii) the expenses associated with start-up unit or
room-rental operations, interest expense, amortization and depreciation
expenses from such acquisitions may materially adversely impact earnings.
Due to the foregoing and other factors, the Company believes that its
quarterly and annual revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not
be relied upon as indications of future performance. Because of the above
factors, it is possible that the Company's operating results will be below the
expectations of stock market analysts and investors, which could have 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 stocks in general, could have a significant impact
on the future price of the Common Stock. In addition, the stock market in
recent years has experienced significant price and volume fluctuations that
often have been unrelated or disproportionate to the operating performance of
companies. These broad fluctuations may adversely affect the market price of
the Common Stock.
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
Risks Related to Development Activities. The Company intends to actively
continue development, construction, redevelopment/conversion and expansion of
vacation ownership resorts, and to develop a North American points-based
vacation club system and expand the European points-based vacation club system
operated by LSI. There can be no assurance that the Company will: complete
development, expansion and/or conversion of its resorts currently under
development or expansion; undertake additional expansion plans set forth in
"Business--Description of the Company's Resorts;" undertake to develop other
resorts or complete such development if undertaken; or complete development of
a North American points-based vacation club system or expansion of a European
points-based vacation club system. 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. Risks
associated with the Company's development of a North American points-based
vacation club system and expansion of LSI's European points-based Grand
Vacation Club system may include the risks that: such development and/or
expansion may be abandoned; the North American and European points-based
vacation club systems cannot be efficiently combined or operated with the
Company's current vacation ownership operations; the North American and
European points-based vacation club system 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 club system or
the expansion of a European points-based vacation club system.
Risks Related to Construction Activities. 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,
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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
"Business--The Resorts." The ability of the Company to expand its business to
include new resorts will in part depend upon the availability of suitable
properties at reasonable prices and the availability of financing for the
acquisition and development of such properties. However, there can be no
assurance that such preferential purchases can be effected in the future. In
addition, certain states and local laws may impose liability on property
developers with respect to construction defects discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may
recover from the Company amounts in connection with any repairs made to the
developed property. See "Business--Business Strategy."
RISKS ASSOCIATED WITH PARTNERSHIP INVESTMENT IN THE POIPU PARTNERSHIP
The Embassy Vacation Resort Poipu Point is owned by the Poipu Partnership
(as defined), which consists of the Company and a third party. Property
ownership through a partnership involves additional risks, including
requirements of partner consents for major decisions (including approval of
budgets), capital contributions and entry into material agreements. If the
Company and its partner are unable to agree on major decisions, either partner
may elect to invoke a buy/sell right, which could require the Company to
either sell its interest in the Embassy Vacation Resort Poipu Point or to buy
out the interest of its partner at a time when the Company is not prepared to
do so. In addition, under certain circumstances, the other partner can require
the Company to purchase such partner's interest or sell its interest to the
partner. If a dispute arises under this partnership, an adverse resolution
could have a material adverse effect on the operations of the Company. In
addition, as a general partner, the Company will be subject to certain
fiduciary obligations which may obligate it to act in a manner which is not
necessarily in the best interest of the Company. The Company may elect to
purchase interests in future resorts through similar partnership arrangements.
See "--Risks Related to Westin Agreement; Limited Control of Resorts and
Termination" and "Business--the Resorts."
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 and limited experience operating as
a public company and no experience operating a points-based vacation club
system, any of which could have an adverse impact on the Company's operations
and future profitability. The Company has chosen to conduct its management
operations in (i) two locations in California primarily with respect to
acquisition, development, finance and legal (ii) Chicago, Illinois with
respect to marketing, (iii) Orlando, Florida with respect to sales, accounting
and property management operations and (iv) Carnforth, England with respect to
LSI's European resorts and its Grand Vacation Club system. However, as the
Company grows and diversifies into additional geographic markets, including
new markets entered as a result of the LSI Acquisition, 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;
GEOGRAPHIC CONCENTRATION OF INVESTMENTS
Any downturn in economic conditions or any price increases (e.g., airfares)
related to the travel and tourism industry could depress discretionary
consumer spending and have a material adverse effect on the Company's
business. Any such economic conditions, including recession, may also
adversely affect the future availability of attractive financing rates for the
Company or its customers and may materially adversely affect the Company's
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business. Furthermore, adverse changes in general economic conditions may
adversely affect the collectibility of the Company's loans to Vacation
Interval buyers. Because the Company's operations are conducted solely within
the 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 buyers of Vacation Intervals at the
Company's resorts who make a down payment generally equal to at least 10% of
the purchase price. This financing generally bears interest at fixed rates and
is collateralized by a first mortgage on the underlying Vacation Interval. The
Company has entered into agreements with lenders for the financing of these
customer receivables. As of September 30, 1997, these agreements provide an
aggregate of up to approximately $280.0 million of available financing to the
Company bearing interest at variable rates tied to LIBOR or the prime rate of
which, at September 30, 1997, the Company had approximately $198.8 million of
additional borrowing capacity available.
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 Intervals
may be limited by both the availability of funds to finance the initial
negative cash flow that results from sales that are financed by the Company
and by reduced demand which may result if the Company is unable to provide
financing through unaffiliated lenders to buyers of Vacation Intervals. If the
Company is required to sell its customer receivables to lenders, discounts
from the face value of such receivables may be required by such lenders, if
lenders are available at all.
The Company has historically derived income from its financing activities.
At September 30, 1997, the Company's mortgage portfolio included approximately
34,485 consumer loans totaling approximately $315 million, with a stated
maturity of seven to ten years and a weighted average interest rate of 15% per
annum. Additionally, at September 30, 1997, the weighted average maturity of
all outstanding consumer loans was approximately 8.3 years and the total
borrowings secured by consumer loans were approximately $81.2 million, bearing
a weighted average interest rate of 10.1%. However, because the Company's
borrowings bear interest at variable rates (which, as of September 30, 1997,
equal 10.5% per annum on a weighted average basis) and the Company's loans to
buyers of Vacation Intervals bear interest at fixed rates (which, as of
September 30, 1997, equal 15% 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. To the extent interest rates on the Company's
borrowings decrease, the Company faces an increased risk that customers will
pre-pay their loans and reduce the Company's income from financing activities.
See "Business--Customer Financing."
RISKS OF HEDGING ACTIVITIES 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 periods ending December 31, 1996 and September 30, 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
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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 DEFAULT
The Company bears the risk of defaults by buyers who financed the purchase
of their Vacation Intervals. As of September 30, 1997, approximately 3.6% of
the Company's consumer loans were considered by the Company to be delinquent
(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 loan is more than 120 days past due) on an additional approximately 1.8% of
its consumer loans. As of September 30, 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 Interval 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 Interval and replace it with a performing mortgage.
In connection with the Company taking back any such Vacation Interval, 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 Interval has been returned to the
Company's inventory for resale (commissions paid in connection with the sale
of Vacation Intervals may be recoverable from the Company's sales personnel
and from independent contractors upon default in accordance with contractual
arrangements with the Company, depending upon the amount of time that has
elapsed between the sale and the default and the number of payments made prior
to such default). Although private mortgage insurance or its equivalent is
available to cover Vacation Intervals, the Company has never purchased such
insurance and has no present intention of doing so. In addition, although the
Company in many cases may have recourse against Vacation Interval buyers,
sales personnel and independent contractors for the purchase price paid and
for commissions paid, respectively, no assurance can be given that the
Vacation Interval purchase price or any commissions will be fully or partially
recovered in the event of a buyer default under such financing arrangements.
The Company purchased defaulted mortgage notes with respect to 900 Vacation
Intervals at the San Luis Bay Resort on which the Company is in the process of
foreclosing. The Company will be subject to the costs and delays associated
with such foreclosure process and no assurance can be given that the value of
the underlying Vacation Intervals being foreclosed upon at the time of resale
will exceed the purchase price of the defaulted loans, taking into consideration
the costs of foreclosure and resale. See "Business--Customer Financing."
Similarly, in March 1996, AVCOM purchased defaulted mortgage notes with respect
to 1,057 Vacation Intervals at the Tahoe Seasons Resort on which AVCOM was then
in the process of foreclosing. The Company continues to be subject to the costs
and delays associated with such foreclosure process and no assurance can be
given that the value of the underlying Vacation Intervals being foreclosed upon
at the time of resale will exceed the purchase price of the defaulted loans,
taking into consideration the costs of foreclosure and resale. See "Business--
Description of the Company's Resorts."
COMPETITION
The Company is subject to significant competition at each of its resorts
from other entities engaged in the business of resort development, sales and
operation, including Vacation Interval ownership, condominiums,
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hotels and motels. Many of the world's most recognized lodging, hospitality
and entertainment companies have begun to develop and sell Vacation Intervals
in resort properties. Other major companies that now operate or are developing
or planning to develop Vacation Interval resorts include Marriott Ownership
Resorts ("Marriott"), The Walt Disney Company ("Disney"), Hilton Hotels
Corporation ("Hilton"), Hyatt Corporation ("Hyatt"), Four Seasons Hotels &
Resorts ("Four Seasons"), Inter-Continental Hotels and Resorts ("Inter-
Continental") and Westin Hotels & Resorts ("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. LSI competes in Europe with certain other
vacation ownership and points-based companies. See "Business--Competition."
The Company also competes with companies with non-branded resorts such as
Westgate, Vistana, Inc. and Vacation Break USA, Inc., Fairfield Communities
and ILX Incorporated. Under the terms of a recently announced exclusive five-
year agreement, Promus and Vistana, Inc. will jointly acquire, develop and
manage and market vacation ownership resorts in North America under Promus
brand names. As part of the exclusive agreement, Promus and Vistana, Inc. will
designate selected markets for development (which markets currently include
Kissimmee, Florida and Myrtle Beach, South Carolina, and in which markets
Vistana, Inc. 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, Inc. 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. On January 7,
1997, Promus announced that it intended 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 "Business--Competition."
Subject to certain covenants not to compete, the Founders could acquire
resort and other hotel properties that could compete with the Company's
vacation ownership business.
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO
QUALIFY RESORTS
The attractiveness of Vacation Interval ownership is enhanced significantly
by the availability of exchange networks that allow Vacation Interval owners
to exchange in a particular year the occupancy right in their Vacation
Interval for an occupancy right in another participating network resort.
According to the American Resort Development Association ("ARDA"), the ability
to exchange Vacation Intervals was cited by buyers as a primary reason for
purchasing a Vacation Interval. Several companies, including Resort
Condominiums International ("RCI") and Interval International ("II"), provide
broad-based Vacation Interval exchange services, and the Company's resorts are
currently qualified for participation in the RCI and II exchange networks.
No assurance can be given that the Company will continue to be able to
qualify its resorts or will be able to qualify its future resorts, for
participation in the RCI or II exchange networks or any other exchange
network. RCI and II are under no obligation to include the Company's resorts
in their exchange networks. If such exchange networks cease to function
effectively, or if the Company's resorts are not accepted as exchanges for
other desirable resorts, the Company's sales of Vacation Intervals could be
materially adversely affected. See "Business--Participation in Vacation
Interval Exchange Networks."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of Messrs. Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger
(the "Founders"), who serve as the Company's Co-Chief Executive Officer,
President and Co-Chief Executive Officer and Chief Operating Officer,
respectively, as well as the abilities of James E. Noyes and Michael A.
Depatie, the Company's Executive Vice President, and Executive Vice President
and Chief Financial Officer, respectively. The Company's success in Europe
will
15
<PAGE>
depend 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 Founders have agreed to devote substantially full time to the business
of the Company and not engage in any competitive businesses. Historically,
each Founder has devoted more than 90% of his time to the Company. However,
the Founders' employment agreements do not specify an exact percentage of time
required to be provided by the Founders and no assurance can be given that the
Founders will continue to devote 90% or more of their time to the Company.
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. See "--Potential Conflicts of Interest."
The loss of the services of any of the Founders or Messrs. 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. 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 Intervals may be deemed to be a security as
defined in Section 2(1) of the Securities Act. If the Vacation Intervals 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 Intervals under the Securities Act and does not intend to do
so in the future. If the sale of the Vacation Intervals were found to have
violated the registration provisions of the Securities Act, purchasers of the
Vacation Intervals would have the right to rescind their purchases of Vacation
Intervals. 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 program 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 INTERVALS; OTHER LAWS
The Company's marketing and sales of Vacation Intervals and other operations
are, and any North American points-based vacation club system developed by the
Company will be, subject to extensive regulation
by the federal government and the states and foreign jurisdictions in which
its resorts are located and in which Vacation Intervals or Vacation Points 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 Interval 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 Intervals. Laws in each state where the
Company sells Vacation Intervals generally grant the purchaser of a Vacation
Interval the right to cancel a contract of purchase at any time within a
period ranging from three to fifteen calendar days following the earlier of
the date the contract was signed or the date the purchaser has received the
last of the documents required to be provided by the Company. Most states have
other laws which regulate the Company's activities, such as real estate
licensure; seller's of travel licensure; anti-fraud laws; telemarketing laws;
price, gift
16
<PAGE>
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 Interval ownership
regulations in all jurisdictions in which the Company desires to conduct sales
will not be significant or that the Company is in fact in compliance with all
applicable federal, state, local and foreign laws and regulations. Certain
European laws and regulations regulate LSI's vacation ownership operations.
Any failure to comply with applicable laws or regulations could have a
material adverse effect on the Company. See "Business--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 Intervals
assert claims with applicable regulatory agencies against Vacation Intervals
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 and local laws, ordinances and regulations, the
owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's
ability to sell or lease a property or to borrow using such real property as
collateral. Other federal and state laws require the removal or encapsulation
of asbestos-containing material when such material is in poor condition or in
the event of construction, demolition, remodeling or renovation. Other
statutes may require the removal of underground storage tanks. Noncompliance
with these and other environmental, health or safety requirements may result
in the need to cease or alter operations at a property.
As of the date of the Prospectus, Phase I environmental reports (which
typically involve inspection without soil sampling or ground water analysis)
have been prepared by independent environmental consultants for each of the
Company's owned resorts. In connection with the acquisition and development of
the Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort, the
independent environmental consultants have identified several areas of
environmental concern. The areas of concern at the Embassy Vacation Resort
Lake Tahoe relate to possible soil and water contamination that originated on
the resort site due to prior uses and to contamination that may migrate onto
the resort site from upgradient sources. California regulatory agencies have
been monitoring the resort site and have required or are in the process of
requiring the responsible parties (presently excluding the Company) to effect
remediation action. The Company has been indemnified by certain of such
responsible parties for certain costs and expenses in connection with
contamination at the Embassy Vacation Resort Lake Tahoe (including Chevron
(USA), Inc.) and does not anticipate incurring material costs in connection
therewith; however, there is no assurance that the indemnitor(s) will meet
their obligations in a complete and timely manner. In addition, the Company's
San Luis Bay Resort is located in an area of Avila Beach, California which has
experienced underground contamination resulting from leaking pipes at a nearby
oil refinery. California regulatory agencies have required the installation of
groundwater monitoring wells on the beach near the resort site, and no demand
or claim in connection with such contamination has been made on the
17
<PAGE>
Company, however, there is no assurance that claims will not be asserted
against the Company with respect to this environmental condition. In addition,
while remodeling the Carson Building at the Tahoe Beach & Ski Club, one of the
resorts acquired in the AVCOM Merger, AVCOM's contractor informed AVCOM of the
possible presence of asbestos containing materials. AVCOM has given
governmental and private notification to various agencies and persons whom
AVCOM determined should receive notice. The Company has been advised by the
relevant regulatory agencies that civil and criminal penalties will not be
assessed in this matter.
With the exception of the above mentioned resorts, the Company is not aware
of any environmental liability that would have a material adverse effect on
the Company's business, assets or results of operations. No assurance,
however, can be given that these reports reveal all environmental liabilities
or that no prior owner created any material environmental condition not known
to the Company. The Company believes that it is in compliance in all material
respects with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
A variety of laws concerning the protection of the environment, health and
safety apply to the European operations, properties and other assets owned by
LSI. See "Business--Governmental Regulations--Environmental Matters."
COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO
DISABLED PERSONS
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons on a variety of public accommodations and
facilities. These requirements did not become effective until after January 1,
1991. Although the Company believes that its resorts are substantially in
compliance with laws governing the accessibility of its facilities to disabled
persons, a determination that the Company is not in compliance with the ADA
could result in a judicial order requiring compliance, imposition of fines or
an award of damages to private litigants. The Company is likely to incur
additional costs of complying with the ADA; however, such costs are not
expected to have a material adverse effect on the Company's results of
operations or financial condition. Additional legislation may impose further
burdens or restrictions on property owners (including homeowner associations
at the Existing Resorts) with respect to access by disabled persons. The
ultimate amount of the cost of compliance with such legislation is not
currently ascertainable, and, while such costs are not expected to have a
material effect on the Company, such costs could be substantial. Limitations
or restrictions on the completion of certain renovations may limit application
of the Company's growth strategy in certain instances or reduce profit margins
on the Company's operations. If a homeowners' association at a resort was
required to make significant improvements as a result of non-compliance with
the ADA, Vacation Interval owners may default on their mortgages and/or cease
making required homeowners' association assessment payments. The Company is
not aware of any non-compliance with the ADA, the Fair Housing Act or similar
laws that management believes would have a material adverse effect on the
Company's business, assets or results of operations.
NATURAL DISASTERS; UNINSURED LOSS
In 1992, prior to the Company's purchase of an interest in the Embassy
Vacation Resort Poipu Point, the resort was substantially destroyed by
Hurricane Iniki. The resort was rebuilt with insurance proceeds before the
Company acquired its interest in the resort, but could suffer similar damage
in the future. In September 1995 and July 1996, the Company's St. Maarten
resorts were damaged by hurricanes and could suffer similar damage in the
future. In addition, the Company's other resorts which are or will be located
in Hawaii, Florida and the Caribbean (including the 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
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<PAGE>
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. See "Business--Insurance, Legal Proceedings."
EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDERS
The Founders hold substantial amounts of shares of Common Stock (Messrs.
Kaneko, Gessow and Kenninger hold 9.5%, 9.8% and 3.0%, respectively, as of the
date of this Prospectus) 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. See "Description of Capital Stock." Such control may
result in decisions which are not in the best interest of the Company. In
addition, under certain circumstances, in the event that the Founders
collectively own less than 75% of the shares of Common Stock owned by them
immediately following the closing of the Initial Public Offering and the
consummation of the Consolidation Transactions, and the Common Stock they own
thereafter is less than 75% of the market value of the Common Stock issued to
them in the Initial Public Offering, then the Company's partner in the Poipu
Partnership will be entitled to require the Company to either dispose of its
interest or purchase such partner's interest in the Poipu Partnership pursuant
to the terms and conditions of the partnership agreement.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. Any payment of future dividends will be in the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect of the payment of dividends
and other factors that the Company's Board of Directors deems relevant.
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
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
19
<PAGE>
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 business and to meeting their duties and responsibilities to investors
in such entities.
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.
THE WESTIN AGREEMENT; LIMITED CONTROL OF RESORTS
On January 19, 1998, the Company announced that it and Westin had modified
their existing joint development agreement to make the relationship non-
exclusive between the parties (such agreement, as modified, the "Westin
Agreement"). 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 at St. John, U.S.
Virgin Islands. This resort, and any additional resorts acquired or developed
pursuant to the Westin Agreement, will be owned by partnerships, limited
liability companies or similar entities in which each of Westin and the
Company will own a 50% equity interest and have an equal voice in management.
Accordingly, the Company will not be able to control such resorts or the
applicable entities. As part of the modification, the Company's and Westin's
representatives no longer serve on the other's board of directors. See
"Business--Westin Vacation Club Resorts."
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 will be
issued or outstanding as of the closing of either of the Offerings.
Staggered Board. The Board of Directors of the Company has three classes of
directors. The terms of the first, second and third classes will expire in
1997, 1998 and 1999, respectively. Directors for each class will be chosen for
a three-year term upon the expiration of the term of the current class,
beginning in 1997. The affirmative vote of two-thirds of the outstanding
Common Stock is required to remove a director.
Maryland Business Combination Statute. Under the Maryland General
Corporation Law ("MGCL"), certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any person
who owns, directly or indirectly, 10% or more of the voting power of the
corporation's shares of capital stock (an "Interested Stockholder") must be
approved by a supermajority (i.e., 80%) of voting shares. In addition, an
Interested Stockholder may not engage in a business combination for five years
following the date he or she became an Interested Stockholder.
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<PAGE>
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.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock, or the potential for
such sales, could adversely affect prevailing market prices. The shares of
Common Stock issued in the Consolidation Transactions, the PRG Merger, the LSI
Acquisition and the Marc Acquisition are subject to the limitations of Rule
144 of the Securities Act ("Rule 144"). The holders of the shares issued in
the Marc Acquisition have been granted certain registration rights pursuant to
which the Company has agreed to file the shelf registration statement of which
this Prospectus is a part with the Commission for the purpose of registering
the sale of such shares of Common Stock.
Sales in the public market of substantial amounts of the Company's Common
Stock issued in the Acquisitions could also adversely affect prevailing market
prices. Additionally, sales of substantial amounts of the Company's Common
Stock pursuant to this Prospectus could adversely affect prevailing market
prices.
As of the date of this Prospectus, there were (i) outstanding stock options
to purchase approximately 3,496,220 shares of Common Stock which have been
granted to executive officers, other key employees, independent directors and
independent contractors of the Company under the 1996 Equity Participation
Plan (less than 20% of which are presently exercisable), (ii) up to 747,518
shares of Common Stock that may be sold pursuant to the Company's Employee
Stock Purchase Plan (none of which have been sold to date) and (iii) 4,536,990
shares of Common Stock initially issuable upon conversion of the Convertible
Notes.
RISK OF TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY
The Company sells Vacation Intervals at its resorts through independent
sales agents. Such independent sales agents provide services to the Company
under contract and, the Company believes, are not employees of the Company.
Accordingly, the Company does not withhold payroll taxes from the amounts paid
to such independent contractors. Although the Internal Revenue Service has
made inquiries regarding the Company's classification of its sales agents at
its Branson, Missouri resort, no formal action has been taken and the Company
has requested that the inquiry be closed. In the event the Internal Revenue
Service or any state or local taxing authority were to successfully classify
such independent sales agents as employees of the Company, rather than as
independent contractors, and hold the Company liable for back payroll taxes,
such reclassification may have a material adverse effect on the Company.
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USE OF PROCEEDS
The Company will not receive any of the proceeds of the sale of Common Stock
by the Registering Stockholders. In connection with the filing of the shelf
registration of which this Prospectus is a part, the Company will bear the
estimated expenses set forth on the cover of this Prospectus.
CONSOLIDATED CAPITALIZATION
The following table sets forth, as of September 30, 1997, the total
consolidated capitalization of the Company.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
---------------
(UNAUDITED)
(DOLLAR AMOUNTS
IN THOUSANDS)
---------------
<S> <C>
Cash and cash equivalents...................................... $126,369
========
Debt:
Notes payable to financial institutions(a)................... $107,864
9 3/4% Senior Subordinated Notes due 2007.................... 200,000
5 3/4% Convertible Subordinated Notes due 2007............... 138,000
--------
Total debt................................................. 445,864
--------
Stockholders' equity:
Common Stock, $0.01 par value; 35,620,769 issued and
outstanding(b).............................................. 356
Additional paid-in capital................................... 156,855
Retained earnings............................................ 38,073
Cumulative foreign currency translation adjustment........... 144
--------
Total stockholders' equity................................... 195,428
--------
Total capitalization....................................... $641,292
========
</TABLE>
- --------
(a) Includes notes collateralized by mortgages receivable.
(b) Does not include an aggregate of 3,542,820 shares of Common Stock reserved
for future issuance upon exercise of options granted pursuant to the
Company's 1996 Equity Participation Plan, as amended, 747,518 shares of
Common Stock reserved for issuance pursuant to the Employee Stock Purchase
Plan and 4,536,990 shares of Common Stock initially issuable upon
conversion of the Convertible Notes.
22
<PAGE>
BUSINESS
OVERVIEW
The Company is the world's largest developer and operator of vacation
ownership resorts. The Company is devoted exclusively to vacation ownership
operations and, as of the date of this Prospectus, the Company's properties
consist of 77 vacation ownership resort locations in eight North American and
European countries. Through its Marc Hotels & Resorts subsidiary, the Company
manages an additional 22 resorts in Hawaii.
The Company's principal operations currently consist of (i) acquiring,
developing and operating vacation ownership resorts, (ii) marketing and
selling vacation ownership interests in its North American resorts, which
typically entitle the buyer to use a fully-furnished vacation residence,
generally for a one-week period each year in perpetuity, (iii) marketing and
selling Vacation Points at its European resorts and (iv) providing consumer
financing to individual purchasers for the purchase of Vacation Intervals at
its resort locations and the 21 North American resort locations acquired by
the Company through its acquisition of Vacation Internationale, Ltd. The
Company also provides resort management and maintenance services at its
resorts for which it receives fees paid by the resorts' homeowners'
associations.
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 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.
First introduced in Europe in the mid-1960's, vacation ownership has been
one of the fastest growing segments of the hospitality industry over the past
two decades. According to ARDA, during the fifteen year period ending in 1994
(the most recent year for which ARDA statistics are available), worldwide
vacation ownership sales volume for the vacation ownership industry increased
from $490 million in 1980 to $4.8 billion in 1994, representing a 17%
compounded annual growth rate. A year-by-year presentation of annual vacation
ownership sales volume follows. Based on industry data, the Company believes
that the total Vacation Interval sales volume for the vacation ownership
industry exceeded $5.5 billion in 1995 and $6.0 billion in 1996.
According to RCI Consulting, the United States and Europe are the largest
and second largest vacation ownership markets in the world, respectively.
Approximately 50% of the world's vacation owners have purchased Vacation
Intervals or vacation points at resorts or clubs in the United States and
approximately 19% of the world's vacation owners purchased in Europe.
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As shown in the following charts, according to ARDA the worldwide vacation
ownership industry has expanded significantly since 1980 both in Vacation
Interval sales volume and number of Vacation Interval owners.
NUMBER OF VACATION OWNERS
(in millions)
1980.......... 0.155
1981.......... 0.22
1982.......... 0.335
1983.......... 0.47
1984.......... 0.62
1985.......... 0.805
1986.......... 0.97
1987.......... 1.125
1988.......... 1.31
1989.......... 1.53
1990.......... 1.8
1991.......... 2.07
1992.......... 2.363
1993.......... 2.76
1994.......... 3.144
DOLLAR VOLUME OF VACATION
OWNERSHIP SALES
(in billions)
1980.......... $0.49
1981.......... 0.965
1982.......... 1.165
1983.......... 1.34
1984.......... 1.735
1985.......... 1.58
1986.......... 1.61
1987.......... 1.94
1988.......... 2.39
1989.......... 2.97
1990.......... 3.24
1991.......... 3.74
1992.......... 4.25
1993.......... 4.505
1994.......... 4.76
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
Intervals.
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, Disney, Hilton, Hyatt, Four Seasons and
Inter-Continental, as well as Promus and Westin. Unlike the Company, however,
the vacation ownership operations of each of Marriott, Disney, Hilton, Hyatt,
Four Seasons, Inter-Continental and Westin 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 information compiled by ARDA for 1994 (the most
recent year for which statistics are available), the prime market for Vacation
Intervals is customers in the 40-55 year age range who are reaching the peak of
their earning power and are gaining more leisure time. The median age of a
Vacation Interval buyer at the time of purchase is 46. The median annual
household income of current Vacation Interval
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owners in the United States is approximately $63,000, with approximately 35%
of all Vacation Interval owners having annual household incomes greater than
$75,000 and approximately 17% of such owners having annual household incomes
greater than $100,000. However, despite the growth in the vacation ownership
industry by December 31, 1994 Vacation Interval ownership has achieved only an
approximate 3.0% market penetration among United States households with income
above $35,000 per year and 3.9% market penetration among United States
households with income above $50,000 per year. In addition, as of such date,
the industry had achieved only a 1.0% market penetration among European
households with income above $30,000 per year.
According to the ARDA study, the three primary reasons cited by consumers
for purchasing a Vacation Interval are (i) the ability to exchange the
Vacation Interval for accommodations at other resorts through exchange
networks (cited by 82% of Vacation Interval purchasers), (ii) the money
savings over traditional resort vacations (cited by 61% of purchasers) and
(iii) the quality and appeal of the resort at which they purchased a Vacation
Interval (cited by 54% of purchasers). According to the ARDA study, Vacation
Interval buyers have a high rate of repeat purchases: approximately 41% of all
Vacation Interval owners own more than one Vacation Interval representing
approximately 65% of the industry inventory and approximately 51% of all
owners who bought their first Vacation Interval before 1985 have since
purchased a second Vacation Interval. In addition, the ARDA study indicates
that customer satisfaction increases with length of ownership, age, income,
multiple location ownership and accessibility to Vacation Interval exchange
networks.
The Company believes it is well positioned to take advantage of current
demographic trends, primarily because of the variety and quality of its resort
locations and its participation in the RCI and II exchange networks. However,
neither RCI nor II is under any obligation to continue to include the
Company's resorts in its exchange network. 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, the age group which purchased the most
Vacation Intervals in 1994.
BUSINESS STRATEGY
The Company's objective is to become the world's leading developer and
operator of vacation ownership resorts. To meet this objective, the Company
intends to (i) increase sales and financing of Vacation Intervals at its
resorts through broader-based marketing efforts and through the construction
of additional Vacation Interval inventory, (ii) acquire, convert and develop
additional resorts to be operated as Embassy Vacation Resorts, Westin Vacation
Club resorts and Sunterra Resorts, capitalizing on the acquisition and
marketing opportunities to be provided as a result of its strategic
relationships and its position in certain markets and the vacation ownership
industry generally, (iii) improve operating margins by reducing borrowing
costs and reducing its sales and marketing expenses as a percentage of
revenues over time, (iv) acquire additional Vacation Interval inventory,
operating companies, management contracts, Vacation Interval mortgage
portfolios or other vacation ownership-related assets that may be integrated
into the Company's operations and (v) develop and operate a North American
points-based vacation club system, as well as expand LSI's existing points-
based vacation club in Europe. The key elements of the Company's strategy are
described below.
Sales and Expansion at the Company's Resorts. The Company intends to
continue sales of Vacation Intervals at its resorts by adding Vacation
Interval inventory through the construction of new development units and by
broadening marketing efforts. As of September 30, 1997 (i) the Company had a
current inventory of 29,149 Vacation Intervals and 133,907 Vacation Points,
(ii) the Company was in the process of developing or had plans to develop an
additional 100,929 Vacation Intervals at its resorts and (iii) LSI was in the
process of developing or has plans to develop additional units to accommodate
an additional 276,000 points in LSI's Grand Vacation Club system. In light of
the foregoing, the Company believes it is well-positioned to expand sales of
Vacation Intervals at its resorts as a result of its existing supply of
Vacation Intervals in inventory, as well as planned expansion. Based on
information received from the Company's customers and sales agents, the
Company believes that in addition to basic quality, expanded resort amenities
and larger, multi-purpose units, current and potential buyers want enhanced
flexibility in scheduling their vacations, a broader distribution of
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<PAGE>
quality exchange locations and the availability of other value-priced
services. As a major developer and operator of vacation ownership resorts in
North America, the Company believes that it has acquired skill and expertise
both in the development and operation of vacation ownership resorts and in the
marketing and sales of Vacation Intervals and that it has acquired the breadth
of resorts which give it a competitive advantage.
Acquisition and Development of New Resorts. The Company intends to acquire
and develop additional resorts to be operated as branded Embassy Vacation
Resorts, Westin Vacation Club resorts and as Sunterra Resorts. To implement
its business strategy, the Company intends to pursue resort acquisitions and
developments in a number of vacation destinations that will complement the
Company's operations. The Company believes that its strategic relationships
provide it with acquisition, development and hotel-to-vacation ownership
conversion opportunities and will allow it to take advantage of currently
favorable market opportunities to acquire resort and condominium properties to
be operated as vacation ownership resorts. Since the 1992 inception of the
Company's predecessor's resort acquisition and development business, the
Company believes it has been able to purchase hotel, condominium and resort
properties and/or entitled land at less than either their initial development
cost or replacement cost and remodel or convert such properties for sale and
use as vacation ownership resorts. However, there can be no assurance that
such preferential purchases can be effected in the future. See "Risk Factors--
Risks of Development and Construction Activities." In addition to acquiring
existing resort and hotel-to-vacation ownership conversion properties, the
Company also seeks to develop resorts located in destinations where it
discerns a strong demand, which the Company anticipates will enable it to
achieve attractive rates of return.
The Company considers the potential acquisition or development of vacation
ownership resorts in locations based on existing vacation ownership
competition in the area as well as existing overall demand for accommodations.
In evaluating whether to acquire, convert or develop a vacation ownership
resort in a particular location, the Company analyzes relevant demographic,
economic and financial data. Specifically, the Company considers the following
factors, among others, in determining the viability of a potential new
vacation ownership resort in a particular location: (i) supply/demand ratio
for the purchase of Vacation Intervals in the relevant market and for Vacation
Interval exchanges into the relevant market by other Vacation Interval owners,
(ii) the market's growth as a vacation destination, (iii) the ease of
converting a hotel or condominium property into a vacation ownership resort
from a regulatory and construction point of view, (iv) the availability of
additional land at or nearby the property for potential future development and
expansion, (v) competitive accommodation alternatives in the market, (vi)
uniqueness of location and (vii) barriers to entry that would tend to limit
competition.
The Company believes that its strategic relationships provide it with
attractive acquisition, conversion, development and marketing opportunities
and uniquely position the Company to offer Vacation Intervals at a variety of
attractive resort destinations to multiple demographic groups in the vacation
ownership market. The Company's relationships with Promus and Westin also
provide it with a competitive advantage in the vacation ownership industry by
allowing it to offer separate branded products in the upscale and luxury
market segments. The Company believes that brand affiliation is becoming an
important characteristic in the vacation ownership industry as it provides the
consumer an important element of reliability and image in a fragmented and
largely non-branded industry. Through its Embassy Vacation Resorts and Westin
Vacation Club resorts, the Company believes it will be able to provide
Vacation Interval buyers with consistent quality in their vacation ownership
purchases. In addition, through its Sunterra Resorts the Company will be able
to appeal to the value-conscious consumer who seeks the best value for the
vacation dollar and does not seek affiliation with brand-name lodging
companies.
Improvement of Operating Margins. As the Company grows, management believes
that its larger number of resorts relative to its competitors will provide it
with additional revenue opportunities and the potential for cost savings. The
Company believes that increased efficiency, reduction in on-site
administrative requirements and a multi-resort management system will reduce
operating costs and allow the Company to experience increased margins by
spreading operating and corporate overhead costs over a larger revenue base.
In addition,
26
<PAGE>
operating margins at a resort tend to improve over time as a greater
percentage of Vacation Intervals are sold, resulting in lower selling,
marketing and advertising expenses.
Acquisition of Vacation Ownership Assets, Management Contracts and Operating
Companies. The Company's relationships in the vacation ownership and financial
communities and the size and geographic diversity of its portfolio of
properties provide the Company access to a variety of acquisition
opportunities. The Company 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. Examples of such acquisitions may include
acquiring additional Vacation Interval inventory, operating companies,
management contracts, Vacation Interval mortgage portfolios and properties
which may be integrated into the Company's operations. The acquisitions of
AVCOM, PRG and LSI are recent examples of this aspect of the Company's
business strategy.
Development of Points-Based Vacation Club System. The Company does not
currently operate a points-based vacation club system. However, as a result of
the LSI Acquisition, the Company acquired LSI's European points-based Grand
Vacation Club system. The Company intends to expand this system in Europe and
develop the Club Sunterra points-based vacation club system in North America.
In general, under a points-based vacation club 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 days of the
week used. 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. See "Risk Factors--Risks Related to the AVCOM Merger,
PRG Merger and LSI Acquisition."
DESCRIPTION OF THE COMPANY'S RESORTS
The Company believes that, based on ARDA and Vacation Ownership World
reports and the Company's extensive knowledge of the industry, it is the only
developer and operator of vacation ownership resorts that 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)).
Sunterra Resorts. The Company's Sunterra Resorts, which are not affiliated
with any hotel chain, are positioned in the value price segment of the market.
Vacation Intervals at the Company's Sunterra Resorts (which include the All
Seasons Resorts and the PRG Resorts) generally sell for $6,000 to $15,000 and
are targeted to buyers with annual incomes ranging from $35,000 to $80,000.
The Company believes its 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
three Embassy Vacation Resorts generally sell for $14,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide vacation ownership
accommodations that offer the same high quality and value that is represented
by the more than 135 Embassy Suites hotels throughout North America. Under the
terms of an exclusive five-year agreement, Promus and Vistana, Inc. will
jointly acquire, develop, manage and market vacation ownership resorts in
North America under Promus brand names. As part of the exclusive agreement,
Promus and Vistana, Inc. will designate selected markets for development
(which markets currently include Kissimmee, Florida and Myrtle Beach, South
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Carolina, and in which markets Vistana, Inc. 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, Inc. 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 Resorts. The Company's Westin Vacation Club resorts are
positioned in the luxury price segment of the market and are characterized by
elegant accommodations and personalized service. Vacation Intervals at Westin
Vacation Club resorts generally will sell for $16,000 to $25,000 and will be
targeted to buyers with annual incomes ranging from $80,000 to $250,000.
LSI's Grand Vacation Club. As a result of the LSI Acquisition, the Company
acquired LSI's Grand Vacation Club points-based system which LSI currently
markets to buyers principally in the United Kingdom. LSI's Grand Vacation Club
allows members to purchase an annual allotment of points that can be redeemed
for occupancy rights at LSI's 11 European resorts and at the club's other
participating resorts. Points in LSI's Grand Vacation Club can typically be
purchased for approximately $215 a point. A typical one week stay at an LSI
Resort requires approximately 46 points.
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THE RESORTS
The following tables set forth certain information, as of September 30, 1997
regarding each of the Company's resorts owned at 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 currently available for sale and occupancy and additional expansion
potential. Of the resorts set forth below, the Embassy Vacation Resort Poipu
Point and the North Bay Resort at Lake Arrowhead and the Westin Vacation Club
at St. John 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.
<TABLE>
<CAPTION>
VACATION INTERVAL
UNITS AT RESORT INVENTORY AT RESORT
------------------------------ ----------------------------------
DATE POTENTIAL CURRENT POTENTIAL
RESORT LOCATION ACQUIRED CURRENT(A) EXPANSION(B) TOTAL INVENTORY(C) EXPANSION(D) TOTAL
------ -------- -------- ---------- ------------ ----- ------------ ------------ -------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
SUNTERRA RESORTS:
Cypress Pointe Resort Lake Buena November 1992 224 276(e) 500 753 14,076(e) 14,829
Vista, Florida
Plantation at Fall Creek Branson, July 1993 114 286(f) 400 3 14,586(f) 14,589
Missouri
Royal Dunes Resort Hilton Head April 1994 40 15(g) 55 281 765(g) 1,046
Island, South
Carolina
Royal Palm Beach Club St. Maarten, July 1995 140 (h) 140 1,043 (h) 1,043
Netherlands
Antilles
Flamingo Beach Club St. Maarten, July 1995 172 85(i) 257 1,484 4,335(i) 5,819
Netherlands
Antilles
San Luis Bay Resort Avila Beach, June 1996 98 32(j) 130 1,546 1,632(j) 3,178
California
The Savoy at Miami Beach, August 1997 40 28(k) 68 2,040 1,428(k) 3,468
South Beach Florida
Scottsdale Villa Mirage Scottsdale,
Resort Arizona February 1997 64 104(l) 168 895 5,304(l) 6,199
The Ridge on Sedona
Golf Resort Sedona, Arizona February 1997 12 108(m) 120 246 5,508(m) 5,754
Sedona Springs Resort Sedona, Arizona February 1997 40 -- 40 21 -- 21
Sedona Summit Resort Sedona, Arizona February 1997 60 -- 60 792 -- 792
Villas of Poco Diablo Sedona, Arizona February 1997 33 -- 33 54 -- 54
Villas of Sedona Sedona, Arizona February 1997 40 -- 40 181 -- 181
North Bay Resort(n) Lake Arrowhead, February 1997 13 -- 13 34 -- 34
California
Tahoe Beach & Ski Club South Lake Tahoe, February 1997 140 -- 140 735 -- 735
California
Tahoe Seasons Resort South Lake Tahoe, February 1997 21(o) -- 21 210 -- 210
California
Villas on the Lake Lake Conroe,
Texas February 1997 37 64(p) 101 1,229 3,264(p) 4,493
Powhatan Plantation Williamsburg,
Virginia May 1997 405 95(q) 500 398 4,845(q) 5,243
Greensprings Plantation Williamsburg,
Virginia May 1997 58 442(r) 500 312 22,542(r) 22,854
----- ----- ----- ------ ------- -------
TOTAL............................................... 1,751 1,535 3,286 12,257 78,285 90,542
----- ----- ----- ------ ------- -------
EMBASSY VACATION RESORTS:
Poipu Point(s) Koloa, Kauai, November 1994 219(t) -- 219 8,826 -- 8,826
Hawaii
Grand Beach Orlando, Florida January 1995 126 248(u) 374 2,255 12,648(u) 14,903
Lake Tahoe South Lake Tahoe,
California May 1996 62 148(v) 210 2,074 7,548(v) 9,622
----- ----- ----- ------ ------- -------
TOTAL............................................... 407 396 803 13,155 20,196 33,351
WESTIN VACATION CLUB:
St. John(w) St. John, U.S.
Virgin Islands May 1997 48 48(x) 96 1,715 2,448(x) 4,163
----- ----- ----- ------ ------- -------
TOTAL............................................... 48 48 96 1,715 2,448 4,163
----- ----- ----- ------ ------- -------
LSI RESORTS -- -- 717 -- 717 1,915 -- 1,915(y)
MISCELLANEOUS N/A N/A -- -- -- 107 -- 107(z)
----- ----- ----- ------ ------- -------
TOTAL UNITS AND
VACATION INTERVALS...................................... 2,923 1,979 4,902 29,149 100,929 130,078
===== ===== ===== ====== ======= =======
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
UNITS AT RESORT VACATION POINTS IN SYSTEM
------------------------------- -----------------------------------
DATE POTENTIAL CURRENT POTENTIAL
RESORT LOCATION ACQUIRED CURRENT(aa) EXPANSION(bb) TOTAL INVENTORY(cc) EXPANSION(dd) TOTAL
- ------ -------- -------- ----------- ------------- ----- ------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LSI RESORTS:
Pine Lake Resort Lake District, England August 1997 112 -- 112
Woodford Bridge
Country
Club Devon, England August 1997 72 50 122
Wychnor Park
Country Club Midlands, England August 1997 44 20 64
Flanesford
Priory Midlands, England August 1997 16 -- 16
Los Amigos Beach
Club Costa Del Sol, Spain August 1997 140 50 190
Royal Oasis Club
at La Quinta Costa Del Sol, Spain August 1997 68 -- 68 133,907 276,000 409,907
Royal Oasis Club
at Benal Beach Costa Del Sol, Spain August 1997 108 -- 108
White Sands
Beach Club Menorca, Spain August 1997 48 -- 48
White Sands
Country Club Menorca, Spain August 1997 51 -- 51
Club del Carmen Lanzarote, Canary Islands August 1997 67 -- 67
Alpine Club Schladming, Austria August 1997 69 -- 69
--- --- ---
TOTAL UNITS AND
VACATION POINTS...................................... 795 120 915
=== === ===
</TABLE>
- -------
(a) Current units at each resort represents only those units that have
received their certificate of occupancy as of September 30, 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 September 30,
1997, (i) units currently under construction that have not yet received
their certificate of occupancy and (ii) units planned to be developed on
land currently owned by the Company or under option to be acquired which
have not yet received their certificate of occupancy and which are not
currently 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 September 30, 1997.
(d) Potential expansion of Vacation Intervals at each resort includes, as of
September 30, 1997, (i) Vacation Intervals currently under development
that have not yet received their certificate of occupancy and (ii)
Vacation Interval development potential on land currently owned by the
Company or under option to be acquired which have not yet received their
certificate of occupancy and which are not currently under construction.
(e) Includes an estimated 276 units which the Company plans to construct on
land which it owns at the Cypress Pointe Resort and for which all
necessary governmental approvals and permits (except building permits)
have been obtained. Should the Company elect to construct a higher
percentage of three bedroom units, rather than its current planned mix of
one, two and three bedroom units, the actual number of planned units will
be lower than is indicated above.
(f) Includes an estimated 286 units which the Company plans to construct on
land which it owns or is currently subject to a contract to purchase at
the Plantation at Fall Creek.
(g) Includes 15 units construction of which commenced in the second quarter of
1997 and for which all necessary governmental approvals and permits have
been received by the Company.
(h) The Company has not committed to any expansion of the Royal Palm Beach
Club. The Company is considering the acquisition of additional land
adjacent to the Royal Palm Beach Club for the addition of an estimated 60
units (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.
(i) In May 1996 the Company acquired a five-acre parcel of land adjacent to
the Flamingo Beach Club on which the Company plans to develop
approximately 85 units (and create a corresponding number of Vacation
Intervals). The Company is in the process of seeking to obtain the
necessary governmental approvals and permits for such proposed expansion.
(j) The Company is considering the acquisition of additional land near the San
Luis Bay Resort 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.
In June 1996 the Company acquired approximately
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130 Vacation Intervals at the San Luis Bay Resort out of the bankruptcy
estate of Glen Ivy Resorts, Inc. In addition, the Company acquired
promissory notes in default that are secured by approximately 900 Vacation
Intervals. The Company intends to foreclose upon and acquire clear title to
such Vacation Intervals and intends to complete such foreclosure procedures
(or deed-in-lieu procedures) during the first quarter of 1998.
(k) Construction of an additional 28 units is scheduled for completion by the
second quarter of 1998.
(l) Includes 40 units and 64 units which are scheduled for completion in the
first quarter of 1998 and 1999, respectively. All necessary discretionary
approvals and permits have been received for all units to be constructed
at the Scottsdale Villa Mirage Resort.
(m) Construction began in December 1996 on The Ridge on Sedona Golf Resort,
which upon completion will consist of 120 units. The first 12 units and
clubhouse are scheduled for occupancy in the fourth quarter of 1997 and
have received all necessary discretionary governmental approvals and
permits. Governmental approvals and permits have not been sought or
received for the additional planned 108 units. Vacation Interval sales
began in May 1997.
(n) 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 North Bay Resort at Lake
Arrowhead. The General Partner is entitled to receive 1% of the profits of
Arrowhead Capital Partners, L.P., but under certain circumstances, is
entitled to receive substantially higher profits. All Seasons has an
exclusive sales and marketing contract for sales at North Bay, and is the
property manager of the resort. Although Arrowhead Capital Partners, L.P.
owns undeveloped land and buildings under construction at the North Bay
Resort at Lake Arrowhead, no definitive expansion plans have been made.
(o) 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 foreclose on the remaining notes
and acquire clear title to the applicable Vacation Intervals.
(p) 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 start date has not yet
been determined, however, all necessary discretionary governmental
approvals and permits (excluding building permits which have not yet been
applied for) have been received for such additional 64 units.
(q) Includes 14 units which are currently under construction and are scheduled
for occupancy during the first quarter of 1998. The Company has received
all necessary discretionary governmental approvals and permits with
respect to such 14 units, excepting certificates of occupancy. The
Company's development schedule for the remaining 81 units will be
determined based on market demand and other factors.
(r) Includes 30 units which are currently under construction and are scheduled
for occupancy during the first quarter of 1998. The Company has received
all necessary discretionary governmental approvals and permits with
respect to such 30 units, excepting certificates of occupancy. The
Company's development schedule for the remaining 412 units will be
determined based on market demand and other factors.
(s) 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, directly or indirectly, a
29.93% limited partnership interest in the Poipu Partnership for purposes
of distributions, profits and losses, for a total partnership interest of
30.43%. In addition, following repayment of any outstanding partner loans,
the Company, directly or indirectly, is entitled to receive a 10% per
annum return on the Founders' and certain former limited partners' initial
capital investment of approximately $4.6 million in the Poipu Partnership.
After payment of such preferred return and the return of approximately
$4.6 million of capital to the Company, directly or indirectly, on a
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pari passu basis with the other general partner in the partnership, the
Company, directly or indirectly, is entitled to receive approximately 50%
of the net profits of the Poipu Partnership. In the event certain internal
rates of return specified in the Poipu Partnership agreement are achieved,
the Company, directly or indirectly, is entitled to receive approximately
55% of the net profits of the Poipu Partnership.
(t) Includes 179 units that the Company currently rents on a nightly basis,
pending their sale as Vacation Intervals.
(u) The Company has received all necessary discretionary governmental
approvals and permits to construct an additional estimated 248 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.
(v) The Company has received all necessary discretionary 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 148 units on land that it owns at the Embassy
Vacation Resort Lake Tahoe. The Company commenced construction on 40 of
such units in the first quarter of 1997 and, subject to market demand,
currently plans to construct an additional 40 of such units commencing in
the second quarter of each year from 1998 through 1999 and the remaining
28 units commencing in May 2000.
(w) 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.
(x) Includes 48 units which are currently available for occupancy. With
respect to such 48 units, 36 of such units have received all necessary
discretionary governmental approvals and permits necessary to commence
Vacation Interval sales and the Company plans to file the necessary
documentation to receive such approvals with respect to the remaining 12
of such units. Also includes an additional 48 units which will require the
installation of utilities, furniture, fixtures and equipment and interior
finishes before occupancy. The Company currently anticipates completing
the renovation of such 48 additional units by the first quarter of 1998.
The Company also owns adjacent land at the St. John resort which will
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.
(y) Represents the aggregate number of units and Vacation Intervals (as
opposed to Vacation Points) at the Company's LSI Resorts.
(z) Represents vacation intervals at resorts not owned by the Company which
were received by the Company in exchange for Vacation Intervals at the
Company's resorts. The Company intends to sell such vacation intervals.
(aa) Current units at each resort represents only those units that have
received their certificate of occupancy (or other equivalent certificate)
as of September 30, 1997. LSI generally is able to sell points
representing 50 weeks with respect to each unit at its resorts (the 51st
and 52nd weeks are generally utilized for maintenance).
(bb) Potential expansion units at each resort includes, as of September 30,
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 LSI 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.
(cc) Current inventory of Vacation Points represents, as of September 30,
1997, the number of unsold Vacation Points in LSI's vacation club system,
as well as the number of points allocable to current unit inventory owned
by LSI but not yet contributed to LSI's vacation club system.
(dd) Potential expansion Vacation Points represents, as of September 30, 1997,
the estimated number of Vacation Points assignable to potential expansion
units at the 11 existing LSI Resorts.
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The following table sets forth certain information, as of September 30,
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:
Cypress Pointe Resort Lake Buena Vista, Florida X X X X X X X
Plantation at Fall
Creek Branson, Missouri X X X X X X X
Royal Dunes Resort Hilton Head Island,
South Carolina X X X
Royal Palm Beach Club St. Maarten, Netherlands
Antilles X X X X X
Flamingo Beach Club St. Maarten, Netherlands
Antilles X X X X X
San Luis Bay Resort Avila Beach, California X X X X X
The Savoy at South
Beach Miami Beach, Florida X X X X X
Scottsdale Villa Mirage
Resort Scottsdale, Arizona X X X X X X
The Ridge on Sedona
Golf Resort Sedona, Arizona X X X X X X X
Sedona Springs Resort Sedona, Arizona X X X X X
Sedona Summit Resort Sedona, Arizona X X X X X
Villas of Paco Diablo Sedona, Arizona X X X X
Villas of Sedona Sedona, Arizona X X X X X
North Bay Resort Lake Arrowhead,
California X X X X X
Tahoe Beach and Ski South Lake Tahoe,
Club California X X X X X X X
Tahoe Seasons Resort South Lake Tahoe,
California X X X X
Villas on the Lake Lake Conroe, Texas X X X
Powhatan Plantation Williamsburg, Virginia X X X X X X X
Greensprings Plantation Williamsburg, Virginia X X X X X
EMBASSY VACATION
RESORTS: X X X
Poipu Point Koloa, Kauai, Hawaii X X X X X
Grand Beach Orlando, Florida X X X
Lake Tahoe South Lake Tahoe,
California X X X X X
WESTIN VACATION CLUB:
St. John St. John, U.S. Virgin
Islands X X X X X X X X
LSI RESORTS:
Pine Lake Resort Lake District, England X X X X X X
Woodford Bridge Country
Club Devon, England X X X X X X
Wychnor Park Country
Club Midlands, England X X X X X X
Flanesford Priory Midlands, England X X X X
Los Amigos Beach Club Costa Del Sol, Spain X X X X X X X X
Royal Oasis Club at La
Quinta Costa Del Sol, Spain X X X X X
Royal Oasis Club at
Benal Beach Costa Del Sol, Spain 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
Club del Carmen Lanzarote, Canary Islands X X X X X
Alpine Club Schladming, Austria X X X X X X X
</TABLE>
EMBASSY VACATION RESORTS
Capitalizing on two of the Company's Founders' relationship with Promus as a
developer and owner of Embassy Suites hotels, in 1994 the Company and Promus
established Embassy Vacation Resorts. However, the Company has no ownership of
or rights to the "Embassy Vacation Resorts" name or servicemark, both of which
are owned exclusively by Promus, except as set forth in the Company's license
agreements with Promus with
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respect to the Company's Embassy Vacation Resorts. Under Promus's development
agreement with Vistana, Inc., Promus has identified the Company as the only
other licensee to whom Promus may license the Embassy Vacation Resort name.
There can be no assurance that Promus will license the Embassy Vacation Resort
name to the Company with respect to possible future resorts. On January 7,
1997, Promus announced that it intended to expand its branded vacation
ownership business with only 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.
The Company seeks to attract potential Vacation Interval buyers at its
Embassy Vacation Resorts by targeting past and present Embassy Suites' hotel
guests with in-hotel marketing and direct marketing programs. These marketing
efforts offer this target audience of Embassy Suites hotel guests value-priced
vacation packages which include resort tours and the opportunity to purchase
complete vacations, including accommodations, airfare and other vacation
components such as car rental. Additionally, the Company has the ability to
generate resort tours through Embassy Suites' central reservation system by
offering a premium for a resort tour at the time a guest reserves an Embassy
Suites hotel in the vicinity of an Embassy Vacation Resort property. The
Company believes its access to the Embassy Suites customer base allows it to
generate Vacation Interval sales from these prospective customers at a lower
cost than through other lead generation methods. Because a high percentage of
such customers already have a preference for the Embassy brand, the Company
believes it achieves relatively high sales closing percentages among these
customers.
The Embassy Vacation Resort Poipu Point is owned by the Poipu Partnership,
which consists of the Company and a third party. The Poipu Partnership
requires partner consents for major decisions including approval of budgets,
capital contributions and entry into material agreements. If the Company and
its partner are unable to agree on major decisions, either partner may elect
to invoke a buy/sell right, which could require the Company to either sell its
interest in the Embassy Vacation Resort Poipu Point or to buy out the interest
of its partner at a time when the Company is not prepared to do so. In
addition, under certain circumstances, the other partner can require the
Company to purchase such partner's interest or sell its interest to the
partner.
WESTIN VACATION CLUB RESORTS
On January 19, 1998, the Company announced that it and Westin had 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 at
St. John, U.S. Virgin Islands. This resort, and any additional resorts
acquired or developed pursuant to the Westin Agreement, will be owned by
partnerships, limited liability companies or similar entities in which each
of Westin and the Company will own a 50% equity interest and have an equal
voice in management. Accordingly, the Company will not be able to control such
resorts or the applicable entities. As part of the modification, the Company's
and Westin's representatives no longer serve on the other's board of
directors.
In May 1997, the Company and Westin jointly acquired the Westin Vacation
Club resort in St. John, U.S. Virgin Islands. The "four-star" Westin Vacation
Club at St. John involves a conversion of the existing St. John Villas,
located adjacent to the Great Cruz Bay Resort Hotel (formerly known as the
Hyatt Regency St. John) which will be operated as a Westin Hotel. Pursuant to
a purchase and sale agreement with subsidiaries of Skopbank, a Finnish
corporation, Westin acquired a 100% interest in the hotel and the Company and
Westin formed the Westin Partnership owned 50% by each of the Company and
Westin to acquire an interest in the 96 units at the St. John Villas,
representing 4,163 Vacation Intervals (the number of unsold Vacation Intervals
remaining at the St. John Villas), which will be operated as the Westin
Vacation Club resort at St. John. Of the $10.5 million purchase price for the
remaining unsold Vacation Intervals at the St. John Villas, each of the
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Company and Westin is obligated to contribute approximately $2.5 million in
cash, with the remaining $5.5 million of the acquisition price to be paid by
the Westin Partnership (which amount was loaned to the partnership by the
Company in the first quarter of 1997). In addition, the Westin Partnership
will borrow approximately $7.1 million to complete the conversion of the St.
John Villas to a Westin Vacation Club resort.
Commencement of Vacation Interval sales began in September 1997. Located
adjacent to the beachfront hotel, the St. John Villas consist of 96 studio,
one bedroom, two bedroom and three bedroom units located on 12.3 hillside
acres, of which 48 units are completed and ready for immediate occupancy. The
additional 48 units currently require construction of all interior finishes
and installation of furniture, fixtures and equipment prior to occupancy.
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 $26,000 for a
three bedroom residence. The Company offers consumer financing to the
purchasers of Vacation Intervals in the Company's resorts who make a down
payment generally equal to at least 10% of the purchase price. This financing
generally bears interest at fixed rates and is collateralized by a first
mortgage on the underlying Vacation Interval. A portion of the proceeds of
such financing is used to obtain releases of the Vacation Interval unit from
outstanding construction loans, if any.
The Company has entered into agreements with lenders for the Company's
financing of customer receivables. At September 30, 1997, these agreements
provided an aggregate of up to approximately $280.0 million of available
financing to the Company bearing interest at variable rates tied to either the
prime rate or LIBOR of which the Company had at September 30, 1997
approximately $198.8 million of additional borrowing capacity available.
At September 30, 1997, the Company's mortgage portfolio included
approximately 34,485 consumer loans totaling approximately $315 million, with
a stated maturity of seven to ten years and a weighted average interest rate
of 15% per annum. As of September 30, 1997, approximately 3.6% of the
Company's consumer loans were considered by the Company to be delinquent (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 loan is more
than 120 days past due) on an additional approximately 1.8% of its consumer
loans. As of September 30, 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 such loans are due), at which point it expenses the
interest accrued on such loan, commences foreclosure proceedings and, upon
obtaining title, returns the Vacation Interval to the Company's inventory for
resale. The Company closely monitors its loan accounts and determines whether
to foreclose on a case-by-case basis.
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 13% of the principal amount of eligible consumer
loans.
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<PAGE>
SALES AND MARKETING
As one of the leading developers and operators of vacation ownership resorts
in North America, 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. The Company's primary
means of selling Vacation Intervals 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 Westin Vacation Club and Embassy Suites
hotel guests and current owners of vacation ownerships. Cross-marketing
targets current owners of Vacation Intervals at the Company's resorts, both to
sell additional Vacation Intervals at the owner's home resort, or to sell a
Vacation Interval at another of the Company's resorts. The Company also sells
Vacation Intervals through 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 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 Intervals in the relevant market, (ii) the market's growth
as a vacation destination, (iii) the ease of converting a hotel or condominium
property into a vacation ownership resort, (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, 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
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<PAGE>
potential for overall capital appreciation of the resort is reviewed,
including the prospects for obtaining liquidity through sale or refinancing of
the resort.
Environmental and Legal Review. In conjunction with each prospective
acquisition or development, the Company conducts real estate and legal due
diligence on the property. This due diligence includes an environmental
investigation and report by a reputable environmental consulting firm,
including tests on identified underground storage tanks. If recommended by the
environmental consulting firm, additional testing is generally conducted. The
Company also obtains a land survey of the property and inspection reports from
licensed engineers or contractors on the physical condition of the resort. In
addition, the Company conducts customary real estate due diligence, including
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.
OTHER OPERATIONS
Room Rental Operations. In order to generate additional revenue at certain
of its resorts that have rentable inventory of Vacation Intervals, the Company
rents units with respect to such unsold or unused Vacation Intervals for use
as a hotel. The Company offers these unoccupied units both through direct
consumer sales, travel agents or 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. As part of the management services provided by
the Company to Vacation Interval owners, the Company receives a fee for
services provided to rent an owner's Vacation Interval in the event the owner
is unable to use or exchange the Vacation Interval. In addition, the Embassy
Vacation Resort Poipu Point (acquired in November 1994) was acquired as a
traditional hotel with the intention of converting each such resort 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, or (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. The Company
pays Promus a licensing fee of 2% of Vacation Interval sales at the Embassy
Vacation Resorts. Westin will manage Westin Vacation Club resorts.
At each of the Company's Sunterra Resorts, the Company enters into a
management agreement with an association comprised of owners of Vacation
Intervals at the resort to provide for management and maintenance of the
resort. Pursuant to each such management agreement the Company is paid a
monthly management fee equal to 10% to 12% of monthly maintenance fees. The
management agreements are typically for a three year period, renewable
annually automatically unless notice of non-renewal is given by either party.
Pursuant to each management agreement the Company has sole responsibility and
exclusive authority for all activities necessary for the day-to-day operation
of the Sunterra Resorts, including administrative services, procurement of
inventories and supplies and promotion and publicity. With respect to each
resort the Company also obtains comprehensive and general public liability
insurance, all-risk property insurance, business interruption insurance and
such other insurance as is customarily obtained for similar properties. The
Company also provides all managerial and other employees necessary for the
Sunterra Resorts, including review of the operation and maintenance of the
resorts, preparation of reports, budgets and projections, employee training,
and the provision of certain in-house legal services. At the Company's Grand
Beach and Lake Tahoe Embassy Vacation Resorts, Promus provides these services.
At the Embassy Vacation Resort Poipu Point, Aston provides management and
maintenance services to the Company pursuant to a management agreement and
assumes responsibility of such day-to-day operation of the Embassy Vacation
Resorts.
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.
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VACATION INTERVAL OWNERSHIP
The purchase of a Vacation Interval typically entitles the buyer to use a
fully-furnished vacation residence, generally for a one-week period each year,
in perpetuity. Typically, the buyer acquires an ownership interest in the
vacation residence, which is often held as tenant in common with other buyers
of interests in the property.
The owners of Vacation Intervals manage the property through a non-profit
homeowners' association, which is governed by a Board consisting of
representatives of the developer and owners of Vacation Intervals at the
resort. The Board hires an agent, delegating many of the rights and
responsibilities of the homeowners' association to a management company, as
described above, including grounds landscaping, security, housekeeping and
operating supplies, garbage collection, utilities, insurance, laundry and
repair and maintenance.
Each Vacation Interval owner is required to pay the homeowners' association
a share of all costs of maintaining the property. These charges can consist of
an annual maintenance fee 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.
For a description of the general terms of a points-based vacation club
system, see "--Business Strategy-- Development of Points-Based Vacation Club
System."
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
The Company believes that its Vacation Intervals are made more attractive by
the Company's participation in Vacation Interval exchange networks operated by
RCI and II. In addition, LSI's Grand Vacation Club points system is affiliated
with II. In a 1995 study sponsored by the Alliance for Timeshare Excellence
and ARDA, the exchange opportunity was cited by purchasers of Vacation
Intervals as one of the most significant factors in determining whether to
purchase a Vacation Interval. Participation in RCI 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 Interval for an occupancy right at the same time
or a different time in another participating resort, based upon availability
and the payment of a variable exchange fee. A member may exchange his Vacation
Interval for an occupancy right in another participating resort by listing his
Vacation Interval as available with the exchange organization and by
requesting occupancy at another participating resort, indicating the
particular resort or geographic area to which the member desires to travel,
the size of the unit desired and the period during which occupancy is desired.
Both RCI and II assign ratings to each listed Vacation Interval, based upon a
number of factors, including the location and size of the unit, the quality of
the resort and the period during which the Vacation Interval is available, and
attempts to satisfy the exchange request by providing an occupancy right in
another Vacation Interval with a similar rating. If RCI or II is unable to
meet the member's initial request, it suggests alternative resorts based on
availability.
Founded in 1974, RCI has grown to be the world's largest Vacation Interval
exchange organization, which has a total of more than 2,900 participating
resort facilities and over 2.0 million members worldwide. During 1995 RCI
processed over 1.5 million Vacation Interval exchanges. The cost of the annual
membership fee in RCI, which typically is at the option and expense of the
owner of the Vacation Interval, is $65 per year, plus an exchange fee of $89
and $119 for domestic and international exchanges, respectively. RCI has
assigned high ratings to the Vacation Intervals in the Company's resort
properties, and such Vacation Intervals have in the past been exchanged for
Vacation Intervals at other highly-rated member resorts. During 1995,
approximately 97% of all exchange requests were fulfilled by RCI, and
approximately 58% of all exchange requests are confirmed on the day of the
request. In November 1996, HFS Incorporated consummated the acquisition of RCI
for cash and securities.
Established in 1976, II has more than 1,400 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
Interval, is $66 per year, plus an exchange fee of $94 and $104 for domestic
and international exchanges, respectively. II has assigned high ratings to the
Vacation Intervals in the Company's
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resort properties, and such Vacation Intervals have in the past been exchanged
for Vacation Intervals at other highly-rated member resorts.
FUTURE ACQUISITIONS
The Company intends to expand its vacation ownership business by acquiring
or developing resorts located in attractive resort destinations, and is in the
process of evaluating strategic acquisitions in a variety of locations. Such
future acquisitions and development of resorts could have a substantial and
material impact on the Company's operations and prospects. The Company
currently is evaluating possible acquisitions of resorts and development
opportunities, including opportunities located in Southern and Northern
California, the Hawaiian islands of Hawaii, Maui and Oahu, the Caribbean,
Mexico, the Western, Southwestern and Southeastern United States (including
Florida, Arizona, Utah and Colorado) as well as in Europe and Asia. In
addition, the Company has also explored the acquisition of and may consider
acquiring existing management companies, vacation ownership developers and
marketers, loan portfolios or other industry related operations or assets in
the fragmented vacation ownership development, marketing, finance and
management industry.
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. Of the Company's major brand name lodging company
competitors, the Company believes, based on RCI reports and the Company's
extensive knowledge of the industry, that Marriott currently sells Vacation
Intervals at 12 resorts which it also owns and operates and directly competes
with the Company's Poipu Point, Hilton Head Island, Williamsburg and Orlando
area resorts; Disney currently sells Vacation Intervals at four resorts which
it also owns and operates and directly competes with the Company's Orlando
area and Hilton Head Island resorts; Hilton currently sells Vacation Intervals
at two resorts which it also owns and operates and directly competes with the
Company's Orlando area resorts; Hyatt owns and operates two resorts in Key
West, Florida and one in Beaver Creek, Colorado, but does not directly compete
in any of the Company's existing markets; Four Seasons began sales of Vacation
Interval at its first vacation ownership resort in Carlsbad, California; and
Inter-Continental has announced its entry into the vacation ownership market
but has yet to commence sales of Vacation Intervals. 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
Westgate, Vistana, Inc. and Vacation Break USA, Inc. (each of which competes
with the Company's Orlando area resorts), Fairfield Communities (which
recently announced plans to acquire Vacation Break USA, Inc. and which
currently competes with the Company's Orlando area, Williamsburg and Branson
resorts) and ILX Incorporated (which competes with the Company's Sedona,
Arizona resorts). Under the terms of a recently announced five-year agreement,
Promus and Vistana, Inc. will jointly acquire, develop, manage and market
vacation ownership resorts in North America under Promus brand names. As part
of the agreement, Promus and Vistana, Inc. will designate selected markets for
development (which markets currently include Kissimmee, Florida and Myrtle
Beach, South Carolina and in which markets Vistana, Inc. 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, Inc. 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 Acquisition, the Company is also subject to
competition in the European vacation ownership market, which is very
fragmented. In addition to LSI, there are two other operators in Europe
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operating multi-resort points clubs -- Global Group and Club la Costa. LSI
also has 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.
The Embassy Suites hotels owned or controlled by affiliates of the Company's
Founders may compete with certain of the Company's vacation ownership resorts;
however, the Company anticipates that such Embassy Suites hotels could be a
significant source of lead generation for its marketing activities. Subject to
certain covenants not to compete, the Company's Founders could acquire resort
and other hotel properties that could compete with the Company's vacation
ownership business.
The Company believes, based on ARDA and RCI reports and the Company's
extensive knowledge of the industry, that its experience and exclusive focus
on the vacation ownership industry, together with its portfolio of resorts
located in a wide range of resort destinations and at a variety of price
points, distinguish it from each of its competitors and that the Company is
uniquely positioned for future growth.
GOVERNMENTAL REGULATION
General. The Company's Vacation Interval marketing and sales are subject to
extensive regulations by the federal government and the states and foreign
jurisdictions in which its resort properties are located and in which Vacation
Intervals are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which the Company is or may
be subject appears on the Truth-In-Lending Act and Regulation Z, the Equal
Credit Opportunity Act and Regulation B, the Interstate and Land Sales Full
Disclosure Act, Telephone Consumer Protection Act, Telemarketing and Consumer
Fraud and Abuse Prevention Act, Fair Housing Act and the Civil Rights Act of
1964 and 1968. In addition, many states have adopted specific laws and
regulations regarding the sale of Vacation Interval ownership programs. The
laws of most states, including Florida, South Carolina and Hawaii require the
Company to file with a designated state authority for its approval a detailed
offering statement describing the Company and all material aspects of the
project and sale of Vacation Intervals. The laws of California require the
Company to file numerous documents and supporting information with the
California Department of Real Estate, the agency responsible for the
regulation of Vacation Intervals. When the California Department of Real
Estate determines that a project has complied with California law, it will
issue a public report for the project. The Company is required to deliver an
offering statement or public report to all prospective purchaser of a Vacation
Interval, together with certain additional information concerning the terms of
the purchase. The laws of Illinois, Florida, Hawaii and Virginia impose
similar requirements. Laws in each state where the Company sells Vacation
Intervals generally grant the purchaser of a Vacation Interval the right to
cancel a contract of purchase at any time within a period ranging from 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 Interval ownership regulations in all
jurisdictions in which the Company desires to conduct sales will not be
significant. Any failure to comply with applicable laws or regulations could
have material adverse effect on the Company.
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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 LSI's 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 LSI conducts its
operations), the European Timeshare Directive of 1994 regulates vacation
ownership activities. For it to have direct effect, the European Timeshare
Directive must be implemented by European Community Member States and the
Directive required such implementation to have taken place prior to May 1997.
The terms of the Directive require LSI 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 LSI'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 LSI 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 has no specific timeshare
legislation, it is expected that it will implement the Timeshare Directive in
the near future. Until it does so, however, the European Timeshare Directive
has no direct effect in Spain. 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 LSI operates have consumer and other laws which regulate
its activities in those countries. LSI is member of the Timeshare Council
which is the United Kingdom self regulating trade body for vacation ownership
companies. As a member it is 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 federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and
for investigation and clean-up costs incurred by such parties in connection
with the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate the contamination on such
property, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances at a disposal
or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of its properties, the Company may be potentially
liable for such costs.
Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws
may impose liability for release of ACMs and may provide for third parties to
seek recovery from owners and operation of real properties for personal injury
associated with ACMs. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs.
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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 Intervals at such resorts and
the market value of such resort. Recently-enacted federal legislation will
eventually require the Company to disclose to potential purchasers of Vacation
Intervals at the Company's resorts that were constructed prior to 1978 any
known lead-paint hazards and will impose treble damages for failure to so
notify.
The Company has conducted Phase I assessments at each of its owned resorts
in order to identify potential environmental concerns. These Phase I
assessments have been carried out in accordance with accepted industry
practices and consisted of non-invasive investigations of environmental
conditions at the properties, including a preliminary investigation of the
sites and identification of publicly known conditions concerning properties in
the vicinity of the sites, physical site inspections, review of aerial
photographs and relevant governmental records where readily available,
interviews and knowledgeable parties, investigation for the presence of above
ground and underground storage tanks presently or formerly at the sites, a
visual inspection of potential lead-based paint and suspect friable ACMs where
appropriate, a radon survey, and the preparation and issuance of written
reports.
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 the Company
aware of any such material environmental liability. Nevertheless, it is
possible that the Company's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which the
Company is unaware. The Company does not believe that compliance with
applicable environmental laws or regulations will have a material adverse
effect on the Company or its financial condition or results of operations.
In connection with the acquisition and development of the Embassy Vacation
Resort Lake Tahoe and the San Luis Bay Resort, the Company's environmental
consultant has identified several areas of environmental concern. The areas of
concern at the Embassy Vacation Resort Lake Tahoe relate to possible
contamination that originated on the resort site due to prior uses and to
contamination that may migrate onto the resort site from upgradient sources.
California regulatory agencies have been monitoring the resort site and have
required or is in the process of requiring the responsible parties (presently
excluding the Company) to effect remediation action. The Company has been
indemnified by certain of the responsible parties for certain costs and
expenses in connection with contamination at the Embassy Vacation Resort Lake
Tahoe (including Chevron (USA), Inc.) and does not anticipate incurring
material costs in connection therewith, however, there is no assurance that
the indemnitor(s) will meet their obligations in a complete and timely manner.
In addition, the Company's San Luis Bay Resort is located in an area of Avila
Beach, California which has experienced underground contamination resulting
from leaking pipes at a nearby oil refinery. California regulatory agencies
have required the installation of groundwater monitoring wells on the beach
near the resort site, and no demand or claim in connection with such
contamination has been made on the Company, however, there is no assurance
that claims will not be asserted against the Company with respect to this
environmental condition.
The Company believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. Except as described above with
respect to the Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort,
the Company has not been notified by any governmental authority or any third
party, and is not otherwise aware, of any material noncompliance, liability or
claim relating to hazardous or toxic substances or petroleum products in
connection with any of its present properties.
A variety of laws concerning the protection of the environment, health and
safety apply to the operations, properties and other assets owned by LSI.
These laws originate at the European Union, national, state and local level.
As a result of the consummation of the LSI Acquisition, the Company has
effectively assumed the
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pre-existing liabilities of LSI under these laws, some of which impose
liability in respect of operations no longer carried out and properties or
assets no longer owned by LSI as well as existing operations, properties and
assets. These environmental laws govern, among other things, the discharge of
substances into waterways and the quality of water. Liability can attach to a
person who causes or permits the discharge of substances to such waterways
without a permit authorizing such discharges or beyond the scope of the
applicable permit. Criminal sanctions can be imposed for any such violations
and any persons violating these laws can be held responsible for the cost of
remedying the consequences of an unauthorized discharge. In addition, certain
laws restrict the use of property and the construction of buildings and other
structures. Carrying out development without the appropriate consent or beyond
the scope of the consent can result in regulatory authorities taking action to
require the unauthorized use to cease or unauthorized building or structure to
be removed or modified. Criminal sanctions are available if the authority's
requirements are not satisfied.
As of the date of this Prospectus, Phase I environmental reports (which
typically involve inspection without soil sampling or groundwater analysis)
have been prepared by independent environmental consultants for each of the
resorts currently owned by LSI. The Company is not aware of any environmental
liability which it is acquiring as a result of the purchase of LSI that would
have a material adverse effect on the Company's business, assets or results of
operations. No assurance, however, can be given that these reports reveal all
potential 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 September 30, 1997, the Company employed approximately 1,900 full-time
employees and approximately 600 part-time 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 is
represented by a labor union.
The Company sells Vacation Intervals at its resorts through approximately
770 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, 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
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damage, the Company has recovered amounts from its insurance carriers
sufficient to cover 100% of the property damage losses and is in the process
of recovering amounts for business interruption. The Company has agreed to
provide approximately 2,700 replacement weeks to owners who were unable to use
their Vacation Interval as a result of such September 1995 hurricane. Such
provision of replacement Vacation Intervals will have the short term effect of
reducing the number of Vacation Intervals available for sale or alternative
rental as hotel rooms at the St. Maarten resorts. Additionally, the St.
Maarten resorts sustained relatively minor damage in 1996 as the result of
Hurricane Bertha; management estimates that such damage is approximately
$100,000, which is less than the applicable insurance deductibles and,
accordingly, the expense to repair the damage will be borne by the Company.
There are, however, certain types of losses (such as losses arising from acts
of war) that are not generally insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a resort,
as well as the anticipated future revenues from such resort and would continue
to be obligated on any mortgage indebtedness or other obligations related to
the property. Any such loss could have a material adverse effect on the
Company.
LEGAL PROCEEDINGS
The Company is currently subject to litigation and claims respecting
employment, tort, contract, construction and commissions, disputes, among
others. In the judgment of management, none of such lawsuits or claims against
the Company is likely to have a material adverse effect on the Company or its
business.
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.
TRADEMARKS AND COMPANY NAME
While the Company owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights and other intellectual
property rights which, in the aggregate, are of material importance to its
business, it is believed that the Company's business, as a whole, is not
materially dependent upon any one intellectual property or related group of
such properties. The Company is licensed to use certain technology and other
intellectual property rights owned and controlled by others, and, similarly,
other companies are licensed to use certain technology and other intellectual
property rights owned and controlled by the Company.
The Company's Board of Directors has approved, subject to stockholder
approval, a proposal to change the Company's corporate name.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BACKGROUND
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Initial Public
Offering. The exchange of direct and indirect interests in, and obligations
of, certain limited partnerships, limited liability companies and other
corporations affiliated with the Founders for shares of Common Stock in the
Company are referred to herein as the "Consolidation Transactions."
The Company's predecessor commenced its vacation ownership resort
acquisition and development business in 1992 to take advantage of the unique
real estate development, financing and travel industry expertise of the
Founders. Mr. Kaneko, who is a Japanese national and was educated in the
United States, has more than 24 years of experience in resort real estate
acquisition and development. Prior to forming the Company, Mr. Kaneko co-
founded KOAR with Mr. Kenninger in 1985 and was previously the executive vice-
president of the Hawaii-based United States operations of a Japanese publicly-
traded real estate developer. Mr. Kenninger, a former business attorney for
the seven years prior to co-founding KOAR, has had overall responsibility for
the development, acquisition, licensing, branding and legal operations of the
Company since 1993. Prior to forming the Company, Mr. Gessow in 1990 formed
Argosy and, prior to forming Argosy, was previously president of both the
Florida and west coast offices of Trammell Crow Residential Services, a real
estate development company.
FOUNDERS' OTHER BUSINESS INTERESTS
Affiliates of Messrs. Kaneko and Kenninger currently have managing general
partner or similar interests in entities which own investment properties which
the Company does not consider to be competitive with its vacation ownership
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, as of the date of this
Prospectus, own 42 of the total 225 units, the balance having been sold to
third parties); and several retail centers. 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 five Embassy Suites
hotels which are still owned by partnerships controlled by Affiliates of
Messrs. Kaneko and Kenninger (the "Prior Partnerships")). Messrs. Kaneko and
Kenninger are authorized by the Company to meet their duties and
responsibilities to the Prior Partnerships pursuant to the terms thereof,
including the sale, refinancing, restructuring and packaging of the Prior
Partnerships, and including with respect to the formation of public or private
entities for such purpose, including a public real estate investment trust
("REIT") for one or all of the Embassy Suites hotels in the Prior Partnerships
(provided that Messrs. Kaneko and Kenninger agree not to serve as an officer
or employee of such REIT). Messrs. Kaneko and Kenninger agree to continue to
retain third party management companies to manage these properties (e.g.,
Promus Hotels manages all of the KOAR Interests' Embassy Suites hotels), and
to employ personnel not employed by the Company to carry out the day-to-day
responsibilities of managing and overseeing these properties. However, Messrs.
Kaneko and Kenninger reserve the right to do what is reasonably necessary
within these constraints to carry out their duties and responsibilities to the
Prior Partnerships pursuant to the terms thereof. The Company does not believe
that such activities will detract materially from Messrs. Kaneko's and
Kenninger's services to the Company.
PAYMENTS TO AFFILIATES
A total of $15.7 million of the net proceeds from the Consolidation
Transactions and the Initial Public Offering were used to repay outstanding
debt to affiliates of the Founders. Of the $15.7 million of the funds paid to
the affiliates of the Founders, $15.3 million was used to pay-off existing
debt to third-party financial institutions or other third-party financing
sources or to pay tax liabilities. The proceeds from the loans were previously
either invested in or loaned either to the Company or its predecessors or to
acquire or develop certain of the Company's resorts.
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In addition, pursuant to the Consolidation Transactions, during the three
months ended September 30, 1996, the Founders also received $2.3 million of
distributions from certain predecessor partnerships of the Company to fund
income tax obligations which had accrued through the date of the Initial
Public Offering and with respect to which no pre-Initial Public Offering
profits of the Company had been distributed.
In addition, $12.2 million of the net proceeds of the Initial Public
Offering were used to repay outstanding indebtedness owed to partnerships in
which an affiliate of Mr. Friedman, a director of the Company, is a general
partner. Of such repayment, approximately $3.0 million was repaid directly to
Mr. Friedman or his affiliates.
The Company generally receives management fees and certain other expenses
from homeowners' associations at the resorts it manages. Payables to such
homeowners' associations consist mostly of maintenance fees for units owned by
the Company. At December 31, 1996, the Company had accrued $4,405,000 and
$1,590,000 as a receivable and payable, respectively, with the various
homeowners' associations that it manages at its resorts. The Company accrued
$1,220,000 and $1,771,000 as a receivable and payable, respectively, at
December 31, 1995 with the homeowners' associations that it manages at its
resorts. The related party payable to the homeowners' associations that it
manages at December 31, 1995, included $1,030,000 of a special assessment fee
charged to the Company.
CONSOLIDATION TRANSACTIONS
The Company's nine vacation ownership resorts existing prior to the
Consolidation Transactions were previously owned and operated by partnerships,
each affiliated with the Founders. Such partnerships consisted of Grand Beach
Resort, L.P., a Georgia limited partnership (Embassy Vacation Resort Grand
Beach); AKGI-Flamingo C.V., a Netherlands Antilles limited partnership
(Flamingo Beach Club); AKGI-Royal Palm C.V., a Netherlands Antilles limited
partnership (Royal Palm Beach Club); Port Royal Resort, L.P., a South Carolina
limited partnership (Royal Dunes Resort); an approximately 30% interest in
Poipu Resort Partners, L.P., a Hawaii limited partnership (Embassy Vacation
Resort Poipu Point); Fall Creek Resort, L.P., a Georgia limited partnership
(Plantation at Fall Creek); Cypress Pointe Resort, L.P., a Delaware limited
partnership (Cypress Pointe Resort); Lake Tahoe Resort Partners, LLC, a
California limited liability company (Embassy Vacation Resort Lake Tahoe); and
San Luis Resort Partners, LLC, a Georgia limited liability company (San Luis
Bay Resort) (collectively the "Property Partnerships"). Affiliates of the
Founders were previously the sole general partners or the sole members of each
of the Property Partnerships. Each of the Property Partnerships (other than
the Embassy Vacation Resort Poipu Beach) which remained in existence following
the Consolidation Transactions and the Initial Public Offering are wholly
owned by the Company.
As a result of the consummation of the Consolidation Transactions, the
partnership and limited liability company interests in each of the Property
Partnerships, certain of the stock of certain other corporations affiliated
therewith (the "Affiliated Companies") held by "accredited investors" (as
defined pursuant to Regulation D under the Securities Act) and certain debt
obligations of the Property Partnerships and affiliates (and, as a result,
ownership of certain of the Company's resorts) have been directly or
indirectly transferred to the Company and in exchange the holders of such
partnership interests and certain of such stock received shares of Common
Stock in the Company. Holders of any such partnership interests who are not
"accredited investors" received cash at a price commensurate with the value
received by the accredited investors to be determined prior to the Consent
Solicitation. As a result of the Consolidation Transactions, 17,032,057 shares
of Common Stock were issued to the holders of partnership interests in the
Property Partnerships and to certain stockholders of the Affiliated Companies.
The Affiliated Companies include Argosy/KOAR Group, Inc., Resort Management
International, Inc., Resort Marketing International, Inc., RMI-Royal Palm
C.V.o.a., RMI-Flamingo C.V.o.a., AK-St. Maarten, LLC, Premier Resort
Management, Inc., Resort Telephone & Cable of Orlando, Inc., Kabushiki Gaisha
Kei, LLC, Vacation Ownership Marketing Company and Vacation Resort Marketing
of Missouri, Inc., each of which are controlled by the Founders and previously
provided administrative, utility, management and/or marketing services to
certain of the Property Partnerships.
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The Company was incorporated in Maryland in May 1996 by the Founders to
effect the Consolidation Transactions and the Initial Public Offering.
Pursuant to a Private Placement Memorandum dated as of May 28, 1996, the
Company in the Consent Solicitation solicited and received on or before June
13, 1996 the consent and agreement of the ultimate owners of interests in the
Property Partnerships, the stockholders of the Affiliated Companies and the
holders of certain debt obligations to exchange their partnership interests or
shares in, and obligations of, the Property Partnerships or Affiliated
Companies (or their direct or indirect interests in the owners thereof), as
applicable, for shares of Common Stock in the Company. Such exchange occurred
simultaneously with the closing of the Initial Public Offering. Direct and
indirect holders of interests in, and obligations of, certain Property
Partnerships received, upon consummation of the Consolidation Transactions,
shares of Common Stock in the Company equal to a predetermined dollar value
based on agreement between the Company and such holders as set forth in the
Private Placement Memorandum for the Consent Solicitation. The balance of the
shares of Common Stock issued in the Consolidation Transactions were issued to
the holders of interests in the remaining Property Partnerships and to the
holders of interests in the Affiliated Companies, which are comprised solely
of the Founders or their affiliates.
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REGISTERING STOCKHOLDERS
All shares indicated below have been registered pursuant to certain
registration rights granted by the Company. An aggregate of 212,717 shares of
Common Stock may be offered by the Registering Stockholders from time-to-time.
The following table sets forth, as of the date of this Prospectus, the name of
each Registering Stockholder, and for each, the number of shares of Common
Stock which may be offered for sale and the number of shares to be owned
beneficially after the Registered Offering (assumes all shares available for
offer will be sold). Applicable percentage ownership is based on 35,880,086
shares of Common Stock outstanding as of the date of this Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL
PRIOR TO THE OWNERSHIP AFTER THE
REGISTERED OFFERING REGISTERED OFFERING
----------------------- -----------------------
NAME AND ADDRESS OF NUMBER OF SHARES
REGISTERING STOCKHOLDER SHARES PERCENTAGE BEING REGISTERED SHARES PERCENTAGE
----------------------- ----------- ----------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Michael V. Paulin....... 136,351 * 136,351 -- --
Rosemarie Paulin........ 32,716 * 32,716 -- --
Maya Paulin............. 21,825 * 21,825 -- --
AnneMarie Paulin........ 21,825 * 21,825 -- --
</TABLE>
- --------
*Less than 1%
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, par value $0.01 per share, 35,880,086 shares of which
are outstanding as of the date of this Prospectus and (ii) 25,000,000 shares
of Preferred Stock, par value $0.01 per share, none of which will be
outstanding after the Registered Offering. The following summary description
of the material features of the Company's capital stock is qualified by
reference to the Charter and Bylaws of the Company, copies of which are filed
as exhibits to the Registration Statement of which this Prospectus is a part.
See "Additional Information."
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Board of Directors with respect to any series of Preferred Stock
establishing the designation, powers, preferences and relative, participating,
option or other special rights and powers of such series of Preferred Stock,
the holders of shares of Common Stock exclusively possess all voting power.
The Charter does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such
distributions as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation are entitled to receive
pro rata all assets of the Company available for distribution to such holders.
All shares of Common Stock issued in the Offering will be fully paid and
nonassessable and the holders thereof will not have preemptive rights.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes, as
authorized by the Board of Directors. Prior to issuance of shares of each
class, the Board of Directors is required by the MGCL and the Company's
Charter to fix for each such class, the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption, as
are permitted by Maryland law. The Board of Directors could authorize the
issuance of Preferred Stock with terms and conditions which could have the
effect of discouraging a takeover or other transaction which holders of some,
or a majority, of the Company's outstanding shares might believe to be in
their best interests or in which holders of some, or a majority, of shares
might receive a premium for their shares over the market price of such shares.
48
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Company has appointed ChaseMellon Shareholder Services, L.L.C. as its
transfer agent and registrar.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company's indebtedness at September 30, 1997 consists of hypothecated
notes, the Convertible Notes, construction loans and other indebtedness and
the 9 3/4% Senior Subordinated Notes due 2007 (the "Senior Subordinated
Notes"), with balances of $81.2 million, $138.0 million, $3.0 million,
$23.7 million and $200 million, respectively. The Company has received a
commitment from a bank lender to provide it with the $100 million Senior
Credit Facility. The material terms of such indebtedness are summarized below.
HYPOTHECATED NOTES
The Company has entered into hypothecation agreements with lenders for the
Company's financing of customer receivables. The hypothecated notes, which
totaled $132 million at June 30, 1997, bear interest from LIBOR plus 3% to the
prime rate plus 3% and mature three to seven years from the date of the last
advance. Under the Company's hypothecated note arrangements, the Company
pledges as security qualified purchaser 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
Vacation Interval purchaser directly to an unaffiliated payment processing
center and such payments are credited against the Company's outstanding
balance with the respective lenders. These arrangements currently have varying
borrowing periods ranging from 18 to 20 months after the initial commitment
date, with corresponding maturities ranging from five to seven years. 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, and there can be no assurance
that alternative or additional arrangements can be made on terms that are
satisfactory to the Company. Accordingly, future sales of Vacation Intervals
may be limited by both the availability of funds to finance the initial
negative cash flow that results from sales that are financed by the Company
and by reduced demand which may result if the Company is unable to provide
financing to purchasers of Vacation Intervals.
CONVERTIBLE NOTES
In February 1997, the Company consummated its offering of $138.0 million
aggregate principal amount of its Convertible Notes. 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 in
certain events. The Convertible Notes bear interest at an annual rate of
5.75%, which interest is payable on January 15 and July 15 of each year,
commencing on July 15, 1997. The Convertible Notes are redeemable, in whole or
in part, at the option of the Company at any time on or after January 15,
2000, at certain redemption prices, plus accrued interest, if any, to the
redemption date. If a change in control of the Company occurs, each holder of
Convertible Notes will have the right, subject to certain conditions and
restrictions, to require the Company to offer to repurchase for cash (subject
to the Company's right to make such offer in Common Stock under certain
circumstances) all outstanding Convertible Notes, in whole or in part, owned
by such holder at 100% of their principal amount, plus accrued interest, if
any, to the date of repurchase. The Convertible Notes are subordinated to all
existing and future Senior Indebtedness of the Company and will be effectively
subordinated to all indebtedness and other obligations of the Company's
subsidiaries. The Convertible Notes are also subordinated to the Senior
Subordinated Notes.
CONSTRUCTION LOANS
At September 30, 1997, the Company's construction loans totaled $3.0
million. Such loans are secured by real property, bear interest at rates
ranging from LIBOR plus 4.25% to the prime rate plus 2% and are generally
49
<PAGE>
repaid at a fixed amount as the underlying security interests in real property
is sold to a consumer in the form of a vacation ownership interval. Final
maturities range from January 1998 to April 2004.
OTHER INDEBTEDNESS
At September 30, 1997, the Company's other indebtedness totaled $23.7
million. Other indebtedness is secured by land ($4.7 million), bears interest
at rates ranging from 7.75% to 9.00% and has final maturities ranging from
1999 to 2014. Also includes $13.5 million which is primarily secured by
consumer mortgages bearing interest at 7.75% and maturing April 2004. This
debt has been sold to a trust with recourse to the Company and is therefore
not classified as hypothecated debt.
The Company also has $5.5 million in advances on mortgages sold with
recourse to a third party. The principal and interest on the mortgage
receivables sold with recourse are remitted directly to the purchaser and are
therefore not classified as hypothecated debt.
THE SENIOR SUBORDINATED NOTES
In August 1997, the Company consummated its offering of the Senior
Subordinated Notes. The Senior Subordinated Notes are unsecured senior
subordinated obligations of the Company, are limited to an aggregate principal
amount of $200,000,000 and will mature on October 1, 2007. The Senior
Subordinated Notes bear interest at a rate of 9 3/4% per annum, payable
semiannually on April 1 and October 1 of each year. The Senior Subordinated
Notes are redeemable, in whole or in part, at the option of the Company on or
after October 1, 2002, at certain redemption prices plus accrued and unpaid
interest, if any, to the date of redemption. In addition, prior to October 1,
2000 the Company, at its option, may redeem up to 40% of the aggregate
principal amount of the Senior Subordinated Notes originally issued with the
net cash proceeds of one or more equity offerings at a redemption price equal
to 109.75% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of redemption. Upon a change of control, each holder of
the Senior Subordinated Notes will have the right to require the Company to
repurchase such holder's Senior Subordinated Notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. In addition, in certain circumstances, the Company will be
obligated to offer to repurchase the Senior Subordinated Notes at 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase in the event of certain asset sales.
The Senior Subordinated Notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company and are effectively
subordinated to all indebtedness and other obligations of the Company's
subsidiaries. The Senior Subordinated Notes are senior in right of payment to
the Convertible Notes. The indenture governing the Senior Subordinated Notes
contains 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
material assets of the Company or its restricted subsidiaries and (v) enter
into certain mergers and consolidations.
CREDIT FACILITY
The Company has received a commitment from NationsBank of Texas, N.A., as
administrative lender, to provide it with the $100 million Senior Credit
Facility. The Senior Credit Facility has a variable borrowing rate based on
the percentage of the Company's mortgages receivable pledged to the lender
under such facility and the amount of funds advanced pursuant thereto. The
interest rate varies between LIBOR plus 7/8% and LIBOR plus 1 3/8%, depending
on the amount of advances against mortgages receivable. The Senior Credit
Facility contains customary covenants, representations and warranties and
conditions to draw down on funds.
The Senior Credit Facility will close through a two-step process. In January
1998, the Company closed the first $50 million portion of the Senior Credit
Facility which will roll into the full $100 million Senior Credit Facility
upon the closing of the second step in February 1998.
50
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the shares of Common Stock offered hereby
pursuant to a Registration Rights Agreement dated October 10, 1997 between the
Company and the Registering Stockholders which was executed in connection with
the Marc Acquisition (the "Registration Rights Agreement").
Any distribution of the shares covered by this Prospectus may be effected
from time to time in one or more transactions (which may involve block
transactions) on the New York Stock Exchange, in negotiated transactions or in
a combination of such methods of sale, at fixed prices, at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices or at negotiated prices. The Registering Stockholders will effect any
such transactions with or through one or more broker-dealers which may act as
agent or principal, and if required by the Company, through block trades or
offerings through underwriters. Any such broker-dealer may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Registering Stockholders and/or the purchaser of the shares for whom
it may act as agent or to whom it may sell as principals or both. With respect
to any shares sold by a Registering Stockholder, the Registering Stockholder
and/or any broker-dealer effecting the sales may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by the broker-dealer and any profit on the resale of
shares as principal may be deemed to be underwriting discounts or commissions
under the Securities Act. Additionally, under the provisions of Rule 145(c)
under the Securities Act, Mr. and Mrs. Paulin may be deemed to be underwriters
within the meaning of Section 2(11) of the Securities Act. The Registering
Stockholders may also pledge or make gifts of their shares and the shares may
also be sold by the pledgee or transferees. Pursuant to the Registration
Rights Agreement the Company shall (i) pay substantially all of the expenses
incurred by the Company and the Registering Stockholders incident to the sale
of the shares offered hereby, excluding any fees and disbursements of counsel
to such Registering Stockholders, (ii) provide customary indemnification to
each Registering Stockholder and (iii) keep the Registration Statement
continuously effective for the periods of time provided therein.
The shares of Common Stock offered hereby are not, but ultimately may be,
offered on an underwritten basis. If such shares are offered on an
underwritten basis, certain underwriters may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M promulgated by the Commission,
pursuant to which such persons may bid for or purchase Common Stock for the
purpose of stabilizing its market price. In addition, the underwriters may
overallot any such underwritten offering, creating a syndicate short position.
These activities may result in the maintenance of the price of the Common
Stock at a level above that which might otherwise prevail in the open market.
If the transactions described in this paragraph are undertaken, they may be
discontinued at any time.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock may be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless it has been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain
other legal matters will be passed upon for the Company by Latham & Watkins,
Los Angeles, California.
51
<PAGE>
EXPERTS
The consolidated financial statements of Signature Resorts, Inc. and
subsidiaries incorporated by reference herein have been audited by Arthur
Andersen LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are included in reliance upon the authority
of said firm as experts in accounting and auditing in giving said report.
The consolidated financial statements of AVCOM International, Inc. and
subsidiaries as of December 31, 1995, and for each of the two years in the
period ended December 31, 1995, not presented separately in this Prospectus
and the related Registration Statement or the documents incorporated by
reference herein, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report with respect thereto, given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of LSI Group Holdings Plc and
subsidiaries as of December 31, 1995 and 1996 and for each of the three years
in the period ended December 31, 1996, not presented separately in this
Prospectus and the related Registration Statement or the documents
incorporated by reference herein, have been audited by KPMG, chartered
accountants and registered auditors, as set forth in their report with respect
thereto, given upon the authority of said firm as experts in accounting and
auditing.
52
<PAGE>
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No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the registered
securities to which this Prospectus relates or any offer to any person in any
jurisdiction where such an offer would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof.
------------------
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Summary.................................................................... 3
Risk Factors............................................................... 8
Use of Proceeds............................................................ 22
Consolidated Capitalization................................................ 22
Business................................................................... 23
Certain Relationships and Related Transactions............................. 45
Registering Stockholders................................................... 48
Description of Capital Stock............................................... 48
Description of Certain Indebtedness........................................ 49
Plan of Distribution....................................................... 51
Legal Matters.............................................................. 51
Experts.................................................................... 52
</TABLE>
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212,717 SHARES
[LOGO OF SIGNATURE RESORTS]
SIGNATURE RESORTS, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, in connection with the sale and
distribution of the shares of Common Stock being registered hereby.
<TABLE>
<S> <C>
Commission Registration Fee...................................... $ 1,568
Accounting fees and expenses..................................... 10,000
Blue Sky fees and expenses....................................... 0
Legal fees and expenses.......................................... 15,000
Printing and engraving expenses.................................. 5,000
Transfer Agent fees.............................................. 2,000
Miscellaneous and other expenses................................. 3,432
-------
TOTAL.......................................................... $37,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Maryland corporation. Section 2-418 of the Maryland General
Corporation Law empowers the Company to indemnify, subject to the standards
set forth therein, any person who is a party in any action in connection with
any action, suit or proceeding brought or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company, or
is or was serving as such with respect to another entity at the request of
such company. The Maryland General Corporation Law also provides that the
Company may purchase insurance on behalf of any such director, officer,
employee or agent.
The Company's Charter and Bylaws provide in effect for the indemnification
by the Company of each director and officer of the Company to the fullest
extent permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Consolidation Transactions in June 1996, investors in
the Company's predecessor partnerships, limited liability companies and
corporations agreed to contribute their interests in such entities to the
Company in return for the issuance of 17,032,057 shares of the Company's
common stock, $.01 par value. Except as indicated to the contrary, all
information in this Registration Statement has been restated to reflect the
Company's announced three-for-two stock split in the form of a common stock
dividend payable on October 27, 1997 to stockholders of record on October 10,
1997.
Additionally, in connection with the PRG Merger 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 provided by Section 4(2)
thereof.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Unless otherwise indicated, all exhibits have been previously filed.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement dated as of August 5, 1997 by and among Signature
Resorts, Inc. and the several Initial Purchasers named therein
relating to the 9 3/4% Senior Subordinated Notes of Signature
Resorts, Inc. due 2007 (incorporated by reference to Exhibit 1.1 to
Amendment No. 1 on Form S-3 to Registrant's Registration Statement on
Form S-1 (No. 333-30285))
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))
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))
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of
the Common Stock being registered (including consent)
10.1 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))
10.2.1 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 10.2.2 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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))
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))
10.3.1 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))
10.4 Agreement of Limited Partnership of Pointe Resort Partners, L.P.
(subsequently renamed Poipu Resort Partners L.P.) dated October 11,
1994 (incorporated by reference to Exhibit 10.4 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.5 to Registrant's Registration Statement on
Form S-1 (No. 333-06027))
10.5.1 First Amendment to Employee Stock Purchase 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))
10.6 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)
10.7 Conti-Trade Financial Warehouse Line Agreement (incorporated by
reference to Exhibit 10.7 to Registrant's Registration Statement on
Form S-4 (No. 333-16339))
10.8.1 Loan and Security Agreement between Port Royal Resort, L.P., and
Finova Capital Corporation (as successor in interest to Greyhound
Capital Corporation) dated as of October 7, 1993 and as amended by
the First Amendment to Loan and Security Agreement dated as of April
26, 1995 (incorporated by reference to Exhibit 10.8.1 to Registrant's
Registration Statement on Form S-1 (No. 333-18447))
10.8.2 Loan and Security Agreement between Signature Resorts, Inc. (as
successor in interest to Cypress Pointe Resorts, L.P.), and Finova
Capital Corporation (as successor in interest to Greyhound Real
Estate Finance Company) dated as of December 19, 1991 and as amended
by (i) the First Amendment to Loan and Security Agreement and Consent
and Agreement of Guarantors dated as of November 9, 1992, (ii) the
Second Amendment to Loan and Security Agreement dated as of January
13, 1993, (iii) the Third Amendment to Loan and Security Agreement
dated as of April 7, 1993, (iv) the Fourth Amendment to Loan and
Security Agreement dated as of December 16, 1993, (v) the Fifth
Amendment to Loan and Security Agreement dated as of June 28, 1994,
(vi) the Sixth Amendment to Loan and Security Agreement dated
December 16, 1994, and (vii) the Seventh Amendment to Loan and
Security Agreement dated as of November 6, 1995 (incorporated by
reference to Exhibit 10.8.2 to Registrant's Registration Statement on
Form S-1 (No. 333-18447))
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8.3 Loan and Security Agreement between Signature Resorts, Inc. (as
successor in interest to San Luis Resort Partners, LLC), and Finova
Capital Corporation dated as of June 6, 1996 (incorporated by
reference to Exhibit 10.8.3 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
10.8.4 Loan and Security Agreement between Grand Beach Resort, Limited
Partnership, and Finova Capital Corporation (as successor in
interest to Greyhound Financial Corporation) dated as of October 7,
1994 and as amended by the First Amendment to Loan and Security
Agreement dated as of July 5, 1995 (incorporated by reference to
Exhibit 10.8.4 to Registrant's Registration Statement on Form S-1
(No. 333-18447))
10.8.5 Loan and Security Agreement (Receivables) between Signature Resorts,
Inc. (as successor in interest to Fall Creek Resort, L.P.), and
Heller Financial, Inc., dated as of October 9, 1995 (incorporated by
reference to Exhibit 10.8.5 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
10.8.6 Loan and Security Agreement between AKGI-St. Maarten NV (as successor
in interest to AKGI-Royal Palm C.V.o.a.), and Finova Capital
Corporation dated as of July 12, 1995 (incorporated by reference to
Exhibit 10.8.6 to Registrant's Registration Statement on Form S-1
(No. 333-18447))
10.8.7 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))
10.8.8 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))
10.8.9 Lender's Certification and Consent from Resort Capital Corporation to
Signatures Resorts, Inc. dated as of August 15, 1996 (incorporated
by reference to Exhibit 10.8.1 to Registrant's Registration
Statement on Form S-4 (No. 333-16339))
10.8.10 Lender's Certification and Consent from FINOVA Capital Corporation to
Signature Resorts, Inc. dated as of August 15, 1996 (incorporated by
reference to Exhibit 10.8.2 to Registrant's Registration Statement
on Form S-4 (No. 333-16339))
10.8.11 Assumption Agreement between FINOVA Capital Corporation and Signature
Resorts, Inc. dated as of August 15, 1996 (incorporated by reference
to Exhibit 10.8.3 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
10.8.12 Assumption Agreement between Resort Capital Corporation and Signature
Resorts, Inc. dated as of August 15, 1996 (incorporated by reference
to Exhibit 10.8.4 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
10.8.13 Assumption Agreement between FINOVA Capital Corporation and AKGI-Sint
Maarten, N.V. dated as of August 15, 1996 (incorporated by reference
to Exhibit 10.8.5 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
*10.8.14 Credit Agreement dated as of January 9, 1998 by and among Signature
Resorts, Inc., certain lender parties thereto and NationsBank of
Texas, N.A., as administrative lender
10.9 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)
10.10 Registration Rights Agreement dated as of August 28, 1997 by and
among Signature Resorts, Inc., 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))
10.11 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))
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 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))
*11 Statement re Computation of Per Share Earnings
16 Letter from Ernst & Young LLP regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to Registrant's
current report on Form 8-K filed with the Commission on September 18,
1996)
*21 Subsidiaries of Signature Resorts, Inc.
*23.1 Consent of Ballard Spahr Andrews & Ingersoll (included as part of
Exhibit 5.1)
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Ernst & Young LLP
*23.4 Consent of KPMG
*23.5 Consent of Schreeder, Wheeler & Flint, LLP
*24 Power of Attorney (included on II-7)
</TABLE>
- --------
* Filed herewith
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from
II-5
<PAGE>
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) ((S) 230.424(b) of this chapter) if, in the aggregate,
the changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold as of the
termination of the offering.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing a Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Mateo, State of California, on
February 18, 1998.
SIGNATURE RESORTS, INC.
By: /s/ Andrew D. Hutton
-----------------------------------
Name: Andrew D. Hutton
Title: Vice President and General
Counsel
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Andrew J.
Gessow, Steven C. Kenninger, Michael A. Depatie and Andrew D. Hutton, and each
of them, with full power to act without the other, such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, and any and all amendments
thereto (including pre- and post-effective amendments) or any registration
statement for the same offering that is to be effective upon filing pursuant
to Rule 462(b) under the Securities Act of 1933, as amended, and to file the
same, with exhibits and schedules thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing necessary or desirable to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of then, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Osamu Kaneko Chairman of the Board and February 18, 1998
____________________________________ Co-Chief Executive Officer
Osamu Kaneko (Principal Executive
Officer)
/s/ Andrew J. Gessow Director, President and February 18, 1998
____________________________________ Co-Chief Executive Officer
Andrew J. Gessow
/s/ Steven C. Kenninger Director, Chief Operating February 18, 1998
____________________________________ Officer and Secretary
Steven C. Kenninger
/s/ Michael A. Depatie Director, Executive Vice February 18, 1998
____________________________________ President and Chief
Michael A. Depatie Financial Officer (Principal
Financial Officer)
/s/ James E. Noyes Executive Vice President and February 18, 1998
____________________________________ Director
James E. Noyes
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Charles C. Frey Senior Vice President and February 18, 1998
____________________________________ Chief Accounting Officer
Charles C. Frey (Principal Accounting
Officer)
/s/ Sanford R. Climan Director February 18, 1998
____________________________________
Sanford R. Climan
/s/ Joshua S. Friedman Director February 18, 1998
____________________________________
Joshua S. Friedman
/s/ W. Leo Kiely III Director February 18, 1998
____________________________________
W. Leo Kiely III
/s/ J. Taylor Crandall Director February 18, 1998
____________________________________
J. Taylor Crandall
/s/ Adam M. Aron Director February 18, 1998
____________________________________
Adam M. Aron
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1 Purchase Agreement dated as of August 5, 1997 by and
among Signature Resorts, Inc. and the several Initial
Purchasers named therein relating to the 9 3/4% Senior
Subordinated Notes of Signature Resorts, Inc. due 2007
(incorporated by reference to Exhibit 1.1 to Amendment
No. 1 on Form S-3 to Registrant's Registration
Statement on Form S-1 (No. 333-30285))
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))
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))
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding
the validity of the Common Stock being registered
(including consent)
10.1 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))
10.2.1 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))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
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 10.2.2 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))
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))
10.3.1 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))
10.4 Agreement of Limited Partnership of Pointe Resort
Partners, L.P. (subsequently renamed Poipu Resort
Partners L.P.) dated October 11, 1994 (incorporated by
reference to Exhibit 10.4 to Registrant's Registration
Statement on Form S-1 (No. 333-06027))
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.5 to
Registrant's Registration Statement on Form S-1 (No.
333-06027))
10.5.1 First Amendment to Employee Stock Purchase 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))
10.6 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)
10.7 Conti-Trade Financial Warehouse Line Agreement
(incorporated by reference to Exhibit 10.7 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.8.1 Loan and Security Agreement between Port Royal Resort,
L.P., and Finova Capital Corporation (as successor in
interest to Greyhound Capital Corporation) dated as of
October 7, 1993 and as amended by the First Amendment
to Loan and Security Agreement dated as of April 26,
1995 (incorporated by reference to Exhibit 10.8.1 to
Registrant's Registration Statement on Form S-1
(No. 333-18447))
10.8.2 Loan and Security Agreement between Signature Resorts,
Inc. (as successor in interest to Cypress Pointe
Resorts, L.P.), and Finova Capital Corporation (as
successor in interest to Greyhound Real Estate Finance
Company) dated as of December 19, 1991 and as amended
by (i) the First Amendment to Loan and Security
Agreement and Consent and Agreement of Guarantors
dated as of November 9, 1992, (ii) the Second
Amendment to Loan and Security Agreement dated as of
January 13, 1993, (iii) the Third Amendment to Loan
and Security Agreement dated as of April 7, 1993, (iv)
the Fourth Amendment to Loan and Security Agreement
dated as of December 16, 1993, (v) the Fifth Amendment
to Loan and Security Agreement dated as of June 28,
1994, (vi) the Sixth Amendment to Loan and Security
Agreement dated December 16, 1994, and (vii) the
Seventh Amendment to Loan and Security Agreement dated
as of November 6, 1995 (incorporated by reference to
Exhibit 10.8.2 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
10.8.3 Loan and Security Agreement between Signature Resorts,
Inc. (as successor in interest to San Luis Resort
Partners, LLC), and Finova Capital Corporation dated
as of June 6, 1996 (incorporated by reference to
Exhibit 10.8.3 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
10.8.4 Loan and Security Agreement between Grand Beach Resort,
Limited Partnership, and Finova Capital Corporation
(as successor in interest to Greyhound Financial
Corporation) dated as of October 7, 1994 and as
amended by the First Amendment to Loan and Security
Agreement dated as of July 5, 1995 (incorporated by
reference to Exhibit 10.8.4 to Registrant's
Registration Statement on Form S-1 (No. 333-18447))
10.8.5 Loan and Security Agreement (Receivables) between
Signature Resorts, Inc. (as successor in interest to
Fall Creek Resort, L.P.), and Heller Financial, Inc.,
dated as of October 9, 1995 (incorporated by reference
to Exhibit 10.8.5 to Registrant's Registration
Statement on Form S-1 (No. 333-18447))
10.8.6 Loan and Security Agreement between AKGI-St. Maarten NV
(as successor in interest to AKGI-Royal Palm
C.V.o.a.), and Finova Capital Corporation dated as of
July 12, 1995 (incorporated by reference to
Exhibit 10.8.6 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
10.8.7 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))
10.8.8 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))
10.8.9 Lender's Certification and Consent from Resort Capital
Corporation to Signatures Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.1 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.8.10 Lender's Certification and Consent from FINOVA Capital
Corporation to Signature Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.2 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.8.11 Assumption Agreement between FINOVA Capital
Corporation and Signature Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.3 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.8.12 Assumption Agreement between Resort Capital
Corporation and Signature Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.4 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.8.13 Assumption Agreement between FINOVA Capital
Corporation and AKGI-Sint Maarten, N.V. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.5 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
*10.8.14 Credit Agreement dated as of January 9, 1998 by and
among Signature Resorts, Inc., certain lender parties
thereto and NationsBank of Texas, N.A., as
administrative lender
10.9 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)
10.10 Registration Rights Agreement dated as of August 28,
1997 by and among Signature Resorts, Inc., 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))
10.11 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))
10.12 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))
*11 Statement re Computation of Per Share Earnings
16 Letter from Ernst & Young LLP regarding change in
certifying accountant (incorporated by reference to
Exhibit 16.1 to Registrant's current report on Form
8-K filed with the Commission on September 18, 1996)
*21 Subsidiaries of Signature Resorts, Inc.
*23.1 Consent of Ballard Spahr Andrews & Ingersoll (included
as part of Exhibit 5.1)
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Ernst & Young LLP
*23.4 Consent of KPMG
*23.5 Consent of Schreeder, Wheeler & Flint, LLP
*24 Power of Attorney (included on II-7)
</TABLE>
- --------
* Filed herewith
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL]
February 18, 1998
Signature Resorts, Inc.
1875 South Grant Street
Suite 650
San Mateo, California 94402
Re: Signature Resorts, Inc., a Maryland corporation,
(the "Company") - Registration Statement on
Form S-3 pertaining to Two Hundred Twelve Thousand
Seven Hundred Seventeen (212,717) shares (the "Shares")
of common stock, par value one cent ($0.01) per share
("Common Stock"), to be sold by certain stockholders of
the Company
--------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of the Shares under the Securities Act
of 1933, as amended (the "Act"), by the Company on Form S-3 filed with the
Securities and Exchange Commission (the "Commission") on or about February 18,
1998 (the "Registration Statement"), you have requested our opinion with respect
to the matters set forth below.
We have acted as special Maryland corporate counsel for the Company in
connection with the matters described herein. In our capacity as special
Maryland corporate counsel to the Company, we have reviewed and are familiar
with proceedings taken by the Company in connection with the authorization,
issuance and sale of the Shares, and for purposes of this opinion have assumed
such proceedings have been completed in the manner proposed. In addition, we
have relied upon certificates and advice from the officers of the Company upon
which we believe we are justified in relying and on various certificates from,
and documents recorded with, the State Department of Assessments and Taxation of
Maryland (the "SDAT"), including the charter of the Company (the "Charter"),
consisting of Articles of Incorporation filed with the SDAT on May 28, 1996,
Articles of Amendment filed with the SDAT on June 13, 1996 and Articles of
Amendment filed with the SDAT on August 20, 1996. We have also examined the
Bylaws of the Company, as amended through the date hereof (the "Bylaws") and
Resolutions of the Board
<PAGE>
BALLARD SPAHR ANDREWS & INGERSOLL
Signature Resorts, Inc.
February 18, 1998
Page 2
of Directors of the Company adopted on or before the date hereof and in full
force and effect on the date hereof; and such laws, records, documents,
certificates, opinions and instruments as we deem necessary to render this
opinion.
We have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to the originals of
all documents submitted to us as certified, photostatic or conformed copies. In
addition, we have assumed that each person executing any instrument, document or
certificate referred to herein on behalf of any party is duly authorized to do
so.
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that the Shares have been duly authorized by
all necessary corporate action on the part of the Company, have been validly
issued and are fully paid and non-assessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for registration of the Shares. We also consent to the
identification of our firm as Maryland counsel to the Company in the section of
the Prospectus (which is part of the Registration Statement) entitled "Legal
Matters."
The opinions expressed herein are limited to the laws of the State of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion shall
be inferred beyond the matters expressly stated.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE>
EXHIBIT 10.8.14
================================================================================
$50,000,000
CREDIT AGREEMENT
AMONG
SIGNATURE RESORTS, INC.
CERTAIN LENDERS PARTY HERETO
AND
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
JANUARY 9, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
Definitions
-----------
<S> <C> <C>
Section 1.1 Defined Terms....................................... 1
-------------
Section 1.2 Amendments and Renewals............................. 23
-----------------------
Section 1.3 Construction........................................ 24
------------
ARTICLE 2
Advances
--------
Section 2.1 The Advances........................................ 24
------------
Section 2.2 Manner of Borrowing and Disbursement................ 25
------------------------------------
Section 2.3 Interest............................................ 27
--------
Section 2.4 Fees................................................ 28
----
Section 2.5 Prepayments......................................... 29
-----------
Section 2.6 Reduction of Commitment............................. 30
-----------------------
Section 2.7 Non-Receipt of Funds by the Administrative Lender... 30
-------------------------------------------------
Section 2.8 Payment of Principal of Advances.................... 31
--------------------------------
Section 2.9 Reimbursement....................................... 31
-------------
Section 2.10 Manner of Payment................................... 31
-----------------
Section 2.11 LIBOR Lending Offices............................... 32
---------------------
Section 2.12 Sharing of Payments................................. 33
-------------------
Section 2.13 Calculation of LIBOR Rate........................... 33
-------------------------
Section 2.14 Taxes............................................... 33
-----
Section 2.15 Letters of Credit................................... 37
-----------------
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to the Initial Advance and the
----------------------------------------------------
Initial Issuance of Letters of Credit........................ 42
-------------------------------------
Section 3.2 Conditions Precedent to All Advances and Letters of
---------------------------------------------------
Credit....................................................... 44
------
Section 3.3 Conditions Precedent to Conversions and
---------------------------------------
Continuations................................................ 45
-------------
ARTICLE 4
Representations and Warranties
------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.1 Representations and Warranties...................... 46
------------------------------
Section 4.2 Survival of Representations and Warranties, etc..... 54
-----------------------------------------------
ARTICLE 5
General Covenants
-----------------
Section 5.1 Preservation of Existence and Similar Matters....... 55
---------------------------------------------
Section 5.2 Business; Compliance with Applicable Law............ 55
----------------------------------------
Section 5.3 Maintenance of Properties........................... 55
-------------------------
Section 5.4 Accounting Methods and Financial Records............ 55
----------------------------------------
Section 5.5 Insurance........................................... 55
---------
Section 5.6 Payment of Taxes and Claims......................... 56
---------------------------
Section 5.7 Visits and Inspections.............................. 56
----------------------
Section 5.8 Use of Proceeds..................................... 56
---------------
SECTION 5.9 INDEMNITY........................................... 56
---------
Section 5.10 Environmental Law Compliance........................ 58
----------------------------
Section 5.11 Further Assurances.................................. 59
------------------
Section 5.12 Management of Projects.............................. 59
----------------------
Section 5.13 Obligations to Purchasers........................... 59
-------------------------
Section 5.14 Owners Associations................................. 59
-------------------
Section 5.15 Note Receivable Information......................... 60
---------------------------
Section 5.16 Maintenance of Borrowing Base....................... 60
-----------------------------
Section 6.1 Borrowing Base Report............................... 61
---------------------
Section 6.2 Eligible Notes Receivable Report.................... 61
--------------------------------
Section 6.4 Annual Financial Statements and Information;
--------------------------------------------
Certificate of No Default...................................... 62
-------------------------
Section 6.5 Compliance Certificate.............................. 63
----------------------
Section 6.6 Copies of Other Reports and Notices................. 63
-----------------------------------
Section 6.7 Notice of Litigation, Default and Other Matters..... 64
-----------------------------------------------
Section 6.8 ERISA Reporting Requirements........................ 64
----------------------------
ARTICLE 7
Negative Covenants
------------------
Section 7.1 Indebtedness........................................ 65
------------
Section 7.2 Liens............................................... 66
-----
Section 7.3 Investments......................................... 66
-----------
Section 7.4 Liquidation, Merger................................. 67
-------------------
Section 7.5 Sales of Assets..................................... 67
---------------
Section 7.6 Acquisitions........................................ 67
------------
Section 7.7 Capital Expenditures................................ 68
--------------------
Section 7.8 Restricted Payments................................. 68
-------------------
-ii-
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.9 Affiliate Transactions.............................. 68
----------------------
Section 7.10 Compliance with ERISA............................... 68
---------------------
Section 7.11 Minimum Interest Coverage Ratio..................... 69
-------------------------------
Section 7.12 Minimum Tangible Net Worth.......................... 69
--------------------------
Section 7.13 Maximum Senior Debt to Capital...................... 69
------------------------------
Section 7.14 Maximum Total Debt to Capital....................... 69
-----------------------------
Section 7.15 Sale and Leaseback.................................. 69
------------------
Section 7.16 Business............................................ 69
--------
Section 7.17 Fiscal Year......................................... 69
-----------
Section 7.18 Amendment of Organizational Documents............... 70
-------------------------------------
Section 7.19 Amendments and Waivers of Subordinated Debt......... 70
-------------------------------------------
Section 7.20 Use of Lenders' Name................................ 70
--------------------
Section 7.21 Servicing and Collection Agreement.................. 70
----------------------------------
Section 7.22 Custodial Agreement................................. 70
-------------------
Section 7.23 Notes Receivable.................................... 71
----------------
Section 8.1 Events of Default................................... 71
-----------------
Section 8.2 Remedies............................................ 74
--------
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate................ 74
------------------------------------
Section 9.2 Illegality.......................................... 75
----------
Section 9.3 Increased Costs..................................... 75
---------------
Section 9.4 Effect On Base Rate Advances........................ 77
----------------------------
Section 9.5 Capital Adequacy.................................... 77
----------------
Section 9.6 Replacement Lender.................................. 77
------------------
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders............................. 78
-----------------------
Section 10.2 Lender Credit Decision.............................. 80
----------------------
Section 10.3 Benefits of Article................................. 81
-------------------
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices............................................. 81
-------
Section 11.2 Expenses............................................ 82
--------
Section 11.3 Waivers............................................. 83
-------
-iii-
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 11.4 Calculation by the Lenders Conclusive and Binding... 83
-------------------------------------------------
Section 11.5 Set-Off............................................. 84
-------
Section 11.6 Assignment.......................................... 84
----------
Section 11.7 Counterparts........................................ 86
------------
Section 11.8 Severability........................................ 86
------------
Section 11.9 Interest and Charges................................ 86
--------------------
Section 11.10 Headings............................................ 87
--------
Section 11.11 Amendment and Waiver................................ 87
--------------------
Section 11.12 Exception to Covenants.............................. 87
----------------------
Section 11.13 No Liability of Issuing Bank........................ 87
----------------------------
Section 11.14 Confidentiality..................................... 88
---------------
Section 11.15 No Liability of Lenders to Purchasers............... 88
-------------------------------------
SECTION 11.16 GOVERNING LAW....................................... 88
-------------
SECTION 11.17 WAIVER OF JURY TRIAL................................ 89
--------------------
SECTION 11.18 ENTIRE AGREEMENT.................................... 89
----------------
-iv-
</TABLE>
<PAGE>
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
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
Exhibit J: Minimum Underwriting Guidelines
-v-
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is dated as of January 9, 1997, among SIGNATURE RESORTS,
INC., a Maryland corporation (the "Borrower"), the Lenders from time to time
--------
party hereto, and NATIONSBANK OF TEXAS, N.A., a national banking association, as
administrative 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.
---------------
-1-
<PAGE>
"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
(S)(S) 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 15, Title
79, Revised Civil Statutes of Texas, 1925, 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>
(a) Sum of (i) aggregate outstanding Advances
and (ii) aggregate Reimbursement Obligations
is greater than or equal to 75% of Eligible
Notes Receivable 1.375%
(b) Sum of (i) aggregate outstanding Advances
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
and (ii) aggregate Reimbursement Obligations
is greater than or equal to 65% but less
than 75% of Eligible Notes Receivable 1.125%
(c) Sum of (i) aggregate outstanding Advances
and (ii) aggregate Reimbursement Obligations
is less than 65% of Eligible Notes Receivable 0.875%
</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 according to the
aggregate outstanding Advances and Reimbursement Obligations.
"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 in blank or to the
Administrative Lender, 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 collateral 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.
"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
-3-
<PAGE>
the case may be, to account for such change.
"Borrower" has the meaning specified in the introductory provision hereof.
--------
"Borrowing Base" means, at the time in question, an amount equal to 85% of the
--------------
aggregate unpaid principal balance of Eligible Notes Receivable.
"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, (b) with respect to any LIBOR
Advance, for the transaction of international business (including dealings in
U.S. dollar deposits) in London, England.
"Capital" means, for any date of calculation, for the Borrower and the
-------
Restricted Subsidiaries, on a consolidated basis determined in accordance with
GAAP, the sum of (a) Funded Debt plus (b) Net Worth.
"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
-4-
<PAGE>
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 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 hereafter granted 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.
-5-
<PAGE>
"Commitment Fee" has the meaning specified in Section 2.4(a) hereof.
-------------- --------------
"Commitment" means $50,000,000, 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 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.
"Custodial Agreement" means an agency and custodial agreement among the
-------------------
Borrower, each Restricted Subsidiary that owns any of the Notes Receivable
included in the Borrowing Base, the Administrative Lender and the Custodian
providing for the maintenance of the Pledged Documents.
"Custodian" means LaSalle National Bank, N.A. or such other Person(s)
---------
designated from time to time by the Administrative Lender and approved by the
Borrower and each Restricted Subsidiary that is a party to the Custodial
Agreement (which approvals shall not be unreasonably withheld) 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 Unit as security for the
Purchaser's obligations under any Note Receivable.
"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.
-6-
<PAGE>
"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).
"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
-7-
<PAGE>
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 interest of the Borrower or the applicable Restricted
Subsidiary(ies) in such Note Receivable is 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;
(d) The Purchaser in respect of such Note Receivable shall have timely made
at least the first three regularly scheduled installment payments 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,
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 otherwise result in such Note Receivable not qualifying as an
Eligible Note Receivable hereunder;
(g) No installment of such Note Receivable is 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;
-8-
<PAGE>
(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 Custodian and/or 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 Subsidiaries 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 by the Borrower or the applicable Restricted Subsidiary to the
Administrative Lender;
(o) The Purchaser meets the Minimum Underwriting Guidelines set forth on
Exhibit J hereto for classification of the applicable Note Receivable from
- ---------
such Purchaser as "Class A Paper", "Class B Paper" or "Class C Paper"; provided,
however, that the aggregate outstanding balance of Notes Receivable that
constitute "Class C Paper" and that are included in the Borrowing Base shall
not, at any time, exceed 35% of the aggregate outstanding balance at such time
of all Notes Receivable then included in the Borrowing Base;
(p) 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 and Liens for association assessment that are not
yet due and payable), 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 or (ii) the Time-Share Interest purchased and to which the Note
Receivable relates has been permanently and irrevocably released from any Lien
(including, without limitation, any after-acquired property provisions thereof)
with respect to such Unit;
(q) The Deed of Trust securing the Note Receivable is insured under a
mortgagee title insurance policy in favor of the Borrower or the applicable
Restricted Subsidiary acceptable to the Administrative Lender, subject only to
those exceptions to title as the Administrative Lender approves;
(r) Payments under the Note Receivable are to be in legal tender of the
United States;
(s) The Note Receivable and the other Purchase Documents are valid, genuine
and enforceable against the Purchaser;
-9-
<PAGE>
(t) 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;
(u) 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;
(v) 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;
(w) 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
(x) 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 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
-10-
<PAGE>
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.
"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 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.
-11-
<PAGE>
"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 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 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
-12-
<PAGE>
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 (ii) 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:
(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.
-13-
<PAGE>
"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 that are not current assets or do not
arise in the ordinary course of business.
"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 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.
"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.
-14-
<PAGE>
"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 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 27, 1998, 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.
-15-
<PAGE>
"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,
including the sale of any Inventory.
"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, under GAAP,
constitute liabilities of the Borrower or of such Restricted Subsidiary if such
Securitization was 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
-16-
<PAGE>
Borrower 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.
"Participant" has the meaning specified in Section 11.6(c) hereof.
----------- ---------------
"Participation" has the meaning specified in Section 11.6(c) hereof.
------------- ---------------
"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 or 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;
-17-
<PAGE>
(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 exceed, in the case of property
other than notes receivable or accounts receivable, 125% of the principal amount
of the Indebtedness secured by such Lien and (iii) none of such Liens shall
secure any Subordinated Debt;
(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.
-18-
<PAGE>
"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 sells Time-
Share Interests and as to which any of the Notes Receivable generated therefrom
constitute Collateral hereunder.
"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 December 31, 1997.
"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
-19-
<PAGE>
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 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 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.
"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 Security Agreement, substantially in the form
------------------
of Exhibit C hereto, as amended, modified, renewed, supplemented or restated
---------
from time to time.
-20-
<PAGE>
"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 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 All Seasons Resorts, Inc. or, should such entity cease
---------------
to act as Servicing Agent under the Servicing and Collection Agreement, such
other entity as the Administrative Lender, the Borrower and each Restricted
Subsidiary that is a party to the Servicing and Collection Agreement may
appoint.
"Servicing and Collection Agreement" means the Mortgage Loan Servicing and
----------------------------------
Lockbox Agreement, in such form as the Administrative Lender shall prescribe, to
be made and entered into among the Borrower, the Administrative Lender, each
Restricted Subsidiary that owns any of the Notes Receivable included in the
Borrowing Base 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.
"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
-21-
<PAGE>
as of August 1, 1997, in the aggregate original principal amount of
$200,000,000, due October 1, 2007 and (ii) 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 7.20 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
(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
-22-
<PAGE>
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 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 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
-23-
<PAGE>
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(a) hereof. Subject to
--------------
Section 2.9 hereof, 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) $10,000,000, and (ii) 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 (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.
-24-
<PAGE>
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 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
-25-
<PAGE>
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 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
-26-
<PAGE>
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 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.
-27-
<PAGE>
(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.
(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:
-28-
<PAGE>
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) Sum of (i) aggregate outstanding Advances and
(ii) aggregate Reimbursement Obligations is
greater than or equal to 75% of
Eligible Notes Receivable 0.375%
(b) Sum of (i) aggregate outstanding Advances and
(ii) aggregate Reimbursement Obligations is
less than 75% of Eligible Notes Receivable 0.250%
</TABLE>
The Commitment Fee shall be subject to reduction or increase, as applicable and
as set forth in the table above, on a daily basis according to the aggregate
outstanding Advances and Reimbursement Obligations. 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.
(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.
-29-
<PAGE>
(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, 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
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<PAGE>
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. 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 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 any LIBOR Advance after
having given notice of its intention to borrow 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.
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<PAGE>
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.
(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
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<PAGE>
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.
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.
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<PAGE>
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 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
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<PAGE>
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 11.6 after 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 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
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<PAGE>
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 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
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<PAGE>
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.
------------
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<PAGE>
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 (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 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.
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<PAGE>
(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,
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 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. 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, 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
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<PAGE>
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 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;
-40-
<PAGE>
(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 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 11.9 hereof, 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.
-41-
<PAGE>
(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").
---------------------------
(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
-42-
<PAGE>
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 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
-43-
<PAGE>
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) UCC searches in appropriate jurisdictions where Collateral is located;
(e) 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 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;
(f) 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;
(g) 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;
(h) any fees or expenses required to be paid on or before the Agreement
Date pursuant to the Fee Letter;
(i) duly executed and completed Security Agreements, 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;
(j) the duly executed Servicing and Collection Agreement;
(k) the duly executed Custodial Agreement;
(l) 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 assets of the Borrower and its Subsidiaries other
than Permitted Liens;
-44-
<PAGE>
(m) copies of the form of Purchase Documents which have been or are being
used in connection with the Projects;
(n) 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 the date of the financial statements referred to in
Section 4.1(j)(i) hereof;
- -----------------
(o) each of the Guaranties, duly executed by the Guarantor party thereto;
(p) 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
(q) The Borrower shall have delivered a Borrowing Base Report reflecting
Eligible Notes Receivable as of the Agreement Date.
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;
(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
-45-
<PAGE>
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) 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) and there shall
have occurred no development not so disclosed in any such Litigation that, in
either event, could reasonably be expected to have a Material Adverse Effect;
(g) There shall have occurred no material adverse change in the business,
financial condition, results of operations or business prospects of the Borrower
and its Subsidiaries, taken as a whole, since December 31, 1996; and
(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.
Notwithstanding anything herein to the contrary, the obligation of each Lender
to make a Revolving Credit Advance 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 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.
-46-
<PAGE>
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 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
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<PAGE>
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.
(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 are 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).
-48-
<PAGE>
(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 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
-49-
<PAGE>
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 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
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<PAGE>
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 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, have 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 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)
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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 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
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<PAGE>
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.
(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
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<PAGE>
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. 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.
(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
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)
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) 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. 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.
Borrower and its Subsidiaries have, to
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<PAGE>
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. 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 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):
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<PAGE>
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 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
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<PAGE>
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 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) finance Acquisitions permitted under
Section 7.6 hereof, (c) finance eligible mortgage loans, (d) 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.
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SECTION 5.9 INDEMNITY.
---------
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<PAGE>
(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, 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
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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 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 properties establishes 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
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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 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 if the information provided therein is not complete and correct.
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. The Borrower shall not change the
manager of any Project 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
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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 (A) discharge timely and
completely its obligations under such Project's governing documents and maintain
the reserve described above; and (ii) pay to such owners association not less
often than every twelve months hereafter the difference between (A) the
cumulative total amount of the maintenance and operating expenses incurred by
such association, together with the amount of any installment of real property
taxes currently due and payable with respect to 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 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 is made.
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 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. 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 (i) within three (3) days after occurrence of the event
or circumstance that results in such Note Receivable not qualifying as an
Eligible Note Receivable, provide additional Notes Receivable, satisfying the
definition of Eligible Notes Receivable and (ii) upon satisfaction of the
requirements of the preceding clause (i), obtain a release of the nonqualifying
Note Receivables from the Liens hereunder in favor of the Administrative Lender
and the Lenders. Provided, further, that 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
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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:
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.
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(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 proforma income
statements, balance sheets and statements of cash flow) of the Borrower and the
Restricted Subsidiaries for the succeeding fiscal year.
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
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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 that (i) 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) any 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 properties may be bound, or (iii) 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 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
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<PAGE>
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;
(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
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<PAGE>
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:
(a) Indebtedness under the Loan Documents; and
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<PAGE>
(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; and
(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
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<PAGE>
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.
(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
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
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<PAGE>
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 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 or Event
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 the Restricted Subsidiaries) during 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 not 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,
conditions and 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 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
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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 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 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 or substantially all of the assets of which are acquired
by the Borrower or any Restricted Subsidiary to the extent 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 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 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.
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
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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.
Section 7.22 Custodial Agreement. The Borrower shall not, and shall not permit
-------------------
any Subsidiary to, (a) amend, modify or terminate the Custodial Agreement or (b)
interfere with the Custodians'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
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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 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,
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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 such action;
(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, 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 other 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 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
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terminate, or the PBGC shall institute proceedings 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 $200,000.
(j) The Borrower or any Restricted Subsidiary shall default in the payment
of any Indebtedness or any lease obligations in an aggregate amount of $200,000
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
such Indebtedness 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 a trustee on behalf of any such holder) to (i) cause such
Indebtedness 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 such Indebtedness;
(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 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;
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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.
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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 such Lender 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 such Lender 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.
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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
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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
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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
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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 and/or the
Securitization 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
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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.
(h) Rights as Lender. With respect to its commitment hereunder, the
----------------
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
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<PAGE>
"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:
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<PAGE>
(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:
--------
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<PAGE>
(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.
-85-
<PAGE>
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 hereinafter set
forth.
(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 hereof as
---------
though they were Lenders and the Lenders may, subject to Section 11.14 hereof,
-------------
provide copies
-86-
<PAGE>
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), (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 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 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.
---------
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<PAGE>
(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 Rate, 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 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
-88-
<PAGE>
thereof, and if the interest received for the actual period of existence thereof
exceeds the Highest Lawful Rate, 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 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 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
-89-
<PAGE>
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, 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 Affiliates, 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 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,
-90-
<PAGE>
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 PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
===============================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
===============================================================================
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<PAGE>
SCHEDULE 1
----------
LIBOR LENDING OFFICES
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
SCHEDULE 1 - Page 1
- ----------
<PAGE>
SCHEDULE 2
----------
EXISTING LIENS
<TABLE>
<CAPTION>
PROPERTY SUBJECT AMOUNT OF
TO LIEN LIENHOLDER DEBT SECURED MATURITY DATE
---------------- ---------- ------------ -------------
<S> <C> <C> <C>
</TABLE>
SCHEDULE 1 - Page 2
- ----------
<PAGE>
SCHEDULE 3
----------
EXISTING LITIGATION
AND MATERIAL LIABILITIES
SCHEDULE 1 - Page 3
- ----------
<PAGE>
SCHEDULE 4
----------
SUBSIDIARIES
<TABLE>
<CAPTION>
State of
Incorporation Percentage
Name or Organization of Ownership Owner
---- --------------- ------------ -----
<S> <C> <C> <C>
</TABLE>
SCHEDULE 1 - Page 4
- ----------
<PAGE>
SCHEDULE 5
----------
EXISTING INVESTMENTS
SCHEDULE 1 - Page 5
- ----------
<PAGE>
SCHEDULE 6
----------
EXISTING INDEBTEDNESS
SCHEDULE 1 - Page 6
- ----------
<PAGE>
SCHEDULE 7
----------
AUTHORIZATION, QUALIFICATION AND GOOD STANDING
SCHEDULE 1 - Page 7
- ----------
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (EPS)
<TABLE>
<CAPTION>
Historical-Primary EPS
--------------------------------------------------------
Nine Months Ended
September 30, September 30, December 31, December 31,
1997 1996 1996 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
NET INCOME:
- -----------------------------------------------------
Net income:
Income before provision for income taxes, as reported $16,033,000 $15,947,000 $ 6,929,000 $ 25,319,000
Pro forma provision for income taxes (unaudited) - - (2,549,000) (10,009,000)
----------- ----------- ----------- ------------
Pro forma net income before extraordinary item $16,033,000 $15,947,000 $ 4,380,000 $ 15,310,000
Extraordinary item, net of taxes (766,000) - - -
----------- ----------- ----------- ------------
Pro forma net income (Actual for September 30, 1997) $15,267,000 $15,947,000 $ 4,380,000 $ 15,310,000
=========== =========== =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
- -----------------------------------------------------
Applicable common shares:
Average outstanding common shares during the period:
Founders' shares: 17,032,058 issued January 1995 $17,032,058 17,032,058 17,032,058 17,032,058
Initial Public Offering: 9,056,250 shares issued August 1996 9,056,250 1,296,635 3,277,295 -
AVCOM shares: 1,324,554 shares issued February 1997 1,324,554 1,324,554 1,324,554 1,324,554
PRG shares: 3,601,844 shares issued March 1997 3,601,844 3,601,844 3,601,844 3,601,844
LSI shares: 1,996,401 shares issued August 1997 1,996,401 1,996,401 1,996,401 1,996,401
Concurrent Offering shares: 2,400,000 shares issued February 1997 2,168,889 - - -
Employee Stock Purchase Plan: 1,655 shares issued September 1997 9 - - -
Options exercised for shares 60,822 - - -
Outstanding stock options(a) 829,317 153,947 407,496
Rounding 1 (2) (1) (1)
----------- ----------- ----------- ----------
Weighted average number of common and common share
equivalents outstanding 36,070,145 25,405,437 27,639,647 23,954,856
----------- ----------- ----------- ----------
Earnings per common and common equivalent share:
Pro forma net income per common and common equivalent share
before extraordinary item $ 0.44 $ 0.63 $ 0.16 $ 0.64
Extraordinary item, net of income taxes (0.02) - - -
----------- ----------- ----------- ----------
Pro forma net income per common and common equivalent share
(Actual for September 30, 1997) $ 0.42 $ 0.63 $ 0.16 $ 0.64
=========== =========== =========== ==========
(a) Based on the treasury stock method.
<CAPTION>
Historical-Fully Diluted EPS
--------------------------------------------------------
Nine Months Ended
September 30, September 30, December 31, December 31,
1997 1996 1996 1995
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
NET INCOME:
- ---------------------------------------------------------------
Net income:
Income before provision for income taxes, as reported $16,033,000 $15,947,000 $ 6,929,000 $25,319,000
Pro forma provision for income taxes (unaudited) - - (2,549,000) (10,009,000)
----------- ----------- ----------- -----------
Pro forma net income before extraordinary item $16,033,000 $15,947,000 $ 4,380,000 $15,310,000
Extraordinary item, net of taxes (766,000) - - -
----------- ----------- ----------- -----------
Pro forma net income (Actual for September 30, 1997) $15,267,000 $15,947,000 $ 4,380,000 $15,310,000
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
- ---------------------------------------------------------------
Applicable common shares:
Average outstanding common shares during the period:
Founders' shares: 17,032,058 issued January 1995 17,032,058 17,032,058 17,032,058 17,032,058
Initial Public Offering: 9,056,250 shares issued August 1996 9,056,250 1,296,635 3,277,295 -
AVCOM shares: 1,324,554 shares issued February 1997 1,324,554 1,324,554 1,324,554 1,324,554
PRG shares: 3,601,844 shares issued March 1997 3,601,844 3,601,844 3,601,844 3,601,844
LSI shares: 1,996,401 shares issued August 1997 1,996,401 1,996,401 1,996,401 1,996,401
Concurrent Offering shares: 2,400,000 shares issued February 1997 2,168,889 - - -
Employee Stock Purchase Plan: 1,655 shares issued September 1997 9 - - -
Options exercised for shares 60,822 - - -
Outstanding stock options (a) 1,216,023 228,668 592,595
Rounding (1) (1) (1)
----------- ----------- ----------- -----------
Weighted average number of common and common share
equivalents outstanding 36,456,849 25,480,159 27,824,747 23,954,856
----------- ----------- ----------- -----------
Earnings per common and common equivalent share:
Pro forma net income per common and common equivalent share
before extraordinary item $ 0.44 $ 0.63 $ 0.16 $ 0.64
Extraordinary item, net of income taxes (0.02) - - -
----------- ----------- ----------- -----------
Pro forma net income per common and common equivalent share $ 0.42 $ 0.63 $ 0.16 $ 0.64
(Actual for September 30, 1997) =========== =========== =========== ===========
</TABLE>
(a) Based on the treasury stock method.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF SIGNATURE RESORTS, INC.
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
- ---- ----------------------------
<S> <C>
AKGI Lake Tahoe Investments, Inc................. California
AKGI Poipu Investments, Inc...................... California
AKGI-St. Maarten, N.V............................ Delaware and Netherlands Antilles
All Seasons Construction, Inc.................... Arizona
All Seasons Investments, Inc..................... Arizona
All Seasons Properties, Inc...................... Arizona
All Seasons Realty, Inc.......................... Arizona
All Seasons Resorts, Inc......................... Arizona
All Seasons Resorts, Inc......................... Texas
Alpine Apartments Hotel LmbH..................... Austria
Andalucian Realty Limited........................ United Kingdom
Argosy Grand Beach, Inc.......................... Georgia
Argosy Hilton Head, Inc.......................... South Carolina
Argosy/KGI Grand Beach Investment Partnership.... California (general partnership)
Argosy/KGI Poipu Investment Partnership, L.P..... Hawaii (limited partnership)
Argosy/KGI Port Royal Partners................... South Carolina (general partnership)
Argosy Partners, Inc............................. Georgia
Arizona Reservations Center, Inc................. Arizona
ASR Realty-Northbay, Inc......................... California
ASR Resort Services, Inc......................... Arizona
AVCOM International, Inc......................... Delaware
Benal Holdings Limited........................... Gibraltar
Benal Management Limited......................... Gibraltar
Canaryroute Limited.............................. United Kingdom
Carmen de Lanzarote SL........................... Spain
Flanesford Holdings Limited...................... United Kingdom
Flanesford Management Limited.................... United Kingdom
Flanesford Priory Limited........................ United Kingdom
Floriana Holdings Limited........................ Gibraltar
Floriana Management Limited...................... Gibraltar
George Acquisition Subsidiary, Inc............... Nevada
Grand Beach Partners, L.P........................ California (limited partnership)
Grand Beach Resort, Limited Partnership.......... Georgia (limited partnership)
Grand Vacation Club Management Limited........... Jersey
Great Western Financial Resources, Inc........... Arizona
Great Western Financial Services, Inc............ Arizona
Greensprings Associates.......................... Virginia (joint venture)
Greensprings Plantation Resorts, Inc............. Virginia
Hewicoon SL...................................... Spain
International Timeshares, Inc.................... Florida
International Vacation Holdings, LLC............. Arizona (limited liability company)
Kabushiki Gaisha Kei, LLC........................ California (limited liability company)
KGI Grand Beach Investments, Inc................. Georgia
KGI Port Royal, Inc.............................. South Carolina
KGK Investors, Inc............................... California
KGK Lake Tahoe Development, Inc.................. California
KGK Partners, Inc................................ California
Lake Tahoe Resort Partners, LLC.................. California (limited liability company)
Los Amigos Beach Club Limited.................... Isle of Man
Los Amigos Beach Club Management Limited......... Isle of Man
LS Financial Services Limited.................... United Kingdom
LS International Resort Management Limited....... United Kingdom
LS Interval Ownership Limited.................... United Kingdom
LS Promotions Limited............................ United Kingdom
LSI Group Holdings plc........................... United Kingdom
LSI Travel Club Limited.......................... United Kingdom
LSI (Wychnor Park) Limited....................... United Kingdom
Mazatlan Development Inc......................... Washington
Marc Hotels and Resorts, Inc..................... Hawaii
Member Privileges International, Inc............. California
Menorca Leisure Limited.......................... United Kingdom
Mercadotecnia de Hospedaje S.A. de C.V........... Mexico
Octopus GmbH..................................... Austria
Pine Lake Management Services Limited............ United Kingdom
Pine Lake plc.................................... United Kingdom
Plantation Resorts Group, Inc.................... Virginia
Poipu Resort Partners, L.P....................... Hawaii (limited partnership)
Port Royal Resort, L.P........................... South Carolina (limited partnership)
Powhatan Associates.............................. Virginia (joint venture)
Premier Resort Management, Inc................... Georgia
Rainham Limited.................................. Isle of Man
Resort Management International, Inc............. Georgia
Resort Management International, Inc............. California
Resort Marketing International-Hawaii, Inc....... Hawaii
Resort Marketing International, Inc.............. California
RKG, Corp........................................ Virginia
RMI Flamingo C.V.o.a............................. Netherlands Antilles (limited partnership)
RMI Royal Palm C.V.o.a........................... Netherlands Antilles (limited partnership)
RPM Management, Inc.............................. Arizona
RPM Services, Inc................................ Arizona
Sedona/Grand Canyon Tours........................ Arizona
Signature Capital-West Maui, LLC................. Delaware (limited liability company)
Signature Finance Corporation.................... Georgia
Signature Grand Villas, Inc...................... U.S. Virgin Islands
Signature St. Croix, Inc......................... U.S. Virgin Islands
Sunterra Corporation............................. Maryland
S.V.L.H., Inc.................................... Virginia
The Marketing Advantage Europe Limited........... United Kingdom
The Ridge Spa and Racquet Club, Inc.............. Arizona
Torres Mazatlan S.A. de C.V...................... Mexico
Torres Vallarta S.A. de C.V...................... Mexico
Vacacionistas Internacionales Mazatlan S.A....... Mexico
Vacacionistas Internacionales Vallarta S.A....... Mexico
Vacation Club Partnerships Limited............... United Kingdom
Vacation Internationale, Ltd..................... Washington
Vacation Securities, Inc......................... Washington
Vacation Time Share, Ltd......................... Hawaii
Vacation Time Share Travel, Inc.................. Bahamas
Vacation Time Travel, Inc........................ Washington
Vacation Travel Club, Inc........................ Arizona
VI Realty, Inc................................... Colorado
West Maui Resort Partners, L.P................... Delaware (limited partnership)
Westpro Research Corporation..................... Arizona
Williamsburg Vacations, Inc...................... Virginia
Woodford Bridge Country Club Limited............. United Kingdom
Woodford Bridge Hotel Limited.................... United Kingdom
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in the Form S-3 Registration Statement filed by
Signature Resorts, Inc. on or around February 18, 1998, under the Securities
Act of 1933 to register 212,717 shares of $0.01 par value Common Stock, of our
report included in Signature Resorts, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, and our report included in Signature
Resorts, Inc.'s Form 8-K/A filed on July 29, 1997, and our report included
in Signature Resorts, Inc.'s Form 8-K filed on September 9, 1997, as amended
by Signature Resorts, Inc.'s Form 8-K/A filed on October 10, 1997, and as
amended by Signature Resorts, Inc.'s Form 8-K/A filed on October 22, 1997, and
our report included in Signature Resorts, Inc.'s Form 8-K filed on December
24, 1997 (which supercedes all previously filed reports due to subsequent
business combinations accounted for by the pooling of interests method), and
to all references to our Firm included in this Registration Statement.
Arthur Andersen LLP
February 18, 1998
Orlando, Florida
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and 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 each of the two years in the period ended December 31, 1995
included in the Current Report on Form 8-K filed on September 9, 1997, as
amended by the Current Report on Form 8-K/A filed on October 10, 1997 and as
further amended by the Current Report on Form 8-K/A filed on October 22, 1997
of Signature Resorts, Inc., and included in the Current Report on Form 8-K
filed on December 24, 1997, in the Registration Statement on Form S-3
(Registration No. 333- ) and related Prospectus of Signature Resorts, Inc.
for the registration of 212,717 shares of its common stock.
Ernst & Young LLP
Phoenix, Arizona
February 18, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
LSI Group Holdings Plc
We consent to the incorporation by reference in the Registration Statement
on Form S-3 of Signature Resorts, Inc. filed on or about 18 February 1998 of
our report dated 27 March 1997, 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, which report
appears in the Current Report on Form 8-K of Signature Resorts, Inc. filed on
9 September 1997, as amended by the Current Report on Form 8-K/A of Signature
Resorts, Inc. filed on 10 October 1997 and as further amended by the Current
Report on Form 8-K/A of Signature Resorts, Inc. filed on 22 October 1997 and
in the Current Report on Form 8-K of Signature Resorts, Inc. filed on 24
December 1997.
/s/ KPMG
Chartered Accountants
Preston, England
18 February 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF EXPERT
We hereby consent to the reference to our firm in the Prospectus included in
the Registration Statement (Reg. No. 333- ), under the caption
"Applicability of Federal Securities Laws to the Sale of Vacation Intervals"
in the section entitled "RISK FACTORS" for the registration of the shares of
common stock of Signature Resorts, Inc.
SCHREEDER, WHEELER & FLINT, LLP
Dated: February 18, 1998
