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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-21193
SUNTERRA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 95-458215-7
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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1781 PARK CENTER DRIVE
ORLANDO, FLORIDA 32835
"WWW.SUNTERRA.COM"
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (407) 532-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $0.01 per share New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for past 90 days. YES [X] NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: YES [ ] NO [X].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the closing sales price of the Common Stock on March 18,
1999, as reported on the New York Stock Exchange, was approximately $274.2
million. At March 18, 1999 there were 35,912,596 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Registrant's Definitive Proxy Statement, to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the close of the Registrant's 1998 fiscal year, are
incorporated by reference in part III of this Form 10-K.
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PART I
Unless the context otherwise indicates, the "Company" refers to Sunterra
Corporation (formerly Signature Resorts, Inc.) and includes its corporate and
partnership predecessors and wholly-owned subsidiaries and affiliates including
AVCOM International, Inc. ("AVCOM") and its subsidiaries, which were acquired in
February 1997 (the "AVCOM Acquisition"); Plantation Resorts Group, Inc. ("PRG")
and its subsidiaries, which were acquired in May 1997 (the "PRG Acquisition");
LSI Group Holdings, plc (doing business as Sunterra Europe, "LSI") and its
subsidiaries, which were acquired in August 1997 (the "LSI Acquisition"); Marc
Hotels & Resorts, Inc. ("Marc"), which was acquired in October 1997 (the "Marc
Acquisition"); Sunterra Pacific, Inc. (formerly known as Vacation International,
Ltd.) and its subsidiaries ("Sunterra Pacific"), which were acquired in November
1997 (the "Sunterra Pacific Acquisition"); Global Development Ltd. and certain
of its subsidiaries (the "Global Group"), which was acquired in December 1997
(the "Global Acquisition"); MMG Holding Corporation and its subsidiaries
("MMG"), which were acquired in February 1998 (the "MMG Acquisition"), and
Harich Tahoe Developments and its subsidiaries ("HTD"), which were acquired in
July 1998 (the "HTD Acquisition").
ITEMS 1 AND 2 BUSINESS AND PROPERTIES
THE COMPANY
Sunterra Corporation is the world's largest vacation ownership company, as
measured by resort locations and owner families. Currently, the Company has 89
resort locations in North America, Europe, the Caribbean and Japan. The
Company's resort locations are in a variety of popular vacation destinations,
including California, Hawaii, Arizona, Florida, South Carolina, Virginia, the
Caribbean, Mexico, France, the United Kingdom, Spain, Japan and the Canary
Islands. Through both internal development and strategic acquisitions, the
Company has expanded the number of its resort locations and its owner family
base from nine resort locations and approximately 25,000 owner families at the
time of its August 1996 initial public offering to 87 resort locations and
approximately 240,000 owner families at December 31, 1998. The Company has
acquired interests in two additional resort locations in 1999.
The Company's operations consist of (i) marketing and selling vacation
ownership interests at its resort locations and off-site sales centers, which
entitle the buyer to use a fully-furnished vacation residence, generally for a
one-week period each year in perpetuity ("Vacation Intervals"), and vacation
points which may be redeemed for occupancy rights for varying lengths of stay at
participating resort locations ("Vacation Points," and together with Vacation
Intervals, "Vacation Interests"), (ii) acquiring, developing and operating
vacation ownership resorts, (iii) providing consumer financing to individual
purchasers for the purchase of Vacation Interests at its resort locations and
off-site sales centers and (iv) providing resort rental, management and
maintenance services for which it receives fees paid by the resorts' homeowners'
associations.
The Company markets Vacation Interests as Sunterra Resorts and offers
points-based vacation ownership systems in North America through Club Sunterra
and the Vacation Time Share Program (the "VTS Program"), in Europe through the
Grand Vacation Club ("GVC") and in Japan through Sunterra Japan Vacation Club
("SJVC"). The Company also markets Vacation Intervals at four Embassy Vacation
Resorts ("EVR"), which operate under an agreement with Promus Hotel Corporation
("Promus") and one Westin Vacation Club ("WVC") resort which is operated and
managed by Starwood Hotels and Resorts Worldwide, Inc. ("Starwood").
The Company provides mortgage financing for approximately 65% of its
Vacation Interests sales. In addition to enhancing sales revenues, financing
customer receivables generates attractive profit margins and cash flows from the
spread between interest rates charged by the Company on its mortgages receivable
and the Company's cost of capital. This financing is typically collateralized by
the underlying Vacation Interests.
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RECENT DEVELOPMENTS
Acquisition of Interests in New Resorts. In January 1999, the Company
acquired one resort in Soriano nel Cirino, Italy (approximately 20 minutes
outside of Rome) and entered into a leasing agreement with respect to eight
units located at one resort in Izu, Japan. These resorts will be included in the
GVC and SJVC points-based vacation ownership systems, respectively.
New Management Changes and Organizational Alignment. In January 1999, the
Company announced a realignment of its business units and the consolidation of
management to its Orlando, Florida headquarters. The Company is now organized
under the following six integrated business units, with the heads of each
business unit reporting directly to L. Steven Miller, Chief Executive Officer
and President: Sales; Owner Services; Finance and Administration; Legal;
Sunterra Europe; and Marketing.
The Sales business unit operates under the direction of James E. Noyes,
Executive Vice President -- Sales. Mr. Noyes manages the development and
operation of a fully integrated global sales system designed to maximize the
demand for the Company's resorts.
The Owner Services business unit operates under the direction of Charles C.
Frey, Senior Vice President -- Owner Services. Mr. Frey manages all service
functions related to owners, guests and visitors, including hospitality
management and call center operations (reservation, travel and membership
services), as well as construction for both newly acquired and existing resorts.
The Finance and Administration business unit operates under the direction
of Richard Goodman, Executive Vice President and Chief Financial Officer. Mr.
Goodman manages all finance, treasury, accounting and investor relations
functions, as well as human resources, information technology, risk management
and acquisition and development.
The Legal business unit operates under the direction of Thomas A. Bell,
Senior Vice President and General Counsel. Mr. Bell manages all legal matters,
including shareholder matters, federal filings, legislative developments and
governmental agency relations.
The Sunterra Europe business unit operates under the direction of Richard
Harrington, Managing Director-Sunterra Europe. Mr. Harrington manages all
European operations.
The Marketing business unit is responsible for the development and
commercialization of the Company's brand, products and markets. The Company is
currently evaluating candidates to head the Marketing business unit.
BUSINESS STRATEGY
The Company's business strategy is designed to (i) implement Club Sunterra
and grow its vacation club membership base, (ii) expand its resort network
through development and acquisition, (iii) increase sales through existing and
future resort locations and off-site sales centers, (iv) improve operating
efficiencies and profitability, and (v) expand rental services and property
management businesses.
Club Sunterra. The Company is currently introducing Club Sunterra to its
sales centers on a resort-by-resort basis, which is anticipated to be fully
implemented at all wholly-owned Sunterra resorts by the end of 1999. Club
Sunterra is a new points-based vacation ownership system, enabling members to
vacation at any resort in the Club Sunterra network by utilizing their annual
allotment of points ("SunOptions") as a vacation currency. The Company believes
the flexibility of its Club Sunterra product will expand the market for vacation
ownership, as it is designed to evolve with an owner's life style changes, and
enable the Company to target a wider base of new potential customers.
Through Club Sunterra, the Company believes that it has created a superior
product which provides customers with the variety and flexibility they desire in
their vacation experiences. The Company believes Club Sunterra increases the
value of vacation ownership by offering customers a superior product and myriad
of options for vacation planning. Club Sunterra creates an affinity relationship
with the owner base and provides the platform for cross marketing opportunities
for leisure time products and services.
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In addition, the Club Sunterra membership business generates annual
recurring revenues to the Company, which currently are $139 per member per year.
This fee entitles such member to participate in the Club Sunterra vacation
ownership system, including fee-less exchanges within the Club Sunterra resort
network and an annual membership to a third party exchange company for exchanges
outside of the Club Sunterra resort network.
Expand Resort Network. A larger network of resorts provides the Company's
owners, guests and potential customers more vacation choices. With the
implementation of Club Sunterra, a continually expanding network of resorts
provides the Company's current and future owners more options to customize their
vacations.
In addition, the expanded network of resorts will provide a greater base of
resorts to distribute and sell Vacation Interests, leverage the development of
more sophisticated delivery and support systems, and create a consumer brand.
The Company has achieved its leading position in the industry by developing
and acquiring desirable resorts at attractive prices which the Company believes
will allow it to achieve above average returns. Management believes that its
proven acquisition and development record and public company status give the
Company a competitive advantage in acquiring assets, businesses and operations
in the fragmented vacation ownership industry. The Company's continued
development of its infrastructure, building of its management team, and
implementation of Club Sunterra further enable the Company to successfully
integrate future acquisitions into its operations.
Increase Sales. The Company intends to increase sales of Vacation Interests
through the implementation of its more flexible vacation ownership product, Club
Sunterra. Through Club Sunterra, customers have access to the Company's network
of resorts and the flexibility to choose the season, location, duration and unit
size, based on their annual allotment of SunOptions. Club Sunterra is designed
to profile the entire resort network, enabling purchasers to have a home resort
advantage, yet also the ability to use their SunOptions to experience a vacation
or multiple vacations at any of the resorts in the network. The Company believes
sales opportunities will significantly increase at all resort locations as well
as at off-site centers because the sales and marketing processes are no longer
associated with just one resort. This selling process increases customer contact
which, over time, will increase each customer's affinity with Club Sunterra and
the Sunterra Resorts brand.
The Company also expects to enhance sales through its network of off-site
sales centers and larger distribution channels. There are currently seven and
seventeen off-site sales centers operating in the United States and Europe,
respectively. In addition, the Company's expansion of its resort network will
provide additional distribution outlets for the sale of Vacation Interests.
Improve Operating Efficiencies and Profitability. The Company intends to
improve operating efficiencies and profitability by implementing the Club
Sunterra points-based vacation ownership system and consolidating and
centralizing several key operating functions including mortgages receivable
processing, call center and reservations services, all of which were typically
performed at each resort location. Additionally, by leveraging against a larger
customer base, the Company anticipates that it will be able to lower its cost
associated with delivering services.
Expand Rental Services and Property Management Businesses. The Company
intends to expand its rental services operations and property management
business. To date, the Company believes an efficient rental market does not
currently exist with respect to vacation ownership resorts, other resorts and
condominium accommodations. The Company intends to develop services which are
designed to increase efficiency of a rental market and capitalize on the growing
need of owners to provide the flexibility associated with rental of their
accommodations. The Company intends to pursue these opportunities by utilizing
its traditional sales channels and through its Club Sunterra reservations
systems. Additionally, the Company believes substantial opportunities exist to
increase its property management business, both for owned vacation ownership
resorts and for other vacation ownership resorts as well as hotels, condominiums
and other resorts.
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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, the space provided to the guest relative to the cost
(without renting multiple rooms) is not economical. Also, room rates and
availability at such establishments are subject to change periodically. In
addition to providing improved lifestyle benefits to owners, vacation ownership
presents an economical alternative to commercial lodging for vacationers.
The vacation ownership industry represents one of the fastest growing
segments of the lodging industry. According to the American Resort Development
Association ("ARDA") and other industry sources, during the 17 year period
ending in 1997, worldwide Vacation Interest sales volume increased from $490
million in 1980 to an estimated $6.0 billion in 1997, a compounded annual growth
rate of 15.9%. Vacation ownership has size and reach, with more than 5,000
vacation ownership resorts in over 80 countries and 4.5 million vacation
ownership families in 174 countries worldwide. The January 1999 issue of
"Vacation Ownership World" indicated that the top 38 companies in the vacation
ownership industry (representing approximately 66% of the market) generated 24%
growth in year-over-year Vacation Interest sales in 1998.
As shown in the following charts, according to ARDA, the worldwide vacation
ownership industry has expanded significantly since 1980 both in Vacation
Interest sales volume and number of Vacation Interest owners.
[Chart [Chart
indicating Interest Sales Volume] indicating Vacation Interest Owners]
Source: ARDA (includes, with respect to 1995, 1996 and 1997 unpublished
estimates provided by ARDA)
The Company believes that overall, the vacation ownership industry offers
many vacationers a superior economic value and a more flexible alternative to
traditional commercial lodging accommodations, and as a result, has historically
achieved high levels of customer satisfaction. A survey of vacation owners
conducted by ARDA in 1997 found that approximately 85% were either satisfied or
very satisfied with their vacation ownership purchase. ARDA also found that
about 76% of purchasers consider their time-of-purchase expectations to have
been matched or exceeded and that approximately 72% of owners eventually
purchase additional vacation ownership time. The average vacation ownership
customer owns 1.7 vacation ownership weeks. Industry research also suggests that
customer satisfaction increases with length of ownership, age, income, multiple
location ownership and accessibility to Vacation Interest exchange networks.
Increased government regulation, higher standards of quality and service,
increased flexibility and the rapid entry of a number of well-organized lodging
and entertainment companies, including Marriott Ownership Resorts ("Marriott"),
The Walt Disney Company ("Disney"), Four Seasons Hotel & Resorts ("Four
Seasons"), Hilton Hotels Corporation ("Hilton"), Hyatt Corporation ("Hyatt"),
Promus Hotel Corporation ("Promus") and Starwood Hotels and Resorts Worldwide,
Inc. ("Starwood"), have enhanced the industry's image and increased consumer
satisfaction.
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Sunterra believes it has significant opportunities to capitalize on
positive industry dynamics including continued worldwide industry growth and
favorable trends in consumer demographics. The large Baby Boomer market segment
is projected to reach its greatest ever concentration in the next ten years,
with an estimated 40 million people turning 50 years old over that period.
Additionally, the Generation X market segment has the highest awareness of and
receptivity to vacation ownership products that has ever been experienced in the
21 to 35 year old category. Demographic trends favor continuing growth in
overall demand for vacation ownership products, as the population of individuals
aged 45 to 60 is expected to increase by more than 50% in the United States
within the next decade. Historically, individuals age 45 to 60 represent a
market with significant discretionary income and have been the vacation
ownership industry's primary target market. In addition, the Company will seek
to capture an increasing share of the overall worldwide leisure travel and hotel
stay markets, providing substantial opportunities to increase market share from
contiguous, yet non-traditional marketing channels.
DESCRIPTION OF THE COMPANY'S RESORT LOCATIONS
Currently, the Company has 89 resort locations, which include 33 resort
locations sold as Vacation Intervals and 56 resort locations sold in
points-based vacation ownership systems. With respect to the Company's resorts,
all of the units are fully-furnished, and include 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 outdoor barbecue grill. Many
units also include a private deck.
The Company offers Vacation Interests through the following six principal
products:
Sunterra Resorts -- Club Sunterra. The Company is in the process of
introducing Club Sunterra to each resort location and off-site sales center and
plans to complete the roll-out by the end of 1999. Until Club Sunterra is
introduced to individual resorts, the resorts will continue to sell Vacation
Intervals. Vacation Intervals at the Company's Sunterra Resorts generally sell
for $5,000 to $11,000 for a studio unit, $7,000 to $13,000 for a one-bedroom
unit, $8,000 to $20,000 for a two-bedroom unit, $10,000 to $21,000 for a three-
bedroom unit and $12,000 to $22,000 for a four-bedroom unit.
Sunterra Europe -- Grand Vacation Club. GVC allows members to purchase an
annual allotment of points that can be redeemed for occupancy rights at GVC's
European resorts and at other participating resorts. The Company markets GVC in
the United Kingdom, Spain, Portugal, Italy, France and Austria. Each GVC member
receives a new allotment of points each year throughout the term of its
membership in the club.
Sunterra Pacific -- Vacation Time Share Program. The VTS Program is
marketed to potential buyers in the United States, Canada and Mexico. The VTS
Program is a points-based vacation ownership system much like GVC in that it
allows members to purchase Vacation Points that are redeemed for occupancy
rights at participating VTS Program resorts. Each VTS Program member receives a
new allotment of points each year throughout the term of its membership in the
program.
Sunterra Japan -- SJVC. The Company markets SJVC to potential buyers in
Japan. SJVC is much like GVC in that it allows members to purchase Vacation
Points that are redeemed for occupancy rights at participating Sunterra Japan
resorts.
Embassy Vacation Resorts. Vacation Intervals at the Company's four EVR
resorts generally sell for $13,000 to $26,000. EVR resorts are designed to
provide vacation ownership accommodations that offer the same high quality and
value that is represented by the more than 140 Embassy Suites hotels throughout
North America. The Company is one of two licensees and operators of EVR resorts.
Westin Vacation Club Resort. Vacation Intervals at the Company's one WVC
resort sell for $18,000 to $20,000.
The Company also has six other resort locations, which are not affiliated
with the above-mentioned products.
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As of December 31, 1998, the Company had the following number of resorts,
completed units, potential unit expansion, total potential units and current
inventory of Vacation Intervals or Vacation Points by product offering:
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CURRENT
INVENTORY(C)
NUMBER POTENTIAL TOTAL -----------------------
OF COMPLETED UNIT POTENTIAL VACATION VACATION
RESORTS UNITS(A) EXPANSION(B) UNITS INTERVALS POINTS
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Sunterra Resorts.................................. 27 2,300 2,302 4,602 16,091 --
Sunterra Europe -- GVC............................ 24 1,835 231 2,066 -- 470,302
Sunterra Pacific -- VTS Program................... 22 776 -- 776 -- 169,674
Sunterra Japan -- SJVC............................ 3 48 -- 48 -- 180,708
Embassy Vacation Resorts.......................... 4 504 456 960 12,605 --
Westin Vacation Club Resorts...................... 1 48 48 96 1,557 --
Other............................................. 6 66 -- 66 1,310 --
-- ----- ----- ----- ------- -------
Total..................................... 87 5,577 3,037 8,614 31,563 820,684
</TABLE>
(a) Completed units represent only those units that have received their
certificate of occupancy as of December 31, 1998. The Company generally is
able to sell 51 Vacation Intervals with respect to each unit at its resorts.
(b) Potential unit expansion includes, as of December 31, 1998, (i) units then
under construction and (ii) units planned to be developed on land then owned
by the Company or under option to be acquired and which were not then under
construction. The Company estimates that it would incur approximately $400
million to develop all of the potential unit expansion. However, except for
the projects currently under construction (the costs of which completing are
expected to be approximately $14.3 million in 1999), the Company has not
committed to develop any other of the potential unit expansion.
(c) Current inventory of Vacation Intervals or Vacation Points represents only
those unsold Vacation Intervals or Vacation Points that have received their
certificate of occupancy as of December 31, 1998.
The following tables set forth the name and location, as of December 31,
1998, of each of the Company's 87 resort locations. Of the resort locations set
forth below, the EVR Poipu Point and Kaanapali Beach, the NorthBay at Lake
Arrowhead, Ridge Point Tahoe and the WVC St. John are held in partnership with
third parties.
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RESORT LOCATION
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SUNTERRA RESORTS
Avalon Deerfield Beach, Florida
Bent Creek Golf Village Gatlinburg, Tennessee
Carambola Beach St. Croix, USVI
Coral Sands Miami Beach, Florida
Cypress Pointe Lake Buena Vista, Florida
Flamingo Beach St. Maarten, Netherlands Antilles
Ft. Lauderdale Beach Ft. Lauderdale, Florida
Greensprings Plantation Williamsburg, Virginia
The Highlands at Sugar Banner Elk, North Carolina
Mountain Meadows Pigeon Forge, Tennessee
The Plantation at Fall Creek Branson, Missouri
Polynesian Isles Orlando, Florida
Powhatan Plantation Williamsburg, Virginia
The Ridge on Sedona Golf Sedona, Arizona
Royal Dunes Hilton Head, South Carolina
Royal Palm Beach St. Maarten, Netherlands Antilles
San Luis Bay Avila Beach, California
The Savoy on South Beach Miami Beach, Florida
Scottsdale Villa Mirage Scottsdale, Arizona
Sedona Springs Sedona, Arizona
Sedona Summit Sedona, Arizona
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RESORT LOCATION
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Town Square Gatlinburg, Tennessee
Town Village Gatlinburg, Tennessee
Villas at Poco Diablo Sedona, Arizona
Villas de Santa Fe Santa Fe, New Mexico
Villas of Sedona Sedona, Arizona
Villas on the Lake Montgomery, Texas
SUNTERRA EUROPE -- GRAND VACATION CLUB
The Alpine Club Schladming, Austria
Carlton Court London, England
Club del Carmen Lanzarote, Canary Islands
Club Mougins Cannes, France
Flanesford Priory Country Estate Herefordshire, England
Kenmore Club Perthshire, Scotland
Le Moulin de Connelles Normandy, France
Los Amigos Beach Club Costa del Sol, Spain
Marina Baie des Anges Nice, France
Pine Lake Resort Lancashire, England
Royal Oasis Club at Benal Beach Costa del Sol, Spain
Royal Oasis Club at La Quinta Costa del Sol, Spain
Royal Sunset Beach Club Tenerife, Canary Islands
Royal Tenerife Country Club Tenerife, Canary Islands
Sahara Sunset Club Costa del Sol, Spain
Santa Barbara Golf & Ocean Club Tenerife, Canary Islands
Sunset Bay Club Tenerife, Canary Islands
Sunset Harbour Club Tenerife, Canary Islands
Sunset View Club Tenerife, Canary Islands
Vilar do Golf Algarve, Portugal
White Sands Beach Club Menorca, Balearic Islands
White Sands Country Club Menorca, Balearic Islands
Woodford Bridge Country Club North Devon, England
Wychnor Park Country Club Straffordshire, England
SUNTERRA PACIFIC -- VTS PROGRAM
Clock Tower Whistler, British Columbia
Elkhorn Village(1) Sun Valley, Idaho
Embarcadero(1) Newport, Oregon
Fairway Villa Oahu, Hawaii
Hololani Maui, Hawaii
Kapaa Shore Kauai, Hawaii
Kihei Kai Nani Maui, Hawaii
Kingsbury Stateline, Nevada
Marina Inn(1) Oceanside, California
Oasis Palm Springs, California
Papakea Maui, Hawaii
The Pines at Sunriver Sunriver, Oregon
Point Brown Resort Ocean Shores, Washington
Pono Kai Kauai, Hawaii
Royal Kuhio Oahu, Hawaii
Sea Mountain Big Island, Hawaii
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RESORT LOCATION
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Sea Village Big Island, Hawaii
Tahoe Beach & Ski S. Lake Tahoe, California
Torres Mazatlan Mazatlan, Mexico
Vallarta Torre Puerto Vallarta, Mexico
Valley Isle Maui, Hawaii
The Village at Steamboat Steamboat Springs, Colorado
SUNTERRA JAPAN--SJVC
Kawaguchiko Yamanashi, Japan
Minamibousoh(1)(2) Chiba, Japan
Naeba Niigat, Japan
EMBASSY VACATION RESORTS
Grand Beach(1) Orlando, Florida
Kaanapali Beach Maui, Hawaii
Lake Tahoe(1) S. Lake Tahoe, California
Poipu Point Kauai, Hawaii
WESTIN VACATION CLUB
St. John(1) St. John, USVI
OTHER
Los Clavales(1) Tenerife, Canary Island
Malibu Village(1) Roussilon, France
Northbay at Lake Arrowhead Lake Arrowhead, California
Playa Paraiso Majorca, Spain
Ridge Pointe Tahoe(1) S. Lake Tahoe, California
Tahoe Seasons(1) S. Lake Tahoe, California
</TABLE>
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(1) Units owned by the Company at the resort are managed by a third party
management company.
(2) The Company is currently leasing units at this resort.
CUSTOMER FINANCING
The Company offers consumer financing to the purchasers of Vacation
Interests at the Company's resort locations and off-site sales centers 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 the
underlying Vacation Interest.
At December 31, 1998, the Company's mortgages receivable portfolio included
approximately 52,000 promissory notes totaling approximately $358.9 million,
with a stated maturity of typically seven to ten years and a weighted average
interest rate of 14.5% per annum. Consumer loans in excess of 60 days past due,
including defaulted loans and loans in the deed-in-lieu process, at December 31,
1998, were 7.4% as a percentage of gross mortgages receivable. As of December
31, 1998, the Company's allowance for doubtful accounts, which is net of
recoveries, was 6.4% as a percentage of gross mortgages receivable. Management
believes that this percentage is an adequate reserve for expected loan losses
because the past due loan amounts do not include amounts recovered from the
underlying Vacation Interests nor do all past due loans become defaulted loans.
The Company has entered into agreements with lenders for the Company's
financing or sale of customer receivables. At December 31, 1998, the Company had
approximately $123.1 million of additional borrowing capacity available, which
could be used for financing mortgages receivables and other general corporate
purposes.
Sunterra Europe currently contracts with a third-party bank to provide
financing to purchasers of Vacation Points in its GVC and is paid an upfront
commission of approximately 14% (which includes a
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1% commission contingent on the Company meeting certain volume thresholds) of
the principal amount of eligible consumer loans on a non-recourse basis.
SALES AND MARKETING
The Company's primary means of selling Vacation Interests is through both
on-site and off-site sales teams. 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 and other potential customers to encourage resort tours,
in the form of entertainment tickets, hotel stays, gift certificates or free
meals. The Company's sales process is tailored to each prospective buyer based
upon the marketing program that brought the prospective buyer to the resort for
a sales presentation. Prospective target customers are identified through
various means of profiling, and are intended to include current owners of
Vacation Interests.
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 resort properties.
During 1998, the Company acquired in separate transactions MMG, HTD, and an
additional ten resorts located in the United States, Europe, and Japan. The
Company has expertise in all areas of resort development including, but not
limited to, architecture, construction, finance, management, operations and
sales.
Management believes that its proven acquisition and development record and
public company status give the Company a competitive advantage in acquiring
assets, businesses and operations in the fragmented vacation ownership industry
that will prove to increase operating profits and enable Club Sunterra to
expand.
RENTAL OPERATIONS
The Company generates additional revenue by renting the unsold or unused
Vacation Interests at certain of its resorts. The Company rents unoccupied units
both through direct consumer sales, travel agents and/or vacation package
wholesalers. In addition to providing the Company with supplemental revenue, the
Company believes its room-rental operations provide it with a good source of
potential customers for the purchase of Vacation Interests. As part of the
management services provided by the Company to Vacation Interests owners, the
Company receives a fee for services provided to rent an owner's Vacation
Interests in the event the owner is unable to use or exchange the Vacation
Interests. In addition, the Company has purchased traditional resort
condominiums and resort hotels with the intention of converting each such resort
location to a vacation ownership property. Until such time as a unit at each
resort is sold as Vacation Interests, the Company continues (and will continue)
to rent the underlying unit on a nightly basis. Resorts acquired in the future
may be operated in this fashion during the start-up of Vacation Interests sales.
RESORT MANAGEMENT
The Company's resort locations are (i) generally managed by the Company
pursuant to management agreements with homeowner associations with respect to
each of the Company's Sunterra Resorts, (ii) managed by Promus pursuant to
management agreements with the Company with respect to EVR Grand Beach and EVR
Lake Tahoe and (iii) managed by Westin with respect to the WVC resort. At
December 31, 1998, the Company managed 27 Sunterra Resorts, two EVR resorts, 19
Sunterra Pacific resorts and 24 Sunterra Europe resorts. The Company manages
third party units at an additional 18 resorts in Hawaii. The remaining resort
locations are managed by third party management companies. See "-- Description
of the Company's Resort Locations."
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At each of the Company's managed resort locations, the Company enters into
a management agreement to provide for management and maintenance of the resort.
Pursuant to each such management agreement the Company is typically paid a
monthly management fee equal to 10% to 15% of monthly maintenance fees. The
management agreements are typically for a three-year period, automatically
renewable annually unless notice of non-renewal is given by either party.
Pursuant to each management agreement, the Company has primary responsibility
and authority for all activities necessary for the day-to-day operation of the
managed resort locations, including administrative services, procurement of
inventories and supplies and promotion and publicity. With respect to each
managed resort location, the Company generally also obtains comprehensive and
general public liability insurance, all-risk property insurance, business
interruption insurance and such other insurance as is customarily obtained for
similar properties. The Company also provides all managerial and other employees
necessary for the managed resort locations, including those necessary for 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 EVR Grand Beach and EVR Lake Tahoe, Promus provides these services,
and the Company shares in the profitability of these agreements. Sunterra Europe
manages each resort in GVC pursuant to contracts that typically provide for a
management fee of 15% of monthly maintenance fees to be paid to Sunterra Europe.
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 or similar legal
arrangement with other buyers of Vacation 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 a management company, delegating many of the rights and
responsibilities of the homeowners' association, 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 (generally $300
to $700 per Vacation Interval) can consist of an annual maintenance fee plus
applicable real estate taxes and, where needed, special assessments, assessed on
an as-needed basis. If the owner does not pay such charges, the owner's use
rights may be suspended and the homeowners' association may foreclose on the
owner's Vacation Interval.
POINTS-BASED VACATION OWNERSHIP
In general, under a points-based vacation ownership system, owners (usually
referred to as members) purchase points which act as an annual currency
entitlement for occupancy rights at any of the club's participating resorts. The
Company's Club Sunterra points-based vacation ownership system operates on a
basis very similar to the standard Vacation Interval ownership structure in that
members have a home resort, and have a deeded, fee-simple interest in a
particular unit at that home resort. The advantages of a points-based vacation
ownership system relate to the flexibility given to members with respect to the
usage of their Vacation Points versus the usage of a traditional Vacation
Interval. In traditional Vacation Interval ownership, owners can either use
their Vacation Interval for a one-week stay in a specific unit size in a
specific resort or exchange through an external exchange organization (i.e.,
Resort Condominiums International, LLC ("RCI") or Interval International, Inc.
("II")). Because Vacation Points function as currency under a points-based
vacation ownership system, owners can, subject to availability, choose the
location, season, duration and unit size of their vacation, based on their
annual Vacation Points allocations. Additionally, in a points-based vacation
ownership system, owners can redeem their points for a stay in any one of the
resorts included in the club without having to exchange through an external
exchange company such as RCI or II. Members of Club Sunterra are, however, able
to exchange through RCI for vacation stays at resorts outside of the Club
Sunterra resort network if they desire, as the $139 annual Club Sunterra
membership fee includes annual membership in RCI.
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Each Vacation Points owner is required to pay the homeowners' association a
share of all costs of maintaining the properties in the resort network
(depending on the number of SunOptions owned). These charges consist of an
annual maintenance fee plus applicable real estate taxes 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 Points.
The Company currently operates four points-based vacation ownership
systems: Club Sunterra (currently six resort locations in the United States),
Sunterra Europe -- GVC (currently 25 resort locations in Europe), Sunterra
Pacific -- VTS Program (currently 22 resort locations in North America) and
Sunterra Japan -- SJVC (currently four resort locations in Japan). Club Sunterra
operates as an umbrella points-based vacation ownership system for its European
and North American operations. In addition to attracting new owners, the Company
will market Club Sunterra to its existing base of owner families.
PARTICIPATION IN VACATION INTEREST EXCHANGE NETWORKS
The Company believes that its Vacation Interests are made more attractive
by the Company's participation in Vacation Interest exchange networks operated
by RCI and II. In a 1998 study sponsored by ARDA, the exchange opportunity was
cited by purchasers of Vacation Interests as one of the most significant factors
in determining whether to purchase a Vacation Interests. Participation in RCI
and II allows the Company's customers to exchange their occupancy right in a
particular year in the unit in which they own a Vacation Interest for an
occupancy right at the same time or a different time in another participating
resort, based upon availability and the payment of a variable exchange fee.
Members may exchange their Vacation Interests for occupancy rights in another
participating resort by listing their Vacation Interests as available with the
exchange organization and by requesting occupancy at another participating
resort, indicating the particular resort or geographic area to which the member
desires to travel, the size of the unit desired and the period during which
occupancy is desired. Both RCI and II assign ratings to each listed Vacation
Interest. These ratings are based upon a number of factors, including the
location and size of the unit, the quality of the resort and the period during
which the Vacation Interest is available, and attempts to satisfy the exchange
request by providing an occupancy right in another vacation interest with a
similar rating. If RCI or II is unable to meet the member's initial request, it
suggests alternative resorts based on availability.
COMPETITION
The Company competes with both branded and non-branded hospitality and
lodging companies, as well as other established vacation ownership companies.
Although major lodging and hospitality companies such as Marriott, Disney,
Hilton, Hyatt, Four Seasons, Inter-Continental Hotels and Resorts
("Inter-Continental"), Carlson Companies, Promus and Starwood have established
or declared an intention to establish vacation ownership operations in the past
decade, the industry remains largely unbranded and highly fragmented. However,
the majority of the approximately 5,000 worldwide vacation ownership resorts are
owned and operated by smaller, regional companies.
In addition, the Company also competes with the buyers of its Vacation
Intervals who subsequently decide to resell those Vacation Intervals. While the
Company believes, based on experience at its resorts, that the market for resale
of Vacation Intervals by buyers is presently limited, such resales are typically
at prices substantially less than the original purchase price. The market price
of Vacation Intervals sold by the Company at a given resort or by its
competitors in the market in which each resort is located could be depressed by
a substantial number of Vacation Intervals offered for resale.
GOVERNMENTAL REGULATION
General. The Company's marketing and sales of vacation interests are
subject to extensive regulations by the federal government and the states and
foreign jurisdictions in which its resort properties are located and in which
vacation interests are marketed and sold. On a federal level, the Federal Trade
Commission has 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
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may be subject includes the Truth-In-Lending Act and Regulation Z, the Equal
Credit Opportunity 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 Act of
1964 and 1968. In addition, many states have adopted specific laws and
regulations regarding the sale of vacation interest ownership programs. The laws
of most states, including Florida, South Carolina and Hawaii require the Company
to file with a designated state authority for its approval a detailed offering
statement describing the Company and all material aspects of the project and
sale of vacation interests. The laws of California require the Company to file
numerous documents and supporting information with the California Department of
Real Estate, the agency responsible for the regulation of vacation interests.
When the California Department of Real Estate determines that a project has
complied with California law, it will issue a public report for the project. In
most states, the Company is required to deliver an offering statement or public
report to all prospective purchasers of vacation interests, together with
certain additional information concerning the terms of the purchase. Laws in
most states where the Company sells vacation interests generally grant the
purchaser of a vacation interest the right to cancel a contract of purchase at
any time within a period ranging from 3 to 15 calendar days following the
earlier of the date the contract was signed or the date the purchaser received
the last of the documents required to be provided by the Company. Most states
have other laws that regulate the Company's activities such as real estate
licensure; exchange program registration; 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 Company will not incur
significant costs in qualifying under vacation interest ownership regulations in
all jurisdictions in which the Company desires to conduct sales. Any failure to
comply with applicable laws or regulations could have material adverse effect on
the Company.
Certain state and local laws may also impose liability on property
developers with respect to construction defects discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may recover
from the Company amounts in connection with the repairs made to the developed
property.
In addition, from time to time, potential buyers of Vacation Interests
assert claims with applicable regulatory agencies against Vacation Interest
salespersons for unlawful sales practices. Such claims could have adverse
implications for the Company in negative public relations and potential
litigation and regulatory sanctions. However, the Company does not believe that
such claims will have a material adverse effect on the Company or its business.
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 with respect to access by disabled persons. If a homeowners'
association at a resort was required to make significant improvements as a
result of non-compliance with the ADA, Vacation Interests owners may default on
their mortgages and/or cease making required homeowners' association assessment
payments. The Company is not aware of any non-compliance with the ADA, the Fair
Housing Act or similar laws that management believes would have a material
adverse effect on the Company's business, assets or results of operations.
The Company sells Vacation Interests at its resort locations through
independent sales agents. Such independent sales agents provide services to the
Company under contract and, the Company believes, are not employees of the
Company. Accordingly, the Company does not withhold payroll taxes from the
amounts paid to such independent contractors. 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
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than as independent contractors, and hold the Company liable for back payroll
taxes, such reclassification may have a material adverse effect on the Company.
The marketing and sales of the GVC points-based vacation ownership system
and its other operations are subject to national and European regulation and
legislation. Within the European Community (which includes all the countries in
which the Company conducts its operations), the European Timeshare Directive of
1994 regulates vacation ownership activities. The terms of the Directive require
the Company to issue a disclosure statement providing specific information about
its resorts and its vacation ownership operations as well as making mandatory a
10-day rescission period and a prohibition on the taking of advance payments
prior to the expiration of that rescission period. Member States are permitted
to introduce legislation that is more protective of the consumer when
implementing the European Timeshare Directive. In the United Kingdom, where the
majority of the Company's marketing and sales operations take place, the
Directive has been implemented by way of an amendment to the Timeshare Act 1992.
In the United Kingdom, a 14-day rescission period is mandatory. There are other
United Kingdom laws which the Company is or may be subject to including the
Consumer Credit Act 1974, the Unfair Terms in Consumer Contracts Regulations
1995 and the Package Travel, Package Holidays and Package Tours Regulations
1992. The Timeshare Act 1992 does appear to have extra-territorial effect in
that United Kingdom resident purchasers buying timeshare in other European
Economic Area States may rely upon it. All the countries in which the Company
operates have consumer and other laws which regulate its activities in those
countries. The Company is member of the Timeshare Council which is the United
Kingdom's self regulating trade body for vacation ownership companies. As a
member, it is 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, local and foreign
environmental, health, safety and land use laws, ordinances, regulations and
similar requirements (collectively, "Environmental Laws"), a current or previous
owner or operator of real property may be required to investigate and clean up
hazardous or toxic substances or wastes or releases of petroleum products or
wastes at such property, and may be held liable to a governmental entity or to
third parties for associated damages and for investigation and clean-up costs
incurred by such parties in connection with the contamination. Such laws may
impose clean-up responsibility and liability without regard to whether the owner
knew of or caused the presence of the contaminants, and the liability under such
laws has been interpreted to be joint and several unless the harm is divisible
and there is a reasonable basis for allocation of responsibility. The cost of
investigation, remediation or removal of such substances may be substantial, and
the presence of such substances, or the failure to properly remediate the
contamination on such property, may adversely affect the owner's ability to sell
or rent such property or to borrow using such property as collateral. In
addition, persons who arrange for the disposal or treatment of hazardous or
toxic substances at a disposal or treatment facility may also be liable for the
costs of removal or remediation of a release of hazardous or toxic substances or
wastes at such disposal or treatment facility, whether or not such facility is
owned or operated by such person. In addition, some Environmental Laws create a
lien on the contaminated site in favor of the government for damages and costs
it incurs in connection with the contamination. Finally, the owner of a site may
be subject to statutory or common law claims by third parties based on damages
and costs resulting from environmental contamination emanating from a site. In
connection with its ownership and operation of its properties, the Company
potentially may be liable for such costs. In addition, as a result of the
consummation of the Acquisitions, the Company could be held liable for the
pre-existing environmental and other liabilities of the acquired companies, if
any.
Certain Environmental Laws govern the removal, encapsulation or disturbance
of asbestos-containing materials ("ACMs") when such materials are in poor
condition or in the event of construction, remodeling, renovation or demolition
of a building. Such laws may impose liability for release of ACMs and may
provide for third parties to seek recovery from owners and operators of real
properties for personal injury associated with ACMs. In connection with its
ownership and operation of its properties, the Company potentially may be liable
for such costs.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no state
or federal requirements regarding the monitoring for, presence of, or exposure
to, radon in indoor air, the EPA and the Surgeon General recommend testing
residences for the
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presence of radon in indoor air, and the EPA further recommends that
concentrations of radon in indoor air be limited to less than 4 picocuries per
liter of air (pCI/L) (the "Recommended Action Level"). The presence of radon in
concentrations equal to or greater than the Recommended Action Level in one or
more of the Company's resorts may adversely affect the Company's ability to sell
vacation interests at such resorts and the market value of such resort. In
addition, the Company is required to disclose to potential purchasers and owners
of vacation interests at the Company's resorts that were constructed prior to
1978 any known lead-paint hazards and failure to so notify could impose damages
on the Company.
The Company has conducted Phase I environmental assessments (which
typically involve inspection without soil sampling or groundwater analysis)
performed by independent environmental consultants at each of the resort
locations at which it has sold or owns a material amount of inventory in order
to identify potential environmental concerns. These Phase I assessments have
been carried out in accordance with accepted industry practices, and generally
have included a preliminary investigation of the sites and identification of
publicly known conditions concerning properties in the vicinity of the sites,
physical site inspections, review of aerial photographs and relevant
governmental records where readily available, interviews with knowledgeable
parties, investigation for the presence of above ground and underground storage
tanks presently or formerly at the sites, a visual inspection of potential
lead-based paint and suspect friable ACMs where appropriate, and the preparation
and issuance of written reports.
The Company's assessments of its resorts have not revealed any
environmental liability that the Company believes would have a material adverse
effect on the Company's business, assets or results of operations, nor is the
Company aware of any such material environmental liability. Nevertheless, it is
possible that the Company's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which the
Company is unaware. The Company believes that its properties are in compliance
in all material respects with all Environmental Laws regarding hazardous or
toxic substances or wastes. The Company does not believe that continued
compliance with applicable Environmental Laws or regulations will have a
material adverse effect on the Company or its financial condition or results of
operations.
In connection with the acquisition and development of the EVR Lake Tahoe
and the Sunterra Resorts San Luis Bay, several areas of environmental concern
have been identified. The areas of concern at the EVR Lake Tahoe relate to
possible soil and groundwater contamination that has migrated onto the resort
site from an upgradient source; in addition, residual contamination may exist on
the resort site as a result of leaking underground storage tanks that were
removed prior to the Company's acquisition of the resort site. California
regulatory authorities are monitoring the off-site contamination and have
required or are in the process of requiring the responsible parties to undertake
remedial action. The Company has been indemnified by Chevron (USA), Inc. for
certain costs and expenses in connection with the off-site contamination. The
Company does not believe that it will be held liable for this contamination and
does not anticipate incurring material costs in connection therewith; however,
there can be no assurance that the indemnitor will meet its obligations in a
complete and timely manner.
Sunterra Resorts San Luis Bay is located in an area of Avila Beach,
California which has experienced soil and groundwater contamination resulting
from a nearby oil refinery. California regulatory authorities have required the
installation of groundwater monitoring wells on the beach near the resort site
(among other locations). Remediation has commenced and negotiations with the oil
refinery are underway as to possible damages the Company has suffered from the
contamination and remediation activities. It is possible that the Company's
operations could be adversely impacted, including possible temporary
interference with access to the resort site and temporary loss of beach access,
once remediation is underway. The Company does not believe that it is liable for
this contamination and does not anticipate incurring material costs in
connection therewith; however, there can be no assurance that claims will not be
asserted against the Company with respect to this matter.
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 the
Company's management believes that its facilities are substantially in
compliance with present requirements of such laws,
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the Company may incur additional costs of compliance. Additional legislation may
impose further burdens or restriction on owners with respect to access by
disabled persons. The ultimate amount of the cost of compliance with such
legislation is not currently ascertainable, and, while such costs are not
expected to have a material effect on the Company, such costs could be
substantial. Limitations or restrictions on the completion of certain
renovations may limit application of the Company's growth strategy in certain
instances or reduce profit margins on the Company's operations.
EMPLOYEES
As of December 31, 1998, the Company had approximately 6,500 full and part
time employees. The Company believes that its employee relations are good. With
the exception of certain employees located at the St. Maarten, Netherlands
Antilles resorts, none of the Company's employees are represented by a labor
union. The Company sells Vacation Interests at its resorts through approximately
1,400 independent sales agents.
INSURANCE
The Company carries comprehensive liability, fire, hurricane, storm,
earthquake and business interruption insurance with respect to the Company's
resorts locations, with policy specifications, insured limits and deductibles
customarily carried for similar properties which the Company believes are
adequate. In September 1995 and July 1996, the Company's St. Maarten resorts
were damaged by a hurricane. With respect to such September 1995 damage, the
Company has recovered amounts from its insurance carriers sufficient to cover
100% of the property damage losses and is in the process of recovering amounts
for business interruption. In August of 1998, the Company's Caribbean resorts
were damaged by hurricane Georges. The Company is currently in the process of
recovering amounts for hurricane damage and business interruption related to the
hurricane. There are, however, certain types of losses (such as losses arising
from acts of war) that are not generally insured because they are either
uninsurable or not economically insurable. Should an uninsured loss or a loss in
excess of insured limits occur, the Company could lose its capital invested in a
resort, as well as the anticipated future revenues from such resort and would
continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any such loss could have a material adverse effect on
the Company.
TRADEMARKS
While the Company owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights and other intellectual property
rights, including the "Sunterra" and "Own Your World" service marks which, in
the aggregate, are of material importance to its business, it is believed that
the Company's business, as a whole, is not materially dependent upon any one
intellectual property or related group of such properties. The Company is
licensed to use certain technology and other intellectual property rights owned
and controlled by others, and, similarly, other companies are licensed to use
certain technology and other intellectual property rights owned and controlled
by the Company.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Certain statements in this
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the
"10-K") that are not historical fact constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Discussions containing such forward-looking statements may be found in the
material set forth under "Business and Properties," as well as within this 10-K
generally. In addition, when used in this 10-K the words "believes,"
"anticipates," "expects," "intends" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to a number of
risks and uncertainties. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below and the matters set forth in this 10-K generally. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
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RISK OF INCREASING LEVERAGE; LIQUIDITY
The Company finances approximately 65% of its Vacation Interest sales and
prior to 1998, chose to retain the originated mortgages receivable rather than
sell or securitize them. As a result, the Company was required to increase its
levels of indebtedness to fund its operations. At December 31, 1998, the Company
had approximately $627.1 million of outstanding indebtedness (excluding trading
payables).
During 1998, the Company began selling or securitizing its mortgages
receivable. During the year, the Company (i) completed a $100.3 million
on-balance sheet asset-backed securitization in the second quarter of 1998, (ii)
sold $101.9 million of mortgages receivable in the third quarter of 1998 and
(iii) sold $79.0 million of mortgages receivable into a conduit facility in the
fourth quarter of 1998.
The Company intends to continue to convert its mortgages receivable to cash
through (i) outright mortgages receivable sales, (ii) off-balance sheet
asset-backed securitizations of mortgages receivable or (iii) the origination of
mortgages receivable for, or by, a third party institution, and receipt of an
origination fee, as the Company currently does in its Sunterra Europe
operations. Such transactions are expected to be without recourse to the
Company, thereby reducing the Company's risk of default on the underlying
mortgages receivable.
The Company may further increase levels of indebtedness by utilizing its
$117.5 million senior bank credit facility with Bank of America Corporation, as
administrative lender which was entered into on February 18, 1998 (as amended,
the "Senior Credit Facility") to warehouse mortgages receivable until such
mortgages receivable are sold in an off-balance sheet asset-backed
securitization. In addition, the Company may incur indebtedness for (i) future
acquisitions or (ii) to finance construction of certain resort locations.
As of December 31, 1998, the Company had approximately $98.2 million
available on its Senior Credit Facility and $24.9 million available on its
$100.0 million mortgages receivable conduit facility (the "Conduit Facility").
In addition, the Company is currently negotiating a new conduit facility and an
off-balance sheet asset-backed securitization. Both transactions are expected to
close in the second quarter of 1999.
Markets for the Company's mortgages receivable include the asset-backed
securitization market, the commercial paper market (utilized by the Conduit
Facility) and the commercial bank and finance company markets. A decline in all
of these markets could materially adversely affect the Company's results of
operations, cash flows and capital resources.
The indentures for the Company's $140 million 9 1/4% Senior Notes due 2006
(the "Senior Notes") and the $200 million 9 3/4% Senior Subordinated Notes due
2007 (the "Senior Subordinated Notes") contain certain covenants that, among
other things, limit and/or condition the ability of the Company and its
restricted subsidiaries to (i) incur additional indebtedness, (ii) pay dividends
or make other distributions with respect to capital stock of the Company and its
restricted subsidiaries, (iii) create certain liens, (iv) sell certain assets of
the company or its restricted subsidiaries and (v) enter into certain mergers
and consolidations. In addition, certain of the Company's other indebtedness
that is not subordinated by its terms in right of payment to any indebtedness or
other obligation of the Company ("Senior Indebtedness"), contain other and more
restrictive covenants that, among other things, restrict and/or condition the
following: the making of investments, loans, and advances and the paying of
dividends and other restricted payments; the incurrence of additional
indebtedness; the granting of liens, other than certain permitted liens;
mergers, consolidations and sales of all or a substantial part of the Company's
business or property; the sale of assets; and the making of capital
expenditures.
Certain of the Company's Senior Indebtedness, including the Senior Credit
Facility, also require the Company to maintain certain financial ratios,
including interest coverage, leverage and fixed charge ratios. There can be no
assurance that these requirements will be met in the future. If they are not,
the holders of the indebtedness under certain of the Company's other Senior
Indebtedness may be entitled to declare such indebtedness immediately due and
payable.
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RISKS ASSOCIATED WITH CUSTOMER FINANCING
The Company offers customer financing to the purchasers of Vacation
Interests at the Company's resort locations and off-site sales centers 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 the
underlying Vacation Interests. The Company has entered into agreements with
lenders for the financing and sale of customer receivables.
The Company has historically derived income from its financing activities.
At December 31, 1998, the Company's mortgages receivable portfolio included
approximately 52,000 promissory notes totaling approximately $358.9 million,
with a stated maturity of typically seven to ten years and a weighted average
interest rate of 14.5% per annum. Additionally, at December 31, 1998, the
weighted average maturity of all outstanding consumer loans was approximately
9.5 years and the total borrowings secured by promissory notes were
approximately $142 million, bearing a weighted average interest rate of 7.5%.
However, because the Company's borrowings bear interest at variable rates and
the Company's loans to buyers of Vacation Interests bear interest at fixed rates
(which, as of December 31, 1998, equaled 14.5% per annum on a weighted average
basis), the Company bears the risk of increases in interest rates with respect
to the loans it has from its lenders. The promissory notes are prepayable at any
time without penalty. To the extent interest rates on the Company's borrowings
decrease, the Company faces an increased risk that customers will pre-pay their
loans and reduce the Company's income from financing.
The Company bears the risk of defaults by buyers who financed the purchase
of their Vacation Interests through the Company. The Company does not, however,
bear the risk of defaults with respect to mortgages receivable that it has sold
to third parties. Consumer loans in excess of 60 days past due, including
defaulted loans and loans in the deed-in-lieu process, at December 31, 1998 were
7.4%, as a percentage of gross mortgages receivable. The Company's allowance for
doubtful accounts, which is net of recoveries, was 6.4% as a percentage of gross
mortgages receivable. Management believes that this percentage is an adequate
reserve for expected loan losses because the past due loan amounts do not
include amounts recovered from the underlying Vacation Interests nor do all past
due loans become defaulted loans.
If a buyer of a Vacation Interest defaults on a mortgage receivable, the
Company may foreclose and recover the underlying Vacation Interest. However, the
Company will incur relatively substantial costs in foreclosing on the Vacation
Interest, returning it to inventory and reselling it. Although private mortgage
insurance or its equivalent is available to cover Vacation Interests, the
Company has never purchased such insurance and has no present intention of doing
so. In addition, although the Company in many cases may have recourse against
Vacation Interest purchasers and sales agents for the purchase price paid and
for commissions paid, respectively, no assurance can be given that the Vacation
Interest purchase price or any commissions will be fully or partially recovered
in the event of a buyer default under a mortgage receivable. The Company is
subject to the costs and delays associated with the foreclosure process and no
assurance can be given that the value of the underlying Vacation Interests being
foreclosed upon at the time of resale will exceed the purchase price of the
defaulted loans, taking into consideration the costs of foreclosure and resale
or that the costs of any such foreclosures will not have a material adverse
effect on the Company's results of operations.
RISKS RELATED TO THE DEVELOPMENT AND INTEGRATION OF A POINTS-BASED VACATION
OWNERSHIP SYSTEM
The Company has developed its Club Sunterra points-based vacation exchange
system which will offer points-based exchanges throughout the Company's
worldwide network of resort locations. Although the Company has purchased and
operated points-based vacation ownership systems through the Sunterra Pacifica,
LSI and Global Acquisitions, the Company has not developed a company-wide
points-based vacation ownership system and no assurance can be given as to
management's ability to efficiently develop or operate such a company-wide
system. Although management believes such system will be in place at all
Sunterra resort locations by the end of 1999, there can be no assurance that
such system will be placed into operation by such time. Risks associated with
the operation of the Company's Club Sunterra company-wide points-based vacation
ownership system, include the risks that: the Company cannot effectively develop
or acquire the
17
<PAGE> 19
computer software necessary to operate Club Sunterra; the North American
points-based vacation ownership systems cannot be efficiently combined or
operated with the Company's current vacation ownership operations; and the North
American points-based vacation ownership systems may be or become subject to
extensive regulation by federal, state and local jurisdictions, possibly making
such points-based vacation ownership systems uneconomical or unprofitable.
VARIABILITY OF QUARTERLY RESULTS
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 Interests. This seasonality may cause significant variations in
quarterly operating results. If sales of Vacation Interests are below seasonal
normality during a particular period, the Company's annual operating results
could be materially adversely affected.
Due to the foregoing and other factors, the Company believes that its
quarterly and annual revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not be
relied upon as indications of future performance. Because of the above factors,
it is possible that the Company's operating results will be below the
expectations of securities market analysts and investors, which could have an
adverse effect on the market value of the Company's Common Stock. Numerous
factors, including announcements of fluctuations in the Company's or its
competitors' operating results and market conditions for hospitality and
vacation ownership industry securities in general, could have a significant
impact on the future price of the Common Stock. In addition, the securities
market in recent years has experienced significant price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of companies. These broad fluctuations may adversely affect the market price of
the Common Stock.
RISKS OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES; ACCOUNTING
TREATMENT
A principal component of the Company's strategy is to grow through
development and construction of existing resort locations and acquisition of new
resort locations. Risks associated with the Company's development, construction,
acquisition 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 Interests at a newly completed or acquired
resort may not be sufficient to make the resort profitable; financing may not be
available on favorable terms for development, construction or acquisition of, or
the continued sales of Vacation Interests at, a resort; and construction may not
be completed on schedule, resulting in decreased revenues and increased interest
expense. The failure of the Company to successfully complete its development,
construction, redevelopment, conversion, acquisition and expansion activities
may have a material adverse effect on the Company's results of operations.
The AVCOM, PRG and LSI Acquisitions have been accounted for by the Company
by the pooling-of-interests method of accounting. Under this method of
accounting, the recorded assets and liabilities of the Company, AVCOM, PRG and
LSI have been carried forward at their book values to the Company and the
reported income of the Company, AVCOM, PRG and LSI for prior periods has been
combined and restated as income of the Company. Although the Company has
received an opinion from its independent public accountants that the AVCOM, PRG
and LSI Acquisitions will qualify for pooling-of-interests accounting treatment,
opinions of accountants are not binding upon the Commission, and there can be no
assurance that the Commission will not successfully assert a contrary position.
In such case, the purchase method of accounting would be applicable. Under the
purchase method, the book value of AVCOM's, PRG's and LSI's assets would be
increased to their fair values, which could result in higher operating costs and
expenses as the excess of the purchase price over the fair value of AVCOM's,
PRG's and LSI's assets would be amortized and expensed over a period of years,
which would adversely affect the Company's future earnings. The Sunterra
Pacific, Marc, Global, MMG and HTD Acquisitions were each accounted for using
the purchase method of accounting.
18
<PAGE> 20
GENERAL ECONOMIC CONDITIONS, CONCENTRATION AND COMPETITION IN VACATION OWNERSHIP
INDUSTRY
Any downturn in economic conditions or any price increases (e.g., airfares)
related to the travel and tourism industry could depress discretionary consumer
spending and have a material adverse effect on the Company's business. Any such
economic conditions, including recession, may also adversely affect the future
availability of attractive financing rates for the Company or its customers and
may materially adversely affect the Company's business. Furthermore, changes in
general economic conditions may adversely affect the Company's ability to
collect its loans to Vacation Interest buyers. Because the Company's operations
are conducted solely within the vacation ownership industry, any adverse changes
affecting the industry (such as an oversupply of vacation ownership units, a
reduction in demand for such units, changes in travel and vacation patterns,
changes in governmental regulations of the industry and increases in
construction costs or taxes, as well as negative publicity for the industry)
could have a material adverse effect on the Company's operations.
The Company is subject to significant competition at each of its resorts
from other entities engaged in the business of resort development, sales and
operation, including Vacation Interest ownership, condominiums, hotels and
motels. Many of the world's most recognized lodging, hospitality and
entertainment companies have begun to develop and sell Vacation Interests in
resort properties. Other major companies that now operate or are developing or
planning to develop vacation ownership resorts include Marriott, Disney, Hilton,
Hyatt, Four Seasons, Inter-Continental, Carlson Companies, Promus and Starwood.
Many of these entities possess significantly greater financial, marketing,
personnel and other resources than those of the Company and may be able to grow
at a more rapid rate or more profitably as a result. The Company also competes
with other established vacation ownership companies.
In addition, the Company competes with the buyers of its Vacation Intervals
who subsequently decide to resell those Vacation 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. See
"-- Competition."
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO QUALIFY
RESORTS
The attractiveness of Vacation Interest ownership is enhanced significantly
by the availability of exchange networks that allow Vacation Interest owners to
exchange in a particular year the occupancy right in their Vacation Interest for
an occupancy right in another participating network resort. According to ARDA,
the ability to exchange Vacation Interests was cited by buyers as a primary
reason for purchasing a Vacation Interest. RCI and II provide broad-based
Vacation Interest exchange services and the Company's resort locations are
currently qualified for participation in either the RCI and II exchange
networks.
If such exchange networks cease to function effectively, or if the
Company's resorts are no longer included in such exchange networks, the
Company's sales of Vacation Interests could be materially adversely affected.
See "-- Participation in Vacation Interest Exchange Networks." However, this
risk is greatly reduced as the Company completes the roll-out of Club Sunterra
and owners have the choice to vacation at any of the Company's 89 resorts
locations.
APPLICABILITY OF FEDERAL SECURITIES LAWS TO THE SALE OF VACATION INTERESTS
It is possible that the Vacation Interests may be deemed to be a security
as defined in Section 2(1) of the Securities Act. If the Vacation Interests were
determined to be a security for such purpose, their sale would require
registration under the Securities Act. The Company has not registered the sale
of the Vacation Interests under the Securities Act and does not intend to do so
in the future. If the sale of the Vacation Interests were found to have violated
the registration provisions of the Securities Act, purchasers of the Vacation
Interests would have the right to rescind their purchases of Vacation Interests.
If a substantial number of purchasers sought rescission and were successful, the
Company's business, results of operations and financial condition could be
materially adversely affected. The Company has been advised by its vacation
19
<PAGE> 21
ownership counsel, Schreeder, Wheeler & Flint, LLP, that in the opinion of such
counsel, based on its review of the Company's Vacation Interests programs and
the sales practices utilized in such program, the Vacation Interests do not
constitute a security within the meaning of Section 2(1) of the Securities Act.
REGULATION OF MARKETING AND SALES OF VACATION INTERESTS; OTHER LAWS
As described under "-- Governmental Regulation -- General" above, the
Company's marketing and sales of Vacation Interests and other operations are
subject to extensive regulation by the federal government and the states and
foreign jurisdictions in which its resorts are located and in which Vacation
Interests are marketed and sold. The Company believes that it is in material
compliance with all federal, state, local and foreign laws and regulations to
which it is currently subject. However, no assurance can be given that the cost
of qualifying under vacation ownership regulations in all jurisdictions in which
the Company desires to conduct sales will not be significant or that the Company
is in fact in compliance with all applicable federal, state, local and foreign
laws and regulations. Any failure to comply with applicable laws or regulations
could have a material adverse effect on the Company.
POSSIBLE ENVIRONMENTAL LIABILITIES; UNINSURED LOSSES
As described under "-- Governmental Regulation -- Environmental Matters"
above, under various Environmental Laws, the owner or operator of real property
may be liable for the costs of removal or remediation of certain hazardous or
toxic substances or wastes located on or in, or emanating from, such property,
as well as related costs of investigation and associated damages. The Company is
not aware of environmental liability that would have a material adverse effect
on the Company's business, assets or results of operations, nor has the Company
been notified by any governmental authority or any third party, and is not
otherwise aware, of any material noncompliance, liability or other claim
relating to hazardous or toxic substance or petroleum products in connection
with any of its present or former properties. The Company believes that it is in
compliance in all material respects with all Environmental Laws. No assurance,
however, can be given that the Company will remain in compliance with all
Environmental Laws or that it is aware of all environmental liabilities that
relate to all of its present and former properties.
In 1992, prior to the Company's purchase of an interest in the EVR 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 August 1998, the Company's
caribbean resorts were damaged by hurricane Georges. The Company is currently in
the process of recovering amounts for hurricane damage and business interruption
related to the hurricane. In addition, the Company's other resorts may be
subject to hurricanes and damaged as a result thereof. The Company's resorts
located in California and Hawaii may be subject to damage resulting from
earthquakes. The Company currently maintains insurance coverage that, in
management's opinion, is at least as comprehensive as the coverage maintained by
other prudent entities in the Company's line of business. However, there are
certain types of losses (such as losses arising from acts of war and civil
unrest) that are not generally insured because they are either uninsurable or
not economically insurable and for which the Company does not have insurance
coverage. Should an uninsured loss or a loss in excess of insured limits occur,
the Company could lose its capital invested in a resort, as well as the
anticipated future revenues from such resort and would continue to be obligated
on any mortgage indebtedness or other obligations related to the property. Any
such loss could have a material adverse effect on the Company.
EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDERS
The Company's founders, Messrs. Kaneko, Gessow and Kenninger, hold
substantial shares of Common Stock, (9.5%, 9.9% and 3.0%, respectively, as of
the date hereof) which may allow them, collectively, to exert substantial
influence over the election of directors and the management and affairs of the
Company. Accordingly, if such persons vote their shares of Common Stock in the
same manner, they may have sufficient voting power to determine the outcome of
various matters submitted to the stockholders for approval,
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<PAGE> 22
including mergers, consolidations and the sale of substantially all of the
Company's assets. Such control may result in decisions that are not in the best
interest of the Company.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS
Certain provisions of the Company's articles of incorporation, as amended,
(the "Charter") and bylaws, as amended, (the "Bylaws"), as well as Maryland
corporate law, may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that a stockholder might consider to be in the
stockholder's best interest. For example, such provisions may (i) deter tender
offers for Common Stock, which offers may be beneficial to stockholders or (ii)
deter purchases of large blocks of Common Stock, thereby limiting the
opportunity for stockholders to receive a premium for their Common Stock over
then-prevailing market prices. These provisions include the following:
Preferred Shares. The Charter authorizes the Board of Directors to issue
preferred stock in one or more classes and to establish the preferences and
rights (including the right to vote and the right to convert into Common Stock)
of any class of preferred stock issued. No preferred stock is issued or
outstanding.
Staggered Board. The Board of Directors of the Company has three classes of
directors each serving a staggered term so that the directors' terms currently
will expire in 1999, 2000 and 2001. Directors for each class will be chosen for
a three-year term upon the expiration of the term of the current class. The
affirmative vote of two-thirds of the outstanding Common Stock is required to
remove a director.
Maryland Business Combination Statute. Under the Maryland General
Corporation Law ("MGCL"), certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any person who
owns, directly or indirectly, 10% or more of the voting power of the
corporation's shares of capital stock (an "Interested Stockholder") must be
approved by a supermajority (i.e., 80%) of voting shares. In addition, an
Interested Stockholder may not engage in a business combination for five years
following the date he or she became an Interested Stockholder.
Maryland Control Share Acquisition. Maryland law provides that "Control
Shares" of a corporation acquired in a "Control Share Acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the votes
eligible under the statute to be cast on the matter. "Control Shares" are voting
shares of beneficial interest which, if aggregated with all other such shares of
beneficial interest previously acquired by the acquirer, would entitle the
acquirer 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 acquirer becomes entitled to vote a majority of the
shares of beneficial interest entitled to vote, all other stockholders may
exercise appraisal rights.
RISKS OF YEAR 2000 SOFTWARE COMPATIBILITY
The Company utilizes computer systems in many aspects of its business and
is continuing to evaluate Year 2000-related risks and to design and implement
corrective actions. The risks associated with the Year 2000 problem are complex
and can be difficult to identify and to address. Even if the Company, in a
timely manner, completes all of its assessments, identifies and tests plans it
believes to be adequate, and develops contingency plans believed to be adequate,
some problems may not be identified or corrected in time to prevent material
adverse consequences to the Company.
The Company's Planning and Awareness and Inventory Phases are currently 90%
complete, and, with respect to certain information systems and products, the
Detailed Assessment Phase is currently 65%
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<PAGE> 23
complete. The Company believes that its greatest potential risks for Year 2000
issues are associated with its information systems and systems embedded in its
operations and infrastructure. The Company has not yet determined the extent of
contingency planning that may be required. The Company has not yet completed its
assessments, developed remediation plans for all problems, developed contingency
plans, or completely implemented or tested any of its remediation plans;
therefore, the Company is not yet in a position to state the total cost of
remediation of all Year 2000 issues. As the Year 2000 project continues, the
Company may discover additional Year 2000 problems, may not be able to develop,
implement, or test remediation or contingency plans, or may find that the costs
of these activities exceed current expectations and become material.
In many cases, the Company is relying on assurances from vendors and
service providers that their systems will be Year 2000 compliant. The Company is
exposed to the risk that one or more of its vendors or service providers could
experience Year 2000 problems that impact the ability of such vendor or service
provider to provide goods and services. To date, the Company is not aware of any
vendor or service provider Year 2000 issue that the Company believes would have
a material adverse impact on the Company's operations. However, the Company has
no means of ensuring that its vendors or service providers will be Year 2000
ready. The inability of vendors or service providers to complete their Year 2000
resolution processes in a timely manner could adversely affect the Company's
business or results of operations.
Widespread disruptions in the national or international economy, including
disruptions affecting the financial markets, resulting from Year 2000 issues, or
in certain industries, such as commercial or investment banks or airlines, could
also have an adverse impact on the Company. The likelihood and effect of such
disruptions is not determinable at this time.
Readers are cautioned that forward-looking statements contained in this
Year 2000 discussion should be read in conjunction with the Company's
disclosures regarding forward-looking statements contained in the final
paragraph of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently subject to litigation and claims respecting
employment, tort, contract, construction and commissions, among others. In the
judgment of the Company's management, none of such lawsuits or claims against
the Company is likely to have a material adverse effect on the Company or its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's equity holders during
the fourth quarter of 1998.
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<PAGE> 24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "OWN." The following table sets forth, the high and low sale prices
for the Common Stock for each quarter during the fiscal years ended December 31,
1998 and December 31, 1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Fourth Quarter............................................. $15.25 $ 4.06
Third Quarter.............................................. 15.81 6.50
Second Quarter............................................. 19.81 13.75
First Quarter.............................................. 25.75 19.06
YEAR ENDED DECEMBER 31, 1997(1)
Fourth Quarter............................................. 31.75 20.75
Third Quarter.............................................. 32.00 20.92
Second Quarter............................................. 23.50 13.00
First Quarter.............................................. 25.08 14.50
</TABLE>
- ---------------
(1) As adjusted for the Company's three-for-two stock split on October 27, 1997.
On March 1, 1999, there were approximately 192 holders of record of the
Company's Common Stock and the approximate number of beneficial stockholders was
3,572.
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock. The
Company currently intends to retain future earnings to finance its operations
and fund the growth of its business. Any payment of future dividends will be at
the discretion of the Board of Directors of the Company and will depend upon,
among other things, the Company's earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions in respect of the
payment of dividends and other factors that the Company's Board of Directors
deems relevant.
The Company's ability to pay dividends is restricted. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth summarized consolidated financial data of
the Company and gives effect to the Company's initial public offering, which was
consummated in August 1996. For all of the periods presented, the financial data
presented below gives effect to the AVCOM, PRG and LSI Acquisitions by combining
the historical information of AVCOM, PRG, LSI and the Company and restating the
historical financial data of the Company using the pooling-of-interests method
of accounting. The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements for the Company and the
notes thereto, each of which are contained elsewhere in this 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Vacation Interests sales........... $ 359,426 $281,063 $182,300 $139,426 $116,356
Interest income.................... 52,529 42,856 25,415 20,339 15,965
Gain on sales of mortgages
receivable...................... 6,698 -- -- -- --
Other income....................... 31,301 13,774 12,132 8,553 1,547
---------- -------- -------- -------- --------
Total revenues............. 449,954 337,693 219,847 168,318 133,868
---------- -------- -------- -------- --------
Costs and Operating Expenses:
Vacation Interests cost of sales... 85,649 71,437 48,218 39,810 33,082
Advertising, sales and marketing... 163,828 126,739 89,040 62,258 54,098
Loan portfolio:
Provision for doubtful
accounts(a)..................... 12,616 8,579 8,311 3,666 2,045
Other expenses..................... 3,680 5,522 4,523 2,034 1,466
General and administrative(a)...... 50,699 42,254 37,436 19,263 12,629
Depreciation and amortization(a)... 11,188 6,499 5,027 2,514 1,196
Merger costs, organizational costs
and asset writedowns(a)(b)...... 5,056 9,973 2,620 -- --
---------- -------- -------- -------- --------
Total costs and operating
expenses................. 332,716 271,003 195,175 129,545 104,516
---------- -------- -------- -------- --------
Income from operations............. 117,238 66,690 24,672 38,773 29,352
Interest expense, net................ 43,767 22,426 17,245 11,805 9,741
Equity loss on investment in joint
ventures........................... 708 639 299 1,649 271
Minority interest in income of
consolidated limited partnership... 18 181 199 -- --
---------- -------- -------- -------- --------
Income before provision (benefit)
for income taxes, extraordinary
items and cumulative effect of
change in accounting
principle....................... 72,745 43,444 6,929 25,319 19,340
---------- -------- -------- -------- --------
Provision (benefit) for income taxes
from continuing operations......... 28,371 17,196 (4,105) 4,020 2,768
Provision for deferred income taxes
resulting from the cumulative
effect of previously non-taxable
acquired entities.................. -- 5,960 -- -- --
---------- -------- -------- -------- --------
Total provision (benefit) for
income taxes............... 28,371 23,156 (4,105) 4,020 2,768
---------- -------- -------- -------- --------
Income before extraordinary item
and cumulative effect of change
in accounting principle......... 44,374 20,288 11,034 21,299 16,572
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Extraordinary items, net of tax.... 129 766 -- -- --
Cumulative effect of change in
accounting principle, net of
taxes........................... 1,466 -- -- -- --
---------- -------- -------- -------- --------
Net income...................... $ 42,779 $ 19,522 $ 11,034 $ 21,299 $ 16,572
========== ======== ======== ======== ========
Pro forma net income(c)............ $ 4,380 $ 15,310 $ 11,954
OTHER DATA (UNAUDITED FOR ALL
PERIODS):
EBITDA(d).......................... $ 136,211 $ 85,424 $ 44,622 $ 41,553 $ 31,553
Number of resort locations at
period end...................... 87 70 31 20 16
Number of Vacation Intervals
sold............................ 17,379 17,271 11,946 10,024 10,695
Number of Vacation Intervals in
inventory at period end......... 31,563(e) 29,168 30,399 23,439 6,915
Average price of Vacation Intervals
sold............................ $ 14,806 $ 13,885 $ 13,146 $ 12,298 $ 10,078
Number of Vacation Points sold
Club Sunterra................... 2,809,333 -- -- -- --
Sunterra Europe -- GVC.......... 351,881 180,426(f) 132,878 102,270 65,325
Sunterra Pacific -- VTS
Program....................... 171,557 13,629 -- -- --
Sunterra Japan -- SJVC.......... 11,810 -- -- -- --
Number of Vacation Points in
Inventory at Period End
Club Sunterra................... --(e) -- -- -- --
Sunterra Europe -- GVC.......... 470,302 461,473(f) 291,674 205,943 233,802
Sunterra Pacific -- VTS
Program....................... 169,674 138,081 -- -- --
Sunterra Japan -- SJVC.......... 180,708 -- -- -- --
Average Price of Vacation Points
sold............................
Club Sunterra................... $ 2 -- -- -- --
Sunterra Europe -- GVC.......... 211 $ 220(f) $ 186 $ 181 $ 198
Sunterra Pacific -- VTS
Program....................... 119 119 -- -- --
Sunterra Japan -- SJVC.......... 93 -- -- -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents,
including escrow and restricted
cash............................ $ 54,201 $ 47,972 $ 22,469 $ 22,779 $ 17,015
Mortgages receivable, net.......... 335,982 331,735 215,518 147,405 102,470
Total assets....................... 1,021,132 761,145 445,884 295,771 210,218
Total debt......................... 627,089 435,208 236,122 177,032 123,009
Stockholders' equity............... 251,713 207,910 126,425 75,448 61,187
</TABLE>
- ---------------
(a) Non recurring costs for the year ended 1998 include $5.1 million relating to
the consolidation of certain administrative functions to Orlando, Florida
and the writedown of certain assets. Non-recurring costs for the year ended
December 31, 1997 are merger costs relating to the AVCOM, PRG and LSI
Acquisitions. Non-recurring costs for the year ended December 31, 1996
include costs incurred at AVCOM for (i) an increase in the provision for
doubtful accounts of $2.0 million, (ii) $9.1 million in severance costs,
lease cancellations, litigation reserves and other integration costs and a
reserve for losses associated with certain property management and related
contracts, (iii) a $2.6 million writedown of certain property to estimated
fair market value, and (iv) a $0.7 million charge relating to amortization
of start-up costs over a period of one year.
(b) Merger-related costs include expenses related to fees paid to financial
advisors, legal fees, and other transaction expenses in connection with the
AVCOM, PRG and LSI Acquisitions.
25
<PAGE> 27
(c) Reflects the effect on the historical statement of operations data, assuming
the combined Company had been treated as a C corporation rather than as
individual limited partnerships and limited liability companies for federal
income tax purposes.
(d) EBITDA represents net income before interest expense, income taxes,
non-recurring costs and depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness. However, EBITDA should not be
construed as a substitute for income from operations, net income or cash
flows from operating activities in analyzing the Company's operating
performance, financial position and cash flows. The EBITDA measure presented
herein may not be comparable to EBITDA as presented by other companies. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income.............................. $ 42,779 $19,522 $11,034 $21,299 $16,572
Interest expense........................ 43,767 22,426 17,245 11,805 9,741
Capitalized interest expense
included in Vacation Interest
cost of sales......................... 3,455 3,082 1,718 1,915 1,276
Income taxes (benefit).................. 28,371 23,156 (4,105) 4,020 2,768
Non-recurring costs..................... 5,056(g) 9,973(g) 14,381(g) -- --
Depreciation and amortization........... 11,188 6,499 4,349(g) 2,514 1,196
Extraordinary items, net of tax......... 129 766 -- -- --
Cumulative effect of change in
accounting principle.................. 1,466 -- -- -- --
-------- ------- ------- ------- -------
EBITDA............................. $136,211 $85,424 $44,622 $41,553 $31,553
======== ======= ======= ======= =======
</TABLE>
- ---------------
(e) All Vacation Interests to be sold as SunOptions in Club Sunterra have been
included as Vacation Interval inventory.
(f) Vacation Points assumed through the Global Acquisition have been converted
to GVC at a rate of ten to one.
(g) Non-recurring costs for the year ended December 31, 1998 include $5.1
million for certain consolidation activities and the write-down of certain
assets. Non-recurring costs for the year ended December 31, 1997 are merger
costs relating to the AVCOM, PRG and LSI Acquisitions. Non-recurring costs
for the year ended December 31, 1996 include costs incurred at AVCOM for (i)
an increase in the provision for doubtful accounts of $2.0 million, (ii)
$9.1 million in severance costs, lease cancellations, litigation reserves
and other integration costs and a reserve for losses associated with certain
property management and related contracts, (iii) a $2.6 million writedown of
certain property to estimated fair market value, and (iv) a $0.7 million
charge relating to amortization of start-up costs over a period of one year.
26
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the preceding
Selected Financial Data and the Company's Financial Statements and the notes
thereto and the other financial data included elsewhere in this 10-K.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in "Business and Properties."
RESULTS OF OPERATIONS
The following discussion of the results of operations includes the
Company's corporate and partnership predecessors and wholly-owned subsidiaries
and affiliates including AVCOM, PRG, LSI and their subsidiaries. The AVCOM (10
resort locations), PRG (two resort locations) and LSI (11 resort locations)
Acquisitions were consummated in February, May and August 1997, respectively,
and were accounted for using pooling-of-interests accounting treatment for
business combinations. Under such accounting treatment, the results of
operations are restated to include the operations of each acquired entity for
the years ended December 31, 1997 and 1996. The following discussion also
includes the results of operations for Marc, Sunterra Pacific, the Global Group,
MMG and HTD. The Marc, Sunterra Pacific, Global, MMG and HTD Acquisitions were
each accounted for using the purchase method of accounting for the business
combinations. The Marc (22 managed resort locations), Sunterra Pacific (21
resort locations) and Global (13 resort locations) Acquisitions were consummated
in October, November and December 1997, respectively, for a combined purchase
price of $68.9 million in assets and assumption of $31.6 million in liabilities.
The MMG (6 resort locations) and HTD (one resort location) Acquisitions were
consummated in February and July 1998, respectively, for a combined purchase
price of $143.9 million in assets and assumption of $44.5 million in
liabilities.
Prior to its acquisition by the Company on February 7, 1997, AVCOM
recognized a net loss of $12.4 million for the year ended December 31, 1996. As
a result of applying pooling-of-interests accounting treatment to the AVCOM
Acquisition, this net loss has been reflected in the Company's consolidated
financial statements for the year ended December 31, 1996, reducing the
Company's 1996 reported consolidated net income. In addition, as a result of the
Company's 1997 merger costs and 1998 organization and asset writedown charges,
the Company incurred non-recurring costs, reducing the Company's 1997 and 1998
reported consolidated net income. Therefore, to allow for a more meaningful
comparison of the 1998, 1997 and 1996 financial results and management's
discussion and analysis of such financial results, reported total revenues and
operating expenses have been adjusted for non-recurring charges resulting from
the
27
<PAGE> 29
aforementioned activities. The following table details the adjustments to
reported total revenues and costs and operating expenses for such non-recurring
charges and revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total reported revenues.......................... $450.0 $337.7 $219.8
Other income(a).................................. -- -- (1.7)
------ ------ ------
Adjusted total revenues........................ $450.0 $337.7 $218.1
------ ------ ------
Total reported costs and expenses................ $332.7 $271.0 $195.2
Provision for doubtful accounts(b)............... -- -- (2.0)
General and administrative expenses(b)........... -- -- (9.1)
Merger costs, organizational costs, and
assets writedowns(b)(c)(d).................. (5.1) (10.0) (2.6)
Amortization of start-up costs(b)................ -- -- (0.7)
------ ------ ------
Adjusted total costs and expenses.............. $327.6 $261.0 $180.8
====== ====== ======
Adjusted income from operations................ $122.4 $ 76.7 $ 37.3
====== ====== ======
</TABLE>
- ---------------
(a) For the year ended December 31, 1996, the Company recognized $1.7 million of
other income as the result of the settlement of certain receivables from the
former owners of the St. Maarten Resorts.
(b) As the result of the AVCOM Acquisition, the Company recognized the following
non-recurring charges for the year ended December 31, 1996: (i) $2.0 million
in the provision for doubtful accounts; (ii) $9.1 million in general and
administrative expenses for severance costs, lease cancellations, litigation
reserves, and a reserve for losses associated with certain property
management and related expenses; (iii) $2.6 million in resort property
valuation allowance for the write-down of certain property to fair market
value; and (iv) $0.7 million in depreciation and amortization for the
amortization of startup costs over a period of one year.
(c) For the year ended December 31, 1997, the Company recognized $10.0 million
in non-recurring merger costs for the AVCOM, PRG and LSI Acquisitions. These
charges include investment banking, legal, accounting and other professional
fees.
(d) For the year ended December 31, 1998, the Company expensed $5.1 million for
certain consolidation activities and the writedown of certain assets.
The following table sets forth certain operating information, as adjusted
for the non-recurring charges and revenues described above.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Vacation Interests sales................ 79.8% 83.2% 83.6%
Interest income......................... 11.7% 12.7% 11.6%
Gain of sales of mortgages receivable... 1.5% -- --
Other income............................ 7.0% 4.1% 4.8%
---------- -------- --------
Total revenues................ 100.0% 100.0% 100.0%
AS A PERCENTAGE OF VACATION INTERESTS
SALES:
Vacation Interests costs of sales....... 23.8% 25.4% 26.4%
Advertising, sales and marketing........ 45.6% 45.1% 48.8%
AS A PERCENTAGE OF TOTAL REVENUES:
General and administrative.............. 11.3% 12.5% 13.0%
</TABLE>
28
<PAGE> 30
COMPARISON OF 1998 TO 1997
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997
Total revenues for the year ended December 31, 1998 were $450.0 million
compared with $337.7 million in 1997, an increase of $112.3 million, or 33%.
Vacation Interests sales increased 28% to $359.4 million from $281.1 million.
The increase in Vacation Interests sales reflects increased prices for both
Vacation Points and Vacation Intervals at the Company's resorts, increased sales
activities at certain of the Company's resorts, the recording of Vacation Points
sales resulting from the Sunterra Pacific and Global Acquisitions, both of which
were consummated in the fourth quarter of 1997, and the recording of Vacation
Interval sales resulting from the MMG Acquisition which was consummated in
February 1998. Included in Vacation Interests sales in 1998 are approximately
$6.4 million of Vacation Point sales from Club Sunterra, the Company's new
points-based vacation ownership system that was implemented at certain resorts
and off-site sales locations during the fourth quarter of 1998.
Interest income increased 23% to $52.5 million during 1998 from $42.9
million during 1997, reflecting the increase in net mortgages receivable of
$83.2 million, or 25%, prior to the December 1998 sale of approximately $79.0
million into the Conduit Facility.
During 1998, the Company recorded gains from the sale of mortgages
receivable of $6.7 million as the result of four transactions. During the third
quarter of 1998 the Company closed three receivable sales consisting of $69.1,
$21.5, and $11.3 million face value of mortgages receivable. In connection with
the HTD Acquisition in July 1998, the Company sold $69.1 million of mortgages
receivable at 96% of par, while retaining a majority interest in the excess
interest spread. Additionally, in the third quarter of 1998, the Company sold
$21.5 million of mortgages receivable at face value and retained a majority
interest in the excess spread. During the third quarter, the Company sold $11.3
million of mortgages receivable at face value for 105% of par. During the fourth
quarter of 1998, the Company entered into the Conduit Facility and recorded a
$5.6 million pre-tax gain on a sale of $79.0 million of mortgages receivable.
During the three-year term of the Conduit Facility, the Company will sell
mortgages receivable through a wholly-owned special purpose entity at 95% of
face value without recourse. On these sales, the Company will pay interest at
the commercial paper rate plus 0.60% and retain 100% interest in the excess
spread. The Company did not sell mortgages receivable during 1997.
Other income increased 127% to $31.3 million during 1998 from $13.8 million
during 1997, reflecting a significant increase in recurring resort management
fee revenues paid by the Company's growing member base. Other income also
includes rental income, commissions paid for the origination of European
mortgages receivable for a U.K.-based financial institution, and interest income
from short-term investments. As a percentage of total revenue, other income
increased to 7% during 1998, from 4% during 1997.
As a percentage of adjusted total revenues, adjusted total costs and
operating expenses improved to 73% during 1998 from 77% during 1997. The overall
improvement in margins reflects increased economies of scale, higher-margin
sales to current owner families, and improving operations at acquired companies
and locations. Adjusted total costs and operating expenses increased 26% to
$327.6 million during 1998 from $261.0 million during 1997.
As a percentage of Vacation Interests sales, Vacation Interests cost of
sales improved to 24% during 1998 from 25% during 1997. This improvement was
largely the result of favorable product cost reductions at some of the Company's
more mature resorts, along with a greater percentage of revenue coming from the
Company's comparatively lower product cost of its European operations. Vacation
Interests cost of sales increased 20% to $85.6 million during 1998 from $71.4
million during 1997.
As a percentage of Vacation Interests sales, advertising, sales and
marketing expenses increased slightly to 46% from 45%, due to higher marketing
expenses incurred to ramp up sales at Sunterra Pacific, which was acquired
during the fourth quarter of 1997. In addition, the Company is building
infrastructure in off-site sales centers in the U.S. and Europe, the costs of
which were expensed during 1998, as well as other marketing initiatives to
support the transition to Club Sunterra, the Company's new points-based vacation
ownership
29
<PAGE> 31
system. Advertising, sales and marketing expenses increased 29% to $163.8
million during 1998 from $126.7 million during 1997.
Other loan portfolio expenses decreased to $3.7 million from $5.5 million,
due largely to the cost savings associated with centralizing the servicing
efforts of PRG and AVCOM.
The provision for doubtful accounts increased $4.0 million to $12.6 million
during 1998 from $8.6 million during 1997. As a percentage of total revenues,
the provision for doubtful accounts was 3% during 1998 and 1997. The increase in
the provision as a percentage of revenues, as compared with the prior period, is
related primarily to the Company's internal review of the aging and
collectability of accrued interest at certain of its properties during the
second quarter of 1998.
As a percentage of adjusted total revenues, general and administrative
expenses improved to 11% during 1998 from 13% in 1997, reflecting the continued
elimination of duplicative overhead costs in consolidating acquisitions and
greater efficiencies resulting from the Company's larger size. General and
administrative expenses increased 20% to $50.7 million during 1998 from $42.3
million during 1997. The increase in general and administrative expenses was due
primarily to the acquisition of additional resorts and the development of Club
Sunterra in the past year.
Depreciation and amortization increased $4.7 million, or 72%, to $11.2
million during 1998 from $6.5 million in 1997. As a percentage of adjusted total
revenues, depreciation and amortization increased to 3% during 1998 from 2% for
1997. The increase in depreciation and amortization was driven by the
amortization of goodwill associated with the Marc, Sunterra Pacific, Global and
MMG Acquisitions, as well as additional depreciation expense reflecting a larger
base of depreciable assets from the prior period, including hardware and
software costs related to the development of the Company's Club Sunterra
points-based vacation ownership system and other infrastructure additions.
Interest expense, net of capitalized interest, increased $21.4 million, or
95%, to $43.8 million during 1998 from $22.4 million during 1997. The increase
was due primarily to increases in debt from public securities offerings and
borrowings under its Senior Credit Facility, and from the Company's privately
placed on-balance sheet asset-backed securitization issued in June 1998.
Adjusted income from operations increased to $122.4 million during the year
ended December 31, 1998 from $76.7 million for the year ended December 31, 1997.
Income before provision for income taxes, excluding merger, organization,
and asset writedown costs, increased 46% to $77.8 million during the year ended
December 31, 1998 from $53.4 million for the year ended December 31, 1997.
During the fourth quarter of 1998, the Company recorded a $1.5 million
cumulative effect of change in accounting principle, net of taxes, as the result
of the early adoption of the AICPA's Statement of Position 98-5 (SOP 98-5),
"Reporting on the Costs of Start-up Activities." The SOP required the Company to
expense all previously capitalized start-up costs as of January 1, 1998 and
requires the Company to expense all such expenses as incurred after January 1,
1998.
The Company's income tax rate was 39% for both years ending December 31,
1998 and 1997, resulting in net income of $42.8 million for the year ending
December 31, 1998, a 119% increase over $19.5 million for the year ended
December 31, 1997.
COMPARISON OF 1997 TO 1996
The following discussion of financial results adjusts the reported
statement of operations data for the non-recurring charges incurred during the
years ended December 31, 1997 and 1996. For the year ended December 31, 1997,
the Company recognized $10.0 million in non-recurring merger-related expenses
for the acquisition by merger of AVCOM, PRG and LSI and a $6.0 million charge to
record deferred taxes related to cumulative temporary differences between
financial and tax reporting for entities acquired in the PRG Acquisition that
were previously taxed as partnerships at the partner level. For the year ended
December 31, 1996, the Company incurred the following non-recurring charges
related to the AVCOM Acquisition:
30
<PAGE> 32
(i) general and administrative expense increased by $9.1 million for severance
costs, lease cancellations, litigation reserves, reserves for losses associated
with certain property management and related contracts; (ii) provision for
doubtful accounts increased by $2.0 million; (iii) resort property valuation
allowance increased by $2.6 million to write down certain property to market
value for projects initiated by AVCOM which were subsequently abandoned; and
(iv) depreciation and amortization increased by $0.7 million related to the
amortization of start-up costs over a period of one year. Also, in 1996, the
Company recognized $1.7 million of other income as the result of a settlement of
certain receivables from the former owners of the St. Maarten resorts.
Total reported revenues for the year ended December 31, 1997 were $337.7
million, compared with adjusted total revenues of $218.1 million in 1996, an
increase of $119.6 million, or 55%. Vacation Interests sales increased 54% to
$281.1 million from $182.3 million. The increase in Vacation Interest sales
reflects increased prices for both Vacation Intervals and Vacation Points at the
Company's resorts and increased sales activities at certain of the Company's
resorts.
Vacation Points sales during 1997 increased 66% to $41.1 million from $24.7
million in 1996. The increase in the number of Vacation Points sold in 1997 is
the result of a 30% increase in Vacation Points sold in LSI, along with the
addition of Vacation Points sales resulting from the Sunterra Pacific and Global
Acquisitions which were consummated in the fourth quarter of 1997.
Interest income increased 69% to $42.9 million from $25.4 million in 1996,
reflecting the increase in net mortgages receivable of $116.2 million, or 54%.
Other income, which includes rental income, management fees, commissions on
the sale of European receivables, and other interest income, increased $3.4
million to reported other income of $13.8 million in 1997 from adjusted other
income of $10.4 million in 1996, an increase of 33%.
Vacation Interests cost of sales, as a percentage of Vacation Interests
sales, was 25% for 1997, compared with 26% for the prior year as the Company
continued to purchase and construct vacation units at a discount to historical
development costs, reducing the unit cost on average for each Vacation Interest
sold.
Advertising, sales and marketing expenses increased $37.7 million to $126.7
million for 1997 from $89.0 million for 1996. As a percentage of Vacation
Interests sales, advertising, sales and marketing expenses decreased to 45% for
1997 from 49% for 1996. The decrease resulted primarily from decreased expenses
at the resorts acquired in the AVCOM Acquisition as well as from the
company-wide application of best marketing practices taken from the Company's
best performing resorts.
The provision for doubtful accounts increased $2.3 million during 1997 to
$8.6 million at year end from an adjusted $6.3 million at the end of 1996. The
allowance for doubtful accounts as a percentage of gross mortgages receivable
decreased to a reported 6.5% at December 31, 1997 from an adjusted 6.6% at
December 31, 1996.
General and administrative expenses increased to a reported $42.3 million
in 1997 from adjusted general and administrative expenses of $28.3 million in
1996, an increase of 49%. General and administrative expenses were 13% of 1997
reported total revenues and 1996 adjusted total revenues. The increase in
general and administrative expenses was the result of (i) the addition of a
number of senior officers and key executives in order to build the management
and organizational infrastructure necessary to efficiently manage the Company's
growth, (ii) increased overhead due to the acquisition of additional resorts,
and (iii) added salary, travel and office expenses attributable to the growth in
the size of the Company.
Depreciation and amortization increased $2.2 million, or 51%, to a reported
$6.5 million during 1997 from adjusted depreciation and amortization of $4.3
million in 1996, reflecting an increase in capital expenditures and intangible
assets. Depreciation and amortization was 2% of reported total revenues in 1997
and 2.0% of adjusted total revenues in 1996.
Interest expense, net of capitalized interest of $6.8 million and $6.7
million at December 31, 1997 and 1996, respectively, increased $5.2 million, or
30%, to $22.4 million for 1997 from $17.2 million in 1996. The
31
<PAGE> 33
increase was due primarily to the interest on the Convertible Notes and the
Senior Subordinated Notes issued in 1997.
As a result of the factors discussed above and the $2.6 million resort
property valuation allowance, total costs and operating expenses increased by
$80.2 million, or 44%, to an adjusted $261.0 million in 1997 from an adjusted
$180.8 million in 1996. Total adjusted costs and operating expenses as a
percentage of reported total revenues were 77% in 1997. This represents a
decrease of 8% from adjusted total costs and operating expenses as a percentage
of adjusted total revenues of 83% in 1996.
In addition, as a result of the factors discussed above, adjusted income
before provision for income taxes and extraordinary item and non-recurring costs
increased 172% to $53.4 million in 1997 from $19.6 million for 1996. An
extraordinary item of $0.8 million, net of income taxes, was charged to net
income in 1997 as the result of the early retirement of notes payable to
financial institutions.
For 1997, income taxes increased $27.3 million over 1996, reflecting a
change in the Company's status to a C corporation subsequent to its August 1996
initial public offering, as well as a $6.0 million charge to income tax expense
taken in the fourth quarter resulting from recording deferred taxes for
previously non-taxable entities acquired in the PRG Acquisition. Previously, the
Company's predecessor entities only incurred federal income taxes with regard to
AVCOM and foreign income taxes with respect to LSI and the Company's
wholly-owned subsidiaries located in St. Maarten, Netherlands Antilles.
Reported income before extraordinary items and cumulative effect of change
in accounting principle was $20.3 million for 1997, an increase of $9.3 million,
or 85%, from $11.0 million in 1996. Reported net income was $19.5 million for
1997, compared with $11.0 million for 1996, an increase of $8.5 million or 77%.
Assuming the Company had been taxed as a C corporation in 1996, pro forma net
income would have been $4.4 million, compared with $19.5 million net income for
1997, an increase of 343%.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from (i) cash sales and cash down payments from
sales of Vacation Interests, (ii) sales of the Company's mortgages receivable
through its Conduit Facility, asset-backed securitizations or whole loan sales,
(iii) principal payments and customer prepayments of principal from its
mortgages receivable portfolio, (iv) interest from its mortgages receivable
portfolio, (v) rental of unsold Vacation Interests, (vi) receipt of management,
reservations and points-based vacation club fees, and (vii) commissions paid for
the origination of European mortgages receivable, where the Company is paid a
commission of 14% of the face value of certain mortgages originated for a third
party U.K. financial institution.
For the years ended December 31, 1998 and 1997, the Company used $54.1
million and $50.0 million in cash flows from operations, respectively. Excluding
investment in real estate and development costs of $183.1 million and $137.0
million, respectively, the Company generated cash flows from operations of
$129.0 million and $87.0 million for the year ended December 31, 1998 and 1997,
respectively. Approximately 80% of the Company's total revenues during 1998 were
from Vacation Interests sales during which period the Company financed
approximately 65% of its Vacation Interests sales, with the 35% balance being
cash sales. The Company finances Vacation Interests sales and holds the related
mortgages receivable to generate profit from such financing activities.
As a result of the Company's significant mortgages receivable financing
activity, operating costs exceed the initial cash proceeds received from the
sales of Vacation Interests. Prior to 1998, this strategy required the Company
to increase its levels of indebtedness on its Senior Credit Facility or other
existing revolving lines of credit.
During 1998, the Company began selling or securitizing its mortgages
receivable. The Company (i) completed a $100.3 million on-balance sheet
asset-backed securitization in the second quarter of 1998, (ii) sold $101.9
million in the third quarter of 1998 and (iii) sold $79.0 million through the
Conduit Facility in the fourth quarter of 1998.
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<PAGE> 34
The Company intends to continue to convert its mortgages receivable to cash
through (i) whole mortgages receivable sales, (ii) off-balance sheet
asset-backed securitizations or (iii) the origination of mortgages receivable
for a third party institution and receipt of an origination fee, as the Company
currently does in its European operations.
The Company may warehouse mortgages receivable through the existing Senior
Credit Facility or Conduit Facility, until such mortgages receivable are sold.
The proceeds of the mortgages receivable sale would be used to repay the Senior
Credit Facility or Conduit Facility.
As of December 31, 1998, the Company had approximately $98.2 million
available on its Senior Credit Facility and $24.9 million on its Conduit
Facility. The Company also had available approximately $209.0 million of
unencumbered mortgages receivable. In addition, the Company is currently
negotiating an additional conduit facility and an off-balance sheet asset-backed
securitization. Both transactions are expected to close in the second quarter of
1999.
In April 1998, the Company completed its offering of $140 million aggregate
principal amount of its Senior Notes. The Company used most of the proceeds to
retire existing indebtedness under the Senior Credit Facility. The Company used
the balance of the net proceeds primarily to finance the acquisition and
development of additional resort locations and vacation ownership related
assets, and for working capital and other general corporate purposes.
On December 31, 1998, the Company entered into the Conduit Facility. During
the three year term of the Conduit Facility, the Company intends to sell
mortgages receivable through a wholly-owned special purpose entity at 95% of
face value. On these sales, the Company will pay interest at the commercial
paper rate plus 0.60% and retain 100% of the excess interest spread. This sale
will be without recourse to the Company for defaults experienced by the
mortgages receivable portfolios.
During 1998, the Company spent $99.3 million for the acquisition of
additional resort locations; $44.2 million for property and equipment, primarily
for the development of computer systems for property and Club Sunterra
management systems; and $183.1 million for expansion and development activities
at the Company's resort locations. The Company funded these activities through
(i) the issuance of $140 million Senior Notes, (ii) $101.9 million in mortgages
receivable sales, (iii) the $100.3 million on-balance sheet securitization and
(iv) borrowings on the Senior Credit Facility and (v) the sale of $79.0 million
of mortgages receivable through the Conduit Facility.
The Company expects to incur approximately $100.8 million in 1999 to
complete real estate and development projects, including $14.3 million to
complete projects currently under construction and $86.5 million for projects
planned to be constructed in 1999. However, the Company has not made any binding
commitments for such planned construction.
The Company believes that, with respect to its current operations, the
Senior Credit Facility and the Conduit Facility, together with cash on hand and
cash generated from operations, future borrowings, the sale or securitization of
receivables, will be sufficient to meet the Company's working capital and
capital expenditure needs for the next twelve months. However, depending upon
conditions in the capital and other financial markets, the Company's growth,
development and expansion plans, and other factors, the Company may from time to
time consider the issuance of other debt or equity securities, the proceeds of
which would be used to finance acquisitions, refinance debt, finance mortgages
receivable or meet other operational needs. Any debt incurred or issued by the
Company may be secured or unsecured, may bear interest at fixed or variable
rates and may be subject to such terms, as management deems prudent. As of
December 31, 1998, the Company was in compliance with all applicable covenants
in its debt agreements.
The indentures for the Company's Senior Notes and Senior Subordinated Notes
contain certain covenants that, among other things, limit and/or condition the
ability of the Company and its restricted subsidiaries to (i) incur additional
indebtedness, (ii) pay dividends or make other distributions with respect to
capital stock of the Company and its restricted subsidiaries, (iii) create
certain liens, (iv) sell certain assets of the company or its restricted
subsidiaries and (v) enter into certain mergers and consolidations. In addition,
certain of the Company's Senior Indebtedness, contain other and more restrictive
covenants that, among other
33
<PAGE> 35
things, restrict and/or condition the following: the making of investments,
loans, and advances and the paying of dividends and other restricted payments;
the incurrence of additional indebtedness; the granting of liens, other than
certain permitted liens; mergers, consolidations and sales of all or a
substantial part of the Company's business or property; the sale of assets; and
the making of capital expenditures.
Certain of the Company's Senior Indebtedness, including the Senior Credit
Facility, also require the Company to maintain certain financial ratios,
including interest coverage, leverage and fixed charge ratios.
YEAR 2000
Background. The Company uses software that will be affected by the date
change in the year 2000 and recognizes that the arrival of the year 2000 poses
challenges that will require modifications of portions of its software to enable
it to function properly. As the year 2000 approaches, date sensitive systems
will recognize the year 2000 as 1900, or not at all. This may cause systems to
process critical financial and operational information incorrectly. This is
generally referred to as the Year 2000 issue. If this situation occurs, the
potential exists for computer system failures or miscalculations by computer
programs, which could disrupt operations.
Approach. The Company has named a Year 2000 project director, reporting to
the Company's Vice President and Chief Information Officer, to coordinate the
Company's response to the Year 2000 issue. The Company has established a Year
2000 program office at its headquarters in Orlando, Florida, to handle all
customer requests for compliance, survey, and other general information related
to its Year 2000 programs. The Company has initiated a Year 2000 project (the
"Project") designed to identify and assess the risks associated with its
information systems, products, operations and infrastructure, suppliers and
customers that are not Year 2000 compliant, and to develop, implement, and test
remediation and contingency plans to mitigate these risks throughout the
Company's offices and resort locations. The Project is expected to be completed
by the fourth quarter of 1999 and encompasses the following phases:
Phase 1 -- Planning and Awareness. Key tasks in the Planning and Awareness
Phase include defining Year 2000 compliance throughout the Company, developing
an initial project plan and budget, ensuring organizational awareness of Year
2000 compliance, and assessing the Project's potential impact and resource
requirements on the Company. The Company is in the process of developing an
Enterprise Schematic showing relationships for all computer systems and
networks. The Company will accomplish this by conducting a complete inventory of
all sites and resorts worldwide. The Company believes it is currently
approximately 90% complete with Phase 1, based on all currently identified
tasks.
Phase 2 -- Inventory. In the Inventory Phase, the Company will establish a
Year 2000 repository, which will contain all automated systems or inventory
elements and every electronic partner and interface. The Company will assess
known business and technical risks associated with each system and will assign a
business priority to each system or inventory element. The Company will also
develop plans, costs and schedules for the Detailed Assessment Phase. The
Company believes it is approximately 65% complete with Phase 2 based on all
currently identified tasks.
Phase 3 -- Detailed Assessment. The Detailed Assessment Phase will identify
and classify all Year 2000 problems the Company has had and will group these
problems into logical partitions for movement through the correction cycle
(resolution, test and deployment). The Company will assess whether or not to
repair, replace or retire specific affected systems. The Company believes it is
approximately 60% complete with Phase 3 based on all currently identified tasks.
Phase 4 -- Resolution. In the Resolution Phase, the Company will implement
resolution decisions and define system level go/no go decision criteria. The
Company will obtain and apply any needed commercial off the shelf (COTS) Year
2000 resolution products and/or will develop and execute required customized
solutions. The Company believes it is approximately 25% complete with Phase 4
based on all currently identified tasks.
Phase 5 -- Test Planning. The Test Planning Phase will include developing
comprehensive test plans to prevent non-compliant solutions from reaching
production operations. In addition, the Company will
34
<PAGE> 36
coordinate with third parties and electronic partner interfaces, formulate
contingency plans, and obtain and construct mirror test environments and data.
The Company believes it is approximately 35% complete with Phase 5 based on all
currently identified tasks.
Phase 6 -- Test Execution. In the Test Execution Phase, the Company will
verify that all related development and test preparations are completed. The
Company will fully test each partition or deployment entity, including bridges
and data conversions. Included in this phase is the involvement of end users in
test execution and user signoff for each compliant partition. The Company
believes it is approximately 35% complete with Phase 6 based on all currently
identified tasks.
Phase 7 -- Deployment. The Deployment Phase will ensure that contingency
plans are in place. The Company will conduct final coordination with third
parties and electronic partners, stage appropriate bridges and data conversion
for deployment, deploy systems into the production environment, and execute
final system validation. The Company believes it is approximately 20% complete
with Phase 7 based on all currently identified tasks.
Phase 8 -- Follow-up. In the Follow-up Phase, the Company will regulate
continued Year 2000 compliance throughout its worldwide operations and will
develop procedures to minimize the impact of compliance efforts on its business
operations. Phase 8 is being conducted as Phases 1 to 7 progress.
Status. As part of an enterprise-wide process, the Company has begun
integrating resorts to a common platform. The Company is replacing a substantial
portion of its existing information systems with a fully integrated enterprise
information system. A vendor has warranted the Company's financial portion of
this system to be Year 2000 compliant. The Company has been reviewing and will
continue to review its financial and operating systems at each of its offices
and resort locations.
The assessment, testing and resolution phases of the project are being
performed concurrently. As each mission critical system is tested, the
remediation, upgrade, or replacement if needed is begun. The Company currently
has found that four of its priority applications are Year 2000 compliant based
on the vendor representation or through testing by the Company. Two priority
applications are currently being remediated and the remaining ten applications
are in the process of being tested.
It is the Company's goal to have the Project completed for mission critical
systems by the fourth quarter of 1999. Based upon the analyses conducted to
date, the Company believes the mission critical systems at the Company's offices
and resort locations are either currently compliant or will be compliant by the
fourth quarter of 1999.
Costs. The Company has prepared a preliminary estimate of costs with regard
to making its mission critical systems Year 2000 compliant. At this time, the
Company's preliminary estimate of such is approximately $6 million. The Company
incurred approximately $0.8 million in 1998 and expects to incur an additional
$5.2 million in 1999 in costs associated with Year 2000 issues. The Company
expects that expenditures relating these issues will be funded from operating
cash flows. The preliminary estimate of costs includes administrative expenses,
testing, and hardware, software and facility replacement costs. The Company will
capitalize and depreciate the cost of any hardware, software and facility
replacement cost over the expected useful life of the assets. The Company is
expensing as incurred all costs related to software modification, as well as all
costs associated with the Company's administration of the Project.
The preceding discussion should be read in conjunction with the financial
statements and notes included elsewhere in this 10-K. The preceding Management's
Discussion and Analysis of Financial Condition and Results of Operations may
contain forward looking statements, which include the Company's growth and
expansion plans, financing plans, future prospects and other forecasts and
statements of expectations. Actual results might differ materially from those
expressed in any forward looking statements due to, among other things, factors
related to the timing and terms the Company's new product development, mortgages
receivable financing, integration of acquired properties and companies, future
acquisitions and those factors identified in the Company's filings with the
Securities and Exchange Commission, including those set forth in this 10-K.
35
<PAGE> 37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
The Company's total revenues denominated in a currency other than U.S.
dollars for the year ended December 31, 1998 (primarily revenues derived from
the United Kingdom and Japan) were approximately 26% of total revenues. The
Company's net assets maintained in a functional currency other than U.S. dollars
at December 31, 1998 (primarily assets located in western Europe and Japan) were
approximately 8% of total net assets. The effects of changes in foreign currency
exchange rates has not historically been significant to the Company's operations
or net assets.
Interest Rate Risks
As of December 31, 1998, the Company had fixed interest rate debt of
approximately $572.4 million and floating interest rate debt of approximately
$54.7 million. The floating interest rates are based upon the prevailing LIBOR
rate or the prevailing prime interest rate for the Company's Senior Credit
Facility and endpaper debt, respectively. In addition, the Company sold $79.0
million of mortgages receivable through its Conduit Facility. The gain on sale
recognized by the Company is based upon the prevailing commercial paper rates.
For floating rate debt, interest rate changes do not generally effect the market
value of debt but do impact future earnings and cash flows, assuming other
factors are held constant. Conversely, for fixed rate debt, interest rate
changes do effect the market value of debt but do not impact earnings or cash
flows. A hypothetical one-percentage change in the prevailing LIBOR, prime or
commercial paper rate would impact after-tax earnings of the Company by less
than $0.8 million per year. A similar change in the interest rate would impact
the total fair value of the Company's fixed rate debt, excluding the Convertible
Notes, by approximately $22 million. The conversion feature to Common Stock
makes it impractical to estimate the effect of a change in interest rates on the
Company's Convertible Notes. There is a high correlation between the fair value
of the Convertible Notes and the Company's Common Stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the information set forth on Index to Financial Statements appearing on
page F-1 of the 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be set forth under "Directors
and Executive Officers" and "Proxy Statement -- Compliance with Section 16(a)
Under the Securities Exchange Act of 1934" in the Company's Definitive Proxy
Statement and reference is expressly made thereto for the specific information
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth under "Executive
Compensation" in the Company's Definitive Proxy Statement and reference is
expressly made thereto for the specific information incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth under "Proxy
Statement -- Share Ownership of Directors and Executive Officers," "Other
Information -- Certain Stockholders" and "Proposal No. 1:
36
<PAGE> 38
Election of Directors -- Compensation of Directors" in the Company's Definitive
Proxy Statement and reference is expressly made thereto for the specific
information incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The information required by this Item will be set forth under "Certain
Transactions" in the Company's Definitive Proxy Statement, and reference is
expressly made thereto for the specific information incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*3.1 Restated Articles of Incorporation of Sunterra Corporation
3.2 Bylaws of Sunterra Corporation, 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
Sunterra Corporation and Norwest Bank Minnesota, National
Association, as trustee, for the 5 3/4% Convertible
Subordinated Notes of Sunterra Corporation 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 Sunterra
Corporation and Norwest Bank Minnesota, National
Association, as trustee, for the 9 3/4% Senior Subordinated
Notes of Sunterra Corporation 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))
4.3 Indenture dated as of April 15, 1998 by and between Sunterra
Corporation and Norwest Bank Minnesota, National
Association, as trustee for the 9 1/4% Senior Notes of
Sunterra Corporation due 2006 (incorporated by reference to
Exhibit 4.3 to the Registrant's Registration Statement on
Form S-4 (No. 333-51803))
4.4 Indenture dated a of May 1, 1998, by and between Sunterra
Finance L.L.C. as issuer of the bonds, Sunterra Corporation
as Servicer, and LaSalle National Bank as Trustee and
Back-up Servicer for Signature Resorts Vacation Ownership
Receivables -- Backed Notes 1998-A (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998)
*10.1 Credit Agreement dated as of February 18, 1998 by and among
Sunterra Corporation, certain lender parties thereto,
NationsBank of Texas, N.A., as administrative lender and
Societe Generale, as document agent, including Amendments 1,
2 and 3 thereto
10.2 Servicing Agreement dated as of May 1, 1998, by and between
Sunterra Finance L.L.C. as issuer of the bonds, Sunterra
Corporation as Servicer, and LaSalle National Bank as
Trustee and Back-up Servicer for Signature Resorts Vacation
Ownership Receivables -- Backed Notes 1998-A (incorporated
by reference to Exhibit 10.8 to the Registrant's quarterly
report on Form 10-Q for the quarter ended June 30, 1998)
*10.3 Receivables Purchase Agreement dated as of December 17, 1998
among Blue Bison Funding Corp., Sunterra Corporation and
Barton Capital Corporation
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.4 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))
10.5 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))
10.6 Joint Development Agreement dated as of January 16, 1998
between Westin Hotel Company and Sunterra Corporation
(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 Registration Rights Agreement dated as of August 20, 1996 by
and among Sunterra Corporation and the persons named therein
(incorporated by reference to Exhibit 10.1 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
10.8 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)
10.9 Registration Rights Agreement dated as of August 28, 1997 by
and among Sunterra Corporation and Ian K. Ganney and Richard
Harrington (incorporated by reference to Exhibit 10.10 to
Amendment No. 1 on Form S-3 to Registrant's Registration
Statement on Form S-1 (No. 333-30285))
10.10 Registration Rights Agreement dated as of October 10, 1997
by and among Sunterra Corporation and Michael V. Paulin,
Rosemarie Paulin, Maya K. Paulin and Annemarie H. Paulin
(incorporated by reference to Exhibit 10.5 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997)
10.11 Employment Agreement between Sunterra Corporation and Andrew
J. Gessow (incorporated by reference to Exhibit 10.2.2 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.12 Employment Agreement between Sunterra Corporation and Steven
C. Kenninger (incorporated by reference to Exhibit 10.2.3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.13 Employment Agreement between Sunterra Corporation and L.
Steven Miller (incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998)
*10.14 Employment Agreement between Sunterra Corporation and
Richard Goodman
10.15 Employment Agreement between Sunterra Corporation and James
E. Noyes (incorporated by reference to Exhibit 10.2.4 to
Registrant's Registration Statement on Form S-1 (No.
333-06027))
*10.16 Amended and Restated 1996 Equity Participation Plan of
Sunterra Corporation, including form of stock option
agreement thereunder
10.17 Sunterra Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.5 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.18 First Amendment to Employee Stock Plan of Sunterra
Corporation 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))
*10.19 1998 New-Hire Stock Option Plan of Sunterra Corporation
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20 Amended Consulting Agreement dated as of August 1, 1997 by
and between Sunterra Corporation, 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))
*21 Subsidiaries of Sunterra Corporation
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of KPMG
*23.3 Consent of Schreeder, Wheeler & Flint, LLP
*27 Financial Data Schedule (for the fiscal year ended December
31, 1998)
</TABLE>
- ---------------
* Filed herewith
(b) Reports on Form 8-K.
Current Report on Form 8-K dated November 4, 1998 filed with the Commission
on November 10, 1998 relating to the announcement of the Company's third
quarter 1998 earnings.
(c) The exhibits required by Item 601 of Regulation S-K have been listed above.
(d) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
39
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SUNTERRA CORPORATION
By: /s/ THOMAS A. BELL
------------------------------------
Thomas A. Bell
Senior Vice President, General
Counsel
and Secretary
Dated: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the Registrant in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ ANDREW J. GESSOW Co-Chairman of the Board March 31, 1999
- -----------------------------------------------------
Andrew J. Gessow
/s/ STEVEN C. KENNINGER Co-Chairman of the Board March 31, 1999
- -----------------------------------------------------
Steven C. Kenninger
/s/ L. STEVEN MILLER Director, President and Chief March 31, 1999
- ----------------------------------------------------- Executive Officer (Principal
L. Steven Miller Executive Officer)
/s/ RICHARD GOODMAN Executive Vice President and March 31, 1999
- ----------------------------------------------------- Chief Financial Officer
Richard Goodman (Principal Financial and
Accounting Officer)
/s/ JAMES E. NOYES Executive Vice March 31, 1999
- ----------------------------------------------------- President -- Sales and Director
James E. Noyes
/s/ OSAMU KANEKO Director March 31, 1999
- -----------------------------------------------------
Osamu Kaneko
/s/ ADAM M. ARON Director March 31, 1999
- -----------------------------------------------------
Adam M. Aron
/s/ SANFORD R. CLIMAN Director March 31, 1999
- -----------------------------------------------------
Sanford R. Climan
/s/ J. TAYLOR CRANDALL Director March 31, 1999
- -----------------------------------------------------
J. Taylor Crandall
/s/ JOSHUA S. FRIEDMAN Director March 31, 1999
- -----------------------------------------------------
Joshua S. Friedman
/s/ W. LEO KIELY III Director March 31, 1999
- -----------------------------------------------------
W. Leo Kiely III
</TABLE>
40
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Sunterra Corporation and Subsidiaries
Report of Independent Certified Public Accountants (Sunterra
Corporation for the years ending 1998, 1997, 1996)........ F-2
Independent Auditors' Report (LSI Group Holdings plc for the
year ended 1996).......................................... F-3
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-4
Consolidated Statements of Income for each of the three
years ended December 31, 1998............................. F-5
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1998............................. F-6
Consolidated Statements of Equity for each of the three
years ended December 31, 1998............................. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Sunterra Corporation:
We have audited the accompanying consolidated balance sheets of Sunterra
Corporation (formerly Signature Resorts, Inc.) (a Maryland corporation) and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, equity and cash flows for each of the years in the
three-year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
1996 financial statements of LSI Group Holdings plc, a company acquired during
1997 in a transaction accounted for as a pooling of interests, as discussed in
Note 17. Such statements are included in the consolidated financial statements
of Sunterra Corporation and subsidiaries and reflect total revenues of 13
percent of the consolidated totals. These statements were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts included for LSI Group Holdings plc, is based solely upon the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Sunterra Corporation and subsidiaries as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Orlando, Florida,
February 10, 1999
F-2
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
LSI Group Holdings Plc
We have audited the consolidated balance sheet of LSI Group Holdings plc
and subsidiaries as of December 31, 1996, and the related consolidated
statements of income, equity, and cash flows for the year ended December 31,
1996 (not presented separately herein). These financial statements are the
responsibility of Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LSI Group
Holdings plc and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles in the United States of
America.
KPMG
Chartered Accountants
Registered Auditors
Preston, England
March 27, 1997
F-3
<PAGE> 45
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- --------
<S> <C> <C>
Cash and cash equivalents................................... $ 28,250 $ 38,487
Cash in escrow and restricted cash.......................... 25,951 9,485
Mortgages receivable, net of an allowance of $22,869 and
$22,916 at December 31, 1998 and 1997, respectively....... 335,982 331,735
Retained interests.......................................... 12,518 --
Due from related parties.................................... 25,849 25,576
Other receivables, net...................................... 38,207 17,669
Income tax refund receivable................................ -- 4,719
Prepaid expenses and other assets........................... 22,031 13,047
Investment in joint ventures................................ 17,876 15,657
Real estate and development costs........................... 336,620 219,299
Property and equipment, net................................. 81,125 35,024
Intangible assets, net...................................... 96,723 50,447
---------- --------
Total assets...................................... $1,021,132 $761,145
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ 21,864 $ 25,196
Accrued liabilities......................................... 80,242 68,047
Due to related parties...................................... -- 1,032
Income taxes payable........................................ 9,240 --
Deferred taxes.............................................. 30,984 23,752
Notes payable............................................... 627,089 435,208
---------- --------
Total liabilities................................. 769,419 553,235
---------- --------
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock (25,000,000 shares authorized; none issued
or outstanding)........................................ -- --
Common stock ($0.01 par value, 50,000,000 shares
authorized; 35,902,671 and 35,875,287 shares
outstanding at December 31, 1998 and 1997,
respectively).......................................... 359 359
Additional paid-in capital................................ 163,290 162,969
Retained earnings......................................... 86,581 43,797
Accumulated other comprehensive income.................... 1,483 785
---------- --------
Total stockholders' equity........................ 251,713 207,910
---------- --------
Total liabilities and stockholders' equity........ $1,021,132 $761,145
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 46
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Vacation Interests sales.................................... $359,426 $281,063 $182,300
Interest income............................................. 52,529 42,856 25,415
Gain on sales of mortgages receivable....................... 6,698 -- --
Other income................................................ 31,301 13,774 12,132
-------- -------- --------
Total revenues..................................... 449,954 337,693 219,847
-------- -------- --------
COSTS AND OPERATING EXPENSES:
Vacation Interest cost of sales............................. 85,649 71,437 48,218
Advertising, sales, and marketing........................... 163,828 126,739 89,040
Loan portfolio:
Provision for doubtful accounts........................... 12,616 8,579 8,311
Other expenses............................................ 3,680 5,522 4,523
General and administrative.................................. 50,699 42,254 37,436
Depreciation and amortization............................... 11,188 6,499 5,027
Merger costs, organizational costs and asset writedowns..... 5,056 9,973 2,620
-------- -------- --------
Total costs and operating expenses................. 332,716 271,003 195,175
-------- -------- --------
Income from operations...................................... 117,238 66,690 24,672
Interest expense (net of capitalized interest of $8,942,
$6,774, and $6,723 in 1998, 1997 and 1996,
respectively)............................................. 43,767 22,426 17,245
Equity loss on investment in joint ventures................. 708 639 299
Minority interest in income of consolidated limited
partnership............................................... 18 181 199
-------- -------- --------
Income before provision (benefit) for income taxes,
extraordinary items and cumulative effect of change in
accounting principle...................................... 72,745 43,444 6,929
-------- -------- --------
Provision (benefit) for income taxes from continuing
operations................................................ 28,371 17,196 (4,105)
Provision for deferred income taxes resulting from the
cumulative effect of previously non-taxable acquired
entities.................................................. -- 5,960 --
-------- -------- --------
Total provision (benefit) for income taxes......... 28,371 23,156 (4,105)
-------- -------- --------
Income before extraordinary items and cumulative effect of
change in accounting principle............................ 44,374 20,288 11,034
Extraordinary items, net of taxes........................... 129 766 --
Cumulative effect of change in accounting principle, net of
taxes..................................................... 1,466 -- --
-------- -------- --------
Net income.................................................. $ 42,779 $ 19,522 $ 11,034
======== ======== ========
PRO FORMA INCOME DATA (UNAUDITED):
Income before provision for income taxes.................... $ 6,929
Provision for income taxes.................................. 2,549
--------
Pro forma net income........................................ $ 4,380
========
EARNINGS PER SHARE (NOTE 3):
Basic:
Income before extraordinary item and cumulative effect of
change in accounting principle.......................... $ 1.24 $ 0.57 $ 0.41
Extraordinary item, net of taxes.......................... -- (0.02) --
Cumulative effect of change in accounting principle, net
of taxes................................................ (0.05) -- --
-------- -------- --------
Net income.................................................. $ 1.19 $ 0.55 $ 0.41
======== ======== ========
Diluted:
Income before extraordinary item and cumulative effect of
change in accounting principle.......................... $ 1.20 $ 0.56 $ 0.40
Extraordinary item, net of taxes.......................... -- (0.02) --
Cumulative effect of change in accounting principle, net
of taxes................................................ (0.04) -- --
-------- -------- --------
Net income................................................ $ 1.16 $ 0.54 $ 0.40
======== ======== ========
PRO FORMA EARNINGS PER SHARE: (UNAUDITED)
Basic..................................................... $ 0.16
Diluted................................................... $ 0.16
Weighted average number of common shares outstanding (Note
3)........................................................ 35,888 35,373 27,232
Weighted average number of common and potentially dilutive
common shares outstanding (Note 3)........................ 40,995 36,180 27,640
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 47
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................. $ 42,779 $ 19,522 $ 11,034
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization......................... 11,188 6,499 5,027
Provision for doubtful accounts....................... 12,616 8,579 8,311
Gain on sales of mortgages receivable................. (6,698) -- --
Writedown of certain assets........................... 3,506 -- 2,620
Cumulative effect of change in accounting principle... 2,403 -- --
Equity loss on investment in joint venture............ 708 639 299
Minority interest in income of consolidated limited
partnership........................................ 18 181 199
Other................................................. -- -- 573
Changes in operating assets and liabilities, net of
effect of acquisitions:
Cash in escrow and restricted cash................. (16,460) (6,916) 1,037
Due from related parties........................... (5,420) (12,504) (1,712)
Prepaid expenses and other assets.................. (7,814) 2,068 (5,878)
Investment in real estate and development costs.... (97,488) (65,595) (73,086)
Other receivables, net............................. (20,119) (4,448) (2,017)
Accounts payable and accrued liabilities........... 6,730 (10,398) 36,499
Income taxes....................................... 13,701 (6,518) 1,653
Deferred income taxes.............................. 7,237 19,481 (8,605)
Due to related parties............................. (1,032) (636) (250)
--------- --------- ---------
Net cash used in operating activities................... (54,145) (50,046) (24,296)
--------- --------- ---------
INVESTING ACTIVITIES:
Cash paid for acquisition of subsidiaries............... (99,340) (31,296) --
Property and equipment.................................. (44,241) (19,973) (8,214)
Intangible assets....................................... (8,247) (1,637) (2,206)
Mortgages receivable.................................... (117,526) (108,942) (76,424)
Proceeds from sales of mortgages receivable............. 173,146 -- --
Investment in joint ventures............................ (1,347) (8,899) (63)
--------- --------- ---------
Net cash used in investing activities................... (97,555) (170,747) (86,907)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from notes payable............................. 237,188 353,264 170,394
Payments on notes payable and mortgage-backed
securities............................................ (112,697) (167,229) (101,436)
Proceeds from Senior Credit Facility, net of debt
issuance costs........................................ 240,568 -- --
Payments on Senior Credit Facility...................... (224,615) -- --
Proceeds from notes payable to related parties.......... -- -- 5,606
Payments on notes payable to related parties............ -- -- (15,074)
Proceeds from stock offerings........................... -- 52,643 73,324
Acquisition of minority limited partners' interests..... -- -- (7,465)
Distributions........................................... -- (738) (14,413)
Other................................................... 321 648 420
--------- --------- ---------
Net cash provided by financing activities............... 140,765 238,588 111,356
--------- --------- ---------
Net (decrease)increase in cash and cash equivalents..... (10,935) 17,795 153
Effect of exchange rates on cash and cash equivalents... 698 (65) 574
Cash and cash equivalents, beginning of period.......... 38,487 20,757 20,030
--------- --------- ---------
Cash and cash equivalents, end of period................ $ 28,250 $ 38,487 $ 20,757
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 48
CONSOLIDATED STATEMENTS OF EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL GENERAL
SHARES PAID-IN RETAINED MEMBERS PARTNERS'
OUTSTANDING AMOUNT CAPITAL EARNINGS EQUITY (DEFICIT) EQUITY
----------- ------ ---------- -------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................. 6,923 $ 89 $ 3,895 $35,607 $ (1,432) $ 4,176
------ ---- -------- ------- -------- --------
Distributions of partnership equity and other
equity interests........................... -- -- -- (7,191) (5,394) --
Conversion of convertible notes payable to
AVCOM common stock......................... -- -- 400 -- -- --
Proceeds from the sale of common stock to the
public, net of offering costs, including
16,212 shares issued in exchange for
partners' and members' equity.............. 25,268 253 73,071 -- -- --
Stock issued and goodwill recorded in
connection with the acquisition of
investment in joint venture................ 820 8 4,981 -- -- --
Acquisition of minority limited partners'
interests.................................. -- -- (7,465) -- -- --
Deferred taxes recorded in connection with
the Consolidation Transactions............. -- -- (9,464) -- -- --
Net income (loss)............................ -- -- -- 3,875 3,568 (164)
Exchange of partners' and members' equity for
stock in connection with the consolidation
transactions............................... -- (20) 37,380 (1,370) 3,258 (4,012)
Assignment to venturers' of receivable due
from related party......................... -- -- -- (3,449) -- --
Write-off of receivable from related party... -- -- -- (3,890) -- --
Other........................................ -- -- (820) (38) -- --
------ ---- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1996................. 33,011 330 101,978 23,544 -- --
------ ---- -------- ------- -------- --------
Comprehensive income for the year ending
December 31, 1996..........................
Net income................................... -- -- -- 19,522 -- --
Proceeds from the sale of common stock, net
of offering costs.......................... 2,400 24 52,619 -- -- --
Common stock issued in connection with
purchase of subsidiary..................... 213 2 6,008 -- -- --
Distributions................................ -- -- -- (738) -- --
Other........................................ 251 3 2,364 1,469 -- --
------ ---- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1997................. 35,875 359 162,969 43,797 -- --
------ ---- -------- ------- -------- --------
Comprehensive income for the year ending
December 31, 1997..........................
Net income................................... -- -- -- 42,779 -- --
Other........................................ 28 -- 321 5 -- --
------ ---- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1998................. 35,903 $359 $163,290 $86,581 $ -- $ --
====== ==== ======== ======= ======== ========
Comprehensive income for the year ending
December 31, 1998..........................
<CAPTION>
ACCUMULATED
LIMITED OTHER COM-
PARTNERS' PREHENSIVE TOTAL COMPREHENSIVE
EQUITY INCOME EQUITY INCOME
--------- ----------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................. $ 33,114 $ (1) $ 75,448
-------- ------ --------
Distributions of partnership equity and other
equity interests........................... (1,633) -- (14,218)
Conversion of convertible notes payable to
AVCOM common stock......................... -- -- 400
Proceeds from the sale of common stock to the
public, net of offering costs, including
16,212 shares issued in exchange for
partners' and members' equity.............. -- -- 73,324
Stock issued and goodwill recorded in
connection with the acquisition of
investment in joint venture................ -- -- 4,989
Acquisition of minority limited partners'
interests.................................. -- -- (7,465)
Deferred taxes recorded in connection with
the Consolidation Transactions............. -- -- (9,464)
Net income (loss)............................ 3,755 -- 11,034 $11,034
Exchange of partners' and members' equity for
stock in connection with the consolidation
transactions............................... (35,236) -- --
Assignment to venturers' of receivable due
from related party......................... -- -- (3,449)
Write-off of receivable from related party... -- -- (3,890)
Other........................................ -- 574 (284) 574
-------- ------ -------- -------
BALANCE AT DECEMBER 31, 1996................. -- 573 126,425
-------- ------ --------
Comprehensive income for the year ending
December 31, 1996.......................... $11,608
=======
Net income................................... -- -- 19,522 $19,522
Proceeds from the sale of common stock, net
of offering costs.......................... -- -- 52,643
Common stock issued in connection with
purchase of subsidiary..................... -- -- 6,010
Distributions................................ -- -- (738)
Other........................................ -- 212 4,048 212
-------- ------ -------- -------
BALANCE AT DECEMBER 31, 1997................. -- 785 207,910
-------- ------ --------
Comprehensive income for the year ending
December 31, 1997.......................... $19,734
=======
Net income................................... -- -- 42,779 $42,779
Other........................................ -- 698 1,024 698
-------- ------ -------- -------
BALANCE AT DECEMBER 31, 1998................. $ -- $1,483 $251,713
======== ====== ========
Comprehensive income for the year ending
December 31, 1998.......................... $43,477
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. NATURE OF BUSINESS
Sunterra Corporation (formerly Signature Resorts, Inc.) and its
wholly-owned subsidiaries ("the Company") generate revenues from the sale and
financing of vacation ownership interests in its resorts, which entitle the
buyer to use a fully-furnished vacation residence, generally for a one-week
period each year, in perpetuity (Vacation Intervals). The Company's operations
consist of (i) marketing and selling vacation ownership interests at its resort
locations and off-site sales centers, which entitle the buyer to use a fully-
furnished vacation residence, generally for a one-week period each year in
perpetuity ("Vacation Intervals"), and vacation points which may be redeemed for
occupancy rights at participating resort locations ("Vacation Points," and
together with Vacation Intervals, "Vacation Interests"), (ii) acquiring,
developing and operating vacation ownership resorts, (iii) providing consumer
financing to individual purchasers for the purchase of Vacation Interests at its
resort locations and off-site sales centers, and (iv) providing resort
management and maintenance services for which it receives fees paid by the
resorts' homeowners' associations.
The Company was incorporated in May 1996. On August 20, 1996, the Company
consummated an initial public offering of a portion of its Common Stock (the
"Initial Public Offering") by offering 9,056,250 shares to the public. The gross
proceeds from the public offering were $84.5 million. The Company incurred $11.2
million of costs associated with this offering. Concurrent with the Initial
Public Offering, certain predecessor limited partnerships, limited liability
companies and corporations (the "Entities") exchanged their direct or indirect
interest in, and obligations of the entities, for 16,211,558 shares of the
Company's common stock (the "Consolidation Transactions"). The accompanying
consolidated financial statements reflect the financial position and results of
operations of the Entities since the date they were acquired or formed, which
range from November 1986 to June 1996. Concurrent with the Initial Public
Offering, the Company exchanged 820,500 shares of Common Stock with the former
holders of interests in the Embassy Vacation Resort at Poipu Point, Koloa,
Kauai, Hawaii.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The accompanying financial statements
include the combined accounts of Sunterra Corporation and the Company's
wholly-owned subsidiaries that were acquired or formed prior to August 20, 1996,
which became wholly-owned subsidiaries in connection with the Consolidation
Transactions. In addition, the financial statements give effect to the
acquisitions of AVCOM International, Inc. ("AVCOM"), Plantation Resorts Group,
Inc. ("PRG") and LSI Group Holdings plc ("LSI") that occurred during 1997 and
were treated as poolings-of-interests (see Note 17). All significant
intercompany transactions and balances have been eliminated from these
consolidated financial statements.
The Consolidation Transactions have been accounted for as a reorganization
of entities under common control. Accordingly, the net assets of the Entities
were recorded at the Entities' historical cost. In addition, the accompanying
consolidated financial statements reflect the historical results of operations
of the predecessor partnerships on a combined basis.
Cash and Cash Equivalents -- Cash and cash equivalents consist of cash,
money market, and all highly liquid investments purchased with an original
maturity of three months or less.
Cash in Escrow and Restricted Cash -- Cash in escrow is restricted cash
consisting of deposits received on sales of Vacation Interests that are held in
escrow until a certificate of occupancy is obtained or the legal rescission
period has expired. Restricted cash includes a cash reserve of approximately
$7.6 million required by the Securitized Notes (Note 8) and Conduit Facility
(Note 5).
Real Estate and Development Costs -- Real estate is valued at the lower of
cost or net realizable value. Development costs include both hard and soft
construction costs and together with real estate costs are allocated to Vacation
Interests. Interest, taxes, and other carrying costs incurred during the
construction period are capitalized.
F-8
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Property and Equipment -- Property and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful life of 3
to 7 years. Administrative office buildings are amortized over the estimated
useful life of 40 years.
Depreciation and amortization expense related to property and equipment was
$6.5 million, $2.8 million and $1.5 million in 1998, 1997 and 1996,
respectively.
Investment in Joint Ventures -- The Company accounts for its investment in
its various joint ventures under the equity method of accounting. Any goodwill
associated with each joint venture is amortized as Vacation Interests are sold.
Intangible Assets -- In 1996 and 1997, organizational costs incurred in
connection with the formation of the Company were capitalized and were amortized
on a straight-line basis over a period of three to five years. In 1996 and 1997,
start-up costs related to costs incurred to develop marketing programs prior to
receiving regulatory approval to market the related property were amortized on a
straight-line basis over a period of one year. In 1998, the Company elected
early adoption of the AICPA's Statement of Position 98-5 (SOP 98-5), "Reporting
on Costs of Start-up Activities." As a result, the Company recorded a $1.5
million cumulative effect of change in accounting principle, net of taxes, which
represented the writeoff of all organizational and start-up costs capitalized
prior to January 1, 1998. All such costs were expensed as incurred in 1998.
Financing, loan origination fees and debt issuance costs incurred in
connection with obtaining funding for the Company have been capitalized and are
being amortized over three to ten years as interest expense.
Goodwill in connection with the acquisition of subsidiaries is being
amortized over the estimated useful lives of 10 to 30 years.
At each balance sheet date, the Company evaluates the reliability of its
goodwill based upon expectations of undiscounted cash flows and operating
income. Based upon its most recent analysis, the Company believes that no
material impairment of its goodwill exists at December 31, 1998.
Foreign Currency Translation -- Financial statements for the Company's
subsidiaries outside the United States are translated into U.S. dollars at
year-end exchange rates for assets and liabilities and weighted average exchange
rates for income and expenses. The resulting translation adjustments are
recorded as cumulative other comprehensive income in the consolidated statements
of equity.
Fourth Quarter Adjustments -- During the fourth quarter of 1998, the
Company recorded certain organization charges and asset writedowns totaling $5.1
million. The organizational charges related to anticipated severance and other
charges associated with its consolidation of certain corporate functions to the
Company's headquarters in Orlando, Florida.
Revenue Recognition -- The Company recognizes sales of Vacation Interests
on an accrual basis after a binding sales contract has been executed, a 10%
minimum down payment has been received, the rescission period has expired,
construction is substantially complete, and certain minimum sales levels have
been achieved. If all the criteria are met except that construction is not
substantially complete, then revenues are recognized on the
percentage-of-completion (cost to cost) basis. For sales that do not qualify for
either accrual or percentage-of-completion accounting, all revenue is deferred
using the deposit method.
Income Taxes -- Prior to August 20, 1996, the Entities were taxed either as
a corporation at the corporate level, as an S corporation taxable at the
shareholder level, or as a partnership taxable at the partner level. The Company
became subject to federal, state, and foreign income taxes from the effective
date of the Initial Public Offering. The 1996 pro forma net income per common
and common equivalent share uses the historical net income of the Company as
adjusted by the unaudited pro forma provision for income taxes to reflect the
net income per common and common equivalent share, as if the Company had been
treated as a C corporation rather than as individual limited partnerships and
limited liability companies for federal income tax purposes for the year ended
December 31, 1996.
F-9
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
The Company accounts for income taxes using an asset and liability approach
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Deferred tax assets and liabilities are measured by applying enacted statutory
tax rates applicable to the future years in which the related deferred tax
assets or liabilities are expected to be settled or realized. Income tax expense
consists of the taxes payable for the current period and the change during the
period in deferred tax assets and liabilities.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Comprehensive Income -- In June 1997, the Financial Accounting Standards
Board (the "FASB") issued SFAS No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting and the display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income as defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency translation
adjustments and unrealized gain/loss on available-for-sale securities. The
disclosures prescribed by SFAS 130 were made beginning with the first quarter of
fiscal 1998.
Segment Reporting -- In June 1997, the FASB issued Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS 131).
This statement establishes standards for the way companies report information
about operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Company adopted SFAS 131 during 1998.
Reclassifications -- Certain reclassifications were made to the 1997 and
1996 accompanying consolidated financial statements to conform to the 1998
presentation.
F-10
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
3. EARNINGS PER SHARE
Basic earnings per share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share was calculated by dividing the sum of the weighted average
number of common shares outstanding plus all additional common shares that would
have been outstanding if potentially dilutive common shares had been issued. The
following table reconciles the number of shares utilized in the earnings per
share calculations for each of the three years in the period ended December 31,
1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(AMOUNT IN THOUSANDS)
<S> <C> <C> <C>
Net income............................................ $42,779 $19,522 $11,034
Interest on convertible bonds(a)...................... 4,840 -- --
------- ------- -------
Net income available to common stockholders after
assumed conversion of dilutive securities(a)........ $47,619 $19,522 $11,034
======= ======= =======
Weighted average number of common shares used in basic
EPS................................................. 35,888 35,373 27,232
Effect of dilutive convertible bonds(a)............... 4,537 -- --
Effect of dilutive stock options...................... 570 807 408
------- ------- -------
Weighted average number of common shares and dilutive
potential common shares used in diluted EPS(a)...... 40,995 36,180 27,640
======= ======= =======
</TABLE>
- ---------------
(a) The potential effect on net income and on common stock shares related to the
Convertible Notes have not been included in the 1997 or 1996 calculation of
net income or weighted average number of common shares and dilutive
potential common shares outstanding used in diluted EPS because the effect
would be anti-dilutive.
4. MORTGAGES RECEIVABLE, NET
The Company provides financing to the purchasers of Vacation Interests that
are collateralized by their interest in such Vacation Interests. The mortgages
receivable generally bear interest at the time of issuance of between 12% and
17%, which remain fixed over the term of the loan, which typically averages
seven to ten years. The mortgages receivable may be prepaid at any time without
penalty. The weighted average rate of interest on outstanding mortgages
receivable is 14.5% as of December 31, 1998.
Consumer loans in excess of 60 days past due, including defaulted loans and
loans in the deed-in-lieu process at December 31, 1998, were 7.4%, as a
percentage of gross mortgages receivable.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $9.1 million and $4.1 million at December 31, 1998 and
1997, respectively. The accrued interest receivable at December 31, 1998 and
1997 is net of an allowance for doubtful accounts of $0.6 million and $1.0
million, respectively, and is included in other receivables, net.
F-11
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
The following schedule reflects the scheduled contractual principal
maturities of mortgages receivable (amounts in thousands):
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31:
1999........................................................ $ 33,320
2000........................................................ 32,087
2001........................................................ 30,526
2002........................................................ 24,453
2003........................................................ 39,588
Thereafter.................................................. 198,877
--------
Total principal maturities of mortgages receivable.......... 358,851
Less allowance for doubtful accounts........................ (22,869)
--------
Net principal maturities of mortgages receivable............ $335,982
========
</TABLE>
The activity in the mortgages receivable allowance for doubtful accounts is
as follows (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
Balance, beginning of the period............................ $22,916 $17,328
Decrease in allowance for purchased mortgages receivable.... (584) (718)
Decrease in allowance for mortgages sold.................... (1,956) --
Increase in allowance for company acquired.................. 4,930 1,265
Provision for mortgages receivable doubtful accounts........ 11,409 7,234
Receivables charged off..................................... (13,846) (2,193)
------- -------
Balance, end of the period................................ $22,869 $22,916
======= =======
</TABLE>
The provision for doubtful accounts for 1998 and 1997 includes $1.2 million
and $1.4 million, respectively, for other receivables.
5. SALES OF MORTGAGES RECEIVABLE
On December 31, 1998, the Company sold $79.0 million of Mortgages
Receivables as part of its $100.0 million Mortgage Receivable Conduit Facility
("Conduit Facility"). Under the terms of the Conduit Facility, the Company sells
mortgages receivable through a wholly-owned special purpose entity at 95% of
face value, without recourse. The Company then retains 100% of the excess spread
over the commercial paper rate plus 0.60%.
The Company recognized a gain on the sale of mortgages receivable of $5.6
million, net of expenses, as a result of the $79.0 million sale and a retained
interest held for sale in these mortgages receivable of $11.3 million. The
retained interest was valued by the Company assuming a 4.8% default rate (net of
recoveries), a 15% prepayment rate, an 18% discount rate, a 2.5% interest rate
on the 5% required reserve account, and a 6.5% annual interest rate on the
monthly balance of the financing. In addition, the receivables had a 8.4 year
weighted average remaining life and a weighted average interest rate of 15.1%.
The retained interest is classified as held for sale based on management's
intent and the existence of prepayment options.
During 1998, the Company also sold $101.9 million of gross mortgages
receivable for $99.7 million in cash in three separate transactions. As a result
of these sales, the Company recorded a $1.1 million gain on the sale of
mortgages receivable and a retained interest of $1.3 million. The Company sold
these receivables at prices from 96% to 105% of par value with a participation
in the remaining interest of 0% to 65%.
F-12
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
6. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated Vacation Interests cost
of sales consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
--------- ---------
<S> <C> <C>
Land..................................................... 102,653 74,527
Development cost, excluding capitalized interest......... 536,053 370,151
Capitalized interest..................................... 28,992 20,050
--------- ---------
Total real estate and development costs................ 667,698 464,728
Less accumulated Vacation Interest cost of sales......... (328,458) (242,809)
Less resort property valuation allowance................. (2,620) (2,620)
--------- ---------
Net real estate and development costs.................. $ 336,620 $ 219,299
========= =========
</TABLE>
During 1996, the Company recorded a $2.6 million property valuation
allowance to reduce real estate and development costs. During 1998 and 1997
there was no change in the resort property valuation allowance.
As of December 31, 1998, the Company commenced sales of Vacation Interests
at certain projects, or phases of certain projects, that are expected to be
completed during 1999. The estimated cost to complete the projects, or the
specific phases of the projects is approximately $14.3 million.
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following
(amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
Goodwill.................................................... $74,600 $35,227
Debt issuance costs......................................... 22,119 15,257
Other....................................................... 10,364 7,471
------- -------
Total intangible assets................................... 107,083 57,955
Less accumulated amortization............................... (10,360) (7,508)
------- -------
Net intangible assets..................................... $96,723 $50,447
======= =======
</TABLE>
Amortization expense was $4.7 million, $3.7 million and $3.5 million in
1998, 1997 and 1996, respectively. In addition, $2.7 million of amortized
intangibles were retired from the related asset and accumulated amortization
accounts in 1998.
F-13
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
8. NOTES PAYABLE
Notes payable consist of the following at December 31 (amounts in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Endpaper loans with interest payable monthly at prime plus
2% to prime plus 3% (9.75% to 10.75% at December 31,
1998), payable in monthly installments of principal and
interest equal to 100% of all proceeds of the receivables
collateral collected during the month; due from
2003 - 2007............................................... $ 30,537 $ 62,676
Endpaper loans collateralized by specific mortgages
receivable with interest payable at prime plus 1.5% to
prime plus 1.75% (9.25% to 9.5% at December 31, 1998) or
LIBOR plus 4.25% (9.37% at December 31, 1998), payable in
monthly installments of principal and interest equal to
100% of all proceeds of the receivables collateral
collected during the month................................ -- 11,931
Senior Credit Facility of $117.5 million with interest
payable quarterly at rates ranging from LIBOR plus 7/8% to
LIBOR plus 1 3/8% (6.00 % to 6.50% on December 31, 1998);
collateralized by specific mortgages receivable due
February 2001............................................. 17,110 --
Securitized notes, collateralized by certain mortgages
receivable. Interest and principal is payable monthly at
an average interest rate of 6.7% due 2014................. 87,578 --
Securitized notes, collateralized by certain mortgages
receivable. Interest and principal is payable monthly at
an average interest rate of 7.75% due 2004................ 6,900 11,572
9.25% Senior Notes, interest due May and November, principal
due May 2006.............................................. 140,000 --
9.75% Senior Subordinated Notes, interest due April and
October and principal due October 2007.................... 200,000 200,000
5.75% Convertible Subordinated Notes, interest payments due
January and July, principal due January 2007.............. 138,000 138,000
Other notes payable......................................... 6,964 11,029
-------- --------
Total notes payable......................................... $627,089 $435,208
======== ========
</TABLE>
In 1998, the Company entered into a $117.5 million senior bank credit
facility (the "Senior Credit Facility"). The Senior Credit Facility has a
variable borrowing rate based on the percentage of the Company's mortgages
receivable pledged under such facility and the amount of funds advanced
thereunder. The interest rate will vary between LIBOR plus 7/8% and LIBOR plus
1 3/8%, depending on the amount advanced against mortgages receivable. The
Senior Credit Facility has a three year term and contains covenants,
representations and warranties and conditions to borrow on the funds. At
December 31, 1998, the Company had $98.2 million available on the Senior Credit
Facility, $24.9 million available on its Conduit Facility and no amounts
available on its endpaper loans. At December 31, 1997, the Company had
approximately $186.0 million of borrowing capacity from various endpaper loans
and had no amounts available on its Senior Credit Facility and its Conduit
Facility.
The Convertible Notes are convertible into Common Stock at any time prior
to maturity, unless previously redeemed, at a conversion price of $30.417 per
share, subject to adjustment under certain events.
The Company's loan agreements contain certain covenants, the most
restrictive of which require certain of the consolidated entities to maintain a
minimum net worth and require certain expenses to not exceed certain percentages
of sales. At December 31, 1998, the Company was in compliance with all
covenants. Dividends are restricted by certain of the Company's debt agreements.
F-14
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
The expected maturities of the remaining long-term debt are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
DUE IN FISCAL YEAR
------------------
<S> <C>
1999.............................. $ 37,504
2000.............................. 32,087
2001.............................. 30,525
2002.............................. 24,453
2003.............................. 24,520
2004 and thereafter............... 478,000
--------
$627,089
========
</TABLE>
9. RELATED PARTY TRANSACTIONS
At December 31, 1998 and 1997, respectively, the Company had accrued $7.3
million and $6.0 million as net receivables from various homeowners'
associations at its resorts. The Company generally accrues receivables from
homeowners' associations for management fees and certain other expenses.
Payables to the homeowners' associations consist primarily of maintenance fees
for units owned by the Company. All of these amounts are classified as due from
and due to related parties in the accompanying consolidated balance sheets.
As of December 31, 1998, the Company had accounts receivable and notes
receivable of $2.8 million, and $11.9 million, respectively, from the Company's
joint ventures in Poipu Point, Hawaii, Kaanapali, Hawaii and St. John, U.S.
Virgin Islands. As of December 31, 1997, these accounts receivable and notes
receivable balances due from Poipu Point, Hawaii and St. John, U.S. Virgin
Islands were $2.7 million and $11.8 million, respectively. The accounts
receivable relate to certain reimbursable operating and development expenses.
The notes receivable represent loans made to the projects for start-up and
development activities.
In 1997, Messrs. Gessow, Kaneko and Kenninger transferred 100% of their
interest in the Embassy Vacation Resort at Kaanapali Beach (the "Kaanapali
Resort") in exchange for the Company's agreement to reimburse to them expenses
they had incurred to acquire the Kaanapali Resort. On June 9, 1998, the Board of
Directors of the Company approved the reimbursement by the Company of an
aggregate of $626,858 to Messrs. Gessow ($250,743), Kaneko ($250,743) and
Kenninger ($125,372) for expenses incurred by them individually in connection
with the acquisition of the Kaanapali Resort. The Company has been previously
reimbursed $275,639 by The Whitehall Fund of Goldman Sachs and Apollo, the
Company's partners in the Kaanapali Resort for their pro rata portion of such
expenses.
F-15
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
10. SUPPLEMENTAL CASH FLOW DISCLOSURE
The following schedule provides certain supplemental disclosure of cash
flows as well as supplemental disclosure of non-cash transactions that should be
read in conjunction with the accompanying consolidated statements of cash flows.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $52,607 $18,508 $24,127
Cash paid for taxes, net of tax refunds..................... $ 1,968 $ 7,918 $ 1,629
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Stock issued in connection with acquisition of Marc
Resorts................................................... $ -- $ 6,010 --
Costs incurred in conjunction with debt issuances........... $ 9,295 $12,824 --
Tax benefit resulting from exercise of common stock
options................................................... $ -- $ 1,469 --
Stock issued and goodwill recorded in connection with the
acquisition of investment in joint venture................ -- -- $ 4,989
Deferred taxes recorded in connection with the Consolidation
Transactions.............................................. -- -- $ 9,464
Interest accrued on deferred installment gains in connection
with the Consolidation Transactions....................... -- -- $ 820
Net assets of predecessor partnership acquired in exchange
for 17,032,058 shares of common stock in connection with
the Consolidation Transactions............................ -- -- $37,380
Assignment to venturers of receivable due from related party
recorded as a reduction of venturers' equity.............. -- -- $ 3,449
Write-off of receivable from related party recorded as a
reduction of stockholders' equity......................... -- -- $ 3,890
Conversion of convertible notes payable to AVCOM common
stock..................................................... -- -- $ 400
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company is currently subject to litigation and claims regarding
employment, tort, contract, construction, and commission disputes, among others.
In the judgment of management, none of such litigation or claims against the
Company is likely to have a material adverse effect on the Company's financial
statements or its business.
The Company owns a partnership interest in the Embassy Vacation Resort at
Poipu Point, Koloa, Kauai, Hawaii. Under the terms of the partnership agreement,
the Company could be required to purchase the other partner's interest. At
December 31, 1998, the Company does not believe that the events requiring such
purchase are likely to occur.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values for its financial
instruments. The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and cash in escrow: The carrying amount reported
in the balance sheet for cash and cash equivalents and cash in escrow
approximates their fair value because of the short maturity of these
instruments.
F-16
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Retained Interests: The carrying amount reported is reported at its fair
value based on the assumptions disclosed in Note 5.
Mortgages receivable: The carrying amount reported in the balance sheet for
mortgages receivable approximates its fair value because the weighted average
interest rate on the portfolio of mortgages receivable approximates current
interest rates to be received on similar current mortgages receivable.
Notes payable: The carrying amount reported in the balance sheet for notes
payable approximates its fair value because the interest rates on these
instruments approximate current interest rates charged on similar current
borrowings.
13. STOCK OPTIONS
The Company issued 2,749,600 and 1,054,500 stock options during 1998 and
1997, respectively. The Company accounts for these options under APB Opinion No.
25, Accounting for Stock Issued to Employees, under which no compensation cost
has been recognized. Under SFAS 123, Accounting for Stock-Based Compensation,
the Company's net income would have been $38.7 million and basic and diluted
earnings per share would have been, $1.08 and $1.06, respectively, on an
unaudited pro forma basis for the year ended December 31, 1998. The Company's
unaudited net income would have been $16.9 million, and basic and diluted
unaudited earnings per share would have been $0.48 and $0.47, respectively, for
the year ended December 31, 1997. As of December 31, 1998, 163,000 options were
available for grant under the Company's equity participation plans. A summary of
the Company's stock options for the years ended December 31, 1998 and 1997 is
presented in the following table:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Outstanding options,
beginning of year........ 3,289,407 $14.45 2,653,500 $10.29
Granted.................... 2,749,600 13.49 1,054,500 23.99
Exercised.................. (600) 9.33 (250,180) 9.33
Forfeited.................. (846,207) 28.60 (168,413) 16.42
Expired.................... -- -- -- --
---------- ------ ---------- ------
Outstanding options, end of
year..................... 5,192,200 $10.21 3,289,407 $14.45
Exercisable at end of
year..................... 1,078,490 $10.41 817,528 $10.50
========== ====== ========== ======
Weighted average fair value
of options granted....... $ 5.64 $ 5.32
</TABLE>
All stock options issued by the Company were issued to employees at fair
market value on the grant date. The options range from 3 to 5 years for full
maturity and the exercise prices range from $8.00 to $28.25.
The weighted average fair value of options granted is estimated on the date
of the grant using the Black-Scholes option pricing model with the following
assumptions: risk free interest rate of 6.0%, expected dividend yield of zero,
expected volatility of 35%, and expected lives of 3 to 5 years in 1998 and 1997.
14. EMPLOYEE BENEFIT PLANS
The Company has established the Sunterra Resorts, Inc. Employee Stock
Purchase Plan to assist eligible employees to acquire stock ownership in the
Company and to encourage them to remain in the employment of the Company. The
Employee Stock Purchase Plan is intended to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended, and generally allows eligible employees to purchase common
stock at 85% of fair market value, subject to dollar limitations.
F-17
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
The Company has reserved a maximum of 750,000 shares of Common Stock for
issuance pursuant to the Employee Stock Purchase Plan. As of December 31, 1998
and 1997, an aggregate of 29,269 and 2,482 shares, respectively, had been issued
pursuant to the Employee Stock Purchase Plan.
The Company also has established a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended. Subject to certain limitations, the 401(k) Plan allows
participating employees to defer up to 15% of their eligible compensation on a
pre-tax basis. Although the 401(k) Plan allows the Company to make discretionary
matching contributions of up to 50% of employee contributions, the Company did
not make any such matching contributions during 1998, 1997, or 1996.
15. INCOME TAXES
The Entities and PRG were taxed prior to August 20, 1996 and May 15, 1997,
respectively either as a corporation at the corporate level, as an S corporation
taxable at the shareholder level, or as a partnership taxable at the partner
level. Accordingly, the table below summarizes the unaudited pro forma provision
for income taxes that would have been reported had the Company been treated as a
C corporation for federal income tax purposes for the year ended December 31,
1996. AVCOM's and LSI's actual deferred income taxes and provision for income
taxes are included in the pro forma schedule and 1996 actuals. The Company's
actual income tax provision is presented for the periods subsequent to August
20, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996 1996
------- ------- ------- -----------
(PRO FORMA)
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal....................................... $ 8,570 $ 2,194 $ 2,785 $4,990
State......................................... 1,666 461 481 846
Foreign....................................... 5,691 2,533 1,240 1,233
------- ------- ------- ------
Total current provision for income taxes...... 15,927 5,188 4,506 7,069
------- ------- ------- ------
Deferred:
Federal....................................... 11,385 16,125 (7,182) (3,675)
State......................................... 1,301 1,843 (1,393) (809)
Foreign....................................... (242) -- (36) (36)
------- ------- ------- ------
Total deferred provision (benefit) for income
taxes...................................... 12,444 17,968 (8,611) (4,520)
------- ------- ------- ------
Provision (benefit) for income taxes.......... $28,371 $23,156 $(4,105) $2,549
======= ======= ======= ======
</TABLE>
F-18
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
The reconciliation between the statutory provision for income taxes and the
actual provision (benefit) for income taxes is shown as follows (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996 1996
------- ------- ------- -----------
(PRO FORMA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Income tax at U.S. federal statutory
rate.................................... $25,461 $15,205 $ 2,357 $2,357
State tax, net of federal benefit......... 1,929 1,738 163 163
Difference in foreign tax rates........... (202) (994) (34) (34)
Non-deductible expenses................... 610 3,192 598 63
Deferred income taxes recorded upon
acquisition of previously non-taxable
entities................................ -- 5,960 -- --
Write-off of receivable from related
party................................... -- -- (1,478) --
Non-taxable income from entities.......... -- (1,050) (5,711) --
Other..................................... 573 (895) -- --
------- ------- ------- ------
Provision (benefit) for income taxes.... $28,371 $23,156 $(4,105) $2,549
======= ======= ======= ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the net deferred tax liabilities were as follows (amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts............................ $ 12,084 $ 8,867
Fixed assets and inventory................................. 1,666 1,305
Accrued expenses........................................... 1,961 4,152
Adjustment to basis of partnership property................ 1,429 3,474
Net operating loss carryover............................... 33,250 29,439
Foreign tax credit carryover............................... 991 62
Minimum tax credit carryover............................... 8,840 5,776
Other...................................................... 1,963 367
-------- --------
Total gross deferred tax assets.................. 62,184 53,442
Valuation allowance........................................ -- (2,367)
-------- --------
Total net deferred tax asset..................... $ 62,184 $ 51,075
-------- --------
Deferred tax liabilities:
Installment sales.......................................... (87,536) (73,818)
Percentage of completion................................... (4,784) (160)
Other...................................................... (848) (849)
-------- --------
Total deferred tax liabilities................... $(93,168) $(74,827)
-------- --------
Net deferred taxes......................................... $(30,984) $(23,752)
======== ========
</TABLE>
At December 31, 1998, the Company has available approximately $85 million
of unused net operating loss carryforwards (the "NOLs") that may be applied
against future taxable income. These NOLs expire on various dates from 2004
through 2018.
The valuation allowance of $2.4 million in 1997 was related to loss
carryforwards acquired in a 1997 company purchase. Deferred tax liabilities
generated during the current year favorably impacted the future realization of
these loss carryforwards resulting in the reversal of this reserve. Income taxes
currently payable
F-19
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
have not been affected by the change in reserve. The reversal of the reserve
reduced the goodwill recorded on the 1997 company acquisition.
Provision has not been made for taxes on approximately $5.3 million of
undistributed earnings of foreign subsidiaries. Those earnings have been and are
expected to be reinvested in the foreign subsidiaries. These earnings could
become subject to additional tax if they were remitted to the Company, or if the
Company were to sell its stock in the subsidiaries. It is not practicable to
estimate the amount of additional tax that might be payable on the foreign
earnings; however, the Company believes that U.S. foreign tax credits would
largely eliminate any U.S. tax and offset any foreign tax.
16. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment, which includes the marketing,
sales, financing and management of vacation ownership resorts and two geographic
segments. The Company's areas of operation outside of the United States include
Mexico, Canada, Netherlands Antilles, United Kingdom, Japan, Spain, Portugal,
Austria and France. The Company's management evaluates performance of each
segment based on profit or loss from operations before income taxes not
including extraordinary items and cumulative effect of change in accounting
principles. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (see Note 2). The
Company's customers are not concentrated in any specific geographic region and
no single customer accounts for a significant amount of the Company's sales.
Information about the Company's operations in different geographic
locations is shown below (amounts in thousands):
<TABLE>
<CAPTION>
UNITED STATES FOREIGN TOTAL
------------- -------- ----------
<S> <C> <C> <C>
1998
Total revenues.................................... $336,060 $113,894 $ 449,954
Income before provision for income taxes,
extraordinary items and cumulative effect...... 55,181 17,564 72,745
Identifiable assets............................... 939,332 81,800 1,021,132
1997
Total revenues.................................... $270,296 $ 67,397 $ 337,693
Income before provision for income taxes,
extraordinary items............................ 31,177 12,267 43,444
Identifiable assets............................... 701,509 59,636 761,145
1996
Total revenues.................................... $179,003 $ 40,844 $ 219,847
Income before provision for income taxes.......... 356 6,573 6,929
Identifiable Assets............................... 412,339 33,545 445,884
</TABLE>
17. ACQUISITIONS
On February 7, 1997, the Company consummated its acquisition by merger of
AVCOM (the "AVCOM Acquisition"). AVCOM is the parent company of All Seasons
Resorts, Inc., a developer, marketer and operator of vacation ownership resorts
in Arizona, California and Texas. Under the terms of the AVCOM merger agreement,
the Company issued 1,324,554 shares of its common stock in exchange for all the
outstanding capital stock of AVCOM. The AVCOM Acquisition has been treated as a
pooling-of-interests and is reflected in the accompanying consolidated financial
statements as if it took place at the beginning of the earliest period
presented.
F-20
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
On May 15, 1997, the Company consummated its acquisition by merger ("the
PRG Acquisition") of (PRG), a Williamsburg, Virginia, based developer, owner and
operator of vacation ownership resorts in Williamsburg, Virginia. PRG was
incorporated in April 1997 through a private placement of its common stock in
which certain predecessor joint ventures and corporations (the "PRG Entities")
exchanged their interests for shares of PRG's common stock (the "PRG Exchange").
The PRG Acquisition was consummated through the issuance of 3,601,844 shares of
the Company's common stock. The PRG Acquisition has been treated as a
pooling-of-interests and is reflected in the accompanying consolidated financial
statements as if it took place at the beginning of the earliest period
presented.
On August 28, 1997, the Company consummated its acquisition by merger of
100% of the capital stock of LSI in exchange for 1,996,401 newly-issued shares
of the Company's common stock and approximately $1.0 million in cash (the "LSI
Acquisition"). United Kingdom-based LSI is a developer, owner and operator of
vacation ownership resorts located in Europe. Through its Grand Vacation Club,
LSI operates a points-based club system. The LSI Acquisition has been treated as
a pooling-of-interests and is reflected in the accompanying consolidated
financial statements as if it took place at the beginning of the earliest period
presented.
During 1998, the Company acquired MMG Holding Corporation, Harich Tahoe
Development, and ten resorts located in the United States, Europe, and Japan,
all in separate transactions. During 1997, the Company acquired Marc Hotels &
Resorts, Inc., Vacation International, Ltd., and Global Development Ltd. all in
separate transactions. Each of the aforementioned acquisitions in 1998 and 1997
were accounted for under the purchase method for business combinations. Assets
acquired and liabilities assumed in connection with the Company's 1998 and 1997
purchases are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Assets acquired in acquisitions:
Cash in escrow............................................ $ 6 $ 857
Mortgages receivable, net................................. 74,655 14,509
Due from related parties.................................. 317 1,175
Other receivables, net.................................... 2,091 2,719
Prepaid expenses and other................................ 1,170 377
Real estate and development costs......................... 19,833 10,834
Property and equipment, net............................... 8,362 3,202
Goodwill in conjunction with acquisitions................. 37,421 35,186
-------- -------
Total assets acquired in acquisitions............. $143,855 $68,859
======== =======
Liabilities assumed in acquisitions:
Accounts payable.......................................... 5,995 8,666
Accrued liabilities....................................... 3,005 21,359
Due to related parties.................................... -- 12
Deferred income taxes..................................... 258 1,012
Notes payable............................................. 35,257 227
Cumulative translation adjustments........................ -- 277
-------- -------
Total liabilities assumed in acquisitions......... $ 44,515 $31,553
======== =======
</TABLE>
F-21
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
The following table sets forth certain unaudited pro forma information for
the Company's purchases as if they had occurred as of the beginning of the year
acquired and the immediately preceding year for 1998, 1997 and 1996 (amounts in
thousands, except per share data).
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS TOTAL
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Year ended December 31, 1998
Total Revenues......................................... $449,954 $(17,362) $432,592
Net Income............................................. 42,779 (2,510) 40,269
Basic EPS.............................................. $ 1.19 $ 1.12
Diluted EPS............................................ $ 1.16 $ 1.10
Year ended December 31, 1997
Total revenues......................................... $337,693 $ 67,932 $405,625
Net income............................................. 19,522 (1,758) 17,764
Basic EPS.............................................. $ 0.55 $ 0.50
Diluted EPS............................................ $ 0.54 $ 0.49
Year ended December 31, 1996
Total revenues......................................... $219,847 $ 74,014 $293,861
Net income............................................. 11,034 261 11,295
Basic EPS.............................................. $ 0.41 $ 0.41
Diluted EPS............................................ $ 0.40 $ 0.41
</TABLE>
Total revenues and net income for the Company, AVCOM and its subsidiaries,
PRG and LSI, all acquired by pooling of interests in 1997, are shown in the
following table (amounts in millions) for the year ended 1996, which represents
the period prior to the poolings:
<TABLE>
<CAPTION>
1996
------
<S> <C>
Revenues
Consolidated...................... $219.8
AVCOM............................. 48.4
PRG............................... 48.4
LSI............................... 27.9
Net income (loss)
Consolidated...................... $ 11.0
AVCOM............................. (12.4)
PRG............................... 7.0
LSI............................... 2.3
</TABLE>
F-22
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*3.1 Restated Articles of Incorporation of Sunterra Corporation
3.2 Bylaws of Sunterra Corporation, 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
Sunterra Corporation and Norwest Bank Minnesota, National
Association, as trustee, for the 5 3/4% Convertible
Subordinated Notes of Sunterra Corporation 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 Sunterra
Corporation and Norwest Bank Minnesota, National
Association, as trustee, for the 9 3/4% Senior Subordinated
Notes of Sunterra Corporation 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))
4.3 Indenture dated as of April 15, 1998 by and between Sunterra
Corporation and Norwest Bank Minnesota, National
Association, as trustee for the 9 1/4% Senior Notes of
Sunterra Corporation due 2006 (incorporated by reference to
Exhibit 4.3 to the Registrant's Registration Statement on
Form S-4 (No. 333-51803))
4.4 Indenture dated a of May 1, 1998, by and between Sunterra
Finance L.L.C. as issuer of the bonds, Sunterra Corporation
as Servicer, and LaSalle National Bank as Trustee and
Back-up Servicer for Signature Resorts Vacation Ownership
Receivables -- Backed Notes 1998-A (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998)
*10.1 Credit Agreement dated as of February 18, 1998 by and among
Sunterra Corporation, certain lender parties thereto,
NationsBank of Texas, N.A., as administrative lender and
Societe Generale, as document agent, including Amendments 1,
2 and 3 thereto
10.2 Servicing Agreement dated as of May 1, 1998, by and between
Sunterra Finance L.L.C. as issuer of the bonds, Sunterra
Corporation as Servicer, and LaSalle National Bank as
Trustee and Back-up Servicer for Signature Resorts Vacation
Ownership Receivables -- Backed Notes 1998-A (incorporated
by reference to Exhibit 10.8 to the Registrant's quarterly
report on Form 10-Q for the quarter ended June 30, 1998)
*10.3 Receivables Purchase Agreement dated as of December 17, 1998
among Blue Bison Funding Corp., Sunterra Corporation and
Barton Capital Corporation
10.4 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))
10.5 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))
10.6 Joint Development Agreement dated as of January 16, 1998
between Westin Hotel Company and Sunterra Corporation
(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))
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7 Registration Rights Agreement dated as of August 20, 1996 by
and among Sunterra Corporation and the persons named therein
(incorporated by reference to Exhibit 10.1 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
10.8 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)
10.9 Registration Rights Agreement dated as of August 28, 1997 by
and among Sunterra Corporation and Ian K. Ganney and Richard
Harrington (incorporated by reference to Exhibit 10.10 to
Amendment No. 1 on Form S-3 to Registrant's Registration
Statement on Form S-1 (No. 333-30285))
10.10 Registration Rights Agreement dated as of October 10, 1997
by and among Sunterra Corporation and Michael V. Paulin,
Rosemarie Paulin, Maya K. Paulin and Annemarie H. Paulin
(incorporated by reference to Exhibit 10.5 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997)
10.11 Employment Agreement between Sunterra Corporation and Andrew
J. Gessow (incorporated by reference to Exhibit 10.2.2 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.12 Employment Agreement between Sunterra Corporation and Steven
C. Kenninger (incorporated by reference to Exhibit 10.2.3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.13 Employment Agreement between Sunterra Corporation and L.
Steven Miller (incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998)
*10.14 Employment Agreement between Sunterra Corporation and
Richard Goodman
10.15 Employment Agreement between Sunterra Corporation and James
E. Noyes (incorporated by reference to Exhibit 10.2.4 to
Registrant's Registration Statement on Form S-1 (No.
333-06027))
*10.16 Amended and Restated 1996 Equity Participation Plan of
Sunterra Corporation, including form of stock option
agreement thereunder
10.17 Sunterra Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.5 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.18 First Amendment to Employee Stock Plan of Sunterra
Corporation 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))
*10.19 1998 New-Hire Stock Option Plan of Sunterra Corporation
10.20 Amended Consulting Agreement dated as of August 1, 1997 by
and between Sunterra Corporation, 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))
*21 Subsidiaries of Sunterra Corporation
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of KPMG
*23.3 Consent of Schreeder, Wheeler & Flint, LLP
*27 Financial Data Schedule (for the fiscal year ended December
31, 1998)
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 3.1
SUNTERRA CORPORATION
ARTICLES OF RESTATEMENT
SUNTERRA CORPORATION, a Maryland corporation (the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland (the
"Department") that:
FIRST: The Corporation desires to, and does hereby, restate its Charter
as currently in effect.
SECOND: The following provisions are all of the provisions of the
Charter currently in effect:
FIRST: The undersigned, Charles R. Moran, whose address is 300 East
Lombard Street, Baltimore, Maryland 21202, being at least eighteen years
of age, acting as incorporator, does hereby form a corporation under the
General Laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
Sunterra Corporation
THIRD: The purposes for which and any of which the Corporation is formed
and the business and objects to be carried on and promoted by it are:
(1) To engage in the business of developing and operating
timeshare resorts and to perform any and all activities necessary
or desirable in connection therewith.
(2) To engage in and perform any other activities or functions
which may lawfully be performed by a business corporation
organized under the General Laws of the State of Maryland.
The foregoing enumerated purposes and objects shall be in no way limited
or restricted by reference to, or inference from, the terms of any other
clause of this or any other Article of the Charter of the Corporation,
and each shall be regarded as independent; and they are intended to be
and shall be construed as powers as well as purposes and objects of the
Corporation and shall be in addition to and not in limitation of the
general powers of corporations under the General Laws of the State of
Maryland.
<PAGE> 2
FOURTH: The present address of the principal office of the Corporation
in the State of Maryland is c/o National Registered Agents, Inc. of MD,
11 East Chase Street, Baltimore, Maryland 21202.
FIFTH: The name and address of the resident agent of the Corporation is
c/o National Registered Agents, Inc. of MD, 11 East Chase Street,
Baltimore, Maryland 21202. Said resident agent is a Maryland
corporation.
SIXTH: The total number of shares of stock of all classes which the
Corporation has authority to issue is One Hundred Twenty Five Million
(125,000,000) shares consisting of One Hundred Million (100,000,000)
shares of common stock, par value of One Cent ($.01) per share ("Common
Stock") and Twenty Five Million (25,000,000) shares of preferred stock,
par value of One Cent ($.01) per share ("Preferred Stock"). The
aggregate par value of all of the Corporation's authorized shares of
capital stock is One Million Two Hundred Fifty Thousand Dollars
($1,250,000).
The designations and the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the shares of each class of
capital stock of the Corporation are as follows:
(1) Preferred Stock. The Preferred Stock may be authorized for
issuance from time to time by the Board of Directors in one or
more separately designated classes or series. The designation of
each such class or series, the number of shares to be included in
each such class or series, and the preferences, conversion and
other rights, voting powers, restrictions, limitations as to
dividends and terms and conditions of redemption shall be as set
forth in resolutions adopted by the Board of Directors and
included in Articles Supplementary filed as required by law from
time to time prior to the issuance of any shares of such class or
series. Subject to the express limitations, if any, of any class
or series of Preferred Stock of which shares are outstanding at
the time, the Board of Directors is authorized, by the adoption
of resolutions, to increase or decrease (but not below the number
of shares of Preferred Stock of such class or series then
outstanding) the number of shares of Preferred Stock of such
class or series and to alter the designation of or, classify or
reclassify, any unissued shares of Preferred Stock of any class
or
<PAGE> 3
series from time to time, by setting or changing the preferences,
conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions,
qualifications or terms and conditions of redemption of such
class or series.
(2) Common Stock. Subject to all rights of Preferred Stock, as
expressly provided herein, by law or by the Board of Directors
pursuant to this Article Sixth, the Common Stock of the
Corporation shall have all rights and privileges afforded to
capital stock by applicable law in the absence of any express
grant of rights or privileges in the Corporation's charter,
including, but not limited to, the following rights and
privileges:
(a) The holders of shares of Common Stock shall
have the right to vote for the election of
directors and on all other matters requiring
stockholder action, each share of Common Stock
being entitled to one vote;
(b) Dividends may be declared and paid or set
apart for payment upon shares of Common Stock out
of any assets or funds of the Corporation legally
available for the payment of dividends;
(c) Upon the voluntary or involuntary
liquidation, dissolution or winding-up of the
Corporation, the net assets of the Corporation
shall be distributed pro rata to the holders of
shares of Common Stock in accordance with their
respective rights and interests.
SEVENTH: The business and affairs of the Corporation shall be
managed by a Board of Directors which may exercise all of the
powers of the Corporation except those conferred on, or reserved
to, the stockholders by law. The number of directors of the
Corporation initially shall be three (3), which number may be
increased or decreased pursuant to the Bylaws of the Corporation
but in no event shall be less than the minimum number required by
the General Laws of the State of Maryland. Each director shall
hold office until the next annual meeting of the stockholders of
the Corporation and until his or her successor shall have been
elected and qualified.
<PAGE> 4
The following provisions shall apply to the directors of the
Corporation:
(a) The directors of the Corporation (other than any
directors who may be elected solely by holders of any
class or series of Preferred Stock) shall be and hereby
are divided into three classes, designated "Class I,"
"Class I" and "Class III," respectively. The number of
directors in each class shall be as nearly equal as
possible. Each director shall serve for a term ending on
the date of the third Annual Meeting of Stockholders
following the Annual Meeting at which such director was
elected, provided, however, that each initial director
in Class I, as determined by the directors, shall serve
for a term ending on the date of the Annual Meeting held
in 1997, each initial director in Class II, as
determined by the directors, shall serve for a term
ending on the date of the Annual Meeting held in 1998,
and each initial director in Class III, as determined by
the directors, shall serve for a term ending on the date
of the Annual Meeting held in 1999.
(b) In the event of any increase or decrease in the
authorized number of directors: (i) each director then
serving shall nevertheless continue as director of the
class of which such director is a member until the
expiration of such director's term or such director's
prior death, retirement, resignation or removal; and
(ii) except to the extent that an increase or decrease
in the authorized number of directors occurs in
connection with the rights of holders of Preferred Stock
to elect additional directors, the newly created or
eliminated directorships resulting from any increase or
decrease shall be apportioned by the Board of Directors
among the three classes so as to keep the number of
directors in each class as nearly equal as possible.
(c) Anything in this Article SEVENTH to the contrary
notwithstanding, each director shall serve until such
director's successor is elected and qualified, or until
such director's earlier death, retirement, resignation
or removal.
(d) A director may be removed from office with or
without cause only by the affirmative vote of the
holders of at least two-thirds of the votes entitled to
be cast in the election of directors.
<PAGE> 5
EIGHTH: The following provisions are hereby adopted for the
purposes of defining, limiting and regulating the powers of the
Corporation and of the directors and stockholders:
(1) The Board of Directors shall have power from time to
time and in its sole discretion (a) to determine in
accordance with sound accounting practice what
constitutes annual or other net profits, earnings,
surplus or net assets in excess of capital; (b) to fix
and vary from time to time the amount to be reserved as
working capital, or determine that retained earnings or
surplus shall remain in the hands of the Corporation;
(c) to set apart out of any funds of the Corporation
such reserve or reserves in such amount or amounts and
for such proper purposes as it shall determine and to
abolish or redesignate any such reserve or any part
thereof; (d) to borrow or raise money upon any terms for
any corporate purposes; (e) to distribute and pay
distributions or dividends in stock, cash or other
securities or property, out of surplus or any other
funds or amounts legally available there for, at such
times and to the stockholders of record on such dates as
it may, from time to time, determine; and (f) to
determine whether and to what extent and at what times
and places and under what conditions and regulations the
books, accounts and documents of the Corporation, or any
of them shall be open to the inspection of stockholders,
except as otherwise provided by statute or by the Bylaws
of the Corporation, and, except as so provided, no
stockholder shall have the right to inspect any book,
account or document of the Corporation unless authorized
so to do by resolution of the Board of Directors.
(2) The liability of the directors and officers of the
Corporation to the Corporation or its stockholders for
money damages shall be limited to the fullest extent
permitted under the General Laws of the State of
Maryland now or hereafter in force, including, but not
limited to, Section 5-349 of the Courts and Judicial
Proceedings Article of the Annotated Code of Maryland,
or any successor provision of law of similar import, and
the directors and officers of the Corporation shall have
no liability whatsoever to the Corporation or its
stockholders for money damages
<PAGE> 6
except to the extent which such liability can not be
limited or restricted under the General Laws of the
State of Maryland now or hereafter in force. Neither the
amendment nor repeal of the foregoing sentence of this
Section (2) of Article EIGHTH nor the adoption nor
amendment of any other provision of the Charter or
Bylaws of the Corporation inconsistent with the
foregoing sentence shall apply to or affect in any
manner the applicability of the foregoing sentence with
respect to any act or omission of any director or
officer occurring prior to any such amendment, repeal or
adoption.
(3) The Corporation shall indemnify, in the manner and
to the fullest extent permitted by law, any person who
is or was a party to, or is threatened to be made a
party to, any threatened, pending or completed action,
suit or proceeding, whether or not by or in the right of
the Corporation and whether civil, criminal,
administrative, investigative or otherwise, by reason of
the fact that such person is or was a director or
officer of the Corporation, or that such person, while
an officer or director of the Corporation, is or was
serving at the request of the Corporation as a director,
officer, partner or trustee of another corporation,
partnership, trust, employee benefit plan or other
enterprise. To the fullest extent permitted by law, the
indemnification provided herein shall include expenses
(including attorneys' fees), judgments, fines and
amounts paid in settlement and any such expenses may be
paid by the Corporation in advance of the final
disposition of any such action, suit or proceeding. Upon
authorization by the Board of Directors, the Corporation
may indemnify employees and/or agents of the Corporation
to the same extent provided herein for directors and
officers. Any repeal or modification of any of the
foregoing sentences of this Section (3) of Article
EIGHTH shall be prospective in operation and effect
only, and shall not adversely affect any right to
indemnification or advancement of expenses hereunder
existing at the time of any such repeal or modification.
(4) No holders of shares of stock of the Corporation of
any class shall have any preemptive rights or
preferential right to purchase, subscribe for or
otherwise acquire any shares of
<PAGE> 7
stock of the Corporation of any class now or hereafter
authorized or any securities convertible into or
exchangeable for shares of stock of the Corporation of
any class now or hereafter authorized or any warrants,
options or other instruments evidencing rights to
purchase, subscribe for or otherwise acquire shares of
stock of the Corporation of any class now or hereafter
authorized, other than such preferential rights, if any,
as the Board of Directors in its sole discretion may
determine, and at such price as the Board of Directors
in its sole discretion may fix.
(5) The Board of Directors shall have the power, in its
sole discretion and without limitation, to authorize the
issuance at any time and from time to time of shares of
stock of the Corporation, with or without par value, of
any class now or hereafter authorized and of securities
convertible into or exchangeable for shares of the stock
of the Corporation, with or without par value, of any
class now or hereafter authorized, for such
consideration (irrespective of the value or amount of
such consideration) and in such manner and by such means
as said Board of Directors may deem advisable.
(6) The Board of Directors shall have the power, in its
sole discretion and without limitation, to classify or
reclassify any unissued shares of stock, whether now or
hereafter authorized, by setting, altering or
eliminating in any one or more respects, from time to
time before the issuance of such shares, any feature of
such shares, including but not limited to the
designation, preferences, conversion or other rights,
voting powers, qualifications, and terms and conditions
of redemption of, and limitations as to dividends and
any restrictions on, such shares.
(7) The Corporation reserves the right at any time and
from time to time to make any amendments to its Charter
including any amendments changing the terms of contract
rights, as expressly set forth in its Charter, of any of
its outstanding stock by classification,
reclassification or otherwise; and all contract or other
rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors and
<PAGE> 8
officers by and pursuant to the Charter of the
Corporation are granted subject to this reservation.
(8) Notwithstanding any provision of law requiring a
greater proportion of the votes of all classes of stock
of the Corporation for approval of dissolution of the
Corporation, the affirmative vote of a majority of all
votes entitled to be cast by the stockholders of the
Corporation shall be sufficient, valid and effective,
after due authorization, approval or advice by the Board
of Directors, to approve and authorize dissolution of
the Corporation.
The enumeration and definition of particular powers of the Board
of Directors included in the foregoing shall in no way be limited
or restricted by reference to or inference from the terms of any
other clause of this or any other Article of the Charter of the
Corporation, or construed as or deemed by inference or otherwise
in any manner to exclude or limit any powers conferred upon the
Board of Directors under the General Laws of the State of
Maryland now or hereafter in force.
THIRD: The foregoing restatement of the Charter has been approved by a
majority of the entire board of directors of the Corporation.
FOURTH: The Charter is not amended by these Articles of Restatement.
FIFTH: The current address of the principal office of the Corporation is
set forth in Article FOURTH of the foregoing restatement of the Charter.
SIXTH: The name and address of the Corporation's current resident agent
is set forth in Article FIFTH of the foregoing restatement of the Charter.
SEVENTH: The number of directors of the Corporation is currently ten
(10) and the names of those currently in office are as follows:\
Adam A. Aron
Stanford R. Climan
J. Taylor Crandall
Michael A. Depatie
Joshua S. Friedman
Andrew J. Gessow
Osamu Kaneko
W. Leo Kelly, III
Steven C. Kenninger
James E. Noyes
<PAGE> 9
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Restatement to be signed in its name and on its behalf by its President and its
corporate seal to be hereunder affixed and attested by its Secretary on this 1st
day of July, 1998, and its President acknowledges that these Articles of
Restatement are the act and deed of the Corporation and, under the penalties of
perjury, that the matters and facts set forth herein with respect to
authorization and approval are true in all material respects to the best of his
knowledge, information and belief.
ATTEST: SUNTERRA CORPORATION
/s/ ANDREW D. HUTTON /s/ STEVEN C. KENNINGER
- ------------------------------ -----------------------------------
Andrew D. Hutton (SEAL)
Secretary Steven C. Kenninger
President
<PAGE> 1
EXHIBIT 10.1
================================================================================
$100,000,000
CREDIT AGREEMENT
AMONG
SIGNATURE RESORTS, INC.,
CERTAIN LENDERS PARTY HERETO,
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER,
AND
SOCIETE GENERALE, AS DOCUMENTATION AGENT
FEBRUARY 18, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
Definitions
Section 1.1 Defined Terms........................................................................ 1
Section 1.2 Amendments and Renewals.............................................................. 25
Section 1.3 Construction......................................................................... 25
ARTICLE 2
Advances
Section 2.1 The Advances......................................................................... 25
Section 2.2 Manner of Borrowing and Disbursement................................................. 26
Section 2.3 Interest............................................................................. 28
Section 2.4 Fees................................................................................. 30
Section 2.5 Prepayments.......................................................................... 31
Section 2.6 Reduction of Commitment.............................................................. 31
Section 2.7 Non-Receipt of Funds by the Administrative Lender.................................... 32
Section 2.8 Payment of Principal of Advances..................................................... 32
Section 2.9 Reimbursement........................................................................ 32
Section 2.10 Manner of Payment.................................................................... 33
Section 2.11 LIBOR Lending Offices................................................................ 34
Section 2.12 Sharing of Payments.................................................................. 34
Section 2.13 Calculation of LIBOR Rate............................................................ 35
Section 2.14 Taxes................................................................................ 35
Section 2.15 Letters of Credit.................................................................... 38
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to the Initial Advance and the Initial Issuance
of Letters of Credit................................................................. 44
Section 3.2 Conditions Precedent to All Advances and Letters of Credit........................... 46
Section 3.3 Conditions Precedent to Conversions and Continuations................................ 48
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties....................................................... 48
Section 4.2 Survival of Representations and Warranties, etc...................................... 57
ARTICLE 5
General Covenants
Section 5.1 Preservation of Existence and Similar Matters........................................ 57
Section 5.2 Business; Compliance with Applicable Law............................................. 57
Section 5.3 Maintenance of Properties............................................................ 57
Section 5.4 Accounting Methods and Financial Records............................................. 58
Section 5.5 Insurance............................................................................ 58
Section 5.6 Payment of Taxes and Claims.......................................................... 58
Section 5.7 Visits and Inspections............................................................... 58
Section 5.8 Use of Proceeds...................................................................... 59
SECTION 5.9 INDEMNITY............................................................................ 59
Section 5.10 Environmental Law Compliance......................................................... 60
Section 5.11 Further Assurances................................................................... 61
Section 5.12 Management of Projects............................................................... 62
Section 5.13 Obligations to Purchasers............................................................ 62
Section 5.14 Owners Associations.................................................................. 62
Section 5.15 Note Receivable Information.......................................................... 63
Section 5.16 Maintenance of Borrowing Base........................................................ 63
ARTICLE 6
Information Covenants
Section 6.1 Borrowing Base Report................................................................ 64
Section 6.2 Eligible Notes Receivable Report..................................................... 64
Section 6.3 Quarterly Financial Statements and Information....................................... 65
Section 6.4 Annual Financial Statements and Information; Certificate of No
Default.............................................................................. 65
Section 6.5 Compliance Certificate............................................................... 66
Section 6.6 Copies of Other Reports and Notices.................................................. 66
Section 6.7 Notice of Litigation, Default and Other Matters...................................... 67
Section 6.8 ERISA Reporting Requirements......................................................... 67
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 7
Negative Covenants
Section 7.1 Indebtedness......................................................................... 68
Section 7.2 Liens................................................................................ 69
Section 7.3 Investments.......................................................................... 69
Section 7.4 Liquidation, Merger.................................................................. 70
Section 7.5 Sales of Assets...................................................................... 70
Section 7.6 Acquisitions......................................................................... 70
Section 7.7 Capital Expenditures................................................................. 71
Section 7.8 Restricted Payments.................................................................. 71
Section 7.9 Affiliate Transactions............................................................... 71
Section 7.10 Compliance with ERISA................................................................ 71
Section 7.11 Minimum Interest Coverage Ratio...................................................... 72
Section 7.12 Minimum Tangible Net Worth........................................................... 72
Section 7.13 Maximum Senior Debt to Total Capital................................................. 72
Section 7.14 Maximum Total Debt to Total Capital.................................................. 72
Section 7.15 Sale and Leaseback................................................................... 72
Section 7.16 Business............................................................................. 73
Section 7.17 Fiscal Year.......................................................................... 73
Section 7.18 Amendment of Organizational Documents................................................ 73
Section 7.19 Amendments and Waivers of Subordinated Debt.......................................... 73
Section 7.20 Use of Lenders' Name................................................................. 73
Section 7.21 Servicing and Collection Agreement................................................... 73
Section 7.22 Custodial Agreement.................................................................. 74
Section 7.23 Notes Receivable..................................................................... 74
ARTICLE 8
Default
Section 8.1 Events of Default.................................................................... 74
Section 8.2 Remedies............................................................................. 77
ARTICLE 9
Changes in Circumstances
Section 9.1 LIBOR Basis Determination Inadequate................................................. 78
Section 9.2 Illegality........................................................................... 78
Section 9.3 Increased Costs...................................................................... 79
Section 9.4 Effect On Base Rate Advances......................................................... 80
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 9.5 Capital Adequacy..................................................................... 80
Section 9.6 Replacement Lender................................................................... 80
ARTICLE 10
Agreement Among Lenders
Section 10.1 Agreement Among Lenders.............................................................. 81
Section 10.2 Lender Credit Decision............................................................... 84
Section 10.3 Benefits of Article.................................................................. 84
ARTICLE 11
Miscellaneous
Section 11.1 Notices.............................................................................. 84
Section 11.2 Expenses............................................................................. 85
Section 11.3 Waivers.............................................................................. 86
Section 11.4 Calculation by the Lenders Conclusive and Binding.................................... 86
Section 11.5 Set-Off.............................................................................. 87
Section 11.6 Assignment........................................................................... 87
Section 11.7 Counterparts......................................................................... 89
Section 11.8 Severability......................................................................... 89
Section 11.9 Interest and Charges................................................................. 89
Section 11.10 Headings............................................................................. 90
Section 11.11 Amendment and Waiver................................................................. 90
Section 11.12 Exception to Covenants............................................................... 90
Section 11.13 No Liability of Issuing Bank......................................................... 90
Section 11.14 Confidentiality...................................................................... 91
Section 11.15 No Liability of Lenders to Purchasers................................................ 92
SECTION 11.16 GOVERNING LAW........................................................................ 92
SECTION 11.17 WAIVER OF JURY TRIAL................................................................. 92
SECTION 11.18 ENTIRE AGREEMENT..................................................................... 92
</TABLE>
- iv -
<PAGE> 6
Schedules and Exhibits
Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing
Schedule 8: Intellectual Property and Disputes Relating Thereto
Schedule 9: Labor Relations
Schedule 10: List of Specified Resorts
Exhibit A: Revolving Credit Note
Exhibit B: Swing Line Note
Exhibit C: Security Agreement
Exhibit D: Borrowing Base Report
Exhibit E: Compliance Certificate
Exhibit F: Assignment Agreement
Exhibit G: Subsidiary Guaranty
Exhibit H: Notice of Borrowing
Exhibit I: Assignment of Pledged Documents
- v -
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of February 18, 1998, among SIGNATURE
RESORTS, INC., a Maryland corporation (the "Borrower"), the Lenders from time to
time party hereto, NATIONSBANK OF TEXAS, N.A., a national banking association,
as administrative agent for the Lenders, and SOCIETE GENERALE, as documentation
agent for the Lenders.
BACKGROUND
The Lenders have been requested to provide the Borrower the funds
required to (a) refinance certain existing debt of the Borrower and its
Subsidiaries (as hereinafter defined), (b) finance acquisitions permitted
hereunder, (c) finance eligible mortgage loans, and (d) finance the ongoing
working capital and general corporate requirements of the Borrower and its
Subsidiaries. The Lenders have agreed to provide such financing, subject to the
terms and conditions set forth below.
In consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Defined Terms. For purposes of this Agreement:
"Acquisition" means any transaction pursuant to which the Borrower or
any of its Subsidiaries, (a) whether by means of a capital contribution or
purchase or other acquisition of Capital Stock, (i) acquires more than 50% of
the Capital Stock in any Person pursuant to a solicitation by the Borrower or
such Subsidiary of tenders of Capital Stock of such Person, or through one or
more negotiated block, market, private or other transactions, or a combination
of any of the foregoing, or (ii) makes any corporation a Subsidiary of the
Borrower or such Subsidiary, or causes any corporation, other than a Subsidiary
of the Borrower or such Subsidiary, to be merged into the Borrower or such
Subsidiary (or agrees to be merged into any other corporation other than a
wholly-owned Subsidiary (excluding directors' qualifying shares) of the Borrower
or such Subsidiary), or (b) purchases all or substantially all of the business
or assets of any Person or of any operating division of any Person.
"Administrative Lender" means NationsBank of Texas, N.A., a national
banking association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 10.1(b) hereof.
<PAGE> 8
"Advance" means a Revolving Credit Advance or a Swing Line Advance and
"Advances" means Revolving Credit Advances and Swing Line Advances.
"Affiliate" means, as applied to any Person, any other Person that,
directly or indirectly, through one or more Persons, Controls or is Controlled
By or Under Common Control with, that Person.
"Agreement" means this Credit Agreement, as amended, modified,
supplemented or restated from time to time.
"Agreement Date" means the date of this Agreement.
"Applicable Environmental Laws" means applicable laws pertaining to
health or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA").
"Applicable Law" means (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
the laws of the United States of America, including without limitation 12 USC
Sections 85 and 86(a), as amended from time to time, and any other statute of
the United States of America now or at any time hereafter prescribing the
maximum rates of interest on loans and extensions of credit, and the laws of the
State of Texas, including, without limitation, Art. 1H, if applicable, and if
Art. 1H is not applicable, Art. 1D and any other statute of the State of Texas
prescribing maximum rates of interest with respect to extensions of credit;
provided that the parties hereto agree that the provisions of Chapter 346 of the
Texas Finance Code, as amended, shall not apply to Advances, this Agreement, the
Notes or any other Loan Documents.
"Applicable LIBOR Rate Margin" means the following per annum
percentages, applicable in the following situations:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) Sum of (i) aggregate outstanding Advances and 1.375%
(ii) aggregate Reimbursement Obligations is greater
than or equal to 75% of Eligible Notes Receivable
</TABLE>
- 2 -
<PAGE> 9
<TABLE>
<S> <C>
(b) Sum of (i) aggregate outstanding Advances and 1.125%
(ii) aggregate Reimbursement Obligations is greater
than or equal to 65% but less than 75% of Eligible
Notes Receivable
(c) Sum of (i) aggregate outstanding Advances and 0.875%
(ii) aggregate Reimbursement Obligations is less than
65% of Eligible Notes Receivable
</TABLE>
The Applicable LIBOR Rate Margin payable by the Borrower on the LIBOR Advances
outstanding hereunder shall be subject to reduction or increase, as applicable
and as set forth in the table above, on a monthly basis, retroactively as of the
first day of each month and for such month, based upon the aggregate outstanding
Advances and Reimbursement Obligations as of the last day of the immediately
preceding month and the Eligible Notes Receivable as of the last day of the
immediately preceding month (as reflected in the Borrowing Base Report, as of
the last day of such month, to be delivered to the Lenders pursuant to Section
6.1 hereof).
"Art. 1D" means Article 5069-1D, Title 79, Revised Civil Statutes of
Texas, 1925, as amended.
"Art. 1H" means Article 5069-1H, Title 79, Revised Civil Statutes of
Texas, 1925, as amended.
"Art. 1.04" means Article 5069-1.04, Title 79, Revised Civil Statutes
of Texas, as amended.
"Assignees" means any assignee of a Lender pursuant to an Assignment
Agreement and shall have the meaning ascribed thereto in Section 11.6 hereof.
"Assignment Agreement" has the meaning specified in Section 11.6
hereof.
"Assignment of Pledged Documents" means an Assignment of Pledged
Documents, in substantially the form of Exhibit I hereto, pursuant to which the
Borrower and each Restricted Subsidiary transfers and assigns to the
Administrative Lender (for the benefit of the Lenders), all of the right, title
and interest of the Borrower and each Restricted Subsidiary in and to each Note
Receivable and the other Pledged Documents with respect to each such Note
Receivable, free and clear of all Liens, as security for the Obligations.
"Authorized Signatory" means such senior personnel of the Borrower as
may be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower, and to request
Advances and Letters of Credit hereunder.
- 3 -
<PAGE> 10
"Average Quarterly Delinquency Rate" means the ratio (expressed as a
percentage), calculated on a monthly basis as of the last day of each month, of
(i) the aggregate outstanding principal balance, as of the date of calculation,
of all notes receivable of the Borrower and its Subsidiaries generated from, or
attributable to, the Specified Resorts, with respect to which notes receivable
any scheduled payment is more than sixty (60) days past due, to (ii) the
aggregate outstanding principal balance, as of the date of calculation, of all
notes receivable of the Borrower and its Subsidiaries generated from, or
attributable to, the Specified Resorts; provided, however, that notes receivable
of the Borrower or of any Subsidiary that are, at the time of such calculation,
included in any Securitization shall be excluded entirely from the foregoing
calculation.
"Base Rate Advance" means any Advance bearing interest at the Base Rate
Basis.
"Base Rate Basis" means, for any day, a per annum interest rate equal
to the higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on
such day or (b) the Prime Rate on such day. The Base Rate Basis shall be
adjusted automatically without notice as of the opening of business on the
effective date of each change in the Prime Rate or the Federal Funds Rate, as
the case may be, to account for such change.
"Borrower" has the meaning specified in the introductory provision
hereof.
"Borrowing Base" means, the following amounts, during the following
periods of time and under the following circumstances:
(i) during the period of time from the Agreement Date
through, and including, the date of consummation of the first Securitization to
be consummated by the Borrower after the Agreement Date, the Borrowing Base
shall be an amount equal to 85% of the aggregate unpaid principal balance, at
the time in question, of Eligible Notes Receivable;
(ii) during the period of time from the date of
consummation of the first Securitization to be consummated by the Borrower after
the Agreement Date through, and including, the date of consummation of the
second Securitization to be consummated by the Borrower after the Agreement
Date, the Borrowing Base shall be an amount equal to the lesser of (i) 85% of
the aggregate unpaid principal balance, at the time in question, of Eligible
Notes Receivable and (ii) an amount equal to the product of (x) 100%, minus two
(2) times the Credit Enhancement Percentage with respect to such Securitization
and (y) the aggregate unpaid principal amount, at the time in question, of
Eligible Notes Receivable; and
(iii) thereafter, the Borrowing Base shall be an
amount equal to the lesser of (i) 85% of the aggregate unpaid principal balance,
at the time in question, of Eligible Notes Receivable and (ii) an amount equal
to the product of (x) 100%, minus two (2) times the maximum Credit Enhancement
Percentage with respect to the Borrower's two most recent Securitizations and
(y) the aggregate unpaid principal amount, at the time in question, of Eligible
Notes Receivable.
- 4 -
<PAGE> 11
"Borrowing Base Report" means a report, signed by an Authorized
Signatory, in substantially the form of Exhibit D, appropriately completed.
"Business Day" means a day on which commercial banks are open (a) for
the transaction of business in Dallas, Texas and New York, New York, and, (b)
with respect to any LIBOR Advance, for the transaction of international business
(including dealings in U.S. dollar deposits) in London, England.
"Capital Expenditures" means, for any period, expenditures made by the
Borrower and the Restricted Subsidiaries to acquire or construct fixed assets,
plant and equipment (including renewals, improvements and replacements during
such period and the aggregate amount of items leased or acquired under
Capitalized Lease Obligations at the cost of the item, but excluding capital
expenditures made with insurance proceeds to the extent used to replace or
repair damaged fixed assets, plant and equipment) computed in accordance with
GAAP, consistently applied, provided however, that the term "Capital
Expenditures" shall not include (i) Investments permitted hereunder, (ii)
Acquisitions permitted hereunder or (iii) expenditures made by the Borrower or
the Restricted Subsidiaries to acquire or construct time-share residential real
estate projects that are acquired or constructed for the purpose of creating,
maintaining or enhancing the Borrower's inventory of Time-Share Interests.
"Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
in any Person that is a corporation, and each class of partnership interest
(including, without limitation, general, limited and preference units) in any
Person that is a partnership.
"Capitalized Lease Obligations" means that portion of any obligation of
the Borrower or any Restricted Subsidiary as lessee under a lease which at the
time are recorded as capitalized lease obligations on the balance sheet of the
Borrower or such Restricted Subsidiary prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and each
Restricted Subsidiary (a) cash (which, after the occurrence of an Event of
Default, shall exclude any cash proceeds of Accounts), (b) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (c) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (d) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (b) and (c) entered into with any financial institution
meeting the qualifications specified in clause (c) above, (e) commercial paper
issued by any Lender or the parent corporation of any Lender, and commercial
paper rated A-1 or the equivalent thereof by Standard & Poor's Ratings Group, a
Division of McGraw-Hill, Inc., a New York corporation, or
- 5 -
<PAGE> 12
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 granted at any time by any Person to
the Administrative Lender for the benefit of the Lenders to secure the
Obligations.
"Collateral Document" means any document under which Collateral is
granted and any document related thereto.
"Commitment Fee" has the meaning specified in Section 2.4(a) hereof.
"Commitment" means $100,000,000, as reduced from time to time pursuant
to Section 2.6 hereof.
"Compliance Certificate" means a certificate, signed by an Authorized
Signatory, in substantially the form of Exhibit E, appropriately completed.
- 6 -
<PAGE> 13
"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.
"Credit Enhancement Percentage" means, with respect to the
Securitization in question, the highest overall credit enhancement (expressed as
a percentage) that was, or would have been, required in order to attain a "BBB"
rating (or its equivalent) by the applicable rating agency(ies) involved on all
securities issued in connection with such Securitization (assuming that all
securities that were issued in connection therewith were so rated), as such
Credit Enhancement Percentage shall be communicated to the Administrative Lender
by such rating agency(ies); provided, however, that if such Credit Enhancement
Percentage shall, for any reason whatsoever, not be communicated to the
Administrative Lender by such rating agency(ies) with respect to any such
Securitization, the Administrative Lender shall determine such Credit
Enhancement Percentage with respect to such Securitization based upon the
information available to the Administrative Lender at such time.
"Custodial Agreement" means collectively, one or more agency and
custodial agreement(s) among the Borrower, each Restricted Subsidiary that owns
any of the Notes Receivable included, from time to time, in the Borrowing Base,
the Administrative Lender and the Custodian, providing for the maintenance of
the Pledged Documents, as such agreement(s) may, from time to time, be amended,
modified, supplemented and/or restated with the written consent of the
Administrative Lender.
"Custodian" means LaSalle National Bank or such other Person(s) as may
be designated from time to time by the Administrative Lender, following notice
thereof to the Borrower, to maintain physical possession of the Pledged
Documents.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from time to time
in effect.
"Deed of Trust" means any deed of trust or mortgage executed and
delivered by a Purchaser, encumbering all the right, title and interest of each
such Purchaser in and to its
- 7 -
<PAGE> 14
purchased Time-Share Interest 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.
"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.
- 8 -
<PAGE> 15
"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 the
purposes of determining the Borrowing Base and as to which the following
requirements have been fulfilled with respect to each Note Receivable:
(a) The Borrower or a Restricted Subsidiary has lawful and absolute
title to such Note Receivable;
(b) The interests of the Borrower or the applicable Restricted
Subsidiary(ies) in such Note Receivable and the Pledged Documents relating
thereto are subject to a first priority security interest in favor of the
Administrative Lender pursuant to the Collateral Documents, prior to the rights
of, and enforceable against, all other Persons;
(c) The Note Receivable shall not have a term of greater than
one-hundred twenty (120) months and the Note Receivable shall be payable in
equal monthly payments in amounts sufficient to repay in full the principal
balance thereof and accrued interest thereon during such term; provided,
however, that Notes Receivable having terms greater than one-hundred twenty
(120) months but not greater than one-hundred eighty (180) months may be
included as Eligible Notes Receivable to the extent that such longer term Notes
Receivable otherwise satisfy the criteria for inclusion as Eligible Notes
Receivable and the aggregate outstanding principal balance of such longer term
Notes Receivable does not, at any time, exceed fifteen percent (15%) of the
aggregate outstanding principal balance of all Eligible Note Receivable included
in the Borrowing Base;
(d) The Purchaser in respect of such Note Receivable shall have timely
made at least the first regularly scheduled installment payment due thereon;
(e) The Purchaser in respect of such Note Receivable has made a cash
down payment of at least ten percent (10%) of the aggregate actual purchase
price of all Time-Share Interests purchased by such Purchaser, all of the Notes
Receivable with respect to such Purchaser qualify as, and are included as,
Eligible Notes Receivable and as Collateral hereunder and no part of such cash
down payment by such Purchaser has been made or loaned to the Purchaser by the
Borrower or any of its Subsidiaries or an Affiliate of the Borrower or any of
its Subsidiaries;
(f) The terms of such Note Receivable have not been restructured,
rewritten or otherwise modified in any manner that would reduce the interest
rate with respect thereto, reduce the principal amount thereof, reduce the
amount of any scheduled payment(s) with respect thereto, extend the maturity
date thereof (unless such extension was granted solely for the purpose of
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<PAGE> 16
upgrading the applicable Purchaser to a larger Unit and/or an additional
Time-Share Interest in the Project), release or impair any collateral securing
same, release or impair any obligations or duties of any Purchaser with respect
thereto or in any manner that would otherwise result in such Note Receivable not
qualifying as an Eligible Note Receivable hereunder;
(g) No installment of such Note Receivable is more than fifty-nine (59)
days past due;
(h) The Unit in respect of such Note Receivable has been completed,
developed, and furnished pursuant to the specifications provided in the Purchase
Documents or a certificate of occupancy or a bond insuring the completion
thereof has been posted;
(i) The Purchaser is not an Affiliate of, related to or employed by,
the Borrower or any of its Subsidiaries nor is the Purchaser in default under
any Note Receivable or other obligation of such Purchaser to the Borrower or to
any of the Borrower's Subsidiaries;
(j) The Note Receivable is free and clear of all Liens, and subject to
no claims of rescission, invalidity, unenforceability, illegality, defense,
discount, offset or counterclaim;
(k) The Purchaser in respect of such Note Receivable has no right to
rescind the purchase of the Time-Share Interest;
(l) All sales and financing documents relating to the Note Receivable
have been executed and delivered to the Administrative Lender and have not been
modified from the standard forms theretofore approved by the Administrative
Lender;
(m) The terms of such Note Receivable and all related instruments
comply with all Laws;
(n) The Note Receivable is recognized on the books of the Borrower or
the applicable Restricted Subsidiary, as applicable, as a bona fide sale of a
fee simple interest time-share estate in one or more Time-Share Interests, and
such sale is evidenced by Purchase Documents and secured by a first priority
mortgage or deed of trust on the purchased Time-Share Interest, which mortgage
or deed of trust has been assigned of record by the Borrower or the applicable
Restricted Subsidiary to the Administrative Lender;
(o) The Time-Share Interest purchased and to which the Note Receivable
relates is not subject to any Lien (other than Liens for ad valorem taxes that
are not yet due and payable, Liens for association assessments that are not yet
due and payable and Liens in favor of the Administrative Lender), and either (i)
the Unit with respect to the Time-Share Interest purchased and to which such
Note Receivable relates is not subject to any Lien (other than Liens for ad
valorem taxes that are not yet due and payable, Liens for association
assessments that are not yet due and payable and Liens in favor of the
Administrative Lender) or (ii) the Time-Share Interest purchased and to which
the Note Receivable relates has been permanently and irrevocably released
- 10 -
<PAGE> 17
from any such Lien (including, without limitation, any after-acquired property
provisions thereof) with respect to such Unit;
(p) The Deed of Trust securing the Note Receivable is insured under a
mortgagee title insurance policy in favor of the Administrative Lender
acceptable to the Administrative Lender, subject only to those exceptions to
title as the Administrative Lender approves;
(q) Payments under the Note Receivable are to be in legal tender of the
United States;
(r) The Note Receivable and the other Purchase Documents are valid,
genuine and enforceable against the Purchaser;
(s) The Purchaser in respect of the Note Receivable has not assigned
his or her obligations under such Note Receivable or rights in the applicable
Time-Share Interest, except to the extent that any such Purchaser has assigned
its interest in a Time-Share Interest to such Purchaser's former spouse in
connection with divorce proceedings between such Purchaser and such former
spouse or to a member of such Purchaser's immediate family and, in either case,
such Purchaser remains primarily liable with respect to such Note Receivable;
(t) The payments due under such Note Receivable have been made by the
Purchaser in respect thereof and not by the Borrower or any of its Subsidiaries
or any Affiliate of the Borrower or any of its Subsidiaries on such Purchaser's
behalf;
(u) The Purchaser in respect of such Note Receivable is not subject to
any Debtor Relief Laws and is not an adverse party in any Litigation (and has
not threatened any Litigation) with the Borrower or any of its Subsidiaries or
any Lender;
(v) The Borrower or the applicable Restricted Subsidiary, as
applicable, has performed all of its obligations to the Purchasers in respect of
such Note Receivable, and there shall be no executory obligations to such
Purchaser to be performed by the Borrower or the applicable Restricted
Subsidiary; and
(w) The Project containing the Unit subject to such Note Receivable is
located in the United States of America or in such other jurisdiction(s) as may,
from time to time, be designated in writing by the Determining Lenders.
"Equity" means shares of capital stock or partnership, profits, capital
or member interest, or options, warrants or any other right to subscribe for or
otherwise acquire capital stock or a partnership, profits, capital or member
interest, of the Borrower or any Subsidiary of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.
- 11 -
<PAGE> 18
"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
liability under Title IV of ERISA other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
"Event of Default" means any of the events specified in Section 8.1,
provided that any requirement for notice or lapse of time has been satisfied.
"Federal Funds Rate" means, for any day, the rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average of the quotations for
the day for such transactions received by the Administrative Lender from three
Federal funds brokers of recognized standing selected by it.
"Fee Letter" has the meaning specified in Section 2.4(b) hereof.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
organized under the laws of any state of the United States of America, the
District of Columbia or the United States Virgin Islands.
"GAAP" means generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants, or their successors
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis shall mean
that the accounting principles applied in a current period are comparable in all
material respects to those applied in a preceding period.
"Guarantor" means each direct and indirect Restricted Domestic
Subsidiary of the Borrower and each direct and indirect Restricted Foreign
Subsidiary of the Borrower which has executed a Subsidiary Guaranty.
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<PAGE> 19
"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.
"Hedge Agreements" means any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap, swap or
collar protection agreements, and forward rate currency or interest rate
options, as the same may be amended or modified and in effect from time to time,
and any and all cancellations, buy backs, reversals, terminations or assignments
of any of the foregoing.
"Highest Lawful Amount" means at the particular time in question the
maximum amount of interest which, under Applicable Law, the Lenders are then
permitted to charge on the Obligations at the Highest Lawful Rate.
"Highest Lawful Rate" means at the particular time in question the
maximum rate of interest which, under Applicable Law, the Lenders are then
permitted to charge on the Obligations. If the maximum rate of interest which,
under Applicable Law, the Lenders are permitted to charge on the Obligations
shall change after the date hereof, the Highest Lawful Rate shall be
automatically increased or decreased, as the case may be, from time to time as
of the effective time of each change in the Highest Lawful Rate without notice
to the Borrower. For purposes of determining the Highest Lawful Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be (a)
the weekly rate ceiling described in and computed in accordance with the
provisions of Art. 1H, or (b) either the quarterly ceiling or the annualized
ceiling computed pursuant to Art. 5069-ID.008, Title 79, Revised Civil Statutes
of Texas, as amended; provided, however, that at any time the weekly rate
ceiling, the quarterly ceiling or the annualized ceiling shall be less than 18%
per annum or more than 24% per annum, the provisions of Art. 5069-1D.009(a) and
(b), Title 79, Revised Civil Statutes of Texas, as amended, shall control for
purposes of such determination, as applicable.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations under conditional
sale or other title retention agreements relating
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<PAGE> 20
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 to eight times the
annual rental payment(s) under, or in connection with, any Operating Lease
entered into as part of, or in connection with, any sale and leaseback
transaction and (j) any Guaranty of such Person of any obligation of another
Person constituting obligations of a type set forth above.
"Indemnified Matters" has the meaning specified in Section 5.9(a)
hereof.
"Indemnitees" has the meaning specified in Section 5.9(a) hereof.
"Intangible Assets" means those assets which are treated as intangible
pursuant to GAAP, and in any event including, without limitation: (a)
obligations, if any, owing by Affiliates to the Borrower or to any Restricted
Subsidiary, (b) accounts, notes or mortgages receivable which are deemed by the
Borrower, any of the Restricted Subsidiaries or the Administrative Lender to be
uncollectible or which should be subject to a reserve for bad debts in
accordance with GAAP or which are subject to claims or set-offs (to the extent
of such claim or set-off); (c) leases and leasehold improvements; (d) any asset
which is intangible or lacks intrinsic and marketable value or collectibility,
including without limitation goodwill, noncompetition agreements, patents,
copyrights, trademarks, franchises or organization or research and development
costs; (e) organizational and experimental expense; and (f) unamortized debt
discount and expense.
"Interest Coverage Ratio" means the ratio of EBITDA to Interest
Expense, calculated for the four consecutive fiscal quarters ending on the date
of calculation.
"Interest Expense" means, for any period, determined in accordance with
GAAP on a consolidated basis for the Borrower and the Restricted Subsidiaries,
interest expense (including interest expense pursuant to Capitalized Lease
Obligations).
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<PAGE> 21
"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.
"Investment" means any acquisition of all or substantially all assets
of any Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than loans or advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution to, or
investment in any other Person, including without limitation the purchase of
accounts receivable of any other Person.
"Issuing Bank" means NationsBank of Texas, N.A., a national banking
association, in its capacity as issuer of the Letters of Credit.
"Law" means any statute, law, ordinance, regulation, rule, order, writ,
injunction, or decree of any Tribunal.
"Lender" means each financial institution shown on the signature pages
hereof so long as such financial institution maintains a portion of the
Commitment or is owed any part of the Obligations (including the Administrative
Lender in its individual capacity), and each Assignee that hereafter becomes a
party hereto pursuant to Section 11.6 hereof, subject to the limitations set
forth therein.
"L/C Cash Collateral Account" has the meaning specified in Section
2.15(g) hereof.
"L/C Related Documents" has the meaning specified in Section 2.15(e)
hereof.
"Letter of Credit" has the meaning specified in Section 2.15(a) hereof.
"Letter of Credit Agreement" has the meaning specified in Section
2.15(b) hereof.
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<PAGE> 22
"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.
"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
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<PAGE> 23
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 17, 2001, or the earlier date of
termination in whole of the Commitment pursuant to Section 2.6 or 8.2 hereof.
"Multiemployer Plan" means, as to any Person, at any time, a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which such Person or any member of its Controlled Group is making, or is
obligated to make contributions or has made, or been obligated to make,
contributions within the past five (5) years.
"NationsBank" means NationsBank of Texas, N.A., a national banking
association, in its capacity as a Lender hereunder, but not in its capacity as
Administrative Lender hereunder.
"Necessary Authorization" means any right, franchise, license, permit,
consent, approval or authorization from, or any filing or registration with, any
Tribunal or any Person necessary or appropriate to enable the Borrower or any
Subsidiary of the Borrower to maintain and operate its business and properties.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer or
other disposition of any asset by any Person, the amount of cash received by
such Person in connection with such transaction (including cash proceeds of any
property received in consideration of any such sale, lease, transfer or other
disposition) after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly attributable to such transaction or
to the asset that is the subject thereof: (i) reasonable brokerage commissions,
legal fees, finder's fees, financial advisory fees, accounting fees,
underwriting fees, investment banking fees and other similar commissions and
fees, in each case, to the extent paid or payable by such Person; (ii) filing,
recording or registration fees or charges or similar fees or charges paid by
such Person; (iii) taxes paid or payable by such Person or any shareholder,
partner or member of such Person to governmental taxing authorities as a result
of such sale or other disposition; and (iv) payment of the outstanding principal
amount of, premium or penalty, if any, and interest on any Indebtedness that is
secured by a Lien on the asset in question and that is required to be repaid
under the terms thereof as a result of such asset sale.
"Net Exposure Under Securitization" means, for any date of calculation,
the sum of (i) any and all obligations and liabilities of the Borrower or any
Restricted Subsidiary under, or in connection with, any Securitization, as of
such date of calculation, to the extent that same
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<PAGE> 24
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 were treated as an on balance sheet
transaction and (ii) the fair market value of any and all property of the
Borrower or of any Restricted Subsidiary that is pledged or encumbered, or as to
which the interest(s) of the Borrower or any Restricted Subsidiary are
subordinated or otherwise impaired, as security for or as a credit enhancement
or otherwise in connection with, any Securitization.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, after provisions for taxes and extraordinary
items, determined in accordance with GAAP.
"Net Worth" means, as of any date of calculation, for the Borrower and
the Restricted Subsidiaries, on a consolidated basis, determined in accordance
with GAAP, the consolidated total stockholders' equity of the Borrower and the
Restricted Subsidiaries.
"Note Receivable" means a promissory note executed by a Purchaser in
favor of the Borrower or a Restricted Subsidiary which has arisen out of the
sale of a Time-Share Interest to a Purchaser, which note is secured by a Deed of
Trust.
"Notes" means, collectively, the Revolving Credit Notes and the Swing
Line Note.
"Notice of Borrowing" has the meaning specified in Section 2.2(a)
hereof.
"Notice of Issuance" has the meaning specified in Section 2.15(b)
hereof.
"Obligations" means (a) all obligations of any nature (whether matured
or unmatured, fixed or contingent, including the Reimbursement Obligations) of
the Borrower or any other Obligor to any Lender or the Administrative Lender
under any of the Loan Documents as they may be amended from time to time, and
(b) all obligations of the Borrower or any other Obligor for losses, damages,
expenses or any other liabilities of any kind that any Lender may suffer by
reason of a breach by the Borrower or any other Obligor of any obligation,
covenant or undertaking with respect to any Loan Document payable by the
Borrower or any other Obligor under any Loan Document.
"Obligor" means the Borrower and each Guarantor.
"Operating Lease" means any operating lease, as defined in the
Financial Accounting Standard Board Statement of Financial Accounting Standards
No. 13, dated November, 1976 or otherwise in accordance with GAAP, of the
Borrower and/or any of the Restricted Subsidiaries.
"Participant" has the meaning specified in Section 11.6(c) hereof.
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<PAGE> 25
"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, homeowners'
association dues or other claims that are not yet delinquent or that are being
diligently contested in good faith by appropriate proceedings in accordance with
Section 5.6 hereof and for which adequate reserves shall have been set aside on
such Person's books, but only so long as no foreclosure, restraint, sale or
similar proceedings have been commenced with respect thereto;
(c) Liens of carriers, landlords, warehousemen, mechanics, laborers and
materialmen incurred in the ordinary course of business for sums not yet due or
being contested in good faith, if such reserve or appropriate provision, if any,
as shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or similar legislation;
(e) Easements, right-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere in any material
respect with the ordinary conduct of the business of such Person;
(f) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (i) such Person shall have established adequate reserves for such
judgments or awards, (ii) such judgments or awards shall be fully insured
(subject to customary deductibles) and the insurer shall not have denied
coverage, or (iii) such judgments or awards shall have been bonded to the
satisfaction of the Determining Lenders;
(g) Any Liens which secure Indebtedness that is permitted by Section
7.1(b) hereof; provided, however, that (i) none of such Liens shall cover or
apply to any of the Collateral, (ii) the fair market value of the property
covered by any such Lien shall not, at the time of the grant or creation of such
Lien, exceed, in the case of property other than notes receivable or accounts
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<PAGE> 26
receivable, 200% 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.
"Person" means an individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of
ERISA (including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.
"Pledged Documents" means, collectively, the Notes Receivable, the
Deeds of Trust and the Purchase Documents.
"Pretax Net Income" means net profit (or loss) before taxes of the
Borrower and the Restricted Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.
"Prime Rate" means, at any time, the prime interest rate announced or
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of creditworthiness
and being quoted at such time by the Reference Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Reference Lender.
"Projects" means those time-share residential real estate projects
constructed by the Borrower or any of its Subsidiaries in which the Borrower or
any of its Subsidiaries sells Time-
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<PAGE> 27
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 March 31, 1998.
"Reference Lender" means NationsBank; provided that if the commitments
of NationsBank hereunder shall terminate and if NationsBank shall have no
Advances and Letters of Credit outstanding hereunder, NationsBank shall cease to
be the Reference Lender, and Administrative Lender (after consultation with
Borrower) shall, with notice to Borrower and Lenders, designate another Lender
as the Reference Lender.
"Reimbursement Obligations" means, in respect of any Letter of Credit
as at any date of determination, the sum of (a) the maximum aggregate amount
which is then available to be drawn under such Letter of Credit plus (b) the
aggregate amount of all drawings under such Letter of Credit not theretofore
reimbursed by the Borrower.
"Related Person" means (a) any Affiliate of the Borrower, (b) any
individual or entity who directly or indirectly holds 10% or more of any class
of Capital Stock of the Borrower, (c) any relative of such individual by blood,
marriage or adoption not more remote than first cousin and (d) any officer or
director of the Borrower.
"Release Date" means the date on which the Notes have been paid, all
other Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.
"Reportable Event" has the meaning set forth in Section 4043(b) of
ERISA.
"Restricted Domestic Subsidiary" means each Domestic Subsidiary which
has executed a Subsidiary Guaranty and has delivered to the Lenders such board
resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall have reasonably requested.
"Restricted Foreign Subsidiary" means each Foreign Subsidiary (i) which
either has executed and delivered a Subsidiary Guaranty or with respect to which
at least 65% of whose Capital Stock has been pledged to the Administrative
Lender, for the benefit of the Lenders, pursuant to documentation acceptable to
the Administrative Lender and (ii) as to which the
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<PAGE> 28
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 Collateral Transfer of Notes and Liens
(Security Agreement), substantially in the form of Exhibit C hereto, as amended,
modified, renewed, supplemented or restated from time to time.
"Securitization" means a sale or hypothecation of Notes Receivable by
the Borrower in which the proceeds thereof are utilized to repay in full all
outstanding Advances attributable to such Notes Receivable pursuant to
documentation reasonably acceptable to the Administrative Lender.
"Securitization Subsidiary" means any subsidiary of the Borrower which
is organized for the sole purpose of facilitating a Securitization and which
performs no business and has no other assets outside of those necessary to
consummate a Securitization.
"Senior Debt" means, as of the date of any determination, the remainder
of (a) Total Debt minus (b) Subordinated Debt.
"Servicing Agent" means, collectively, the Person(s) that are initially
named as the servicer(s) under the Servicing and Collection Agreement, or,
should such Person(s) cease to act as Servicing Agent under the Servicing and
Collection Agreement, such other entity as the Borrower and each Restricted
Subsidiary that is a party to the Servicing and Collection Agreement may appoint
with the prior written consent of the Administrative Lender.
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<PAGE> 29
"Servicing and Collection Agreement" means, collectively, the Servicing
and Collection Agreement(s), in such form as the Administrative Lender shall
prescribe, to be made among the Borrower, each Restricted Subsidiary that owns
any of the Notes Receivable included in the Borrowing Base, the Administrative
Lender and the Servicing Agent, as from time to time modified, replaced or
restated.
"Solvent" means, with respect to any Person, that the fair value of the
assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability discounted to present value
at rates believed to be reasonable by such Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll,
P.C., or such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage
indicated beside its name on the signature pages hereof, or if applicable,
specified in its most recent Assignment Agreement.
"Specified Resorts" means, collectively, the time-share residential
real estate projects described or referred to in Schedule 10 attached hereto.
"Subordinated Debt" means, collectively, (i) the 5.75% Convertible
Subordinated Notes, issued by the Borrower as of January 15, 1997, in the
aggregate original principal amount of $138,000,000, due in 2007, (ii) the 9.75%
Senior Subordinated Notes, issued by the Borrower as of August 1, 1997, in the
aggregate original principal amount of $200,000,000, due October 1, 2007 and
(iii) any other Indebtedness of the Borrower or any Subsidiary of the Borrower
having maturities and terms, and which is subordinated to payment of the
Obligations in a manner, approved in writing by the Administrative Lender and
the Determining Lenders, with only such changes or amendments as are not
prohibited by Section 7.19 hereof.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, trust or estate or other Person of which (or in which) more than 50%
of:
(a) the outstanding capital stock having voting power to elect a
majority of the Board of Directors of such corporation (irrespective of whether
at the time capital stock of any other class or classes of such corporation
shall or might have voting power upon the occurrence of any contingency),
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<PAGE> 30
(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 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.
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"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 Revolving Credit Advances
plus (ii) the outstanding Reimbursement Obligations in respect of the Letters of
Credit.
Section 1.2 Amendments and Renewals. Each definition of an agreement in
this Article 1 shall include such agreement as amended to date, and as amended
or renewed from time to time in accordance with its terms, but only with the
prior written consent of the Determining Lenders or all the Lenders as required
pursuant to Section 11.11 hereof.
Section 1.3 Construction. The terms defined in this Article 1 (except
as otherwise expressly provided in this Agreement) for all purposes shall have
the meanings set forth in Section 1.1 hereof, and the singular shall include the
plural, and vice versa, unless otherwise specifically required by the context.
All accounting terms used in this Agreement which are not otherwise defined
herein shall be construed in accordance with GAAP on a consolidated basis for
the Borrower and its Subsidiaries, unless otherwise expressly stated herein.
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ARTICLE 2
Advances
Section 2.1 The Advances.
(a) Revolving Credit Advances. Each Lender severally agrees, upon the
terms and subject to the conditions of this Agreement, to make Revolving Credit
Advances to the Borrower from time to time until the Maturity Date in an
aggregate amount not to exceed its Specified Percentage of the Commitment less
its Specified Percentage of the aggregate amount of all Reimbursement
Obligations then outstanding (assuming compliance with all conditions to
drawing), for the purposes set forth in Section 5.8 hereof. Subject to Section
2.9 hereof, Revolving Credit Advances may be repaid and then reborrowed.
Notwithstanding any provision in any Loan Document to the contrary, in no event
shall the principal amount of all outstanding Revolving Credit Advances exceed
the lesser of (i) the result of (A) the Borrowing Base minus (B) the aggregate
outstanding Reimbursement Obligations and Swing Line Advances and (ii) the
Commitment. Any Revolving Credit Advance shall, at the option of the Borrower as
provided in Section 2.2 hereof (and, in the case of LIBOR Advances, subject to
the provisions of Article 9 hereof), be made as a Base Rate Advance or a LIBOR
Advance; provided that there shall not be outstanding, at any one time, more
than five LIBOR Advances.
(b) The Swing Line Loans. The Borrower may request Swing Line Bank to
make, and Swing Line Bank agrees to make, on the terms and conditions
hereinafter set forth, advances ("Swing Line Advances") to the Borrower from
time to time on any Business Day during the period from the date hereof until
the Maturity Date in an aggregate amount not to exceed at any time outstanding
the lesser of (i) the Commitment, less the sum of (A) the aggregate principal
amount of Revolving Credit Advances then outstanding plus (B) the aggregate
principal amount of all Reimbursement Obligations then outstanding, and (ii)
$10,000,000 (assuming compliance with all conditions to drawing) (the "Swing
Line Facility"). Each Swing Line Advance shall be in an amount not less than
$100,000 and in multiples thereof. Each Swing Line Advance shall be a Base Rate
Advance. Within the limits of the Swing Line Facility, Swing Line Advances may
be repaid and then reborrowed.
Section 2.2 Manner of Borrowing and Disbursement.
(a) In the case of Base Rate Advances, the Borrower, through an
Authorized Signatory, shall give the Administrative Lender prior to 11:00 a.m.,
Dallas, Texas time, on the date of any proposed Base Rate Advance irrevocable
written notice, or irrevocable telephonic notice followed immediately by written
notice, in substantially the form of Exhibit H hereto (a "Notice of Borrowing")
(provided, however, that the Borrower's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), of its intention to borrow
a Base Rate Advance hereunder. Such notice of borrowing shall specify the
requested funding date, which shall be a
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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 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
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<PAGE> 34
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 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
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<PAGE> 35
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.
(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.
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<PAGE> 36
(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:
<TABLE>
<CAPTION>
Applicability Percentage
------------- ----------
<S> <C>
(a) Sum of (i) aggregate outstanding Advances and 0.375%
(ii) aggregate Reimbursement Obligations is greater than
or equal to 75% of Eligible Notes Receivable
</TABLE>
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<PAGE> 37
<TABLE>
<S> <C>
(b) Sum of (i) aggregate outstanding Advances and 0.250%
(ii) aggregate Reimbursement Obligations is less than
75% of Eligible Notes Receivable
</TABLE>
The Commitment Fee shall be subject to reduction or increase, as applicable and
as set forth in the table above, on a monthly basis, retroactively as of the
first day of each month and for such month, based upon the aggregate outstanding
Advances and Reimbursement Obligations as of the last day of the immediately
preceding month and the Eligible Notes Receivable as of the last day of the
immediately preceding month (as reflected in the Borrowing Base Report, as of
the last day of such month, to be delivered to the Lenders pursuant to Section
6.1 hereof). The fee shall be (i) payable in arrears on each Quarterly Date and
on the Maturity Date, (ii) fully earned when due and, subject to Section 11.9
hereof, nonrefundable when paid and (iii) subject to Section 11.9 hereof,
computed on the basis of a year of 365 or 366 days, as appropriate, for the
actual number of days elapsed.
(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.
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<PAGE> 38
(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 Administrative Lender shall
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<PAGE> 39
be entitled to recover such amount on demand from such Lender (or, if such
Lender fails to pay such amount forthwith upon such demand, from the Borrower)
together with interest thereon in respect of each day during the period
commencing on the date such amount was available to the Borrower and ending on
(but excluding) the date the Administrative Lender receives such amount from (a)
the Lender, at a per annum rate equal to the lesser of (i) the Highest Lawful
Rate or (ii) the Federal Funds Rate or (b) the Borrower, at the per annum rate
applicable at the time to such Revolving Credit Advance. Notwithstanding Section
10.1(f), no Lender shall be liable for any other Lender's failure to fund a
Revolving Credit Advance hereunder.
Section 2.8 Payment of Principal of Advances. To the extent not
otherwise required to be paid earlier as provided herein, the principal amount
of the Advances, all accrued interest and fees thereon, and all other
Obligations related thereto, shall be due and payable in full on the Maturity
Date.
Section 2.9 Reimbursement. Whenever any Lender shall sustain or incur
(other than through a default by that Lender) any losses (inclusive of any such
losses attributable to change(s) in the LIBOR Rate during the applicable
period(s), but exclusive of any losses of any other anticipated profits on the
part of such Lender) or reasonable out-of-pocket expenses actually incurred in
connection with (a) failure by the Borrower to borrow (including any failure to
continue or convert into) any LIBOR Advance after having given notice of its
intention to borrow (or to continue or convert) in accordance with Section 2.2
hereof (whether by reason of the Borrower's election not to proceed or the
non-fulfillment of any of the conditions set forth in Article 3 hereof) or (b)
any prepayment for any reason of any LIBOR Advance in whole or in part
(including a prepayment pursuant to Section 9.3(b) hereof) on other than the
last day of an Interest Period applicable to such LIBOR Advance, the Borrower
agrees to pay to any such Lender, within 30 days after demand by such Lender, an
amount sufficient to compensate such Lender for all such losses (inclusive of
any such losses attributable to change(s) in the LIBOR Rate during the
applicable period(s), but exclusive of any losses of any other anticipated
profits on the part of such Lender) and out-of-pocket expenses, subject to
Section 11.9 hereof. Such losses shall include, without limiting the generality
of the foregoing, reasonable expenses incurred by such Lender in connection with
the re-employment of funds prepaid, repaid, converted or not borrowed, converted
or paid, as the case may be. A certificate as to any amounts payable to any
Lender under this Section 2.9 submitted to the Borrower by such Lender shall
certify that such amounts were actually incurred by such Lender and shall show
in reasonable detail an accounting of the amount payable and the calculations
used to determine in good faith such amount and shall be conclusive absent
manifest or demonstrable error. Nothing in this Section 2.9 shall provide the
Borrower or any Subsidiary of the Borrower the right to inspect the records,
files or books of any Lender.
Section 2.10 Manner of Payment.
(a) Each payment (including prepayments) by the Borrower of the
principal of or interest on the Advances, fees, and any other amount owed under
this Agreement or any other
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<PAGE> 40
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 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
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<PAGE> 41
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.
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
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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 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:
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(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 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;
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(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 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
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Lender under the Loan Documents without recourse to or warranty by, or expense
to, such Lender, for a purchase price equal to the outstanding amounts owed to
such Lender (including such additional amounts owing to such Lender pursuant to
this Section 2.14). Upon execution of an Assignment Agreement, such other
financial institution shall be deemed to be a "Lender" for all purposes of this
Agreement as set forth in Section 11.6 hereof.
Section 2.15 Letters of Credit.
(a) The Letter of Credit Facility. The Borrower may request the Issuing
Bank, on the terms and conditions hereinafter set forth, to issue, and the
Issuing Bank shall, if so requested, issue, letters of credit (the "Letters of
Credit") for the account of the Borrower or any other Obligor from time to time
on any Business Day from the date of the initial Advance until the Maturity Date
in an aggregate maximum amount (assuming compliance with all conditions to
drawing) not to exceed, at any time outstanding, the least of (i) $20,000,000
(the "Letter of Credit Facility"), (ii) the remainder of the Borrowing Base
minus the aggregate principal amount of Advances then outstanding and the
aggregate amount of all drawings under Letter(s) of Credit not theretofore
reimbursed by the Borrower, and (iii) the Commitment. No Letter of Credit shall
have an expiration date (including all rights of renewal) later than the earlier
of (i) the Maturity Date or (ii) one year after the date of issuance thereof.
Immediately upon the issuance of each Letter of Credit, the Issuing Bank shall
be deemed to have sold and transferred to each 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,
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(D) name and address of the beneficiary of such Letter of Credit, and (E) form
of such Letter of Credit and specifying such other information as shall be
required pursuant to the relevant Letter of Credit Agreement. If the requested
terms of such Letter of Credit are acceptable to the Issuing Bank in its
reasonable discretion, the Issuing Bank will, upon fulfillment of the applicable
conditions set forth in Article 3 hereof, make such Letter of Credit available
to the Borrower at its office referred to in Section 11.1 or as otherwise agreed
with the Borrower in connection with such issuance.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a
draft drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of an Advance, which shall bear
interest at the Base Rate Basis, in the amount of such draft (but without any
requirement for compliance with the conditions set forth in Article 3 hereof).
In the event that a drawing under any Letter of Credit is not reimbursed by the
Borrower by 11:00 a.m. (Dallas, Texas time) on the first Business Day after such
drawing, the Issuing Bank shall promptly notify Administrative Lender and each
other Lender. Each such Lender shall, on the first Business Day following such
notification, make a Revolving Credit Advance (or if, as a result of any Debtor
Relief Law, the Lenders are prohibited from making a Revolving Credit Advance,
each Lender shall fund its participation purchased pursuant to Section 2.15(a)
by making such amount available to the Administrative Lender), which shall bear
interest at the Base Rate Basis, and shall be used to repay the applicable
portion of the Issuing Bank's Advance with respect to such Letter of Credit, in
an amount equal to the amount of its participation in such drawing for
application to reimburse the Issuing Bank (but without any requirement for
compliance with the applicable conditions set forth in Article 3 hereof) and
shall make available to the Administrative Lender for the account of the Issuing
Bank, by deposit at the Administrative Lender's office, in same day funds, the
amount of such Revolving Credit Advance (or such participation). In the event
that any Lender fails to make available to the Administrative Lender for the
account of the Issuing Bank the amount of such Revolving Credit Advance (or such
participation), the Issuing Bank shall be entitled to recover such amount on
demand from such Lender together with interest thereon at a rate per annum equal
to the lesser of (i) the Highest Lawful Rate or (ii) the Federal Funds Rate.
(d) Increased Costs. If after the Agreement Date any change in any Law
or in the interpretation thereof by any court or administrative or governmental
authority charged with the administration thereof shall either (i) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against letters of credit or guarantees issued by, or assets held by, or
deposits in or for the account of, the Issuing Bank or any Lender or any
corporation controlling the Issuing Bank or any Lender or (ii) impose on the
Issuing Bank or any Lender or any corporation controlling the Issuing Bank or
any Lender any other condition regarding this Agreement or any Letter of Credit,
and the result of any event referred to in the preceding clause (i) or (ii)
shall be to increase the cost to the Issuing Bank or any corporation controlling
the Issuing Bank of issuing or maintaining any Letter of Credit or to any Lender
or any corporation controlling such Lender of purchasing any participation
therein or making any Advance pursuant to Section 2.15(c), then, within 30 days
after demand by the Issuing Bank or such Lender (which
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demand shall be made not later than one year after the Issuing Bank or
applicable Lender receives notice of the relevant change), the Borrower shall,
subject to Section 11.9 hereof, pay to the Issuing Bank or such Lender, from
time to time as specified by the Issuing Bank or such Lender, additional amounts
that shall be sufficient to compensate the Issuing Bank or such Lender or any
corporation controlling such Lender for such increased cost. A certificate as to
the amount of such increased cost, submitted to the Borrower by the Issuing Bank
or such Lender, shall certify that such increased costs were actually incurred
by the Issuing Bank or such Lender and shall show in reasonable detail an
accounting of the amount payable and the calculation used to determine in good
faith such amount and shall be conclusive absent manifest or demonstrable error.
In determining such amount, the Issuing Bank or such Lender may use any
reasonable averaging or attribution method. Nothing in this Section 2.15(d)
shall provide the Borrower or any Subsidiary of the Borrower the right to
inspect the records, files or books of the Issuing Bank or any Lender. If the
Borrower becomes obligated to pay additional amounts described in this Section
2.15(d) to any Lender, the Borrower may designate a financial institution
reasonably acceptable to the Administrative Lender to replace such Lender by
purchasing for cash and receiving an assignment of such Lender's pro rata share
of the Commitments and the Rights of such Lender under the Loan Documents
without recourse to or warranty by, or expenses to, such Lender, for a purchase
price equal to the outstanding amounts owing to such Lender (including such
additional amounts owing to such Lender pursuant to this Section 2.15(d). Upon
execution of an Assignment Agreement, such other financial institution shall be
deemed to be a "Lender" for all purposes of this Agreement as set forth in
Section 11.6 hereof. The obligations of the Borrower under this Section 2.15(d)
shall survive termination of 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;
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(iii) the existence of any claim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary or
any transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank,
any Lender or any other Person, whether in connection with this
Agreement, the transactions contemplated hereby or by the L/C Related
Documents or any unrelated transaction;
(iv) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect, except to the extent finally determined by a
court of competent jurisdiction to be the result of the gross
negligence or willful misconduct of the Issuing Bank in connection
therewith;
(v) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or certificate that does not comply
with the terms of the Letter of Credit, except to the extent finally
determined by a court of competent jurisdiction to be the result of the
gross negligence or willful misconduct of the Issuing Bank in
connection therewith;
(vi) any exchange, release or non-perfection of any
Collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any 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
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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.
(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.
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(iv) The Borrower, no more than once in any calendar month,
may direct the Administrative Lender to invest the funds held in the
L/C Cash Collateral Account (so long as the aggregate amount of such
funds exceeds any relevant minimum investment requirement) in (A) Cash
and Cash Equivalents or direct obligations of the United States or any
agency thereof, or obligations guaranteed by the United States or any
agency thereof and (B) one or more other types of investments permitted
by the Determining Lenders, in each case with such maturities as the
Borrower, with the consent of the Determining Lenders, may specify,
pending application of such funds on account of Reimbursement
Obligations or on account of other Obligations, as the case may be. In
the absence of any such direction from the Borrower, the Administrative
Lender shall invest the funds held in the L/C Cash Collateral Account
(so long as the aggregate amount of such funds exceeds any relevant
minimum investment requirement) in one or more types of investments
with the consent of the Determining Lenders with such maturities as the
Borrower, with the consent of the Determining Lenders, may specify,
pending application of such funds on account of Reimbursement
Obligations or on account of other Obligations, as the case may be. All
such investments shall be made in the Administrative Lender's name for
the account of the Lenders, subject to the ownership interest therein
of the Borrower. The Borrower recognizes that any losses or taxes with
respect to such investments shall be borne solely by the Borrower, and
the Borrower agrees to hold the Administrative Lender and the Lenders
harmless from any 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
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satisfactory to each Lender, with a copy (except for the Notes and this
Agreement) for each Lender, and (ii) satisfaction of the following conditions
which are to be satisfied:
(a) A loan certificate of each Obligor certifying as to the accuracy of
its representations and warranties in the Loan Documents with respect to such
Obligor, and including a certificate of incumbency with respect to each
Authorized Signatory, and including (i) a copy of the articles or certificate of
incorporation or similar organizational documents of such Obligor, certified to
be true, complete and correct by the secretary of state of its state of
organization, (ii) a copy of the true, complete and correct Bylaws or similar
governance documents of such Obligor, and (iv) a copy of a certificate of good
standing and a certificate of existence for its state of organization and each
state in which the nature of its business requires it to be qualified;
(b) a duly executed Revolving Credit Note payable to the order of each
Lender and in an amount for each Lender equal to its Specified Percentage of the
Commitment;
(c) the duly executed Swing Line Note payable to the order of the Swing
Line Bank, in the principal amount of $10,000,000;
(d) opinions of counsel to each Obligor addressed to the Lenders and in
form and substance reasonably acceptable to the Administrative Lender, dated the
Agreement Date, and addressing the matters set forth in Sections 4.1(a), (b),
(c), (e), (f), (h), (m), (n), (o) and (p), as deemed appropriate by the
Administrative Lender, and if the Projects have not been registered under the
Federal Interstate Land Sales Full Disclosure Act, stating that the Projects do
not fall within the purview of the Federal Interstate Land Sales Full Disclosure
Act, and covering such other matters incident to the transactions contemplated
hereby as the Administrative Lender or Special Counsel may reasonably request;
(e) reimbursement for the Administrative Lender for Special Counsel's
reasonable and customary fees (on an hourly basis) and expenses rendered through
the date hereof, to the extent invoiced;
(f) evidence that all proceedings of each Obligor taken in connection
with the transactions contemplated by this Agreement and the other Loan
Documents shall be reasonably satisfactory in form and substance to the Lenders
and Special Counsel; and the Lenders shall have received copies of all documents
or other evidence which the Administrative Lender, Special Counsel or any Lender
may reasonably request in connection with such transactions;
(g) any fees or expenses required to be paid on or before the Agreement
Date pursuant to the Fee Letter;
(h) Security Agreements, appropriately completed and duly executed by
each of the Obligors, dated as of the Agreement Date, granting a Lien in all
Collateral covered thereby, together with related financing statements, and
insurance certificates listing Administrative Lender,
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as its interest may appear, as loss payee and additional insured and otherwise
in a form required by the Collateral Documents;
(i) the duly executed Servicing and Collection Agreement;
(j) the duly executed Custodial Agreement, together with evidence of
delivery to the Custodian of the original counterpart of each Note Receivable
included in the Borrowing Base, together with allonges, in form and substance
acceptable to the Administrative Lender, duly executed by the Borrower or the
applicable Restricted Subsidiary owning such Note Receivable and Assignments of
Pledged Documents appropriately completed and duly executed by the Borrower or
the applicable Restricted Subsidiary owning such Pledged Documents;
(k) simultaneously with the making of the initial Revolving Credit
Advance, executed UCC-3 Termination Statements to be filed in appropriate
jurisdictions to terminate all Liens against the Collateral, or any portion
thereof (other than Permitted Liens, if any);
(l) copies of the form of Purchase Documents which have been or are
being used in connection with the Projects;
(m) there shall have occurred no material adverse change in the
business, assets or financial condition of the Borrower and its Subsidiaries,
taken as a whole, since December 31, 1996;
(n) each of the Subsidiary Guaranties, duly executed by the Guarantor
party thereto;
(p) a mortgagee title insurance policy [or if such mortgagee title
insurance policy has not been issued, a binding, irrevocable and unconditional
(other than for conditions acceptable to the Administrative Lender) commitment
to issue such mortgagee title insurance policy] in favor of the Administrative
Lender, in form and substance acceptable to the Administrative Lender, covering
each Deed of Trust;
(q) in form and substance reasonably satisfactory to the Lenders and
Special Counsel, such other documents, instruments and certificates as the
Administrative Lender or any Lender may reasonably require in connection with
the transactions contemplated hereby, including without limitation, evidence of
the status, organization or authority of the Borrower or any Subsidiary of the
Borrower, and the enforceability of the Obligations; and
(r) The Borrower shall have delivered a Borrowing Base Report
reflecting Eligible Notes Receivable as of a date after December 29, 1997.
Section 3.2 Conditions Precedent to All Advances and Letters of Credit.
The obligation of each Lender to make each Revolving Credit Advance hereunder
(including the initial Revolving Credit Advance), the obligation of the Issuing
Bank to issue each Letter of Credit (including the
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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 pursuant to Section 11.11 hereof;
(d) The aggregate Advances and Letters of Credit, after giving effect
to such proposed Advance or Letter of Credit, shall not exceed the maximum
principal amount then permitted to be outstanding hereunder;
(e) No order, judgment, injunction or decree of any Tribunal shall
purport to enjoin or restrain any Lender or the Issuing Bank from making any
Advance or issuing any Letter of Credit;
(f) (i) There shall not be pending, or to the knowledge of the
Borrower, threatened any Litigation against or affecting the Borrower or any
Subsidiary of the Borrower or any property of the Borrower or any Subsidiary of
the Borrower that has not been disclosed in writing by the Borrower pursuant to
Section 4.1(h) or 6.7(a) prior to the making of the last preceding Advance or
the issuance of the last preceding Letter of Credit (or in the case of the
initial Advances and Letters of Credit, prior to the Agreement Date) that could
reasonably be expected to have a Material Adverse Effect, (ii) there shall not
be pending, or to the knowledge of the Borrower, threatened any Litigation
against or affecting the Borrower or any Subsidiary of the Borrower or any
property of the Borrower or any Subsidiary of the Borrower that (x) was
disclosed by the Borrower only after the Agreement Date, (y) was disclosed by
the Borrower as threatened Litigation prior to the Agreement Date but
subsequently became pending Litigation or (z) was not disclosed by the Borrower,
that could reasonably be expected to have a Material Adverse Effect and (iii)
there shall have occurred no development in any Litigation against or affecting
the
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<PAGE> 54
Borrower or any Subsidiary of the Borrower or any property of the Borrower or
any Subsidiary of the Borrower that could reasonably be expected to have a
Material Adverse Effect;
(g) There shall have occurred no material adverse change in the
business, assets, financial condition, results of operations or business
prospects of the Borrower and its Subsidiaries, taken as a whole, since December
31, 1996;
(h) The Borrower shall have delivered a current Borrowing Base Report
evidencing that there is availability under the Commitment after taking into
account the projected Advance or Letter of Credit; and
(i) The Average Quarterly Delinquency Rate shall not exceed eight
percent (8.0%).
Notwithstanding anything herein to the contrary, the obligation of each
Lender to make a Revolving Credit Advance pursuant to Section 2.15(c) (or to
fund its participation in respect of Letters of Credit pursuant to Section
2.15(c)) shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, (i) the occurrence of any Default
or Event of Default, (ii) the failure of the Borrower to satisfy any condition
set forth in this Section 3.2 or (iii) any other circumstance, happening or
event whatsoever.
Section 3.3 Conditions Precedent to Conversions and Continuations. The
obligation of the Lenders to convert any existing Base Rate Advance into a LIBOR
Advance or to continue any existing LIBOR Advance is subject to the condition
precedent that on the date of such conversion or continuation no Default or
Event of Default shall have occurred and be continuing or would result from the
making of such conversion or continuation. The acceptance of the benefits of
each such conversion and continuation shall constitute a representation and
warranty by the Borrower to each of the Lenders that no Default or Event of
Default shall have occurred and be continuing or would result from the making of
such conversion or continuation.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties. The Borrower hereby
represents and warrants to each Lender as follows:
(a) Organization; Power; Qualification. The respective jurisdiction of
organization or incorporation and percentage ownership by the Borrower of the
Subsidiaries listed on Schedule 4 are true and correct as of the Agreement Date.
Schedule 4 is a complete and accurate listing as of the Agreement Date, showing
with respect to the Borrower and each Subsidiary of the Borrower (a) its mailing
address, which is its principal place of business, (b) the classes of its
Capital Stock and the number and amount of its Capital Stock authorized and
outstanding, (c) each record and
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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 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.
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<PAGE> 56
(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 is subject to any Liens, except
Permitted Liens. No financing statement or other Lien filing (except relating to
Permitted Liens) is on file in any state or jurisdiction that names the Borrower
or any of its Restricted Subsidiaries as debtor or covers (or purports to cover)
any assets of the Borrower or any of its Restricted Subsidiaries. The Borrower
and its Restricted Subsidiaries have not signed any such financing statement or
filing, nor any security agreement authorizing any Person to file any such
financing statement or filing (except relating to Permitted Liens).
(h) Litigation. Except as reflected on Schedule 3 hereto, as of the
Agreement Date there is no Litigation pending against, or, to the Borrower's
current actual knowledge, threatened against the Borrower, or in any other
manner relating directly and adversely to the Borrower or any of its
Subsidiaries, or any of their respective properties, in any court or before any
arbitrator of any kind or before or by any governmental body in which the amount
claimed (in excess of applicable insurance) exceeds $500,000.
(i) Taxes. All material federal, state and other tax returns of the
Borrower and its Subsidiaries required by law to be filed have been duly filed
or extensions have been timely filed, and all material federal, state and other
Taxes upon the Borrower, its Subsidiaries or any of their properties, income,
profits and assets, which are due and payable, have been paid, unless the same
are being diligently contested in accordance with Section 5.6 hereof. The
charges, accruals and
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<PAGE> 57
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 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.
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(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 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
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<PAGE> 59
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,
has taken or will knowingly take any action which would cause this Agreement or
any other Loan Documents to violate any regulation of the Board of Governors of
the Federal Reserve System or to violate the Securities Exchange Act of 1934, in
each case as in effect now or as the same may hereafter be in effect.
(n) Authorization. The Borrower and its Subsidiaries are not required
to obtain any Necessary Authorization on or prior to the Agreement Date that has
not already been obtained from, or effect any material filing or registration
that has not already been effected with, any Tribunal or any other Person in
connection with the execution and delivery of this Agreement or any other Loan
Document, or the performance thereof, in accordance with their respective terms,
including any borrowings hereunder, except for the filing of financing
statements (and other similar notices) containing a description of the
Collateral with certain Tribunals.
(o) Absence of Default. The Borrower and its Subsidiaries are in
compliance in all material respects with all of the provisions of their
certificate of incorporation and by-laws (or similar organizational and
governance documents), and no event has occurred or failed to occur, which has
not been remedied or waived, the occurrence or non-occurrence of which
constitutes, or which with the passage of time or giving of notice or both would
constitute, (i) an Event of Default or (ii) a default by the Borrower or any of
its Subsidiaries under any indenture, agreement
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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 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.
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(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 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
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reasonably be expected to result in a Material Adverse Effect, and there are no
arrears in the payment of wages, withholding or social security taxes,
unemployment insurance premiums or other similar obligations of the Borrower or
any Subsidiary or for which the Borrower or any Subsidiary may be responsible
other than in the ordinary course of business, except for such unpaid or
unwithheld arrears which could not reasonably be expected to result in a
Material Adverse Effect. There is no strike, work stoppage or labor dispute with
any union or group of employees pending or overtly threatened involving Borrower
or any Subsidiary that could reasonably be expected to have a Material Adverse
Effect.
(w) Consolidated Business Entity. The Borrower and its Subsidiaries are
engaged in the business of developing and operating time-share resorts and other
leisure activities (exclusive of gaming). These operations require financing on
a basis such that the credit supplied can be made available from time to time to
the Borrower and various of its Subsidiaries, as required for the continued
successful operation by the Borrower and its Subsidiaries as a whole. The
Borrower and its Subsidiaries expect to derive benefit (and the board of
directors of the Borrower and its Subsidiaries have determined that the Borrower
and its Subsidiaries may reasonably be expected to derive benefit), directly or
indirectly, from the credit extended by the Lenders hereunder, both in their
separate capacities and as members of the group of companies, since the
successful operation and condition of the Borrower and its Subsidiaries is
dependent on the continued successful performance of the functions of the group
as a whole.
(x) Time-Share Interest Exchange Network. Borrower and its Subsidiaries
are members and participants, pursuant to validly executed and enforceable
written agreements in Resort Condominiums International, L.L.C. and Interval
International. Borrower and its Subsidiaries have paid all fees and other
amounts due and owing under such agreements and are not otherwise in default in
any material respect thereunder.
(y) Time-Share Interests. The sale, offering of sale, and financing of
Time-Share Interests in the Projects (i) do not constitute the sale, or the
offering of sale, of securities subject to registration requirements of the
Securities Act of 1933, as amended, or any state or foreign securities Law, (ii)
except to the extent that any such violation(s), either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect,
do not violate any time-sharing or other Law of any state or foreign country in
which sales or solicitation of Time-Share Interests occur, and (iii) except to
the extent that any such violation(s), either individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect, do not
violate any consumer credit or usury Laws of any state or foreign country in
which sales or solicitation of Time-Share Interests occur. Except to the extent
that any such failure(s), either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, the Borrower and its
Subsidiaries have not failed to make or cause to be made any registrations or
declarations with any Tribunal necessary to the ownership of the Projects or to
the conduct of its business, including, without limitation, the operation of the
Projects and the sale, or offering for sale, of Time-Share Interests therein.
Except to the extent that any such noncompliance(s), either individually or in
the aggregate, could not reasonably be expected to have
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a Material Adverse Effect, Borrower and its Subsidiaries have, to the extent
required by its activities and businesses, fully complied with (i) all of the
applicable provisions of (A) the Consumer Credit Protection Act, as amended, (B)
the Federal Trade Commission Act, as amended, (C) the Federal Interstate Land
Sales Full Disclosure Act, as amended, (D) any other Laws of any Tribunal
otherwise applicable, and (E) all rules and regulations promulgated under any of
the foregoing. True and complete copies of the Purchase Documents and other
documents requested by the Administrative Lender which have been and are being
used by the Borrower and its Subsidiaries in connection with the Projects and
the sale or offering for sale of Time-Share Interests therein have been
delivered to the Administrative Lender. The Time-Share Interests in the Projects
constitute undivided interests in real property under the Laws of the
jurisdictions in which the applicable Units are located.
(z) Common Areas. To the extent that the Borrower or any of its
Subsidiaries are legally obligated to construct same, the common areas and
amenities appurtenant to sold Time-Share Interests, and the streets and other
off-site improvements contained within the Projects have been completed or a
bond insuring the completion thereof has been obtained and such interests in
such common areas are free and clear of all Liens except Permitted Liens.
(aa) Subordinated Debt. The terms, provisions, covenants and
requirements contained in the documents, instruments and agreements relating to
the Subordinated Debt are not more restrictive than the comparable terms,
provisions, covenants and requirements contained in this Agreement and the other
Loan Documents. All of the Obligations constitute senior indebtedness 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.
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ARTICLE 5
General Covenants
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
shall, and shall cause each Subsidiary of the Borrower to:
(a) except as otherwise permitted pursuant to Section 7.4 hereof,
preserve and maintain, or timely obtain and thereafter preserve and maintain,
its existence, rights, franchises, licenses, authorizations, consents,
privileges and all other Necessary Authorizations from any Tribunal, the loss of
which could reasonably be expected to have a Material Adverse Effect; and
(b) except as otherwise permitted pursuant to Section 7.4 hereof,
qualify and remain qualified and authorized to do business in each jurisdiction
in which the character of its properties or the nature of its business requires
such qualification or authorization, unless the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The Borrower and
its Subsidiaries shall (a) engage primarily in the businesses set forth in
Section 4.1(d) hereof, and (b) comply in all respects with the requirements of
all Applicable Law, except where the failure to so comply could not reasonably
be expected to have a Material Adverse Effect.
Section 5.3 Maintenance of Properties. To the maximum extent that the
Borrower and/or any Subsidiary of the Borrower has the right, power or authority
(whether as a matter of contract, at law or otherwise) to do so, the Borrower
shall, and shall cause each Subsidiary 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.
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Section 5.5 Insurance. The Borrower shall, and shall cause each
Restricted Subsidiary of the Borrower to, maintain insurance from responsible
companies in such amounts and against such risks as shall be customary and usual
in the industry for companies of similar size and capability. Each insurance
policy shall (a) provide for at least 30 days' prior notice to the
Administrative Lender of any proposed termination or cancellation of such
policy, whether on account of default or otherwise and (b) otherwise contain the
requirements for insurance set forth in the Security Agreements.
Section 5.6 Payment of Taxes and Claims. The Borrower shall, and shall
cause each Subsidiary of the Borrower to, pay and discharge all material Taxes
to which they are subject prior to the date on which penalties attach thereto,
and all lawful material claims for labor, materials and supplies which, if
unpaid, might become a Lien upon any of its properties; except that no such Tax
or claim need be paid which is being diligently contested in good faith by
appropriate proceedings and for which adequate reserves shall have been set
aside on the appropriate books, but only so long as no Lien shall attach with
respect thereto and no foreclosure, distraint, sale or similar proceedings shall
have been commenced. The Borrower shall, and shall cause each Subsidiary of the
Borrower to, timely file all information returns (or extensions of such filing
deadlines) required by federal, state or local tax authorities.
Section 5.7 Visits and Inspections. The Borrower shall, and shall cause
each Subsidiary of the Borrower to, promptly permit representatives of the
Administrative Lender or any Lender from time to time after reasonable notice by
the Administrative Lender or any Lender to (a) visit and inspect the properties
of the Borrower and its Subsidiaries as often as the Administrative Lender or
any Lender shall reasonably deem advisable, (b) audit, inspect and make extracts
from and copies of the Borrower's and each such Subsidiary's books and records,
and (c) discuss with the Borrower's and each such Subsidiary's appropriate
directors, officers, employees and auditors its business, assets, liabilities,
financial positions, results of operations and business prospects, provided that
such representatives of the Administrative Lender or any Lender shall keep
confidential all information obtained pursuant to this Section 5.7 to the extent
required by Section 11.14. The Borrower shall pay the reasonable expenses
related to up to three (3) such inspections and audits performed by the
Administrative Lender per twelve-month period. Prior to the occurrence of an
Event of Default, all such visits and inspections shall be conducted during
normal business hours. Following the occurrence and during the continuance of an
Event of Default, such visits and inspections shall be conducted at any time
requested by the Administrative Lender or any Lender without any requirement for
reasonable notice.
Section 5.8 Use of Proceeds. The proceeds of the Advances and the
Letters of Credit shall be used by the Borrower (a) to refinance certain
existing debt of the Borrower and its Subsidiaries, (b) to finance Acquisitions
permitted under Section 7.6 hereof, (c) to finance eligible mortgage loans, (d)
to finance the ongoing working capital and general corporate requirements of the
Borrower and its Subsidiaries, and (e) for other legitimate corporate purposes
not otherwise prohibited hereunder.
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SECTION 5.9 INDEMNITY.
(a) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS
THE ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR RESPECTIVE AFFILIATES, AND
EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT
LIMITATION, THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED
SATISFACTION OF ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING
(COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, PROCEEDINGS (WHETHER CIVIL OR
CRIMINAL), JUDGMENTS, SUITS, CLAIMS, REASONABLE COSTS, REASONABLE EXPENSES AND
REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL FOR SUCH
INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL
PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE DESIGNATED A PARTY
THERETO), IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNITEES (WHETHER
DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL, STATE, OR
LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE, OR ON
CONTRACT, TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE PAST, PRESENT OR
FUTURE OPERATIONS OF THE BORROWER, ITS SUBSIDIARIES OR THEIR RESPECTIVE
PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE ENVIRONMENTAL CONDITION
OF PROPERTY OF THE BORROWER OR ITS SUBSIDIARIES), RELATING TO OR ARISING OUT OF
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR
ALLEGED ACT, EVENT OR TRANSACTION RELATING OR ATTENDANT THERETO, THE MANAGEMENT
OF THE ADVANCES OR LETTERS OF CREDIT, INCLUDING IN CONNECTION WITH, OR AS A
RESULT, IN WHOLE OR IN PART, 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
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GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY
DETERMINED BY A COURT OF COMPETENT JURISDICTION, AND (ii) MATTERS RAISED BY ONE
LENDER OR PARTICIPANT AGAINST ANOTHER LENDER OR PARTICIPANT OR BY ANY
SHAREHOLDERS OF A LENDER OR A PARTICIPANT AGAINST A LENDER OR A PARTICIPANT OR
THE RESPECTIVE MANAGEMENT OF SUCH LENDER OR PARTICIPANT (COLLECTIVELY,
"INDEMNIFIED MATTERS"). TO THE EXTENT THAT ANY INDEMNIFIED MATTER INVOLVES ONE
OR MORE INDEMNITEES, SUCH INDEMNITEES SHALL USE THE SAME LEGAL COUNSEL UNLESS
ANY INDEMNITEE IN ITS REASONABLE DISCRETION DETERMINES THAT CONFLICTS EXIST OR
MAY ARISE IN CONNECTION WITH SUCH REPRESENTATION.
(b) WITHOUT DUPLICATION, THE BORROWER SHALL PERIODICALLY, UPON REQUEST,
REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL REASONABLE
EXPENSES (INCLUDING THE REASONABLE COST OF ANY INVESTIGATION AND PREPARATION)
INCURRED IN CONNECTION WITH ANY INDEMNIFIED MATTER. THE REIMBURSEMENT, INDEMNITY
AND CONTRIBUTION OBLIGATIONS UNDER THIS SECTION SHALL BE IN ADDITION TO ANY
LIABILITY WHICH THE BORROWER MAY OTHERWISE HAVE, SHALL EXTEND UPON THE SAME
TERMS AND CONDITIONS TO EACH INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO
THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF
THE BORROWER, THE ADMINISTRATIVE LENDER, THE LENDERS AND ALL OTHER INDEMNITEES.
THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE
OBLIGATIONS.
Section 5.10 Environmental Law Compliance. The use which the Borrower
or any Subsidiary of the Borrower intends to make of any real property which is
owned or leased by it will not result in the disposal or other release of any
hazardous substance or solid waste on or to such real property which is in
violation of Applicable Environmental Laws, the effect of which could reasonably
be expected to have a Material Adverse Effect. As used herein, the terms
"hazardous substance" and "release" as used in this Section shall have the
meanings specified in CERCLA (as defined in the definition of Applicable
Environmental Laws), and the terms "solid waste" and "disposal" shall have the
meanings specified in RCRA (as defined in the definition of Applicable
Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as
to broaden or lessen the meaning of any term defined thereby, such broader or
lesser meaning shall apply subsequent to the effective date of such amendment;
and provided further, to the extent that any other law applicable to the
Borrower, any Subsidiary or any of their respective properties establishes (to
the exclusion of the applicability of CERCLA and RCRA) a meaning for "hazardous
substance," "release," "solid waste," or "disposal" which is broader or lesser
than that specified in either CERCLA or RCRA, such broader or lesser meaning
shall apply. The Borrower agrees to indemnify and hold the Administrative Lender
and each Lender harmless from and against, and to reimburse them with respect
to, any and all claims, demands, causes of action,
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loss, damage, liabilities, reasonable costs and reasonable expenses (including
reasonable attorneys' fees and courts costs) of any kind or character, known or
unknown, fixed or contingent, asserted against or incurred by any of them at any
time and from time to time by reason of or arising out of (a) the failure of the
Borrower or any Subsidiary to perform any of their obligations hereunder
regarding asbestos or Applicable Environmental Laws, (b) any violation on or
before the Release Date of any Applicable Environmental Law in effect on or
before the Release Date, and (c) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (including without
limitation the presence on such real property or release from such real property
of hazardous substances or solid wastes disposed of or otherwise released on or
prior to the Release Date), resulting from or in connection with the ownership
of the real property, regardless of whether the act, omission, event or
circumstance constituted a violation of any Applicable Environmental Law at the
time of its existence or occurrence; provided that, the Borrower shall not be
under any obligation to indemnify the Administrative Lender or any Lender to the
extent that any such liability arises as the result of the gross negligence or
wilful misconduct of such Person, as finally judicially determined by a court of
competent jurisdiction. The provisions of this paragraph shall survive the
Release Date and shall continue thereafter in full force and effect.
Section 5.11 Further Assurances. At any time or from time to time upon
request by the Administrative Lender, the Borrower or any Subsidiary of the
Borrower shall execute and deliver such further documents and do such other acts
and things as the Administrative Lender may reasonably request in order to
effect fully the purposes of this Agreement and the other Loan Documents and to
provide for payment of the Obligations in accordance with the terms of this
Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, the Borrower agrees to (a) update and deliver to the Administrative
Lender supplements to Schedules 3 and 4 hereto at the time of delivery of the
financial statements set forth in Sections 6.1 and 6.2 hereof if the information
provided therein is not complete and correct, and (b) update and deliver to the
Administrative Lender Schedule 1 to the Security Agreements promptly upon
discovery that the information provided therein is not complete and correct.
Section 5.12 Management of Projects. To the maximum extent that the
Borrower and/or any Subsidiary of the Borrower has the right, power or authority
(whether as a matter of contract, at law or otherwise) to do so, the Borrower
shall, and shall cause each of its Subsidiaries to, maintain managers and
management contracts with respect to each Project which are reasonably
satisfactory to the Administrative Lender; provided, however, that the Borrower
and each Subsidiary of the Borrower shall be deemed to be reasonably
satisfactory to the Administrative Lender as managers of the Projects for
purposes of this Section 5.12. The Borrower shall not change the manager of any
Project (except to the extent that the Borrower replaces the existing manager
with a manager that is a Subsidiary of the Borrower) 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.
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Section 5.13 Obligations to Purchasers. The Borrower shall, and shall
cause each of its Subsidiaries to, fulfill all obligations to the Purchasers
under Eligible Notes Receivable which are used in making the Borrowing Base
computations or otherwise constitute part of the Collateral.
Section 5.14 Owners Associations. The Borrower shall, and shall cause
each of its Subsidiaries to, cause each Purchaser to automatically be a member
of each Project's owners association or associations, if any, and shall be
entitled to vote on the affairs thereof (subject, however, to any preferential
voting rights in favor of the Borrower or any of its Subsidiaries as permitted
under applicable time-share Laws). Each such owners association shall have the
authority to fix and levy pro rata upon each Purchaser annual assessments to
cover the costs of maintaining and operating such Project (including, without
limitation, taxes and assessments not levied by the appropriate taxing authority
directly against owners of Time-Share Interests) and to establish a reasonable
reserve for improvements, the replacement of property and furnishings, and
contingencies. If the Borrower or any of its Subsidiaries controls an owners
association, the Borrower or any of its Subsidiaries will while it controls such
association: (i) cause such owners association to discharge timely and
completely its obligations under such Project's governing documents and maintain
the reserve described above and (ii) to the extent requested to do so by the
Administrative Lender, pay or loan to such owners association, not less often
than is necessary to provide sufficient funding for such owners association in
order to maintain, preserve and maximize the ownership, quality, safety,
marketability, value and appearance of the applicable Project, the difference
between (A) the cumulative total amount of the maintenance and operating
expenses incurred by such association, together with the amount of any
installment of real property taxes currently due and payable with respect to
such Project not directly levied against owners of Time-Share Interests, through
the end of the calendar month preceding the month in which such payment or loan
is made and (B) the cumulative total amount of assessments (less amounts thereof
allocated to reserve expenses) payable to the association by Time-Share Interest
owners other than the Borrower or its Subsidiaries, as appropriate, through the
end of the calendar month preceding the month in which such payment or loan is
made.
Section 5.15 Note Receivable Information. The Borrower shall, and shall
cause each of its Subsidiaries to, maintain accurate and complete files relating
to the Notes Receivable with respect to the Projects and other Collateral, and
such files will contain copies of each Note Receivable, copies of all relevant
credit memoranda relating to such Notes Receivable and all collection
information and correspondence related thereto.
Section 5.16 Maintenance of Borrowing Base. The Borrower shall, and
shall cause each of its Restricted Subsidiaries to, at all times maintain the
Borrowing Base at an amount equal to or greater than the aggregate principal
amount of all outstanding Revolving Credit Advances, Swing Line Advances and
Reimbursement Obligations. Without waiving or otherwise modifying the foregoing
requirements of this Section 5.16, if any Note Receivable is included in the
Borrowing Base as an Eligible Note Receivable and such Note Receivable
thereafter fails to meet the criteria for inclusion as an Eligible Note
Receivable, the Borrower shall have the right to obtain a release of the
nonqualifying Note Receivable from the Liens hereunder in favor of the
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Administrative Lender and the Lenders if immediately prior to, and after giving
effect to, such proposed release, (i) the Borrower is in compliance with the
requirements of this Section 5.16, and (ii) no Default or Event of Default
exists hereunder or under any of the other Loan Documents. Without waiving or
otherwise modifying the foregoing requirements of this Section 5.16, if any Note
Receivable is included as Collateral hereunder and such Note Receivable is
thereafter included in a Securitization, the Borrower shall have the right to
obtain a release of such Note Receivable from the Liens hereunder in favor of
the Administrative Lender and the Lenders if immediately prior to, and after
giving effect to, such proposed release, (i) the Borrower is in compliance with
the requirements of this Section 5.16, and (ii) no Default or Event of Default
exists hereunder or under any of the other Loan Documents. Without waiving or
otherwise modifying the foregoing requirements of this Section 5.16, if a Note
Receivable is not past-due or otherwise in default and such Note Receivable
ceases to qualify as an Eligible Note Receivable solely by virtue of (i) the
reduction of the amount of any scheduled payment(s) with respect thereto or (ii)
the extension of the maturity date thereof, a Note Receivable received by the
Borrower or a Restricted Subsidiary in substitution or replacement therefor
shall not fail to qualify as an Eligible Note Receivable solely by virtue of the
fact that the Purchaser in respect of such substitution or replacement Note
Receivable has not made at least the first regularly scheduled payment due
thereon.
ARTICLE 6
Information Covenants
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled), the Borrower shall furnish or cause to be furnished to
each Lender or shall notify each Lender of the following events:
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.
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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.
(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
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consolidated statements of changes in shareholders' equity, and statements of
cash flow as of and through the end of such fiscal year, all of which shall be
certified by the president, chief financial officer or treasurer of the
Borrower, to, in his or her opinion acting solely in his or her capacity as an
officer of the Borrower, conform to the presentation of the audited financial
statements to be delivered pursuant to Section 6.4(a) hereof and to present
fairly in all material respects, in accordance with GAAP (except for the absence
of footnotes), the financial position and results of operations of the Borrower
and the Restricted Subsidiaries as at the end of and for such fiscal year.
(c) As soon as available, but in any event within 30 days after
December 31, 1997 and within 30 days after the end of each fiscal year
thereafter, a copy of the annual consolidated financial projections (including
pro forma income statements, balance sheets and statements of cash flow) of the
Borrower and the Restricted Subsidiaries for the succeeding fiscal year.
Section 6.5 Compliance Certificate. At the time financial statements
are furnished pursuant to Sections 6.3 and 6.4 hereof, the Compliance
Certificate, completed as provided therein, executed by the president, the chief
financial officer, or treasurer of the Borrower.
Section 6.6 Copies of Other Reports and Notices.
(a) Promptly upon their becoming available, a copy of (i) all material
final reports or letters submitted to the Borrower or any Subsidiary of the
Borrower by accountants in connection with any annual, interim or special audit,
including without limitation any final report prepared in connection with the
annual audit referred to in Section 6.2 hereof, and, if requested by the
Administrative Lender, any other comment letter submitted to management in
connection with any such audit, (ii) each financial statement, report, notice or
proxy statement sent by the Borrower to stockholders generally, (iii) each
regular, periodic or other report and any registration statement (other than
statements on Form S-8) or prospectus (or material written communication in
respect of any thereof) filed by the Borrower or any Subsidiary of the Borrower
with any securities exchange, with the Securities and Exchange Commission or any
successor agency, (iv) all press releases concerning material financial aspects
of the Borrower or any Subsidiary of the Borrower, and (v) forms of Purchase
Documents and, to the extent requested by the Administrative Lender, other
documents being used in connection with the Projects to the extent different
from those delivered pursuant to Section 3.1(l) hereof;
(b) Promptly upon becoming aware (i) that the holder(s) of any note(s)
or other evidence of indebtedness or other security of the Borrower or any
Subsidiary of the Borrower in excess of $500,000 in the aggregate has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, (ii) of the occurrence or non-occurrence
of any event which constitutes or which with the passage of time or giving of
notice or both could constitute a material breach by the Borrower or any
Subsidiary of the Borrower under any material agreement or instrument other than
this Agreement to which the Borrower or any Subsidiary of the Borrower is a
party or by which any of their respective properties may be bound, or (iii) of
any event, circumstance or condition which could reasonably be expected to be
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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 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)
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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 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
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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
(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;
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(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;
(i) Investments in, or with respect to, any Person other than the
Borrower or a Restricted Subsidiary to the extent that (i) the aggregate amount
of such Investments by the Borrower and the Restricted Subsidiaries does not at
any time exceed ten percent (10%) of the combined total assets of the Borrower
and the Restricted Subsidiaries and (ii) immediately prior to and after giving
effect to any such proposed Investment there shall not exist a Default or Event
of Default; and
(j) Other Investments not to exceed $7,500,000 in the aggregate amount
outstanding at any time.
Section 7.4 Liquidation, Merger. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up, except that a Restricted Subsidiary may
liquidate or dissolve into the Borrower or a Restricted Subsidiary; or
(b) enter into any merger or consolidation unless (i) with respect to a
merger or consolidation involving the Borrower, the Borrower shall be the
surviving corporation, or if the merger or consolidation involves a Restricted
Subsidiary and not the Borrower, such Restricted Subsidiary shall be the
surviving corporation, (ii) such transaction shall not be utilized to circumvent
compliance with any term or provision herein and (iii) no Default or Event of
Default shall then be in existence or occur as a result of such transaction.
Section 7.5 Sales of Assets. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, sell, lease, transfer or otherwise dispose
of, any of its assets except (a) inventory and Time-Share Interests in the
ordinary course of business, (b) obsolete or worn-out assets, (c) sales of
tangible assets in which the Net Cash Proceeds from the disposition thereof are
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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 Investment under Section 7.3(i).
Section 7.7 Capital Expenditures. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, make or commit to make any Capital
Expenditures during any fiscal year in an aggregate amount in excess of
$10,000,000.
Section 7.8 Restricted Payments. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly declare, pay or make
any Restricted Payments except (a) Dividends payable by a Restricted Subsidiary
to the Borrower or to a Guarantor, (b) scheduled payments of principal and
interest on the Subordinated Debt; provided, however, the Borrower shall not,
and shall not permit any Restricted Subsidiary to, declare, pay or make any
Restricted Payments permitted by clauses (a) and/or (b) of this Section 7.8
unless there shall exist no Default or Event of Default prior to or after giving
effect to any such proposed Restricted Payment, and (c) Dividends payable by the
Borrower in respect of its Capital Stock, if, and to the extent that, (i) no
Default or Event of Default shall exist prior to or after giving effect to the
declaration and/or payment of any such Dividend(s) and (ii) the aggregate amount
of all such Dividends declared and/or paid by the Borrower during any fiscal
year of the Borrower does not exceed the sum of (x) $10,000,000, plus (y) 50% of
the Net Income of the Borrower (excluding from the calculation thereof any Net
Income attributable to any Subsidiary of the Borrower other than the Restricted
Subsidiaries) for the immediately preceding fiscal year of the Borrower.
Section 7.9 Affiliate Transactions. The Borrower shall not, and shall
not permit any Restricted Subsidiary to, at any time engage in any transaction
with an Affiliate other than in the ordinary course of business and on terms no
less advantageous to the Borrower or such Restricted Subsidiary than would be
the case if such transaction had been effected with a non-Affiliate. The
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Borrower shall not, and shall not permit any Restricted Subsidiary to, incur or
suffer to exist any Indebtedness, or any Guaranty of any such Indebtedness, to
any Affiliate, unless such Affiliate shall (i) be a Restricted Subsidiary, (ii)
subordinate the payment and performance thereof to the Obligations on terms and
conditions and pursuant to documentation satisfactory to the Determining Lenders
or (iii) pledge the applicable Indebtedness to the Administrative Lender
pursuant to documentation acceptable to the Administrative Lender.
Section 7.10 Compliance with ERISA. The Borrower shall not, and shall
not permit any Subsidiary to, directly or indirectly, or permit any member of
its Controlled Group to directly or indirectly, (a) terminate any Plan so as
likely to result in any material (in the reasonable opinion of the Determining
Lenders) liability to the Borrower or any member of its Controlled Group taken
as a whole, (b) permit to exist any ERISA Event, or any other event or condition
with respect to a Plan which could reasonably be expected to have a Material
Adverse Effect, (c) make a complete or partial withdrawal (within the meaning of
Section 4201 of ERISA) from any Multiemployer Plan so as likely to result in any
material (in the reasonable opinion of the Determining Lenders) liability to the
Borrower or any member of its Controlled Group taken as a whole, (d) enter into
any new Plan or modify any existing Plan so as to increase its obligations
thereunder which could reasonably be expected to have a Material Adverse Effect,
or (e) permit the present value of all benefit liabilities, as defined in Title
IV of ERISA, under any Plan (other than a Multiemployer Plan) of the Borrower or
any member of its Controlled Group that is subject to Title IV of ERISA (using
the actuarial assumptions utilized by each such Plan) to exceed the fair market
value of Plan assets allocable to such benefits by more than $200,000, all
determined as of the most recent valuation date for such Plan.
Section 7.11 Minimum Interest Coverage Ratio. The Borrower shall not
permit the Interest Coverage Ratio to be less than 2.50 to 1 at the end of any
fiscal quarter.
Section 7.12 Minimum Tangible Net Worth. The Borrower shall not permit
the Tangible Net Worth to be less than an amount equal to the sum of (a)
$155,000,000, plus (b) 50% of cumulative Net Income of the Borrower and the
Restricted Subsidiaries for the period from, but not including, June 30, 1997
through the date of calculation (but excluding from the calculation of such
cumulative Net Income the effect, if any, of any fiscal quarter (or portion of a
fiscal quarter not then ended) of the Borrower or any Restricted Subsidiary for
which Net Income was a negative number), plus (c) 75% of the Net Cash Proceeds
received by the Borrower after June 30, 1997 as a result of any offering of
Equity or pursuant to any conversion or exchange of convertible Indebtedness or
preferred Capital Stock into common Capital Stock of the Borrower, plus (d) an
amount equal to 75% of the tangible net worth of any Person that becomes a
Restricted Subsidiary or is merged into or consolidated with the Borrower or any
Restricted Subsidiary after June 30, 1997 or substantially all of the assets of
which are acquired by the Borrower or any Restricted Subsidiary after June 30,
1997, (in each case determined as of the date that such Person becomes a
Restricted Subsidiary or is merged into or consolidated with the Borrower or a
Restricted Subsidiary or that such assets are so acquired), provided that the
purchase price paid therefor is paid in equity securities of the Borrower or any
Subsidiary of the Borrower.
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Section 7.13 Maximum Senior Debt to Total Capital. The Borrower shall
not permit the ratio of Senior Debt to Total Capital to exceed 0.35 to 1 at the
end of any fiscal quarter.
Section 7.14 Maximum Total Debt to Total Capital. The Borrower shall
not permit the ratio of Total Debt to Total Capital to exceed (a) 0.70 to 1 at
December 31, 1997 and (b) 0.65 to 1 at the end of any fiscal quarter thereafter.
Section 7.15 Sale and Leaseback. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, enter into any arrangement whereby it
sells or transfers any of its assets, and thereafter rents or leases such
assets, except to the extent that the fair market value of the asset(s) covered
by all such arrangements entered into during any fiscal year of the Borrower
does not, in the aggregate, exceed $2,000,000.
Section 7.16 Business. Neither the Borrower nor any Restricted
Subsidiary shall conduct any business other than the business described in
Section 4.1(d) hereof.
Section 7.17 Fiscal Year. The Borrower shall not, and shall not permit
any Restricted Subsidiary to, change its fiscal year except to a fiscal year
ending December 31.
Section 7.18 Amendment of Organizational Documents. The Borrower shall
not, and shall not permit any Restricted Subsidiary to, amend its articles of
incorporation or bylaws (or similar organizational or governance documents) in
any manner that could reasonably be expected to (a) result in a Material Adverse
Effect or (b) impair or affect the Rights of the Administrative Lender or any
Lender under any Loan Documents or in respect of any Collateral.
Section 7.19 Amendments and Waivers of Subordinated Debt. The Borrower
shall not, and shall not permit any Restricted Subsidiary to, change or amend
(or take any action or fail to take any action the result of which is an
effective amendment or change) or accept any waiver or consent with respect to,
any document, instrument or agreement relating to any Subordinated Debt that
would result in (a) an increase in the principal, interest, overdue interest,
fees or other amounts payable under the Subordinated Debt, (b) an acceleration
in any date fixed for payment or prepayment of principal, interest, fees or
other amounts payable under the Subordinated Debt (including, without
limitation, as a result of any redemption), (c) a reduction in any percentage of
holders of the Subordinated Debt required under the terms of the Subordinated
Debt to take (or refrain from taking) any action under the Subordinated Debt,
(d) a change in any financial covenant under the Subordinated Debt making such
financial covenant more restrictive, (e) a change in any default or event of
default (however designated) under the Subordinated Debt which makes such
default or event of default more restrictive, (f) a change in the definition of
"Change of Control" as provided in the Subordinated Debt which would result in
such definition being more restrictive than such definition in this Agreement,
(g) a change in any of the subordination provisions of the Subordinated Debt,
(h) a change in any covenant, term or provision in the Subordinated Debt which
would result in such term or provision being more restrictive than the terms of
this Agreement and the other Loan Documents or (i) a change in any term or
provision
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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 Restricted Subsidiary to, (a) amend, modify or terminate the
Custodial Agreement or (b) interfere with the Custodian's performance of its
duties under the Custodial Agreement or take any action that would be
inconsistent with the Custodial Agreement.
Section 7.23 Notes Receivable. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, amend, modify or waive any terms of any
Note Receivable included in the Borrowing Base or permit any departure from the
obligations thereunder unless, and only to the extent that, (a) at the time of
any such amendment, modification or waiver, no default, event of default or
breach (howsoever designated) exists under, or with respect to, the applicable
Note Receivable, and (b) either (x) such amendment, modification or waiver does
not, and could not reasonably be expected to, result in such Note Receivable not
constituting an Eligible Note Receivable hereunder or (y) such amendment,
modification or waiver is evidenced by a replacement Note Receivable that is an
Eligible Note Receivable.
ARTICLE 8
Default
Section 8.1 Events of Default. Each of the following shall constitute
an Event of Default, whatever the reason for such event, and whether voluntary,
involuntary, or effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
non-governmental body:
(a) Any representation or warranty made under any Loan Document shall
prove to have been incorrect or misleading in any material respect when made;
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(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, custodian, sequestrator or similar official of
any Obligor or any Subsidiary of the Borrower, or of any substantial part of
their respective properties, or (iii) the winding-up or liquidation of the
affairs of any Obligor or any Subsidiary of the Borrower, and any such
proceeding or petition shall continue unstayed and in effect for a period of
forty-five days;
(g) Any Obligor or any Subsidiary of the Borrower shall (i) file a
petition, answer or consent seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other applicable Federal,
state or foreign bankruptcy law or other similar law, (ii) consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of any Obligor or any
Subsidiary of the Borrower or of substantially all of its properties, (iii) file
an answer admitting the material allegations filed against it in any such
proceeding, (iv) make a general assignment for the benefit of creditors, (v)
become unable, admit in writing its ability or fail generally to pay its debts
as they become due, or (vi) any Obligor or any Subsidiary of the Borrower shall
take any corporate action in furtherance of any of the actions described in this
Section 8.1(g);
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(h) A final judgment or judgments shall be entered by any court against
any Obligor for the payment of money which exceeds $500,000 in the aggregate for
all Obligors, or a warrant of attachment or execution or similar process shall
be issued or levied against property of any Obligor which, together with all
other such property of the Borrower and its Subsidiaries subject to any such
process, exceeds in value $500,000 in the aggregate, and if such judgment or
award is not insured or, within 30 days after the entry, issue or levy thereof,
such judgment, warrant or process shall not have been paid or discharged or
stayed pending appeal, or if, after the expiration of any such stay, such
judgment, warrant or process shall not have been paid or discharged;
(i) With respect to any Plan of the Borrower or any member of its
Controlled Group: (i) the Borrower, any such member, or any other
party-in-interest or disqualified person (other than any Lender) shall engage in
transactions which in the aggregate would reasonably be expected to result in a
direct or indirect liability to the Borrower or any member of its Controlled
Group under Section 409 or 502 of ERISA or Section 4975 of the Code; (ii) the
Borrower or any member of its Controlled Group shall incur any accumulated
funding deficiency, as defined in Section 412 of the Code, or request a funding
waiver from the Internal Revenue Service for contributions; (iii) the Borrower
or any member of its Controlled Group shall incur any withdrawal liability as a
result of a complete or partial withdrawal within the meaning of Section 4203 or
4205 of ERISA, or any other liability with respect to a Plan, unless the amount
of such liability has been funded within the Plan or pursuant to one or more
insurance contracts; (iv) a termination of a Multiemployer Plan, as defined in
Section 1.1 hereof but without regard to the five-year limitation set forth
therein, shall occur pursuant to Section 4041A of ERISA; (v) the Borrower or any
member of its Controlled Group shall fail to make a required contribution by the
due date under Section 412 of the Code or Section 302 of ERISA which would
result in the imposition of a lien under Section 412 of the Code or Section 302
of ERISA; (vi) the Borrower, any member of its Controlled Group or any Plan
sponsor shall notify the PBGC of an intent to terminate, or the PBGC shall
institute proceedings to terminate, any Plan (other than a Multiemployer Plan)
subject to Title IV of ERISA; (vii) a Reportable Event shall occur with respect
to a Plan (other than a Multiemployer Plan) subject to Title IV of ERISA, and
within 15 days after the reporting of such Reportable Event to the
Administrative Lender, the Administrative Lender shall have notified the
Borrower in writing that the Determining Lenders have made a determination that,
on the basis of such Reportable Event, there are reasonable grounds for the
termination of such Plan by the PBGC or for the appointment by the appropriate
United States District Court of a trustee to administer such Plan and as a
result thereof an Event of Default shall have occurred hereunder; (viii) a
trustee shall be appointed by a court of competent jurisdiction to administer
any Plan (other than a Multiemployer Plan) or the assets thereof; or (ix) any
ERISA Event with respect to a Plan (other than a Multiemployer Plan) subject to
Title IV of ERISA shall have occurred, and 30 days thereafter (A) such ERISA
Event, other than such event described in clause (f) of the definition of ERISA
Event herein, (if correctable) shall not have been corrected and (B) the then
present value of such Plan's benefit liabilities, as defined in Title IV of
ERISA, shall exceed the then current value of assets accumulated in such Plan;
provided, however, that the events listed in subsections (i) - (ix) above shall
constitute Events of Default only if the maximum aggregate liability which the
Borrower or any member of its Controlled Group has a reasonable likelihood
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of incurring under the applicable provisions of ERISA resulting from an event or
events exceeds $500,000.
(j) The Borrower or any Restricted Subsidiary shall default in the
payment of any Indebtedness or any lease obligations in an aggregate amount of
$500,000 or more beyond any grace period provided with respect thereto, or any
other event or condition shall exist under any agreement or instrument under
which any such Indebtedness or lease obligation is created or evidenced beyond
any applicable grace period, if the effect of such event or condition is to
permit or cause the holder of such Indebtedness or lease obligation (or a
trustee on behalf of any such holder) to (i) cause any such Indebtedness or
lease obligation to be prepaid or to become due prior to its date of maturity or
(ii) require the Borrower or any Restricted Subsidiary to purchase, prepay or
redeem any such Indebtedness or lease obligation;
(k) Any real property lease where the Borrower or any Restricted
Subsidiary is the lessee shall terminate or cease to be effective, and
termination or cessation thereof, together with all other leases, if any, which
have been terminated or cease to be effective, could reasonably be expected to
have a Material Adverse Effect; provided, however, that termination or cessation
of a lease shall not constitute an Event of Default if another lease reasonably
satisfactory to the Determining Lenders is contemporaneously substituted
therefor;
(l) Any provision of any Loan Document shall for any reason cease to be
valid and binding on or enforceable against any party to it (other than the
Administrative Lender or any Lender) other than in accordance with its terms, or
any such party (other than the Administrative Lender or any Lender) shall so
assert in writing;
(m) Any Collateral Document shall for any reason (other than pursuant
to the terms thereof) cease to create a valid and perfected first priority Lien
in any Collateral subject thereto; or
(n) A Change of Control shall occur.
Section 8.2 Remedies. If an Event of Default shall have occurred and
shall be continuing:
(a) With the exception of an Event of Default specified in Section
8.1(f) or (g) hereof, the Administrative Lender shall, upon the direction of the
Determining Lenders, terminate the Commitments and/or declare the principal of
and interest on the Advances and all Obligations and other amounts owed under
the Loan Documents to be forthwith due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything in the Loan Documents to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in Section
8.1(f) or (g) hereof, such principal, interest and other amounts shall thereupon
and concurrently therewith
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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.
ARTICLE 9
Changes in Circumstances
Section 9.1 LIBOR Basis Determination Inadequate. If with respect to
any proposed LIBOR Advance for any Interest Period, (i) any Lender determines
that deposits in dollars (in the applicable amount) are not being offered to
that Lender in the relevant market for such Interest Period or (ii) the
Determining Lenders determine that the LIBOR Rate for such proposed LIBOR
Advance does not adequately cover the cost to any Lender(s) of making and
maintaining such proposed LIBOR Advance for such Interest Period, such Lender or
Determining Lenders, as the case may be, shall forthwith give notice thereof to
the Borrower, whereupon until such Lender or Determining Lenders, as the case
may be, notify the Borrower that the circumstances giving rise to such situation
no longer exist, the obligation of the applicable Lender(s) to make LIBOR
Advances shall be suspended; provided, however, such Lender or the Determining
Lenders, as the case may be, shall promptly notify the Borrower if the
circumstances giving rise to such situation no longer exist.
Section 9.2 Illegality. If any change in applicable law, rule or
regulation, or adoption thereof, or any change in any interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its LIBOR Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency, shall make it unlawful or impossible for such Lender (or its
LIBOR Lending Office) to make, maintain or fund its LIBOR Advances, such Lender
shall so notify the Borrower and the
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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.
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);
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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
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
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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 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
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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 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
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provisions of this Article shall continue to inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Administrative
Lender under this Agreement.
(c) Expenses. Each Lender shall pay its pro rata share, based on its
Specified Percentage, of any expenses paid by the Administrative Lender directly
and solely in connection with any of the Loan Documents if Administrative Lender
does not receive reimbursement therefor from other sources within 60 days after
the date incurred. Any amount so paid by the Lenders to the Administrative
Lender shall be returned by the Administrative Lender pro rata to each paying
Lender to the extent later paid by the Borrower or any other Person on the
Borrower's behalf to the Administrative Lender.
(d) Delegation of Duties. The Administrative Lender may execute any of
its duties hereunder by or through officers, directors, employees, attorneys or
agents, and shall be entitled to (and shall be protected in relying upon) advice
of counsel concerning all matters pertaining to its duties hereunder.
(e) Reliance by Administrative Lender. The Administrative Lender and
its officers, directors, employees, attorneys and agents shall be entitled to
rely and shall be fully protected in relying on any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order, or other document or conversation 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
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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
Advances made by it and the Notes issued to it, the Administrative Lender shall
have the same rights as a Lender and may exercise the same as though it were not
the Administrative Lender, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Lender in its individual
capacity. The Administrative Lender or any Lender may accept deposits from, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower and any of its Affiliates, and any Person who may do business
with or own securities of the Borrower or any of its Affiliates, all as if the
Administrative Lender were not the Administrative Lender hereunder and without
any duty to account therefor to the Lenders.
Section 10.2 Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Lender or any
other Lender and based upon the financial statements referred to in Sections
4.1(j), 6.1, and 6.2 hereof, and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon the Administrative Lender or any other Lender and based upon such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents. Each Lender also acknowledges that its
decision to fund the initial Revolving Credit Advances shall constitute evidence
to the Administrative Lender that such Lender has deemed all of the conditions
set forth in Section 3.1 to have been satisfied.
Section 10.3 Benefits of Article. None of the provisions of this
Article shall inure to the benefit of any Person other than Lenders and, with
respect to Section 10.1(b), the Borrower; consequently, no such other Person
shall be entitled to rely upon, or to raise as a defense, in any
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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:
(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
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(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:
(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
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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.
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.
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(b) No Lender shall be entitled to assign or grant a participation in
its interest in this Agreement, its Notes or its Advances, except as set forth
in this Agreement.
(c) Without the consent of the Borrower, any Lender may at any time
sell participations in all or any part of its Advances and Reimbursement
Obligations (collectively, "Participations") to any banks or other financial
institutions ("Participants") provided that neither such Participation nor any
agreement relating thereto shall confer on any Person (other than the parties
hereto) any right to vote on, approve or sign amendments or waivers, or any
other independent benefit or any legal or equitable right, remedy or other claim
under this Agreement or any other Loan Documents, other than the right to vote
on, approve, or sign amendments or waivers or consents with respect to items
that would result in (i) any increase in the commitment of any Participant; or
(ii)(A) the extension of the date of maturity of, or (B) the extension of the
due date for any payment of principal, interest or fees respecting, or (C) the
reduction of the amount of any installment of principal or interest on or the
change or reduction of any mandatory reduction required hereunder, or (D) a
reduction of the rate of interest on, the Advances, the Letters of Credit, or
the Reimbursement Obligations to which such Participant is entitled; or (iii)
the release of security for the Obligations, including without limitation any
guarantee, except pursuant to this Agreement or the other Loan Documents; or
(iv) the reduction of any fees payable hereunder to which such Participant is
entitled. Notwithstanding the foregoing, the Borrower agrees that the
Participants shall be entitled to the benefits of Article 9 hereof as though
they were Lenders and the Lenders may, subject to Section 11.14 hereof, provide
copies of all financial information received from the Borrower to such
Participants.
(d) Each Lender may assign to one or more financial institutions
organized under the laws of the United States, or any state thereof, or under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country,
which is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business (each, an "Assignee") its rights
and obligations under this Agreement and the other Loan Documents; provided,
however, that (i) each such assignment shall be subject to the prior written
consent of the Administrative Lender and Borrower, which consent shall not be
unreasonably withheld (provided, however, notwithstanding anything herein to the
contrary, no consent of the Borrower is required for any assignment during any
time that an Event of Default has occurred and is continuing or for any
assignment at any time by a Lender to any Affiliate of such Lender or to any
other Lender), (ii) no such assignment shall be in an amount of Commitments less
than $10,000,000 unless such lesser amount represents the entirety of the
Commitments of the applicable Lender, (iii) the applicable Lender,
Administrative Lender and applicable Assignee shall execute and deliver to the
Administrative Lender an Assignment and Acceptance Agreement (an "Assignment
Agreement") in substantially the form of Exhibit F hereto, together with the
Notes subject to such assignment, (iv) the Assignee executing the Assignment,
shall deliver to the Administrative Lender a processing fee of $3,500 and (v)
each such assignment shall be a constant, not a varying, percentage of the
assigning Lender's Rights and obligations in respect of the Advances. Upon such
execution, delivery and acceptance from and after the effective date specified
in each Assignment, which effective date
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<PAGE> 95
shall be at least three Business Days after the execution thereof, (A) the
Assignee thereunder shall be party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment, have
the rights and obligations of a Lender hereunder and (B) the applicable Lender
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment, relinquish such rights (excluding any rights to
indemnity which would have survived the termination of this Agreement, which
rights of indemnity shall apply to both the assigning Lender and the Assignee)
and be released from such obligations under this Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary, any
Lender may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular issued by such Federal Reserve Bank; provided,
however, that no such assignment under this clause (e) shall release the
assignor Lender from its obligations hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a Lender
and an Assignee, and any Note or Notes subject to such assignment, the Borrower
shall, within five Business Days after its receipt of such Assignment Agreement,
at no expense to the Borrower, execute and deliver to the Administrative Lender
in exchange for the surrendered Notes new Notes to the order of such Assignee in
an amount equal to the portion of the Advances and Commitments assigned to it
pursuant to such Assignment Agreement and new Notes to the order of the assignor
Lender in an amount equal to the portion of the Advances and Commitments
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes, shall
be dated the effective date of such Assignment Agreement and shall otherwise be
in substantially the form of Exhibit A.
(g) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 11.6, disclose
to the assignee or Participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower, provided such Person agrees in writing to handle such information
in accordance with the standards set forth in Section 11.14 hereof.
(h) Except as specifically set forth in this Section 11.6, nothing in
this Agreement or any other Loan Documents, expressed or implied, is intended to
or shall confer on any Person other than the respective parties hereto and
thereto and their successors and assignees permitted hereunder and thereunder
any benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Documents.
(i) Notwithstanding anything in this Section 11.6 to the contrary, no
Assignee or Participant (nor the assigning or participating Lender) shall be
entitled to receive (whether individually or collectively) any greater payment
under Section 2.14 or Section 9.3 or Section 9.5 than such assigning or
participating Lender would have been entitled to receive with respect to the
interest assigned or participated to such Assignee or Participant.
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<PAGE> 96
Section 11.7 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 11.8 Severability. Any provision of this Agreement which is for
any reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 11.9 Interest and Charges. It is not the intention of any
parties to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, no Lender shall ever be entitled to receive, collect or apply,
as interest on the Obligations, any amount in excess of the Highest Lawful
Amount. If any Lender or participant ever receives, collects or applies, as
interest, any such excess, such amount which would be excessive interest shall
be deemed a partial repayment of principal and treated hereunder as such; and if
principal is paid in full, any remaining excess shall be paid to the Borrower.
In determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Amount, the Borrower and the Lenders
shall, to the maximum extent permitted under Applicable Law, (a) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effect thereof, and (c) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
throughout the entire contemplated term of the Obligations so that the interest
rate is uniform throughout the entire term of the Obligations; provided,
however, that if the Obligations are paid and performed in full prior to the end
of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Highest Lawful Amount, the
Lenders shall refund to the Borrower the amount of such excess or credit the
amount of such excess against the total principal amount of the Obligations
owing, and, in such event, the Lenders shall not be subject to any penalties
provided by any laws for contracting for, charging or receiving interest in
excess of the Highest Lawful Amount or the Highest Lawful Rate. This Section
shall control every other provision of all agreements pertaining to the
transactions contemplated by or contained in the Loan Documents.
Section 11.10 Headings. Headings used in this Agreement are for
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
Section 11.11 Amendment and Waiver. The provisions of this Agreement
may not be amended, modified or waived except by the written agreement of the
Borrower and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Specified Percentage or commitment of any Lender, or
(ii) extend or postpone the date of maturity of, extend the due date for any
payment of principal or interest on, reduce the amount of any installment of
principal or interest on, or reduce the rate of interest on, any Revolving
Credit Advance, the
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<PAGE> 97
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 FORGED; (C) PAYMENT BY THE ISSUING
BANK AGAINST PRESENTATION OF DOCUMENTS THAT DO NOT COMPLY WITH THE TERMS OF A
LETTER OF CREDIT, INCLUDING FAILURE OF ANY DOCUMENTS TO BEAR ANY REFERENCE OR
ADEQUATE REFERENCE TO THE LETTER OF CREDIT, EXCEPT FOR ANY PAYMENT MADE UPON THE
ISSUING BANK'S GROSS NEGLIGENCE OR WILFUL MISCONDUCT; OR (D) ANY OTHER
CIRCUMSTANCES WHATSOEVER IN MAKING OR FAILING TO MAKE PAYMENT UNDER ANY LETTER
OF CREDIT, INCLUDING, WITHOUT LIMITATION, ANY SUCH CIRCUMSTANCES INVOLVING THE
SIMPLE OR MERE NEGLIGENCE OF THE ISSUING BANK EXCEPT THAT THE BORROWER SHALL
HAVE A CLAIM AGAINST THE ISSUING BANK, AND THE ISSUING BANK SHALL BE LIABLE TO
THE BORROWER, TO THE EXTENT OF ANY DIRECT, BUT NOT CONSEQUENTIAL, DAMAGES
SUFFERED BY THE BORROWER THAT A COURT OF COMPETENT JURISDICTION DETERMINES WERE
CAUSED BY (I) THE ISSUING BANK'S WILFUL MISCONDUCT OR GROSS NEGLIGENCE OR (II)
THE ISSUING BANK'S WILFUL
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<PAGE> 98
FAILURE TO MAKE LAWFUL PAYMENT UNDER A LETTER OF CREDIT AFTER THE PRESENTATION
TO IT OF A DRAFT AND CERTIFICATES STRICTLY COMPLYING WITH THE TERMS AND
CONDITIONS OF THE LETTER OF CREDIT. In furtherance and not in limitation of the
foregoing, the Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary.
Section 11.14 Confidentiality. Each Lender and the Administrative
Lender agrees (on behalf of itself and each of its directors, officers,
employees and representatives) to use reasonable precautions to keep
confidential, in accordance with customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Borrower pursuant to
this Agreement which is identified by the Borrower as being confidential at the
time the same is delivered to the Lenders or the Administrative Lender, provided
that nothing herein shall limit the disclosure of any such information (a) to
the extent required by statute, rule, regulation or judicial process, (b) to
counsel for any Lender or the Administrative Lender, (c) to bank examiners,
auditors or accountants of any Lender, (d) to the Administrative Lender or any
other Lender, (e) in connection with any Litigation to which any one or more of
Lenders is a party, provided, further, that, unless specifically prohibited by
Applicable Law or court order, each Lender shall, prior to disclosure thereof,
notify Borrower of any request for disclosure of any such non-public information
(i) by any Tribunal or representative thereof (other than any such request in
connection with an examination of such Lender's financial condition by such
governmental agency) or (ii) pursuant to legal process, or (f) to any Assignee
or Participant (or prospective Assignee or Participant) so long as such Assignee
or Participant (or prospective Assignee or Participant) agrees in writing to
handle such information in accordance with the provisions of this Section 11.14.
Section 11.15 No Liability of Lenders to Purchasers. The Lenders do not
assume and shall have no responsibility, obligation or liability to the
Purchasers, the Lenders' relationship being solely that of a creditor who has
taken, as security for Indebtedness owed to it, an Assignment of Pledged
Documents.
SECTION 11.16 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS) AND THE
UNITED STATES OF AMERICA. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS, TEXAS,
AND BORROWER AND EACH SURETY, GUARANTOR, ENDORSER AND ANY OTHER PARTY EVER
LIABLE FOR PAYMENT OF ANY MONEY PAYABLE WITH RESPECT TO THE LOAN DOCUMENTS,
JOINTLY AND SEVERALLY WAIVE THE RIGHT TO BE SUED ELSEWHERE. WITHOUT EXCLUDING
ANY OTHER JURISDICTION, THE BORROWER, THE ADMINISTRATIVE LENDER AND EACH LENDER
EACH AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS,
SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH
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<PAGE> 99
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> 100
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date
first set forth above.
BORROWER: SIGNATURE RESORTS, INC.
By: /s/ DEWEY W. CHAMBERS
-------------------------------------
-------------------------------------
-------------------------------------
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A., as
Administrative Lender
By: /s/ TOM BLAKE
-------------------------------------
Tom Blake
Senior Vice President
DOCUMENTATION AGENT: SOCIETE GENERALE, as Documentation Agent
By: /s/ J. BLAINE SHAUM
-------------------------------------
Name: J. Blaine Shaum
------------------------------------
Title: Regional Manager
-----------------------------------
2029 Century Park East, Suite 2900
Los Angeles, California 90067
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<PAGE> 101
LENDERS: NATIONSBANK OF TEXAS, N.A., as a Lender,
Swing Line Bank and Issuing Bank
Specified Percentage:
30.00%
By: /s/ TOM BLAKE
-------------------------------------
Tom Blake
Senior Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Tom Blake
Senior Vice President
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<PAGE> 102
SOCIETE GENERALE, as a Lender
Specified Percentage:
25.00%
By: /s/ J. BLAINE SHAUM
-------------------------------------
Name: J. Blaine Shaum
------------------------------------
Title: Regional Manager
-----------------------------------
2029 Century Park East, Suite 2900
Los Angeles, California 90067
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<PAGE> 103
CREDIT LYONNAIS NEW YORK BRANCH
Specified Percentage:
15.00%
By: /s/ RODRICK ROHRBACH
-------------------------------------
Name: Rodrick Rohrbach
------------------------------------
Title: Senior vice President
-----------------------------------
1301 Avenue of the Americas
New York, New York 10019
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<PAGE> 104
BT COMMERCIAL CORPORATION
Specified Percentage:
15.00%
By: /s/ RITA DAGELEN-KESKINYAN
-------------------------------------
Name: Rita Dagelen-Keskinyan
------------------------------------
Title: Senior Vice President
-----------------------------------
14 Wall Street, 3rd Floor
New York, New York 10005
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<PAGE> 105
BANK OF HAWAII
Specified Percentage:
15.00%
By: /s/ JOSEPH T. DONALDSON
-------------------------------------
Name: Joseph T. Donaldson
------------------------------------
Title: Vice President
-----------------------------------
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<PAGE> 106
SCHEDULE 1
LIBOR LENDING OFFICES
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
CREDIT LYONNAIS NEW YORK BRANCH
1301 Avenue of the Americas
New York, New York 10019
SOCIETE GENERALE
2029 Century Park East, Suite 2900
Los Angeles, California 90067
BT COMMERCIAL CORPORATION
14 Wall Street, 3rd Floor
New York, New York 10005
BANK OF HAWAII
130 Merchant Street
20th Floor
Honolulu, Hawaii 96813
SCHEDULE 1 - Page 1
<PAGE> 107
SCHEDULE 2
EXISTING LIENS
PROPERTY SUBJECT AMOUNT OF
TO LIEN LIENHOLDER DEBT SECURED MATURITY DATE
<PAGE> 108
SCHEDULE 3
EXISTING LITIGATION
AND MATERIAL LIABILITIES
<PAGE> 109
SCHEDULE 4
SUBSIDIARIES
State of
Incorporation Percentage
Name or Organization of Ownership Owner
<PAGE> 110
SCHEDULE 5
EXISTING INVESTMENTS
<PAGE> 111
SCHEDULE 6
EXISTING INDEBTEDNESS
<PAGE> 112
SCHEDULE 7
AUTHORIZATION, QUALIFICATION AND GOOD STANDING
<PAGE> 113
SCHEDULE 8
INTELLECTUAL PROPERTY AND DISPUTES
RELATING THERETO
<PAGE> 114
SCHEDULE 9
LABOR RELATIONS
<PAGE> 115
SCHEDULE 10
LIST OF SPECIFIED RESORTS
<PAGE> 116
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT to CREDIT AGREEMENT (this "First Amendment"), dated
as of March 30, 1998, is entered into by and among SIGNATURE RESORTS, INC., a
Maryland corporation, (the "Borrower"), ALL SEASONS RESORTS, INC., an Arizona
corporation, ALL SEASONS RESORTS, INC., a Texas corporation, MMG DEVELOPMENT
CORP., a Florida corporation, MMG HOLDING CORP., a Florida corporation, PORT
ROYAL RESORT, L.P., a South Carolina limited partnership, GRAND BEACH RESORT,
LIMITED PARTNERSHIP, a Georgia limited partnership, POWHATAN ASSOCIATES, a
Virginia Joint Venture, GREENSPRINGS ASSOCIATES, a Virginia Joint Venture, LAKE
TAHOE RESORT PARTNERS, LLC, a California limited liability company (the
foregoing parties other than the Borrower being referred to herein singularly as
a "Guarantor" and collectively as the "Guarantors"), each of the financial
institutions that is listed as a signatory party hereto as a "Lender"
(collectively, the "Lenders"), NATIONSBANK OF TEXAS, N.A., in its capacity as
the Administrative Lender under the Credit Agreement (the "Administrative
Lender") and SOCIETE GENERALE, in its capacity as the Documentation Agent under
the Credit Agreement (the "Documentation Agent").
BACKGROUND
A. The Borrower, the Lenders, the Administrative Lender and the
Documentation Agent are parties to a certain Credit Agreement dated as of
February 18, 1998 (said Credit Agreement, as amended, supplemented, modified
and/or restated, being referred to herein as the the "Credit Agreement"); the
terms defined in the Credit Agreement and not otherwise defined herein shall be
used herein as defined in the Credit Agreement and, to the extent appropriate,
as amended hereby.
B. The Guarantors have heretofore guaranteed all of the indebtedness,
obligations and liabilities of the Borrower to the Lenders under, or in
connection with, the Credit Agreement.
C. The Borrower, the Lenders, the Administrative Lender and the
Documentation Agent desire to amend the Credit Agreement and the Guarantors wish
to consent to such amendments.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Guarantors, the Lenders, the Administrative Lender and the Documentation Agent
covenant and agree as follows:
1. AMENDMENTS.
1.1 The definition of "Commitment" set forth in Article I of the
Credit Agreement is hereby amended to read as follows:
<PAGE> 117
"`Commitment' means $117,500,000, as reduced from time to time
pursuant to Section 2.6 hereof and as increased from time to
time pursuant to Section 1.10 of the First Amendment (provided,
however, that the aggregate amount of the Commitment shall not
be increased to more than $150,000,000 without the prior written
consent of all Lenders)."
1.2 The definition of "Eligible Notes Receivable" set forth in
Article I of the Credit Agreement is hereby amended to read as follows:
"`Eligible Notes Receivable' means at the time of any
determination thereof, the Notes Receivable of the Borrower and
the Restricted Subsidiaries (at least 85% of which the
Purchasers in respect thereof are residents of the United
States, Puerto Rico, the United States Virgin Islands or Canada)
which are reasonably acceptable to the Determining Lenders in
their discretion for the purposes of determining the Borrowing
Base and as to which the following requirements have been
fulfilled with respect to each Note Receivable:
(a) The Borrower or a Restricted Subsidiary has lawful and absolute
title to such Note Receivable;
(b) (i) The interests of the Borrower or the applicable Restricted
Subsidiary(ies) in such Note Receivable are subject to a first priority security
interest in favor of the Administrative Lender pursuant to the Collateral
Documents, prior to the rights of, and enforceable against, all other Persons
and (ii) the interests of the Borrower or the applicable Restricted Subsidiary
in the liens and other rights and agreements relating to such Note Receivable
are subject to a first priority security interest in favor of the Administrative
Lender pursuant to the Collateral Documents, prior to the rights of, and
enforceable against, all other Persons; provided, however, that in the case of
Notes Receivable attributable to Sales of Fee Simple Intervals, the Borrower or
the applicable Restricted Subsidiary shall have a grace period of 60 days from
and after the date of execution of the applicable Note Receivable by the
applicable Purchaser in order to remedy any deficiency under clause (ii) above;
(c) The Note Receivable shall not have a term of greater than
one-hundred twenty (120) months and the Note Receivable shall be payable in
equal monthly payments in amounts sufficient to repay in full the principal
balance thereof and accrued interest thereon during such term; provided,
however, that Notes Receivable having terms greater than one-hundred twenty
(120) months but not greater than one-hundred eighty (180) months may be
included as Eligible Notes Receivable to the extent that such longer term Notes
Receivable otherwise satisfy the criteria for inclusion as Eligible Notes
Receivable;
(d) The Purchaser in respect of such Note Receivable shall have timely
made at least the first regularly scheduled installment payment due thereon;
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<PAGE> 118
(e) The Purchaser in respect of such Note Receivable has made a cash
down payment of at least ten percent (10%) of the aggregate actual purchase
price of all Time-Share Interests purchased by such Purchaser, all of the Notes
Receivable with respect to such Purchaser qualify as, and are included as,
Eligible Notes Receivable and as Collateral hereunder and no part of such cash
down payment by such Purchaser has been made or loaned to the Purchaser by the
Borrower or any of its Subsidiaries or an Affiliate of the Borrower or any of
its Subsidiaries;
(f) The terms of such Note Receivable have not been restructured,
rewritten or otherwise modified in any manner that would reduce the interest
rate with respect thereto, reduce the principal amount thereof, reduce the
amount of any scheduled payment(s) with respect thereto, extend the maturity
date thereof (unless such extension was granted solely for the purpose of
upgrading the applicable Purchaser to a larger Unit and/or an additional
Time-Share Interest in the Project), release or impair any collateral securing
same, release or impair any obligations or duties of any Purchaser with respect
thereto or in any manner that would otherwise result in such Note Receivable not
qualifying as an Eligible Note Receivable hereunder;
(g) No installment of such Note Receivable is more than fifty-nine (59)
days past due;
(h) The Unit in respect of such Note Receivable has been completed,
developed, and furnished pursuant to the specifications provided in the Purchase
Documents or a certificate of occupancy or a bond insuring the completion
thereof has been posted;
(i) The Purchaser is not an Affiliate of, related to or employed by, the
Borrower or any of its Subsidiaries nor is the Purchaser in default under any
Note Receivable or other obligation of such Purchaser to the Borrower or to any
of the Borrower's Subsidiaries;
(j) The Note Receivable is free and clear of all Liens, and subject to
no claims of rescission, invalidity, unenforceability, illegality, defense,
discount, offset or counterclaim;
(k) The Purchaser in respect of such Note Receivable has no right to
rescind the purchase of the Time-Share Interest;
(l) All sales and financing documents relating to the Note Receivable
have been executed and delivered to the Administrative Lender and have not been
modified from the standard forms theretofore approved by the Administrative
Lender;
(m) The terms of such Note Receivable and all related instruments comply
with all Laws;
(n) (i) In the case of each Note Receivable attributable to a Sale of
Fee Simple Interval, such Note Receivable is recognized on the books of the
Borrower or the applicable Restricted Subsidiary, as applicable, as a bona fide
sale of a fee simple interest time-share estate in one or more Time-Share
Interests, and such sale is evidenced by Purchase Documents and secured by a
first priority mortgage or deed of trust on the purchased Time-Share Interest,
which mortgage or deed of trust has been assigned of record by the Borrower or
the applicable Restricted Subsidiary
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<PAGE> 119
to the Administrative Lender; provided, however, that the Borrower or the
applicable Restricted Subsidiary shall have a grace period of 60 days from and
after the date of execution of the applicable Note Receivable by the applicable
Purchaser in order to effectuate the assignment of record to the Administrative
Lender of the mortgage or deed of trust securing such Note Receivable, and
(ii) In the case of each Note Receivable attributable to a Sale
Under Contract For Deed, such Note Receivable is recognized on the books of the
Borrower or the applicable Restricted Subsidiary, as applicable, as a bona fide
sale of a fee simple interest time-share estate in one or more Units, and such
sale is evidenced by Purchase Documents pursuant to which the Borrower or the
applicable Restricted Subsidiary has retained record title to the real property
covered thereby, and such real property is subject to a first priority mortgage
or deed of trust from the Borrower or the applicable Restricted Subsidiary in
favor of the Administrative Lender;
(o) The Time-Share Interest purchased and to which the Note Receivable
relates is not subject to any Lien (other than Liens for ad valorem taxes that
are not yet due and payable, Liens for association assessments that are not yet
due and payable and Liens in favor of the Administrative Lender), and either (i)
the Unit with respect to the Time-Share Interest purchased and to which such
Note Receivable relates is not subject to any Lien (other than Liens for ad
valorem taxes that are not yet due and payable, Liens for association
assessments that are not yet due and payable and Liens in favor of the
Administrative Lender) or (ii) the Time-Share Interest purchased and to which
the Note Receivable relates has been permanently and irrevocably released from
any such Lien (including, without limitation, any after-acquired property
provisions thereof) with respect to such Unit;
(p) (i) In the case of each Note Receivable attributable to a Sale of
Fee Simple Interval, the Note Receivable is secured by a Deed of Trust which is
insured under a mortgagee title insurance policy [or if such mortgagee's title
insurance policy has not been issued, a binding, irrevocable and unconditional
(other than for conditions acceptable to the Administrative Lender) commitment
to issue such mortgagee's title insurance policy] in favor of the Administrative
Lender acceptable to the Administrative Lender, subject only to those exceptions
to title as the Administrative Lender approves, and (ii) in the case of each
Note Receivable attributable to a Sale Under Contract For Deed, the Deed of
Trust granted to the Administrative Lender by the Borrower or the applicable
Restricted Subsidiary in connection therewith is insured under a mortgagee title
insurance policy [or if such mortgagee's title insurance policy has not been
issued, a binding, irrevocable and unconditional (other than for conditions
acceptable to the Administrative Lender) commitment to issue such mortgagee's
title insurance policy] in favor of the Administrative Lender acceptable to the
Administrative Lender, subject only to those exceptions to title as the
Administrative Lender approves; provided, however, that the Borrower or the
applicable Restricted Subsidiary shall have a grace period of 60 days from and
after the date of execution of the applicable Note Receivable by the applicable
Purchaser in order to remedy any deficiency under this clause;
(q) Payments under the Note Receivable are to be in legal tender of the
United States;
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<PAGE> 120
(r) The Note Receivable and the other Purchase Documents are valid,
genuine and enforceable against the Purchaser;
(s) The Purchaser in respect of the Note Receivable has not assigned his
or her obligations under such Note Receivable or rights in the applicable
Time-Share Interest, except to the extent that any such Purchaser has assigned
its interest in a Time-Share Interest to such Purchaser's former spouse in
connection with divorce proceedings between such Purchaser and such former
spouse or to a member of such Purchaser's immediate family and, in either case,
such Purchaser remains primarily liable with respect to such Note Receivable;
(t) The payments due under such Note Receivable have been made by the
Purchaser in respect thereof and not by the Borrower or any of its Subsidiaries
or any Affiliate of the Borrower or any of its Subsidiaries on such Purchaser's
behalf;
(u) The Purchaser in respect of such Note Receivable is not subject to
any Debtor Relief Laws and is not an adverse party in any Litigation (and has
not threatened any Litigation) with the Borrower or any of its Subsidiaries or
any Lender;
(v) The Borrower or the applicable Restricted Subsidiary, as applicable,
has performed all of its obligations to the Purchasers in respect of such Note
Receivable, and there shall be no executory obligations to such Purchaser to be
performed by the Borrower or the applicable Restricted Subsidiary; and
(w) The Project containing the Unit subject to such Note Receivable is
located in the United States of America or in such other jurisdiction(s) as may,
from time to time, be designated in writing by the Determining Lenders.
Notwithstanding anything to the contrary contained herein, (i) the
aggregate outstanding principal balance of Notes Receivable included in the
Borrowing Base and attributable to Sales Under Contracts For Deed shall not, at
any time, exceed ten percent (10%) of the aggregate outstanding principal
balance of all Eligible Notes Receivable included in the Borrowing Base, (ii)
the aggregate outstanding principal balance of Notes Receivable included in the
Borrowing Base and having terms greater than one-hundred twenty (120) months
shall not, at any time, exceed fifteen percent (15%) of the aggregate
outstanding principal balance of all Eligible Note Receivable included in the
Borrowing Base and (iii) the aggregate outstanding principal balance of Notes
Receivable included in the Borrowing Base and with respect to which any grace
period under clause(s) (b),(n) and/or (p) of the foregoing definition of
"Eligible Notes Receivable" remains in effect shall not, at any time, exceed the
lesser of (x) $15,000,000 and (y) fifteen percent (15%) of the aggregate
outstanding principal balance of all Eligible Notes Receivable included in the
Borrowing Base."
1.3 The definition of "Net Exposure Under Securitization" set
forth in Article I of the Credit Agreement is hereby amended to read as
follows:
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<PAGE> 121
"`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 recourse
liabilities of the Borrower or of such Restricted Subsidiary 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."
1.4 The definition of "Note Receivable" set forth in Article I
of the Credit Agreement is hereby amended to read as follows:
"`Note Receivable' means a promissory note executed by a
Purchaser in favor of the Borrower or a Restricted Subsidiary
which has arisen out of a Sale of Fee Simple Interval or a Sale
Under Contract For Deed to a Purchaser."
1.5 The definition of "Specified Percentage" set forth in
Article I of the Credit Agreement is hereby amended to read as follows:
"`Specified Percentage' means, as to any Lender, the percentage
indicated beside its name on the signature pages of the First
Amendment, or if applicable, specified in its most recent
Assignment Agreement or the most recent amendment to this
Agreement and, following any increase in the Commitment pursuant
to Section 1.10 of the First Amendment, as to any Lender, (i) if
such Lender has not agreed to increase its portion of the
Commitment, a percentage equal to the quotient of (expressed as
a percentage) (x) such Lender's Specified Percentage immediately
prior to such increase in the Commitment, times the Commitment
immediately prior to such increase divided by (y) the
Commitment, as increased, or (ii) if such Lender has agreed to
increase its portion of the Commitment, a percentage acceptable
to such Lender and the Administrative Lender."
1.6 The definition of "Time Share Interest" set forth in Article
I of the Credit Agreement is hereby amended to read as follows:
"`Time Share Interest' means the property, rights, and interests
acquired by a Purchaser under a Sale of Fee Simple Interval or a
Sale Under Contract For Deed."
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<PAGE> 122
1.7 Article I of the Credit Agreement is hereby amended by
adding thereto the following additional defined terms:
"`First Amendment' means that certain First Amendment hereto,
dated as of March 30, 1998."
"`Sale of Fee Simple Interval' means a sale of 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, pursuant to which the
Purchaser acquires record title to such interest
contemporaneously with, or substantially contemporaneously with,
the consummation of such sale."
"`Sale Under Contract For Deed' means a sale of 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, pursuant to which the
Purchaser acquires beneficial title to such interest
contemporaneously with, or substantially contemporaneously with,
the consummation of such sale, but the Purchaser does not
receive record title to such interest until the Purchaser has
satisfied all of the conditions precedent set forth in the
applicable sales documentation (including, without limitation,
the payment in full of the purchase price for such interest)."
1.8 Section 7.13 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted in lieu thereof:
"Section 7.13 Maximum Senior Debt to Total Capital. The Borrower
shall not permit the ratio of Senior Debt to Total Capital to
exceed 0.30 to 1 at the end of any fiscal quarter."
1.9 Section 7.14 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted in lieu thereof:
"Section 7.14 Maximum Total Debt to Total Capital. The Borrower
shall not permit the ratio of Total Debt to Total Capital to
exceed 0.73 to 1 at the end of any fiscal quarter."
1.10 Notwithstanding anything to the contrary contained in the
Credit Agreement, the parties hereto acknowledge and agree that
hereafter, upon request of the
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<PAGE> 123
Borrower, the Commitment may, from time to time, be increased to an
aggregate amount of up to $150,000,000 with the consent of only such of
the Lenders as are increasing their respective portion of such
Commitment, it being the express intent and understanding of the parties
hereto that the consent of any Lender shall not be required in
connection with any such increase in the Commitment if, and to the
extent that, the dollar amount of such Lender's portion of the
Commitment is not increased thereby. The Administrative Lender shall use
its best efforts to notify each Lender of any such increase in the
Commitment at least two (2) days prior to the effective date thereof.
2. ADDITIONAL COVENANTS; REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT
OF DEFAULT. By its execution and delivery hereof, the Borrower and each
Guarantor covenants, agrees, represents and warrants that, as of the date hereof
and after giving effect to the amendments contemplated by the foregoing Section
1:
(a) Neither the execution and delivery of this Amendment nor the
consummation of the transactions contemplated hereby shall terminate, limit or
otherwise reduce the obligations and/or liabilities of such Guarantor under, or
in connection with, such Guarantor's guaranty of the Obligations or any other
Loan Document executed by such Guarantor, all of which obligations and
liabilities are hereby ratified and confirmed by each Guarantor;
(b) No event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) The Borrower has full power and authority to execute and deliver
this First Amendment and this First Amendment, and the Credit Agreement, as
amended hereby, constitute the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law);
(d) Each Guarantor has full power and authority to execute and deliver
this First Amendment and this First Amendment constitutes the legal, valid and
binding obligations of such Guarantor, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law); and
(e) No authorization, approval, consent, or other action by, notice to,
or filing with, any governmental authority or other Person (other than the
consent of the respective Board of Directors of each of the Borrower and each
Guarantor), is required for the execution, delivery or performance by the
Borrower or any Guarantor of this First Amendment.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of March 30, 1998, subject to the following:
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<PAGE> 124
(a) the Administrative Lender shall have received a counterpart of this
First Amendment executed by each Lender and by the Documentation Agent;
(b) the Administrative Lender shall have received a counterpart of this
First Amendment executed by the Borrower and by each Guarantor;
(c) the Administrative Lender shall have received all of the payments
required to be made by the Borrower as of the date of this Amendment pursuant to
the terms of a certain fee letter agreement, of even date herewith, among the
Borrower and the Administrative Lender;
(d) the Administrative Lender shall have received certified resolutions
of the respective board of directors of each of the Borrower and each Guarantor
authorizing the execution, delivery and performance of this First Amendment; and
(e) the Administrative Lender shall have received, in form and substance
satisfactory to the Administrative Lender, such other documents, certificates
and instruments as the Administrative Lender shall require.
4. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "herein", or words of
like import shall mean and be a reference to the Credit Agreement, as affected
and amended hereby.
(b) The Credit Agreement, as amended by the amendments referred to
above, and all other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Lender in connection with
the preparation, reproduction, execution and delivery of this First Amendment
and the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Administrative
Lender as to its rights and responsibilities under the Credit Agreement, as
hereby amended).
6. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
7. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be governed
by and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrower, each Guarantor, each Lender, the Administrative
Lender and the Documentation Agent and their respective successors and assigns.
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<PAGE> 125
8. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
9. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first above written.
BORROWER: SIGNATURE RESORTS, INC.
By: /s/ DEWEY W. CHAMBERS
---------------------------------
Dewey W. Chambers
---------------------------------
Vice President
---------------------------------
GUARANTORS: ALL SEASONS RESORTS, INC., an
Arizona corporation
By: /s/ DEWEY W. CHAMBERS
---------------------------------
Name: Dewey W. Chambers
-------------------------------
Title: Vice President
------------------------------
ALL SEASONS RESORTS, INC., a Texas
corporation
By: /s/ DEWEY W. CHAMBERS
---------------------------------
Name: Dewey W. Chambers
-------------------------------
Title: President
------------------------------
MMG DEVELOPMENT CORP., a Florida
corporation
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<PAGE> 126
By: /s/ DEWEY W. CHAMBERS
---------------------------------
Name: Dewey W. Chambers
-------------------------------
Title: Vice President
------------------------------
MMG HOLDING CORP., a Florida
corporation
By: /s/ DEWEY W. CHAMBERS
---------------------------------
Name: Dewey W. Chambers
-------------------------------
Title: Vice President
------------------------------
PORT ROYAL RESORT, L.P., a South
Carolina limited partnership
By: Argosy/KGI Port Royal Partners,
a South Carolina general
partnership, as its general
partner
By: KGI Port Royal, Inc., a
South Carolina corporation,
as its general partner
By: /s/ DEWEY W. CHAMBERS
-----------------------------
Name: Dewey W. Chambers
---------------------------
Title: Vice President
--------------------------
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<PAGE> 127
GRAND BEACH RESORT, LIMITED
PARTNERSHIP, a Georgia limited partnership
By: Grand Beach Partners, L.P., a
California limited partnership, as its
general partner
By: Argosy/KGI Grand Beach
Investment Partnership, a
California general partnership,
as its general partner
By: Argosy Grand Beach,
Inc., a Georgia corporation,
as its general partner
By: /s/ DEWEY W. CHAMBERS
---------------------------
Name: Dewey W. Chambers
-------------------------
Title: Vice President
------------------------
POWHATAN ASSOCIATES, a Virginia Joint Venture
By: Plantation Resort Group, Inc., a Virginia
corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
-----------------------------------
Name: Dewey W. Chambers
---------------------------------
Title: Vice President
---------------------------------
By: Williamsburg Vacations, Inc., a Virginia
corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
-----------------------------------
Name: Dewey W. Chambers
---------------------------------
Title: Vice President
---------------------------------
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<PAGE> 128
GREENSPRINGS ASSOCIATES, a Virginia Joint
Venture
By: Plantation Resort Group, Inc., a Virginia
corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
-----------------------------------
Name: Dewey W. Chambers
---------------------------------
Title: Vice President
---------------------------------
By: Greensprings Plantation Resort, Inc., a
Virginia corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
-----------------------------------
Name: Dewey W. Chambers
---------------------------------
Title: Vice President
---------------------------------
LAKE TAHOE RESORT PARTNERS, LLC, a
California limited liability company
By: AKGI Lake Tahoe Investments, Inc., a
California corporation, as its managing
member
By: /s/ DEWEY W. CHAMBERS
-----------------------------------
Name: Dewey W. Chambers
---------------------------------
Title: Vice President
---------------------------------
By: KGK Lake Tahoe Development, Inc., a
California corporation, as its member
By: /s/ DEWEY W. CHAMBERS
-----------------------------------
Name: Dewey W. Chambers
---------------------------------
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<PAGE> 129
Title: Vice President
---------------------------------
- 14 -
<PAGE> 130
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A., as Administrative
Lender
By: /s/ TOM BLAKE
---------------------------------
Tom Blake
Senior Vice President
DOCUMENTATION AGENT: SOCIETE GENERALE, as Documentation Agent
By: /s/ J. BLAINE SHAUM
---------------------------------
Name: J. Blaine Shaum
-------------------------------
Title: Regional Manager
------------------------------
2029 Century Park East, Suite 2900
Los Angeles, California 90067
LENDERS: NATIONSBANK OF TEXAS, N.A., as a Lender, Swing
Line Bank and Issuing Bank
SPECIFIED PERCENTAGE:
31.91489362%
By: /s/ TOM BLAKE
---------------------------------
Tom Blake
Senior Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Tom Blake
Senior Vice President
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<PAGE> 131
SOCIETE GENERALE, as a Lender
SPECIFIED PERCENTAGE:
26.59574468%
By: /s/ J. BLAINE SHAUM
---------------------------------
Name: J. Blaine Shaum
-------------------------------
Title: Regional Manager
------------------------------
2029 Century Park East, Suite 2900
Los Angeles, California 90067
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<PAGE> 132
BT COMMERCIAL CORPORATION
SPECIFIED PERCENTAGE:
15.95744681%
By: /s/ ALBERT L. FISCHETTI
---------------------------------
Name: Albert L. Fischetti
-------------------------------
Title: Senior Vice President
------------------------------
14 Wall Street, 3rd Floor
New York, New York 10005
- 17 -
<PAGE> 133
CREDIT LYONNAIS NEW YORK BRANCH
SPECIFIED PERCENTAGE:
12.76595745%
By: /s/ JAN HAZELTON
---------------------------------
Name: Jan Hazelton
-------------------------------
Title: Vice President
------------------------------
1301 Avenue of the Americas
New York, New York 10019
- 18 -
<PAGE> 134
BANK OF HAWAII
SPECIFIED PERCENTAGE:
12.76595745%
By: /s/ DONNA R. PARKER
---------------------------------
Name: Donna R. Parker
-------------------------------
Title: Vice President
------------------------------
------------------------------
------------------------------
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<PAGE> 135
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT to CREDIT AGREEMENT (this "Second Amendment"),
dated as of May 29, 1998, is entered into by and among SIGNATURE RESORTS, INC.,
a Maryland corporation, (the "Borrower"), ALL SEASONS RESORTS, INC., an Arizona
corporation, ALL SEASONS RESORTS, INC., a Texas corporation, MMG DEVELOPMENT
CORP., a Florida corporation, MMG HOLDING CORP., a Florida corporation, PORT
ROYAL RESORT, L.P., a South Carolina limited partnership, GRAND BEACH RESORT,
LIMITED PARTNERSHIP, a Georgia limited partnership, POWHATAN ASSOCIATES, a
Virginia Joint Venture, GREENSPRINGS ASSOCIATES, a Virginia Joint Venture, LAKE
TAHOE RESORT PARTNERS, LLC, a California limited liability company (the
foregoing parties other than the Borrower being referred to herein singularly as
a "Guarantor" and collectively as the "Guarantors"), each of the financial
institutions that is listed as a signatory party hereto as a "Lender"
(collectively, the "Lenders"), NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., in its capacity as the Administrative Lender under
the Credit Agreement (the "Administrative Lender") and SOCIETE GENERALE, in its
capacity as the Documentation Agent under the Credit Agreement (the
"Documentation Agent").
BACKGROUND
A. The Borrower, the Lenders, the Administrative Lender and the
Documentation Agent are parties to a certain Credit Agreement dated as of
February 18, 1998 (said Credit Agreement, as amended, supplemented, modified
and/or restated, being referred to herein as the the "Credit Agreement"); the
terms defined in the Credit Agreement and not otherwise defined herein shall be
used herein as defined in the Credit Agreement and, to the extent appropriate,
as amended hereby.
B. The Guarantors have heretofore guaranteed all of the indebtedness,
obligations and liabilities of the Borrower to the Lenders under, or in
connection with, the Credit Agreement.
C. The Borrower, the Lenders, the Administrative Lender and the
Documentation Agent desire to amend the Credit Agreement and the Guarantors wish
to consent to such amendments.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Guarantors, the Lenders, the Administrative Lender and the Documentation Agent
covenant and agree as follows:
<PAGE> 136
1. AMENDMENTS.
1.1 Article I of the Credit Agreement is hereby amended by
adding thereto the following additional defined term:
"`Adjusted Net Worth' means the sum of the following for the
Borrower and the Restricted Subsidiaries, on a consolidated
basis, determined in accordance with GAAP, (a) Net Worth minus
(b) the sum of the following (without duplication in respect of
items already deducted in arriving at Net Worth): Intangible
Assets, and any write-up in the book value of assets resulting
from revaluation thereof subsequent to December 31, 1996."
1.2 Article I of the Credit Agreement is hereby amended by
deleting the defined term "Tangible Net Worth" therefrom.
1.3 The definition of "Intangible Assets" set forth in Article I
of the Credit Agreement is hereby amended to read as follows:
"`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 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;
provided, however, that goodwill shall not be included as an
Intangible Asset for purposes of this Agreement."
1.4 The definition of "Total Capital" set forth in Article I of
the Credit Agreement is hereby amended to read as follows:
"`Total Capital' means, as of any date of determination, the sum
of (a) Total Debt plus (b) Adjusted Net Worth."
2
<PAGE> 137
1.5 Section 7.12 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted in lieu thereof:
"Section 7.12 Minimum Adjusted Net Worth. The Borrower shall not
permit the Adjusted Net Worth to be less than an amount equal to
the sum of (a) $155,000,000, plus (b) 50% of cumulative Net
Income of the Borrower and the Restricted Subsidiaries for the
period from, but not including, June 30, 1997 through the date
of calculation (but excluding from the calculation of such
cumulative Net Income the effect, if any, of any fiscal quarter
(or portion of a fiscal quarter not then ended) of the Borrower
or any Restricted Subsidiary for which Net Income was a negative
number), plus (c) 75% of the Net Cash Proceeds received by the
Borrower after June 30, 1997 as a result of any offering of
Equity or pursuant to any conversion or exchange of convertible
Indebtedness or preferred Capital Stock into common Capital
Stock of the Borrower, plus (d) an amount equal to 75% of the
Adjusted Net Worth, calculated with respect to such Person, of
any Person that becomes a Restricted Subsidiary or is merged
into or consolidated with the Borrower or any Restricted
Subsidiary after June 30, 1997 or substantially all of the
assets of which are acquired by the Borrower or any Restricted
Subsidiary after June 30, 1997, (in each case determined as of
the date that such Person becomes a Restricted Subsidiary or is
merged into or consolidated with the Borrower or a Restricted
Subsidiary or that such assets are so acquired), provided that
the purchase price paid therefor is paid in equity securities of
the Borrower or any Subsidiary of the Borrower."
1.6 Exhibit "E" to the Credit Agreement is hereby deleted in its
entirety and Exhibit "E-1" attached hereto is substituted in lieu
thereof. From and after the effective date of this Second Amendment, any
and all references in the Credit Agreement to "Exhibit 'E'" shall be
deemed to be references to "Exhibit 'E-1'" attached hereto.
2. ADDITIONAL COVENANTS; REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT
OF DEFAULT. By its execution and delivery hereof, the Borrower and each
Guarantor covenants, agrees, represents and warrants that, as of the date hereof
and after giving effect to the amendments contemplated by the foregoing Section
1:
(a) Neither the execution and delivery of this Amendment nor the
consummation of the transactions contemplated hereby shall terminate, limit or
otherwise reduce the obligations and/or liabilities of such Guarantor under, or
in connection with, such Guarantor's guaranty of the Obligations or any other
Loan Document executed by such Guarantor, all of which obligations and
liabilities are hereby ratified and confirmed by each Guarantor;
3
<PAGE> 138
(b) No event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) The Borrower has full power and authority to execute and deliver
this Second Amendment and this Second Amendment, and the Credit Agreement, as
amended hereby, constitute the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law);
(d) Each Guarantor has full power and authority to execute and deliver
this Second Amendment and this Second Amendment constitutes the legal, valid and
binding obligations of such Guarantor, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law); and
(e) No authorization, approval, consent, or other action by, notice to,
or filing with, any governmental authority or other Person (other than the
consent of the respective Board of Directors of each of the Borrower and each
Guarantor), is required for the execution, delivery or performance by the
Borrower or any Guarantor of this Second Amendment.
3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be effective
as of May 29, 1998, subject to the following:
(a) the Administrative Lender shall have received a counterpart of this
Second Amendment executed by each Lender and by the Documentation Agent;
(b) the Administrative Lender shall have received a counterpart of this
Second Amendment executed by the Borrower and by each Guarantor;
(c) the Administrative Lender shall have received certified resolutions
of the respective board of directors of each of the Borrower and each Guarantor
authorizing the execution, delivery and performance of this Second Amendment;
and
(d) the Administrative Lender shall have received, in form and substance
satisfactory to the Administrative Lender, such other documents, certificates
and instruments as the Administrative Lender shall require.
4
<PAGE> 139
4. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Second Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "herein", or words of
like import shall mean and be a reference to the Credit Agreement, as affected
and amended hereby.
(b) The Credit Agreement, as amended by the amendments referred to
above, and all other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Lender in connection with
the preparation, reproduction, execution and delivery of this Second Amendment
and the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Administrative
Lender as to its rights and responsibilities under the Credit Agreement, as
hereby amended).
6. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
7. GOVERNING LAW; BINDING EFFECT. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower, each Guarantor, each Lender, the
Administrative Lender and the Documentation Agent and their respective
successors and assigns.
8. HEADINGS. Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Second Amendment for any other purpose.
9. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
AMENDMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
5
<PAGE> 140
10. IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first above written.
BORROWER: SIGNATURE RESORTS, INC.
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
GUARANTORS: ALL SEASONS RESORTS, INC., an Arizona
corporation
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
ALL SEASONS RESORTS, INC., a Texas
corporation
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
MMG DEVELOPMENT CORP., a Florida
corporation
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
6
<PAGE> 141
MMG HOLDING CORP., a Florida
corporation
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
PORT ROYAL RESORT, L.P., a South
Carolina limited partnership
By: Argosy/KGI Port Royal Partners, a
-------------------------------------------
South Carolina general partnership,
as its general partner
By: KGI Port Royal, Inc., a South
----------------------------------------
Carolina corporation, as its
general partner
By: /s/ DEWEY W. CHAMBERS
------------------------------------
Dewey W. Chambers
Vice President and Treasurer
GRAND BEACH RESORT, LIMITED
PARTNERSHIP, a Georgia limited partnership
By: Grand Beach Partners, L.P., a
California limited partnership, as its
general partner
By: Argosy/KGI Grand Beach Investment
Partnership, a California general
partnership, as its general partner
By: Argosy Grand Beach, Inc., a
Georgia corporation, as its
general partner
By: /s/ DEWEY W. CHAMBERS
-------------------------------
Dewey W. Chambers
Vice President and Treasurer
7
<PAGE> 142
POWHATAN ASSOCIATES, a Virginia Joint Venture
By: Plantation Resort Group, Inc., a Virginia
corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
--------------------------------------
Dewey W. Chambers
Vice President and Treasurer
By: Williamsburg Vacations, Inc., a Virginia
corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
--------------------------------------
Dewey W. Chambers
Vice President and Treasurer
GREENSPRINGS ASSOCIATES, a Virginia Joint
Venture
By: Plantation Resort Group, Inc., a Virginia
corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
----------------------------------------
Dewey W. Chambers
Vice President and Treasurer
By: Greensprings Plantation Resort, Inc., a
Virginia corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
----------------------------------------
Dewey W. Chambers
Vice President and Treasurer
8
<PAGE> 143
LAKE TAHOE RESORT PARTNERS, LLC, a
California limited liability company
By: AKGI Lake Tahoe Investments, Inc., a
California corporation, as its managing
member
By: /s/ DEWEY W. CHAMBERS
----------------------------------------
Dewey W. Chambers
Vice President and Treasurer
By: KGK Lake Tahoe Development, Inc., a
California corporation, as its member
By:
Dewey W. Chambers
Vice President and Treasurer
ADMINISTRATIVE LENDER: NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., as Administrative
Lender
By: /s/ TOM BLAKE
-------------------------------------------
Tom Blake
Senior Vice President
DOCUMENTATION AGENT: SOCIETE GENERALE, as Documentation Agent
By: /s/ J. BLAINE SHAUM
Name: J. Blaine Shaum
Title: Managing Director
2029 Century Park East, Suite 2900
Los Angeles, California 90067
9
<PAGE> 144
LENDERS: NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., as a Lender, Swing
Line Bank and Issuing Bank
SPECIFIED PERCENTAGE:
31.91489362%
By: /s/ TOM BLAKE
-------------------------------------------
Tom Blake
Senior Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Tom Blake
Senior Vice President
10
<PAGE> 145
SOCIETE GENERALE, as a Lender
SPECIFIED PERCENTAGE:
26.59574468%
By: /s/ J. BLAINE SHAUM
-------------------------------------------
Name: J. Blaine Shaum
-----------------------------------------
Title: Managing Director
----------------------------------------
2029 Century Park East, Suite 2900
Los Angeles, California 90067
11
<PAGE> 146
BANKERS TRUST COMPANY
SPECIFIED PERCENTAGE:
15.95744681%
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
130 Liberty Street, 14th Floor
New York, New York 10003
12
<PAGE> 147
CREDIT LYONNAIS NEW YORK BRANCH
SPECIFIED PERCENTAGE:
12.76595745%
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
1301 Avenue of the Americas
New York, New York 10019
13
<PAGE> 148
BANK OF HAWAII
SPECIFIED PERCENTAGE:
12.76595745%
By: /s/ ROBERT M. WHEELER III
-------------------------------------------
Name: Robert M. Wheeler III
-----------------------------------------
Title: Vice President
----------------------------------------
14
<PAGE> 149
EXHIBIT "E-1"
COMPLIANCE CERTIFICATE
________,______
NationsBank, N.A.,
as Administrative Lender
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Tom Blake, Senior Vice President
This Compliance Certificate is made as of _______, ____. The undersigned
certifies that the calculations set forth herein are true, accurate, and
complete, and are made in accordance with the provisions of the Credit Agreement
among Signature Resorts, Inc., NationsBank, N.A., successor by merger to
NationsBank of Texas, N.A., as Administrative Lender, Societe Generale, as
Documentation Agent and Lenders, dated as of February 18, 1998 (as amended,
modified or supplemented, "Credit Agreement"). All defined terms used herein but
not specifically defined shall have the meanings set forth in the Credit
Agreement.
<TABLE>
<S> <C>
1. Covenant Calculations.
D. Section 7.3(g). Guaranties of Indebtedness
1. Maximum aggregate amount - 10% of combined total assets of $__________
the Borrower and the Restricted Subsidiaries
2. Actual $__________
3. Difference [(1) - (2)] $__________
E. Section 7.3(i). Investments in any Person other than the Borrower or a
Restricted Subsidiary
1. Maximum aggregate amount - 10% of combined total assets of $__________
the Borrower and the Restricted Subsidiaries
2. Actual $__________
3. Difference [(1) - (2)] $__________
F. Section 7.3(j). Other Investments
1. Maximum in aggregate amount outstanding at any time $7,500,000
2. Actual $__________
</TABLE>
EXHIBIT "E-1" - PAGE 1
<PAGE> 150
<TABLE>
<S> <C> <C> <C>
3. Difference [(1) - (2)] $__________
G. Section 7.5(f). Other Asset Sales
1. Maximum in aggregate amount during any one fiscal year $5,000,000
2. Actual $__________
3. Difference [(1) - (2)] $__________
H. Section 7.7. Capital Expenditures
1. Maximum during any fiscal year in aggregate amount $10,000,000
2. Actual $__________
3. Difference [(1) - (2)] $__________
I. Section 7.8(c). Dividends payable by the Borrower in respect of its
Capital Stock
1. Maximum in aggregate amount during any fiscal year
a. 50% of Net Income of the Borrower (excluding from $__________
calculation any Net Income attributable to any
Subsidiary of the Borrower other than the Restricted
Subsidiaries) during the immediately preceding fiscal
year of the Borrower
b. Maximum [(a) + $10,000,000] $__________
2. Actual $__________
3. Difference [(1) - (2)] $__________
J. Section 7.11. Minimum Interest Coverage Ratio
1. Minimum at the end of any fiscal quarter 2.50 to 1
2. Actual, calculated for the four consecutive fiscal quarters
ending on the date of calculation
a. EBITDA, calculated on a consolidated basis for the
Borrower and its Subsidiaries
(1) 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)
(2) Interest expense $__________
</TABLE>
EXHIBIT "E-1" - PAGE 2
<PAGE> 151
<TABLE>
<S> <C> <C> <C> <C> <C>
(3) 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
(4) Depreciation $__________
(5) Amortization $__________
(6) Other non-cash charges (to the extent included $__________
in determining EBIT)
(7) EBITDA [(1) + (2) + (3) + (4) + (5) + (6)] $__________
b. Interest Expense (including interest expense pursuant to $__________
Capitalized Lease Obligations)
c. Interest Coverage Ratio [(a) to (b)] _________ to 1
K. Section 7.12. Minimum Adjusted Net Worth
1. Minimum
a. 50% of cumulative Net Income of the Borrower and $__________
the Restricted Subsidiaries for the period from, but not
including, June 30, 1997 through the date of
calculation (but excluding from the calculation of such
cumulative Net Income the effect, if any, of any fiscal
quarter (or portion of a fiscal quarter not then ended)
of the Borrower or any Restricted Subsidiary for which
Net Income was a negative number)
b. 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
c. 75% of the Adjusted Net Worth of any Person that $__________
becomes a Restricted Subsidiary or is merged into or
consolidated with the Borrower or any Restricted
Subsidiary after June 30, 1997 or substantially all of
the assets of which are acquired by the Borrower or
any Restricted Subsidiary after June 30, 1997 (in each
case determined as of the date that such Person
becomes a Restricted Subsidiary or is merged into or
consolidated with the Borrower or a Restricted
Subsidiary or that such assets are so acquired) provided
that the purchase price paid therefor is paid in equity
securities of the Borrower or any Subsidiary of the
Borrower
</TABLE>
EXHIBIT "E-1" - PAGE 3
<PAGE> 152
<TABLE>
<S> <C> <C> <C> <C> <C>
d. Minimum Adjusted Net Worth [(a) + (b) + (c) + $
$155,000,000]
2. Actual (for Borrower and the Restricted Subsidiaries, on a
consolidated basis)
a. Net Worth $__________
b. Intangible Assets (exclusive of goodwill)
(1) Obligations, if any, owing by Affiliates to the $__________
Borrower or to any Restricted Subsidiary
(2) 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)
(3) Leases and leasehold improvements $__________
(4) Any asset which is intangible or lacks intrinsic $__________
and marketable value or collectibility,
including without limitation noncompetition
agreements, patents, copyrights, trademarks,
franchises or organization or research and
development costs
(5) Organizational and experimental expense $__________
(6) Unamortized debt discount and expense $__________
(7) Intangible Assets [(1) + (2) + (3) + (4) + $__________
(5) + (6)]
c. Any write-up in the book value of assets resulting from $__________
revaluation thereof subsequent to December 31, 1996
d. Actual Adjusted Net Worth [(a) - (b) - (c)] $__________
3. Difference [(2) - (1)] $__________
L. Section 7.13. Maximum Senior Debt to Total Capital
1. Maximum at the end of any fiscal quarter 0.30 to 1
2. Actual
a. Senior Debt
(1) Total Debt
(a) Indebtedness for borrowed money $__________
</TABLE>
EXHIBIT "E-1" - PAGE 4
<PAGE> 153
<TABLE>
<S> <C> <C> <C> <C> <C>
(b) Obligations evidenced by bonds, $__________
debentures, notes or other similar
instruments
(c) Obligations to pay the deferred $__________
purchase price of property or services
other than trade payables incurred in
the ordinary course of business
(d) Obligations in respect of letters of $__________
credit, banker's acceptances and
similar instruments
(e) Obligations under Hedge Agreements $__________
(f) Capitalized Lease Obligations $__________
(g) Obligations in respect of payment, $__________
performance and similar bonds
(h) Net Exposure Under Securitization $__________
(i) Total Debt [(a) + (b) + (c) + (d) + $__________
(e) + (f) + (g) + (h)]
(2) Subordinated Debt
(a) 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
(b) The 9.75% Senior Subordinated Notes, $__________
issued by the Borrower as of August 1,
1997, in the aggregate original
principal amount of $200,000,000, due
October 1, 2007
(c) Any other Indebtedness of the $__________
Borrower or any Subsidiary of the
Borrower having maturities and terms,
and which is subordinated to payment
of the Obligations in a manner,
approved in writing by the
Administrative Lender and the
Determining Lenders, with only such
changes or amendments as are not
prohibited by Section 7.19 of the
Credit Agreement
(d) Subordinated Debt [(a) + (b) +(c)] $__________
(3) Senior Debt [(1) - (2)] $__________
</TABLE>
EXHIBIT "E-1" - PAGE 5
<PAGE> 154
<TABLE>
<S> <C> <C> <C> <C> <C>
b. Total Capital
(1) Total Debt (I.2.a.(1)(i) above) $__________
(2) Adjusted Net Worth (H.2.d. above) $__________
(3) Total Capital [(1) + (2)] $__________
c. Actual Senior Debt to Total Capital [(a) to (b)] to 1
--------
M. Section 7.14. Maximum Total Debt to Total Capital
1. Maximum at the end of any fiscal quarter after December 31, 0.73 to 1
1997
2. Actual
a. Total Debt (I.2.a.(1)(i) above) $__________
b. Total Capital (I.2.b.(3) above) $__________
c. Actual Total Debt to Total Capital [(a) to (b)] to 1
--------
N. Section 7.15. Sale and Leaseback
1. Maximum aggregate amount during any fiscal year $2,000,000
2. Actual $__________
3. Difference [(1) - (2)] $__________
</TABLE>
The undersigned hereby further certifies to the following as of the date
of this Certificate:
1. The undersigned has reviewed the relevant terms of this Certificate
and has made, or caused to be made, under his/her supervision, a review of the
transactions and condition of the Borrower from the beginning of the accounting
period covered by the financial statements being delivered herewith to the date
of this Certificate and that such review has not disclosed the existence during
such period of any condition or event which constitutes a Default or Event of
Default.
2. The Borrower is in compliance in all material respects with all of
the terms and conditions of the Credit Agreement and other Loan Documents.
EXHIBIT "E-1" - PAGE 6
<PAGE> 155
3. The financial statements delivered to Administrative Lender have been
prepared according to GAAP applied on a consistent basis in all material
respects with those previously delivered.
SIGNATURE RESORTS, INC.
By:
---------------------------------
Name:
Title:
EXHIBIT "E-1" - PAGE 7
<PAGE> 156
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT to CREDIT AGREEMENT (this "Amendment"), dated as of
August 13, 1998, is entered into by and among SUNTERRA CORPORATION (formerly
known as Signature Resorts, Inc.), a Maryland corporation, (the "Borrower"), ALL
SEASONS RESORTS, INC., an Arizona corporation, ALL SEASONS RESORTS, INC., a
Texas corporation, MMG DEVELOPMENT CORP., a Florida corporation, MMG HOLDING
CORP., a Florida corporation, PORT ROYAL RESORT, L.P., a South Carolina limited
partnership, GRAND BEACH RESORT, LIMITED PARTNERSHIP, a Georgia limited
partnership, POWHATAN ASSOCIATES, a Virginia Joint Venture, GREENSPRINGS
ASSOCIATES, a Virginia Joint Venture, LAKE TAHOE RESORT PARTNERS, LLC, a
California limited liability company, (the foregoing parties other than the
Borrower being referred to herein singularly as a "Guarantor" and collectively
as the "Guarantors"), each of the financial institutions that is listed as a
signatory party hereto as a "Lender" (collectively, the "Lenders"), NATIONSBANK,
N.A., successor by merger to NationsBank of Texas, N.A., in its capacity as the
Administrative Lender under the Credit Agreement (the "Administrative Lender")
and SOCIETE GENERALE, in its capacity as the Documentation Agent under the
Credit Agreement (the "Documentation Agent").
BACKGROUND
A. The Borrower, the Lenders, the Administrative Lender and the
Documentation Agent are parties to a certain Credit Agreement dated as of
February 18, 1998 (said Credit Agreement, as amended, supplemented, modified
and/or restated, being referred to herein as the the "Credit Agreement"); the
terms defined in the Credit Agreement and not otherwise defined herein shall be
used herein as defined in the Credit Agreement and, to the extent appropriate,
as amended hereby.
B. The Guarantors have heretofore guaranteed all of the indebtedness,
obligations and liabilities of the Borrower to the Lenders under, or in
connection with, the Credit Agreement.
C. The Borrower, the Lenders, the Administrative Lender and the
Documentation Agent desire to amend the Credit Agreement and the Guarantors wish
to consent to such amendments.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Guarantors, the Lenders, the Administrative Lender and the Documentation Agent
covenant and agree as follows:
<PAGE> 157
1. AMENDMENTS.
1.1 The definition of "Adjusted Net Worth" set forth in Article
I of the Credit Agreement is hereby amended to read as follows:
"`Adjusted 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) any write-up in the book value of assets resulting from
revaluation thereof subsequent to December 31, 1996."
1.2 Article I of the Credit Agreement is hereby amended by
deleting the defined term "Intangible Assets" therefrom.
1.3 Section 7.7 of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted in lieu thereof:
"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 (i) in an aggregate amount in
excess of $30,000,000 during the fiscal year ending December 31,
1998, or (ii) in an aggregate amount in excess of $25,000,000
during any fiscal year thereafter."
1.4 Section 7.13 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted in lieu thereof:
"Section 7.13 Maximum Senior Debt to Total Capital. The Borrower
shall not permit the ratio of Senior Debt to Total Capital to
exceed (i) 0.30 to 1 at the end of any fiscal quarter (other
than the fiscal quarter ending December 31, 1998) or (ii) 0.35
to 1 at the end of the fiscal quarter ending December 31, 1998."
1.5 Exhibit "E" to the Credit Agreement is hereby deleted in its
entirety and Exhibit "E-2" attached hereto is substituted in lieu
thereof. From and after the effective date of this Amendment, any and
all references in the Credit Agreement to "Exhibit 'E'" shall be deemed
to be references to "Exhibit 'E-2'" attached hereto.
2. ADDITIONAL COVENANTS; REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT
OF DEFAULT. By its execution and delivery hereof, the Borrower and each
Guarantor covenants, agrees, represents and warrants that, as of the date hereof
and after giving effect to the amendments contemplated by the foregoing Section
1:
2
<PAGE> 158
(a) Neither the execution and delivery of this Amendment nor the
consummation of the transactions contemplated hereby shall terminate, limit or
otherwise reduce the obligations and/or liabilities of such Guarantor under, or
in connection with, such Guarantor's guaranty of the Obligations or any other
Loan Document executed by such Guarantor, all of which obligations and
liabilities are hereby ratified and confirmed by each Guarantor;
(b) No event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) The Borrower has full power and authority to execute and deliver
this Amendment and this Amendment, and the Credit Agreement, as amended hereby,
constitute the legal, valid and binding obligations of the Borrower, enforceable
in accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law);
(d) Each Guarantor has full power and authority to execute and deliver
this Amendment and this Amendment constitutes the legal, valid and binding
obligations of such Guarantor, enforceable in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law); and
(e) No authorization, approval, consent, or other action by, notice to,
or filing with, any governmental authority or other Person (other than the
consent of the respective Board of Directors of each of the Borrower and each
Guarantor), is required for the execution, delivery or performance by the
Borrower or any Guarantor of this Amendment.
3. CONDITIONS OF EFFECTIVENESS. This Amendment shall be effective as of
June 29, 1998, subject to the following:
(a) the Administrative Lender shall have received a counterpart of this
Amendment executed by the Determining Lenders;
(b) the Administrative Lender shall have received a counterpart of this
Amendment executed by the Borrower and by each Guarantor;
(c) the Administrative Lender shall have received certified resolutions
of the respective board of directors of each of the Borrower and each Guarantor
authorizing the execution, delivery and performance of this Amendment; and
3
<PAGE> 159
(d) the Administrative Lender shall have received, in form and substance
satisfactory to the Administrative Lender, such other documents, certificates
and instruments as the Administrative Lender shall require.
4. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "herein", or words of like
import shall mean and be a reference to the Credit Agreement, as affected and
amended hereby.
(b) The Credit Agreement, as amended by the amendments referred to
above, and all other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Lender in connection with
the preparation, reproduction, execution and delivery of this Amendment and the
other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Administrative
Lender as to its rights and responsibilities under the Credit Agreement, as
hereby amended).
6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
7. GOVERNING LAW; BINDING EFFECT. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrower, each Guarantor, each Lender, the Administrative
Lender and the Documentation Agent and their respective successors and assigns.
8. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS AMENDMENT,
THE NOTES AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES.
4
<PAGE> 160
10. IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
BORROWER: SUNTERRA CORPORATION (formerly known as
Signature Resorts, Inc.), a Maryland
corporation
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
GUARANTORS: ALL SEASONS RESORTS, INC., an Arizona
corporation
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
ALL SEASONS RESORTS, INC., a Texas
corporation
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
MMG DEVELOPMENT CORP., a Florida
corporation
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
5
<PAGE> 161
MMG HOLDING CORP., a Florida
corporation
By: /s/ DEWEY W. CHAMBERS
-------------------------------------------
Dewey W. Chambers
Vice President and Treasurer
PORT ROYAL RESORT, L.P., a South
Carolina limited partnership
By: Argosy/KGI Port Royal Partners, a
South Carolina general partnership,
as its general partner
By: KGI Port Royal, Inc., a South
Carolina corporation, as its
general partner
By: /s/ DEWEY W. CHAMBERS
-----------------------------------
Dewey W. Chambers
Vice President and Treasurer
GRAND BEACH RESORT, LIMITED
PARTNERSHIP, a Georgia limited partnership
By: Grand Beach Partners, L.P., a
California limited partnership, as its
general partner
By: Argosy/KGI Grand Beach Investment
Partnership, a California general
partnership, as its general partner
By: Argosy Grand Beach, Inc., a
Georgia corporation, as its
general partner
By: /s/ DEWEY W. CHAMBERS
-------------------------------
Dewey W. Chambers
Vice President and Treasurer
6
<PAGE> 162
POWHATAN ASSOCIATES, a Virginia Joint Venture
By: Plantation Resort Group, Inc., a Virginia
corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
---------------------------------------
Dewey W. Chambers
Vice President and Treasurer
By: Williamsburg Vacations, Inc., a
Virginia corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
---------------------------------------
Dewey W. Chambers
Vice President and Treasurer
GREENSPRINGS ASSOCIATES, a Virginia Joint
Venture
By: Plantation Resort Group, Inc., a Virginia
corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
---------------------------------------
Dewey W. Chambers
Vice President and Treasurer
By: Greensprings Plantation Resort, Inc., a
Virginia corporation, Joint Venturer
By: /s/ DEWEY W. CHAMBERS
---------------------------------------
Dewey W. Chambers
Vice President and Treasurer
7
<PAGE> 163
LAKE TAHOE RESORT PARTNERS, LLC, a
California limited liability company
By: AKGI Lake Tahoe Investments, Inc., a
California corporation, as its managing
member
By: /s/ DEWEY W. CHAMBERS
---------------------------------------
Dewey W. Chambers
Vice President and Treasurer
By: KGK Lake Tahoe Development, Inc., a
California corporation, as its member
By: /s/ DEWEY W. CHAMBERS
---------------------------------------
Dewey W. Chambers
Vice President and Treasurer
8
<PAGE> 164
ADMINISTRATIVE LENDER: NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., as Administrative
Lender
By: /s/ TOM BLAKE
-------------------------------------------
Tom Blake
Senior Vice President
9
<PAGE> 165
DOCUMENTATION AGENT: SOCIETE GENERALE, as Documentation Agent
By: /s/ DONALD L. SCHUBERT
-------------------------------------------
Name: Donald L. Schubert
-----------------------------------------
Title: Managing Director
----------------------------------------
2029 Century Park East, Suite 2900
Los Angeles, California 90067
10
<PAGE> 166
LENDERS: NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., as a Lender, Swing
Line Bank and Issuing Bank
SPECIFIED PERCENTAGE:
31.91489362%
By: /s/ TOM BLAKE
-------------------------------------------
Tom Blake
Senior Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Tom Blake
Senior Vice President
11
<PAGE> 167
SOCIETE GENERALE, as a Lender
SPECIFIED PERCENTAGE:
26.59574468%
By: /s/ DONALD L. SCHUBERT
-------------------------------------------
Name: Donald L. Schubert
-----------------------------------------
Title: Managing Director
----------------------------------------
2029 Century Park East, Suite 2900
Los Angeles, California 90067
12
<PAGE> 168
BANKERS TRUST COMPANY
SPECIFIED PERCENTAGE:
15.95744681%
By: /s/ LAURA S. BURWICK
-------------------------------------------
Name: Laura S. Burwick
-----------------------------------------
Title: Principal
----------------------------------------
130 Liberty Street, 14th Floor
New York, New York 10003
13
<PAGE> 169
CREDIT LYONNAIS NEW YORK BRANCH
SPECIFIED PERCENTAGE:
12.76595745%
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
1301 Avenue of the Americas
New York, New York 10019
14
<PAGE> 170
BANK OF HAWAII
SPECIFIED PERCENTAGE:
12.76595745%
By: /s/ DAVID L. WARD
-------------------------------------------
Name: David L. Ward
-----------------------------------------
Title: Officer
----------------------------------------
----------------------------------------
----------------------------------------
15
<PAGE> 171
EXHIBIT "E-2"
COMPLIANCE CERTIFICATE
________, _____
NationsBank, N.A.,
as Administrative Lender
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Tom Blake, Senior Vice President
This Compliance Certificate is made as of , . The undersigned certifies
that the calculations set forth herein are true, accurate, and complete, and are
made in accordance with the provisions of the Credit Agreement among Sunterra
Corporation (formerly known as Signature Resorts, Inc.), NationsBank, N.A.,
successor by merger to NationsBank of Texas, N.A., as Administrative Lender,
Societe Generale, as Documentation Agent and Lenders, dated as of February 18,
1998 (as amended, modified or supplemented, "Credit Agreement"). All defined
terms used herein but not specifically defined shall have the meanings set forth
in the Credit Agreement.
<TABLE>
<S> <C> <C> <C> <C>
1. Covenant Calculations.
D. Section 7.3(g). Guaranties of Indebtedness
1. Maximum aggregate amount - 10% of combined total assets of $__________
the Borrower and the Restricted Subsidiaries
2. Actual $__________
3. Difference [(1) - (2)] $__________
E. Section 7.3(i). Investments in any Person other than the Borrower or a
Restricted Subsidiary
1. Maximum aggregate amount - 10% of combined total assets of $__________
the Borrower and the Restricted Subsidiaries
2. Actual $__________
3. Difference [(1) - (2)] $__________
F. Section 7.3(j). Other Investments
1. Maximum in aggregate amount outstanding at any time $7,500,000
2. Actual $__________
</TABLE>
EXHIBIT "E-2" - PAGE 1
<PAGE> 172
<TABLE>
<S> <C> <C> <C> <C>
3. Difference [(1) - (2)] $__________
G. Section 7.5(f). Other Asset Sales
1. Maximum in aggregate amount during any one fiscal year $5,000,000
2. Actual $__________
3. Difference [(1) - (2)] $__________
H. Section 7.7. Capital Expenditures
1. Maximum during any fiscal year in aggregate amount ($30MM $__________
during FYE 12/31/98; $25MM during any fiscal year
thereafter)
2. Actual $__________
3. Difference [(1) - (2)] $__________
I. Section 7.8(c). Dividends payable by the Borrower in respect of its
Capital Stock
1. Maximum in aggregate amount during any fiscal year
a. 50% of Net Income of the Borrower (excluding from $__________
calculation any Net Income attributable to any
Subsidiary of the Borrower other than the Restricted
Subsidiaries) during the immediately preceding fiscal
year of the Borrower
b. Maximum [(a) + $10,000,000] $__________
2. Actual $__________
3. Difference [(1) - (2)] $__________
J. Section 7.11. Minimum Interest Coverage Ratio
1. Minimum at the end of any fiscal quarter 2.50 to 1
2. Actual, calculated for the four consecutive fiscal quarters
ending on the date of calculation
a. EBITDA, calculated on a consolidated basis for the
Borrower and its Subsidiaries
(1) 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)
</TABLE>
EXHIBIT "E-2" - PAGE 2
<PAGE> 173
<TABLE>
<S> <C> <C> <C> <C> <C>
(2) Interest expense $__________
(3) 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
(4) Depreciation $__________
(5) Amortization $__________
(6) Other non-cash charges (to the extent included $__________
in determining EBIT)
(7) EBITDA [(1) + (2) + (3) + (4) + (5) + (6)] $__________
b. Interest Expense (including interest expense pursuant to $__________
Capitalized Lease Obligations)
c. Interest Coverage Ratio [(a) to (b)] __________to 1
K. Section 7.12. Minimum Adjusted Net Worth
1. Minimum
a. 50% of cumulative Net Income of the Borrower and $__________
the Restricted Subsidiaries for the period from, but not
including, June 30, 1997 through the date of
calculation (but excluding from the calculation of such
cumulative Net Income the effect, if any, of any fiscal
quarter (or portion of a fiscal quarter not then ended)
of the Borrower or any Restricted Subsidiary for which
Net Income was a negative number)
b. 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
</TABLE>
EXHIBIT "E-2" - PAGE 3
<PAGE> 174
<TABLE>
<S> <C> <C> <C> <C> <C>
c. 75% of the Adjusted Net Worth of any Person that $__________
becomes a Restricted Subsidiary or is merged into or
consolidated with the Borrower or any Restricted
Subsidiary after June 30, 1997 or substantially all of
the assets of which are acquired by the Borrower or
any Restricted Subsidiary after June 30, 1997 (in each
case determined as of the date that such Person
becomes a Restricted Subsidiary or is merged into or
consolidated with the Borrower or a Restricted
Subsidiary or that such assets are so acquired) provided
that the purchase price paid therefor is paid in equity
securities of the Borrower or any Subsidiary of the
Borrower
d. Minimum Adjusted Net Worth [(a) + (b) + (c) + $__________
$155,000,000]
2. Actual (for Borrower and the Restricted Subsidiaries, on a
consolidated basis)
a. Net Worth $__________
b. Any write-up in the book value of assets resulting from $__________
revaluation thereof subsequent to December 31, 1966
c. Actual Adjusted Net Worth [(a) - (b)] $__________
3. Difference [(2) - (1)] $__________
L. Section 7.13. Maximum Senior Debt to Total Capital
1. Maximum at the end of applicable fiscal quarter (0.35 to 1 for 0.__ to 1
the fiscal quarter ending 12/31/98 and 0.30 to 1 for any other
fiscal quarter)
2. Actual
a. Senior Debt
(1) Total Debt
(a) Indebtedness for borrowed money $__________
(b) Obligations evidenced by bonds, $__________
debentures, notes or other similar
instruments
(c) Obligations to pay the deferred $__________
purchase price of property or services
other than trade payables incurred in
the ordinary course of business
</TABLE>
EXHIBIT "E-2" - PAGE 4
<PAGE> 175
<TABLE>
<S> <C> <C> <C> <C> <C>
(d) Obligations in respect of letters of $__________
credit, banker's acceptances and
similar instruments
(e) Obligations under Hedge Agreements $__________
(f) Capitalized Lease Obligations $__________
(g) Obligations in respect of payment, $__________
performance and similar bonds
(h) Net Exposure Under Securitization $__________
(i) Total Debt [(a) + (b) + (c) + (d) + $__________
(e) + (f) + (g) + (h)]
(2) Subordinated Debt
(a) 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
(b) The 9.75% Senior Subordinated Notes, $__________
issued by the Borrower as of August 1,
1997, in the aggregate original
principal amount of $200,000,000, due
October 1, 2007
(c) Any other Indebtedness of the $__________
Borrower or any Subsidiary of the
Borrower having maturities and terms,
and which is subordinated to payment
of the Obligations in a manner,
approved in writing by the
Administrative Lender and the
Determining Lenders, with only such
changes or amendments as are not
prohibited by Section 7.19 of the
Credit Agreement
(d) Subordinated Debt [(a) + (b) +(c)] $__________
(3) Senior Debt [(1) - (2)] $__________
b. Total Capital
(1) Total Debt (I.2.a.(1)(i) above) $__________
(2) Adjusted Net Worth (K.2.c. above) $__________
(3) Total Capital [(1) + (2)] $__________
c. Actual Senior Debt to Total Capital [(a) to (b)] _________ to 1
</TABLE>
EXHIBIT "E-2" - PAGE 5
<PAGE> 176
<TABLE>
<S> <C> <C> <C> <C> <C>
M. Section 7.14. Maximum Total Debt to Total Capital
1. Maximum at the end of any fiscal quarter after December 31, 0.73 to 1
1997
2. Actual
a. Total Debt (I.2.a.(1)(i) above) $__________
b. Total Capital (I.2.b.(3) above) $__________
c. Actual Total Debt to Total Capital [(a) to (b)] __________ to 1
N. Section 7.15. Sale and Leaseback
1. Maximum aggregate amount during any fiscal year $2,000,000
2. Actual $__________
3. Difference [(1) - (2)] $__________
</TABLE>
The undersigned hereby further certifies to the following as of the date
of this Certificate:
1. The undersigned has reviewed the relevant terms of this Certificate
and has made, or caused to be made, under his/her supervision, a review of the
transactions and condition of the Borrower from the beginning of the accounting
period covered by the financial statements being delivered herewith to the date
of this Certificate and that such review has not disclosed the existence during
such period of any condition or event which constitutes a Default or Event of
Default.
2. The Borrower is in compliance in all material respects with all of
the terms and conditions of the Credit Agreement and other Loan Documents.
3. The financial statements delivered to Administrative Lender have been
prepared according to GAAP applied on a consistent basis in all material
respects with those previously delivered.
SUNTERRA CORPORATION (formerly known
as Signature Resorts, Inc.), a
Maryland corporation
By:
---------------------------------
Name:
-----------------------------
Title:
-----------------------------
EXHIBIT "E-2" - PAGE 6
<PAGE> 1
EXHIBIT 10.3
RECEIVABLES PURCHASE AGREEMENT
DATED AS OF DECEMBER 17, 1998
AMONG
BLUE BISON FUNDING CORP.,
AS SELLER,
SUNTERRA CORPORATION
AS INITIAL SERVICER,
BARTON CAPITAL CORPORATION,
AS PURCHASER,
AND
SOCIETE GENERALE,
AS AGENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
ARTICLE I
THE COMMITMENT; PURCHASE AND REINVESTMENT LIMITS
1.01 Commitment............................................................2
1.02 Purchase and Reinvestment Limits......................................2
1.03 Making Purchases from Seller..........................................2
1.04 Number of Yield Periods...............................................3
1.05 Commitment Termination Date...........................................3
1.06 Purchase and Reinvestment Termination Date............................3
1.07 Voluntary Termination of Commitment or
Reduction of Facility Limit...........................................3
ARTICLE II
UNDIVIDED INTEREST AND PURCHASER'S SHARE
2.01 Undivided Interest....................................................4
2.02 Investment............................................................5
2.03 Net Pool Balance......................................................5
2.04 Loss Reserve..........................................................5
ARTICLE III
SETTLEMENTS
3.01 Establishment and Use of Accounts.....................................6
3.02 Settlement and Reinvestment Procedures................................7
3.03 Special Settlement Procedures; Reduction of
Investment, etc.......................................................9
3.04 Reporting............................................................11
3.05 Payments and Computations, etc.......................................12
3.06 Dividing or Combining Undivided Interests............................12
ARTICLE IV
FEES AND YIELD PROTECTION
4.01 Fees.................................................................13
4.02 Yield Protection.....................................................13
ARTICLE V
CONDITIONS OF PURCHASES
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
5.01 Conditions Precedent to Initial Purchase.............................16
5.02 Conditions Precedent to All Purchases and
Reinvestments........................................................18
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.01 Representations and Warranties of Seller.............................19
6.02 Representations and Warranties of Sunterra...........................26
ARTICLE VII
GENERAL COVENANTS OF SELLER AND SERVICER
7.01 Affirmative Covenants of Seller and Sunterra.........................30
7.02 Reporting Requirements of Seller.....................................36
7.03 Negative Covenants of Seller.........................................37
ARTICLE VIII
ADMINISTRATION AND COLLECTION
8.01 Designation of Servicer..............................................41
8.02 Duties of Servicer and Seller........................................42
8.03 Rights of the Account Agent..........................................45
8.04 Responsibilities of Seller...........................................47
8.05 Certain Responsibilities of Sunterra.................................47
8.06 Further Action Evidencing Purchases..................................48
ARTICLE IX
SECURITY INTEREST
9.01 Grant of Security Interest...........................................48
9.02 Further Assurances...................................................49
9.03 Remedies.............................................................49
ARTICLE X
LIQUIDATION EVENTS
10.01 Liquidation Events...................................................49
10.02 Remedies.............................................................51
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
ARTICLE XI
THE AGENT
11.01 Authorization and Action.............................................52
11.02 Exculpation..........................................................52
11.03 Agent and Affiliates.................................................53
ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST
12.01 Restrictions on Assignments..........................................53
12.02 Rights of Assignee...................................................54
12.03 Evidence of Assignment; Endorsement on
Certificate.........................................................54
ARTICLE XIII
INDEMNIFICATION
13.01 Indemnity by Seller..................................................55
ARTICLE XIV
MISCELLANEOUS
14.01 Amendments, etc......................................................58
14.02 Notices, etc.........................................................59
14.03 No Waiver; Remedies..................................................59
14.04 Binding Effect; Survival.............................................59
14.05 Costs, Expenses and Taxes............................................60
14.06 No Proceedings.......................................................61
14.07 Captions and Cross References........................................61
14.08 Integration..........................................................61
14.09 Confidentiality......................................................61
14.10 Governing Law........................................................62
14.11 Waiver of Jury Trial.................................................62
14.12 Execution in Counterparts............................................62
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
APPENDICES
APPENDIX A Definitions
SCHEDULES
SCHEDULE 6.01(f) Description of Proceedings of Seller
SCHEDULE 6.01(m) List of Offices of Seller and Servicer
Where Records are Kept
SCHEDULE 6.01(n) List of Account Banks
SCHEDULE 6.01(q) List of Trade Names
SCHEDULE 6.02(f) Description of Proceedings of Sunterra
SCHEDULE 7.01(f) Description of Credit and Collection Policies
SCHEDULE A List of Vacation Ownership Resorts
SCHEDULE B List of Market Areas
EXHIBITS
EXHIBIT 1.03(a) Notice of Purchase
EXHIBIT 3.05(a) Form of Periodic Report
EXHIBIT 5.01(a) Form of Certificate
EXHIBIT 5.01(h)(i) [Reserved]
EXHIBIT 5.01(h)(ii) Form of Collection Account Agreement
EXHIBIT 5.01(h)(iii) Form of Reserve Account Agreement
EXHIBIT 5.01(i)(i) Form of Opinions of Willkie, Farr & Gallagher
EXHIBIT 5.01(i)(ii) Form of Opinions of General Counsels
EXHIBIT 5.01(i)(iii) Form of Opinions of Local Counsels
</TABLE>
iv
<PAGE> 6
RECEIVABLES PURCHASE AGREEMENT
dated as of December 17, 1998
THIS IS A RECEIVABLES PURCHASE AGREEMENT among BLUE BISON FUNDING CORP.,
a Delaware corporation ("Seller"), SUNTERRA CORPORATION, a Maryland corporation
("Sunterra"), as the initial Servicer, BARTON CAPITAL CORPORATION, a Delaware
corporation, as purchaser (in such capacity, together with its successors and
assigns in such capacity, the "Purchaser") and SOCIETE GENERALE, a banking
corporation organized under the laws of France, acting through its Chicago
Branch ("SG"), as agent for Purchaser (in such capacity, together with its
successors and assigns in such capacity, the "Agent"). Unless otherwise
indicated, capitalized terms used in this Agreement are defined in Appendix A.
Background
1. Seller is a party to a Purchase and Sale Agreement with Sunterra,
pursuant to which Seller has purchased, and expects to purchase Receivables from
Sunterra. Seller intends to sell interests, herein called Undivided Interests,
in Pool Receivables. Seller and Purchaser have agreed, on the terms and subject
to the conditions contained in this Agreement, that Purchaser will purchase such
Undivided Interests from Seller from time to time during the term of this
Agreement.
2. Seller and Purchaser have also agreed that, on the terms and subject
to the conditions set forth in this Agreement, certain of the Collections
related to such Undivided Interests shall be reinvested in additional undivided
interests in Pool Receivables.
3. Seller, Purchaser and the Agent have asked Sunterra to undertake
certain collecting and servicing responsibilities in respect of the Receivables
and Sunterra, as initial Servicer, is willing to undertake such
responsibilities.
4. SG has been requested, and is willing, to act as the Agent.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
<PAGE> 7
ARTICLE I
THE COMMITMENT; PURCHASE AND REINVESTMENT LIMITS
1.01 Commitment. On the terms and subject to the conditions set forth in
this Agreement (including Article V), Purchaser agrees to make Purchases and
Reinvestments from time to time from the date hereof to the Commitment
Termination Date as follows:
(a) Purchases. Purchaser shall purchase from Seller Undivided
Interests (as defined in Section 2.01). Each such purchase is herein
called a "Purchase".
(b) Reinvestments. Pursuant to Section 3.02(a), Purchaser shall
make reinvestments in Pool Receivables (herein called "Reinvestments")
by permitting Servicer to reinvest certain of the Collections in
additional undivided interests in Pool Receivables.
Purchaser's obligation to make such Purchases and Reinvestments is herein called
the "Commitment".
1.02 Purchase and Reinvestment Limits. Under no circumstances shall
Purchaser be obligated to make any Purchase or Reinvestment to the extent that,
after giving effect to such Purchase or Reinvestment, as the case may be:
(a) Facility Limit. The Aggregate Investment would exceed an
amount equal to $100,000,000 as such amounts may be reduced pursuant to
Section 1.07 (such amounts, as so reduced, herein being called the
"Facility Limit").
(b) Aggregate Undivided Interest Limit. The Aggregate Undivided
Interest (expressed as a percentage) would exceed 100% (the "Aggregate
Undivided Interest Limit").
1.03 Making Purchases from Seller.
(a) Notice of Purchase. Each Purchase shall be made on a
Business Day pursuant to a notice substantially in the form of Exhibit
1.03(a) from Seller to the Agent and shall be received by the Agent not
later than 2:00 p.m. (New York City time) on the second Business Day
before the date of such Purchase. Each such notice of a Purchase shall
specify the desired amount and date of such Purchase and the desired
duration of the initial Yield Period for the resulting Undivided
Interest, which amount shall not be less than $1,000,000. The Agent
shall select the duration of such initial, and each subsequent, Yield
Period in its discretion; provided that the Agent shall use reasonable
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<PAGE> 8
efforts, taking into account market conditions, to accommodate Seller's
preferences.
(b) Amount of Purchase. The amount of each Purchase shall be
equal to the lesser of (x) the amount proposed by Seller pursuant to
Section 1.03(a) and (y) the maximum amount permitted under Section 1.02.
(c) Funding of Purchase. On the date of each Purchase, Purchaser
shall, upon satisfaction of the applicable conditions set forth in
Article V, make available to the Agent at its office at 181 West Madison
Street in Chicago, Illinois not later than 1:00 p.m. (New York City
time), the amount in payment of its Purchase in same day funds and,
after receipt by the Agent of such funds, the Agent will immediately
transfer such funds to the Collection Account or such other account
designated by the Seller.
1.04 Number of Yield Periods. Unless otherwise consented to by the
Agent, the number of Yield Periods hereunder at any one time, after giving
effect to any Purchase, or any division or combination of Undivided Interests,
shall not exceed 8.
1.05 Commitment Termination Date. The "Commitment Termination Date"
shall be the earlier to occur of (i) December 17, 2001 (such date, as the same
may be extended pursuant to this Section 1.05, being herein called the
"Scheduled Commitment Termination Date"), and (ii) the date on which the
Commitment is terminated pursuant to Section 1.06, 1.07, or 10.02.
1.06 Purchase and Reinvestment Termination Date. The Commitment shall
terminate with respect to Purchases and Reinvestments, and Purchaser shall have
no obligation to make any further Purchases or Reinvestments hereunder, upon the
termination of either (i) the Banks' commitments under the Standby Purchase
Agreement or (ii) the Enhancement Bank's commitment under the Enhancement
Agreement. Purchaser agrees to give Seller at least 30 days' prior written
notice of the termination of the Commitment with respect to Purchases and
Reinvestments pursuant to the foregoing sentence.
1.07 Voluntary Termination of Commitment or Reduction of Facility Limit.
Seller may, upon at least ten Business Days' notice to the Agent, terminate the
Commitment in whole or reduce in part the unused portion of the Facility Limit;
provided, however, that (a) each partial reduction shall be in an amount equal
to $5,000,000 or an integral multiple thereof and (b) after giving effect to any
partial reduction, the remaining Facility Limit will not be less than
$25,000,000.
3
<PAGE> 9
ARTICLE II
UNDIVIDED INTEREST AND PURCHASER'S SHARE
2.01 Undivided Interest.
(a) Definition and Computation of Undivided Interest. For
purposes of this Agreement, "Undivided Interest" means an undivided
ownership interest, expressed as a floating percentage determined from
time to time, in (A) all then outstanding Pool Receivables, (B) all
rights to, but not the obligations under, all Related Security with
respect to such Pool Receivables, and (C) all Collections with respect
to, and other proceeds of, such Pool Receivables and Related Security.
Each Undivided Interest shall be computed as follows:
UI = I + LR
------
NPB
where:
UI = the Undivided Interest at any time;
I = the Investment in such Undivided Interest at such
time, as determined pursuant to Section 2.02;
LR = the Loss Reserve for such Undivided Interest at
such time, as determined pursuant to Section 2.04;
and
NPB = the Net Pool Balance at such time, as determined
pursuant to Section 2.03.
The "related" Undivided Interest with respect to any of the foregoing
items shall mean the Undivided Interest as to which such item is
calculated.
(b) Frequency of Computation of Purchaser's Interest. Each
Undivided Interest initially shall be computed as of the opening of
Servicer's business on the date of the Purchase of such Undivided
Interest from Seller. Thereafter, such Undivided Interest shall be
recomputed as of the opening of business on any day on which the
Aggregate Investment shall be increased and upon receipt of each
Periodic Report using the information in such Periodic Report. In
addition, until such Undivided Interest shall be reduced to zero, such
Undivided Interest shall be deemed to be recomputed automatically as of
the close of Servicer's business on each day (other than a day on which
an actual recomputation is done), and, as so recomputed, shall
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<PAGE> 10
constitute the percentage ownership interest held by Purchaser on such
day in the Pool Receivables. Such Undivided Interest shall become zero
at such time as (i) the Purchaser shall have received the accrued Earned
Return for such Undivided Interest, shall have recovered the Investment
in such Undivided Interest and shall have received all other amounts
payable to Purchaser pursuant to this Agreement in respect of such
Undivided Interest, (ii) the Agent shall have received all amounts
payable to the Agent pursuant to this Agreement, (iii) Servicer shall
have received the accrued Servicer's Fee allocated to such Undivided
Interest and (iv) all other amounts payable by the Seller in connection
with such Undivided Interest are paid. Each Undivided Interest shall
remain constant, and the Net Pool Balance shall be deemed to remain
constant for purposes of computing such Undivided Interest, from the
time as of which any such computation or recomputation is made until the
time as of which the next such recomputation, if any, shall be made.
2.02 Investment.
(a) Subject to subsection (b), the "Investment" in an Undivided
Interest at any time means an amount equal to
(i) the sum of the original Dollar amount paid by
Purchaser to Seller for such Undivided Interest at the time
Purchaser acquired it by Purchase pursuant to Section 1.03, less
(ii) the aggregate amount of Collections of Pool
Receivables theretofore received and actually distributed to
Purchaser on account of such Investment pursuant to Section
3.02(a) and (b).
(b) If at any time any distribution of any portion of such
Collections is rescinded or must otherwise be returned for any reason,
the Investment shall not be considered reduced to the extent of such
rescission or return.
(c) The "related" Investment with regard to a Yield Period or
Undivided Interest (or portion thereof) means the Investment calculated
with regard to such Yield Period or Undivided Interest (or such
portion), as the case may be.
2.03 Net Pool Balance. The "Net Pool Balance" at any time means an
amount equal to the aggregate Unpaid Balance of the Eligible Receivables in the
Receivables Pool at such time.
2.04 Loss Reserve. The "Loss Reserve" for any Undivided Interest on any
day means an amount determined as follows:
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<PAGE> 11
LR = LRP x I
where
LR = the Loss Reserve for such Undivided Interest at
the time of computation;
LRP = the "Loss Reserve Percentage" which, as to each
Undivided Interest at the time of such computation,
shall be an amount equal to (a) 5%, divided by (b) 1,
minus 5%; and
I = the Investment in such Undivided Interest at the
time of such computation, as determined pursuant to
Section 2.02.
ARTICLE III
SETTLEMENTS
3.01 Establishment and Use of Accounts.
(a) Collection Account. Seller hereby agrees to establish and
maintain a Collection Account on or before the first Purchase hereunder.
The Collection Account shall be used to receive Collections (directly or
via transfer from the Lockbox Accounts) and for the other purposes
described in the Transaction Documents. Servicer shall cause all
Collections to be deposited into such Collection Account on the day on
which such Collections are available cash funds. No funds other than
Collections or Purchases shall be deposited or transferred into such
Collection Account.
(b) Lockbox Accounts. Seller has established the Lockbox
Accounts listed on Schedule 6.01(n) (and the related post office boxes).
The Lockbox Accounts shall be used to receive Collections.
(c) Reserve Account. Seller hereby agrees to establish and
maintain a Reserve Account on or before the first Purchase hereunder.
The Reserve Account shall be used to receive transfers of certain
amounts of Collections pursuant to Section 3.02(b) and for other
purposes described in Section 3.03(d). No funds other than Collections
and proceeds from the sale by the Seller to the Purchaser of Undivided
Interests shall be transferred or deposited into the Reserve Account.
All funds on deposit in the Reserve Account shall, subject to Section
3.03(e) be invested by the Servicer (and at the direction of Seller so
long as no
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<PAGE> 12
Liquidation Event shall have occurred and be continuing) in Permitted
Investments. All income and gain or loss realized from any such
investment shall be credited or debited (as applicable) to the Reserve
Account.
(d) Agent's Account. The Agent hereby agrees to establish the
Agent's Account on or before the date of the first Purchase hereunder.
The Agent's Account shall be used to receive payments of amounts that
are to be distributed by the Agent to itself and/or to Purchaser, and
for the other purposes described in the Transaction Documents.
3.02 Settlement and Reinvestment Procedures.
(a) Settlement Procedures for Principal Collections. The
Servicer shall, on each day on which Collections of Principal
Receivables are received (or deemed received) by the Seller or Servicer
or are deposited into the Lockbox Accounts, transfer such Collections
therefrom and deposit such Collections into the Collection Account. The
Servicer shall apply such Collections as follows:
(i) on each Funding Date, if such day is not a
Liquidation Day, subject to clause (ii) below and upon the
satisfaction of the conditions set forth in Section 5.02, such
Principal Collections allocable to each Undivided Interest shall
be reinvested on such Funding Date by the Servicer by means of a
Reinvestment in the related Undivided Interest and shall be paid
to the Seller, thereby causing a recomputation of such Undivided
Interest pursuant to Section 2.01; provided, that if the
conditions set forth in Section 5.02 are not satisfied on such
Funding Date, such Principal Collections shall not be reinvested
but shall be held on deposit in the Collection Account and
applied in accordance with clause (ii) below; and
(ii) during the Liquidation Period (or during any
Settlement Period that Collections are held on deposit in the
Collection Account pursuant to the proviso to clause (i) above),
all Principal Collections on deposit in the Collection Account
shall be held on deposit in the Collection Account and
transferred by the Servicer from the Collection Account to the
Agent's Account on each Settlement Date with respect to each
Undivided Interest, and shall be applied by the Agent to the
payment of the amounts, and in the priorities described in
clause second through clause sixth of Section 3.02(b) (after
giving effect to the application of Collections of Finance
Charge Receivables and amounts withdrawn from the Reserve
Account to pay such amounts
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<PAGE> 13
in accordance therewith); provided, that so long as the
Commitment Termination Date has not occurred, if any Principal
Collections are held in the Collection Account pursuant to the
proviso to clause (i) above and have not otherwise been
transferred to the Agent's Account and thereafter the conditions
set forth in Section 5.02 are satisfied or are waived by the
Agent, such previously set aside amounts shall be reinvested in
accordance with the preceding clause (i) on the day of such
subsequent satisfaction or waiver.
(b) Settlement Procedure for Finance Charge Collections. The
Servicer shall, on each day on which Collections of Finance Charge
Receivables are received (or deemed received) by the Seller or Servicer
or are deposited into the Lockbox Accounts, transfer such Collections
therefrom and deposit such Collections into the Collection Account. The
Servicer shall set aside and hold such Collections in trust within the
Collection Account for payment on the following dates and in the
following order of priority: first, to the Servicer on each Month End
Date in payment of the accrued and unpaid Servicing Fees payable for the
calendar month then ended (plus, if applicable, any accrued and unpaid
Servicing Fees payable for any prior calendar months); second, to the
Agent's Account for the payment, on each Settlement Date with respect to
each Undivided Interest, of the Earned Return which accrued on such
Undivided Interest for the Settlement Period ending on such date (plus,
if applicable, the amount of Earned Return accrued and unpaid for any
prior Settlement Periods with respect to such Undivided Interest and to
the extent permitted by law, interest thereon); third, to the Agent's
Account on each Month End Date, for the payment of all Fees accrued
during the month then ended; fourth, during the Liquidation Period, to
the Agent's Account, on each Settlement Date with respect to each
Undivided Interest, to reduce the Aggregate Investment to zero; fifth,
to the Agent's Account for the payment, on each Settlement Date with
respect to each Undivided Interest, of all amounts payable pursuant to
Section 4.02 in respect of such Undivided Interest; sixth, to the
Agent's Account for the payment, on each Settlement Date with respect to
each Undivided Interest, of all other Obligations then payable by the
Seller to Purchaser or the Agent under the Transaction Documents;
seventh, to the Reserve Account, on each Settlement Date with respect to
each Undivided Interest, such amount as shall be necessary to cause the
amount on deposit therein to be equal to the Reserve Account Required
Amount (after giving effect to all payments to be made therefrom on such
Settlement Date pursuant to Section 3.03(d)); and eighth, so long as no
Liquidation Event or
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<PAGE> 14
Unmatured Liquidation Event shall be continuing, the balance, if any, to
be paid to Seller.
(c) Order of Distribution. Upon receipt of funds deposited into
the Agent's Account pursuant to paragraphs (a) and (b) of this Section
3.02, the Agent shall distribute such funds for the purposes and in the
order of priority set forth in such paragraphs (a) and (b), as
applicable.
3.03 Special Settlement Procedures; Reduction of Investment, etc.
(a) Deemed Collections. If on any day
(i) the Unpaid Balance of any Pool Receivable is reduced
or cancelled as a result of a setoff in respect of any claim by
the Obligor thereof against Seller, Sunterra or any Affiliate of
Sunterra (whether such claim arises out of the same or a related
or unrelated transaction);
(ii) any of the representations or warranties of Seller
or Sunterra set forth in Section 6.01(k) or (t) is no longer
true with respect to a Receivable; or
(iii) the related title insurance policy with respect to
any Pool Receivable shall not have been issued within 60 days
from the date such Pool Receivable first became a Pool
Receivable;
then, on such day, Seller shall be deemed to have received a Collection
of the relevant Receivable(s) in the amount of the Unpaid Balance (or
portion thereof) of such Receivable(s), together with accrued and unpaid
interest thereon.
On or before the fifteenth day after the Month End Date of each month
that contains one or more days on which Seller is deemed to have
received such a Collection, Seller shall transfer an amount equal to the
aggregate amount of such deemed Collections to Servicer and Servicer
shall distribute such transferred amount in the manner set forth in
Section 3.02, as if such transferred amount actually had been received
by Seller or Servicer on the date of such transfer from the Obligors of
such Pool Receivables and as if such transferred amount actually had
been deposited into a Lockbox Account on the date of such transfer.
(b) Seller's Reduction of Investment. If at any time Seller
shall wish to cause the reduction of the Investment in an Undivided
Interest (but not to commence the
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<PAGE> 15
liquidation, or reduction to zero, of all Undivided Interests), such
reduction shall be made as follows:
(i) Seller shall give the Agent at least three Business
Days' prior written notice thereof (including the amount of such
proposed reduction and the proposed date on which such reduction
will commence),
(ii) on the proposed date of commencement of such
reduction and on each day thereafter, Servicer shall stop
reinvesting Principal Collections allocable to such Undivided
Interest until the amount thereof not so reinvested shall equal
the desired amount of reduction, and
(iii) Servicer shall hold such Principal Collections for
the benefit of Purchaser in the Collection Account, for payment
to the Agent on the next following Settlement Date or, subject
to Seller's obligation pursuant to Section 4.03, any other date
with respect to such Undivided Interest,
and the Investment in such Undivided Interest shall be deemed reduced in
the amount to be paid to the Agent only when in fact so paid and
allocated by the Agent to the Investment in such Undivided Interest;
provided that
(A) the amount of any such reduction shall be not less
than $1,000,000, and the Investment in such Undivided Interest
after giving effect to such reduction shall be not less than
$1,000,000 unless such Investment shall have been reduced to
zero),
(B) Seller shall use reasonable efforts to attempt to
choose a reduction amount, and the date of commencement thereof,
so that such reduction shall commence and conclude in the same
Yield Period, and
(C) if two or more Undivided Interests shall be
outstanding at the time of any proposed reduction, such proposed
reduction shall be applied, unless the Agent shall consent
otherwise, to the Undivided Interest with the shortest remaining
Yield Period.
(c) Allocations of Obligor Payments. Except as otherwise
required by law, all Collections received from a particular Obligor in
respect of any Receivable shall be applied to the Receivables payable by
such Obligor in the order of the age of such Receivables, starting with
the oldest such Receivable.
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<PAGE> 16
(d) Use of Reserve Account. If on any date sufficient Finance
Charge Collections are not available in the Collection Account for
application to payment of the amounts described in Section 3.02(b)
clause first through sixth on the dates specified therein, the Servicer
shall withdraw from the Reserve Account an amount equal to the lesser of
(i) such amounts and (ii) the amount on deposit in the Reserve Account,
and shall apply the funds so withdrawn to the payment of such amounts in
the order of priority set forth in Section 3.02(b). In addition, during
the Liquidation Period on the date that a Receivable becomes a Defaulted
Receivable, the Servicer shall withdraw from the Reserve Account an
amount equal to the aggregate Unpaid Balance of such Defaulted
Receivable and apply it pursuant to Section 3.02(a)(ii) as a Principal
Collection. To the extent the amount on deposit in the Reserve Account
exceeds the Reserve Account Required Amount (after giving effect to all
payments to be made therefrom and all deposits thereto on any date of
distribution pursuant to this Section 3.03(d)), so long as no
Liquidation Event or Unmatured Liquidation Event shall have occurred or
be continuing, the Servicer shall transfer such excess amount to the
Seller. On the date after the Commitment Termination Date when the
Aggregate Undivided Interest shall have been reduced to zero and all
Obligations of Seller shall have been fully and finally paid and
performed, the Servicer shall pay to Seller any funds remaining in the
Reserve Account.
(e) Permitted Investments. Any amount in the Collection Account
and the Reserve Account, as the case may be, may be invested by Seller
(or Servicer on Seller's behalf) in Permitted Investments; provided,
however, that such investments shall mature not later than one Business
Day next preceding the Settlement Date for any Undivided Interest next
succeeding the date of such investment. All amounts earned on Permitted
Investments shall be for the account of the Seller.
3.04 Reporting.
(a) No later than 11:00 a.m., New York City time, on the second
Business Day before the date of each Purchase other than the initial
Purchase hereunder, as a condition precedent to each such Purchase,
Servicer shall prepare and forward to the Agent a certificate containing
a calculation of (i) the Net Pool Balance (the calculation of which
shall be based upon the information contained in the most recent
Periodic Report) and (ii) the Aggregate Investment and the Loss Reserve
(in each case, after giving effect, on a pro forma basis, to such
Purchase).
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<PAGE> 17
(b) On or prior to the fifteenth day of each month, Servicer
shall prepare and forward to the Agent a Periodic Report relating to all
outstanding Pool Receivables and all Undivided Interests owned by
Purchaser, as of the close of business of Servicer on the immediately
preceding Month End Date.
3.05 Payments and Computations, etc.
(a) All amounts to be paid or deposited into the Agent's Account
by Seller or Servicer hereunder shall be paid or deposited in accordance
with the terms hereof no later than 1:00 p.m. (New York City time) on
the day when due in lawful money of the United States of America in same
day funds.
(b) Seller or Servicer, as applicable, shall, to the extent
permitted by law, pay to the Agent (for the benefit of Purchaser or the
Agent, as the case may be) interest on all amounts not paid or deposited
when due hereunder, such interest to be calculated at the Default Rate
from (and including) the date due and payable to the date paid and such
interest shall be payable on demand; provided, however, that the
applicable interest rate shall not at any time exceed the maximum rate
permitted by applicable law.
(c) All computations of interest, Earned Return and any fees
hereunder shall be made on the basis of a year of 360 days for the
actual number of days (including the first day but excluding the last
day) elapsed.
3.06 Dividing or Combining Undivided Interests.
(a) Division of Undivided Interests. The Agent may at any time,
as of the last day of any Yield Period for any then existing Undivided
Interest, divide such existing Undivided Interest on such last day into
two or more new Undivided Interests, each such new Undivided Interest
having an Investment as designated by the Agent and all such new
Undivided Interests collectively having aggregate Investments equal to
the Investment in such existing Undivided Interest.
(b) Combination of Undivided Interests. The Agent may at any
time, as of the last day of any Yield Period for two or more existing
Undivided Interests, on or before the date of any proposed Purchase of
an Undivided Interest pursuant to Section 1.01 by Purchaser, on such
last day or such date of Purchase, as the case may be, combine into one
new Undivided Interest such existing and/or proposed Undivided
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<PAGE> 18
Interests or any combination thereof, such new Undivided Interest having
an Investment equal to the aggregate Investments of such Undivided
Interests so combined.
(c) Effect of Division or Combination. On and after any division
or combination of Undivided Interests as described above, each of the
new Undivided Interests resulting from such division, or the new
Undivided Interest resulting from such combination, as the case may be,
shall be a separate Undivided Interest having an Investment as set forth
above, and shall take the place of such existing Undivided Interest or
Undivided Interests or proposed Undivided Interest, as the case may be,
in each case under and for all purposes of this Agreement.
ARTICLE IV
FEES AND YIELD PROTECTION
4.01 Fees. Seller shall pay to Purchaser for its own account such fees
on such dates and in such amounts as set forth in the agreement of even date
herewith between the Agent and Seller (as such agreement may be amended,
restated, supplemented or modified from time to time, the "Fee Letter").
4.02 Yield Protection.
(a) If (i) Regulation D, (ii) any law or regulation relating to
deposit insurance or (iii) any Regulatory Change occurring after the
date hereof
(A) shall subject an Affected Party to any tax (other
than income tax), duty or other charge with respect to the
Certificate, any Undivided Interest owned by or funded by it, or
any obligations or right to make Purchases or Reinvestments or
to provide funding therefor, or shall change the basis of
taxation of payments to the Affected Party of any Investments or
Earned Return owned by, owed to or funded by it or any other
amounts due under this Agreement or any of the other Transaction
Documents in respect of the Certificate, any Undivided Interest
owned by or funded by it or its obligations or rights, if any,
to make Purchases or Reinvestments or to provide funding
therefor (except for changes in the rate of tax on the overall
net income of such Affected Party); or
(B) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the
Federal Reserve Board, but excluding any reserve included in the
determination of Earned
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Return), special deposit or similar requirement against assets
of any Affected Party, deposits or obligations with or for the
account of any Affected Party or with or for the account of any
Affiliate (or entity deemed by the Federal Reserve Board to be
an Affiliate) of any Affected Party, or credit extended by any
Affected Party; or
(C) shall change the amount of capital maintained or
required or requested or directed to be maintained by any
Affected Party; or
(D) shall impose any other condition affecting the
Certificate, any Undivided Interest owned or funded by any
Affected Party or its obligations or rights, if any, to make
Purchases or Reinvestments or to provide funding therefor;
and the result of any of the foregoing is or would be
(x) to increase the cost to (or in the case of
Regulation D referred to above or any law or regulation relating
to deposit insurance, to impose a cost on) (I) an Affected Party
of funding or making or maintaining any Purchases or
Reinvestments, any purchases, reinvestments, or loans or other
extensions of credit under the Stand-by Purchase Agreement, or
any commitment of such Affected Party with respect to any of the
foregoing, or (II) the Agent for continuing its or Seller's
relationship with Purchaser,
(y) to reduce the amount of any sum received or
receivable by an Affected Party under this Agreement or the
Certificate, or under the Stand-by Purchase Agreement or the
Enhancement Agreement with respect thereto, or
(z) in the sole determination of such Affected Party, to
reduce the rate of return on such Affected Party's capital as a
consequence of its obligations hereunder or arising in
connection herewith to a level below that which such Affected
Party could otherwise have achieved,
then within thirty days after demand by such Affected Party (which
demand shall be accompanied by a statement setting forth the basis of
such demand), Seller shall pay to the Agent (for the benefit of such
Affected Party) such additional amount or amounts as will compensate
such Affected Party for such additional or increased cost or such
reduction.
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(b) In determining any amount provided for or referred to in
this Section 4.02, an Affected Party may use any reasonable averaging
and attribution methods that it shall deem applicable. When making a
claim under this Section 4.02, each Affected Party shall submit to
Seller a statement as to such increased cost or reduced return
(including calculation thereof in reasonable detail), which statement
shall, in the absence of manifest error, constitute conclusive evidence
of such increased cost or reduced return.
Notwithstanding Seller's obligation to pay additional amounts or amounts
necessary to compensate any Affected Party pursuant to this Section 4.02, and
except in the case of any such Regulatory Change having retroactive effect, the
Seller shall not be required to pay such additional amounts to the extent such
amounts relate to periods prior to three months before the Seller's receipt of
demand therefor.
(c) If any of the events requiring payments of additional
amounts by the Seller under this Section 4.02 occurs and the applicable
Affected Party shall have made a demand for such payment hereunder, the
applicable Affected Party shall take such steps as may be reasonable
(consistent with its internal policy and legal and regulatory
restrictions) to (i) change the jurisdiction of its funding office if
such change would avoid the Seller being required to pay any additional
amount or (ii)otherwise mitigate the effects of Regulation D, any law or
regulation relating to deposit insurance or any Regulatory Change as set
forth in this Section 4.02, above, in either case so long as such change
or steps to mitigate, as applicable, would not increase any cost to any
Affected Party or be otherwise disadvantageous to any Affected Party.
4.03 Funding Losses. Seller hereby agrees that upon demand by any
Affected Party (which demand shall be accompanied by a statement setting forth
the basis for the calculations of the amount being claimed) Seller will
indemnify such Affected Party against any net loss or reasonable expense which
such Affected Party may sustain or incur (including, without limitation, any net
loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Affected Party to fund or maintain any
Undivided Interest), as reasonably determined by such Affected Party, as a
result of (a) any payment of any Investment or Earned Return thereon on a date
other than the Settlement Date for such Undivided Interest, or (b) any failure
of Seller to sell any Undivided Interest to Purchaser on a date specified
therefor in a related notice of Purchase delivered pursuant to Section 1.03(a).
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Such written statement shall, in the absence of manifest error, be rebuttably
presumptive evidence of the subject matter thereof.
ARTICLE V
CONDITIONS OF PURCHASES
5.01 Conditions Precedent to Initial Purchase. The initial Purchase
hereunder is subject to the condition precedent that the Agent shall have
received, on or before the date of such Purchase, the following, each (unless
otherwise indicated) dated such date and in form and substance satisfactory to
the Agent:
(a) A Certificate;
(b) A copy of the resolutions of the Board of Directors of each
of Seller and Sunterra approving each Transaction Document to be
delivered by it and the transactions contemplated thereby, certified by
the respective Secretary or Assistant Secretary an officer of each such
Person;
(c) Good standing certificates for each of Seller and Sunterra
issued as of a date not earlier than 30 days prior to such initial
Purchase by the Secretary of State of the jurisdiction of such Person's
incorporation or formation and the jurisdiction of such Person's
principal place of business;
(d) A certificate of the Secretary or Assistant Secretary of
each of Seller and Sunterra certifying the names and true signatures of
the officers authorized on such Person's behalf to sign the Transaction
Documents to be delivered by it (on which certificate Purchaser and the
Agent may conclusively rely until such time as the Agent shall receive
from such Person a revised certificate meeting the requirements of this
subsection (d));
(e) The certificate of incorporation or other organizational
document of each of Seller and Sunterra, duly certified by the Secretary
of State of the jurisdiction of such Person's incorporation or formation
as of a recent date acceptable to the Agent, together with a copy of the
by-laws or other governing document of each of Seller and Sunterra, each
duly certified by the Secretary or an Assistant Secretary of such
Person;
(f) On or prior to the date of the initial Purchase, (i) duly
executed financing statements naming each Originator as debtor and
Sunterra as secured party, (ii)
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duly executed financing statements naming Sunterra as debtor and Seller
as secured party, and the Purchaser as assignee of Seller, and (iii)
duly executed financing statements naming Seller as the debtor and
Purchaser as secured party, of the Receivables and related rights and,
in the case of the financing statements naming Seller, as debtor, an
undivided interest therein and of the other rights, instruments and
moneys specified in Section 9.01, or other, similar instruments or
documents, as may be necessary or, in the opinion of the Agent,
desirable under the UCC of all appropriate jurisdictions or any
comparable law of all appropriate jurisdictions to perfect Seller's
interests and Purchaser's interests in all Receivables and Undivided
Interests, as the case may be, and such other rights, accounts,
instruments and moneys in which an interest may be assigned to Purchaser
hereunder;
(g) A written search report from a Person reasonably
satisfactory to the Agent listing all effective financing statements
that name Seller, Sunterra or any Originator as debtor or assignor and
that are filed in the jurisdictions in which filings are to be made
pursuant to subsection (f) above, together with copies of such financing
statements (none of which, except for those described in subsection (f)
above, shall cover any Receivable), and tax and judgment lien search
reports from a Person reasonably satisfactory to the Agent showing no
evidence of such liens filed against Seller, Sunterra or any Originator;
(h) Duly executed copies of (i) the Collection Account Agreement
with the Collection Account Bank and (ii) the Reserve Account Agreement
with the Reserve Account Bank;
(i) Favorable opinions from: (i) Willkie, Farr & Gallagher,
special counsel to Seller, Sunterra and each Originator, substantially
in the forms attached hereto as Exhibit 5.01(i)(i), (ii) General
Counsels of Seller, Sunterra and each Originator, substantially in the
forms attached hereto as Exhibit 5.01(i)(ii) and (iii) Local Counsels of
Seller, Sunterra and each Originator, substantially in the forms
attached hereto as Exhibit 5.01(i)(iii);
(j) Such powers of attorney as the Agent shall reasonably
request to enable the Agent to collect all amounts due under any and all
Receivables following a Liquidation Event;
(k) A Periodic Report calculated as of the most recent Month End
Date;
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(l) Evidence (i) of the execution and delivery by each of the
parties thereto of each of the Transaction Documents and all documents,
agreements and instruments contemplated thereby (which evidence shall
include copies, either original or facsimile, of each of such documents,
instruments and agreements), (ii) that each of the conditions precedent
to the Transaction Documents has been satisfied to the Agent's
satisfaction and (iii) that the initial purchases under the Purchase and
Sale Agreement have been consummated;
(m) The fees payable to the Agent pursuant to the Fee Letter,
together with all costs and expenses due and payable pursuant to Section
14.05, if then invoiced;
(n) Original UCC-3 financing statements that are duly executed
and that shall effect, upon filing, the termination of all financing
statements relating to the Receivables;
(o) A certificate from an authorized officer of Sunterra and an
authorized officer of Seller as to the satisfaction of the conditions
set forth in Section 5.02;
(p) A written statement from each of Moody's and S&P confirming
that the transactions contemplated by this Agreement will not result in
a downgrade or withdrawal of the current ratings of the Commercial Paper
Notes;
(q) Completion of a satisfactory due diligence review by the
Agent of Seller, Servicer and each Originator;
(r) Evidence satisfactory to the Agent of the execution and
delivery by each of the parties thereto of the Interest Rate Protection
Agreement; and
(s) Evidence satisfactory to the Agent that the Custodian shall
have taken possession pursuant to the Custodial Agreement of all Loan
Documents (including the Notes) relating to the initial Pool Receivables
to be sold by Sunterra to the Seller pursuant to the Purchase and Sale
Agreement on the Closing Date.
5.02 Conditions Precedent to All Purchases and Reinvestments. Each
Purchase (including the initial Purchase) and each Reinvestment shall be subject
to the further conditions precedent (collectively, "Conditions Precedent" and
individually, a "Condition Precedent") that on the date of such Purchase or
Reinvestment the following statements shall be true (and in the case of
paragraph (a) through (d) below, Seller by accepting the amount of such Purchase
or by receiving the proceeds of such
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Reinvestment, as the case may be, shall be deemed to have represented and
warranted that):
(a) The representations and warranties contained in Section 6.01
are true and correct on and as of such day with the same effect as
though made on and as of such day and shall be deemed to have been made
on such day;
(b) No event has occurred and is continuing, or would result
from such Purchase or Reinvestment, that constitutes a Liquidation Event
or an Unmatured Liquidation Event;
(c) After giving effect to each proposed Purchase or
Reinvestment, the Aggregate Investment will not exceed the Facility
Limit and the Aggregate Undivided Interest will not exceed the Aggregate
Undivided Interest Limit;
(d) The Commitment Termination Date has not occurred; and
(e) The Agent shall have received evidence that the Custodian
shall have taken possession on behalf of the Purchaser pursuant to the
Custodial Agreement of all Loan Documents (including the Notes) relating
to the Receivables to be included in the Receivables Pool with respect
to such Purchase or Reinvestment.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.01 Representations and Warranties of Seller. In order to induce
Purchaser and the Agent to enter into this Agreement and to make Purchases and
Reinvestments hereunder, Seller hereby represents and warrants to Purchaser and
the Agent as follows:
(a) Organization and Good Standing. It has been duly organized
and is validly existing as a corporation in good standing under the laws
of its state of incorporation, with power and authority to own its
properties and to conduct its business as such properties are presently
owned and such business is presently conducted.
(b) Due Qualification. It is duly licensed or qualified to do
business as a foreign corporation in good standing in each jurisdiction
in which (i) the ownership or lease of its property or the conduct of
its business requires such licensing or qualification, and (ii) the
failure to be so licensed or qualified would be reasonably likely to
have a Material Adverse Effect.
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(c) Power and Authority; Due Authorization. It has (i) all
necessary power, authority and legal right to (A) execute, deliver and
perform its obligations under this Agreement, the Certificate and each
other Transaction Document to which it is a party, and (B) sell and
assign Undivided Interests on the terms and subject to the conditions
herein provided and (ii) duly authorized by all necessary corporate
action such execution, delivery and performance of this Agreement and
the other Transaction Documents to which it is a party and the sale and
assignment of Undivided Interests on the terms and conditions herein
provided. Seller had at all relevant times, and now has, all necessary
power, authority and legal right to acquire and own the Receivables, to
sell and assign Undivided Interests, and to incur obligations hereunder.
(d) Binding Obligations. Each Purchase made pursuant to this
Agreement shall constitute a valid sale, transfer, and assignment of the
relevant Undivided Interests to Purchaser, or (as provided in Article
IX) the assignment of a first priority security interest in the Pool
Receivables and Related Security, in either case, which has been
perfected and is enforceable against creditors of, and purchasers from,
Seller; and this Agreement constitutes, and each other Transaction
Document to be signed by Seller when duly executed and delivered will
constitute, a legal, valid and binding obligation of Seller enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium, or
other similar laws affecting the enforcement of creditors' rights
generally, and by general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents and
the fulfillment of the terms hereof does not (i) conflict with, result
in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under (A) the
articles or certificate of incorporation or by-laws of Seller, or (B)
any indenture, loan agreement, receivables purchase agreement, mortgage,
deed of trust, or other material agreement or instrument to which Seller
is a party or by which it or any of its properties is bound, (ii) result
in or require the creation or imposition of any Adverse Claim upon any
of Seller's properties pursuant to the terms of any such indenture, loan
agreement, receivables purchase agreement, mortgage, deed of trust, or
other agreement or instrument, other than the Transaction
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Documents, or (iii) violate any law or any order, rule, or regulation
applicable to Seller of any court or of any federal, state or foreign
regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over Seller or any of its
properties.
(f) No Proceedings. Except as described in Schedule 6.01(f),
(i) there is no order, judgment, decree, injunction,
stipulation or consent order of or with any court or other
government authority to which Seller is subject, and there is no
action, suit, arbitration, regulatory proceeding or other
litigation, proceeding, or to Seller's knowledge, governmental
investigation pending, or to Seller's knowledge, overtly
threatened in writing, before or by any court, regulatory body,
administrative agency or other tribunal or governmental
instrumentality, against Seller that if adversely determined,
could reasonably be expected to have a Material Adverse Effect;
and
(ii) there is no action, suit, proceeding, arbitration,
regulatory, or to Seller's knowledge, governmental
investigation, pending or, to Seller's knowledge, overtly
threatened in writing, before or by any court, regulatory body,
administrative agency, or other tribunal or governmental
instrumentality (A) asserting the invalidity of this Agreement,
the Certificate or any other Transaction Document, (B) seeking
to prevent the sale and assignment of any Undivided Interest,
the issuance of the Certificate or the consummation of any of
the other transactions contemplated by this Agreement or any
other Transaction Document, or (C) seeking to adversely affect
the federal income tax attributes of the Undivided Interests.
(g) Bulk Sales Act. No transaction contemplated by this
Agreement or any of the other Transaction Documents requires compliance
with, or will be subject to avoidance under, any bulk sales act or
similar law.
(h) Government Approvals. Except for the filing of the UCC
financing statements referred to in Article V, all of which, at the time
required in Article V, shall have been duly made and shall be in full
force and effect, no authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by
Seller of any Transaction Document to which
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it is a party, except for authorization, approvals, or other actions
which have been obtained or taken, as applicable, and except for notice
or filings which have been given or completed, as applicable.
(i) Financial Condition. Since the date hereof, no event has
occurred that has had, or is reasonably likely to have, a Material
Adverse Effect.
(j) Margin Regulations. No use of any funds obtained by Seller
under this Agreement will conflict with or contravene any of Regulations
T, U and X promulgated by the Federal Reserve Board.
(k) Quality of Title. Each Receivable in which an Undivided
Interest is to be sold to Purchaser (together with the Related Security
for such Undivided Interest) shall be owned by Seller free and clear of
any Adverse Claim (other than (A) any Adverse Claim arising solely as
the result of any action taken by Purchaser or by the Agent and, (B) in
the case of the Related Security constituting the Mortgage on the
Vacation Interest securing a Mortgage Loan, (i) any mechanics and
materialmen's lien thereon, (ii) the lien of any condominium, homeowners
or timeshare association with respect to any annual maintenance fees or
the lien of real property taxes, ground rents, water charges, sewer
rents and assessments not yet delinquent or accruing interest or
penalties, and (iii) covenants, conditions and restrictions, rights of
way, easements and other matters of public record, none of which,
individually or in the aggregate, materially interferes with the current
use or operation of such Vacation Interest or the security intended to
be provided by the related Mortgage or with the Obligor's ability to pay
its obligations under the related Mortgage Loan when they become due, or
materially and adversely affects the value of such Vacation Interest).
When Purchaser makes a Purchase or Reinvestment it shall acquire and
shall continue to maintain (at all times when the Aggregate Undivided
Interest is not zero) a valid and upon the completion of the necessary
action, perfected, first priority undivided fractional interest to the
extent of its Undivided Interest in each Receivable and in the Related
Security and Collections with respect thereto, free and clear of any
Adverse Claim (other than any Adverse Claim arising solely as the result
of any action taken by Purchaser or by the Agent). No effective
financing statement or other instrument similar in effect covering any
Receivable, any interest therein, or the Related Security or Collections
with respect thereto is on file in any recording office except for
financing statements that may be filed (i) in favor of Sunterra or any
Originator in accordance with the Timeshare Loans, (ii) in favor of
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Seller in accordance with the Purchase and Sale Agreement, (iii) in
favor of Purchaser or the Agent in accordance with this Agreement, or
(iv) in connection with any Adverse Claim arising solely as the result
of any action taken by Purchaser (or any assignee thereof) or by the
Agent.
(l) Accuracy of Information. All written information heretofore
or contemporaneously furnished by Seller to Purchaser or the Agent for
purposes of, or in connection with, this Agreement and all other
Transaction Documents or any transaction contemplated hereby or thereby
is, and all other such factual, written information hereafter furnished
(if prepared by Seller or, if not prepared by Seller, to the extent that
information contained therein was supplied by Seller) by Seller to
Purchaser or the Agent pursuant to, or in connection with, this
Agreement and the other Transaction Documents, including, without
limitation, each Periodic Report and financial statement, when taken as
a whole with any other documents delivered within a reasonable time will
be, true and accurate in all material respects on the date as of which
such information is dated or certified, and will not contain any
material misstatement of fact or be incomplete by omitting to state a
material fact necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading on
the date as of which such information is dated or certified.
(m) Offices. The principal places of business and chief
executive offices of Seller are located at the address referred to in
Section 14.02, and the offices where Seller keeps all its books, records
and documents evidencing Receivables, the related Timeshare Loans and
all other agreements related to such Receivables are located at the
addresses specified in Schedule 6.01(m) (or at such other locations,
notified to the Agent in accordance with Section 7.01(e), in
jurisdictions where all action required by Section 8.06 has been taken
and completed).
(n) Lockbox Accounts. The names and addresses of all the Lockbox
Banks and other Account Banks, together with the account numbers of the
lockbox accounts and other accounts at such Account Banks, are specified
in Schedule 6.01(n) (or have been notified to the Agent in accordance
with Section 7.03(d)).
(o) Capitalization. The authorized capital stock of Seller
consists of 1,000 shares of common stock, no par value ("Seller Common
Stock"), all of which shares are currently issued and outstanding. All
of such outstanding shares of Seller Common Stock are validly issued,
fully paid
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and nonassessable and are owned (beneficially and of record) by Sunterra
free and clear of any Adverse Claims.
(p) Licenses, Contingent Liabilities, and Labor Controversies.
(i) Seller has not failed to obtain any licenses,
permits, franchises or other governmental authorizations
necessary to the ownership of its properties or to the conduct
of its business, which violation or failure to obtain could
reasonable be expected to have a Material Adverse Effect.
(ii) There are no labor controversies pending against
Seller, Sunterra or any Originator that have had (or are
reasonably likely to have) a Material Adverse Effect.
(iii) Other than any liability incident to any
litigation or proceedings described in Section 6.01(f), Seller
has no contingent liabilities not provided for or disclosed in
its financial statements that, individually or in the aggregate,
are material to Seller.
(q) Trade Names. Seller does not use any trade name other than
its actual corporate name and the trade names set forth in Schedule
6.01(q). From and after the date that fell five (5) years before the
date hereof, Seller has not been known by any legal name other than its
corporate name as of the date hereof, nor has any such Person been the
subject of any merger or other corporate reorganization, except as set
forth in Schedule 6.01(q).
(r) Taxes. Seller has filed all tax returns and reports required
by law to have been filed by it and has paid all taxes and governmental
charges thereby shown to be owing, except any such taxes or charges
which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its respective books.
(s) Compliance with Applicable Laws. Seller is in compliance
with the requirements of all applicable laws, rules, regulations, and
orders of all governmental authorities, including federal, state, local
or foreign, except for such breaches and failures to comply which,
individually or in the aggregate, would not be reasonably likely to have
a Material Adverse Effect.
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(t) Eligible Receivables. Each Receivable included in the
calculation of the Net Pool Balance as an Eligible Receivable on the
date of any Purchase or Reinvestment was an Eligible Receivable on such
date.
(u) Weighted Average Interest Rate. The weighted average
interest rate payable on the Eligible Receivables is greater than or
equal to 13.5%.
(v) Foreign Tax Liability. The Seller is not aware that any
Obligor has withheld any portion of payments with respect to any
Timeshare Loan because of the requirements of a foreign taxing authority
and no foreign taxing authority has contacted the Seller concerning a
withholding or other foreign tax liability.
(w) Investment Company. The Seller is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(x) Each homeowners association relating to each Vacation
Ownership Resort in which a Vacation Interest is located was duly
organized and is validly existing. Sunterra, an Affiliate thereof or a
Person approved in writing by the Agent, it being understood that any
Person managing a Vacation Ownership Resort on the date hereof or on the
Initial Closing Date and who has been disclosed to the Agent, shall been
deemed to have been approved by the Agent, manages each Vacation
Ownership Resort and performs services for such homeowners association,
pursuant to an agreement with such homeowners association, each of such
agreements being in full force and effect. A true and correct copy of
the management agreement between Sunterra or such Affiliate or Person
and such homeowners association has been furnished to the Agent.
Sunterra or such Affiliate or Person, as applicable, and the homeowners
association have performed in all material respects all obligations
under such agreements and are not in material default under such
agreements.
(y) The Vacation Ownership Resorts are insured through the
applicable homeowners associations, in the event of fire or other
casualty (other than earthquake, unless deemed necessary in the
reasonable judgment of the applicable Originator) for the full
replacement value thereof, and in the event that the Vacation Interest
related to a Timeshare Loan should suffer any loss covered by casualty
or other insurance, upon receipt of any insurance proceeds, such
homeowners associations are required, during the time such Vacation
Interests are covered by such insurance, under
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their applicable governing instruments either to repair or rebuild the
portions of the applicable Vacation Ownership Resorts or to pay such
proceeds to the holders of any Mortgages secured by a timeshare estate
in the portions of the applicable Vacation Ownership Resorts. Each such
homeowners association that is located in a designated flood plain
maintains flood insurance in an amount not less than the maximum level
available under the National Flood Insurance Act of 1968, as amended.
(z) Each Timeshare Loan secured by a Mortgage requires the
Obligor to pay all taxes, insurance premiums and maintenance costs with
respect to the related timeshare estate. Each Timeshare Loan secured by
a Right-to-Use Agreement requires the Obligor to pay all maintenance
costs with respect to the related timeshare estate. There are no
material outstanding liens or encumbrances of any kind affecting the
Vacation Interests, other than Permitted Encumbrances.
(aa) The Vacation Interests and related Vacation Ownership
Resorts are free of material damage and waste and there is no proceeding
pending or, to the best knowledge of the Seller, threatened for the
total or partial condemnation or taking of the Vacations Interests or
Vacation Ownership Resorts by eminent domain.
(bb) There is no condition presently existing, and to the best
knowledge of Seller, no event has occurred or failed to occur prior to
the date hereof, concerning a Vacation Ownership Resort relating to any
hazardous or toxic materials or condition, or other environmental
matters which would reasonably be expected to materially and adversely
affect the present use of such Vacation Ownership Resort or the
financial condition or business operations of the related homeowners'
association, or the value of the Notes, Timeshare Loans or Related
Rights.
(cc) Units Complete. All of the condominium units related to the
Timeshare Loans in the Vacation Ownership Resorts, located in buildings
as to which construction thereof has been completed, have been completed
as required by applicable state and local laws.
6.02 Representations and Warranties of Sunterra. In order to induce
Purchaser and the Agent to enter into this Agreement, Sunterra as initial
Servicer hereby represents and warrants to Purchaser and the Agent as follows:
(a) Organization and Good Standing. It has been duly organized
and is validly existing as a corporation in good
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standing under the laws of its state of incorporation, with power and
authority to own its properties and to conduct its business as such
properties are presently owned and such business is presently conducted.
(b) Due Qualification. It is duly licensed or qualified to do
business as a foreign corporation in good standing in each jurisdiction
in which (i) the ownership or lease of its property or the conduct of
its business requires such licensing or qualification, and (ii) the
failure to be so licensed or qualified would be reasonably expected to
have a Material Adverse Effect.
(c) Power and Authority; Due Authorization. It has (i) all
necessary power, authority and legal right to execute, deliver and
perform its obligations under this Agreement and each other Transaction
Document to which it is a party in its capacity as Servicer and (ii)
duly authorized by all necessary corporate action such execution,
delivery and performance of this Agreement and such other Transaction
Documents.
(d) Binding Obligations. This Agreement constitutes, and each
other Transaction Document to be signed by Sunterra, in its capacity as
Servicer when duly executed and delivered will constitute, a legal,
valid and binding obligation of Sunterra, in its capacity as Servicer,
enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, receivership,
moratorium, or other similar laws affecting the enforcement of
creditors' rights generally, and be general principles of equity,
regardless of whether such enforceability is considered in a proceeding
in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to
which it is a party in its capacity as Servicer and the fulfillment of
the terms hereof does not (i) conflict with, result in any breach of any
of the terms and provisions of, or constitute (with or without notice or
lapse of time or both) a default under (A) the certificate of
incorporation or by-laws of Sunterra, or (B) any indenture, loan
agreement, receivables purchase agreement, mortgage, deed of trust, or
other material agreement or instrument to which Sunterra is a party or
by which it or any of its properties is bound, (ii) result in or require
the creation or imposition of any Adverse Claim upon any of its
properties pursuant to the terms of any such indenture, loan agreement,
receivables purchase agreement, mortgage, deed of trust, or other
agreement or instrument, other than
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the Transaction Documents, or (iii) violate any law or any order, rule,
or regulation applicable to Sunterra of any court or of any federal,
state or foreign regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over Sunterra or any of
its properties.
(f) No Proceedings. Except as described in Schedule 6.02(f),
(i) there is no order, judgment, decree, injunction,
stipulation or consent order of or with any court or other
government authority to which Sunterra is subject, and there is
no action, suit, arbitration, regulatory proceeding or other
litigation, proceeding or to Seller's knowledge, governmental
investigation pending or to Sunterra's knowledge, overtly
threatened in writing, before or by any court, regulatory body,
administrative agency or other tribunal or governmental
instrumentality, against Sunterra, that, individually or in the
aggregate, could reasonably be expected to have a Material
Adverse Effect; and
(ii) there is no action, suit, proceeding, arbitration,
regulatory, or to Seller's knowledge, governmental
investigation, pending or to Sunterra's knowledge, overtly
threatened in writing, before or by any court, regulatory body,
administrative agency, or other tribunal or governmental
instrumentality (A) asserting the invalidity of this Agreement
and other Transaction Document to which Sunterra is a party as
Servicer, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any other
Transaction Document to which Sunterra is a party as Servicer,
or (C) seeking any determination that could reasonably be
expected to have a Material Adverse Effect.
(g) Government Approvals. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority
or regulatory body is required for the due execution, delivery and
performance by Sunterra of any Transaction Document to which it is a
party in its capacity as Servicer, except for authorizations, approvals
or other actions which have been obtained or taken as applicable, and
except for notices or filings which have been given or completed, as
applicable.
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(h) Financial Condition.
(i) The consolidated balance sheets of Sunterra and its
consolidated subsidiaries as of December 31, 1997, and the
related statements of income and shareholders' equity of
Sunterra and its consolidated subsidiaries for the fiscal year
then ended certified by Arthur Andersen LLP, Sunterra's
independent accountants, copies of which will be furnished to
the Agent, present fairly in all material respects the
consolidated financial position of Sunterra and its consolidated
subsidiaries as at such date and the consolidated results of the
operations of Sunterra and its consolidated subsidiaries for the
period ended on such date, all in accordance with GAAP
consistently applied;
(ii) Since September 30, 1998, no event has occurred
that has had, or is reasonably likely to have, a Material
Adverse Effect; and
(iii) Sunterra has not and shall not fail (A) to make
any payment when due of any Indebtedness (other than any
Obligation constituting Indebtedness) of Sunterra, which
Indebtedness is in a principal amount, at any time in excess of
$500,000, or (B) in the performance or observance of any
material obligation or condition with respect to such
Indebtedness.
(i) Accuracy of Information. All written information heretofore
or contemporaneously furnished by Sunterra in its capacity as Servicer
to Purchaser or the Agent for purposes of, or in connection with, this
Agreement and all other Transaction Documents or any transaction
contemplated hereby or thereby is, and all other such factual, written
information hereafter furnished (if prepared by Sunterra in its capacity
as Servicer or, if not prepared by Sunterra in its capacity as Servicer,
to the extent that information contained therein was supplied by
Sunterra in its capacity as Servicer) by Sunterra in its capacity as
Servicer to Purchaser or the Agent pursuant to, or in connection with,
this Agreement and the other Transaction Documents, including, without
limitation, each Periodic Report and financial statement, will be, when
taken as a whole with any other documents delivered within a reasonable
time, true and accurate in all material respects on the date as of which
such information is dated or certified, and will not contain any
material misstatement of fact or be incomplete by omitting to state a
material fact necessary to make the statements contained therein, in
light of the circumstances
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in which they were made, not misleading on the date as of which such
information is dated or certified.
(j) Account Banks. The names and addresses of all the Account
Banks, together with the account numbers of the accounts at such Account
Banks, are specified in Schedule 6.01(n) (or have been notified to the
Agent in accordance with Section 7.03(d)).
(k) Taxes. Sunterra has filed all tax returns and reports
required by law to have been filed by it and has paid all taxes and
governmental charges thereby shown to be owing, except any such taxes or
charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on its respective books.
(l) Compliance with Applicable Laws. Sunterra in its capacity as
Servicer is in compliance with the requirements of all applicable laws,
rules, regulations, and orders of all governmental authorities with
respect to the Receivables and the related Timeshare Loans, including
federal, state, local or foreign, except for such breaches and failures
to comply which, individually or in the aggregate, would not be
reasonably expected to have a Material Adverse Effect.
(m) Year 2000 Problem. The Servicer has reviewed the areas
within its business and operations which could be adversely affected by,
and has developed or is developing a program to address on a timely
basis, the risk that certain computer applications used by the Servicer
may be unable to recognize and perform properly date-sensitive functions
involving dates prior to and after December 31, 1999 (the "Year 2000
Problem"). The Year 2000 Problem will not result in any Material Adverse
Effect.
ARTICLE VII
GENERAL COVENANTS OF SELLER AND SERVICER
7.01 Affirmative Covenants of Seller and Sunterra. From the date hereof
until the first day, following the Commitment Termination Date, on which (i) all
Undivided Interests shall be reduced to zero, and (ii) all Obligations that have
ever been outstanding hereunder shall have been finally and fully paid and
performed, Seller and Sunterra (in its capacity as Servicer) each hereby
covenants and agrees with Purchaser and the Agent as to itself that, unless the
Agent shall otherwise consent in writing, it shall:
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(a) Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders of all
governmental authorities having jurisdiction over it.
(b) Preservation of Corporate Existence. Preserve and maintain
its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified in
good standing as a foreign corporation in each jurisdiction where the
failure to preserve and maintain such existence, rights, franchises,
privileges and qualification would have a Material Adverse Effect.
(c) Audits. (i) At any time and from time to time during regular
business hours, upon two Business Days' prior written notice from the
Agent, permit the Agent (or such other Person who may be designated from
time to time by the Agent), or its agents or representatives, at
Seller's expense, (A) to examine and make copies of and abstracts from
all books, records and documents (including, without limitation,
computer tapes and disks) in its possession or under its control
relating to Receivables and the Undivided Interests, including, without
limitation, the related Timeshare Loans and purchase orders and other
agreements, and (B) to visit its offices and properties for the purpose
of examining such materials described in clause (i)(A) next above, and
to discuss matters relating to Receivables or its performance hereunder
with any of its appropriate or designated officers or employees having
knowledge of such matters; and (ii) without limiting the provisions of
clause (i) next above, from time to time during regular business hours,
upon two Business Days prior written notice from the Agent, permit
certified public accountants or other auditors acceptable to the Agent
to conduct, at Seller's or Sunterra's expense as the case may be, a
review of its books and records with respect to the Receivables.
Notwithstanding anything in this paragraph to the contrary, except in
connection with examinations and audits made pursuant to this paragraph
following the occurrence of a Liquidation Event or Unmatured Liquidation
Event, Seller or Sunterra, as the case may be, shall only be responsible
for expenses in connection with one examination or one audit (pursuant
to the terms of this paragraph) per year.
(d) Keeping of Records and Books of Account. Maintain and
implement (or cause the Servicer to maintain and implement)
administrative and operating procedures (including, without limitation,
an ability to recreate records evidencing Receivables in the event of
the destruction of the originals thereof), and keep and maintain
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(or cause the Servicer to keep and maintain), all documents, books,
records and other information which is reasonably necessary for the
collection of all Receivables (including, without limitation, records
adequate to permit the prompt identification of each new Receivable and
all Collections of, and adjustments to, each existing Receivable).
(e) Location of Records. Keep its principal place of business
and chief executive office, and the offices where it keeps its records
concerning the Receivables, all related Timeshare Loans and all other
agreements related to such Receivables (and all original documents
relating thereto), at its address(es) referred to in Section 6.01(m) in
the case of Seller, or Section 14.02 in the case of Sunterra, or, upon
30 days' prior written notice to the Agent, at such other locations in
jurisdictions in the United States where all action required by Section
8.06 shall have been taken and completed.
(f) Credit and Collection Policies. Comply in all material
respects with the Credit and Collection Policy in connection with each
Receivable and each Timeshare Loan related thereto.
(g) Collections.
(i) Promptly remit to the Lockbox Accounts all
Collections received by it; and
(ii) instruct all Obligors to cause all payments made
with respect to the Receivables to be deposited directly to one
or more lockboxes or Lockbox Accounts.
(h) Separate Corporate Existence. Each of Seller and Sunterra
hereby acknowledges that Purchaser and the Agent are entering into the
transactions contemplated by this Agreement in reliance upon Seller's
identity as a legal entity separate from Servicer, the Originators and
any Affiliate thereof. Therefore, from and after the date hereof, Seller
shall take all reasonable steps to continue Seller's identity as a
separate legal entity and to make it apparent to third Persons that
Seller is an entity with assets and liabilities distinct from those of
Servicer, any Originator and any Affiliate thereof, and is not a
division of Servicer, any Originator or any other Person. Without
limiting the generality of the foregoing and in addition to and
consistent with the covenant set forth in Section 7.01(b), Seller shall
take such actions as shall be required in order that:
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(i) Seller will be a limited purpose corporation whose
primary activities are restricted in its certificate of
incorporation to (A) purchasing Receivables from Sunterra,
owning, holding, selling, granting security interests, or
selling interests, in Receivables, Timeshare Loans, Related
Security and Collections purchased from Sunterra, entering into
agreements for the servicing of such Receivables, (B) hold,
pledge, transfer, issue and otherwise deal with securities (i)
that evidence an ownership interest in the Receivables and that
do not constitute indebtedness under the laws of the state
("State Law") which the Seller elects shall govern such
securities ("Equity Securities") or (ii) that represent debt
obligations of the Seller under State Law ("Debt Securities" and
collectively with the Equity Securities, the "Securities"), or
to sponsor trusts that issue such Securities. The Securities may
be further secured by reserve funds, guaranteed investment
contracts, letters of credit, insurance contracts, surety bonds
or any other form of credit enhancements and (C) conducting such
other activities as it deems necessary, appropriate, suitable or
convenient to carry out activities described in (i)(A) and
(i)(B) above;
(ii) Not less than one member of Seller's Board of
Directors (the "Independent Director") shall be an individual
who is not (A) an officer or employee of, or the direct or
indirect beneficial holder of any class of voting stock of, the
Seller, its immediate or ultimate parent or any subsidiaries or
affiliates thereof or (B) a member of the immediate family of
any such stockholder, officer, employee or other director of the
Seller or any affiliate thereof, provided, that the Independent
Director may serve in similar capacities for other "special
purpose entities" formed by Sunterra or its affiliates. As used
herein, the term "affiliate" means any person controlling, under
common control with, or controlled by the person in question,
and the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through ownership
or voting securities, by contract or otherwise. If the
Independent Director resigns, dies or becomes incapacitated, or
such position is otherwise vacant, no action requiring the
unanimous affirmative vote of the board of directors shall be
taken until a successor Independent Director is elected and
qualified and approves such action. In the event of the death,
incapacity, or resignation of the Independent Director, or a
vacancy for any other
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reason, a successor Independent Director shall be appointed by
the remaining directors.
(iii) No Independent Director shall at any time serve as
a trustee in bankruptcy for any Affiliate of Servicer or any
Originator;
(iv) Any employee, consultant or agent of Seller will be
compensated from Seller's own bank accounts for services
provided to Seller except as provided herein in respect of the
Servicer's Fee. Seller will engage no agents other than an agent
for service of process and a Servicer for the Receivables, which
Servicer will be fully compensated for its services to Seller by
payment of the Servicer's Fee;
(v) Seller will contract with Servicer to perform for
Seller all operations required on a daily basis to service its
Receivables. Seller will pay Servicer a monthly fee based on the
level of Receivables being managed by Servicer. Seller will not
incur any material indirect or overhead expenses for items
shared between Seller and Servicer, any Originator or any other
Affiliate thereof that are not reflected in the Servicer's Fee.
To the extent, if any, that Seller, Servicer, any Originator and
any other Affiliate thereof share items of expenses not
reflected in the Servicer's Fee, such as legal, auditing and
other professional services, such expenses will be allocated to
the extent practical on the basis of actual use or the value of
services rendered, and otherwise on a basis reasonably related
to the actual use or the value of services rendered, it being
understood that Sunterra shall pay all reasonable expenses
relating to the preparation, negotiation, execution and delivery
of the Transaction Documents and the Stand-by Purchase Agreement
and any amendments thereto, including, without limitation,
legal, commitment, agency and other fees;
(vi) Seller's operating expenses will not be paid by
Servicer, any Originator or any Affiliate thereof;
(vii) Seller will have its own separate stationery and
telephone number;
(viii) Seller's books and records will be maintained
separately from those of Servicer, the Originators and any
Affiliate thereof;
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(ix) Any financial statements which are consolidated to
include Seller will contain detailed notes clearly stating that
(A) all of Seller's assets are owned by Seller and (B) Seller is
a separate corporate entity with creditors who have received
ownership and security interests in Seller's assets;
(x) Seller's assets will be maintained in a manner that
facilitates their identification and segregation from those of
Servicer, the Originators or any Affiliate thereof;
(xi) Seller will strictly observe corporate formalities
in its dealings with Servicer, the Originators and any Affiliate
thereof, and funds or other assets of Seller will not be
commingled with those of Servicer, the Originators or any
Affiliate thereof. Seller shall not maintain joint bank accounts
or other depository accounts to which Servicer, the Originators
or any Affiliate thereof (other than Sunterra in its capacity as
Servicer) has independent access. None of Seller's funds will at
any time be pooled with any funds of Servicer, any Originator or
any Affiliate thereof;
(xii) Seller shall pay to Servicer, each Originator or
the appropriate Affiliate thereof, as applicable, the marginal
increase (or, in the absence of such increase, the market amount
of its portion of) in the premium payable with respect to any
insurance policy that covers Seller and Servicer, any Originator
or any Affiliate thereof, but Seller shall not, directly or
indirectly, be named or enter into an agreement to be named, as
a direct or contingent beneficiary or loss payee, under any such
insurance policy, with respect to any amounts payable due to
occurrences or events related to Servicer, any Originator or any
Affiliate thereof (other than Seller); and
(xiii) Seller will maintain arm's length relationships
with Servicer, each Originator and any Affiliate thereof. Any
Person that renders or otherwise furnishes services to Seller
will be compensated by Seller at market rates for such services.
Seller will not be or will not hold itself out to be responsible
for the debts of Servicer, any Originator or any Affiliate
thereof or the decisions or actions respecting the daily
business and affairs of Servicer, any Originator or any
Affiliate thereof.
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(i) Post Office Boxes. Prior to the date hereof, Sunterra shall
deliver to the Agent a certificate from an authorized officer of
Sunterra to the effect that (i) the name of the renter of all post
office boxes into which Collections may from time to time be mailed have
been changed to the name of Seller (unless such post office boxes are in
the name of the relevant Lockbox Banks) and (ii) all relevant
postmasters have been notified that Servicer and the Agent are
authorized to collect mail delivered to such post office boxes (unless
such post office boxes are in the name of the relevant Lockbox Banks).
(j) Financial Covenants. In the event the Bank Revolver is
canceled or terminated and there is no replacement thereof at such time,
the financial covenants in effect in the Bank Revolver as of the date of
its cancellation or termination shall be deemed to be incorporated
herein by reference and Sunterra shall be deemed to make such covenants
for purposes of this Agreement until such time as a replacement for the
Bank Revolver becomes effective.
7.02 Reporting Requirements of Seller. From the date hereof until the
first day, following the Commitment Termination Date, on which (i) the Aggregate
Undivided Interest shall be reduced to zero, and (ii) all Obligations that have
ever been outstanding hereunder shall have been finally and fully paid and
performed, Seller will, unless Purchaser and the Agent shall otherwise consent
in writing, furnish to the Agent:
(a) Quarterly Financial Statements. As soon as available and in
any event within 45 days after the end of each of the first three
quarters of each fiscal year of Sunterra, and Seller, (i) copies of (A)
the unaudited consolidated balance sheet of Sunterra and its
consolidated subsidiaries, and (B) the unaudited balance sheet of
Seller, in each case as at the end of such period, together with
unaudited statements of earnings, stockholders' equity and cash flows
for such period and the portion of the fiscal year through such period,
each prepared in accordance with GAAP applied consistently throughout
the periods reflected therein and certified by the chief financial
officer, treasurer or chief accounting officer thereof (such officer
being herein called the "Financial Officer"), and (ii) a letter from the
Financial Officer certifying to the best knowledge of the Financial
Officer, that neither a Liquidation Event nor an Unmatured Liquidation
Event has occurred and is continuing;
(b) Annual Financial Statements. As soon as available and in any
event within 120 days after the end of each
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fiscal year of each of Sunterra, and Seller, a copy of (A) the
consolidated balance sheet of Sunterra and its consolidated
subsidiaries, (B) consolidating balance sheet of Sunterra, and (C) the
balance sheet of Sunterra and Seller, in each case as at the end of such
fiscal year, together with the related statements of earnings,
stockholders' equity and cash flows for such fiscal year, each prepared
in accordance with GAAP applied consistently throughout the periods
reflected therein, Sunterra's consolidated balance sheet and such
related statements to be certified without any Impermissible
Qualification by independent certified public accountants of
internationally recognized standing, and Seller's balance sheet and such
related statements to be certified by the Financial Officer thereof;
(c) Reports to Holders and Exchanges. In addition to the reports
required by subsections (a) and (b) next above, promptly upon the
Agent's request, copies of any reports or registration statements that
Sunterra or Seller files with the Securities and Exchange Commission or
any national securities exchange other than registration statements
relating to employee benefit plans;
(d) ERISA. Promptly after receiving notice of any Reportable
Event (as defined in Title IV of ERISA) with respect to Sunterra or any
Affiliate thereof, a copy of such notice;
(e) Liquidation Events. As soon as possible after the occurrence
of each Liquidation Event and each Unmatured Liquidation Event, a
written statement of the Financial Officer describing such event and the
action that Sunterra and Seller propose to take with respect thereto, in
each case in reasonable detail;
(f) Proceedings. As soon as reasonably practicable written
notice of (i) any litigation, investigation or proceeding of the type
described in Section 6.01(f) not previously disclosed to Purchaser and
the Agent and (ii) any material adverse development that has occurred
with respect to any such previously disclosed litigation, proceedings
and investigations, which in the case of (i) and (ii) would have a
Material Adverse Effect; and
(g) Other. Promptly, from time to time, such other information,
documents, records or reports (to the extent such other documents,
records or reports are in the possession of Sunterra or Seller, as
applicable) respecting the Receivables or the condition or operations,
financial or otherwise, of Sunterra or Seller as the Agent may from time
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to time reasonably request in order to protect the interests of the
Purchaser or the Agent under or as contemplated by this Agreement.
7.03 Negative Covenants of Seller. From the date hereof until the first
day, following the Commitment Termination Date, on which (i) all Undivided
Interests shall be reduced to zero and (ii) all Obligations that have ever been
outstanding hereunder shall have been finally and fully paid and performed,
Seller shall perform its Obligations under this Section 7.03 unless the Agent
shall otherwise consent in writing.
(a) Sales, Liens, Etc. Except as otherwise provided herein or in
the Purchase and Sale Agreement, Seller shall not sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create or
suffer to exist any Adverse Claims upon or with respect to, any
Receivable, any Related Security, any of the other assets, accounts or
interests described in Section 9.01, or any related Timeshare Loan, or
any interest in any of the foregoing (including any right to receive
income from or in respect of any thereof); provided, however, that
Seller may, upon at least 10 Business Days written notice to the Agent,
sell and assign in a true sale, without recourse or representation or
warranty of any kind (other than a representation or warranty that such
Pool Receivables are free and clear of any security interest created by
Seller), Pool Receivables, related Timeshare Loans and Related Security
with respect thereto if (i) before and after giving effect to such sale
and assignment, (a) there shall not exist any Liquidation Event or
Unmatured Liquidation Event or (b) the sum of the Undivided Interests
shall not exceed the Aggregate Undivided Interest Limit, (ii) the
purchaser or assignee of such Pool Receivables agrees in writing that it
will not institute against Seller, or join any Person in instituting
against Seller, any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceeding, or other proceeding under any federal or
state bankruptcy or similar law, for one year and one day after the date
following the Commitment Termination Date on which (x) all Undivided
Interests shall be reduced to zero and (y) all amounts owing to the
Purchaser, Agent, any Affected Party or Indemnified Party that have ever
been outstanding hereunder have been finally and fully paid and
performed, and (iii) prior to the completion of such transaction, an
authorized officer of Seller and Servicer certifies to the Agent that
the foregoing conditions described in clauses (i) and (ii) shall have
been satisfied in connection therewith and Seller delivers a pro forma
Periodic Report demonstrating satisfaction with the condition described
in clause (i)(b) above. Upon the satisfaction of the foregoing
conditions,
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all right, title and interest of the Purchaser in, to and under such
Receivables, related Timeshare Loans and Related Security shall
terminate and revert to the Seller, its successors and assigns, and,
upon the request of the Seller, its successors or assigns, and at the
cost and expense of the Seller, the Purchaser shall execute such UCC-3
financing statements and releases and other evidence of transfer as are
necessary or reasonably requested by Seller to terminate and remove of
record any documents constituting public notice of the interest in such
Pool Receivables, related Timeshare Loans and Related Security hereunder
being sold, transferred and assigned.
(b) Extension or Amendment of Receivables. Seller shall not
extend, amend or otherwise modify the terms of any Timeshare Loan
related to any Pool Receivable; provided, however, that so long as no
Liquidation Event has occurred and is continuing, the Seller may, in
accordance with the Credit and Collection Policy, extend or otherwise
modify the terms of any Defaulted Receivable in order to maximize
Collections thereon.
(c) Change in Business or Credit and Collection Policy. Seller
shall not make any material change in the character of its business or
materially alter its Credit and Collection Policy, which change would,
in either case, impair the collectibility of any Receivable.
(d) Addition of Account Bank or Change in Payment Instructions
to Obligors; Change in Account Banks. Seller shall not add or terminate
any bank as a Account Bank from those listed in Schedule 6.01(n) or make
any change in its instructions to Obligors regarding Collections, unless
(i) the Agent shall have received notice of such addition, termination
or change and duly executed counterparts of a Account Agreements with
each new Account Bank and copies of such instructions (which shall be in
form and substance acceptable to the Agent) and (ii) the Agent
previously shall have consented in writing to such addition, termination
or change.
(e) Mergers, Acquisitions, Sales, etc.
Seller shall not
(A) be a party to any merger or consolidation,
or directly or indirectly purchase or otherwise acquire,
whether in one or a series of transactions, all or
substantially all of the assets or any stock of any
class of, or any partnership or joint venture interest
in, any
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other Person, or sell, transfer, assign, convey or lease
any of its property and assets (including, without
limitation, any Receivable or any interest therein)
other than pursuant to this Agreement;
(B) make, incur or suffer to exist an investment
in, equity contribution to, loan, credit or advance to,
or payment obligation in respect of the deferred
purchase price of property from, any other Person,
except for Permitted Investments; or
(C) create any direct or indirect Subsidiary or
otherwise acquire direct or indirect ownership of any
equity interests in any other Person.
(f) Restricted Payments.
(i) General Restriction. Except in accordance with this
Section 7.03(f), Seller shall not (A) purchase or redeem any
shares of its capital stock, (B) declare or pay any Dividend or
set aside any funds for any such purpose, (C) prepay, purchase
or redeem any subordinated indebtedness of Seller, (D) lend or
advance any funds or (E) repay any loans or advances to, for or
from Sunterra or any Affiliate thereof. Actions of the type
described in this clause (i) are herein collectively called
"Restricted Payments".
(ii) Types of Permitted Payments. Subject to the
limitations set forth in clause (iii) below, Seller may make
Restricted Payments so long as such Restricted Payments are made
only to Sunterra and only in one or more of the following ways:
(A) Seller may make cash payments (including
prepayments) on the Company Note in accordance with its
terms; and
(B) if no amounts are then outstanding under the
Company Note, Seller may declare and pay Dividends.
(iii) Specific Restrictions. Seller may make Restricted
Payments only out of funds in the Collection Account or the
Lockbox Accounts that do not represent the Purchaser's Share of
any Collections. Furthermore, Seller shall not pay, make or
declare:
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(A) any Dividend if, after giving effect
thereto, Seller's Tangible Net Worth would be less than
$5,000,000;
(B) any Restricted Payment (including any
Dividend) if, after giving effect thereto a Liquidation
Event or Unmatured Liquidation Event shall have occurred
and be continuing.
(g) Amendments to Certain Documents. Seller shall not amend,
supplement, amend and restate, or otherwise modify the Purchase and Sale
Agreement, the Company Note, any Account Agreement, any agreement
between a Lockbox Bank and Seller and/or Sunterra which is referred to
in any Lockbox Agreement, the Custodial Agreement, or Seller's
certificate of incorporation or by-laws, except (A) in accordance with
the terms of such document, instrument or agreement and (B) with the
advance written consent of the Agent.
(h) Deposits to Special Accounts. Seller shall not deposit or
otherwise credit, or cause or permit to be so deposited or credited to
the Collection Account cash or cash proceeds other than Collections of
Pool Receivables.
(i) Incurrence of Indebtedness. Seller shall not (i) create,
incur or permit to exist, any Indebtedness or liability or (ii) cause or
permit to be issued for its account any letters of credit or bankers'
acceptances, except Indebtedness incurred pursuant to the Company Note
and liabilities incurred pursuant to or in connection with the
Transaction Documents.
ARTICLE VIII
ADMINISTRATION AND COLLECTION
8.01 Designation of Servicer.
(a) Sunterra as Initial Servicer. The servicing, administering
and collection of Pool Receivables shall be conducted by the Person
designated as Servicer hereunder ("Servicer") from time to time in
accordance with this Section 8.01. Until the Agent gives notice to
Sunterra of the designation of a new Servicer (the "Successor Notice"),
which notice may only be given at any time after the occurrence and
during the continuance of a Liquidation Event, Sunterra is hereby
designated as, and hereby agrees to perform the duties and obligations
of, Servicer pursuant to the terms hereof.
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(b) Successor Notice. Upon Sunterra's receipt of a Successor
Notice, Sunterra agrees that it will terminate its activities as
Servicer hereunder, and will cause each Sub- Servicer designated by the
Agent in such Successor Notice to terminate its activities in that
capacity, in a manner that the Agent indicates will facilitate the
transition of the performance of such activities to the new Servicer.
The Agent, or such other Person as the Agent shall designate, shall
assume each and all of the obligations of Sunterra (and each
Sub-Servicer) to service, administer and collect such Pool Receivables,
on the terms and subject to the conditions herein set forth, and
Sunterra shall use its best efforts (and shall cause each Sub-Servicer
to use its best efforts) to assist the Agent (or its designee) in
assuming such obligations.
(c) Subservicers. The Servicer shall, in accordance with a
subservicing agreement (each a "Sub-Servicer Agreement") reasonably
acceptable to the Agent, delegate its duties and obligations hereunder
to the Sub-Servicers; provided, that, (i) the Servicer shall remain
primarily liable for the performance of the duties and obligations so
delegated, (ii) the Seller, the Agent and the Purchaser shall have the
right to look solely to the Servicer for performance, and (iii) the
terms of any Sub-Servicer Agreement with each Sub-Servicer shall provide
that the Agent may terminate such agreement upon the termination of the
Servicer hereunder by giving notice of its desire to terminate such
agreement to the Servicer (and the Servicer shall provide appropriate
notice to each such Sub-Servicer).
(d) Servicer's Fee. Seller hereby agrees to pay to Servicer a
fee (the "Servicer's Fee") for each month (or portion thereof in which
such Person was acting as Servicer) from and including the date hereof
to but excluding the date on which all amounts payable under or in
connection with this Agreement and the Purchase and Sale Agreement have
been finally paid in full (and this Agreement and the Purchase and Sale
Agreement shall have terminated), in an amount calculated as follows:
(i) at any time when Sunterra (or any Affiliate thereof)
is Servicer, an amount equal to one-twelfth of 1.0% of aggregate
Unpaid Balance of Pool Receivables as measured on the latest
Month End Date referred to in the most recent Periodic Report
(or, for the period from and including the initial closing date
of the transactions contemplated hereby to (but excluding) the
date on which the first Periodic Report is delivered hereunder,
one-twelfth of 1.0% of the Aggregate
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Investment as measured at Servicer's close of business on such
closing date); or
(ii) on and after Servicer's request made at any time
when Sunterra (or any Affiliate thereof) is not Servicer, the
greater of (A) an amount calculated pursuant to the foregoing
clause (i) or (B) an alternative amount specified by Servicer
not exceeding 110% of the aggregate costs and expenses incurred
by Servicer during such month in connection with performing its
obligations under this Agreement and the other Transaction
Documents.
Such Servicer's Fee shall be paid out of Collections at the times specified in
Article III hereof.
8.02 Duties of Servicer and Seller.
(a) Appointment; Duties in General. Each of Seller, Purchaser
and the Agent hereby appoints Servicer, from time to time designated
pursuant to Section 8.01, as its agent to enforce their respective
rights and interests in and under the Pool Receivables, the Timeshare
Loans and the Related Security. Servicer shall take or cause to be taken
all such actions as may be necessary or advisable to collect each Pool
Receivable (or shall cause each Sub-Servicer to take or cause to be
taken all such actions as may be necessary or advisable to collect each
Pool Receivable sold by it to Seller) from time to time, all in
accordance with applicable laws, rules and regulations, with reasonable
care and diligence, and in accordance with the Credit and Collection
Policy.
(b) Additional Duties. In addition to any other customary
services which the Servicer may perform, the Servicer shall perform (or
shall cause each Sub-Servicer to perform) the following servicing and
collection activities:
(i) perform standard accounting services and general
record keeping services with respect to the Pool Receivables and
the related Timeshare Loans;
(ii) respond to any telephone or written inquiries of
Obligors concerning to the Pool Receivables and the related
Timeshare Loans;
(iii) keep Obligors informed of the proper place and
method of making payments with respect to the Pool Receivables
and the related Timeshare Loans;
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(iv) contact Obligors to effect collection and to
discourage delinquencies in the payment of to the Pool
Receivables and the related Timeshare Loans, doing so by any
lawful means, including, but not limited to the following: (A)
mailing of routine past due notices, (B) preparing and mailing
collection letters, (C) contacting delinquent Obligors by
telephone to encourage payment, (D) mailing of reminder notices
to delinquent Obligors, and (E) initiating and pursuing
termination or foreclosure actions deemed necessary by the
Servicer (or applicable Sub-Servicer);
(v) report tax information to Obligors as required by
law; and
(vi) take such other action as may be necessary or
appropriate in the discretion of the Servicer (or applicable
Sub-Servicer) for the purpose of collecting and transferring to
the Collection Account all payments received in respect of the
to the Pool Receivables and the related Timeshare Loans (except
as otherwise expressly provided herein), and to carry out the
duties and obligations imposed upon the Servicer pursuant to the
terms of this Section 8.02.
(c) Allocation of Collections. Servicer shall apply all
Collections in accordance with Article III.
(d) Documents and Records. Servicer shall hold in trust for
Seller and Purchaser in accordance with their respective interests, all
documents, instruments and records (including, without limitation,
computer tapes or disks, and Timeshare Loans) that evidence or relate to
the Pool Receivables (other than those held by the Custodian) sold by
Sunterra to Seller.
(e) Authorization to Act as Seller's Agent. Seller hereby
appoints Servicer (but only for so long as Sunterra (or any Affiliate
thereof) is Servicer, in the case of clauses (i) and (iv) below) as its
agent for the following purposes: (i) selecting the amount of each
requested Purchase, (ii) specifying accounts to which payments are to be
made to Seller, (iii) making transfers among, deposits to and
withdrawals from the Accounts and other deposit accounts of Seller for
the purposes described in the Transaction Documents and (iv) arranging
payment by Seller of all fees, expenses, other Obligations and other
amounts payable under the Transaction Documents. Seller irrevocably
agrees that (A) it shall be bound by all actions taken by Servicer
pursuant to the preceding sentence, and (B) that Purchaser, the Agent,
the Collection Account Bank, the Lockbox Banks,
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the Reserve Account Bank and the banks holding all other deposit
accounts of Seller are entitled to accept submissions, determinations,
selections, specifications, transfers, deposits and withdrawal requests,
and payments from Servicer on behalf of Seller.
(f) Termination. The authorization of Servicer (and each
Sub-Servicer) under this Agreement shall terminate upon receipt by the
Agent, after the Commitment Termination Date, of an amount equal to (i)
the Aggregate Investment plus (ii) accrued Earned Return for each
Undivided Interest, plus (iii) all other amounts owed to Purchaser and
the Agent and (unless otherwise agreed to by Servicer and the Agent) to
Servicer under this Agreement.
(g) Agreement Not to Resign. Sunterra acknowledges that
Purchaser and the Agent have relied on Sunterra's agreement to act as
Servicer hereunder in their respective decisions to execute and deliver
the Transaction Documents. In recognition of the foregoing, Sunterra
agrees not to resign as Servicer voluntarily or, to the extent permitted
in the Sub-Servicing Agreements, permit any other Sub- Servicer to
resign voluntarily, unless Sunterra or any such Sub-Servicer is not
permitted by law to serve in such capacity, as evidenced by an opinion
of counsel to such effect, which opinion shall be satisfactory in form
and substance to the Agent.
8.03 Rights of the Account Agent.
(a) Notice to Obligors. At any time after the occurrence of and
during the continuation of a Liquidation Event, the Agent may notify the
Obligors of Receivables, or any of them, of the Purchaser's ownership of
Undivided Interests.
(b) Notice to Account Banks. At any time following the
occurrence of and during the continuation of a Liquidation Event the
Agent is hereby authorized to give notice to the Account Banks, as
provided in the Account Agreements, of the transfer to the Agent (for
the benefit of Purchaser) of dominion and control over the Accounts.
Seller hereby transfers to the Agent (for the benefit of Purchaser),
effective when the Agent shall give notice to the Account Banks as
provided in the Account Agreements, the exclusive dominion and control
over such Accounts, and shall take any further action that the Agent may
reasonably request to effect such transfer.
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(c) Rights on Servicer Transfer. At any time following the
designation of a Servicer other than Sunterra pursuant to Section 8.01:
(i) The Agent may direct any Obligors of Receivables to
pay all amounts payable under any Receivable directly to the
Agent or its designee.
(ii) The Agent may direct Sunterra to make payment of
all amounts payable to Seller under any Transaction Document to
which Sunterra is a party directly to the Agent or its designee.
(iii) Seller shall, at the Agent's request and at
Seller's expense, give notice of Purchaser's ownership of
Undivided Interests to each Obligor and direct that payments be
made directly to the Agent or its designee.
(iv) Seller and Sunterra shall, at the Agent's request,
(A) assemble all of the documents, instruments and other records
(including, without limitation, computer programs, tapes and
disks, and Timeshare Loans) which evidence the Pool Receivables,
and the related Timeshare Loans and Related Security, or which
are otherwise necessary or desirable to collect such Pool
Receivables, and shall make the same available to the Agent at a
place selected by the Agent or its designee, (B) segregate all
cash, checks and other instruments received by it from time to
time constituting Collections of Pool Receivables in a manner
acceptable to the Agent and shall, promptly upon receipt, remit
all such cash, checks and instruments, duly endorsed or with
duly executed instruments of transfer, to the Agent or its
designee and (C) permit any successor Servicer and its agents,
employees and assignees access to its respective facilities and
its books, records, documents and instruments (including,
without limitation, computer programs, tapes and disks, and
Timeshare Loans) related to Receivables.
(v) Each of Seller, Sunterra and Purchaser hereby
authorizes the Agent (to the extent necessary to enforce such
party's rights or obligations, as applicable, hereunder or under
any Transaction Document) to take any and all steps in Seller's
name and on behalf of Seller, Sunterra or Purchaser which are
necessary, in the reasonable determination of the Agent, to
collect all amounts due under any and all Receivables,
including, without limitation, indorsing Purchaser's, Seller's,
Sunterra's or any Originator's name on checks and other
instruments representing
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Collections and enforcing such Receivables, the related
Timeshare Loans, and the Related Security therefor.
(vi) Seller hereby irrevocably appoints the Agent (to
the extent necessary to enforce the Seller's obligations
hereunder or under any Transaction Document) to act as Seller's
attorney-in-fact, with full authority in the place and stead of
Seller and in the name of Seller or otherwise, at any time
following the delivery of a Successor Notice, to take any action
and to execute any instrument that the Agent, in its reasonable
determination, may deem necessary to accomplish the purposes of
this Agreement, including, without limitation:
(A) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts
for moneys due and to become due under or in respect of
any Receivable;
(B) to receive, indorse, and collect any drafts
or other instruments, documents and chattel paper
related to the Receivables or the Related Security, or
constituting Collections;
(C) to file any claims or take any action or
institute any proceedings which Agent, in its reasonable
determination, may deem necessary for the collection of
any of the Receivables or otherwise to enforce the
rights of the Seller and Purchaser with respect to any
of the Receivables; and
(D) to perform the affirmative obligations of
Seller under any Transaction Document.
Seller hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section 8.03(c) is irrevocable and coupled with an
interest.
8.04 Responsibilities of Seller. Anything herein to the contrary
notwithstanding:
(a) Seller shall perform and comply in all material respects
with all of its obligations (i) pursuant to the provisions, covenants
and other promises required to be observed by it under the Timeshare
Loans related to the Receivables and under all purchase orders and other
agreements and (ii) under the Purchase and Sale Agreement; and the
Agent's exercise of its rights hereunder shall not relieve Seller from
any such obligations.
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(b) Neither Purchaser nor the Agent shall have any obligation or
liability with respect to any Receivables, related Timeshare Loans or
any other related agreements, nor shall any of them be obligated to
perform any of the obligations thereunder.
(c) Seller hereby grants to Servicer an irrevocable power of
attorney, with full power of substitution, coupled with an interest, to
take in the name of Seller all steps which are necessary or advisable to
indorse, negotiate or otherwise realize on any writing or other right of
any kind held or transmitted by Seller or transmitted or received by
Purchaser or the Agent (whether or not from Seller) in connection with
any Receivable.
8.05 Certain Responsibilities of Sunterra. If at any time Sunterra shall
not be Servicer, Sunterra shall deliver all Collections received or deemed
received by it to the Agent promptly upon receipt or deemed receipt thereof and
the Agent shall distribute such Collections to the same extent as if such
Collections had actually been received from the related Obligor on the
applicable dates. So long as Sunterra shall hold any Collections required to be
paid to the Agent, it shall hold such Collections in trust (and, if the Agent
shall so request, separate and apart from its own funds) and shall clearly mark
its records to reflect such trust. Sunterra hereby grants to the Agent an
irrevocable power of attorney, with full power of substitution, coupled with an
interest and exercisable at any time following the delivery of a Successor
Notice, to take in the name of Sunterra all steps necessary or advisable to
indorse, negotiate or otherwise realize on any writing or other right of any
kind held or transmitted by Sunterra or transmitted and received by Purchaser or
the Agent (whether or not from Sunterra) in connection with any Pool Receivable.
8.06 Further Action Evidencing Purchases.
(a) Each of Seller and Servicer agrees that from time to time at
Servicer's expense, it will promptly execute and deliver (or, cause the
relevant Sub-Servicer to execute and deliver) all further instruments
and documents, and take all further action, that the Agent may
reasonably request in order to perfect, protect or more fully evidence
the Purchases hereunder and the resulting Undivided Interests, or to
enable Purchaser or the Agent to exercise or enforce any of their
respective rights hereunder or under any other Transaction Document.
Without limiting the generality of the foregoing, upon the Agent's
request, Seller or Servicer will execute and file such financing or
continuation statements, or amendments thereto or assignments thereof,
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and such other instruments or notices, as may be necessary or
appropriate.
(b) Seller and Servicer hereby authorize the Agent to file one
or more financing or continuation statements, and amendments thereto and
assignments thereof, to maintain the perfection of its security or
ownership interest in the Receivables or the Related Security now
existing or hereafter arising in the name of Seller or Servicer. If
Seller or Servicer fails to perform any of its agreements or obligations
under any Transaction Document and does not remedy such failure within
the applicable cure period, if any, in the applicable Transaction
Document, the Agent may (but shall not be required to) itself perform,
or cause performance of, such agreement or obligation, and the expenses
of the Agent incurred in connection therewith shall be payable by Seller
as provided in Section 13.01.
ARTICLE IX
SECURITY INTEREST
9.01 Grant of Security Interest. To secure the prompt payment and
performance of all Obligations of Seller arising in connection with this
Agreement, the Certificate and each other Transaction Document, whether now or
hereafter existing, due or to become due, direct or indirect, or absolute or
contingent, including, without limitation, all Indemnified Amounts, all Earned
Returns, payments on account of Collections received or deemed to be received
and fees, Seller hereby assigns and grants to Purchaser a first priority
security interest in all of Seller's right, title and interest in, to and under
all of the following, whether now or hereafter existing: (a) all Pool
Receivables, all Related Security with respect to such Pool Receivables and all
Collections related thereto, (b) all of Seller's rights, remedies, powers and
privileges under, or in respect of, the Purchase and Sale Agreement and the
Interest Rate Protection Agreement, (c) all Accounts, all funds on deposit in
each of the Accounts and all certificates and instruments, if any, from time to
time evidencing such Accounts and funds on deposit therein, all investments made
with such funds, all claims thereunder or in connection therewith, and all
interest, dividends, moneys, instruments, securities and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the foregoing, and (d) all proceeds and amounts
received or receivable by Seller under any or all of the foregoing. This
Agreement shall constitute a security agreement under applicable law with regard
to the security interest granted pursuant to this Section 9.01.
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9.02 Further Assurances. The provisions of Section 8.06 shall apply to
the security interest granted under Section 9.01 as well as to the Purchases and
all Undivided Interests hereunder.
9.03 Remedies. Upon the occurrence of and during the continuance of a
Liquidation Event, Purchaser shall have, with respect to the collateral granted
pursuant to Section 9.01, and in addition to all other rights and remedies
available to Purchaser or the Agent under this Agreement or other applicable
law, (a) the right to apply Collections to payment of the obligations referred
to in Section 9.01 and (b) all the rights and remedies of a secured party upon
default under the UCC.
ARTICLE X
LIQUIDATION EVENTS
10.01 Liquidation Events. The following events shall be "Liquidation
Events" hereunder:
(a) Servicer, any Originator or Seller shall fail to make when
due any payment or deposit of any amount required to be paid or
deposited by it hereunder or under the other Principal Documents, which
failure shall remain unremedied for two Business Days after receipt by
the Seller, Servicer or such Originator, as the case may be, of written
or telephonic notice thereof from the Agent; or
(b) Servicer shall fail to perform or observe in any material
respect any term, covenant or agreement hereunder on its part to be
performed or observed (other than as referred to in clause (a) above)
and such failure shall remain unremedied for five days after it has
knowledge thereof or has received written notice thereof from the Agent;
or
(c) Any representation or warranty made or deemed to be made by
Servicer, any Originator or Seller (or any of their respective officers)
under or in connection with any Principal Document (including any
Periodic Report or other information or report delivered pursuant
hereto) shall prove to have been false or incorrect in any material
respect when made or deemed made and shall remain false or incorrect for
thirty days after it has knowledge thereof or has received written
notice thereof from the Agent; or
(d) Seller, Sunterra or any Originator shall fail to perform or
observe in any material respect any other term, covenant or agreement
contained in this Agreement or any
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other Principal Document on its part to be performed or observed and any
such failure shall remain unremedied for thirty days after it has
knowledge thereof or has received written notice thereof from the Agent;
or
(e) (i) A default shall have occurred in the payment when due
(after giving effect to any applicable grace period and the giving of
any required notice), whether by acceleration or otherwise, of any
Indebtedness (other than any Obligation constituting Indebtedness) of
Sunterra in excess of $500,000, or (ii) a default shall occur in the
performance or observance of any material obligation or condition with
respect to such Indebtedness if the effect of such default described in
this clause (ii) is to accelerate the maturity of any such Indebtedness;
or
(f) An Event of Bankruptcy shall have occurred and remain
continuing with respect to Seller, Sunterra or any Originator; or
(g) (i) The sum of the Aggregate Investment and the aggregate
Loss Reserves for all Undivided Interests shall at any time exceed the
sum of the Net Pool Balance, plus the Principal Collections held in
trust for the benefit of the Purchaser in the Collection Account
pursuant to Article III, or (ii) the amount of funds in the Reserve
Account are less than the Reserve Account Required Amount and such
condition shall continue unremedied for five (5) Business Days; or
(h) As of the last day of any calendar month, the rolling three
month average of the Default Ratios shall exceed 3.0%; or
(i) As of the last day of any calendar month, the Default Ratio
shall exceed 4.5%; or
(j) The Excess Yield for any two consecutive calendar months
shall be less than 3.0%; or
(k) As of the last day of any calendar month the Delinquency
Ratio shall exceed 9.0%; or
(l) (i) The Internal Revenue Service shall file notice of a lien
pursuant to Section 6323 of the Internal Revenue Code with regard to any
of the assets of Seller, any Originator or Sunterra or (ii) the Pension
Benefit Guaranty Corporation shall file notice of a lien pursuant to
Section 4068 of ERISA with regard to any of the assets of Seller,
Sunterra or such Originator; or
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(m) A Purchase and Sale Termination Event (as defined in the
Purchase and Sale Agreement) shall have occurred; or
(n) A Change in Control shall have occurred; or
(o) (i) Any Principal Document, or any security interest granted
thereunder, shall (except in accordance with its terms), in whole or in
part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of Seller, Servicer or any
Originator, or (ii) Seller, Servicer or any Originator shall, directly
or indirectly, contest in any manner such effectiveness, validity,
binding nature or enforceability; or (iii) any security interest
securing any Obligation shall not attach or shall, in whole or in part,
cease to be a perfected first priority security interest, subject only
to those exceptions expressly permitted herein; or
(p) The cessation of, or failure to create, a valid first
priority ownership interest of Purchaser, to the extent of the Aggregate
Undivided Interest in the Receivables Pool, Related Security,
Collections and other security contemplated hereby.
10.02 Remedies.
(a) Optional Liquidation. Upon the occurrence of a Liquidation
Event (other than a Liquidation Event described in subsection (f) of
Section 10.01), the Agent may, by notice to Seller, declare the
Commitment Termination Date to have occurred.
(b) Automatic Liquidation. Upon the occurrence of a Liquidation
Event described in subsection (f) of Section 10.01, the Commitment
Termination Date shall be deemed to have occurred automatically upon the
occurrence of such event; provided, however, that with respect to any
proceeding instituted against Seller pursuant to 11 U.S.C. Section 303
(an "Involuntary Federal Proceeding"), the settlement procedures
described in Section 3.02(a) shall become applicable upon the
commencement of such Proceeding or event and no further Purchases or
Reinvestments of Principal Collections shall be made.
(c) Additional Remedies. Upon any termination of the Commitment
pursuant to this Section 10.02, Purchaser and the Agent shall have, in
addition to all other rights and remedies under this Agreement or
otherwise, all other rights and remedies provided under the UCC of each
applicable jurisdiction and other applicable laws, which rights shall be
cumulative. Without limiting the foregoing or the
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general applicability of Article XIII hereof, the occurrence of a
Liquidation Event shall not deny to Purchaser or the Agent any remedy in
addition to termination of the Commitment to which any such Person may
be otherwise appropriately entitled, whether at law or in equity.
ARTICLE XI
THE AGENT
11.01 Authorization and Action. Purchaser hereby appoints SG as its
Agent under and for purposes of each Transaction Document, and authorizes the
Agent to act on its behalf under each Transaction Document and to exercise such
powers hereunder and thereunder as are delegated to the Agent by the terms
hereof and thereof, together with such powers as may be reasonably incidental
thereto.
11.02 Exculpation. Neither the Agent nor any of its directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it under or in connection with this Agreement (including, without limitation,
the servicing, administering or collecting Receivables pursuant to Section
8.01), except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, the Agent: (a) may consult
with legal counsel (including internal counsel and counsel for Seller and
Servicer), independent certified public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts; (b) makes no warranty or representation to Purchaser or any other
holder of any interest in Receivables and shall not be responsible to Purchaser
or any such other holder for any statements, warranties or representations made
in or in connection with any Transaction Document; (c) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of any Transaction Document on the part of
Seller, Servicer or any Originator or to inspect the property (including the
books and records) of Seller, Servicer or any Originator; (d) shall not be
responsible to Purchaser or any other holder of any interest in Receivables for
the due execution, legality, validity, enforceability, genuineness, sufficiency
or value of any Transaction Document; and (e) shall incur no liability under or
in respect of any Transaction Document by acting upon any notice (including
notice by telephone), consent, certificate or other instrument or writing (which
may be by facsimile or telex) believed by it in good faith to be genuine and
signed or sent by the proper party or parties.
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11.03 Agent and Affiliates. SG and any of its Affiliates may accept
deposits, lend money to and generally engage in any kind of business with
Seller, Sunterra , any Originator or any Obligor, any of their respective
Affiliates and any Person who may do business with or own securities of Seller,
Sunterra any Originator or any Obligor or any of their respective Affiliates,
all as if SG were not the Agent and without any duty to account therefor to
Purchaser or any other holder of an interest in Receivables.
ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST
12.01 Restrictions on Assignments.
(a) None of Sunterra, Seller or Purchaser may assign its rights
hereunder or any interest herein without the prior written consent of
the Agent, and Purchaser may not assign any Undivided Interest (or
portion thereof) to any Person without the prior written consent of
Seller (which consent shall not be unreasonably withheld); provided,
however, that without the consent of Seller, Purchaser may (i) assign
and grant a security interest in any interest in, to and under any
Undivided Interest, this Agreement and any other Transaction Documents
to the Collateral Agent, and any successor in such capacity, to secure
Barton's obligations under or in connection with the Commercial Paper
Notes, the Stand-by Purchase Agreement, the Enhancement Agreement and
any letter of credit issued thereunder, and certain other obligations of
Purchaser incurred in connection with the funding of the Purchases and
Reinvestments hereunder or (ii) assign any interest in, to and under any
Undivided Interest to the Banks pursuant to the Stand-by Purchase
Agreement, in each case, which assignment and/or grant of a security
interest shall not be considered an "assignment" for purposes of Section
12.01(b) or Section 12.03 or, prior to the enforcement of such security
interest, for purposes of any other provision of this Agreement or (iii)
after the occurrence of a Liquidation Event may assign its rights
hereunder or any interest in any Undivided Interest to any Person.
(b) Seller agrees to advise the Agent within five Business Days
after notice to Seller of any proposed assignment by Purchaser of any
Undivided Interest (or portion thereof), not otherwise permitted under
subsection (a) of this Section 12.01, of Seller's consent or non-
consent to such assignment. If Seller does not consent to such
assignment, Purchaser may upon five days' notice to
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Seller assign such Undivided Interest (or portion thereof) to SG, any
Bank or any Affiliate of SG or any Bank. All of the aforementioned
assignments shall be upon such terms and conditions as Purchaser and the
assignee may mutually agree.
12.02 Rights of Assignee. Upon the assignment by Purchaser of any
Undivided Interest (or portion thereof) in accordance with this Article XII, the
assignee receiving such assignment shall have all of the rights of Purchaser
hereunder with respect to such Undivided Interest (or such portion thereof).
12.03 Evidence of Assignment; Endorsement on Certificate. Any assignment
of any Undivided Interest (or portion thereof) to any Person may be evidenced by
an instrument of assignment satisfactory to Purchaser, the Agent and the
assignee. Purchaser authorizes the Agent to, and the Agent agrees that it shall,
endorse the Certificate to reflect any assignments made pursuant to this Article
XII or otherwise.
ARTICLE XIII
INDEMNIFICATION
13.01 Indemnity by Seller.
(a) General Indemnity. Without limiting any other rights which
any such Person may have hereunder or under applicable law, Seller
hereby agrees to indemnify each of Purchaser, the Agent, the Banks,
Enhancement Bank, SG, and each of their respective Affiliates,
successors, transferees, participants and assigns and all officers,
directors, shareholders, controlling persons, employees and agents of
any of the foregoing (each of the foregoing Persons being individually
called an "Indemnified Party"), forthwith on demand, from and against
any and all damages, losses, claims, liabilities and related costs and
expenses, including reasonable attorneys' fees and disbursements (all of
the foregoing being collectively called "Indemnified Amounts") awarded
against or incurred by any of them arising out of or relating to any
Transaction Document or the transactions contemplated thereby or the use
of proceeds therefrom, including (without limitation) in respect of the
ownership or funding of any Undivided Interest or in respect of any
Receivable or any Timeshare Loan, excluding, however, (a) Indemnified
Amounts that have resulted from gross negligence or willful misconduct
on the part of such Indemnified Party, (b) non-payment by any Obligor of
an amount due and payable with respect to a Receivable due to the credit
of such Obligor (except as otherwise specifically provided in this
Agreement), (c) any violation by any
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Indemnified Party of any Requirement of Law, or (d) the operations or
administration of any Indemnified Party generally. Without limiting the
foregoing, Seller agrees to indemnify each Indemnified Party for
Indemnified Amounts arising out of or relating to:
(i) the failure of any Receivable included in the
calculation of the Net Pool Balance as an Eligible Receivable to
be an Eligible Receivable, the failure of any information
contained in a Periodic Report to be true and correct, or the
failure of any other information provided by Seller, Servicer or
any Originator with respect to Receivables, Related Security,
Collections or any Transaction Document to be true and correct;
(ii) the failure of any representation or warranty or
statement made or deemed made by Seller (or any officer thereof)
under or in connection with any Transaction Document to have
been true and correct in all respects when made;
(iii) the failure by Seller to comply with any
applicable law, rule or regulation with respect to any
Receivable or the related Timeshare Loan, or the nonconformity
of any Receivable or the related Timeshare Loan with any such
applicable law, rule or regulation;
(iv) the failure to vest and maintain vested in
Purchaser an undivided fractional ownership interest, to the
extent of each Undivided Interest owned by it hereunder, in the
Pool Receivables and Related Security in, or purporting to be
in, the Receivables Pool, free and clear of any Adverse Claim,
other than an Adverse Claim arising solely as a result of an act
of Purchaser or the Agent, any assignee from Purchaser or the
Agent, whether existing at the time of any Purchase or
Reinvestment of such Undivided Interest or at any time
thereafter;
(v) the failure to file, or any delay in filing,
financing statements, Mortgages, assignments of Mortgage or
other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to
any Receivables, Timeshare Loans or Related Security in the
Receivables Pool, whether at the time of any Purchase or
Reinvestment or at any time thereafter;
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(vi) any dispute, claim, offset or defense (other than
discharge in bankruptcy) of the Obligor to the payment of any
Receivable or related Timeshare Loan in the Receivables Pool
(including, without limitation, a defense based on such
Receivable or the related Timeshare Loan, Mortgage or
Right-to-Use Agreement not being a legal, valid and binding
obligation of such Obligor enforceable against it in accordance
with its terms); except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar laws affecting the enforcement of creditors'
rights generally, and by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law);
(vii) any failure of Sunterra, as Servicer or otherwise,
to perform its duties or obligations in accordance with the
provisions of Article VIII, or any failure of Seller to perform
its duties or obligations in accordance with the applicable
provisions of the Transaction Documents;
(viii) any claim involving environmental liability that
arises out of or relates to Vacation Interest Property that is
the subject of any Receivable or the Related Security;
(ix) any tax (other than income tax) or governmental fee
or charge, and all interest and penalties thereon or with
respect thereto, and all reasonable out-of-pocket costs and
expenses, including the reasonable fees and expenses of counsel
in defending against the same, which may arise by reason of the
purchase or ownership of any Undivided Interest, or any other
interest in the Receivables or in the related Vacation Interest;
or
(x) any commingling of funds to which the Agent or the
Purchaser is entitled hereunder with any other funds.
(b) Indemnity by Sunterra. Without limiting any other rights
which any such person may have hereunder under applicable law, Sunterra
hereby agrees to indemnify each Indemnified Party, forthwith on
demand(to the extent such indemnification has not been provided by the
Seller pursuant to clause(a) of this Section 13.01 or any Originator
pursuant to a Sale Agreement), from and against any and all Indemnified
Amounts awarded against or incurred by any of them arising out of or
relating to:
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(i) the failure of any Receivable included in the
calculation of the Net Pool Balance as an Eligible Receivable to
be an Eligible Receivable, the failure of any information
contained in a Periodic Report to be true and correct, or the
failure of any other information provided by Sunterra with
respect to Receivables, Related Security, Collections or any
Transaction Document to be true and correct;
(ii) the failure of any representation or warranty or
statement made or deemed made, pursuant to Section 5.02, by
Sunterra (or any of its officers) under or in connection with
any Transaction Document to have been true and correct in all
respects when made;
(iii) the failure by Sunterra, in its capacity as
Servicer, to comply with any applicable law, rule or regulation
(including truth in lending, fair credit billing, usury, fair
credit reporting, equal credit opportunity, fair debt collection
practices and privacy) with respect to any Pool Receivable or
other related Mortgage Loan and Related Security;
(iv) any failure of Sunterra to perform its duties,
covenants and obligations in accordance with the applicable
provisions of the Transaction Documents;
(v) the failure to vest and maintain vested in Purchaser
an undivided fractional ownership interest, to the extent of
each Undivided Interest owned by it hereunder, in the Pool
Receivables in the Receivables Pool, free and clear of any
Adverse Claim, other than an Adverse Claim arising solely as a
result of an act of Purchaser or the Agent, any assignee from
Purchaser or the Agent, whether existing at the time of any
Purchase or Reinvestment of such Undivided Interest or at any
time thereafter; or
(vi) the failure to file, or any delay in filing,
financing statements, Mortgages, assignments of Mortgage or
other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to
any Receivables, Timeshare Loans or Related Security in, or
purporting to be in, the Receivables Pool, whether at the time
of any Purchase or Reinvestment or at any time thereafter.
(c) Contribution. If for any reason the indemnification provided
above in this Section 13.01 is
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unavailable to an Indemnified Party or is insufficient to hold an
Indemnified Party harmless, then Seller or Sunterra or both, as
applicable, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claim, damage or liability
in such proportion as is appropriate to reflect not only the relative
benefits received by such Indemnified Party, on the one hand, and Seller
or Sunterra or both, as applicable, on the other hand, but also the
relative fault of such Indemnified Party as well as any other relevant
equitable considerations.
ARTICLE XIV
MISCELLANEOUS
14.01 Amendments, etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Seller or Servicer therefrom shall in
any event be effective unless the same shall be in writing and signed by (a)
Seller, Servicer, Purchaser and the Agent (with respect to an amendment) or (b)
Purchaser and the Agent (with respect to a waiver or consent by them) or Seller
or Servicer (as applicable) (with respect to a waiver or consent by it), as the
case may be, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
14.02 Notices, etc. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including
facsimile communication) and shall be personally delivered or sent by certified
mail, postage prepaid, by overnight courier, or by facsimile, to the intended
party at the address or facsimile number of such party set forth under its name
on the signature pages of this Agreement (or the Purchase and Sale Agreement) or
at such other address or facsimile number as shall be designated by such party
in a written notice given to the other parties hereto in accordance with this
Section 14.02. All such notices and communications shall be effective, (a) if
personally delivered, when received, (b) if sent by certified mail, three
Business Days after having been deposited in the mail, postage prepaid, (c) if
sent by overnight courier, two Business Days after having been given to such
courier unless sooner received by the addressee, (d) if transmitted by
facsimile, when sent, receipt confirmed by telephone or electronic means, except
that notices and communications pursuant to Article I shall not be effective
until received.
14.03 No Waiver; Remedies. No failure on the part of the Agent, any
Affected Party, any Indemnified Party, Purchaser or any other holder of any
Undivided Interest to exercise, and no delay in exercising, any right hereunder
shall operate as a
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waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law. Without limiting the foregoing, SG is hereby
authorized by Seller and Sunterra at any time and from time to time after the
occurrence and during the continuance of a Liquidation Event, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, SG and such Bank to or for the credit or the
account of Seller or Sunterra, against any Obligation (including, if a
Liquidation Period has occurred and is continuing, all Obligations with respect
to the then current Settlement Period that are not yet due and payable) now or
hereafter existing under this Agreement, to the Agent, any Affected Party, any
Indemnified Party or Purchaser, or their respective successors and assigns.
14.04 Binding Effect; Survival. This Agreement shall be binding upon and
inure to the benefit of Seller, Servicer, Purchaser, the Agent and their
respective successors and assigns, and the provisions of Section 4.02 and
Article XIII shall inure to the benefit of the Affected Parties and the
Indemnified Parties, respectively, and their respective successors and assigns;
provided, however, that nothing in the foregoing shall be deemed to authorize
any assignment not permitted by Section 12.01. This Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance with
its terms, and shall remain in full force and effect until such time, after the
Commitment Termination Date, as all Undivided Interests shall have been reduced
to zero and all Obligations shall have been finally and fully paid and
performed. The rights and remedies with respect to any breach of any
representation and warranty made by Seller or Sunterra pursuant to Article VI
and the indemnification and payment provisions of Article XIII and Sections
4.02, 14.05 and 14.06 shall be continuing and shall survive any termination of
this Agreement.
14.05 Costs, Expenses and Taxes.
In addition to its obligations under Article XIII, Seller agrees to pay
on demand:
(i) all costs and expenses (including, without
limitation, the reasonable fees and expenses of counsel of
Purchaser, the Agent, SG and their respective Affiliates in
connection with (A) the preparation, execution and delivery of
this Agreement, the other Transaction Documents and the Stand-by
Purchase Agreement (and, in each case, all related certificates
and other documents), (B) the preparation, execution
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and delivery of any waiver, amendment or other modification to
this Agreement, the Stand-by Purchase Agreement any of the
Transaction Documents, and, in each case, all related
certificates and other documents, and (C) the enforcement of
this Agreement, the Certificate and the other Transaction
Documents or any claim of breach of contract, breach of warranty
or any other breach of this Agreement, the Certificate or any of
the other Transaction Documents or any tort claim relating to
any of the foregoing; and
(ii) all stamp and other similar taxes and fees payable
or determined to be payable in connection with the execution,
delivery, filing and recording of this Agreement, the
Certificate or the other Transaction Documents, and agrees to
indemnify each Indemnified Party against any liabilities with
respect to or resulting from any delay in paying or omission to
pay such taxes and fees.
14.06 No Proceedings. Each of Seller, Sunterra and SG (individually and
as the Agent) hereby agrees that it will not institute against Purchaser, or
join any other Person in instituting against Purchaser, any insolvency
proceeding (namely, any proceeding of the type referred to in the definition of
Event of Bankruptcy) so long as any Commercial Paper Notes issued by Purchaser
shall be outstanding or there shall not have elapsed one year plus one day since
the last day on which any such Commercial Paper Notes shall have been
outstanding.
14.07 Captions and Cross References. The various captions (including,
without limitation, the table of contents) in this Agreement are provided solely
for convenience of reference and shall not affect the meaning or interpretation
of any provision of this Agreement. Unless otherwise indicated, references in
this Agreement to any Section, Appendix, Schedule or Exhibit are to such Section
of or Appendix, Schedule or Exhibit to this Agreement, as the case may be, and
references in any Section, subsection, or clause to any subsection, clause or
subclause are to such subsection, clause or subclause of such Section,
subsection or clause.
14.08 Integration. This Agreement and the other Transaction Documents
contain a final and complete integration of all prior and contemporaneous
expressions by the parties hereto with respect to the subject matter hereof and
thereof and shall together constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof, superseding all
prior and contemporaneous oral or written understandings.
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14.09 Confidentiality. Unless otherwise required by applicable law, each
of the Seller and Servicer agrees to maintain the confidentiality of this
Agreement and the other Transaction Documents (including all drafts hereof and
thereof and all exhibits, schedules, annexes and attachments hereto and thereto)
in communications with third parties and otherwise; provided that this Agreement
may be disclosed to: (a) third parties to the extent such disclosure is made
pursuant to a written agreement of confidentiality in form and substance
reasonably satisfactory to the Agent and (b) the Seller's legal counsel and
auditors if they agree to hold it confidential. Unless otherwise required by
applicable law, each of the Agent and the Purchaser agrees to maintain the
confidentiality of all information regarding Sunterra and its Subsidiaries;
provided that such information may be disclosed to: (i) third parties to the
extent such disclosure is made pursuant to a written agreement of
confidentiality in form and substance reasonably satisfactory to Sunterra, (ii)
legal counsel and auditors of the Purchaser or the Agent if they agree to hold
it confidential, (iii) the rating agencies rating the Commercial Paper Notes to
the extent such information relates to the Receivables Pool or the transactions
contemplated by this Agreement, or if not so related, upon obtaining the prior
consent of Sunterra (such consent not to be unreasonably withheld), (iv) any
Bank or Enhancement Bank or potential Bank or Enhancement Bank to the extent
such information relates to the Receivables Pool or the transactions
contemplated by this Agreement, or if not so related, upon obtaining the prior
written consent of Sunterra (such consent not to be unreasonably withheld), (v)
any placement agent placing the Commercial Paper Notes, and (vi) any regulatory
authorities having jurisdiction over SG, the Purchaser, any Enhancement Bank or
any Bank.
14.10 Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF
THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
14.11 Waiver of Jury Trial. EACH OF THE SELLER, SUNTERRA, THE AGENT AND
THE PURCHASER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION
OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE
CERTIFICATE, ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT
OR DOCUMENT DELIVERED OR WHICH MAY BE IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR ARISING FROM OR RELATING TO ANY BANKING OR OTHER RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, THE CERTIFICATE OR ANY OTHER
TRANSACTION DOCUMENT AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT A JURY TRIAL.
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14.12 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BLUE BISON FUNDING CORP.
By: /s/ DEWEY W. CHAMBERS
-------------------------------------
Name: Dewey W. Chambers
-----------------------------------
Title: Vice President
----------------------------------
1781 Park Center Drive
Orlando, Florida 32835
Telephone No.: 407/532-1000
Facsimile: 407/532-1075
Attention: General Counsel
SUNTERRA CORPORATION,
as initial Servicer
By: /s/ DEWEY W. CHAMBERS
-------------------------------------
Name: Dewey W. Chambers
-----------------------------------
Title: Vice President
----------------------------------
1781 Park Center Drive
Orlando, Florida 32835
Telephone No.: 407/532-1000
Facsimile: 407/532-1075
Attention: General Counsel
BARTON CAPITAL CORPORATION,
as Purchaser
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
c/o AMACAR Group, L.L.C.
6707-D Fairview Road
Charlotte, North Carolina 28210
Telephone No.: (704) 365-0569
Facsimile No.: (704) 365-1362
Attention: Douglas K. Johnson
S-1 Receivables Purchase Agreement
<PAGE> 70
SOCIETE GENERALE,
as the Agent
By: Avi R. Oster
-------------------------------------
Name:
-----------------------------------
Title: Director
----------------------------------
By: Larry Bowman
-------------------------------------
Name:
-----------------------------------
Title: Director
----------------------------------
181 West Madison Street
Suite 3400
Chicago, Illinois 60602
Telephone No.: (312) 578-5000
Facsimile No.: (312) 578-5099
Attention: Asset Securitization Group
S-2 Receivables Purchase Agreement
<PAGE> 71
APPENDIX A
DEFINITIONS
This is Appendix A to (i) the Purchase and Sale Agreement (as
hereinafter defined) and (ii) the Receivables Purchase Agreement, dated as of
December 17, 1998, among BLUE BISON FUNDING CORP., SUNTERRA CORPORATION, BARTON
CAPITAL CORPORATION and SOCIETE GENERALE, as Agent (as amended, supplemented or
otherwise modified from time to time, the "Receivables Purchase Agreement").
A. Defined Terms. As used in the Purchase and Sale Agreement or the
Receivables Purchase Agreement, as the case may be (unless the context clearly
requires a different meaning), the following terms have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Account Agreements" means the Reserve Account Agreement and the
Collection Account Agreement.
"Account Banks" means the Lockbox Banks, the Collection Account Bank and
the Reserve Account Bank.
"Accounts" means the Lockbox Accounts, the Collection Account and the
Reserve Account.
"Adverse Claim" means a lien, security interest, charge, encumbrance, or
similar claim of any Person.
"Affected Party" means each of Purchaser, the Agent, each Bank, any
permitted assignee of Purchaser or any Bank, Enhancement Bank, and any assignee
of any of Enhancement Bank or SG.
"Affiliate" when used with respect to a Person means any other Person
controlling, controlled by, or under common control with, such Person.
"Affiliated Obligor" means an Obligor that is an Affiliate of another
Obligor.
"Agent" has the meaning set forth in the preamble to the Receivables
Purchase Agreement.
"Agent's Account" means that certain account #0154644 maintained at
Societe Generale, Chicago, Illinois which account shall be in the name and under
the exclusive dominion and control of the Agent.
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"Aggregate Investment" at any time means the aggregate Dollar amount of
all Investments outstanding at such time.
"Aggregate Undivided Interest" means, at any time, the sum of all of the
Undivided Interests owned by Purchaser at such time.
"Aggregate Undivided Interest Limit" has the meaning set forth in
Section 1.02(b) of the Receivables Purchase Agreement.
"Agreement" means the Receivables Purchase Agreement, as amended,
amended and restated, supplemented or otherwise modified from time to time.
"Alternate Base Rate" means, on any date, a fluctuating rate of interest
per annum equal to the higher of
(a) the rate of interest most recently announced by SG at its
branch office in New York, New York as its reference rate; and
(b) the Federal Funds Rate most recently determined by SG plus
1.0% per annum.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by SG in connection with extensions of credit.
"Bank" means any one of, and "Banks" means all of, SG and the other
commercial lending institutions that are at any time parties to the Stand-by
Purchase Agreement.
"Bank Rate" for any Yield Period for the related Undivided Interest
means an interest rate per annum equal to the greater of (i) the sum of (a)
1.75% per annum, plus (b) the LIBOR Rate (Reserve Adjusted) for such Yield
Period and (ii) the sum of (a) 0.25% per annum, plus (b) Sunterra's maximum
non-default borrowing rate under the Bank Revolver; provided, however, that if
the Earned Return for any Undivided Interest shall have been calculated by
reference to the Bank Rate for a period of three years as a result of
non-availability of the Commercial Paper Rate, then the rate calculated pursuant
to clauses (i) and (ii) above shall be increased by 0.50% at the end of such
three year period and on each anniversary thereafter; provided, further, that
(A) with respect to the rate described in clause (i) above if (x) it shall
become unlawful for the Agent, any Bank or Enhancement Bank to obtain funds in
the offshore interbank eurodollar market in order to fund any Purchase or to
maintain any Undivided Interest, or if such funds shall not be reasonably
available to the Agent, any Bank or Enhancement Bank, or (y) there shall not be
time prior to commencement of an applicable
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Yield Period to determine a LIBOR Rate in accordance with its terms, or (B) if
the Seller shall have so requested, then the "Bank Rate" for any Yield Period
for such Undivided Interest shall be equal to the Alternate Base Rate.
"Bank Revolver" means that certain Credit Agreement entered into on
February 18, 1998, among Signature Resorts, Inc., certain lenders party thereto,
NationsBank of Texas, N.A., as administrative lender and SG, as documentation
agent, as amended from time to time.
"Barton" means Barton Capital Corporation, a Delaware corporation.
"Business Day" means a day on which both (a) the Agent is open for
business at its principal office in Chicago, Illinois and (b) commercial banks
in New York City are not authorized or required to be closed for business.
"Capital Lease" means any lease that, in accordance with GAAP, would be
deemed a capital lease.
"Certificate" means a certificate of assignment, by Seller to the Agent,
in the form of Exhibit 5.01(a) to the Receivables Purchase Agreement, evidencing
each Undivided Interest owned by Purchaser or an assignee thereof, as the same
may be amended, supplemented, amended and restated or otherwise modified from
time to time in accordance with the Receivables Purchase Agreement.
"Change in Control" means (a) Sunterra or any Affiliate thereof shall
fail to own one hundred percent (100%) of the issued and outstanding shares of
capital stock (including all warrants, options, conversion rights, and other
rights to purchase or convert into such stock) of Seller or (b) the occurrence
of any of the following events after the Closing Date: (A) any Person or 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
constitute a majority of the board of directors of Sunterra as of the close of
business on the Closing Date, together with any Affiliates or 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 Sunterra
entitled to vote generally in the election of directors of Sunterra; or (B) any
Person or Group, other than any Person whose nominees constitute a majority of
the board of directors of Sunterra as of the close of business on the Closing
Date, together with any Affiliates thereof, shall
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succeed in having sufficient of its or their nominees elected to the board of
directors of Sunterra, such that such nominees, when added to any existing
director remaining on the board of directors of Sunterra after such election
which is an Affiliate of such Group shall constitute a majority of the board of
directors of Sunterra.
"Closing Date" means the date of the initial Purchase under the
Receivables Purchase Agreement.
"Collateral Agent" means SG in its capacity as collateral agent under
the Security Agreement, dated as of December 6, 1991, as amended as of August 1,
1993, as the same may be further amended, supplemented, amended and restated or
otherwise modified from time to time between SG and Barton.
"Collection Account" means that certain bank account with the number,
and maintained at the location, set forth on Schedule 6.01(n) to the Receivables
Purchase Agreement, which is (i) in Seller's name, and (ii) pledged on a
first-priority basis to Purchaser pursuant to Section 9.01 of the Receivables
Purchase Agreement.
"Collections" means, with respect to any Pool Receivable and the related
Timeshare Loan, all funds that either are (a) received by Sunterra, Servicer or
Seller, from or on behalf of the related Obligors in payment of any amounts owed
(including, without limitation, principal, finance charges, late fees, interest
and all other amounts and charges) in respect of such Pool Receivable and the
related Timeshare Loan, (b) applied to such amounts owed by such Obligors
(including, without limitation, insurance payments (including any payments in
respect of a title insurance policy) or proceeds on account of any casualty loss
with respect to the related Vacation Interest and net proceeds of sale,
liquidation or other compulsory disposition of the related Vacation Interest or
other collateral or property of the Obligor or any other party directly or
indirectly liable for payment of such Receivable and the related Timeshare Loan,
(c) received from the counterparty pursuant to the Interest Rate Protection
Agreement or (d) received from the purchaser of any sale of any Receivable and
the related Timeshare Loan, including pursuant to Section 7.03(a).
"Collection Account Agreement" means an agreement, substantially in the
form of Exhibit 5.01(h)(ii) to the Receivables Purchase Agreement, among Seller,
Sunterra, the Agent and the Collection Account Bank, as the same may be amended,
supplemented, amended and restated, or otherwise modified from time to time in
accordance with the Receivables Purchase Agreement.
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"Collection Account Bank" means the bank holding the Collection Account.
"Commercial Paper Notes" means short-term promissory notes issued or to
be issued by Purchaser to fund its investments in accounts receivable or other
financial assets.
"Commercial Paper Rate" for any Yield Period for the related Undivided
Interest means a rate per annum equal to the sum of (i) the rate or, if more
than one rate, the weighted average of the rates per annum (determined by
converting to an interest-bearing equivalent rate per annum the discount rate
(or rates)) at which Commercial Paper Notes having a term equal to such Yield
Period and to be issued to fund the Purchase of or to maintain such Undivided
Interest (or portion thereof) by Barton (including, without limitation, the
Investment and accrued and unpaid Earned Return) may be sold by any placement
agent or commercial paper dealer selected by the Agent, as agreed between each
such agent or dealer and the Agent, plus (ii) the commissions and other charges
charged by such placement agent or commercial paper dealer with respect to such
Commercial Paper Notes expressed as a percentage of the face amount of such
Commercial Paper Notes and converted to an interest-bearing equivalent rate per
annum.
"Commitment" has the meaning set forth in Section 1.01 of the
Receivables Purchase Agreement.
"Commitment Termination Date" has the meaning set forth in Section 1.05
of the Receivables Purchase Agreement.
"Company Note" has the meaning set forth in Section 3.2 of the Purchase
and Sale Agreement.
"Conditions Precedent" and "Condition Precedent" have the meanings set
forth in Section 5.02 of the Receivables Purchase Agreement.
"Credit and Collection Policy" means those credit and collection
policies and practices relating to Timeshare Loans and Receivables of Sunterra
and the Originators described in Schedule 7.01(f) to the Receivables Purchase
Agreement, as modified without violating Section 7.03(c) of the Receivables
Purchase Agreement.
"Custodial Agreement" means the Custody Agreement, dated as of December
17, 1998, among Seller, Purchaser and the Custodian, as the same may be amended,
amended and restated, supplemented or otherwise modified from time to time.
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"Custodian" means LaSalle National Bank, a national bank, acting in its
capacity as Custodian under the Custodial Agreement, and any successor thereto
thereunder.
"Default Rate" means the Alternate Base Rate, plus 2.5% per annum.
"Default Ratio" means twelve times the ratio (expressed as a percentage)
computed as of the last day of each calendar month by dividing (x) the aggregate
Unpaid Balance of all Principal Receivables that became Defaulted Receivables
during such calendar month by (y) the Net Pool Balance on such day.
"Defaulted Receivable" means without duplication, a Receivable: (a) as
to which payment (other than any late payment fee), or any part thereof remains
unpaid for more than 120 days after the original due date for such payment, (b)
with regard to the Obligor of which a matured or unmatured Event of Bankruptcy
has occurred, (c) which has been written off as uncollectible by Servicer or
which, consistent with the Credit and Collection Policy, should be written off
as uncollectible by Servicer or, (d) which has been accelerated and with respect
to which foreclosure or sale proceedings have been instituted and are
continuing.
"Delinquency Ratio" means the ratio (expressed as a percentage) computed
as of the last day of each calendar month, by dividing (a) the aggregate Unpaid
Balance of all Principal Receivables that were Delinquent Receivables on such
day, by (b) the Net Pool Balance on such day.
"Delinquent Receivable" means a Receivable, other than a Defaulted
Receivable, (a) as to which any payment (other than any late payment fee) or
part thereof remains unpaid for at least 60 days from the original due date for
such payment or (b) which, consistent with the Credit and Collection Policy,
should be classified as a Delinquent Receivable.
"Dividend" means any dividend or distribution (in cash, property or
obligations) on any shares of any class of Seller's capital stock or any
warrants, options or other rights with respect to shares of any class of
Seller's capital stock.
"Dollars" means dollars in lawful money of the United States of America.
"Earned Return" for any Undivided Interest for each day in a particular
Yield Period means an amount determined as follows:
ER = I x PR x 1/360;
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provided, however, that if, pursuant to the definition of "Purchaser
Rate", different Purchaser Rates would apply to different portions of an
Undivided Interest, then Earned Return shall be calculated separately
with respect to each such portion, and the Earned Return shall be the
sum of the Earned Return so calculated for such portions;
where:
ER = Earned Return for such Undivided Interest (or such portion)
accrued on such day;
I = the Investment in such Undivided Interest (or such portion)
on such day, as determined pursuant to Section 2.02; and
PR = the Purchaser Rate for such Undivided Interest (or such
portion) on such day.
No provision of this Agreement shall require the payment or permit the
collection of Earned Return in excess of the maximum permitted by
applicable law. If at any time a distribution of any portion of
Collections is rescinded or must otherwise be returned for any reason,
Earned Return for any Undivided Interest shall not be considered paid to
the extent of such rescission or return.
"Eligible Receivable" means, at any time, a Pool Receivable:
(a) the Obligor of which (i) is a United States resident;
(provided, that up to 10% of the Net Pool Balance may, at any time,
consist of otherwise Eligible Receivables the Obligors' of which are not
United States residents); (ii) is not a government or a governmental
subdivision, Affiliate or agency; and (iii) is not an Affiliate of
Sunterra, Seller or any Affiliate thereof;
(b) that is denominated and payable only in U.S. dollars in the
United States;
(c) the maturity of which is not greater than 121 months from
the date that the first payment on such Receivable is due;
(d) that arises as a result of a duly authorized Timeshare Loan
made by Sunterra or any Originator to an Obligor for the purchase of a
Vacation Interest in the ordinary course of Sunterra's or such
Originator's business, and that is, together with the related Mortgage
Note or Right-to-Use Agreement, as applicable, in full force and effect
and a legal, valid and binding obligation of the
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related Obligor, enforceable against such Obligor in accordance with its
terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and by
general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law), and is not subject
to any dispute, right of setoff, recoupment, counterclaim, or defense of
any kind, whether arising out of transactions concerning such Receivable
or otherwise, and no such right has been asserted with respect thereto;
(e) that has not been satisfied, cancelled, rescinded or
subordinated, in whole or in part, and no instrument has been executed
that would effect any such satisfaction, release, cancellation,
subordination or rescission;
(f) as to which all of the related Loan Documents are in the
possession of the Custodian;
(g) that satisfies all applicable requirements of the Credit and
Collection Policy;
(h) that, together with the Timeshare Loan related thereto, does
not contravene any laws, rules or regulations applicable thereto
(including, without limitation, laws, rules and regulations relating to
sales of timeshare estates, usury, truth in lending, fair credit
billing, fair credit reporting, equal credit opportunity, fair debt
collection practices and privacy) and with respect to which no party to
the Timeshare Loan related thereto is in violation of any such law, rule
or regulation if such violation would impair the collectibility of such
Receivable;
(i) that is required to be paid in level monthly installments,
designed to fully amortize the principal amount of the related Timeshare
Loan over the scheduled term of such Timeshare Loan and bears simple
interest at a fixed rate for the life of such Timeshare Loan at least
equal to 12%;
(j) as to which the Seller owns full legal and equitable title
to such Receivable and the related Timeshare Loan, free and clear of any
Adverse Claims, and that together with the related Note and Related
Security therefor is freely assignable (including without any consent of
the related Obligor);
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(k) (A) if such Pool Receivable is related to a Mortgage Loan,
such Mortgage Loan is secured by a first mortgage or deed of trust on
the related Vacation Interest and such Mortgage has been duly filed and
recorded with all appropriate government authorities in all
jurisdictions in which such Mortgage is required to be filed and
recorded to create a valid, binding and enforceable first lien on the
related Vacation Interest and such Mortgage creates a valid, binding and
enforceable first lien on the related Vacation Interest, subject only to
Permitted Encumbrances, and (B) if such Pool Receivable is related to a
Membership Loan, such Membership Loan is secured, pursuant to a
Right-to-Use Agreement, by a membership interest in a Vacation Club and
a UCC financing statement in connection with such Right-to-Use Agreement
has been duly filed and recorded with all appropriate government
authorities in all jurisdictions in which such financing statement is
required to be filed and recorded to create a valid, binding and
enforceable first priority perfected security interest on the related
Vacation Interest and such financing statement together with such
Right-to-Use Agreement creates a valid, binding and enforceable first
priority perfected security interest on the related Vacation Interest,
subject only to Permitted Encumbrances;
(l) as to which the Purchaser shall have a valid and enforceable
undivided ownership or security interest therein and in the Related
Security and Collections with respect thereto, in each case free and
clear of any Adverse Claims except, in the case of Related Security
constituting a Mortgage on the related Vacation Interest, for Permitted
Encumbrances;
(m) that is not a Defaulted Receivable or a Delinquent
Receivable;
(n) the related Obligor of which has timely made at least one
payment due thereon (or, in the case of a Receivable related to an
Upgraded Loan, on the original Timeshare Loan being upgraded);
(o) the Unpaid Balance of which when combined with the Unpaid
Balance of all other Eligible Receivables included in the Receivables
Pool related to the Timeshare Loans made to finance the purchase of
Vacation Interests at any one Vacation Ownership Resort does not exceed
25% of the Net Pool Balance;
(p) with respect to which (i) if related to a Mortgage Loan, the
related Mortgage Notes, contracts, documents and other agreements
(including, subject to the proviso to
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paragraph (r) below, the related title insurance policy) and (ii) if
related to a Membership Loan, the related Note and Right-to-Use
Agreement have been duly executed and delivered or issued in accordance
with the terms thereof;
(q) the Unpaid Balance of which, when added to the aggregate
Unpaid Balance of all Pool Receivables payable by the related Obligor
does not exceed $50,000;
(r) if related to a Mortgage Loan the related Mortgage of which,
is covered by a form of lender's title insurance policy issued by a
title insurer qualified to do business in the jurisdiction where the
related Vacation Interest is located, insuring the related Originator
and its successors and assigns, as to the first priority Lien of the
related Mortgage in an amount equal to the original principal balance of
the related Mortgage Loan and (i) such lender's title insurance policy
is in full force and effect, (ii) no claims have been made under such
lender's title insurance policy and (iii) no prior holder of such
Mortgage Loan, including the Seller or any Originator, has done or
omitted to do anything which would impair the coverage of such lender's
title insurance policy; provided, however, that up to 5% of the Net Pool
Balance may consist of otherwise Eligible Receivables for which title
insurance policies covering the related Mortgage have not yet been
issued, so long as a commitment to issue such title insurance policies
exists at the time such Receivables are generated and such title
insurance policies are issued within 60 days from the date thereof;
(s) with respect to any Membership Loan, the Unpaid Balance of
which, when added to the aggregate Unpaid Balance of all Pool
Receivables related to Membership Loans does not exceed an amount to be
determined at the sole discretion of the Agent;
(t) which with respect to any Membership Loan, the Purchaser
shall have approved in writing, in its sole and absolute discretion, the
inclusion of such Membership Loan and the Purchaser shall have received
such additional certificates, opinions and forms of Loan Documents
related to such Membership Loan, as the Purchasers may reasonably
request; and
(u) the Unpaid Balance of which, when combined with the Unpaid
Balance of all other Eligible Receivables included in the Receivables
Pool that are part of the same Market Area, does not exceed (i) in the
case of each of the Williamsburg Market Area and the Orlando Market
Area, 40% of
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the Net Pool Balance; and (ii) in the case of the Greater Phoenix Market
Area, 30% of the Net Pool Balance.
"Enhancement Agreement" means and includes (a) the Enhancement
Agreement, dated as of December 6, 1991, as amended as of August 1, 1993,
between Barton and SG and (b) any other agreement (other than the Stand-by
Purchase Agreement) hereafter entered into by Barton providing for the issuance
of one or more letters of credit for the account of Barton, the making of loans
to Barton or any other extensions of credit to or for the account of Barton to
support all or any part of Barton's payment obligations under its Commercial
Paper Notes or to provide an alternate means of funding Barton's investments in
accounts receivable or other financial assets, in each case as amended,
supplemented or otherwise modified from time to time.
"Enhancement Bank" means and includes SG, as lender to Barton and as
issuer of a letter of credit for Barton's account, under the Enhancement
Agreement, and any other or additional bank or other financial institution now
or hereafter extending credit or having a commitment to extend credit to or for
the account of Barton under the Enhancement Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with any
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"Eurodollar Reserve Percentage" means, with respect to any Yield Period,
the then applicable percentage (expressed as a decimal) prescribed by the
Federal Reserve Board for determining reserve requirements applicable to
"Eurocurrency Liabilities" pursuant to Regulation D.
"Event of Bankruptcy" shall be deemed to have occurred with respect to a
Person if either:
(a) a case or other proceeding shall be commenced, without the
application or consent of such Person, in any court, seeking the
liquidation, reorganization, debt arrangement, dissolution, winding up,
or composition or readjustment of debts of such Person, the appointment
of a trustee, receiver, custodian, liquidator, assignee, sequestrator or
the like for such Person or all or any substantial part of its assets,
or any similar action with respect to such Person under any law relating
to bankruptcy, insolvency, reorganization, winding up or composition or
adjustment of debts, and such case or proceeding shall continue
undismissed, or unstayed and in effect, for a period of 60 consecutive
days; or an order for relief in
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respect of such Person shall be entered in an involuntary case under the
federal bankruptcy laws or other similar laws now or hereafter in
effect; or
(b) such Person shall commence a voluntary case or other
proceeding under any applicable bankruptcy, insolvency, reorganization,
debt arrangement, dissolution or other similar law now or hereafter in
effect, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) for, such Person or for any substantial part of
its property, or shall make any general assignment for the benefit of
creditors, or shall fail to, or admit in writing its inability to, pay
its debts generally as they become due, or, if a corporation or similar
entity, its board of directors shall vote to implement any of the
foregoing.
"Excess Yield" means the annualized percentage equivalent of a fraction
(computed as of the last day of each calendar month), the numerator of which is
the excess of (x) all Finance Charge Collections received and applied during
such calendar month over (y) the sum of the Servicing Fee, the Earned Returns
for all Undivided Interests, all Fees accrued during such calendar month and the
aggregate Unpaid Balance of all Principal Receivables that became Defaulted
Receivables during such calendar month, and the denominator of which is the
average aggregate Unpaid Balance of the Principal Receivables during such
calendar month.
"Facility Limit" has the meaning set forth in Section 1.02(a) of the
Receivables Purchase Agreement.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal (for each day during such period) to
(i) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or, if such day is not
a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York; or
(ii) if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such
transactions received by SG from three federal funds brokers of
recognized standing selected by it.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto or to the functions thereof.
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"Fee Letter" has the meaning set forth in Section 4.01 of the
Receivables Purchaser Agreement.
"Fees" means all fees payable pursuant to the Fee Letter.
"Finance Charge Collection" means, at any time, any Collections in
respect of a Finance Charge Receivable.
"Finance Charge Receivable" means, with respect to any Receivable and
the related Timeshare Loan, at any time, the amount of accrued and unpaid
interest, finance charges, late charges and other fees and charges with respect
to such Timeshare Loan.
"Financial Officer" has the meaning set forth in Section 7.02(a) of the
Receivables Purchase Agreement.
"Funding Date" means each date the Seller purchases Receivables from
Sunterra pursuant to the Purchase and Sale Agreement.
"GAAP" means generally accepted accounting principles in the United
States.
"Greater Phoenix Market Area" has the meaning set forth on Schedule B to
the Receivables Purchase Agreement.
"Guaranty" means any agreement, undertaking or arrangement by which any
Person guarantees, endorses, agrees to purchase or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
indebtedness, obligation or any other liability of any other Person (other than
by endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial
statement, any qualification or exception to such opinion or certification:
(i) which is of a "going concern" or similar nature; or
(ii) which relates to the limited scope of examination of
matters relevant to such financial statement (other than any standard
qualification of such nature).
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"Indebtedness" means, with respect to any Person, at the time any
determination is to be made, without duplication (i) all Indebtedness for Money
Borrowed of that Person, (ii) that portion of obligations with respect to
Capital Leases which is properly classified as a liability on a balance sheet of
that Person in conformity with GAAP, (iii) notes payable of that Person and
drafts accepted by that Person representing extensions of credit whether or not
representing obligations for borrowed money, (iv) all indebtedness secured by
any Adverse Claim on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is nonrecourse to the credit of that Person, (v) all
Guaranties of that Person and (vi) the deferred purchase price of assets or
services which in accordance with GAAP would be shown as a liability on the
balance sheet of such Person.
"Indebtedness for Money Borrowed" means, with respect to any Person, at
the time any determination is to be made (i) all Indebtedness of such Person,
current or funded, secured or unsecured, incurred in connection with borrowings
(including the sale of debt securities) or the making available of credit or
funds to or on behalf of another Person, (ii) all Indebtedness of such Person
issued, incurred or assumed in respect of the purchase price of property and
(iii) all Capital Leases of such Person.
"Indemnified Amounts" has the meaning set forth in Section 13.01 of the
Receivables Purchase Agreement.
"Indemnified Party" has the meaning set forth in Section 13.01 of the
Receivables Purchase Agreement.
"Independent Director" has the meaning set forth in Section 7.01(h)(ii)
of the Receivables Purchase Agreement.
"Initial Closing Date" means the date on which the first purchases under
the Purchase and Sale Agreement shall occur.
"Interest Rate Protection Agreement" means the Rate Cap Transaction
letter agreement dated as of December 17, 1998, between the Seller and SG, as
amended, amended and restated or otherwise modified from time to time.
"Investment" has the meaning set forth in Section 2.02 of the
Receivables Purchase Agreement.
"Involuntary Federal Proceeding" has the meaning set forth in Section
10.02(b) of the Receivables Purchase Agreement.
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"LIBOR Rate (Reserve Adjusted)" means, with respect to any Yield Period
for any related Undivided Interest (or portion thereof), a rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant
to the following formula:
LIBOR Rate = LIBOR Rate
------------
(Reserve Adjusted) 1-Eurodollar
Reserve Percentage
where:
"LIBOR Rate" means, with respect to any Yield Period for any related
Undivided Interest (or portion thereof), the rate per annum at which Dollar
deposits in immediately available funds are offered to the LIBOR Office of the
Agent two LIBOR Business Days prior to the beginning of such period by prime
banks in the interbank eurodollar market at or about 10:00 a.m., London time for
delivery on the first day of such Yield Period, for the number of days comprised
therein and in an amount equal or comparable to the amount of the related
Investment in such Undivided Interest (or such portion) for such Yield Period.
"LIBOR Business Day" means a day (i) on which dealings in Dollars are
carried on in the eurodollar interbank market of the Agent's LIBOR Office and
(ii) which is neither a Saturday or Sunday nor a legal holiday on which banks
are required or authorized to be closed in New York.
"LIBOR Office" shall mean such office or offices through which the Agent
determines the LIBOR Rate. A LIBOR Office of the Agent may be, at the option of
the Agent, either a domestic or foreign office.
"Liquidation Commencement Date" means, in the event a Condition
Precedent is not satisfied, the date designated by notice from the Agent to
Seller.
"Liquidation Day" for any Undivided Interest means any of (a) each day
which occurs on or after the Liquidation Commencement Date and on or before the
Liquidation Termination Date, if any, (b) each day which occurs on or after the
Commitment Termination Date, or (c) each day which occurs on or after the day
Seller shall have given written notice to the Agent that it no longer wishes to
sell Undivided Interests to Purchaser.
"Liquidation Event" has the meaning set forth in Section 10.01 of the
Receivables Purchase Agreement.
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"Liquidation Period" means one or more successive Liquidation Days.
"Liquidation Termination Date" means the date, if any, that occurs after
a Liquidation Commencement Date and is designated as the "Liquidation
Termination Date" by the Agent (in its sole discretion) on at least one Business
Day's notice to Seller.
"Loan Documents" means with respect to each Timeshare Loan:
(i) an original Note, executed by the Obligor for such Timeshare
Loan, endorsed in blank (either directly on the Note or on an allonge
affixed thereto), by an authorized officer of Seller and showing a
complete chain of endorsements from the original payee of the Note to
the Purchaser.
"Pay to the order of ______________, without recourse",
or if an original Note is not available, a copy thereof
endorsed as described above and accompanied by an original executed
lost note affidavit;
(ii) (A) in the case of a Mortgage Loan an original Mortgage (or
a copy thereof) certified (which may be a blanket certification) by (x)
the public recording office, if available on the date of creation or (y)
by an authorized officer of the Seller or applicable Originator) with
evidence that such Mortgage has been recorded in the appropriate
recording office and (B) in the case of a Membership Loan, an original
Right-to-Use Agreement (or copy thereof) certified by an authorized
officer of the Seller with evidence that the appropriate financing
statements have been file in the appropriate filing offices;
(iii) (A) in the case of a Mortgage Loan an original assignment
of the Mortgage (which may be a part of a blanket assignment of more
than one Mortgage Loan), from the Seller to the Purchaser, in recordable
form but unrecorded, signed by an authorized officer of Seller and (B)
in the case of a Membership Loan, an original assignment of the UCC
financing Statement (which may be a part of a blanket assignment of more
than one Membership Loan) from the seller to the Purchaser, in
recordable form but unrecorded, signed by an authorized officer of the
Seller;
(iv) in the case of a Mortgage Loan, an original lender's title
insurance policy or master policy referencing such Mortgage Loan;
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(v) an original of each guarantee, assumption, modification or
substitution agreement, if any, which relates to the related Timeshare
Loan (or a copy thereof certified by an authorized officer of the Seller
to be a true and correct copy of such guarantee, assumption,
modification or substitution agreement); and
(vi) any amendments or modifications to any of the documents
referred to in clauses (i) through (v) above.
"Lockbox Accounts" means those certain bank accounts with the numbers,
and maintained at those certain locations, set forth on Schedule 6.01(n) to the
Receivables Purchase Agreement, each of which is pledged on a first-priority
basis to Purchaser pursuant to Section 9.01 of the Receivables Purchase
Agreement; and any bank account that is hereafter created in accordance with,
and to perform the function contemplated for "Lockbox Accounts" in, the
Receivables Purchase Agreement.
"Lockbox Bank" means any of the banks holding one or more Lockbox
Accounts for receiving Collections from Receivables.
"Loss Reserve" has the meaning set forth in Section 2.04 of the
Receivables Purchase Agreement.
"Loss Reserve Percentage" has the meaning set forth in Section 2.04 of
the Receivables Purchase Agreement.
"Market Area" means each of the groups of Vacation Ownership Resorts
listed on Schedule B to the Receivables Purchase Agreement and designated as
either the Williamsburg Market Area, the Orlando Market Area or the Greater
Phoenix Market Area.
"Material Adverse Effect" means, with respect to any event or
circumstance, a material adverse effect on:
(i) the assets, operations, business or financial condition of
Seller, Servicer or any Originator, as applicable; or
(ii) the ability of Servicer, Seller or any Originator, as
applicable, to perform its obligations under the Receivables Purchase
Agreement or any other Transaction Document or the performance of any
such obligations; or
(iii) the validity or enforceability of, or collectibility of
amounts payable under, the Receivables Purchase Agreement or any other
Transaction Document; or
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(iv) the status, existence, perfection or priority of
Purchaser's interest in the Receivables, including Purchaser's
unencumbered first priority interest therein.
"Membership Loan" means a loan evidenced by a Note and secured, pursuant
to a Right-to-Use Agreement, by a membership interest in a Vacation Club which
hold unencumbered fee title (or a long-term lease) to the related Vacation
Ownership Resorts.
"Month End Date" means the last day of each calendar month.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means a mortgage, deed of trust, deed to secured debt or
other similar instrument securing a Mortgage Note.
"Mortgage Loan" means a loan that is secured by a Mortgage on a
timeshare fee estate in real property at any Vacation Ownership Resort.
"Mortgage Note" means, with respect to a Mortgage Loan, a promissory
note evidencing the indebtedness in respect of such Mortgage Loan.
"Net Pool Balance" has the meaning set forth in Section 2.03 of the
Receivables Purchase Agreement.
"Note" means (a) with respect to a Mortgage Loan, the Mortgage Note and
(b) with respect to a Membership Loan, the original note or other instrument of
indebtedness evidencing such Membership Loan.
"Obligations" means (i) all obligations of Seller, Servicer and each
Originator to Purchaser, the Agent, and their respective successors, permitted
transferees and assigns, arising in connection with the Transaction Documents,
and (ii) all obligations of Seller, Servicer and each Originator to any
Indemnified Party arising out of Section 13.01 of the Receivables Purchase
Agreement, in each case howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, now or hereafter existing, or due or to
become due.
"Obligor" means with respect to any Receivable, the Person obligated to
make payments pursuant to the Timeshare Loan relating to such Receivable.
"Officer's Certificate" means a certificate from a Person signed by an
authorized officer of such Person.
"Originator" has the meaning set forth in each Sale Agreement.
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"Originator Note Assignment" means, the Note assignment, by Sunterra to
Seller, in the form of Exhibit A to the Purchase and Sale Agreement, as the same
may be amended, supplemented, amended and restated or otherwise modified from
time to time in accordance with the Purchase and Sale Agreement.
"Orlando Market Area" has the meaning set forth on Schedule B to the
Receivables Purchase Agreement.
"Periodic Report" means a report in substantially the form of Exhibit
3.05(a) to the Receivables Purchase Agreement.
"Permitted Encumbrances" means, with respect to a Mortgage Loan as to
any Vacation Interest subject to a Mortgage, (i) those liens and encumbrances
set forth in the related title insurance policy and (ii) those liens and
encumbrances arising subsequent to the date of such insurance policy which are
typically acceptable to institutional lenders making timeshare loans and which
do not materially interfere with the benefits of the security intended to be
provided by the applicable Mortgage.
"Permitted Investments" means:
(i) marketable obligations issued or directly and fully
guaranteed or insured as to full and timely payment by the United States
government or any agency or instrumentality thereof when such marketable
obligations are backed by the full faith and credit of the United States
government, but excluding any securities which are derivatives of such
obligations or any such obligations that are subject to a call or
prepayment prior to their maturity;
(ii) time deposits, bankers' acceptances and certificates of
deposit of any domestic commercial bank or any United States branch or
agency of a foreign commercial bank which (x) has capital, surplus and
undivided profits in excess of $100,000,000 and which has a commercial
paper or certificate of deposit rating meeting the requirements
specified in clause (iii) below (or equivalent long-term rating) or (y)
is set forth in a list (which may be updated from time to time) (A)
approved by the Agent and (B) with respect to which a written statement
has been obtained from each of Moody's and S&P to the effect that the
rating of the Commercial Paper Notes will not be downgraded or withdrawn
solely as a result of the acquisition of such investments;
(iii) commercial paper which is (x) rated at least as high as
the Commercial Paper Notes by Moody's and S&P, or (y) set forth in a
list (which may be updated from time to time) (A) approved by the Agent
and (B) with respect to which a written statement has been obtained from
each of
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Moody's and S&P to the effect that the rating of the Commercial Paper
Notes will not be downgraded or withdrawn solely as a result of the
acquisition of such investments;
(iv) secured repurchase obligations for underlying securities of
the types described in clauses (i) and (ii) above entered into with any
bank of the type described in clause (ii) above; and
(v) freely redeemable shares in money market funds which invest
solely in obligations, bankers' acceptances, time deposits, certificates
of deposit, repurchase agreements and commercial paper of the types
described in clause (i) through (iv) above, without regard to the
limitations as to the maturity of such obligations, bankers'
acceptances, time deposits, certificates of deposit, repurchase
agreements or commercial paper set forth, which money market funds are
rated "AAA" by Moody's and "AAAm" or "AAAm-g" by S&P.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture, government or any agency or political
subdivision thereof or any other entity.
"Pool Receivable" means a Receivable in the Receivables Pool. If, with
respect to any Undivided Interest, a Receivable is a Pool Receivable on or prior
to the Commitment Termination Date, such Receivable shall continue to be
considered a Pool Receivable with respect to such Undivided Interest at all
times thereafter.
"Principal Collections" means all Collections (other than Finance Charge
Collections).
"Principal Receivable" means, at any time, each Receivable then in the
Receivables Pool other than any Finance Charge Receivables therein.
"Principal Documents" the Receivables Purchase Agreement, the Fee
Letter, the Purchase and Sale Agreement, the Sale Agreements and the Company
Notes or any report (including any Periodic Report) delivered in connection with
the Receivables Purchase Agreement or the Purchase and Sale Agreement as any of
the foregoing may be amended, supplemented, amended and restated or otherwise
modified from time to time in accordance with the terms thereof.
"Program Fee" has the meaning set forth in the Fee Letter.
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"Purchase" has the meaning set forth in Section 1.01(a) of the
Receivables Purchase Agreement.
"Purchase and Sale Agreement" means that certain Purchase and Sale
Agreement, dated as of December 17, 1998, between the Seller and Sunterra, as
the same may be amended, supplemented, amended and restated or otherwise
modified from time to time in accordance with the terms thereof and with the
Receivables Purchase Agreement.
"Purchase and Sale Indemnified Party" has the meaning set forth in
Section 9.1 of the Purchase and Sale Agreement.
"Purchase and Sale Indemnified Amounts" has the meaning set forth in
Section 9.1 of the Purchase and Sale Agreement.
"Purchase and Sale Termination Date" has the meaning set forth in
Section 1.4 of the Purchase and Sale Agreement.
"Purchase and Sale Termination Event" has the meaning set forth in
Section 8.1 of the Purchase and Sale Agreement.
"Purchase Facility" has the meaning set forth in Section 1.1 of the
Purchase and Sale Agreement.
"Purchase Price" has the meaning set forth in Section 2.1 of the
Purchase and Sale Agreement.
"Purchaser" has the meaning set forth in the preamble to the Receivables
Purchase Agreement.
"Purchaser Rate" for any Yield Period for any related Undivided Interest
(or portion thereof) means:
(a) in the case of an Undivided Interest (or portion thereof)
other than one referred to in clause (b) or (c) of this definition, the
Commercial Paper Rate for such Undivided Interest (or such portion) for
such Yield Period;
(b) in the case of an Undivided Interest (or portion thereof)
funded pursuant to the Stand-by Purchase Agreement, the Bank Rate for
such Undivided Interest; and
(c) in the case of any Undivided Interest funded during the
continuance of a Liquidation Event, the Default Rate.
"Purchaser's Share" on any day with respect to each Undivided Interest
means an amount equal to the product of:
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(a) the amount of all such Collections received by Seller or
Servicer on such day, times
(b) (i) if such day is not a Liquidation Day, such Undivided
Interest (expressed as a decimal) on such day, or
(ii) if such day is a Liquidation Day, such Undivided
Interest (expressed as a decimal) on the day immediately
preceding the first Liquidation Day to have occurred during the
then current Liquidation Period, or, if higher such Undivided
Interest (expressed as a decimal) on such Liquidation Day;
provided that after such time as an Undivided Interest shall have been
reduced to zero, the Purchaser's Share of such Collections therefor
shall also equal zero.
"Receivable" means any right to payment from an Obligor, whether
constituting an account, chattel paper, instrument or a general intangible, in
respect of a Timeshare Loan, and includes the right to payment of any principal,
interest or finance charges and other obligations of such Obligor with respect
thereto.
"Receivables Pool" means at any time all outstanding Receivables that
have been transferred to Seller by Sunterra pursuant to the Purchase and Sale
Agreement on and after the Initial Closing Date to and including the Commitment
Termination Date.
"Regulation D" means Regulation D of the Federal Reserve Board, or any
other regulation of the Federal Reserve Board that prescribes reserve
requirements applicable to nonpersonal time deposits or "Eurocurrency
Liabilities" as presently defined in Regulation D, as in effect from time to
time.
"Regulatory Change" means, relative to any Affected Party
(a) any change in (or the adoption, implementation, change in,
phase-in or commencement of effectiveness of) any
(i) United States federal or state law or foreign law
applicable to such Affected Party;
(ii) regulation, interpretation, directive, requirement
or request (whether or not having the force of law) applicable
to such Affected Party of (A) any court, government authority
charged with the interpretation or administration of any law
referred to in clause (a)(i) or of (B) any fiscal, monetary or
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other authority having jurisdiction over such Affected Party; or
(iii) GAAP or regulatory accounting principles
applicable to such Affected Party and affecting the application
to such Affected Party of any law, regulation, interpretation,
directive, requirement or request referred to in clause (a)(i)
or (a)(ii) above; or
(b) any change in the application to such Affected Party of any
existing law, regulation, interpretation, directive, requirement,
request or accounting principles referred to in clause (a)(i), (a)(ii)
or (a)(iii) above.
"Reinvestment" has the meaning set forth in Section 1.01(b) of the
Receivables Purchase Agreement.
"Related Rights" has the meaning set forth in Section 1.1 of the
Purchase and Sale Agreement.
"Related Security" means, with respect to any Timeshare Loan and the
related Receivable:
(a) all of the interests in the Vacation Interest arising under
or in connection with the related Mortgage, Right-to-Use Agreement and
all other security interests or liens and property subject thereto from
time to time securing payment of such Timeshare Loan, together with all
mortgages, guarantees, financing statements, assignments, instruments,
leases and other agreements from time to time supporting or securing
such Timeshare Loan;
(b) the related Timeshare Note and other Timeshare Loan
Documents;
(c) all documents, books, records and other information
maintained with respect to such Receivable and the related Timeshare
Loan (including any payment report, environmental assessments and
appraisals);
(d) with respect to any Mortgage Loan any insurance policy,
including any primary mortgage insurance policy relating to such
Receivable and the related title insurance policy; and
(e) all proceeds, products, profits and rents of the foregoing.
"Report Date" means (i) the Initial Closing Date and (ii) the fifteenth
day of each calendar month following thereafter.
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"Reserve Account" means that certain bank account with the number, and
maintained at the location, set forth on Schedule 6.01(n) to the Receivables
Purchase Agreement, which is (i) in Seller's and Agent's name, and (ii) pledged
on a first priority basis to Purchaser pursuant to Section 9.01 of the
Receivables Purchase Agreement.
"Reserve Account Agreement" means a agreement, substantially in the form
of Exhibit 5.01 (h) (iii) to the Receivables Purchase Agreement, among Seller,
Sunterra, the Agent and the Reserve Account Bank, as the same may be amended,
supplemented, amended and restated, or otherwise modified from time to time in
accordance with the Receivables Purchase Agreement.
"Reserve Account Required Amount" means at any time, an amount (not to
exceed the Aggregate Investment) equal to the greater of (i) 5.0% of the Net
Pool Balance at such time, and (ii) $750,000; it being understood that the
Reserve Account shall be initially funded with proceeds from the initial
Purchase under the Receivables Purchase Agreement in an amount equal to $750,000
and thereafter, so long as the amount described in clause (i) above is greater
than the amount described in clause (ii) above, funds shall be deposited into
such Reserve Account pursuant to Section 3.02 of the Receivables Purchase
Agreement up to the amount described in clause (i) above.
"Reserve Account Bank" means the Bank holding the Reserve Account.
"Restricted Payment" has the meaning set forth in Section 7.03(f) of the
Receivables Purchase Agreement.
"Right-to-Use Agreement" means with respect to a Timeshare Loan not
secured by a Mortgage, the security agreement securing such Timeshare Loan.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc.
"Sale Agreement" means the Sale Agreement dated as of December 17, 1998
between Sunterra and the Originators named therein, as amended, supplemented,
amended and restated or otherwise modified from time to time.
"Scheduled Commitment Termination Date" has the meaning set forth in
Section 1.05 of the Receivables Purchase Agreement.
"Seller" has the meaning set forth in the preamble to the Receivables
Purchase Agreement.
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"Seller Common Stock" has the meaning set forth in Section 6.01(o) of
the Receivables Purchase Agreement.
"Servicer" has the meaning set forth in Section 8.01(a) of the
Receivables Purchase Agreement.
"Servicer's Fee" has the meaning set forth in Section 8.01(d) of the
Receivables Purchase Agreement.
"Settlement" means the payments and other actions provided for on the
last day of each Settlement Period.
"Settlement Date" means the last day of each Settlement Period.
"Settlement Period" for any Undivided Interest means
(a) each period commencing on the first day of each Yield Period
for such Undivided Interest and ending on the last day of such Yield
Period; and
(b) on and after the Commitment Termination Date for such
Undivided Interest, such period (including, without limitation, a daily
period) as shall be selected from time to time by the Agent or, in the
absence of any such selection, each period of 30 days from the next
preceding Settlement Date;
provided, however, that
(i) with respect to any Yield Period of one day (as described in
clause (ii) of the proviso of the definition of "Yield Period"), the
related Settlement Period shall be the first day following such Yield
Period;
(ii) any Settlement Period which would otherwise end on a day
which is not a Business Day shall be extended to the next succeeding
Business Day; and
(iii) the last Settlement Period shall end on the date on which
all Undivided Interests have been reduced to zero.
"SG" has the meaning set forth in the preamble of the Receivables
Purchase Agreement.
"Solvent" means, with respect to any Person at any time, a condition
under which:
(i) the fair value and present fair saleable value of such
Person's total assets is, on the date of determination,
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greater than such Person's total liabilities (including contingent and
unliquidated liabilities) at such time;
(ii) the fair value and present fair saleable value of such
Person's assets is greater than the amount that will be required to pay
such Person's probable liability on its existing debts as they become
absolute and matured ("debts", for this purpose, includes all legal
liabilities, whether matured or unmatured, liquidated or unliquidated,
absolute, fixed, or contingent); and
(iii) such Person does not have unreasonably small capital with
which to engage in its current and in its anticipated business.
For purposes of this definition:
(A) the amount of a Person's contingent or unliquidated
liabilities at any time shall be that amount which, in light of all the
facts and circumstances then existing, represents the amount which can
reasonably be expected to become an actual or matured liability;
(B) the "fair value" of an asset shall be the amount which may
be realized within a reasonable time either through collection or sale
of such asset at its regular market value;
(C) the "regular market value" of an asset shall be the amount
which a capable and diligent business person could obtain for such asset
from an interested buyer who is willing to purchase such asset under
ordinary selling conditions; and
(D) the "present fair saleable value" of an asset means the
amount which can be obtained if such asset is sold with reasonable
promptness in an arm's length transaction in an existing and not
theoretical market.
"Stand-by Purchase Agreement" means and includes (a) the Stand-by
Purchase Agreement among Barton, as borrower, SG, as Servicing Agent for Barton
and as Liquidity Agent, and the Banks supporting Barton's payment obligations
with respect to the Commercial Paper Notes issued to fund the purchase of
Undivided Interests hereunder, and (b) any other agreement hereafter entered
into by Barton providing for the sale by Barton of Undivided Interests (or
portions thereof), or the making of loans or other extensions of credit to
Barton secured by a security interest in specified Undivided Interests (or
portions thereof), to support all or part of Barton's payment obligations under
the Commercial Paper Notes or to provide an alternate means of
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funding Barton's investments in accounts receivable or other financial assets,
and under which the amount available from such sale or such extension of credit
is limited to an amount calculated by reference to the value or eligible unpaid
balance of such accounts receivable or other financial assets or any portion
thereof or the level of credit enhancement available with respect thereto, in
each case as amended, supplemented or otherwise modified from time to time.
"Sub-Servicer" means each of Concord Servicing Corporation, Finova
Portfolio Services, Inc. and ES Financial Corporation and any other Sub-Servicer
approved by the Agent and permitted under the terms of the Receivables Purchase
Agreement.
"Sub-Servicer Agreement" has the meaning set forth in Section 8.01(c) of
the Receivables Purchase Agreement.
"Subsidiary" means, with respect to any Person, any corporation of which
more than 50% of the outstanding capital stock having ordinary 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) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person.
"Successor Notice" has the meaning set forth in Section 8.01(a) of the
Receivables Purchase Agreement.
"Sunterra" has the meaning set forth in the preamble to the Receivables
Purchase Agreement.
"Tangible Net Worth" means, with respect to any Person, the net worth of
such Person after subtracting therefrom the aggregate amount of such Person's
intangible assets (other than Receivables), including, without limitation, good
will, franchises, licenses, patents, trademarks, trade names, copyrights,
service marks and brand names.
"Timeshare Loan" means either a Membership Loan or a Mortgage Loan.
"Total Revenues" means, with respect to any calendar month, the
aggregate gross amounts payable by the Obligors with respect to the Pool
Receivables generated during such calendar month.
"Transaction Documents" means the Receivables Purchase Agreement, the
Fee Letter, the Certificate, the Originator Note Assignment, the Purchase and
Sale Agreement, the Sale Agreements,
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the Company Note, the Collection Account Agreement, the Reserve Account
Agreement, the Lockbox Agreements, the Custodial Agreement, and all other
instruments, certificates, agreements, reports or documents delivered under or
in connection with the Receivables Purchase Agreement or the Purchase and Sale
Agreement as any of the foregoing may be amended, supplemented, amended and
restated, or otherwise modified from time to time in accordance with the terms
of the Purchase and Sale Agreement and the Receivables Purchase Agreement.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the applicable jurisdiction or jurisdictions.
"Undivided Interest" has the meaning set forth in Section 2.01 of the
Receivables Purchase Agreement.
"Unmatured Liquidation Event" means any event which, with the giving of
notice or lapse of time, or both, would become a Liquidation Event.
"Unpaid Balance" means (i) with respect to any Receivable or the related
Timeshare Loan at any time the unpaid principal amount thereof and (ii) with
respect to the Receivables Pool means at any time the aggregate unpaid principal
amount of all Receivables.
"Upgraded Loan" means the Timeshare Loan that results when an existing
Timeshare Loan with respect to an existing Obligor is prepaid in connection with
the creating of a new Timeshare Loan to such Obligor to finance the purchase by
such Obligor of (i) an additional Vacation Interest or (ii) a Vacation Interest
of greater value than the original Vacation Interest of such Obligor.
"Vacation Club" means a corporation which holds unencumbered title to
(or a long-term lease on) a Vacation Ownership Resort and issues membership
certificates evidencing ownership interests in the corporation, which permits
the owner of such membership certificates use an enjoyment of such Vacation
Ownership Resort.
"Vacation Interest" means (i) a timeshare fee estate in real property at
any Vacation Ownership Resort and (ii) a Membership Interest in a Vacation Club
which holds fee title or a long-term lease to the related Vacation Ownership
Resort.
"Vacation Ownership Resort" shall mean each of the vacation resorts
listed on Schedule A to the Receivables Purchase Agreement, as amended from time
to time in the sole discretion of the Agent.
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"Williamsburg Market Area" has the meaning set forth on Schedule B to
the Receivables Purchase Agreement.
"Year 2000 Problem" has the meaning set forth in Section 6.02(m) of the
Receivables Purchase Agreement.
"Yield Period" means with respect to any Undivided Interest
(or portion thereof):
(a) the period from (and including) the date of the initial
Purchase of such Undivided Interest (or such portion) to (but excluding)
the number of days (not to exceed 90 days) thereafter as the Agent shall
approve, pursuant to Section 1.03 or of the Receivables Purchase
Agreement; and
(b) thereafter, each period from (and including) the last day of
the immediately preceding Yield Period for such Undivided Interest (or
such portion) to (but excluding) the day falling such number of days
(not to exceed 90 days) thereafter as the Agent shall approve pursuant
to Section 1.03 of the Receivables Purchase Agreement.
provided, however, that
(i) any such Yield Period (other than a Yield Period consisting
of one day) which would otherwise end on a day that is not a Business
Day shall be extended to the next succeeding Business Day (unless the
related Undivided Interest shall be accruing Earned Return at a rate
determined by reference to the LIBOR Rate (Reserve Adjusted), in which
case if such succeeding Business Day is in a different calendar month,
such Yield Period shall instead be shortened to the next preceding
Business Day);
(ii) in the case of Yield Periods of one day for any Undivided
Interest, (A) the initial Yield Period shall be the day of the related
Purchase; and (B) any subsequently occurring Yield Period which is one
day shall, if the immediately preceding Yield Period is more than one
day, be the last day of such immediately preceding Yield Period, and if
the immediately preceding Yield Period is one day, shall be the next day
following such immediately preceding Yield Period; and
(iii) any Yield Period for any Undivided Interest which
commences before the Commitment Termination Date for such Undivided
Interest and would otherwise end on a date occurring after such
Commitment Termination Date, such Yield Period shall end on such
Commitment Termination Date and the duration of each such Yield Period
which commences on or
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after the Commitment Termination Date for such Undivided Interest shall
be of such duration as shall be selected by the Agent.
The "related" Yield Period for any Undivided Interest at any time means the
Yield Period pursuant to which Earned Return is then accruing for such Undivided
Interest.
B. Other Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. All terms used in Article 9 of the
UCC in the State of Illinois, and not specifically defined herein, are used
herein as defined in such Article 9.
C. Computation of Time Periods. Unless otherwise stated in the Purchase
and Sale Agreement or the Receivables Purchase Agreement, as the case may be, in
the computation of a period of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding".
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SCHEDULE A
LIST OF VACATION OWNERSHIP RESORTS
<PAGE> 102
SCHEDULE B
LIST OF MARKET AREAS
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of
December 16, 1998, between Sunterra Corporation, a Maryland corporation (the
"Company"), and Richard Goodman (the "Executive").
1. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein, subject to the approval of and ratification
by the Company's Board of Directors as soon as practicable.
2. Term. The employment of the Executive by the Company as provided in
Section 1 will commence on the first day of Executive's employment with
the Company, which shall occur on or before December 31, 1998 (the
"Effective Date") and will terminate at 12:01 a.m. on the second
anniversary of the Effective Date (the "Expiration Date") unless
automatically extended or sooner terminated as hereinafter provided
(such period, the "Employment Period"). Unless terminated by the
Executive or the Company prior to October 1, 2000, this Agreement shall
automatically renew on the terms set forth herein for a second two-year
period. If so renewed, no later than June 1, 2002, the Company shall
notify the Executive with written notice as to whether the Company
intends to further renew or extend the Agreement (including proposals
for such further renewal which the Executive may accept, reject or
negotiate, at his discretion). Between the date of this Agreement and
the Effective Date, Executive shall act as a consultant to the Company
on various matters as needed by the Company, in an amount of time not to
exceed ten (10) hours per week.
3. Position, Duties and Responsibilities.
a. Position. The Executive hereby agrees to serve as Executive Vice
President and Chief Financial Officer of the Company and shall
report directly to the Chief Executive Officer. The Executive
shall devote his best efforts and substantially full business
time and attention to the performance of services to the Company
in his capacity as an officer thereof and as may reasonably be
requested by the Chief Executive Officer or the Board. The
Company shall retain full direction and control of the means and
methods by which the Executive performs the above services. In
no order of priority, the following are the responsibilities and
duties that the Executive shall have:
1. To work closely with the Company's executive level
senior-most officers to structure strategic initiatives,
including acquisitions, and to analyze the financial impact of
such initiatives; and to participate actively in the
negotiations thereof and oversee the completion of such
initiatives.
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2. To maintain a current understanding of the Company's progress
in achieving stated financial goals and objectives (i.e.,
internal and Wall Street estimates) relative to applicable
Company projections and budgets prepared by others.
3. To serve as the primary point of contact for investor
relations and investment banking, research and analyst
communications; to participate in investor and analyst meetings
and conferences; to coordinate press releases, quarterly and
annual filings; and to coordinate the design and preparation of
the Company's annual shareholders' report; and to be involved in
such other similar matters with the assistance of Company
counsel.
4. To analyze and structure the Company's capital base,
including, without limitation, coordinating and implementing
equity and debt initiatives such as follow-on offerings, lines
of credit and securitization programs; and, generally, to manage
the Company's commercial banking relationships and lines of
credit.
5. To develop and oversee cash management policies.
6. To oversee the Company's policies and procedures respecting
employee purchases and sales of the Company's stock and the
exercise of its stock options.
7. To oversee the Company's treasury function, with the
assistance of appropriate personnel.
8. To oversee the Company's insurance and risk management
program, with the assistance of appropriate personnel.
9. To oversee the Company's internal accounting, administration,
and financial reporting and control functions, including
systems, SEC financial reporting, internal audits, corporate
budgeting, tax planning, and risk management functions.
10. To oversee the information technology and human resource
functions of the company.
11. To carry out such other customary duties and
responsibilities of an executive vice president and chief
financial officer of a public company.
b. Place of Employment. During the term of this Agreement, the
Executive shall perform the services required by this Agreement
at the Company's place of business in Orlando, Florida,
provided, however, that the Company will require the Executive
to travel extensively to other locations on the Company's
business.
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<PAGE> 3
c. Other Activities. Except with the prior written approval of the
Board (which the Board may grant or withhold in its sole and
absolute discretion), the Executive, during the Employment
Period, will not (i) accept any other employment, (ii) serve on
the board of directors or similar body of any other business
entity (except as otherwise set forth below), or (iii) engage,
directly or indirectly, in any other business activity (whether
or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing
position to, that of the Company or any of its affiliates.
Notwithstanding the foregoing, the Company agrees that the
Executive (or affiliates of the Executive) shall be permitted
(i) to undertake the activities set forth in Section 8 and (ii)
to make any other passive personal investment that is not in a
business activity that is directly or indirectly competitive
with the Company.
4. Compensation and Related Matters.
a. Salary. During the Employment Period, the Company shall pay the
Executive a salary of not less than $300,000 during the first
full year and at such salary as determined by the Compensation
Committee of the Board during the second and subsequent years of
the Executive's employment with the Company (the "Base Salary").
All salary is to be paid consistent with the standard payroll
practices of the Company (e.g., timing of payments and standard
employee deductions, such as income tax withholdings, social
security, etc.). The Executive's performance and salary shall be
subject to review at the end of each fiscal year and increase
consistent with the standard practices of the Company.
b. Business Expenses. The Company shall reimburse the Executive in
connection with the conduct of the Company's business upon
presentation of sufficient evidence of such expenditures
consistent with the Company's policies as in place from time to
time, including the reimbursement of reasonable and necessary
expenses incurred by the Executive in connection with the
conduct of the Company's business in traveling to and from his
residence(s) and the venues where the Company conducts business.
c. Other Benefits. The Executive shall be entitled to participate
in or receive health, welfare, life insurance, long-term
disability insurance, bonus plan and similar benefits as the
Company provides generally from time to time to its executives.
The Company acknowledges that within a reasonable time following
the execution of this Agreement, it will execute an option
agreement substantially in the form attached as Exhibit "A"
hereto (the "Option Agreement") and will grant the Executive the
benefits under the equity participation plan in the form
attached as Exhibit "B" hereto (the "Option Plan"). Except as
otherwise set forth in this Section 4 and except with respect to
the Company's obligations under this Agreement with respect to
the Option Agreement and the Option Plan, nothing herein is
intended, or shall be construed to require the Company to
institute or continue any, or any particular, plan or benefits.
The Executive shall have the
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right to participate at Company expense in industry related
trade groups, conventions, etc. in furtherance of enhancing the
Executive's visibility on Wall Street and leadership of the time
share and resort industry.
d. Merit Bonus. The Compensation Committee of the Board shall
establish, monitor, and oversee an incentive bonus program for
the Executive which will provide for a target cash bonus to the
Executive of sixty percent (60%) of the Executive's then fiscal
year Base Salary if certain performance objectives established
by the CEO and Compensation Committee for the Executive are
achieved during the applicable fiscal year (the "Merit Bonus").
The Executive shall have the opportunity to be considered for
additional performance-based bonus compensation at the sole and
absolute discretion of the Board; however, the Company makes no
commitment to the Executive that any other performance-based
bonus compensation will be paid to the Executive.
e. Fringe Benefits. The Executive will be entitled to fringe
benefits as may be determined or granted from time-to-time by
the Board.
f. Vacation. The Executive shall be entitled to four vacation weeks
(20 days) in each calendar year on a pro-rated basis in
accordance with the Company's vacation policy. The Executive
will be entitled to all Company holidays.
g. Performance Reviews. At the end of each fiscal year commencing
in the 1999 fiscal year of the Company, the CEO will review the
Executive's job performance and will provide the Executive a
written review of the Executive's job performance during such
fiscal year and implement any Board determined revisions to the
Executive's Base Salary, the Executive's Merit Bonus, the
Executive's prospective incentive compensation package
(including the Executive's participation in the Option Plan),
the Executive's title and/or the Executive's responsibility at
the Company; provided, however, that the provisions set forth in
this Agreement with respect to the Executive's compensation, the
Option Agreement and the general terms and conditions of the
Executive's employment at the Company cannot be modified by the
Board in a manner which would result in less favorable or
beneficial terms or conditions being imposed on the Executive
than those provided for in the applicable provisions of this
Agreement without the Executive's full concurrence and consent.
h. Moving Expenses. The Company agrees to reimburse the Executive
for his reasonable and necessary moving expenses incurred in
moving his personal, family and household belongings from
Irvine, California to the Orlando, Florida area. Such
reimbursements will include reasonable and necessary expenses
incurred by the Executive and his spouse to identify a new
residence and the travel and lodging expenses incurred in
connection therewith through July 31, 1999. Moreover, the
Company will reimburse the Executive and his spouse for all
travel and living expenses incurred by them in Orlando, Florida
for the seven
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month period following the Effective Date. Such reimbursement
will include the normal and customary closing costs incurred by
the Executive in purchasing a new residence. The Company will
provide to the Executive a gross up for non deductible moving
expenses. The Company will reimburse the Executive up to 6% for
brokerage costs incurred in selling his current residence. Also,
the Company will pay to the Executive $25,000 as a relocation
allowance.
5. Termination. The Executive's employment hereunder shall be, or may be,
as the case may be, terminated under the following circumstances:
a. Death. The Executive's employment hereunder shall terminate upon
his death.
b. Disability. The Executive's employment hereunder shall terminate
on the Executive's physical or mental disability or infirmity
which, in the opinion of a competent physician selected by the
Board, renders the Executive unable to perform his duties under
this Agreement for more than 120 days during any 180-day period.
c. Cause. The Company may terminate the Executive's employment
hereunder for "Cause." Cause shall mean (i) Employee's material
breach of any of the terms of this Agreement, (ii) his
conviction of a crime involving moral turpitude or constituting
a felony under the laws of any state, the District of Columbia
or of the United States, or (iii) his gross negligence, willful
misconduct or fraud in the performance of his duties hereunder.
d. Employment-At-Will/Termination for Any Reason. Notwithstanding
the term of this Agreement having a duration of two years and
Sections 2 and 4 hereof referring to extensions of this
Agreement and the annual salary to be paid to the Executive
during each year of his employment with the Company, nothing in
this Agreement should be construed as to confer any right of the
Executive to be employed by the Company for a fixed or definite
term. Subject to Section 6 hereof, the Executive hereby agrees
that the Company may dismiss him under this Section 5(d) without
regard (i) to any general or specific policies (whether written
or oral) of the Company relating to the employment or
termination of its employees, or (ii) to any statements made to
the Executive, whether made orally or contained in any document,
pertaining to the Executive's relationship with the Company.
Notwithstanding anything to the contrary contained herein,
including Sections 2 and 4, the Executive's employment with the
Company is not for any specified term, is at will and may be
terminated by the Company at any time by delivery of a notice of
termination to the Executive, for any reason, with or without
cause, without liability except with respect to the payments
provided for by Section 6.
e. Voluntary Resignation. The Executive may voluntarily resign his
position and terminate his employment with the Company at any
time by delivery of a written
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<PAGE> 6
notice of resignation to the Company (the "Notice of
Resignation"). The Notice of Resignation shall set forth the
date such resignation shall become effective (the "Date of
Resignation"), which date shall, in any event, be at least ten
(10) days and no more than thirty (30) days from the date the
Notice of Resignation is delivered to the Company. At its
option, the Company may reduce such notice period to any length,
upon thirty (30) days written notice to the Executive.
f. Notice. Any termination of the Executive's employment by the
Company shall be communicated by written Notice of Termination
to the Executive. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
g. "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death,
(ii) if the Executive's employment is terminated by reason of
his disability, the date of the opinion of the physician
referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to
subsection 5(c) above, or without Cause by the Company pursuant
to subsection 5(d) above, the date specified in the Notice of
Termination and (iv) if the Executive voluntarily resigns
pursuant to subsection 5(e) above, the date of the Notice of
Resignation.
h. Termination Obligations.
i. The Executive hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared
by the Executive in the course of or incident to his
employment, belongs to the Company and shall be promptly
returned to the Company upon termination of the
Employment Period. "Personal property" includes, without
limitation, all books, manuals, records, reports, notes,
contracts, lists, blueprints, and other documents, or
materials, or copies thereof (including computer files),
and all other proprietary information relating to the
business of the Company. Following termination, the
Executive will not retain any written or other tangible
material containing any proprietary information of the
Company.
ii. Upon termination of the Employment Period, the Executive
shall be deemed to have resigned from all offices and
directorships then held with the Company or any
affiliate.
iii. The representations and warranties contained herein and
the Executive's obligations under Sections 5(h), 7, 8, 9
and 15 through 18 shall survive termination of the
Employment Period and the expiration of this Agreement.
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<PAGE> 7
i. Release. In exchange for the Company entering into the
Agreement, the Executive agrees that, at the time of his
resignation or termination from the Company, he will execute a
release acceptable to the Company of all liability of the
Company and its officers, shareholders, employees and directors
to the Executive in connection with or arising out of his
employment with the Company, except with respect to any
then-vested rights under the Company's Option Plan and except
with respect to any Severance Payments which may be payable to
him under the terms of the Agreement. Nothing herein shall
modify Executive's mediation and other rights under this
Agreement.
j. Notwithstanding anything to the contrary in this Agreement, if
the Date of Termination occurs within two years after the date
of this Agreement and the Date of Termination does not involve
an event described in either the first clause of clause (iii) of
the definition of the Date of Termination or in clause (iv) of
the definition of the Date of Termination, then the Executive
shall become a consultant to the Company effective upon the Date
of Termination. The Executive shall serve as a consultant to the
Company until the second anniversary of the date hereof. During
such consulting term, the Executive shall be available to
provide financial consulting services to the Company and
Executive shall not be entitled to any compensation for
rendering such consulting services other than that which he
would otherwise be entitled to receive under this Agreement
during such period.
6. Compensation Upon Termination.
a. Death. If the Executive's employment shall be terminated
pursuant to Section 5(a), the Company shall pay the Executive's
estate the Executive's monthly base salary payable pursuant to
Section 4(a) and one-twelfth of any bonus payable pursuant to
Section 4(d) at the most recent annual amount received, or
entitled to be received, by the Executive (the "Severance
Payment") for a period of two years following the Date of
Termination. For a period of two years following the Date of
Termination, the Executive and his dependents shall be entitled
to health insurance coverage rights as if the Executive was
currently employed.
b. Disability. If the Executive's employment shall be terminated by
reason of disability pursuant to Section 5(c), the Executive
shall receive the Severance Payment for the lesser of two years
or the duration of such disability; provided that payments so
made to the Executive during the disability shall be reduced by
the sum of the amounts, if any, payable to the Executive at or
prior to the time of any such payment under any disability
benefit plan of the Company. For a period of two years following
the Date of Termination, the Executive and his dependents shall
be entitled to health insurance coverage rights as if the
Executive was currently employed.
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<PAGE> 8
c. Cause. If the Executive's employment shall be terminated for
Cause pursuant to Section 5(c) hereof, the Company shall pay the
Executive his salary and any bonus then payable pursuant to
Section 4(d) through the Date of Termination. At the Executive's
own expense, the Executive and his dependents shall also be
entitled to any continuation of health insurance coverage rights
under any applicable law.
d. Other Terminations by the Company. If the Company shall
terminate the Executive's employment without cause pursuant to
Section 5(d) hereof, the Company shall pay the Executive the
Severance Payment for a period of two (2) years from the Date of
Termination. For a period of two years following the Date of
Termination, the Executive and his dependents shall be entitled
to health insurance coverage rights as if the Executive was
currently employed.
e. Voluntary Resignation. If the Executive terminates his
employment with the Company pursuant to Section 5(g) hereof for
"Good Cause", the Company shall pay the Executive the Severance
Payment for a period of two years from the Date of Resignation.
If the Executive terminates his employment with the Company
pursuant to Section 5(g) hereof without "Good Cause," the
Company shall have no obligation to compensate the Executive
following the Date of Resignation. In any event, at the
Executive's own expense, the Executive and his dependents shall
be entitled to any continuation of health insurance coverage
rights under any applicable law.
For purposes of this Agreement, "Good Cause" shall mean, without
the express written consent of Executive, the occurrence of any
of the following events unless such events are substantially
corrected within 30 days following written notification by
Executive to the Company that he intends to terminate his
employment hereunder for one of the reasons set forth below:
i. A material breach by the Company of any provision of
this Agreement; and
ii. the occurrence of a "Change in Control."
As used in this Agreement, "Change of Control" means the
occurrence of any of the following: (i) the adoption of a plan
relating to the liquidation or dissolution of the Company, (ii)
the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any person or group, other than any of Osamu Kaneko, Andrew
J. Gessow and Steven C. Kenninger or their affiliates (the
"Principals"), becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 50%
of the total voting power of the total outstanding voting stock
of the Company on a fully diluted basis or (iii) the
consummation of the first transaction (including, without
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<PAGE> 9
limitation, any merger or consolidation) the result of which is
that any person or group, other than the Principals, becomes the
beneficial owner (as defined above), directly or indirectly, of
more than 50% of the total voting power of the total outstanding
voting stock of the Company.
The Executive understands that any voluntary resignation
by him as a result of any personal or family reasons not
otherwise set forth in this Section 6(e) shall not constitute
"Good Cause."
f. Beginning with the thirteenth (13th) monthly payment and each
monthly payment thereafter the Company will be entitled to
offset and reduce each month, the amount of the monthly
Severance Payment otherwise payable to the Executive hereunder
by the amount of the Executive's prior month's earnings (if any)
from post-Company full time employment (including both salary,
bonus and other cash or cash equivalent compensation) at a
subsequent full time employer or in connection with a full time
consulting practice or other self-employment or any full time
venture founded by the Executive; provided, however, that the
Company shall not be entitled to any Severance Payment offset or
reduction as a result of any earnings or income generated by the
Executive from part-time consulting work, unless and until such
consulting work becomes a full time endeavor.
g. In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain (i) any and all options to
purchase capital stock of the Company granted to the Executive
pursuant to the terms and conditions of the Option Agreement
attached as Exhibit "A" hereto that have vested as of the date
of such Termination.
h. Any Severance Payment made pursuant to this Section 6 shall be
payable in equal monthly installments over the required duration
set forth in Sections 6(a) through 6(e).
i. The continuing obligation of the Company to make the
Severance Payment to the Executive is expressly
conditioned upon the Executive complying and continuing
to comply with his obligations and covenants under
Sections 7 and 8 of this Agreement following termination
of employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
a. Confidentiality. In addition to the agreements set forth in
Section 5(h)(i), the Executive hereby agrees that the Executive
will not, during the Employment Period or at any time thereafter
directly or indirectly disclose or make available to any person,
firm, corporation, association or other entity for any reason or
purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his
employment with the Company, all
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<PAGE> 10
Confidential Information in his possession that is in written or
other tangible form (together with all copies or duplicates
thereof, including computer files) shall be returned to the
Company and shall not be retained by the Executive or furnished
to any third party, in any form except as provided herein;
provided, however, that the Executive shall not be obligated to
treat as confidential, or return to the Company copies of any
Confidential Information that (i) was publicly known at the time
of disclosure to the Executive, (ii) becomes publicly known or
available thereafter other than by any means in violation of
this Agreement or any other duty owed to the Company by any
person or entity or (iii) is lawfully disclosed to the Executive
by a third party. As used in this Agreement the term
"Confidential Information" means: information disclosed to the
Executive or known by the Executive as a consequence of or
through his relationship with the Company, about the owners,
customers, employees, business methods, public relations
methods, organization, procedures or finances, including,
without limitation, information of or relating to owner or
customer lists of the Company and its affiliates.
b. Non-Solicitation. In addition, the Executive hereby agrees that
during the Employment Period and for a one year period following
Termination thereafter, regardless of the reason or
circumstances of termination of employment with the Company, the
Executive will not, either on his own account or jointly with or
as a manager, agent, officer, employee, consultant, partner,
joint venturer, owner or shareholder or otherwise on behalf of
any other person, firm or corporation, (i) carry on or be
engaged or interested directly or indirectly in, or solicit, the
manufacture or sale of goods or provision of services to any
person, firm or corporation which, at any time during the
Employment Period has been or is a customer of or in the habit
of dealing with the Company in its business, (ii) endeavor
directly or indirectly to canvas or solicit in competition with
Company or to interfere with the supply of orders for goods or
services from or by any person, firm or corporation which during
the Employment Period has been or is a supplier of goods or
services to Company or (iii) directly or indirectly solicit or
attempt to solicit away from Company any of its officers or
employees or offer employment to any person who, on or during
the 6 months immediately preceding the date of such solicitation
or offer, is or was an officer or employee of Company.
8. Covenant Not to Compete.
a. The Executive agrees that the provisions of this Section 8 shall
apply during the Employment Period and during the period
beginning after the Executive's Date of Termination and ending
on the second anniversary thereof, regardless of whether the
Executive is terminated for Cause or without Cause or otherwise
(the "Noncompete Period"). During the Noncompete Period, the
Executive will not engage in any competitive businesses, and the
Executive agrees that he shall not (i) invest in, manage,
consult or participate in any way in any other timeshare or
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<PAGE> 11
vacation ownership business (in either an active or passive
manner), (ii) participate in or advise any business wherein
timeshare or vacation ownership is a material business segment
or (iii) act for or on behalf of any business that intends to
enter or participate in the timeshare or vacation ownership
business, in each case unless the independent members of the
Company's Board of Directors determine that such action is in
the best interest of the Company. Subject to the restrictions
set forth in Section 3(a), Section 3(c) and in this Section 8,
the Executive shall be permitted to continue his existing
business investments and activities and may pursue additional
business investments; provided that the Executive shall not
serve as an officer or director of any public company resulting
from such business investments or activities.
b. Notwithstanding the foregoing, during the Noncompete Period:
i. the Executive may purchase stock as a stockholder in any
publicly traded company, including any company which is
involved in the timeshare and vacation ownership
business; provided that the Executive does not
beneficially own (together or separately or through his
affiliates) more than 5% of any company (other than the
Company) in the timeshare or vacation ownership
business;
ii. the Executive shall not invest (directly or indirectly)
in any timeshare or vacation ownership property in the
hospitality business (including any condominium project)
or any property where the business plan includes an
intention to convert the property to timeshare or
vacation ownership, unless the independent members of
the Company's Board of Directors determine that such an
investment is in the best interest of the Company;
iii. in the event that a Change of Control occurs which
causes an acceleration in the vesting of the Executive's
options and, the Executive is terminated for Cause or
without Cause by the Company within six (6) months
before or after the effective date of the Change of
Control, then the noncompete provisions contained in
Section 8(a) shall not be applicable and the following
shall apply instead: the Executive agrees that during
the two year period following the Executive's Date of
Termination, he will not (i) manage, consult or
participate in any way in any other public timeshare or
vacation ownership business (in either an active or
passive manner), (ii) participate in or advise any
public company wherein timeshare or vacation ownership
is a material business segment or (iii) act for or on
behalf of any business that intends to enter or
participate in the timeshare or vacation ownership
business as a public company.
9. Injunctive Relief and Enforcement. In the event of breach by the
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following
mediation or attempted mediation as set forth in Section 16 below
(unless the Company is suffering irreparable injury, in which
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<PAGE> 12
case Section 16 will not prevent the Company from seeking injunctive
relief against the Executive in any court or forum), the Company shall
be entitled to institute legal proceedings to enforce the specific
performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to
exercise such remedies cumulatively or in conjunction with all other
rights and remedies provided by law and not otherwise limited by this
Agreement. The Executive acknowledges, however, that the remedies at law
for any breach by him of the provisions of Sections 5(h)(i), 7 or 8 may
be inadequate. In addition, in the event the agreements set forth in
Sections 5(h)(i), 7 or 8 shall be determined by any court of competent
jurisdiction to be unenforceable by reason of extending for too great a
period of time or over too great a geographical area or by reason of
being too extensive in any other respect, each such agreement shall be
interpreted to extend over the maximum period of time for which it may
be enforceable and to the maximum extent in all other respects as to
which it may be enforceable, and enforced as so interpreted, all as
determined by such court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when personally delivered
when transmitted by telecopy with receipt confirmed, or one day after
delivery to an overnight air courier guaranteeing next day delivery,
addressed as follows:
If to the Executive: Richard Goodman
5 Chester
Irvine, California 92612
If to the Company: Sunterra Corporation
1781 Park Center Drive
Orlando, Florida 32835
Attention: Thomas A. Bell
With a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attention: Michael Sturrock, Esq.
or to such other address as any party may have furnished to the others
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect; provided, however, that if any one or
more of the terms contained in Sections 5(h), 7 or 8 hereto shall for
any reason be held
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<PAGE> 13
to be excessively broad with regard to time, duration, geographic scope
or activity, that term shall not be deleted but shall be reformed and
constructed in a manner to enable it to be enforced to the extent
compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but may
be assigned by the Company to any successor to its business and will
inure to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the
State of Maryland (without reference to the choice of law provisions of
Maryland), except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the
subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity derives its powers shall
govern.
16. Mediation. Subject to any irreparable injury being suffered by the
Company giving rise to the right of the Company to seek injunctive
relief against the Executive pursuant to Section 9 hereof, in the event
that there shall be a dispute among the parties arising out of or
relating to this Agreement or the Letter, or the breach thereof, the
parties agree that such dispute shall be resolved by final and binding
mediation in Orlando, Florida, before a mediator and on terms and
conditions mutually acceptable to the parties; provided, however, that
if the parties cannot agree on the terms and conditions of such
mediation, such terms and conditions shall be established by the
mediator. Any award issued as a result of such mediation shall be final
and binding between the parties thereto, and shall be enforceable by any
court having jurisdiction over the party against whom enforcement is
sought. The fees and expenses relating to such mediation (with the
exception of the Executive's attorneys' fees, if any) or any action to
enforce a mediation award shall be paid by the Company.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO
THIS AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT
(WHETHER EXPRESS OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE
OF ACTION BASED IN WHOLE OR IN PART ON ANY BREACH OF ANY PROVISION OF
THIS AGREEMENT, SUCH DAMAGES SHALL BE LIMITED TO CONTRACTUAL DAMAGES AND
SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND (II) CONSEQUENTIAL AND/OR
INCIDENTAL DAMAGES
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<PAGE> 14
(E.G., LOST PROFITS AND OTHER INDIRECT OR SPECULATIVE DAMAGES). THE
MAXIMUM AMOUNT OF DAMAGES THAT THE EXECUTIVE MAY RECOVER FOR ANY REASON
SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS OWED (BUT NOT YET PAID) TO THE
EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS NATURAL TERM OR THROUGH
ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED PAYMENT AT THE
MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER THE
DATE(S) THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES TO
THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR THE LETTER OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT.
19. Entire Agreement. This Agreement and the Letter contain the entire
agreement and understanding between the Company and the Executive with
respect to the employment of the Executive by the Company as
contemplated hereby and thereby, and no representations, promises,
agreements or understandings, written or oral, not herein or therein
contained shall be of any force or effect. Neither this Agreement nor
the Letter shall be changed unless in writing and signed by both the
Executive and an authorized representative of the Company.
20. The Executive's Acknowledgment. The Executive acknowledges (a) that he
has had the opportunity to consult with independent counsel of his own
choice concerning this Agreement and the Letter, and (b) that he has
read and understands the Agreement and the Letter, is fully aware of
their legal effect, and has entered into each of them freely based on
his own judgment.
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IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date and year first above written.
SUNTERRA CORPORATION
/s/ L. STEVEN MILLER
------------------------------------
By: L. Steven Miller
Its: President and CEO
EXECUTIVE
/s/ RICHARD GOODMAN
------------------------------------
By: Richard Goodman
S-1
<PAGE> 16
Exhibit "A"
Form of Option Agreement
A-1
<PAGE> 17
Exhibit "B"
Form of Option Plan
B-1
<PAGE> 1
EXHIBIT 10.16
THE AMENDED AND RESTATED
1996 EQUITY PARTICIPATION PLAN
OF
SUNTERRA CORPORATION
Sunterra Corporation (formerly known as Signature Resorts, Inc.), a
Maryland corporation, has adopted The Amended and Restated 1996 Equity
Participation Plan of Sunterra Corporation (the "Plan"), effective March 29,
1999, for the benefit of its eligible employees, consultants and directors. The
Plan consists of two plans, one for the benefit of key Employees (as such term
is defined below), Independent Directors (as such term is defined below) and
consultants and another solely for the benefit of Independent Directors. The
Plan is an amendment and restatement of The 1996 Equity Participation Plan of
Signature Resorts, Inc., which was adopted by Signature Resorts, Inc. on June
13, 1996.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock and/or
rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in this Plan they
shall have the meaning specified below, unless the context clearly indicates
otherwise.
1.2. Award Limit. "Award Limit" shall mean six hundred seventy-five
thousand (675,000) shares of Common Stock.
1.3. Board. "Board" shall mean the Board of Directors of the Company.
1.4. Change in Control. "Change in Control" shall mean a change in
ownership or control of the Company effected through either of the following
transactions:
(a) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
<PAGE> 2
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders which the Board does not recommend such
stockholders to accept; or
(b) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months (or less) such that a
majority of the Board members (rounded up to the nearest whole number)
ceases, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (i) have been
Board members continuously since the beginning of such period or (ii)
have been elected or nominated for election as Board members during such
period by at least a majority of the Board members described in clause
(i) who were still in office at the time such election or nomination was
approved by the Board.
1.5. Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.6. Committee. "Committee" shall mean the Compensation Committee of the
Board, or another committee, or a subcommittee of the Board, appointed as
provided in Section 9.1.
1.7. Common Stock. "Common Stock" shall mean the common stock of the
Company, par value $.01 per share, and any equity security of the Company issued
or authorized to be issued in the future, but excluding any preferred stock and
any warrants, options or other rights to purchase Common Stock. Debt securities
of the Company convertible into Common Stock shall be deemed equity securities
of the Company.
1.8. Company. "Company" shall mean Sunterra Corporation (formerly known
as Signature Resorts, Inc.), a Maryland corporation.
1.9. Corporate Transaction. "Corporate Transaction" shall mean any of
the following stockholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State in which the Company is incorporated, form a holding company or
effect a similar reorganization as to form whereupon this Plan and all Options
are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions to
clause (a), above; or
(c) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
1.10. Deferred Stock. "Deferred Stock" shall mean Common Stock awarded
under Article VII of this Plan.
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1.11. Director. "Director" shall mean a member of the Board.
1.12. Dividend Equivalent. "Dividend Equivalent" shall mean a right to
receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VII of this Plan.
1.13. Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.14. Exchange Act. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
1.15. Fair Market Value. "Fair Market Value" of a share of Common Stock
as of a given date shall be (i) the closing price of a share of Common Stock on
the principal exchange on which shares of Common Stock are then trading, if any
(or as reported on any composite index which includes such principal exchange),
on the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred, or (ii) if Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by NASDAQ or such successor quotation system;
or (iii) if Common Stock is not publicly traded on an exchange and not quoted on
NASDAQ or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Committee (or the Board, in the case of
grants to Independent Directors) acting in good faith.
1.16. Grantee. "Grantee" shall mean an Employee, Independent Director or
consultant granted a Performance Award, Dividend Equivalent, Stock Payment or
Stock Appreciation Right, or an award of Deferred Stock, under this Plan.
1.17. Incentive Stock Option. "Incentive Stock Option" shall mean an
option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Committee.
1.18. Independent Director. "Independent Director" shall mean a member
of the Board who is not an Employee of the Company.
1.19. Non-Qualified Stock Option. "Non-Qualified Stock Option" shall
mean an Option which is not designated as an Incentive Stock Option by the
Committee.
1.20. Option. "Option" shall mean a stock option granted under Article
III of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
provided, however, that Options granted to Independent Directors and consultants
shall be Non-Qualified Stock Options.
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<PAGE> 4
1.21. Optionee. "Optionee" shall mean an Employee, consultant or
Independent Director granted an Option under this Plan.
1.22. Performance Award. "Performance Award" shall mean a cash bonus,
stock bonus or other performance or incentive award that is paid in cash, Common
Stock or a combination of both, awarded under Article VII of this Plan.
1.23. Plan. "Plan" shall mean The Amended and Restated 1996 Equity
Participation Plan of Sunterra Corporation.
1.24. QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
1.25. Restricted Stock. "Restricted Stock" shall mean Common Stock
awarded under Article VI of this Plan.
1.26. Restricted Stockholder. "Restricted Stockholder" shall mean an
Employee, Independent Director or consultant granted an award of Restricted
Stock under Article VI of this Plan.
1.27. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under
the Exchange Act, as such Rule may be amended from time to time.
1.28. Stock Appreciation Right. "Stock Appreciation Right" shall mean a
stock appreciation right granted under Article VIII of this Plan.
1.29. Stock Payment. "Stock Payment" shall mean (i) a payment in the
form of shares of Common Stock, or (ii) an option or other right to purchase
shares of Common Stock, as part of a deferred compensation arrangement, made in
lieu of all or any portion of the compensation, including without limitation,
salary, bonuses and commissions, that would otherwise become payable to a key
Employee, Independent Director or consultant in cash, awarded under Article VII
of this Plan.
1.30. Subsidiary. "Subsidiary" shall mean (i) any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain and (ii) any
partnership or limited liability company in which the Company (A) directly or
indirectly holds a managing partner or managing member interest or (B) is
entitled to 50 percent or more of the profits or assets upon dissolution.
1.31. Termination of Consultancy. "Termination of Consultancy" shall
mean the time when the engagement of an Optionee, Grantee or Restricted
Stockholder as a consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, by
resignation, discharge, death or retirement; but excluding terminations
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where there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Consultancy.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
1.32. Termination of Directorship. "Termination of Directorship" shall
mean the time when an Optionee who is an Independent Director ceases to be a
Director for any reason, including, but not by way of limitation, a termination
by resignation, failure to be elected, death or retirement. The Board, in its
sole and absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship with respect to Independent
Directors.
1.33. Termination of Employment. "Termination of Employment" shall mean
the time when the employee-employer relationship between an Optionee, Grantee or
Restricted Stockholder and the Company or any Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment or
continuing employment of an Optionee, Grantee or Restricted Stockholder by the
Company or any Subsidiary, (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship, and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that, with respect to Incentive Stock Options, a
leave of absence, change in status from an employee to an independent contractor
or other change in the employee-employer relationship shall constitute a
Termination of Employment if, and to the extent that, such leave of absence,
change in status or other change interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section. Notwithstanding any other provision of this Plan,
the Company or any Subsidiary has an absolute and unrestricted right to
terminate an Employee's employment at any time for any reason whatsoever, with
or without cause, except to the extent expressly provided otherwise in writing.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
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(a) The shares of stock subject to Options, awards of Restricted
Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock
Payments or Stock Appreciation Rights shall be Common Stock, initially shares of
the Company's Common Stock, par value $.01 per share. The aggregate number of
such shares which may be issued upon exercise of such options or rights or upon
any such awards under the Plan shall not exceed five million three hundred
eighty thousand (5,380,000) shares of Common Stock. The shares of Common Stock
issuable upon exercise of such options or rights or upon any such awards may be
either previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to options
or Stock Appreciation Rights granted under the Plan to any individual in any
fiscal year shall not exceed the Award Limit.
2.2. Add-back of Options and Other Rights. If any Option, or other right
to acquire shares of Common Stock under any other award under this Plan, expires
or is canceled without having been fully exercised, or is exercised in whole or
in part for cash as permitted by this Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Options or other awards which are
adjusted pursuant to Section 10.3 and become exercisable with respect to shares
of stock of another corporation shall be considered cancelled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Shares of Common Stock which are delivered by the Optionee or Grantee or
withheld by the Company upon the exercise of any Option or other award under
this Plan, in payment of the exercise price thereof, may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1. If any
share of Restricted Stock is forfeited by the Grantee or repurchased by the
Company pursuant to Section 6.6 hereof, such share may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1.
Notwithstanding the provisions of this Section 2.2, no shares of Common Stock
may again be optioned, granted or awarded if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the Code.
ARTICLE III.
GRANTING OF OPTIONS
3.1. Eligibility. Any Employee, Independent Director or consultant
selected by the Committee pursuant to Section 3.4(a)(i) shall be eligible to be
granted an Option. In addition, each Independent Director of the Company shall
be eligible to be granted Options at the times and in the manner set forth in
Section 3.4(d).
3.2. Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the
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meaning of Section 422 of the Code) unless such Incentive Stock Option conforms
to the applicable provisions of Section 422 of the Code.
3.3. Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted unless such Option, when granted, qualifies as an "incentive
stock option" under Section 422 of the Code. No Incentive Stock Option shall be
granted to any person who is not an Employee.
3.4. Granting of Options
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and select
from among the key Employees, Independent Directors or consultants
(including Employees, Independent Directors or consultants who have
previously received Options or other awards under this Plan) such of
them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Employees, Independent Directors or consultants;
(iii) Determine whether such Options are to be Incentive
Stock Options or Non-Qualified Stock Options and whether such Options
are to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with this Plan; provided, however, that the terms and
conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the
Code.
(b) Upon the selection of a key Employee, Independent Director or
consultant to be granted an Option, the Committee shall instruct the Secretary
of the Company to issue the Option and may impose such conditions on the grant
of the Option as it deems appropriate.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as an
"incentive stock option" under Section 422 of the Code.
(d) During the term of the Plan, each person who is an
Independent Director as of the date of the consummation of the initial public
offering of Common Stock automatically shall be granted (i) an Option to
purchase fifteen thousand (15,000) shares of Common Stock (subject to adjustment
as provided in Section 10.3) on the date of such initial public offering and
(ii) an Option to purchase fifteen thousand (15,000) shares of Common Stock
(subject to adjustment as provided in Section 10.3) on the third anniversary of
such grant; provided that
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such Independent Director serves as a member of the Board on such third
anniversary. During the term of the Plan, a person who is initially elected to
the Board after the consummation of the initial public offering of Common Stock
and who is an Independent Director at the time of such initial election
automatically shall be granted (i) an Option to purchase fifteen thousand
(15,000) shares of Common Stock (subject to adjustment as provided in Section
10.3) on the date of such initial election and (ii) an Option to purchase
fifteen thousand (15,000) shares of Common Stock (subject to adjustment as
provided in Section 10.3) on the third anniversary of such grant; provided that
such Independent Director serves as a member of the Board on such third
anniversary. Members of the Board who are employees of the Company and who
subsequently retire from the Company but remain on the Board, to the extent that
they are eligible, will receive Options as described in clause (i) of the
preceding sentence upon retirement from the Company and shall be eligible to
receive additional Options as described in and pursuant to the terms of clause
(ii) of the preceding sentence. All the foregoing Option grants authorized by
this Section 3.4(d) are subject to stockholder approval of the Plan.
ARTICLE IV.
TERMS OF OPTIONS
4.1. Option Agreement. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee (or the Board, in the case of grants to Independent Directors) shall
determine, consistent with this Plan. Stock Option Agreements evidencing Options
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the Code. Stock
Option Agreements evidencing Incentive Stock Options shall contain such terms
and conditions as may be necessary to meet the applicable provisions of Section
422 of the Code.
4.2. Option Price. The price per share of the shares subject to each
Option shall be set by the Committee; provided, however, that such price shall
be no less than 85% of the Fair Market Value of a share of Common Stock on the
date the Option is granted, and (i) in the case of Incentive Stock Options and
Options intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, such price shall not be less than 100% of the
Fair Market Value of a share of Common Stock on the date the Option is granted;
(ii) in the case of Incentive Stock Options granted to an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company or any Subsidiary
or parent corporation thereof (within the meaning of Section 422 of the Code)
such price shall not be less than 110% of the Fair Market Value of a share of
Common Stock on the date the Option is granted; and (iii) in the case of grants
to Independent Directors, such price shall equal 100% of the Fair Market Value
of a share of Common Stock pursuant to Section 3.4(d) on the date the Option is
granted; provided, however, that the price of each share subject to each Option
granted to Independent Directors on the date of the initial public offering of
Common Stock shall equal the initial public offering price per share of Common
Stock.
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4.3. Option Term. The term of an Option shall be set by the Committee in
its discretion; provided, however, that such term shall not be more than ten
(10) years from the date the Option is granted, and (i) in the case of grants to
Independent Directors pursuant to Section 3.4(d), the term shall be ten (10)
years from the date the Option is granted, without variation or acceleration
hereunder, but subject to Section 5.6, and (ii) in the case of Incentive Stock
Options, the term shall not be more than five (5) years from the date the
Incentive Stock Option is granted if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee may, subject to the terms hereof, extend the term of any
outstanding Option in connection with any Termination of Employment or
Termination of Consultancy of the Optionee, or amend any other term or condition
of such Option relating to such a termination.
4.4. Option Vesting
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in part
for a specified period after it is granted; provided, however, that Options
granted to Independent Directors pursuant to Section 3.4(d) shall become
exercisable in cumulative annual installments of 33 1/3% on each of the first,
second and third anniversaries of the date of Option grant, without variation or
acceleration hereunder except as provided in Section 10.3(b). At any time after
grant of an Option, the Committee may, in its sole and absolute discretion and
subject to whatever terms and conditions it selects, accelerate the period
during which an Option (except an Option granted to an Independent Director
pursuant to Section 3.4(d)) vests.
(b) No portion of an Option which is unexercisable at Termination
of Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee in the case of Options granted to Employees,
Independent Directors or consultants either in the Stock Option Agreement or by
action of the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock
with respect to which "incentive stock options" (within the meaning of Section
422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
Subsidiary) exceeds $100,000, such Options shall be treated as Non-Qualified
Options to the extent required by Section 422 of the Code. The rule set forth in
the preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 4.4(c), the Fair
Market Value of stock shall be determined as of the time the Option with respect
to such stock is granted.
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4.5. Consideration. In consideration of the granting of an Option, the
Optionee shall agree, in the written Stock Option Agreement, to remain in the
employ of (or to consult for or to serve as an Independent Director of, as
applicable) the Company or any Subsidiary for a period of at least one year
after the Option is granted or, in the case of an Independent Director, to the
end of such Independent Director's current Board term (or such shorter period as
may be fixed in the Stock Option Agreement or by action of the Committee or the
Board following grant of the Option). Nothing in this Plan or in any Stock
Option Agreement hereunder shall confer upon any Optionee any right to continue
in the employ of, or as a consultant for, the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Optionee at any time for any reason whatsoever, with or without
good cause.
ARTICLE V.
EXERCISE OF OPTIONS
5.1. Partial Exercise. An exercisable Option may be exercised in whole
or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee (or the Board, in the case of Options
granted to Independent Directors) may require that, by the terms of the Option,
a partial exercise be with respect to a minimum number of shares.
5.2. Manner of Exercise. All or a portion of an exercisable Option shall
be deemed exercised upon delivery of all of the following to the Secretary of
the Company or his office:
(a) A written notice complying with the applicable rules
established by the Committee (or the Board, in the case of Options granted to
Independent Directors pursuant to Section 3.4(d)) stating that the Option, or a
portion thereof, is exercised. The notice shall be signed by the Optionee or
other person then entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee (or the
Board, in the case of Options granted to Independent Directors pursuant to
Section 3.4(d)), in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act of 1933,
as amended, and any other federal or state securities laws or regulations. The
Committee or Board may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance including,
without limitation, placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 10.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Committee (or the Board, in the case of Options granted to
Independent Directors pursuant to Section 3.4(d)), may in its discretion (i)
allow a delay in payment up to thirty (30) days from the date the Option, or
portion thereof, is exercised; (ii) allow payment, in whole or in part, through
the delivery of
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shares of Common Stock owned by the Optionee, duly endorsed for transfer to the
Company with a Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; (iii) allow payment,
in whole or in part, through the delivery of property of any kind which
constitutes good and valuable consideration; (iv) allow payment, in whole or in
part, through the delivery of a full recourse promissory note bearing interest
(at no less than such rate as shall then preclude the imputation of interest
under the Code) and payable upon such terms as may be prescribed by the
Committee or the Board, or (v) allow payment through any combination of the
consideration provided in the foregoing subparagraphs (ii), (iii) and (iv). In
the case of a promissory note, the Committee (or the Board, in the case of
Options granted to Independent Directors pursuant to Section 3.4(d)) may also
prescribe the form of such note and the security to be given for such note. The
Option may not be exercised, however, by delivery of a promissory note or by a
loan from the Company when or where such loan or other extension of credit is
prohibited by law.
5.3. Conditions to Issuance of Stock Certificates. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body which the Committee or Board shall, in its absolute discretion, deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee (or Board, in the case
of Options granted to Independent Directors pursuant to Section 3.4(d)) shall,
in its absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee (or Board, in the case of Options
granted to Independent Directors pursuant to Section 3.4(d)) may establish from
time to time for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
5.4. Rights as Stockholders. The holders of Options shall not be, nor
have any of the rights or privileges of, stockholders of the Company in respect
of any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
5.5. Ownership and Transfer Restrictions. The Committee (or Board, in
the case of Options granted to Independent Directors pursuant to Section
3.4(d)), in its absolute discretion,
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may impose such restrictions on the ownership and transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the respective Stock Option Agreement and may
be referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting such Option to such Employee or (ii) one
year after the transfer of such shares to such Employee. The Committee may
direct that the certificates evidencing shares acquired by exercise of an Option
refer to such requirement to give prompt notice of disposition.
5.6. Limitations on Exercise of Options Granted to Independent Directors
Pursuant to Section 3.4(d). No Option granted to an Independent Director
pursuant to Section 3.4(d) may be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of twelve (12) months from the date of the
Optionee's death;
(b) the expiration of twelve (12) months from the date of the
Optionee's Termination of Directorship by reason of his permanent and total
disability (within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the
Optionee's Termination of Directorship for any reason other than such Optionee's
death or his permanent and total disability, unless the Optionee dies within
said three-month period; or
(d) The expiration of ten years from the date the Option was
granted.
ARTICLE VI.
AWARD OF RESTRICTED STOCK
6.1. Award of Restricted Stock.
(a) The Committee may from time to time, in its absolute
discretion:
(i) Select from among the key Employees, Independent
Directors or consultants (including Employees, Independent Directors or
consultants who have previously received other awards under this Plan)
such of them as in its opinion should be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms
and conditions applicable to such Restricted Stock, consistent with this
Plan.
(b) The Committee shall establish the purchase price, if any, and
form of payment for Restricted Stock; provided, however, that such purchase
price shall be no less than
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the par value of the Common Stock to be purchased, unless otherwise permitted by
applicable state law. In all cases, legal consideration shall be required for
each issuance of Restricted Stock.
(c) Upon the selection of a key Employee, Independent Director or
consultant to be awarded Restricted Stock, the Committee shall instruct the
Secretary of the Company to issue such Restricted Stock and may impose such
conditions on the issuance of such Restricted Stock as it deems appropriate.
6.2. Restricted Stock Agreement. Restricted Stock shall be issued only
pursuant to a written Restricted Stock Agreement, which shall be executed by the
selected key Employee, Independent Director or consultant and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with this Plan.
6.3. Consideration. As consideration for the issuance of Restricted
Stock, in addition to payment of any purchase price, the Restricted Stockholder
shall agree, in the written Restricted Stock Agreement, to remain in the employ
of (or to consult for or serve as an Independent Director of, as applicable) the
Company or any Subsidiary for a period of at least one year after the Restricted
Stock is issued or, in the case of an Independent Director, to the end of such
Independent Director's current Board term (or such shorter period as may be
fixed in the Restricted Stock Agreement or by action of the Committee or the
Board following grant of the Restricted Stock). Nothing in this Plan or in any
Restricted Stock Agreement hereunder shall confer on any Restricted Stockholder
any right to continue in the employ of, or as a consultant for, the Company or
any Subsidiary, or as a director of the Company, or shall interfere with or
restrict in any way the rights of the Company and any Subsidiary, which are
hereby expressly reserved, to discharge any Restricted Stockholder at any time
for any reason whatsoever, with or without good cause.
6.4. Rights as Stockholders. Upon delivery of the shares of Restricted
Stock to the escrow holder pursuant to Section 6.7, the Restricted Stockholder
shall have, unless otherwise provided by the Committee, all the rights of a
stockholder with respect to said shares, subject to the restrictions in his
Restricted Stock Agreement, including the right to receive all dividends and
other distributions paid or made with respect to the shares; provided, however,
that in the discretion of the Committee, any extraordinary distributions with
respect to the Common Stock shall be subject to the restrictions set forth in
Section 6.5.
6.5. Restriction. All shares of Restricted Stock issued under this Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Restricted Stock
Agreement, be subject to such restrictions as the Committee shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; provided, however,
that by action taken after the Restricted Stock is issued, the Committee may, on
such terms and conditions as it may determine to be appropriate, remove any or
all of the restrictions imposed by the terms of the Restricted Stock Agreement.
Restricted Stock may not be sold or encumbered until all restrictions are
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terminated or expire. Unless provided otherwise by the Committee, if no
consideration was paid by the Restricted Stockholder upon issuance, a Restricted
Stockholder's rights in unvested Restricted Stock shall lapse upon Termination
of Employment or, if applicable, upon Termination of Consultancy or Termination
of Directorship with the Company.
6.6. Repurchase of Restricted Stock. The Committee shall provide in the
terms of each individual Restricted Stock Agreement that the Company shall have
the right to repurchase from the Restricted Stockholder the Restricted Stock
then subject to restrictions under the Restricted Stock Agreement immediately
upon a Termination of Employment or, if applicable, upon a Termination of
Consultancy or Termination of Directorship between the Restricted Stockholder
and the Company, at a cash price per share equal to the price paid by the
Restricted Stockholder for such Restricted Stock; provided, however, that
provision may be made that no such right of repurchase shall exist in the event
of a Termination of Employment or Termination of Consultancy without cause, or
following a change in control of the Company or because of the Restricted
Stockholder's retirement, death or disability, or otherwise.
6.7. Escrow. The Secretary of the Company or such other escrow holder as
the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Restricted Stock Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
6.8. Legend. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to be
placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Restricted Stock Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
ARTICLE VII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1. Performance Awards. Any key Employee, Independent Director or
consultant selected by the Committee may be granted one or more Performance
Awards. The value of such Performance Awards may be linked to the market value,
book value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined appropriate by the Committee, in each
case on a specified date or dates or over any period or periods determined by
the Committee, or may be based upon the appreciation in the market value, book
value, net profits or other measure of the value of a specified number of shares
of Common Stock over a fixed period or periods determined by the Committee. In
making such determinations, the Committee shall consider (among such other
factors as it deems relevant in light of the specific type of award) the
contributions, responsibilities and other compensation of the particular key
Employee, Independent Director or consultant.
7.2. Dividend Equivalents. Any key Employee, Independent Director or
consultant selected by the Committee may be granted Dividend Equivalents based
on the dividends declared
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on Common Stock, to be credited as of dividend payment dates, during the period
between the date an Option, Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Option, Stock Appreciation
Right, Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee. Such Dividend Equivalents shall be converted to
cash or additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee. With respect
to Dividend Equivalents granted with respect to Options intended to be qualified
performance-based compensation for purposes of Section 162(m), such Dividend
Equivalents shall be payable regardless of whether such Option is exercised.
7.3. Stock Payments. Any key Employee, Independent Director or
consultant selected by the Committee may receive Stock Payments in the manner
determined from time to time by the Committee. The number of shares shall be
determined by the Committee and may be based upon the Fair Market Value, book
value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined appropriate by the Committee,
determined on the date such Stock Payment is made or on any date thereafter.
7.4. Deferred Stock. Any key Employee, Independent Director or
consultant selected by the Committee may be granted an award of Deferred Stock
in the manner determined from time to time by the Committee. The number of
shares of Deferred Stock shall be determined by the Committee and may be linked
to the market value, book value, net profits or other measure of the value of
Common Stock or other specific performance criteria determined to be appropriate
by the Committee, in each case on a specified date or dates or over any period
or periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Grantee of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the award has vested and the Common Stock underlying the award has been
issued.
7.5. Performance Award Agreement, Dividend Equivalent Agreement,
Deferred Stock Agreement, Stock Payment Agreement. Each Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be
evidenced by a written agreement, which shall be executed by the Grantee and an
authorized Officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
7.6. Term. The term of a Performance Award, Dividend Equivalent, award
of Deferred Stock and/or Stock Payment shall be set by the Committee in its
discretion.
7.7. Exercise Upon Termination of Employment. A Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable
or payable only while the Grantee is an Employee, Independent Director or
consultant; provided that the Committee may determine that the Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be
exercised or paid subsequent to Termination of Employment or
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Termination of Consultancy without cause, or following a change in control of
the Company, or because of the Grantee's retirement, death or disability, or
otherwise.
7.8. Payment on Exercise. Payment of the amount determined under Section
7.1 or 7.2 above shall be in cash, in Common Stock or a combination of both, as
determined by the Committee. To the extent any payment under this Article VII is
effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 5.3.
7.9. Consideration. In consideration of the granting of a Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment, the
Grantee shall agree, in a written agreement, to remain in the employ of, or to
consult for, the Company or any Subsidiary for a period of at least one year
after such Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment is granted (or such shorter period as may be fixed in such
agreement or by action of the Committee following such grant). Nothing in this
Plan or in any agreement hereunder shall confer on any Grantee any right to
continue in the employ of, or as a consultant for, the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.
ARTICLE VIII.
STOCK APPRECIATION RIGHTS
8.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may
be granted to any key Employee, Independent Director or consultant selected by
the Committee. A Stock Appreciation Right may be granted (i) in connection and
simultaneously with the grant of an Option, (ii) with respect to a previously
granted Option, or (iii) independent of an Option. A Stock Appreciation Right
shall be subject to such terms and conditions not inconsistent with this Plan as
the Committee shall impose and shall be evidenced by a written Stock
Appreciation Right Agreement, which shall be executed by the Grantee and an
authorized officer of the Company. The Committee, in its discretion, may
determine whether a Stock Appreciation Right is to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code and Stock
Appreciation Right Agreements evidencing Stock Appreciation Rights intended to
so qualify shall contain such terms and conditions as may be necessary to meet
the applicable provisions of section 162(m) of the Code.
8.2. Coupled Stock Appreciation Rights
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related
to a particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the
number of shares subject to the simultaneously or previously granted Option to
which it is coupled.
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(c) A CSAR shall entitle the Grantee (or other person entitled to
exercise the Option pursuant to this Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the extent
then exercisable pursuant to its terms) and to receive from the Company in
exchange therefor an amount determined by multiplying the difference obtained by
subtracting the Option exercise price from the Fair Market Value of a share of
Common Stock on the date of exercise of the CSAR by the number of shares of
Common Stock with respect to which the CSAR shall have been exercised, subject
to any limitations the Committee may impose.
8.3. Independent Stock Appreciation Rights
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An ISAR
shall be exercisable in such installments as the Committee may determine. An
ISAR shall cover such number of shares of Common Stock as the Committee may
determine. The exercise price per share of Common Stock subject to each ISAR
shall be set by the Committee. An ISAR is exercisable only while the Grantee is
an Employee, Independent Director or consultant; provided that the Committee may
determine that the ISAR may be exercised subsequent to Termination of Employment
or Termination of Consultancy without cause, or following a change in control of
the Company, or because of the Grantee's retirement, death or disability, or
otherwise.
(b) An ISAR shall entitle the Grantee (or other person entitled
to exercise the ISAR pursuant to this Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms) and
to receive from the Company an amount determined by multiplying the difference
obtained by subtracting the exercise price per share of the ISAR from the Fair
Market Value of a share of Common Stock on the date of exercise of the ISAR by
the number of shares of Common Stock with respect to which the ISAR shall have
been exercised, subject to any limitations the Committee may impose.
8.4. Payment and Limitations on Exercise
(a) Payment of the amount determined under Section 8.2(c) and
8.3(b) above shall be in cash, in Common Stock (based on its Fair Market Value
as of the date the Stock Appreciation Right is exercised) or a combination of
both, as determined by the Committee. To the extent such payment is effected in
Common Stock it shall be made subject to satisfaction of all provisions of
Section 5.3 hereinabove pertaining to Options.
(b) Grantees of Stock Appreciation Rights may, in the discretion
of the Board or Committee, be required to comply with any timing or other
restrictions including a window-period requirement deemed advisable or prudent
by the Board or Committee or otherwise with respect to the settlement or
exercise of a Stock Appreciation Right.
8.5. Consideration. In consideration of the granting of a Stock
Appreciation Right, the Grantee shall agree, in the written Stock Appreciation
Right Agreement, to remain in the employ of (or to consult for or serve as an
Independent Director of, as applicable) the Company or any Subsidiary for a
period of at least one year after the Stock Appreciation Right is granted or, in
the
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case of an Independent Director, to the end of such Independent Director's
current Board term (or such shorter period as may be fixed in the Stock
Appreciation Right Agreement or by action of the Committee or the Board
following grant of the Restricted Stock). Nothing in this Plan or in any Stock
Appreciation Right Agreement hereunder shall confer on any Grantee any right to
continue in the employ of, or as a consultant for, the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.
ARTICLE IX.
ADMINISTRATION
9.1. Compensation Committee. Prior to the closing of the Company's
initial public offering of equity securities (the "Offering"), the Compensation
Committee shall consist of the entire Board. Following the closing of the
Offering, the Compensation Committee (or another committee or a subcommittee of
the Board assuming the functions of the Committee under this Plan) shall consist
solely of two or more Independent Directors appointed by and holding office at
the pleasure of the Board, each of whom is (i) a "non-employee director" (as
defined by Rule 16b-3), (ii) to the extent required by the applicable provisions
of Rule 16b-3, a "disinterested person" (as defined by Rule 16b-3) and (iii) an
"outside director" for purposes of Section 162(m) of the Code. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee may be filled by the Board.
9.2. Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options, awards of Restricted Stock or Deferred
Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments are granted or awarded, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Notwithstanding the
foregoing, the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to grants to
Independent Directors. Any such grant or award under this Plan need not be the
same with respect to each Optionee, Grantee or Restricted Stockholder. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.
9.3. Majority Rule; Unanimous Written Consent. The Committee shall act
by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
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9.4. Compensation; Professional Assistance; Good Faith Actions. Members
of the Committee shall receive such compensation for their services as members
as may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of this Plan shall be
borne by the Company. The Committee may, with the approval of the Board, employ
attorneys, consultants, accountants, appraisers, brokers, or other persons. The
Committee, the Company and the Company's officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee or the Board in good faith shall be final and binding upon all
Optionees, Grantees, Restricted Stockholders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan, Options, awards of Restricted Stock or Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
ARTICLE X.
MISCELLANEOUS PROVISIONS
10.1. Not Transferable. Options, Restricted Stock awards, Deferred Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments under this Plan may not be sold, pledged, assigned, or
transferred in any manner other than by will or the laws of descent and
distribution or pursuant to a QDRO, unless and until such rights or awards have
been exercised, or the shares underlying such rights or awards have been issued,
and all restrictions applicable to such shares have lapsed. No Option,
Restricted Stock award, Deferred Stock award, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment or interest or right
therein shall be liable for the debts, contracts or engagements of the Optionee,
Grantee or Restricted Stockholder or his successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee or Grantee, only he may exercise an
Option or other right or award (or any portion thereof) granted to him under the
Plan, unless it has been disposed of pursuant to a QDRO. After the death of the
Optionee or Grantee, any exercisable portion of an Option or other right or
award may, prior to the time when such portion becomes unexercisable under the
Plan or the applicable Stock Option Agreement or other agreement, be exercised
by his personal representative or by any person empowered to do so under the
deceased Optionee's or Grantee's will or under the then applicable laws of
descent and distribution.
10.2. Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 9.2, this Plan may be wholly or partially
amended or otherwise
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modified, suspended or terminated at any time or from time to time by the Board
or the Committee. However, without approval of the Company's stockholders given
within twelve months before or after the action by the Board or the Committee,
no action of the Board or the Committee may, except as provided in Section 10.3,
increase the limits imposed in Section 2.1 on the maximum number of shares which
may be issued under this Plan or modify the Award Limit, and no action of the
Committee may be taken that would otherwise require stockholder approval as a
matter of applicable law, regulation or rule. No amendment, suspension or
termination of this Plan shall, without the consent of the holder of Options,
Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments, alter or impair any
rights or obligations under any Options, Restricted Stock awards, Deferred Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments theretofore granted or awarded, unless the award itself otherwise
expressly so provides. No Options, Restricted Stock, Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be
granted or awarded during any period of suspension or after termination of this
Plan, and in no event may any Incentive Stock Option be granted under this Plan
after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted
by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 10.4.
10.3. Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 10.3(d), in the event that the Committee
(or the Board, in the case of grants to Independent Directors) determines that
any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), recapitalization, reclassification, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer,
exchange or other disposition of all or substantially all of the assets of the
Company (including, but not limited to a Corporate Transaction), or exchange of
Common Stock or other securities of the Company, issuance of warrants or other
rights to purchase Common Stock or other securities of the Company, or other
similar corporate transaction or event, in the Committee's sole discretion (or
in the case of grants to Independent Directors, the Board's sole discretion),
affects the Common Stock such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Option, Restricted Stock award, Performance Award, Stock Appreciation
Right, Dividend Equivalent, Deferred Stock award or Stock Payment, then the
Committee (or the Board, in the case of grants to Independent Directors) shall,
in such manner as it may deem equitable, adjust any or all of
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(i) the number and kind of shares of Common Stock (or
other securities or property) with respect to which Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments may be granted under the Plan, or which may be granted as
Restricted Stock or Deferred Stock (including, but not limited to,
adjustments of the limitations in Section 2.1 on the maximum number and
kind of shares which may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or
other securities or property) subject to outstanding Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents, or
Stock Payments, and in the number and kind of shares of outstanding
Restricted Stock or Deferred Stock, and
(iii) the grant or exercise price with respect to any
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent
or Stock Payment.
(b) Subject to Sections 10.3(b)(vii) and 10.3(d), in the event of
any Corporate Transaction or other transaction or event described in Section
10.3(a) or any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of the
Company or any affiliate, or of changes in applicable laws, regulations, or
accounting principles, the Committee (or the Board, in the case of grants to
Independent Directors) in its discretion is hereby authorized to take any one or
more of the following actions whenever the Committee (or the Board, in the case
of grants to Independent Directors) determines that such action is appropriate
in order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan or with respect to any
option, right or other award under this Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee (or the Board, in
the case of grants to Independent Directors) may provide, either by the
terms of the agreement or by action taken prior to the occurrence of
such transaction or event and either automatically or upon the
Optionee's request, for either the purchase of any such Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent, or
Stock Payment, or any Restricted Stock or Deferred Stock for an amount
of cash equal to the amount that could have been attained upon the
exercise of such option, right or award or realization of the Optionee's
rights had such option, right or award been currently exercisable or
payable or fully vested or the replacement of such option, right or
award with other rights or property selected by the Committee (or the
Board, in the case of grants to Independent Directors) in its sole
discretion;
(ii) In its sole and absolute discretion, the Committee
(or the Board, in the case of grants to Independent Directors) may
provide, either by the terms of such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the occurrence of
such transaction or event that it cannot be exercised after such event;
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(iii) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee (or the
Board, in the case of grants to Independent Directors) may provide,
either by the terms of such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the occurrence of
such transaction or event, that for a specified period of time prior to
such transaction or event, such option, right or award shall be
exercisable as to all shares covered thereby, notwithstanding anything
to the contrary in (i) Section 4.4 or (ii) the provisions of such
Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock;
(iv) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee (or the
Board, in the case of grant to Independent Directors) may provide,
either by the terms of such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the occurrence of
such transaction or event, that upon such event, such option, right or
award be assumed by the successor or survivor corporation, or a parent
or subsidiary thereof, or shall be substituted for by similar options,
rights or awards covering the stock of the successor or survivor
corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and
(v) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee (or the Board, in
the case of grants to Independent Directors) may make adjustments in the
number and type of shares of Common Stock (or other securities or
property) subject to outstanding Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the
number and kind of outstanding Restricted Stock or Deferred Stock and/or
in the terms and conditions of, and the criteria included in,
outstanding options, rights and awards and options, rights and awards
which may be granted in the future.
(vi) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee may provide
either by the terms of a Restricted Stock award or Deferred Stock award
or by action taken prior to the occurrence of such event that, for a
specified period of time prior to such event, the restrictions imposed
under a Restricted Stock Agreement or a Deferred Stock Agreement upon
some or all shares of Restricted Stock or Deferred Stock may be
terminated, and, in the case of Restricted Stock, some or all shares of
such Restricted Stock may cease to be subject to repurchase under
Section 6.6 or forfeiture under Section 6.5 after such event.
(vii) None of the foregoing discretionary terms of this
Section 10.3(b) shall be permitted with respect to Options granted under
Section 3.4(d) to Independent Directors to the extent that such
discretion would be inconsistent with the applicable exemptive
conditions of Rule 16b-3. In the event of a Change in Control or a
Corporate Transaction, to the extent that the Board does not have the
ability under Rule 16b-3 to
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take or to refrain from taking the discretionary actions set forth in
Section 10.3(b)(iii) above, each Option granted to an Independent
Director shall be exercisable as to all shares covered thereby upon such
Change in Control or during the five days immediately preceding the
consummation of such Corporate Transaction and subject to such
consummation, notwithstanding anything to the contrary in Section 4.4 or
the vesting schedule of such Options. In the event of a Corporate
Transaction, to the extent that the Board does not have the ability
under Rule 16b-3 to take or to refrain from taking the discretionary
actions set forth in Section 10.3(b)(ii) above, no Option granted to an
Independent Director may be exercised following such Corporate
Transaction unless such Option is, in connection with such Corporate
Transaction, either assumed by the successor or survivor corporation (or
parent or subsidiary thereof) or replaced with a comparable right with
respect to shares of the capital stock of the successor or survivor
corporation (or parent or subsidiary thereof).
(c) Subject to Section 10.3(d) and 10.8, the Committee (or the
Board, in the case of grants to Independent Directors) may, in its discretion,
include such further provisions and limitations in any Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or
Restricted Stock or Deferred Stock agreement or certificate, as it may deem
equitable and in the best interests of the Company.
(d) With respect to Incentive Stock Options and Options and Stock
Appreciation Rights intended to qualify as performance-based compensation under
Section 162(m), no adjustment or action described in this Section 10.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of the
Code or would cause such option or stock appreciation right to fail to so
qualify under Section 162(m), as the case may be, or any successor provisions
thereto. Furthermore, no such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee (or the Board, in the case of grants to Independent Directors)
determines that the option or other award is not to comply with such exemptive
conditions. The number of shares of Common Stock subject to any option, right or
award shall always be rounded to the next whole number.
(e) In the event of any Corporate Transaction or Change in
Control, each outstanding Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, Stock Payment, Restricted Stock or Deferred Stock award
shall, immediately prior to the effective date of the Corporate Transaction or
Change in Control, automatically become fully exercisable for all of the shares
of Common Stock underlying such right, as applicable, and may be exercised for
any or all of those shares as fully-vested shares of Common Stock.
10.4. Approval of Plan by Stockholders. This Plan will be submitted for
the approval of the Company's stockholders within twelve months after the date
of the Board's initial adoption of this Plan. Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted and
Restricted Stock or Deferred Stock may be awarded prior to such stockholder
approval, provided that such Options, Performance Awards,
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Stock Appreciation Rights, Dividend Equivalents or Stock Payments shall not be
exercisable and such Restricted Stock or Deferred Stock shall not vest prior to
the time when this Plan is approved by the stockholders, and provided further
that if such approval has not been obtained at the end of said twelve-month
period, all Options, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments previously granted and all Restricted Stock or
Deferred Stock previously awarded under this Plan shall thereupon be canceled
and become null and void.
10.5. Tax Withholding. The Company shall be entitled to require payment
in cash or deduction from other compensation payable to each Optionee, Grantee
or Restricted Stockholder of any sums required by federal, state or local tax
law to be withheld with respect to the issuance, vesting or exercise of any
Option, Restricted Stock, Deferred Stock, Performance Award, Stock Appreciation
Right, Dividend Equivalent or Stock Payment. The Committee (or the Board, in the
case of grants to Independent Directors) may in its discretion and in
satisfaction of the foregoing requirement allow such Optionee, Grantee or
Restricted Stockholder to elect to have the Company withhold shares of Common
Stock otherwise issuable under such Option or other award (or allow the return
of shares of Common Stock) having a Fair Market Value equal to the sums required
to be withheld.
10.6. Loans. The Committee may, in its discretion, extend one or more
loans to key Employees in connection with the exercise or receipt of an Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment granted under this Plan, or the issuance of Restricted Stock or Deferred
Stock awarded under this Plan. The terms and conditions of any such loan shall
be set by the Committee.
10.7. Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to awards under the Plan, the
Committee (or the Board, in the case of grants to Independent Directors) shall
have the right (to the extent consistent with the applicable exemptive
conditions of Rule 16b-3) to provide, in the terms of Options or other awards
made under the Plan, or to require the recipient to agree by separate written
instrument, that (i) any proceeds, gains or other economic benefit actually or
constructively received by the recipient upon any receipt or exercise of the
award, or upon the receipt or resale of any Common Stock underlying such award,
must be paid to the Company, and (ii) the award shall terminate and any
unexercised portion of such award (whether or not vested) shall be forfeited, if
(a) a Termination of Employment, Termination of Consultancy or Termination of
Directorship occurs prior to a specified date, or within a specified time period
following receipt or exercise of the award, or (b) the recipient at any time, or
during a specified time period, engages in any activity in competition with the
Company, or which is inimical, contrary or harmful to the interests of the
Company, as further defined by the Committee (or the Board, as applicable).
10.8. Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, this Plan, and
any Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment granted, or Restricted Stock or Deferred Stock awarded, to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable
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exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are requirements for the application of
such exemptive rule. To the extent permitted by applicable law, the Plan,
Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents,
Stock Payments, Restricted Stock and Deferred Stock granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of this Plan,
any Option or Stock Appreciation Right intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such requirements.
10.9. Effect of Plan Upon Options and Compensation Plans. The adoption
of this Plan shall not affect any other compensation or incentive plans in
effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (i) to establish any other forms of
incentives or compensation for Employees, Independent Directors or consultants
of the Company or any Subsidiary or (ii) to grant or assume options or other
rights otherwise than under this Plan in connection with any proper corporate
purpose including but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, firm or association.
10.10. Compliance with Laws. This Plan, the granting and vesting of
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this
Plan and the issuance and delivery of shares of Common Stock and the payment of
money under this Plan or under Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments granted or Restricted Stock or
Deferred Stock awarded hereunder are subject to compliance with all applicable
federal and state laws, rules and regulations (including but not limited to
state and federal securities law and federal margin requirements) and to such
approvals by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if requested by
the Company, provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with all applicable
legal requirements. To the extent permitted by applicable law, the Plan,
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
10.11. Titles. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of this Plan.
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10.12. Governing Law. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Maryland without regard to conflicts of laws thereof.
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FORM OF STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of
__________________, is made by and between Sunterra Corporation (formerly known
as Signature Resorts, Inc.), a Maryland corporation, hereinafter referred to as
"Company," and ________________, an [employee and consultant] of the Company,
hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the
opportunity to purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of
which are hereby incorporated by reference and made a part of this Agreement);
and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and best interest of the Company
and its shareholders to grant the Option provided for herein to the Optionee as
an inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.
Section 1.1 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
"Committee" shall mean the Compensation Committee of the Board,
or a subcommittee of the Board, appointed as provided in Section 9.1 of the
Plan.
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Section 1.4 - Common Stock
"Common Stock" shall mean the common stock of the Company, par
value $.01 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any warrants, options or
other rights to purchase Common Stock. Debt securities of the Company
convertible into Common Stock shall be deemed equity securities of the Company.
Section 1.5 - Company
"Company" shall mean Sunterra Corporation, a Maryland
corporation.
Section 1.6 - Director
"Director" shall mean a member of the Board.
Section 1.7 - Employee
"Employee" shall mean any officer or other employee (as defined
in accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.8 - Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.9 - Fair Market Value
"Fair Market Value" of a share of Common Stock as of a given date
shall be (i) the mean between the highest and lowest selling price of a share of
Common Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.
Section 1.10 - Option
"Option" shall mean a non-qualified stock option granted under
this Agreement and Article III of the Plan.
Section 1.11 - Optionee
"Optionee" shall mean an Employee or consultant granted an Option
under this Agreement and the Plan.
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Section 1.12 - Plan
"Plan" shall mean The 1996 Equity Participation Plan of Sunterra
Corporation, formerly known as Signature Resorts, Inc., as amended.
Section 1.13 - Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
Section 1.14 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.16 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Section 1.17 - Termination of Consultancy
"Termination of Consultancy" shall mean the time when the
engagement of Optionee as a Consultant to the Company or a Subsidiary is
terminated for any reason, with or without cause, including without limitation,
resignation, discharge, death or retirement; but excluding terminations where
there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
Section 1.18 - Termination of Employment
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company or any
Subsidiary is terminated for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, disability or
retirement; but excluding (i) terminations where there is a simultaneous
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<PAGE> 30
reemployment, continuing employment of an Optionee by the Company or any
Subsidiary, (ii) at the discretion of the Committee, terminations which result
in a temporary severance of the employee-employer relationship, and (iii) at the
discretion of the Committee, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a Subsidiary with
the former employee. The Committee, in its absolute discretion, shall determine
the effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Employee's employment at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
ARTICLE II
GRANT OF OPTION
Section 2.1 - Grant of Option
In consideration of the Optionee's agreement to remain in the
employ of (or consult for) the Company or its Subsidiaries for a period of at
least ___ years after the commencement of Executive's employment with the
Company and for other good and valuable consideration, on the date hereof the
Company irrevocably grants to the Optionee the option to purchase any part or
all of an aggregate of ___________________________________________ shares of its
$.01 par value Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2 - Purchase Price
The per share purchase price of the shares of stock covered by
the Option shall be $_____, which is the per share Fair Market Value of such
shares as of the date hereof.
Section 2.3 - Consideration to Company
In consideration of the granting of this Option by the Company,
the Optionee agrees to render faithful and efficient services to the Company or
a Subsidiary, with such duties and responsibilities as the Company shall from
time to time prescribe, for a period of at least _______ years after the
commencement of Executive's employment with the Company. Nothing in the Plan or
this Agreement shall confer upon any Optionee any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge the Optionee at any time for any reason whatsoever, with or without
good cause[, subject to the terms of the Executive's Employment Agreement with
the Company.]
Section 2.4 - Adjustments in Option
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(a) In the event that the outstanding shares of the stock subject
to the Option are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split up, stock dividend or
combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, to the end that after such event
the Optionee's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option may include any
necessary corresponding adjustment in the Option price per share, but shall be
made without change in the total price applicable to the unexercised portion of
the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices). Any such adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
(b) Notwithstanding the foregoing, in the event of such a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split up, stock dividend or combination, or other adjustment or event which
results in shares of Common Stock being exchanged for or converted into cash,
securities or other property, the Company will have the right to terminate the
Plan as of the date of the exchange or conversion, in which case all options,
rights and other awards under this Plan shall become the right to receive such
cash, securities or other property, net of any applicable exercise price.
(c) In the event of a "spin-off" or other substantial
distribution of assets of the Company which has a material diminutive effect
upon the Fair Market Value of the Company's Common Stock, the Board may in its
discretion make an appropriate and equitable adjustment to the Option to reflect
such diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
(a) Subject to Section 5.7, the Option shall become exercisable
in __________ cumulative installments as follows:
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(b) No portion of the Option which is unexercisable at
Termination of Employment or Termination of Consultancy, as applicable, shall
thereafter become exercisable.
Section 3.2 - Duration of Exercisability
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment or
Termination of Consultancy unless such Termination of Employment or Termination
of Consultancy, as applicable, results from his death, his retirement, his
disability or his being discharged not for "Cause" (as defined in Section 5(c)
of the Employment Agreement dated the date hereof between Optionee and the
Company); or
(c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment or Termination of Consultancy by reason of
his retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or
(d) The expiration of one (1) year from the date of the
Optionee's Termination of Employment or Termination of Consultancy by reason of
his disability; or
(e) The expiration of one (1) year from the date of the
Optionee's death; or
(f) The effective date of either the merger or consolidation of
the Company with or into another corporation, the exchange of all or
substantially all of the assets of the Company for the securities of another
corporation, the acquisition by another corporation or
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<PAGE> 33
person of all or substantially all of the Company's assets or eighty percent
(80%) or more of the Company's then outstanding voting stock, or the liquidation
or dissolution of the Company. At least ten (10) days prior to the effective
date of such merger, consolidation, exchange, acquisition, liquidation or
dissolution, the Committee shall give the Optionee notice of such event if the
Option has then neither been fully exercised nor become unexercisable under this
Section 3.3.
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only he may exercise the
Option or any portion thereof. After the death of the Optionee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Optionee's will or under the then
applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that each partial exercise shall be for not less
than one thousand (1,000) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion, stating that the Option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b) (i) Full payment (in cash) for the shares with respect to
which such Option or portion is exercised;
(ii) With the consent of the Committee, payment delayed
for up to thirty (30) days from the date the Option, or portion thereof,
is exercised; or
(iii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Optionee duly endorsed for transfer
to the Company or (B) subject to the timing requirements of Section 4.4,
shares of the Company's Common Stock issuable to the Optionee upon
exercise of the Option, with a Fair Market Value on
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<PAGE> 34
the date of Option exercise equal to the aggregate purchase price of the
shares with respect to which such Option or portion is exercised; or
(iv) With the consent of the Committee, property of any
kind which constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall
then preclude the imputation of interest under the Code or successor
provision) and payable upon such terms as may be prescribed by the
Committee or the Board. The Committee may also prescribe the form of
such note and the security to be given for such note. The Option may not
be exercised, however, by delivery of a promissory note or by a loan
from the Company when or where such loan or other extension of credit is
prohibited by law; or
(vi) With the consent of the Committee, any combination of
the consideration provided in the foregoing subparagraphs (iii), (iv)
and (v); and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then entitled to
exercise such Option or portion will indemnify the Company against and hold it
free and harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is contrary to
the representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation)
of all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Optionee duly endorsed for
transfer, or (ii) subject to the timing requirements of Section 4.4, shares of
the Company's Common Stock issuable to the Optionee upon exercise of the Option,
having a Fair Market Value at the date of Option exercise equal to the sums
required to be withheld, may be used to make all or part of such payment; and
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(e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
Shares of the Company's Common Stock issuable to the Optionee
upon exercise of the Option may be used to satisfy the Option price or the tax
withholding consequences of such exercise only (i) during the period beginning
on the third (3rd) business day following the date of release of the quarterly
or annual summary statement of sales and earnings of the Company and ending on
the twelfth (12th) business day following such date or (ii) pursuant to an
irrevocable written election by the Optionee to use shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option to pay all or
part of the Option price or the withholding taxes (subject to the approval of
the Committee) made at least six (6) months prior to the payment of such Option
price or withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
The shares of stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which the Committee or Board shall, in its absolute discretion, deem
necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee or Board shall, in its
absolute discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares,
including payment of all amounts which, under federal, state or local tax law,
it is required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee or Board may from time to time establish
for reasons of administrative convenience.
Section 4.6 - Rights as Shareholder
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The holder of the Option shall not be, nor have any of the rights
or privileges of, a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Optionee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under this Plan except with
respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee.
Section 5.2 - Option Not Transferable
Neither the Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Optionee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
Section 5.4 - Notices
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to
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<PAGE> 37
be given to him. Any notice which is required to be given to the Optionee shall,
if the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5 - Titles
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
This Agreement shall be administered, interpreted and enforced
under the laws of the State of Maryland.
Section 5.7 - Conformity to Securities Laws
The Optionee acknowledges that the Plan is intended to conform to
the extent necessary with all provisions of the Securities Act and the Exchange
Act and any and all regulations and rules promulgated by the Securities and
Exchange Commission thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, the Plan shall be administered,
and the Option is granted and may be exercised, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Plan and this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
[Signature Page to Follow]
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IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
Sunterra Corporation
--------------------------------------------
By:
Its:
--------------------------------------------
By:
Its:
- ----------------------------
Optionee
- ----------------------------
- ----------------------------
Address
Optionee's Taxpayer
Identification Number:
- ----------------------------
12
<PAGE> 1
EXHIBIT 10.19
THE 1998 NEW-HIRE STOCK OPTION PLAN OF
SUNTERRA CORPORATION
Sunterra Corporation, a Maryland corporation, has adopted The
1998 New-Hire Stock Option Plan of Sunterra Corporation (the "Plan"), effective
August 27, 1998, for the benefit of its eligible employees.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for eligible key Employees
(as defined below) to further the growth, development and financial success of
the Company by personally benefiting through the ownership of Company stock.
(2) To enable the Company to obtain the services of eligible key
Employees considered essential to the long range success of the Company by
offering them an opportunity to own stock in the Company.
(3) To provide a material inducement to eligible key Employees to
enter into employment contracts with the Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in this Plan
they shall have the meaning specified below, unless the context clearly
indicates otherwise.
1.2. Award Limit. "Award Limit" shall mean two hundred fifty
thousand (250,000) shares of Common Stock.
1.3. Board. "Board" shall mean the Board of Directors of the
Company.
1.4. Change in Control. "Change in Control" shall mean a change
in ownership or control of the Company effected through either of the following
transactions:
(a) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders which the Board does not recommend such
stockholders to accept; or
(b) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months (or less) such that a
majority of the Board members (rounded up to the nearest whole number)
ceases, by reason of one or more proxy
<PAGE> 2
contests for the election of Board members, to be comprised of
individuals who either (i) have been Board members continuously since
the beginning of such period or (ii) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (i) who were still in office at
the time such election or nomination was approved by the Board.
1.5. Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.6. Committee. "Committee" shall mean the Compensation Committee
of the Board, or another committee, or a subcommittee of the Board, appointed as
provided in Section 6.1.
1.7. Common Stock. "Common Stock" shall mean the common stock of
the Company, par value $.01 per share, and any equity security of the Company
issued or authorized to be issued in the future, but excluding any preferred
stock and any warrants, options or other rights to purchase Common Stock. Debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.
1.8. Company. "Company" shall mean Sunterra Corporation, a
Maryland corporation.
1.9. Corporate Transaction. "Corporate Transaction" shall mean
any of the following stockholder-approved transactions to which the Company is a
party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the State in which the Company is incorporated, form
a holding company or effect a similar reorganization as to form
whereupon this Plan and all Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation
or dissolution of the Company in a transaction not covered by the
exceptions to clause (a), above; or
(c) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those
who held such securities immediately prior to such merger.
1.10. Director. "Director" shall mean a member of the Board.
1.11. Employee. "Employee" shall mean any officer or other
employee (as defined in accordance with Section 3401(c) of the Code) of the
Company, or of any corporation which is a Subsidiary.
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1.12. Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.13. Fair Market Value. "Fair Market Value" of a share of Common
Stock as of a given date shall be (i) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares were
not traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (ii) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock on
the trading day previous to such date as reported by NASDAQ or such successor
quotation system; or (iii) if Common Stock is not publicly traded on an exchange
and not quoted on NASDAQ or a successor quotation system, the Fair Market Value
of a share of Common Stock as established by the Committee (or the Board, in the
case of grants to Independent Directors) acting in good faith.
1.14. Independent Director. "Independent Director" shall mean a
member of the Board who is not an Employee of the Company.
1.15. Non-Qualified Stock Option. "Non-Qualified Stock Option"
shall mean a stock option which does not constitute an "incentive stock option"
under Section 422 of the Code.
1.16. Option. "Option" shall mean a Non-Qualified Stock Option
granted under Article III of this Plan. All Options granted under this Plan
shall be Non-Qualified Stock Options.
1.17. Optionee. "Optionee" shall mean an Employee granted an
Option under this Plan.
1.18. Plan. "Plan" shall mean The 1998 New-Hire Stock Option Plan
of Sunterra Corporation.
1.19. QDRO. "QDRO" shall mean a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
1.20. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
1.21. Subsidiary. "Subsidiary" shall mean (i) any corporation in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain and (ii) any
partnership or limited liability company in which the Company (A) directly or
indirectly
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holds a managing partner or managing member interest or (B) is entitled to 50
percent or more of the profits or assets upon dissolution.
1.22. Termination of Employment. "Termination of Employment"
shall mean the time when the employee-employer relationship between an Optionee
and the Company or any Subsidiary is terminated for any reason, with or without
cause, including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an Optionee by
the Company or any Subsidiary, (ii) at the discretion of the Committee,
terminations which result in a temporary severance of the employee-employer
relationship, and (iii) at the discretion of the Committee, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Committee, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether particular leaves of absence
constitute Terminations of Employment. Notwithstanding any other provision of
this Plan, the Company or any Subsidiary has an absolute and unrestricted right
to terminate an Employee's employment at any time for any reason whatsoever,
with or without cause, except to the extent expressly provided otherwise in
writing.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Options granted under the Plan
shall be Common Stock, initially shares of the Company's Common Stock, par value
$.01 per share. The aggregate number of such shares which may be issued upon
exercise of such Options shall not exceed two hundred fifty thousand (250,000)
shares of Common Stock. The shares of Common Stock issuable upon exercise of
such Options may be either previously authorized but unissued shares or treasury
shares.
(b) The maximum number of shares which may be subject to Options
granted under the Plan to any individual in any fiscal year shall not exceed the
Award Limit.
2.2. Add-back of Options and Other Rights. If any Option expires
or is canceled without having been fully exercised, or is purchased by the
Company in whole or in part for cash as permitted by this Plan, the number of
shares subject to such Option but as to which such Option was not exercised
prior to its expiration, cancellation or exercise may again be optioned or
granted hereunder, subject to the limitations of Section 2.1. Furthermore, any
shares subject to Options which are adjusted pursuant to Section 7.3 and become
exercisable with respect to shares of stock of another corporation shall be
considered cancelled and may again be optioned or granted hereunder, subject to
the limitations of Section 2.1. Shares of
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<PAGE> 5
Common Stock which are delivered by the Optionee or withheld by the Company upon
the exercise of any Option under this Plan, in payment of the exercise price
thereof, may again be optioned or granted hereunder, subject to the limitations
of Section 2.1.
ARTICLE III.
GRANTING OF OPTIONS
3.1. Eligibility. Any newly hired Employee not previously
employed by the Company and with respect to whom Options are to be granted as a
material inducement to such Employee's entering into an employment contract with
the Company shall be eligible to be granted Options hereunder.
3.2. Non-Qualified Options. No Option granted under this Plan
shall constitute an "incentive stock option" under Section 422 of the Code.
3.3. Granting of Options
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:
(i) Determine which eligible Employees are key Employees
and select from among the key Employees such of them as in its opinion
should be granted Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Employees;
(iii) Determine the terms and conditions of such Options,
consistent with this Plan.
(b) Upon the selection of a key Employee to be granted an Option,
the Committee shall instruct the Secretary of the Company to issue the Option
and may impose such conditions on the grant of the Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Employee that the
Employee surrender for cancellation some or all of the unexercised Options which
have been previously granted to him under this Plan or otherwise. An Option, the
grant of which is conditioned upon such surrender, may have an option price
lower (or higher) than the exercise price of such surrendered Option, may cover
the same (or a lesser or greater) number of shares as such surrendered Option,
may contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, exercise period or any other term or condition of such
surrendered Option.
3.4. Employment Agreement. Options shall be granted only in
connection with and as a material inducement to the execution of an employment
agreement by and between
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the Optionee and the Company which shall contain such terms and conditions as
the Committee shall determine, consistent with this Plan.
ARTICLE IV.
TERMS OF OPTIONS
4.1. Option Agreement. Each Option shall be evidenced by a
written Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
4.2. Option Price. The price per share of the shares subject to
each Option shall be set by the Committee; provided, however, that such price
shall not be less than 100% of the Fair Market Value of a share of Common Stock
on the date the Option is granted.
4.3. Option Term. The term of each Option shall be set by the
Committee in its discretion; provided, however, that such term shall not be more
than ten (10) years from the date the Option is granted. Notwithstanding
anything contained herein, unless the Committee provides otherwise pursuant to
the terms of the Option, if an Option (or portion thereof) is not exercisable
solely by reason of Section 4.4(c) on the date on which such Option would
otherwise terminate pursuant to the terms of such Option, such Option (or
portion thereof) shall not terminate until three (3) months after such Option
(or portion thereof) thereafter ceases to be subject to Section 4.4(c). The
Committee may extend the term of any outstanding Option in connection with any
Termination of Employment of the Optionee, or amend any other term or condition
of such Option relating to such a termination.
4.4. Option Vesting
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in part
for a specified period after it is granted. At any time after grant of an
Option, the Committee may, in its sole and absolute discretion and subject to
whatever terms and conditions it selects, accelerate the period during which an
Option vests.
(b) No portion of an Option which is unexercisable at Termination
of Employment shall thereafter become exercisable, except as may be otherwise
provided by the Committee either in the Stock Option Agreement or by action of
the Committee following the grant of the Option.
(c) Notwithstanding anything contained herein, no Option (or
portion thereof) shall be exercisable by any person to the extent that the
Company's federal income tax deduction
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with respect to the exercise of such Option (or portion thereof) would be
subject to disallowance pursuant to Section 162(m) of the Code, or any successor
thereto.
4.5. Consideration. In consideration of the granting of an
Option, the Optionee shall agree, in the written Stock Option Agreement, to
remain in the employ of the Company or any Subsidiary for a period of at least
one year after the Option is granted (or such shorter period as may be fixed in
the Stock Option Agreement or by action of the Committee or the Board following
grant of the Option). Nothing in this Plan or in any Stock Option Agreement
hereunder shall confer upon any Optionee any right to continue in the employ of
the Company or any Subsidiary, or shall interfere with or restrict in any way
the rights of the Company and any Subsidiary, which are hereby expressly
reserved, to discharge any Optionee at any time for any reason whatsoever, with
or without good cause.
ARTICLE V.
EXERCISE OF OPTIONS
5.1. Partial Exercise. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
5.2. Manner of Exercise. All or a portion of an exercisable
Option shall be deemed exercised upon delivery of all of the following to the
Secretary of the Company or his office:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 7.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Committee may in its discretion (i) allow a delay in payment up to
thirty (30) days from the date the Option, or portion thereof, is exercised;
(ii) allow payment, in whole or in part, through the delivery of shares of
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Common Stock owned by the Optionee, duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof; (iii) allow payment, in whole
or in part, through the delivery of property of any kind which constitutes good
and valuable consideration; (iv) allow payment, in whole or in part, through the
delivery of a full recourse promissory note bearing interest (at no less than
such rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Committee or the Board, or
(v) allow payment through any combination of the consideration provided in the
foregoing subparagraphs (ii), (iii) and (iv). In the case of a promissory note,
the Committee may also prescribe the form of such note and the security to be
given for such note. The Option may not be exercised, however, by delivery of a
promissory note or by a loan from the Company when or where such loan or other
extension of credit is prohibited by law.
5.3. Conditions to Issuance of Stock Certificates. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body which the Committee or Board shall, in its absolute discretion, deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time for
reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
5.4. Rights as Stockholders. The holders of Options shall not be,
nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such holders.
5.5. Ownership and Transfer Restrictions. The Committee, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be
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set forth in the respective Stock Option Agreement and may be referred to on the
certificates evidencing such shares.
ARTICLE VI.
ADMINISTRATION
6.1. Compensation Committee. The Compensation Committee (or
another committee or a subcommittee of the Board assuming the functions of the
Committee under this Plan) shall consist solely of two or more Independent
Directors appointed by and holding office at the pleasure of the Board, each of
whom is a "non-employee director" (as defined by Rule 16b-3). Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee may be filled by the Board.
6.2. Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options are granted, and to adopt such rules
for the administration, interpretation, and application of this Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any such
grant under this Plan need not be the same with respect to each Optionee. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under this Plan except with
respect to matters which under Rule 16b-3, or any regulations or rules issued
thereunder, are required to be determined in the sole discretion of the
Committee.
6.3. Majority Rule; Unanimous Written Consent. The Committee
shall act by a majority of its members in attendance at a meeting at which a
quorum is present or by a memorandum or other written instrument signed by all
members of the Committee.
6.4. Compensation; Professional Assistance; Good Faith Actions.
Members of the Committee shall receive such compensation for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, the Company and all other interested persons. No member of the
Committee or the Board shall be personally liable for any action, determination
or interpretation made in good faith with respect to this Plan or Options, and
all members of the Committee and the Board shall be fully protected by the
Company in respect of any such action, determination or interpretation.
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ARTICLE VII.
MISCELLANEOUS PROVISIONS
7.1. Not Transferable. No Option under this Plan may be sold,
pledged, assigned, or transferred in any manner other than by will or the laws
of descent and distribution or pursuant to a QDRO, unless and until such Option
has been exercised, the shares underlying such Option have been issued, and all
restrictions applicable to such shares have lapsed. No Option or interest or
right therein shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect, except to the extent that such disposition is
permitted by the preceding sentence.
During the lifetime of the Optionee, only he may exercise an
Option (or any portion thereof) granted to him under the Plan, unless it has
been disposed of pursuant to a QDRO. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Stock Option Agreement,
be exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's will or under the then applicable laws of descent
and distribution.
7.2. Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 7.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. No amendment, suspension or termination
of this Plan shall, without the consent of the Optionee, alter or impair any
rights or obligations under any Options theretofore granted, unless the Option
itself otherwise expressly so provides. No Options may be granted during any
period of suspension or after termination of this Plan.
7.3. Changes in Common Stock or Assets of the Company,
Acquisition or Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 7.3(d), in the event that the Committee
determines that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company (including, but not limited to a
Corporate Transaction), or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event, in
the Committee's sole discretion, affects the Common Stock such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the
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benefits or potential benefits intended to be made available under the Plan or
with respect to an Option, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or
other securities or property) with respect to which Options may be
granted under the Plan (including, but not limited to, adjustments of
the limitations in Section 2.1 on the maximum number and kind of shares
which may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or
other securities or property) subject to outstanding Options, and
(iii) the grant or exercise price with respect to any
Option.
(b) Subject to Section 7.3(d), in the event of any Corporate
Transaction or other transaction or event described in Section 7.3(a) or any
unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Committee in its discretion is hereby authorized to take any one
or more of the following actions whenever the Committee determines that such
action is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to any Option under this Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee may provide,
either by the terms of the applicable Stock Option Agreement or by
action taken prior to the occurrence of such transaction or event and
either automatically or upon the Optionee's request, for either the
purchase of any such Option for an amount of cash equal to the amount
that could have been attained upon the exercise of such Option had such
Option been currently exercisable or fully vested or the replacement of
such Option with other rights or property selected by the Committee in
its sole discretion;
(ii) In its sole and absolute discretion, the Committee
may provide, either by the terms of such Option or by action taken prior
to the occurrence of such transaction or event that it cannot be
exercised after such event;
(iii) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee may provide,
either by the terms of such Option or by action taken prior to the
occurrence of such transaction or event, that for a specified period of
time prior to such transaction or event, such Option shall be
exercisable as to all shares covered thereby, notwithstanding anything
to the contrary in (i) Section 4.4 or (ii) the provisions of such
Option;
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(iv) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee may provide,
either by the terms of such Option or by action taken prior to the
occurrence of such transaction or event, that upon such event, such
Option be assumed by the successor or survivor corporation, or a parent
or subsidiary thereof, or shall be substituted for by similar options,
rights or awards covering the stock of the successor or survivor
corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and
(v) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee may make
adjustments in the number and type of shares of Common Stock (or other
securities or property) subject to outstanding Options and/or in the
terms and conditions of (including the grant or exercise price), and the
criteria included in, outstanding Options and Options which may be
granted in the future.
(c) Subject to Section 7.3(d) and 7.8, the Committee may, in its
discretion, include such further provisions and limitations in any Stock Option
Agreement, as it may deem equitable and in the best interests of the Company.
(d) No such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee determines that the Option is not to comply with such exemptive
conditions. The number of shares of Common Stock subject to any Option shall
always be rounded to the next whole number.
(e) In the event of any Corporate Transaction or Change in
Control, each outstanding Option shall, immediately prior to the effective date
of the Corporate Transaction or Change in Control, automatically become fully
exercisable for all of the shares of Common Stock underlying such Option, and
may be exercised for any or all of those shares as fully-vested shares of Common
Stock.
7.4. Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance, vesting or exercise of any Option. The Committee may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee
to elect to have the Company withhold shares of Common Stock otherwise issuable
under such Option (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld.
7.5. Loans. The Committee may, in its discretion, extend one or
more loans to key Employees in connection with the exercise or receipt of an
Option granted under this Plan. The terms and conditions of any such loan shall
be set by the Committee.
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7.6. Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to Options under the Plan, the
Committee shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16b-3) to provide, in the terms of any Option
granted under the Plan, or to require the recipient to agree by separate written
instrument, that (i) any proceeds, gains or other economic benefit actually or
constructively received by the recipient upon any receipt or exercise of the
Option, or upon the receipt or resale of any Common Stock underlying such
Option, must be paid to the Company, and (ii) the Option shall terminate and any
unexercised portion of such Option (whether or not vested) shall be forfeited,
if (a) a Termination of Employment occurs prior to a specified date, or within a
specified time period following receipt or exercise of the Option, or (b) the
recipient at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable).
7.7. Limitations Applicable to Section 16 Persons and
Performance-Based Compensation. Notwithstanding any other provision of this
Plan, this Plan, and any Option granted to any individual who is then subject to
Section 16 of the Exchange Act, shall be subject to any additional limitations
set forth in any applicable exemptive rule under Section 16 of the Exchange Act
(including any amendment to Rule 16b-3 of the Exchange Act) that are
requirements for the application of such exemptive rule. To the extent permitted
by applicable law, the Plan and Options granted hereunder shall be deemed
amended to the extent necessary to conform to such applicable exemptive rule.
7.8. Effect of Plan Upon Options and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (i) to establish any other forms of
incentives or compensation for Employees, Independent Directors or consultants
of the Company or any Subsidiary or (ii) to grant or assume options or other
rights otherwise than under this Plan in connection with any proper corporate
purpose including but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, firm or association.
7.9. Compliance with Laws. This Plan, the granting and vesting of
Options under this Plan and the issuance and delivery of shares of Common Stock
and the payment of money under this Plan or under Options granted hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the
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extent permitted by applicable law, the Plan and Options granted hereunder shall
be deemed amended to the extent necessary to conform to such laws, rules and
regulations.
7.10. Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Plan.
7.11. Governing Law. This Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the State
of Maryland without regard to conflicts of laws thereof.
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EXHIBIT 21
SUBSIDIARIES OF SIGNATURE RESORTS, INC.
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
<S> <C>
AKGI - St. Maarten, N.V...................... Delaware and Netherlands Antilles
All Seasons Resorts, Inc..................... Arizona
All Seasons Resorts, Inc..................... Texas
Grand Beach Resort, Limited Partnership...... Georgia (limited partnership)
Greensprings Associates...................... Virginia (joint venture)
Herich Tahoe Development..................... Nevada (general partnership)
Lake Tahoe Resort Partners, LLC.............. California (limited liability company)
MMG Development Corp. ....................... Florida
Poipu Resort Partners, L.P. ................. Hawaii (limited partnership)
Port Royal Resort, L.P. ..................... South Carolina (limited partnership)
Powhatan Associates ......................... Virginia (joint venture)
Signature Grand Villas, Inc. ................ U.S. Virgin Islands
Sunterra Pacific, Inc. ...................... Washington
Torres Mazatlan S.A. de C.V. ................ Mexico
Torres Vallarta S.A. de C.V. ................ Mexico
West Maui Resort Partners, L.P. ............. Delaware (limited partnership)
</TABLE>
<PAGE> 1
[ARTHUR ANDERSEN LLP LOGO]
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into Sunterra
Corporation's (formerly Signature Resorts, Inc.) previously filed Registration
Statement File Nos. 333-63621, 333-47215, 333-46511, 333-15361, 333-30285 and
333-09096.
March 29, 1999,
Orlando, Florida
<PAGE> 1
EXHIBIT 23.2
[KPMG LETTERHEAD]
The Board of Directors and Shareholders
LSI Group Holdings Plc
Pine Lake Resort
CARNFORTH
Lancashire
LA6 IJZ
29 March 1999
Dear Sirs:
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements Nos.
333-15361, 333-30285, 333-46511, 333-47215, 333-63621 and 333-09096 of Sunterra
Corporation (formerly Signature Resorts Inc.) of our report dated March 27, 1997
(copy attached), with respect to the consolidated financial statements of LSI
Group Holdings Plc at December 31, 1996, which report appears in the December
31, 1998 annual report on form 10-K of Sunterra Corporation.
Yours sincerely,
KPMG
Chartered Accountants
<PAGE> 1
EXHIBIT 23.3
CONSENT OF EXPERT
We hereby consent to the reference to our firm in Signature Resorts,
Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
under the caption "Applicability of Federal Securities Laws to the Sale of
Vacation Interests" in the section entitled "Business and Properties."
SCHREEDER, WHEELER & FLINT, LLP
Dated: March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 54,201
<SECURITIES> 0
<RECEIVABLES> 358,851
<ALLOWANCES> 22,869
<INVENTORY> 336,620
<CURRENT-ASSETS> 0
<PP&E> 81,125
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,021,132
<CURRENT-LIABILITIES> 0
<BONDS> 478,000
0
0
<COMMON> 359
<OTHER-SE> 251,354
<TOTAL-LIABILITY-AND-EQUITY> 1,021,132
<SALES> 359,426
<TOTAL-REVENUES> 449,954
<CGS> 85,649
<TOTAL-COSTS> 249,477
<OTHER-EXPENSES> 71,349
<LOSS-PROVISION> 12,616
<INTEREST-EXPENSE> 43,767
<INCOME-PRETAX> 72,745
<INCOME-TAX> 28,371
<INCOME-CONTINUING> 44,374
<DISCONTINUED> 0
<EXTRAORDINARY> 129
<CHANGES> 1,466
<NET-INCOME> 42,779
<EPS-PRIMARY> 1.19<F1>
<EPS-DILUTED> 1.16
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
