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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
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, 1999
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)
Maryland 95-458215-7
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
1781 Park Center Drive
Orlando, Florida 32835
"www.sunterra.com"
(Address of Principal Executive Offices)
(407) 532-1000
(Registrant's telephone number, including area code)
Securities registered pursuant Name of Each Exchange
to Section 12(b) of the Act: on Which Registered:
Common stock, $.01 par value New York Stock Exchange
(Title of Class)
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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: YES [X] NO [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sales price of the common stock on March 15,
2000, as reported on the New York Stock Exchange, was approximately $ 84
million. At March 15, 2000 there were 35,982,193 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's proxy statement for the 2000 annual
meeting of stockholders to be held on May 12, 2000 are incorporated by reference
in Part III of this Form 10-K.
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SUNTERRA CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 1999
TABLE OF CONTENTS
Item Page
Number Number
- ------ ------
PART I
1. Business............................................. 1
2. Properties........................................... 21
3. Legal Proceedings.................................... 22
4. Submission of Matters to a Vote of Security Holders.. 23
PART II
5 Market for the Registrant's Common Equity and
Related Stockholder Matters........................ 23
6. Selected Financial Data.............................. 24
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 26
7A. Quantitative and Qualitative Disclosures
about Market Risk.................................. 34
8. Financial Statements and Supplementary Data.......... 35
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures............... 35
PART III
10. Directors and Executive Officers of the Registrant... 35
11. Executive Compensation............................... 35
12. Security Ownership of Certain Beneficial Owners
and Management..................................... 36
13. Certain Relationships and Related Transactions....... 36
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 36
Signatures........................................... 41
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PART I
Special Cautionary Notice Regarding Forward-Looking Statements
We believe that it is important to communicate our future expectations to
our stockholders and to the public. This report contains forward-looking
statements, including in particular the statements about our plans, objectives,
expectations and prospects under the headings "Item 1. Business" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this report. Additionally, the "Letter from the CEO" and other
sections of our 1999 Annual Report contain forward-looking statements. You can
identify these statements by forward-looking words such as "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "seek" and similar
expressions. Although we believe that the plans, objectives, expectations and
prospects reflected in or suggested by our forward-looking statements are
reasonable, those statements involve uncertainties and risks, and we can give no
assurance that our plans, objectives, expectations and prospects will be
achieved. Important factors that could cause our actual results to differ
materially from the results anticipated by the forward-looking statements are
contained in "Item 1. Business-Factors Affecting Future Performance" and
elsewhere in this report. All written or oral forward-looking statements
attributable to us are expressly qualified in their entirety by these cautionary
statements.
ITEM 1. BUSINESS
Introduction
Sunterra Corporation is the world's largest vacation ownership company, as
measured by resort locations and owner families. As of March 15, 2000, we have
90 resort locations in North America, Europe, the Caribbean and Japan. Through
both internal development and strategic acquisitions, we have expanded the
number of our resort locations and our owner family base from 9 resort locations
and approximately 25,000 owner families at the time of our August 1996 initial
public offering to 90 resort locations and approximately 300,000 vacation owner
families as of March 15, 2000.
Our operations consist of:
. marketing and selling to the public at our resort locations and off-
site sales centers:
. vacation ownership interests which entitle the buyer to use a
fully-furnished vacation residence, generally for a one-week period
each year in perpetuity, which we refer to as "vacation intervals";
and
. vacation points which may be redeemed for occupancy rights for
varying lengths of stay at participating resort locations,
. acquiring, developing and operating vacation ownership resorts,
. operating our Club Sunterra membership program,
. providing consumer financing to individual purchasers for the purchase
of vacation intervals and vacation points, which we refer to together
as "vacation interests," at our resort locations and off-site sales
centers, and
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. providing resort rental, management, maintenance and collection
services for which we receive fees paid by the resorts' homeowners'
associations.
We provide mortgage financing for approximately 65% of our vacation
interests sales. In addition to enhancing sales revenues, financing customer
receivables generates profit margins and cash flows from the spread between the
interest rates that we charge on our mortgages receivable and our cost of
capital. This financing is typically collateralized by the underlying vacation
interests.
Recent Developments
Fourth Quarter Accounting Charges. In the fourth quarter of 1999, we
recorded a $43 million after-tax charge related to our mortgages receivable.
This charge is the result of an in-depth review of our balance sheet, which we
initiated at year-end. The $43 million after-tax charge consisted of:
. $27 million related to the write-off of receivables that were either 180
days or more past due or were 60 days or more delinquent after paying
only the initial down payment;
. $6 million related to accrued interest on those mortgages receivable;
. $4 million related to homeowners' association receivables;
. $4 million related to an adjustment in the retained interest in
mortgages receivable that we previously sold; and
. $2 million related to the write-down of a receivable from a marketing
company that is no longer supplying tours to us.
Also, during the fourth quarter of 1999, we recorded:
. a $10 million after-tax charge related to a re-evaluation of non-core
properties that we will market to prospective buyers as hotels rather
than timeshare projects as we originally developed them; and
. a $2 million after-tax charge related to capitalized debt costs and to
costs associated with acquisitions that we have now terminated.
Gross mortgages receivable at December 31, 1999 were $264 million, and the
allowance for bad debts net of estimated recoveries was $20 million, or 7.6%.
Mortgages receivable that were 180 days or more delinquent have been written off
pursuant to a policy that we adopted in the fourth quarter. In addition, we have
taken steps to ensure that, on a going-forward basis, all mortgages receivable
that are in default after paying only the initial down payment will be reversed
against sales when they become 60 days overdue. Our reserve for doubtful
accounts is based on a thorough aging and analysis of all receivables, with
progressively larger reserves taken for receivables as they become more
delinquent.
Senior Management Changes. In January 2000, our board of directors
appointed Richard Harrington as our chief executive officer to succeed L. Steven
Miller, who resigned from that position in January. Mr. Harrington was the chief
executive officer of our European subsidiary. Also in January 2000, our Board of
Directors appointed James Brocksmith, Jr., a former Deputy Chairman of the Board
and Chief Operating Officer of KPMG, to our board. In February 2000, our board
of directors appointed J. Taylor Crandall, the Chief Operating Officer of
Keystone, Inc., as our interim chairman of the Board, succeeding co-chairmen
Andrew J. Gessow and Steven C. Kenninger, and appointed T. Lincoln Morison,
former executive vice president of the First National Bank of Boston, as our
co-chief executive officer and president.
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Until May 1, 2000, Mr. Morison will share the chief executive officer
position with Mr. Harrington. Thereafter, Mr. Harrington will serve as non-
executive chairman of our European subsidiary and continue to serve as a
director of Sunterra Corporation and Mr. Morison will serve as our sole Chief
Executive Officer.
Acquisitions of Interests in New Resorts. Through our European subsidiary,
we made three acquisitions in 1999. In January we acquired a resort in Soriano
nel Cirino, Italy approximately 60 minutes outside of Rome; in May we acquired
Broome Park Resort in Canterbury, England; and in October we acquired Alpenclub
Schliersee, a resort in Bavaria, Germany. Each of these resorts will be included
in the Grand Vacation Club ("GVC"). In addition, through our Japanese
subsidiary, we entered into a leasing agreement with respect to eight units
located at one resort in Izu, Japan which will be included in Sunterra Japan
Vacation Club.
In the United States, we completed affiliation agreements with three
Florida resorts: the Coconut Mallory Marina and Resort in Key West, the Coconut
Palms Beach Resort in New Smyrna and the Vacation Villas at Fantasyworld in
Orlando.
We had previously entered into partnerships with affiliates of Westin
Hotels to acquire, develop, manage, operate, market and sell vacation interests
in a resort located in St. John, United States Virgin Islands and a resort to be
developed in Rancho Mirage, California. On December 10, 1999, we and our
subsidiary sold our interests in these partnerships to Starwood Hotels & Resorts
Worldwide, Inc., the parent company of Westin Hotels.
Business Strategy
Our business strategy is designed to:
. implement Club Sunterra and grow its vacation club membership base,
. expand our resort network through development and acquisition,
. increase sales through existing and future resort locations and off-site
sales centers,
. improve operating efficiencies and profitability, and
. expand our rental services and property management businesses.
Club Sunterra. We have introduced Club Sunterra at our on-site and off-site
sales centers. 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, called SunOptions, as a vacation
currency. We believe that the flexibility of the Club Sunterra product will
expand the market for vacation ownership, as it is designed to evolve with an
owner's lifestyle changes, and enable us to target a wider base of customers.
Through Club Sunterra, we believe that we have created a superior product
which provides customers with the variety and flexibility they desire in their
vacation experiences. We also believe that Club Sunterra increases the value of
vacation ownership by offering customers a 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.
In addition, we receive from each Club Sunterra member annual recurring
membership fees, which currently are $139 per member per year. This fee entitles
the member to participate in the Club Sunterra vacation ownership system,
including exchanges within the Club Sunterra resort network at no additional
charge, and an annual membership to a third party exchange company for exchanges
outside of the Club Sunterra resort network, for which the third party exchange
companies charge an additional fee.
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For certain affiliated, non-owned resorts, this fee may be higher due to
preexisting contracts with third party exchange companies.
Expand Resort Network. A larger network of resorts provides our owners,
guests and potential customers more vacation choices. With the implementation of
Club Sunterra, we are able to provide to current and future owners more options
to customize their vacations.
In addition, the expanded network of resorts will provide a greater base of
resorts from which to market and sell vacation interests, leverage the
development costs of more sophisticated delivery and support systems, and create
a consumer brand.
We believe that we have achieved a leading position in the industry by
developing and acquiring desirable resorts at attractive prices. We also
believe that our proven acquisition and development record and public company
status give us a competitive advantage in acquiring assets, businesses and
operations in the fragmented vacation ownership industry. Our continued
development of our infrastructure, building of our management team, and
implementation of Club Sunterra further enable us to successfully integrate
future acquisitions into our operations.
Increase Sales. We intend to increase sales of vacation interests through
the implementation of our more flexible vacation ownership product, Club
Sunterra. Through Club Sunterra, customers have access to our 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. We believe 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. The use of SunOptions increases customer
contact with our projects which, over time, will increase each customer's
affinity with Club Sunterra and our Sunterra Resorts brand.
Improve Operating Efficiencies and Profitability. We intend 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, we
anticipate that we will be able to lower our costs associated with delivering
services.
Expand Rental Services and Property Management Businesses. We intend to
expand our rental services operations and property management business. We
believe an efficient rental market does not currently exist with respect to
vacation ownership resorts, other resorts and condominium accommodations. We
intend to develop services that are designed to increase efficiency in the
rental market and capitalize on the growing need to provide owners with
flexibility associated with rental of their accommodations. We intend to pursue
these opportunities by utilizing our traditional sales channels and through our
Club Sunterra reservations systems. Additionally, we believe that substantial
opportunities exist to increase our property management business, both for owned
vacation ownership resorts and for other vacation ownership resorts as well as
hotels, condominiums and other types of resorts.
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
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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. We believe 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.
Increased governmental 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 International ("Marriott"), The
Walt Disney Company ("Disney"), Four Seasons Hotels & Resorts ("Four Seasons"),
Hilton Hotels Corporation ("Hilton"), Hyatt Corporation ("Hyatt"), and Starwood
Hotels and Resorts Worldwide, Inc. ("Starwood"), have enhanced the industry's
image and increased consumer satisfaction.
We believe that we have significant opportunities to capitalize on positive
industry dynamics including continued worldwide industry growth and favorable
trends in consumer demographics. The large "Baby Boom" market segment is
projected to reach its greatest concentration in the next ten years, with an
estimated 40 million people turning 50 years old during that period.
Additionally, the "Generation X" market segment has a higher awareness of and
receptivity to vacation ownership products than 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 aged 45 to 60 represent a
market with significant discretionary income and are one of the vacation
ownership industry's primary target markets. In addition, we 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.
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,
usually in perpetuity. Typically, the buyer acquires an ownership interest in
the vacation residence, which is generally held in fee simple.
The owners of vacation intervals at each resort usually 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, 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 the overall cost of maintaining the property. These charges, which
are generally $300 to $700 per year, per vacation interval, generally consist of
an annual maintenance fee plus applicable real estate taxes and, when needed,
special assessments. 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.
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Points-Based Vacation Ownership
In general, under a points-based vacation ownership system, owners, which
we usually refer to as "members", purchase points which act as an annual
currency exchangeable for occupancy rights at any of the club's participating
resorts. Our Club Sunterra points-based vacation ownership system operates on a
basis very similar to the standard vacation interval ownership structure in that
members usually 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 those members can exchange their week through an external
exchange organization such as Resort Condominiums International, LLC, or "RCI",
or Interval International, Inc., or "II". Because vacation points function as
currency under a points-based vacation ownership system, owners can, subject to
availability and other factors, choose the location, season, duration and unit
size of their vacation interest, 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 their
respective external exchange organization for vacation stays at resorts outside
of the Club Sunterra resort network if they desire, as the $139 annual Club
Sunterra membership fee usually includes annual membership in one of these
exchange organizations. A separate exchange fee will be charged by RCI and II.
Each vacation points owner is required to pay the homeowners' association a
share of all costs of maintaining their home resort property (depending on the
vacation interest owned). These charges generally 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.
We currently operate four points-based vacation ownership systems: Club
Sunterra (currently 27 resort locations in the United States), Sunterra Europe -
GVC (currently 26 resort locations in Europe), Sunterra Pacific -- VTS Program
(currently 22 resort locations in North America) and Sunterra Japan -- SJVC
(currently 4 resort locations in Japan). In addition to attracting new owners,
we will market Club Sunterra to our existing base of owner families.
Participation in Vacation Interest Exchange Networks
We believe that our vacation interests are made more attractive by our
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 interest. Participation in RCI and II allows our
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.
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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. RCI and II attempt to satisfy the members
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.
Sales and Marketing
Our primary means of selling vacation interests is through both our on-site
and off-site sales centers. 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
in the form of entertainment tickets, hotel stays, gift certificates or free
meals, are offered to guests and other potential customers to encourage resort
tours. Our 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 customers are identified through various means, and
are intended to include current owners of vacation interests.
Consumer Financing
In the United States, we offer consumer financing to the purchasers of our
vacation interests 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, 1999, our mortgages receivable portfolio included
approximately 29,000 promissory notes totaling approximately $264 million, with
a stated maturity of typically seven to ten years and a weighted average
interest rate of 14.3% per year. Mortgages receivable in excess of 60 days past
due at December 31, 1999 were 7.1% as a percentage of gross mortgages
receivable. Our allowance for doubtful accounts, net of estimated recoveries,
was 7.6% as a percentage of gross mortgages receivable.
Our European subsidiary 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 1% commission
contingent on the Company meeting certain volume thresholds) of the principal
amount of eligible consumer loans on a non-recourse basis.
Acquisitions
We obtain information with respect to resort acquisition opportunities
through interaction by our management team with resort operators, real estate
brokers, lodging companies and financial institutions with whom we have
established business relationships. From time to time, we are also contacted by
lenders and property owners who are aware of our development, management,
operations and sales expertise with respect to vacation resort properties.
Rental Operations
We generate additional revenue by renting the unsold or unused vacation
interests at certain of our resorts. We rent unoccupied units through direct
consumer sales, travel agents and/or vacation package wholesalers. In addition
to providing supplemental revenue, we believe room-rental operations provide us
with a good source of potential customers for the purchase of vacation
interests. As part of the management services we provide to vacation interests
owners, we receive a fee for services provided to rent an owner's vacation
interest in the event the owner is unable to use or exchange their vacation
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interest. In addition, we have purchased traditional resort condominiums and
resort hotels with the intention of converting each such resort location to a
vacation ownership property. Until a unit is sold as vacation interests, we 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
We generally manage our resorts pursuant to management agreements with the
local homeowner association, although our Embassy Vacation Resort ("EVR") Grand
Beach and EVR Lake Tahoe are managed by Promus pursuant to a management
agreement we have with them. At December 31, 1999, we managed 27 Sunterra
Resorts, two EVR resorts, 19 Sunterra Pacific resorts, 27 Sunterra Europe
resorts, and 3 Sunterra Japan resorts. We also manage third party units at an
additional 18 resorts in Hawaii, and 3 in Florida. The remaining resort
locations are managed by third party management companies.
At each of the resorts we manage, we enter into an agreement to provide for
management and maintenance of the resort. Pursuant to each such management
agreement, we are 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, we have 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, we generally also obtain comprehensive
and general public liability insurance, all-risk property insurance, business
interruption insurance and such other insurance as is customarily obtained for
similar properties. We also usually provide 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 and employee training. At EVR Grand Beach and EVR Lake Tahoe,
Promus provides these services, and we share in the profit. Our European
subsidiary manages each resort in GVC pursuant to contracts that typically
provide for a management fee of 15% of monthly maintenance fees.
Competition
We compete 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, Carlson Companies, 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. The majority of the approximately 5,000 worldwide
vacation ownership resorts are owned and operated by smaller, regional
companies.
We also compete with the buyers of our vacation intervals who subsequently
decide to resell those vacation intervals. While we believe, based on experience
at our 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 us
at a given resort or by our competitors in the market in which each resort is
located could be depressed by a substantial number of vacation intervals offered
for resale.
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Insurance
We carry comprehensive general liability, fire, flood, windstorm and
earthquake insurance with additional coverage for business interruption arising
from insured perils for our resort locations and corporate offices. The
insurance policy specifications, insured limits and deductibles are similar to
those carried by other resort hotel operators and we believe them to be
adequate. In August 1998, our St. Maarten and St. Croix resorts were damaged by
Hurricane Georges. Approximately 80% of the property damage, less the
applicable deductible of $1,000,000, has been recovered from the insurance
companies, and we anticipate the remaining balance will be recovered once the
insurance company inspects the completed repairs. A claim is pending for
compensation for business interruption at the affected resorts, and we
anticipate the claim will be concluded with the insurance company this year.
Additionally, in November of 1999, our St. Maarten resorts were again damaged by
Hurricane Lenny. Insurance payments for the property damage are forthcoming,
and the insurance companies have agreed to the scope of damage and have made
advance payments to pay for the repairs which are underway. In accordance with
the industry practice for Caribbean resorts, we carry a 2% windstorm deductible,
which in this instance is approximately $1,900,000. We anticipate filing a
business interruption claim once the full impact of the storm has been assessed.
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.
Trademarks
We own and control 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 our business. We believe, however,
that our business as a whole does not materially depend on any one intellectual
property or related group of such properties. We are licensed to use technology
and other intellectual property rights owned and controlled by others, and,
similarly, we license other companies to use technology and other intellectual
property rights owned and controlled by us.
Governmental Regulation
Our marketing and sales of vacation interests are subject to extensive
regulations by the federal government and the states and foreign jurisdictions
in which our 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 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 us to file with a designated state authority, for
its approval, a detailed offering statement describing ourselves and all
material aspects of the project and sale of vacation interests. The laws of
California require us 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, we are 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 we sell vacation interests
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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 10 calendar
days following the later of the date the contract was signed or the date the
purchaser received the last of the documents which we are required to provide to
him. Most states have other laws that regulate our activities such as real
estate licensure, exchange program registration, sellers of travel licensure,
anti-fraud laws, telemarketing laws, prize, gift and sweepstakes laws, and labor
laws. We believe that we are in material compliance with all federal, state,
local and foreign laws and regulations to which we are currently or may be
subject. However, no assurance can be given that we will not incur significant
costs in qualifying under vacation interest ownership regulations in all
jurisdictions in which we desire to conduct sales. Any failure to comply with
applicable laws or regulations could have a material adverse effect on us.
During 1999 we received a subpoena from the Office of the Attorney General
of the State of Florida as part of an inquiry of certain marketing practices of
timeshare developers. Following discussions with that office, we provided
certain material and believe the inquiry is over.
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 us 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 us in negative public relations and potential litigation and
regulatory sanctions.
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 we believe that our resorts are substantially in compliance with
laws governing the accessibility of our facilities to disabled persons, a
determination that we are 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. We are likely to incur additional costs of complying with
the ADA; however, such costs are not expected to have a material adverse effect
on our 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. We are 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 our business, assets
or results of operations.
We sell vacation interests at our resort locations through independent
sales agents. Such independent sales agents provide services to us under
contract and, we believe that they are not employees. Accordingly, we do 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 our employees,
rather than as independent contractors, and hold us liable for back payroll
taxes, such reclassification may have a material adverse effect on us.
The marketing and sales of the GVC points-based vacation ownership system
and our other operations are subject to national and European regulation and
legislation. Within the European Community (which includes all the countries in
which we conduct our operations), the European Timeshare Directive of 1994
regulates vacation ownership activities. The terms of the Directive require
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us to issue a disclosure statement providing specific information about our
resorts and our 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
our 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 we are 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 we operate have consumer and other laws which
regulate our activities in those countries. We are a founder member of the
Organization for Timeshare in Europe (OTE) which is the European self regulating
trade body for vacation ownership companies. As a member, we are 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 OTE.
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 our properties, we potentially
may be liable for such costs. In addition, as a result of the consummation of
the acquisitions, we 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 our
ownership and operation of our properties, we potentially may be liable for such
costs.
In connection with our acquisition and development of resort properties in
Lake Tahoe, Nevada and San Luis Bay, California, several areas of environmental
concern have been identified. The areas of concern at the Lake Tahoe resort
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
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site as a result of leaking underground storage tanks that were removed prior to
our 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. We have been
indemnified by Chevron (USA), Inc. for certain costs and expenses in connection
with the off-site contamination. We do not believe that we will be held liable
for this contamination and do 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.
Our resort in 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. It is possible that our operations could
be adversely impacted, including possible temporary interference with access to
the resort site and temporary loss of beach access. We do not believe that we
are liable for this contamination and do not anticipate incurring material costs
in connection therewith; however, there can be no assurance that claims will not
be asserted against us with respect to this matter.
Employees
As of December 31, 1999, we had approximately 7,800 full and part time
employees. We have also engaged approximately 1,000 independent sales agents to
sell vacation ownership interests. We believe that relations with our employees
and independent sales agents are good. Only a minimal number of employees are
represented by labor unions, including certain employees located at the St.
Maarten, Netherlands Antilles resorts and certain employees at two resorts in
Hawaii who voted for representation by a union. Negotiations for a first
contract with the employees at the Hawaii resorts are in progress.
Factors Affecting Future Performance
Risk of Increasing Leverage; Liquidity
At December 31, 1999, we had approximately $682.0 million of outstanding
indebtedness, excluding accounts payable.
To finance our vacation interests sales, we monetize the related mortgages
receivable through the use of an off-balance sheet conduit, securitizations, on-
balance sheet hypothecations, whole mortgages receivable sales, and other
vehicles. In Europe we originate the mortgages receivable for a third party
institution and receive a commission.
As of December 31, 1999, our primary credit facilities were: a $100 million
mortgages receivable conduit facility ("conduit facility") for the non-recourse
sale of mortgages receivable, most of which are subsequently sold into asset-
based securitizations; an on-balance sheet revolving $60 million senior credit
facility ("senior credit facility"), with a group of banks that uses mortgages
receivable as collateral; a $14 million mortgages receivable bulk purchase line
and a $15 million forward purchase commitment for the sale of mortgages
receivable; a $15 million pre-sale/unseasoned line of credit to finance pre-sale
notes and certain mortgages receivable ("pre-sale line"); and a $50 million
revolving inventory line of credit ("inventory line") to finance unsold vacation
interests inventory.
In the first quarter of 2000, funding availability under our credit
facilities was curtailed based on anticipated covenant violations that would be
reported for the 1999 fourth quarter. As a result, the full use of these
facilities was temporarily withheld, and access to liquidity under these
facilities was granted on an individual request basis pending the completion of
waivers and amendments to the related agreements.
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Presently, these waivers and amendments are in place and provide for
our compliance with the covenants and terms of the agreements as of December 31,
1999. Access to the availability under these facilities was also reestablished,
although on a limited basis as compared to the original terms of the facilities.
On February 9, 2000, we agreed to limit the maximum aggregate amount
available under the conduit facility to $64.1 million. The remaining
availability under this limitation of $12.8 million was drawn in February 2000.
On March 9, 2000 we amended our senior credit facility which, in addition to
other changes to the agreement, limited the amount that could be borrowed under
the senior credit facility to $35.4 million. The remaining availability under
this limitation of $12.2 million was used during the first quarter of 2000. On
March 20, 2000 a waiver was granted to our pre-sale line which, in
addition to other changes to the agreement, limited the amount that could be
borrowed under the pre-sale line to $9.6 million. The remaining
availability of $0.6 million has not been borrowed. After December 31, 1999,
additional receivable sales to the bulk purchase line and forward purchase
commitment for mortgages receivable are to be made at the discretion of the
provider.
On March 20, 2000 we amended our inventory line which, among other changes,
increased amounts available by $25 million. As of March 16, 2000, $15.6 million
remained available under the inventory line.
In 1999 we continued our program of non-recourse sales of mortgages
receivable. We sold $136.6 million of mortgages receivable through the conduit
facility and also sold an additional $20.4 million of mortgages receivable in
seven separate transactions throughout the year. We securitized $106.8 million
of mortgages receivable in May 1999 and securitized another $65.2 million of
mortgages receivable in December 1999, of which $143.0 million had previously
been sold into the conduit facility in 1998 and 1999.
Markets for our 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
these markets or a decrease in our ability to access these markets could
materially adversely affect our results of operations, cash flows and capital
resources.
The indentures for our $140 million 9 1/4% senior notes due 2006 and our
$200 million 9 3/4% senior subordinated notes due 2007 contain covenants that,
among other things, limit and/or condition our ability and the ability of our
restricted subsidiaries to incur additional indebtedness, pay dividends or make
other distributions with respect to our capital stock or that of our restricted
subsidiaries, create certain liens, sell certain of our assets or assets of our
restricted subsidiaries and enter into certain mergers and consolidations. In
addition, certain of our other indebtedness that is not subordinated by its
terms in right of payment to any indebtedness or other obligation of ours
("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 our business or property; the sale of assets; and
the making of capital expenditures.
Certain of our senior indebtedness, including the senior credit facility,
also require us 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 our other senior indebtedness may be entitled to
declare such indebtedness immediately due and payable.
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We have made recent changes in our senior management team, and we can give no
assurances that our senior management team will function effectively together.
In January 2000, our board of directors appointed Richard Harrington as our
chief executive officer to succeed L. Steven Miller, who resigned from those
positions in January. In February 2000, our board of directors appointed J.
Taylor Crandall as our interim chairman of the board, succeeding co-chairmen
Andrew J. Gessow and Steven C. Kenninger, and appointed T. Lincoln Morison as
our co-chief executive officer and president. Until May 1, 2000, Mr. Morison
will share the chief executive officer position with Mr. Harrington. Thereafter,
Mr. Harrington will serve as non-executive chairman of our European subsidiary,
and Mr. Morison will serve as our sole chief executive officer. These new
executive officers have not previously worked together to any significant
extent. Our future performance depends significantly on their ability to work
successfully with each other and with other members of our management team and
board of directors. Further, the loss or interruption of the services of any of
these executive officers could have a material adverse effect on our business,
financial condition and results of operations.
In providing financing to purchasers of vacation interests, we face interest
rate risks, significant risks of default and substantial costs in the event of
defaults.
We offer customer financing to the purchasers of vacation interests at our
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. We have entered into agreements with lenders for the financing and
sale of customer receivables.
We have historically derived income from our financing activities. At
December 31, 1999, our mortgages receivable portfolio included approximately
29,000 promissory notes totaling approximately $264 million, a weighted average
maturity of about eight years, and a weighted average interest rate of 14.3% per
year. At year-end, borrowings against these receivables included $51 million of
variable-rate debt. Because our loans to buyers of vacation interests bear
interest at fixed rates, we bear the risk of increases in interest rates with
respect to the variable-rate loans we have from our lenders. In addition, the
promissory notes are pre-payable at any time without penalty; to the extent that
market interest rates decrease, we face an increased risk that customers will
pre-pay their loans and reduce our income from financing.
We bear the risk of defaults by buyers who financed the purchase of their
vacation interests through us. We do not, however, bear the risk of defaults
with respect to outstanding principal balances on mortgages receivable that we
have sold to third parties. Mortgages receivable in excess of 60 days past due
at December 31, 1999 were 7.1% as a percentage of gross mortgages receivable.
Our allowance for doubtful accounts, net of recoveries, was 7.6% as a percentage
of gross mortgages receivable. If actual results vary significantly from our
estimates, we may sustain significant losses.
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If a buyer of a vacation interest defaults on a mortgage receivable, we may
foreclose and recover the underlying vacation interest. However, we will incur
relatively substantial costs in foreclosing on the vacation interest, returning
it to inventory and reselling it. In addition, although in many cases we may
have recourse against vacation interest purchasers and sales agents for the
purchase price paid and for commissions paid, respectively, we can give no
assurance 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. We are subject to the costs and delays associated with the
foreclosure process, and we can give no assurance 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 our results of operations.
We can give no assurances that we can effectively integrate Club Sunterra with
our existing operations
We developed our Club Sunterra points-based vacation exchange system, which
offers points-based exchanges throughout our worldwide network of resort
locations. Although we have purchased and operated points-based vacation
ownership systems through some of the companies that we have acquired, we have
not previously developed a company-wide points-based vacation ownership system,
and no assurance can be given as to our ability to efficiently develop or
operate such a company-wide system. Risks associated with the operation of our
Club Sunterra company-wide points-based vacation ownership system include the
risks that:
. the North American points-based vacation ownership systems cannot be
efficiently combined or operated with our 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.
Seasonal and other factors outside our control may affect our operations and
cause fluctuations in our quarterly operating results.
We have historically experienced and expect to continue to experience
seasonal fluctuations in our 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, our annual operating results could be
materially adversely affected.
Due to the foregoing and other factors, we believe that our 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 our operating results will be below the expectations of securities market
analysts and investors, which could have an adverse effect on the market value
of our common stock. Numerous factors, including announcements of fluctuations
in our or our 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 our 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 such companies. These broad fluctuations may adversely affect the
market price of our common stock.
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Our strategy of growth through construction and acquisition of resorts entails
numerous risks which could cause us to incur significant expenses.
A principal component of our strategy has been to grow through development
and construction of new resort locations and acquisition of existing resort
locations. Risks associated with our 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.
A failure by us to successfully complete our development, construction,
redevelopment, conversion, acquisition and expansion activities may have a
material adverse effect on our results of operations.
Any downturn in general economic or industry conditions could decrease the
demand for vacation ownership units, impair our ability to collect our mortgages
receivable and increase our costs.
Any downturn in economic conditions or any price increases related to the
travel and tourism industry, such as higher airfares or increased gasoline
prices, could depress discretionary consumer spending and have a material
adverse effect on our business. Any such economic conditions, including
recession, may also adversely affect the future availability of attractive
financing rates for us or our customers and may materially adversely affect our
business. Furthermore, changes in general economic conditions may adversely
affect our ability to collect our loans to vacation interest buyers. Because our
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 regulation of the industry, increases
in construction costs or taxes, and negative publicity for the industry, could
have a material adverse effect on our operations.
We face significant competition from many of the world's most established and
recognized lodging, hospitality and entertainment companies as well as from
buyers who later resell their vacation interests.
We are subject to significant competition at each of our 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, and Starwood. Many of these
entities possess significantly greater financial, marketing, personnel and other
resources than we do and may be able to grow at a more rapid rate or more
profitably as a result. We also compete with other established vacation
ownership companies.
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In addition, we compete with the buyers of our vacation intervals who
subsequently decide to resell those vacation interests. While we believe, based
on experience at our resorts, that the market for resale of vacation interests
by buyers is presently limited, such resales are typically at prices
substantially less than the original purchase price. The market price of
vacation intervals that we sell at a given resort or by our competitors in the
market in which each resort is located could be depressed by a substantial
number of vacation interests offered for resale.
If we are unable to offer purchasers of vacation interests the opportunity to
participate in effective exchange networks, our sales of vacation interests will
suffer.
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 the
American Resort Development Association, 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 our resort locations are currently qualified for participation in either the
RCI or II exchange networks. If these exchange networks cease to function
effectively, or if our resorts are no longer included in these exchange
networks, our sales of vacation interests could be materially adversely
affected.
If our vacation interests are deemed to be securities under the federal
securities laws, many purchasers would have the right to rescind their purchase
and recover the purchase price paid.
It is possible that the vacation interests may be deemed to be a security
as defined in Section 2(1) of the Federal Securities Act of 1933. If the
vacation interests were determined to be a security for such purpose, their sale
would require registration under the Securities Act. We have not registered the
sale of our vacation interests under the Securities Act and do 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, many purchasers of
vacation interests would have the right to rescind their purchases of vacation
interests. If a substantial number of purchasers sought rescission and were
successful, our business could be materially adversely affected. We have been
advised by our vacation ownership counsel, Schreeder, Wheeler & Flint, LLP, that
in the opinion of such counsel, based on its review of our 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.
An adverse judgment in class action lawsuits against us could materially
impact our financial condition.
We are involved in various litigation matters, including several class
action lawsuits against us and certain directors, officers and former officers.
The class action lawsuits allege violations of Federal securities laws and seek
recovery of unspecified damages. A damage award in excess of any available
insurance could have a material adverse effect on our business, financial
condition and results of operations.
The marketing and sale of vacation interests is subject to extensive
governmental regulation, and the costs of compliance, as well as the
consequences of non-compliance, could be significant.
Our 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 our resorts are located and in which we market
and sell vacation interests. We believe that we are in material compliance with
all federal, state, local and foreign laws and regulations to which we are
currently subject. However, we can give no assurance that the cost of qualifying
under vacation ownership regulations in all jurisdictions in which we desire to
conduct sales will not be significant or that we are 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 us.
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The potential liability for any failure to comply with environmental laws or for
any currently unknown environmental problems could be significant.
Under various environmental laws and regulations, 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.
We are not aware of any environmental liability that would have a material
adverse effect on our business, assets or results of operations, nor have we
been notified by any governmental authority or any third party, and we are not
otherwise aware, of any material noncompliance by us or other claim against us
relating to hazardous or toxic substances or petroleum products in connection
with any of our present or former properties. We believe that we are in
compliance in all material respects with all environmental laws and regulations.
No assurance, however, can be given that we will remain in compliance with all
environmental laws and regulations or that we are aware of all environmental
liabilities that relate to all of our present and former properties.
Losses from hurricanes and earthquakes in excess of insured limits, as well as
uninsured losses, could be significant.
Some of our resorts are located in areas that are subject to hurricanes and
tropical storms. We have suffered damages from hurricanes and tropical storms in
the past and will continue to suffer damage from them in the future. Our resorts
in California and Hawaii may be subject to damage resulting from earthquakes. We
carry comprehensive general liability, fire, flood, windstorm and earthquake
insurance with additional coverage for business interruption arising from
insured perils for our resort locations and corporate offices.
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 we do not have
insurance coverage. Should an uninsured loss or a loss in excess of insured
limits occur, we could lose our capital invested in a resort, as well as the
anticipated future revenues from the 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 us.
Our stock ownership is concentrated, which may make it difficult for
stockholders to exert control over us or to replace our management.
Our founders, Messrs., Andrew J. Gessow , Osamu Kaneko and Steven C.
Kenninger, own 9.9%, 9.7% and 2%, respectively, of our common stock as of March
15, 2000, which may enable them, collectively, to exert substantial influence
over the election of directors and the management and affairs of Sunterra
Corporation. Accordingly, if these persons vote their shares of common stock in
the same manner, they may have sufficient voting power to determine the outcome
of various matters submitted to the stockholders for approval, including
mergers, consolidations and the sale of substantially all of our assets. Such
control may result in decisions that are not in the best interest of our other
stockholders.
We are subject to laws and have adopted other provisions that have anti-takeover
effects, which may discourage transactions that may be beneficial to
stockholders and limit the price of our stock.
Some of the provisions of our charter and bylaws, as well as Maryland
corporate law, may have anti-takeover effects that may delay, defer or prevent a
takeover attempt that a stockholder might consider to be in the stockholder's
best interest.
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For example, such provisions may deter tender offers for our common stock which
offers may be beneficial to stockholders or 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 of any class of preferred stock issued, including the right to vote and
the right to convert into preferred stock. No preferred stock is issued or
outstanding.
Staggered Board. The board of directors has three classes of directors,
each serving a staggered term so that the directors' terms currently will expire
in 2000, 2001 and 2002. 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, specified "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, which we refer to as an "Interested Stockholder," must
be approved by at least 80% of the 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.
Because we rely on computers and other electronic devices, problems related to
the year 2000 date change could still disrupt or damage our business operations.
Through March 15, 2000, we have had no significant problems related to Year
2000 issues associated with our products or the computer systems, software and
other equipment that we use. However, unanticipated Year 2000 problems could
still occur, and we cannot guarantee that the Year 2000 problem will not
adversely affect our business, financial condition or results of operations.
Our international operations subject us to a number of risks.
A material portion of our business comes from outside the United States. We
believe that our continued growth and profitability will require expansion of
our sales in international markets. If we cannot expand our international
operations, it is likely to impact negatively our operating results.
19
<PAGE>
In addition, even if we successfully expand our international operations, we
cannot assure that we will be able to maintain or increase our international
market presence.
Risks inherent in our international business activities include, among
others:
. the fluctuations in foreign currency exchange rates;
. difficulties in staffing international locations;
. burdens of complying with a wide variety of foreign laws and
regulations;
. management of an organization spread over various countries;
. unexpected changes in regulatory requirements; and
. overlap of different tax structures.
Any or all of these risks could materially and adversely affect our business,
financial condition and results of operations.
We are subject to risks from currency fluctuations as a result of the
continued expansion of our international operations, and the fluctuations in the
value of foreign currencies in which we conduct our business may cause us to
experience currency transaction gains and losses. Because of the number of
foreign currencies involved, our constantly changing currency exposure and the
volatility of currency exchange rates, we cannot predict the effect of exchange
rate fluctuations upon our future operating results. These currency risks could
materially and adversely affect our business, financial condition and results of
operations.
Shares of our outstanding stock are currently eligible for future sale, and some
holders of our securities have registration rights.
Sales of a substantial number of shares of our common stock, or the
prospect of these sales, could adversely affect the market price of our common
stock. These sales or the prospect of these sales could also impair our ability
to raise needed funds in the capital markets at a time and price favorable to
us. As of March 15, 2000, we had a total of 35,982,193 shares of common stock
outstanding, most of which are freely tradable without restriction under the
Securities Act. The remaining outstanding shares will be eligible for sale in
the public market at various times pursuant to Rule 144 of the Securities and
Exchange Commission.
We have options outstanding under our stock option plans for the purchase
of common stock and have reserved additional shares of common stock that we may
issue upon the exercise of options granted in the future under these plans. (See
Note 14 in our consolidated financial statements). We have also reserved 750,000
shares of common stock that we may issue under our employee stock purchase plan.
We have in effect a registration statement under the Securities Act covering our
issuance of shares upon the exercise of these outstanding options and our
issuance of shares under our employee stock purchase plan. All of these shares
will be freely tradable in the public market, except for shares held by our
directors, officers and principal stockholders, which will be eligible for
public sale at various times pursuant to Rule 144 of the SEC. Additionally, as
of March 15, 2000, we had 500,000 warrants outstanding to a lender for the
purchase of shares of common stock at an exercise price of $3 per share.
20
<PAGE>
We also have outstanding $138 million of 5 3/4% convertible subordinated
notes due 2007 which were issued in 1997. The convertible notes may be exchanged
by the holders into freely tradable shares of our common stock based upon a
conversion price of $30.417 per share, which, assuming full conversion, would
result in the issuance of an additional 4,536,937 shares.
ITEM 2. PROPERTIES
As of March 15, 2000, we had 41 resort locations in North America, 30 in
Europe, three in the Caribbean, twelve in Hawaii, and four in Japan. The
following table shows, as of March 15, 2000, the number of resort locations that
we have in each state and country in which we operate*:
<TABLE>
<CAPTION>
State Number of Locations Country/Region Number of Locations
- ---------------- ------------------- --------------------- -------------------
<S> <C> <C> <C>
Arizona 6 Austria 1
California 8 Balearic Islands 3
Colorado 1 Canada 1
Florida 6 Canary Islands 8
Hawaii (a) 12 England 6
Idaho 1 France 4
Missouri 1 Germany (c) 1
Nevada (a) 2 Italy 1
New Mexico 1 Japan (b) 4
North Carolina 1 Mexico 2
Oregon 2 Netherlands Antilles 2
South Carolina 1 Portugal 1
Tennessee 4 Scotland 1
Texas 1 Spain 4
Virginia 2 U.S. Virgin Islands 1
Washington 1 --
--
Total 50 40
== ==
</TABLE>
(a) We own three of these resorts in partnership with third parties.
(b) We lease one of the four resorts in Japan.
(c) New resort locations since December 31, 1999, include one resort in
Germany.
21
<PAGE>
As of December 31, 1999, we had the following number of completed units,
units under construction, potential unit expansion and total potential units:
<TABLE>
<CAPTION>
Number of Completed Units (a) Total
Operating ---------------------------- Units Under Potential Unit Potential
Resorts Sold Unsold Total Construction (b) Expansion (c) Units
----------- -------- ------ -------- ---------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sunterra Resorts 27 2,329 475 2,804 276 2,051 5,131
Sunterra Europe -
GVC 26 1,654 312 1,966 226 110 2,302
Sunterra Pacific - VTS
program 22 762 10 772 --- --- 772
Sunterra Japan - SJVC 4 13 37 50 --- 8 58
Embassy Vacation
Resorts 2 189 139 328 30 230 588
Other 6 40 31 71 --- --- 71
Joint Ventures 2 124 252 376 --- --- 376
-- ----- ----- ----- --- ----- -----
Total 89 5,111 1,256 6,367 532 2,399 9,298
== ===== ===== ===== === ===== =====
</TABLE>
(a) Completed units represent only those units that have received their
certificate of occupancy as of December 31, 1999.
(b) The Company estimates that it will incur approximately $38 million in 2000
to complete the units under construction at December 31, 1999.
(c) Potential unit expansion includes, as of December 31, 1999, units planned
to be developed on land then owned by us or under option to be acquired and
which were not then under construction. We estimate that we would incur
approximately $500 million to develop all of the potential unit expansion.
However, except for the projects currently under construction, we have not
committed to develop any other of the potential unit expansion.
All of the units in our resorts 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, dryer, and microwave. Many units
also include a private deck.
Our headquarters and principal administrative, marketing, legal,
construction, accounting, finance and support facilities are located in Orlando,
Florida, where we own a building containing approximately 25,000 square feet of
space. We also lease office space in 7 other locations including Orlando, Las
Vegas and Carlsbad, California containing a total of approximately 112,872
square feet of space.
ITEM 3. LEGAL PROCEEDINGS
Purported class actions were filed against us in the United States District
Court for the Middle District of Florida by Atara Hirth on January 21, 2000; by
Ziv Gani on January 25, 2000; by Ellis Cox on January 26, 2000; by Steven R.
Mathis on January 26, 2000; by Simon J. Wachsberg on January 26, 2000; by
Carlton J. Sherman, Jr. and Winning Options III Club on January 27, 2000; by
Sheldon Silver on February 1, 2000; by Thomas B. Bates on February 1, 2000; and
Guahong Xu on February 8, 2000; by Clifton Wynn Eldred on February 15, 2000; by
Chris Campbell on March 2, 2000; by Jeff Horowitz on March 6, 2000; by Vincent
Batista on March 8, 2000; by Bulldog Capital Management, L.P. on March 8, 2000;
and by William Behl on March 10, 2000. These actions name us and a number of
our executive
22
<PAGE>
officers and directors as defendants and claim to be on behalf of persons who
purchased our common stock from October 4, 1998 through January 19, 2000, or
from October 6, 1998 through January 19, 2000. The actions assert claims under
federal securities laws, alleging that the defendants inflated the price of our
common stock by making false and misleading statements and/or omissions about
our operating condition and our reserves for mortgages receivable. The actions
further allege that some of our officers and directors sold our common stock at
these inflated prices. The plaintiffs in these actions seek monetary damages,
interest, costs, and expenses. The litigation is still in the preliminary stage.
Neither a lead plaintiff nor lead counsel has been appointed. We and the other
defendants are not required to respond at this time. We are defending these
actions vigorously.
We are also currently subject to additional litigation and claims
respecting employment, tort, contract, construction and commissions, among
others. In our judgment, none of these additional lawsuits or claims against us
is likely to have a material adverse effect on us or our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our 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, 1999
and December 31, 1998, as reported on the NYSE Composite Tape:
<TABLE>
<CAPTION>
High Low
------------- -------------
<S> <C> <C>
Year Ended December 31, 1999
Fourth Quarter............................................................. $13.50 $ 9.56
Third Quarter.............................................................. 15.75 10.75
Second Quarter............................................................. 15.25 8.19
First Quarter.............................................................. 16.06 9.13
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
</TABLE>
On March 15, 2000, there were approximately 205 holders of record of our
common stock and we estimate that there were approximately 4,400 beneficial
owners of our common stock.
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying cash dividends on our common stock in the foreseeable
future. We currently intend to retain future
23
<PAGE>
earnings to finance our operations and fund the growth of our business. Any
payment of future dividends will be at the discretion of our board of directors
and will depend upon, among other things, our earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions in respect
of the payment of dividends and other factors that the board of directors deems
relevant. Our 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."
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth summarized consolidated financial data of
Sunterra Corporation for each of the five fiscal years ended December 31, 1999.
The financial data presented below gives effect to our acquisitions of AVCOM
International, Inc. in February 1997, Plantation Resorts Group, Inc. in May 1997
and LSI Group Holdings, plc in August 1997 by combining the historical
information of AVCOM, Plantation Resorts, LSI and Sunterra Corporation and
restating our historical financial data using the pooling-of-interests method of
accounting. You should read the following financial data in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and related
notes contained elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------ ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Vacation interests sales......................... $ 423,733 $ 359,426 $281,063 $182,300 $139,426
Interest income(a)............................... 41,117 52,529 42,856 25,415 20,339
Gain on sales of mortgages receivable............ 5,441 6,698 -- -- --
Other income..................................... 36,677 31,301 13,774 12,132 8,553
---------- ---------- -------- -------- --------
Total revenues.............................. 506,968 449,954 337,693 219,847 168,318
---------- ---------- -------- -------- --------
Costs and Operating Expenses:
Vacation interests cost of sales................. 106,996 85,649 71,437 48,218 39,810
Advertising, sales and marketing................. 202,101 163,828 126,739 89,040 62,258
Provision for doubtful accounts(a) (c)........... 52,290 12,616 8,579 8,311 3,666
Loan portfolio expenses.......................... 6,652 3,680 5,522 4,523 2,034
General and administrative(c).................... 69,851 50,699 42,254 37,436 19,263
Depreciation and amortization(c)................. 15,752 10,556 6,499 5,027 2,514
Resort property write-downs(a) (c)............... 17,967 --- --- 2,620 ---
Merger costs, organizational costs
and other asset write-downs(b)............... --- 5,056 9,973 --- --
---------- ---------- -------- -------- --------
Total costs and operating expenses........... 471,609 332,084 271,003 195,175 129,545
---------- ---------- -------- -------- --------
Income from operations........................... 35,359 117,870 66,690 24,672 38,773
Interest expense, net(a).......................... 48,495 44,399 22,426 17,245 11,805
Other expenses(a)................................. 11,705 -- -- -- --
Realized loss on available for-sale securities(a) 5,491 -- -- -- --
Equity(income)loss on investment in joint ventures (2,441) 708 639 299 1,649
Minority interest in (income) loss of consolidated
limited partnership............................. (237) 18 181 199 --
---------- ---------- -------- -------- --------
(Loss) income before (benefit) provision
for income taxes, extraordinary items
and cumulative effect of change in
accounting principle........................... (27,654) 72,745 43,444 6,929 25,319
---------- ---------- -------- -------- --------
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
(Benefit) provision for income taxes from
continuing operations........................... (10,232) 28,371 17,196 (4,105) 4,020
Provision for deferred income taxes
resulting from the cumulative effect of
previously non-taxable acquired entities........ -- -- 5,960 -- --
---------- ---------- -------- -------- --------
Total (benefit) provision for income taxes (10,232) 28,371 23,156 (4,105) 4,020
---------- ---------- -------- -------- --------
(Loss) income before extraordinary item and
cumulative effect of change in
accounting principle............................ (17,422) 44,374 20,288 11,034 21,299
Extraordinary items, net of tax................... -- 129 766 -- --
Cumulative effect of change in
accounting principle, net of taxes.............. -- 1,466 -- -- --
---------- ---------- -------- -------- --------
Net (loss) income................................ $( 17,422) $ 42,779 $ 19,522 $ 11,034 $ 21,299
========== ========== ======== ======== ========
Diluted (loss) earnings per share................. $(0.48) $1.16 $0.54 $0.40 $0.89
Pro forma net income(d)........................... $ 4,380 $ 15,310
OTHER DATA (UNAUDITED FOR ALL
PERIODS):
Number of resort locations at
period end..................................... 89 87 70 31 20
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents, including
escrow and restricted cash..................... $ 54,573 $ 54,201 $ 47,972 $ 22,469 $ 22,779
Mortgages receivable, net........................ 244,018 335,982 331,735 215,518 147,405
Total assets..................................... 1,058,410 1,021,132 761,145 445,884 295,771
Total debt....................................... 681,960 627,089 435,208 236,122 177,032
Stockholders' equity............................. 230,788 251,713 207,910 126,425 75,448
</TABLE>
- -----------------
(a) Non-cash special charges for the year ended December 31, 1999 included
charges incurred directly and indirectly involving our mortgages receivable
resulting in: (i) an increase in the provision for doubtful accounts from
the write-off of $44.3 million in mortgages receivable net of estimated
recoveries, (ii) a $9.6 million write-off of related accrued interest
income, (iii) a $0.8 million write-off of deferred loan origination costs,
(iv) $10.0 million in other expenses from the write-off of homeowners'
association receivables and a receivable from a tour operator, and (v) a
$5.5 million realized loss on available for sale securities. In addition,
there was a non-recurring $16.7 million resort property write-down of
certain non-core properties to net realizable value.
(b) Non-recurring costs for the year ended December 31, 1998 include $5.1
million relating to the consolidation of certain administrative functions
from Los Angeles, California to Orlando, Florida and the write-down of
certain assets. Non-recurring costs for the year ended December 31, 1997
are merger costs relating to the AVCOM, Plantation Resorts and LSI
acquisitions. Merger-related costs include expenses related to fees paid to
financial advisors, legal fees, and other transaction expenses in
connection with the AVCOM, Plantation Resorts and LSI acquisitions.
25
<PAGE>
(c) Non-recurring costs for the year ended December 31, 1996 include costs
incurred at AVCOM for (i) an increase in provision for doubtful accounts of
$2.0 million, (ii) $9.1 million in severance costs, lease cancellations,
litigation reserves and other integration costs and a reserve for losses
associated with certain property management and related contracts, (iii) a
$2.6 million write-down of certain property to estimated fair market value,
and (iv) a $0.7 million charge relating to amortization of start-up costs
over a period of one year.
(d) 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Item 6.
Selected Financial Data" and our financial statements and related notes and the
other financial data included elsewhere in this report. The following discussion
and analysis contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth in "Item 1. Business-Factors Affecting Future Performance."
Results of Operations
The following discussion of our results of operations includes our
corporate and partnership predecessors and wholly-owned subsidiaries and
affiliates including AVCOM, Plantation Resorts, LSI and their subsidiaries. We
completed the AVCOM (10 resort locations), Plantation Resorts (two resort
locations) and LSI (11 resort locations) acquisitions in February, May and
August 1997, respectively, and accounted for them 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 year ended December 31, 1997. The following discussion
also includes the results of operations for Marc Hotels & Resorts, Inc.,
Sunterra Pacific, Inc. (formerly known as Vacation International, Ltd.), the
Global Development, Ltd., MMG Holding Corporation and Harich Tahoe Developments.
The Marc, Sunterra Pacific, Global, MMG and Harich 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 Harich (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.
In the fourth quarter of 1999, we recorded a $43 million after-tax charge
related to our mortgages receivable. This charge is the result of an in-depth
review of our balance sheet, which we initiated at year-end. The $43 million
after-tax charge consisted of:
. $27 million related to the write-off of receivables that were either 180
days or more past due or were 60 days or more delinquent after paying
only the initial down payment;
. $6 million related to accrued interest on those mortgages receivable;
. $4 million related to homeowners' association receivables;
. $4 million related to an adjustment in the retained interest in
mortgages receivable that we
26
<PAGE>
previously sold; and
. $2 million related to the write-down of a receivable from a marketing
company that is no longer supplying tours to us.
Also, during the fourth quarter of 1999, we recorded:
. a $10 million after-tax charge related to a re-evaluation of non-core
properties that we will market to prospective buyers as hotels rather
than timeshare projects as we originally developed them; and
. a $2 million after-tax charge related to capitalized debt costs and to
costs associated with acquisitions that we have now terminated.
The following table sets forth certain operating information:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
- ----------------------------------
Vacation interests sales.............................................. 83.6% 79.8% 83.2%
Interest income....................................................... 8.1% 11.7% 12.7%
Gain on sales of mortgages receivable................................. 1.1% 1.5% --
Other income.......................................................... 7.2% 7.0% 4.1%
----- ----- -----
Total revenues................................................ 100.0% 100.0% 100.0%
AS A PERCENTAGE OF VACATION INTERESTS SALES:
- --------------------------------------------
Vacation interests cost of sales...................................... 25.3% 23.8% 25.4%
Advertising, sales and marketing...................................... 47.7% 45.6% 45.1%
AS A PERCENTAGE OF TOTAL REVENUES:
- ----------------------------------
Provision for doubtful accounts....................................... 10.3% 2.8% 2.5%
General and administrative............................................ 13.8% 11.3% 12.5%
Resort property write-down............................................ 3.5% ---% ---%
Merger costs, organizational charges and write-down of certain assets. ---% 1.1% 3.0%
</TABLE>
Comparison of 1999 to 1998
Total revenues for the year ended December 31, 1999 were $507.0 million
compared with $450.0 million in 1998, an increase of $57.0 million, or 12.7%.
Vacation interests sales increased 17.9% to $423.7 million from $359.4 million.
The increase in vacation interests sales reflects an increased number of
purchases of vacation interests at our resorts. However, as a result of
Hurricanes Floyd and Lenny, the impact of Year 2000 travel concerns, and fewer
than expected acquisitions, 1999 vacation interests sales were lower than
expected.
Included in vacation interests sales in 1999 are approximately $138.3
million of vacation point sales from Club Sunterra, our new points-based
vacation ownership system that was implemented at certain North American resorts
and off-site sales locations beginning the fourth quarter of 1998. Vacation
point sales from Club Sunterra were $6.4 million in 1998.
Interest income, which includes accretion related to retained interests in
mortgages receivable, decreased 21.7% to $41.1 million during 1999 from $52.5
million during 1998. The decrease is due to the
27
<PAGE>
write-off of $9.6 million in accrued interest, which is related to the write-off
of mortgages receivable during the fourth quarter. The average mortgage
receivable note carries a 14.3% interest rate and is fully amortized over a
weighted average period of nine years.
During 1999, we recorded a $5.4 million pre-tax gain on non-recourse sales
of $186.0 million mortgages receivable comprised of: (i) $136.6 million of
mortgages receivable which were sold into our mortgages receivable conduit
facility, the majority of which were subsequently part of securitizations; (ii)
$16.2 million of mortgages receivable which were part of the sale through
securitization of $100 million principal amount of vacation ownership
receivables-backed notes 1999-A (the "1999-A securitization); and (iii) $12.8
million of mortgages receivable which were part of the sale through a
securitization of $58.7 million principal amount of vacation ownership
receivables-backed notes 1999-B (the "1999-B securitization"); and (iv) $20.4
million of mortgages receivable which were sold to a finance company. These
sales were part of our program of monetizing mortgages receivable through the
use of off-balance sheet conduits, securitizations and other vehicles. We
recorded a $6.7 million pre-tax gain on the sale of $180.9 million mortgages
receivable during 1998.
Other income (which includes resort management and rental fees, membership
fees, as well as loan commission revenues) increased 17.3% during 1999 to $36.7
million from $31.3 million during 1998. This increase reflected higher rental
income, primarily as a result of a larger base of managed resorts, and an
increase in the receipt of membership revenues generated from Club Sunterra.
Other income was 7.2% of total revenues for 1999 compared with 7.0% in 1998.
As a percentage of vacation interests sales, vacation interests cost of
sales increased to 25.3% during 1999 from 23.8% during 1998 primarily reflecting
an increased mix of higher cost product at some of our new and existing resorts.
Vacation interests cost of sales were higher at certain of our existing resorts
due to higher construction costs associated with the development of new product.
Vacation interests cost of sales increased 25.0% to $107.0 million during 1999
from $85.6 million during 1998.
As a percentage of vacation interests sales, advertising, sales and
marketing expenses increased to 47.7% during 1999 from 45.6% during 1998 due to
marketing initiatives to support the transition to Club Sunterra and lower sales
in the fourth quarter, partially reflecting the effect of Hurricane Lenny and
Year 2000 travel concerns. Advertising, sales and marketing expenses increased
23.4% to $202.1 million during 1999 from $163.8 million during 1998.
The provision for doubtful accounts increased $39.7 million to $52.3
million during 1999 from $12.6 million during 1998. The increase in the
provision is primarily the result of the $44.3 million write-off of mortgages
receivable, net of estimated recoveries, during the fourth quarter. This write
off in part reflects the adoption in the fourth quarter of a change in
methodology under which we write-off mortgages receivable that are 180 days or
more delinquent. In the fourth quarter, we also wrote off all mortgages
receivable that were in default after making only the initial down payment.
The allowance for doubtful accounts as a percentage of gross mortgages
receivable increased to 7.6% at December 31, 1999, up from 6.4% at December 31,
1998 as a result of the change in our methodology in estimating the allowance
for mortgages receivable at year end. Mortgages receivable 60 days or more past
due at December 31, 1999 were 7.1% as a percentage of gross mortgages
receivable, a decrease from 7.4% at December 31, 1998. Net of recoveries, these
same percentages decreased to 4.8% and 5.0% respectively.
As a percentage of total revenues, general and administrative expenses
increased to 13.8% during 1999 from 11.3% during 1998. General and
administrative expenses increased 37.9% to $69.9 million during 1999 from $50.7
million during 1998. The increase in general and administrative expenses was
28
<PAGE>
due primarily to the larger scale of operations, investments made in our
infrastructure relating to the transition to Club Sunterra, additions of middle
and senior management, and Year 2000 expenses.
Depreciation and amortization increased $5.2 million, or 49.1%, to $15.8
million during 1999 from $10.6 million in 1998. As a percentage of revenues,
depreciation and amortization increased to 3.1% during 1999 from 2.3% for 1998.
The increase in depreciation and amortization was primarily due to additional
depreciation expense, reflecting a larger base of depreciable assets from the
prior year period, including computer hardware and software costs and other
infrastructure additions.
Resort property write-downs of $18 million during 1999 were the result of
the $16.7 million write down of certain non-core properties to net realizable
value and a $1.3 million write-off of costs associated with acquisitions that
have been terminated.
Interest expense, net of capitalized interest, increased $4.1 million, or
9.2%, to $48.5 million during 1999 from $44.4 million during 1998. The increase
was due primarily to an increase in debt.
Other expenses of $11.7 million during 1999 were the result of a write-off
of other receivables ($7.2 million due from homeowner associations where we
manage the property and $2.8 million due from a marketing company that is no
longer supplying us tours) and a $1.7 million write off of capitalized debt
costs associated with credit facilities that have been or are in the process of
being terminated.
Realized loss on available-for-sale securities of $5.5 million during 1999
resulted from a mark-to-market adjustment in the retained interest in mortgages
receivable that were previously sold.
Our income tax rate was 37% for 1999, resulting in a net loss of $17.4
million. For 1998, our income tax rate was 39%, resulting in net income of
$42.8 million.
Comparison of 1998 to 1997
Total revenues for the year ended 1998 were $450.0 million compared with
$337.7 million in 1997, an increase of $112.3 million, or 33.3%. Vacation
interests sales increased 27.9% 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 our resorts, increased sales activities at some
of our 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, which we implemented at some resorts and off-
site sales locations during the fourth quarter of 1998.
Interest income increased 22.4% to $52.5 million during 1998 from $42.9
million during 1997, reflecting the increase in net mortgages receivable of
$83.2 million, or 25.1%, prior to the December 1998 sale of approximately $79.0
million into our conduit facility.
During 1998, we recorded gains from the sale of mortgages receivable of
$6.7 million as the result of four transactions. During the third quarter of
1998, we closed three receivable sales consisting of $69.1 million, $21.5
million, and $11.3 million face value of mortgages receivable. In connection
with the Harich acquisition in July 1998, we 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, we sold $21.5
million of mortgages receivable at face value and retained a majority interest
in the excess spread. During the third quarter, we sold $11.3 million of
mortgages receivable at face value for 105% of par. During the fourth quarter of
1998, we entered into the conduit facility and recorded a $5.6 million
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<PAGE>
pre-tax gain on a sale of $79.0 million of mortgages receivable. We did not sell
mortgages receivable during 1997.
Other income increased 126.8% to $31.3 million during 1998 from $13.8
million during 1997, reflecting an increase in recurring resort management fee
revenues paid by our 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 revenues, other income increased to 7.0%
during 1998, up from 4.1% during 1997.
As a percentage of vacation interests sales, vacation interests cost of
sales improved to 23.8% during 1998 from 25.4% during 1997. This improvement was
largely the result of favorable product cost reductions at some of our more
mature resorts, along with a greater percentage of revenues coming from the
comparatively lower product cost of our European operations. Vacation interests
cost of sales increased 19.9% 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 45.6% from 45.1%, due to higher
marketing expenses incurred to ramp up sales at Sunterra Pacific, which was
acquired during the fourth quarter of 1997. In addition, we were 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. Advertising, sales and marketing
expenses increased 29.2% to $163.8 million during 1998 from $126.7 million
during 1997.
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 2.8% during 1998 compared to 2.5% during
1997.
Loan portfolio expenses decreased to $3.7 million in 1998 from $5.5 million
in 1997, due largely to the cost savings associated with centralizing the
servicing efforts of Plantation Resorts and AVCOM.
As a percentage of total revenues, general and administrative expenses
improved to 11.3% during 1998 from 12.5% in 1997, reflecting the continued
elimination of duplicative overhead costs in consolidating acquisitions and
greater efficiencies resulting from our larger size. General and administrative
expenses increased 19.9% 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
1998.
Depreciation and amortization increased $4.7 million, or 72.3%, to $11.2
million during 1998 from $6.5 million in 1997. As a percentage of total
revenues, depreciation and amortization increased to 2.5% during 1998 from 1.9%
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 Club Sunterra and other
infrastructure additions.
Interest expense, net of capitalized interest, increased $21.4 million, or
95.5%, 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 our senior credit facility, and from our privately placed on-
balance sheet asset-backed securitization issued in June 1998.
Income before provision for income taxes, excluding merger, organization,
and asset writedown costs, increased 45.7% to $77.8 million during1998 from
$53.4 million for 1997.
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During the fourth quarter of 1998, we 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 us to expense all
previously capitalized start-up costs as of January 1, 1998 and requires us to
expense all such expenses as incurred after January 1, 1998.
Our income tax rate was 39% for both 1998 and 1997, resulting in net income
of $42.8 million for 1998, a 119.5% increase over $19.5 million for the year
ended December 31, 1997.
Liquidity and Capital Resources
We generate cash from:
. cash sales and cash down payments from sales of vacation interests,
. sales of our mortgages receivable through our conduit facility, asset-
backed securitizations and whole loan sales,
. financing of our mortgages receivable through our senior credit facility
and other lines of credit,
. financing of pre-sale contracts and mortgages receivable through our
pre-sale/unseasoned line,
. financing of unsold inventory through our inventory line,
. principal and interest payments and customer prepayments of principal
from our mortgages receivable portfolio,
. rental of unsold vacation interests,
. receipt of management, reservations and points-based vacation club fees,
. commissions paid for the origination of European mortgages receivable,
where we are paid a commission of 14% of the face value of certain
mortgages originated for a third party U.K. financial institution.
For 1999 and 1998, our cash flows provided from operations were $16.9
million and $4.1 million, respectively. Excluding investment in real estate and
development costs of $154.6 million and $183.1 million for 1999 and 1998,
respectively, cash provided by operations was $171.5 million and $187.2 million,
in those respective years. Approximately 84% of our total revenues during 1999
were from vacation interests sales; we financed approximately 65% of our
vacation interests sales, with the 35% balance being cash sales.
During 1999, we spent $53.7 million for property and equipment, primarily
for the development of computer systems for property and Club Sunterra
management, and $154.6 million for expansion and development activities at our
resort locations.
To finance our vacation interests sales, we monetize the related mortgages
receivables through the use of an off-balance sheet conduit, securitizations,
on-balance sheet hypothecations, whole mortgages
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receivable sales, and other vehicles. In Europe we originate the mortgages
receivables for a third party institution and receive an origination fee in
exchange.
During 1999, we continued our program of non-recourse sales of mortgages
receivable. We sold $136.6 million of mortgages receivable through the conduit
facility in 1999. These sales were without recourse to us for defaults
experienced by the mortgages receivable portfolios. We also sold an additional
$20.4 million of mortgages receivable for $19.5 million in cash in seven
separate transactions. These were sold at 95% of par value with a 50%
participation in the remaining interest spread.
In May 1999, we completed the securitization of $100 million principal
amount of our 1999-A securitization. These fixed rate notes were issued at 94%
of the $106.8 million outstanding mortgages receivable principal balances, bear
interest at a weighted average rate of 6.66%, and are without recourse to us.
Included in the 1999-A securitization were $90.6 million mortgages receivable
which had been previously sold into our off-balance sheet conduit facility
during the fourth quarter of 1998 and the first quarter of 1999. The
securitization generated approximately $97 million in cash (after funding a
reserve account and paying transaction expenses), which we used to repay amounts
outstanding on the conduit facility and our senior credit facility.
In December 1999, we completed the securitization of $58.7 million
principal amount of our 1999-B securitization. These fixed rate notes were
issued at 90% of the $65.2 million outstanding mortgages receivable principal
balances, bear interest at a weighted average rate of 7.87%, and are without
recourse. Included in the 1999-B securitization were $52.4 million mortgages
receivable which had been previously sold into our off-balance sheet conduit
facility during 1999. The securitization generated approximately $55 million in
cash (after funding a reserve account and paying transaction expenses). The net
proceeds were used to repay amounts outstanding on the conduit facility and our
senior credit facility.
In May 1999, we put in place a $14.0 million mortgages receivable bulk
purchase line of credit and a $15.0 million forward purchase commitment for the
sale of mortgages receivable. In September 1999, we entered into a $50 million
inventory line of credit to finance certain of our unsold vacation interests
inventory. Additionally, in September 1999, we entered into a $15 million pre-
sale/unseasoned line to finance pre-sale notes and certain mortgages receivable.
In December 1999, we established a $125 million receivables warehouse
facility which was not funded at the time and has remained unused. We are still
negotiating the use of this facility but have not considered it in determining
our credit availability.
Coinciding with the new receivables warehouse facility, we both expanded
the eligibility criteria in our senior credit facility to accept a wider range
of less seasoned mortgages receivable into the senior credit facility and also
reduced its size to $60 million from $117.5 million.
In the first quarter of 2000, funding availability under all these
facilities and lines was curtailed based on anticipated covenant violations that
would be reported for the1999 fourth quarter. As a result, the full use of these
facilities was temporarily withheld, and access to liquidity under these
facilities was granted on an individual request basis pending the completion of
waivers and amendments to the related agreements. Waivers and amendments are now
in place that allow our compliance with the covenants and terms of the
agreements. Access to the availability under these facilities was also
reestablished, although on a limited basis as compared to the original terms of
the facilities.
On February 9, 2000, we agreed to limit the maximum aggregate amount
available under the
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conduit facility to $64.1 million. In addition, the interest rate of the
facility was changed to the prime rate of the agent. On December 31, 1999, $51.3
million was outstanding under the conduit facility; $12.8 million of
availability under the conduit facility was used in February 2000.
On March 9, 2000 we amended our senior credit facility. The amendment
waived certain covenants and representations and warranties in the senior credit
facility agreement that we could not satisfy as of December 31, 1999. As of
March 30, 2000, we had entered into amendments to this facility limiting
outstanding borrowings to $35.4 million, requiring quarterly reductions to the
commitment during 2000, revising the maturity date to January 2, 2001 and
setting the borrowing rate at the reference rate plus 2.00%. The reference rate
is the higher of the Federal Funds Rate plus 0.50% or the agent's prime rate. On
December 31, 1999, $23.2 million was outstanding under the senior credit
facility; the $12.2 million of availability under the new maximum borrowing
limitation was used in the first quarter of 2000.
On March 14, 2000, availability under our inventory line was increased by
$25.0 million to $75 million and the interest rate was raised 0.75% to LIBOR
plus 4.50%. Additionally, on March 14, 2000, we issued 500,000 warrants to the
lender for the purchase of shares of common stock at an exercise price of $3 per
share. As of March 16, 2000, $15.6 million remained available under the
inventory line.
On March 20, 2000, a waiver was granted of certain covenants and
representations and warranties pertaining to our pre-sale line that we could not
satisfy as of December 31, 1999. As of March 30, 2000, we had entered into
amendments to this line limiting outstanding borrowings to $9.6 million,
requiring quarterly reductions to the commitment during 2000, revising the
maturity date to January 3, 2001 and setting the borrowing rate at the reference
rate plus 3.25%. The reference rate is defined as the lender's variable rate
index. On December 31, 1999, $9.0 million was outstanding under the facility;
the remaining availability of $0.6 million has not been borrowed.
After December 31, 1999, further advances on the bulk purchase line and
forward purchase commitment for mortgages receivable will be made at the
discretion of the provider. On December 31, 1999, a new $125 million receivables
warehouse facility was established but not funded at the time and has remained
unused. We are still negotiating the use of this facility, but have not
considered it in determining our availability. Effective January 20, 2000, we
cancelled a $5.0 million unsecured bank line of credit as its terms did not
permit access to the line upon the occurrence of a violation in any other
agreement.
We are involved in continuing discussions with our lenders with respect to
funding our current operations through our senior credit facility, conduit
facility, inventory line and pre-sale line. In addition to discussions regarding
our existing facilities, we are currently negotiating additional revolving
mortgages receivable warehouse facilities and mortgages receivable non-recourse
sales facilities.
However, we cannot guarantee that these negotiations will be successfully
concluded nor can we guarantee that we will not experience liquidity problems in
the future.
The indentures for our 9 1/4% senior notes and 9 3/4%senior subordinated
notes contain certain covenants that, among other things, limit and/or condition
our ability and the ability of our restricted subsidiaries to incur additional
indebtedness, pay dividends or make other distributions with respect to our
capital stock and the capital stock of our restricted subsidiaries, create
certain liens, sell certain assets of ours or our restricted subsidiaries and
enter into certain mergers and consolidations. In addition, certain of our
Senior Indebtedness, including our senior credit facility, contains other and
more restrictive covenants that,
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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 our business or property; the sale of assets; and the
making of capital expenditures.
As of December 31, 1999, we were in compliance with all covenants as
subsequently amended or waived.
Year 2000 Readiness
We depend significantly on a number of computer software programs in our
internal operating system and other aspects of our business. If any of these
software programs had not been programmed to recognize and properly process
dates after December 31, 1999, significant system failures or errors might have
resulted. We have experienced no such problems as of March 15, 2000. We believe
that our internal accounting and operating programs and systems were adequately
programmed to address the Year 2000 problem, and as part of an enterprise-wide
process, we integrated all of our resorts to a common platform in 1999. We also
replaced a substantial portion of our information systems with a fully
integrated enterprise information system. We have been reviewing and will
continue to review our financial and operating systems at each of our offices
and resort locations.
Our Year 2000 related costs were $0.8 million and $0.6 million in 1999 and
1998, respectively, excluding costs associated with replacements of computerized
systems and equipment in cases where replacement was not accelerated due to Year
2000 issues. We funded all Year 2000 related costs entirely from operating cash
flows. We have capitalized and depreciated the costs of hardware, software and
facility replacement over the expected useful life of the assets. We expensed
as incurred all costs related to software modification, as well as all costs
associated with our administration of the Year 2000 compliance effort.
Other companies interact electronically with us, and we must coordinate our
data communications and software processing with these other companies. We have
not experienced any material Year 2000 problems with any third party products
and systems upon which our business depends. The third parties with whom we do
business have not reported any Year 2000 issues to us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
Our total revenues denominated in a currency other than U.S. dollars for
1999, primarily revenues derived from the United Kingdom and Japan, were
approximately 21.6% of total revenues. Our net assets maintained in a functional
currency other than U.S. dollars at December 31, 1999, which were primarily
assets located in western Europe and Japan, were approximately 12.4% of total
net assets. The effect of changes in foreign currency exchange rates has not
historically been significant to our operations or net assets.
Interest Rate Risks
As of December 31, 1999, we had fixed interest rate debt of approximately
$553.4 million and floating interest rate debt of approximately $128.6 million.
The floating interest rates are based upon the
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prevailing LIBOR rate or prime interest rate for our senior credit facility,
inventory line, pre-sale line, and conduit facility. For floating rate debt,
interest rate changes do not generally affect 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 affect the market
value of debt but do not impact earnings or cash flows. A hypothetical one-
percent change in the prevailing LIBOR or prime rate would impact our after tax
earnings by less than $0.8 million per year. A similar change in the interest
rate would impact the total fair value of our fixed rate debt, excluding the
convertible notes, by approximately $20 million. It is impractical to estimate
the effect of a change in interest rates on the convertible notes because their
value depends, in part on the value of the common stock into which it is
convertible.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
We have provided the following consolidated financial statements
immediately following the Index to Financial Statements on page F-1 of this
report:
<TABLE>
<CAPTION>
Page
--------------
<S> <C>
Sunterra Corporation and Subsidiaries
Report of Independent Certified Public Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............... F-3
Consolidated Statements of Income for each of the three years
ended December 31, 1999................................................. F-4
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1999........................................... F-5
Consolidated Statements of Stockholders' Equity for each of the three
years ended December 31, 1999........................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
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
We will provide the information required by this Item under the captions
"Directors and Executive Officers" and " Compliance with Section 16(a) Under the
Securities Exchange Act of 1934" in our proxy statement for our 2000 annual
meeting of stockholders to be held on May 12, 2000. Such information is
incorporated in this Item by reference.
ITEM 11. EXECUTIVE COMPENSATION
We will provide the information required by this Item under the caption
"Executive Compensation" in the proxy statement for our 2000 annual meeting of
stockholders. Such information is incorporated in this Item by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We will provide the information required by this Item under the captions "
Share Ownership of Directors and Executive Officers," "Other Information --
Certain Stockholders" and "Proposal No. 1: Election of Directors -- Compensation
of Directors" in our proxy statement for our 2000 annual meeting of
stockholders. Such information is incorporated in this Item by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We will provide the information required by this Item under the caption
"Certain Transactions" in our proxy statement for our 2000 annual meeting of
stockholders. Such information is incorporated in this Item by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
We have provided the following consolidated financial statements
immediately following the Index to Financial Statements on Page F-1 of this
report:
<TABLE>
<CAPTION>
Page
--------------
<S> <C>
Sunterra Corporation and Subsidiaries
Report of Independent Certified Public Accountants.......................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998................ F-3
Consolidated Statements of Income for each of the three years
ended December 31, 1999.................................................. F-4
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1999............................................ F-5
Consolidated Statements of Stockholders' Equity for each of the three
years ended December 31, 1999............................................ F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
2. Financial Statement Schedules
We have omitted all schedules to our consolidated financial statements
because they are not required under the related instructions or are
inapplicable, or because we have included the required information in our
consolidated financial statements or related notes.
3. Exhibits
The following exhibits either (a) are filed with this report or (b) have
previously been filed with the SEC and are incorporated in this Item by
reference to those prior filings. We will furnish any exhibit
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upon request made to Thomas A. Bell, our General Counsel and Secretary,1781 Park
Center Drive, Orlando, Florida 32835. We charge $.50 per page to cover expenses
of copying and mailing.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Restated Articles of Incorporation of Sunterra Corporation (incorporated by
reference to Exhibit 3.1 to the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998)
3.2 Bylaws of Sunterra Corporation, as amended (incorporated by reference to Exhibit
3.2 to the 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 the 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 the 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 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 10.1 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 (incorporated by reference to Exhibit 10.1 to the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998)
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)
</TABLE>
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<TABLE>
<S> <C>
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 the 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 the 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
the 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 the 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 the 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 to the 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 the 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 the 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 the 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 the registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998)
</TABLE>
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<TABLE>
<S> <C>
+10.14 Employment Agreement between Sunterra Corporation and Richard Goodman
(incorporated by reference to Exhibit 10.14 to the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998)
+10.15 Employment Agreement between Sunterra Corporation and James E. Noyes
(incorporated by reference to Exhibit 10.2.4 to the 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 (incorporated by reference to
Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998)
+10.17 Sunterra Corporation Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.5 to the registrant's Registration Statement on Form S-1 (No.
333-06027))
+10.18 First Amendment to Employee Stock Purchase Plan of Sunterra Corporation effective
as of November 1, 1997 (incorporated by reference to Exhibit 10.2 to the
registrant's Registration Statement on Form S-8 (No. 333-15361))
+10.19 1998 New-Hire Stock Option Plan of Sunterra Corporation (incorporated by
reference to Exhibit 10.19 to the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998)
+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 the registrant's Registration
Statement on Form S-1 (No. 333-30285))
*10.21 Indenture dated as of March 31, 1999, by and between TerraSun, LLC as issuer of
the bonds, Sunterra Financial Services, Inc. as Servicer, LaSalle National Bank
as Trustee and as Back-up Servicer for TerraSun, LLC Vacation Ownership
Receivables-Backed Notes 1999-A
+*10.22 Consulting Agreement and Modification of Stock Option Agreement dated August 14,
1999 by and between Sunterra Corporation and James E. Noyes
*10.23 Loan and Security Agreement dated as of September 30, 1999, by and between
FINOVA. Capital Corporation and Sunterra Corporation
*10.24 Indenture dated as of December 1, 1999, by and between Dutch Elm, LLC as issuer
of the bonds, Sunterra Financial Services, Inc. as Servicer, and LaSalle Bank
National Association as Trustee and as Back-up Servicer, for Dutch Elm, LLC
Vacation Ownership Receivables-Backed Notes 1999-B
*10.25 Amended and Restated Credit Agreement dated December 31, 1999, by and among
Sunterra Corporation (formerly known as Signature Resorts, Inc.), certain lenders
party thereto, and Bank of America, N.A., formerly NationsBank, N.A., as
Administrative Agent
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
+*10.26 Consulting Agreement dated January 29, 2000 by and between Sunterra Corporation
and L. Steven Miller
+*10.27 Severance Payment Agreement dated January 29, 2000 by and between Sunterra
Corporation and L. Steven Miller
*10.28 First Amendment to Amended and Restated Credit Agreement dated as of March 8,
2000, by and among Sunterra Corporation, All Seasons Resorts, Inc., MMG
Development Corp., Harich Tahoe Developments, Port Royal Resort, LP, Grand Beach
Resort, LP, Powhatan Associates, Greensprings Associates, Lake Tahoe Resort
Partners, LLC and Bank of America N.A., as Administrative Agent
*10.29 Amended and Restated Master Loan and Security Agreement dated as of March 14,
2000, by and between FINOVA Capital Corporation and Sunterra Corporation
*21 Subsidiaries of Sunterra Corporation
*23.1 Consent of Arthur Andersen, LLP
*23.2 Consent of Schreeder, Wheeler & Flint, LLP
*27 Financial Data Schedule for the fiscal year ended December 31, 1999
- ---------------
</TABLE>
+ Compensatory management plan
* Filed herewith
(b) Reports on Form 8-K
We filed the following Current Reports on Form 8-K with the SEC during the
quarter ended December 31, 1999:
Current Report on Form 8-K dated November 4, 1999 filed with the SEC on
November 5, 1999 relating to third quarter 1999 financial results.
(c) Exhibits
The exhibits required by Item 601 of Regulation S-K are listed above.
(d) Financial Statement Schedules
See the response to Item 14(a)2 above.
40
<PAGE>
SIGNATURES
Dated: March 30, 2000
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.
Date Signature Title
---- --------- -----
March 30, 2000 /s/J. Taylor Crandall Chairman of the Board
------------------------
J. Taylor Crandall
March 30, 2000 /s/T. Lincoln Morison Co-Chief Executive Officer,
------------------------ President and Director
T. Lincoln Morison (Co- Executive Officer)
March 30, 2000 /s/Richard Harrington Co-Chief Executive Officer
------------------------ and Director
Richard Harrington
March 30, 2000 /s/Richard Goodman Executive Vice President and
------------------------ Chief Financial Officer
Richard Goodman (Principal Financial and
Accounting Officer)
March 30, 2000 /s/Andrew J. Gessow Director
------------------------
Andrew J. Gessow
March 30, 2000 /s/Osamu Kaneko Director
------------------------
Osamu Kaneko
March 30, 2000 /s/Steven C. Kenninger Director
------------------------
Steven C. Kenninger
March 30, 2000 /s/Adam M. Aron Director
------------------------
Adam M. Aron
March 30, 2000 /s/Sanford R. Climan Director
------------------------
Sanford R. Climan
March 30, 2000 /s/Joshua S. Friedman Director
------------------------
Joshua S. Friedman
41
<PAGE>
March 30, 2000 /s/W. Leo Kiely III Director
------------------------
W. Leo Kiely III
March 30, 2000 /s/James Brocksmith, Jr. Director
------------------------
James Brocksmith, Jr.
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Sunterra Corporation and Subsidiaries
Report of Independent Certified Public Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............... F-3
Consolidated Statements of Income for each of the three years
ended December 31, 1999................................................. F-4
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1999........................................... F-5
Consolidated Statements of Stockholders' Equity for each of the three
years ended December 31, 1999........................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of 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, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunterra Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Orlando, Florida,
March 10, 2000 (except with respect
to the matters discussed in Note 19,
as to which the date is March 30, 2000).
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share and per share data)
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash and cash equivalents.......................................................... $ 24,838 $ 28,250
Cash in escrow and restricted cash................................................. 29,735 25,951
Mortgages receivable, net of an allowance of $20,060 and 244,018 335,982
$22,869 at December 31, 1999 and 1998, respectively...........................
Retained interests................................................................. 46,274 12,518
Due from related parties........................................................... 11,550 25,849
Other receivables, net............................................................. 64,202 38,207
Income tax refund receivable....................................................... 2,315 --
Prepaid expenses and other assets.................................................. 20,421 22,031
Investment in joint ventures....................................................... 19,274 17,876
Real estate and development costs.................................................. 363,534 336,620
Property and equipment, net........................................................ 130,321 81,125
Intangible assets, net............................................................. 101,928 96,723
---------- ----------
Total assets.................................................................... $1,058,410 $1,021,132
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................................................... $ 30,483 $ 21,864
Accrued liabilities................................................................ 96,936 80,242
Income taxes payable............................................................... -- 9,240
Deferred taxes..................................................................... 18,243 30,984
Notes payable...................................................................... 681,960 627,089
---------- ----------
Total liabilities............................................................ 827,622 769,419
---------- ----------
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock (25,000,000 shares authorized; none issued or outstanding)...... -- --
Common stock ($0.01 par value, 50,000,000 shares authorized; 35,970,032 and
35,902,671 shares outstanding at December 31, 1999 and 1998, respectively).... 360 359
Additional paid-in capital...................................................... 164,419 163,290
Retained earnings............................................................... 69,159 86,581
Accumulated other comprehensive (loss) income................................... (3,150) 1,483
---------- ----------
Total stockholders' equity................................................... 230,788 251,713
---------- ----------
Total liabilities and stockholders' equity................................... $1,058,410 $1,021,132
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Amount in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
REVENUES: -------- -------- --------
<S> <C> <C> <C>
Vacation Interests sales................................................... $423,733 $359,426 $281,063
Interest income............................................................ 41,117 52,529 42,856
Gain on sales of mortgages receivable...................................... 5,441 6,698 --
Other income............................................................... 36,677 31,301 13,774
-------- -------- --------
Total revenues.......................................................... 506,968 449,954 337,693
-------- -------- --------
COSTS AND OPERATING EXPENSES:
Vacation Interests cost of sales........................................... 106,996 85,649 71,437
Advertising, sales, and marketing.......................................... 202,101 163,828 126,739
Provision for doubtful accounts............................................ 52,290 12,616 8,579
Loan portfolio expenses.................................................... 6,652 3,680 5,522
General and administrative................................................. 69,851 50,699 42,254
Depreciation and amortization.............................................. 15,752 10,556 6,499
Resort property write-downs................................................ 17,967 -- --
Merger costs, organizational costs and asset write-downs................... -- 5,056 9,973
-------- -------- --------
Total costs and operating expenses...................................... 471,609 332,084 271,003
-------- -------- --------
Income from operations..................................................... 35,359 117,870 66,690
Interest expense (net of capitalized interest of $11,265, $8,942 and $6,774
in 1999, 1998 and 1997, respectively)................................... 48,495 44,399 22,426
Other expenses............................................................. 11,705 -- --
Realized loss on available for sale securities............................ 5,491 -- --
Equity (gain) loss on investment in joint ventures.......................... (2,441) 708 639
Minority interest in (loss) income of consolidated limited
partnership........................................................... (237) 18 181
-------- -------- --------
(Loss) income before (benefit) provision for income taxes, extraordinary
items and cumulative effect of change in accounting principle............. (27,654) 72,745 43,444
-------- -------- --------
(Benefit) provision for income taxes from continuing operations............ (10,232) 28,371 17,196
Provision for deferred income taxes resulting from the cumulative effect
of previously non-taxable acquired entities............................... -- -- 5,960
-------- -------- --------
Total (benefit) provision for income taxes.............................. (10,232) 28,371 23,156
-------- -------- --------
(Loss) income before extraordinary items and cumulative effect of change in
accounting principle...................................................... (17,422) 44,374 20,288
Extraordinary items, net of taxes.......................................... -- 129 766
Cumulative effect of change in accounting principle, net of taxes.......... -- 1,466 --
-------- -------- --------
Net (loss) income.......................................................... $(17,422) $ 42,779 $ 19,522
======== ======== ========
EARNINGS PER SHARE (NOTE 3):
Basic:
(Loss) income before extraordinary item and cumulative effect of change
in accounting principle................................................ $ (0.48) $ 1.24 $ 0.57
Extraordinary item, net of taxes........................................ -- -- (0.02)
Cumulative effect of change in accounting principle, net of taxes....... -- (0.05) --
-------- -------- --------
Net (loss) income........................................................ $ (0.48) $ 1.19 $ 0.55
======== ======== ========
Diluted:
(Loss) income before extraordinary item and cumulative effect of change
in accounting principle................................................ $ (0.48) $ 1.20 $ 0.56
Extraordinary item, net of taxes........................................ -- -- (0.02)
Cumulative effect of change in accounting principle, net of taxes....... -- (0.04) --
-------- -------- --------
Net (loss) income....................................................... $ (0.48) $ 1.16 $ 0.54
======== ======== ========
Weighted average number of common shares outstanding (Note 3).............. 35,926 35,888 35,373
Weighted average number of common and potentially dilutive common shares
outstanding (Note 3)...................................................... 35,926 40,995 36,180
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1999 1998 1997
OPERATING ACTIVITIES: -------- -------- ---------
<S> <C> <C> <C>
Net (loss) income......................................................... $ (17,422) $ 42,779 $ 19,522
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization.......................................... 15,752 10,556 6,499
Provision for doubtful accounts........................................ 52,290 12,616 8,579
Amortization of capitalized financing costs............................ 5,380 3,237 --
Gain on sales of mortgages receivable.................................. (5,441) (6,698) --
Resort property write-downs............................................ 17,967 -- --
Other expenses......................................................... 11,705 -- --
Realized loss on available-for-sale securities......................... 5,491 -- --
Write-down of certain assets........................................... -- 3,506 --
Cumulative effect of change in accounting principle.................... -- 2,403 --
Equity (gain) loss on investment in joint venture...................... (2,441) 708 639
Minority interest (loss) income of consolidated limited partnership.... (237) 18 181
Proceeds from sales of mortgages receivable............................ 161,384 173,146 --
Changes in operating assets and liabilities, net of effect of
acquisitions:
Cash in escrow and restricted cash..................................... (3,238) (16,460) (6,916)
Mortgages receivable................................................... (143,769) (117,526) (108,942)
Due from related parties............................................... 8,097 (5,420) (12,504)
Prepaid expenses and other assets...................................... (1,743) (7,814) 2,068
Real estate and development costs...................................... (47,582) (97,488) (65,595)
Retained interests..................................................... (4,179) -- --
Other receivables, net................................................. (36,004) (20,119) (4,448)
Accounts payable and accrued liabilities............................... 25,161 6,730 (10,398)
Income taxes........................................................... (11,555) 13,701 (6,518)
Deferred income taxes.................................................. (12,741) 7,237 19,481
Due to related parties................................................. -- (1,032) (636)
--------- --------- -----------
Net cash provided by (used in) operating activities....................... 16,875 4,080 (158,988)
--------- --------- -----------
INVESTING ACTIVITIES:
Cash paid for acquisition of subsidiaries................................. -- (99,340) (31,296)
Property and equipment.................................................... (53,710) (44,241) (19,973)
Intangible assets......................................................... (17,098) (10,852) (1,637)
Investment in joint ventures.............................................. (5,810) (1,347) (8,899)
Proceeds from sale of investment in joint ventures........................ 7,770 -- --
--------- --------- ---------
Net cash used in investing activities..................................... (68,848) (155,780) (61,805)
--------- --------- --------
FINANCING ACTIVITIES:
Proceeds from notes payable............................................... 32,669 237,188 353,264
Payments on notes payable and mortgage-backed securities.................. (47,659) (112,697) (167,229)
Proceeds from credit line facilities, net of debt issuance costs.......... 170,570 240,568 --
Payments on credit line facilities........................................ (104,971) (224,615) --
Proceeds from stock offerings............................................. -- -- 52,643
Distributions............................................................. -- -- (738)
Other..................................................................... 1,130 321 648
--------- ---------- ---------
Net cash provided by financing activities................................. 51,739 140,765 238,588
Net (decrease) increase in cash and cash equivalents...................... (234) (10,935) 17,795
Effect of exchange rates on cash and cash equivalents..................... (3,178) 698 (65)
Cash and cash equivalents, beginning of period............................ 28,250 38,487 20,757
--------- --------- ---------
Cash and cash equivalents, end of period.................................. $ 24,838 $ 28,250 $ 38,487
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................................... $ 54,587 $ 52,607 $ 18,508
Cash paid for taxes, net of tax refunds................................... $ 11,957 $ 1,968 $ 7,918
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Stock issued in connection with acquisition of Marc Resorts............... $ -- $ -- $ 6,010
Costs incurred in conjunction with debt issuances......................... $ 1,907 $ 9,295 $ 12,824
Tax benefit resulting from exercise of common stock options............... $ -- $ -- $ 1,469
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL COMPREHENSIVE
SHARES PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' INCOME
OUTSTANDING AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY (LOSS)
----------- ------ ---------- --------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 33,011 $330 $101,978 $ 23,544 $ 573 $126,425
Net income....................... -- -- -- 19,522 -- 19,522 $ 19,522
Proceeds from the sale of
common stock, net of
offering costs................. 2,400 24 52,619 -- -- 52,643
Common stock issued in
connection with
purchase of subsidiary........ 213 2 6,008 -- -- 6,010
Distributions.................... -- -- -- (738) -- (738)
Other............................ 251 3 2,364 1,469 212 4,048 212
------ ---- -------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1997..... 35,875 359 162,969 43,797 785 207,910
Comprehensive income for the
year ending
December 31, 1997.............. $ 19,734
========
Net income....................... -- -- -- 42,779 -- 42,779 $ 42,779
Other............................ 28 -- 321 5 698 1,024 698
------ ---- -------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1998..... 35,903 359 163,290 86,581 1,483 251,713
Comprehensive income for the
year ending
December 31, 1998.............. $ 43,477
========
Net loss......................... -- -- -- (17,422) -- (17,422) $(17,422)
Other............................ 67 1 1,129 -- -- 1,130 --
Unrealized loss on securities
classified as available-for-
sale, net of tax of $902...... -- -- -- -- (1,455) (1,455) (1,455)
Currency translation
adjustments, net of tax
of $1,947.................... -- -- -- -- (3,178) (3,178) (3,178)
-- ---- -------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1999..... 35,970 $360 $164,419 $ 69,159 $(3,150) $230,788
====== ==== ======== ======== ======= ========
Comprehensive loss for the
year ending
December 31, 1999.............. $(22,055)
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
1. NATURE OF BUSINESS
The operations of Sunterra Corporation (formerly Signature Resorts, Inc.) and
its wholly-owned subsidiaries (the "Company") consist of (i) marketing and
selling vacation ownership interests at its 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"), both of which generally
include a deeded, fee-simple interest in a particular unit, (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 the Company 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 the Company and its 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 pooling-of-interests
(Note 18). 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 required by the
securitized notes (Note 9) and Conduit Facility (Note 5) of approximately $5.5
million and $7.6 million as of December 31, 1999 and 1998, respectively.
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. Costs are allocated to units sold on an
area method, which approximates the relative sales value basis.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
Property and Equipment - Buildings and leasehold improvements are depreciated
using the straight-line method over the estimated useful life of 40 years.
Furniture and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets, which range from 3 to 7 years.
Investment in Joint Ventures -- The Company accounts for its investment in its
various joint ventures under the equity method of accounting. Goodwill
associated with each joint venture is amortized as Vacation Interests are sold.
At December 31, 1999, the Company held investments in VacationSpot.com,
Inc. which are recorded at their historical cost of $1.25 million, comprised of
$1.0 million Series B Preferred Stock and $0.25 million of Series C Preferred
Stock. Although the market value of the investments in VacationSpot.com, Inc. is
not readily determinable, management believes the fair value of these
investments exceed their carrying amount.
Intangible Assets -- In 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 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 write off
of all organizational and start-up costs capitalized prior to January 1, 1998.
All such costs were expensed as incurred in 1998 and 1999.
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 using a method which
approximates the effective interest method.
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 realizability 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, 1999.
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.
Derivative Instruments -- The Company uses interest rate cap agreements to
manage interest rate exposure. As of December 31, 1999, no amounts were due by
or owed to the Company under these agreements.
Fourth Quarter Adjustments -- During the fourth quarter of 1999, the Company
recorded charges directly and indirectly involving its mortgages receivable
including: (i) a $44.3 million write-off of mortgages receivable, net of
estimated recoveries, in its provision for doubtful accounts, as a result of the
Company's change in its estimate of allowance for mortgages receivable (Note 4),
(ii) a $9.6 million write-off of related accrued interest offset against
interest income, (iii) a $0.8 million write-off of related deferred loan
origination costs, (iv) a $5.5 million realized loss on available-for-sale
securities adjusting the retained interest in mortgages receivable that were
previously sold to reflect the variance in the actual performance of the
mortgages receivable sold and the assumptions used to calculate the retained
interest, and (v) $10.0 million in other expenses reflecting the write-off of
homeowners' association receivables and a receivable from a tour operator.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
In addition, during the fourth quarter of 1999, the Company recorded resort
property write-downs totaling $18 million, including a $16.7 million write-down
of non-core properties to net realizable value and a $1.3 million write-off of
costs associated with acquisitions that have been terminated (Note 6).
During the fourth quarter of 1998, the Company recorded certain organization
charges and asset write-downs 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 met. 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.
Advertising, Sales and Marketing -- The Company defers certain costs related
to its direct-response advertising of Vacation Interests. Such costs are
charged to expense when customers tour the Company's resort properties
(generally in less than twelve months) which corresponds to the estimated
revenue stream of the advertising activity. The total amount charged to expense
for 1999 was $2.6 million. There were no such costs in 1998 and 1997. Deferred
marketing cost at December 31, 1999, totaled $0.7 million.
Income Taxes -- 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. Significant estimates used by the Company in preparation of
its financial statements include: (i) mortgages receivable allowance for
doubtful accounts, (ii) retained interests, and (iii) estimated net realizable
value of non-core properties held for sale. 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).
This statement 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
1998.
Segment Reporting -- In June 1997, the FASB issued SFAS 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.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
Derivative Instruments and Hedging Activities - In June 1998, the FASB issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133). SFAS 133 was amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133--an Amendment of FASB Statement No. 133 (SFAS 137) in June
1999. SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as "Derivatives") and for hedging
activities. It requires that an entity recognize all Derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company is in the process of reassessing current
derivative reporting to determine if changes in reporting will be required in
adopting this new standard. Any required disclosures prescribed by SFAS 133 will
be adopted in the first quarter of 2001, as required by SFAS 137.
Reclassifications -- Certain reclassifications were made to the 1998 and 1997
accompanying consolidated financial statements to conform to the 1999
presentation.
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, 1999
(amounts in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net (loss)income......................................................... $(17,422) $42,779 $19,522
Interest on convertible notes (a)........................................ -- 4,840 --
------- ------- -------
Net income available to common stockholders after $(17,422) $47,619 $19,522
assumed conversion of dilutive securities(a).......................... ======= ======= =======
Weighted average number of common shares used in basic 35,926 35,888 35,373
EPS...................................................................
Effect of dilutive convertible notes (a)................................. -- 4,537 --
Effect of dilutive stock options(b)...................................... -- 570 807
------- ------- -------
Weighted average number of common shares and dilutive 35,926 40,995 36,180
potential common shares used in diluted EPS(a)(b)................... ======= ======= =======
</TABLE>
(a) The potential effect on net (loss) income and on common stock shares related
to the 5.75% Convertible Subordinated Notes Due 2007 (the "Convertible Notes")
have not been included in the 1999 or 1997 calculation of net (loss) income or
weighted average number of common shares and dilutive potential common shares
outstanding used in diluted earnings per share because the effect would be anti-
dilutive.
(b) The potential effect on common stock shares related to dilutive stock
options have not been included in the 1999 calculation of weighted average
numbers of common shares and dilutive potential common shares outstanding used
in diluted earnings per share because the effect would be anti-dilutive.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
4. MORTGAGES RECEIVABLE, NET
The Company provides financing to the purchasers of Vacation Interests that is
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 was 14.3% as of December 31, 1999.
Mortgages receivable in excess of 60 days past due at December 31, 1999 were
7.1%, as a percentage of gross mortgages receivable.
During the fourth quarter, the Company recorded a $44.3 million write-off of
mortgages receivable, net of estimated recoveries, in its provision for doubtful
accounts, and a $9.6 million write-off of related accrued interest offset
against interest income.
The following schedule reflects the scheduled contractual principal maturities
of mortgages receivable (amounts in thousands):
<TABLE>
<CAPTION>
Year Ending December 31:
- ------------------------
<S> <C>
2000........................................................ $ 37,553
2001........................................................ 33,149
2002........................................................ 32,948
2003........................................................ 31,521
2004........................................................ 27,246
Thereafter.................................................. 101,661
--------
Total principal maturities of mortgages receivable.......... 264,078
Less allowance for doubtful accounts........................ (20,060)
--------
Net principal maturities of mortgages receivable............ $244,018
========
</TABLE>
The activity in the mortgages receivable allowance for doubtful accounts is as
follows (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Balance, beginning of the period............................ $ 22,869 $ 22,916 $17,328
Decrease in allowance for purchased mortgages
receivable............................................... (440) (584) (718)
Decrease in allowance for mortgages sold.................... -- (1,956) --
Increase in allowance related to acquired company........... -- 4,930 1,265
Provision for mortgages receivable doubtful accounts........ 49,703 11,409 7,234
Receivables charged off..................................... (52,072) (13,846) (2,193)
-------- -------- -------
Balance, end of the period.................................. $ 20,060 $ 22,869 $22,916
======== ======== =======
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
The provision for doubtful accounts for 1999, 1998, and 1997 includes $2.6
million, $1.2 million, and $1.4 million, respectively, for other receivables.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $3.3 million and $8.0 million at December 31, 1999 and
1998, respectively. The accrued interest receivable at December 31, 1999 and
1998 is net of an allowance for doubtful accounts of $0.6 million and $1.1
million, respectively, and is included in other receivables, net.
5. SALES OF MORTGAGES RECEIVABLE
For the year ended December 31, 1999, the Company recognized a pretax gain of
$5.4 million, net of expenses, on the sale of $186.0 million of mortgages
receivable, comprised of: (i) $136.6 million of mortgages receivable which were
sold into the Company's Mortgages Receivable Conduit Facility (the "Conduit
Facility"), the majority of which were subsequently part of securitizations;
(ii) $16.2 million of mortgages receivable which were part of the 1999-A
Securitization (defined below); (iii) $12.8 million of mortgages receivable
which were part of the 1999-B Securitization (defined below); and (iv) $20.4
million of mortgages receivable which were sold to a finance company.
Under the terms of the Conduit Facility, the Company sells mortgages
receivable through a wholly-owned special purpose entity at 95% of face value,
before a required 6% cash reserve, without recourse to the Company. The Company
then retains 100% of the excess spread over the borrowing rate. The $136.6
million of mortgages receivable which were sold into the Conduit Facility had a
9 year weighted average remaining life and a weighted average interest rate of
15%.
In May 1999, the Company completed the sale through a Securitization of $100
million principal amount of its Vacation Ownership Receivables-Backed Notes
1999-A ("1999-A Securitization"). These fixed rate notes were issued at 94% of
the $106.8 million outstanding mortgages receivable principal balances and bear
interest at a weighted average rate of 6.7%. The 1999-A Securitization generated
approximately $97 million in cash (after funding a reserve account and paying
transaction expenses), which the Company used to repay a portion of amounts
outstanding on the Conduit Facility and Senior Credit Facility. Of the $106.8
million mortgages receivable included in the 1999-A Securitization, all but
$16.2 million had previously been sold into the Company's Conduit Facility
during the fourth quarter of 1998 or the first quarter of 1999. The receivables
had an 8 year weighted average remaining life and a weighted average interest
rate of 15%.
In December 1999, the Company completed the sale through a Securitization of
$58.7 million principal amount of its Vacation Ownership Receivables-Backed
Notes 1999-B ("1999-B Securitization"). These fixed rate notes were issued at
90% of the $65.2 million outstanding mortgages receivable principal balances,
bear interest at a weighted average rate of 7.9% and are without recourse. The
1999-B Securitization generated approximately $55 million in cash (after funding
a reserve account and paying transaction expenses), which the Company used to
repay amounts outstanding on the Conduit Facility and the Senior Credit
Facility. Of the $65.2 million mortgages receivable included in the 1999-B
Securitization, all but $12.8 million had previously been sold into the
Company's Conduit Facility during 1999. These receivables had a 9 year weighted
average remaining life and a weighted average interest rate of 15%.
During 1999, the Company also sold to a finance company $20.4 million of
gross mortgages receivable for $19.5 million in cash in seven separate
transactions. The Company sold these receivables at 95% of par value with a 50%
participation in the remaining interest spread. These receivables had an 8 year
weighted average remaining life and a weighted average interest rate of 15%.
As a result of the 1999-A Securitization, the 1999-B Securitization, the
sales of mortgages receivable into the Conduit Facility and the sales of
mortgages receivable to a finance company, the Company generated retained
interests of $39.6 million. At December 31, 1999, the Company marked the
retained interest to market and recorded a $5.5 million realized loss on
available-for-sale securities. Retained interests are valued by the Company
assuming an 11% to 14% gross default rates (before recoveries), a 13% to 23%
prepayment rates, and a 16% discount rate, as deemed appropriate by the Company
depending on the seasoning and age of the mortgages receivable pool as well as
the terms and conditions of each separate sales transaction. The retained
interests are classified as available-for-sale based on management's intent and
the existence of prepayment options.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
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,
------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Land............................................................................ $ 100,615 $ 102,653
Development cost, excluding capitalized interest................................ 660,736 536,053
Capitalized interest............................................................ 40,257 28,992
--------- ---------
Total real estate and development costs...................................... 801,608 667,698
Less accumulated Vacation Interest cost of sales................................ (438,074) (331,078)
--------- ---------
Net real estate and development costs........................................ $ 363,534 $ 336,620
========= =========
</TABLE>
In 1999, the Company classified certain non-core properties as assets held for
sale. In accordance with SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, the Company recorded a
$16.7 million write-down associated with these properties in the fourth quarter
of 1999. The carrying value of these assets was written down to the estimated
net realizable value based in part on offers from prospective third party buyers
of these properties less related sales costs. Accordingly, actual results could
vary significantly from these estimates.
As of December 31, 1999, the Company had commenced sales of Vacation Interests
at certain projects, or phases of certain projects, that are expected to be
completed during 2000. The estimated cost to complete the projects, or the
specific phases of the projects, is approximately $38 million.
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Land............................................................................ $ 11,051 $ 9,134
Buildings and leasehold improvements............................................ 48,697 31,410
Furniture and equipment......................................................... 95,285 55,242
-------- --------
Total property and equipment................................................. 155,033 95,786
Less accumulated depreciation and amortization.................................. (24,712) (14,661)
-------- --------
Property and equipment, net.................................................. $130,321 $ 81,125
======== ========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$12.0 million, $6.5 million, and $2.8 million in 1999, 1998, and 1997,
respectively.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
8. INTANGIBLE ASSETS
Intangible assets and accumulative amortization consist of the following
(amounts in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Goodwill........................................................................ $ 78,547 $ 74,600
Debt issuance costs............................................................. 22,881 22,119
Loan origination fees........................................................... 10,276 8,669
Other........................................................................... 6,696 1,695
-------- --------
Total intangible assets....................................................... 118,400 107,083
Less accumulated amortization................................................... (16,472) (10,360)
-------- --------
Net intangible assets $101,928 $ 96,723
======== ========
</TABLE>
Amortization expense was $3.8 million, $4.1 million and $3.7 million in 1999,
1998 and 1997, respectively. Amortization of capitalized financing costs,
included in interest expense, was $5.4 million and $3.2 million in 1999 and
1998, respectively. In addition, $1.6 million of amortized intangibles were
retired from the related asset and accumulated amortization accounts in 1999.
9. NOTES PAYABLE
Notes payable consist of the following (amounts in thousands) (Subsequent to
December 31, 1999, the terms and conditions of several of the following credit
lines were materially changed, as described in Note 19):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Endpaper loans with interest payable monthly at prime plus 2% to prime plus
3% (10.5% to 11.5% at December 31, 1999), 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............. $ 18,989 $ 30,537
Lines of credit, collateralized by certain by certain inventory. Interest is payable
monthly at LIBOR plus 3.75% (9.6% at December 31, 1999). Principal is
payable upon the sooner of the sale of the collaterialized inventory
or from 2003-2004.................................................................. 69,864 --
Lines of credit, collaterialized by pre-sale and unseasoned mortgages
receivable. Interest is payable monthly at LIBOR plus 2.75% to 3.25%
(8.6% to 9.1% at December 31, 1999). Principal is due as the
collaterialized mortgages receivable become seasoned or September 2002............ 8,960 --
Senior Credit Facility of $60 million with interest payable quarterly at rates
ranging from LIBOR plus 1.5% to LIBOR plus 2% (7.3% to 7.8% on
December 31, 1999); collateralized by specific mortgages receivable; due
December 2002..................................................................... 23,242 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......... 64,683 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........ 2,753 6,900
9.25% Senior Notes, interest due May and November, principal due May
2006.............................................................................. 140,000 140,000
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
<TABLE>
<S> <C> <C>
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.................................................................. 15,469 6,964
-------- --------
Total notes payable $681,960 $627,089
======== ========
</TABLE>
On December 31, 1999, the Company revised its Senior Credit Facility to expand
its eligibility criteria to accept a wider range of less seasoned mortgages
receivable as collateral into the Senior Credit Facility. The Company also
reduced its size to $60 million from $117.5 million, which coincided with the
establishment of a new $125 million receivables warehouse facility. At December
31, 1999, the interest rate of the Senior Credit Facility would vary between
LIBOR plus 1.50% and LIBOR plus 2.00% depending on the Company's Total Debt-to-
Capital Ratio.
In September 1999, the Company entered into a $50 million inventory line to
finance certain of its unsold vacation interests inventory (the "Inventory
Line"). The Inventory Line had $48.3 million outstanding on December 31, 1999
and was in addition to an existing inventory loan with the same lender that had
$21.6 million outstanding at December 31, 1999. The maturity of the Inventory
Line is September 30, 2003 and the maturity of the existing loan is March 1,
2004.
Also in September 1999, the Company entered into a $15 million pre-
sale/unseasoned line (the "Pre-sale Line") to finance certain mortgages
receivable. At December 31, 1999, the interest rate of the Pre-sale Line would
vary between LIBOR plus 2.75% to 3.25% or, reference rate plus 1.00% to 1.50%,
depending on the amount outstanding.
On December 31, 1999, a new $125 million receivables warehouse facility was
established but not funded at the time and has remained unused. The Company is
still negotiating the use of this receivable warehouse facility, but has not
considered it in determining the Company's availability.
At December 31, 1999, the Company was in default of certain covenants on the
above credit facilities. Subsequent to year end the Company obtained waivers and
renegotiated its covenants as more fully described in Note 19.
At December 31, 1998, the Company had $98.2 million available on the Senior
Credit Facility, $24.9 million available on the Conduit Facility and no amounts
available on the endpaper loans.
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 requires the Company to maintain a minimum interest coverage ratio. At
December 31, 1999, the Company was in compliance with all covenants as
subsequently amended or waived (see Note 19). Dividends are restricted by
certain of the Company's debt agreements.
The expected maturities of indebtedness are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Due in the year ending December 31
- ----------------------------------
<S> <C>
2000............................................................. $ 49,719
2001............................................................. 30,681
2002............................................................. 16,195
2003............................................................. 61,937
2004............................................................. 11,349
2005 and thereafter.............................................. 512,079
--------
Total............................................................ $681,960
========
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
10. RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, respectively, the Company had accrued $3.3
million and $7.3 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
related parties in the accompanying consolidated balance sheets.
As of December 31, 1999, the Company had accounts receivable and notes
receivable of $0.2 million, and $5.9 million, respectively, from the Company's
joint ventures in Poipu Point, Hawaii and Kaanapali, Hawaii. As of December 31,
1998, these accounts receivable and notes receivable balances due from Poipu
Point, Hawaii, Kaanapali, Hawaii and St. John, U.S. Virgin Islands were $2.8
million and $11.9 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 1999, the Company reimbursed to Mr. Gessow, then co-chairman of the Board
of Directors of Sunterra Corporation, approximately $0.4 million related to the
use of personal aircraft for business of the Company.
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.
11. LEASES
In September 1999, the Company entered into two agreements for the sale and
leaseback of computer hardware. At the end of the lease, the Company has the
option to purchase the computer hardware at a price to be determined by the
Lessor and the Company, extend the lease for seven months, or return the
equipment to the Lessor. Of the two leases, one is classified as an operating
lease and one is classified as a capital lease in accordance with SFAS No. 13,
Accounting for Leases. (SFAS 13).
For the lease classified as an operating lease, the book value and
associated depreciation of the computer hardware of approximately $2.3 million
and $0.2 million respectively, have been removed from the accounts and the gain
realized on the sale approximating $0.2 million has been deferred. The deferred
gain will be credited to income as rent expense adjustments over the 36 month
lease term. Payments under the lease approximate $0.8 million annually,
commencing in December 1999.
For the lease classified as a capital lease, the book value and associated
depreciation of the computer hardware of approximately $2.6 million and $1.0
million respectively, have been reclassified under leased property. An
obligation under capital leases has been recorded for $2.4 million. The gain
realized on the sale approximating $1 million has been deferred. The gain will
be amortized in proportion to the amortization of the leased property. Payments
under the lease approximate $0.9 million annually, commencing in December 1999.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
At December 31, 1999, future minimum lease payments on capital and operating
leases were as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31 Leases Leases
- ----------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
2000....................................................... $1,098 $ 809
2001....................................................... 1,024 809
2002....................................................... 831 742
------ ------
Total minimum lease payments............................... $2,953 $2,360
======
Imputed interest rate of 9.6%.............................. (364)
------
Present value of minimum lease payments.................... $2,589
======
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The Company is involved in several class action lawsuits against the Company
and certain directors, officers, and former officers. The class actions allege
violation of Federal Securities laws on behalf of persons who purchased the
Company's common stock from October 4, 1998, through January 19, 2000, or from
October 6, 1998, through January 19, 2000, and seeks recovery of unspecified
damages. A damages award in excess of any available insurance could have a
material adverse effect on the Company.
In addition, 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, 1999, the Company does not believe that the events requiring such
purchase are likely to occur.
13. 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 is
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.
Retained interests: The carrying amount reported in the balance sheet for
retained interests approximates 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.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
Derivative instruments: The Company has two offsetting interest rate cap
agreements. These agreements both expire on December 21, 2001 and have identical
but offsetting settlement terms. The special purpose entity related to the
Company's conduit facility is the receiving party of any payments from the
counterparty institution and the Company is the paying party to that
counterparty. The notional amounts are $100 million each. Cash settlements under
these agreements only occur if LIBOR exceeds 7.50%. The special purpose entity
will use only that portion of its settlement received that is needed to cover
its interest and cash obligations with the remainder paid to the Company. To
date no payments have occurred under these agreements. As of December 31, 1999,
the cost to terminate these agreements is not material.
14. STOCK OPTIONS
The Company issued 502,773, 2,749,600 and 1,054,500 stock options during 1999,
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 unaudited net loss would have been $22.1
million and both basic and diluted unaudited loss per share would have been
$0.62 on an unaudited pro forma basis for the year ended December 31, 1999. The
Company's unaudited net income would have been $38.7 million, and basic and
diluted unaudited earnings per share would have been $1.08 and $1.06,
respectively, 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, 1999, 1,181,772 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, 1999, 1998, and 1997 is presented
in the following table:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, beginning
of year.................................... 5,192,200 $10.21 3,289,407 $14.45 2,653,500 $10.29
Granted....................................... 502,773 12.32 2,749,600 13.49 1,054,500 23.99
Exercised..................................... (93,550) 8.29 (600) 9.33 (250,180) 9.33
Forfeited..................................... (503,525) 12.78 (846,207) 28.60 (168,413) 16.42
---------- ---------- ----------
Outstanding options, end of year.............. 5,097,898 $12.58 5,192,200 $10.21 3,289,407 $14.45
Exercisable at end of year.................... 2,743,297 $12.20 1,078,490 $10.41 817,528 $10.50
========== ========== ==========
Weighted average fair value
of options granted......................... $8.50 $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 6.39%, expected dividend yield of zero,
expected volatility of 59%, and expected life of 8 years in 1999.
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.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
15. 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.
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, 1999
and 1998, an aggregate of 67,783 and 29,269 shares, respectively, had been
issued pursuant to the Employee Stock Purchase Plan.
The Company also has established a qualified retirement plan (401(k) 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
1999, 1998, or 1997.
16. INCOME TAXES
The components of the (benefit) provision for income taxes are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997
- ------------------------------------------------------ --------------------- -------------------- --------------------
Current:
<S> <C> <C> <C>
Federal........................................... $ (2,162) $ 8,570 $ 2,194
State............................................. (9) 1,666 461
Foreign........................................... 3,934 5,691 2,533
-------- ------- -------
Total current provision for income taxes 1,763 15,927 5,188
-------- ------- -------
Deferred:
Federal........................................... (9,807) 11,385 16,125
State............................................. (1,590) 1,301 1,843
Foreign........................................... (598) (242) --
-------- ------- -------
Total deferred (benefit) provision
for income taxes................................... (11,995) 12,444 17,968
-------- ------- -------
(Benefit) provision for income taxes.................. $(10,232) $28,371 $23,156
======== ======= =======
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
The reconciliation between the statutory provision for income taxes and the
actual (benefit) provision for income taxes is shown as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997
- ------------------------------------------------------ --------------------- -------------------- ---------------------
<S> <C> <C> <C>
Income tax at U.S. federal statutory rate............. $ (9,679) $25,461 $15,205
State tax, net of federal benefit..................... (968) 1,929 1,738
Difference in foreign tax rates....................... (1,265) (202) (994)
Non-deductible expenses............................... 1,132 610 3,192
Deferred income taxes recorded upon acquisition of
previously non-taxable entities.................... -- -- (1,050)
Non-taxable income from entities...................... -- -- 5,960
Other................................................. 548 573 (895)
-------- ------- -------
(Benefit) provision for income taxes.................. $(10,232) $28,371 $23,156
======== ======= =======
</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>
Year ended December 31 1999 1998 1997
- ------------------------------------------------------ --------------------- --------------------- ---------------------
Deferred tax assets:
<S> <C> <C> <C>
Allowance for doubtful accounts.................... $ 9,108 $ 12,084 $ 8,867
Fixed assets and inventory......................... 2,826 1,666 1,305
Accrued liabilities................................ 1,666 1,961 4,152
Adjustment to basis of partnership property........ 312 1,429 3,474
Net operating loss carryover....................... 29,498 33,250 29,439
Foreign tax credit carryover....................... 1,340 991 62
Foreign net operating loss carryover............... 1,129 -- --
Capital loss carryover............................. 1,377 -- --
Minimum tax credit carryover....................... 3,384 8,840 5,776
Other.............................................. 1,900 1,963 367
-------- -------- --------
Total gross deferred tax assets................. 52,540 62,184 53,442
Valuation allowance................................ (929) -- (2,367)
-------- -------- --------
Total net deferred tax assets................... 51,611 62,184 51,075
Deferred tax liabilities:
Installment sales.................................. (60,765) (87,536) (73,818)
Percentage of completion........................... (96) (4,784) (160)
Technology expenses................................ (5,848) -- --
Other.............................................. (3,145) (848) (849)
-------- -------- --------
Total deferred tax liabilities.................. (69,854) (93,168) (74,827)
-------- -------- --------
Net deferred taxes.................................... $(18,243) $(30,984) $(23,752)
======== ======== ========
</TABLE>
At December 31, 1999, the Company had available approximately $75 million of
unused Federal net operating loss carryforwards (the "NOLs") that may be applied
against future taxable income. These NOLs expire on various dates from 2004
through 2019.
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 1998 favorably impacted the future realization of these loss
carryforwards resulting in the reversal of this reserve. Income taxes currently
payable have not been affected by the change in reserve. The reversal of the
reserve reduced the goodwill recorded on the 1997 company acquisition.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
The valuation allowance of $0.9 million in 1999 was related to loss
carryforwards of the Japanese operations. Under the provisions of SFAS No. 109,
the Company has recorded a valuation allowance to reserve against 100% of this
asset due to the uncertainty of the realization of such asset.
Provision has not been made for taxes on approximately $26.7 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.
17. 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, Italy, 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 the 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>
1999 United States Foreign Eliminations Total
---------------- ------------ --------------------- ----------------
<S> <C> <C> <C> <C>
Total revenues................................... $375,543 $131,425 $ 506,968
(Loss) income before income tax (benefit)
provision...................................... (53,162) 25,508 (27,654)
Identifiable assets.............................. 954,820 201,824 (98,234) 1,058,410
1998
Total revenues................................... $331,566 $118,388 $ 449,954
Income before provision for income taxes,
extraordinary items, and cumulative effect..... 53,331 19,414 72,745
Identifiable assets............................... 939,069 176,497 (94,434) 1,021,132
1997
Total revenues.................................... $270,296 $ 67,397 $ 337,693
Income before provision for income taxes and
extraordinary items............................ 31,177 12,267 43,444
Identifiable assets............................... 701,509 91,593 (31,957) 761,145
</TABLE>
18. DISPOSITIONS AND ACQUISITIONS
In December 1999, the Company sold its 50% share in joint venture partnerships
with affiliates of Westin Hotels for $7.8 million in cash. The Company had
previously entered into partnerships with affiliates of Westin Hotels to
acquire, develop, manage, operate, market and sell vacation interests in a
resort located in St. John, U.S. Virgin Islands and a resort to be developed in
Rancho Mirage, California. In December 1999, the Company sold its interests in
these partnerships to Starwood Hotels & Resorts Worldwide, Inc., the parent
company of Westin Hotels. The loss is netted against equity gain on investment
in joint ventures in the consolidated income statement for the year ended
December 31, 1999.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
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.
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 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
----------- ------------
Assets acquired in acquisitions:
<S> <C> <C>
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 adjustment...................... -- 277
-------- -------
Total liabilities assumed in acquisitions................. $ 44,515 $31,553
======== =======
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
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 and 1997 (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
</TABLE>
19. SUBSEQUENT EVENTS
In the first quarter of 2000, funding availability under the Company's
facilities and lines was curtailed based on anticipated covenant violations that
would be reported for the 1999 fourth quarter. As a result, the full use of
these facilities was temporarily withheld, and access to liquidity under these
facilities was granted on an individual request basis pending the completion of
waivers and amendments to the related agreements. Presently, these waivers and
amendments are in place and provide for the Company's compliance with the
covenants and terms of the agreements as of December 31, 1999. Access to the
availability under these facilities was also reestablished, although on a
limited basis as compared to the original terms of the facilities.
On February 9, 2000, the Company agreed to limit the maximum aggregate
amount available under the Conduit Facility established in connection with the
Company's off-balance-sheet securitizations to $64.1 million. In addition, the
interest rate of the facility was changed to the prime rate of the agent. On
December 31, 1999, $51.3 million was outstanding under the Conduit Facility;
$12.8 million of availability under the Conduit Facility was used in February
2000.
On March 9, 2000 the Company amended its Senior Credit Facility. The
amendment waived certain covenants and representations and warranties in the
Senior Credit Facility agreement that could not be satisfied as of December 31,
1999. As of March 30, 2000, the Company had entered into amendments to its
Senior Credit Facility limiting outstanding borrowings to $35.4 million,
requiring quarterly reductions to the commitment during 2000, revising the
maturity date to January 2, 2001, and setting the borrowing rate at the
reference rate plus 2.00%. The reference rate is the higher of the Federal Funds
Rate plus 0.50% or the agent's prime rate. On December 31, 1999, $23.2 million
was outstanding under the Senior Credit Facility; the $12.2 million of
availability under the new maximum borrowing limitation was used in the first
quarter of 2000.
On March 14, 2000, availability under our Inventory Line was increased by
$25 million to $75 million and the interest rate was raised 0.75% to LIBOR plus
4.50%. Additionally, on March 14, 2000, the Company issued 500,000 warrants to
the lender for the purchase of shares of common stock at an exercise price of $3
per share. As of March 16, 2000, $15.6 million remained available under the
Inventory Line.
On March 20, 2000 a waiver was granted of certain covenants and
representations and warranties pertaining to the Company's Pre-sale
Line that could not be satisfied as of December 31, 1999. As of March 30, 2000,
the Company had entered into amendments to its Pre-sale Line limiting
outstanding borrowings to $9.6 million, requiring quarterly reductions to the
commitment during 2000, revising the maturity date to January 3, 2001, and
setting the borrowing rate at the reference rate plus 3.25%. The reference rate
is defined as the lender's variable rate index. On December 31, 1999, $9.0
million was outstanding under the facility; the remaining availability of $0.6
million has not been borrowed.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 1998
After December 31, 1999, further advances on the bulk purchase line and
forward purchase commitment for mortgages receivable will be made at the
discretion of the provider. On December 31, 1999, a new $125 million receivables
warehouse facility was established but not funded at the time and has remained
unused. The Company is still negotiating the use of this facility, but has not
considered it in determining our availability. Effective January 20, 2000, the
Company cancelled a $5.0 million unsecured bank line of credit as its terms did
not permit access to the line upon the occurrence of a violation in any other
agreement.
The Company is involved in continuing discussions with its lenders with
respect to funding its current operations through its Senior Credit Facility,
Conduit Facility, Inventory Line and Pre-sale Line. In addition to discussions
regarding its existing facilities, the Company is currently negotiating with
other financial institutions additional revolving mortgages receivable warehouse
facilities and mortgages receivable non-recourse sales facilities.
As a result of the reduction of planned construction and acquisitions, the
sale of non-core properties, the increase in its inventory line, and the
negotiations underway with respect to additional mortgages receivable credit
facilities, the Company expects that it will be able to realize its assets and
satisfy its liabilities in the normal course of business. Accordingly, the
financial statements do not include any adjustments relating to the
recoverability of recorded asset amounts or the amounts of liabilities or any
other adjustments that might result should the Company be unable to continue as
a going concern.
F-24
<PAGE>
EX-10.21
TERRASUN, L.L.C.
AS COMPANY,
SUNTERRA FINANCIAL SERVICES, INC.
AS SERVICER,
LASALLE NATIONAL BANK
AS TRUSTEE AND AS BACK-UP SERVICER,
INDENTURE
DATED AS OF MARCH 31, 1999
TERRASUN, L.L.C.
$104,000,000
VACATION OWNERSHIP
RECEIVABLES-BACKED NOTES 1999-A
6.27% CLASS A NOTES
6.80% CLASS B NOTES
7.87% CLASS C NOTES
11.00% CLASS D NOTES
<PAGE>
TABLE OF CONTENTS
PAGE
----
PRELIMINARY STATEMENT........................................................ 1
GRANTING CLAUSES............................................................. 2
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION
Section 1.1. Definitions................................................... 4
Section 1.2. Acts of Noteholders........................................... 4
Section 1.3. Notices, etc. to Trustee, Company and
Servicer................................................ 5
Section 1.4. Notices to Noteholders; Waiver................................ 8
Section 1.5. Effect of Headings and Table of Contents...................... 9
Section 1.6. Successors and Assigns........................................ 9
Section 1.7. Severability.................................................. 9
Section 1.8. Benefits of Indenture......................................... 9
Section 1.9. Legal Holidays................................................ 9
Section 1.10. Governing Law.................................................10
Section 1.11. Counterparts..................................................10
ARTICLE II. NOTE FORM
Section 2.1. Form Generally................................................10
Section 2.2. Form of Class A, B, C and D Note..............................10
ARTICLE III. THE NOTES
Section 3.1. Designation of Notes; Certain Related
Provisions..............................................17
Section 3.2. Denominations.................................................18
Section 3.3. Execution, Authentication, Delivery and
Dating..................................................18
Section 3.4. Registration, Registration of Transfer
and Exchange............................................19
Section 3.5. Limitation on Transfer and Exchange...........................20
Section 3.6. Mutilated, Destroyed, Lost or Stolen Notes....................20
Section 3.7. Payment of Principal and Interest.............................21
Section 3.8. Persons Deemed Owners.........................................22
Section 3.9. Cancellation..................................................22
Section 3.10. Tax Treatment.................................................22
ARTICLE IV. AUTHENTICATION AND DELIVERY OF THE NOTES
Section 4.1. General Provisions............................................22
Section 4.2. Security for Notes............................................23
i
<PAGE>
Section 4.3. Delivery of Mortgage Loans...................................23
ARTICLE V. SATISFACTION AND DISCHARGE
Section 5.1. Satisfaction and Discharge of Indenture......................24
Section 5.2. Application of Money Held in Trust...........................25
Section 5.3. Discharge of Security Interest...............................26
ARTICLE VI. REMEDIES
Section 6.1. Events of Default............................................26
Section 6.2. Acceleration of Maturity, Rescission and
Annulment..............................................27
Section 6.3. Remedies.....................................................29
Section 6.4. Trustee May File Proofs of Claim.............................30
Section 6.5. Trustee May Enforce Claims without
Possession of Notes....................................31
Section 6.6. Allocation of Money Collected................................31
Section 6.7. Limitation on Suits..........................................32
Section 6.8. Unconditional Right of Noteholders to
Receive Principal and Interest.........................33
Section 6.9. Restoration of Rights and Remedies...........................33
Section 6.10. Rights and Remedies Cumulative...............................33
Section 6.11. Delay or Omission Not Waiver.................................33
Section 6.12. Control by Noteholders.......................................34
Section 6.13. Waiver of Past Defaults......................................34
Section 6.14. Undertaking for Costs........................................35
Section 6.15. Sale of Trust Estate.........................................35
Section 6.16. Action on Notes..............................................36
Section 6.17. Company Bankruptcy...........................................36
ARTICLE VII. THE TRUSTEE
Section 7.1. Certain Duties and Responsibilities..........................37
Section 7.2. Notice of Default, Cure, Waiver or Rating
Action.................................................38
Section 7.3. Certain Rights of Trustee....................................39
Section 7.4. Not Responsible for Recitals or Issuance
of Notes...............................................40
Section 7.5. May Hold Notes...............................................41
Section 7.6. Money Held in Trust..........................................41
Section 7.7. Compensation and Reimbursement...............................42
Section 7.8. Corporate Trustee Requirement; Eligibility...................43
Section 7.9. Resignation and Removal; Appointment of
Successor..............................................43
Section 7.10. Acceptance of Appointment by Successor.......................45
Section 7.11. Merger, Conversion, Consolidation or
Succession to Business of Trustee......................45
ii
<PAGE>
Section 7.12. Co-trustees and Separate Trustees............................46
Section 7.13. Rights with Respect to the Servicer..........................48
Section 7.14. Servicer as Agent and Bailee of Trustee......................48
Section 7.15. Representations and Warranties of the
Trustee................................................48
ARTICLE VIII. CONSOLIDATION AND MERGER
Section 8.1. Company May Not Consolidate, etc.............................50
ARTICLE IX. SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent
of Noteholders.........................................50
Section 9.2. Supplemental Indentures with Consent of
Noteholders............................................51
Section 9.3. Execution of Supplemental Indentures.........................53
Section 9.4. Effect of Supplemental Indentures............................53
Section 9.5. Reference in Notes to Supplemental
Indenture..............................................53
ARTICLE X. REDEMPTION OF NOTES
Section 10.1. Redemption at the Option of the Servicer;
Election To Redeem.....................................53
Section 10.2. Notice of Redemption by the Company..........................54
Section 10.3. Deposit of the Redemption Price..............................54
Section 10.4. Notes Payable on Redemption Date.............................55
Section 10.5. Sale for Purposes of Redemption..............................55
ARTICLE XI. COVENANTS
Section 11.1. Payment of Principal and Interest............................56
Section 11.2. Maintenance of Office or Agency..............................56
Section 11.3. Money for Note Payments To Be Held in
Trust..................................................57
Section 11.4. Corporate Existence..........................................58
Section 11.5. Protection of Trust Estate...................................58
Section 11.6. Negative Covenants...........................................59
Section 11.7. Statement as to Compliance...................................60
Section 11.8. Investment Company Act.......................................60
Section 11.9. Enforcement of Servicing Agreement and
Sale Agreement.........................................60
Section 11.10. Taxes .......................................................61
Section 11.11. Company Ownership............................................61
Section 11.12. Nonconsolidation.............................................61
Section 11.13. Representations and Warranties and
Covenants..............................................62
Section 11.14. Opinions as to Trust Estate.................................67
Section 11.15. Indemnification by the Company..............................67
iii
<PAGE>
ARTICLE XII. ACCOUNTS, ACCOUNTINGS AND RELEASES
Section 12.1. Collection of Money..........................................68
Section 12.2. Accounts.....................................................68
Section 12.3. Reliance on Representations and Warranties...................71
Section 12.4. Notice of Incorrect Representations and
Warranties.............................................72
Section 12.5. Misrepresentations...........................................72
Section 12.6. Mandatory Repurchase Obligation..............................73
Section 12.7. Subsequent Loans.............................................74
Section 12.8. Reports by Trustee to Noteholders............................75
Section 12.9. Accounting by Trustee to Company.............................75
Section 12.10. Trust Estate.................................................76
Section 12.11. Allocation of Losses.........................................76
ARTICLE XIII. APPLICATION OF MONIES
Section 13.1. Disbursements of Monies out of Collection
Account................................................77
iv
<PAGE>
APPENDIX A Standard Definitions
SCHEDULE I Schedule of Mortgage Loans
EXHIBIT A Form of Assignment of Note
EXHIBIT B Form of Lost Note Affidavit
EXHIBIT C Form of Substitute Form W-9
EXHIBIT D Form of Certificate with respect to Pre-Paid Mortgage Loans
EXHIBIT E Form of Mortgage and Mortgage Note
v
<PAGE>
This INDENTURE, dated as of March 31, 1999 (herein, as amended from
time to time as permitted hereby, called the "Indenture"), is entered into by
and among TerraSun, L.L.C., a Nevada limited liability company (together with
its permitted successors and assigns, the "Company"), Sunterra Financial
Services, Inc., a Nevada corporation, as servicer (herein, together with its
permitted successors and assigns, called the "Servicer") and LaSalle National
Bank, a nationally chartered bank, as trustee (together with its permitted
successors and assigns, the "Trustee") and as back-up servicer (together with
its permitted successors and assigns, the "Back-up Servicer").
PRELIMINARY STATEMENT
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of TerraSun, L.L.C. Vacation Ownership
Receivables-Backed Notes 1999-A, consisting of four classes (the "Class A
Notes", the "Class B Notes", the "Class C Notes" and the "Class D Notes",
collectively, the "Notes"). The cash proceeds from the sale of such Notes are to
be used by the Company to purchase the Mortgage Loans.
The following table sets forth the designation, Note Interest Rate and
aggregate Initial Note Principal Balance for the Class A Notes, the Class B
Notes, the Class C Notes and the Class D Notes.
INITIAL
NOTE NOTE
INTEREST PRINCIPAL
DESIGNATION RATE BALANCE
Class A 6.27% $52,000,000
Class B 6.80% $35,000,000
Class C 7.87% $13,000,000
Class D 11.00% $ 4,000,000
The Mortgage Loans have an Outstanding Pool Balance as of the Cut-off
Date equal to $106,810,653.
All covenants and agreements made by the Company and the Servicer
herein are for the benefit and security of
<PAGE>
the Noteholders. The Company and the Servicer are entering into this Indenture,
and the Trustee is accepting the duties as trustee created hereby, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
GRANTING CLAUSES
The Company hereby Grants to the Trustee for the exclusive benefit of
the Holders, a lien upon and a security interest (which the Company represents
and warrants will be a perfected first-priority security interest) in all of the
Company's right, title and interest, whether now owned or hereafter acquired in
and to the Mortgage Loans and the Mortgage Collateral, including without
limitation all interest due and principal received on or with respect to the
Mortgage Loans after the Cut-off Date, all Net Liquidation Proceeds and
Insurance Proceeds received after the Cut-off Date with respect to any Mortgaged
Property to which any Mortgage Loans relate, all security interests in the
Mortgaged Property securing such Mortgage Loans, the Mortgage Loan Documents
relating to such Mortgage Loans duly endorsed as appropriate, the Mortgage
Files, any insurance policies related to the Mortgage Loans, the rights of the
Company under the TerraSun Loan Sale Agreement, the rights of the Company under
the Servicing Agreement, all monies received or held by the Servicer in respect
of the Mortgage Loans and the Mortgage Collateral, all proceeds with respect to
the foregoing, including, without limitation, all funds deposited in the
Collection Account, the related Lock-Box Accounts and the Reserve Account and
all Permitted Investments made with such funds, and all rights to enforce the
foregoing.
Such Grants are made in trust, to secure (i) the Notes, securing all
Notes of each Class equally and ratably without prejudice, priority or
distinction among the Notes of any such Class by reason of difference in time of
authentication or delivery or otherwise but, as between each Class of Notes as a
group and each other Class of Notes as a group, subject to the subordination of
payments on the Class B Notes to payments on the Class A Notes and on the Class
C Notes to payments on the Class A and Class B Notes and on the Class D Notes to
payments on the Class A, Class B and Class C Notes, as provided in Section 13.1
hereof, (ii) the payment of all other sums payable under this Indenture, and
(iii) compliance with the provisions of this Indenture, all as provided in this
Indenture.
In the case of Initial Mortgage Loans which have been prepaid in full
on or after the Cut-off Date and prior to April
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16, 1999, or with respect to Subsequent Loans which have been prepaid in full on
or after the Subsequent Cut-off Date and prior to the Subsequent Transfer Date,
the Company, in lieu of Granting such Mortgage Loans to the Trustee, will
deliver on the Closing Date, or Subsequent Transfer Date, as applicable, to the
Company, or as the Company may direct, an officer's certificate in substantially
the form set forth in Exhibit D hereto and deposit into the Collection Account
on the Closing Date or the Subsequent Transfer Date, as applicable, all moneys
(together with all earnings, dividends, distributions, income and profits
relating thereto) received or held by the Servicer or on deposit in any Lock-box
Account in respect of such prepaid Mortgage Loans.
Except as hereinafter provided, the Company does hereby warrant and
represent that it has not permitted and hereby covenants that it will not permit
the creation of any Lien other than the Lien of this Indenture with respect to
any part of the Trust Estate, so long as this Indenture shall remain in effect,
to anyone other than the Trustee, and that it will not, except as provided in
this Indenture, enter into any agreement amending or supplementing this
Indenture, any of the Mortgage Loans, the TerraSun Loan Sale Agreement, the
Servicing Agreement or the Note Purchase Agreement, execute or grant any waiver
or modification of, or consent under, the terms of any of this Indenture, the
Mortgage Loans, the TerraSun Loan Sale Agreement, the Servicing Agreement or the
Note Purchase Agreement, settle or compromise any claim arising under any of
this Indenture, the Mortgage Loans, the TerraSun Loan Sale Agreement, the
Servicing Agreement or the Note Purchase Agreement or submit or consent to the
submission of any dispute, difference or other matter arising under or in
respect of any of this Indenture, the Mortgage Loans, the TerraSun Loan Sale
Agreement, the Servicing Agreement or the Note Purchase Agreement, to
arbitration thereunder.
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions of this Indenture, agrees to act as Paying Agent
and agrees to perform the duties herein required. So long as any Note remains
outstanding, the Trustee shall act for the benefit of the Noteholders as their
interests may appear to the extent provided herein.
The Trustee agrees to maintain in its possession each Mortgage File
delivered to it pursuant to Section 2(b) of the TerraSun Loan Sale Agreement
unless and until such Mortgage File is released from the lien hereof pursuant to
Article Twelve hereof.
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<PAGE>
All things necessary to make this Indenture a valid agreement of the
Company in accordance with its terms have been done.
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS OF
GENERAL APPLICATION
Section 1.1. DEFINITIONS
(a) Except as otherwise expressly provided herein or unless the context
otherwise requires, the capitalized terms used in the Indenture shall have the
respective meanings specified in the Standard Definitions set forth as Appendix
A hereto, which is incorporated herein by this reference. The definitions of
such terms are equally applicable both to the singular and plural forms of such
terms.
(b) All references in this instrument to designated "Articles," "Sections,"
"Subsections" and other subdivisions are to the designated Articles, Sections,
Subsections and other subdivisions of this instrument as originally executed or
if amended or supplemented, as so amended and supplemented. The words "herein,"
"hereof," "hereunder" and other words of similar import refer to this Indenture
as a whole and not to any particular Article, Section, Subsection or other
subdivision. Reference to the Trustee's duties under this Indenture shall
include its duties as Trustee as set forth in the Servicing Agreement.
Section 1.2. ACTS OF NOTEHOLDERS
(a) Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by this Indenture to be given or taken by Noteholders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Noteholders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee, and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Noteholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 7.1) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section 1.2.
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(b) The fact and date of the execution by any Person of any such instrument or
writing may be proved in any manner which the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver or
other action by the Holder of any Note shall bind the Holder of every Note
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Note.
Section 1.3. NOTICES, ETC. TO TRUSTEE, COMPANY, SERVICER AND DCR
Except as otherwise provided, any request, demand, authorization, direction,
notice, consent, waiver or Act of Noteholders or other document provided or
permitted by this Indenture to be made upon, given or furnished to, or filed
with the following parties, shall be deemed to have been duly made upon, given
or furnished to, or filed with, when delivered by hand, sent by overnight
courier or by telecopy, addressed to the appropriate parties at their addresses
designated herein or to such other address as the party to be notified may have
otherwise designated in a notice given as provided in this Section. A hard copy
of any item delivered by telecopy shall also be sent by overnight mail on the
day of such telecopy delivery.
The Company:
TerraSun, L.L.C.
9921 Covington Cross Drive
Suite 105-B
Las Vegas, Nevada 89134
Attention: Carol W. Sullivan
With a copy to:
Richard Goodman and Thomas Bell
SunTerra Corporation
9921 Covington Cross Drive
Suite 105
Las Vegas, Nevada 89134
Attention: Carol W. Sullivan
5
<PAGE>
Servicer:
9921 Covington Cross Drive
Suite 105
Las Vegas, Nevada 89117
Attention: Carol W. Sullivan
With a copy to:
Thomas Bell
SunSerra Funding, Corp.:
9921 Covington Cross Drive
Suite 105-B
Las Vegas, Nevada 89134
Attention: Carol W. Sullivan
With a copy to:
Richard Goodman and Thomas Bell
TerraSun Holding, Inc.
9921 Covington Cross Drive
Suite 105-A
Las Vegas, Nevada 89134
Attention: Carol W. Sullivan
With a copy to:
Richard Goodman and Thomas Bell
SunTerra Corporation
1781 Park Center Drive
Orlando, Florida 320835
The Trustee and Back-up Servicer:
LaSalle National Bank
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60674-4107
Transaction: TerraSun 1999-A
Attention: Asset Backed Security
Trust Services/TerraSun 1999-A
Tel: 312-904-7895
Fax: 312-904-2084
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DCR:
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, New York 10004
Attention: Asset-Backed Monitoring Group/Timeshare
Noteholders:
Connecticut General Life Insurance Company
and Connecticut General Life Insurance Company
on behalf of one or more separate accounts
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Attention: Steve Wilson
Principal Life Insurance Company and
Principal Life Insurance Company
on behalf of one or more separate accounts
801 Grand Avenue
Des Moines, Iowa 50392
Attention: Paul Gerard
Travelers Insurance Co. and
Primerica Life Insurance Company
One Tower Square
Hartford, Connecticut 06183
Attention: Pam Westmoreland
United of Omaha Life Insurance Company and
Companion Life Insurance Company
Investment Division, 4th Floor
Mutual Plaza
Omaha, Nebraska 68175
Attention: Donna Ennis
Nationwide Insurance Co., Nationwide Indemnity Company
and Allied Life Insurance Company B
One Nationwide Plaza
Columbus, Ohio 43215-2220
Attention: Laurie Snyder
Pacific Life Insurance Co.
700 Newport Center Dr.
Newport Beach, California 92660
Attention: Cathy Schwartz
Pan American Life Insurance Company
601 Poydras Street
7
<PAGE>
New Orleans, Louisiana 70130
Attention: Lisa Baudot
WITH A COPY TO
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Louis H. Singer
Structured Finance Advisors, Inc.
17 Talcott Notch Road
Farmington, Connecticut 06032
Attention: Bruce Maier
The Noteholders and Structured Finance Advisors, Inc. shall be
entitled to receive any certificate, report or material notice
delivered by any Person under this Agreement. Any notice to
be provided to DCR shall be provided thereto by the Trustee.
Section 1.4. NOTICES TO NOTEHOLDERS; WAIVER
Where this Indenture provides for notice, reports and communication to
Noteholders of any event, such notice, reports or communication shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and by regular mail (except notice in connection with an occurrence of an Event
of Default, which shall be delivered by overnight courier), or by facsimile
followed by regular mail or by overnight courier, to each Noteholder affected by
such event, at its address as it appears on the Note Register (with a copy to
not more than two other Persons, at the addresses set forth in the Note
Register), not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. Any such notice, report or
communication shall only be deemed given upon receipt at the address set forth
in the Note Register. The Trustee hereby acknowledges receipt of Schedule I to
the Note Purchase Agreement and agrees to include the appropriate information
therein in the Note Register.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
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<PAGE>
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.5. EFFECT OF HEADINGS AND TABLE OF CONTENTS
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 1.6. SUCCESSORS AND ASSIGNS
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.7. SEVERABILITY
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.8. BENEFITS OF INDENTURE
Nothing in this Indenture or in the Notes, expressed or implied, shall
give to any Person, other than the parties hereto, any Paying Agent which may be
appointed pursuant to the provisions hereof and any of their successors
hereunder and the Noteholders, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 1.9. LEGAL HOLIDAYS
In any case where the date of any Distribution Date shall not be a
Business Day, then (notwithstanding any other provision of the Notes or this
Indenture) payment need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the nominal
date of any such Distribution Date and, assuming timely payments on such
subsequent Business Day, no interest shall accrue on the payment due on the
Notes on such Payment Date for the period from and after any such nominal date.
9
<PAGE>
Section 1.10. GOVERNING LAW
This Indenture and each Note shall be construed in accordance with and
governed by the laws of the State of New York, without giving effect to any
conflict of laws principles thereof.
Section 1.11. COUNTERPARTS
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
ARTICLE II.
NOTE FORM
Section 2.1. FORM GENERALLY
The Notes and the certificates of authentication shall be in
substantially the forms set forth in Section 2.2, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon, as may be
required to comply with the rules of any securities exchange on which the Notes
may be listed, or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution of the Notes. Any portion
of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
Section 2.2. FORM OF CLASS A, B, C AND D NOTE
[THIS NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A [AND CLASS B] [AND
CLASS C] NOTES AS DESCRIBED IN THE INDENTURE REFERRED TO HEREIN.]
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY STATE SECURITIES
LAWS AND THE COMPANY HAS NOT BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"), AND ACCORDINGLY THIS NOTE MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS EXCEPT IN A
TRANSACTION THAT IS EXEMPTED UNDER THE SECURITIES ACT (INCLUDING TRANSFER MADE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT) AND APPLICABLE STATE SECURITIES
LAWS
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AND BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT
RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (D) TO AN IAI THAT, PRIOR TO
SUCH TRANSFER, FURNISHES THE TRUSTEE WITH A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM
OF WHICH CAN BE OBTAINED FROM THE TRUSTEE), (E) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUERS) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
THE PRINCIPAL OF THIS NOTE IS PAYABLE ON THE PAYMENT DATES AND IN THE AMOUNTS
DESCRIBED HEREIN. ACCORDINGLY, THE OUTSTANDING NOTE PRINCIPAL BALANCE OF THIS
NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF AND MAY BE
ASCERTAINED ONLY BY OBTAINING A WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE
NAMED HEREIN OR ITS SUCCESSOR.
No. ________ Initial Note Principal
Balance of the Class [A][B][C] [D]
Notes: $____________
Class [A][B][C][D]
PPN: ________________ Initial Note Principal Balance
of this Note $____________
11
<PAGE>
TERRASUN, L.L.C., VACATION OWNERSHIP
RECEIVABLES-BACKED NOTE, 1999-A
CLASS [A][B][C] [D]
FINAL MATURITY DATE: [_______ 15, 20__]
TerraSun, L.L.C., a limited liability company duly organized and
existing under the laws of the State of Nevada (the "Company," which term
includes any successor entity under the Indenture referred to below), for value
received, _________________ hereby promises to pay to ______________________, or
registered assigns, the principal sum of _______________________ Dollars
($_______________) in monthly installments beginning on the Initial Distribution
Date, and to pay interest monthly in arrears on the unpaid portion of said
principal sum (and, to the extent that the payment of such interest shall be
legally enforceable, on any overdue installment of interest on this Note) on the
twenty-fifth day of each calendar month or, if such twenty-fifth day is not a
Business Day, the Business Day immediately following (each a "Distribution
Date"), for the Interest Accrual Period immediately preceding such Distribution
Date until such unpaid principal is fully paid, at a rate per annum equal to
___% (the "Note Interest Rate"); PROVIDED, HOWEVER, that interest on any amount
of principal or interest that is not timely paid when due shall accrue interest
until paid at the Note Interest Rate. Each monthly installment of principal
payable on this Note on any Payment Date shall be payable pursuant to Section
13.1 of the Indenture until the Class [A][B][C][D]Notes have been paid in full.
Any remaining unpaid portion of the then Outstanding Note Balance of this Note
shall be due and payable no later than the Final Maturity Date referred to
above. The interest and principal so payable on any Distribution Date shall, as
provided in the Indenture, be paid to the Person in whose name this Note is
registered on the Record Date for such Distribution Date.
The principal of and interest due on this Note are payable, without
presentment, to the Person whose name appears as the registered Holder of this
Note on the Note Register on the Record Date for the Distribution Date by wire
or other transfer in immediately available funds to the account specified in
writing by such Holder at least three Business Days prior thereto or as
otherwise provided in the Indenture, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. Funds represented by checks returned undelivered shall
be held for payment to the Person entitled thereto, subject to the terms of the
Indenture, at the office or agency in the United States of
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<PAGE>
America designated as such by the Company for such purpose pursuant to the
Indenture.
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture, or be valid or obligatory for any
purpose.
This Note is one of a duly authorized issue of Notes of the Company
designated as its TerraSun, L.L.C. Vacation Ownership Receivables-Backed Notes
1999-A, Class [A][B][C][D] Notes (herein called the "Notes") issued under an
Indenture dated as of March 31, 1999 (herein called the "Indenture"), among the
Company, Sunterra Financial Services, Inc., as Servicer, LaSalle National Bank,
as trustee (the "Trustee," which term includes any successor Trustee under the
Indenture) and as back-up servicer (the "Back-up Servicer"), to which Indenture
reference is hereby made for a statement of the respective rights thereunder of
the Company, the Trustee and the Holders of the Notes, and the terms upon which
the Notes are, and are to be, authenticated and delivered. All terms used in
this Note which are defined in the Indenture shall have the meanings assigned to
them in the Indenture. Certain provisions of the Indenture are described in this
Note. The Indenture shall govern in the event that the provisions of this Note
are inconsistent therewith.
As provided in the Indenture, the Notes are secured by certain Mortgage
Loans and by certain other collateral constituting the Trust Estate as described
in the Indenture. The Notes are equally and ratably secured by the collateral
pledged therefor to the extent provided by the Indenture.
Unless earlier declared, or they otherwise become due and payable by
reason of an Event of Default, the Notes are payable only at the time and in the
manner provided in the Indenture and are not redeemable or prepayable at the
option of the Company before such time except that the Notes shall be redeemable
at the option of the Company in whole, but not in part, on any Distribution Date
at such time as the aggregate Outstanding Note Balance is equal to or less than
10% of the Outstanding Note Balance as of the Closing Date. The Notes shall be
redeemed at a redemption price equal to the aggregate Outstanding Note Balance
thereof, plus accrued interest thereon through the redemption date. If an Event
of Default as defined in the Indenture shall occur and be continuing, the
principal of all the Notes may become or be declared due and payable in the
manner and with the effect provided in the Indenture.
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As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Trustee in the United States of America, duly endorsed
by, or accompanied by a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes of the same
Class, of authorized denominations and for the same aggregate Outstanding Note
Balance, shall be issued to the designated transferee or transferees.
Prior to due presentment for registration of transfer of this Note, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes whether or
not this Note be overdue, and neither the Company, the Trustee, nor any such
agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company with the consent of the Holders of at least 51% of the
aggregate Outstanding Note Balance of each class of Notes. The Indenture also
contains provisions permitting the Holders of specified percentages in aggregate
Note Principal Balance of Outstanding Notes of one or more Classes, on behalf of
the Holders of all Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults and their consequences
under the Indenture. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
The Notes are issuable only in registered form without coupons in such
authorized denominations as provided in the Indenture and subject to certain
limitations therein set forth. The Notes are exchangeable for Notes of a like
Outstanding Note Balance as of the Closing Date of the same Class of a different
authorized denomination, as requested by the Holder surrendering same.
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This Note and the Indenture shall be governed by and construed in
accordance with the laws of the State of New York.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note in
accordance with the Indenture at the times, place and rate, and in the coin or
currency, herein prescribed.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
15
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IN WITNESS WHEREOF, ___________________ has caused this instrument to
be signed, manually or in facsimile, by its Managing Member.
[ ]
BY________________________________
Attest:
_______________________________
16
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[FORM OF TRUSTEE'S
CERTIFICATE OF AUTHENTICATION]
This is one of the Class [A][B][C][D]Notes referred to in the
within-mentioned Indenture.
Dated:
LaSalle National Bank,
as Trustee
By______________________
Authorized Officer
ARTICLE III.
THE NOTES
Section 3.1. DESIGNATION OF NOTES; CERTAIN RELATED PROVISIONS
The Class A Notes shall be designated generally as the "TerraSun,
L.L.C. Vacation Ownership Receivables-Backed Notes 1999-A Class A Notes" of the
Company. The Class B Notes shall be designated generally as the "TerraSun,
L.L.C. Vacation Ownership Receivables-Backed Notes 1999-A Class B Notes" of the
Company. The Class C Notes shall be designated generally as the "TerraSun,
L.L.C. Vacation Ownership Receivables-Backed Notes 1999-A Class C Notes" of the
Company. The Class D Notes shall be designated generally as the "TerraSun,
L.L.C. Vacation Ownership Receivables-Backed Notes 1999-A Class D Notes" of the
Company.
All Notes of each class at any time simultaneously outstanding shall be
identical in respect of place or places of payment and dates of payments with
all other Notes of such class. Notes of each class shall have the same Note
Interest Rate as all other Notes of such class.
The stated maturity of each Class of Notes shall be September 15, 2008.
The Class A, Class B, Class C Notes and Class D Notes shall be assigned on or
before the Closing Date ratings of "AAA", "A", "BBB" and "BB", respectively, by
DCR.
The aggregate Outstanding Note Balance as of the Closing Date of the
Class A, Class B and Class C and Class D Notes that may be authenticated and
delivered hereunder is limited to $52,000,000, $35,000,000, $13,000,000 and
$4,000,000, respectively, except for Notes authenticated and delivered upon
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registration of transfer of, or in exchange for, or in lieu of, other Notes of
the same class pursuant to Sections 3.4, 3.6 or 9.5 hereof.
Section 3.2. DENOMINATIONS
The Notes are available in a minimum denomination of $500,000 original
principal amount and integral multiples of $100,000 in excess thereof; PROVIDED,
HOWEVER, that one Note of each Class may be issued in a denomination that
includes any residual amount.
Section 3.3. EXECUTION, AUTHENTICATION, DELIVERY AND DATING
The Notes shall be executed on behalf of the Company by its President
or one of its Vice Presidents and attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Notes may
be manual or facsimile. The Notes may be printed, lithographed, typewritten,
mimeographed or otherwise produced.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication or delivery of such Notes or did not hold
such offices at the date of authentication or delivery of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company together
with a Company Order authorizing authentication thereof to the Trustee for
authentication; and, upon receipt of such Notes, the Trustee shall authenticate
and deliver such Notes as in this Indenture provided and not otherwise.
Notwithstanding anything herein to the contrary, the aggregate original
principal amount of each class of the Notes that may be authenticated and
delivered under this Indenture is limited to the aggregate Outstanding Note
Balance for that Class as of the Closing Date, except for Notes authenticated
and delivered upon registration of transfer of, or in exchange for, or in lieu
of Notes pursuant to Section 3.4, 3.6 or 9.5 hereof.
Each Note shall bear on its face the Closing Date and be dated as of
the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there
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appears to be on such Note a certificate of authentication substantially in the
form provided for herein, executed by the Trustee by the manual signature of one
of its authorized officers, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
Section 3.4. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE
The Trustee, in its capacity as registrar of the Notes (the "Note
Registrar"), shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Notes and the registration of transfers of
Notes.
Upon surrender for registration of transfer of any Note at the
Corporate Trust Office of the Trustee to be maintained as provided in Section
11.2, the Company shall execute, and the Trustee shall authenticate and deliver,
in the name of the designated transferee or transferees, one or more new Notes
of any authorized denominations, of the same class and of a like Outstanding
Note Balance as of the Closing Date.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations of the same class and of a like Outstanding Note
Balance as of the Closing Date, upon surrender of the Notes to be exchanged at
such office or agency. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the Notes
which the Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of such transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed, by the Holder thereof or his attorney
duly authorized in writing. The form of assignment set forth at Exhibit A hereof
shall be deemed to be satisfactory for purposes of the last preceding sentence.
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No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 9.5 not involving any registration of transfer.
Section 3.5. LIMITATION ON TRANSFER AND EXCHANGE
The Notes have not been registered or qualified under the Securities
Act of 1933 (the "1933 Act") or the securities laws of any state. No transfer of
any Note shall be made unless such transfer is made pursuant to an effective
registration statement under the 1933 Act and registration or qualification
under applicable state securities laws or is exempt from such registration or
qualification. In the event that a transfer is to be made in reliance upon an
exemption from the 1933 Act and applicable state securities laws, the Trustee
shall require, in order to assure compliance with the 1933 Act, that the owner
desiring to effect such transfer and such owner's prospective transferee each
certify to the Company and Trustee in writing the facts surrounding the transfer
in the form of either Exhibit 1 or Exhibit 2 to the Note Purchase Agreement. The
Trustee may conclusively rely upon a Rule 144A Representation Letter from the
prospective transferee in the form attached as Exhibit 2 to the Note Purchase
Agreement or upon an investment letter from the prospective transferee in the
form attached as Exhibit 1 to the Note Purchase Agreement to establish the
availability of such exemption. Neither the Company nor the Trustee is obligated
to register or qualify the Notes under the 1933 Act or any other securities law.
The Trustee shall have no liability to the Trust Estate or otherwise
arising from a transfer of any such Note in reliance upon a certification or
Rule 144A Representation Letter described in this Section 3.5.
Section 3.6. MUTILATED, DESTROYED, LOST OR STOLEN NOTES
If (i) any mutilated Note is surrendered to the Trustee, or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Trustee by the Noteholder an agreement
of indemnity in form and substance reasonably satisfactory to the Trustee to
save the Company and the Trustee harmless, then, in the absence of notice to the
Company or the Note Registrar that such Note has been acquired by a bona fide
purchaser, the Company
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shall execute and upon its request the Trustee shall authenticate and deliver,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Note, a new Note of the same Class, tenor and Outstanding Note Balance as of the
Closing Date, bearing a number not contemporaneously outstanding; PROVIDED,
HOWEVER, that if any such mutilated, destroyed, lost or stolen Note shall have
become or shall be about to become due and payable the Company in its discretion
may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company or
the Trustee may require the payment by the Holder of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee connected
therewith).
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes of the same Class duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
Section 3.7. PAYMENT OF PRINCIPAL AND INTEREST
The principal of and interest due on the Notes of each Class are
payable, without presentment, to the Person whose name appears as the Holder of
such Note on the Record Date on the Note Register for the related Class by wire
or other transfer in immediately available funds to the account specified in
writing by such Holder in the Note Purchase Agreement, in the case of the
Noteholders, or otherwise specified in writing by such Holder at least three
Business Days prior to the Record Date for the Distribution Date on which wire
or other transfers are to commence. Such payment shall be in such coin or
currency of the United States of America as at the time of tender is legal
tender for the payment of public and private debts. Funds representing any such
checks returned undelivered shall be held in accordance with Section 11.3.
Payments to each Noteholder shall be made pursuant to Section 13.1 hereof. Upon
request, the Holder shall
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surrender such Note at the Corporate Trust Office of the Trustee within 30 days
after such payment.
Section 3.8. PERSONS DEEMED OWNERS
Prior to due presentment for registration of transfer of any Note, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name any Note is registered as the owner of such Note for the
purpose of receiving payments of principal of and interest on such Note and for
all other purposes whatsoever, whether or not such Note be overdue, and neither
the Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
Section 3.9. CANCELLATION
All Notes surrendered to the Trustee following, or at the time of,
payment or for registration of transfer or exchange (including Notes surrendered
to any Person other than the Trustee which shall be delivered to the Trustee)
shall be promptly canceled by the Trustee. All canceled Notes held by the
Trustee shall be held by the Trustee in accordance with its standard retention
policy unless the Company shall direct in a timely manner by a Company Order
that they be returned to it.
Section 3.10. TAX TREATMENT
The Company has structured this Indenture and the Notes with the
intention that the Notes will qualify under the applicable tax law as
indebtedness of the Company. The Company and each Noteholder, by acceptance of
its Note, agree to treat the Notes as debt of the Company for all purposes.
ARTICLE IV.
AUTHENTICATION AND DELIVERY OF THE NOTES
Section 4.1. GENERAL PROVISIONS
The Notes shall be executed by the Company and delivered to the Trustee
for authentication and thereupon the same shall be authenticated and delivered
by the Trustee upon its receipt of a Company Order and upon compliance with the
conditions of Section 4.2, and upon delivery to the Trustee of the following:
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(1) a copy of the Company's Board Resolution authorizing the
execution and delivery of this Indenture and the Notes; and
(2) either (i) a certificate or other official document evidencing
the due authorization, approval or consent of any government body or
bodies, at the time having jurisdiction in the premises, and that the
authorization, approval or consent of no other governmental body is
required for valid issuance of the Notes, or (ii) an Opinion of Counsel
that no such authorization, approval or consent of any governmental body
is required.
Section 4.2. SECURITY FOR NOTES
The Notes shall be executed by the Company and delivered to the Trustee
for authentication and thereupon the same shall be authenticated and delivered
to the Company by the Trustee upon receipt of a Company Order and upon:
(a) establishment for the benefit of the Trustee on behalf of the Noteholders of
the Lockbox Accounts, the Collection Account and the Reserve Account; and
(b) delivery by the Company to the Trustee, and receipt by the Trustee of the
Mortgage Files and the Grant of all of the Company's right, title, and interest
in and to the Trust Estate.
Section 4.3. DELIVERY OF MORTGAGE LOANS
In connection with the assignment of all of the Company's right, title
and interest in and to the Mortgage Loans and related Mortgage Loan Documents,
the Company has delivered to, and deposited with, the Trustee the Mortgage Loans
and related Mortgage Loan Documents. The Trustee acknowledges receipt of the
files representing Mortgage Loan Documents and declares that it holds and will
hold such Mortgage Loan Documents in trust for the use and benefit of all
present and future Noteholders. The Servicer will submit the related Assignments
for recording within three Business Days after the Closing Date at the expense
of the Company. The Trustee shall deliver a certification on the Closing Date,
indicating that it has reviewed each Mortgage File and the Schedule of Mortgage
Loans and has determined that: except as set forth on the schedule of exceptions
attached thereto, all required documents have been executed and received, that
such documents relate to the Mortgage Loans identified on the Schedule of
Mortgage Loans, and each Mortgage File contains an original Mortgage Note
related to each
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such Mortgage Loan executed by the Mortgagor. The Trustee agrees, for the
benefit of Noteholders, to review each Mortgage Loan Document delivered to it
after the Closing Date within 30 days after the Grant of the related Mortgage
Loan to the Trustee to ascertain that all required documents related to such
Mortgage Loan have been executed and received, and that such documents relate to
the Mortgage Loans identified in the Schedule of Mortgage Loans that have been
provided to it and that each related Mortgage File contains an original Mortgage
Note related to each such Mortgage Loan executed by the Mortgagor listed on the
Schedule of Mortgage Loans either endorsed in blank by the original payee or
showing a complete chain of title through to the Trustee. If the Trustee finds
any document or documents constituting a part of the Mortgage Loan Documents to
be missing or defective in any material respect, the Trustee shall promptly so
notify the Company and the Seller and request that the Seller correct or cure
such omission or defect within 90 days from the date the Seller was notified of
such omission or defect. If within such 90-day period the Seller fails to cure
such omission or defect, then the Company shall cause the Seller to deposit the
Mortgage Purchase Price for the related Mortgage Loan in the Collection Account
on the second Business Day prior to the Distribution Date relating to the
Collection Period in which such 90-day period expired or cause to be substituted
a Substitute Mortgage Loan pursuant to Section 12.6(b) hereof. Any such
repurchased Mortgage Loan, upon deposit of the related Mortgage Purchase Price
or substitution of a Substitute Mortgage Loan, shall be released from the Trust
Estate by the Trustee to the Company or its designee within one Business Day of
such deposit or substitution.
ARTICLE V.
SATISFACTION AND DISCHARGE
Section 5.1. SATISFACTION AND DISCHARGE OF INDENTURE
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer and exchange or payment) with
respect to the Notes and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes and shall pay, assign,
transfer and deliver to the Company upon Company Order all cash, securities and
other property held by it as part of the Trust Estate (except for amounts
required to pay and discharge the entire indebtedness of the Notes), when
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(1) either
(A) all Notes theretofore authenticated and delivered
(other than Notes which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 3.6) have
been delivered to the Trustee for cancellation; or
(B) all Notes not theretofore delivered to the Trustee
for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee, in
trust for the purpose, an amount sufficient to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee and each Noteholder an
Officers' Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture with respect to the Notes have been complied
with.
Notwithstanding the satisfaction and discharge of this Indenture, the
Company's obligations in Sections 3.4, 3.6, 7.7, 11.2 and 11.3, the Trustee's
obligations in Section 5.2 and the rights and immunities of the Trustee under
this Indenture shall survive until the Notes are no longer Outstanding.
Thereafter the obligations of the Company in Section 7.7 and the Trustee in
Section 5.2 and the rights and immunities of the Trustee under this Indenture
shall survive.
Section 5.2. APPLICATION OF MONEY HELD IN TRUST
All monies deposited with the Trustee pursuant to Section 5.1 shall be
held in trust and applied by it, in accordance with the provisions of the Notes
and this Indenture, to the payment, either directly or through any Paying Agent
as the Trustee may determine, to the Persons entitled thereto, of the principal
and interest for whose payment such money has been deposited with the Trustee.
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Section 5.3. DISCHARGE OF SECURITY INTEREST
Upon satisfaction and discharge of the Indenture as specified in
Section 5.1, the Trustee shall, on written demand of and at the expense of the
Company and upon being supplied with instruments appropriate for the purpose,
execute and the Company shall file all documents (including without limitation
UCC Form 3) necessary to discharge all liens, mortgages, chattel mortgages and
other security interests filed with any governmental board or body with respect
to the Mortgage Loans, and any other assets of the Trust Estate, and the Trustee
shall otherwise cooperate in any way necessary to restore full unencumbered
title in the Mortgage Loans to the Company or its designee.
ARTICLE VI.
REMEDIES
Section 6.1. EVENTS OF DEFAULT
"Event of Default" wherever used herein means any one of the following
events (whatever the reason for such Event of Default and without regard to
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of all or part of any payment of interest
or principal required to be made under the terms of such Notes or this
Indenture when due;
(2) default in the performance, or breach of any covenant of the
Company or a Seller, as applicable, in this Indenture, a Sale Agreement or
the Note Purchase Agreement and continuance of such default or breach for
a period of 30 days after the earlier of (i) the date on which the Company
or such Seller, as applicable, shall first have knowledge of such default
or breach and (ii) the date on which written notice, specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder shall have been given to the
Company or such Seller, as applicable, by the Trustee or any Noteholder;
(3) breach of any representation or warranty of the Company or a
Seller, as applicable, in this Indenture, a Sale Agreement, in the Note
Purchase Agreement or in any certificate delivered by the Company or a
Seller affirming such representations and warranties, in each case as of
the
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date such representation or warranty was made, which representation or
warranty remains uncured;
(4) a proceeding shall have been instituted in a court having
jurisdiction in the premises seeking the entry of a decree or order for
relief in respect of the Company or a Seller under the Federal Bankruptcy
Code or any other applicable bankruptcy, insolvency or other similar
Federal or State law, or appointing a receiver, liquidator, assignee,
trustee, or sequestrator (or other similar official) of the Company or a
Seller or of any substantial part of its respective property, or ordering
the winding up or liquidation of its respective affairs, which proceeding
shall continue undismissed and unstayed and in effect for a period of 90
consecutive days or any of such relief sought in such proceeding shall
have been granted; or
(5) the institution by the Company or a Seller of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by either of them to
the institution of bankruptcy or insolvency proceedings against either of
them, or the filing by either of them of a petition or answer or consent
seeking reorganization or relief under the Federal Bankruptcy Code or any
other applicable Federal or State law, or the consent by either of them to
the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of the Company or such Seller or of any substantial part of its respective
property, or the making by either of them of an assignment for the benefit
of creditors, or the admission by either of them in writing of its
respective inability to pay its debts generally as they become due, or the
taking of corporate action by the Company or the Seller in furtherance of
any such action; or
(6) the occurrence and continuance of a Servicer Event of Default.
Section 6.2. ACCELERATION OF MATURITY, RESCISSION AND ANNULMENT
If an Event of Default of the kind specified in clause (4) or (5) of
Section 6.1 occurs, the unpaid principal amount of all of the Notes shall
automatically become immediately due and payable without notice, presentment or
demand of any kind. If an Event of Default (other than an Event of Default of
the kind specified in clause (4) or (5) of Section 6.1) occurs and is
continuing, then and in every such case the Trustee may or at the direction of
the Majority Holders (or, if the only Event
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of Default occurring is an Event of Default with respect to a Seller or Servicer
set forth in clauses (2), (3) or (6) of Section 6.1, then the Holder or the
Holders of 66 2/3% of the aggregate Outstanding Note Balance of the Notes), the
Trustee shall declare the principal of all of the Notes to be immediately due
and payable, by a notice in writing to the Company (and to the Trustee if given
by Noteholders), and upon any such declaration such principal (together with all
accrued and previously unpaid interest) shall become immediately due and
payable. The Trustee shall give notice to each Noteholder and DCR of such
declaration. Notwithstanding the foregoing, the Trustee may not declare the
Notes to be due and payable pursuant to this Section 6.2 as a result of an Event
of Default arising solely from the Company's failure to perform its agreements
set forth in Section 7.7.
At any time after such a declaration of acceleration has been made, but
before any Sale of the Trust Estate has been made or a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of 66 2/3% of the aggregate Outstanding Note
Balance of the Notes, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequence if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all Class A,
Class B, Class C and Class D Notes,
(B) the principal of any of the Class A, Class B, Class
C or Class D Notes which has become due otherwise than by such
declaration of acceleration and interest thereon at the applicable
Note Interest Rate,
(C) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest on the Class
A, Class B, Class C and Class D Notes at the rate specified therefor
in the applicable Notes, and
(D) all sums paid or advanced by the Trustee hereunder
and the Back-up Servicer under the Servicing Agreement and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
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(2) all Events of Default, other than the nonpayment of the
principal of the Class A, Class B, Class C and Class D Notes which have
become due solely by such acceleration, have been cured or waived as
provided in Section 6.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Subsequent to any such declaration of acceleration and so long as such
declaration and its consequences has not been rescinded and annulled, prior to
the exercise by the Trustee of the remedies set forth in Section 6.3(b) or (c)
the Trustee shall give the Noteholders ten days' notice of its intention to take
such actions.
Section 6.3. REMEDIES
If an Event of Default shall have occurred and be continuing, the
Trustee may, after notification to all Noteholders and DCR and, at the direction
of the Majority Holders, shall do one or more of the following:
(a) institute Proceedings for the collection of all amounts then payable on the
Notes, or under this Indenture in respect of the Notes, whether by declaration
or otherwise, enforce any judgment obtained, and collect from the Trust Estate
securing the Notes the monies adjudged due;
(b) sell the Trust Estate or any portion thereof or rights or interest therein,
at one or more Sales called and conducted in any manner permitted by law;
(c) institute Proceedings from time to time for the complete or partial
foreclosure of this Indenture with respect to the portion of the Trust Estate
securing the Notes; and
(d) exercise any remedies of a secured party under the UCC or other applicable
law and take any other appropriate action to protect and enforce the rights and
remedies of the Trustee or the Holders of the Notes hereunder;
PROVIDED, HOWEVER, except for any Sale conducted pursuant to Section 10.5, that
without the consent of the Holders of 66 2/3% of the aggregate Outstanding Note
Balance of the Notes, the Trustee may not sell or otherwise liquidate the Trust
Estate or any portion thereof unless, in the reasonable judgment of the Trustee
after consultation with a Person of national reputation in the field of
appraisal of property of the type comprising the
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Mortgaged Property, the proceeds of such Sale or Proceedings or liquidation
distributable to the Noteholders will be sufficient to discharge in full the
amounts then due and unpaid upon the Notes for principal and interest. The
Trustee shall have no liability for any public Sale or private Sale conducted in
reliance upon the advice of a Person of national reputation in the field of
appraisal. If the Notes have been declared due and payable following an Event of
Default and the Trustee does not sell or otherwise liquidate the Trust Estate,
it shall continue to hold such Trust Estate and make distributions therefrom
pursuant to Section 6.6 hereof.
Section 6.4. TRUSTEE MAY FILE PROOFS OF CLAIM
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial Proceeding, relating to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of any Class of Notes shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, to intervene in such proceeding or otherwise,
(i) to file and prove a claim for all amounts owing and unpaid in respect of the
Notes and to file such other papers or documents and take such other action
including participating as a member or otherwise, in any committee of creditors
appointed in the matter, as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
of the Noteholders allowed in such judicial Proceeding;
(ii) to petition for lifting of the automatic stay and thereupon to foreclose
upon the Trust Estate as elsewhere provided herein; and
(iii) to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, or sequestrator (or other
similar official) in any such judicial Proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to
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the making of such payments directly to the Noteholders, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
or reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such Proceeding.
Section 6.5. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES
All rights of actions and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any Proceeding relating thereto, and any such
Proceedings instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements,
indemnities and advances of the Trustee, its agents and counsel, be for the
benefit of the Holders of the Notes in respect of which such judgment has been
recovered applied to payments on the Notes in the order set forth in Section
6.6.
Section 6.6. ALLOCATION OF MONEY COLLECTED
If the Notes have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, any money collected by the Trustee with respect to the Notes pursuant
to this Article (and any funds then held or thereafter received by the Trustee)
shall be applied in the following order, at the date or dates fixed by the
Trustee, but not less frequently than on scheduled Distribution Dates:
FIRST: To the payment of all amounts due the Trustee under Section 7.7;
SECOND: To the Servicer, the Servicing Fee;
THIRD: (in the following order) To the payment, ratably, of (i) accrued
interest on the Class A, Class B, Class C and Class D Notes, in that order,
including interest (to the
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extent such interest has been collected by the Trustee or a sum sufficient
therefor has been so collected and payment thereof is legally enforceable at the
rate prescribed therefor in the applicable Notes) on overdue installments of
interest, and (ii) the Outstanding Note Balances of the Class A, Class B, Class
C and Class D Notes, in that order;
FOURTH: To the payment of all reasonable costs and expenses incurred by
any Holder in connection with the enforcement of its rights hereunder or under
the Notes, ratably, without preference or priority of any kind; and
FIFTH: To the payment of any surplus to or at the written direction of
the Company or any other person legally entitled thereto.
Section 6.7. LIMITATION ON SUITS
No Holder shall have any right to institute any Proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of 10% of the aggregate Outstanding Note Balance of
the Notes shall have made written request to the Trustee to institute
Proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to it against the costs, expenses and liabilities
to be incurred in compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
Proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 30 day period by the Majority Holders;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb
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or prejudice the rights of any other Holders or to enforce any right under this
Indenture, except in the manner herein provided.
Section 6.8. UNCONDITIONAL RIGHT OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND
INTEREST
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest on such Note as such principal and
interest becomes due and payable and to institute suit for the enforcement of
any such payment, and such right shall not be impaired without the consent of
such Holder.
Section 6.9. RESTORATION OF RIGHTS AND REMEDIES
If the Trustee or any Noteholder has instituted any Proceeding to
enforce any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case the Company, the
Trustee and the Noteholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such Proceeding has been instituted.
Section 6.10. RIGHTS AND REMEDIES CUMULATIVE
No right or remedy herein conferred upon or reserved to the Trustee or
to the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.11. DELAY OR OMISSION NOT WAIVER
No delay or omission of the Trustee or of any Noteholder to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders, or any of them, may be exercised from time to
time, and as often as may be
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deemed expedient, by the Trustee or by the Noteholder or Noteholders, as the
case may be.
Section 6.12. CONTROL BY NOTEHOLDERS
The Holders of 51% of the aggregate Outstanding Note Balance of each
class of Notes shall have the right to direct in writing the decision whether to
conduct, and the time, method and place of conducting, any Proceeding for any
remedy available to the Trustee with respect to the Notes or exercising any
trust or power conferred on the Trustee with respect to the Notes; PROVIDED
that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction;
PROVIDED, HOWEVER, that, subject to Section 7.1, the Trustee need not take any
action which it determines might involve it in liability or be unjustly
prejudicial to the Noteholders not consenting.
Section 6.13. WAIVER OF PAST DEFAULTS
The Holders of 51% of the aggregate Outstanding Note Balance of each
class of Notes may waive, in writing, any past Event of Default with respect to
the Notes hereunder and its consequences, except an Event of Default
(1) in the payment of the principal of or interest on any Note, or a
default described in Section 6.1 (4) or (5), or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of 100% of the
Holders of the Outstanding Notes affected thereby.
Upon any such waiver, such Event of Default shall cease to exist and
shall be deemed to have been cured for every purpose of this Indenture. The
Trustee, upon receipt thereof, shall transmit by mail to DCR notice of such
waiver specifying the date on which the Event of Default was waived promptly
after the occurrence of such waiver.
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Section 6.14. UNDERTAKING FOR COSTS
All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee, as Trustee and as Back-up
Servicer, for any action taken, suffered or omitted by it as Trustee or as
Back-up Servicer, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 6.14 shall not apply to any suit instituted by the
Trustee or to any suit instituted by any Noteholder or group of Noteholders,
holding in the aggregate more than 10% in Outstanding Note Balance of all Notes,
or to any suit instituted by any Noteholder for the enforcement of the payment
of the principal of or interest on any Note when due.
Section 6.15. SALE OF TRUST ESTATE
(a) The power to effect any sale, transfer or other disposition (a "Sale") of
any portion of the Trust Estate pursuant to Section 6.3 shall not be exhausted
by any one or more Sales as to any portion of the Trust Estate remaining unsold,
but shall continue unimpaired until the entire Trust Estate securing the Notes
shall have been sold or all amounts payable under this Indenture with respect
thereto shall have been paid. The Trustee may from time to time postpone any
Sale by public announcement made at the time and place of such Sale. It is
hereby expressly agreed that the Trustee is not limited to any amount fixed by
law as compensation for any Sale.
(b) Any Noteholder may bid for and acquire any portion of the Trust Estate
securing the Notes in connection with any Sale thereof. In lieu of paying cash
for the entire purchase price therefor, any Noteholder, after deducting the
costs, charges and expenses (including reasonable attorney's fees) incurred by
the Trustee in connection with such Sale (and, in the case of any Class D
Noteholder, after all amounts owing on the Class A, Class B and Class C Notes
have been paid in full; and in the case of any Class C Noteholder, after all
amounts owing on the Class A and Class B Notes have been paid in full; and in
the case of any Class B Noteholder, after all amounts owing on the Class A Notes
have been paid in full) may make settlement for any portion of the purchase
price remaining by crediting against amounts owing
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on the Notes held by it or other amounts owing to such Noteholder secured by
this Indenture, the portion of the net proceeds of such Sale to which such
Noteholder would be entitled hereunder.
(c) The Servicer and the Company covenant and agree that a Sale of some or the
entirety of the Mortgage Loans and Mortgaged Properties by a public Sale held
not less than ten days after notice thereof is commercially reasonable.
(d) The Trustee shall execute and deliver an appropriate instrument of transfer,
provided to it by the Servicer, transferring its interest in any portion of the
Trust Estate in connection with a Sale thereof. In addition, the Trustee is
hereby irrevocably appointed the agent and attorney-in-fact of the Company to
transfer and convey its interest in any portion of the Trust Estate in
connection with a Sale thereof, and to take all action necessary to effect such
Sale. No purchaser or transferee at such a sale shall be bound to ascertain the
Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any monies.
Section 6.16. ACTION ON NOTES
The Trustee's right to seek and recover judgment on the Notes or under
this Indenture shall not be affected by the seeking, obtaining or application of
any other relief under or with respect to this Indenture. Neither the lien of
this Indenture nor any rights or remedies of the Trustee or the Noteholders
shall be impaired by the recovery of any judgment by the Trustee against the
Company or by the levy of any execution under such judgment upon any portion of
the Trust Estate or upon any of the assets of the Company.
Section 6.17. COMPANY BANKRUPTCY
The Trustee agrees, and each Holder of the Notes by its acceptance of
any note shall be deemed to agree, that it will not join in any proceeding to
commence a case against the Company or a Seller under the Federal Bankruptcy
Code or any other applicable bankruptcy, insolvency or similar federal or state
law without the consent of the Holders of more than 66 2/3% of the aggregate
Outstanding Note Balance of the Notes.
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ARTICLE VII.
THE TRUSTEE
Section 7.1. CERTAIN DUTIES AND RESPONSIBILITIES
(a) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and in the
Servicing Agreement, and no implied covenants or obligations shall be read
into this Indenture or in the Servicing Agreement against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture; but
in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.
(b) In case an Event of Default (of which the Trustee has actual knowledge) has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the Majority Holders relating to the time, method and place
of conducting any
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Proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture with
respect to the Notes or under the Servicing Agreement;
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it, PROVIDED that nothing herein
contained shall excuse the Trustee for failure to perform its duties as
Trustee under this Indenture or the Servicing Agreement;
(5) the Trustee shall not be charged with knowledge of any default
hereunder or under the Servicing Agreement or any other fact or
circumstance upon the occurrence of which it may be required to take
action hereunder unless one of its Responsible Officers has actual
knowledge thereof; and
(6) the Trustee shall have no obligation to ascertain whether any
payment of interest on an overdue installment of interest is legally
enforceable.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 7.2. NOTICE OF DEFAULT, CURE, WAIVER OR RATING ACTION
Promptly after the occurrence of any Event of Default known to the
Trustee, the Trustee shall transmit by registered first class mail and facsimile
to all Holders, as their names and addresses appear on the Note Register, and
DCR notice of such Event of Default hereunder known to the Trustee, unless such
Event of Default shall have been cured or waived.
The Trustee shall provide to DCR and each Noteholder prompt notice of
any Event of Default known to it, and of any cure (including waiver) thereof,
together with a written explanation of the manner in which and time at which
such Event of Default was cured or waived.
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The Trustee shall provide to each Noteholder notice of any rating
action taken against the Notes by DCR promptly after receipt.
Section 7.3. CERTAIN RIGHTS OF TRUSTEE
Subject to Section 7.1:
(a) the Trustee may, in the absence of bad faith on its part, conclusively rely
and shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, note or other obligation, paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it
desirable that a matter be proved or established prior to taking, suffering or
omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, request
and conclusively rely upon an Officers' Certificate of the Servicer or the
Company;
(d) the Trustee may, in its reasonable judgment, consult with in-house counsel
or any other counsel nationally-recognized in securitization with regard to
legal questions arising out of or in connection with this Indenture, and the
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by this Indenture at the request or direction of any of the
Noteholders pursuant to this Indenture, unless such Noteholders shall have
offered to the Trustee security or indemnity reasonably satisfactory to it
against the costs, expenses (including legal fees and expenses) and liabilities
which might be incurred by it in compliance with such request or direction; and
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(f) the Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, note or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney.
Except as otherwise agreed by it in writing, the Trustee shall not be
responsible for the payment of any interest on amounts deposited with it
hereunder.
Section 7.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES
(a) The recitals contained herein and in the Notes, except the certificates of
authentication on the Notes, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity, adequacy or condition of the Trust
Estate or any part thereof, or as to the title of the Company thereto or as to
the security afforded thereby or hereby, or as to the validity or genuineness of
any securities at any time pledged and deposited with the Trustee hereunder or
as to the validity or sufficiency of this Indenture or of the Notes. The Trustee
shall not be accountable for the use or application by the Company of Notes or
the proceeds thereof or of any money paid to the Company or upon Company Order
or for the use or application by the Servicer of any amounts paid to the
Servicer under any provisions hereof.
(b) Except as otherwise expressly provided herein and without limiting the
generality of the foregoing, the Trustee shall have no responsibility or
liability for or with respect to the existence or validity of any Mortgaged
Property or Mortgage Loan, the perfection of any security interest (whether as
of the date hereof or at any future time), the maintenance of or the taking of
any action to maintain such perfection, the validity of the assignment of any
portion of the Trust Estate to the Trustee or of any intervening assignment, the
review of any Mortgage Loan (it being understood that the Trustee has not
reviewed and does not intend to review the substance or form of any such
Mortgage Loan or any Mortgage Loan Document) the performance or enforcement of
any Mortgage Loan or Mortgage Loan Document, the compliance by the Company, a
Seller or the Servicer
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with any covenant or the breach by the Company, a Seller or the Servicer of any
warranty or representation made hereunder or in any related document or the
accuracy of any such warranty or representation, any investment of monies in the
Collection Account or Reserve Account or any loss resulting therefrom, the acts
or omissions of the Company, a Seller, the Servicer or any Mortgagor, any action
of the Servicer or a Seller taken in the name of the Trustee, or the validity of
the Servicing Agreement or a Sale Agreement.
(c) The Trustee shall not have any obligation or liability under any Mortgage
Loan by reason of or arising out of this Indenture or the granting of a security
interest in such Mortgage Loan hereunder or the receipt by the Trustee of any
payment relating to any Mortgage Loan pursuant hereto, nor shall the Trustee be
required or obligated in any manner to perform or fulfill any of the obligations
of the Company under or pursuant to any Mortgage Loan, or to make any payment,
or to make any inquiry as to the nature or the sufficiency of any payment
received by it, or the sufficiency of any performance by any party, under any
Mortgage Loan.
Section 7.5. MAY HOLD NOTES
The Trustee, any Paying Agent, Note Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Notes and if operative, may otherwise deal with the Company with the
same rights it would have if it were not Trustee, Paying Agent, Note Registrar
or such other agent.
Section 7.6. MONEY HELD IN TRUST
Money received by the Trustee pursuant to this Indenture shall be held
in trust for the purposes set forth herein. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
herein or required by law. The Trustee shall be under no liability for interest
on any money received by it hereunder except as otherwise agreed by the Trustee
in writing with the Company except with respect to income or gain or investments
that are its obligation in its corporate capacity.
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Section 7.7. COMPENSATION AND REIMBURSEMENT
The Company agrees:
(a) to pay the Trustee the Trustee Fee, in accordance with Section
13.1 hereof, as reasonable compensation for all services rendered by it
hereunder (which Trustee's Fee shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(b) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of the Trustee's agents
and counsel) or the Servicing Agreement, except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(c) to indemnify the Trustee, its officers, directors, employees,
custodians, nominees and agents for, and to hold them harmless against,
any loss, liability or expense incurred without negligence or bad faith on
their part, arising out of or in connection with the acceptance or
administration of this trust and performance hereunder and under the
Servicing Agreement in accordance with the terms hereof, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder and including any loss, liability or expense incurred by it as
Back-up Servicer without negligence or bad faith.
As security for the performance of the Company under this Indenture,
the Trustee shall have a lien and right to payment, prior to the lien of the
Noteholders and all other Persons, upon the Trust Estate. The Trustee shall not
institute any proceeding solely to enforce its lien which would involve the Sale
or other disposition of the Trust Estate until at least 91 days have elapsed
since the date on which all of the Notes have been paid or discharged. The
Trustee shall not be entitled to reimbursement of the expenses described in
Section 7.7(b) above pursuant to Section 13.1(a) hereof, unless, at least 30
days prior to the related Distribution Date, the Trustee has submitted to the
Servicer a written request for such reimbursement and the Servicer has failed to
comply with such request on or prior to such Distribution Date.
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Section 7.8. CORPORATE TRUSTEE REQUIREMENT; ELIGIBILITY
There shall at all times be a Trustee hereunder which shall at all
times be a depository institution or trust company organized and doing business
under the laws of the United States of America or any State thereof; authorized
under such laws to exercise corporate trust powers; have a combined capital and
surplus of at least $500,000,000; and be subject to supervision or examination
by federal or state authorities; PROVIDED, HOWEVER, that any successor Trustee
shall in addition be an institution with long-term, unsecured debt obligations
rated "AA" or better by DCR or any other rating acceptable to DCR. If such
corporation shall publish reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purpose of this Section 7.8, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall immediately notify the Company, the Servicer, the Noteholders
and DCR. In the event of such occurrence, the Company or the Servicer may cause
the Trustee to resign immediately in the manner and with the effect hereinafter
specified in this Article.
Section 7.9. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
(a) No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee under Section 7.10.
(b) The Trustee may resign at any time by giving written notice thereof to the
Company, the Servicer, DCR and to the Noteholders. If an instrument of
acceptance by a successor Trustee shall not have been delivered to the Trustee
within 90 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Majority Holders,
delivered to the Trustee and to the Company.
(d) If at any time:
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(1) the Trustee shall cease to be eligible under Section 7.8 and
shall fail to resign after written request therefor by the Company or by
any such Noteholder, or
(2) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 6.14, any Noteholder who has been a bona
fide Holder of a Note for at least six months (provided that the Notes have been
Outstanding for at least six months, otherwise the Holder of the Note that has
been outstanding for the longest period of time) may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting, or if
a vacancy shall occur in the office of the Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee that meets the
requirements set forth in Section 7.8. If no successor Trustee shall have been
so appointed by the Company within 30 days after such resignation or removal or
by the Majority Holders pursuant to Section 7.9(f), any Noteholder who has been
a bona fide Holder of Notes for at least six months (provided that the Notes
have been outstanding for at least six months) may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor trustee.
(f) Notwithstanding Section 7.9(e) hereof, under the following circumstances a
successor Trustee may be appointed by Act of the Majority Holders delivered to
the Company and (unless the office of the Trustee is then vacant) any retiring
Trustee: (a) a vacancy shall exist at any time in the office of the Trustee for
any cause; (b) the Company shall not have appointed a successor Trustee within
30 days after the Trustee's resignation or removal; or (c) less than one year
shall have passed after the appointment by the Company of a successor Trustee
pursuant to Section 7.9(e). Any successor Trustee appointed by such Act of the
Majority Holders shall, forthwith upon its acceptance of such appointment,
become the successor Trustee and supersede the successor Trustee, if any,
appointed by the Company.
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(g) The Company shall give notice of each resignation and each removal of the
Trustee and each appointment of a successor Trustee by mailing written notice of
such event by first-class mail, postage prepaid, to the Servicer, DCR and the
Holders of Notes as their names and addresses appear in the Note Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
(h) The Trustee shall be paid all amounts outstanding upon such resignation or
removal and the obligations of the Company and the Servicer in Section 7.7
hereof shall survive such resignation or removal.
Section 7.10. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and the Noteholders and the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request of
the Company or the successor Trustee, such retiring Trustee shall, upon payment
of its reasonable charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trust of the retiring Trustee,
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder, subject nevertheless
to its lien, if any, provided for in Section 7.7 (which lien may be exercised
whether or not the Notes have been paid, satisfied or discharged in full, in
accordance with the provisions of said Section 7.7). Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 7.11. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF
TRUSTEE
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
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corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
PROVIDED such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Trustee had itself authenticated such Notes.
Section 7.12. CO-TRUSTEES AND SEPARATE TRUSTEES
At any time or times, for the purpose of meeting the legal requirements
of any jurisdiction in which any of the Trust Estate may at the time be located
(including for purposes of foreclosure), the Company and the Trustee shall have
power to appoint, and, upon the written request of the Trustee or of the Holders
of Notes representing at least 25% of the aggregate Outstanding Note Balance of
any Class, the Company shall for such purpose join with the Trustee in the
execution, delivery and performance of all instruments and agreements necessary
or proper to appoint, one or more Persons approved by the Trustee either to act
as co-trustee, jointly with the Trustee, of all or any part of such Trust
Estate, or to act as separate trustee of any such property, in either case with
such powers as may be provided in the instrument of appointment, and to vest in
such Person or Persons in the capacity aforesaid, any property, title, right or
power deemed necessary or desirable, subject to the other provisions of this
Section. If the Company does not join in such appointment within 15 days after
the receipt by it of a request so to do, or in case an Event of Default has
occurred and is continuing, the Trustee alone shall have power to make such
appointment.
Should any written instrument from the Company be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right or power, any and all
such instruments shall, on request, be executed, acknowledged and delivered by
the Company.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
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(1) The Notes shall be authenticated and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised
solely by the Trustee.
(2) The rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed
by the Trustee or by the Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument appointing such co-trustee
or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Trustee
shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee.
(3) The Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Company evidenced by a Board Resolution,
may accept the resignation of or remove any co-trustee or separate
trustee, appointed under this Section, and, in case an Event of Default
has occurred and is continuing, the Trustee shall have power to accept the
resignation of, or remove, any such co-trustee or separate trustee without
the concurrence of the Company. Upon the written request of the Trustee,
the Company shall join with the Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee or
separate trustee that has so resigned or been removed may be appointed in
the manner provided in this Section.
(4) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee or any other such
trustee hereunder nor shall the Trustee be liable by reason of any act or
omission of any co-trustee or separate trustee hereunder.
(5) Any Act of Noteholders delivered to the Trustee shall be deemed
to have been delivered to each such co-trustee and separate trustee.
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Section 7.13. RIGHTS WITH RESPECT TO THE SERVICER
(a) The Trustee may terminate all rights and powers of the Servicer at any time,
in accordance with the terms of the Servicing Agreement.
(b) If the Company shall have knowledge of the occurrence of any default or
event of default under the Servicing Agreement, the Company shall promptly
notify the Trustee in writing, the Noteholders and DCR thereof, and shall
specify in such notice the action, if any, the Company is taking in respect of
such event of default.
(c) Upon any termination of the original Servicer's rights and powers pursuant
to the Servicing Agreement, a successor Servicer may be appointed in accordance
with the provisions thereof, and if no successor is so appointed the Trustee
shall serve as Servicer in accordance with the provisions of the Servicing
Agreement.
Section 7.14. SERVICER AS AGENT AND BAILEE OF TRUSTEE
Solely for the purpose of perfection of the lien of this Indenture,
each of the Trustee and the Servicer hereby acknowledges that the Servicer is
acting as agent and bailee of the Trustee for the benefit of the Noteholders as
secured party in holding any items constituting a part of the Trust Estate,
including any Mortgage Loans and the Mortgage Files relating to the Mortgage
Loans and monies, which from time to time come into the possession of the
Servicer (of which the Trustee shall retain a copy, other than in connection
with Mortgage Loans released pursuant to this Indenture) PROVIDED that, with
respect to any other duties pursuant to said Servicing Agreement, the Servicer
is acting as an independent contractor. It is intended that, by the Servicer's
acceptance of such agency pursuant to the Servicing Agreement, the Trustee for
the benefit of the Noteholders, as secured party, shall be deemed to have
possession of such monies and other items for purposes of the UCC as adopted in
the state in which such property is held by the Servicer. Subject to Section 7.1
hereunder, the Trustee shall not be liable for any act or omission of the
Servicer in its capacity as agent and bailee of the Trustee.
Section 7.15. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE
The Trustee hereby makes the following representations and warranties on which
the Company, the Servicer and Noteholders shall be entitled to rely:
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(i) The Trustee is a nationally chartered bank duly organized, validly existing,
and in good standing under the laws of its place of organization;
(ii) The Trustee has full power, authority and legal right to execute, deliver,
and perform this Indenture and the Servicing Agreement, and has taken all
necessary action to authorize the execution, delivery, and performance by it of
this Indenture and the Servicing Agreement;
(iii) The execution, delivery and performance by the Trustee of this Indenture
and the Servicing Agreement (a) does not violate any provision of any law or any
order, writ, judgment, or decree of any court, arbitrator, or governmental
authority applicable to the Trustee or any of its assets, (b) does not violate
any provision of the corporate charter or by-laws of the Trustee, and (c) does
not violate any provision of, or constitute, with or without notice or lapse of
time, a default under, or result in the creation or imposition of any Lien on,
any properties included in the Trust Estate pursuant to the provisions of any
mortgage, indenture, contract, agreement, or other undertaking to which the
Trustee is a party, which violation or default could reasonably be expected to
materially and adversely affect the Trustee's performance or ability to perform
its duties under this Indenture and the Servicing Agreement or the transactions
contemplated in this Indenture and the Servicing Agreement;
(iv) The execution, delivery and performance by the Trustee of this Indenture
and the Servicing Agreement does not require the authorization, consent, or
approval of, the giving of notice to, the filing or registration with, or the
taking of any other action in respect of, any governmental authority or agency
regulating the banking and corporate trust activities of the Trustee;
(v) This Indenture and the Servicing Agreement has been duly executed and
delivered by the Trustee and constitutes the legal, valid, and binding agreement
of the Trustee, enforceable in accordance with its terms, and the Trustee meets
the requirements of Section 7.8 hereof;
(vi) The Notes have been duly authenticated by the Trustee; and
(vii) The Trustee represents that it will use commercially reasonable best
efforts to cure (by August 1999) any deficiencies with regards to the
manipulation or calculation of dates beyond December 31, 1999 in the internally
maintained computer software
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systems used by the Trustee in the conduct of its trust business which
materially and adversely affect its ability to perform its obligations under
this Indenture. The Trustee further represents that it will use commercially
reasonable best efforts to obtain reasonable assurances from each third party
vendor of licensed computer software systems used by the Trustee in the conduct
of its trust business that such vendors shall use commercially reasonable
efforts to cure any deficiencies with regards to the manipulation or calculation
of dates beyond December 31, 1999 and such systems shall, as of August 1999,
contain no deficiencies with regards to the manipulation or calculation of dates
beyond December 31, 1999 which would materially and adversely affect the ability
of the Trustee to perform its obligations under this Indenture.
ARTICLE VIII.
CONSOLIDATION AND MERGER
Section 8.1. COMPANY MAY NOT CONSOLIDATE, ETC.
The Company shall not consolidate or merge with or into any other
Person or convey or transfer its properties and assets substantially as an
entirety to any Person.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
Section 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS
(a) Without the consent of the Holders of any Notes, the Company, when
authorized by a Board Resolution, the Servicer and the Trustee, at any time and
from time to time, may enter into one or more supplemental indentures PROVIDED
that such action shall not result in a reduction or withdrawal of the then
current rating on any class of Notes as confirmed by DCR in writing, in form
satisfactory to the Trustee, for any of the following purposes; PROVIDED,
FURTHER, that no such supplemental indenture shall have any of the effects
described in clauses (1) through (6) of the proviso to Section 9.2 hereof or
adversely affect the interest of the Holders of any Notes:
(1) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey
and confirm unto the Trustee any property subject or required to be
subjected to the lien of
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this Indenture, or to subject additional property to the lien of this
Indenture; or
(2) to add to the conditions, limitations and restrictions on the
authorized amount, terms and purposes of issue, authentication and
delivery of the Notes, as herein set forth, additional conditions,
limitations and restrictions thereafter to be observed; or
(3) to add to the covenants of the Company, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred
upon the Company; or
(4) to convey, transfer, assign, mortgage or pledge any property
to or with the Trustee; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provisions
with respect to matters or questions arising under this Indenture, which
shall not be inconsistent with the provisions of this Indenture; or
(6) to evidence the succession of the Trustee
pursuant to Article 7.
(b) Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to this Section, the Company shall deliver to
DCR and each Noteholder by overnight mail, a notice setting forth in general
terms the substance of such supplemental indenture together with a copy of such
supplemental indenture. Any failure of the Company to mail such notice and copy,
or any defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
Section 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS
With the consent of the Holders of more than 51% of aggregate
Outstanding Note Balance of each class of Notes, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into one or more supplemental
indentures for the purpose of adding any provisions to, or changing in any
manner or eliminating any of the provisions of, this Indenture modifying in any
manner the rights of the Holders of the Notes under this Indenture; PROVIDED
that, unless the unanimous consent of the Noteholders is received, such action
shall not result in a reduction or withdrawal of the then current rating on any
class
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of Notes as confirmed by DCR in writing, in form satisfactory to the
Trustee; and PROVIDED further that no such supplemental indenture shall, without
the consent of all Holders of each class of Outstanding Notes affected thereby:
(1) reduce the Outstanding Note Balance of any Note or the Note Interest Rate
thereon or change the amount or priority or time of any payment on any Note or
any place of payment where, or the coin or currency in which, any Note or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment; or
(2) impair or adversely affect the Trust Estate except as otherwise permitted
herein; or
(3) modify or alter the provisions of the definition of the term "Outstanding";
or
(4) modify or alter the provisions of the proviso to Section 6.3; or
(5) modify any of the provisions of this Section 9.2 or any provision herein
requiring the consent, waiver, approval or Act of the Holder or Holders of any
particular amount of the Outstanding Note Balance of any Class of Notes; or
(6) permit the creation of any lien ranking prior to or on a parity with the
lien of this Indenture with respect to any part of a Trust Estate or terminate
the lien of this Indenture on any property at any time subject hereto or deprive
the Holder of any Note of the security afforded by the lien of this Indenture.
It shall be necessary for any Act of Noteholders under this Section to
approve the particular form of any proposed supplemental indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to this Section, the Company shall mail to DCR
and each Noteholder a notice setting forth in general terms the substance of
such supplemental indenture together with a copy of such supplemental indenture.
Any failure of the Company to mail such notice and copy, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
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Section 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES
In executing or accepting any supplemental indenture permitted by this
Article or the modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to be supplied with, and prior to executing any
supplemental indenture pursuant to Section 9.1 the Trustee shall require (and
subject to Section 7.1 shall be fully protected in relying upon), an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
duties or immunities under this Indenture or otherwise.
Section 9.4. EFFECT OF SUPPLEMENTAL INDENTURES
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
Section 9.5. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURE
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and if required by the
Trustee shall, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
ARTICLE X.
REDEMPTION OF NOTES
Section 10.1. REDEMPTION AT THE OPTION OF THE SERVICER; ELECTION TO REDEEM
The Servicer shall have the right to purchase all, but not less than
all, the Mortgage Loans at the Purchase Price, on any Distribution Date
(hereinafter referred to as a "Redemption Date") occurring after such time as
the aggregate Outstanding Note Balance is equal to or less than 10% of the
aggregate Outstanding Note Balance as of the Closing Date. The Funds represented
by such Purchase Price shall be used to redeem the
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Notes in whole, but not in part, at the Redemption Price, with the excess to be
paid to the Company.
Installments of interest and principal due on or prior to a Redemption
Date shall continue to be payable to the Holders of Notes called for redemption
as of the relevant Record Dates according to their terms and the provisions of
Section 3.7. The election of the Servicer to cause the redemption of the Notes
pursuant to this Section shall be evidenced by a Board Resolution directing the
Trustee to make the payment of the Redemption Price on all of the Outstanding
Notes from monies deposited with the Trustee pursuant to Section 10.3.
Section 10.2. NOTICE OF REDEMPTION BY THE COMPANY
Notice of redemption pursuant to Section 10.1 shall be given by
facsimile and registered mail, postage prepaid, mailed not less than 30 days
prior to the applicable Redemption Date, to the Trustee, DCR and to each Holder
of Outstanding Notes, at its address in the Note Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) that on the Redemption Date, the Redemption Price shall become due and
payable upon each such Note, and that interest thereon shall cease to accrue on
such date upon the payment of the Redemption Price; and
(4) the place where such Notes are to be surrendered within 30 days after the
Redemption Date, which shall be the office or agency of the Servicer to be
maintained as provided in Section 11.2.
Notice of redemption of Notes shall be given by the Servicer or, at the
Servicer's request, by the Trustee in the name and at the expense of the
Servicer. Failure to give notice of redemption, or any defect therein, to any
Holder of any Note selected for redemption shall not impair or affect the
validity of the redemption of any other Note.
Section 10.3. DEPOSIT OF THE REDEMPTION PRICE
On or before the Business Day next preceding any Redemption Date, the
Servicer shall deposit with the Trustee or with the Paying Agent an amount of
monies sufficient to pay the
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Redemption Price of all Outstanding Notes on such Redemption Date (less any
portion of such payment set aside from monies in the Collection Account or the
Reserve Account for the Notes to be redeemed).
In the case of a redemption pursuant to which a sale under Section 10.5
is to be held, on or before the Business Day next preceding the related
Redemption Date, the Servicer shall deposit with the Trustee or with the Paying
Agent an amount of money equal to the amount by which the Redemption Price is
reasonably expected to exceed the proceeds of the sale plus an amount of money
sufficient to pay the Trustee's fees and expenses reimbursable to the Trustee in
accordance with Section 7.7.
Section 10.4. NOTES PAYABLE ON REDEMPTION DATE
Notice of redemption having been given as provided in Section 10.2, the
Notes to be redeemed shall, on the applicable Redemption Date, become due and
payable at the Redemption Price and on such Redemption Date (unless the Servicer
shall default in the payment of the Redemption Price) such Notes shall cease to
bear interest. On the Redemption Date, the Holders of such Notes shall be paid
the Redemption Price by the Paying Agent; PROVIDED, HOWEVER, that installments
of principal and interest which are due on or prior to the Redemption Date shall
be payable to the Holders of such Notes registered as such on the relevant
Record Dates according to their terms and the provisions of Section 3.7.
If the Holders of any Note called for redemption shall not be so paid,
the principal shall, until paid, continue to bear interest from the Redemption
Date at the related Note Interest Rate until payment of principal is made.
Section 10.5. SALE FOR PURPOSES OF REDEMPTION
(a) By Servicer Request, the Servicer may direct the Trustee to sell the
Mortgage Loans securing the Notes called for redemption for the purpose of
redeeming the Outstanding Notes in accordance with Section 10.1. The Servicer
Request shall (i) specify the time and place of the sale, terms and the manner
in which the sale is to be conducted and (ii) be accompanied by an Officers'
Certificate certifying that no Event of Default shall be continuing. The date of
any such sale shall be the Redemption Date and the amount of the proceeds from
such sale shall equal or exceed the Redemption Price. Upon receipt of such
Servicer Request, the Trustee shall employ its best efforts to sell the Mortgage
Loans on the terms and conditions specified therein; provided, however, the
Trustee may only sell such Mortgage Loans
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if (x) no Event of Default shall be continuing and (y) the amounts required to
have been deposited by the Servicer with the Trustee or a Paying Agent pursuant
to Section 10.3 shall have been so deposited. The Trustee shall deposit all
proceeds from such sale (net of the Trustee's fees and expenses in connection
with such sale, which fees and expenses shall not reduce the amount of such
proceeds below the Redemption Price) in the Collection Account.
(b) The Trustee shall execute and deliver an appropriate instrument of
conveyance, without recourse, warranty or representation, delivered to it by the
Servicer transferring the Company's interest in any portion of the Mortgage
Loans securing the Notes in connection with a sale thereof. In addition, the
Trustee is hereby irrevocably appointed the agent and attorney-in-fact of the
Company to transfer and convey the Company's interest in any portion of such
Mortgage Loans in connection with a sale thereof, and to take all action
necessary to effect such sale. No purchaser or transferee at such a sale shall
be bound to ascertain the Trustee's authority, inquire into the satisfaction of
any conditions precedent or to see to the application of any monies.
ARTICLE XI.
COVENANTS
Section 11.1. PAYMENT OF PRINCIPAL AND INTEREST
The Company shall duly and punctually pay the principal of and interest
on the Notes in accordance with the terms of the Notes and this Indenture.
Section 11.2. MAINTENANCE OF OFFICE OR AGENCY
The Company shall maintain an office or agency within the United States
of America where Notes may be presented or surrendered for payment, where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Company hereby initially appoints the Trustee its office or
agency for each of said purposes. The Company shall give prompt written notice
to the Trustee of the location, and of any change in the location, of any such
office or agency. If at any time the Company shall fail to maintain any such
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Company hereby appoints the Trustee at its
Corporate Trust
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Office its agent to receive all such presentations, surrenders, notices and
demands.
Section 11.3. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST
The Company shall cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(1) hold all sums held by it in respect of payments on Notes in trust for the
benefit of the Noteholders entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other obligor
upon the Notes) in the making of any payment; and
(3) at any time during the continuance of any such default, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held in trust
by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by such Paying Agent; and, upon
such payment by any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Subject to any applicable escheat law, any money deposited with the
Trustee or any Paying Agent in trust for payment to Noteholders on any Payment
Date and remaining unclaimed for three years after such payment has become due
and payable shall be paid to the Company on Company Request; and the Holder of
such Note shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, shall thereupon cease; PROVIDED,
HOWEVER, that the Trustee or such Paying Agent, before being required to make
any such repayment, shall at the expense of the Company cause to be published
once, in a newspaper published in the English language, customarily published on
each Business Day and of general circulation in the city in which the Corporate
Trust Office is located, notice that such money remains unclaimed and
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that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
shall be repaid to the Company. The Trustee shall also adopt and employ, at the
expense of the Company, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
Noteholders whose right to or interest in monies due and payable but not claimed
is determinable from the records of any Paying Agent, at the last address as
shown on the Note Register for each such Noteholder). Notwithstanding the
foregoing, nothing herein shall be deemed to require the Trustee to give or
cause the publication of any notice of the repayment of such monies to the
Company and the Trustee shall not be liable to the Noteholders or the Trust
Estate for its failure to provide or cause such notice.
Section 11.4. CORPORATE EXISTENCE
The Company shall keep in full effect its existence, rights and
franchises as a limited liability company under the laws of the State of Nevada,
shall operate in accordance with, and subject to the limitations set forth in,
its operating agreement, and shall obtain and preserve its qualification to do
business as a foreign limited liability company in each jurisdiction in which
such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture or the Notes. The Company shall promptly
deliver to DCR and each Noteholder a copy of any amendment to its charter or its
operating agreement.
Section 11.5. PROTECTION OF TRUST ESTATE
The Company shall from time to time execute and deliver all such
supplements and amendments hereto (a copy of which shall be provided to the
Noteholders) and all such financing statements, continuation statements,
instruments of further assurance and other instruments, and shall take such
other action as is necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust Estate;
(ii) maintain or preserve the lien of this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of, or protect the validity of any Grant made or
to be made by this Indenture;
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(iv) enforce any of the Mortgage Loans or, where appropriate, any security
interest in the Trust Estate and the proceeds thereof; or
(v) preserve and defend title to the Trust Estate and the rights of the Trustee
and the Noteholders therein against the claims of all persons and parties.
Section 11.6. NEGATIVE COVENANTS
So long as any Notes are Outstanding, the Company shall not:
(i) sell, transfer, exchange or otherwise dispose of any of the Trust Estate
(except as expressly permitted by Section 10.5 and except as provided in
Sections 12.6 and 12.7); or
(ii) claim any credit on, or make any deduction from, the principal or interest
payable in respect of the Notes by reason of the payment of any taxes levied or
assessed upon any of the Trust Estate; or
(iii) other than in accordance with the restrictions set forth therein, amend
its organizational documents without the consent of the Majority Holders;
provided, the Company shall not amend the organizational documents if the effect
of any such amendment would be to result in a reduction or withdrawal of the
then current rating of DCR assigned to the Notes as confirmed in writing by DCR;
or
(iv) (a) permit the validity or effectiveness of this Indenture to be impaired,
or permit this Indenture to be amended, hypothecated, subordinated, terminated
or discharged, or permit any Person to be released from any covenants or
obligations of this Indenture, except as may be expressly permitted hereby and
thereby, (b) except to the extent permitted under this Indenture, permit any
lien, charge, security interest, mortgage or other encumbrances to be created on
or extended to or otherwise arise upon or burden the Trust Estate or any part
thereof or any interest therein or the proceeds thereof or incur any
indebtedness other than the Notes, or (c) permit this Indenture to not
constitute a valid first priority perfected security interest in the Trust
Estate; or
(v) change the location of its chief executive office without thirty days' prior
written notice to the Trustee, accompanied by such evidence of actions taken as
shall be necessary to continue the perfection of the lien on the Collateral; or
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(vi) incur any indebtedness not permitted by its operating agreement, or assume
or guaranty any indebtedness of any other entity other than the indebtedness
evidenced by the Notes; or
(vii) engage in any business not permitted by its Operating Agreement; or
(viii) obtain or carry insurance relating to the Mortgage Loans separate from
that required by the Servicing Agreement, unless the Trustee and the Noteholders
shall have the same rights with respect thereto as they have with respect to the
insurance required by the Servicing Agreement.
Section 11.7. STATEMENT AS TO COMPLIANCE
The Company shall deliver to the Trustee, the Noteholders and DCR,
within 30 days after each December 31, March 31, June 30 and September 30
(commencing June 30, 1999, with the written statement delivered on such date
covering the period from the Closing Date through June 30, 1999), a written
statement signed by the Chairman or the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller
of the Company, stating, as to each signer thereof, that
(1) a review of the activities of the Company during the preceding twelve-month
period and of performance under this Indenture has been made under his
supervision and
(2) the Company has fulfilled all its obligations under this Indenture
throughout such period, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to him and the nature
and status thereof.
Section 11.8. INVESTMENT COMPANY ACT
The Company shall conduct its operations in a manner which shall not
subject it to registration as an "investment company" under the Investment
Company Act of 1940.
Section 11.9. ENFORCEMENT OF SERVICING AGREEMENT AND SALE AGREEMENT
The Company shall promptly take all actions necessary, and diligently
pursue all remedies available to it, to enforce the obligations of the Servicer
under the Servicing Agreement and TerraSun Holding, Inc. under the TerraSun Loan
Sale Agreement to secure its and the Noteholders' rights thereunder, PROVIDED
that,
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prior to taking any action in the name of the Trustee, it shall receive
the written consent of the Trustee.
Section 11.10. TAXES
The Company shall pay or cause to be paid all taxes when due and
payable or levied against its assets, properties or income, including any
property that is part of the Trust Estate.
Section 11.11. COMPANY OWNERSHIP
The Company agrees that its books and records will reflect its
ownership of the Mortgage Loans and that such Mortgage Loans are subject to the
security of the Trustee on behalf of the Noteholders.
Section 11.12. NONCONSOLIDATION
The Company agrees that so long as any Notes are Outstanding, it will
be operated such that it will not be substantively consolidated in the
bankruptcy estate of the Parent or any Affiliate thereof and will not have its
separate existence disregarded in the event of a bankruptcy of the Parent or
Affiliate thereof. Without limiting the foregoing, the Company agrees that:
(a) it will pay its own expenses, neither the Sellers nor the Parent
will guarantee any of the Company's obligations other than pursuant to the Note
Purchase Agreement and neither the Sellers, the Parent nor any Affiliate thereof
will lend funds to the Company for the payment of expenses;
(b) it will conduct its business exclusively on its own stationery and
all correspondence by the Company will be in its own name;
(c) it will not permit the Sellers (other than the Managing Member),
the Parent or any Affiliate thereof to be involved in the daily management of
the Company; PROVIDED, HOWEVER, an officer of the Parent or any such Affiliate
shall not be prohibited from serving as an officer of the Company;
(d) except in accordance with its organizational documents, it will not
engage in any intercompany transactions with the Sellers, the Parent or any
Affiliate thereof, except as provided in the Sale Agreements, the Servicing
Agreement or this Indenture;
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(e) it will maintain company records and books of account separate and
distinct from the Sellers' and the Parent's corporate records and the records of
any Affiliate thereof and maintain corporate formalities and separate business
offices and telephone number;
(f) the financial statements of Sun Funding, Inc., Terra Loans Corp.
and the Company will disclose that the assets of the Company are not available
to pay creditors of Sun Funding, Inc., Terra Loans Corp. or any Affiliate
thereof and will reflect the separate corporate existence of the Company;
(g) it will not act as agent for the Sellers, the Parent or any
Affiliate thereof and agrees that it will not authorize the Sellers, the Parent
or any Affiliate thereof to act as its agent, except in Sunterra Financial
Services, Inc.'s capacity as Servicer under the Servicing Agreement;
(h) its managing member shall maintain at least one Independent
Director as required in the managing member's certificate of incorporation;
(i) it will maintain its assets separate and distinct from the Sellers'
assets, the Parent's assets and the assets of any Affiliate thereof, and shall
not permit its assets to be commingled with those of the Sellers, the Parent or
any Affiliate thereof;
(j) it shall not become contractually liable for the payment of any
liability of the Sellers or the Parent; and
(k) it will not modify or amend its operating agreement with respect to
the purpose or purposes for which it is organized.
Section 11.13. REPRESENTATIONS, WARRANTIES AND COVENANTS
The Company makes the following representations, warranties and
covenants as to itself as of the Closing Date and with respect to any Subsequent
Transfer Date, as of such Subsequent Transfer Date:
(a) DUE FORMATION; VALID EXISTENCE; GOOD STANDING AND LIMITED PURPOSE.
The Company is a limited liability company duly organized and validly existing
in good standing under the laws of the jurisdiction of its formation; and is
duly qualified to do business as a foreign limited liability company and in good
standing under the laws of each jurisdiction where the character
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of its property, the nature of its business or the performance of its
obligations under this Indenture, the Sale Agreement, the Servicing Agreement or
the Note Purchase Agreement makes such qualification necessary except where the
failure to be so qualified will not have a material adverse effect on the
business of the Company or its ability to perform its obligations under this
Indenture, the TerraSun Loan Sale Agreement, the Servicing Agreement or the Note
Purchase Agreement or any other documents or transactions contemplated hereunder
or the validity or enforceability of the Mortgage Loans.
(b) POSSESSION OF LICENSES, CERTIFICATES, FRANCHISES AND PERMITS. The
Company holds, and at all times during the term of this Indenture, the TerraSun
Loan Sale Agreement, the Servicing Agreement or the Note Purchase Agreement will
hold, all material licenses, certificates, franchises and permits from all
governmental authorities necessary for the conduct of its business and has
received no notice of proceedings relating to the revocation of any such
license, certificate, franchise or permit, which singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect its ability to perform its obligations under this Indenture,
the TerraSun Loan Sale Agreement, the Servicing Agreement or the Note Purchase
Agreement or any other documents or transactions contemplated hereunder or the
validity or enforceability of the Mortgage Loans.
(c) AUTHORITY AND POWER. The Company has, and at all times during the
term of this Indenture will have, all requisite power and authority to own its
properties, to conduct its business, to execute and deliver this Indenture, the
TerraSun Loan Sale Agreement, the Servicing Agreement and the Note Purchase
Agreement and to perform all of its obligations under this Indenture, the
TerraSun Loan Sale Agreement, the Servicing Agreement and the Note Purchase
Agreement. The Company has all requisite power and authority to acquire, own and
Grant to the Trustee as part of the Trust Estate the Mortgage Loans.
(d) AUTHORIZATION, EXECUTION AND DELIVERY; VALID AND BINDING. This
Indenture, the TerraSun Loan Sale Agreement, the Servicing Agreement or the Note
Purchase Agreement and all other documents and instruments required or
contemplated hereby to be executed and delivered by the Company have been duly
authorized, executed and delivered by the Company and, assuming the due
execution and delivery by the other party or parties hereto and thereto,
constitute legal, valid and binding agreements enforceable against the Company
in accordance with their respective terms subject, as to the enforcement of
remedies, to
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bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforceability of creditors' rights generally applicable in the
event of the bankruptcy, insolvency or reorganization of the Company and to
general principles of equity.
(e) NO VIOLATION OF LAW, RULE, REGULATION, ETC. The execution, delivery
and performance by the Company of this Indenture, the TerraSun Loan Sale
Agreement, the Servicing Agreement or the Note Purchase Agreement and any other
documents and transactions in connection herewith to which the Company is a
party do not and will not (i) violate any of the provisions of the Certificate
of Formation or operating agreement of the Company, (ii) violate any provision
of any law, governmental rule or regulation currently in effect applicable to
the Company or its properties or by which the Company or its properties may be
bound or affected, including, without limitation, any bulk transfer laws, (iii)
violate any judgment, decree, writ, injunction, award, determination or order
currently in effect applicable to the Company or its properties or by which the
Company or its properties are bound or affected, (iv) conflict with, or result
in a breach of, or constitute a default under, any of the provisions of any
material indenture, mortgage, deed of trust, contract or other instrument to
which the Company is a party or by which it is bound or (v) result in the
creation or imposition of any Lien upon any of its properties pursuant to the
terms of any such indenture, mortgage, deed of trust, contract or other
instrument.
(f) GOVERNMENTAL CONSENT. No consent, approval, order or authorization
of, and no filing with or notice to, any court or other governmental authority
in respect of the Company is required in connection with the authorization,
execution, delivery or performance by the Company of this Indenture, the
TerraSun Loan Sale Agreement, the Servicing Agreement or the Note Purchase
Agreement or any of the other documents or transactions contemplated hereunder.
(g) DEFAULTS. The Company is not in default under any material
agreement, contract, instrument or indenture to which the Company is a party or
by which it or its properties is or are bound, or with respect to any order of
any court, administrative agency, arbitrator or governmental body which would
have a material adverse effect on the transactions contemplated hereunder; and
no event has occurred which with notice or lapse of time or both would
constitute such a default with respect to any such agreement, contract,
instrument or indenture, or with
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respect to any such order of any court, administrative agency, arbitrator or
governmental body.
(h) INSOLVENCY. The Company will be solvent at all relevant times prior
to, and will not be rendered insolvent by, the transfer of the Mortgage Loans to
the Trust Estate. Prior to the date hereof, the Company did not, and is not
about to, engage in any business or transaction for which any property remaining
with the Company would constitute an unreasonably small amount of capital. In
addition, the Company has not incurred debts that would be beyond the Company's
ability to pay as such debts matured.
(i) PENDING LITIGATION OR OTHER PROCEEDINGS. There is no pending or, to
the best of the Company's knowledge, threatened action, suit, proceeding or
investigation before any court, administrative agency, arbitrator or
governmental body against or affecting the Company which, if decided adversely,
would materially and adversely affect (i) the condition (financial or
otherwise), business or operations of the Company, (ii) the ability of the
Company to perform its obligations under, or the validity or enforceability of,
this Indenture, the TerraSun Loan Sale Agreement, the Servicing Agreement or the
Note Purchase Agreement or any other documents or transactions contemplated
under this Indenture, (iii) any Mortgaged Property or title of any Mortgagor to
any Mortgaged Property or (iv) the Trustee's ability to foreclose or otherwise
enforce the liens of the Mortgage Loans.
(j) ALL ELIGIBLE MORTGAGE LOANS GRANTED TO THE TRUSTEE. Each Mortgage
Loan which has been acquired by the Company and Granted to the Trustee was owned
by the applicable Seller, prior to the Company's acquisition thereof, free and
clear of all liens other than Permitted Encumbrances and was related to a
Resort.
(k) INFORMATION. No document, certificate or report furnished or
required to be furnished by the Company pursuant to this Indenture, when taken
as a whole with the other information provided by the Indenture, contains or
will contain when furnished any untrue statement of a material fact or fails or
will fail to state a material fact necessary in order to make the statements
contained therein not misleading.
(l) CONDOMINIUM UNITS COMPLETE. The condominium units related to the
Mortgage Loans in the Resorts have been issued a certificate of occupancy and
have been completed as required by all applicable state and local laws.
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(m) DELIVERY OF INSURANCE PROCEEDS. In the event that the Company shall
have received any Insurance Proceeds, to the extent such Insurance Proceeds are
not used to rebuild or repair the related Mortgaged Property, the Company shall
promptly deposit such Insurance Proceeds into the Collection Account.
(n) NO DEFICIENCY ACCUMULATION. As of the Closing Date, the Company has
not incurred any "accumulated funding deficiency" (as such term is defined under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
the Code) with respect to any "employee benefit plan" (as such term is defined
under ERISA) sponsored by the Company.
(o) TAXES. The Company has timely filed all tax returns (Federal, state
and local) which are required to be filed and has paid all taxes related
thereto, other than those which are being contested in good faith.
(p) PLACE OF BUSINESS. The principal place of business and chief
executive office of the Company are located at 9921 Covington Cross Drive, Suite
105-B, Las Vegas, Nevada.
(q) NAME. The legal name of the Company is as set forth in this
Agreement and the Company does not use any other tradenames, fictitious names,
assumed names or "doing business as" names.
(r) SUBSIDIARIES AND CONSOLIDATION. The Company has no subsidiaries and
will be operated in such a manner so as not to be substantively consolidated in
the bankruptcy estate of the Parent or any Affiliate.
(s) NO ADVERSE CHANGE. Since its formation, there has been no change in
the business, operations, financial condition, properties or assets of the
Company which would have a material adverse effect on its ability to perform its
obligations under this Indenture or materially adversely affect the transactions
contemplated under this Indenture, the TerraSun Loan Sale Agreement, the
Servicing Agreement or the Note Purchase Agreement.
(t) SECURITIES LAWS. The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(u) REMITTANCE TO THE SERVICER. In the event that any Mortgagor should
remit to the Company any payment or other
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property on or in respect of a Mortgage Loan, then, not later than the Business
Day following receipt thereof, the Company shall transfer such Remittance to the
Servicer.
(v) MANAGEMENT. Other than the Managing Member, the Sellers are not
involved in the day-to-day management of the Company and the Company maintains
its assets separately from the assets of the Sellers.
(w) RATING CONFIRMATION. So long as any Notes are outstanding, the
Company shall, prior to sponsoring any trusts or issuing any other debt or
guarantees, obtain from DCR a confirmation of its ratings on the Notes.
(x) CONTINUITY OF RATING. The Company will cause DCR to continually
review the credit quality of the Notes.
(y) FORM OF MORTGAGE. Each Mortgage or deed of trust and Mortgage Note
is substantially in the form of the Mortgage and Mortgage Note attached as
Exhibit E hereto.
Section 11.14. OPINIONS AS TO TRUST ESTATE.
On or before the date which is 30 days before the earliest anniversary
of the Closing Date on which a financing statement filed in connection with the
Trust Estate expires, the Company shall furnish to each Noteholder an Opinion of
Counsel stating either that, in the opinion of such counsel, such action has
been taken with respect to the recording, filing, re-recording and re-filing of
this Indenture, any indentures supplemental hereto and any other requisite
documents, as applicable, and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain the
first perfected Lien and security interest created by this Indenture with
respect to the Trust Estate or stating that in the opinion of such counsel no
such action is necessary to maintain such lien and security interest.
Section 11.15. INDEMNIFICATION BY THE COMPANY.
The Company shall indemnify, defend and hold harmless the Noteholders
and the Trustee from and against any loss, liability or expense incurred by
reason of the Company's gross negligence, willful misfeasance or bad faith in
the performance of its obligations and duties hereunder, reckless disregard of
its obligations and duties hereunder or breach of any provision hereof.
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ARTICLE XII.
ACCOUNTS, ACCOUNTINGS AND RELEASES
Section 12.1. COLLECTION OF MONEY
In accordance with the terms and conditions set forth herein, the
Trustee may demand payment or delivery of, and shall receive and collect,
directly and without intervention or assistance of any fiscal agent or other
intermediary, all money and other property payable to or receivable by the
Trustee pursuant to this Indenture and in accordance with the Servicing
Agreement. The Trustee shall hold all such money and property so received by it
as part of the Trust Estate and shall apply it as provided in this Indenture. If
any default occurs in the making of any payment or performance under any
Mortgage Loan, the Trustee, upon Company or Servicer Request may, and upon the
written request of the Holders of more than 50% of the aggregate Outstanding
Note Balance of any Class of Notes shall subject to Section 7.1, take such
action as may be appropriate to enforce such payment or performance, including
the institution and prosecution of appropriate Proceedings. Any such action
shall be without prejudice to any right to claim an Event of Default under this
Indenture and to proceed thereafter as provided in Article Six.
Section 12.2. ACCOUNTS
(a) Prior to the Closing Date, the Trustee shall open and maintain or
cause to be opened and maintained, at a depository institution (which shall
initially be LaSalle National Bank), a trust account denominated "Collection
Account -- TerraSun, L.L.C. Vacation Ownership Receivables-Backed Notes 1999-A".
Funds deposited in the Collection Account shall be held in trust for the Holders
of the Notes for the uses and purposes set forth herein. The Collection Account
shall at all times be an Eligible Account, shall relate solely to the Notes, the
Mortgage Loans and Permitted Investments and the Trustee shall have the
exclusive right to withdraw funds therefrom. The Collection Account shall be
segregated on the books and records of the Trustee, and the funds deposited
therein shall not be subject to, and shall be protected from, all claims, liens,
and encumbrances of any creditors or depositors of the Trustee (whether made
directly, or indirectly through a liquidator or receiver of the Trustee).
So long as no Servicer Event of Default shall have occurred and be
continuing, all or any portion of the Collection Account shall be invested by
the Trustee at the Servicer's
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written direction in one or more Permitted Investments with the appropriate
maturity meeting the requirements set forth below. If the Servicer does not
direct the Trustee to invest funds deposited in the Collection Account, or if a
Servicer Event of Default shall have occurred and be continuing, such funds
shall be invested by the Trustee in Permitted Investments listed in clause (v)
of the definition of "Permitted Investments" herein. All Permitted Investments
shall be in the name of the Trustee. All income or other gain from investment of
monies deposited in the Collection Account shall be deposited in the Collection
Account immediately upon receipt thereof, and any loss resulting from Permitted
Investment shall be charged to the Collection Account. The maximum permissible
maturity or, if applicable, the latest redemption date of any Permitted
Investments made with amounts that will constitute part of the Collection
Account Amount for a particular Distribution Date shall be not later than the
Business Day preceding such Distribution Date or a Redemption Date, as
applicable; provided, HOWEVER, that if the Collection Account is maintained with
the Trustee, for Permitted Investments on which the Trustee is the obligor
(including repurchase agreements on which the Trustee in its commercial capacity
is liable as principal), such Permitted Investments may mature on such
Distribution Date. No Permitted Investment may be sold prior to its maturity or
required redemption.
Amounts held in the Collection Account which represent the final
payment due to Noteholders on the Final Distribution Date shall, to the extent
not distributed on the Final Distribution Date, be held uninvested pending
distribution to the Noteholders in accordance with this Indenture.
On any day, based on an Officer's Certificate of the Servicer, the
Trustee shall withdraw amounts specified therein and certified to have been
deposited into the Collection Account in error and remit the same to the
Servicer or as the Servicer may direct.
(b) Prior to the Closing Date, the Trustee shall establish a trust
account denominated "Reserve Account -- TerraSun, L.L.C. Vacation Ownership
Receivables-Backed Notes 1999-A" (the "Reserve Account"), which shall have the
characteristics set forth in this Section 12.2(b). Funds deposited in the
Reserve Account shall be held in trust by the Trustee for the Holders of the
Notes for the uses and purposes set forth herein. The Reserve Account shall at
all times be an Eligible Account, shall relate solely to the Notes and Permitted
Investments and the Trustee shall have the exclusive right to withdraw funds
therefrom. The Reserve Account shall be
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segregated on the books and records of the Trustee, and the funds deposited
therein shall not be subject to, and shall be protected from, all claims, liens,
and encumbrances of any creditors or depositors of the Trustee (whether made
directly, or indirectly through a liquidator or receiver of the Trustee).
On the Closing Date, the Company shall deposit in the Reserve Account
the Initial Reserve Account Deposit. Any deposit to the Reserve Account shall be
made by wire transfer of immediately available funds in accordance with
instructions provided by the Trustee.
With respect to each Distribution Date, after making the distributions
required pursuant to clauses "first" through "thirteenth" of Section 13.1(a),
after making the distributions required pursuant to clauses "first" through
"tenth" if the Trustee has received notice from the Servicer that a Default
Trigger II has occurred and is continuing, and after making the distributions
required pursuant to clauses "first" through "eighth" if the Trustee has
received notice from the Servicer that Default Trigger III has occurred and is
continuing, the Trustee shall withdraw from the Collection Account an amount up
to any positive difference between the Requisite Reserve Amount and the amount
then on deposit in the Reserve Account, and deposit such amount in the Reserve
Account.
On the second Business Day preceding each Distribution Date, the
Trustee shall (i) withdraw from the Reserve Account (to the extent of funds on
deposit therein) an amount equal to the Shortfall Amount and (ii) upon receipt
of instruction from the Servicer pursuant to Section 2.6 of the Servicing
Agreement, withdraw from the Reserve Account (to the extent of funds on deposit
therein) an amount equal to the P&I Advances for the related Collection Period,
and deposit such amounts into the Collection Account by 5:00 p.m. New York City
time on the Business Day prior to the Distribution Date.
On the Business Day immediately preceding the first Distribution Date
following any date of determination on which the amount on deposit in the
Reserve Account exceeds the Requisite Reserve Amount after taking into account
the distributions to be made on such Distribution Date, as applicable, the
Trustee shall withdraw from the Reserve Account the amount of such excess and
deposit the same in the Collection Account for distribution in accordance with
Section 13.1(a).
On the Business Day immediately preceding the Final Distribution Date
hereunder the Trustee shall withdraw all
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amounts then on deposit in the Reserve Account, deposit the same into the
Collection Account, and thereafter terminate the Reserve Account.
On any day, based on an Officer's Certificate of the Servicer, the
Trustee shall withdraw amounts specified therein and certified to have been
deposited into the Reserve Account in error and remit the same to the Servicer
or as the Servicer may direct.
So long as no Servicer Event of Default shall have occurred and be
continuing, all or any portion of the amounts on deposit in the Reserve Account
shall be invested by the Trustee at the Servicer's written direction in one or
more Permitted Investments with the appropriate maturity meeting the
requirements set forth below. If the Servicer does not direct the Trustee to
invest funds deposited in the Reserve Account, or if a Servicer Event of Default
shall have occurred and be continuing, such funds shall be invested by the
Trustee in Permitted Investments listed in clause (v) of the definition of
"Permitted Investments" herein. All Permitted Investments shall be in the name
of the Trustee. All income or other gain from investment of monies deposited in
the Reserve Account shall be deposited in the Reserve Account immediately upon
receipt thereof and any loss resulting from Permitted Investment shall be
charged to the Reserve Account. The maximum permissible maturity or, if
applicable, the latest redemption date of any Permitted Investments made with
amounts on deposit in the Reserve Account for a particular Distribution Date
shall be not later than two Business Days preceding such Distribution Date;
PROVIDED, HOWEVER, that if the Reserve Account is maintained with the Trustee,
for Permitted Investments on which the Trustee is the obligor (including
repurchase agreements on which the Trustee in its commercial capacity is liable
as principal), such Permitted Investments may mature on such Distribution Date;
and provided, FURTHER, that all funds invested in Permitted Investments of the
type described in clause (v) of the definition of "Permitted Investments" must
be withdrawn from such Permitted Investment no later than such Distribution Date
if such investment is managed by the Trustee, and two Business Days prior to the
Distribution Date if not managed by the Trustee. No Permitted Investment may be
sold prior to its maturity or required redemption.
Section 12.3. RELIANCE ON REPRESENTATIONS AND WARRANTIES
The Company agrees and acknowledges that the Trustee and the
Noteholders have relied and will continue to rely upon
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each of the representations and warranties in the Granting Clause, Section 11.13
above and Section 3 of the TerraSun Loan Sale Agreement, and further agrees that
such Persons are entitled to so rely thereon. The representations and warranties
in the Granting Clause and Section 11.13 above shall survive the Grant of the
Trust Estate to the Trustee and shall continue in full force and effect,
notwithstanding any restrictive or qualified endorsement on the Mortgage Notes
and notwithstanding subsequent termination of this Indenture. The
representations and warranties in Section 11.13 above shall be unimpaired by any
review and examination of the Mortgage Files or other documents evidencing or
relating to the Mortgage Loans or any failure on the part of the Trustee to
review or examine the Mortgage Files and such other documents and shall inure to
the benefit of any permitted transferee of the Trustee.
Section 12.4. NOTICE OF INCORRECT REPRESENTATIONS AND WARRANTIES
If any party hereto during the term of this Indenture discovers, or receives
notice from the Trustee, that any of the representations or warranties contained
in Section 3 of the TerraSun Loan Sale Agreement are, in any material respect,
false, incorrect or misleading, or if any such party obtains knowledge of any
event or circumstance that would reasonably cause such party to believe that any
of such representations or warranties are, in any material respect, false,
incorrect or misleading, such party shall promptly deliver to the other parties
hereto, to DCR and the applicable Seller notice of a breach of such
representation or warranty.
Section 12.5. MISREPRESENTATIONS
If any of the representations or warranties contained in Section 3(b)
of the Sale Agreements are, in any material respect, false, incorrect or
misleading as to any Mortgage Loan, the Trustee, upon receiving notice or
otherwise obtaining knowledge of such fact, shall, in writing, request the
related Seller, at its expense, to take such action as is necessary to cause
such false, incorrect or misleading representation or warranty to be, in all
material respects, true, correct and not misleading, within 90 days following
the giving of written notice to such Seller by the Trustee of such false,
incorrect or misleading representation or warranty, or following the discovery
thereof by such Seller. Such Seller will promptly deliver written notice of any
such discovery to the Trustee. Such Seller will also promptly deliver written
notice to the Trustee as to
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the actions taken to cure any such false, incorrect or misleading representation
or warranty.
Section 12.6. MANDATORY REPURCHASE OBLIGATION
(a) If within the applicable time period set forth in Section 12.5
above the applicable Seller fails to cure, in all material respects, any
representation or warranty with respect to any Mortgage Loan in Section 3(b) of
a Sale Agreement which is, in any material respect, false, incorrect or
misleading, then, the Company shall cause to be repurchased each Mortgage Loan
with respect to which such false, incorrect or misleading representation or
warranty was made (each, a "Defective Mortgage Loan") on the Distribution Date
following the first Record Date after the expiration of the 90-day cure period
described in Section 12.5 hereof, related to such Defective Mortgage Loan (a
"Repurchase Date").
(b) Each Defective Mortgage Loan shall be so repurchased at the
Mortgage Purchase Price therefor, which shall be paid into the Collection
Account in immediately available funds on such Repurchase Date; PROVIDED,
HOWEVER, that in the case of a Defective Mortgage Loan as to which discovery of
a breach of a representation or warranty contained in Section 3(b) of a Sale
Agreement is made, or notice thereof is given, the related Seller, at its
election, may in substitution for such Defective Mortgage Loan sell a Substitute
Mortgage Loan to the Company, which will then pledge such Substitute Mortgage
Loan to the Trustee upon the satisfaction of the following conditions:
(i) the related Seller executes and delivers an Assignment of the
Substitute Mortgage Loan to the Company or at the direction of the Company, to
the Trustee;
(ii) the related Seller delivers, or causes to be delivered, the
Mortgage Loan Documents to the Trustee; and
(iii) the related Seller, in an Officer's Certificate, confirms all
representations and warranties of Section 3 of the Sale Agreement and provides
to the Trustee copies of all necessary filings and recording. The Servicer shall
file and record such documents.
On any date of determination, the aggregate Outstanding Principal
Balance of the Substitute Mortgage Loans as of the related dates of substitution
shall not exceed 3% of the Outstanding Pool Balance as of the Cut-Off Date.
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Upon satisfaction of such conditions, the Servicer shall add the
Substitute Mortgage Loan to, and delete the Defective Mortgage Loan from, the
Schedule of Mortgage Loans. Such substitution shall be effected prior to the
first Distribution Date that occurs more than 90 days after the related Seller
becomes aware, or should have become aware, or receives written notice from the
Trustee, of the breach referred to in Section 12.5 hereof.
(c) Upon (i) payment by the related Seller of an amount equal to the
Mortgage Purchase Price or (ii) provision by the Company of a Substitute
Mortgage Loan in accordance with Section 12.6(b), as the case may be, the
Trustee shall deliver to the related Seller such duly executed instruments as
may be necessary to release the lien of this Indenture on the Defective Mortgage
Loan. Upon the repurchase of or substitution for a Defective Mortgage Loan under
this Section 12.6, this Indenture shall terminate as to the Mortgage Loan so
repurchased or substituted. Upon such repurchase or substitution, the related
Mortgage Loan Documents shall be redelivered to the Seller.
Section 12.7. SUBSEQUENT LOANS
(a) With respect to any Collection Period in which the Trustee receives
any Upgrade Prepayments, the Company may elect to Grant one or more Subsequent
Loans during such Collection Period in accordance with the provisions of this
Section.
(b) On any Subsequent Transfer Date, provided the conditions set forth
in paragraph (c) below are satisfied and no Event of Default shall have occurred
and be continuing, the Trustee shall withdraw from the Collection Account an
amount equal to the least of (i) the aggregate Mortgage Purchase Price for the
Subsequent Loans to be Granted on such date, (ii) any amounts representing
Upgrade Prepayments then on deposit in the Collection Account and (iii) the
Remaining Substitution/Purchase Amount; and shall pay such amount to the
applicable Seller(s) on behalf of the Company.
(c) The Trustee shall only be required to withdraw and pay any amounts
referred to in paragraph (b) above, upon the satisfaction of the following
conditions on or prior to the Subsequent Transfer Date:
(i) the Company executes and delivers a Notice of Subsequent Loan(s) to
the Trustee at least two Business Days prior to the related Subsequent Transfer
Date;
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(ii) the Company delivers, or causes the related Seller(s) to deliver,
the related Mortgage Loan Documents to the Trustee;
(iii) the Company delivers to the Trustee copies of all necessary
filings and recordings which the Servicer shall file and record;
(iv) in connection with Subsequent Loans sold by Blue Bison Funding
Corp. to TerraSun Holding, Inc., the Company delivers a release with respect to
such Subsequent Loans executed by Barton Capital Corporation; and
(v) the Company delivers a bringdown true sale opinion with respect to
such Subsequent Loans.
Section 12.8. REPORTS BY TRUSTEE TO NOTEHOLDERS AND DCR
On each Distribution Date, the Trustee shall or cause the Servicer to
report to each Holder of Notes and DCR the amount of payments to such
Noteholders which represents principal and the amount which represents interest,
and shall contemporaneously advise the Company of all such payments. The Trustee
may satisfy its obligations under this Section 12.8 by delivering (or by causing
the Servicer to deliver) the Servicer Report to each such Holder of the Notes
and DCR. Based on notice delivered by the Servicer, on or before the 30th day
prior to the Final Distribution Date, the Trustee shall provide notice to DCR
and the Holders of Notes to be paid on the Final Distribution Date for such
Notes. Such notice shall include (1) a statement that if the appropriate
payments are made on the Final Distribution Date, interest shall cease to accrue
as of the Final Distribution Date and (2) a statement that following the final
payment of all principal and accrued interest on such Notes that Holders thereof
are required to surrender the same to the Trustee within 30 days.
Section 12.9. ACCOUNTING BY TRUSTEE TO COMPANY
Within five Business Days following each Distribution Date, the Trustee
shall render to the Company and each Noteholder an accounting of:
(i) the aggregate funds deposited in each of the Collection Account and
the Reserve Account subsequent to the immediately preceding Distribution Date;
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(ii) the amount of principal and the amount of interest paid to the
Holders of each Class of Notes;
(iii) any funds remaining in the Collection Account after (A) payments
of interest and principal as set forth pursuant to clause (ii) above and (B)
payments of all other amounts payable from the Collection Account pursuant to
Section 13.1(a), including an accounting of such payments;
(iv) any discrepancy between the aggregate amount of principal
remaining on the Notes after giving effect to the principal payment on the Notes
on such Distribution Date and the aggregate amount of principal remaining on the
Notes as set forth on the Servicer Report.
Section 12.10. TRUST ESTATE
(a) The Trustee may, and when required by the provisions of Articles
Five, Six and Twelve of this Indenture shall, execute instruments to release
property from the lien of this Indenture, or convey the Trustee's interest in
the same, in a manner and under circumstances which are not inconsistent with
the provisions of this Indenture. No party relying upon an instrument executed
by the Trustee as provided in this Article Twelve shall be bound to ascertain
the Trustee's authority, inquire into the satisfaction of any conditions
precedent or see to the application of any monies.
(b) At the written request of the Company and upon being supplied with
appropriate forms therefor, the Trustee shall, at such time as there are no
Notes Outstanding and all amounts due under this Indenture have been paid and
the lien of the Indenture has been discharged in accordance with Section 5.1
hereof, release the Trust Estate from the lien of this Indenture.
Section 12.11. ALLOCATION OF LOSSES
On each Distribution Date, to the extent the sum of (i) amounts to be
distributed pursuant to clause "nineteenth" of Section 13.1 and (ii) amounts on
deposit in the Reserve Account, are insufficient to cover Realized Losses with
respect to the Mortgage Loans that were incurred at any time following the
Cut-off Date through the end of the related Collection Period, and in any event
that were not previously allocated pursuant to this Section 12.11 on any prior
Distribution Date, prior to the distributions to be made on such date pursuant
to Section 13.1, the Trustee shall allocate to the respective Notes as follows
the aggregate of all such Realized Losses, but only to the extent
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that the aggregate outstanding principal balance of the Notes as of such
Distribution Date (after taking into account all of the distributions to be made
on such Distribution Date pursuant to Section 13.1), exceeds the sum of (x) the
Outstanding Pool Balance and (y) amounts then on deposit in the Reserve Account,
immediately following such Distribution Date: FIRST, to the Class D Notes, until
the remaining principal balance thereof has been reduced to zero; SECOND, to the
Class C Notes, until the remaining principal balance thereof has been reduced to
zero; and THIRD, to the Class B Notes, until the remaining principal balance
thereof has been reduced to zero; and FOURTH, to the Class A Notes, until the
remaining principal balance thereof has been reduced to zero. Any allocation of
such Realized Losses to a class of Notes shall be made by reducing the
respective principal balances thereof by the amount so allocated. All such
Realized Losses, if any, allocated to a class of Notes shall be allocated among
the respective Notes of such class, pro rata.
ARTICLE XIII.
APPLICATION OF MONIES
Section 13.1. DISBURSEMENTS OF MONIES OUT OF COLLECTION ACCOUNT
(a) On each Distribution Date, unless distributions are governed by
Section 6.6 hereof, the Trustee shall distribute, based on the information
contained in the Servicer's Report, to the extent of the amount on deposit in
the Collection Account with respect to such Distribution Date, funds in the
Collection Account as follows:
FIRST, to the Trustee, the Trustee Fee and any reasonable out-of-pocket
expenses due to the Trustee;
SECOND, to the Servicer, the Servicing Fee;
THIRD, to the Reserve Account, the amount of any unreimbursed P&I
Advances related to prior Distribution Dates;
FOURTH, to the holders of the Class A Notes, the Current Interest
Amount for such class and any Unpaid Interest Shortfalls with respect to prior
Distribution Dates;
FIFTH, to the holders of the Class B Notes, the Current Interest Amount
for such class and any Unpaid Interest Shortfalls with respect to prior
Distribution Dates;
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SIXTH, to the holders of the Class C Notes, the Current Interest Amount
for such class and any Unpaid Interest Shortfalls with respect to prior
Distribution Dates;
SEVENTH, to the holders of the Class D Notes, the Current Interest
Amount for such class and any Unpaid Interest Shortfalls with respect to prior
Distribution Dates;
EIGHTH, to the holders of the Class A Notes, the Unpaid Principal
Shortfall for such class and the Class A Current Principal Amount;
NINTH, if Default Trigger III has occurred, to the Reserve Account, an
amount up to the difference between the amount then on deposit therein, and the
Requisite Reserve Amount;
TENTH, to the holders of the Class B Notes, the Unpaid Principal
Shortfall for such class and the Class B Current Principal Amount;
ELEVENTH, if Default Trigger II has occurred (but Default Trigger III
is not in effect), to the Reserve Account, an amount up to the difference
between the amount then on deposit therein, and the Requisite Reserve Amount;
TWELFTH, to the holders of the Class C Notes, the Unpaid Principal
Shortfall for such class and the Class C Current Principal Amount;
THIRTEENTH, to the holders of the Class D Notes, the Unpaid Principal
Shortfall for such class and the Class D Current Principal Amount;
FOURTEENTH, to the Reserve Account, an amount up to the difference
between the amount then on deposit therein, and the Requisite Reserve Amount;
FIFTEENTH, to the holders of the Class A Notes, an amount equal to, and
in reimbursement of, all Realized Losses, if any, previously allocated to the
Class A Notes and not previously reimbursed;
SIXTEENTH, to the holders of the Class B Notes, an amount equal to, and
in reimbursement of, all Realized Losses, if any, previously allocated to the
Class B Notes and not previously reimbursed;
SEVENTEENTH, to the holders of the Class C Notes, an amount equal to,
and in reimbursement of, all Realized Losses, if
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any, previously allocated to the Class C Notes and not previously reimbursed;
EIGHTEENTH, to the holders of the Class D Notes, an amount equal to,
and in reimbursement of, all Realized Losses, if any, previously allocated to
the Class D Notes and not previously reimbursed;
NINETEENTH, to the Company, any amounts remaining in the Collection
Account.
Distributions to Noteholders shall be made by wire or other transfer of
funds pursuant to written instructions (in the case of a Noteholder that is a
corporation, signed by an authorized officer thereof) delivered to the Trustee
at least three Business Days prior to a Distribution Date, and PROVIDED,
FURTHER, that the final distribution in retirement of the Notes shall be made as
set forth in this Indenture.
(b) The Trustee and any Paying Agent on behalf of the Company shall
comply with all requirements of the Code, Treasury Regulations and applicable
state and local law with respect to the withholding from any distributions made
by it to any Noteholder of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection therewith.
(c) To prevent backup withholding on payments made with respect to the
Notes, each Noteholder is required to provide the Trustee with (i) the
Noteholder's correct Taxpayer Identification Number ("TIN") by completing the
form set forth as Exhibit C hereto (Substitute Form W-9), certifying that the
TIN provided on the Substitute Form W-9 is correct and that (A) such Noteholder
is exempt from backup withholding, (B) the Noteholder has not been notified by
the Internal Revenue Service ("IRS") that the Noteholder is subject to backup
withholding as a result of failure to report all interest or dividends or (C)
the IRS has notified the Noteholder that the Noteholder is no longer subject to
backup withholding and (ii) if applicable, an adequate basis for exemption. A
Foreign Noteholder may qualify as an exempt recipient by submitting to the
Trustee a properly completed IRS Form W-8, signed under penalties of perjury,
attesting to that Noteholder's exempt status.
(d) The Trustee or other Note Registrar shall not permit a transfer of
a Class C or Class D Note if such transfer would result in the Company having
more than ninety-nine (99) Noteholders in aggregate, as reflected in the Note
Register, in
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connection with the Class C or Class D Notes. In addition, no entity that is a
partnership, grantor trust or S corporation may acquire a Note if (i)
substantially all of the value of the interest of a person owning an interest in
such entity is attributable to the entity's (direct or indirect) interest in the
Note, and (ii) a principal purpose of the use of the tiered arrangement is to
permit the Company to satisfy the 100-person limitation in paragraph (h)(1)(ii)
of Section 1.7704-1 of the Treasury Regulations.
(e) The foregoing provisions of this Section 13.1 notwithstanding, any
monies deposited in the Collection Account for purposes of redeeming Notes
pursuant to Article Ten shall, subject to Section 11.3, remain in the Collection
Account until paid or set aside for the purpose of such redemption.
(f) (i) The rights of the Class B, Class C and Class D Noteholders to
receive payments on their respective Notes are expressly subordinated to the
rights of the Noteholders with earlier alphabetical class designations to
receive payments on their respective Notes.
(g) Subject to Section 2.3(d) of the Servicing Agreement, in making the
withdrawals and payments required by Section 13.1(a) and in making the reports
and accounting referred to in Section 12.8, the Trustee shall act in accordance
with the information set forth in the Servicer Report furnished it by the
Servicer for the payment of Mortgage Loans received in the related Due Period
and shall be fully protected in relying thereon, unless a Responsible Officer of
the Trustee has actual knowledge that such information is incorrect.
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IN WITNESS WHEREOF, the Company, the Trustee and the Servicer have
caused this Indenture to be duly executed by their respective officers thereunto
duly authorized and their respective seals, duly attested, to be hereunto
affixed, all as of the day and year first above written.
COMPANY:
TERRASUN, L.L.C.
By: TerraSun Holding, Inc.
By:/s/ Carol W. Sullivan
-----------------------
Name: Carol W. Sullivan
Title: Secretary
SERVICER:
SUNTERRA FINANCIAL SERVICES, INC.
By:/s/ Carol W. Sullivan
-------------------------
Name: Carol W. Sullivan
Title: Secretary
TRUSTEE AND BACK-UP SERVICER:
LASALLE NATIONAL BANK
By: /s/ Cynthia Reis
-------------------------
Name: /s/ Cynthia Reis
Title: Vice President
<PAGE>
EXHIBIT A
(FORM OF ASSIGNMENT OF NOTE)
For value received the undersigned hereby sells, assigns and transfers
unto ___________________ whose social security or other tax identifying number
is _______________________ a note as hereinafter described and hereby
irrevocably constitutes and appoints ___________________, attorney, to transfer
the same on the Note Register of the Trustee with full power of substitution in
the premises.
DESCRIPTION OF NOTE:
-------------------
Class __ Note No.___ with an Outstanding Note
Balance as of the Closing Date of
$_____________ issued under that certain
Indenture dated as of March 31, 1999 among
TerraSun, L.L.C. (the "Company"), Sunterra
Financial Services, Inc. as servicer (the
"Servicer"), LaSalle National Bank, as
trustee (the "Trustee") and as back-up
servicer (the "Back-up Servicer").
[SELLER/ASSIGNOR]
BY:________________________
Name:
Title:
Dated: ____________________
NOTE: The signature to this assignment must correspond with the name as
written on the face of the Note herein described in every particular,
without alterations or enlargement or any change whatsoever.
Signature Guaranteed:
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A-1
<PAGE>
NOTE: Signature(s) must be guaranteed by a participant in a
signature medallion program.
A-2
<PAGE>
EXHIBIT B
LOST NOTE AFFIDAVIT
STATE OF NEW YORK ) LOST NOTE
) SS.: AFFIDAVIT
COUNTY OF NEW YORK)
_______________________________________________ being duly sworn, deposes and
says:
That deponent is a _________________________________
That the deponent held or received the mortgage note relating to _______________
(the "Mortgage Note") at their premises located at ____________________________.
That to the best of deponent's knowledge the Mortgage Note was lost or
destroyed
[Deponent]
___________________________
Name:
Title:
<PAGE>
EXHIBIT E
FORM OF MORTGAGE AND MORTGAGE NOTE
<PAGE>
APPENDIX A
STANDARD DEFINITIONS
"ACH PAYMENTS" means payments of Monthly P&I received from Mortgagors
subscribing to the automatic debit option offered by the Servicer.
"ACT" has the meaning given in Section 1.2 of the Indenture.
"AFFILIATE" means with respect to any specified Person means any other
Person controlling or controlled by, or under common control with, such
specified Person. For the purposes of this definition, "CONTROL" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "CONTROLLING" or
"CONTROLLED" have meanings correlative to the foregoing.
"ASSIGNMENT" means, with respect to the Mortgage Loans, the original
instruments of assignment of such Mortgage Loans in recordable form by a Seller
in blank or in the name of the Trustee on behalf of the Noteholders.
"BACK-UP SERVICER" means LaSalle National Bank, its successors and
assigns.
"BANKRUPTCY CODE" means Title 11 of the United States Code as in effect
from time to time.
"BLUE BISON LOAN SALE AGREEMENT" means the Loan Sale Agreement, dated
as of March 31, 1999, between Blue Bison Funding Corp. and Sun Funding, Inc.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or other
day on which national banking institutions in the State of New York, the city in
which the Corporate Trust Office is located or the state in which the principal
place of business of the Servicer or, in the case of a Sub-Servicer, where such
Sub-Servicer is located, are authorized or obligated by law or executive order
to be closed.
<PAGE>
"CHARGED-OFF MORTGAGE LOAN" means any Mortgage Loan which is or becomes
180 or more days delinquent in respect of any payment of principal or interest
or in respect of which the Servicer has received the related deed in lieu of
foreclosure, whichever is earlier.
"CLASS A CURRENT PRINCIPAL AMOUNT" means, for any Distribution Date,
the product of (x) the related Percentage Interest and (y) the Current Principal
Amount for such Distribution Date.
"CLASS A NOTE" means any Note designated as a "Class A Note" on the
face thereof, in the form set forth in Section 2.2 of the Indenture, and
executed, authenticated and delivered in accordance with the procedures set
forth therein.
"CLASS B CURRENT PRINCIPAL AMOUNT" means, for any Distribution Date,
the product of (x) the related Percentage Interest and (y) the Current Principal
Amount for such Distribution Date.
"CLASS B NOTE" means any Note designated as a "Class B Note" on the
face thereof, in the form set forth in Section 2.2 of the Indenture, and
executed, authenticated and delivered in accordance with the procedures set
forth therein.
"CLASS C CURRENT PRINCIPAL AMOUNT" means, for any Distribution Date,
the product of (x) the related Percentage Interest and (y) the Current Principal
Amount for such Distribution Date.
"CLASS C NOTE" means any Note designated as a "Class C Note" on the
face thereof, in the form set forth in Section 2.2 of the Indenture, and
executed, authenticated and delivered in accordance with the procedures set
forth therein.
"CLASS D CURRENT PRINCIPAL AMOUNT" means, for any Distribution Date,
the product of (x) the related Percentage Interest and (y) the Current Principal
Amount for such Distribution Date.
"CLASS D NOTE" means any Note designated as a "Class D Note" on the
face thereof, in the form set forth in Section 2.2 of the Indenture, and
executed, authenticated and delivered in accordance with the procedures set
forth therein.
"CLOSING DATE" means the date on which Notes are first executed,
authenticated and delivered to the Noteholders.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLECTION ACCOUNT" means the account created, maintained and
denominated as such pursuant to Section 12.2(a) of the Indenture.
"COLLECTION ACCOUNT AMOUNT" means, with respect to any Distribution
Date and the related Collection Period, in each case to the extent deposited in
the Collection Account, (i) Collection Period P&I received during such
Collection Period, (ii) amounts paid by a Seller pursuant to Section 12.6 of the
Indenture during the period from and including the Business Day prior to the
prior Distribution Date (or, in the case of the Initial Distribution Date, from
and including the Cut-off Date) to and including the second Business Day next
preceding such Distribution Date representing the Mortgage Purchase Price with
respect to Mortgage Loans repurchased by the Company or a Seller, as applicable,
pursuant to Section 4.3 or 12.6 of the Indenture, (iii) the Redemption Price
(iv) Insurance Proceeds and Net Liquidation Proceeds received during such
Collection Period (less any amounts withdrawn by the Trustee pursuant to Section
12.7 of the Indenture), (v) the aggregate of the portions of Prepayments
described in clauses (i), (iii) and (iv) of the definition of "Prepayment"
received during such Collection Period, (vi) interest earned on amounts on
deposit in the Lock-Box Accounts and (vii) income from the investment in
Permitted Investments of amounts deposited in the Collection Account pursuant to
the preceding clauses (i)-(vi).
"COLLECTION PERIOD" means with respect to each Distribution Date, the
period from and including the first day of the month preceding the month in
which such Distribution Date occurs through and including the last day of such
month.
"COLLECTION PERIOD P&I" means, with respect to any Collection Period,
the amount equal to the aggregate of the payments of Monthly P&I received by or
on behalf of the Servicer during such Collection Period, from or on behalf of
Mortgagors.
"COMPANY" TerraSun, L.L.C., a Nevada limited liability company.
"COMPANY ORDER" and "COMPANY REQUEST": A written order or request
signed in the name of the Company by the Chairman of the Board, President, Vice
President, Treasurer, Assistant Treasurer, Controller, Assistant Controller,
Secretary, or an
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Assistant Secretary of the Managing Member, and delivered to the Trustee.
"COMPARABLE PROPERTY" means a timeshare estate that (i) is not a
Mortgaged Property and (ii) entitles its owner to the same amount of time in the
same type of unit in the same Resort as the related Foreclosure Property.
"CORPORATE TRUST OFFICE" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is at the date hereof located at the
address provided in Section 1.3 of the Indenture hereof or at such other address
as the Trustee may designate from time to time by notice to the Noteholders, the
Company and the Servicer.
"CURRENT INTEREST AMOUNT" means (i) with respect to an Interest Accrual
Period (other than the first Interest Accrual Period) and any class of Note, the
product of the applicable Note Interest Rate and the Outstanding Note Balance of
such class of Note on the related Distribution Date (prior to the application of
distributions on such date), multiplied by a fraction, the numerator of which is
30 and the denominator of which is 360 and (ii) with respect to the first
Interest Accrual Period, and any class of Note, the product of the applicable
Note Interest Rate and the Outstanding Note Balance of such Class of Note on the
related Distribution Date (prior to the application of distributions on such
date), multiplied by a fraction, the numerator of which is the actual number of
days elapsed during such Interest Accrual Period and the denominator of which is
360.
"CURRENT INTEREST SHORTFALL" means, with respect to any Distribution
Date and any class of Note, the excess of (i) the applicable Current Interest
Amount for such Distribution Date over (ii) the amount distributed as interest
with respect to such class for such Distribution Date.
"CURRENT PRINCIPAL AMOUNT" means, with respect to any Distribution Date
other than the Final Distribution Date, an amount equal to the sum of
(a) (i) the aggregate of the respective portions of Monthly P&I and P&I
Advances allocable to principal from or on behalf of Mortgagors due during such
Collection Period,
(ii) an amount equal to the aggregate of the respective portions of
Net Liquidation Proceeds received during such Collection Period that are
allocable to principal of
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the related Defaulted Mortgage Loans (other than Charged-off Mortgage Loans) and
Charged-off Mortgage Loans, and
(iii) the aggregate of the respective portions of Prepayments
allocable to principal of the related Mortgage Loans received during such
Collection Period (less any amounts withdrawn from the Collection Account by the
Trustee pursuant to Section 12.7 of the Indenture)
MINUS (b) the aggregate of the respective portions of P&I Advances
allocable to principal previously withdrawn from the Reserve Account and not
reimbursed.
On the Final Distribution Date, the Current Principal Amount shall be
an amount equal to the then current outstanding principal balance of the Notes.
"CURRENT PRINCIPAL SHORTFALL" means, with respect to any Distribution
Date and any class of Note, the excess of (i) the applicable Current Principal
Amount due for such Distribution Date over (ii) the amount distributed as
principal with respect to such class for such Distribution Date.
"CUT-OFF DATE" means March 31, 1999.
"CYPRESS POINTE II DECLARATION" means the Declaration of Condominium
for Cypress Pointe Resort II, a Condominium, dated April 19, 1996, recorded in
O.R. Book 5044, page 3557, Public Records of Orange County, Florida, as
modified, amended, supplemented and/or restated.
"DCR" means Duff & Phelps Credit Rating Co. or its successors and
assigns. If neither such rating organization nor any successor remains in
existence, "DCR" shall be deemed to refer to such other nationally recognized
statistical rating organization or other comparable Person designated by the
Company and approved in writing by the Majority Holders, notice of which
designation shall be given to the Trustee and the Servicer, and specific ratings
of DCR herein referenced shall be deemed to refer to the equivalent ratings of
the party so designated.
"DEFAULT TRIGGER I" means, on any Distribution Date the average Default
Trigger Ratio calculated on the basis of the three immediately preceding Record
Dates exceeds 8.5% per annum.
"DEFAULT TRIGGER II" means, on any Distribution Date the average
Default Trigger Ratio calculated on the basis of the three immediately preceding
Record Dates exceeds 12.0% per annum.
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"DEFAULT TRIGGER III" means, on any Distribution Date the average
Default Trigger Ratio calculated on the basis of the three immediately preceding
Record Dates exceeds 14.5% per annum.
"DEFAULT TRIGGER RATIO" means, as of each Record Date, a fraction
(expressed as a percentage), the numerator of which is the product of (i) the
Outstanding Principal Balance of all Mortgage Loans that first became Defaulted
Mortgage Loans during the related Collection Period and (ii) twelve, and the
denominator of which is the aggregate Outstanding Pool Balance on such Record
Date.
"DEFAULTED MORTGAGE LOAN" means (i) any Mortgage Loan which is 180 or
more days delinquent in respect of any payment of principal or interest, (ii)
any Mortgage Loan with respect to which the Servicer has initiated foreclosure
proceedings with respect to the related timeshare estate or has received the
related deed in lieu of foreclosure or (iii) any Mortgage Loan in respect of
which the Servicer shall, prior to the date on which such Mortgage Loan would
otherwise become a Defaulted Mortgage Loan, determine in good faith that future
payments of Monthly P&I will not be made by the Mortgagor.
"DEFAULTED MORTGAGE LOAN UNPAID PRINCIPAL AMOUNT" means, with respect
to any Distribution Date and the immediately preceding Collection Period, the
amount, if any, equal to the aggregate Outstanding Principal Balances of all
Mortgage Loans that first became Defaulted Mortgage Loans during the related
Collection Period (to the extent such principal has not previously been
distributed to Noteholders pursuant to Section 13.1 of the Indenture).
"DEFECTIVE MORTGAGE LOAN" has the meaning given in Section 12.6(a) of
the Indenture.
"DELINQUENCY TRIGGER RATIO" means, as of each Record Date, a fraction
(expressed as a percentage), the numerator of which is the Outstanding Principal
Balance of all Delinquent Mortgage Loans (excluding Defaulted Mortgage Loans)
and the denominator of which is the aggregate Outstanding Pool Balance on such
Record Date.
"DELINQUENT MORTGAGE LOAN" means, so long as such Mortgage Loan is not
a Defaulted Mortgage Loan, any Mortgage Loan with respect to which, as of the
end of a Collection Period, any payment of principal and interest under the
Mortgage Loan is 60 or more days past due by an amount in excess of $20.00.
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<PAGE>
"DISTRIBUTION DATE" means, (i) with respect to the initial Collection
Period, May 25, 1999, and (ii) thereafter the 25th day of each calendar month
or, if such date is not a Business Day, the next succeeding Business Day.
"DUE DATE" means, as to any installment of Monthly P&I, the date upon
which such installment is required to be paid pursuant to the related Mortgage
Note, without giving effect to any grace period permitted by such Mortgage Note
or the related Mortgage.
"ELIGIBLE ACCOUNT" means an account that is either (i) maintained with
a depository institution or trust company the long-term unsecured debt
obligations of which have credit ratings from DCR of "AA-" if rated by DCR, or
if not rated by DCR, from Standard & Poor's of "AA-" or from Moody's of "Aa3",
or better, or which is the principal subsidiary of a holding company the
long-term unsecured debt obligations of which are so rated or (ii) maintained
with a depository institution or trust company the commercial paper or other
short-term unsecured debt obligations of which have credit ratings in the
highest category from DCR, if rated by DCR, or if not rated by DCR, Standard &
Poor's or Moody's, or which is the principal subsidiary of a holding company the
commercial paper or other short-term unsecured debt obligations of which are so
rated, in either case which account is fully insured up to applicable limits by
the Federal Deposit Insurance Corporation; PROVIDED, HOWEVER, that so long as an
account is a trust account maintained with LaSalle National Bank and its
long-term unsecured debt obligations have credit ratings from DCR of "AA-" if
rated by DCR, or if not rated by DCR, from Standard & Poor's of "AA-" or from
Moody's of "Aa3", or better, or it is the principal subsidiary of a holding
company the long-term unsecured debt obligations of which are so rated, such
account is deemed to be an Eligible Account.
"EVENT OF DEFAULT" has the meaning provided in Section 6.1 of the
Indenture.
"FINAL DISTRIBUTION DATE" means the Distribution Date on which the
final distribution in respect of the Notes is made.
"FINAL MATURITY DATE" means March 15, 2010.
"FORECLOSURE PROPERTY" has the meaning given in Section 2.8(b) of the
Servicing Agreement.
"FOREIGN NOTEHOLDER" means a beneficial owner of Notes who is not, for
U.S. Federal income tax purposes, (i) a citizen
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or resident of the U.S., (ii) an individual present in the U.S. for 183 days or
more in a taxable year, (iii) a corporation created or organized in the U.S. or
under the laws of the U.S. or the laws of any state, (iv) an estate the income
of which is includable in gross income for U.S. tax purposes regardless of its
source, or (v) a trust if a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more U.S. persons
have the authority to control substantial decisions of the trust.
"GRAND BEACH DECLARATION" means the Declaration of Condominium for
Grand Beach Resort, a Condominium, dated as of January 13, 1995, and recorded in
Book 4844, page 2297, in Orange County, Florida, as modified, amended,
supplemented and/or restated.
"GRANT" means to grant, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, mortgage, pledge, create and grant a security
interest in and right of set-off against, deposit, set over and confirm. A Grant
of the security interest in the Mortgage Loans or of any other instrument shall
include all rights, powers and options (but none of the obligations) of the
Granting party thereunder, including, without limitation, the immediate and
continuing right to claim, collect, receive and receipt for payments in respect
of the Mortgage Loans, or any other payment due thereunder, to give and receive
notices and other communications, to make waivers or other agreements, to
exercise all rights and options, to bring proceedings in the name of the
Granting party or otherwise, and generally to do and receive anything which the
Granting party is or may be entitled to do or receive thereunder or with respect
thereto.
"GREENSPRINGS PLANTATION DECLARATION" means the Declaration of Project
and Timeshare instruments for Greensprings Plantation Resort, dated June 30,
1995, recorded in Deed Book 749, page 67, Clerk's Office of the Circuit Court
for James City County, Virginia, as modified, amended, supplemented and/or
restated.
"INDENTURE" means the Indenture, dated as of March 31, 1999, among the
Company, the Trustee, the Back-up Servicer and the Servicer, as originally
executed and, if from time to time supplemented or amended by one or more
indentures supplemental thereto entered into pursuant to the applicable
provisions thereof, as so supplemented or amended.
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"INDEPENDENT" means, when used with respect to any specified Person,
that such Person (i) is in fact independent of the Company, the Servicer, a
Seller, or any Affiliate of any of them, (ii) does not have any direct financial
interest in or any material indirect financial interest in any of the Company,
the Servicer, a Seller or an Affiliate of either of them, and (iii) is not
connected with any of the Company, the Servicer, a Seller or an Affiliate of any
of them as an officer, employee, promoter, underwriter, trustee, partner,
director or Person performing similar functions.
"INITIAL DISTRIBUTION DATE": May 25, 1999.
"INITIAL MORTGAGE LOANS" means the Mortgage Loans transferred by a
Seller or the Company, as applicable, on the Closing Date.
"INITIAL RESERVE ACCOUNT DEPOSIT" means the product of (i) the
aggregate Outstanding Note Balance on the Closing Date and (ii) 2.0%.
"INSURANCE PROCEEDS" means (i) proceeds of any insurance policy,
including property insurance policies, casualty insurance policies and title
insurance policies, and (ii) any condemnation proceeds, in each case which
relate to the Mortgage Loans or the Mortgaged Property and are paid to the
Company, the Servicer, any of their respective affiliates or to any mortgagee of
record.
"INTEREST ACCRUAL PERIOD" means, with respect to the Initial
Distribution Date, the period beginning May 4, 1999, and ending on the day
immediately preceding such Distribution Date, and with respect to any other
Distribution Date, the period beginning on the immediately preceding
Distribution Date and ending on the day immediately preceding the current
Distribution Date.
"LAKE TAHOE DECLARATION" means the Declaration of Covenants, Conditions
and Restrictions for Lake Tahoe Vacation Ownership Resort, dated as of May 1,
1996, and recorded in Book 4684, page 72, in El Dorado County, California, as
modified, amended, supplemented and/or restated.
"LATE FEE" means, with respect to any payment of Monthly P&I and the
related Due Date, the late charge payable by the related Mortgagor in accordance
with the terms of the related Mortgage Note if such payment of Monthly P&I is
received by or on
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behalf of the Servicer more than the number of days specified in such Mortgage
Note following such Due Date.
"LIEN" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind.
"LIQUIDATION" means, with respect to any Defaulted Mortgage Loan or
Charged-off Mortgage Loan, the sale of the related Mortgaged Property, following
foreclosure, other enforcement action or the taking of a deed-in-lieu of
foreclosure, to a Person other than the Servicer, a Seller or the Company
(except pursuant to Section 2.8(d) of the Servicing Agreement) and the recording
of a deed of conveyance with respect thereto.
"LIQUIDATION EXPENSES" means, with respect to the Liquidation of any
Defaulted Mortgage Loan or Charged-off Mortgage Loan, reasonable out-of-pocket
expenses incurred by the Servicer in connection with such Liquidation, including
without limitation, unpaid property taxes, marketing costs incurred by the sales
agent employed by the Servicer or any of its affiliates, sales commissions
payable to such sales agent and dues or maintenance fees payable to the
condominium association or timeshare association.
"LIQUIDATION PROCEEDS" means, with respect to the Liquidation of any
Defaulted Mortgage Loan (other than Charged-off Mortgage Loan) or Charged-off
Mortgage Loan, amounts actually received in connection with such Liquidation.
"LOAN NUMBER" means, with respect to any Mortgage Loan, the number
assigned to such Mortgage Loan by the Servicer, which number is set forth in the
Schedule of Mortgage Loans.
"LOAN SALE AGREEMENTS" means collectively, the Blue Bison Loan Sale
Agreement, the SunSera Loan Sale Agreement and the TerraSun Loan Sale Agreement.
"LOCK-BOX ACCOUNT" means an account created, maintained and denominated
as such pursuant to Section 2.3(a) of the Servicing Agreement, which shall be an
Eligible Account.
"LOCK-BOX BANK" means a depository institution or any successor thereto
at which a Lock-Box Account is established.
"LOST NOTE AFFIDAVIT" means, the affidavit to be executed in connection
with any delivery of a copy of an original
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Mortgage Note in lieu of such original, substantially in the form attached as
Exhibit B to the Indenture.
"MAINTENANCE FEE" means the fee denominated as the "service fee"
payable by each Mortgagor according to the terms of the related Mortgage Note on
each Due Date.
"MAJORITY HOLDERS" means the Holders of Outstanding Notes evidencing
Percentage Interests that in the aggregate equal 51% or more of the aggregate of
the denominations of all Outstanding Notes.
"MANAGING MEMBER" means TerraSun Holding, Inc., a Nevada corporation.
"MATURITY DATE" means, with respect to any Mortgage Loan, the date on
which the last payment of Monthly P&I in respect of such Mortgage Loan shall be
due and payable as specified on the Schedule of Mortgage Loans.
"MISCELLANEOUS PAYMENTS" means, with respect to any Mortgage Loan, any
amounts received from or on behalf of the related Mortgagor representing
assessments, payments relating to real property taxes, insurance premiums,
condominium association fees, Maintenance Fees and any other payments not
allocable to Monthly P&I under the Mortgages.
"MONTHLY P&I" means, with respect to any Mortgage Loan and any
Collection Period, the payment of principal and interest due in such Collection
Period pursuant to the related Mortgage Note.
"MOODY'S" means Moody's Investors Service, Inc. or its successor in
interest. If neither such rating agency nor any successor remains in existence,
"Moody's" shall be deemed to refer to such other nationally recognized
statistical rating agency or other comparable Person designated by the Company,
and approved in writing by the Majority Holders, notice of which designation
shall be given to the Trustee and the Servicer, and specific ratings of Moody's
herein referenced shall be deemed to refer to the equivalent ratings of the
party so designated.
"MORTGAGE" means the original mortgage, deed of trust or other
instrument creating a first lien on the Mortgaged Property securing a Mortgage
Loan.
"Mortgage Collateral" means, with respect to any Mortgage, all property
and rights at any time pledged to secure
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such Mortgage and all proceeds thereof, together with all rights of the Company
under the Mortgage Loan Documents.
"MORTGAGE FILES" means the Mortgage Loan Documents and other papers and
computerized records customarily maintained by the Servicer in servicing
mortgage loans comparable to the Mortgage Loans.
"MORTGAGE LOAN" means each loan listed on the Schedule of Mortgage
Loans, evidenced by a Mortgage Note and secured by a Mortgage, including any
Substitute Mortgage loans and Subsequent Loans, but excluding any such loan
which has been released from the lien of the Indenture pursuant to the terms
thereof. Unless the context otherwise requires, the term "Mortgage Loan" shall
include all collateral securing such Mortgage Loan.
"MORTGAGE LOAN COUPON RATE" means, with respect to any Mortgage Loan,
the per annum rate of interest set forth in the related Mortgage Note, used to
calculate the interest payment due on such Mortgage Loan.
"MORTGAGE LOAN DOCUMENTS" means, with respect to each Mortgage Loan and
each Mortgagor:
(i) an original Mortgage Note, executed by the Mortgagor for such
Mortgage Loan, endorsed in blank (either directly on the Mortgage
Note or on an allonge affixed thereto), by an authorized officer of
the originator and showing a complete chain of endorsements from the
original payee of the Mortgage Note to the Trustee:
"Pay to the order of _____________, without recourse",
or if an original Mortgage Note is not available, a copy thereof
accompanied by an original executed Lost Note Affidavit;
(ii) an original Mortgage (or a copy thereof certified (which may be
a blanket certification) by an authorized officer of the related
originator) with evidence that such Mortgage has been recorded in
the appropriate recording office;
(iii) an original assignment of the Mortgage (which may be a part of
a blanket assignment of more than one Mortgage Loan), from the
related originator to the
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Trustee, in recordable form but unrecorded, signed by an authorized
officer of originator; (or a copy thereof) referencing such Mortgage
Loan and covering the Trustee for the benefit of the Noteholder; and
(v) an original of each guarantee, assumption, modification or
substitution agreement, if any, which relates to the related
Mortgage Loan (or copy thereof certified by an officer of the
related originator to be a true and correct copy).
"MORTGAGE NOTE" means the original note or other instrument of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"MORTGAGE PURCHASE PRICE" means, for any Mortgage Loan, the Outstanding
Principal Balance of the Mortgage Loan together with all interest thereon
accrued at the Mortgage Loan Coupon Rate but unpaid as of the end of the
Collection Period preceding the date of purchase, as calculated by the Servicer.
"MORTGAGED PROPERTY" means the timeshare estate at the Resort which
secures a Mortgage Loan.
"MORTGAGOR" means, collectively, the obligor or obligors on a Mortgage
Note.
"NET LIQUIDATION PROCEEDS" means, with respect to any Mortgage Loan,
the amount derived by subtracting from the Liquidation Proceeds the related
Liquidation Expenses.
"NOTE" means any Class A Note, Class B Note, Class C Note, or Class D
Note authenticated by the Trustee.
"NOTEHOLDER" or "HOLDER" means the Person in whose name a Note shall be
registered in the Note Register, except that, solely for the purposes of giving
consent or granting approval pursuant to the Indenture or the Servicing
Agreement, the interest evidenced by any Note registered in the name of the
Company, a Seller or the Servicer, or any Affiliate of the Company, a Seller or
the Servicer, shall not be taken into account in determining whether the
requisite percentage necessary to effect any such consent shall have been
obtained.
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"NOTE INTEREST RATE" means (i) with respect to the Class A Notes, 6.27%
per annum; (ii) with respect to the Class B Notes, 6.80% per annum; (iii) with
respect to the Class C Notes, 7.87% per annum; and with respect to the Class D
Notes, 11.00% per annum, as applicable, each based on a 360-day year consisting
of twelve 30-day months.
"NOTE PURCHASE AGREEMENT" means the Note Purchase Agreement, dated as
of April 30, 1999, among the Company and the purchasers named therein.
"NOTE REGISTER" and "NOTE REGISTRAR" mean the register maintained and
the registrar appointed pursuant to Section 3.4 of the Indenture.
"OFFICER'S CERTIFICATE" means a certificate signed by the Chairman, the
President, the Executive Vice President, a Vice President, the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or
an Assistant Secretary, of the Person delivering such certificate.
"OPINION OF COUNSEL" means a written opinion of counsel reasonably
acceptable to the Trustee (who may, unless otherwise provided herein, be counsel
to the Company or the Servicer) reasonably acceptable in form and substance to
the Trustee.
"ORIGINAL PRINCIPAL BALANCE" means, with respect to any Mortgage Loan,
the principal balance of the related Mortgage Note at its date of origination.
"OUTSTANDING": With respect to the Notes, as of the date of
determination, all Notes theretofore authenticated and delivered under the
Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation; and
(ii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to the Indenture;
provided, however, that for purposes of determining whether the Holders of the
requisite principal amount of the Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver, Notes owned by the
Company, the Servicer or a Seller or any Affiliate of the Company, the Servicer
or a Seller shall be disregarded and deemed not to be
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outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, or waiver, only Notes which the Trustee knows to be so owned shall be
so disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company, the Servicer or a Seller or any Affiliate of the
Company, the Servicer or a Seller.
"OUTSTANDING NOTE BALANCE" means on any date of determination and with
respect to any class of Notes, the original principal balance of the Outstanding
Notes of such class as of the Closing Date, reduced by (a) the sum of all
payments of principal paid to such class of Outstanding Notes on all prior
Distribution Dates and (b) the amount equal to (i) any Realized Losses applied
to any such class of Outstanding Notes pursuant to Section 12.11 of the
Indenture LESS (ii) (A) with respect to the Class A Notes, any payment in
reimbursement of Realized Losses pursuant to clause "FIFTEENTH" of Section 13.11
of the Indenture, (B) with respect to the Class B Notes, any payment in
reimbursement of Realized Losses pursuant to clause "SIXTEENTH" of Section 13.11
of the Indenture, (C) with respect to the Class C Notes, any payment in
reimbursement of Realized Losses pursuant to clause "SEVENTEENTH" of Section
13.11 of the Indenture, and (D) with respect to the Class D Notes, any payment
in reimbursement of Realized Losses pursuant to clause "eighteenth" of Section
13.11 of the Indenture.
"OUTSTANDING POOL BALANCE" means, as of any date of determination, the
aggregate Outstanding Principal Balance of the Mortgage Loans.
"OUTSTANDING PRINCIPAL BALANCE" means, as of any date of determination,
with respect to any Mortgage Loan, the Original Principal Balance thereof as
reduced by the amount of principal payments made by or on behalf of the related
Mortgagor (excluding P&I Advances) prior to such date of determination.
"OWNERSHIP INTEREST" means as to any Note, any ownership or security
interest in such Note as the Holder thereof and any other interest therein,
whether direct or indirect, legal or beneficial, as owner or pledgee.
"PARENT": Sunterra Corporation, a Maryland corporation.
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"PAYING AGENT": LaSalle National Bank, as paying agent under the
Indenture, or if LaSalle National Bank is not also the Trustee, any successor
Trustee appointed pursuant to the Indenture.
"P&I ADVANCES" has the meaning given in Section 2.6 of the Servicing
Agreement.
"PERCENTAGE INTEREST" means, as to any class of Notes, a fraction, the
numerator of which is equal to the aggregate Outstanding Note Balance of the
Notes of such class as of the Closing Date, and the denominator of which is
equal to the aggregate Outstanding Note Balance of the Notes as of the Closing
Date.
"PERMITTED ENCUMBRANCES" means, as to any Mortgaged Property, (a) the
lien of current real property taxes, ground rents, water charges, sewer rents
and assessments not yet due and payable, (b) 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 of the Mortgaged Property or the security intended to be provided by
the related Mortgage or with the Mortgagor's ability to pay his or her
obligations when they become due or materially and adversely affects the value
of the Mortgaged Property and (c) the exceptions (general and specific) set
forth in the related title insurance policy, none of which, individually or in
the aggregate, materially interferes with the security intended to be provided
by such Mortgage or with the Mortgagor's ability to pay his or her obligations
when they become due or materially and adversely affects the value of the
Mortgaged Property.
"PERMITTED INVESTMENTS" means any one or more of the following
obligations or securities:
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or
any agency or instrumentality thereof (having original maturities of
not more than 365 days), provided such obligations are fully backed
by the full faith and credit of the United States. Such obligations
must be limited to those instruments that have a predetermined fixed
dollar amount of principal due at maturity that cannot vary or
change. If rated, such an obligation must not have an "r" or "t"
highlighter affixed
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to its rating by Standard & Poor's or the equivalent indicator
affixed by any other Rating Agency. Interest may either be fixed or
variable. If such interest is variable, interest must be tied to a
single interest rate index plus a single fixed spread (if any), and
move proportionately with that index;
(ii) repurchase obligations with respect to any security described
in clause (i) above (having original maturities of not more than 365
days), provided that the short-term deposit or unsecured debt
obligations of the party agreeing to repurchase such obligations are
rated in the highest rating category of DCR, if rated by DCR, or if
not rated by DCR, by either of Moody's or Standard & Poor's or such
lower rating as will not result in qualification, downgrading or
withdrawal of the ratings then assigned to the Notes, as evidenced
in writing by the Rating Agencies. In addition, any such item must
not have an "r" or "t" highlighter affixed to its rating by Standard
& Poor's or the equivalent indicator affixed by any other Rating
Agency, and its terms must have a predetermined fixed dollar amount
of principal due at maturity that cannot very or change. Interest
may either by fixed or variable. If such interest is variable,
interest must be tied to a single interest rate index plus a single
fixed spread (if any), and move proportionately with that index;
(iii) Notes of deposit, time deposits, demand deposits and bankers'
acceptances of any bank or trust company organized under the laws of
the United States or any state thereof (having original maturities
of not more than 365 days), the unsecured short term obligations of
which are rated in the highest rating category of DCR, if rated by
DCR, or if not rated by DCR, by either of Moody's or Standard &
Poor's or such lower rating as will not result in qualification,
downgrading or withdrawal of the ratings then assigned to the Notes,
as evidenced in writing by the Rating Agencies. In addition, any
such item must not have an "r" or "t" highlighter affixed to its
rating by Standard & Poor's or the equivalent indicator affixed by
any other Rating Agency, and its terms should have a predetermined
fixed dollar amount of principal due at maturity that cannot vary or
change. Interest may either be fixed or variable. If such interest
is variable, interest must be tied to a single interest rate index
plus a single fixed spread (if any), and move proportionately with
that index;
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(iv) commercial paper (having original maturities of not more than
365 days) of any corporation incorporated under the laws of the
United States or any state thereof (or if not so incorporated, the
commercial paper is United States dollar denominated and amounts
payable thereunder are not subject to any withholding imposed by any
non-United States jurisdiction) which is rated in the highest rating
category of DCR, if rated by DCR, or if not rated by DCR, in the
highest rating category of either of Moody's or Standard & Poor's,
or such lower rating as will not result in qualification,
downgrading or withdrawal of the ratings then assigned to the Notes,
as evidenced in writing by the Rating Agencies; the commercial paper
should not have an "r" or "t" highlighter affixed to its rating by
Standard & Poor's or the equivalent indicator affixed by any other
Rating Agency, and by its terms must have a predetermined fixed
dollar amount of principal due at maturity that cannot vary or
change. Interest may either by fixed or variable. If such interest
is variable, interest must be tied to a single interest rate index
plus a single fixed spread (if any), and move proportionately with
that index;
(v) units of money market funds rated in the highest rating category
of DCR, if rated by DCR, or if not rated by DCR, AAAm by Moody's or
AAAm or AAAm-G by Standard & Poor's or the equivalent indicator
affixed by any other Rating Agency (or such lower rating as will not
result in qualification, downgrading or withdrawal of the ratings
then assigned to the Notes, as evidenced in writing by DCR) and
which seek to maintain a constant net asset value;
provided that (1) no investment described hereunder shall evidence either the
right to receive (x) only interest with respect to such investment or (y) a
yield to maturity greater than 120% of the yield to maturity at par of the
underlying obligations; and (2) that no investment described hereunder may be
purchased at a price greater than par if such investment may be prepaid or
called at a price less than its purchase price prior to stated maturity.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), limited liability company, unincorporated organization or government
or any agency or political subdivision thereof.
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"PLANTATION DECLARATION" means the Declaration of Condominium for The
Plantation at Fall Creek, a Condominium, dated as of February 5, 1993, and
recorded in Book 318, pages 8179-8282, in County at Taney, Missouri, as
modified, amended, supplemented and/or restated.
"POCO DIABLO DECLARATION" means the Declaration of Dedication of
Interval Ownership for The Villas at Poco Diablo Time Shared Resort, dated as of
March 6, 1989, and recorded under Document Number 1268, pages 929-958, in
Coconino County, Arizona, as modified, amended, supplemented and/or restated.
"PORT ROYAL DECLARATION" means the Master Deed for Royal Dunes Beach
Villas at Port Royal Resort Horizontal Property Regime, dated as of April 5,
1994, and recorded in Book 698, page 940, in County of Beaufort, South Carolina,
as modified, amended, supplemented and/or restated.
"POWHATAN PLANTATION DECLARATION" means the Declaration of Project and
Timeshare instruments for Powhatan Plantation Resort, dated January 22, 1984,
recorded in Deed Book 253, page 190, Clerk's Office of the Circuit Court for
James City County, Virginia, as modified, amended, supplemented and/or restated.
"PREPAYMENT" means, with respect to any Mortgage Loan, any of the
following: (i) payment by or on behalf of the Mortgagor of the Outstanding
Principal Balance plus all accrued interest with respect to such Mortgage Loan
in advance of its Maturity Date (exclusive of any Defaulted Mortgage Loan), (ii)
payment by the Company to the Trustee of the Mortgage Purchase Price of such
Mortgage Loan in connection with the repurchase of such Mortgage Loan pursuant
to Section 4.3 or 12.6 of the Indenture, (iii) any partial prepayment of
principal received from or on behalf of the relevant Mortgagor, (iv) any
Insurance Proceeds deposited in the Collection Account pursuant to Section
11.13(m) of the Indenture or 2.5 of the Servicing Agreement.
"PROCEEDING": Any suit in equity, action at law or other judicial or
administrative proceeding.
"RATING AGENCY" means any of DCR, Moody's or Standard & Poor's.
"REALIZED LOSS" means as of any date of determination with respect to:
(1) each Charged-off Mortgage Loan, an amount (not less than zero) equal to (a)
the unpaid principal balance of such Mortgage Loan, as of the last day of the
Collection Period (the "Realized Loss Date"), immediately preceding such date of
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determination, plus (b) without taking into account the amount described in
subclause (1)(d) of this definition, all accrued but unpaid interest on such
Mortgage Loan, at the related Mortgage Loan Coupon Rate to but not including the
Due Date immediately preceding the Realized Loss Date, plus (c) any related
unreimbursed P&I Advances as of the commencement of the Collection Period in
which the Realized Loss Date occurs, together with any new related P&I Advances
made during the Collection Period in which the date of determination occurs,
minus (d) all payments and proceeds, if any, received and deposited in the
Collection Account in respect of such Mortgage Loan, during the Collection
Period immediately preceding the Realized Loss Date, including, without
limitation, Liquidation Proceeds and other payments or recoveries on account of
such Mortgage Loan; (2) each Charged-off Mortgage Loan as to which any portion
of the principal payable thereunder was canceled in connection with a bankruptcy
or similar proceeding involving the related Mortgagor or a modification, waiver
or amendment of such Mortgage Loan granted or agreed to by the Servicer pursuant
to Section 2.9 of the Servicing Agreement, the amount of such principal so
canceled; and (3) each Mortgage Loan as to which the Mortgage Loan Coupon Rate
thereon has been permanently reduced and not recaptured for any period in
connection with a bankruptcy or similar proceeding involving the related
Mortgagor or a modification, waiver or amendment of such Mortgage Loan granted
or agreed to by the Servicer pursuant to Section 2.9 of the Servicing Agreement,
the amount of the consequent reduction in the interest portion of each
successive monthly payment due thereon. Each such Realized Loss determined
pursuant to clause (3) above shall be deemed to have been incurred on the Due
Date for each affected monthly payment.
"RECORD DATE" means (i) with respect to the Initial Distribution Date,
the Closing Date and (ii) thereafter, the close of business on the last Business
Day of a Collection Period.
"REDEMPTION DATE": Any Distribution Date on which Notes are to be
redeemed pursuant to Section 10.1 of the Indenture.
"REDEMPTION PRICE": The price at which a Note is to be redeemed
pursuant to the Indenture, equal to the Outstanding Note Balance of such Note
together with interest accrued thereon to the Redemption Date at the applicable
Note Interest Rate (exclusive of installments of interest and principal maturing
on or prior to such date, payment of which shall have been made to the Holder of
such Note on the applicable Record Date or as otherwise provided in the
Indenture).
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"REMAINING SUBSTITUTION/PURCHASE AMOUNT" means, with respect to any
date, an amount equal to (i) 15% of the aggregate Outstanding Principal Balance
of the Mortgage Loans as of the Cut-off Date minus (ii) the aggregate
Outstanding Principal Balance of all Substitute Mortgage Loans and Subsequent
Loans Granted to the Trustee as of their respective Subsequent Cut-off Dates.
"REMITTANCE" means cash, a wire transfer, or a check, draft or money
order.
"REPURCHASE DATE" has the meaning provided in Section 12.6(a) of the
Indenture.
"REQUISITE RESERVE AMOUNT" means, as to any Distribution Date, an
amount equal to the lesser of (i) the greater of (a) the product of (x) the then
current aggregate Outstanding Note Balance and (y) the Reserve Account
Percentage and (b) $500,000, and (ii) the then current Outstanding Note Balance.
"RESERVE ACCOUNT" has the meaning set forth in Section 12.2(b) of the
Indenture.
"RESERVE ACCOUNT PERCENTAGE" means, with respect to any Distribution
Date (i) if no Trigger Event has occurred and is continuing, 5.0%, (ii) if a
Trigger Event (other than an event described in clause (ii) of the definition of
"Trigger Event") has occurred and the Class A Notes are outstanding, until a
Trigger Event Cure has occurred, 25.0%, (iii) if a Trigger Event (other than an
event described in clause (ii) of the definition of "Trigger Event") has
occurred, the Class A Notes have been retired and the Class B Notes are
outstanding, until a Trigger Event Cure has occurred, 20.0%, (iv) if a Trigger
Event (other than an event described in clause (ii) of the definition of
"Trigger Event") has occurred and the Class A and the Class B Notes have been
retired, until a Trigger Event Cure has occurred, 15.0% and (v) if the average
Delinquency Trigger Ratio calculated as of the three immediately preceding
Record Dates, exceeds 7.0%, 10.0%.
"RESORTS" means the respective land, buildings and appurtenant rights
of Sunterra Resorts Cypress Pointe, Sunterra Resorts Greensprings Plantation,
Sunterra Resorts Sedona Springs, Sunterra Resorts Sedona Summit, Sunterra
Resorts Scottsdale Villa Mirage, Sunterra Resorts Villas at Poco Diablo,
Sunterra Resorts Villas of Sedona, Sunterra Resorts The Ridge on Sedona Golf,
Sunterra Resorts Tahoe Beach and Ski, Tahoe Seasons Resort,
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Sunterra Resorts Villas on the Lake, Sunterra Resorts Villas de Santa Fe,
Sunterra Resorts The Plantation at Fall Creek, Sunterra Resorts Powhatan
Plantation, Sunterra Resorts Royal Dunes, Sunterra Resorts The Savoy on South
Beach, Embassy Vacation Resort Grand Beach, Embassy Vacation Resort Lake Tahoe
and St. Augustine Beach Club.
"RESPONSIBLE OFFICER": With respect to the Trustee, any officer within
the Corporate Trust Office of the Trustee, including any Vice President,
Assistant Vice President, Secretary or Assistant Secretary, Managing Director,
or any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"RIDGE DECLARATION" means the Declaration of Dedication and Covenants,
Conditions, Restrictions and Easements for the Ridge at Sedona Golf Resort (A
Timeshare Project Vacation Ownership Resort), dated as of December 18, 1996, and
recorded in Book 3330, page 445, in Yavapai County, Arizona, as modified,
amended, supplemented and/or restated.
"SALE": Has the meaning specified in Section 6.15 of the Indenture.
"SALE AGREEMENTS" means the Blue Bison Loan Sale Agreement, the SunSera
Loan Sale Agreement and the TerraSun Loan Sale Agreement.
"SAVOY DECLARATION" means the Declaration of Condominium for The Savoy
on South Beach, a Condominium which is recorded in O.R. Book 17924, Page 2575,
Official Records of Dade County, Florida, as modified, amended, supplemented
and/or restated.
"SCHEDULE OF MORTGAGE LOANS" means the list of Mortgage Loans
substantially in the form attached as SCHEDULE 1 to the Indenture or Schedule A
to a Loan Sale Agreement, as the case may be, which shall be amended from time
to time to include any Substitute Mortgage Loans and any Subsequent Loans and to
delete any Mortgage Loans released from the lien of the Indenture pursuant to
the terms thereof, which list shall be available in electronic format and shall
include the following information with respect to each such Mortgage Loan as of
the Cut-off Date and each Subsequent Loan as of the Subsequent Cut-off Date:
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Loan Number
Name and Mailing Address of Mortgagor
Resort
Interest Rate Per Annum
Original Principal Balance
Maturity Date
Monthly Payment Amount
Outstanding Principal Balance
"SEDONA SPRINGS DECLARATION" means the Declaration of Covenants,
Conditions, Restrictions and Easements for Sedona Springs Resort (Townhouse
Units), dated as of June 6, 1994, and recorded in Book 2846, page 370, in
Yavapai County, Arizona, as modified, amended, supplemented and/or restated.
"SEDONA SUMMIT DECLARATION" means the Declaration of Dedication and
Covenants, Conditions, Restrictions and Easements for Sedona Summit Resort, a
Timeshare Resort, dated as of January 17, 1996, and recorded in Book 3142, page
775, in Yavapai County, Arizona, as modified, amended, supplemented and/or
restated.
"SELLER" means each of SunSera Funding Corp., TerraSun Holding, Inc.,
SunTerra Corporation and its successors and assigns.
"SERVICER EVENT OF DEFAULT": has the meaning given in Section 5.1 of
the Servicing Agreement.
"SERVICER" means, initially, Sunterra Financial Services, Inc., in its
capacity as the Servicer of the Mortgage Loans under Section 2.1 and,
thereafter, any successor servicer pursuant to Section 4.2(b), 4.4 or 5.2 of the
Servicing Agreement.
"SERVICER REPORT" means the report substantially in the form of EXHIBIT
A to the Servicing Agreement provided by the Servicer to the Trustee on each
Servicer Report Date pursuant to Section 3.1 of the Servicing Agreement.
"SERVICER REPORT DATE" means the twentieth day of each month in which a
Distribution Date occurs; PROVIDED, HOWEVER, that, if such twentieth day is not
a Business Day, the Servicer Report Date shall be the Business Day immediately
following such twentieth day.
"SERVICER REQUEST": A written order or request signed in the name of
the Servicer by its Chairman of the Board, president or a Vice President, and by
its Treasurer, an Assistant
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Treasurer, Controller, an Assistant Controller, Secretary, or an Assistant
Secretary and delivered to the Trustee.
"SERVICING AGREEMENT": The Servicing Agreement, dated as of March 31,
1999, entered into by and among the Company, the Servicer, the Trustee and the
Back-up Servicer, as the same may be amended from time to time in accordance
with the provisions thereof.
"SERVICING FEE" means, with respect to any Distribution Date and the
related Collection Period, the product of (i) one twelfth, (ii) the Servicing
Fee Percent and (iii) the Outstanding Pool Balance on such Distribution Date
prior to the application of amounts to be distributed on such Distribution Date.
"SERVICING FEE PERCENT" means 1% per annum.
"SERVICING OFFICER" means any Vice President, Assistant Vice President,
Secretary, Assistant Secretary, or any other officer or assistant officer of the
Servicer or a Subservicer essentially performing functions similar to those
performed by persons who at the time shall be such officers, respectively, or to
whom any corporate matter is referred because of his or her knowledge of, and
familiarity with, the particular subject, and who is involved in, or responsible
for, the administration and servicing of the Mortgage Loans whose name appears
on a list of servicing officers furnished to the Trustee by the Servicer or a
Subservicer, as applicable, as such list may be amended or supplemented from
time to time.
"SHORTFALL AMOUNT" means, with respect to any Distribution Date, the
amount, if any, by which the amounts required to be distributed pursuant to
clauses "first" through "thirteenth" of Section 13.1(a) (excluding any amounts
to be deposited in the Reserve Account) of the Indenture exceed the amount on
deposit in the Collection Account with respect to such Distribution Date.
"ST. AUGUSTINE DECLARATION" means the Declaration of Condominium of The
Beach Club at St. Augustine Beach and Tennis Resort, a Condominium, dated March
17, 1984, recorded in O.R. Book 633, page 148, Public Records of St. John's
County, Florida, as modified, amended, supplemented and/or restated.
"STANDARD & POOR'S" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., or its successor in interest. If
neither such rating agency nor any successor remains in existence, "Standard &
Poor's" shall be
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deemed to refer to such other nationally recognized statistical rating agency or
other comparable Person designated by the Company and approved in writing by the
Majority Holders, notice of which designation shall be given to the Trustee and
the Servicer, and specific ratings of Standard & Poor's herein referenced shall
be deemed to refer to the equivalent ratings of the party so designated.
"STATED MATURITY DATE" means the Maturity Date of the Mortgage Loan
which, as of the Cut-off Date, has the longest remaining amortization term.
"SUBSEQUENT CUT-OFF DATE" means with respect to any Substitute Mortgage
Loan and Subsequent Loans, the close of business on the last day of the month
preceding the month in which such Substitute Mortgage Loans and Subsequent Loans
are Granted to the Trustee for the benefit of the Noteholders.
"SUBSEQUENT LOANS" means the Mortgage Loans Granted to the Trustee
pursuant to Section 12.7 of the Indenture, each of which (i) bears a fixed rate
of interest, (ii) has a Mortgage Loan Coupon Rate at least equal to the Weighted
Average Coupon Rate, (iii) has a Maturity Date which is no later than the Stated
Maturity Date, (v) does not cause a breach of the representations and warranties
in the Indenture and the TerraSun Loan Sale Agreement, (vi) is not more than
thirty days past due with respect to any payment of interest or principal as of
the immediately preceding Record Date, (vii) has not been more than 90 days past
due with respect to any payment of interest or principal on more than one Record
Date during the preceding 12 months, (viii) has not been in default, (ix) the
related mortgagor (or successor thereto) was a Mortgagor as of the Cut-off Date
and (x) relates to one of the Resorts.
"SUBSEQUENT TRANSFER DATE" means the last Business Day of each
Collection Period.
"SUBSERVICER" means any Person which is subservicing one or more of the
Mortgage Loans pursuant to Section 2.2 or Section 5.2(c) of the Servicing
Agreement.
"SUBSERVICING AGREEMENT" means an agreement between the Servicer or the
Trustee and a Subservicer relating to the servicing of the Mortgage Loans.
"SUBSTITUTE MORTGAGE LOAN" means a loan substituted for a Mortgage Loan
having missing or defective documentation pursuant to Section 4.3 of the
Indenture or for a Defective
-25-
<PAGE>
Mortgage Loan pursuant to Section 12.6(b) of the Indenture: (i) having as of the
time of substitution a principal balance, after deduction of the principal
portion of the monthly payment due in the month of substitution equal to or
greater than the Outstanding Principal Balance of the Mortgage Loan for which it
is being substituted, (ii) having a Mortgage Loan Coupon Rate equal to or
greater than the Mortgage Loan Coupon Rate of the Mortgage Loan for which it is
being substituted, (iii) otherwise satisfying the requirements of Section 12.6
of the Indenture, (iv) having a Maturity Date which is no later than the Stated
Maturity Date, (v) not causing a breach of the representations and warranties in
the Indenture and the TerraSun Loan Sale Agreement, (vi) not being more than
thirty days past due with respect to any payment of interest or principal as of
the immediately preceding Record Date, (vii) having not been more than 90 days
past due with respect to any payment of interest or principal on more than one
Record Date during the preceding 12 months and (viii) relating to one of the
Resorts.
"SUNSERA LOAN SALE AGREEMENT" means the Loan Sale Agreement, dated as
of March 31, 1999, between SunSera Funding, Corp. and TerraSun Holding, Inc.
"TAHOE BEACH DECLARATION" means the Declaration of Vacation Plan (The
Tahoe Beach and Ski Club), dated as of July 16, 1984, and recorded in Book 2319,
pages 158-226, in El Dorado County, California, as modified, amended,
supplemented and/or restated.
"TAHOE SEASONS DECLARATION" means the Declaration of Covenants,
Conditions and Restrictions of The Tahoe Seasons Resort, dated as of November
28, 1983, and recorded in Book 2232, page 431, in El Dorado County, California,
as modified, amended, supplemented and/or restated.
"TERRASUN LOAN SALE AGREEMENT" means the Loan Sale Agreement, dated as
of March 31, 1999, between TerraSun, L.L.C. and TerraSun Holding, Inc.
"TRANSACTION DOCUMENTS" mean the Note Purchase Agreement, the
Indenture, the Servicing Agreement and Sale Agreements.
"TRIGGER EVENT" means on any Distribution Date either (i) the
occurrence of Default Trigger I, Default Trigger II or Default Trigger III or
(ii) the average Delinquency Trigger Ratio as of the three immediately preceding
Record Dates, exceeds 7.0%.
-26-
<PAGE>
"TRIGGER EVENT CURE" means (i) with respect to any Trigger Event which
has occurred (other than a Trigger Event in clause (ii) below) (A) such Trigger
Event has not continued for a period of three consecutive months, (B) all
amounts in respect of distributions due to the Class A, Class B, Class C and
Class D Notes as of such date have been paid or such amounts are on deposit in
the Reserve Account, (C) the Requisite Reserve Amount (without taking into
account such Trigger Event) is on deposit in the Reserve Account and (D) no
other Trigger Event has occurred, and
(ii) with respect to any Trigger Event that is of a Trigger Event Type
that has occurred and has been cured at least once since the Closing Date in
accordance with clause (i) above, (A) with respect to the Trigger Event related
to Default Trigger I, the average Default Trigger Ratio calculated on the basis
of the three immediately preceding Record Dates does not exceed 7.5%, with
respect to the Trigger Event related to Default Trigger II for a period of three
consecutive months, the average Default Trigger Ratio calculated on the basis of
the three immediately preceding Record Dates does not exceed 11.0% for a period
of three consecutive months, and with respect to the Trigger Event related to
Default Trigger III, the average Default Trigger Ratio calculated on the basis
of the three immediately preceding Record Dates does not exceed 13.5% for a
period of three consecutive months, (B) all amounts in respect of distributions
due to the Class A, Class B, Class C and Class D Notes as of such date have been
paid or such amounts are on deposit in the Reserve Account, (C) the Requisite
Reserve Amount (without taking into account such Trigger Event) is on deposit in
the Reserve Account and (D) no other Trigger Event has occurred. For purposes of
this description, "Trigger Event Type" shall mean either Default Trigger I,
Default Trigger II or Default Trigger III, as the case may be.
"TRUST ESTATE" means the property of every description Granted pursuant
to the "Granting Clauses" of the Indenture and all collections, distributions
and proceeds in respect thereof.
"TRUSTEE" means, initially, LaSalle National Bank, and, thereafter, any
successor trustee pursuant to Section 7.9 of the Indenture.
"TRUSTEE FEE" means, with respect to each Distribution Date, the
product of (i) one twelfth, (ii) two basis points and (iii) the Outstanding Pool
Balance on such Distribution Date prior to the application of amounts to be
distributed on such Distribution Date.
-27-
<PAGE>
"UCC": The Uniform Commercial Code as enacted in the relevant state.
"UNPAID INTEREST SHORTFALL" means, with respect to any Distribution
Date and any class of Notes, the sum of (i) the Current Interest Shortfall and
(ii) the aggregate of the outstanding Current Interest Shortfalls incurred prior
to such Distribution Date.
"UNPAID PRINCIPAL SHORTFALL" means, with respect to any Distribution
Date and any class of Notes, the sum of (i) the Current Principal Shortfall and
(ii) the aggregate of the outstanding Current Principal Shortfalls incurred
prior to such Distribution Date.
"UPGRADE PREPAYMENT" means, with respect to any Mortgage Loan prepaid
in full by or on behalf of the related Mortgagor in connection with the purchase
of an additional Vacation Interval or a more expensive Vacation Interval, the
prepayment of principal received by the Trustee.
"USAP" means the Uniform Single Attestation Program for Mortgage
Bankers.
"VACATION INTERVAL" means a fee vacation ownership interest or
timeshare interest at or in a Resort.
"VILLAS DE SANTA FE DECLARATION" means the Declaration for Villas de
Santa Fe, a Condominium, recorded in Book T462, page 195-294, Records of Santa
Fe County, New Mexico, as modified, amended, supplemented and/or restated.
"VILLA MIRAGE DECLARATION" means the Declaration of Dedication and
Covenants, Conditions, Restrictions and Easements for Scottsdale Villa Mirage
Resort (Interval Ownership), dated as of February 27, 1996, and recorded under
Document Number 96-0156603, in Maricopa County, Arizona, as modified, amended,
supplemented and/or restated.
"VILLAS OF SEDONA DECLARATION" means the Declaration of Dedication and
Covenants, Conditions, Restrictions and Easements for Villas of Sedona, dated as
of September 11, 1992, and recorded in Book 2531, page 991, in Yavapai County,
Arizona, as modified, amended, supplemented and/or restated.
"VILLAS ON THE LAKE DECLARATION" means the Time Share Declaration of
Covenants and Restrictions for Colony Place Interval Ownership Plan known as
Villas On The Lake Resort, dated
-28-
<PAGE>
as of May 30, 1996, and recorded under Document Number 9632539, in Montgomery
County, Texas, as modified, amended, supplemented and/or restated.
"WEIGHTED AVERAGE COUPON RATE" means, with respect to any Distribution
Date, the per annum rate of interest equal to the average, expressed as a
percentage and rounded to two decimal places, of the Mortgage Loan Coupon Rates
of all of the Mortgage Loans that were outstanding at the beginning of the
Collection Period immediately preceding such Distribution Date (or as of the
Cut-off Date with respect to the first Distribution Date), weighted on the basis
of their respective Outstanding Principal Balances as of the beginning of such
Collection Period.
"YEAR 2000 PROBLEM" means the risk that computer applications will be
unable to perform properly, including performance of date-sensitive functions
involving certain dates after December 31, 1999.
-29-
<PAGE>
CONSULTING AGREEMENT
and
---
MODIFICATION OF STOCK OPTION AGREEMENT
--------------------------------------
This agreement made this 14th day of August 1999 by and between SUNTERRA
CORPORATION, a Maryland corporation (the "Company") and JAMES E. NOYES (the
"Executive").
WHEREAS, the Company and the Executive have previously entered into an
Employment Agreement (the "Employment Agreement") dated June 13, 1996 and a
Stock Option Agreement (the "Option Agreement") dated June 13, 1996; and
WHEREAS, the parties desire that the Employment Agreement shall be converted
into a consulting arrangement with the following terms and conditions:
1. Term.
-----
The parties agree that commencing September 1, 1999, Executive's employment
pursuant to the Employment Agreement is terminated and converted into a
Consulting Agreement as detailed herein. Except as expressly provided in
this Consulting Agreement, all provisions of the Employment Agreement are
deleted and superceded and replaced by the provisions of this Consulting
Agreement. The term of this Consulting Arrangement shall continue until
August 31, 2001 (the "Termination Date") or such sooner time as provided in
Section 4, herein. Upon execution of this agreement, Executive has
contemporaneously executed all documents necessary to effectuate his
resignation as an officer and director of Sunterra Corporation, its
subsidiaries and affiliates. Notwithstanding any language to the contrary
contained within the Employment Agreement, Executive's total compensation
for the period between August 1/st/, and August 31st, 1999 including all
base salary and bonuses shall be $28,333. Except for the payments set
forth below, and the $28,333 for August referenced above, Company has no
other monetary obligations to Executive, including payments for vacation,
sick days, discretionary time off , or otherwise, it being agreed that all
such obligations have been fully satisfied by the Company.
2. Duties and Responsibilities.
----------------------------
During the Consulting Period, the Executive agrees to consult with and
advise the Company on any and all matters consistent with his prior duties
that the Company might request including, but not limited to, the areas
covered by the Executive's responsibilities pursuant to Section 3 of the
Employment Agreement, for not less than ten (10) hours per week nor more
than 50 hours per month. Monthly hours are not cumulative. When requested
by the Company, the Executive will make himself
1
<PAGE>
available to the Company during the Consulting Period at the Company's
corporate offices located in Orlando, Florida. Executive will also make
himself available, on reasonable notice, at any sites or locations as may
be requested by the Company provided the Company shall reimburse the
Executive for reasonable and customary travel related expenses to all
locations in the same manner as other senior officers. However, after the
first trip each calendar month, each additional trip outside of Chicago,
within that month shall be on mutually convenient dates.
3. Compensation and Related Matters.
---------------------------------
(a) During the Consulting Period, the Company shall pay the Executive
48 consecutive payments payable twice monthly in the amount of
$19,166.66. However, these amounts may be reduced as provided in
this agreement. All consulting fees shall be paid by the Company
in a manner consistent with the standard payroll practices of the
Company (e.g., timing of payments and required deductions or
----
other withholdings). The Executive shall be considered an
independent consultant for purposes of determining appropriate
withholding, unemployment insurance and any other related
matters.
So long as the Executive is not in breach of this agreement, the
Executive is free to pursue other opportunities outside of this
Agreement subject to the confidentiality, non-solicitation and
non-compete provisions contained in this Agreement.
Commencing December 15th, 1999 and every three months thereafter,
the Executive will be required to furnish to the Company a
detailed income statement, in a format acceptable to the Company,
that demonstrates the earned gross income including all
compensation, salary, bonus, stock, stock options, cash, cash
equivalent or any other remuneration earned of any type, for
services rendered by or generated from the Executive's various
employment and consulting activities (hereinafter "income").
Income shall not include out of pocket reimbursements, dividends,
and interest from investments, and payments for those activities
permitted pursuant to Section 3(c) of the Employment Agreement.
The income statement shall reflect income for the following
periods: the quarterly statement due on December 15, 1999,
February 15, 2000, June15, 2000 and September 15, 2000, shall
report all required income from the date of the execution of this
agreement until the end of the most recent quarter. Quarterly
statements due thereafter shall report all income required for
the preceding 12 months. This income statement should be
delivered to the Company no later than 15/th/ of the month
following the end of each quarter. In the event the remuneration
earned is not easily determined and agreed upon, the parties
agree to mutually select an expert for purposes of that
determination.
In the event any income statement indicates income which exceeds
$250,000 for the preceding 12 month period or, for those
reporting periods prior to
2
<PAGE>
October 1, 2000, income for the period from September 1, 1999
until the date of the statement, the company shall be entitled to
an offset and credit equal to the full amount of all income shown
for that period. In the event the amount of income for any
reporting period exceeds 250,000 but is less than the full amount
payable to the executive for the remainder of the period of this
Consulting Agreement, the amount of the remaining credit shall be
used to offset future payments required to be made to the
Executive until the credit has been exhausted. In the event the
amount of offset and credits exceed amounts payable by company to
executive for the remainder of this Consulting Agreement, then
this Consulting Agreement shall be deemed to constitute a
promissory note from the executive to the company in an amount
equal to the difference of the amount owed by the Company and the
income shown on the statement without any further notice to the
Executive. The Executive shall be deemed to be the maker/debtor of
such promissory note and Sunterra Corporation, its successors and
assigns, the payee of the note. Further, in such case, the Company
shall not be responsible for any further payments to the
Executive. The note shall bear interest at the rate of 10%, APR
and shall be paid in equal monthly installments in amounts
sufficient to satisfy the note in full within 3 months of the date
of the statement. The provisions of this Section 3(a) are intended
to supercede the provisions contained in Section 6(f) of the
Employment Agreement.
(b) Business Expenses.
------------------
The Company shall reimburse the Executive for reasonable and
customary expenses incurred by the Executive in connection with
the performance and services pursuant to this Consulting Agreement
upon presentation of sufficient evidence of such expenditures
consistent with the Company's policies as may be in place from
time to time.
(c) Other Benefits.
---------------
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.
(d) Stock Options.
--------------
Notwithstanding anything to the contrary contained within this
Consulting Agreement, the Employment Agreement or the Option
Agreement described on Exhibit "A" to the Employment Agreement,
(hereinafter "Option Agreement"), the Company and the Executive
hereby agree that Section 3.1(a)(ii) and Section 3.3(b) and (c) of
the Option Agreement are hereby clarified and shall be interpreted
to state that those options that have been granted and which are
exercisable as of August 31, 1999 (namely 459,375) shall continue
to be exercisable during the term of this Consulting Agreement and
shall expire at termination of this Consulting Agreement. Any
options
3
<PAGE>
that have been granted but are not exercisable as of August 31, 1999
shall terminate as of the first day of this Consulting Agreement.
However, should an event resulting in Change of Control (as defined in
the Employment Agreement), be publicly announced or a letter of intent
for such event be executed prior to January 31, 2000 and such event
closed by July 31, 2000, such additional shares as would have vested
under the Employment Agreement during the period prior to July 31st,
2000 shall be deemed to have vested according to the schedule set
forth in that Employment Agreement so that the aggregate number of
shares of Common Stock vested should these contingencies occur shall
be 562,500. Nothing contained herein, however, shall require that such
provision be included in any subsequent option agreement that may be
entered into between the Company and the Executive. This Section 3(d)
intended to supercede the provisions of Section 3.3.(c) of the Option
Agreement.
To the extent required, the parties agree to submit this agreement for
ratification by the Compensation Committee (as defined in the Option
Agreement) and if not ratified, this Agreement shall be null and void.
Company agrees to process Executive's exercise of options in the
same fashion and as expeditiously as it normally processes similar
actions for other persons. To the extent that registered shares
are available for issuance upon exercise of the option, Company
will issue registered shares to Executive.
4. Termination.
------------
This Consulting Agreement shall be, or may be, as the case may be,
terminated under the following circumstances.
(a) Death. This Consulting Agreement shall terminate upon the death of
------
the Executive except that in the event this agreement is converted to
a promissory note pursuant to Section 3(a), the obligations of
Executive shall thereafter become an obligation of his estate.
(b) Disability. This Consulting Agreement shall terminate upon the
-----------
physical or mental disability of the Executive which, in the opinion
of a competent physician selected by the Board of Directors of the
Company, renders the Executive unable to perform his duties under this
Consulting Agreement for more than 120 days in any 180-day period.
(c) Cause. The Company may terminate this Consulting Agreement for
------
"cause". Cause shall be defined in Section 5(c) of the Employment
Agreement.
(d) Executive's Termination. The Executive may voluntarily terminate this
------------------------
Consulting Agreement at any time by delivery of a written notice to
the Company (the "Notice of Termination"). The Notice of Termination
shall
4
<PAGE>
set forth the dates that termination shall become effective (the
"Date of Termination"), 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 Termination 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.
(e) Notice. Any termination of this Agreement by the Company shall be
-------
communicated by a 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
Consulting Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Consulting Agreement under the provision so
indicated.
(f) Date of Consulting Termination. "Date of Consulting Termination"
---------------------------------
shall mean (i) if the Consulting Agreement is terminated by death, the
date of death, (ii) if the Consulting Agreement is terminated by
reason of disability, the date of the opinion of the physician
referred to in Section 4(b) above, (iii) if the Consulting Agreement
is terminated by the Company for cause pursuant to Section 4(c) above,
the date specified in the Notice of Termination, and (iv) if the
Executive should terminate this Agreement pursuant to Section 4(d)
above, the Date of Termination.
(g) Termination Obligations. The termination obligations contained in
------------------------
Section 5(h) and 5(i) of the Employment Agreement shall also apply to
a termination of the Consulting Agreement, it being understood that
the phrase "Employment Period" as contained in Section 5(h) of the
Employment Agreement shall be amended to read "Consulting Period."
Compensation upon Termination.
------------------------------
(a) Death. If this Consulting Agreement should be terminated pursuant to
------
Section 4(a), the Company shall, subject to application of the credits
as set forth in Section 3(a), pay the Executive's Personal
Representative pursuant to Section 3(a) the amounts entitled to be
received, by the Executive and according to the same schedule of
payments, (the "Post Consulting Payment"), until August 31, 2001. At
the Executive's own expense, the Executive's dependent shall be
entitled to any continuation of health insurance coverage rights under
any applicable law.
(b) Disability. If this Consulting Agreement should be terminated by
-----------
reason of disability pursuant to Section 4(b), the Executive shall,
subject to application of the credits as set forth in Section 3(a),
receive the Post-Consulting Payment, until the earlier of (i) the
duration of such disability, or (ii) August
5
<PAGE>
31, 2001, provided that the payment so made to the Executive during
the disability should 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. At the Executive's
own expense, the Executive and dependents shall also be entitled to
any continuation of health insurance rights under any applicable law.
(c) Cause. If the Company terminates this Consulting Agreement for Cause
------
pursuant to Section 4(c) hereof, the Company shall, subject to
application of the credits as set forth in Section 3(a), pay the
Executive any accrued consulting fee through the Termination Date. At
the Executive's own expense, the Executive and its dependents shall
also be entitled to any continuation of health insurance coverage
rights under any applicable law.
(d) Executive's Termination. If the Executive terminates this Consulting
------------------------
Agreement for any reason other than "Good Cause" as defined herein,
the Company shall only be required to pay to the Executive, subject to
application of the credits as set forth in Section 3(a), the amounts
of consulting fees described in Sections 3(a) and 3(b) hereof through
the Date of Termination. However, in this event, this agreement is
converted to a promissory note pursuant to Section 3(a) hereof, the
obligations of Executive shall survive until repayment of the note.
In the event the Executive terminates its Consulting Agreement for
"Good Cause," the Company shall pay the Executive the consulting
payment until the expiration date of the Consulting Agreement. If the
Executive terminates this agreement without "Good Cause," the Company
shall have no obligation to compensate the Executive following such
termination. In the 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 Consulting Agreement, "Good Cause" shall mean a
material breach by the Company of any material provision of this Consulting
Agreement and "Cause" shall mean a material breach by Executive of any
material provision of this Consulting Agreement.
(e) The provisions of Section 6(i) of the Employment Agreement, shall
apply to this Consulting Agreement, by substituting for the term
"Severance Payment" the term "Post-Consulting Payment" and by reading
such provisions to apply to the termination of the Consulting
Agreement hereunder.
6. Personal Computer, Laptop, Weeks.
--------------------------------
Executive shall be permitted to retain the Company's personal computer,
laptop and printer provided that all files, data and information contained
therein shall be downloaded to disk, the disks delivered to the Company and
the files resident on the
6
<PAGE>
personal computer and laptops deleted and purged therefrom. Executive shall
be permitted to purchase up to 4 weeks of inventory from Company's
inventory, subject to availability, at a price equal to 40% of retail list.
Confidentiality, Non-Solicitation, Non-Compete and Injunctive Relief. The
---------------------------------------------------------------------
parties acknowledge that the provisions of Sections 7, 8 and 9 of the
Employment Agreement shall equally apply to the provisions of this
Consulting Agreement; provided that the "employment period" shall include
the "consulting period" and that all time periods for obligation of those
Sections 7,8 and 9 shall continue for a period of two years following the
termination of the Consulting Agreement. For two years following execution
of this Agreement, Executive agrees not to talk about, write about or
otherwise publicize any derogatory information or documentation concerning
the business of the Company, the financial affairs of the Company, the
operation of any of the resorts owned or managed by the Company, his
employment with the Company, the termination of his employment, other
Company employees, or the terms or existence of this Agreement unless
required by law or for accounting or tax purposes.
8. Miscellaneous Provisions. The parties acknowledge that the provisions of
-------------------------
Sections 10 (except that the Company's address for notice is hereby changed
to: Sunterra Corporation, 1781 Park Center Drive, Orlando FL 32835, Attn:
Thomas Bell), 11, 12, 13,14, 15, 16, 17, 18, 19 and 20 of the Employment
Agreement shall continue to apply during the term of this Consulting
Agreement. Except as modified herein, all terms and conditions of the
Option Agreement shall remain in full force & effect.
9. Indemnification. As a former officer and director of the Company,
----------------
Executive shall be entitled to indemnification by the Company to the full
extent permitted by Maryland law and the Company's articles of
incorporation and by-laws and to coverage under any insurance policies that
may be maintained by the Company from time to time.
ACKNOWLEDGED:
COMPANY:
SUNTERRA CORPORATION,
A Maryland corporation
By: L. W. Miller, CEO
---------------------------------
EXECUTIVE:
/s/ James E. Noyles
- -------------------------------------
James E. Noyes
7
<PAGE>
EX-10.23
[GRAPHIC OMITTED][GRAPHIC OMITTED]
MASTER LOAN AND
SECURITY AGREEMENT
PRIMARY BORROWER:
SUNTERRA CORPORATION
95-4582157
FEDERAL EMPLOYEE IDENTIFICATION NO.
1781 PARK CENTER DRIVE
ORLANDO, FLORIDA 32835
$50,000,000
SEPTEMBER 30, 1999
RESORT FINANCE
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS.................................................................1
2. LOAN COMMITMENT; USE OF PROCEEDS............................................5
2.1 Inventory Loan Commitment; Determination of Advance Amounts...........5
2.2 Inventory Loan Revolver...............................................5
2.3 Continuation of Obligations Throughout Term...........................6
2.4 Use of Advances.......................................................6
2.5 Repayment of Inventory Loan...........................................6
2.6 Interest..............................................................6
2.7 Inventory Loan Minimum Required Payments..............................6
2.8 Prepayment............................................................7
2.9 Loan Fee; Custodial Fee; Availability Fee.............................7
2.10 Application of Proceeds of Collateral and Payments....................7
2.11 Borrower's Unconditional Obligation to Make Payments..................7
3. SECURITY....................................................................8
3.1 Grant of Security Interest in Collateral..............................8
3.2 Ineligible Inventory..................................................8
3.3 Borrowing Base Reporting..............................................8
3.4 Maintenance of Security...............................................8
4. CONDITIONS PRECEDENT TO ADVANCES; MINIMUM AMOUNT AND MAXIMUM FREQUENCY OF
ADVANCES; METHOD OF DISBURSEMENT............................................9
4.1 Delivery of Loan Documents and Due Diligence Items Prior to Initial
Advance...............................................................9
4.2 Additional Conditions Precedent for Subsequent Advances..............11
4.3 General Conditions Precedent to All Advances.........................11
4.4 Conditions Satisfied at Borrower's Expense...........................11
4.5 Minimum Amount and Maximum Frequency of Advances.....................11
4.6 Disbursement of Advances.............................................11
4.7 No Waiver............................................................11
5. BORROWER'S REPRESENTATIONS AND WARRANTIES..................................11
5.1 Good Standing........................................................11
5.2 Power and Authority; Enforceability..................................12
5.3 Borrower's Principal Place of Business...............................12
5.4 No Litigation........................................................12
5.5 Compliance with Legal Requirements...................................12
5.6 No Misrepresentations................................................12
5.7 No Default for Third Party Obligations...............................12
5.8 Payment of Taxes and Other Impositions...............................12
5.9 Sales Activities.....................................................12
5.10 Time-Share Interest Not a Security...................................12
5.11 Zoning Compliance....................................................12
5.12 Eligible Inventory...................................................12
5.13 Association; Assessments and Reserves................................13
5.14 Title to and Maintenance of Common Areas and Amenities...............13
5.15 Year 2000............................................................13
5.16 Survival and Additional Representations and Warranties...............13
6. BORROWER'S COVENANTS.......................................................13
6.1 Borrower's Affirmative Covenants.....................................13
<PAGE>
6.2 Borrower's Negative Covenants........................................17
6.3 Survival of Covenants................................................18
7. DEFAULT....................................................................18
7.1 Events of Default....................................................18
7.2 Remedies.............................................................19
7.3 Application of Proceeds During an Event of Default...................19
7.4 Uniform Commercial Remedies; Sale; Assembly of Collateral............19
7.5 Application of Proceeds..............................................19
7.6 Lender's Right to Perform............................................20
7.7 Non-Exclusive Remedies...............................................20
7.8 Waiver of Marshalling................................................20
7.9 Attorney-in-Fact.....................................................20
8. COSTS AND EXPENSES; INDEMNIFICATION........................................20
8.1 Costs and Expenses...................................................20
8.2 Indemnification......................................................20
9. CONSTRUCTION AND GENERAL TERMS.............................................21
9.1 Payment Location.....................................................21
9.2 Entire Agreement.....................................................21
9.3 Powers Coupled with an Interest......................................21
9.4 Counterparts.........................................................21
9.5 Notices..............................................................21
9.6 Successors and Assigns...............................................21
9.7 Severability.........................................................21
9.8 Time of Essence......................................................21
9.9 Miscellaneous........................................................21
9.10 CHOICE OF LAW........................................................22
9.11 CHOICE OF JURISDICTION; WAIVER OF VENUE..............................22
9.12 WAIVER OF JURY TRIAL.................................................22
9.13 INDUCEMENT TO LENDER.................................................22
9.14 Compliance With Applicable Usury Law.................................22
9.15 NO RELATIONSHIP WITH PURCHASERS......................................22
9.16 NO JOINT VENTURE.....................................................22
9.17 Standards Applied to Lender's Actions................................22
9.18 Meaning of Subordination.............................................23
9.19 Scope of Reimbursable Attorney's Fees................................23
9.20 Publicity............................................................23
9.21 Permitted Contests...................................................23
9.22 Reliance.............................................................23
Schedule of Additional Terms............................................25
Exhibit A - Conditions of Eligible Inventory.........................27
Exhibit B - Permitted Encumbrances...................................29
Exhibit C - Borrower's Certificate...................................30
Exhibit D - (NOT USED) ..............................................
Exhibit E - Additional Conditions to Inventory Loan Advances.........31
Exhibit E-1 - Request for Inventory Loan Advance and Certification...32
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This LOAN AND SECURITY AGREEMENT is entered into for good and
valuable consideration, by and between FINOVA CAPITAL CORPORATION, a Delaware
corporation, and SUNTERRA CORPORATION, a Maryland corporation (referred to
herein as the "PRIMARY BORROWER"), together with those business organizations
which are affiliated with Primary Borrower and which either join in the
execution of this Agreement below as a "Borrower" or subsequently join in this
Agreement as a "Borrower" hereunder pursuant to an Assumption Agreement in form
and substance satisfactory to Lender (all such persons being collectively
referred to herein as "BORROWERS").
1. DEFINITIONS
As used in this Agreement and the other Loan Documents unless otherwise
expressly indicated in this Agreement or the other Loan Documents, the following
terms shall have the following meanings (such meanings to be applicable equally
both to the singular and plural terms defined)
"ACCESS AGREEMENT": that certain Agreement Regarding Access to Club
Sunterra dated as of September 30, 1999 by and among Primary Borrower, Lender,
and Club Sunterra, Inc., a Florida corporation and wholly owned subsidiary of
Primary Borrower.
"ADVANCE": an advance of the proceeds of the Inventory Loan by Lender to,
or on behalf of, Borrower in accordance with the terms and conditions of this
Agreement.
"AFFILIATE": with respect to any individual or entity, any other
individual or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such individual or entity.
"AGREEMENT": this Loan and Security Agreement, as it may be from time to
time renewed, amended, restated or replaced.
"APPLICABLE USURY LAW": the usury law chosen by the parties pursuant to
the terms of PARAGRAPH 9.10 or such other usury law which is applicable if such
usury law is not.
"APPROVED ALTERNATIVE INTEREST": any ownership right to a dwelling space
in a parcel of real property owned by Primary Borrower or any Subsidiary
Borrower which rights have yet to be included within an established Time-Share
Program pursuant to a Time-Share Declaration, but which Lender has approved as
Eligible Inventory for inclusion as part of the Borrowing Base hereunder. As of
the Closing Date, Lender has agreed that the seventy-five (75) Units located in
the Villas de Santa Fe Time-Share Project, Santa Fe, New Mexico, which is owned
by Primary Borrower, but which Units have not yet been converted into Time-Share
Interests, shall constitute Approved Alternative Interests.
"ARTICLES OF ORGANIZATION": the charter, articles, operating agreement,
joint venture agreement, partnership agreement, by-laws and any other written
documents evidencing the formation, organization, governance and continuing
existence of an entity.
"BASIC INTEREST": the meaning given to it in PARAGRAPH 2.6.
"BORROWER OR BORROWERS": means Primary Borrower, together with each
Subsidiary Borrower, as the same exist from time to time, and subject to the
restrictions on assignment and transfer contained in this Agreement, the
successors and assigns of each such Person.
"BORROWING BASE": an amount equal to twenty-five percent (25%) of the
Retail Value of the Eligible Inventory.
"BORROWING BASE REPORT": the same meaning given to it in PARAGRAPH 3.3.
"BORROWING BASE SHORTFALL": at any time, the amount by which the unpaid
principal balance of the Inventory Loan exceeds the aggregate Borrowing Base of
all Eligible Inventory.
"BORROWING TERM": the period commencing on the date of this Agreement and
ending on the close of the Business Day (or if not a Business Day, the first
Business Day thereafter) on the date identified in the Schedule as the Original
Borrowing Term Expiration Date (in the event Primary Borrower does not exercise
the Extension Option) or the Extended Borrowing Term Expiration Date (in the
event Primary Borrower does exercise the Extension Option).
"BUSINESS DAY": any day other than a Saturday, a Sunday, a national
holiday or a day on which banks in Phoenix, Arizona are required to be closed.
"CILP ASSIGNMENT": a written assignment to be executed and delivered to
Lender by Borrower and creating in favor of Lender a perfected, direct
collateral assignment of the Contracts, Intangibles, Licenses and Permits in
order to facilitate Performance of the Obligations, as it may be from time to
time renewed, amended, restated or replaced.
"COLLATERAL": collectively, (a) the Inventory; (b) the Insurance Policies;
(c) all Borrower's rights under all escrow agreements and accounts pertaining to
any of the foregoing; (d) the furniture, fixtures and equipment located in the
Units to which the Inventory relates, to the extent that any Borrower has rights
in such furniture, fixtures or equipment; and (e) any and all other property now
or hereafter serving as security for the Performance of the Obligations, and all
products and proceeds thereof.
"CONTRACTS, INTANGIBLES, LICENSES, PERMITS": all contracts, licenses,
permits, plans and other intangibles in which Borrower now or hereafter has
rights (but only to
<PAGE>
the extent Borrower has rights in any such items and to the extent such items
primarily pertain to one or more of the Time-Share Projects) and are now or
hereafter used in connection with the marketing and sale of Inventory and the
management and/or operation of the Time-Share Projects in which the Inventory is
situated.
"DEFAULT RATE": the per annum rate of interest identified in the Schedule
as the Default Rate.
"ELIGIBLE INVENTORY": all Inventory which conforms to the standards set
forth in EXHIBIT A. Unsold Inventory that has qualified as Eligible Inventory
shall cease to be Eligible Inventory upon the date such Inventory fails to
continue to conform to the standards set forth in EXHIBIT A.
"ENVIRONMENTAL CERTIFICATE": an environmental certificate executed and
delivered to Lender by Borrower and such other persons as Lender may require, as
it may be from time to time renewed, amended, restated or replaced.
"EVENT OF DEFAULT": the meaning set forth in PARAGRAPH 7.1.
"EXTENSION OPTION": the meaning set forth in PARAGRAPH 2.3.
"GAAP": means generally accepted accounting principles in the United
States of America as in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are applicable to the circumstances
as of the date of determination consistently applied, except that, for the
financial covenants set forth in this Agreement, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to FINOVA
prior to the date hereof. In the event that changes in GAAP shall be mandated by
the Financial Accounting Standards Board and/or the American Institute of
Certified Public Accountants or any similar accounting body of comparable
standing, or shall be recommended by Borrower's certified public accountants, to
the extent that such changes would modify such accounting terms or the
interpretation or computation thereof as contemplated by this Agreement at the
time of execution hereof, then in such event such changes shall be followed in
defining such accounting terms, and Borrower and Lender shall use reasonable
good faith efforts to agree upon an appropriate amendment to this Agreement to
reflect the original intent of such terms in light of such changes, whereupon
such new accounting terms shall apply.
"IMPOSITIONS": all real estate, personal property, excise, privilege,
transaction, documentary stamp and other taxes, charges, assessments and levies
(including non-governmental assessments and levies such as maintenance charges,
association dues and assessments under private covenants, conditions and
restrictions) and any interest, costs, fines or penalties with respect thereto,
general and special, ordinary and extraordinary, foreseen and unforeseen, of any
kind and nature whatsoever which at any time prior to or after the execution
hereof may be assessed, levied or imposed.
"INCIPIENT DEFAULT": an event which after notice and/or lapse of time
would constitute an Event of Default.
"INSTALLMENT DATE": the meaning given to it in PARAGRAPH 2.7.
"INSURANCE POLICIES": the insurance policies that Borrower is required to
maintain and deliver pursuant to PARAGRAPH 6.1(c).
"INTEREST PERIOD": shall mean a thirty (30) day period commencing on each
Interest Rate Determination Date.
"INTEREST RATE DETERMINATION DATE": shall mean the first Business Day of
each calendar month.
"INVENTORY": collectively, all unsold Time-Share Interests, together with
any unsold Approved Alternative Interests which may then exist, but as to either
unsold Time-Share Interests or unsold Approved Alternative Interest, solely to
the extent that such interests have been encumbered by Lender pursuant to a
Mortgage.
"INVENTORY LOAN": the revolving line of credit loan made pursuant to
ARTICLE 2.
"LEGAL REQUIREMENTS": (a) all present and future judicial decisions,
statutes, regulations, permits or certificates of any governmental authority in
any way applicable to Borrower or its property; and (b) all material contracts
or agreements (written or oral) by which Borrower or its property is bound or,
if compliance therewith would otherwise be in conflict with any of the Loan
Documents, by which Borrower or its property becomes bound with Lender's prior
written consent.
"LENDER": FINOVA Capital Corporation, a Delaware corporation, and its
successors and assigns.
"LIBO ADJUSTED RATE": shall mean the rate per annum determined by Lender
by dividing (the resulting quotient to be rounded upward to the nearest 1/100 of
one percent) (i) the per annum rate of interest at which deposits in U.S.
Dollars in an amount substantially equal to the outstanding balance of the
Inventory Loan and having a maturity comparable to the Interest Period are
offered by Citibank, N.A. or its affiliates in the London interbank market at
approximately 11:00 a.m. (London time) on the applicable Interest Rate
Determination Date, by (ii) a number equal to 1.0 minus the aggregate (but
without duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the applicable Interest Rate Determination Date
(including, without limitation, basic supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the
2
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Federal reserve system or other governmental authority having jurisdiction with
respect thereto, as now and from time to time in effect) for eurocurrency
funding (currently referred to as "Eurocurrency liabilities" in Regulation D of
such board) which are required to be maintained by Lender.
"LIBO RATE": shall mean the per annum rate of interest which is ordinarily
reported on page 3750 of the Telerate Matrix (in U.S. Dollars) that will be paid
for a deposit, in immediately available funds, of a principal amount
substantially equal to the outstanding balance of the Inventory Loan and having
a maturity comparable to the Interest Period; provided, however, if, for
whatever reason, Lender shall be unable to ascertain the LIBO Rate pursuant to
the preceding provisions, the LIBO Rate in such circumstances shall, for the
Interest Period in question, be the LIBO Adjusted Rate.
"LOAN DOCUMENTS": this Agreement, the Note, the Subsidiary Notes, the
Environmental Certificate, the Access Agreement, the Security Documents, and all
other documents now or hereafter executed in connection with the Inventory Loan,
as they may be from time to time renewed, amended, restated or replaced.
"LOAN FEE": the amount identified in the Schedule as the Loan Fee.
"MATERIAL ADVERSE EFFECT": shall mean a material adverse effect on (a) the
business, financial condition, or operations of (i) Primary Borrower
individually or (ii) all Subsidiary Borrowers collectively, (b) the ability of
(i) Primary Borrower individually or (ii) all Subsidiary Borrowers collectively,
to Perform their Obligations to Lender, (c) one or more Time-Share Projects
which, in the aggregate, have contributed at least fifteen percent (15%) of the
total Eligible Inventory constituting the Borrowing Base, or (d) the Collateral.
In determining whether any individual event would result in a Material Adverse
Effect, notwithstanding the fact that such event does not OF ITSELF have such
effect, a Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events would result
in a Material Adverse Effect.
"MATURITY DATE": the date (or if not a Business Day, the first Business
Day hereafter) which is identified in the Schedule as the Maturity Date.
"MAXIMUM INVENTORY LOAN AMOUNT": the amount identified in the Schedule as
he Maximum Inventory Loan Amount.
"MEASURING DATE": means the first Business Day of each calendar month
during he Term.
"MINIMUM OPINION MATTERS": due organization and good standing of Borrower
and (if any) other sureties for the Performance of the Obligations who are not
natural persons; due authorization, execution and delivery of the Loan
Documents; enforceability of the Loan Documents (including choice of law
provisions); compliance of the Inventory Loan with usury laws; the absence of
conflict between the Loan Documents and its Articles of Organization and Legal
Requirements; compliance by Borrower with applicable laws (other than with
respect to instances of noncompliance which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect); compliance
of the Time-Share Program Governing Documents and Time-Share Program Consumer
Documents with applicable laws; and proper perfection of the required liens and
security interests.
"MINIMUM REQUIRED TIME-SHARE APPROVALS": all registrations/consents to
sell and all final subdivision public reports/public offering
statements/prospectus, as applicable.
"MORTGAGE": a mortgage/deed of trust/deed to secure debt recorded against
the Inventory in a given Time-Share Project (or other form of development), as
it may be from time to time renewed, amended, restated or replaced.
"NOTE": the Master Promissory Note to be made and delivered by Primary
Borrower to Lender pursuant to PARAGRAPH 4.1, having a face amount equal to the
Maximum Inventory Loan Amount, dated as of even date herewith, and made payable
to Lender to evidence the Inventory Loan, as it may be from time to time
renewed, amended, restated or replaced, together with any Allonges thereto or
any Subsidiary Notes executed by the Primary Borrower and one or more Subsidiary
Borrowers in order to evidence a portion of the indebtedness evidenced by the
Note.
"OBLIGATIONS": all obligations, agreements, duties, covenants and
conditions of Borrower to Lender which Borrower is now or hereafter required to
Perform under the Loan Documents.
"OPENING PREPAYMENT DATE": the date identified in the Schedule as the
Opening Prepayment Date.
"PERFORMANCE" OR "PERFORM": full, timely and faithful performance.
"PERMITTED DEBT": the meaning given to it in PARAGRAPH 6.2(B).
"PERMITTED ENCUMBRANCES": the rights, restrictions, reservations,
encumbrances, easements and liens of record which Lender has agreed to accept,
as set forth in an exhibit which shall be attached to each Mortgage prior to the
time such Mortgage is recorded.
"PRIMARY BORROWER" Sunterra Corporation, a Maryland corporation.
"PURCHASE CONTRACTS": a purchase contract pursuant to which any Borrower
sold a Time-Share Interest to a Purchaser.
3
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"PURCHASER": shall mean each owner of one or more Time-Share Interests in
those Time-Share Projects with respect to which unsold Time-Share Interests
constitute a portion of the Eligible Inventory.
"PURCHASERS": shall mean all Purchasers with respect to a particular
Time-Share Project, taken as a whole (with the result that representations,
warranties or covenants with respect to any Borrower's fulfillment of its
obligations to "Purchasers" shall not be breached as a result of the failure of
Borrower to have performed any obligations as to one or more individual
Purchasers unless such failure arises to the level of a material failure as to
all Purchasers considered collectively).
"QUIET ENJOYMENT RIGHTS": the meaning given to it in PARAGRAPH 4.1(B).
"RELEASE FEE": shall have the meaning set forth in PARAGRAPH 3.2.
"RENEWAL FEE": the meaning given to it in PARAGRAPH 2.9(B).
"REQUIRED CLOSING DATE": the date identified in the Schedule as the
Required Closing Date.
"RESOLUTION": a resolution of a corporation certified as true and correct
by an authorized officer of such corporation, a certificate signed by the
manager of a limited liability company and such members whose approval is
required, or a partnership certificate signed by all of the general partners of
such partnership and such other partners whose approval is required.
"RETAIL VALUE": shall mean (i) with respect to any Time-Share Project that
has had a period of at least twelve consecutive months in which Time-Share
Interests have been sold, the actual average sales price of such Time-Share
Interests achieved during the most recent twelve-month period preceding a given
Measuring Date, and (ii) with respect to any Time-Share Project that has not had
a period of at least twelve consecutive months of sales of Time-Share Interests,
the average retail value of all unsold Time-Share Interests as determined by
Lender in its discretion; provided, that at such time as an individual
Time-Share Project has generated sales of Time-Share Interests for a minimum of
twelve consecutive months, Retail Value shall be established pursuant to clause
(i) of this definition. The Retail Value applicable to Eligible Inventory shall
be established at the time such Eligible Inventory is contributed to the
Borrowing Base, and shall thereafter only be adjusted pursuant to the
revaluation process set forth in PARAGRAPH 2.7(C).
"SANTA FE RESERVE": shall be a reserve against borrowing availability
hereunder, in the amount of $750,000, with respect to that part of the Eligible
Inventory which consists of Approved Alternative Interests located in the Villas
de Santa Fe Time-Share Project owned by Primary Borrower.
"SCHEDULE": the Schedule of Additional Terms which follows the signature
pages of the parties.
"SECURITY DOCUMENTS": the CILP Assignment, the Mortgage, this Agreement
and all other documents now or hereafter securing the Obligations, as they may
be from time to time renewed, amended, restated or replaced.
"SUBSIDIARY BORROWER": means each Affiliate of Primary Borrower which has
contributed Inventory to the Borrowing Base from time to time throughout the
Term; provided, that references to one or more Subsidiary Borrowers shall only
include entities which own unsold Inventory then constituting a portion of the
Borrowing Base, with the result that any entity which may previously have
contributed Eligible Inventory to the Collateral, but which Eligible Inventory
has now all been sold or otherwise released from the Borrowing Base, shall no
longer be considered a Subsidiary Borrower hereunder (unless such entity
thereafter contributes additional Inventory to the Borrowing Base).
"SUBSIDIARY NOTES": shall mean those promissory notes made and delivered
by Primary Borrower and individual Subsidiary Borrowers to Lender from time to
time, having a face amount equal to the original Borrowing Base attributable to
the Eligible Inventory contributed by the applicable Subsidiary Borrower, as any
such note may from time to time be renewed, amended, restated or replaced. Each
Subsidiary Note shall indicate that the indebtedness evidenced thereby
constitutes a segregated portion of, and is not in addition to, the indebtedness
evidenced by the Note. Each Subsidiary Borrower shall be liable only with
respect to those Subsidiary Notes as to which such Subsidiary Borrower is a
maker.
"TERM": the duration of this Agreement, commencing on the date as of which
this Agreement is entered into and ending when all of the Obligations have been
Performed and Lender has no further obligation to extend credit in connection
with the Inventory Loan.
"THIRD PARTY CONSENTS": those consents which Lender requires Borrower to
obtain, or which Borrower is contractually or legally obligated to obtain, from
others in connection with the transaction contemplated by the Loan Documents.
"TIME-SHARE ASSOCIATION": the association established in accordance with
each Time-Share Declaration to manage the applicable Time-Share Program and in
which all owners of Time-Share Interests are or will be members.
"TIME-SHARE DECLARATION": with respect to each Time-Share Project, that
declaration of covenants, conditions and restrictions which has been executed by
Borrower, is recorded in the real estate records of the county where the
Time-Share Project is located, and establishes the Time-Share Program.
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"TIME-SHARE INTEREST": an undivided fractional fee simple interest as
tenant-in-common (or an estate for years with a remainder over in fractional fee
simple as tenant-in-common) either (a) in a Unit (coupled with an undivided
fractional fee simple interest as tenant-in-common in the common areas of the
Time-Share Project) or (b) in the entire Time-Share Project, together with the
right to occupy assigned Units for use periods which have been properly reserved
pursuant to the rules and regulations of the Time-Share Program, and the
non-exclusive right to use such common elements during the same occupancy
period.
"TIME-SHARE MANAGEMENT AGREEMENT": the management agreement from time to
time entered into between the Time-Share Association and the Time-Share Manager
for the management of the Time-Share Program.
"TIME-SHARE MANAGER": the person from time to time employed by the
Time-Share Association to manage the Time-Share Program.
"TIME-SHARE PROGRAM": the program created under each Time-Share
Declaration by which purchasers may own Time-Share Interests, enjoy their
respective Time-Share Interests on a recurring basis, and share the expenses
associated with the operation and management of such program.
"TIME-SHARE PROGRAM CONSUMER DOCUMENTS": the Purchase Contract, notes,
security documents, deed of conveyance, credit application, credit disclosures,
rescission right notices, final subdivision public reports/prospectuses/public
offering statements, receipt for public report, exchange affiliation agreement
and other documents used or to be used by Borrower in connection with the sale
of Time-Share Interests.
"TIME-SHARE PROGRAM GOVERNING DOCUMENTS": the Time-Share Declaration, the
Articles of Organization for the Time-Share Association, any and all rules and
regulations from time to time adopted by the Time-Share Association, the
Time-Share Management Agreement and any subsidy agreement by which Borrower is
obligated to subsidize shortfalls in the budget of the Time-Share Program in
lieu of paying assessments.
"TIME-SHARE PROJECT": each Time-Share Project identified in the Schedule
as a Time-Share Project. References herein to one or more Time-Share Projects
shall only include such projects in which Inventory then constituting a portion
of the Borrowing Base is situated, with the result that any project which may
previously have contributed Inventory to the Collateral, but as to which all
such Inventory has now been sold or otherwise released from the Borrowing Base,
shall no longer be considered a Time-Share Project hereunder (unless the owner
of such project thereafter contributes additional Inventory situated in such
project to the Borrowing Base).
"TITLE INSURER": a title company which is acceptable to Lender and issues
a Title Policy.
"TITLE POLICY": in connection with each Mortgage which encumbers a part of
the Collateral, an ALTA lender's policy of title insurance in an amount not less
than the Borrowing Base of the Inventory secured by the Mortgage, insuring
Lender's interest in the Mortgage as a perfected, direct, first and exclusive
lien on the Inventory encumbered thereby, subject only to the Permitted
Encumbrances, issued by Title Insurer and in form and substance acceptable to
Lender.
"UNIT": a dwelling unit in the Time-Share Project.
2. LOAN COMMITMENT; USE OF PROCEEDS
2.1 INVENTORY LOAN COMMITMENT; DETERMINATION OF ADVANCE AMOUNTS. Lender
hereby agrees, if Borrower has Performed all of the Obligations then due, to
make Advances to Borrower in accordance with the terms and conditions of this
Agreement for the purposes specified in PARAGRAPH 2.4. The maximum amount of an
Advance shall be equal to (a) the aggregate Borrowing Base for all Eligible
Inventory less (b) the then unpaid principal balance of the Inventory Loan;
provided, however, at no time shall the unpaid principal balance of the
Inventory Loan exceed the Maximum Inventory Loan Amount; and provided further,
that with respect to the first Advance made on the basis of Inventory which has
not previously constituted a portion of the Borrowing Base, the maximum amount
of such Advance shall not exceed the Borrowing Base directly attributable to
such new Inventory. The foregoing notwithstanding, Primary Borrower shall not be
entitled to borrow the amount contained in the Santa Fe Reserve until such time
as (i) those improvements which have been disclosed to Lender prior to the
Closing Date with respect to the Units situated in the Villas de Santa Fe
project have been completed for certain of such Units, and (ii) Primary Borrower
has provided to Lender evidence that all amounts required to complete such
improvements for such Units have been expended. Upon completion of the foregoing
items, Primary Borrower shall be permitted to borrow that percentage of the
Santa Fe Reserve as is equal to the percentage of Approved Alternative Interests
which remain as unsold Time-Share Interests following such conversion (with the
result that Primary Borrower shall not be permitted to borrow such portion of
the Santa Fe Reserve as arose with respect to Approved Alternative Interests
which were sold or otherwise disposed of prior to the time such interests were
converted into Time-Share Interests).
2.2 INVENTORY LOAN REVOLVER. The Inventory Loan is a revolving line of
credit; however, all Advances shall be viewed as a single loan. Borrower shall
not be entitled to obtain Advances after the expiration of the Borrowing Term
unless Lender, in its discretion, agrees in writing with Borrower to make
Advances thereafter on terms and conditions satisfactory to Lender.
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2.3 CONTINUATION OF OBLIGATIONS THROUGHOUT TERM; RIGHT TO EXTEND. Whether
or not Borrower's right to obtain Advances has terminated, this Agreement and
Borrower's liability for Performance of the Obligations shall continue until the
end of the Term. Borrower shall have the right, exercisable not earlier than one
hundred and twenty (120) days, nor later than sixty (60) days, prior to the
Original Borrowing Term Expiration Date to extend the Borrowing Term (herein,
the "EXTENSION OPTION") through the Extended Borrowing Term Expiration Date;
provided, however, that the Extension Option shall expire and be of no further
force or effect upon the occurrence of an Event of Default at any time prior to
the Original Borrowing Term Expiration Date (regardless of whether or not any
notice from Primary Borrower of its election to exercise the Extension Option
has then been delivered to Lender). In the event Primary Borrower elects to
exercise the Extension Option, Primary Borrower shall pay the Renewal Fee
described in PARAGRAPH 2.9(B) hereof.
2.4 USE OF ADVANCES. Borrower will use the proceeds of the Inventory Loan
only for working capital and other business purposes.
2.5 REPAYMENT OF INVENTORY LOAN. The Inventory Loan shall be evidenced by
the Note and shall be repaid in immediately available funds according to the
terms of the Note and this Agreement.
2.6 INTEREST. Except as otherwise provided in this Note or this Agreement,
interest ("BASIC INTEREST") shall accrue on the unpaid principal balance of the
Inventory Loan from time to time outstanding at the Basic Interest Rate. Basic
Interest shall be calculated on the basis of the actual number of days elapsed
during the period for which interest is being charged predicated on a year
consisting of three hundred sixty (360) days. Installments of principal, Basic
Interest and any other amounts due and payable under the Loan Documents shall
earn interest after they are due at the Default Rate. At the option of Lender,
while an Event of Default exists, interest shall accrue at the Default Rate.
2.7 INVENTORY LOAN REQUIRED PAYMENTS.
(a) MONTHLY PAYMENTS; MATURITY. Commencing on the last Business Day
of the calendar month in which the initial Advance is made and on the last
Business Day of each succeeding month thereafter during the Borrowing Term
(each, an "INSTALLMENT DATE"), Borrower will pay to Lender an installment
payment equal to accrued interest on the then outstanding balance of the
Inventory Loan. Following expiration of the Borrowing Term, accrued
interest on the outstanding principal balance of the Inventory Loan shall
be payable monthly, on the last Business Day of each month, and the
outstanding principal balance of the Inventory Loan shall be payable
through the payment of Release Fees concurrently with the sale or other
disposition of individual items of Inventory until the Maturity Date, at
which time all outstanding amounts shall be due and payable. Lender shall
provide to Primary Borrower, on or before the seventh day prior to the end
of each calendar month, a statement of accrued interest for such month
(which statement shall assume that the unpaid principal balance of the
Inventory Loan remains the same from the date of such statement through
the end of the applicable month). Lender shall deliver such statement of
accrued interest either via facsimile or e-mail, whichever method of
delivery is selected by Primary Borrower. In the event actual accrued
interest for a calendar month is different from the accrued interest set
forth on any monthly statement as a result of a change in the outstanding
principal balance of the Inventory Loan, an appropriate adjustment shall
be calculated by Lender and reflected in the next monthly accrued interest
statement.
(b) BORROWING BASE MAINTENANCE. If there exists a Borrowing Base
Shortfall and Borrower knows of the occurrence of such condition or should
have known of its occurrence by virtue of reports required to be delivered
to Lender, Borrower, without notice or demand, will immediately (a) make
to Lender a principal payment in an amount equal to the Borrowing Base
Shortfall plus accrued and unpaid interest on such principal payment or
(b) deliver to Lender additional Eligible Inventory having an aggregate
Borrowing Base not less than the Borrowing Base Shortfall. Simultaneously
with the delivery of additional Eligible Inventory to correct a Borrowing
Base Shortfall, Borrower will deliver to Lender all of the items (except
for a "REQUEST FOR ADVANCE AND CERTIFICATION") required to be delivered by
Borrower to Lender pursuant to PARAGRAPH 4.2, together with a "BORROWER'S
CERTIFICATE" in form and substance identical to EXHIBIT C.
(c) REVALUATION OF RETAIL VALUE. Each party shall have the right to
request a revaluation of the Retail Value applicable to all then existing
Eligible Inventory semi-annually, each such revaluation to occur on a
mid-year or annual anniversary of the Closing Date. In the event either
Lender or Borrower requests a revaluation of Retail Value, each Borrower
owning Eligible Inventory as to which a revaluation has been requested
shall provide to Lender a summary of the actual sales prices attained
during the preceding twelve (12) months with respect to the particular
Eligible Inventory involved, and the average actual sales price realized
upon sales of Eligible Inventory shall
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become the new Retail Value with respect to the particular Time-Share
Project in which such Eligible Inventory was sold. The foregoing
notwithstanding, no revaluation shall take place with respect to any
Eligible Inventory which has constituted a part of the Collateral for less
than six (6) months. In the event that such recalculated Retail Value is
less than the Retail Value originally established when Eligible Inventory
from such Time-Share Project was contributed to the Borrowing Base, and as
a result thereof a Borrowing Base Shortfall is created, Borrower shall
comply with the Borrowing Base maintenance requirements of PARAGRAPH
2.7(b) above.
2.8 PREPAYMENT. Without the prior written consent of Lender, Borrower
shall not be entitled to prepay the Inventory Loan except in accordance with the
terms of this Agreement. Commencing on the Opening Prepayment Date applicable to
a given Advance, Borrower shall have the option to prepay such Advance in full
but not in part on any Installment Date, upon thirty (30) days prior written
notice. The foregoing to the contrary notwithstanding, any principal payments
required pursuant to PARAGRAPHS 2.7 OR 3.2 hereof shall not be considered
prepayments which are prohibited hereby, nor shall any prepayment resulting from
the application of (i) insurance proceeds following an insured casualty or (ii)
condemnation proceeds in the event any Units of Inventory are condemned, be
considered prepayments which are prohibited hereby.
2.9 LOAN FEE; RENEWAL FEE; ADMINISTRATIVE FEE.
(a) LOAN FEE. Borrower will pay to Lender the Loan Fee in accordance
with the requirements set forth in the Schedule. The Loan Fee shall be
earned by Lender upon approval of the Inventory Loan on substantially the
terms contained in this Agreement, and shall be non-refundable.
(b) RENEWAL FEE. In the event Primary Borrower elects to exercise
the Extension Option, Primary Borrower shall pay to Lender on the Original
Borrowing Term Expiration Date a fee ("RENEWAL FEE") equal to one percent
(1.0%) of the difference between the Maximum Inventory Loan Amount and the
outstanding principal balance of the Inventory Loan as of the date ten
(10) days prior to the Original Borrowing Term Expiration Date.
(c) ADMINISTRATIVE FEE. In the event Borrower requests more than one
Advance in any given calendar month, Borrower shall pay to Lender a fee
("ADMINISTRATIVE FEE"), equal to $500 for each such additional Advance.
2.10 APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS. Notwithstanding
anything in the Loan Documents to the contrary, the amount of all payments or
amounts received by Lender with respect to the Inventory Loan shall be applied
to the extent applicable under the Loan Documents: (a) first, to any past due
payments of interest on the Inventory Loan and to accrued interest on the
Inventory Loan through the date of such payment, including any default interest;
(b) then, to any late fees, overdue risk assessments, collection fees and
expenses and any other fees and expenses due to Lender under the Loan Documents
in connection with the Inventory Loan; and (c) last, the remaining balance, if
any, to the unpaid principal balance of the Inventory Loan; provided, however,
while an Event of Default or Incipient Default exists, each payment received
with respect to the Inventory Loan shall be applied to such amounts owed to
Lender by Borrower as Lender in its discretion may determine. In calculating
interest and applying payments as set forth above: (i) interest on the Inventory
Loan shall be calculated and collected through the date payment is actually
received by Lender; (ii) interest on the outstanding balance of the Inventory
Loan shall be charged during any grace period permitted under the Loan
Documents; (iii) at the end of each month, all past due interest and other past
due charges provided for under the Loan Documents with respect to the Inventory
Loan shall be added to the principal balance of the Inventory Loan; and (iv) to
the extent that Borrower makes a payment or Lender receives any payment or
proceeds of the Collateral for Borrower's benefit that is subsequently
invalidated, set aside or required to be repaid to any other person or entity,
then, to such extent, the Obligations in connection with the Inventory Loan
intended to be satisfied shall be revived and continue as if such payment or
proceeds had not been received by Lender, and Lender may adjust the Inventory
Loan balance in order to take into account such repayment, by restoring the
amount of the repayment to the outstanding balance of the Obligations (with the
particular Obligations deemed to have been revived to be such Obligations as
Lender, in its discretion, deems appropriate under the circumstances), giving
retroactive effect to the restoration of such particular Obligations as if the
payment required to be repaid had never been received by Lender. The provisions
of this PARAGRAPH 2.10 are also subject to the parties rights and obligations
under the Loan Documents as to the application of proceeds of the Collateral
following an Event of Default.
2.11 BORROWER'S UNCONDITIONAL OBLIGATION TO MAKE PAYMENTS. Whether or not
the proceeds from the Collateral shall be sufficient for that purpose, Borrower
will pay when due all payments required to be made pursuant to any of the Loan
Documents, Borrower's obligation to make such payments being absolute and
unconditional.
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3. SECURITY
3.1 GRANT OF SECURITY INTEREST IN COLLATERAL. To secure the Performance of
all of the Obligations, Borrower hereby grants to Lender a security interest in
and collaterally assigns to Lender the Collateral. Such security interest shall
be absolute, continuing, perfected, direct, first, exclusive and applicable to
all existing and future Advances and to all of the Obligations. In addition,
each Borrower acknowledges and agrees that, for purposes of administrative
convenience to Borrowers collectively, Borrowers have requested, and Lender has
agreed, to permit the Borrowing Base to be calculated on a consolidated basis,
with the further result that the determination of any Borrowing Base Shortfall
which would obligate Borrower to make the payments required by PARAGRAPH 2.7(b)
herein shall only occur if a Borrowing Base Shortfall exists on a consolidated
basis. The foregoing approach results in significant administrative conveniences
to each Borrower, in that each Borrower may benefit from over-collateralization
existing on a consolidated basis by virtue of the fact that such an approach
permits the streamlined release procedure described in first sentence of
PARAGRAPH 3.2 hereof. Accordingly, each Borrower hereby acknowledges that it has
received benefit from the consolidated Borrowing Base Reporting procedure
implemented by this Agreement, and each Borrower acknowledges that the security
interest granted in favor of Lender pursuant to this Agreement, and pursuant to
each of the Mortgages, shall secure, up to the full amount of the Borrowing Base
contributed by each such Borrower, the payment and performance of all
Obligations of each Borrower to Lender. Borrower further warrants and guarantees
the enforceability of Lender's security interest in the Collateral. Lender is
hereby appointed Borrower's attorney-in-fact to take any and all actions in
Borrower's name and/or on Borrower's behalf deemed necessary or appropriate by
Lender with respect to the collection and remittance of payments (including the
endorsement of payment items) received on account of the Collateral; provided,
however, that Lender shall not take any action which is described in PARAGRAPH
7.2(C) unless an Event of Default exists.
3.2 RELEASE OF COLLATERAL. Borrower shall be entitled to sell or otherwise
dispose of those unsold Time-Share Interests constituting a portion of the
Collateral, and to obtain a partial release of such Time-Share Interests from
the Mortgage in favor of Lender without payment of a release fee, IF at the time
such release is requested: (i) no Event of Default or Incipient Default exists;
(ii) after giving effect to the proposed release of such Inventory, no Borrowing
Base Shortfall will exist or be created; and (iii) Borrower has requested Lender
in writing to release such items of Inventory. In the event that a proposed sale
or other disposition of Inventory will result in a Borrowing Base Shortfall,
then Lender shall only be obligated to release the Inventory being sold upon
satisfaction of the following conditions: (a) no Event of Default or Incipient
Default exists; (b) Borrower has paid a fee ("RELEASE FEE") in an amount equal
to twenty-five percent (25%) of the Retail Value which was allocated to such
item of Inventory at the time such item of Inventory was designated as Eligible
Inventory hereunder and contributed to the Borrowing Base; and (c) Borrower has
requested Lender in writing to release such Inventory. Borrower will prepare all
release documents which shall be in form and substance satisfactory to Lender,
and will deliver them to Lender for execution. Lender will send Borrower the
release documents within a reasonable time after satisfaction of the conditions
precedent specified in the foregoing sentence.
3.3 BORROWING BASE REPORTING. At least two (2) Business Days prior to the
date any Advance is requested hereunder, or prior to the date upon which
Borrower is requesting a partial release of Time-Share Interests pursuant to
PARAGRAPH 3.2 hereof, Borrower shall provide to Lender a report (herein, the
"BORROWING BASE REPORT") with respect to each Time-Share Project in which unsold
Time-Share Interests make up a part of the Eligible Inventory upon which such
request for an Advance is based, or in which Time-Share Interests proposed to be
released are situated. A form of the Borrowing Base Report is attached hereto as
Exhibit B. Each Borrowing Base Report shall be prepared and presented on both a
consolidated and consolidating basis (i.e., each Borrowing Base Report shall
have a section describing, for all Borrowers, the aggregate of the Eligible
Inventory contributed by such Persons, with separate sections identifying
Eligible Inventory contributed by each individual Time-Share Project or other
form of development). Borrower will also deliver to Lender, promptly after
receipt of a written request for them, such other reports with respect to
Inventory constituting part of the Collateral as Lender may from time to time
reasonably require, provided that the information requested by Lender is readily
available on Borrower's record keeping systems, or can be developed from
information which is readily available. In the event that the information
requested by Lender is neither readily available on Borrower's record keeping
systems nor can it be developed from such readily available information, then
Borrower and Lender shall confer and attempt to identify alternate information
which is readily available to Borrower to be substituted for the information
requested.
3.4 MAINTENANCE OF SECURITY. Borrower will deliver or cause to be
delivered to Lender and will maintain or cause to be maintained in full force
and effect throughout the Term (except as otherwise expressly provided in such
Loan Document), as security for the Performance of the Obligations, the Security
Documents and all other security required to be given to Lender pursuant to the
terms of this Agreement.
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4. CONDITIONS PRECEDENT TO ADVANCES; MINIMUM AMOUNT AND MAXIMUM FREQUENCY
OF ADVANCES; METHOD OF DISBURSEMENT
4.1 DELIVERY OF LOAN DOCUMENTS AND DUE DILIGENCE ITEMS PRIOR TO INITIAL
ADVANCE. Lender's obligation to make the initial Advance shall be subject to and
conditioned upon the terms and conditions set forth in the following
subparagraphs and elsewhere in this Agreement, and Lender's obligation to make
each subsequent Advance hereunder shall be subject to satisfaction of the
following terms and conditions, to the extent applicable to any Subsidiary
Borrower not previously a party to this Agreement, or any Time-Share Project and
Eligible Inventory not previously contributed to the Borrowing Base:
(a) LOAN DOCUMENTS. Borrower shall have delivered to Lender or
caused to be delivered to Lender the following duly executed, delivered
(where appropriate) and in form and substance satisfactory to Lender, not
later than the Required Closing Date:
(i) the Loan Documents;
(ii) UCC financing statements for filing and/or recording, as
appropriate, where necessary to perfect the security interests in the
Collateral;
(iii) the Mortgage applicable to each Time-Share Project in
which unsold Time-Share Interests have been contributed as Collateral
hereunder;
(iv) the Title Policy applicable to each Mortgage;
(v) a favorable opinion or opinions from independent counsel
for Borrower, which counsel shall be satisfactory to Lender and which
opinion shall cover such matters as Lender may require, including, without
limitation, the Minimum Opinion Matters pertaining to Borrower and the
Time-Share Project (the foregoing notwithstanding, in the event Lender
funds an Advance under the Inventory Loan upon the basis of an opinion
delivered to Lender as to which Lender has not specifically reserved the
right to require additional opinions or to have such opinion otherwise be
supplemented, then such opinion shall be deemed acceptable regardless of
whether each item included within the description of Minimum Opinion
Matters has been addressed therein);
(vi) the Third Party Consents, if any;
(vii) a request for the first Inventory Loan Advance in form
and substance identical to EXHIBIT E-1; and
(viii)such other documents as Lender may reasonably require
to effect the intent and purposes of this Agreement.
(b) ORGANIZATIONAL, TIME-SHARE PROJECT AND OTHER DUE DILIGENCE
DOCUMENTS. Borrower shall have delivered to Lender (I) with respect to the
initial Advance hereunder, prior to the earlier of (a) the date of the
initial Advance or (b) the Required Closing Date; or (II) with respect to
each subsequent Advance hereunder, at least ten (10) Business Days (unless
a longer period is expressly specified) prior to the date such Advance is
requested to be funded, the following items (in applying the following
provisions, references to Borrower, a Time-Share Project, Title Policies,
etc., shall be deemed to apply only to those Borrowers which have
contributed a portion of the Collateral supporting the requested Advance
and only to the Time-Share Projects from which such contributed Collateral
is derived):
(i) the Articles of Organization of Borrower and (if any)
other sureties for the Obligations and, if applicable, their respective
managers, members and partners, to the extent any such entity is not a
natural person;
(ii) the Resolutions of Borrower and (if any) other sureties
for the Obligations and, if applicable, their respective managers, members
and partners, to the extent any such entity is not a natural person,
authorizing the execution and delivery of the Loan Documents, the
transactions contemplated thereby and such other matters as Lender may
reasonably require;
(iii) a certificate of good standing for Borrower and (if any)
other sureties for the Performance of the Obligations and, if applicable,
their respective managers, members and partners, to the extent any such
entity is not a natural person, from the state of its organization;
(iv) at least fifteen (15) Business Days prior to the date of
the Advance, a Phase I environmental assessment of the Time-Share Project;
(v) evidence that all taxes and assessments on the Time-Share
Project have been paid;
(vi) a title commitment or preliminary title report for the
issuance of the Title Policy insuring the Mortgage together with copies of
all documents referred to therein and, in the event responsibility for
recordation of the Mortgage and such other matters as are involved in the
escrow with respect thereto are to be handled by a title agent rather than
by the Title Insurer through a direct operation, a closing
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protection letter issued to Lender with respect to the issuing title agent
by the Title Insurer;
(vii) unless waived in writing by Lender, a 1997 ALTA/ACSM
survey map of the Time-Share Project prepared by a licensed land surveyor
acceptable to Lender, certified to Lender in writing and showing the
Time-Share Project, evidence of access to the Time-Share Project, all
easements necessary for the operation and use of the Time-Share Project,
and such other details as Lender may reasonably require; and/or at
Lender's option, a condominium map if any part of the Time-Share Project
has been dedicated to a condominium regime;
(viii) all permits, licenses, approvals and certificates for
the occupancy, use and operation of the Time-Share Project for time-share
and other intended uses, including any necessary architectural committee
approvals (and, with respect to any newly-completed construction,
including specifically the certificate of occupancy or other applicable
form of final governmental approval evidencing that such construction has
been satisfactorily completed), but excluding the Minimum Required
Time-Share Approvals;
(ix) evidence that the Time-Share Project is zoned for
time-share and other intended uses and that all approvals required for
such uses under any covenants, conditions and restrictions have been
obtained, which evidence shall be deemed satisfied by Borrower providing
to Lender a copy of the certificate of occupancy (or other applicable form
of final governmental approval) for the individual Time-Share Project, in
the absence of any direct evidence indicating non-compliance with
applicable zoning, the absence of any necessary approval, or a violation
of any existing covenant, condition or restriction;
(x) at least fifteen (15) Business Days prior to such
Advance, the Minimum Required Time-Share Approvals;
(xi) at least fifteen (15) Business Days prior to such
Advance, a copy of the Time-Share Program Governing Documents;
(xii) the Insurance Policies;
(xiii) at least fifteen (15) Business Days prior to such
Advance, evidence that the Time-Share Project is not located within a
flood prone area or, if within a flood zone, evidence that flood insurance
has been obtained;
(xiv) if requested by Lender, at least fifteen (15) Business
Days prior to such Advance, evidence of the current and continued
availability of utilities necessary to serve the Time-Share Project for
time-share and other intended uses;
(xv) if requested by Lender, at least fifteen (15) Business
Days prior to such Advance, evidence of access to and parking for the
Time-Share Project adequate for time-share and hotel uses;
(xvi) if requested by Lender, a copy of all marketing
contracts, management contracts, service contracts, operating agreements,
equipment leases, space leases and other agreements pertaining primarily
to the Time-Share Project and which are necessary for the sale, operation
and intended time-share use of the Time-Share Project and are not
otherwise required pursuant to another item in this paragraph;
(xvii) evidence that each owner of a Time-Share Interest will
have available to it the quiet and peaceful enjoyment of the Time-Share
Interest (including promised amenities and necessary easements) owned by
it which cannot be disturbed so long as such owner is not in default of
its obligations to pay the purchase price of its Time-Share Interest, to
pay assessments to the Time-Share Association, and to comply with
reasonable rules and regulations pertaining to the use of the Time-Share
Interest ("QUIET ENJOYMENT RIGHTS");
(xviii) the items required pursuant to EXHIBIT E; and
(xix) such other items as Lender requests which are reasonably
necessary to evaluate the request for the Advance and the satisfaction of
the conditions precedent to the Advance.
(c) CREDIT REPORTS; SEARCH REPORTS; SITE INSPECTIONS. Lender shall
have received, in form and substance satisfactory to Lender, the results
of UCC searches with respect to Borrower and the Time-Share Association
and lien, litigation, judgment and bankruptcy searches for Borrower and
(if existing) the Time-Share Association conducted in such jurisdictions
as Lender deems appropriate and having a currency meeting Lender's
requirements. In addition, a member of Lender's credit department shall
have visited the Time-Share Project and shall be satisfied with the
results of such inspection.
(d) STRUCTURAL AND MECHANICAL. If requested in writing by Lender,
Borrower shall
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provide to Lender, at Borrower's sole cost and expense, a structural
inspection report and mechanical inspection report covering the Time-Share
Project prepared by a construction consultant or engineer acceptable to
Lender. The results of such structural and mechanical inspection must be
satisfactory to Lender. In the event the structural and mechanical
inspection report reveals that repairs must be made to the Time-Share
Project, Borrower's budget shall include the cost of such repairs.
(e) YEAR 2000 COMPLIANCE. Evidence satisfactory to Lender that
Primary Borrower and each Subsidiary Borrower have taken all necessary
actions to cause each such Person's computer-based systems to be year 2000
compatible in all material respects (as such concept is more fully
described in PARAGRAPH 5.15 hereof).
4.2 ADDITIONAL CONDITIONS PRECEDENT FOR SUBSEQUENT ADVANCES. For each
Advance, Lender's obligation to make such Advance shall be subject to the terms
and conditions set forth in EXHIBIT E, including delivery of the items called
for therein at least five (5) Business Days prior to the date of such Advance.
4.3 GENERAL CONDITIONS PRECEDENT TO ALL ADVANCES. Lender's obligation to
fund any Advance is subject to and conditioned upon the additional terms and
conditions set forth in the following subparagraphs being satisfied at the time
of such Advance:
(a) No material adverse change shall have occurred in the Time-Share
Project, the Collateral, the business or financial condition of Borrower
(since the date of the latest financial and operating statements given to
Lender by or on behalf of Borrower), or the ability of Borrower to Perform
the Obligations.
(b) There shall have been no material, adverse change in the
warranties and representations made in the Loan Documents by Borrower
and/or any surety for the Performance of the Obligations.
(c) Neither an Event of Default nor Incipient Default shall have
occurred and be continuing.
(d) The interest rate applicable to the Advance (before giving
effect to any savings clause) will not exceed the maximum rate permitted
by the Applicable Usury Law.
(e) Borrower shall have paid to Lender the Loan Fee and any other
applicable fees which are required to be paid at the time of the Advance.
(f) To the extent that one or more of the Borrowers have requested
that they be permitted to make payments directly to the applicable Title
Insurers amounts which include, but are not necessarily limited to the
premium payable with respect to the issuance of the Title Policies in
connection with any prior disbursement of an Advance, Lender shall not be
obligated to fund a subsequent Advance until Borrower has made such
payment and Lender has received all Title Policies required hereunder. In
the event that Borrower for any reason fails to make such payment to the
Title Insurer, Lender shall be entitled to make such payment directly in
order to cause the Title Policy to be issued, and the amount of any such
payment shall constitute an Obligation hereunder.
4.4 CONDITIONS SATISFIED AT BORROWER'S EXPENSE. The conditions to Advances
shall be satisfied by Borrower at its expense.
4.5 MINIMUM AMOUNT AND MAXIMUM FREQUENCY OF ADVANCES. Advances shall be
made in amounts not less than the amounts identified in the Schedule as the
Minimum Advance Amount. Advances shall be made no more frequently in any
calendar month than the frequency identified in the Schedule as the Maximum
Advance Frequency.
4.6 DISBURSEMENT OF ADVANCES. Advances may be payable to Borrower; or if
requested by Borrower and approved in writing by Lender, to others, either
severally or jointly with Borrower, for the credit or benefit of Borrower.
Advances shall be disbursed by wire transfer or, at Borrower's option exercised
by written request to Lender, by check or drafts. Borrower will pay Lender's
reasonable charge in connection with any wire transfer, and Lender's current
charge is identified in the Schedule as the Wire Transfer Fee. Lender may, at
its option, withhold from any Advance any sum (including costs and expenses)
then due to it under the terms of the Loan Documents or which Borrower would be
obligated to reimburse Lender pursuant to the Loan Documents if first paid
directly by Lender.
4.7 NO WAIVER. Although Lender shall have no obligation to make an Advance
unless and until all of the conditions precedent to the Advance have been
satisfied, Lender may, at its discretion, make Advances prior to that time
without waiving or releasing any of the Obligations.
5. BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender that:
5.1 GOOD STANDING. Borrower is and duly organized, validly existing and in
good standing as a business organization of the type identified in the Schedule
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as Borrower's Type of Business Organization under the laws of the state
identified in the Schedule as Borrower's State of Organization and is in good
standing and authorized to do business in the jurisdiction where the Time-Share
Project is located and in each jurisdiction where Borrower is at any time
selling Time-Share Interests or where at any time the location or nature of its
properties or its business makes such good standing and qualification necessary.
Borrower has full power and authority to carry on its business and own its
property.
5.2 POWER AND AUTHORITY; ENFORCEABILITY. Borrower has full power and
authority to execute and deliver the Loan Documents and to Perform the
Obligations. All action necessary and required by Borrower's Articles of
Organization and all other Legal Requirements for Borrower to obtain the
Inventory Loan, to execute and deliver the Loan Documents which have been or
will be executed and delivered in connection with the Loan Documents and to
Perform the Obligations has been duly and effectively taken. The Loan Documents
are, and to Borrower's knowledge shall be, legal, valid, binding and enforceable
against Borrower; and do not violate the Applicable Usury Law or constitute a
default or result in the imposition of a lien under the terms or provisions of
any agreement to which Borrower is a party. Except for the Third Party Consents
delivered pursuant to PARAGRAPH 4.1(A) and the consents evidenced by the
Resolutions delivered pursuant to PARAGRAPH 4.1(B), no consent of any
governmental agency or any other person not a party to this Agreement is or will
be required as a condition to the execution, delivery or enforceability of the
Loan Documents.
5.3 BORROWER'S PRINCIPAL PLACE OF BUSINESS. Borrower's principal place of
business and chief executive office are located at the addresses identified in
the Schedule as Borrower's Principal Place of Business and Borrower's Chief
Executive Office.
5.4 NO LITIGATION. There is no action, litigation or other proceeding
pending or, to Borrower's knowledge, threatened before any arbitration tribunal,
court, governmental agency or administrative body against Borrower which could
reasonably be expected to result in a Material Adverse Effect, other than with
respect to actions or proceedings involving or relating to the operation of an
individual Time-Share Project only (e.g., personal injury lawsuits) which are
adequately covered by insurance with respect to which the applicable insurance
carrier has neither denied coverage nor delivered to the applicable Borrower a
letter reserving its rights with respect to the claims asserted. Borrower will
promptly notify Lender if any such action, litigation or proceeding is commenced
or threatened, and the foregoing representation and warranty shall be deemed to
be true and accurate at any given time after giving effect to all disclosures of
any hereafter-arising matters of which Borrower has provided notice to Lender
after the date of this Agreement.
5.5 COMPLIANCE WITH LEGAL REQUIREMENTS. Borrower has complied with all
Legal Requirements, including, without limitation all Legal Requirements of (a)
the state in which the Time-Share Project is located and (b) all other
governmental jurisdictions in which either (i) the Time-Share Project is located
or (ii) Time-Share Interests will be sold or offered for sale, except to the
extent that the failure of Borrower to have complied with any such Legal
Requirements would not reasonably be expected to have a Material Adverse Effect.
5.6 NO MISREPRESENTATIONS. The Loan Documents and all certificates,
financial statements and written materials furnished to Lender by or on behalf
of Borrower in connection with the Inventory Loan do not contain as of the date
furnished to Lender any untrue statement of a material fact or omit to state a
fact which materially adversely affects or in the future may materially
adversely affect the Time-Share Project, the Collateral, the business or
financial condition of Borrower, or the ability of Borrower to Perform the
Obligations.
5.7 NO DEFAULT FOR THIRD PARTY OBLIGATIONS. Borrower is not in default
under any other agreement evidencing, guaranteeing or securing borrowed money or
a receivables purchase financing or in violation of or in default under any
material term in any other material agreement, Inventory, order, decree or
judgment of any court, arbitration or governmental authority to which it is a
party or by which it is bound.
5.8 PAYMENT OF TAXES AND OTHER IMPOSITIONS. Borrower has filed all tax
returns and, subject to the provisions of PARAGRAPH 9.21, has paid all
Impositions, if any, required to be filed by it or paid by it, including real
estate taxes and assessments relating to the Time-Share Project or the
Collateral.
5.9 SALES ACTIVITIES. Prior to the date of this Agreement, Borrower has
sold Time-Share Interests and offered Time-Share Interests for sale only in the
jurisdictions identified in the Schedule as the Jurisdictions Where Sales And/or
Offers to Sell Have Occurred.
5.10 TIME-SHARE INTEREST NOT A SECURITY. Borrower has not sold or offered
for sale any Time-Share Interest as an investment. Neither the sale nor the
offering for sale of any Time-Share Interest will constitute the sale or the
offering for sale of a security under any applicable law.
5.11 ZONING COMPLIANCE. Neither time-share use nor other transient use and
occupancy of the Time-Share Project violates or constitutes or will violate or
constitute a non-conforming use or require a variance under any private covenant
or restriction or any zoning, use or similar law, ordinance or regulation
affecting the use or occupancy of the Time-Share Project.
5.12 ELIGIBLE INVENTORY. Each unsold Time-Share Interest which is
encumbered in favor of Lender pursuant to this Agreement and against which an
Advance
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is requested, or which is encumbered in favor of Lender pursuant to Borrowers'
obligations under PARAGRAPH 2.7 shall constitute Eligible Inventory at the time
such Advance is made. Borrower has Performed in all material respects all of its
obligations to Purchasers, to the extent that Borrower was obligated to have
performed such obligations as of the date hereof, and with respect to any
obligations to Purchasers as to which performance by Borrower is to occur in the
future, Borrower is not aware of any fact or circumstance which causes it to
believe that it will be unable to timely perform those obligations.
5.13 ASSOCIATION; ASSESSMENTS AND RESERVES. Each Purchaser, upon the
closing of the purchase by such Person of a Time-Share Interest, automatically
became a member of the applicable Time-Share Association, and is thereafter
entitled to remain a member of the Time-Share Association and be entitled to
vote on the affairs thereof, subject only to retaining ownership of a Time-Share
Interest. At all times throughout the Term: (a) the Time-Share Association will
have authority to levy annual assessments to cover the costs of maintaining and
operating the Time-Share Project; (b) to Borrower's knowledge, the Time-Share
Association will be solvent; (c) to Borrower's knowledge, levied assessments
will be adequate to cover the current costs of maintaining and operating the
Time-Share Project and to establish and maintain a reasonable reserve for
capital improvements; and (d) to Borrower's knowledge, there will be no events
which could give rise to a material increase in such costs, except for additions
of subsequent phases of the Time-Share Project that will not materially increase
assessments.
5.14 TITLE TO AND MAINTENANCE OF COMMON AREAS AND AMENITIES. Except as
otherwise permitted and disclosed by the Time-Share Program Governing Documents:
(a) the Time-Share Association or the owners of Time-Share Interests in common
will at all times own the furnishings in the Units and all the common areas in
the Time-Share Project and other amenities which have been promised or
represented as being available to Purchasers (except to the extent of those
amenities which are available to the Purchasers pursuant to a lease or form of
access other than ownership, which alternate form of access was disclosed to the
Purchasers in the Time-Share Program governing documents), free and clear of
liens and security interests except for the Permitted Encumbrances; (b) no part
of the Time-Share Project is or will be subject to partition by the owners of
Time-Share Interests (provided, however, that individual owners of Time-Share
Interests have the right to partition those Time-Share Interests, which
partition does not affect the Time-Share Project taken as a whole); and (c) all
access roads and utilities and off-site improvements necessary to the use of the
Time-Share Project will have been dedicated to and/or accepted by the
responsible governmental authority or utility company or are owned by an
association of owners of property in a larger planned development or
developments of which the Time-Share Project is a part.
5.15 YEAR 2000. Borrower has taken all action reasonably believed to be
sufficient to assure that there will be no material adverse change to Borrower's
business by reason of the advent of the year 2000, including without limitation
that all computer-based systems, embedded microchips and other processing
capabilities effectively recognize and process dates after April 1, 1999.
5.16 SURVIVAL AND ADDITIONAL REPRESENTATIONS AND WARRANTIES. The
representations and warranties and contained in this ARTICLE 5 are in addition
to, and not in derogation of, the representations and warranties contained
elsewhere in the Loan Documents and shall be deemed to be made and reaffirmed
prior to the making of each Advance.
6. BORROWER'S COVENANTS
6.1 BORROWER'S AFFIRMATIVE COVENANTS.
(a) GOOD STANDING. Borrower will maintain its existence as a
business organization of the type described below when it has signed this
Agreement, duly organized, validly existing and in good standing as the
type of organization identified in the Schedule as Borrower's Type of
Business Organization under the laws of the state identified in the
Schedule as State of Organization and remain in good standing and
authorized to do business in the jurisdiction where the Time-Share Project
is located and in each jurisdiction where Borrower is then selling
Time-Share Interests or where at any time the location or nature of its
properties or its business then makes such good standing and qualification
necessary. Borrower will maintain full authority to Perform the
Obligations and to carry on its business and own its property.
(b) COMPLIANCE WITH LEGAL REQUIREMENTS. Borrower will comply with
all Legal Requirements in all material respects, including, without
limitation, all Legal Requirements of the state in which the Time-Share
Project is located and all other governmental jurisdictions in which the
Time-Share Project is located or in which Time-Share Interests will be
sold or offered for sale.
(c) INSURANCE. Borrower will pay the cost of and will maintain and
deliver to Lender evidence of insurance policies required by Lender which
cover such risks, are written by insurers and are in amounts and on forms
satisfactory to Lender. The foregoing notwithstanding, to the extent that
it is the responsibility of any Time-Share Association to
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maintain insurance which is required by Lender, Borrower shall be
permitted to perform its obligations pursuant to this PARAGRAPH 6.1(c) by
delivering evidence to Lender confirming that the necessary insurance is
being maintained by such Time-Share Association; provided, however, that
with respect to any Time-Share Association as to which one or more
Borrower has the power to direct and control its activities, such Borrower
shall be responsible for providing satisfactory insurance in the event
such Time-Share Association has failed to do so.
(d) REPORTS.
(i) FINANCIAL INFORMATION. Commencing with the period ending
December 31, 1999, Borrower will furnish or cause to be furnished to
Lender within one hundred twenty (120) days after each fiscal year of the
subject, a copy of the current annual financial statements of Borrower and
of each Time-Share Association; and will furnish or cause to be furnished
to Lender within forty-five (45) days after each interim quarterly fiscal
period of the subject, a copy of the current financial statements of
Borrower for the period commencing with the first day of the fiscal year
and concluding with such quarter end. Such financial statements shall
contain a balance sheet as of the end of the relevant fiscal period and
statements of income and of cash flow for such fiscal period (together, in
each case, with the comparable figures for the corresponding period of the
previous fiscal year), all in reasonable detail. All financial statements
shall be prepared in accordance with generally accepted accounting
principles, consistently applied. All financial statements of Borrower and
of each Time-Share Association shall be certified by the chief financial
officer of such entity. Annual statements of Borrower and of each
Time-Share Association shall be audited, certified by a recognized firm of
certified public accountants reasonably satisfactory to Lender. Anything
in this PARAGRAPH 6.1(D)(I) to the contrary notwithstanding, the following
two conventions shall be applied to Borrower's reporting obligations
hereunder. With respect to Borrower's required financial information
hereunder, Borrower shall be permitted to satisfy its reporting
obligations by providing a copy of Primary Borrower's consolidated
financial statements as filed with the U.S. Securities and Exchange
Commission (the "SEC"), as long as those reports are in compliance with
then existing SEC reporting requirements for publicly traded companies.
With respect to the financial information required to be provided for the
various Time-Share Associations, in the event that no Borrower is in
control of a given Time-Share Association, then Borrower's obligation to
provide the foregoing financial information shall only require Borrower to
use its reasonable good faith efforts to obtain and deliver to Lender the
information requested. In the event that Primary Borrower shall ever cease
to be a reporting company with the SEC, with the result that the financial
statements provided by Primary Borrower hereunder shall no longer be
Primary Borrower's consolidated financial statements as filed with the
SEC, then upon such occurrence Primary Borrower shall be obligated to
deliver to Lender, together with such financial statements as Primary
Borrower does deliver to Lender, a certificate signed by Borrower's chief
executive officer and chief financial officer stating that, to the best of
such person's knowledge, there exists no Event of Default or Incipient
Default or, if any such Event of Default or Incipient Default exists,
specifying the nature and period of its existence and what action Borrower
proposes to take with respect to it. Such certificate shall state
specifically that Borrower is in compliance with PARAGRAPHS 6.1(C), 6.2(B)
and 6.2(C), along with any required financial covenants. For purposes of
this paragraph, in the case of a partnership or limited liability company,
"CHIEF EXECUTIVE OFFICER" of an entity shall mean the general partner,
member or manager having primary responsibility for the operations of such
entity; and "CHIEF FINANCIAL OFFICER" of such an entity shall mean the
general partner, member or manager having primary responsibility for the
finances of such entity.
(ii) LITIGATION. Borrower will promptly notify Lender if any
action, litigation or other proceeding becomes pending or, to Borrower's
knowledge, threatened before any arbitration tribunal, court, governmental
agency or administrative body against Borrower, which could reasonably be
expected to result in a Material Adverse Effect (exclusive of those items
which are related to an individual Time-Share Project and with respect to
which adequate insurance coverage [which has not been denied or reserved
against] exist, in the manner described in PARAGRAPH 5.4 hereof).
(iii) SALES REPORTS. On or before the fifteenth (15th) day
after the end of each month, Borrower will cause to be furnished to
Lender, if requested by Lender in writing, a sales report showing the
number of sales and closings of Time-Share Interests and the aggregate
dollar amount thereof, including down payments, during such month.
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(iv) TIME-SHARE PROJECT AND SALES INFORMATION. Borrower will
deliver current price lists for Time-Share Interests to Lender from to
time to time within ten (10) Business Days after receipt of a written
request from Lender to do so. Borrower will deliver to Lender from time to
time, as available and promptly upon amendment or effective date, upon
written request from Lender for such information, sales literature,
registrations/ consents to sell, and final public reports/public offering
statements/ prospectuses. Borrower will deliver to Lender, upon written
request from Lender for such information, any changes which Borrower
proposes or any other person having the power to do so proposes be made to
the Time-Share Program Governing Documents last delivered to Lender,
together with a description and explanation of the changes; and other
items requested by Lender which relate to the Time-Share Interests.
(v) RIGHT TO INSPECT. Borrower will at its expense permit
Lender and its representatives at all reasonable times to inspect the
Time-Share Project and to inspect, audit and copy Borrower's books and
records.
(vi) TIME-SHARE ASSOCIATION BUDGETS. Borrower will submit to
Lender (if the same had been requested by Lender in writing) within ten
(10) days after each is available, proposed annual maintenance and
operating budgets of the Time-Share Association, certified to be adequate
by the Time-Share Manager (or if there is not a Time-Share Manager, by an
authorized officer of the Time-Share Association) and a statement of the
annual assessment to be levied upon the owners of Time-Share Interests;
and will use reasonable good faith efforts to cause to be made available
to Lender for inspection, auditing and copying, upon Lender's request, the
books and records of the Time-Share Association.
(vii) MATERIAL INCREASES TO ASSESSMENTS. If Borrower has
knowledge or has reason to believe that an event (other than general
changes in the economy) has occurred or could occur which could give rise
to a material increase in assessments to cover the then current costs of
operating the Time-Share Project and to establish and maintain a
reasonable reserve for capital improvements to the Time-Share Project, it
will notify Lender of the occurrence of such event.
(viii) ADDITIONAL INFORMATION. Borrower will deliver to Lender
the reports and other information required pursuant to PARAGRAPH 3.3, and
Borrower will make available such further information as Lender may from
time to time reasonably request.
(e) [INTENTIONALLY NOT USED.]
(f) PAYMENT OF TAXES AND OTHER IMPOSITIONS. Subject to the
provisions of PARAGRAPH 9.21, Borrower will file all tax returns and will
pay all Impositions, if any, required to be filed by it or paid by it,
including real estate taxes and assessments relating to the Time-Share
Project or the Collateral. Borrower will provide to Lender (if Lender has
requested in writing that Borrower provide such information) not more than
thirty (30) days after such Impositions required to be paid pursuant to
the preceding sentence become delinquent evidence that all Impositions
required to be paid pursuant to the preceding sentence on the Units and
Time-Share Project common areas and related amenities have been paid in
full.
(g) PAYMENT OF IMPOSITIONS. Borrower will promptly pay upon demand
all Impositions imposed upon Lender by any state of the United States or
political subdivision thereof or the United States by reason of the Loan
Documents, the Collateral and/or any sale, rental, use, delivery or
transfer of title to the Collateral, other than any tax measured by net
income payable by Lender to any State of the United States or political
subdivision thereof or to the United States of America under SECTION 11 OR
1201 of the Internal Revenue Code, as amended, in consequence of the
receipt of payments provided for in the Loan Documents. If it is unlawful
for Borrower to pay such Impositions, Borrower shall not be required to
pay such Impositions; but Lender may demand payment of such additional
amount as is necessary to maintain Lender's yields on the Inventory Loan
in either a single payment or at Lender's option, in installment payments,
and Borrower will pay such amount upon demand. If it is unlawful to pay
such additional amount, Borrower shall not be required to pay it; but
Lender may demand immediate payment of the Obligations in full, and
Borrower will pay the Obligations in full within sixty (60) days after
such demand. If Lender has not received evidence satisfactory to it from
Borrower that such Impositions have been paid by Borrower within five (5)
Business Days after demand was made upon Borrower to make such payment,
Lender may, at its option, pay the same, and Borrower shall immediately
reimburse Lender for such sums so expended, together with interest at the
Default Rate.
(h) FURTHER ASSURANCE. Borrower will execute or cause to be executed
all
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documents and do or cause to be done all acts reasonably necessary for
Lender to perfect or evidence and to continue the perfection of the liens
and security interest of Lender in the Collateral or otherwise to
reasonably effectuate the intent and purposes of the Loan Documents.
(i) FULFILLMENT OF OBLIGATIONS TO PURCHASERS. Borrower will fulfill,
and will cause its Affiliates, agents and independent contractors at all
times to fulfill, all their respective material obligations to Purchasers.
Borrower will Perform all of its material obligations under the Time-Share
Program Consumer Documents and the Time-Share Program Governing Documents.
(j) MATERIAL INCREASES TO ASSESSMENTS. Borrower (i) will use
reasonable good faith efforts to cause the Time-Share Association to (A)
discharge its obligations under the Time-Share Program Governing Documents
and (B) maintain a reasonable reserve for capital improvements to the
Time-Share Project; and (ii) so long as Borrower controls the Time-Share
Association, will cause each such Time-Share Association to maintain a
budget requiring the payment of dues and assessments which are designed,
on an annual basis, to make available sufficient funds to adequately
provide for the maintenance and operating expenses incurred by the
Time-Share Association, together with a reasonable reserve for capital
improvements and the amount of any installment of real property taxes
currently due and payable with respect to the Time-Share Project and
related amenities, and in the event that, as a result of unexpected
contingencies, the amount budgeted in any given year fails to adequately
provide for the foregoing, Borrower shall cause such Time-Share
Association to take reasonable steps, either in the form of a special
assessment or through an increase in the annual assessment for upcoming
years, in order to make-up for any budgetary shortfalls.
(k) MAINTENANCE OF TIME-SHARE PROJECT AND OTHER PROPERTY. Borrower
will maintain or cause to be maintained in good condition and repair all
common areas in the Time-Share Project and other on-site amenities which
have been promised or represented as being available to Purchasers and
which are not the responsibility of the Time-Share Association to maintain
and repair and, to the extent owned by Borrower or an Affiliate of
Borrower, all portions of improvements in which Units are located and are
not part of the Time-Share Project. Borrower will maintain or cause the
Time-Share Association to maintain a reasonable reserve to assure
compliance with the terms of the foregoing sentence, to the extent that
Borrower is in control of the applicable Time-Share Association. In
applying the foregoing provision, Borrower shall be permitted to implement
the funding of necessary reserves on a staged basis, through increases in
applicable Time-Share Association dues over a period of one or more years,
as deemed appropriate by Borrower in its reasonable and prudent business
judgment, to the extent that such increases would reasonably be expected
to cause sufficient reserve amounts to be available on or before the date
the expenditure of funds from such reserves was anticipated to occur. In
the event Borrower is no longer in control of such Time-Share Association,
Borrower shall use reasonable good faith efforts to cause such Time-Share
Association to include within its budget a reasonable reserve to assure
compliance with the terms of this PARAGRAPH 6.1(K).
(l) MAINTENANCE OF LARGER TRACT. To the extent either the Time-Share
Project is part of a larger common ownership regime or planned development
or parts of buildings in which Units are located are not part of the
Time-Share Project, Borrower will pay its share of such common expenses as
has been allocated to the Inventory. Borrower will use commercially
reasonable efforts to cause all such property which is not part of the
Time-Share Project to be professionally managed in a first class manner.
(m) YEAR 2000. Borrower shall take all action reasonably believed to
be sufficient to assure that there will be no material adverse change to
Borrower's business by reason of the advent of the year 2000, including
without limitation that all computer-based systems, embedded microchips
and other processing capabilities effectively recognize and process dates
after April 1, 1999. At Lender's request, Borrower shall provide to Lender
assurance reasonably acceptable to Lender that Borrower's computer-based
systems, embedded microchips and other processing capabilities are year
2000 compatible.
(n) TANGIBLE NET WORTH. Primary Borrower shall maintain, on a
consolidated basis, Tangible Net Worth (as hereafter defined) in an amount
of not less than $170,000,000. "TANGIBLE NET WORTH" shall be defined as
Primary Borrower's stockholders' equity, on a consolidated basis, LESS the
amount of any intangible assets shown on Primary Borrower's consolidated
balance sheet. The foregoing covenant shall be tested quarterly,
commencing December 31, 1999, concurrently with the delivery of Primary
Borrower's quarterly and
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annual financial information to the SEC, and on the basis of the financial
information reported to the SEC.
(o) LEVERAGE RATIO. Primary Borrower shall maintain, on a
consolidated basis, a ratio of total liabilities to Tangible Net Worth of
not greater than 6.0:1.0. The foregoing covenant shall be tested
quarterly, commencing December 31, 1999, simultaneously with, and on the
basis of, Primary Borrower's financial information as reported to the SEC.
(p) NET PROFIT MARGIN. Primary Borrower shall maintain, on a
consolidated basis, a "Net Profit Margin" (as hereafter defined) of at
least five percent (5%). "NET PROFIT MARGIN" shall be defined, for any
period of measurement, as Primary Borrower's consolidated net income
during such period divided by Primary Borrower's consolidated gross
revenue during the same period (with respect to the determination of both
net income and gross revenues, excluding the effect of any extraordinary
gains or losses and any other non-recurring items not in the ordinary
course of business, as determined in accordance with GAAP). The foregoing
covenant shall be tested quarterly, commencing December 31, 1999, on the
basis of the trailing two fiscal quarters most recently completed as of
each test date, on the basis of Primary Borrower's financial information
as reported to the SEC.
6.2 BORROWER'S NEGATIVE COVENANTS.
(a) CHANGE IN BORROWER'S NAME OR PRINCIPAL PLACE OF BUSINESS.
Borrower will not change its name or move its principal place of business
or chief executive office except upon not less than sixty (60) days prior
written notice to Lender.
(b) RESTRICTIONS ON ADDITIONAL INDEBTEDNESS. Borrower will not incur
any additional indebtedness which indebtedness is in any manner secured by
a lien on all or any part of the Inventory.
(c) RESTRICTIONS ON LIENS OR TRANSFERS. Borrower, without the prior
written consent of Lender, will not: (i) sell, convey, lease, pledge,
hypothecate, encumber or otherwise transfer any security for the
Performance of the Obligations, except to the extent Borrower is permitted
to sell unsold Inventory constituting a portion of the Collateral and to
obtain releases from Lender with respect to such sales, in accordance with
PARAGRAPH 3.2 hereof; (ii) permit or suffer to exist any liens, security
interests or other encumbrances on the Inventory, except for the Permitted
Encumbrances and liens and security interests expressly granted to Lender;
(iii) sell, convey, lease, transfer or dispose of all or substantially all
of its assets to another entity; or (iv) enter into any merger,
consolidation, or other form of corporate reorganization, unless Borrower
is the surviving corporation of such merger, consolidation or
reorganization. The foregoing notwithstanding, nothing in this PARAGRAPH
6.2(C) is intended to restrict or otherwise prohibit the ability of
Primary Borrower to cause any Affiliate to be merged with or into Primary
Borrower, as long as Primary Borrower is the surviving entity of such
merger.
(d) NO SALES ACTIVITIES PRIOR TO APPROVAL. Borrower will not sell
any Time-Share Interest or offer any Time-Share Interest for sale in any
jurisdiction, unless: (i) Borrower has delivered to Lender true and
complete copies of the Minimum Required Time-Share Approvals required in
such jurisdiction for its proposed conduct and all other evidence required
by Lender that Borrower has complied in all material respects with the
Legal Requirements of such jurisdiction governing its proposed conduct;
and (ii) Borrower has delivered to Lender the Time-Share Program Consumer
Documents AND the Time-Share Program Governing Documents which Borrower is
using in connection with the Time-Share Project and the sale or offering
for sale of Time-Share Interests in such jurisdiction and such documents
have been approved by Lender, which approval shall not be unreasonably
withheld.
(e) NO MODIFICATION OF TIME-SHARE DOCUMENTS. Borrower will not
cancel or materially modify, or consent to or suffer to exist any
cancellation or material modification of any Time-Share Program Governing
Document. The foregoing notwithstanding, the following events shall not be
deemed a material modification to any Time-Share Program Governing
Document requiring the consent of Lender hereunder: (1) the addition of
Units to any Time-Share Program, to the extent such Units were
contemplated to be added in stages as an individual Time-Share Project was
developed, or (2) a conversion of all or a portion of the rights in a
given Time-Share Project from a structure in which such ownership rights
are characterized as Time-Share Interests which are identifiable to a
specific Unit and/or period of time to a structure in which such ownership
rights are characterized as "points" or other comparable form which may or
may not be identifiable to a specific Unit and/or period of time, in the
manner from time to time implemented by Borrower with respect to the
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program that Primary Borrower refers to as "Club Sunterra," provided that
the resulting interests in each Time-Share Project constitute separately
identifiable and legally described direct ownership interests in real
property.
(f) MAINTENANCE OF LARGER TRACT. To the extent either the Time-Share
Project is part of a larger common ownership regime or planned development
or parts of buildings in which Units are located are not part of the
Time-Share Project, for the period during which Borrower is in control of
the larger common ownership regime or planned development, Borrower will
not permit common expenses to be allocated to the Time-Share Project in an
unreasonably disproportionate manner.
6.3 SURVIVAL OF COVENANTS. The covenants contained in this ARTICLE 6 are
in addition to, and not in derogation of, the covenants contained elsewhere in
the Loan Documents and shall be deemed to be made and reaffirmed prior to the
making of each Advance.
7. DEFAULT
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events or
conditions shall constitute an Event of Default by Borrower under the Loan
Documents:
(a) failure of Lender to receive from Borrower within five (5)
Business Days of the date when due and payable (i) any amount payable
under the Note or (ii) any other payment due under the Loan Documents,
except for the payment due at the Maturity Date for which no grace period
is allowed;
(b) any representation or warranty which is made by a person other
than Lender and is contained in the Loan Documents or in any certificate
furnished to Lender under the Loan Documents by or on behalf of Borrower
proves to be, in any material respect, false or misleading as of the date
deemed made, and Borrower has failed to cause such representation or
warranty to become true and correct, in all material respects, within
thirty (30) days following notice from Lender;
(c) a default in the Performance of the Obligations set forth in
PARAGRAPH 6.1(n), 6.1(o), 6.1(p), 6.2(b), 6.2(c)(i), 6.2(c)(iii), OR
6.2(c)(iv);
(d) a default in the Performance of the Obligations or a violation
of any term, covenant or provision of the Loan Documents (other than a
default or violation referred to elsewhere in this PARAGRAPH 7.1) which
continues unremedied (i) for a period of thirty (30) days after notice of
such default or violation to Borrower in the case of a default under or
violation of PARAGRAPH 6.2(c)(ii) or any default or violation which can be
cured by the payment of money alone or (ii) for a period of thirty (30)
days after notice to Borrower in the case of any other default or
violation;
(e) an "EVENT OF DEFAULT," as defined in any of the other Loan
Documents;
(f) any default by Borrower under any other agreement evidencing,
guaranteeing or securing borrowed money or a receivables purchase
financing involving an obligation in excess of One Million Dollars
($1,000,000) to make a payment of principal or interest or to repurchase
receivables;
(g) any final, non-appealable judgment or decree for money damages
or for a fine or penalty against Borrower which is not paid and discharged
or stayed within thirty (30) days thereafter and which, when aggregated
with all other judgment(s) or decree(s) that have remained unpaid and
undischarged or are not stayed for such period, are in excess of One
Million Dollars ($1,000,000);
(h) any party holding a lien on or security interest in any
Collateral commences foreclosure or similar sale thereof, unless Borrower
causes such proceeding to be stayed pending determination of the rights of
the respective parties with respect to such Collateral, which stay
continually prevents the party holding the lien or security interest from
proceeding against the Collateral at issue;
(i) a material adverse change in the Time-Share Project, the
Collateral or the business or financial condition of Borrower, which
change is not enumerated in this PARAGRAPH 7.1, as the result of which
Lender in good faith deems the prospect of Performance of the Obligations
materially impaired or the Collateral materially imperiled;
(j) Borrower shall (i) generally not be paying its debts as they
become due, (ii) file, or consent by answer or otherwise to the filing
against it of, a petition for relief or reorganization, arrangement or
liquidation or any other petition in bankruptcy or insolvency under the
laws of any jurisdiction, (iii) make an assignment for the benefit of its
creditors, (iv) consent to the appointment of a custodian, receiver,
trustee or other officer with similar powers for itself or any substantial
part of its property, (v) be adjudicated insolvent, (vi) dissolve or
commence to wind-up its affairs or
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(vii) take any action for purposes of the foregoing; or a petition for
relief or reorganization, arrangement or liquidation or any other petition
in bankruptcy or insolvency or the appointment of a custodian under the
laws of any jurisdiction is filed against Borrower or a custodian is
appointed for Borrower, the Collateral or any material part of Borrower's
property and such proceeding is not dismissed and appointment vacated
within ninety (90) days thereafter;
(k) any of the events enumerated in PARAGRAPHS 7.1(F), (G), (I) or
(j) occurs with respect to any general partner or manager of Borrower, if
Borrower is a partnership or limited liability company, or any surety for
the Performance of the Obligations; or
(l) failure of Lender to receive from Borrower, within thirty (30)
days of the date Borrower knows of such event, notice of any event which
renders any representation or warranty in any Loan Documents false in any
material, adverse respect were it made after the occurrence of such
condition.
7.2 REMEDIES. At any time after an Event of Default has occurred and while
it is continuing, Lender may but without obligation, in addition to the rights
and powers granted elsewhere in the Loan Documents and not in limitation
thereof, do any one or more of the following:
(a) cease to make further Advances;
(b) declare the Note, together with all other sums owing by Borrower
to Lender in connection with the Inventory Loan, immediately due and
payable without notice, presentment, demand or protest, which are hereby
waived by Borrower;
(c) proceed to protect and enforce its rights and remedies under the
Loan Documents and to foreclose or otherwise realize upon its security for
the Performance of the Obligations, or to exercise any other rights and
remedies available to it at law, in equity or by statute; and
(d) without notice to Borrower, have a receiver appointed for
Borrower and/or its property.
7.3 APPLICATION OF PROCEEDS DURING AN EVENT OF DEFAULT. Notwithstanding
anything in the Loan Documents to the contrary, while an Event of Default
exists, any cash received and retained by Lender in connection with the
Collateral may be applied to payment of the Obligations in the manner provided
in PARAGRAPH 7.5.
7.4 UNIFORM COMMERCIAL REMEDIES; SALE.
(a) UCC REMEDIES; SALE OF COLLATERAL. Lender shall have all of the
rights and remedies of a secured party under the Uniform Commercial Code
of the State of Arizona and of the state in which the applicable
Collateral is situated, and all other rights and remedies accorded to a
Secured Party at equity or law with respect to that portion of the
Collateral not consisting of an interest in real property. Any notice of
sale or other disposition of such non-real property Collateral given not
less than ten (10) days prior to such proposed action in connection with
the exercise of Lender's rights and remedies shall constitute reasonable
and fair notice of such action. Lender may postpone or adjourn any such
sale from time to time by announcement at the time and place of sale
stated on the notice of sale or by announcement of any adjourned sale,
without being required to give a further notice of sale. Any such sale may
be for cash or, unless prohibited by applicable law, upon such credit or
installment as Lender may determine. Borrower shall be credited with the
net proceeds of such sale only when such proceeds are actually received by
Lender in good current funds. Despite the consummation of any such sale,
Borrower shall remain liable for any deficiency on the Obligations which
remains outstanding following such sale. All net proceeds recovered
pursuant to a sale shall be applied in accordance with the provisions of
PARAGRAPH 7.5.
(b) LENDER'S RIGHT TO EXECUTE CONVEYANCES. Lender may, in the name
of Borrower or in its own name, make and execute all conveyances,
assignments and transfers of the Collateral sold in connection with the
exercise of Lender's rights and remedies, and Lender is hereby appointed
Borrower's attorney-in-fact for this purpose.
7.5 APPLICATION OF PROCEEDS. The proceeds of any sale of all or any part
of the Collateral made in connection with the exercise of Lender's rights and
remedies shall be applied in the following order of priorities; first, to the
payment of all costs and expenses of such sale, including without limitation,
reasonable compensation to Lender and its agents, attorneys' fees, and all other
expenses, liabilities and advances incurred or made by Lender, its agents and
attorneys, in connection with such sale, and any other unreimbursed expenses for
which Lender may be reimbursed pursuant to the Loan Documents; second, to the
payment of all late charges required by the Loan Documents to be paid by
Borrower, in such order and manner as Lender shall in its discretion determine;
third, to the payment of the Obligations, in such order and manner as Lender
shall in its discretion determine, with no amounts applied to payment of
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<PAGE>
principal until all interest has been paid; fourth, to the other Obligations in
such order and manner as Lender may determine; and last, to the payment to
Borrower, its successors or assigns, or to whosoever may be lawfully entitled to
receive the same, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
7.6 LENDER'S RIGHT TO PERFORM. Lender may, at its option, and without any
obligation to do so, pay, perform and discharge any and all obligations agreed
to be paid or Performed in the Loan Documents by Borrower or any surety for the
Performance of the Obligations if (a) such person fails to do so and (b) (i) an
Event of Default exists and at least five (5) Business Day's notice has been
given to such person of Lender's intention to take such action, (ii) the action
taken by Lender involves obtaining insurance which such person has failed to
maintain in accordance with the Loan Documents or to deliver evidence thereof,
or (iii) in the opinion of Lender, such action must be taken because an
emergency exists or to preserve any of the Collateral or its value. For such
purposes Lender may use the proceeds of the Collateral. All amounts expended by
Lender in so doing or in exercising its remedies under the Loan Documents
following an Event of Default shall become part of the Obligations, shall be
immediately due and payable by Borrower to Lender upon demand, and shall bear
interest at the Default Rate from the dates of such expenditures until paid.
7.7 NON-EXCLUSIVE REMEDIES. No remedy in any Loan Document conferred on or
reserved to Lender is intended to be exclusive of any other remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given under any Loan Document or now or hereafter existing at
law or in equity. No delay or omission to exercise any right or power shall be
construed to be a waiver of or acquiescence to any default or a waiver of any
right or power; and every such right and power may be exercised from time to
time and as often as may be deemed expedient.
7.8 WAIVER OF MARSHALLING. Borrower, for itself and for all who may claim
through or under it, hereby expressly waives and releases all right to have the
Collateral, or any part of the Collateral, marshalled on any foreclosure, sale
or other enforcement of Lender's rights and remedies.
7.9 ATTORNEY-IN-FACT. For the purpose of exercising its rights and
remedies under PARAGRAPHS 7.2(c) and 7.6, Lender may do so in Borrower's name or
its name and is hereby appointed as Borrower's attorney-in-fact to take any and
all actions in Borrower's name and/or on Borrower's behalf as Lender may deem
necessary or appropriate in its discretion in the accomplishment of such
purposes.
8. COSTS AND EXPENSES; INDEMNIFICATION
8.1 COSTS AND EXPENSES. Borrower will pay on demand any and all costs and
expenses incurred by Lender (exclusive of Lender's employees' expenses other
than travel expenses) in connection with the initiation, documentation and
closing of the Inventory Loan, the making of Advances, the protection of the
Collateral, or the enforcement of the Obligations against Borrower, including,
without limitation, all attorneys', inspecting architect's/engineer's and other
professionals' fees (including, without limitation, reasonable out-of-pocket
expenses and reasonable and normal charges of such attorneys' and other
professionals for photocopy, telecopy and computer services, and clerical
overtime), consumer credit reports, and revenue, documentary stamp, transaction
and intangible taxes. Without limiting the generality of the foregoing, if a
bankruptcy proceeding is commenced by or against Borrower or otherwise involving
the Collateral, Lender shall, to the extent not already provided for herein, be
entitled to recover, and Borrower shall be obligated to pay, Lender's attorneys'
fees and costs incurred in connection with: any determination of the
applicability of the bankruptcy laws to the terms of the Loan Documents or
Lender's rights thereunder; any attempt by Lender to enforce or preserve its
rights under the bankruptcy laws or to prevent Borrower or any other person from
seeking to deny Lender its rights thereunder; any effort by Lender to protect,
preserve or enforce its rights against the Collateral, or seeking authority to
modify the automatic stay of 11 U.S.C. SECTION 362 or otherwise seeking to
engage in such protection, preservation or enforcement; or any proceeding(s)
arising under the bankruptcy laws, or arising in or related to a case under the
bankruptcy laws.
8.2 INDEMNIFICATION. Borrower will INDEMNIFY, PROTECT, HOLD HARMLESS, and
defend Lender, its successors, assigns and shareholders (including corporate
shareholders), and the directors, officers, employees, servants and agents of
the foregoing, for, from and against: (a) any and all liability, damage,
penalties, or fines, loss, costs or expenses (including, without limitation,
court costs and attorneys' fees), claims, demands, suits, proceedings (whether
civil or criminal), orders, judgments, penalties, fines and other sanctions
whatsoever asserted against it and arising from or brought in connection with
the Time-Share Project, the Collateral, Lender's status by virtue of the Loan
Documents, creation of liens and security interests, the terms of the Loan
Documents or the transactions related thereto, or any act or omission of
Borrower or an Agent, or their respective employees or agents, whether actual or
alleged unless such act or omission is caused by Lender's gross negligence or
willful misconduct; and (b) any and all brokers' commissions or finders' fees or
other costs of similar type by any party in connection with the Inventory Loan.
Each Borrower and Lender hereby represents and warrants to
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the other that neither such Person has engaged the services of a broker of any
other Person to act as an intermediary in connection with the Inventory Loan. On
written request by a person or other entity covered by the above agreement of
indemnity, Borrower will undertake, at its own cost and expense, on behalf of
such indemnitee, using counsel satisfactory to the indemnitee, the defense of
any legal action or proceeding to which such person or entity shall be a party.
At Lender's option, Lender may at Borrower's expense prosecute or defend any
action involving the priority, validity or enforceability of the Collateral.
9. CONSTRUCTION AND GENERAL TERMS
9.1 PAYMENT LOCATION. All monies payable under the Loan Documents shall be
paid to Lender at its address set forth following its signature in lawful monies
of the United States of America, unless otherwise designated in the Loan
Documents or by Lender by notice.
9.2 ENTIRE AGREEMENT. The Loan Documents exclusively and completely state
the rights and obligations of Lender and Borrower with respect to the Inventory
Loan. No modification, variation, termination, discharge, abandonment or waiver
of any of the provisions or conditions of the Loan Documents shall be valid
unless in writing and signed by a duly authorized representative of the party
sought to be bound by such action. The Loan Documents supersede any and all
prior representations, warranties and/or inducements, written or oral,
heretofore made by Lender and Borrower concerning this transaction, including
any commitment for financing.
9.3 POWERS COUPLED WITH AN INTEREST. The powers and agency hereby granted
by Borrower are coupled with an interest and are irrevocable until the
Obligations have been paid in full and are granted as cumulative to Lender's
other remedies for collection and enforcement of the Obligations.
9.4 COUNTERPARTS; FACSIMILE SIGNATURES. Any Loan Document may be executed
in counterpart, and any number of copies of such Loan Document which have been
executed by all parties shall constitute one (1) original. Delivery of an
executed counterpart of any Loan Document by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of such Loan Document.
Any party delivering an executed counterpart of any Loan Document by
telefacsimile shall also deliver a manually executed counterpart of such Loan
Document, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of such Loan Document.
9.5 NOTICES. All notices, requests or demands required or permitted to be
given under the Loan Documents shall be in writing, and shall be deemed
effective (a) upon hand delivery, if hand delivered; (b) one (1) Business Day
after such are deposited for delivery via Federal Express or other nationally
recognized overnight courier service; or (c) three (3) Business Days after such
are deposited in the United States mails, certified or registered mail, all with
delivery charges and/or postage prepaid, addressed as shown below, or to such
other address as the party being notified may have designated in a notice given
to the other party. Written notice may be given by telecopy to the telecopier
number shown below or to such other telecopier number as the party being
notified may have designated in a notice given to the other party, which notice
shall be effective on the day of receipt if received during the recipient's
normal business hours on the day of receipt or otherwise on the next Business
Day; provided that such notice shall not be deemed effective unless not later
than the next Business Day, a copy of such notice is hand delivered or deposited
for delivery via courier or in the United States mails in accordance with the
requirements set forth above. The notice addresses and telecopy numbers for
Primary Borrower and Lender are set forth at the end of this Agreement following
their respective signatures. All notices required to be given to any Borrower
may be given to such Borrower at the notice address for Primary Borrower set
forth herein, each Subsidiary Borrower at any time a party to this Agreement
acknowledging that such Subsidiary Borrower maintains executive offices and
functions sufficient for the receipt of notice at the offices of Primary
Borrower.
9.6 SUCCESSORS AND ASSIGNS. All the covenants of Borrower and all the
rights and remedies of the Lender contained in the Loan Documents shall bind
Borrower, and, subject to the restrictions on merger, consolidation and
assignment contained in the Loan Documents, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights in the Loan Documents in
whole or in part. Except as may be expressly provided in a Loan Document, no
person or other entity shall be deemed a third party beneficiary of any
provision of the Loan Documents.
9.7 SEVERABILITY. If any provision of any Loan Document is held to be
invalid, illegal or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of the Loan Documents
shall not in any way be affected or impaired thereby. In lieu of each such
illegal, invalid or unenforceable provision, there shall be added to the Loan
Document affected, a provision that is legal, valid and enforceable and as
similar in terms to such illegal, invalid and unenforceable provision as may be
possible.
9.8 TIME OF ESSENCE. Time is of the essence in the Performance of the
Obligations.
9.9 MISCELLANEOUS. All headings are inserted for convenience only and
shall not affect any construction or interpretation of the Loan Documents.
Unless otherwise indicated, all references in a Loan Document to clauses and
other subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of the Loan
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Document; the words "HEREIN," "HEREOF," "HERETO," "HEREUNDER" and words of
similar import refer to the Loan Document as a whole and not to any particular
paragraph, clause or other subdivision; and reference to a numbered or lettered
subdivision of an Article or paragraph shall include relevant matter within the
Article or paragraph which is applicable to but not within such numbered or
lettered subdivision. All Schedules and Exhibits referred to in this Agreement
are incorporated in this Agreement by reference. Whenever the words "including",
"include", or "includes" are used in the Loan Documents, they shall be
interpreted in a non-exclusive manner as though the words, "without limitation,"
immediately followed the same.
9.10 CHOICE OF LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED THEREIN, THE
LOAN DOCUMENTS AND THE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES THERETO
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ARIZONA (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND TO THE
EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED STATES.
9.11 CHOICE OF JURISDICTION; WAIVER OF VENUE. EACH OF BORROWER AND LENDER:
(A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS, JURISDICTION AND VENUE OF
THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY, AND TO THE PROCESS,
JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER PROCEEDINGS ARISING OUT OF OR
RELATING TO ANY LOAN DOCUMENT OR THE SUBJECT MATTER THEREOF, OR, IF LENDER
INITIATES SUCH ACTION, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION, AND
THE CHOICE OF SUCH VENUE SHALL IN ALL INSTANCES BE AT LENDER'S ELECTION; AND (B)
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT
TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR
PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
THE ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH OF BORROWER AND LENDER HEREBY WAIVES THE RIGHT TO COLLATERALLY
ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM.
9.12 WAIVER OF JURY TRIAL. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT
ANY CONTROVERSY WHICH MAY ARISE UNDER ANY LOAN DOCUMENT WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES; AND THEREFORE, THEY AGREE THAT ANY LAWSUIT ARISING
OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED BY A JUDGE SITTING WITHOUT A JURY,
AND KNOWINGLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN ANY SUCH PROCEEDING.
9.13 INDUCEMENT TO LENDER. ALL OF THE PROVISIONS SET FORTH IN THIS
PARAGRAPH ARE A MATERIAL INDUCEMENT FOR LENDER'S MAKING ADVANCES TO BORROWER.
(BORROWER'S INITIALS RE: 9.10 - 9.13 _____)
9.14 COMPLIANCE WITH APPLICABLE USURY LAW. It is the intent of the parties
hereto to comply with the Applicable Usury Law. Accordingly, notwithstanding any
provisions to the contrary in the Loan Documents, in no event shall the Loan
Documents require the payment or permit the collection of interest in excess of
the maximum contract rate permitted by the Applicable Usury Law.
9.15 USE OF LENDER'S NAME. EXCEPT AS REQUIRED BY LAW AND FOR FILINGS MADE
WITH THE SECURITIES AND EXCHANGE COMMISSION, ANY STOCK EXCHANGE ON WHICH
BORROWER'S STOCK IS TRADED, ANY REGULATORY AGENCY HAVING JURISDICTION OVER
BORROWER OR ANY OF THE TIME-SHARE PROJECTS, OR WITH RESPECT TO FILINGS REQUIRED
TO BE MADE IN THE LAND RECORDS APPLICABLE TO ANY OF THE TIME-SHARE PROJECTS,
BORROWER WILL NOT, AT ANY TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER WITH
RESPECT TO THE TIME-SHARE PROJECT, THE SALE OF TIME-SHARE INTERESTS OR
OTHERWISE, WITHOUT THE EXPRESS WRITTEN CONSENT OF LENDER.
9.16 NO JOINT VENTURE. THE RELATIONSHIP OF BORROWER AND LENDER IS THAT OF
DEBTOR AND CREDITOR, AND IT IS NOT THE INTENTION OF EITHER OF SUCH PARTIES BY
THIS OR ANY OTHER INVENTORY BEING EXECUTED IN CONNECTION WITH THE INVENTORY LOAN
TO ESTABLISH A PARTNERSHIP, AND THE PARTIES HERETO SHALL NOT UNDER ANY
CIRCUMSTANCES BE CONSTRUED TO BE PARTNERS OR JOINT VENTURERS.
9.17 STANDARDS APPLIED TO LENDER'S ACTIONS. Unless otherwise specifically
stipulated elsewhere in the Loan Documents, if a matter is left in the Loan
Documents to the decision, requirement, request, determination, judgment,
opinion, approval, consent, satisfaction, acceptance, agreement, option or
discretion of Lender, its
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employees, Lender's counsel or any agent for or contractor of Lender, such
action shall be deemed to be exercisable by Lender or such other person in its
sole and absolute discretion and according to standards established in its sole
and absolute discretion. Without limiting the generality of the foregoing,
"OPTION" and "DISCRETION" shall be implied by use of the words "IF" or "MAY."
9.18 PARTICIPATIONS. Lender shall have the right without the consent of or
notice to the Borrower to grant participating interests in the Inventory Loan,
or to assign all or any portion of Lender's interest in and to the Inventory
Loan to any other Person acceptable to Lender, and may disclose to such other
Person all information relating to Borrower as Lender may deem appropriate in
connection with such sales or assignments, provided that Lender shall obtain
from the Person receiving any such information an agreement to be bound by and
abide with such confidentiality provisions as are then binding upon Lender. The
foregoing notwithstanding, in the event Lender sells participating interests in
the Inventory Loan to any other Persons, Lender shall continue to serve as the
lender with responsibility for administration of the Inventory Loan, shall
continue to be the notice party for purposes of the giving of notices by
Borrower, and shall be responsible for disseminating financial and other
information received from Borrower to each participating lender.
9.19 SCOPE OF REIMBURSABLE ATTORNEY'S FEES. As used in the Loan Documents,
the term "ATTORNEYS' FEES" includes the reasonable fees of attorneys licensed to
practice law in any jurisdiction, law clerks, paralegals, investigators and
others not admitted to the bar but performing services under the supervision of
a licensed attorney, and the expenses (including, without limitation, normal and
customary charges for telecopy and photocopy services and clerical overtime)
incurred by them in the performance of their services. As used in the Loan
Documents, attorneys' fees incurred by Lender in the enforcement of any remedy
or covenant include, without limitation, attorneys' fees incurred in any
foreclosure of the Security Documents, in protecting or sustaining the lien or
priority of the Collateral, or in any proceeding arising from or connected with
any such matter, including any bankruptcy, receivership, injunction or other
similar proceeding, or any appeal from or petition for review of any such
matter, and with or without litigation.
9.20 PUBLICITY. Lender is hereby authorized to cause a tombstone to be
published announcing the consummation of this transaction and the aggregate
amount thereof. Borrower consents to such advertising and authorizes Lender to
use Borrower's name, logo, insignia, descriptive art work, trade name,
trademark, or other similar material, whether or not protected by copyright (or
otherwise), in any such advertisement. The foregoing notwithstanding, Lender
shall not issue any press releases concerning this transaction without Primary
Borrower's prior written approval as to the content of such releases, which
approval shall not be unreasonably withheld or conditioned, or unduly delayed.
9.21 PERMITTED CONTESTS. Notwithstanding anything in the Loan Documents to
the contrary, after prior written notice to Lender, Borrower at its expense may
contest, by appropriate legal or other proceedings conducted in good faith and
with due diligence, the amount or validity of any tax, Imposition, Legal
Requirement or any monetary lien on the Collateral, so long as: (a) in the case
of an unpaid Imposition or lien, such proceedings suspend the collection thereof
from Borrower and the Collateral, and shall not interfere with the payment of
any monies due under the Collateral in accordance with the terms of the Security
Documents; (b) none of the Collateral is, in the judgment of Lender, in any
imminent danger of being sold, forfeited or lost; (c) in the case of a Legal
Requirement, neither Borrower nor Lender is in any danger of any civil or
criminal liability for failure to comply therewith; and (d) Borrower has
furnished such security, if any, as may be required in the proceedings or as
Lender reasonably requests up to one hundred twenty-five percent (125%) of the
amount in controversy.
9.22 RELIANCE. Lender's examination, inspection, or receipt of information
pertaining to Borrower, the Collateral or the Time-Share Project shall not in
any way be deemed to reduce the full scope and protection of the warranties,
representations and Obligations contained in the Loan Documents.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective name, personally or by their duly authorized
representatives as of September 30, 1999.
PRIMARY BORROWER SUNTERRA CORPORATION, a Maryland corporation
By: /s/ Carol W. Sullivan
------------------------------------
Name: Carol W. Sullivan
Title: Senior Vice President -
Mortgage Portfolio
Primary Borrower's Notice Address and
Telecopy Number:
_______________________________________
_______________________________________
Attention: General Counsel
Telecopy No.: (407) 532-1075
with a copy to:
SUNTERRA CORPORATION
9921 Covington Cross Drive, suite 105
Las Vegas, Nevada 89134
Attention: Ms. Carol Sullivan
with a further copy to:
SCHREEDER, WHEELER & FLINT
Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Attention: Leo A. Rose III, Esq.
SUBSIDIARY BORROWERS ALL SEASONS RESORTS, INC., an Arizona
corporation
By: /s/ Carol W. Sullivan
------------------------------------
Name: Carol W. Sullivan
Title: Assistant Treasurer
POWHATTAN ASSOCIATES, a Virginia joint
venture
By: PLANTATION RESORT GROUP, INC., a
Virginia corporation, its Joint Venturer
By: /s/ Carol W. Sullivan
------------------------------------
Name: Carol W. Sullivan
Title: Assistant Treasurer
WILLIAMSBURG VACATIONS, INC., a Virginia
corporation, its Joint Venturer
By: /s/ Carol W. Sullivan
------------------------------------
Name: Carol W. Sullivan
Title: Assistant Treasurer
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GREENSPRINGS ASSOCIATES, a Virginia joint
venture
By: PLANTATION RESORT GROUP, INC., a
Virginia corporation, its Joint Venturer
By: /s/ Carol W. Sullivan
-------------------------------
Name: Carol W. Sullivan
Title: Assistant Treasurer
By: GREENSPRINGS PLANTATION RESORTS, INC., a
Virginia Corporation, its Joint Venturer
By: /s/ Carol W. Sullivan
-------------------------------
Name: Carol W. Sullivan
Title: Assistant Treasurer
Subsidiary Borrowers' Notice Address and
Telecopy Number:
c/o Sunterra Corporation
1781 Park Center Drive
Orlando, Florida 32835
Attn.: General Counsel
Telecopy: (407) 532-1141
LENDER FINOVA CAPITAL CORPORATION, a Delaware
corporation
By: Gayle R. McKenzie
-------------------------------
Name: Gayle R. McKenzie
Title: Vice President
Lender's Notice Address and Telecopy Number:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn.: Vice President-Resort Finance
Telecopy: (602) 874-6444
with a copy to:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn.: Vice President-Group Counsel
Telecopy: (602) 874-6445
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SCHEDULE OF ADDITIONAL TERMS
S.1 This Schedule has been incorporated by reference into and form a part
of that Master Loan and Security Agreement dated as of September 30, 1999,
between FINOVA Capital Corporation as "Lender" and Sunterra Corporation as the
"Primary Borrower."
S.2 To the extent of any inconsistency between this Schedule and the other
provisions of the provisions of the Loan and Security Agreement, the provisions
of this Schedule shall prevail.
S.3 The provisions of the Loan and Security Agreement are supplemented as
follows (paragraph references are references to paragraphs of the Loan and
Security Agreement) which are intended to be supplemented by the following
provisions:
(a) (P)1. Basic Interest Rate: three and three-quarters percent
(3.75%) per annum in excess of the LIBO Rate or the LIBO
Adjusted Rate, as applicable, fluctuating monthly on the first
Business Day of each calendar month based upon the LIBO Rate
or the LIBO Adjusted Rate, as applicable, in effect on such
date, provided, however, that in no event shall the Basic
Interest Rate exceed the maximum contract rate of interest
permitted by the Applicable Usury Law.
(b) (P)1. Default Rate: two percent (2%) above the Basic
Interest Rate or the maximum contract rate permitted under the
applicable usury law, whichever is less.
(c) (P)1. [Intentionally not used.]
(d) (P)1. Maximum Inventory Loan Amount: Fifty Million Dollars
($50,000,000).
(e) (P)1. Extended Borrowing Term Expiration Date: September 30,
2002.
(f) (P)1. Original Borrowing Term Expiration Date: September 30,
2001.
(g) (P)1. Loan Fee: Two Hundred Fifty Thousand Dollars
($250,000).
(h) (P)1. Maturity Date: September 30, 2003 (if Extension Option
not exercised) or September 30, 2004 (if Extension Option is
exercised).
(i) (P)1. Opening Prepayment Date. The date 6 months from the
date of the applicable Advance.
(j) (P)1. Required Closing Date. October 31, 1999.
(k) (P)1. Initial Time-Share Projects: Powhattan Plantation,
Williamsburg, Virginia; Greensprings Plantation, Williamsburg,
Virginia; Scottsdale Villa Mirage, Scottsdale, Arizona; and
Villas at Santa Fe, Santa Fe, New Mexico.
(l) (P)2.9(a). Payment of Loan Fee: The Loan Fee shall be payable in
the following installments: $75,000 on or before September 30,
1999, and $425,000 on the Closing Date. Any portion of Borrower's
$75,000 good faith deposit which was delivered to Lender in
connection with Primary Borrower's acceptance of Lender's
Proposal Letter dated August 27, 1999 with respect to the
facility described by this Agreement that is remaining after the
payment of Lender's costs and expenses shall be applied toward
the installment of the Loan Fee which is due on the Closing Date.
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(m) (P)4.5. Minimum Advance Amount: Five Hundred Thousand Dollars
($500,000).
(n) (P)4.5. Maximum Advance Frequency: twice per calendar month with
a Five Hundred Dollar ($500) charge being imposed in connection
with the second Advance in any one (1) calendar month. Lender
shall have the right to withhold the amount of such charge from
such Advance.
(o) (P)4.6. Wire Transfer Fee: Twenty-Five Dollars ($25.00).
(p) (P)5.1, 6.1. Borrower's Type of Business Organization:
Primary Borrower - corporation
All Seasons Resorts, Inc. - corporation
Powhattan Associates - a joint venture
Greensprings Associates - a joint venture.
(q) (P)5.1, 6.1. Borrower's State of Organization: Primary
Borrower - Maryland
All Seasons Resorts, Inc.- Arizona Powhattan
Associates - Virginia Greensprings Associates -
Virginia.
(r) (P)5.3. Borrower's Principal Place of Business: 1781 Park Center
Drive, Orlando, Florida 32825.
(s) (P)5.3. Borrower's Chief Executive Office: 1781 Park Center
Drive, Orlando, Florida 32825
(t) (P)5.9 Jurisdiction Where Sales and/or Offers to Sell Have
Occurred: See Exhibit 5.9 attached hererto.
S.4 In addition to the other representations, warranties and covenants of
Borrower set forth in the Loan and Security Agreement, Borrower represents,
warrants and covenants that each Borrowing Base Report shall be signed by
Primary Borrower and the applicable Subsidiary Borrower (if any) and shall
contain a representation and warranty of each such Person that all of the
information contained therein (including, but not limited to, the sales of
Time-Share Interests reported therein, and the Retail Value with respect to the
Eligible Inventory located at the applicable Time-Share Project) are true,
complete and accurate in all material respects. Lender shall be entitled to
request copies of sales contracts to provide substantiation as to the actual
sales prices of those items of Inventory sold by Borrower and requested to be
released from the lien of Lender's Mortgage.
27
<PAGE>
EXHIBIT A
CONDITIONS OF ELIGIBLE INVENTORY
(a) The applicable Time-Share Project in which such Inventory exists is
located in the United States.
(b) The applicable Time-Share Project is owned one hundred percent (100%)
either by Primary Borrower or by an Affiliate of Primary Borrower which joins in
the Loan and Security Agreement as a Subsidiary Borrower thereunder.
(c) The Time-Share Association established in connection with the
applicable Time-Share Project must be in stable financial condition, as
demonstrated to Lender's satisfaction. Prior to a given Time-Share Project being
approved for the contribution of Eligible Inventory to the Borrowing Base,
Borrower shall have provided to Lender, and Lender shall have reviewed and found
satisfactory, the following information relative to the applicable Time-Share
Association:
(1) Most recent audited financial statement;
(2) A current statement of the replacement fund balance maintained
by such Time-Share Association;
(3) A current statement of the operating fund balance maintained
by such Time-Share Association;
(4) A description of the extent to which such Time-Share
Association is entitled to any continuing subsidy from the
developer of the applicable Time-Share Project, together with
a statement of the extent to which such Time-Share Association
has utilized such subsidy during the past three (3) fiscal
years;
(5) A description of the annual dues paid by owners of Time-Share
Interests in such Time-Share Project, broken down to the type
of Unit involved; and
(6) An identification of the Time-Share Manager applicable to such
Time-Share Project, together with such additional information
concerning the Time-Share Manager as Lender may request
(including without limitation, if such Time-Share Manager is
not an Affiliate of Primary Borrower, financial statements for
such Time-Share Manager and a description of such Person's
experience and qualifications for management of the Time-Share
Association).
(d) With respect to each Time-Share Project, evidence that the Unit(s) in
which the Time-Share Interest(s) are owned and the amenities that have been
promised to the Purchasers (and to prospective purchasers) have been completed
(taking into account the dates upon which any such amenities have been promised
to Purchasers, such that a Time-Share Project shall not be deemed ineligible
hereunder due to the fact that certain amenities have not yet been completed
unless the time by which those amenities were to have been completed, as
represented to the Purchasers, has passed), fully furnished and approved and
ready for occupancy and the furnishings in those Units are free of any lien
except for the Permitted Encumbrances; no Unit or other part of the common areas
of the Time-Share Project is subject to partition; and the time-share use of the
Units and amenities conform to all applicable restrictions and laws, necessary
approvals having been obtained.
(e) With respect to each Time-Share Project, Borrower shall have provided
to Lender, and Lender shall have reviewed and found satisfactory, the following
information concerning such project and the unsold Time-Share Interests which
are proposed to become Eligible Inventory:
(1) Location of the project;
(2) Site plan for the project;
(3) Total number of Units planned for the project;
(4) Number of Units then completed;
(5) Number of Units presently under construction;
(6) A description of the total amenities which are planned to be
included in such project, together with a description of
whether such amenities have been constructed and, if such
amenities have not yet been constructed, a time-line
describing the periods remaining to completion; and
(7) A description of the complete amenity package which is to be
presented to prospective purchasers of the Time-Share
Interests.
28
<PAGE>
(f) With respect to each Time-Share Project, a description of the
following matters relative to such project's marketing and sales history:
(1) The month and year in which sales of Time-Share Interests
commenced;
(2) Location of the sales and marketing center for such Time-Share
Project;
(3) A table depicting, for each Time-Share Project, the various
sources of tours generated during the prior twelve months as a
percentage of total tours generated; and
(4) A table describing the annual sales since the sale of
Time-Share Interests commenced, broken down by the number of
Time-Share Interests sold per year and the average sales price
per year for such Time-Share Interests.
(g) With respect to those specific unsold Time-Share Interests which are
to become Eligible Inventory, Borrower shall have provided to Lender, and Lender
shall have reviewed and found satisfactory, the following information:
(1) Total number of Units in the applicable Time-Share Project; and
(2) A report detailing the unsold number of Time-Share Interests,
categorized by type of Unit involved, price for each Time-Share
Interest, the total Retail Value of all such unsold Time-Share
Interests, and the average price at which all unsold Time-Share
Interests are offered for sale.
(h) Lender shall have a valid, direct and perfected first lien/security
interest in the Inventory and the proceeds thereof.
(i) In the event that any Time-Share Project which Borrowers propose to
qualify for the contribution of Eligible Inventory hereunder includes unsold
Time-Share Units which are valued and sold on a points basis (which program
Primary Borrower currently refers to as "Club Sunterra"), such points must
continue to qualify as "Time-Share Interests" as defined herein, and Lender must
be satisfied with the systems and procedures by which Borrowers (1) assure that
points sold are adequately supported by available and completed Units and unsold
Time-Share Interest and (2) calculate the number of points to be assigned to
each unsold Time-Share Interest contributed as Eligible Inventory hereunder. In
the event Borrowers' systems and procedures are not satisfactory to Lender,
Lender reserves the right, in its discretion, to require a quarterly third party
audit, to be conducted at Borrowers' expense, to assure that all points sold and
credited to purchasers are adequately supported by completed Units and unsold
Time-Share Interests therein; PROVIDED, HOWEVER, that for so long as no Event of
Default exists and is continuing, in no event shall the total expense of such
quarterly audits which Borrower is required to bear exceed $7,500 during any
calendar quarter.
29
<PAGE>
EXHIBIT B
FORM OF BORROWING BASE REPORT
30
<PAGE>
EXHIBIT C
BORROWER'S CERTIFICATE
{Borrower Name}{Type of Borrower Entity}("BORROWER") hereby certifies to
FINOVA CAPITAL CORPORATION ("LENDER") that the Inventory described in SCHEDULE A
attached hereto and by this reference incorporated herein qualifies as Eligible
Inventory.
Except as otherwise defined herein or the context otherwise requires, all
capitalized terms used herein have the meaning given to them in the Loan and
Security Agreement between Borrower and Lender dated as of {Month, Day,} {Year},
as it may be from time to time renewed, amended, replaced or restated.
DATED: ____________, ______.
BORROWER: {Borrower Name}{Type of Borrower Entity}
By:__________________________________
Type/Print Name:_____________________
Title:_______________________________
31
<PAGE>
EXHIBIT E
ADDITIONAL CONDITIONS
TO INVENTORY LOAN ADVANCES
(a) a completed and executed "Request for Inventory Loan Advance and
Certification," in form and substance identical to EXHIBIT E-1.
(b) a Mortgage in recordable form and otherwise in form and substance
satisfactory to Lender, properly completed, executed and acknowledged (with
respect to any Inventory not previously encumbered).
(c) if not previously furnished, evidence satisfactory to Lender that: (i)
all Time-Share Interests which are the subject of the Inventory covered by item
(b) above have all necessary and promised on-site and off-site improvements
thereto (taking into account the dates upon which any such improvements have
been promised to Purchasers, such that this condition shall be deemed satisfied
unless the time by which those improvements were to have been completed, as
represented to the Purchasers, has passed) and necessary and promised utilities
are available; (ii) all Units and amenities which are to be available to
Purchasers obligated on the Inventory covered by item (b) above have been
completed in accordance with all applicable building codes and are fully
furnished, necessarily equipped and will be available for use by Purchasers
without disturbance or termination of their use rights so long as they are not
in default of their obligations owed to the applicable Time-Share Association,
or to any Borrower with respect to financing owed by such Purchaser to Borrower
incurred in connection with the purchase of such Purchaser's Time-Share
Interest; and (iii) all furnishings in the Units and amenities are owned either
by the Purchasers directly or by an owners' association or associations in which
the Purchasers are members, free of charges, liens and security interests other
than the Permitted Encumbrances.
(d) a Title Policy with respect to each Mortgage covered by item (b)
above.
(e) if requested by Lender following a material change of circumstances or
not more often than annually at Lender's discretion, an opinion from independent
counsel to Borrower satisfactory to Lender with respect to the continued
compliance of the Time-Share Project and such other matters as Lender shall
reasonably require.
(f) if requested by Lender, such other items which are reasonably
necessary to evaluate the request for the Inventory Loan Advance and the
satisfaction of the conditions precedent thereto.
32
<PAGE>
EXHIBIT E-1
REQUEST FOR INVENTORY LOAN ADVANCE
AND CERTIFICATION
The undersigned ("BORROWER") requests FINOVA CAPITAL CORPORATION
("LENDER") to make a Inventory Loan Advance in the sum of
_____________________________ ______________ UNITED STATES DOLLARS (U.S.
$_____________) upon receipt hereof, pursuant to the Loan and Security Agreement
between such parties dated as of {Month Day,}{Year} (with any amendments,
"Agreement").
Borrower hereby certifies to Lender that (i) the Retail Value of all
Eligible Inventory pledged to Lender is not less than $_______________; (ii) the
Inventory against which the requested disbursement of the Inventory Loan is
sought constitutes Eligible Inventory; (iii) no material adverse change has
occurred in the financial condition or in the business and operations of
Borrower since _______________, _____, the date of the last financial statements
delivered to Lender; (iv) all representations and warranties contained in the
Agreement are true and correct as of the date hereof in all material respects;
(v) neither an Event of Default nor an Incipient Default exists; and (vi)
Borrower has Performed and complied with all agreements, covenants and
conditions required by the Agreement to be Performed and complied with prior to
or at the date of the requested disbursement of the Inventory Loan.
Except as otherwise defined herein or the context otherwise requires, all
capitalized terms used herein have the meaning given to them in the Agreement.
DATED: ________________, ______.
"BORROWER" {Borrower Name}, {Type of Borrower Entity}
By:______________________________________
Type/Print Name:______________________
Title:________________________________
33
<PAGE>
EX-10.24
- --------------------------------------------------------------------------------
Dutch Elm, LLC
as Company,
Sunterra Financial Services, Inc.
as Servicer,
LaSalle Bank National Association
as Trustee and as Back-up Servicer,
INDENTURE
Dated as of December 1, 1999
DUTCH ELM, LLC
$58,700,000
VACATION OWNERSHIP
RECEIVABLES-BACKED NOTES 1999-B
7.52% CLASS A NOTES
8.00% CLASS B NOTES
8.83% CLASS C NOTES
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
PRELIMINARY STATEMENT..........................................................1
GRANTING CLAUSES...............................................................2
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.....................................................4
Section 1.2. Acts of Noteholders.............................................4
Section 1.3. Notices, etc. to Trustee, Company and Servicer..................5
Section 1.4. Notices to Noteholders; Waiver..................................8
Section 1.5. Effect of Headings and Table of Contents........................9
Section 1.6. Successors and Assigns..........................................9
Section 1.7. Severability....................................................9
Section 1.8. Benefits of Indenture...........................................9
Section 1.9. Legal Holidays..................................................9
Section 1.10. Governing Law..................................................10
Section 1.11. Counterparts...................................................10
ARTICLE II. NOTE FORM
Section 2.1. Form Generally.................................................10
Section 2.2. Form of Class A, B and C Note..................................10
ARTICLE III. THE NOTES
Section 3.1. Designation of Notes; Certain Related Provisions...............17
Section 3.2. Denominations..................................................18
Section 3.3. Execution, Authentication, Delivery and Dating.................18
Section 3.4. Registration, Registration of Transfer and Exchange............19
Section 3.5. Limitation on Transfer and Exchange............................20
Section 3.6. Mutilated, Destroyed, Lost or Stolen Notes.....................20
Section 3.7. Payment of Principal and Interest..............................21
Section 3.8. Persons Deemed Owners..........................................22
Section 3.9. Cancellation...................................................22
Section 3.10. Tax Treatment..................................................22
ARTICLE IV. AUTHENTICATION AND DELIVERY OF THE NOTES
Section 4.1. General Provisions.............................................22
Section 4.2. Security for Notes.............................................23
i
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Section 4.3. Delivery of Mortgage Loans.....................................23
ARTICLE V. SATISFACTION AND DISCHARGE
Section 5.1. Satisfaction and Discharge of Indenture........................24
Section 5.2. Application of Money Held in Trust.............................25
Section 5.3. Discharge of Security Interest.................................25
ARTICLE VI. REMEDIES
Section 6.1. Events of Default..............................................26
Section 6.2. Acceleration of Maturity, Rescission and Annulment.............27
Section 6.3. Remedies.......................................................29
Section 6.4. Trustee May File Proofs of Claim...............................30
Section 6.5. Trustee May Enforce Claims without Possession of Notes.........31
Section 6.6. Allocation of Money Collected..................................31
Section 6.7. Limitation on Suits............................................32
Section 6.8. Unconditional Right of Noteholders to Receive Principal and
Interest...................................................32
Section 6.9. Restoration of Rights and Remedies.............................33
Section 6.10. Rights and Remedies Cumulative.................................33
Section 6.11. Delay or Omission Not Waiver...................................33
Section 6.12. Control by Noteholders.........................................33
Section 6.13. Waiver of Past Defaults........................................34
Section 6.14. Undertaking for Costs..........................................34
Section 6.15. Sale of Trust Estate...........................................35
Section 6.16. Action on Notes................................................36
Section 6.17. Company Bankruptcy.............................................36
ARTICLE VII. THE TRUSTEE
Section 7.1. Certain Duties and Responsibilities............................36
Section 7.2. Notice of Default, Cure, Waiver or Rating Action...............38
Section 7.3. Certain Rights of Trustee......................................38
Section 7.4. Not Responsible for Recitals or Issuance of Notes..............39
Section 7.5. May Hold Notes.................................................41
Section 7.6. Money Held in Trust............................................41
Section 7.7. Compensation and Reimbursement.................................41
Section 7.8. Corporate Trustee Requirement; Eligibility.....................42
Section 7.9. Resignation and Removal; Appointment of Successor..............43
Section 7.10. Acceptance of Appointment by Successor.........................44
Section 7.11. Merger, Conversion, Consolidation or Succession to
Business of Trustee........................................45
ii
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Section 7.12. Co-trustees and Separate Trustees..............................45
Section 7.13. Rights with Respect to the Servicer............................47
Section 7.14. Servicer as Agent and Bailee of Trustee........................47
Section 7.15. Representations and Warranties of the Trustee..................48
ARTICLE VIII. CONSOLIDATION AND MERGER
Section 8.1. Company May Not Consolidate, etc...............................49
ARTICLE IX. SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Noteholders.........50
Section 9.2. Supplemental Indentures with Consent of Noteholders............51
Section 9.3. Execution of Supplemental Indentures...........................52
Section 9.4. Effect of Supplemental Indentures..............................52
Section 9.5. Reference in Notes to Supplemental Indenture...................52
ARTICLE X. REDEMPTION OF NOTES
Section 10.1. Redemption at the Option of the Servicer; Election To Redeem...53
Section 10.2. Notice of Redemption by the Company............................53
Section 10.3. Deposit of the Redemption Price................................54
Section 10.4. Notes Payable on Redemption Date...............................54
Section 10.5. Sale for Purposes of Redemption................................55
ARTICLE XI. COVENANTS
Section 11.1. Payment of Principal and Interest..............................56
Section 11.2. Maintenance of Office or Agency................................56
Section 11.3. Money for Note Payments To Be Held in Trust....................56
Section 11.4. Corporate Existence............................................57
Section 11.5. Protection of Trust Estate.....................................58
Section 11.6. Negative Covenants.............................................58
Section 11.7. Statement as to Compliance.....................................59
Section 11.8. Investment Company Act.........................................60
Section 11.9. Enforcement of Servicing Agreement and Sale Agreement..........60
Section 11.10. Taxes..........................................................60
Section 11.11. Company Ownership..............................................60
Section 11.12. Nonconsolidation...............................................60
Section 11.13. Representations and Warranties and Covenants...................62
Section 11.14. Opinions as to Trust Estate....................................67
Section 11.15. Indemnification by the Company.................................67
iii
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ARTICLE XII. ACCOUNTS, ACCOUNTINGS AND RELEASES
Section 12.1. Collection of Money............................................67
Section 12.2. Accounts.......................................................68
Section 12.3. Reliance on Representations and Warranties.....................71
Section 12.4. Notice of Incorrect Representations and Warranties.............71
Section 12.5. Misrepresentations.............................................72
Section 12.6. Mandatory Repurchase Obligation................................72
Section 12.7. Subsequent Loans...............................................74
Section 12.8. Reports by Trustee to Noteholders..............................74
Section 12.9. Accounting by Trustee to Company...............................75
Section 12.10. Trust Estate...................................................75
Section 12.11. Allocation of Losses...........................................76
ARTICLE XIII. APPLICATION OF MONIES
Section 13.1. Disbursements of Monies out of Collection Account..............77
iv
<PAGE>
APPENDIX A Standard Definitions
SCHEDULE I Schedule of Mortgage Loans
EXHIBIT A Form of Assignment of Note
EXHIBIT B Form of Lost Note Affidavit
EXHIBIT C Form of Substitute Form W-9
EXHIBIT D Form of Certificate with respect to Pre-Paid
Mortgage Loans
EXHIBIT E Form of Mortgage and Mortgage Note
v
<PAGE>
This INDENTURE, dated as of December 1, 1999 (herein, as amended from
time to time as permitted hereby, called the "Indenture"), is entered into by
and among Dutch Elm, LLC, a Nevada limited liability company (together with its
permitted successors and assigns, the "Company"), Sunterra Financial Services,
Inc., a Nevada corporation, as servicer (herein, together with its permitted
successors and assigns, called the "Servicer") and LaSalle Bank National
Association, a nationally chartered bank, as trustee (together with its
permitted successors and assigns, the "Trustee") and as back-up servicer
(together with its permitted successors and assigns, the "Back-up Servicer").
PRELIMINARY STATEMENT
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of Dutch Elm, LLC Vacation Ownership
Receivables-Backed Notes 1999-B, consisting of four classes (the "Class A
Notes", the "Class B Notes" and the "Class C Notes", collectively, the "Notes").
The cash proceeds from the sale of such Notes are to be used by the Company to
purchase the Mortgage Loans.
The following table sets forth the designation, Note Interest Rate and
aggregate Initial Note Principal Balance for the Class A Notes, the Class B
Notes and the Class C Notes.
INITIAL
NOTE NOTE
INTEREST PRINCIPAL
DESIGNATION RATE BALANCE
- ----------- ---- -------
Class A 7.52% $33,700,000
Class B 8.00% $15,000,000
Class C 8.83% $10,000,000
The Mortgage Loans have an Outstanding Pool Balance as of the Cut-off
Date equal to $65,169,974.
All covenants and agreements made by the Company and the Servicer
herein are for the benefit and security of the Noteholders. The Company and the
Servicer are entering into this Indenture, and the Trustee is accepting the
duties as trustee
<PAGE>
created hereby, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged.
GRANTING CLAUSES
The Company hereby Grants to the Trustee for the exclusive benefit of
the Holders, a lien upon and a security interest (which the Company represents
and warrants will be a perfected first-priority security interest) in all of the
Company's right, title and interest, whether now owned or hereafter acquired in
and to the Mortgage Loans and the Mortgage Collateral, including without
limitation all interest due and principal received on or with respect to the
Mortgage Loans after the Cut-off Date, all Net Liquidation Proceeds and
Insurance Proceeds received after the Cut-off Date with respect to any Mortgaged
Property to which any Mortgage Loans relate, all security interests in the
Mortgaged Property securing such Mortgage Loans, the Mortgage Loan Documents
relating to such Mortgage Loans duly endorsed as appropriate, the Mortgage
Files, any insurance policies related to the Mortgage Loans, the rights of the
Company under the Dutch Elm Loan Sale Agreement, the rights of the Company under
the Servicing Agreement, all monies received or held by the Servicer in respect
of the Mortgage Loans and the Mortgage Collateral, all proceeds with respect to
the foregoing, including, without limitation, all funds deposited in the
Collection Account, the related Lock-Box Accounts and the Reserve Account and
all Permitted Investments made with such funds, and all rights to enforce the
foregoing.
Such Grants are made in trust, to secure (i) the Notes, securing all
Notes of each Class equally and ratably without prejudice, priority or
distinction among the Notes of any such Class by reason of difference in time of
authentication or delivery or otherwise but, as between each Class of Notes as a
group and each other Class of Notes as a group, subject to the subordination of
payments on the Class B Notes to payments on the Class A Notes and on the Class
C Notes to payments on the Class A and Class B Notes, as provided in Section
13.1 hereof, (ii) the payment of all other sums payable under this Indenture,
and (iii) compliance with the provisions of this Indenture, all as provided in
this Indenture.
In the case of Initial Mortgage Loans which have been prepaid in full
on or after the Cut-off Date and prior to December 1, 1999, or with respect to
Subsequent Loans which have been prepaid in full on or after the Subsequent Cut-
off Date and prior to the Subsequent Transfer Date, the Company, in lieu of
2
<PAGE>
Granting such Mortgage Loans to the Trustee, will deliver on the Closing Date,
or Subsequent Transfer Date, as applicable, to the Company, or as the Company
may direct, an officer's certificate in substantially the form set forth in
Exhibit D hereto and deposit into the Collection Account on the Closing Date or
the Subsequent Transfer Date, as applicable, all moneys (together with all
earnings, dividends, distributions, income and profits relating thereto)
received or held by the Servicer or on deposit in any Lock-box Account in
respect of such prepaid Mortgage Loans.
Except as hereinafter provided, the Company does hereby warrant and
represent that it has not permitted and hereby covenants that it will not permit
the creation of any Lien other than the Lien of this Indenture with respect to
any part of the Trust Estate, so long as this Indenture shall remain in effect,
to anyone other than the Trustee, and that it will not, except as provided in
this Indenture, enter into any agreement amending or supplementing this
Indenture, any of the Mortgage Loans, the Dutch Elm Loan Sale Agreement, the
Servicing Agreement or the Note Purchase Agreement, execute or grant any waiver
or modification of, or consent under, the terms of any of this Indenture, the
Mortgage Loans, the Dutch Elm Loan Sale Agreement, the Servicing Agreement or
the Note Purchase Agreement, settle or compromise any claim arising under any of
this Indenture, the Mortgage Loans, the Dutch Elm Loan Sale Agreement, the
Servicing Agreement or the Note Purchase Agreement or submit or consent to the
submission of any dispute, difference or other matter arising under or in
respect of any of this Indenture, the Mortgage Loans, the Dutch Elm Loan Sale
Agreement, the Servicing Agreement or the Note Purchase Agreement, to
arbitration thereunder.
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions of this Indenture, agrees to act as Paying Agent
and agrees to perform the duties herein required. So long as any Note remains
outstanding, the Trustee shall act for the benefit of the Noteholders as their
interests may appear to the extent provided herein.
The Trustee agrees to maintain in its possession each Mortgage File
delivered to it pursuant to Section 2(b) of the Dutch Elm Loan Sale Agreement
unless and until such Mortgage File is released from the lien hereof pursuant to
Article Twelve hereof.
All things necessary to make this Indenture a valid agreement of the
Company in accordance with its terms have been done.
3
<PAGE>
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS OF
GENERAL APPLICATION
Section 1.1. Definitions
-----------
(a) Except as otherwise expressly provided herein or unless the context
otherwise requires, the capitalized terms used in the Indenture shall have the
respective meanings specified in the Standard Definitions set forth as Appendix
A hereto, which is incorporated herein by this reference. The definitions of
such terms are equally applicable both to the singular and plural forms of such
terms.
(b) All references in this instrument to designated "Articles," "Sections,"
"Subsections" and other subdivisions are to the designated Articles, Sections,
Subsections and other subdivisions of this instrument as originally executed or
if amended or supplemented, as so amended and supplemented. The words "herein,"
"hereof," "hereunder" and other words of similar import refer to this Indenture
as a whole and not to any particular Article, Section, Subsection or other
subdivision. Reference to the Trustee's duties under this Indenture shall
include its duties as Trustee as set forth in the Servicing Agreement.
Section 1.2. Acts of Noteholders
-------------------
(a) Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by this Indenture to be given or taken by Noteholders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Noteholders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee, and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Noteholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 7.1) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section 1.2.
(b) The fact and date of the execution by any Person of any such instrument or
writing may be proved in any manner which the Trustee deems sufficient.
4
<PAGE>
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver or
other action by the Holder of any Note shall bind the Holder of every Note
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Note.
Section 1.3. Notices, etc. to Trustee, Company, Servicer and DCR
---------------------------------------------------
Except as otherwise provided, any request, demand, authorization, direction,
notice, consent, waiver or Act of Noteholders or other document provided or
permitted by this Indenture to be made upon, given or furnished to, or filed
with the following parties, shall be deemed to have been duly made upon, given
or furnished to, or filed with, when delivered by hand, sent by overnight
courier or by telecopy, addressed to the appropriate parties at their addresses
designated herein or to such other address as the party to be notified may have
otherwise designated in a notice given as provided in this Section. A hard copy
of any item delivered by telecopy shall also be sent by overnight mail on the
day of such telecopy delivery.
The Company:
Dutch Elm, LLC
9921 Covington Cross Drive
Suite 105-E
Las Vegas, Nevada 89134
Attention: Carol W. Sullivan
With a copy to:
Richard Goodman and Thomas Bell
Sunterra Corporation
1781 Park Center Drive
Orlando, Florida 32835
Servicer:
9921 Covington Cross Drive
Suite 105
Las Vegas, Nevada 89117
Attention: Carol W. Sullivan
5
<PAGE>
With a copy to:
Thomas Bell
SunSera Funding Corp.:
9921 Covington Cross Drive
Suite 105
Las Vegas, Nevada 89134
Attention: Carol W. Sullivan
With a copy to:
Richard Goodman and Thomas Bell
Dutch Elm Holdings, Inc.
9921 Covington Cross Drive
Suite 105-D
Las Vegas, Nevada 89134
Attention: Carol W. Sullivan
With a copy to:
Richard Goodman and Thomas Bell
Sunterra Corporation
1781 Park Center Drive
Orlando, Florida 32835
The Trustee and Back-up Servicer:
LaSalle Bank National Association
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60674-4107
Transaction: Dutch Elm 1999-B
Attention: Asset Backed Security
Trust Services/Dutch Elm 1999-B
Tel: 312-904-7895
Fax: 312-904-2084
DCR:
Duff & Phelps Credit Rating Co.
17 State Street, 12th Floor
New York, New York 10004
Attention: Asset-Backed Monitoring Group/Timeshare
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Noteholders:
Bankers United Life Assurance Company:
AEGON USA Investment Management, Inc.
Attn: Karen Amstuz
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-5112
J. Romeo & Co.:
The Canada Life Assurance Company
330 University Avenue, SP-12
Toronto, Ontario, M5G 1R8
Attn: Securities Accounting
First Columbine Life Insurance Company:
ING Investment Management LLC
5780 Powers Ferry Road, N.W.
Suite 300
Atlanta, GA 30327-4349
Attn: Securities Accounting
Life Investors Insurance Company of America:
AEGON USA Investment Management, Inc.
Attn: Karen Amstuz
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-5112
USG Annuity & Life Company:
ING Investment Management LLC
5780 Powers Ferry Road, N.W.
Suite 300
Atlanta, GA 30327-4349
Attn: Securities Accounting
PFL Life Insurance Company:
AEGON USA Investment Management, Inc.
Attn: Karen Amstuz
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-5112
Southern Farm Bureau Life Insurance Company:
Southern Farm Bureau Life Insurance Company
1401 Livingston Lane
Jackson, MS 39213
Attn: Carol Robertson
7
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Nationwide Life and Annuity Insurance Company:
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza (1-32-05)
Columbus, Ohio 43215-2220
Attn: Investment Accounting
Nationwide Life Insurance Company:
Nationwide Life Insurance Company
One Nationwide Plaza (1-32-05)
Columbus, Ohio 43215-2220
Attn: Investment Accounting
with a copy to
--------------
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Louis H. Singer
Structured Finance Advisors, Inc.
17 Talcott Notch Road
Farmington, Connecticut 06032
Attention: Bruce Maier
The Noteholders and Structured Finance Advisors, Inc. shall be entitled to
receive any certificate, report or material notice delivered by any Person under
this Agreement. Any notice to be provided to DCR shall be provided thereto by
the Trustee.
Section 1.4. Notices to Noteholders; Waiver
------------------------------
Where this Indenture provides for notice, reports and communication to
Noteholders of any event, such notice, reports or communication shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and by regular mail (except notice in connection with an occurrence of an Event
of Default, which shall be delivered by overnight courier), or by facsimile
followed by regular mail or by overnight courier, to each Noteholder affected by
such event, at its address as it appears on the Note Register (with a copy to
not more than two other Persons, at the addresses set forth in the Note
Register), not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. Any such notice, report or
communication shall only be deemed given upon receipt at the address set forth
in the Note Register. The Trustee hereby acknowledges receipt of Schedule I to
the Note Purchase Agreement and agrees to include the appropriate information
therein in the Note Register.
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Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.5. Effect of Headings and Table of Contents
----------------------------------------
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
Section 1.6. Successors and Assigns
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.7. Severability
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.8. Benefits of Indenture
---------------------
Nothing in this Indenture or in the Notes, expressed or implied, shall
give to any Person, other than the parties hereto, any Paying Agent which may be
appointed pursuant to the provisions hereof and any of their successors
hereunder and the Noteholders, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 1.9. Legal Holidays
--------------
In any case where the date of any Distribution Date shall not be a
Business Day, then (notwithstanding any other provision of the Notes or this
Indenture) payment need not be
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made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the nominal date of any such Distribution
Date and, assuming timely payments on such subsequent Business Day, no interest
shall accrue on the payment due on the Notes on such Payment Date for the period
from and after any such nominal date.
Section 1.10. Governing Law
-------------
This Indenture and each Note shall be construed in accordance with and
governed by the laws of the State of New York, without giving effect to any
conflict of laws principles thereof.
Section 1.11. Counterparts
------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
ARTICLE II.
NOTE FORM
Section 2.1. Form Generally
--------------
The Notes and the certificates of authentication shall be in
substantially the forms set forth in Section 2.2, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon, as may be
required to comply with the rules of any securities exchange on which the Notes
may be listed, or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution of the Notes. Any portion
of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
Section 2.2. Form of Class A, B and C Note
-----------------------------
[THIS NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A [AND CLASS B] [AND
CLASS C] NOTES AS DESCRIBED IN THE INDENTURE REFERRED TO HEREIN.]
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY STATE SECURITIES
LAWS AND THE COMPANY HAS NOT BEEN
10
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REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT
COMPANY ACT"), AND ACCORDINGLY THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS EXCEPT IN A TRANSACTION THAT IS EXEMPTED UNDER
THE SECURITIES ACT (INCLUDING TRANSFER MADE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT) AND APPLICABLE STATE SECURITIES LAWS AND BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR"
(AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (D) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE
TRUSTEE WITH A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE), (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUERS) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
THE PRINCIPAL OF THIS NOTE IS PAYABLE ON THE PAYMENT DATES AND IN THE AMOUNTS
DESCRIBED HEREIN. ACCORDINGLY, THE OUTSTANDING NOTE PRINCIPAL BALANCE OF THIS
NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF AND MAY BE
ASCERTAINED ONLY BY OBTAINING A WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE
NAMED HEREIN OR ITS SUCCESSOR.
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No. ________ Initial Note Principal
Balance of the Class [A][B][C]
Notes: $____________
Class [A][B][C]
PPN: ________________ Initial Note Principal Balance
of this Note $____________
DUTCH ELM, LLC, VACATION OWNERSHIP
RECEIVABLES-BACKED NOTE, 1999-B
CLASS [A][B][C]
FINAL MATURITY DATE: [_______ 15, 20__]
Dutch Elm, LLC, a limited liability company duly organized and existing
under the laws of the State of Nevada (the "Company," which term includes any
successor entity under the Indenture referred to below), for value received,
___________ hereby promises to pay to ______________________, or registered
assigns, the principal sum of _______________________ Dollars ($_______________)
in monthly installments beginning on the Initial Distribution Date, and to pay
interest monthly in arrears on the unpaid portion of said principal sum (and, to
the extent that the payment of such interest shall be legally enforceable, on
any overdue installment of interest on this Note) on the twenty-fifth day of
each calendar month or, if such twenty-fifth day is not a Business Day, the
Business Day immediately following (each a "Distribution Date"), for the
Interest Accrual Period immediately preceding such Distribution Date until such
unpaid principal is fully paid, at a rate per annum equal to ___% (the "Note
Interest Rate"); provided, however, that interest on any amount of principal or
-----------------
interest that is not timely paid when due shall accrue interest until paid at
the Note Interest Rate. Each monthly installment of principal payable on this
Note on any Payment Date shall be payable pursuant to Section 13.1 of the
Indenture until the Class [A][B][C] Notes have been paid in full. Any remaining
unpaid portion of the then Outstanding Note Balance of this Note shall be due
and payable no later than the Final Maturity Date referred to above. The
interest and principal so payable on any Distribution Date shall, as provided in
the Indenture, be paid to the Person in whose name this Note is registered on
the Record Date for such Distribution Date.
The principal of and interest due on this Note are payable, without
presentment, to the Person whose name appears as the registered Holder of this
Note on the Note Register on the Record Date for the Distribution Date by wire
or other transfer in immediately available funds to the account specified in
writing by such Holder at least three Business Days prior thereto
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<PAGE>
or as otherwise provided in the Indenture, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts. Funds represented by checks returned undelivered
shall be held for payment to the Person entitled thereto, subject to the terms
of the Indenture, at the office or agency in the United States of America
designated as such by the Company for such purpose pursuant to the Indenture.
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture, or be valid or obligatory for any
purpose.
This Note is one of a duly authorized issue of Notes of the
Company designated as its Dutch Elm, LLC Vacation Ownership Receivables-Backed
Notes 1999-B, Class [A][B][C] Notes (herein called the "Notes") issued under an
Indenture dated as of December 1, 1999 (herein called the "Indenture"), among
the Company, Sunterra Financial Services, Inc., as Servicer, LaSalle Bank
National Association, as trustee (the "Trustee," which term includes any
successor Trustee under the Indenture) and as back-up servicer (the "Back-up
Servicer"), to which Indenture reference is hereby made for a statement of the
respective rights thereunder of the Company, the Trustee and the Holders of the
Notes, and the terms upon which the Notes are, and are to be, authenticated and
delivered. All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture. Certain provisions of the
Indenture are described in this Note. The Indenture shall govern in the event
that the provisions of this Note are inconsistent therewith.
As provided in the Indenture, the Notes are secured by certain Mortgage
Loans and by certain other collateral constituting the Trust Estate as described
in the Indenture. The Notes are equally and ratably secured by the collateral
pledged therefor to the extent provided by the Indenture.
Unless earlier declared, or they otherwise become due and payable by
reason of an Event of Default, the Notes are payable only at the time and in the
manner provided in the Indenture and are not redeemable or prepayable at the
option of the Company before such time except that the Notes shall be redeemable
at the option of the Company in whole, but not in part, on any Distribution Date
at such time as the aggregate Outstanding Note Balance is equal to or less than
10% of the Outstanding Note Balance as of the Closing Date. The Notes shall be
redeemed at a redemption price equal to the aggregate
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Outstanding Note Balance thereof, plus accrued interest thereon through the
redemption date. If an Event of Default as defined in the Indenture shall occur
and be continuing, the principal of all the Notes may become or be declared due
and payable in the manner and with the effect provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Trustee in the United States of America, duly endorsed
by, or accompanied by a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes of the same
Class, of authorized denominations and for the same aggregate Outstanding Note
Balance, shall be issued to the designated transferee or transferees.
Prior to due presentment for registration of transfer of this Note, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes whether or
not this Note be overdue, and neither the Company, the Trustee, nor any such
agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company with the consent of the Holders of at least 51% of the
aggregate Outstanding Note Balance of each class of Notes. The Indenture also
contains provisions permitting the Holders of specified percentages in aggregate
Note Principal Balance of Outstanding Notes of one or more Classes, on behalf of
the Holders of all Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults and their consequences
under the Indenture. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
The Notes are issuable only in registered form without coupons in such
authorized denominations as provided in the
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Indenture and subject to certain limitations therein set forth. The Notes are
exchangeable for Notes of a like Outstanding Note Balance as of the Closing Date
of the same Class of a different authorized denomination, as requested by the
Holder surrendering same.
This Note and the Indenture shall be governed by and construed in
accordance with the laws of the State of New York.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note in
accordance with the Indenture at the times, place and rate, and in the coin or
currency, herein prescribed.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
15
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IN WITNESS WHEREOF, ___________________ has caused this instrument to
be signed, manually or in facsimile, by its Managing Member.
[ ]
BY_________________________________
Attest:
- -----------------------------------
16
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[FORM OF TRUSTEE'S
CERTIFICATE OF AUTHENTICATION]
This is one of the Class [A][B][C] Notes referred to in the within-
mentioned Indenture.
Dated:
LaSalle Bank National Association
as Trustee
By______________________
Authorized Officer
ARTICLE III.
THE NOTES
Section 3.1. Designation of Notes; Certain Related Provisions
------------------------------------------------
The Class A Notes shall be designated generally as the "Dutch Elm, LLC
Vacation Ownership Receivables-Backed Notes 1999-B Class A Notes" of the
Company. The Class B Notes shall be designated generally as the "Dutch Elm, LLC
Vacation Ownership Receivables-Backed Notes 1999-B Class B Notes" of the
Company. The Class C Notes shall be designated generally as the "Dutch Elm, LLC
Vacation Ownership Receivables-Backed Notes 1999-B Class C Notes" of the
Company.
All Notes of each class at any time simultaneously outstanding shall be
identical in respect of place or places of payment and dates of payments with
all other Notes of such class. Notes of each class shall have the same Note
Interest Rate as all other Notes of such class.
The stated maturity of each Class of Notes shall be March 17, 2016. The
Class A, Class B and Class C Notes shall be assigned on or before the Closing
Date ratings of "AAA", "A" and "BBB", respectively, by DCR.
The aggregate Outstanding Note Balance as of the Closing Date of the
Class A, Class B and Class C Notes that may be authenticated and delivered
hereunder is limited to $33,700,000, $15,000,000 and $10,000,000, respectively,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes of the same class pursuant to
Sections 3.4, 3.6 or 9.5 hereof.
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Section 3.2. Denominations
-------------
The Notes are available in a minimum denomination of $500,000 original
principal amount and integral multiples of $100,000 in excess thereof; provided,
--------
however, that one Note of each Class may be issued in a denomination that
- -------
includes any residual amount.
Section 3.3. Execution, Authentication, Delivery and Dating
----------------------------------------------
The Notes shall be executed on behalf of the Company by its President
or one of its Vice Presidents and attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Notes may
be manual or facsimile. The Notes may be printed, lithographed, typewritten,
mimeographed or otherwise produced.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication or delivery of such Notes or did not hold
such offices at the date of authentication or delivery of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company together
with a Company Order authorizing authentication thereof to the Trustee for
authentication; and, upon receipt of such Notes, the Trustee shall authenticate
and deliver such Notes as in this Indenture provided and not otherwise.
Notwithstanding anything herein to the contrary, the aggregate original
principal amount of each class of the Notes that may be authenticated and
delivered under this Indenture is limited to the aggregate Outstanding Note
Balance for that Class as of the Closing Date, except for Notes authenticated
and delivered upon registration of transfer of, or in exchange for, or in lieu
of Notes pursuant to Section 3.4, 3.6 or 9.5 hereof.
Each Note shall bear on its face the Closing Date and be dated as of
the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears to be on such Note a
certificate of authentication substantially in the form provided for herein,
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Note shall be conclusive
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<PAGE>
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
Section 3.4. Registration, Registration of Transfer and Exchange
---------------------------------------------------
The Trustee, in its capacity as registrar of the Notes (the "Note
Registrar"), shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Notes and the registration of transfers of
Notes.
Upon surrender for registration of transfer of any Note at the
Corporate Trust Office of the Trustee to be maintained as provided in Section
11.2, the Company shall execute, and the Trustee shall authenticate and deliver,
in the name of the designated transferee or transferees, one or more new Notes
of any authorized denominations, of the same class and of a like Outstanding
Note Balance as of the Closing Date.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations of the same class and of a like Outstanding Note
Balance as of the Closing Date, upon surrender of the Notes to be exchanged at
such office or agency. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the Notes
which the Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of such transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed, by the Holder thereof or his attorney
duly authorized in writing. The form of assignment set forth at Exhibit A hereof
shall be deemed to be satisfactory for purposes of the last preceding sentence.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
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<PAGE>
exchanges pursuant to Section 9.5 not involving any registration of transfer.
Section 3.5. Limitation on Transfer and Exchange
-----------------------------------
The Notes have not been registered or qualified under the Securities
Act of 1933 (the "1933 Act") or the securities laws of any state. No transfer of
any Note shall be made unless such transfer is made pursuant to an effective
registration statement under the 1933 Act and registration or qualification
under applicable state securities laws or is exempt from such registration or
qualification. In the event that a transfer is to be made in reliance upon an
exemption from the 1933 Act and applicable state securities laws, the Trustee
shall require, in order to assure compliance with the 1933 Act, that the owner
desiring to effect such transfer and such owner's prospective transferee each
certify to the Company and Trustee in writing the facts surrounding the transfer
in the form of either Exhibit 1 or Exhibit 2 to the Note Purchase Agreement. The
Trustee may conclusively rely upon a Rule 144A Representation Letter from the
prospective transferee in the form attached as Exhibit 2 to the Note Purchase
Agreement or upon an investment letter from the prospective transferee in the
form attached as Exhibit 1 to the Note Purchase Agreement to establish the
availability of such exemption. Neither the Company nor the Trustee is obligated
to register or qualify the Notes under the 1933 Act or any other securities law.
The Trustee shall have no liability to the Trust Estate or otherwise
arising from a transfer of any such Note in reliance upon a certification or
Rule 144A Representation Letter described in this Section 3.5.
Section 3.6. Mutilated, Destroyed, Lost or Stolen Notes
------------------------------------------
If (i) any mutilated Note is surrendered to the Trustee, or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Trustee by the Noteholder an agreement
of indemnity in form and substance reasonably satisfactory to the Trustee to
save the Company and the Trustee harmless, provided, if the holder of such Note
is, or is a nominee for, an Institutional Investor with a net worth of at least
$50,000,000 and has a long term credit rating of "A" or better, such
Institutional Investor's own unsecured agreement of indemnity shall be deemed to
be satisfactory, then, in the absence of notice to the Company or the Note
Registrar that such Note has been acquired by a bona fide purchaser, the Company
shall execute
20
<PAGE>
and upon its request the Trustee shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of
the same Class, tenor and Outstanding Note Balance as of the Closing Date,
bearing a number not contemporaneously outstanding; provided, however, that if
-----------------
any such mutilated, destroyed, lost or stolen Note shall have become or shall be
about to become due and payable the Company in its discretion may, instead of
issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company or
the Trustee may require the payment by the Holder of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee connected
therewith).
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes of the same Class duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
Section 3.7. Payment of Principal and Interest
---------------------------------
The principal of and interest due on the Notes of each Class are
payable, without presentment, to the Person whose name appears as the Holder of
such Note on the Record Date on the Note Register for the related Class by wire
or other transfer in immediately available funds to the account specified in
writing by such Holder in the Note Purchase Agreement, in the case of the
Noteholders, or otherwise specified in writing by such Holder at least three
Business Days prior to the Record Date for the Distribution Date on which wire
or other transfers are to commence. Such payment shall be in such coin or
currency of the United States of America as at the time of tender is legal
tender for the payment of public and private debts. Funds representing any such
checks returned undelivered shall be held in accordance with Section 11.3.
Payments to each Noteholder shall be made pursuant to Section 13.1 hereof. Upon
request, the Holder shall surrender such Note at the Corporate Trust Office of
the Trustee within 30 days after such payment.
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Section 3.8. Persons Deemed Owners
---------------------
Prior to due presentment for registration of transfer of any Note, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name any Note is registered as the owner of such Note for the
purpose of receiving payments of principal of and interest on such Note and for
all other purposes whatsoever, whether or not such Note be overdue, and neither
the Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
Section 3.9. Cancellation
------------
All Notes surrendered to the Trustee following, or at the time of,
payment or for registration of transfer or exchange (including Notes surrendered
to any Person other than the Trustee which shall be delivered to the Trustee)
shall be promptly canceled by the Trustee. All canceled Notes held by the
Trustee shall be held by the Trustee in accordance with its standard retention
policy unless the Company shall direct in a timely manner by a Company Order
that they be returned to it.
Section 3.10. Tax Treatment
-------------
The Company has structured this Indenture and the Notes with the
intention that the Notes will qualify under the applicable tax law as
indebtedness of the Company. The Company and each Noteholder, by acceptance of
its Note, agree to treat the Notes as debt of the Company for all purposes.
ARTICLE IV.
AUTHENTICATION AND DELIVERY OF THE NOTES
Section 4.1. General Provisions
------------------
The Notes shall be executed by the Company and delivered to the Trustee
for authentication and thereupon the same shall be authenticated and delivered
by the Trustee upon its receipt of a Company Order and upon compliance with the
conditions of Section 4.2, and upon delivery to the Trustee of the following:
(1) a copy of the Company's Board Resolution authorizing the execution
and delivery of this Indenture and the Notes; and
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(2) either (i) a certificate or other official document evidencing the
due authorization, approval or consent of any government body or bodies,
at the time having jurisdiction in the premises, and that the
authorization, approval or consent of no other governmental body is
required for valid issuance of the Notes, or (ii) an Opinion of Counsel
that no such authorization, approval or consent of any governmental body
is required.
Section 4.2. Security for Notes
------------------
The Notes shall be executed by the Company and delivered to the Trustee
for authentication and thereupon the same shall be authenticated and delivered
to the Company by the Trustee upon receipt of a Company Order and upon:
(a) establishment for the benefit of the Trustee on behalf of the Noteholders of
the Lockbox Accounts, the Collection Account and the Reserve Account; and
(b) delivery by the Company to the Trustee, and receipt by the Trustee of the
Mortgage Files and the Grant of all of the Company's right, title, and interest
in and to the Trust Estate.
Section 4.3. Delivery of Mortgage Loans
--------------------------
In connection with the assignment of all of the Company's right, title
and interest in and to the Mortgage Loans and related Mortgage Loan Documents,
the Company has delivered to, and deposited with, the Trustee the Mortgage Loans
and related Mortgage Loan Documents. The Trustee acknowledges receipt of the
files representing Mortgage Loan Documents and declares that it holds and will
hold such Mortgage Loan Documents in trust for the use and benefit of all
present and future Noteholders. The Servicer will submit the related Assignments
for recording within three Business Days after the Closing Date at the expense
of the Company. The Trustee shall deliver a certification on the Closing Date,
indicating that it has reviewed each Mortgage File and the Schedule of Mortgage
Loans and has determined that: except as set forth on the schedule of exceptions
attached thereto, all required documents have been executed and received, that
such documents relate to the Mortgage Loans identified on the Schedule of
Mortgage Loans, and each Mortgage File contains an original Mortgage Note
related to each such Mortgage Loan executed by the Mortgagor. The Trustee
agrees, for the benefit of Noteholders, to review each Mortgage Loan Document
delivered to it after the Closing Date within 30 days after the Grant of the
related Mortgage Loan to the Trustee
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to ascertain that all required documents related to such Mortgage Loan have been
executed and received, and that such documents relate to the Mortgage Loans
identified in the Schedule of Mortgage Loans that have been provided to it and
that each related Mortgage File contains an original Mortgage Note related to
each such Mortgage Loan executed by the Mortgagor listed on the Schedule of
Mortgage Loans either endorsed in blank by the original payee or showing a
complete chain of title through to the Trustee. If the Trustee finds any
document or documents constituting a part of the Mortgage Loan Documents to be
missing or defective in any material respect, the Trustee shall promptly so
notify the Company and the Seller and request that the Seller correct or cure
such omission or defect within 90 days from the date the Seller was notified of
such omission or defect. If within such 90-day period the Seller fails to cure
such omission or defect, then the Company shall cause the Seller to deposit the
Mortgage Purchase Price for the related Mortgage Loan in the Collection Account
on the second Business Day prior to the Distribution Date relating to the
Collection Period in which such 90-day period expired or cause to be substituted
a Substitute Mortgage Loan pursuant to Section 12.6(b) hereof. Any such
repurchased Mortgage Loan, upon deposit of the related Mortgage Purchase Price
or substitution of a Substitute Mortgage Loan, shall be released from the Trust
Estate by the Trustee to the Company or its designee within one Business Day of
such deposit or substitution.
ARTICLE V.
SATISFACTION AND DISCHARGE
Section 5.1. Satisfaction and Discharge of Indenture
---------------------------------------
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer and exchange or payment) with
respect to the Notes and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes and shall pay, assign,
transfer and deliver to the Company upon Company Order all cash, securities and
other property held by it as part of the Trust Estate (except for amounts
required to pay and discharge the entire indebtedness of the Notes), when
(1) either
(A) all Notes theretofore authenticated and delivered (other
than Notes which have been destroyed, lost or stolen and which have
and which have been replaced or paid as
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provided in Section 3.6) have been delivered to the Trustee for
cancellation; or
(B) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee, in
trust for the purpose, an amount sufficient to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee and each Noteholder an
Officers' Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture with respect to the Notes have been complied
with.
Notwithstanding the satisfaction and discharge of this Indenture, the
Company's obligations in Sections 3.4, 3.6, 7.7, 11.2 and 11.3, the Trustee's
obligations in Section 5.2 and the rights and immunities of the Trustee under
this Indenture shall survive until the Notes are no longer Outstanding.
Thereafter the obligations of the Company in Section 7.7 and the Trustee in
Section 5.2 and the rights and immunities of the Trustee under this Indenture
shall survive.
Section 5.2. Application of Money Held in Trust
----------------------------------
All monies deposited with the Trustee pursuant to Section 5.1 shall be
held in trust and applied by it, in accordance with the provisions of the Notes
and this Indenture, to the payment, either directly or through any Paying Agent
as the Trustee may determine, to the Persons entitled thereto, of the principal
and interest for whose payment such money has been deposited with the Trustee.
Section 5.3. Discharge of Security Interest
------------------------------
Upon satisfaction and discharge of the Indenture as specified in
Section 5.1, the Trustee shall, on written demand of and at the expense of the
Company and upon being supplied with instruments appropriate for the purpose,
execute and the Company shall file all documents (including without limitation
UCC Form 3) necessary to discharge all liens, mortgages, chattel
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mortgages and other security interests filed with any governmental board or body
with respect to the Mortgage Loans, and any other assets of the Trust Estate,
and the Trustee shall otherwise cooperate in any way necessary to restore full
unencumbered title in the Mortgage Loans to the Company or its designee.
ARTICLE VI.
REMEDIES
Section 6.1. Events of Default
-----------------
"Event of Default" wherever used herein means any one of the following
events (whatever the reason for such Event of Default and without regard to
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of all or part of any payment of
interest or principal required to be made under the terms of such Notes
or this Indenture when due;
(2) default in the performance, or breach of any covenant of
the Company or a Seller, as applicable, in this Indenture, a Sale
Agreement or the Note Purchase Agreement and continuance of such
default or breach for a period of 30 days after the earlier of (i) the
date on which the Company or such Seller, as applicable, shall first
have knowledge of such default or breach and (ii) the date on which
written notice, specifying such default or breach and requiring it to
be remedied and stating that such notice is a "Notice of Default"
hereunder shall have been given to the Company or such Seller, as
applicable, by the Trustee or any Noteholder;
(3) breach of any representation or warranty of the Company or
a Seller, as applicable, in this Indenture, a Sale Agreement, in the
Note Purchase Agreement or in any certificate delivered by the Company
or a Seller affirming such representations and warranties, in each case
as of the date such representation or warranty was made, which
representation or warranty remains uncured;
(4) a proceeding shall have been instituted in a court having
jurisdiction in the premises seeking the entry of a decree or order for
relief in respect of the Company or a Seller under the Federal
Bankruptcy Code or any other applicable bankruptcy, insolvency or other
similar Federal
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or State law, or appointing a receiver, liquidator, assignee, trustee,
or sequestrator (or other similar official) of the Company or a Seller
or of any substantial part of its respective property, or ordering the
winding up or liquidation of its respective affairs, which proceeding
shall continue undismissed and unstayed and in effect for a period of
90 consecutive days or any of such relief sought in such proceeding
shall have been granted; or
(5) the institution by the Company or a Seller of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by either of
them to the institution of bankruptcy or insolvency proceedings against
either of them, or the filing by either of them of a petition or answer
or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable Federal or State law, or the
consent by either of them to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Company or such Seller
or of any substantial part of its respective property, or the making by
either of them of an assignment for the benefit of creditors, or the
admission by either of them in writing of its respective inability to
pay its debts generally as they become due, or the taking of corporate
action by the Company or the Seller in furtherance of any such action;
or
(6) the occurrence and continuance of a Servicer Event of
Default.
Section 6.2. Acceleration of Maturity, Rescission and Annulment
--------------------------------------------------
If an Event of Default of the kind specified in clause (4) or (5) of
Section 6.1 occurs, the unpaid principal amount of all of the Notes shall
automatically become immediately due and payable without notice, presentment or
demand of any kind. If an Event of Default (other than an Event of Default of
the kind specified in clause (4) or (5) of Section 6.1) occurs and is
continuing, then and in every such case the Trustee may or at the direction of
the Majority Holders (or, if the only Event of Default occurring is an Event of
Default with respect to a Seller or Servicer set forth in clauses (2), (3) or
(6) of Section 6.1, then the Holder or the Holders of 66 2/3% of the aggregate
Outstanding Note Balance of the Notes), the Trustee shall declare the principal
of all of the Notes to be immediately due and payable, by a notice in writing to
the Company (and to the Trustee if given by Noteholders), and upon any such
declaration such principal (together with all accrued and
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previously unpaid interest) shall become immediately due and payable. The
Trustee shall give notice to each Noteholder and DCR of such declaration.
Notwithstanding the foregoing, the Trustee may not declare the Notes to be due
and payable pursuant to this Section 6.2 as a result of an Event of Default
arising solely from the Company's failure to perform its agreements set forth in
Section 7.7.
At any time after such a declaration of acceleration has been made, but
before any Sale of the Trust Estate has been made or a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of 66 2/3% of the aggregate Outstanding Note
Balance of the Notes, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequence if
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(A) all overdue installments of interest on all Class A,
Class B and Class C Notes,
(B) the principal of any of the Class A, Class B or Class C
Notes which has become due otherwise than by such declaration
of acceleration and interest thereon at the applicable Note
Interest Rate,
(C) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest on the Class A,
Class B and Class C Notes at the rate specified therefor in
the applicable Notes, and
(D) all sums paid or advanced by the Trustee hereunder and
the Back-up Servicer under the Servicing Agreement and the
reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of the principal
of the Class A, Class B and Class C Notes which have become due solely by
such acceleration, have been cured or waived as provided in Section 6.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
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Subsequent to any such declaration of acceleration and so long as such
declaration and its consequences has not been rescinded and annulled, prior to
the exercise by the Trustee of the remedies set forth in Section 6.3(b) or (c)
the Trustee shall give the Noteholders ten days' notice of its intention to take
such actions.
Section 6.3. Remedies
--------
If an Event of Default shall have occurred and be continuing, the
Trustee may, after notification to all Noteholders and DCR and, at the direction
of the Majority Holders, shall do one or more of the following:
(a) institute Proceedings for the collection of all amounts then payable on the
Notes, or under this Indenture in respect of the Notes, whether by declaration
or otherwise, enforce any judgment obtained, and collect from the Trust Estate
securing the Notes the monies adjudged due;
(b) sell the Trust Estate or any portion thereof or rights or interest therein,
at one or more Sales called and conducted in any manner permitted by law;
(c) institute Proceedings from time to time for the complete or partial
foreclosure of this Indenture with respect to the portion of the Trust Estate
securing the Notes; and
(d) exercise any remedies of a secured party under the UCC or other applicable
law and take any other appropriate action to protect and enforce the rights and
remedies of the Trustee or the Holders of the Notes hereunder;
provided, however, except for any Sale conducted pursuant to Section 10.5, that
- -------- -------
without the consent of the Holders of 66 2/3% of the aggregate Outstanding Note
Balance of the Notes, the Trustee may not sell or otherwise liquidate the Trust
Estate or any portion thereof unless, in the reasonable judgment of the Trustee
after consultation with a Person of national reputation in the field of
appraisal of property of the type comprising the Mortgaged Property, the
proceeds of such Sale or Proceedings or liquidation distributable to the
Noteholders will be sufficient to discharge in full the amounts then due and
unpaid upon the Notes for principal and interest. The Trustee shall have no
liability for any public Sale or private Sale conducted in reasonable reliance
upon the advice of a Person of national reputation in the field of appraisal. If
the Notes have been declared due and payable following an Event of Default and
the
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Trustee does not sell or otherwise liquidate the Trust Estate, it shall continue
to hold such Trust Estate and make distributions therefrom pursuant to Section
6.6 hereof.
Section 6.4. Trustee May File Proofs of Claim
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial Proceeding, relating to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of any Class of Notes shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, to intervene in such proceeding or otherwise,
(i) to file and prove a claim for all amounts owing and unpaid in respect of the
Notes and to file such other papers or documents and take such other action
including participating as a member or otherwise, in any committee of creditors
appointed in the matter, as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
of the Noteholders allowed in such judicial Proceeding;
(ii) to petition for lifting of the automatic stay and thereupon to foreclose
upon the Trust Estate as elsewhere provided herein; and
(iii) to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, or sequestrator (or other
similar official) in any such judicial Proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on
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behalf of any Noteholder any plan or reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Noteholder in any
such Proceeding.
Section 6.5. Trustee May Enforce Claims without Possession of Notes
------------------------------------------------------
All rights of actions and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any Proceeding relating thereto, and any such
Proceedings instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements,
indemnities and advances of the Trustee, its agents and counsel, be for the
benefit of the Holders of the Notes in respect of which such judgment has been
recovered applied to payments on the Notes in the order set forth in Section
6.6.
Section 6.6. Allocation of Money Collected
-----------------------------
If the Notes have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, any money collected by the Trustee with respect to the Notes pursuant
to this Article (and any funds then held or thereafter received by the Trustee)
shall be applied in the following order, at the date or dates fixed by the
Trustee, but not less frequently than on scheduled Distribution Dates:
FIRST: To the payment of all amounts due the Trustee under
Section 7.7;
SECOND: To the Servicer, the Servicing Fee;
THIRD: (in the following order) To the payment, ratably, of (i) accrued
interest on the Class A, Class B and Class C Notes, in that order, including
interest (to the extent such interest has been collected by the Trustee or a sum
sufficient therefor has been so collected and payment thereof is legally
enforceable at the rate prescribed therefor in the applicable Notes) on overdue
installments of interest, and (ii) the Outstanding Note Balances of the Class A,
Class B and Class C Notes, in that order;
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FOURTH: To the payment of all reasonable costs and expenses
incurred by any Holder in connection with the enforcement of its rights
hereunder or under the Notes, ratably, without preference or priority of any
kind; and
FIFTH: To the payment of any surplus to or at the written
direction of the Company or any other person legally entitled thereto.
Section 6.7. Limitation on Suits
-------------------
No Holder shall have any right to institute any Proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of 10% of the aggregate Outstanding Note
Balance of the Notes shall have made written request to the Trustee to
institute Proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
Proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 30 day period by the Majority
Holders;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided.
Section 6.8. Unconditional Right of Noteholders to Receive Principal and
-----------------------------------------------------------
Interest
- --------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and
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interest on such Note as such principal and interest becomes due and payable and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.
Section 6.9. Restoration of Rights and Remedies
----------------------------------
If the Trustee or any Noteholder has instituted any Proceeding to
enforce any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case the Company, the
Trustee and the Noteholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such Proceeding has been instituted.
Section 6.10. Rights and Remedies Cumulative
------------------------------
No right or remedy herein conferred upon or reserved to the Trustee or
to the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.11. Delay or Omission Not Waiver
----------------------------
No delay or omission of the Trustee or of any Noteholder to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders, or any of them, may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the
Noteholder or Noteholders, as the case may be.
Section 6.12. Control by Noteholders
----------------------
The Holders of 51% of the aggregate Outstanding Note Balance of each
class of Notes shall have the right to direct in writing the decision whether to
conduct, and the time, method and place of conducting, any Proceeding for any
remedy available to
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the Trustee with respect to the Notes or exercising any trust or power conferred
on the Trustee with respect to the Notes; provided that:
--------
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction;
provided, however, that, subject to Section 7.1, the Trustee need not take any
- -------- -------
action which it determines might involve it in liability or be unjustly
prejudicial to the Noteholders not consenting.
Section 6.13. Waiver of Past Defaults
-----------------------
The Holders of 51% of the aggregate Outstanding Note Balance of each
class of Notes may waive, in writing, any past Event of Default with respect to
the Notes hereunder and its consequences, except an Event of Default
(1) in the payment of the principal of or interest on any
Note, or a default described in Section 6.1 (4) or (5), or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of 100%
of the Holders of the Outstanding Notes affected thereby.
Upon any such waiver, such Event of Default shall cease to exist and
shall be deemed to have been cured for every purpose of this Indenture. The
Trustee, upon receipt thereof, shall transmit by mail to DCR notice of such
waiver specifying the date on which the Event of Default was waived promptly
after the occurrence of such waiver.
Section 6.14. Undertaking for Costs
---------------------
All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee, as Trustee and as Back-up
Servicer, for any action taken, suffered or omitted by it as Trustee or as Back-
up Servicer, the filing by any party litigant
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in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 6.14 shall not apply to any suit instituted
by the Trustee or to any suit instituted by any Noteholder or group of
Noteholders, holding in the aggregate more than 10% in Outstanding Note Balance
of all Notes, or to any suit instituted by any Noteholder for the enforcement of
the payment of the principal of or interest on any Note when due.
Section 6.15. Sale of Trust Estate
--------------------
(a) The power to effect any sale, transfer or other disposition (a "Sale") of
any portion of the Trust Estate pursuant to Section 6.3 shall not be exhausted
by any one or more Sales as to any portion of the Trust Estate remaining unsold,
but shall continue unimpaired until the entire Trust Estate securing the Notes
shall have been sold or all amounts payable under this Indenture with respect
thereto shall have been paid. The Trustee may from time to time postpone any
Sale by public announcement made at the time and place of such Sale. It is
hereby expressly agreed that the Trustee is not limited to any amount fixed by
law as compensation for any Sale.
(b) Any Noteholder may bid for and acquire any portion of the Trust Estate
securing the Notes in connection with any Sale thereof. In lieu of paying cash
for the entire purchase price therefor, any Noteholder, after deducting the
costs, charges and expenses (including reasonable attorney's fees) incurred by
the Trustee in connection with such Sale; and in the case of any Class C
Noteholder, after all amounts owing on the Class A and Class B Notes have been
paid in full; and in the case of any Class B Noteholder, after all amounts owing
on the Class A Notes have been paid in full) may make settlement for any portion
of the purchase price remaining by crediting against amounts owing on the Notes
held by it or other amounts owing to such Noteholder secured by this Indenture,
the portion of the net proceeds of such Sale to which such Noteholder would be
entitled hereunder.
(c) The Servicer and the Company covenant and agree that a Sale of some or the
entirety of the Mortgage Loans and Mortgaged Properties by a public Sale held
not less than ten days after notice thereof is commercially reasonable.
(d) The Trustee shall execute and deliver an appropriate instrument of transfer,
provided to it by the Servicer,
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transferring its interest in any portion of the Trust Estate in connection with
a Sale thereof. In addition, the Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Company to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale. No purchaser or transferee at such a
sale shall be bound to ascertain the Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
monies.
Section 6.16. Action on Notes
---------------
The Trustee's right to seek and recover judgment on the Notes or under
this Indenture shall not be affected by the seeking, obtaining or application of
any other relief under or with respect to this Indenture. Neither the lien of
this Indenture nor any rights or remedies of the Trustee or the Noteholders
shall be impaired by the recovery of any judgment by the Trustee against the
Company or by the levy of any execution under such judgment upon any portion of
the Trust Estate or upon any of the assets of the Company.
Section 6.17. Company Bankruptcy
------------------
The Trustee agrees, and each Holder of the Notes by its acceptance of
any note shall be deemed to agree, that it will not join in any proceeding to
commence a case against the Company or a Seller under the Federal Bankruptcy
Code or any other applicable bankruptcy, insolvency or similar federal or state
law without the consent of the Holders of more than 66 2/3% of the aggregate
Outstanding Note Balance of the Notes.
ARTICLE VII.
THE TRUSTEE
Section 7.1. Certain Duties and Responsibilities
-----------------------------------
(a) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and in the
Servicing Agreement, and no implied covenants or obligations shall be
read into this Indenture or in the Servicing Agreement against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed
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therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(b) In case an Event of Default (of which the Trustee has actual knowledge) has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect
of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Majority Holders relating to the time, method and
place of conducting any Proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Notes or under the Servicing
Agreement;
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it, provided that nothing herein contained shall excuse the Trustee for
failure to perform its duties as Trustee under this Indenture or the
Servicing Agreement;
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(5) the Trustee shall not be charged with knowledge of any
default hereunder or under the Servicing Agreement or any other fact or
circumstance upon the occurrence of which it may be required to take
action hereunder unless one of its Responsible Officers has actual
knowledge thereof; and
(6) the Trustee shall have no obligation to ascertain whether
any payment of interest on an overdue installment of interest is
legally enforceable.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 7.2. Notice of Default, Cure, Waiver or Rating Action
------------------------------------------------
Promptly after the occurrence of any Event of Default known to the
Trustee, the Trustee shall transmit by registered first class mail and facsimile
to all Holders, as their names and addresses appear on the Note Register, and
DCR notice of such Event of Default hereunder known to the Trustee, unless such
Event of Default shall have been cured or waived.
The Trustee shall provide to DCR and each Noteholder prompt notice of
any Event of Default known to it, and of any cure (including waiver) thereof,
together with a written explanation of the manner in which and time at which
such Event of Default was cured or waived.
The Trustee shall provide to each Noteholder notice of any rating
action taken against the Notes by DCR promptly after receipt.
Section 7.3. Certain Rights of Trustee
-------------------------
Subject to Section 7.1:
(a) the Trustee may, in the absence of bad faith on its part, conclusively rely
and shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, note or other obligation, paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company
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Order and any resolution of the Board of Directors may be sufficiently evidenced
by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it
desirable that a matter be proved or established prior to taking, suffering or
omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, request
and conclusively rely upon an Officers' Certificate of the Servicer or the
Company;
(d) the Trustee may, in its reasonable judgment, consult with in-house counsel
or any other counsel nationally-recognized in securitization with regard to
legal questions arising out of or in connection with this Indenture, and the
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by this Indenture at the request or direction of any of the
Noteholders pursuant to this Indenture, unless such Noteholders shall have
offered to the Trustee security or indemnity reasonably satisfactory to it
against the costs, expenses (including legal fees and expenses) and liabilities
which might be incurred by it in compliance with such request or direction; and
(f) the Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, note or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney.
Except as otherwise agreed by it in writing, the Trustee shall not be
responsible for the payment of any interest on amounts deposited with it
hereunder.
Section 7.4. Not Responsible for Recitals or Issuance of Notes
-------------------------------------------------
(a) The recitals contained herein and in the Notes, except the certificates of
authentication on the Notes, shall be taken as
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the statements of the Company, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity,
adequacy or condition of the Trust Estate or any part thereof, or as to the
title of the Company thereto or as to the security afforded thereby or hereby,
or as to the validity or genuineness of any securities at any time pledged and
deposited with the Trustee hereunder or as to the validity or sufficiency of
this Indenture or of the Notes. The Trustee shall not be accountable for the use
or application by the Company of Notes or the proceeds thereof or of any money
paid to the Company or upon Company Order or for the use or application by the
Servicer of any amounts paid to the Servicer under any provisions hereof.
(b) Except as otherwise expressly provided herein and without limiting the
generality of the foregoing, the Trustee shall have no responsibility or
liability for or with respect to the existence or validity of any Mortgaged
Property or Mortgage Loan, the perfection of any security interest (whether as
of the date hereof or at any future time), the maintenance of or the taking of
any action to maintain such perfection, the validity of the assignment of any
portion of the Trust Estate to the Trustee or of any intervening assignment, the
review of any Mortgage Loan (it being understood that the Trustee has not
reviewed and does not intend to review the substance or form of any such
Mortgage Loan or any Mortgage Loan Document) the performance or enforcement of
any Mortgage Loan or Mortgage Loan Document, the compliance by the Company, a
Seller or the Servicer with any covenant or the breach by the Company, a Seller
or the Servicer of any warranty or representation made hereunder or in any
related document or the accuracy of any such warranty or representation, any
investment of monies in the Collection Account or Reserve Account or any loss
resulting therefrom, the acts or omissions of the Company, a Seller, the
Servicer or any Mortgagor, any action of the Servicer or a Seller taken in the
name of the Trustee, or the validity of the Servicing Agreement or a Sale
Agreement.
(c) The Trustee shall not have any obligation or liability under any Mortgage
Loan by reason of or arising out of this Indenture or the granting of a security
interest in such Mortgage Loan hereunder or the receipt by the Trustee of any
payment relating to any Mortgage Loan pursuant hereto, nor shall the Trustee be
required or obligated in any manner to perform or fulfill any of the obligations
of the Company under or pursuant to any Mortgage Loan, or to make any payment,
or to make any inquiry as to the nature or the sufficiency of any payment
received by it, or the
40
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sufficiency of any performance by any party, under any Mortgage Loan.
Section 7.5. May Hold Notes
--------------
The Trustee, any Paying Agent, Note Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Notes and if operative, may otherwise deal with the Company with the
same rights it would have if it were not Trustee, Paying Agent, Note Registrar
or such other agent.
Section 7.6. Money Held in Trust
-------------------
Money received by the Trustee pursuant to this Indenture shall be held
in trust for the purposes set forth herein. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
herein or required by law. The Trustee shall be under no liability for interest
on any money received by it hereunder except as otherwise agreed by the Trustee
in writing with the Company except with respect to income or gain or investments
that are its obligation in its corporate capacity.
Section 7.7. Compensation and Reimbursement
------------------------------
The Company agrees:
(a) to pay the Trustee the Trustee Fee, in accordance with
Section 13.1 hereof, as reasonable compensation for all services
rendered by it hereunder (which Trustee's Fee shall not be limited by
any provision of law in regard to the compensation of a trustee of an
express trust);
(b) to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture (including
the reasonable compensation and the expenses and disbursements of the
Trustee's agents and counsel) or the Servicing Agreement, except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(c) to indemnify the Trustee, its officers, directors,
employees, custodians, nominees and agents for, and to hold them
harmless against, any loss, liability or expense incurred without
negligence or bad faith on their part, arising out of or in connection
with the acceptance or
41
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administration of this trust and performance hereunder and under the
Servicing Agreement in accordance with the terms hereof, including the
costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or
duties hereunder and including any loss, liability or expense incurred
by it as Back-up Servicer without negligence or bad faith.
As security for the performance of the Company under this Indenture,
the Trustee shall have a lien and right to payment, prior to the lien of the
Noteholders and all other Persons, upon the Trust Estate. The Trustee shall not
institute any proceeding solely to enforce its lien which would involve the Sale
or other disposition of the Trust Estate until at least 91 days have elapsed
since the date on which all of the Notes have been paid or discharged. The
Trustee shall not be entitled to reimbursement of the expenses described in
Section 7.7(b) above pursuant to Section 13.1(a) hereof, unless, at least 30
days prior to the related Distribution Date, the Trustee has submitted to the
Servicer a written request for such reimbursement and the Servicer has failed to
comply with such request on or prior to such Distribution Date.
Section 7.8. Corporate Trustee Requirement; Eligibility
------------------------------------------
There shall at all times be a Trustee hereunder which shall at all
times be a depository institution or trust company organized and doing business
under the laws of the United States of America or any State thereof; authorized
under such laws to exercise corporate trust powers; have a combined capital and
surplus of at least $500,000,000; and be subject to supervision or examination
by federal or state authorities; provided, however, that any successor Trustee
-----------------
shall in addition be an institution with long-term, unsecured debt obligations
rated "AA" or better by DCR or any other rating acceptable to DCR. If such
corporation shall publish reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purpose of this Section 7.8, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall immediately notify the Company, the Servicer, the Noteholders
and DCR. In the event of such occurrence, the Company or the Servicer may cause
the Trustee to resign immediately in the manner and with the effect hereinafter
specified in this Article.
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Section 7.9. Resignation and Removal; Appointment of Successor
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee under Section 7.10.
(b) The Trustee may resign at any time by giving written notice thereof to the
Company, the Servicer, DCR and to the Noteholders. If an instrument of
acceptance by a successor Trustee shall not have been delivered to the Trustee
within 90 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Majority Holders,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall cease to be eligible under Section 7.8 and shall
fail to resign after written request therefor by the Company or by any such
Noteholder, or
(2) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 6.14, any Noteholder who has been a bona
fide Holder of a Note for at least six months (provided that the Notes have been
Outstanding for at least six months, otherwise the Holder of the Note that has
been outstanding for the longest period of time) may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting, or if
a vacancy shall occur in the office of the Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee that meets the
requirements set forth in Section 7.8. If no successor Trustee shall have been
so appointed by the Company within 30 days after such resignation or removal or
by the Majority Holders pursuant to
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Section 7.9(f), any Noteholder who has been a bona fide Holder of Notes for at
least six months (provided that the Notes have been outstanding for at least six
months) may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor trustee.
(f) Notwithstanding Section 7.9(e) hereof, under the following circumstances a
successor Trustee may be appointed by Act of the Majority Holders delivered to
the Company and (unless the office of the Trustee is then vacant) any retiring
Trustee: (a) a vacancy shall exist at any time in the office of the Trustee for
any cause; (b) the Company shall not have appointed a successor Trustee within
30 days after the Trustee's resignation or removal; or (c) less than one year
shall have passed after the appointment by the Company of a successor Trustee
pursuant to Section 7.9(e). Any successor Trustee appointed by such Act of the
Majority Holders shall, forthwith upon its acceptance of such appointment,
become the successor Trustee and supersede the successor Trustee, if any,
appointed by the Company.
(g) The Company shall give notice of each resignation and each removal of the
Trustee and each appointment of a successor Trustee by mailing written notice of
such event by first-class mail, postage prepaid, to the Servicer, DCR and the
Holders of Notes as their names and addresses appear in the Note Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
(h) The Trustee shall be paid all amounts outstanding upon such resignation or
removal and the obligations of the Company and the Servicer in Section 7.7
hereof shall survive such resignation or removal.
Section 7.10. Acceptance of Appointment by Successor
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and the Noteholders and the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request of
the Company or the successor Trustee, such retiring Trustee shall, upon payment
of its reasonable charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trust of the retiring Trustee,
and shall duly assign, transfer
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and deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder, subject nevertheless to its lien, if any, provided
for in Section 7.7. Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 7.11. Merger, Conversion, Consolidation or Succession to Business of
--------------------------------------------------------------
Trustee
- -------
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Trustee had itself authenticated such Notes.
Section 7.12. Co-trustees and Separate Trustees
---------------------------------
At any time or times, for the purpose of meeting the legal requirements of
any jurisdiction in which any of the Trust Estate may at the time be located
(including for purposes of foreclosure), the Company and the Trustee shall have
power to appoint, and, upon the written request of the Trustee or of the Holders
of Notes representing at least 25% of the aggregate Outstanding Note Balance of
any Class, the Company shall for such purpose join with the Trustee in the
execution, delivery and performance of all instruments and agreements necessary
or proper to appoint, one or more Persons approved by the Trustee either to act
as co-trustee, jointly with the Trustee, of all or any part of such Trust
Estate, or to act as separate trustee of any such property, in either case with
such powers as may be provided in the instrument of appointment, and to vest in
such Person or Persons in the capacity aforesaid, any property, title, right or
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power deemed necessary or desirable, subject to the other provisions of this
Section. If the Company does not join in such appointment within 15 days after
the receipt by it of a request so to do, or in case an Event of Default has
occurred and is continuing, the Trustee alone shall have power to make such
appointment.
Should any written instrument from the Company be required by any co-
trustee or separate trustee so appointed for more fully confirming to such co-
trustee or separate trustee such property, title, right or power, any and all
such instruments shall, on request, be executed, acknowledged and delivered by
the Company.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms, namely:
(1) The Notes shall be authenticated and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised solely
by the Trustee.
(2) The rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed
by the Trustee or by the Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument appointing such co-trustee
or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Trustee
shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee.
(3) The Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Company evidenced by a Board Resolution,
may accept the resignation of or remove any co-trustee or separate trustee,
appointed under this Section, and, in case an Event of Default has occurred
and is continuing, the Trustee shall have power to accept the resignation
of, or remove, any such co-trustee or separate trustee without the
concurrence of the Company. Upon the written request of the Trustee, the
Company shall join with the Trustee in the execution, delivery and
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performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee or
separate trustee that has so resigned or been removed may be appointed in
the manner provided in this Section.
(4) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee or any other such
trustee hereunder nor shall the Trustee be liable by reason of any act or
omission of any co-trustee or separate trustee hereunder.
(5) Any Act of Noteholders delivered to the Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
Section 7.13. Rights with Respect to the Servicer
-----------------------------------
(a) The Trustee may terminate all rights and powers of the Servicer at any time,
in accordance with the terms of the Servicing Agreement.
(b) If the Company shall have knowledge of the occurrence of any Servicer Event
of Default under the Servicing Agreement, the Company shall promptly notify the
Trustee in writing, the Noteholders and DCR thereof, and shall specify in such
notice the action, if any, the Company is taking in respect of such event of
default.
(c) Upon any termination of the original Servicer's rights and powers pursuant
to the Servicing Agreement, a successor Servicer may be appointed in accordance
with the provisions thereof, and if no successor is so appointed the Trustee
shall serve as Servicer in accordance with the provisions of the Servicing
Agreement.
Section 7.14. Servicer as Agent and Bailee of Trustee
---------------------------------------
Solely for the purpose of perfection of the lien of this Indenture,
each of the Trustee and the Servicer hereby acknowledges that the Servicer is
acting as agent and bailee of the Trustee for the benefit of the Noteholders as
secured party in holding any items constituting a part of the Trust Estate,
including any Mortgage Loans and the Mortgage Files relating to the Mortgage
Loans and monies, which from time to time come into the possession of the
Servicer (of which the Trustee shall retain a copy, other than in connection
with Mortgage Loans released pursuant to this Indenture) provided that, with
--------
respect to any
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other duties pursuant to said Servicing Agreement, the Servicer is acting as an
independent contractor. It is intended that, by the Servicer's acceptance of
such agency pursuant to the Servicing Agreement, the Trustee for the benefit of
the Noteholders, as secured party, shall be deemed to have possession of such
monies and other items for purposes of the UCC as adopted in the state in which
such property is held by the Servicer. Subject to Section 7.1 hereunder, the
Trustee shall not be liable for any act or omission of the Servicer in its
capacity as agent and bailee of the Trustee.
Section 7.15. Representations and Warranties of the Trustee
---------------------------------------------
The Trustee hereby makes the following representations and warranties on which
the Company, the Servicer and Noteholders shall be entitled to rely:
(i) The Trustee is a nationally chartered bank duly organized, validly
existing, and in good standing under the laws of its place of organization;
(ii) The Trustee has full power, authority and legal right to execute, deliver,
and perform this Indenture and the Servicing Agreement, and has taken all
necessary action to authorize the execution, delivery, and performance by it of
this Indenture and the Servicing Agreement;
(iii) The execution, delivery and performance by the Trustee of this Indenture
and the Servicing Agreement (a) does not violate any provision of any law or any
order, writ, judgment, or decree of any court, arbitrator, or governmental
authority applicable to the Trustee or any of its assets, (b) does not violate
any provision of the corporate charter or by-laws of the Trustee, and (c) does
not violate any provision of, or constitute, with or without notice or lapse of
time, a default under, or result in the creation or imposition of any Lien on,
any properties included in the Trust Estate pursuant to the provisions of any
mortgage, indenture, contract, agreement, or other undertaking to which the
Trustee is a party, which violation or default could reasonably be expected to
materially and adversely affect the Trustee's performance or ability to perform
its duties under this Indenture and the Servicing Agreement or the transactions
contemplated in this Indenture and the Servicing Agreement;
(iv) The execution, delivery and performance by the Trustee of this Indenture
and the Servicing Agreement does not require the authorization, consent, or
approval of, the giving of notice to,
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the filing or registration with, or the taking of any other action in respect
of, any governmental authority or agency regulating the banking and corporate
trust activities of the Trustee;
(v) This Indenture and the Servicing Agreement has been duly executed and
delivered by the Trustee and constitutes the legal, valid, and binding agreement
of the Trustee, enforceable in accordance with its terms, and the Trustee meets
the requirements of Section 7.8 hereof;
(vi) The Notes have been duly authenticated by the Trustee; and
(vii) The Trustee represents that it has used commercially reasonable best
efforts to cure deficiencies with regards to the manipulation or calculation of
dates beyond December 31, 1999 in the internally maintained computer software
systems used by the Trustee in the conduct of its trust business which
materially and adversely affect its ability to perform its obligations under
this Indenture. The Trustee further represents that it will use commercially
reasonable best efforts to obtain reasonable assurances from each third party
vendor of licensed computer software systems used by the Trustee in the conduct
of its trust business that such vendors shall use commercially reasonable
efforts to cure any deficiencies with regards to the manipulation or calculation
of dates beyond December 31, 1999 and such systems shall contain no deficiencies
with regards to the manipulation or calculation of dates beyond December 31,
1999 which would materially and adversely affect the ability of the Trustee to
perform its obligations under this Indenture.
ARTICLE VIII.
CONSOLIDATION AND MERGER
Section 8.1. Company May Not Consolidate, etc.
---------------------------------
The Company shall not consolidate or merge with or into any other
Person or convey or transfer its properties and assets substantially as an
entirety to any Person.
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ARTICLE IX.
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Noteholders
------------------------------------------------------
(a) Without the consent of the Holders of any Notes, the Company, when
authorized by a Board Resolution, the Servicer and the Trustee, at any time and
from time to time, may enter into one or more supplemental indentures provided
--------
that such action shall not result in a reduction or withdrawal of the then
current rating on any class of Notes as confirmed by DCR in writing, in form
satisfactory to the Trustee, for any of the following purposes; provided,
--------
further, that no such supplemental indenture shall have any of the effects
- -------
described in clauses (1) through (6) of the proviso to Section 9.2 hereof or
adversely affect the interest of the Holders of any Notes:
(1) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Trustee any property subject or required to be subjected
to the lien of this Indenture, or to subject additional property to the
lien of this Indenture; or
(2) to add to the conditions, limitations and restrictions on the
authorized amount, terms and purposes of issue, authentication and delivery
of the Notes, as herein set forth, additional conditions, limitations and
restrictions thereafter to be observed; or
(3) to add to the covenants of the Company, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred
upon the Company; or
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provisions
with respect to matters or questions arising under this Indenture, which
shall not be inconsistent with the provisions of this Indenture; or
(6) to evidence the succession of the Trustee pursuant to
Article 7.
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(b) Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to this Section, the Company shall deliver to
DCR and each Noteholder by overnight mail, a notice setting forth in general
terms the substance of such supplemental indenture together with a copy of such
supplemental indenture. Any failure of the Company to mail such notice and copy,
or any defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
Section 9.2. Supplemental Indentures with Consent of Noteholders
---------------------------------------------------
With the consent of the Holders of more than 51% of aggregate Outstanding
Note Balance of each class of Notes, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into one or more supplemental indentures for the purpose
of adding any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture modifying in any manner the rights of the Holders
of the Notes under this Indenture; provided that, unless the unanimous consent
--------
of the Noteholders is received, such action shall not result in a reduction or
withdrawal of the then current rating on any class of Notes as confirmed by DCR
in writing, in form satisfactory to the Trustee; and provided further that no
--------
such supplemental indenture shall, without the consent of all Holders of each
class of Outstanding Notes affected thereby:
(1) reduce the Outstanding Note Balance of any Note or the Note Interest Rate
thereon or change the amount or priority or time of any payment on any Note or
any place of payment where, or the coin or currency in which, any Note or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment; or
(2) impair or adversely affect the Trust Estate except as otherwise permitted
herein; or
(3) modify or alter the provisions of the definition of the term "Outstanding";
or
(4) modify or alter the provisions of the proviso to Section 6.3; or
(5) modify any of the provisions of this Section 9.2 or any provision herein
requiring the consent, waiver, approval or Act of the Holder or Holders of any
particular amount of the Outstanding Note Balance of any Class of Notes; or
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(6) permit the creation of any lien ranking prior to or on a parity with the
lien of this Indenture with respect to any part of a Trust Estate or terminate
the lien of this Indenture on any property at any time subject hereto or deprive
the Holder of any Note of the security afforded by the lien of this Indenture.
It shall be necessary for any Act of Noteholders under this Section to
approve the particular form of any proposed supplemental indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to this Section, the Company shall mail to DCR
and each Noteholder a notice setting forth in general terms the substance of
such supplemental indenture together with a copy of such supplemental indenture.
Any failure of the Company to mail such notice and copy, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
Section 9.3. Execution of Supplemental Indentures
------------------------------------
In executing or accepting any supplemental indenture permitted by this
Article or the modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to be supplied with, and prior to executing any
supplemental indenture pursuant to Section 9.1 the Trustee shall require (and
subject to Section 7.1 shall be fully protected in relying upon), an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
duties or immunities under this Indenture or otherwise.
Section 9.4. Effect of Supplemental Indentures
---------------------------------
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
Section 9.5. Reference in Notes to Supplemental Indenture
--------------------------------------------
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and if required by the Trustee shall,
bear a notation in form approved by the Trustee as to any matter provided for in
such
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supplemental indenture. If the Company shall so determine, new Notes so modified
as to conform, in the opinion of the Trustee and the Company, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
ARTICLE X.
REDEMPTION OF NOTES
Section 10.1. Redemption at the Option of the Servicer; Election To Redeem
------------------------------------------------------------
The Servicer shall have the right to purchase all, but not less than all,
the Mortgage Loans at the Purchase Price, on any Distribution Date (hereinafter
referred to as a "Redemption Date") occurring after such time as the aggregate
Outstanding Note Balance is equal to or less than 10% of the aggregate
Outstanding Note Balance as of the Closing Date. The Funds represented by such
Purchase Price shall be used to redeem the Notes in whole, but not in part, at
the Redemption Price, with the excess to be paid to the Company.
Installments of interest and principal due on or prior to a Redemption Date
shall continue to be payable to the Holders of Notes called for redemption as of
the relevant Record Dates according to their terms and the provisions of Section
3.7. The election of the Servicer to cause the redemption of the Notes pursuant
to this Section shall be evidenced by a Board Resolution directing the Trustee
to make the payment of the Redemption Price on all of the Outstanding Notes from
monies deposited with the Trustee pursuant to Section 10.3.
Section 10.2. Notice of Redemption by the Company
-----------------------------------
Notice of redemption pursuant to Section 10.1 shall be given by facsimile
and registered mail, postage prepaid, mailed not less than 30 days prior to the
applicable Redemption Date, to the Trustee, DCR and to each Holder of
Outstanding Notes, at its address in the Note Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) that on the Redemption Date, the Redemption Price shall become due and
payable upon each such Note, and that interest
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thereon shall cease to accrue on such date upon the payment of the Redemption
Price; and
(4) the place where such Notes are to be surrendered within 30 days after the
Redemption Date, which shall be the office or agency of the Servicer to be
maintained as provided in Section 11.2.
Notice of redemption of Notes shall be given by the Servicer or, at
the Servicer 's request, by the Trustee in the name and at the expense of the
Servicer. Failure to give notice of redemption, or any defect therein, to any
Holder of any Note selected for redemption shall not impair or affect the
validity of the redemption of any other Note.
Section 10.3. Deposit of the Redemption Price
-------------------------------
On or before the Business Day next preceding any Redemption Date, the
Servicer shall deposit with the Trustee or with the Paying Agent an amount of
monies sufficient to pay the Redemption Price of all Outstanding Notes on such
Redemption Date (less any portion of such payment set aside from monies in the
Collection Account or the Reserve Account for the Notes to be redeemed).
In the case of a redemption pursuant to which a sale under Section 10.5 is
to be held, on or before the Business Day next preceding the related Redemption
Date, the Servicer shall deposit with the Trustee or with the Paying Agent an
amount of money equal to the amount by which the Redemption Price is reasonably
expected to exceed the proceeds of the sale plus an amount of money sufficient
to pay the Trustee's fees and expenses reimbursable to the Trustee in accordance
with Section 7.7.
Section 10.4. Notes Payable on Redemption Date
--------------------------------
Notice of redemption having been given as provided in Section 10.2, the
Notes to be redeemed shall, on the applicable Redemption Date, become due and
payable at the Redemption Price and on such Redemption Date (unless the Servicer
shall default in the payment of the Redemption Price) such Notes shall cease to
bear interest. On the Redemption Date, the Holders of such Notes shall be paid
the Redemption Price by the Paying Agent; provided, however, that installments
-----------------
of principal and interest which are due on or prior to the Redemption Date shall
be payable to the Holders of such Notes registered as such on the relevant
Record Dates according to their terms and the provisions of Section 3.7.
54
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If the Holders of any Note called for redemption shall not be so paid, the
principal shall, until paid, continue to bear interest from the Redemption Date
at the related Note Interest Rate until payment of principal is made.
Section 10.5. Sale for Purposes of Redemption
-------------------------------
(a) By Servicer Request, the Servicer may direct the Trustee to sell the
Mortgage Loans securing the Notes called for redemption for the purpose of
redeeming the Outstanding Notes in accordance with Section 10.1. The Servicer
Request shall (i) specify the time and place of the sale, terms and the manner
in which the sale is to be conducted and (ii) be accompanied by an Officers'
Certificate certifying that no Event of Default shall be continuing. The date of
any such sale shall be the Redemption Date and the amount of the proceeds from
such sale shall equal or exceed the Redemption Price. Upon receipt of such
Servicer Request, the Trustee shall employ its best efforts to sell the Mortgage
Loans on the terms and conditions specified therein; provided, however, the
Trustee may only sell such Mortgage Loans if (x) no Event of Default shall be
continuing and (y) the amounts required to have been deposited by the Servicer
with the Trustee or a Paying Agent pursuant to Section 10.3 shall have been so
deposited. The Trustee shall deposit all proceeds from such sale (net of the
Trustee's fees and expenses in connection with such sale, which fees and
expenses shall not reduce the amount of such proceeds below the Redemption
Price) in the Collection Account.
(b) The Trustee shall execute and deliver an appropriate instrument of
conveyance, without recourse, warranty or representation, delivered to it by the
Servicer transferring the Company's interest in any portion of the Mortgage
Loans securing the Notes in connection with a sale thereof. In addition, the
Trustee is hereby irrevocably appointed the agent and attorney-in-fact of the
Company to transfer and convey the Company's interest in any portion of such
Mortgage Loans in connection with a sale thereof, and to take all action
necessary to effect such sale. No purchaser or transferee at such a sale shall
be bound to ascertain the Trustee's authority, inquire into the satisfaction of
any conditions precedent or to see to the application of any monies.
55
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ARTICLE XI.
COVENANTS
Section 11.1. Payment of Principal and Interest
---------------------------------
The Company shall duly and punctually pay the principal of and interest on
the Notes in accordance with the terms of the Notes and this Indenture.
Section 11.2. Maintenance of Office or Agency
-------------------------------
The Company shall maintain an office or agency within the United States of
America where Notes may be presented or surrendered for payment, where Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company hereby initially appoints the Trustee its office or agency
for each of said purposes. The Company shall give prompt written notice to the
Trustee of the location, and of any change in the location, of any such office
or agency. If at any time the Company shall fail to maintain any such office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Company hereby appoints the Trustee at its
Corporate Trust Office its agent to receive all such presentations, surrenders,
notices and demands.
Section 11.3. Money for Note Payments To Be Held in Trust
-------------------------------------------
The Company shall cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(1) hold all sums held by it in respect of payments on Notes in trust for the
benefit of the Noteholders entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other obligor
upon the Notes) in the making of any payment; and
(3) at any time during the continuance of any such default, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held in trust
by such Paying Agent.
56
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The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
such Paying Agent, such sums to be held by the Trustee upon the same trusts as
those upon which such sums were held by such Paying Agent; and, upon such
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Subject to any applicable escheat law, any money deposited with the Trustee
or any Paying Agent in trust for payment to Noteholders on any Payment Date and
remaining unclaimed for three years after such payment has become due and
payable shall be paid to the Company on Company Request; and the Holder of such
Note shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, shall thereupon cease; provided,
--------
however, that the Trustee or such Paying Agent, before being required to make
- -------
any such repayment, shall at the expense of the Company cause to be published
once, in a newspaper published in the English language, customarily published on
each Business Day and of general circulation in the city in which the Corporate
Trust Office is located, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
shall be repaid to the Company. The Trustee shall also adopt and employ, at the
expense of the Company, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
Noteholders whose right to or interest in monies due and payable but not claimed
is determinable from the records of any Paying Agent, at the last address as
shown on the Note Register for each such Noteholder). Notwithstanding the
foregoing, nothing herein shall be deemed to require the Trustee to give or
cause the publication of any notice of the repayment of such monies to the
Company and the Trustee shall not be liable to the Noteholders or the Trust
Estate for its failure to provide or cause such notice.
Section 11.4. Corporate Existence
-------------------
The Company shall keep in full effect its existence, rights and franchises
as a limited liability company under the laws of the State of Nevada, shall
operate in accordance with, and subject to the limitations set forth in, its
operating agreement, and shall obtain and preserve its qualification to do
57
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business as a foreign limited liability company in each jurisdiction in which
such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture or the Notes. The Company shall promptly
deliver to DCR and each Noteholder a copy of any amendment to its charter or its
operating agreement.
Section 11.5. Protection of Trust Estate
--------------------------
The Company shall from time to time execute and deliver all such
supplements and amendments hereto (a copy of which shall be provided to the
Noteholders) and all such financing statements, continuation statements,
instruments of further assurance and other instruments, and shall take such
other action as is necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust Estate;
(ii) maintain or preserve the lien of this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of, or protect the validity of any Grant made or
to be made by this Indenture;
(iv) enforce any of the Mortgage Loans or, where appropriate, any security
interest in the Trust Estate and the proceeds thereof; or
(v) preserve and defend title to the Trust Estate and the rights of the Trustee
and the Noteholders therein against the claims of all persons and parties.
Section 11.6. Negative Covenants
------------------
So long as any Notes are Outstanding, the Company shall not:
(i) sell, transfer, exchange or otherwise dispose of any of the Trust Estate
(except as expressly permitted by Section 10.5 and except as provided in
Sections 12.6 and 12.7); or
(ii) claim any credit on, or make any deduction from, the principal or interest
payable in respect of the Notes by reason of the payment of any taxes levied or
assessed upon any of the Trust Estate; or
(iii) other than in accordance with the restrictions set forth therein, amend
its organizational documents without the consent
58
<PAGE>
of the Majority Holders; provided, the Company shall not amend the
organizational documents if the effect of any such amendment would be to result
in a reduction or withdrawal of the then current rating of DCR assigned to the
Notes as confirmed in writing by DCR; or
(iv) (a) permit the validity or effectiveness of this Indenture to be impaired,
or permit this Indenture to be amended, hypothecated, subordinated, terminated
or discharged, or permit any Person to be released from any covenants or
obligations of this Indenture, except as may be expressly permitted hereby and
thereby, (b) except to the extent permitted under this Indenture, permit any
lien, charge, security interest, mortgage or other encumbrances to be created on
or extended to or otherwise arise upon or burden the Trust Estate or any part
thereof or any interest therein or the proceeds thereof or incur any
indebtedness other than the Notes, or (c) permit this Indenture to not
constitute a valid first priority perfected security interest in the Trust
Estate; or
(v) change the location of its chief executive office without thirty days' prior
written notice to the Trustee, accompanied by such evidence of actions taken as
shall be necessary to continue the perfection of the lien on the Collateral; or
(vi) incur any indebtedness not permitted by its operating agreement, or assume
or guaranty any indebtedness of any other entity other than the indebtedness
evidenced by the Notes; or
(vii) engage in any business not permitted by its Operating Agreement; or
(viii) obtain or carry insurance relating to the Mortgage Loans separate from
that required by the Servicing Agreement, unless the Trustee and the Noteholders
shall have the same rights with respect thereto as they have with respect to the
insurance required by the Servicing Agreement.
Section 11.7. Statement as to Compliance
--------------------------
The Company shall deliver to the Trustee, the Noteholders and DCR, within
30 days after each December 31, March 31, June 30 and September 30 (commencing
December 31, 1999 with the written statement delivered on such date covering the
period from the Closing Date through June 30, 1999), a written statement signed
by the Chairman or the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Controller or
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<PAGE>
an Assistant Controller of the Company, stating, as to each signer thereof, that
(1) a review of the activities of the Company during the preceding twelve-month
period and of performance under this Indenture has been made under his
supervision and
(2) the Company has fulfilled all its obligations under this Indenture
throughout such period, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to him and the nature
and status thereof.
Section 11.8. Investment Company Act
----------------------
The Company shall conduct its operations in a manner which shall not
subject it to registration as an "investment company" under the Investment
Company Act of 1940.
Section 11.9. Enforcement of Servicing Agreement and Sale Agreement
-----------------------------------------------------
The Company shall promptly take all actions necessary, and diligently
pursue all remedies available to it, to enforce the obligations of the Servicer
under the Servicing Agreement and Dutch Elm Holdings, Inc. under the Dutch Elm
Loan Sale Agreement to secure its and the Noteholders' rights thereunder,
provided that, prior to taking any action in the name of the Trustee, it shall
- --------
receive the written consent of the Trustee.
Section 11.10. Taxes
-----
The Company shall pay or cause to be paid all taxes when due and payable or
levied against its assets, properties or income, including any property that is
part of the Trust Estate.
Section 11.11. Company Ownership
-----------------
The Company agrees that its books and records will reflect its ownership of
the Mortgage Loans and that such Mortgage Loans are subject to the security of
the Trustee on behalf of the Noteholders.
Section 11.12. Nonconsolidation
----------------
The Company agrees that so long as any Notes are Outstanding, it will be
operated such that it will not be substantively consolidated in the bankruptcy
estate of the Parent or any Affiliate thereof and will not have its separate
existence disregarded in the event of a bankruptcy of the Parent or
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Affiliate thereof. Without limiting the foregoing, the Company agrees that:
(a) it will pay its own expenses, neither the Sellers nor the
Parent will guarantee any of the Company's obligations other than pursuant to
the Note Purchase Agreement and neither the Sellers, the Parent nor any
Affiliate thereof will lend funds to the Company for the payment of expenses;
(b) it will conduct its business exclusively on its own stationery and
all correspondence by the Company will be in its own name;
(c) it will not permit the Sellers (other than the Managing
Member), the Parent or any Affiliate thereof to be involved in the daily
management of the Company; provided, however, an officer of the Parent or any
such Affiliate shall not be prohibited from serving as an officer of the
Company;
(d) except in accordance with its organizational documents, it will not
engage in any intercompany transactions with the Sellers, the Parent or any
Affiliate thereof, except as provided in the Sale Agreements, the Servicing
Agreement or this Indenture;
(e) it will maintain company records and books of account separate and
distinct from the Sellers' and the Parent's corporate records and the records of
any Affiliate thereof and maintain corporate formalities and separate business
offices and telephone number;
(f) the financial statements of Sun Funding, Inc., Terra Loans Corp.
and the Company will disclose that the assets of the Company are not available
to pay creditors of Sun Funding, Inc., Terra Loans Corp. or any Affiliate
thereof and will reflect the separate corporate existence of the Company;
(g) it will not act as agent for the Sellers, the Parent or any
Affiliate thereof and agrees that it will not authorize the Sellers, the Parent
or any Affiliate thereof to act as its agent, except in Sunterra Financial
Services, Inc.'s capacity as Servicer under the Servicing Agreement;
(h) its managing member shall maintain at least one Independent
Director as required in the managing member's certificate of incorporation;
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(i) it will maintain its assets separate and distinct from the
Sellers' assets, the Parent's assets and the assets of any Affiliate thereof,
and shall not permit its assets to be commingled with those of the Sellers, the
Parent or any Affiliate thereof;
(j) it shall not become contractually liable for the payment of any
liability of the Sellers or the Parent; and
(k) it will not modify or amend its operating agreement with respect to
the purpose or purposes for which it is organized.
Section 11.13. Representations, Warranties and Covenants
-----------------------------------------
The Company makes the following representations, warranties and covenants
as to itself as of the Closing Date and with respect to any Subsequent Transfer
Date, as of such Subsequent Transfer Date:
(a) Due Formation; Valid Existence; Good Standing and Limited Purpose.
-----------------------------------------------------------------
The Company is a limited liability company duly organized and validly existing
in good standing under the laws of the jurisdiction of its formation; and is
duly qualified to do business as a foreign limited liability company and in good
standing under the laws of each jurisdiction where the character of its
property, the nature of its business or the performance of its obligations under
this Indenture, the Sale Agreement, the Servicing Agreement or the Note Purchase
Agreement makes such qualification necessary except where the failure to be so
qualified will not have a material adverse effect on the business of the Company
or its ability to perform its obligations under this Indenture, the Dutch Elm
Loan Sale Agreement, the Servicing Agreement or the Note Purchase Agreement or
any other documents or transactions contemplated hereunder or the validity or
enforceability of the Mortgage Loans.
(b) Possession of Licenses, Certificates, Franchises and Permits. The
------------------------------------------------------------
Company holds, and at all times during the term of this Indenture, the Dutch Elm
Loan Sale Agreement, the Servicing Agreement or the Note Purchase Agreement will
hold, all material licenses, certificates, franchises and permits from all
governmental authorities necessary for the conduct of its business and has
received no notice of proceedings relating to the revocation of any such
license, certificate, franchise or permit, which singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect its ability to perform its obligations under
62
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this Indenture, the Dutch Elm Loan Sale Agreement, the Servicing Agreement or
the Note Purchase Agreement or any other documents or transactions contemplated
hereunder or the validity or enforceability of the Mortgage Loans.
(c) Authority and Power. The Company has, and at all times during the
-------------------
term of this Indenture will have, all requisite power and authority to own its
properties, to conduct its business, to execute and deliver this Indenture, the
Dutch Elm Loan Sale Agreement, the Servicing Agreement and the Note Purchase
Agreement and to perform all of its obligations under this Indenture, the Dutch
Elm Loan Sale Agreement, the Servicing Agreement and the Note Purchase
Agreement. The Company has all requisite power and authority to acquire, own and
Grant to the Trustee as part of the Trust Estate the Mortgage Loans.
(d) Authorization, Execution and Delivery; Valid and Binding. This
--------------------------------------------------------
Indenture, the Dutch Elm Loan Sale Agreement, the Servicing Agreement or the
Note Purchase Agreement and all other documents and instruments required or
contemplated hereby to be executed and delivered by the Company have been duly
authorized, executed and delivered by the Company and, assuming the due
execution and delivery by the other party or parties hereto and thereto,
constitute legal, valid and binding agreements enforceable against the Company
in accordance with their respective terms subject, as to the enforcement of
remedies, to bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforceability of creditors' rights generally
applicable in the event of the bankruptcy, insolvency or reorganization of the
Company and to general principles of equity.
(e) No Violation of Law, Rule, Regulation, etc. The execution, delivery
------------------------------------------
and performance by the Company of this Indenture, the Dutch Elm Loan Sale
Agreement, the Servicing Agreement or the Note Purchase Agreement and any other
documents and transactions in connection herewith to which the Company is a
party do not and will not (i) violate any of the provisions of the Certificate
of Formation or operating agreement of the Company, (ii) violate any provision
of any law, governmental rule or regulation currently in effect applicable to
the Company or its properties or by which the Company or its properties may be
bound or affected, including, without limitation, any bulk transfer laws, (iii)
violate any judgment, decree, writ, injunction, award, determination or order
currently in effect applicable to the Company or its properties or by which the
Company or its properties are bound or affected, (iv) conflict with, or result
in a breach of, or constitute a default under,
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any of the provisions of any material indenture, mortgage, deed of trust,
contract or other instrument to which the Company is a party or by which it is
bound or (v) result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, mortgage, deed of trust,
contract or other instrument.
(f) Governmental Consent. No consent, approval, order or authorization
--------------------
of, and no filing with or notice to, any court or other governmental authority
in respect of the Company is required in connection with the authorization,
execution, delivery or performance by the Company of this Indenture, the Dutch
Elm Loan Sale Agreement, the Servicing Agreement or the Note Purchase Agreement
or any of the other documents or transactions contemplated hereunder.
(g) Defaults. The Company is not in default under any material
--------
agreement, contract, instrument or indenture to which the Company is a party or
by which it or its properties is or are bound, or with respect to any order of
any court, administrative agency, arbitrator or governmental body which would
have a material adverse effect on the transactions contemplated hereunder; and
no event has occurred which with notice or lapse of time or both would
constitute such a default with respect to any such agreement, contract,
instrument or indenture, or with respect to any such order of any court,
administrative agency, arbitrator or governmental body.
(h) Insolvency. The Company will be solvent at all relevant times prior
----------
to, and will not be rendered insolvent by, the transfer of the Mortgage Loans to
the Trust Estate. Prior to the date hereof, the Company did not, and is not
about to, engage in any business or transaction for which any property remaining
with the Company would constitute an unreasonably small amount of capital. In
addition, the Company has not incurred debts that would be beyond the Company's
ability to pay as such debts matured.
(i) Pending Litigation or Other Proceedings. There is no pending or, to
---------------------------------------
the best of the Company's knowledge, threatened action, suit, proceeding or
investigation before any court, administrative agency, arbitrator or
governmental body against or affecting the Company which, if decided adversely,
would materially and adversely affect (i) the condition (financial or
otherwise), business or operations of the Company, (ii) the ability of the
Company to perform its obligations under, or the validity or enforceability of,
this Indenture, the Dutch Elm Loan Sale Agreement, the Servicing Agreement or
the Note Purchase
64
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Agreement or any other documents or transactions contemplated under this
Indenture, (iii) any Mortgaged Property or title of any Mortgagor to any
Mortgaged Property or (iv) the Trustee's ability to foreclose or otherwise
enforce the liens of the Mortgage Loans.
(j) All Eligible Mortgage Loans Granted to the Trustee. Each Mortgage
--------------------------------------------------
Loan which has been acquired by the Company and Granted to the Trustee was owned
by the applicable Seller, prior to the Company's acquisition thereof, free and
clear of all liens other than Permitted Encumbrances and was related to a
Resort.
(k) Information. No document, certificate or report furnished or
-----------
required to be furnished by the Company pursuant to this Indenture, when taken
as a whole with the other information provided by the Indenture, contains or
will contain when furnished any untrue statement of a material fact or fails or
will fail to state a material fact necessary in order to make the statements
contained therein not misleading.
(l) Condominium Units Complete. The condominium units related to the
--------------------------
Mortgage Loans in the Resorts have been issued a certificate of occupancy and
have been completed as required by all applicable state and local laws.
(m) Delivery of Insurance Proceeds. In the event that the Company shall
------------------------------
have received any Insurance Proceeds, to the extent such Insurance Proceeds are
not used to rebuild or repair the related Mortgaged Property, the Company shall
promptly deposit such Insurance Proceeds into the Collection Account.
(n) No Deficiency Accumulation. As of the Closing Date, the Company has
--------------------------
not incurred any "accumulated funding deficiency" (as such term is defined under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
the Code) with respect to any "employee benefit plan" (as such term is defined
under ERISA) sponsored by the Company.
(o) Taxes. The Company has timely filed all tax returns (Federal, state
-----
and local) which are required to be filed and has paid all taxes related
thereto, other than those which are being contested in good faith.
(p) Place of Business. The principal place of business and chief
-----------------
executive office of the Company are located at 9921 Covington Cross Drive, Suite
105-E, Las Vegas, Nevada.
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(q) Name. The legal name of the Company is as set forth in this
----
Agreement and the Company does not use any other tradenames, fictitious names,
assumed names or "doing business as" names.
(r) Subsidiaries and Consolidation. The Company has no subsidiaries and
------------------------------
will be operated in such a manner so as not to be substantively consolidated in
the bankruptcy estate of the Parent or any Affiliate.
(s) No Adverse Change. Since its formation, there has been no change in
-----------------
the business, operations, financial condition, properties or assets of the
Company which would have a material adverse effect on its ability to perform its
obligations under this Indenture or materially adversely affect the transactions
contemplated under this Indenture, the Dutch Elm Loan Sale Agreement, the
Servicing Agreement or the Note Purchase Agreement.
(t) Securities Laws. The Company is not an "investment company" or a
---------------
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(u) Remittance to the Servicer. In the event that any Mortgagor should
--------------------------
remit to the Company any payment or other property on or in respect of a
Mortgage Loan, then, not later than the Business Day following receipt thereof,
the Company shall transfer such Remittance to the Servicer.
(v) Management. Other than the Managing Member, the Sellers are not
----------
involved in the day-to-day management of the Company and the Company maintains
its assets separately from the assets of the Sellers.
(w) Rating Confirmation. So long as any Notes are outstanding, the
-------------------
Company shall, prior to sponsoring any trusts or issuing any other debt or
guarantees, obtain from DCR a confirmation of its ratings on the Notes.
(x) Payment of Review and Renewal Fees. The Company will pay or cause
----------------------------------
to be paid to DCR, the annual rating review and renewal fee in respect of the
Notes.
(y) Form of Mortgage. Each Mortgage or deed of trust and Mortgage Note
----------------
is substantially in the form of the Mortgage and Mortgage Note attached as
Exhibit E hereto.
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Section 11.14. Opinions as to Trust Estate.
---------------------------
On or before the date which is 30 days before the earliest
anniversary of the Closing Date on which a financing statement filed in
connection with the Trust Estate expires, the Company shall furnish to each
Noteholder an Opinion of Counsel stating either that, in the opinion of such
counsel, such action has been taken with respect to the recording, filing,
re-recording and re-filing of this Indenture, any indentures supplemental hereto
and any other requisite documents, as applicable, and with respect to the
execution and filing of any financing statements and continuation statements as
is necessary to maintain the first perfected Lien and security interest created
by this Indenture with respect to the Trust Estate or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest.
Section 11.15. Indemnification by the Company.
------------------------------
The Company shall indemnify, defend and hold harmless the
Noteholders and the Trustee from and against any loss, liability or expense
incurred by reason of the Company's gross negligence, willful misfeasance or bad
faith in the performance of its obligations and duties hereunder, reckless
disregard of its obligations and duties hereunder or breach of any provision
hereof.
ARTICLE XII.
ACCOUNTS, ACCOUNTINGS AND RELEASES
Section 12.1. Collection of Money
-------------------
In accordance with the terms and conditions set forth herein, the
Trustee may demand payment or delivery of, and shall receive and collect,
directly and without intervention or assistance of any fiscal agent or other
intermediary, all money and other property payable to or receivable by the
Trustee pursuant to this Indenture and in accordance with the Servicing
Agreement. The Trustee shall hold all such money and property so received by it
as part of the Trust Estate and shall apply it as provided in this Indenture. If
any default occurs in the making of any payment or performance under any
Mortgage Loan, the Trustee, upon Company or Servicer Request may, and upon the
written request of the Holders of more than 50% of the aggregate Outstanding
Note Balance of any Class of Notes shall subject to Section 7.1, take such
action as may be appropriate to enforce such payment or performance, including
the institution and prosecution of appropriate Proceedings. Any such action
shall be
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without prejudice to any right to claim an Event of Default under this Indenture
and to proceed thereafter as provided in Article Six.
Section 12.2. Accounts
--------
(a) Prior to the Closing Date, the Trustee shall open and maintain or
cause to be opened and maintained, at a depository institution (which shall
initially be LaSalle Bank National Association), a trust account denominated
"Collection Account -- Dutch Elm, LLC Vacation Ownership Receivables-Backed
Notes 1999-B". Funds deposited in the Collection Account shall be held in trust
for the Holders of the Notes for the uses and purposes set forth herein. The
Collection Account shall at all times be an Eligible Account, shall relate
solely to the Notes, the Mortgage Loans and Permitted Investments and the
Trustee shall have the exclusive right to withdraw funds therefrom. The
Collection Account shall be segregated on the books and records of the Trustee,
and the funds deposited therein shall not be subject to, and shall be protected
from, all claims, liens, and encumbrances of any creditors or depositors of the
Trustee (whether made directly, or indirectly through a liquidator or receiver
of the Trustee).
So long as no Servicer Event of Default shall have occurred and be
continuing, all or any portion of the Collection Account shall be invested by
the Trustee at the Servicer's written direction in one or more Permitted
Investments with the appropriate maturity meeting the requirements set forth
below. If the Servicer does not direct the Trustee to invest funds deposited in
the Collection Account, or if a Servicer Event of Default shall have occurred
and be continuing, such funds shall be invested by the Trustee in Permitted
Investments listed in clause (v) of the definition of "Permitted Investments"
herein. All Permitted Investments shall be in the name of the Trustee. All
income or other gain from investment of monies deposited in the Collection
Account shall be deposited in the Collection Account immediately upon receipt
thereof, and any loss resulting from Permitted Investment shall be charged to
the Collection Account. The maximum permissible maturity or, if applicable, the
latest redemption date of any Permitted Investments made with amounts that will
constitute part of the Collection Account Amount for a particular Distribution
Date shall be not later than the Business Day preceding such Distribution Date
or a Redemption Date, as applicable; provided, however, that if the Collection
-------- -------
Account is maintained with the Trustee, for Permitted Investments on which the
Trustee is the obligor (including repurchase agreements on which the Trustee in
its commercial capacity is
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liable as principal), such Permitted Investments may mature on such Distribution
Date. No Permitted Investment may be sold prior to its maturity or required
redemption.
Amounts held in the Collection Account which represent the final
payment due to Noteholders on the Final Distribution Date shall, to the extent
not distributed on the Final Distribution Date, be held uninvested pending
distribution to the Noteholders in accordance with this Indenture.
On any day, based on an Officer's Certificate of the Servicer, the
Trustee shall withdraw amounts specified therein and certified to have been
deposited into the Collection Account in error and remit the same to the
Servicer or as the Servicer may direct.
(b) Prior to the Closing Date, the Trustee shall establish a trust
account denominated "Reserve Account -- Dutch Elm, LLC Vacation Ownership
Receivables-Backed Notes 1999-B" (the "Reserve Account"), which shall have the
characteristics set forth in this Section 12.2(b). Funds deposited in the
Reserve Account shall be held in trust by the Trustee for the Holders of the
Notes for the uses and purposes set forth herein. The Reserve Account shall at
all times be an Eligible Account, shall relate solely to the Notes and Permitted
Investments and the Trustee shall have the exclusive right to withdraw funds
therefrom. The Reserve Account shall be segregated on the books and records of
the Trustee, and the funds deposited therein shall not be subject to, and shall
be protected from, all claims, liens, and encumbrances of any creditors or
depositors of the Trustee (whether made directly, or indirectly through a
liquidator or receiver of the Trustee).
On the Closing Date, the Company shall deposit in the Reserve Account
the Initial Reserve Account Deposit. Any deposit to the Reserve Account shall be
made by wire transfer of immediately available funds in accordance with
instructions provided by the Trustee.
With respect to each Distribution Date, after making the distributions
required pursuant to clauses "first" through "eleventh" of Section 13.1(a),
after making the distributions required pursuant to clauses "first" through
"ninth" if the Trustee has received notice from the Servicer that a Default
Trigger II has occurred and is continuing, and after making the distributions
required pursuant to clauses "first" through "seventh" if the Trustee has
received notice from the Servicer that Default Trigger III has occurred and is
continuing, the
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Trustee shall withdraw from the Collection Account an amount up to any positive
difference between the Requisite Reserve Amount and the amount then on deposit
in the Reserve Account, and deposit such amount in the Reserve Account.
On the second Business Day preceding each Distribution Date, the
Trustee shall (i) withdraw from the Reserve Account (to the extent of funds on
deposit therein) an amount equal to the Shortfall Amount and (ii) upon receipt
of instruction from the Servicer pursuant to Section 2.6 of the Servicing
Agreement, withdraw from the Reserve Account (to the extent of funds on deposit
therein) an amount equal to the P&I Advances for the related Collection Period,
and deposit such amounts into the Collection Account by 5:00 p.m. New York City
time on the Business Day prior to the Distribution Date.
On the Business Day immediately preceding the first Distribution Date
following any date of determination on which the amount on deposit in the
Reserve Account exceeds the Requisite Reserve Amount after taking into account
the distributions to be made on such Distribution Date, as applicable, the
Trustee shall withdraw from the Reserve Account the amount of such excess and
deposit the same in the Collection Account for distribution in accordance with
Section 13.1(a).
On the Business Day immediately preceding the Final Distribution Date
hereunder the Trustee shall withdraw all amounts then on deposit in the Reserve
Account, deposit the same into the Collection Account, and thereafter terminate
the Reserve Account.
On any day, based on an Officer's Certificate of the Servicer, the
Trustee shall withdraw amounts specified therein and certified to have been
deposited into the Reserve Account in error and remit the same to the Servicer
or as the Servicer may direct.
So long as no Servicer Event of Default shall have occurred and be
continuing, all or any portion of the amounts on deposit in the Reserve Account
shall be invested by the Trustee at the Servicer's written direction in one or
more Permitted Investments with the appropriate maturity meeting the
requirements set forth below. If the Servicer does not direct the Trustee to
invest funds deposited in the Reserve Account, or if a Servicer Event of Default
shall have occurred and be continuing, such funds shall be invested by the
Trustee in Permitted Investments listed in clause (v) of the definition of
"Permitted Investments" herein. All Permitted Investments shall
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be in the name of the Trustee. All income or other gain from investment of
monies deposited in the Reserve Account shall be deposited in the Reserve
Account immediately upon receipt thereof and any loss resulting from Permitted
Investment shall be charged to the Reserve Account. The maximum permissible
maturity or, if applicable, the latest redemption date of any Permitted
Investments made with amounts on deposit in the Reserve Account for a particular
Distribution Date shall be not later than two Business Days preceding such
Distribution Date; provided, however, that if the Reserve Account is maintained
-------- -------
with the Trustee, for Permitted Investments on which the Trustee is the obligor
(including repurchase agreements on which the Trustee in its commercial capacity
is liable as principal), such Permitted Investments may mature on such
Distribution Date; and provided, further, that all funds invested in Permitted
-------- -------
Investments of the type described in clause (v) of the definition of "Permitted
Investments" must be withdrawn from such Permitted Investment no later than such
Distribution Date if such investment is managed by the Trustee, and two Business
Days prior to the Distribution Date if not managed by the Trustee. No Permitted
Investment may be sold prior to its maturity or required redemption.
Section 12.3. Reliance on Representations and Warranties
------------------------------------------
The Company agrees and acknowledges that the Trustee and the
Noteholders have relied and will continue to rely upon each of the
representations and warranties in the Granting Clause, Section 11.13 above and
Section 3 of the Dutch Elm Loan Sale Agreement, and further agrees that such
Persons are entitled to so rely thereon. The representations and warranties in
the Granting Clause and Section 11.13 above shall survive the Grant of the Trust
Estate to the Trustee and shall continue in full force and effect,
notwithstanding any restrictive or qualified endorsement on the Mortgage Notes
and notwithstanding subsequent termination of this Indenture. The
representations and warranties in Section 11.13 above shall be unimpaired by any
review and examination of the Mortgage Files or other documents evidencing or
relating to the Mortgage Loans or any failure on the part of the Trustee to
review or examine the Mortgage Files and such other documents and shall inure to
the benefit of any permitted transferee of the Trustee.
Section 12.4. Notice of Incorrect Representations and Warranties
--------------------------------------------------
If any party hereto during the term of this Indenture discovers, or receives
notice from the Trustee, that any of the representations or warranties contained
in Section 3 of the Dutch Elm Loan Sale Agreement are, in any material respect,
false, incorrect or misleading, or if any such party obtains knowledge of any
event or circumstance that would reasonably cause such party to believe that any
of such representations or warranties are, in any material respect, false,
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incorrect or misleading, such party shall promptly deliver to the other parties
hereto, to DCR and the applicable Seller notice of a breach of such
representation or warranty.
Section 12.5. Misrepresentations
------------------
If any of the representations or warranties contained in Section 3(b)
of the Sale Agreements are, in any material respect, false, incorrect or
misleading as to any Mortgage Loan, the Trustee, upon receiving notice or
otherwise obtaining knowledge of such fact, shall, in writing, request the
related Seller, at its expense, to take such action as is necessary to cause
such false, incorrect or misleading representation or warranty to be, in all
material respects, true, correct and not misleading, within 90 days following
the giving of written notice to such Seller by the Trustee of such false,
incorrect or misleading representation or warranty, or following the discovery
thereof by such Seller. Such Seller will promptly deliver written notice of any
such discovery to the Trustee. Such Seller will also promptly deliver written
notice to the Trustee as to the actions taken to cure any such false, incorrect
or misleading representation or warranty.
Section 12.6. Mandatory Repurchase Obligation
-------------------------------
(a) If within the applicable time period set forth in Section 12.5
above the applicable Seller fails to cure, in all material respects, any
representation or warranty with respect to any Mortgage Loan in Section 3(b) of
a Sale Agreement which is, in any material respect, false, incorrect or
misleading, then, the Company shall cause to be repurchased each Mortgage Loan
with respect to which such false, incorrect or misleading representation or
warranty was made (each, a "Defective Mortgage Loan") on the Distribution Date
following the first Record Date after the expiration of the 90-day cure period
described in Section 12.5 hereof, related to such Defective Mortgage Loan (a
"Repurchase Date").
(b) Each Defective Mortgage Loan shall be so repurchased at the
Mortgage Purchase Price therefor, which shall be paid into the Collection
Account in immediately available funds on such Repurchase Date; provided,
--------
however, that in the case of a Defective Mortgage Loan as to which discovery of
- -------
a breach of a representation or warranty contained in Section 3(b)
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of a Sale Agreement is made, or notice thereof is given, the related Seller, at
its election, may in substitution for such Defective Mortgage Loan sell a
Substitute Mortgage Loan to the Company, which will then pledge such Substitute
Mortgage Loan to the Trustee upon the satisfaction of the following conditions:
(i) the related Seller executes and delivers an Assignment of the
Substitute Mortgage Loan to the Company or at the direction of the Company, to
the Trustee;
(ii) the related Seller delivers, or causes to be delivered, the
Mortgage Loan Documents to the Trustee; and
(iii) the related Seller, in an Officer's Certificate, confirms all
representations and warranties of Section 3 of the Sale Agreement and provides
to the Trustee copies of all necessary filings and recording. The Servicer shall
file and record such documents.
On any date of determination, the aggregate Outstanding Principal
Balance of the Substitute Mortgage Loans as of the related dates of substitution
shall not exceed 3% of the Outstanding Pool Balance as of the Cut-Off Date.
Upon satisfaction of such conditions, the Servicer shall add the
Substitute Mortgage Loan to, and delete the Defective Mortgage Loan from, the
Schedule of Mortgage Loans. Such substitution shall be effected prior to the
first Distribution Date that occurs more than 90 days after the related Seller
becomes aware, or should have become aware, or receives written notice from the
Trustee, of the breach referred to in Section 12.5 hereof.
(c) Upon (i) payment by the related Seller of an amount equal to the
Mortgage Purchase Price or (ii) provision by the Company of a Substitute
Mortgage Loan in accordance with Section 12.6(b), as the case may be, the
Trustee shall deliver to the related Seller such duly executed instruments as
may be necessary to release the lien of this Indenture on the Defective Mortgage
Loan. Upon the repurchase of or substitution for a Defective Mortgage Loan under
this Section 12.6, this Indenture shall terminate as to the Mortgage Loan so
repurchased or substituted. Upon such repurchase or substitution, the related
Mortgage Loan Documents shall be redelivered to the Seller.
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Section 12.7. Subsequent Loans
----------------
(a) With respect to any Collection Period in which the Trustee receives
any Upgrade Prepayments, the Company may elect to Grant one or more Subsequent
Loans during such Collection Period in accordance with the provisions of this
Section.
(b) On any Subsequent Transfer Date, provided the conditions set forth
in paragraph (c) below are satisfied and no Event of Default shall have occurred
and be continuing, the Trustee shall withdraw from the Collection Account an
amount equal to the least of (i) the aggregate Mortgage Purchase Price for the
Subsequent Loans to be Granted on such date, (ii) any amounts representing
Upgrade Prepayments then on deposit in the Collection Account and (iii) the
Remaining Substitution/Purchase Amount; and shall pay such amount to the
applicable Seller(s) on behalf of the Company.
(c) The Trustee shall only be required to withdraw and pay any amounts
referred to in paragraph (b) above, upon the satisfaction of the following
conditions on or prior to the Subsequent Transfer Date:
(i) the Company executes and delivers a Notice of Subsequent Loan(s) to
the Trustee at least two Business Days prior to the related Subsequent Transfer
Date;
(ii) the Company delivers, or causes the related Seller(s) to deliver,
the related Mortgage Loan Documents to the Trustee;
(iii) the Company delivers to the Trustee copies of all necessary
filings and recordings which the Servicer shall file and record;
(iv) in connection with Subsequent Loans sold by Blue Bison Funding
Corp. to Dutch Elm Holdings, Inc., the Company delivers a release with respect
to such Subsequent Loans executed by Barton Capital Corporation; and
(v) the Company delivers a bringdown true sale opinion with respect to
such Subsequent Loans.
Section 12.8. Reports by Trustee to Noteholders and DCR
-----------------------------------------
On each Distribution Date, the Trustee shall or cause the Servicer to
report to each Holder of Notes and DCR the amount of payments to such
Noteholders which represents principal and
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the amount which represents interest, and shall contemporaneously advise the
Company of all such payments. The Trustee may satisfy its obligations under this
Section 12.8 by delivering (or by causing the Servicer to deliver) the Servicer
Report to each such Holder of the Notes and DCR. Based on notice delivered by
the Servicer, on or before the 30th day prior to the Final Distribution Date,
the Trustee shall provide notice to DCR and the Holders of Notes to be paid on
the Final Distribution Date for such Notes. Such notice shall include (1) a
statement that if the appropriate payments are made on the Final Distribution
Date, interest shall cease to accrue as of the Final Distribution Date and (2) a
statement that following the final payment of all principal and accrued interest
on such Notes that Holders thereof are required to surrender the same to the
Trustee within 30 days.
Section 12.9. Accounting by Trustee to Company
--------------------------------
Within five Business Days following each Distribution Date, the Trustee
shall render to the Company and each Noteholder an accounting of:
(i) the aggregate funds deposited in each of the Collection Account and
the Reserve Account subsequent to the immediately preceding Distribution Date;
(ii) the amount of principal and the amount of interest paid to the
Holders of each Class of Notes;
(iii) any funds remaining in the Collection Account after (A) payments
of interest and principal as set forth pursuant to clause (ii) above and (B)
payments of all other amounts payable from the Collection Account pursuant to
Section 13.1(a), including an accounting of such payments;
(iv) any discrepancy between the aggregate amount of principal
remaining on the Notes after giving effect to the principal payment on the Notes
on such Distribution Date and the aggregate amount of principal remaining on the
Notes as set forth on the Servicer Report.
Section 12.10. Trust Estate
------------
(a) The Trustee may, and when required by the provisions of Articles
Five, Six and Twelve of this Indenture shall, execute instruments to release
property from the lien of this Indenture, or convey the Trustee's interest in
the same, in a manner and under circumstances which are not inconsistent with
the provisions of this Indenture. No party relying upon an
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instrument executed by the Trustee as provided in this Article Twelve shall be
bound to ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any monies.
(b) At the written request of the Company and upon being supplied with
appropriate forms therefor, the Trustee shall, at such time as there are no
Notes Outstanding and all amounts due under this Indenture have been paid and
the lien of the Indenture has been discharged in accordance with Section 5.1
hereof, release the Trust Estate from the lien of this Indenture.
Section 12.11. Allocation of Losses
--------------------
On each Distribution Date, to the extent the sum of (i) amounts to be
distributed pursuant to clause "seventeenth" of Section 13.1 and (ii) amounts on
deposit in the Reserve Account, are insufficient to cover Realized Losses with
respect to the Mortgage Loans that were incurred at any time following the Cut-
off Date through the end of the related Collection Period, and in any event that
were not previously allocated pursuant to this Section 12.11 on any prior
Distribution Date, prior to the distributions to be made on such date pursuant
to Section 13.1, the Trustee shall allocate to the respective Notes as follows
the aggregate of all such Realized Losses, but only to the extent that the
aggregate outstanding principal balance of the Notes as of such Distribution
Date (after taking into account all of the distributions to be made on such
Distribution Date pursuant to Section 13.1), exceeds the sum of (x) the
Outstanding Pool Balance and (y) amounts then on deposit in the Reserve Account,
immediately following such Distribution Date: first, to the Class C Notes, until
-----
the remaining principal balance thereof has been reduced to zero; and second, to
------
the Class B Notes, until the remaining principal balance thereof has been
reduced to zero; and third, to the Class A Notes, until the remaining principal
-----
balance thereof has been reduced to zero. Any allocation of such Realized Losses
to a class of Notes shall be made by reducing the respective principal balances
thereof by the amount so allocated. All such Realized Losses, if any, allocated
to a class of Notes shall be allocated among the respective Notes of such class,
pro rata.
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ARTICLE XIII.
APPLICATION OF MONIES
Section 13.1. Disbursements of Monies out of Collection Account
(a) On each Distribution Date, unless distributions are governed by
Section 6.6 hereof, the Trustee shall distribute, based on the information
contained in the Servicer's Report, to the extent of the amount on deposit in
the Collection Account with respect to such Distribution Date, funds in the
Collection Account as follows:
first, to the Trustee, the Trustee Fee and any reasonable out-of-pocket
-----
expenses due to the Trustee;
second, to the Servicer, the Servicing Fee;
------
third, to the Reserve Account, the amount of any unreimbursed P&I
-----
Advances related to prior Distribution Dates;
fourth, to the holders of the Class A Notes, the Current Interest
------
Amount for such class and any Unpaid Interest Shortfalls with respect to prior
Distribution Dates;
fifth, to the holders of the Class B Notes, the Current Interest Amount
-----
for such class and any Unpaid Interest Shortfalls with respect to prior
Distribution Dates;
sixth, to the holders of the Class C Notes, the Current Interest Amount
-----
for such class and any Unpaid Interest Shortfalls with respect to prior
Distribution Dates;
seventh, to the holders of the Class A Notes, the Unpaid Principal
-------
Shortfall for such class and the Class A Current Principal Amount;
eighth, if Default Trigger III has occurred, to the Reserve Account, an
------
amount up to the difference between the amount then on deposit therein, and the
Requisite Reserve Amount;
ninth, to the holders of the Class B Notes, the Unpaid Principal
-----
Shortfall for such class and the Class B Current Principal Amount;
tenth, if Default Trigger II has occurred (but Default Trigger III is
-----
not in effect), to the Reserve Account, an amount up to the difference between
the amount then on deposit therein, and the Requisite Reserve Amount;
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eleventh, to the holders of the Class C Notes, the Unpaid Principal
--------
Shortfall for such class and the Class C Current Principal Amount;
twelfth, to the Reserve Account, an amount up to the difference between
-------
the amount then on deposit therein, and the Requisite Reserve Amount;
thirteenth, to the holders of the Class A Notes, an amount equal to,
----------
and in reimbursement of, all Realized Losses, if any, previously allocated to
the Class A Notes and not previously reimbursed;
fourteenth, to the holders of the Class B Notes, an amount equal to,
----------
and in reimbursement of, all Realized Losses, if any, previously allocated to
the Class B Notes and not previously reimbursed;
fifteenth, to the holders of the Class C Notes, an amount equal to, and
---------
in reimbursement of, all Realized Losses, if any, previously allocated to the
Class C Notes and not previously reimbursed;
sixteenth, if a Cumulative Default Trigger has occurred and a
---------
Cumulative Default Trigger Cure in respect thereof has not occurred, then to the
Class A, Class B and Class C Noteholders, pro rata, in accordance with their
respective Percentage Interests, in reduction of the Outstanding Note Balance of
each such class of Notes;
seventeenth, to the Company, any amounts remaining in the Collection
-----------
Account.
Distributions to Noteholders shall be made by wire or other transfer of
funds pursuant to written instructions (in the case of a Noteholder that is a
corporation, signed by an authorized officer thereof) delivered to the Trustee
at least three Business Days prior to a Distribution Date, and provided,
--------
further, that the final distribution in retirement of the Notes shall be made as
- -------
set forth in this Indenture.
(b) The Trustee and any Paying Agent on behalf of the Company shall
comply with all requirements of the Code, Treasury Regulations and applicable
state and local law with respect to the withholding from any distributions made
by it to any Noteholder of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection therewith.
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(c) To prevent backup withholding on payments made with respect to the
Notes, each Noteholder is required to provide the Trustee with (i) the
Noteholder's correct Taxpayer Identification Number ("TIN") by completing the
form set forth as Exhibit C hereto (Substitute Form W-9), certifying that the
TIN provided on the Substitute Form W-9 is correct and that (A) such Noteholder
is exempt from backup withholding, (B) the Noteholder has not been notified by
the Internal Revenue Service ("IRS") that the Noteholder is subject to backup
withholding as a result of failure to report all interest or dividends or (C)
the IRS has notified the Noteholder that the Noteholder is no longer subject to
backup withholding and (ii) if applicable, an adequate basis for exemption. A
Foreign Noteholder may qualify as an exempt recipient by submitting to the
Trustee a properly completed IRS Form W-8, signed under penalties of perjury,
attesting to that Noteholder's exempt status.
(d) The Trustee or other Note Registrar shall not permit a transfer of
a Class C Note if such transfer would result in the Company having more than
ninety-nine (99) Noteholders in aggregate, as reflected in the Note Register, in
connection with the Class C Notes. In addition, no entity that is a partnership,
grantor trust or S corporation may acquire a Note if (i) substantially all of
the value of the interest of a person owning an interest in such entity is
attributable to the entity's (direct or indirect) interest in the Note, and (ii)
a principal purpose of the use of the tiered arrangement is to permit the
Company to satisfy the 100-person limitation in paragraph (h)(1)(ii) of Section
1.7704-1 of the Treasury Regulations.
(e) The foregoing provisions of this Section 13.1 notwithstanding, any
monies deposited in the Collection Account for purposes of redeeming Notes
pursuant to Article Ten shall, subject to Section 11.3, remain in the Collection
Account until paid or set aside for the purpose of such redemption.
(f) (i) The rights of the Class B and Class C Noteholders to receive
payments on their respective Notes are expressly subordinated to the rights of
the Noteholders with earlier alphabetical class designations to receive payments
on their respective Notes.
(g) Subject to Section 2.3(d) of the Servicing Agreement, in making the
withdrawals and payments required by Section 13.1(a) and in making the reports
and accounting referred to in Section 12.8, the Trustee shall act in accordance
with the information set forth in the Servicer Report furnished it by the
Servicer for the payment of Mortgage Loans received in the related Due Period
and shall be fully protected in relying thereon, unless a Responsible Officer of
the Trustee has actual knowledge that such information is incorrect.
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IN WITNESS WHEREOF, the Company, the Trustee and the Servicer have
caused this Indenture to be duly executed by their respective officers thereunto
duly authorized and their respective seals, duly attested, to be hereunto
affixed, all as of the day and year first above written.
COMPANY:
DUTCH ELM, LLC
By: Dutch Elm Holdings, Inc.
By: /s/ Carol W. Sullivan
---------------------------
Name: Carol W. Sullivan
Title: Secretary
SERVICER:
SUNTERRA FINANCIAL SERVICES, INC.
By: /s/ Carol W. Sullivan
---------------------------
Name: Carol W. Sullivan
Title: Secretary
TRUSTEE AND BACK-UP SERVICER:
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Ryan Kutty
-----------------------------
Name: Ryan Kutty
Title: Assistant Vice President
<PAGE>
EXHIBIT A
(FORM OF ASSIGNMENT OF NOTE)
For value received the undersigned hereby sells, assigns and transfers
unto ___________________ whose social security or other tax identifying number
is _______________________ a note as hereinafter described and hereby
irrevocably constitutes and appoints ___________________, attorney, to transfer
the same on the Note Register of the Trustee with full power of substitution in
the premises.
Description of Note:
-------------------
Class __ Note No.___ with an Outstanding Note Balance as of
the Closing Date of $_____________ issued under that certain
Indenture dated as of December 1, 1999 among Dutch Elm, LLC
(the "Company"), Sunterra Financial Services, Inc. as servicer
(the "Servicer"), LaSalle Bank National Association, as
trustee (the "Trustee") and as back-up servicer (the "Back-up
Servicer").
[SELLER/ASSIGNOR]
BY:________________________
Name:
Title:
Dated: ____________________
NOTE: The signature to this assignment must correspond with the name as written
on the face of the Note herein described in every particular, without
alterations or enlargement or any change whatsoever.
Signature Guaranteed:
- ------------------------------
NOTE: Signature(s) must be guaranteed by a participant in a signature medallion
program.
A-1
<PAGE>
EXHIBIT B
LOST NOTE AFFIDAVIT
STATE OF NEW YORK ) LOST NOTE
) SS.: AFFIDAVIT
COUNTY OF NEW YORK)
_______________________________________________ being duly sworn, deposes and
says:
That deponent is a _________________________________
That the deponent held or received the mortgage note relating to _____________
(the "Mortgage Note") at their premises located at .
That to the best of deponent's knowledge the Mortgage Note was lost or
destroyed
[Deponent]
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT E
FORM OF MORTGAGE AND MORTGAGE NOTE
<PAGE>
APPENDIX A
STANDARD DEFINITIONS
"ACH Payments" means payments of Monthly P&I received from Mortgagors
------------
subscribing to the automatic debit option offered by the Servicer.
"Act" has the meaning given in Section 1.2 of the Indenture.
---
"Affiliate" means with respect to any specified Person means any other
---------
Person controlling or controlled by, or under common control with, such
specified Person. For the purposes of this definition, "control" when used with
-------
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" or
-----------
"controlled" have meanings correlative to the foregoing.
----------
"Assignment" means, with respect to the Mortgage Loans, the original
----------
instruments of assignment of such Mortgage Loans in recordable form by a Seller
in blank or in the name of the Trustee on behalf of the Noteholders.
"Back-up Servicer" means LaSalle Bank National Association, its
----------------
successors and assigns.
"Bankruptcy Code" means Title 11 of the United States Code as in effect
---------------
from time to time.
"Bent Creek Declaration" means the Master Deed for Bent Creek Golf
----------------------
Village Horizontal Property Regime dated November 4, 1997, and recorded on
November 6, 1997, in Book D612, Page 1, in the official records of the
Register's Office for Sevier County, Tennessee, as modified, amended,
supplemented and/or restated.
"Blue Bison Loan Sale Agreement" means the Loan Sale Agreement, dated
------------------------------
as of December 1, 1999, between Blue Bison Funding Corp. and Dutch Elm Holdings,
Inc.
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which national banking institutions in the State of New York, the city in
which the Corporate Trust Office is located or the state in which the principal
place of business of the Servicer or, in the case of a Sub-Servicer, where such
Sub-Servicer is located, are authorized or obligated by law or executive order
to be closed.
<PAGE>
"Charged-off Mortgage Loan" means any Mortgage Loan which is or becomes
-------------------------
180 or more days delinquent in respect of any payment of principal or interest
or in respect of which the Servicer has received the related deed in lieu of
foreclosure, whichever is earlier.
"Class A Current Principal Amount" means, for any Distribution Date,
--------------------------------
the product of (x) the related Percentage Interest and (y) the Current Principal
Amount for such Distribution Date.
"Class A Note" means any Note designated as a "Class A Note" on the
------------
face thereof, in the form set forth in Section 2.2 of the Indenture, and
executed, authenticated and delivered in accordance with the procedures set
forth therein.
"Class B Current Principal Amount" means, for any Distribution Date,
--------------------------------
the product of (x) the related Percentage Interest and (y) the Current Principal
Amount for such Distribution Date.
"Class B Note" means any Note designated as a "Class B Note" on the
------------
face thereof, in the form set forth in Section 2.2 of the Indenture, and
executed, authenticated and delivered in accordance with the procedures set
forth therein.
"Class C Current Principal Amount" means, for any Distribution Date,
--------------------------------
the product of (x) the related Percentage Interest and (y) the Current Principal
Amount for such Distribution Date.
"Class C Note" means any Note designated as a "Class C Note" on the
------------
face thereof, in the form set forth in Section 2.2 of the Indenture, and
executed, authenticated and delivered in accordance with the procedures set
forth therein.
"Closing Date" means the date on which Notes are first executed,
------------
authenticated and delivered to the Noteholders.
-2-
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collection Account" means the account created, maintained and
------------------
denominated as such pursuant to Section 12.2(a) of the Indenture.
"Collection Account Amount" means, with respect to any Distribution
-------------------------
Date and the related Collection Period, in each case to the extent deposited in
the Collection Account, (i) Collection Period P&I received during such
Collection Period, (ii) amounts paid by a Seller pursuant to Section 12.6 of the
Indenture during the period from and including the Business Day prior to the
prior Distribution Date (or, in the case of the Initial Distribution Date, from
and including the Cut-off Date) to and including the second Business Day next
preceding such Distribution Date representing the Mortgage Purchase Price with
respect to Mortgage Loans repurchased by the Company or a Seller, as applicable,
pursuant to Section 4.3 or 12.6 of the Indenture, (iii) the Redemption Price
(iv) Insurance Proceeds and Net Liquidation Proceeds received during such
Collection Period (less any amounts withdrawn by the Trustee pursuant to Section
12.7 of the Indenture), (v) the aggregate of the portions of Prepayments
described in clauses (i), (iii) and (iv) of the definition of "Prepayment"
received during such Collection Period, (vi) interest earned on amounts on
deposit in the Lock-Box Accounts and (vii) income from the investment in
Permitted Investments of amounts deposited in the Collection Account pursuant to
the preceding clauses (i)-(vi).
"Collection Period" means with respect to each Distribution Date, the
-----------------
period from and including the first day of the month preceding the month in
which such Distribution Date occurs through and including the last day of such
month.
"Collection Period P&I" means, with respect to any Collection Period,
---------------------
the amount equal to the aggregate of the payments of Monthly P&I received by or
on behalf of the Servicer during such Collection Period, from or on behalf of
Mortgagors.
"Company": Dutch Elm, LLC, a Nevada limited liability company.
-------
"Company Order" and "Company Request": A written order or request
------------- ---------------
signed in the name of the Company by the Chairman of the Board, President, Vice
President, Treasurer, Assistant Treasurer, Controller, Assistant Controller,
Secretary, or an
-3-
<PAGE>
Assistant Secretary of the Managing Member, and delivered to the Trustee.
"Comparable Property" means a timeshare estate that (i) is not a
-------------------
Mortgaged Property and (ii) entitles its owner to the same amount of time,
during the same season, in the same type of unit in the same Resort as the
related Foreclosure Property.
"Corporate Trust Office" means the office of the Trustee at which the
----------------------
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is at the date hereof located at the
address provided in Section 1.3 of the Indenture hereof or at such other address
as the Trustee may designate from time to time by notice to the Noteholders, the
Company and the Servicer.
"Cumulative Default Trigger" means, on any Distribution Date,
--------------------------
the Cumulative Default Trigger Ratio exceeds 18%.
"Cumulative Default Trigger Cure" means (i) with respect to a
-------------------------------
Cumulative Default Trigger which has occurred (A) such Cumulative Default
Trigger has not continued for a period of three consecutive months, (B) all
amounts in respect of distributions due to the Class A, Class B and Class C
Notes as of such date have been paid or such amounts are on deposit in the
Reserve Account and (C) the Requisite Reserve Amount is on deposit in the
Reserve Account.
"Cumulative Default Trigger Ratio" means, as of each Record Date, a
--------------------------------
fraction (expressed as a percentage), the numerator of which is (i) the
Outstanding Principal Balance of all Mortgage Loans that became Defaulted
Mortgage Loans since the Closing Date and the denominator of which is the
aggregate Outstanding Pool Balance as of the Cut-off Date.
"Current Interest Amount" means (i) with respect to an Interest Accrual
-----------------------
Period (other than the first Interest Accrual Period) and any class of Note, the
product of the applicable Note Interest Rate and the Outstanding Note Balance of
such class of Note on the related Distribution Date (prior to the application of
distributions on such date), multiplied by a fraction, the numerator of which is
30 and the denominator of which is 360 and (ii) with respect to the first
Interest Accrual Period, and any class of Note, the product of the applicable
Note Interest Rate and the Outstanding Note Balance of such Class of Note on the
related Distribution Date (prior to the application of distributions on such
date), multiplied by a fraction, the numerator of which is the actual number of
days elapsed during such Interest Accrual Period and the denominator of which is
360.
"Current Interest Shortfall" means, with respect to any
--------------------------
Distribution Date and any class of Note, the excess of (i) the applicable
Current Interest Amount for such Distribution Date over (ii) the amount
distributed as interest with respect to such class for such Distribution Date.
"Current Principal Amount" means, with respect to any Distribution Date
------------------------
other than the Final Distribution Date, an amount equal to the sum of
(a) (i) the aggregate of the respective portions of Monthly P&I and
P&I Advances allocable to principal from or on behalf of Mortgagors due during
such Collection Period,
(ii) an amount equal to the aggregate of the respective portions
of Net Liquidation Proceeds received during such Collection Period that are
allocable to principal of the
-4-
<PAGE>
related Defaulted Mortgage Loans (other than Charged-off Mortgage Loans) and
Charged-off Mortgage Loans, and
(iii) the aggregate of the respective portions of Prepayments
allocable to principal of the related Mortgage Loans received during such
Collection Period (less any amounts withdrawn from the Collection Account by the
Trustee pursuant to Section 12.7 of the Indenture)
minus (b) the aggregate of the respective portions of P&I
-----
Advances allocable to principal previously withdrawn from the Reserve Account
and not reimbursed.
On the Final Distribution Date, the Current Principal Amount shall be
an amount equal to the then current outstanding principal balance of the Notes.
"Current Principal Shortfall" means, with respect to any Distribution
---------------------------
Date and any class of Note, the excess of (i) the applicable Current Principal
Amount due for such Distribution Date over (ii) the amount distributed as
principal with respect to such class for such Distribution Date.
"Cut-off Date" means October 31, 1999.
------------
"Cypress Pointe Resort Declaration" means the Declaration of
---------------------------------
Condominium for Cypress Pointe Resort at Lake Buena Vista, a Condominium,
recorded in O.R. Book 4443, page 2736, Public Records of Orange County, Florida,
as modified, amended, supplemented and/or restated.
"Cypress Pointe II Declaration" means the Declaration of
-----------------------------
Condominium for Cypress Pointe Resort II, a Condominium, dated April 19, 1996,
recorded in O.R. Book 5044, page 3557, Public Records of Orange County, Florida,
as modified, amended, supplemented and/or restated.
"DCR" means Duff & Phelps Credit Rating Co. or its successors and
---
assigns. If neither such rating organization nor any successor remains in
existence, "DCR" shall be deemed to refer to such other nationally recognized
statistical rating organization or other comparable Person designated by the
Company and approved in writing by the Majority Holders, notice of which
designation shall be given to the Trustee and the Servicer, and specific ratings
of DCR herein referenced shall be deemed to refer to the equivalent ratings of
the party so designated.
"Default Trigger I" means, on any Distribution Date the average Default
-----------------
Trigger Ratio calculated on the basis of the three immediately preceding Record
Dates exceeds 8.5% per annum.
"Default Trigger II" means, on any Distribution Date the average
------------------
Default Trigger Ratio calculated on the basis of the three immediately preceding
Record Dates exceeds 12.0% per annum.
-5-
<PAGE>
"Default Trigger III" means, on any Distribution Date the average
-------------------
Default Trigger Ratio calculated on the basis of the three immediately preceding
Record Dates exceeds 14.5% per annum.
"Default Trigger Ratio" means, as of each Record Date, a fraction
---------------------
(expressed as a percentage), the numerator of which is the product of (i) the
Outstanding Principal Balance of all Mortgage Loans that first became Defaulted
Mortgage Loans during the related Collection Period and (ii) twelve, and the
denominator of which is the aggregate Outstanding Pool Balance on such Record
Date.
"Defaulted Mortgage Loan" means (i) any Mortgage Loan which is
-----------------------
180 or more days delinquent in respect of any payment of principal or interest,
(ii) any Mortgage Loan with respect to which the Servicer has initiated
foreclosure proceedings with respect to the related timeshare estate or has
received the related deed in lieu of foreclosure or (iii) any Mortgage Loan in
respect of which the Servicer shall, prior to the date on which such Mortgage
Loan would otherwise become a Defaulted Mortgage Loan, determine in good faith
that future payments of Monthly P&I will not be made by the Mortgagor.
"Defaulted Mortgage Loan Unpaid Principal Amount" means, with
-----------------------------------------------
respect to any Distribution Date and the immediately preceding Collection
Period, the amount, if any, equal to the aggregate Outstanding Principal
Balances of all Mortgage Loans that first became Defaulted Mortgage Loans during
the related Collection Period (to the extent such principal has not previously
been distributed to Noteholders pursuant to Section 13.1 of the Indenture).
"Defective Mortgage Loan" has the meaning given in Section 12.6(a) of
-----------------------
the Indenture.
"Delinquency Trigger Ratio" means, as of each Record Date, a
-------------------------
fraction (expressed as a percentage), the numerator of which is the Outstanding
Principal Balance of all Delinquent Mortgage Loans (excluding Defaulted Mortgage
Loans) and the denominator of which is the aggregate Outstanding Pool Balance on
such Record Date.
"Delinquent Mortgage Loan" means, so long as such Mortgage
------------------------
Loan is not a Defaulted Mortgage Loan, any Mortgage Loan with respect to which,
as of the end of a Collection Period, any payment of principal and interest
under the Mortgage Loan is 60 or more days past due by an amount in excess of
$20.00.
-6-
<PAGE>
"Distribution Date" means, (i) with respect to the initial
-----------------
Collection Period, January 25, 2000, and (ii) thereafter the 25th day of each
calendar month or, if such date is not a Business Day, the next succeeding
Business Day.
"Due Date" means, as to any installment of Monthly P&I, the
--------
date upon which such installment is required to be paid pursuant to the related
Mortgage Note, without giving effect to any grace period permitted by such
Mortgage Note or the related Mortgage.
"Dutch Elm Loan Sale Agreement" means the Loan Sale Agreement, dated
-----------------------------
as of December 1, 1999, between Dutch Elm, LLC, Dutch Elm Holdings, Inc. and
Sunterra Corporation.
"Eligible Account" means an account that is either (i)
----------------
maintained with a depository institution or trust company the long-term
unsecured debt obligations of which have credit ratings from DCR of "AA-" if
rated by DCR, or if not rated by DCR, from Standard & Poor's of "AA-" or from
Moody's of "Aa3", or better, or which is the principal subsidiary of a holding
company the long-term unsecured debt obligations of which are so rated or (ii)
maintained with a depository institution or trust company the commercial paper
or other short-term unsecured debt obligations of which have credit ratings in
the highest category from DCR, if rated by DCR, or if not rated by DCR, Standard
& Poor's or Moody's, or which is the principal subsidiary of a holding company
the commercial paper or other short-term unsecured debt obligations of which are
so rated, in either case which account is fully insured up to applicable limits
by the Federal Deposit Insurance Corporation; provided, however, that so long as
an account is a trust account maintained with LaSalle National Bank and its
long-term unsecured debt obligations have credit ratings from DCR of "AA-" if
rated by DCR, or if not rated by DCR, from Standard & Poor's of "AA-" or from
Moody's of "Aa3", or better, or it is the principal subsidiary of a holding
company the long-term unsecured debt obligations of which are so rated, such
account is deemed to be an Eligible Account.
"Event of Default" has the meaning provided in Section 6.1 of
----------------
the Indenture.
"Final Distribution Date" means the Distribution Date on which
-----------------------
the final distribution in respect of the Notes is made.
"Final Maturity Date" means March 17, 2016.
-------------------
"Foreclosure Property" has the meaning given in Section 2.8(b)
--------------------
of the Servicing Agreement.
"Foreign Noteholder" means a beneficial owner of Notes who is not,
------------------
for U.S. Federal income tax purposes, (i) a citizen or resident of the U.S.,
(ii) an individual present in the U.S. for 183 days or more in a taxable year,
(iii) a corporation created or organized in the U.S. or under the laws of the
U.S. or the laws of any state, (iv) an estate the income of which is includable
in gross income for U.S. tax purposes regardless of its source, or (v) a trust
if a court within the U.S. is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the authority to
control substantial decisions of the trust.
-7-
<PAGE>
"Gatlinburg Town Square Declaration" means the Master Deed
----------------------------------
Establishing Gatlinburg Town Square dated May 20, 1986, and recorded on June 6,
1986, in Deed Book 363, Page 839, in the official records of the Recorder's
Office for Sevier County, Tennessee, as modified, amended, supplemented and/or
restated.
"Gatlinburg Town Village Declaration" means the Master Deed
-----------------------------------
for Town Village Resort Horizontal Property Regime dated February 4, 1999, and
recorded on February 8, 1999, in Book D648, Page 755, of the official records of
the Register's Office for Sevier County, Tennessee, as modified, amended,
supplemented and/or restated.
"Grand Beach Declaration" means the Declaration of Condominium
-----------------------
for Grand Beach Resort, a Condominium, dated as of January 13, 1995, and
recorded in Book 4844, page 2297, in Orange County, Florida, as modified,
amended, supplemented and/or restated.
"Grant" means to grant, bargain, sell, warrant, alienate,
-----
remise, release, convey, assign, transfer, mortgage, pledge, create and grant a
security interest in and right of set-off against, deposit, set over and
confirm. A Grant of the security interest in the Mortgage Loans or of any other
instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including, without limitation,
the immediate and continuing right to claim, collect, receive and receipt for
payments in respect of the Mortgage Loans, or any other payment due thereunder,
to give and receive notices and other communications, to make waivers or other
agreements, to exercise all rights and options, to bring proceedings in the name
of the Granting party or otherwise, and generally to do and receive anything
which the Granting party is or may be entitled to do or receive thereunder or
with respect thereto.
"Greensprings Plantation Declaration" means the Declaration of
-----------------------------------
Project and Timeshare instruments for Greensprings Plantation Resort, dated June
30, 1995, recorded in Deed Book 749, page 67, Clerk's Office of the Circuit
Court for James City County, Virginia, as modified, amended, supplemented and/or
restated.
"Indenture" means the Indenture, dated as of December 1, 1999,
---------
among the Company, the Trustee, the Back-up Servicer and the Servicer, as
originally executed and, if from time to time supplemented or amended by one or
more indentures supplemental thereto entered into pursuant to the applicable
provisions thereof, as so supplemented or amended.
-8-
<PAGE>
"Initial Distribution Date": January 25, 2000.
-------------------------
"Initial Mortgage Loans" means the Mortgage Loans transferred
----------------------
by a Seller or the Company, as applicable, on the Closing Date.
"Initial Reserve Account Deposit" means the product of (i) the
-------------------------------
aggregate Outstanding Note Balance on the Closing Date and (ii) 5.0%.
"Institutional Investor" means any "qualified institutional
----------------------
buyer" (as defined in Rule 144A promulgated under the Securities Act of 1933, as
amended) or any bank, trust company, savings and loan association or other
financial institution, any pension plan, any investment company, any insurance
company, any broker or dealer, or any other similar financial institution or
entity, regardless of legal form.
"Insurance Proceeds" means (i) proceeds of any insurance
------------------
policy, including property insurance policies, casualty insurance policies and
title insurance policies, and (ii) any condemnation proceeds, in each case which
relate to the Mortgage Loans or the Mortgaged Property and are paid to the
Company, the Servicer, any of their respective affiliates or to any mortgagee of
record.
"Interest Accrual Period" means, with respect to the Initial
-----------------------
Distribution Date, the period beginning December 16, 1999, and ending on the day
immediately preceding such Distribution Date, and with respect to any other
Distribution Date, the period beginning on the immediately preceding
Distribution Date and ending on the day immediately preceding the current
Distribution Date.
"Lake Tahoe Declaration" means the Amended and Restated
----------------------
Declaration of Covenants, Conditions and Restrictions for Lake Tahoe Vacation
Ownership Resort dated May 1, 1996 and recorded May 21, 1996 as Instrument No.
31589, Book 4716, Page 518, Official Records of El Dorado County, California, as
modified, amended, supplemented and/or restated.
"Late Fee" means, with respect to any payment of Monthly P&I
--------
and the related Due Date, the late charge payable by the related Mortgagor in
accordance with the terms of the related Mortgage Note if such payment of
Monthly P&I is received by or on behalf of the Servicer more than the number of
days specified in such Mortgage Note following such Due Date.
-9-
<PAGE>
"Lien" means a security interest, lien, charge, pledge, equity, or
----
encumbrance of any kind.
"Liquidation" means, with respect to any Defaulted Mortgage
-----------
Loan or Charged-off Mortgage Loan, the sale of the related Mortgaged Property,
following foreclosure, other enforcement action or the taking of a deed-in-lieu
of foreclosure, to a Person other than the Servicer, a Seller or the Company
(except pursuant to Section 2.8(d) of the Servicing Agreement) and the recording
of a deed of conveyance with respect thereto.
"Liquidation Expenses" means, with respect to the Liquidation
--------------------
of any Defaulted Mortgage Loan or Charged-off Mortgage Loan, reasonable
out-of-pocket expenses incurred by the Servicer in connection with such
Liquidation, including without limitation, unpaid property taxes, marketing
costs incurred by the sales agent employed by the Servicer or any of its
affiliates, sales commissions payable to such sales agent and dues or
maintenance fees payable to the condominium association or timeshare
association.
"Liquidation Proceeds" means, with respect to the Liquidation
--------------------
of any Defaulted Mortgage Loan (other than Charged-off Mortgage Loan) or
Charged-off Mortgage Loan, amounts actually received in connection with such
Liquidation.
"Loan Number" means, with respect to any Mortgage Loan, the
-----------
number assigned to such Mortgage Loan by the Servicer, which number is set forth
in the Schedule of Mortgage Loans.
"Loan Sale Agreements" means collectively, the Blue Bison Loan
--------------------
Sale Agreement, the SunSera Loan Sale Agreement and the Dutch Elm Loan Sale
Agreement.
"Lock-Box Account" means an account created, maintained and
----------------
denominated as such pursuant to Section 2.3(a) of the Servicing Agreement, which
shall be an Eligible Account.
"Lock-Box Bank" means a depository institution or any
-------------
successor thereto at which a Lock-Box Account is established.
"Lost Note Affidavit" means, the affidavit to be executed in
-------------------
connection with any delivery of a copy of an original
-10-
<PAGE>
Mortgage Note in lieu of such original, substantially in the form attached as
Exhibit B to the Indenture.
"Maintenance Fee" means the fee denominated as the "service
---------------
fee" payable by each Mortgagor according to the terms of the related Mortgage
Note on each Due Date.
"Majority Holders" means the Holders of Outstanding Notes
----------------
evidencing Percentage Interests that in the aggregate equal 51% or more of the
aggregate of the denominations of all Outstanding Notes.
"Managing Member" means Dutch Elm Holdings, Inc., a Nevada
---------------
corporation.
"Maturity Date" means, with respect to any Mortgage Loan, the
-------------
date on which the last payment of Monthly P&I in respect of such Mortgage Loan
shall be due and payable as specified on the Schedule of Mortgage Loans.
"Miscellaneous Payments" means, with respect to any Mortgage
----------------------
Loan, any amounts received from or on behalf of the related Mortgagor
representing assessments, payments relating to real property taxes, insurance
premiums, condominium association fees, Maintenance Fees and any other payments
not allocable to Monthly P&I under the Mortgages.
"Monthly P&I" means, with respect to any Mortgage Loan and any
-----------
Collection Period, the payment of principal and interest due in such Collection
Period pursuant to the related Mortgage Note.
"Moody's" means Moody's Investors Service, Inc. or its
-------
successor in interest. If neither such rating agency nor any successor remains
in existence, "Moody's" shall be deemed to refer to such other nationally
recognized statistical rating agency or other comparable Person designated by
the Company, and approved in writing by the Majority Holders, notice of which
designation shall be given to the Trustee and the Servicer, and specific ratings
of Moody's herein referenced shall be deemed to refer to the equivalent ratings
of the party so designated.
"Mortgage" means the original mortgage, deed of trust or other
--------
instrument creating a first lien on the Mortgaged Property securing a Mortgage
Loan.
"Mortgage Collateral" means, with respect to any Mortgage, all
-------------------
property and rights at any time pledged to secure
-11-
<PAGE>
such Mortgage and all proceeds thereof, together with all rights of the Company
under the Mortgage Loan Documents.
"Mortgage Files" means the Mortgage Loan Documents and other
--------------
papers and computerized records customarily maintained by the Servicer in
servicing mortgage loans comparable to the Mortgage Loans.
"Mortgage Loan" means each loan listed on the Schedule of
-------------
Mortgage Loans, evidenced by a Mortgage Note and secured by a Mortgage,
including any Substitute Mortgage Loans and Subsequent Loans, but excluding any
such loan which has been released from the lien of the Indenture pursuant to the
terms thereof. Unless the context otherwise requires, the term "Mortgage Loan"
shall include all collateral securing such Mortgage Loan.
"Mortgage Loan Coupon Rate" means, with respect to any
-------------------------
Mortgage Loan, the per annum rate of interest set forth in the related Mortgage
Note, used to calculate the interest payment due on such Mortgage Loan.
"Mortgage Loan Documents" means, with respect to each Mortgage
-----------------------
Loan and each Mortgagor:
(i) an original Mortgage Note, executed by the Mortgagor for
such Mortgage Loan, endorsed in blank (either directly on the
Mortgage Note or on an allonge affixed thereto), by an
authorized officer of the originator and showing a complete
chain of endorsements from the original payee of the Mortgage
Note to the Trustee:
"Pay to the order of _____________, without recourse",
or if an original Mortgage Note is not available, a copy thereof
accompanied by an original executed Lost Note Affidavit;
(ii) an original Mortgage (or a copy thereof certified (which
may be a blanket certification) by an authorized officer of
the related originator) with evidence that such Mortgage has
been recorded in the appropriate recording office;
(iii) an original assignment of the Mortgage (which may be a
part of a blanket assignment of more than one Mortgage Loan),
from the related originator to the
-12-
<PAGE>
Trustee, in recordable form but unrecorded, signed by an authorized
officer of originator;
(iv) an original lender's title insurance policy or master
policy (or a copy thereof) referencing such Mortgage Loan and
covering the Trustee for the benefit of the Noteholders; and
(v) an original of each guarantee, assumption, modification or
substitution agreement, if any, which relates to the related
Mortgage Loan (or copy thereof certified by an officer of the
related originator to be a true and correct copy).
"Mortgage Note" means the original note or other instrument of
-------------
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Purchase Price" means, for any Mortgage Loan, the
-----------------------
Outstanding Principal Balance of the Mortgage Loan together with all interest
thereon accrued at the Mortgage Loan Coupon Rate but unpaid as of the end of the
Collection Period preceding the date of purchase, as calculated by the Servicer.
"Mortgaged Property" means the timeshare estate at the Resort
------------------
which secures a Mortgage Loan.
"Mortgagor" means, collectively, the obligor or obligors on a
---------
Mortgage Note.
"Net Liquidation Proceeds" means, with respect to any Mortgage
------------------------
Loan, the amount derived by subtracting from the Liquidation Proceeds the
related Liquidation Expenses.
"Note" means any Class A Note, Class B Note or Class C Note, in each
----
case authenticated by the Trustee.
"Noteholder" or "Holder" means the Person in whose name a Note
---------- ------
shall be registered in the Note Register, except that, solely for the purposes
of giving consent or granting approval pursuant to the Indenture or the
Servicing Agreement, the interest evidenced by any Note registered in the name
of the Company, a Seller or the Servicer, or any Affiliate of the Company, a
Seller or the Servicer, shall not be taken into account in determining whether
the requisite percentage necessary to effect any such consent shall have been
obtained.
-13-
<PAGE>
"Note Interest Rate" means (i) with respect to the Class A
------------------
Notes, 7.52% per annum; (ii) with respect to the Class B Notes, 8.00% per annum;
and (iii) with respect to the Class C Notes, 8.83% per annum, as applicable,
each based on a 360-day year consisting of twelve 30-day months.
"Note Purchase Agreement" means the Note Purchase Agreement,
-----------------------
dated as of December 16, 1999, among the Company and the purchasers named
therein.
"Note Register" and "Note Registrar" mean the register
------------- --------------
maintained and the registrar appointed pursuant to Section 3.4 of the Indenture.
"Officer's Certificate" means a certificate signed by the
---------------------
Chairman, the President, the Executive Vice President, a Vice President, the
Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the
Secretary or an Assistant Secretary, of the Person delivering such certificate.
"Opinion of Counsel" means a written opinion of counsel
------------------
reasonably acceptable to the Trustee (who may, unless otherwise provided herein,
be counsel to the Company or the Servicer) reasonably acceptable in form and
substance to the Trustee.
"Original Principal Balance" means, with respect to any
--------------------------
Mortgage Loan, the principal balance of the related Mortgage Note at its date of
origination.
"Outstanding": With respect to the Notes, as of the date of
-----------
determination, all Notes theretofore authenticated and delivered under the
Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered to
the Note Registrar for cancellation; and
(ii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to the Indenture;
provided, however, that for purposes of determining whether the Holders of the
requisite principal amount of the Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver, Notes owned by the
Company, the Servicer or a Seller or any Affiliate of the Company, the Servicer
or a Seller shall be disregarded and deemed not to be
-14-
<PAGE>
outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, or waiver, only Notes which the Trustee knows to be so owned shall be
so disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company, the Servicer or a Seller or any Affiliate of the
Company, the Servicer or a Seller.
"Outstanding Note Balance" means on any date of determination
------------------------
and with respect to any class of Notes, the original principal balance of the
Outstanding Notes of such class as of the Closing Date, reduced by (a) the sum
of all payments of principal paid to such class of Outstanding Notes on all
prior Distribution Dates and (b) the amount equal to (i) any Realized Losses
applied to any such class of Outstanding Notes pursuant to Section 12.11 of the
Indenture less (ii) (A) with respect to the Class A Notes, any payment in
----
reimbursement of Realized Losses pursuant to clause "thirteenth" of Section
----------
13.11 of the Indenture, (B) with respect to the Class B Notes, any payment in
reimbursement of Realized Losses pursuant to clause "fourteenth" of Section
----------
13.11 of the Indenture, and (C) with respect to the Class C Notes, any payment
in reimbursement of Realized Losses pursuant to clause "fifteenth" of Section
---------
13.11 of the Indenture.
"Outstanding Pool Balance" means, as of any date of
------------------------
determination, the aggregate Outstanding Principal Balance of the Mortgage
Loans.
"Outstanding Principal Balance" means, as of any date of
-----------------------------
determination, with respect to any Mortgage Loan, the Original Principal Balance
thereof as reduced by the amount of principal payments made by or on behalf of
the related Mortgagor (excluding P&I Advances) prior to such date of
determination.
"Ownership Interest" means as to any Note, any ownership or
------------------
security interest in such Note as the Holder thereof and any other interest
therein, whether direct or indirect, legal or beneficial, as owner or pledgee.
"Parent": Sunterra Corporation, a Maryland corporation.
------
-15-
<PAGE>
"Paying Agent": LaSalle Bank National Association, as paying
------------
agent under the Indenture, or if LaSalle Bank National Association, is not also
the Trustee, any successor Trustee appointed pursuant to the Indenture.
"P&I Advances" has the meaning given in Section 2.6 of the
------------
Servicing Agreement.
"Percentage Interest" means, as to any class of Notes, a
-------------------
fraction, the numerator of which is equal to the aggregate Outstanding Note
Balance of the Notes of such class as of the Closing Date, and the denominator
of which is equal to the aggregate Outstanding Note Balance of all of the Notes
as of the Closing Date.
"Permitted Encumbrances" means, as to any Mortgaged Property,
----------------------
(a) the lien of current real property taxes, ground rents, water charges, sewer
rents and assessments not yet due and payable, (b) 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 of the Mortgaged Property or the security intended to be provided by
the related Mortgage or with the Mortgagor's ability to pay his or her
obligations when they become due or materially and adversely affects the value
of the Mortgaged Property and (c) the exceptions (general and specific) set
forth in the related title insurance policy, none of which, individually or in
the aggregate, materially interferes with the security intended to be provided
by such Mortgage or with the Mortgagor's ability to pay his or her obligations
when they become due or materially and adversely affects the value of the
Mortgaged Property.
"Permitted Investments" means any one or more of the following
---------------------
obligations or securities:
(i) direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United
States or any agency or instrumentality thereof (having
original maturities of not more than 365 days), provided such
obligations are fully backed by the full faith and credit of
the United States. Such obligations must be limited to those
instruments that have a predetermined fixed dollar amount of
principal due at maturity that cannot vary or change. If
rated, such an obligation must not have an "r" or "t"
highlighter affixed to its rating by Standard & Poor's or the
equivalent indicator affixed
-16-
<PAGE>
by any other Rating Agency. Interest may either be fixed or variable.
If such interest is variable, interest must be tied to a single
interest rate index plus a single fixed spread (if any), and move
proportionately with that index;
(ii) repurchase obligations with respect to any security described in
clause (i) above (having original maturities of not more than 365
days), provided that the short-term deposit or unsecured debt
obligations of the party agreeing to repurchase such obligations are
rated in the highest rating category of DCR, if rated by DCR, or if not
rated by DCR, by either of Moody's or Standard & Poor's or such lower
rating as will not result in qualification, downgrading or withdrawal
of the ratings then assigned to the Notes, as evidenced in writing by
the Rating Agencies. In addition, any such item must not have an "r" or
"t" highlighter affixed to its rating by Standard & Poor's or the
equivalent indicator affixed by any other Rating Agency, and its terms
must have a predetermined fixed dollar amount of principal due at
maturity that cannot very or change. Interest may either by fixed or
variable. If such interest is variable, interest must be tied to a
single interest rate index plus a single fixed spread (if any), and
move proportionately with that index ;
(iii) Notes of deposit, time deposits, demand deposits and acceptances
of any bank or trust company organized under the laws of the United
States or any state thereof (having original maturities of not more
than 365 days), the unsecured short term obligations of which are rated
in the highest rating category of DCR, if rated by DCR, or if not rated
by DCR, by either of Moody's or Standard & Poor's or such lower rating
as will not result in qualification, downgrading or withdrawal of the
ratings then assigned to the Notes, as evidenced in writing by the
Rating Agencies. In addition, any such item must not have an "r" or "t"
highlighter affixed to its rating by Standard & Poor's or the
equivalent indicator affixed by any other Rating Agency, and its terms
should have a predetermined fixed dollar amount of principal due at
maturity that cannot vary or change. Interest may either be fixed or
variable. If such interest is variable, interest must be tied to a
single interest rate index plus a single fixed spread (if any), and
move proportionately with that index;
-17-
<PAGE>
(iv) commercial paper (having original maturities of not more than 365
days) of any corporation (other than an Affiliate of the Company)
incorporated under the laws of the United States or any state thereof
(or if not so incorporated, the commercial paper is United States
dollar denominated and amounts payable thereunder are not subject to
any withholding imposed by any non-United States jurisdiction) which is
rated in the highest rating category of DCR, if rated by DCR, or if not
rated by DCR, in the highest rating category of either of Moody's or
Standard & Poor's, or such lower rating as will not result in
qualification, downgrading or withdrawal of the ratings then assigned
to the Notes, as evidenced in writing by the Rating Agencies; the
commercial paper should not have an "r" or "t" highlighter affixed to
its rating by Standard & Poor's or the equivalent indicator affixed by
any other Rating Agency, and by its terms must have a predetermined
fixed dollar amount of principal due at maturity that cannot vary or
change. Interest may either by fixed or variable. If such interest is
variable, interest must be tied to a single interest rate index plus a
single fixed spread (if any), and move proportionately with that index;
(v) units of money market funds rated in the highest rating category of
DCR, if rated by DCR, or if not rated by DCR, AAAm by Moody's or AAAm
or AAAm-G by Standard & Poor's or the equivalent indicator affixed by
any other Rating Agency (or such lower rating as will not result in
qualification, downgrading or withdrawal of the ratings then assigned
to the Notes, as evidenced in writing by DCR) and which seek to
maintain a constant net asset value;
provided that (1) no investment described hereunder shall evidence either the
right to receive (x) only interest with respect to such investment or (y) a
yield to maturity greater than 120% of the yield to maturity at par of the
underlying obligations; and (2) that no investment described hereunder may be
purchased at a price greater than par if such investment may be prepaid or
called at a price less than its purchase price prior to stated maturity.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint stock company, trust (including any beneficiary
thereof), limited liability company, unincorporated organization or government
or any agency or political subdivision thereof.
-18-
<PAGE>
"Plantation Declaration" means the Declaration of Condominium
----------------------
for The Plantation at Fall Creek, a Condominium, dated as of February 5, 1993,
and recorded in Book 318, pages 8179-8282, in County at Taney, Missouri, as
modified, amended, supplemented and/or restated.
"Poco Diablo Declaration" means the Declaration of Dedication
-----------------------
of Interval Ownership for The Villas at Poco Diablo Time Shared Resort, dated as
of March 6, 1989, and recorded under Document Number 1268, pages 929-958, in
Coconino County, Arizona, as modified, amended, supplemented and/or restated.
"Polynesian I Declaration" means the Declaration of Condominium of
------------------------
Polynesian Isles Resort Condominium I dated September 30, 1983, and recorded in
O.R. Book 687, Page 258, Official Records of Osceola County, Florida, as
modified, amended, supplemented and/or restated.
"Polynesian II Declaration" means the Declaration of Condominium of
-------------------------
Polynesian Isles Resort Condominium II dated March 14, 1984, and recorded in
O.R. Book 737, Page 360, Official Records of Osceola County, Florida, as
modified, amended, supplemented and/or restated.
"Polynesian III Declaration" means the Declaration of Condominium of
--------------------------
Polynesian Isles Resort Condominium III dated July 6, 1984, and recorded in O.R.
Book 757, Page 553, Official Records of Osceola County, Florida, as modified,
amended, supplemented and/or restated.
"Polynesian IV Declaration" means the Declaration of Condominium of
-------------------------
Polynesian Isles Resort Condominium IV dated March 12, 1990, and recorded in
O.R. Book 963, Page 1302, Official Records of Osceola County, Florida, as
modified, amended, supplemented and/or restated.
"Port Royal Declaration" means the Master Deed for Royal Dunes
----------------------
Beach Villas at Port Royal Resort Horizontal Property Regime, dated as of April
5, 1994, and recorded in Book 698, page 940, in County of Beaufort, South
Carolina, as modified, amended, supplemented and/or restated.
"Powhatan Plantation Declaration" means the Declaration of
-------------------------------
Project and Timeshare instruments for Powhatan Plantation Resort, dated January
22, 1984, recorded in Deed Book 253, page 190, Clerk's Office of the Circuit
Court for James City County, Virginia, as modified, amended, supplemented and/or
restated.
"Prepayment" means, with respect to any Mortgage Loan, any of
----------
the following: (i) payment by or on behalf of the Mortgagor of the Outstanding
Principal Balance plus all accrued interest with respect to such Mortgage Loan
in advance of its Maturity Date (exclusive of any Defaulted Mortgage Loan), (ii)
payment by the Company to the Trustee of the Mortgage Purchase Price of such
Mortgage Loan in connection with the repurchase of such Mortgage Loan pursuant
to Section 4.3 or 12.6 of the Indenture, (iii) any partial prepayment of
principal received from or on behalf of the relevant Mortgagor, (iv) any
Insurance Proceeds deposited in the Collection Account pursuant to Section
11.13(m) of the Indenture or 2.5 of the Servicing Agreement.
"Proceeding": Any suit in equity, action at law or other judicial or
----------
administrative proceeding.
"Rating Agency" means any of DCR, Moody's or Standard & Poor's.
-------------
"Realized Loss" means as of any date of determination with
-------------
respect to: (1) each Charged-off Mortgage Loan, an amount (not less than zero)
equal to (a) the unpaid principal balance of such Mortgage Loan, as of the last
day of the Collection Period (the "Realized Loss Date"), immediately preceding
such date of
-19-
<PAGE>
determination, plus (b) without taking into account the amount
described in subclause (1)(d) of this definition, all accrued but unpaid
interest on such Mortgage Loan, at the related Mortgage Loan Coupon Rate to but
not including the Due Date immediately preceding the Realized Loss Date, plus
(c) any related unreimbursed P&I Advances as of the commencement of the
Collection Period in which the Realized Loss Date occurs, together with any new
related P&I Advances made during the Collection Period in which the date of
determination occurs, minus (d) all payments and proceeds, if any, received and
deposited in the Collection Account in respect of such Mortgage Loan, during the
Collection Period immediately preceding the Realized Loss Date, including,
without limitation, Liquidation Proceeds and other payments or recoveries on
account of such Mortgage Loan; (2) each Charged-off Mortgage Loan as to which
any portion of the principal payable thereunder was canceled in connection with
a bankruptcy or similar proceeding involving the related Mortgagor or a
modification, waiver or amendment of such Mortgage Loan granted or agreed to by
the Servicer pursuant to Section 2.9 of the Servicing Agreement, the amount of
such principal so canceled; and (3) each Mortgage Loan as to which the Mortgage
Loan Coupon Rate thereon has been permanently reduced and not recaptured for any
period in connection with a bankruptcy or similar proceeding involving the
related Mortgagor or a modification, waiver or amendment of such Mortgage Loan
granted or agreed to by the Servicer pursuant to Section 2.9 of the Servicing
Agreement, the amount of the consequent reduction in the interest portion of
each successive monthly payment due thereon. Each such Realized Loss determined
pursuant to clause (3) above shall be deemed to have been incurred on the Due
Date for each affected monthly payment.
"Record Date" means (i) with respect to the Initial Distribution Date,
-----------
the Closing Date and (ii) thereafter, the close of business on the last Business
Day of a Collection Period.
"Redemption Date": Any Distribution Date on which Notes are to be
---------------
redeemed pursuant to Section 10.1 of the Indenture.
"Redemption Price": The price at which a Note is to be redeemed
----------------
pursuant to the Indenture, equal to the Outstanding Note Balance of
such Note together with interest accrued thereon to the Redemption Date at the
applicable Note Interest Rate (exclusive of installments of interest and
principal maturing on or prior to such date, payment of which shall have been
made to the Holder of such Note on the applicable Record Date or as otherwise
provided in the Indenture).
-20-
<PAGE>
"Remaining Substitution/Purchase Amount" means, with respect
--------------------------------------
to any date, an amount equal to (i) 15% of the aggregate Outstanding Principal
Balance of the Mortgage Loans as of the Cut-off Date minus (ii) the aggregate
Outstanding Principal Balance of all Substitute Mortgage Loans and Subsequent
Loans Granted to the Trustee as of their respective Subsequent Cut-off Dates.
"Remittance" means cash, a wire transfer, or a check, draft or
----------
money order.
"Repurchase Date" has the meaning provided in Section 12.6(a)
---------------
of the Indenture.
"Requisite Reserve Amount" means, as to any Distribution Date,
------------------------
an amount equal to the lesser of (i) the greater of (a) the product of (x) the
then current aggregate Outstanding Note Balance and (y) the Reserve Account
Percentage and (b) $500,000, and (ii) the then current Outstanding Note Balance.
"Reserve Account" has the meaning set forth in Section 12.2(b)
---------------
of the Indenture.
"Reserve Account Percentage" means, with respect to any
--------------------------
Distribution Date (i) if no Trigger Event has occurred and is continuing, 5.0%,
(ii) if a Trigger Event (other than an event described in clause (ii) of the
definition of "Trigger Event") has occurred and the Class A Notes are
outstanding, until a Trigger Event Cure has occurred, 25.0%, (iii) if a Trigger
Event (other than an event described in clause (ii) of the definition of
"Trigger Event") has occurred, the Class A Notes have been retired and the Class
B Notes are outstanding, until a Trigger Event Cure has occurred, 20.0%, (iv) if
a Trigger Event (other than an event described in clause (ii) of the definition
of "Trigger Event") has occurred and the Class A and the Class B Notes have been
retired, until a Trigger Event Cure has occurred, 15.0% and (v) if the average
Delinquency Trigger Ratio calculated as of the three immediately preceding
Record Dates, exceeds 7.0%, 10.0%.
"Resorts" means the respective land, buildings and appurtenant
-------
rights of Sunterra Resorts Cypress Pointe, Sunterra Resorts Greensprings
Plantation, Sunterra Resorts Sedona Springs, Sunterra Resorts Sedona Summit,
Sunterra Resorts Scottsdale Villa Mirage, Sunterra Resorts Villas at Poco
Diablo, Sunterra Resorts Villas of Sedona, Sunterra Resorts The Ridge on Sedona
Golf, Sunterra Resorts Tahoe Beach and Ski,
-21-
<PAGE>
Sunterra Resorts Villas on the Lake, Sunterra Resorts Villas de Santa Fe,
Sunterra Resorts The Plantation at Fall Creek, Sunterra Resorts Powhatan
Plantation, Sunterra Resorts Royal Dunes, Sunterra Resorts The Savoy on South
Beach, Sunterra Resorts Bent Creek Golf Village, Sunterra Resorts Gatlinburg
Town Village, Sunterra Resorts Polynesian, Sunterra Resorts San Luis Bay,
Embassy Vacation Resort Grand Beach, Embassy Vacation Resort Lake Tahoe,
Gatlinburg Town Square and Ridge Tahoe.
"Responsible Officer": With respect to the Trustee, any officer
-------------------
within the Corporate Trust Office of the Trustee, including any Vice
President, Assistant Vice President, Secretary or Assistant Secretary, Managing
Director, or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Ridge Declaration" means the Declaration of Dedication and
-----------------
Covenants, Conditions, Restrictions and Easements for the Ridge at Sedona Golf
Resort (A Timeshare Project Vacation Ownership Resort), dated as of December 18,
1996, and recorded in Book 3330, page 445, in Yavapai County, Arizona, as
modified, amended, supplemented and/or restated.
"Ridge Tahoe Declaration" means the Declaration Timeshare
-----------------------
Covenants, Conditions and Restrictions for the Ridge Tahoe made by Harich Tahoe
Developments, a general partnership recorded February 14, 1984 in book 284 of
Official Records, at Page 5202, Douglas County, Nevada as Document No. 96758, as
modified, amended, supplemented and/or restated.
"Sale": Has the meaning specified in Section 6.15 of the Indenture.
----
"Sale Agreements" means the Blue Bison Loan Sale Agreement,
---------------
the SunSera Loan Sale Agreement and the Dutch Elm Loan Sale Agreement.
"Savoy Declaration" means the Declaration of Condominium for
-----------------
The Savoy on South Beach, a Condominium which is recorded in O.R. Book 17924,
Page 2575, Official Records of Dade County, Florida, as modified, amended,
supplemented and/or restated.
"Schedule of Mortgage Loans" means the list of Mortgage Loans
--------------------------
substantially in the form attached as Schedule 1 to the Indenture or Schedule A
to a Loan Sale Agreement, as the case may be, which shall be amended from time
to time to include any Substitute Mortgage Loans and any Subsequent Loans and to
delete any Mortgage Loans released from the lien of the Indenture pursuant to
the terms thereof, which list shall be available in electronic format and shall
include the following information with respect to each such Mortgage Loan as of
the Cut-off Date and each Subsequent Loan as of the Subsequent Cut-off Date:
-22-
<PAGE>
Loan Number
Name and Mailing Address of Mortgagor
Resort
Interest Rate Per Annum
Original Principal Balance
Maturity Date
Monthly Payment Amount
Outstanding Principal Balance
"Sedona Springs Declaration" means the Declaration of
--------------------------
Covenants, Conditions, Restrictions and Easements for Sedona Springs Resort
(Townhouse Units), dated as of June 6, 1994, and recorded in Book 2846, page
370, in Yavapai County, Arizona, as modified, amended, supplemented and/or
restated.
"Sedona Summit Declaration" means the Declaration of
-------------------------
Dedication and Covenants, Conditions, Restrictions and Easements for Sedona
Summit Resort, a Timeshare Resort, dated as of January 17, 1996, and recorded in
Book 3142, page 775, in Yavapai County, Arizona, as modified, amended,
supplemented and/or restated.
"Seller" means each of SunSera Funding Corp., Dutch Elm Holdings,
------
Inc., Sunterra Corporation and its successors and assigns.
"Servicer Event of Default": has the meaning given in Section 5.1 of
-------------------------
the Servicing Agreement.
"Servicer" means, initially, Sunterra Financial Services,
--------
Inc., in its capacity as the Servicer of the Mortgage Loans under Section 2.1
and, thereafter, any successor servicer pursuant to Section 4.2(b), 4.4 or 5.2
of the Servicing Agreement.
"Servicer Report" means the report substantially in the form
---------------
of Exhibit A to the Servicing Agreement provided by the Servicer to the Trustee
on each Servicer Report Date pursuant to Section 3.1 of the Servicing Agreement.
"Servicer Report Date" means the twentieth day of each month
--------------------
in which a Distribution Date occurs; provided, however, that, if such twentieth
day is not a Business Day, the Servicer Report Date shall be the Business Day
immediately following such twentieth day.
"Servicer Request": A written order or request signed in the
----------------
name of the Servicer by its Chairman of the Board, president or a Vice
President, and by its Treasurer, an Assistant
-23-
<PAGE>
Treasurer, Controller, an Assistant Controller, Secretary, or an Assistant
Secretary and delivered to the Trustee.
"Servicing Agreement": The Servicing Agreement, dated as of
-------------------
December 1, 1999, entered into by and among the Company, the Servicer, the
Trustee and the Back-up Servicer, as the same may be amended from time to time
in accordance with the provisions thereof.
"Servicing Fee" means, with respect to any Distribution Date
-------------
and the related Collection Period, the product of (i) one twelfth, (ii) the
Servicing Fee Percent and (iii) the Outstanding Pool Balance on such
Distribution Date prior to the application of amounts to be distributed on such
Distribution Date.
"Servicing Fee Percent" means 1% per annum.
---------------------
"Servicing Officer" means any Vice President, Assistant Vice
-----------------
President, Secretary, Assistant Secretary, or any other officer or assistant
officer of the Servicer or a Subservicer essentially performing functions
similar to those performed by persons who at the time shall be such officers,
respectively, or to whom any corporate matter is referred because of his or her
knowledge of, and familiarity with, the particular subject, and who is involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name appears on a list of servicing officers furnished to the Trustee by
the Servicer or a Subservicer, as applicable, as such list may be amended or
supplemented from time to time.
"Shortfall Amount" means, with respect to any Distribution
----------------
Date, the amount, if any, by which the amounts required to be distributed
pursuant to clauses "first" through "eleventh" of Section 13.1(a) (excluding any
amounts to be deposited in the Reserve Account) of the Indenture exceed the
amount on deposit in the Collection Account with respect to such Distribution
Date.
"Standard & Poor's" means Standard & Poor's Ratings Services,
-----------------
a division of The McGraw-Hill Companies, Inc., or its successor in interest. If
neither such rating agency nor any successor remains in existence, "Standard &
Poor's" shall be
-25-
<PAGE>
deemed to refer to such other nationally recognized statistical
rating agency or other comparable Person designated by the Company and approved
in writing by the Majority Holders, notice of which designation shall be given
to the Trustee and the Servicer, and specific ratings of Standard & Poor's
herein referenced shall be deemed to refer to the equivalent ratings of the
party so designated.
"Stated Maturity Date" means the Maturity Date of the Mortgage
--------------------
Loan which, as of the Cut-off Date, has the longest remaining amortization term.
"Subsequent Cut-off Date" means with respect to any Substitute
-----------------------
Mortgage Loan and Subsequent Loans, the close of business on the last day of the
month preceding the month in which such Substitute Mortgage Loans and Subsequent
Loans are Granted to the Trustee for the benefit of the Noteholders.
"Subsequent Loans" means the Mortgage Loans Granted to the
----------------
Trustee pursuant to Section 12.7 of the Indenture, each of which (i) bears a
fixed rate of interest, (ii) has a Mortgage Loan Coupon Rate at least equal to
the Weighted Average Coupon Rate, (iii) has a Maturity Date which is no later
than the Stated Maturity Date, (v) does not cause a breach of the
representations and warranties in the Indenture and the Dutch Elm Loan Sale
Agreement, (vi) is not more than thirty days past due with respect to any
payment of interest or principal as of the immediately preceding Record Date,
(vii) has not been more than 90 days past due with respect to any payment of
interest or principal on more than one Record Date during the preceding 12
months, (viii) has not been in default, (ix) the related mortgagor (or successor
thereto) was a Mortgagor as of the Cut-off Date and (x) relates to one of the
Resorts.
"Subsequent Transfer Date" means the last Business Day of each
------------------------
Collection Period.
"Subservicer" means any Person which is subservicing one or
-----------
more of the Mortgage Loans pursuant to Section 2.2 or Section 5.2(c) of the
Servicing Agreement.
"Subservicing Agreement" means an agreement between the
----------------------
Servicer or the Trustee and a Subservicer relating to the servicing of the
Mortgage Loans.
"Substitute Mortgage Loan" means a loan substituted for a
-----------------------
Mortgage Loan having missing or defective documentation pursuant to Section 4.3
of the Indenture or for a Defective
-26-
<PAGE>
Mortgage Loan pursuant to Section 12.6(b) of the Indenture: (i) having as of the
time of substitution a principal balance, after deduction of the principal
portion of the monthly payment due in the month of substitution equal to or
greater than the Outstanding Principal Balance of the Mortgage Loan for which it
is being substituted, (ii) having a Mortgage Loan Coupon Rate equal to or
greater than the Mortgage Loan Coupon Rate of the Mortgage Loan for which it is
being substituted, (iii) otherwise satisfying the requirements of Section 12.6
of the Indenture, (iv) having a Maturity Date which is no later than the Stated
Maturity Date, (v) not causing a breach of the representations and warranties in
the Indenture and the Dutch Elm Loan Sale Agreement, (vi) not being more than
thirty days past due with respect to any payment of interest or principal as of
the immediately preceding Record Date, (vii) having not been more than 90 days
past due with respect to any payment of interest or principal on more than one
Record Date during the preceding 12 months and (viii) relating to one of the
Resorts.
"SunSera Capital Contribution Agreement" means the Capital
--------------------------------------
Contribution Agreement, dated as of December 1, 1999, between SunSera Funding
Corp. and Dutch Elm Holdings, Inc.
"SunSera Loan Sale Agreement" means the Loan Sale Agreement, dated as
---------------------------
of December 1, 1999, between SunSera Funding, Corp. and Dutch Elm Holdings, Inc.
"Sunterra Capital Contribution Agreement" means the Capital
---------------------------------------
Contribution Agreement, dated as of December 1, 1999, between Sunterra
Corporation and SunSera Funding Corp.
"Tahoe Beach Declaration" means the Declaration of Vacation
-----------------------
Plan (The Tahoe Beach and Ski Club), dated as of July 16, 1984, and recorded in
Book 2319, pages 158-226, in El Dorado County, California, as modified, amended,
supplemented and/or restated.
"Transaction Documents" mean the Note Purchase Agreement, the
---------------------
Indenture, the Servicing Agreement, Sale Agreements, the Sunterra Capital
Contribution Agreement and the SunSera Capital Contribution Agreement.
"Trigger Event" means on any Distribution Date either (i) the
-------------
occurrence of Default Trigger I, Default Trigger II or Default Trigger III or
(ii) the average Delinquency Trigger Ratio as of the three immediately preceding
Record Dates, exceeds 7.0%.
-27-
<PAGE>
"Trigger Event Cure" means (i) with respect to any Trigger
------------------
Event which has occurred (other than a Trigger Event in clause (ii) below) (A)
such Trigger Event has not continued for a period of three consecutive months,
(B) all amounts in respect of distributions due to the Class A, Class B and
Class C Notes as of such date have been paid or such amounts are on deposit in
the Reserve Account, (C) the Requisite Reserve Amount (without taking into
account such Trigger Event) is on deposit in the Reserve Account and (D) no
other Trigger Event has occurred, and
(ii) with respect to any Trigger Event that is of a Trigger Event Type
that has occurred and has been cured at least once since the Closing
Date in accordance with clause (i) above, (A) with respect to the Trigger Event
related to Default Trigger I, the average Default Trigger Ratio calculated on
the basis of the three immediately preceding Record Dates does not exceed 7.5%,
with respect to the Trigger Event related to Default Trigger II for a period of
three consecutive months, the average Default Trigger Ratio calculated on the
basis of the three immediately preceding Record Dates does not exceed 11.0% for
a period of three consecutive months, and with respect to the Trigger Event
related to Default Trigger III, the average Default Trigger Ratio calculated on
the basis of the three immediately preceding Record Dates does not exceed 13.5%
for a period of three consecutive months, (B) all amounts in respect of
distributions due to the Class A, Class B and Class C Notes as of such date have
been paid or such amounts are on deposit in the Reserve Account, (C) the
Requisite Reserve Amount (without taking into account such Trigger Event) is on
deposit in the Reserve Account and (D) no other Trigger Event has occurred. For
purposes of this description, "Trigger Event Type" shall mean either Default
Trigger I, Default Trigger II or Default Trigger III, as the case may be.
"Trust Estate" means the property of every description Granted
------------
pursuant to the "Granting Clauses" of the Indenture and all collections,
distributions and proceeds in respect thereof.
"Trustee" means, initially, LaSalle Bank, National Association, and,
-------
thereafter, any successor trustee pursuant to Section 7.9 of
the Indenture.
"Trustee Fee" means, with respect to each Distribution Date, the
-----------
product of (i) one twelfth, (ii) two basis points and (iii) the Outstanding
Pool Balance on such Distribution Date prior to the application of amounts to be
distributed on such Distribution Date.
-28-
<PAGE>
"UCC": The Uniform Commercial Code as enacted in the relevant state.
---
"Unpaid Interest Shortfall" means, with respect to any Distribution
-------------------------
Date and any class of Notes, the sum of (i) the Current Interest
Shortfall and (ii) the aggregate of the outstanding Current Interest Shortfalls
incurred prior to such Distribution Date.
"Unpaid Principal Shortfall" means, with respect to any Distribution
--------------------------
Date and any class of Notes, the sum of (i) the Current Principal Shortfall and
(ii) the aggregate of the outstanding Current Principal Shortfalls incurred
prior to such Distribution Date.
"Upgrade Prepayment" means, with respect to any Mortgage Loan
------------------
prepaid in full by or on behalf of the related Mortgagor in connection with the
purchase of an additional Vacation Interval or a more expensive Vacation
Interval, the prepayment of principal received by the Trustee.
"USAP" means the Uniform Single Attestation Program for Mortgage
----
Bankers.
"Vacation Interval" means a fee vacation ownership interest or
-----------------
timeshare interest at or in a Resort.
"Villas de Santa Fe Declaration" means the Declaration for
------------------------------
Villas de Santa Fe, a Condominium, recorded in Book T462, page 195-294, Records
of Santa Fe County, New Mexico, as modified, amended, supplemented and/or
restated.
"Villas of Sedona Declaration" means the Declaration of Dedication
----------------------------
and Covenants, Conditions, Restrictions and Easements for Villas of
Sedona, dated as of September 11, 1992, and recorded in Book 2531, page 991, in
Yavapai County, Arizona, as modified, amended, supplemented and/or restated.
"Villas On the Lake Declaration" means the Time Share Declaration of
------------------------------
Covenants and Restrictions for Colony Place Interval Ownership
Plan known as Villas On The Lake Resort, dated
-29-
<PAGE>
as of May 30, 1996, and recorded under Document Number 9632539, in Montgomery
County, Texas, as modified, amended, supplemented and/or restated.
"Weighted Average Coupon Rate" means, with respect to any
----------------------------
Distribution Date, the per annum rate of interest equal to the average,
expressed as a percentage and rounded to two decimal places, of the Mortgage
Loan Coupon Rates of all of the Mortgage Loans that were outstanding at the
beginning of the Collection Period immediately preceding such Distribution Date
(or as of the Cut-off Date with respect to the first Distribution Date),
weighted on the basis of their respective Outstanding Principal Balances as of
the beginning of such Collection Period.
"Year 2000 Problem" means the risk that computer applications
-----------------
will be unable to perform properly, including performance of date-sensitive
functions involving certain dates after December 31, 1999.
-30-
<PAGE>
Execution Counterpart
Ex-10.25
================================================================================
$60,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
SUNTERRA CORPORATION
(formerly known as Signature Resorts, Inc.)
CERTAIN LENDERS PARTY HERETO,
AND
BANK OF AMERICA, N.A., formerly NationsBank, N.A.,
AS ADMINISTRATIVE AGENT
DECEMBER 31, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
ARTICLE 1 Definitions
Section 1.1 Defined Terms................................................... 1
Section 1.2 Amendments and Renewals......................................... 26
Section 1.3 Construction.................................................... 26
ARTICLE 2 Advances
Section 2.1 The Advances..................................................... 27
Section 2.2 Manner of Borrowing and Disbursement............................. 27
Section 2.3 Interest......................................................... 29
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 Agent................. 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............................................ 33
Section 2.12 Sharing of Payments.............................................. 34
Section 2.13 Calculation of LIBOR............................................. 34
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...................... 43
Section 3.2 Conditions Precedent to All Advances, Letters of
Credit, Conversions and Continuations......................... 45
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
ARTICLE 4 Representations and Warranties
Section 4.1 Representations and Warranties.................................. 47
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.................................... 61
Section 5.11 Further Assurances.............................................. 62
Section 5.12 Management of Projects.......................................... 62
Section 5.13 Obligations to Purchasers....................................... 62
Section 5.14 Owners Associations............................................. 62
Section 5.15 Note Receivable Information..................................... 63
Section 5.16 Maintenance of Borrowing Base................................... 63
Section 5.17 Time-Share Interest Exchange Network............................ 64
Section 5.18 Maintenance of Projects Attributable to Leasehold Receivables... 64
ARTICLE 6 Information Covenants
Section 6.1 Borrowing Base Report........................................... 65
Section 6.2 Eligible Notes Receivable Report................................ 65
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.................................... 68
ARTICLE 7 Negative Covenants
Section 7.1 Indebtedness.................................................... 69
Section 7.2 Liens........................................................... 69
Section 7.3 Investments..................................................... 69
Section 7.4 Liquidation, Merger............................................. 70
Section 7.5 Sales of Assets................................................. 71
Section 7.6 Acquisitions.................................................... 72
Section 7.7 Capital Expenditures............................................ 72
Section 7.8 Restricted Payments............................................. 72
Section 7.9 Affiliate Transactions.......................................... 72
Section 7.10 Compliance with ERISA........................................... 72
Section 7.11 Minimum Interest Coverage Ratio................................. 73
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 7.12 Minimum Adjusted Net Worth...................................... 73
Section 7.13 Maximum Senior Debt to Total Capital............................ 73
Section 7.14 Maximum Total Debt to Total Capital Ratio....................... 73
Section 7.15 Maximum Average Quarterly Charge-Off Rate....................... 73
Section 7.16 Maximum Average Quarterly Default Rate.......................... 73
Section 7.17 Maximum Average Quarterly Delinquency Rate...................... 73
Section 7.18 Sale and Leaseback.............................................. 74
Section 7.19 Business........................................................ 74
Section 7.20 Fiscal Year..................................................... 74
Section 7.21 Amendment of Organizational Documents........................... 74
Section 7.22 Amendments and Waivers of Subordinated Debt..................... 74
Section 7.23 Use of Lenders' Name............................................ 74
Section 7.24 Servicing and Collection Agreement.............................. 74
Section 7.25 Custodial Agreement............................................. 75
Section 7.26 Notes Receivable................................................ 75
ARTICLE 8 Default
Section 8.1 Events of Default............................................... 75
Section 8.2 Remedies........................................................ 78
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
ARTICLE 9 Changes in Circumstances
Section 9.1 LIBOR Basis Determination Inadequate......................... 79
Section 9.2 Illegality................................................... 79
Section 9.3 Increased Costs.............................................. 80
Section 9.4 Effect On Reference Rate Advances............................ 81
Section 9.5 Capital Adequacy............................................. 81
Section 9.6 Replacement Lender........................................... 81
ARTICLE 10 Agreement Among Lenders
Section 10.1 Agreement Among Lenders...................................... 82
Section 10.2 Lender Credit Decision....................................... 84
Section 10.3 Benefits of Article.......................................... 85
ARTICLE 11 Miscellaneous
Section 11.1 Notices...................................................... 85
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...................................................... 86
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........................ 91
Section 11.16 Amendment, Restatement, Extension and Renewal................ 91
SECTION 11.17 GOVERNING LAW................................................ 92
SECTION 11.18 WAIVER OF JURY TRIAL......................................... 92
SECTION 11.19 ENTIRE AGREEMENT............................................. 92
</TABLE>
<PAGE>
Schedules and Exhibits
- ----------------------
Schedule 1: LIBOR Lending Offices, Addresses for Notices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing
Schedule 8: Intellectual Property and Disputes Relating Thereto
Schedule 9: Labor Relations
Exhibit A: Revolving Credit Note
Exhibit B: Security Agreement
Exhibit C: Borrowing Base Report
Exhibit D: Compliance Certificate
Exhibit E: Assignment Agreement
Exhibit F: Subsidiary Guaranty
Exhibit G: Request for Advance/Designation
Exhibit H: Assignment of Pledged Documents
Exhibit I: Form of Subordination Agreement
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of December 31,
1999, among SUNTERRA CORPORATION (formerly known as Signature Resorts, Inc.), a
Maryland corporation (the "Borrower"), the Lenders from time to time party
--------
hereto, and BANK OF AMERICA, N.A., formerly NationsBank, N.A., a national
banking association, as Administrative Agent for the Lenders.
BACKGROUND
----------
The Lenders have been requested to provide the Borrower the funds required
to (a) refinance certain existing and future debt of the Borrower and its
Subsidiaries (as hereinafter defined), including, inter alia, the indebtedness
of the Borrower and its Subsidiaries outstanding to the Administrative Agent,
certain of the Lenders and certain other lenders pursuant to the terms of that
certain Credit Agreement, dated as of February 18, 1998, as amended, modified,
supplemented and restated from time to time (the "Existing Credit Agreement"),
-------------------------
(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.
"Adjusted Net Worth" means the sum of the following for the Borrower and
------------------
the Subsidiaries of the Borrower, on a consolidated basis, determined in
accordance with GAAP, (a) Net Worth
<PAGE>
minus (b) any write-up in the book value of assets resulting from revaluation
thereof subsequent to December 31, 1998.
"Administrative Agent" means Bank of America, N.A., formerly NationsBank,
--------------------
N.A., a national banking association, as administrative agent for the Lenders,
or such successor administrative agent appointed pursuant to Section 10.1(b)
---------------
hereof.
"Advance" means a Revolving Credit Advance and "Advances" means Revolving
------- --------
Credit 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.
"Aggregated Notes Receivable" means, collectively, all notes receivable
---------------------------
generated by the Borrower and/or any of the Subsidiaries of the Borrower,
regardless of whether the Borrower or any Subsidiary of the Borrower owns such
note receivable, or any interest therein, as of the relevant date (but excluding
any such note(s) receivable that are not owned, in whole or in part, by the
Borrower or any Subsidiary of the Borrower and as to which neither the Borrower
nor any Subsidiary of the Borrower has access to the information necessary to
make the relevant calculations provided for herein).
"Agreement" means this Amended and Restated 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 California, "Applicable Law" shall
--------------
mean the laws of the United States of America, including without limitation 12
USC (S)(S) 85 and 86(a), as amended from time to time, and any other statute of
the United States of America now or at any time hereafter prescribing the
maximum rates of interest on loans and extensions of credit, and the laws of the
State of California.
-2-
<PAGE>
"Applicable LIBOR Margin" means the following per annum percentages,
-----------------------
applicable in the following situations:
Period of Applicability Percentage
----------------------- ----------
(a) Agreement Date until, but not including, December
31, 1999 2.00%
(b) December 31, 1999 and thereafter
(1) If the Total Debt to Total Capital Ratio is less 1.50%
than or equal to 0.50 to 1
(2) If the Total Debt to Total Capital Ratio is 1.75%
greater than 0.50 to 1 but less than or equal to
0.65 to 1
(3) If the Total Debt to Total Capital Ratio is 2.00%
greater than 0.65 to 1
The Applicable LIBOR 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 quarterly basis according to the
performance of the Borrower as tested by using the Total Debt to Total Capital
Ratio calculated as of the end of each fiscal quarter ending on or after
December 31, 1999. Each adjustment in the LIBOR Basis shall (i) be determined by
the Administrative Agent in a timely manner based upon the financial statements
required to be delivered pursuant to Section 6.3 or 6.4 hereof, as applicable,
----------- ---
for each such fiscal quarter, and the corresponding Compliance Certificate
required pursuant to Section 6.5 hereof; provided, however, that if such
----------- -----------------
financial statements and Compliance Certificate are not received by the
Administrative Agent by the date required, the Applicable LIBOR Margin shall be
determined as if the Total Debt to Total Capital Ratio is greater than 0.65 to 1
until one Business Day after such financial statements and Compliance
Certificate are received (at which time the LIBOR Basis shall be adjusted,
effective prospectively as of such date, to reflect any decrease in the
Applicable LIBOR Margin, pursuant to the foregoing table, based upon such
financial statements and Compliance Certificate), and (ii) except as set forth
in clause (i) above with respect to the recalculation of the LIBOR Basis, on a
prospective basis following the delinquent receipt of financial statements and
Compliance Certificates, as to all LIBOR Advances, be effective retroactively as
of the last calendar day of the fiscal quarter covered by such financial
statements.
"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.
-------------------- ------------
-3-
<PAGE>
"Assignment of Pledged Documents" means an Assignment of Pledged Documents,
-------------------------------
in substantially the form of Exhibit H hereto, pursuant to which the Borrower
---------
and each Restricted Subsidiary transfers and assigns to the Administrative Agent
(for the benefit of the Lenders), all of the right, title and interest of the
Borrower and each Restricted Subsidiary in and to each Note Receivable and the
other Pledged Documents with respect to each such Note Receivable, free and
clear of all Liens, as security for the Obligations.
"Authorized Signatory" means such senior personnel of the Borrower as may
--------------------
be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower, and to request
Advances and Letters of Credit hereunder.
"Average Quarterly Charge-Off Rate" means the ratio (expressed as a
---------------------------------
percentage), calculated as of the last day of each calendar quarter, of (i) the
aggregate outstanding principal balance of the Aggregated Notes Receivable that
have been charged-off during the twelve consecutive calendar months ending on
the effective date of calculation (net of any recoveries with respect thereto
during such period), to (ii) the average monthly aggregate outstanding principal
balance of all of the Aggregated Notes Receivable during the twelve consecutive
calendar months ending on the effective date of such calculation (determined by
averaging the aggregate outstanding principal balances of all of the Aggregated
Notes Receivable as of the beginning and as of the end of each such calendar
month during such period and then averaging such average monthly aggregate
outstanding principal balances for the twelve calendar months included in such
period).
"Average Quarterly Default Rate" means the ratio (expressed as a
------------------------------
percentage), calculated on a quarterly basis as of the last day of each calendar
quarter with respect to the calendar quarter ending on the date of calculation,
of (i) the aggregate outstanding principal balance, as of the effective date of
such calculation, of the Aggregated Notes Receivable with respect to which any
scheduled payment is 180 or more days past due, to (ii) the aggregate
outstanding principal balance of all of the Aggregated Notes Receivable as of
the effective date of such calculation.
"Average Quarterly Delinquency Rate" means the ratio (expressed as a
----------------------------------
percentage), calculated on a quarterly basis as of the last day of each calendar
quarter with respect to the calendar quarter ending on the date of calculation,
of (i) the aggregate outstanding principal balance, as of the effective date of
such calculation, of the Aggregated Notes Receivable with respect to which any
scheduled payment is more than sixty (60) days past due but less than 180 days
past due, to (ii) the aggregate outstanding principal balance of all of the
Aggregated Notes Receivable as of the effective date of such calculation.
"Bank of America" means Bank of America, N.A., formerly NationsBank, N.A.,
---------------
a national banking association, in its capacity as a Lender hereunder, but not
in its capacity as Administrative Agent hereunder.
"Borrower" has the meaning specified in the introductory provision hereof.
--------
"Borrowing Base" means, the following amounts (determined in each case as
--------------
of the date of the applicable Borrowing Base calculation), during the following
periods of time and under the following circumstances:
-4-
<PAGE>
(a) during the period of time from the Agreement Date through, and
including, May 31, 2000, the Borrowing Base shall be an amount equal to the sum
of the following, without duplication: (i) 85% of the aggregate unpaid principal
balance of Premier Receivables, plus (ii) 75% of the aggregate unpaid principal
balance of Standard Receivables, plus (iii) 65% of the aggregate unpaid
principal balance of Non-Standard Receivables, plus (iv) 65% of the aggregate
unpaid principal balance of Right-To-Use Receivables, plus (v) 65% of the
aggregate unpaid principal balance of Leasehold Receivables; and
(b) after May 31, 2000, the Borrowing Base shall be an amount equal to the
sum of the following, without duplication: (i) 85% of the aggregate unpaid
principal balance of Premier Receivables, plus (ii) 75% of the aggregate unpaid
principal balance of Standard Receivables, plus (iii) 65% of the aggregate
unpaid principal balance of Non-Standard Receivables.
Notwithstanding the foregoing, (i) no more than ten percent (10%) of the
Borrowing Base shall be attributable, at any time, to Right-To-Use Receivables
and Leasehold Receivables, collectively, (ii) no more than fifty percent (50%)
of the Borrowing Base shall be attributable, at any time, to Non-Standard
Receivables, (iii) no more than twenty percent (20%) of the Borrowing Base shall
be attributable, at any time, to Eligible Notes Receivable as to which the
Purchasers are not residents of the United States, Puerto Rico, the United
States Virgin Islands or Canada, (iv) no more than fifteen percent (15%) of the
Borrowing Base shall be attributable, at any time, to Eligible Notes Receivable
having a term of greater than 121 months, (v) no Non-Standard Receivable shall
be included in the calculation of the Borrowing Base to the extent that such
Non-Standard Receivable (x) was originally executed by the applicable Purchaser,
or otherwise arose or was created, prior to June 1, 1999 and (y) was previously
included in the calculation of the Borrowing Base at any time more than one year
prior to the date of calculation of the then-current Borrowing Base, and (vi)
no Non-Standard Receivable shall be included in the calculation of the Borrowing
Base to the extent that (x) such Non-Standard Receivable was originally executed
by the applicable Purchaser, or otherwise arose or was created, on or after June
1, 1999 and (y) more than nine months has elapsed since the date that such Non-
Standard Receivable was originally executed by the applicable Purchaser, or such
Non-Standard Receivable otherwise arose or was created.
"Borrowing Base Report" means a report, signed by an Authorized Signatory,
---------------------
in substantially the form of Exhibit C, appropriately completed.
---------
"Business Day" means a day on which commercial banks are open (a) for the
------------
transaction of business in Los Angeles, California and in Charlotte, North
Carolina, 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 Subsidiaries of the Borrower 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
-5-
<PAGE>
however, that the term "Capital Expenditures" shall not include (i) Investments
permitted hereunder, (ii) Acquisitions permitted hereunder, (iii) expenditures
made by the Borrower or the Subsidiaries of the Borrower 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, or (iv) expenditures of up to $20,000,000, made by the
Borrower to acquire or construct the Borrower's planned new corporate
headquarters in Orlando, Florida.
"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 Subsidiary of the Borrower as lessee under a lease which at the
time are recorded as capitalized lease obligations on the balance sheet of the
Borrower or such Subsidiary of the Borrower prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and each
-------------------------
Subsidiary of the Borrower (a) cash (which, after the occurrence of an Event of
Default, shall exclude any cash proceeds of Accounts), (b) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (c) certificates of deposit and Eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (d) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (b) and (c) entered into with any financial institution
meeting the qualifications specified in clause (c) above, (e) commercial paper
issued by any Lender or the parent corporation of any Lender, and commercial
paper rated A-1 or the equivalent thereof by Standard & Poor's Ratings Group, a
Division of McGraw-Hill, Inc., a New York corporation, or P-1 or the equivalent
thereof by Moody's Investors Service, Inc., and 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
-6-
<PAGE>
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 Agent 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" means $60,000,000, 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 D, appropriately completed.
---------
"Control" or "Controlled By" or "Under Common Control" means possession,
------- ------------- --------------------
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided, however, that in any event any Person which beneficially
owns, directly or indirectly, 10% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any Person not an
----------------
individual, all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) which are under common control with
such Person and which, together with such Person, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code; provided, however,
that the Subsidiaries of the Borrower shall be deemed to be members of the
Borrower's Controlled Group.
"Custodial Agreement" means 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 Agent and the Custodian(s), 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 Agent.
-7-
<PAGE>
"Custodian" means LaSalle National Bank and/or such other or additional
---------
Person(s) as may be designated from time to time by the Administrative Agent,
following notice thereof to the Borrower, to maintain physical possession of the
Pledged Documents, or any portion(s) thereof.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
------------------
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from time to time
in effect.
"Deed of Trust" means any deed of trust or mortgage executed and delivered
-------------
by a Purchaser, encumbering all the right, title and interest of each such
Purchaser in and to its purchased Time-Share Interest as security for the
Purchaser's obligations under any Note Receivable.
"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 Reference Rate Advances the lesser of (i) the Highest Lawful Rate or
(ii) the Reference Rate plus 3.00% or (b) with respect to LIBOR Advances, the
lesser of (i) the Highest Lawful Rate or (ii) the LIBOR Basis plus 3.00%.
"Determining Lenders" means, on any date of determination, any combination
-------------------
of the Lenders having more than 50% of the aggregate amount of the Advances 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 Subsidiaries of the Borrower, 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; provided, however, that, for purposes hereof, gains or losses from the
sale of notes receivable shall not be considered to be extraordinary), plus
-8-
<PAGE>
(b) interest expense, plus (c) capitalized interest included in costs of goods
sold, plus (d) non-recurring charges incurred as a result of business
combinations utilizing the pooling accounting method to the extent that such
charges would be permitted to be capitalized utilizing the purchase accounting
method.
"EBITDA" means, for any period, determined in accordance with GAAP on a
------
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) depreciation, amortization and other non-cash charges (to the extent
included in determining EBIT).
"Eligible Notes Receivable" means at the time of any determination thereof,
-------------------------
the Notes Receivable of the Borrower and the Restricted Subsidiaries 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 are subject to a first priority security
interest in favor of the Administrative Agent pursuant to the Collateral
Documents, prior to the rights of, and enforceable against, all other Persons,
the original, executed counterpart of such Note Receivable has been delivered to
the applicable Custodian with respect thereto and the applicable Custodian with
respect thereto has delivered to the Administrative Agent a trust receipt, or
other written document, in form and substance acceptable to the Administrative
Agent, evidencing the possession by the Custodian, for the benefit of the
Administrative Agent, of such Note Receivable and the delivery or satisfaction
of all other applicable documentation and other requirements set forth with
respect to such Note Receivable in the Custodial Agreement applicable thereto;
(c) The Note Receivable shall not have a term of greater than one-hundred
eighty one (181) months and the Note Receivable shall be payable in equal
monthly payments in amounts sufficient to repay in full the principal balance
thereof and accrued interest thereon during such term;
(d) The Purchaser in respect of such Note Receivable 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 (provided, however, that
with respect to any Note Receivable attributable to an upgrade of a Time-Share
Interest on the part of the applicable Purchaser, such minimum cash down payment
may consist, in whole or in part, of cash payments theretofore made by such
Purchaser on the prior Note Receivable(s) of such Purchaser that are being
replaced thereby), 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;
(e) No installment of such Note Receivable is more than sixty (60) days
past due;
-9-
<PAGE>
(f) 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 has been issued with respect thereto by
the applicable Tribunal, or, if no certificate of occupancy is required under
Applicable Law for the occupancy of such Unit, such Unit has been completed and
is available for occupancy in accordance with the requirements of Applicable Law
at the time of the execution of the applicable Purchase Documents with respect
to such Note Receivable;
(g) The Purchaser in respect of such Note Receivable 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 nor is the
Purchaser directly or indirectly involved in any Litigation in which the
interests of such Purchaser are adverse, or are potentially adverse, to the
interests of the Borrower or any of the Borrower's Subsidiaries or the interests
or rights hereunder of the Administrative Agent and/or any of the Lenders;
(h) 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;
(i) The Purchaser in respect of such Note Receivable has no right to
rescind the purchase of the Time-Share Interest and such purchase is otherwise
currently effective pursuant to the terms of the applicable Purchase Documents
and otherwise under applicable law;
(j) All sales and financing documents relating to such Note Receivable have
been executed by the Purchaser and any and all other necessary or appropriate
party(ies) and have not been modified from the standard forms of such documents
theretofore approved by legal counsel for the Borrower or the applicable
Restricted Subsidiary in the jurisdiction in which the applicable Unit is
located;
(k) The terms of such Note Receivable and all related instruments comply
with all Laws;
(l) 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 Agent), 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 Agent) 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;
(m) Payments under the Note Receivable are to be in legal tender of the
United States;
-10-
<PAGE>
(n) The Note Receivable and the other Purchase Documents are valid, genuine
and enforceable against the Purchaser;
(o) 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;
(p) 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;
(q) 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; and
(r) The Borrower or the applicable Restricted Subsidiary, as applicable,
has performed all of its obligations to the Purchaser 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.
"Equity" means shares of capital stock or partnership, profits, capital or
------
member interest, or options, warrants or any other right to subscribe for or
otherwise acquire capital stock or a partnership, profits, capital or member
interest, of the Borrower or any Subsidiary of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any regulation promulgated thereunder.
"ERISA Event" means, with respect to the Borrower and its Subsidiaries, (a)
-----------
a Reportable Event (other than a Reportable Event not subject to the provision
for 30-day notice to the PBGC pursuant to regulations issued under Section 4043
of ERISA), (b) the withdrawal of any such Person or any member of its Controlled
Group from a Plan subject to Title IV of ERISA during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate under Section 4041(c) of ERISA, (d)
the institution of proceedings to terminate a Plan by the PBGC, (e) the failure
to make required contributions which could result in the imposition of a lien
under Section 412 of the Code or Section 302 of ERISA, or (f) any other event or
condition which might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or the imposition of any 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.
-11-
<PAGE>
"Existing Credit Agreement" has the meaning specified in the Background
-------------------------
provision hereof.
"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 Los Angeles, California 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 Agent from three Federal funds brokers of recognized standing
selected by it.
"Fee Letter" has the meaning specified in Section 2.4(b) hereof.
---------- --------------
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
------------------
organized under the laws of any state of the United States of America, the
District of Columbia or the United States Virgin Islands.
"GAAP" means generally accepted accounting principles applied on a
----
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants, or their successors
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis shall mean
that the accounting principles applied in a current period are comparable in all
material respects to those applied in a preceding period.
"Guarantor" means each direct and indirect Restricted Domestic Subsidiary
---------
of the Borrower and each direct and indirect Restricted Foreign Subsidiary of
the Borrower which has executed a Subsidiary Guaranty.
"Guaranty" or "Guaranteed", means (a) as applied to an obligation of
-------- ----------
another Person, (i) a guaranty, direct or indirect, in any manner, of any part
or all of such obligation, and (ii) an 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
-12-
<PAGE>
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.
"Indebtedness" means, with respect to any Person, without duplication, (a)
------------
all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations under conditional
sale or other title retention agreements relating to property or assets
purchased by such Person, (d) all obligations issued or assumed as the deferred
purchase price of property or services, (e) all obligations secured by any Lien
on any property or asset owned by such Person (other than accounts payable
arising in the ordinary course of business), whether or not the obligation
secured thereby shall have been assumed (provided that, unless such obligations
shall have been assumed, for purposes of this definition the amount of such
Indebtedness at any time shall be deemed to equal the fair market value of such
property or asset at such time), (f) the principal portion of all obligations of
such Person under any synthetic lease, tax retention operating lease, off-
balance sheet loan or similar off-balance sheet financing product where such
transaction is considered borrowed money indebtedness for tax purposes but is
classified as an Operating Lease in accordance with GAAP, (g) to the extent not
otherwise included, all Capitalized Lease Obligations of such Person, all
obligations of any general partnership, joint venture or other Person to the
extent that the Person in question is liable, whether contractually, as a matter
of applicable law or otherwise, for such obligations, all obligations in respect
of letters of credit, bankers' acceptances and similar instruments, all
obligations under Hedge Agreements, and all obligations in respect of payment,
performance and similar bonds, (h) the Net Exposure Under Securitizations, (i)
an amount equal 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.
----------- --------------
"Interest Coverage Ratio" means the ratio of EBITDA to Interest Expense,
-----------------------
calculated for the four consecutive fiscal quarters ending on the date of
calculation.
-13-
<PAGE>
"Interest Differential" means an amount, if any, as of the date of any
---------------------
prepayment of a LIBOR Advance by which (a) the amount of interest that would
have accrued on such LIBOR Advance for the remainder of the applicable Interest
Period exceeds (b) the amount of interest that would have accrued on such LIBOR
Advance for the period from the date of prepayment of such LIBOR Advance to the
last day of the applicable Interest Period for such LIBOR Advance if the LIBOR
applicable to such LIBOR Advance (the "Applicable Rate") were determined two (2)
---------------
Business Days prior to the date of prepayment of such LIBOR Advance. The period
commencing on the date of such prepayment and ending on the last day of the
applicable Interest Period shall be deemed to be the "Interest Period" for
determination of such Applicable Rate. The calculation of the Interest
Differential by the Administrative Agent shall be conclusive in the absence of
manifest or demonstrable error.
"Interest Expense" means, collectively but without duplication, for any
----------------
period, determined in accordance with GAAP on a consolidated basis for the
Borrower and the Subsidiaries of the Borrower, (i) interest expense, as
presented on the Borrower's and its Subsidiaries' income statement, including
accrued but unpaid interest and interest expense pursuant to Capitalized Lease
Obligations, plus (ii) capitalized interest to the extent that such capitalized
interest reduces interest expense as presented on the Borrower's and its
Subsidiaries' income statement.
"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 Bank of America, N.A., formerly NationsBank, N.A., a
------------
national banking association, in its capacity as issuer of the Letters of
Credit.
-14-
<PAGE>
"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.
"Law" means any statute, law, ordinance, regulation, rule, order, writ,
---
injunction, or decree of any Tribunal.
"Leasehold Receivables" means at the time of any determination thereof, the
---------------------
Eligible Notes Receivable of AKGI-St. Maarten N.V. 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 such Eligible Note Receivable:
(a) The Eligible Note Receivable is evidenced by a promissory note payable
to AKGI-St. Maarten N.V., the transaction from which such Eligible Note
Receivable arose is recognized on the books of AKGI-St. Maarten N.V. as a bona
fide lease that entitles the Purchaser thereunder to the utilization of a Unit
or Units for intermittent periods of time on a recurring basis, such lease
transaction is evidenced by Purchase Documents and the Eligible Note Receivable
is secured by a first priority security interest covering the property, rights
and interests of the Purchaser under such lease and the other Purchase Documents
in connection therewith. For purposes of this definition, the reference to a
"security interest" securing an Eligible Note Receivable shall include a valid,
binding and enforceable contractual right on the part of AKGI-St. Maarten N.V.
to terminate the Purchaser's occupancy rights under the applicable Purchase
Documents upon the failure of the Purchaser to make the required payments under
the respective Eligible Note Receivable; and
(b) The Project containing the Unit subject to such Eligible Note
Receivable is located in St. Maarten, Netherlands Antilles.
"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
Agent in its individual capacity), each Assignee that hereafter becomes a party
hereto pursuant to Section 11.6 hereof, subject to the limitations set forth
------------
therein.
"Letter of Credit" has the meaning specified in Section 2.15(a) hereof.
---------------- ---------------
"Letter of Credit Agreement" has the meaning specified in Section 2.15(b)
-------------------------- ---------------
hereof.
"Letter of Credit Facility" has the meaning specified in Section 2.15(a)
------------------------- ---------------
hereof.
"LIBOR" 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"
-----
-15-
<PAGE>
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.
"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 plus the Applicable
LIBOR 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.
"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 Agent.
"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 Agent
Fee Letter, any Hedge Agreements entered into with any Lender, the Assignments
of Pledged Documents, and any other document or agreement executed or delivered
from time to time by the Borrower, any Subsidiary of the Borrower or any other
Person in connection herewith or as security for the Obligations.
"Material Adverse Effect" means any act or circumstance or event that (a)
-----------------------
could reasonably be expected to be material and adverse to the business
condition (financial or otherwise), operations, properties, business prospects
or ability to repay the Obligations in accordance with the terms of the Loan
Documents 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.
-16-
<PAGE>
"Maturity Date" means December31, 2002, 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.
"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
Subsidiary of the Borrower 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 Subsidiary and (ii) the fair market value
of any and all property of the Borrower or of any Subsidiary of the Borrower
that is pledged or encumbered, or as to which the interest(s) of the Borrower or
any such 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 its
---------
Subsidiaries, on a consolidated basis, determined in accordance with GAAP, the
consolidated total stockholders' equity of the Borrower and its Subsidiaries.
-17-
<PAGE>
"Non-Standard Receivables" means at the time of any determination thereof,
------------------------
the Eligible Notes Receivable of the Borrower and the Restricted Subsidiaries
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 such Eligible Note
Receivable:
(a) The Eligible Note Receivable is evidenced by a promissory note payable
to the Borrower or to the applicable Restricted Subsidiary, the transaction from
which such Eligible Note Receivable arose 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, such sale
is evidenced by Purchase Documents and such Eligible Note Receivable is secured
by a first priority Deed of Trust covering the purchased interest in the
applicable Unit(s); and
(b) The Project containing the Unit subject to such Eligible 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.
"Note Receivable" means a promissory note, or other written agreement
---------------
containing a legally binding obligation on the part of a Purchaser to pay a sum
certain, executed and delivered by a Purchaser in favor of the Borrower or a
Restricted Subsidiary and as to which there exist no unsatisfied conditions
precedent to the validity and enforceability thereof under the terms of the
applicable Purchase Documents, at law or otherwise.
"Notes" means, collectively, the Revolving Credit Notes.
-----
"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 Agent 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 its Subsidiaries.
"Participant" has the meaning specified in Section 11.6(c) hereof.
----------- ---------------
"Participation" has the meaning specified in Section 11.6(c) hereof.
------------- ---------------
-18-
<PAGE>
"Payment Date" means the first Business Day of each calendar month.
------------
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
---------------
(a) Any Lien in favor of the Lenders to secure the Obligations hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet delinquent, and
(ii) Liens for taxes, assessments, governmental charges, levies, homeowners'
association dues or other claims that are not yet delinquent or that are being
diligently contested in good faith by appropriate proceedings in accordance with
Section 5.6 hereof and for which adequate reserves shall have been set aside on
- -----------
such Person's books, but only so long as no foreclosure, restraint, sale or
similar proceedings have been commenced with respect thereto;
(c) Liens of carriers, landlords, warehousemen, mechanics, laborers and
materialmen incurred in the ordinary course of business for sums not yet due or
being contested in good faith, if such reserve or appropriate provision, if any,
as shall be required by GAAP shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;
(e) Easements, right-of-way, restrictions and other similar encumbrances on
the use of real property which do not interfere in any material respect with the
ordinary conduct of the business of such Person;
(f) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (i) such Person shall have established adequate reserves for such
judgments or awards, (ii) such judgments or awards shall be fully insured
(subject to customary deductibles) and the insurer shall not have denied
coverage, or (iii) such judgments or awards shall have been bonded to the
satisfaction of the Determining Lenders;
(g) Any Liens which secure Indebtedness that is permitted by Section 7.1
-----------
(b) hereof; provided, however, that (i) none of such Liens shall cover or apply
- ---
to any of the Collateral, (ii) the fair market value of the property covered by
any such Lien shall not, at the time of the grant or creation of such Lien,
exceed, in the case of property other than notes receivable or accounts
receivable, 200% of the principal amount of the Indebtedness secured by such
Lien and (iii) none of such Liens shall secure any Subordinated Debt;
(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;
-19-
<PAGE>
(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 Eligible Notes Receivable, the
-----------------
Deeds of Trust and the Purchase Documents.
"Premier Receivables" means at the time of any determination thereof, the
-------------------
Eligible Notes Receivable of the Borrower and the Restricted Subsidiaries 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 such Eligible Note
Receivable:
(a) The Eligible Note Receivable is evidenced by a promissory note payable
to the Borrower or to the applicable Restricted Subsidiary, the transaction from
which such Eligible Note Receivable arose 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, such sale
is evidenced by Purchase Documents and such Eligible Note Receivable is secured
by a first priority Deed of Trust covering the purchased interest in the
applicable Unit(s), which Deed of Trust has been assigned of record by the
Borrower or the applicable Restricted Subsidiary to the Administrative Agent;
(b) The Deed of Trust securing such Eligible Note Receivable is insured
under a mortgagee title insurance policy in favor of the Borrower or the
applicable Restricted Subsidiary, as applicable (with applicable endorsement(s)
thereto in favor of the Administrative Agent, as assignee of the Borrower or the
applicable Restricted Subsidiary, as applicable), and such title insurance
policy and such endorsements (i) are in form and substance acceptable to the
Administrative Agent, subject only to those exceptions to title as the
Administrative Agent has approved, and (ii) have been delivered to the
Custodian with respect to such Eligible Note Receivable;
-20-
<PAGE>
(c) The original recorded counterparts of the following documents
(evidencing recordation thereof in the appropriate real property records of the
relevant jurisdictions(s) in which the applicable Project containing the Unit
subject to such Eligible Note Receivable is located) have been delivered to the
applicable Custodian with respect to such Eligible Note Receivable: (i) the Deed
of Trust securing such Eligible Note Receivable, and (ii) the collateral
assignment of such Deed of Trust to the Administrative Agent;
(d) The Project containing the Unit subject to such Eligible 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; and
(e) The Purchaser in respect of such Eligible Note Receivable shall have
timely made at least the first regularly scheduled installment payment due
thereon.
"Pretax Net Income" means net profit (or loss) before taxes of the Borrower
-----------------
and the Subsidiaries of the Borrower, on a consolidated basis, determined in
accordance with GAAP.
"Projects" means those time-share residential real estate projects in which
--------
the Borrower or any of its Subsidiaries sells Time-Share Interests and as to
which any of the Notes Receivable generated therefrom constitute Collateral
hereunder.
"Purchase Documents" means any purchase agreement, lease 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 calendar day of each March, June, September
--------------
and December, beginning December 31, 1999.
"Reference Rate Advance" means any Advance bearing interest at the
----------------------
Reference Rate.
"Reference Rate" 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 or reference rate of the Administrative Agent, which prime or
reference rate is the floating commercial rate of the Administrative Agent, as
announced from time to time by the Administrative Agent as its "prime rate" or
"reference rate," as the case may be, set by the Administrative Agent based
upon various factors, including the Administrative Agent's costs and desired
return, general economic conditions and other factors, and used as a reference
point for pricing some loans, which may be priced at, above or below such
announced rate, provided that any change in the Reference Rate announced by the
Administrative Agent shall take effect at the opening of business on the day
specified in the public announcement of such change.
-21-
<PAGE>
"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.
----------------
"Request for Advance/Designation" has the meaning specified in Section
------------------------------- -------
2.2(a) hereof.
- ------
"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 Agent 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
Agent, for the benefit of the Lenders, pursuant to documentation acceptable to
the Administrative Agent and (ii) as to which the Lenders have received such
board resolutions, officer's certificates and opinions of counsel as the
Administrative Agent 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.
------
-22-
<PAGE>
"Right-To-Use Receivables" means at the time of any determination thereof,
------------------------
the Eligible Notes Receivable of Sunterra Pacific, Inc. (i) which are reasonably
acceptable to the Determining Lenders in their discretion for the purposes of
determining the Borrowing Base, (ii) which are evidenced by Purchase Documents,
(iii) as to which the transaction from which such Eligible Note Receivable arose
is recognized on the books of Sunterra Pacific, Inc. as a bona fide sale of
points or other contractual rights that entitles the Purchaser with respect
thereto to the utilization of Units for intermittent periods of time on a
recurring basis, and (iv) which are secured by a first priority security
interest covering the property, rights and interests of the Purchaser under such
Purchase Documents. For purposes of this definition, the reference to a
"security interest" securing an Eligible Note Receivable shall include a valid,
binding and enforceable contractual right on the part of Sunterra Pacific, Inc.
to terminate the Purchaser's occupancy rights under the applicable Purchase
Documents upon the failure of the Purchaser to make the required payments under
the respective Eligible Note Receivable.
"Security Agreement" means any Collateral Transfer of Notes and Liens
------------------
(Security Agreement), substantially in the form of Exhibit B 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 Agent.
"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 Agent.
"Servicing and Collection Agreement" means, collectively, the contract(s)
----------------------------------
and agreement(s), in form and substance reasonably acceptable to the
Administrative Agent, among the Borrower, each Restricted Subsidiary that owns
any of the Notes Receivable included in the Borrowing Base and the Servicing
Agent, as from time to time modified, replaced or restated, relating to the
servicing and/or collection of the Eligible Notes Receivable included, from time
to time, in the calculation of the Borrowing Base.
"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
-23-
<PAGE>
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 liabilties 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 Agent 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
the most recent Assignment Agreement applicable to such Lender.
"Standard Receivables" means at the time of any determination thereof, the
--------------------
Eligible Notes Receivable of the Borrower and the Restricted Subsidiaries 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 such Eligible Note
Receivable:
(a) The Eligible Note Receivable is evidenced by a promissory note payable
to the Borrower or to the applicable Restricted Subsidiary, the transaction from
which such Eligible Note Receivable arose 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, such sale
is evidenced by Purchase Documents and such Eligible Note Receivable is secured
by a first priority Deed of Trust covering the purchased interest in the
applicable Unit(s), which Deed of Trust has been assigned of record by the
Borrower or the applicable Restricted Subsidiary to the Administrative Agent;
(b) Within 90 days after the execution of the Eligible Note Receivable by
the Purchaser with respect thereto, the Deed of Trust securing such Eligible
Note Receivable is insured under a mortgagee title insurance policy in favor of
the Borrower or the applicable Restricted Subsidiary, as applicable (with
applicable endorsement(s) thereto in favor of the Administrative Agent, as
assignee of the Borrower or the applicable Restricted Subsidiary, as
applicable), with such title insurance policy and such endorsements to be in
form and substance acceptable to the Administrative Agent, to be subject only to
those exceptions to title as the Administrative Agent approves and to be
delivered, within such 90-day period, to the Custodian with respect to such
Eligible Note Receivable;
(c) Within 180 days after the execution of the Eligible Note Receivable by
the Purchaser with respect thereto, the original recorded counterparts of the
following documents (evidencing recordation thereof in the appropriate real
property records of the relevant jurisdictions(s) in which the applicable
Project containing the Unit subject to such Eligible Note Receivable is located)
have
-24-
<PAGE>
been delivered to the Custodian: (i) the Deed of Trust securing such Eligible
Note Receivable, and (ii) the collateral assignment of such Deed of Trust to the
Administrative Agent; and
(d) The Project containing the Unit subject to such Eligible 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.
"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 Agent and the
Determining Lenders, with only such changes or amendments as are not prohibited
by Section 7.22 hereof.
------------
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, trust or estate or other Person of which (or in which) more than 50%
of:
(a) the outstanding capital stock having voting power to elect a majority
of the Board of Directors of such corporation (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingency),
(b) the interest in the capital or profits of such partnership or joint
venture,
(c) the beneficial interest of such trust or estate, or
(d) the equity interest of such other Person,
is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's Subsidiaries;
provided, however, that (i) no Person shall be deemed to be a Subsidiary of the
Borrower solely by virtue of the fact that certain shares of the stock of such
Person have been pledged to the Borrower and (ii) the Securitization Subsidiary
shall not be deemed to be a Subsidiary for purposes of this Agreement.
"Subsidiary Guaranty" means a guaranty, substantially in the form of
-------------------
Exhibit F hereto, executed and delivered by each Guarantor, as such
- ---------
guaranty(ies) may be amended, supplemented, modified, renewed or otherwise
restated from time to time.
"Taxes" has the meaning specified in Section 2.14 hereof.
----- ------------
"Time-Share Interest" means the property, rights and interests acquired by
-------------------
a Purchaser in connection with a Standard Receivable, a Non-Standard Receivable,
a Leasehold Receivable or a Right-To-Use Receivable and which entitles such
Purchaser to utilize a specific Unit, or a type or class of Unit, for a
specified period of time on a recurring basis.
-25-
<PAGE>
"Total Capital" means, as of any date of determination, the sum of (a)
-------------
Total Debt plus (b) Adjusted Net Worth.
"Total Debt" means, as of any date of determination, determined for the
----------
Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP,
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; provided, however, that the
outstanding balance with respect to the Borrower's 1998-A on-balance sheet
securitization, in the original amount of $100,300,000, (and having an
outstanding balance of $87,600,000 as of December 31, 1998), shall not be
included as Total Debt hereunder.
"Total Debt to Total Capital Ratio" means the ratio of Total Debt to Total
---------------------------------
Capital, calculated at the end of each fiscal quarter.
"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 California, 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 Fee" has the meaning specified in Section 2.4(a) hereof.
---------- --------------
"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
-26-
<PAGE>
otherwise defined herein shall be construed in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, unless otherwise
expressly stated herein.
ARTICLE 2
Advances
--------
Section 2.1 The Advances.
------------
(a) Revolving Credit Advances. Each Lender severally agrees, upon the
-------------------------
terms and subject to the conditions of this Agreement, to make Revolving Credit
Advances to the Borrower from time to time until the Maturity Date in an
aggregate amount not to exceed its Specified Percentage of the Commitment less
its Specified Percentage of the aggregate amount of all Reimbursement
Obligations then outstanding (assuming compliance with all conditions to
drawing), for the purposes set forth in Section 5.8 hereof. Subject to Section
----------- -------
2.9 hereof, 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 (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 Reference Rate Advance or a LIBOR Advance; provided that
- -
there shall not be outstanding, at any one time, more than five LIBOR Advances.
Section 2.2 Manner of Borrowing and Disbursement.
------------------------------------
(a) In the case of Reference Rate Advances, the Borrower, through an
Authorized Signatory, shall give the Administrative Agent prior to 9:00 a.m.,
Los Angeles, California time, on the date of any proposed Reference Rate Advance
irrevocable written notice, in substantially the form of Exhibit G hereto (a
---------
"Request for Advance/Designation") of its intention to borrow a Reference Rate
- --------------------------------
Advance hereunder. Such Request for Advance/Designation shall specify the
requested funding date, which shall be a Business Day, and the amount of the
proposed aggregate Reference Rate Advances to be made by Lenders.
(b) In the case of LIBOR Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Agent at least three Business Days'
irrevocable written notice pursuant to a Request for Advance/Designation, of its
intention to borrow a LIBOR Advance hereunder. Notice shall be given to the
Administrative Agent prior to 9:00 a.m., Los Angeles, California 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 Request for Advance/Designation 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. Prior to
- ----------- ---
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<PAGE>
9:30 a.m., Los Angeles, California time, two Business Days' prior to
the date of the requested LIBOR Advance, the Administrative Agent shall
determine the LIBOR Basis with respect to such requested LIBOR Advance (which
determination shall be conclusive in the absence of manifest error), and the
Administrative Agent shall promptly give notice of same to the Borrower by
telephone (confirmed in writing), telecopier or telex.
(c) 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
Reference Rate Advances to LIBOR Advances and all or any part of the outstanding
LIBOR Advances to Reference 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 Reference 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 three Business Days prior to a proposed
conversion/continuation date, the Borrower, through an Authorized Signatory,
shall give the Administrative Agent irrevocable written notice stating (i) the
proposed conversion/continuation date (which shall be a Business Day), (ii) the
amount of the Advance to be converted/continued, (iii) in the case of a
conversion to, or a continuation of, a LIBOR Advance, the requested Interest
Period, and (iv) in the case of a conversion of a Reference 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(c), the Borrower shall be
--------------
deemed irrevocably to have requested that such LIBOR Advance be converted to a
Reference Rate Advance in the same principal amount. Notice shall be given to
the Administrative Agent prior to 9:00 a.m., Los Angeles, California time, in
order for such Business Day to count toward the minimum number of Business Days
required. Prior to 9:30 a.m., Los Angeles, California time, two Business Days'
prior to the date of the requested conversion/continuation of a LIBOR Advance,
the Administrative Agent shall determine the LIBOR Basis with respect to such
requested conversion/continuation of such LIBOR Advance (which determination
shall be conclusive in the absence of manifest error), and the Administrative
Agent shall promptly give notice of same to the Borrower by telephone (confirmed
in writing), telecopier or telex.
(d) The aggregate amount of Reference 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. The Borrower shall not request,
and, other than any Advances pursuant to Section 2.15(c) hereof, the Lenders
---------------
shall have no obligation to make, more than five (5) Advances to the Borrower
during any calendar month.
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<PAGE>
(e) As soon as practical following receipt by the Administrative Agent of a
Request for Advance /Designation with respect to a requested LIBOR Advance, the
Administrative Agent shall give written notice to each Lender stating (i) the
effective date of the requested LIBOR Advance, (ii) the amount of the requested
LIBOR Advance, and (iii) the applicable LIBOR Basis with respect to such
requested LIBOR Advance. Each Lender shall, not later than 12:00 noon, Los
Angeles, California time, on the date of any Advance, deliver to the
Administrative Agent, at its address set forth herein, such Lender's Specified
Percentage of such Advance in immediately available funds in accordance with the
Administrative Agent's instructions. All funds received by the Administrative
Agent from any Lender after 12:00 noon, Los Angeles, California time, on any
Business Day shall be deemed to have been received by the Administrative Agent
on the next succeeding Business Day. Upon receipt by the Administrative Agent of
the applicable funds from the Lenders, the Administrative Agent shall, subject
to satisfaction of the conditions set forth in Article 3, disburse the amounts
---------
made available to the Administrative Agent 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 Agent. All Advances shall be
made by each Lender according to its Specified Percentage.
Section 2.3 Interest.
--------
(a) On Reference Rate Advances.
--------------------------
(i) The Borrower shall pay interest on the outstanding unpaid
principal amount of the Reference Rate Advances outstanding from time to
time, until such Reference Rate Advances are due (whether at the Maturity
Date, by reason of acceleration, by scheduled reduction, or otherwise) and
repaid at a simple interest rate per annum equal to the Reference Rate for
the Reference Rate Advances as in effect from time to time. If at any time
the Reference Rate would exceed the Highest Lawful Rate, interest payable
on the Reference Rate Advances shall be limited to the Highest Lawful Rate,
but the Reference Rate shall not thereafter be reduced below the Highest
Lawful Rate until the total amount of interest accrued on the Reference
Rate Advances equals the amount of interest that would have accrued if the
Reference Rate had been in effect at all times.
(ii) Interest on the Reference Rate Advances shall be computed on the
basis of a 360-day year for the actual number of days elapsed, and shall be
payable monthly in arrears on each Payment Date and on the Maturity Date.
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<PAGE>
(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 Agent, 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 each Payment Date and on
the Maturity Date.
(c) 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 Agent 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
Agent 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, or (ii) 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) Unused Fee. Subject to Section 11.9 hereof, the Borrower agrees to pay
---------- ------------
to the Administrative Agent, for the ratable account of the Lenders, a fee (the
"Unused Fee") at the rate of 0.30% per annum on the daily average Unused Portion
----------
during the period commencing on the Agreement Date and ending on the Maturity
Date. The Unused 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 360-day year for the actual number of days elapsed.
(b) Other Fees. Subject to Section 11.9 hereof, the Borrower agrees to pay
---------- ------------
to the Administrative Agent, for the account of the Administrative Agent, the
fees on the dates and in the amounts specified in the letter agreement (the "Fee
---
Letter"), dated as of November 26, 1999, between the Borrower and the
- ------
Administrative Agent.
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<PAGE>
Section 2.5 Prepayments.
-----------
(a) Voluntary LIBOR Advance Prepayments. Upon three Business Days' prior
-----------------------------------
written notice by an Authorized Signatory to the Administrative Agent, 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 exceeds (x)
the Borrowing Base, minus (y) the aggregate amount of the Reimbursement
Obligations with respect to outstanding Letters of Credit, 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
Reference Rate Advances and shall thereafter prepay LIBOR Advances. To the
extent that any prepayment requires that a LIBOR Advance be repaid on a date
other than the last day of its Interest Period, the Borrower shall reimburse
each Lender in accordance with Section 2.9 hereof. To the extent that
-----------
outstanding Advances exceed the Commitment after any reduction thereof, the
Borrower shall repay any such excess amount and all accrued interest
attributable to such excess Advances on the date of such reduction.
(c) Payments, Generally. Any prepayment of any LIBOR Advance shall be
-------------------
accompanied by interest accrued on the principal amount being prepaid. Any
voluntary partial payment of a Reference 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 Reference 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.
-----------
Section 2.6 Reduction of Commitment.
-----------------------
(a) Voluntary Reduction. Subject to the limitations set forth herein, the
-------------------
Borrower shall have the right, upon not less than ten Business Days' prior
written notice by an Authorized Signatory to the Administrative Agent (with the
Administrative Agent to promptly notify the Lenders thereof), 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.
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<PAGE>
(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. The Borrower shall not be entitled to voluntarily
reduce the Commitment to an amount that is less than the aggregate amount of
Reimbursement Obligations with respect to Letters of Credit that are outstanding
at such time.
Section 2.7 Non-Receipt of Funds by the Administrative Agent. Unless
------------------------------------------------
the Administrative Agent 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 Agent 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 Agent, the Administrative Agent may assume that such
Lender has made such proceeds available to the Administrative Agent on such
date, and the Administrative Agent 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
Agent by such Lender, the Administrative Agent shall be entitled to recover such
amount on demand from such Lender (or, if such Lender fails to pay such amount
forthwith upon such demand, from the Borrower) together with interest thereon in
respect of each day during the period commencing on the date such amount was
available to the Borrower and ending on (but excluding) the date the
Administrative Agent 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 (including, but not
limited to, any Interest Differential) 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 5 Business Days after
demand by such Lender, an amount sufficient to compensate such Lender for all
such losses (including, but not limited to, any Interest Differential) and out-
of-pocket expenses, subject to Section 11.9 hereof.
------------
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<PAGE>
Such losses shall include, without limiting the generality of the foregoing,
reasonable expenses incurred by such Lender in connection with the re-employment
of funds prepaid, repaid, converted or not borrowed, converted or paid, as the
case may be. A certificate as to any amounts payable to any Lender under this
Section 2.9 submitted to the Borrower by such Lender shall certify that such
- -----------
amounts were actually incurred by such Lender and shall show in reasonable
detail an accounting of the amount payable and the calculations used to
determine in good faith such amount and shall be conclusive absent manifest or
demonstrable error. Nothing in this Section 2.9 shall provide the Borrower or
-----------
any Subsidiary of the Borrower the right to inspect the records, files or books
of any Lender.
Section 2.10 Manner of Payment.
-----------------
(a) Each payment (including prepayments) by the Borrower of the principal
of or interest on the Advances, fees, and any other amount owed under this
Agreement or any other Loan Document shall be made not later than 1:00 p.m., Los
Angeles, California time, on the date specified for payment under this Agreement
to the Administrative Agent at the Administrative Agent'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 Agent, the Administrative Agent shall apply such amounts in
the following order of priority: (i) to the payment of the Administrative
Agent'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 Agent for the
account of the Lenders pro rata in accordance with their respective Specified
Percentages.
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
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<PAGE>
and from time to time to designate a different office of itself or of any
Affiliate of such Lender as such Lender's LIBOR Lending Office, and to transfer
any outstanding LIBOR Advance to such LIBOR Lending Office. No such designation
or transfer shall result in any liability on the part of the Borrower for
increased costs or expenses resulting solely from such designation or transfer
(except any such transfer which is made by a Lender pursuant to Section 9.2 or
-----------
9.3 hereof, or otherwise for the purpose of complying with Applicable Law, to
- ---
the extent that Applicable Law, or any relevant construction or interpretation
thereof, changes after the Agreement Date). Increased costs for expenses
resulting from a change in law occurring subsequent to any such designation or
transfer shall be deemed not to result solely from such designation or transfer.
Section 2.12 Sharing of Payments. Any Lender obtaining a payment
-------------------
(whether voluntary or involuntary, due to the exercise of any right of set-off,
or otherwise) on account of its Advances or its participation in the Letters of
Credit (other than pursuant to Sections 2.4(b), 2.14, 2.15(d), 9.3 or 9.5) 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. The provisions of this Agreement
--------------------
relating to calculation of the LIBOR are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate, it being understood that each Lender shall be entitled to
fund and maintain its funding of all or any part of a LIBOR Advance as it sees
fit.
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<PAGE>
Section 2.14 Taxes.
-----
(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.10, free and clear of and without deduction for any
------------
and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, excluding, in the case
---------
of each Lender and the Administrative Agent, (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 Agent (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 Agent; (ii) taxes imposed by reason
of failure by the Lender or the Administrative Agent to comply with the
requirements of paragraph (e) of this Section 2.14; and (iii) in the case of any
------------
Lender, any Taxes in the nature of transfer, stamp, recording or documentary
taxes resulting from a transfer (other than as a result of foreclosure) by such
Lender of all or any portion of its interest in this Agreement, the Notes or any
other Loan Documents; (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
-----
If the Borrower shall be required by Law to deduct or withhold any Taxes from or
in respect of any sum payable hereunder to any Lender or the Administrative
Agent, (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 Agent (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 Agent
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 Agent (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
Agent, provided, however, that the Borrower shall have no obligation to
-------- -------
indemnify such Lender or the Administrative Agent unless and until such Lender
or the Administrative Agent 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
-35-
<PAGE>
incurred by such Lender or the Administrative Agent 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 Agent. This
indemnification shall be made upon written demand therefor by such Lender or the
Administrative Agent (as the case may be).
(d) As soon as practicable after the date of any payment of Taxes, the
Borrower will furnish to the Administrative Agent the original or a certified
copy of a receipt evidencing payment thereof. For purposes of this Section 2.14
------------
the terms "United States" and "United States Person" shall have the meanings set
------------- --------------------
forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees that:
(i) it shall, no later than the Agreement Date (or, in the case of a
Lender which becomes a party hereto pursuant to Section 11.6 after the
------------
Agreement Date, the date upon which such Lender becomes a party hereto) and
at such times as necessary in the reasonable determination of the Borrower,
deliver to the Borrower through the Administrative Agent, with a copy to
the Administrative Agent:
(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 Agent, with a copy to the
Administrative Agent, 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,
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<PAGE>
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 Agent with a
copy to the Administrative Agent, two (2) accurate and complete original
signed copies of Form 4224 or Form 1001 in replacement for the forms
previously delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrower to that
effect, deliver to the Borrower such other forms or similar documentation
as may be required from time to time by any applicable law, treaty, rule or
regulation in order to establish such Lender's tax status for withholding
purposes; and
(v) it shall notify the Borrower after any event (including an
amendment to, or a change in any applicable law or regulation or in the
written interpretation thereof by any regulatory authority or any judicial
authority, or by ruling applicable to such Lender of any governmental
authority charged with the interpretation or administration of any law)
shall occur that results in such Lender no longer being capable of
receiving payments under this Agreement without any deduction or
withholding of United States federal income tax.
(f) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.14 shall survive the payment in full of principal and interest
------------
hereunder.
(g) Each Lender (and the Administrative Agent with respect to payments to
the Administrative Agent 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 Agent 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 Agent 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
-37-
<PAGE>
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 Agent to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of the Commitment and the Rights of such Lender under the Loan
Documents without recourse to or warranty by, or expense to, such Lender, for a
purchase price equal to the outstanding amounts owed to such Lender (including
such additional amounts owing to such Lender pursuant to this Section 2.14).
------------
Upon execution of an Assignment Agreement, such other financial institution
shall be deemed to be a "Lender" for all purposes of this Agreement as set forth
in Section 11.6 hereof.
------------
Section 2.15 Letters of Credit.
-----------------
(a) The Letter of Credit Facility. The Borrower may request the Issuing
-----------------------------
Bank, on the terms and conditions hereinafter set forth, to issue, and the
Issuing Bank shall, if so requested, issue, letters of credit (the "Letters of
----------
Credit") for the account of the Borrower or any other Obligor from time to time
- ------
on any Business Day from the date of the initial Advance until the Maturity Date
in an aggregate maximum amount (assuming compliance with all conditions to
drawing) not to exceed, at any time outstanding, the lesser 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, or (iii) the Commitment. No Letter of Credit shall
have a term of less than three months, a term (including all rights of renewal)
of greater than one year, or an expiration date (including all rights of
renewal) later than the Maturity Date. 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 9:00 a.m., Los Angeles California time, on the
fourth Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower, through an Authorized Signatory, 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
-38-
<PAGE>
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, through an Authorized Signatory (a
"Notice of Issuance") shall be in writing, specifying therein, in the case of a
------------------
Letter of Credit, the requested (A) date of such issuance (which shall be a
Business Day), (B) maximum amount of such Letter of Credit, (C) expiration date
of such Letter of Credit, (D) name and address of the beneficiary of such Letter
of Credit, and (E) form of such Letter of Credit and specifying such other
information as shall be required pursuant to the relevant Letter of Credit
Agreement. If the requested terms of such Letter of Credit are acceptable to the
Issuing Bank in its reasonable discretion, the Issuing Bank will, upon
fulfillment of the applicable conditions set forth in Article 3 hereof, make
---------
such Letter of Credit available to the Borrower at its office referred to in
Section 11.1 or as otherwise agreed with the Borrower in connection with such
- ------------
issuance.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft
-------------------------
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of an Advance, which shall bear
interest at the Reference Rate, 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 9:00 a.m., Los Angeles, California time, on the first Business Day
after such drawing, the Issuing Bank shall promptly notify Administrative Agent
thereof and the Administrative Agent shall promptly notify each Lender thereof.
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 Agent), which shall bear interest at
the Reference Rate, 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 Agent for the account of the Issuing Bank, by deposit at the
Administrative Agent'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 Agent 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,
-39-
<PAGE>
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 5
---------------
Business Days after demand by the Issuing Bank or such Lender (which demand
shall be made not later than one year after the Issuing Bank or applicable
Lender receives notice of the relevant change), the Borrower shall, subject to
Section 11.9 hereof, pay to the Issuing Bank or such Lender, from time to time
- ------------
as specified by the Issuing Bank or such Lender, additional amounts that shall
be sufficient to compensate the Issuing Bank or such Lender or any corporation
controlling such Lender for such increased cost. A certificate as to the amount
of such increased cost, submitted to the Borrower by the Issuing Bank or such
Lender, shall certify that such increased costs were actually incurred by the
Issuing Bank or such Lender and shall show in reasonable detail an accounting of
the amount payable and the calculation used to determine in good faith such
amount and shall be conclusive absent manifest or demonstrable error. In
determining such amount, the Issuing Bank or such Lender may use any reasonable
averaging or attribution method. Nothing in this Section 2.15(d) shall provide
---------------
the Borrower or any Subsidiary of the Borrower the right to inspect the records,
files or books of the Issuing Bank or any Lender. If the Borrower becomes
obligated to pay additional amounts described in this Section 2.15(d) to any
---------------
Lender, the Borrower may designate a financial institution reasonably acceptable
to the Administrative Agent 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
-40-
<PAGE>
any Advance pursuant to Section 2.15(c) or (B) any other amendment or
--------------
waiver of or any consent to departure from all or any of the L/C Related
Documents;
(iii) the existence of any claim, set-off, defense or other right
that the Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank, any
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C Related Documents or any
unrelated transaction;
(iv) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect,
except to the extent finally determined by a court of competent
jurisdiction to be the result of the gross negligence or willful misconduct
of the Issuing Bank in connection therewith;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not comply with the terms
of the Letter of Credit, except to the extent finally determined by a court
of competent jurisdiction to be the result of the gross negligence or
willful misconduct of the Issuing Bank in connection therewith;
(vi) any exchange, release or non-perfection of any Collateral, or
any release or amendment or waiver of or consent to departure from any
guarantee, for all or any 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) Letter of Credit Fee. Subject to Section 11.9 hereof, the
-------------------- ------------
Borrower shall pay to the Administrative Agent, 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 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 Agent, for the account of the Issuing Bank,
a fronting fee (which shall be payable in advance of the issuance, renewal
or extension of each Letter of Credit) in an
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<PAGE>
amount equal to 0.10% per annum on the maximum amount available for drawing
under such Letter of Credit, computed, subject to Section 11.9 hereof, on
------------
the basis of a 360-day year for the actual number of days from, and
including, the date of issuance of such Letter of Credit to the expiration
date of such Letter of Credit.
(ii) 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 Agent
pursuant to Section 8.2(c), the Borrower will promptly pay to the
--------------
Administrative Agent 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 Agent shall be
deposited by the Administrative Agent 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 Agent (for the
benefit of the Issuing Bank and Lenders), and creates in the Administrative
Agent'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 Agent and the Borrower shall have no
right to withdraw or to cause the Administrative Agent to withdraw any
funds deposited in the L/C Cash Collateral Account. At any time and from
time to time, upon the Administrative Agent'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 Agent'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 Agent 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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<PAGE>
(iv) The Borrower, no more than once in any calendar month, may direct
the Administrative Agent 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 Agent 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
Agent'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 Agent and the
Lenders harmless from any and all such losses and taxes. Administrative
Agent 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 Agent) 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 Agent 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 and the obligation of the Issuing Bank to issue
the initial Letter of Credit are subject to (i) receipt by the Administrative
Agent of the following items which are to be delivered, in form and substance
satisfactory to each Lender, with a copy (except for the Notes and this
Agreement) for each Lender, and (ii) satisfaction of the following conditions
which are to be satisfied:
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<PAGE>
(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) opinions of counsel to each Obligor addressed to the Lenders and in
form and substance reasonably acceptable to the Administrative Agent, 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 Agent, 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 Agent or Special Counsel may reasonably request;
(d) reimbursement for the Administrative Agent for Special Counsel's
reasonable and customary fees (on an hourly basis) and expenses rendered through
the date hereof, to the extent invoiced;
(e) 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 Agent, Special Counsel or any Lender may
reasonably request in connection with such transactions;
(f) any fees or expenses required to be paid on or before the Agreement
Date pursuant to the Fee Letter;
(g) 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 Agent, as its interest may appear,
as loss payee and additional insured and otherwise in a form required by the
Collateral Documents;
(h) the duly executed Custodial Agreement(s), 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 Agent, duly executed by the Borrower or the
applicable Restricted Subsidiary owning such Note Receivable and
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<PAGE>
Assignments of Pledged Documents appropriately completed and duly executed by
the Borrower or the applicable Restricted Subsidiary owning such Pledged
Documents;
(i) 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);
(j) 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, 1998;
(k) each of the Subsidiary Guaranties, duly executed by the Guarantor party
thereto;
(l) in form and substance reasonably satisfactory to the Lenders and
Special Counsel, such other documents, instruments and certificates as the
Administrative Agent 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;
(m) The Borrower shall have delivered to the Administrative Agent any and
all Request(s) for Advance/Designation and/or Notice(s) of Issuance with respect
to such initial Revolving Credit Advance and such initial Letter of Credit, as
required by the terms of this Agreement; and
(n) The Borrower shall have delivered a Borrowing Base Report reflecting
Eligible Notes Receivable as of December 31, 1999.
Section 3.2 Conditions Precedent to All Advances, Letters of Credit,
--------------------------------------------------------
Conversions and Continuations. The obligation of each Lender to make each
- -----------------------------
Revolving Credit Advance hereunder (including the initial Revolving Credit
Advance), the obligation of the Issuing Bank to issue each Letter of Credit
(including the initial Letter of Credit), the obligation of each Lender to
convert any existing Reference Rate Advance into a LIBOR Advance and the
obligation of each Lender to continue any existing LIBOR 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;
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<PAGE>
(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 Agent. 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, Letter of Credit, conversion, or continuation,
is received by the Administrative Agent from the Borrower prior to the making of
such Advance, the issuance of such Letter of Credit, such conversion or such
continuation;
(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 Reimbursement Obligations, after giving
effect to such proposed Advance, Letter of Credit, conversion and/or
continuation 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,
issuing any Letter of Credit, or converting or continuing such LIBOR Advance;
(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, the issuance
- ------ ------
of the last preceding Letter of Credit or the last preceding conversion or
continuation of a LIBOR Advance (or in the case of the initial Advances and
Letters of Credit, prior to the Agreement Date) that could reasonably be
expected to have a Material Adverse Effect, (ii) there shall not be pending, or
to the knowledge of the Borrower, threatened any Litigation against or affecting
the Borrower or any Subsidiary of the Borrower or any property of the Borrower
or any Subsidiary of the Borrower that (x) was disclosed by the Borrower only
after the Agreement Date, (y) was disclosed by the Borrower as threatened
Litigation prior to the Agreement Date but subsequently became pending
Litigation or (z) was not disclosed by the Borrower, that could reasonably be
expected to have a Material Adverse Effect and (iii) there shall have occurred
no development in any Litigation against or affecting the Borrower or any
Subsidiary of the Borrower or any property of the Borrower or any Subsidiary of
the Borrower that could reasonably be expected to have a Material Adverse
Effect;
(g) There shall have occurred no material adverse change in the business,
assets, financial condition, results of operations or business prospects of the
Borrower and its Subsidiaries, taken as a whole, since December 31, 1998;
(h) The Borrower shall have delivered to the Administrative Agent any and
all Request(s) for Advance/Designation and/or Notice(s) of Issuance with respect
to the applicable
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Revolving Credit Advance(s), Letter(s) of Credit, conversion and/or
continuation, as required by the terms of this Agreement;
(i) The Borrower shall have delivered a current Borrowing Base Report, as
required by Section 6.1 hereof, evidencing that there is availability under the
-----------
Commitment after taking into account the projected Advance, Letter of Credit,
conversion or continuation; and
(j) The Borrower shall have delivered to the Administrative Agent any and
all appropriate financing statements and other appropriate security documents,
current and appropriate financing statement searches and other lien searches,
any and all necessary or appropriate lien releases, termination statements,
subordination agreements and/or other intercreditor documents, legal opinions,
Custodial Agreements, and trust receipts (in each case, executed by all
necessary third parties and other Persons) and such other or additional
documentation and/or evidence, in form and substance acceptable to the
Administrative Agent, as the Administrative Agent shall reasonably require with
respect to the satisfaction of all requirements hereunder or under the other
Loan Documents for inclusion of any Notes Receivable in the Borrowing Base.
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.
The acceptance of the benefits of each conversion and continuation with
respect to a LIBOR Advance shall constitute a representation and warranty by the
Borrower to each of the Lenders that no Default or Event of Default shall have
occurred and be continuing or would result from the making of such conversion or
continuation.
ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties. The Borrower hereby
------------------------------
represents and warrants to each Lender as follows:
(a) Organization; Power; Qualification. The respective jurisdiction of
----------------------------------
organization or incorporation and percentage ownership by the Borrower of the
Subsidiaries listed on Schedule 4 are true and correct as of the Agreement Date.
----------
Schedule 4 is a complete and accurate listing as of the Agreement Date, showing
- ----------
with respect to the Borrower and each Subsidiary of the Borrower (a) its mailing
address, which is its principal place of business, (b) the classes of its
Capital Stock and the number and amount of its Capital Stock authorized and
outstanding, (c) each record and beneficial owner of 5% or more of the
outstanding Capital Stock of each Restricted Subsidiary, and (d) all outstanding
options, rights, rights of conversion, redemption, purchase or repurchase,
rights of first refusal and similar rights relating to the Capital Stock of the
Restricted Subsidiaries. All of
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<PAGE>
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.
(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.
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<PAGE>
(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 reserves on the books of the Borrower and its Subsidiaries
in respect of their Taxes are, in the reasonable judgment of the Borrower,
adequate.
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<PAGE>
(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, 1998, 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 March 31, 1999, and the related statements of
earnings and statement of cash flows for the three-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 Sections 6.3 and 6.4 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, 1998, no event or circumstance
-----------------
has occurred or arisen which is reasonably likely to have a Material Adverse
Effect.
(l) ERISA. None of the Borrower or its Controlled Group maintains or
-----
contributes to any Plan subject to Title IV of ERISA other than those disclosed
to the Administrative Agent 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
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<PAGE>
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 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
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<PAGE>
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 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 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 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.
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<PAGE>
(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.
(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 Agent 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
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<PAGE>
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 Agent 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 Agent or any Lender will be, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any fact necessary to make such
information (taken as a whole) not misleading at such time in light of the
circumstances under which such information was provided. There is no fact known
to the Borrower and not known to the public generally that could reasonably be
expected to have a Material Adverse Effect, which has not been set forth in this
Agreement or in the documents, certificates and statements furnished to the
Lenders by or on behalf of the Borrower prior to the date hereof in connection
with the transaction contemplated hereby.
(u) Solvency. The Borrower is, and Borrower and its Subsidiaries on a
--------
consolidated basis are, Solvent.
(v) Labor Relations. Except as provided on Schedule 9, neither the
--------------- ----------
Borrower nor any Subsidiary is a party to a collective bargaining agreement or
similar agreement, and the Borrower and each Subsidiary is in compliance in all
material respects with all Laws respecting employment and employment practices,
terms and conditions of employment, wages and hours and other laws related to
the employment of its employees, except where the failure to comply could not
reasonably be expected to result in a Material Adverse Effect, and there are no
arrears in the payment of wages, withholding or social security taxes,
unemployment insurance premiums or other similar obligations of the Borrower or
any Subsidiary or for which the Borrower or any Subsidiary may be responsible
other than in the ordinary course of business, except for such unpaid or
unwithheld arrears which could not reasonably be expected to result in a
Material Adverse Effect. There is no strike, work stoppage or labor dispute
with any union or group of employees pending or overtly threatened involving
Borrower or any Subsidiary that could reasonably be expected to have a Material
Adverse Effect.
(w) Consolidated Business Entity. The Borrower and its Subsidiaries are
----------------------------
engaged in the business of developing and operating time-share resorts and other
leisure activities (exclusive of gaming). These operations require financing on
a basis such that the credit supplied can be made available from time to time to
the Borrower and various of its Subsidiaries, as required for the continued
successful operation by the Borrower and its Subsidiaries as a whole. The
Borrower and its Subsidiaries expect to derive benefit (and the board of
directors of the Borrower and its Subsidiaries have determined that the Borrower
and its Subsidiaries may reasonably be expected to derive benefit), directly or
indirectly, from the credit extended by the Lenders hereunder, both in
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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. All of the Projects are members
------------------------------------
and participants, pursuant to validly executed and enforceable written
agreements, in Resort Condominiums International, L.L.C. and/or Interval
International. The Borrower and its Subsidiaries have paid all fees and other
amounts due and owing under such agreements and are not otherwise in default in
any material respect thereunder.
(y) Time-Share Interests. The sale, offering of sale, and financing of
--------------------
Time-Share Interests in the Projects (i) do not constitute the sale, or the
offering of sale, of securities subject to registration requirements of the
Securities Act of 1933, as amended, or any state or foreign securities Law, (ii)
except to the extent that any such violation(s), either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect,
do not violate any time-sharing or other Law of any state or foreign country in
which sales or solicitation of Time-Share Interests occur, and (iii) except to
the extent that any such violation(s), either individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect, do not
violate any consumer credit or usury Laws of any state or foreign country in
which sales or solicitation of Time-Share Interests occur. Except to the extent
that any such failure(s), either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, the Borrower and its
Subsidiaries have not failed to make or cause to be made any registrations or
declarations with any Tribunal necessary to the ownership of the Projects or to
the conduct of its business, including, without limitation, the operation of the
Projects and the sale, or offering for sale, of Time-Share Interests therein.
Except to the extent that any such noncompliance(s), either individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect, Borrower and its Subsidiaries have, to the extent required by its
activities and businesses, fully complied with (i) all of the applicable
provisions of (A) the Consumer Credit Protection Act, as amended, (B) the
Federal Trade Commission Act, as amended, (C) the Federal Interstate Land Sales
Full Disclosure Act, as amended, (D) any other Laws of any Tribunal otherwise
applicable, and (E) all rules and regulations promulgated under any of the
foregoing. True and complete copies of the Purchase Documents and other
documents requested by the Administrative Agent 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 Agent. Other than the Time-Share Interests
attributable to Right-To-Use Receivables, 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.
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<PAGE>
(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.
(bb) Year 2000 Compliance. The Borrower and the Subsidiaries of the
--------------------
Borrower have developed and budgeted for a comprehensive program to address the
"Year 2000" problem (that is, the inability of computers, as well as embedded
microchips in non-computing devices, to perform properly date-sensitive
functions with respect to certain dates prior to and after December 31, 1999).
The Borrower and the Subsidiaries of the Borrower have implemented that program
substantially in accordance with its timetable and budget and the Borrower
reasonably anticipates that the Borrower and the Subsidiaries of the Borrower
will substantially avoid the Year 2000 problem as to all computers, as well as
embedded microchips in non-computing devices, that are material to the
business(es), property(ies) and operations of the Borrower and/or the
Subsidiaries of the Borrower. The Borrower and the Subsidiaries of the Borrower
have developed feasible contingency plans adequately to ensure uninterrupted and
unimpaired business operations in the event of failure of the systems or
equipment of the Borrower, the Subsidiaries of the Borrower and/or third parties
due to the Year 2000 problem, including those of vendors, customers and
suppliers, as well as a general failure of, or interruption in, the
communications and/or delivery infrastructure of the Borrower and/or the
Subsidiaries of the Borrower.
(cc) Non-Standard Receivables. With respect to each Non-Standard
------------------------
Receivable that was originally executed by the applicable Purchaser, or that
otherwise arose or was created, prior to June 1, 1999 and that is, at any time,
included in the calculation of the Borrowing Base, the Borrower is diligently
taking all necessary or appropriate actions and diligently doing all necessary
or appropriate things in order for such Non-Standard Receivable to satisfy the
criteria set forth herein for inclusion in the Borrowing Base as a Standard
Receivable within one year from the date that such Non-Standard Receivable was
first included in the calculation of the Borrowing Base as a Non-Standard
Receivable.
With respect to each Non-Standard Receivable that was originally executed
by the applicable Purchaser, or that otherwise arose or was created, on or after
June 1, 1999 and that is, at any time, included in the calculation of the
Borrowing Base, (i) such Non-Standard Receivable is undergoing normal processing
by the Borrower in order for such Non-Standard Receivable to satisfy the
criteria set forth herein for inclusion in the Borrowing Base as a Standard
Receivable within nine months from the date that such Non-Standard Receivable
was originally executed by the applicable Purchaser, or the date that such Non-
Standard Receivable otherwise arose or was created (whichever date is the
earliest), and (ii) the Borrower believes and expects that such Non-Standard
Receivable will satisfy the criteria set forth herein for inclusion in the
Borrowing Base as a Standard Receivable within the time frame set forth in
clause (i) above.
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Section 4.2 Survival of Representations and Warranties, etc. All
-----------------------------------------------
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at and
as of the date of each Advance and the date of issuance of each Letter of
Credit, and each shall be true and correct in all material respects when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof or (b) previously waived in writing by the Determining Lenders with
respect to any particular factual circumstance or permitted by the terms of this
Agreement. All such representations and warranties shall survive, and not be
waived by, the execution hereof by any Lender, any investigation or inquiry by
any Lender, or by the making of any Advance or the issuance of any Letter of
Credit under this Agreement.
ARTICLE 5
General Covenants
-----------------
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
---------------------------------------------
shall, and shall cause each Subsidiary of the Borrower to:
(a) except as otherwise permitted pursuant to Section 7.4 hereof, preserve
-----------
and maintain, or timely obtain and thereafter preserve and maintain, its
existence, rights, franchises, licenses, authorizations, consents, privileges
and all other Necessary Authorizations from any Tribunal, the loss of which
could reasonably be expected to have a Material Adverse Effect; and
(b) except as otherwise permitted pursuant to Section 7.4 hereof, qualify
-----------
and remain qualified and authorized to do business in each jurisdiction in which
the character of its properties or the nature of its business requires such
qualification or authorization, unless the failure to do so could not reasonably
be expected to have a Material Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The Borrower and
----------------------------------------
its Subsidiaries shall (a) engage primarily in the businesses set forth in
Section 4.1(d) hereof, and (b) comply in all respects with the requirements of
- --------------
all Applicable Law, except where the failure to so comply could not reasonably
be expected to have a Material Adverse Effect.
Section 5.3 Maintenance of Properties. To the maximum extent that the
-------------------------
Borrower and/or any Subsidiary of the Borrower has the right, power or authority
(whether as a matter of contract, at law or otherwise) to do so, the Borrower
shall, and shall cause each Subsidiary 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.
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Section 5.4 Accounting Methods and Financial Records. The Borrower
----------------------------------------
shall, and shall cause each Subsidiary of the Borrower to, maintain a system of
accounting established and administered in accordance with GAAP, keep adequate
records and books of account in which complete entries will be made and all
transactions reflected in accordance with GAAP, and keep accurate and complete
records of its respective assets. The Borrower and each of its Subsidiaries
shall maintain its fiscal year in the manner in existence on the Agreement Date.
Section 5.5 Insurance. The Borrower shall, and shall cause each
---------
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 Agent
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, shall cause
----------------------
each Subsidiary of the Borrower to, and shall use its best efforts to cause each
Custodian and each Servicing Agent to, promptly permit representatives of the
Administrative Agent or any Lender (and third party consultants and auditors
retained by the Administrative Agent) from time to time after reasonable notice
by the Administrative Agent or any Lender to (a) visit and inspect the
properties of the Borrower, the Subsidiaries of the Borrower, each Custodian and
each Servicing Agent as often as the Administrative Agent or any Lender shall
reasonably deem advisable, (b) audit, inspect and make extracts from and copies
of the books and records of the Borrower, each Subsidiary of the Borrower, each
Custodian and each Servicing Agent, and (c) discuss with the appropriate
directors, officers, employees and auditors of the Borrower, each Subsidiary of
the Borrower, each Custodian and each Servicing Agent the business, assets,
liabilities, financial positions, results of operations and business prospects
of the Borrower and each Subsidiary of the Borrower, provided that such
--------
representatives of the Administrative Agent or any Lender and such third party
consultants and auditors 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 fees, costs and expenses related to up to
three (3) such inspections and audits performed by, or on behalf of, the
Administrative Agent 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, inspections and audits shall be conducted at
any time requested by the Administrative Agent or any Lender without any
requirement for reasonable notice.
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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 and future debt of the Borrower and its Subsidiaries, (b) to finance
Acquisitions permitted under Section 7.6 hereof, (c) to finance eligible
-----------
mortgage loans, (d) to finance the ongoing working capital and general corporate
requirements of the Borrower and its Subsidiaries, and (e) for other legitimate
corporate purposes not otherwise prohibited hereunder.
SECTION 5.9 INDEMNITY.
---------
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(a) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS THE
ADMINISTRATIVE AGENT, 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 AGENT OR ANY LENDER
(OTHER THAN THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT OR OTHER LENDER
AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER AND NOT THE BORROWER OR ANY OF
ITS SUBSIDIARIES), OR THE USE OR INTENDED USE OF THE PROCEEDS OF THE ADVANCES OR
LETTERS OF CREDIT HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF ANY
POTENTIAL MATTER COVERED HEREBY, OR THE PROJECTS, OR ANY LENDER'S STATUS BY
VIRTUE OF THE ASSIGNMENT OF PLEDGED DOCUMENTS, OR ANY ACT OR OMISSION BY THE
BORROWER, ANY OF ITS SUBSIDIARIES, THE CUSTODIAN OR THE SERVICING AGENT, OR THE
EMPLOYEES OR AGENTS OF ANY OF THEM, OR ANY ACT OR OMISSION BY ALL BROKERS,
AGENTS OR OTHER SALESMEN OF TIME-SHARE INTERESTS, BUT EXCLUDING (i) ANY CLAIM OR
LIABILITY THAT ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT
OF ANY INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT
JURISDICTION, AND (ii) MATTERS RAISED BY ONE LENDER OR PARTICIPANT AGAINST
ANOTHER LENDER OR PARTICIPANT OR BY ANY SHAREHOLDERS OF
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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 AGENT, 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 Agent
and each Lender harmless from and against, and to reimburse them with respect
to, any and all claims, demands, causes of action, loss, damage, liabilities,
reasonable costs and reasonable expenses (including reasonable attorneys' fees
and courts costs) of any kind or character, known or unknown, fixed or
contingent, asserted against or incurred by any of them at any time and from
time to time by reason of or arising out of (a) the failure of the Borrower or
any Subsidiary to perform any of their obligations hereunder regarding asbestos
or Applicable Environmental Laws, (b) any violation on or before the Release
Date of any Applicable Environmental Law in effect on or before the Release
Date, and (c) any act, omission, event or
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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 Agent 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 Agent, 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 Agent 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 Agent
supplements to Schedules 3 and 4 hereto at the time of delivery of the financial
----------- -
statements set forth in Sections 6.3 and 6.4 hereof if the information provided
------------ ---
therein is not complete and correct, and (b) update and deliver to the
Administrative Agent modified Security Agreements, together with updated
exhibits and schedules thereto, 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 Agent; provided, however, that the Borrower
and each Subsidiary of the Borrower shall be deemed to be reasonably
satisfactory to the Administrative Agent 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 Agent.
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
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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 Agent, 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 and Reimbursement
Obligations. Without waiving or otherwise modifying the foregoing requirements
of this Section 5.16:
------------
(a) if any Note Receivable is included in the Borrowing Base as an Eligible
Note Receivable and such Note Receivable thereafter fails to meet the criteria
for inclusion as an Eligible Note Receivable, the Borrower shall have the right
to obtain a release of the nonqualifying Note Receivable from the Liens
hereunder in favor of the Administrative Agent 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;
(b) 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 Agent and the Lenders if (i)
immediately prior to, and after giving effect to, such proposed release, (x) the
Borrower is in compliance with the requirements of this Section 5.16, and (y) no
------------
Default or Event of Default exists hereunder or under any of the other Loan
Documents, and (ii) prior to any such release by the
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Administrative Agent, the Borrower has delivered to the Administrative Agent a
Borrowing Base Report evidencing the Borrower's compliance with the requirements
of clauses (x) and (y) above; and
(c) not more often than two (2) times per calendar quarter, the Borrower
shall have the right, by making a written request therefor to the Administrative
Agent, to obtain a release of Notes Receivable from the Liens hereunder in favor
of the Administrative Agent and the Lenders if (i) immediately prior to, and
after giving effect to, such proposed release, (x) the Borrower is in compliance
with the requirements of this Section 5.16, (y) no Default or Event of Default
------------
exists hereunder or under any of the other Loan Documents, and (z) the Borrower
pays the Administrative Agent a fee of $1,000 in connection with each such
release request, and (ii) prior to any such release by the Administrative Agent,
the Borrower has delivered to the Administrative Agent a Borrowing Base Report
evidencing the Borrower's compliance with the requirements of clauses (x) and
(y) above. Subject to the satisfaction by the Borrower of the requirements of
this Section 5.16(c), the Administrative Agent shall execute appropriate release
---------------
documentation, and shall deliver same to the Borrower for recordation or filing,
as applicable, within a reasonable period of time after the Borrower furnishes
such documentation to the Administrative Agent.
Section 5.17 Time-Share Interest Exchange Network. Each of the Projects
------------------------------------
shall continue to be members and participants, pursuant to validly executed and
enforceable written agreements, in Resort Condominiums International, L.L.C.
and/or Interval International. Borrower and its Subsidiaries shall pay, in a
timely manner, all fees and other amounts due and owing under such agreements
and shall not otherwise take any action, or fail to take any action, the result
of which would be to create any default in any material respect thereunder.
Section 5.18 Maintenance of Projects Attributable to Leasehold
-------------------------------------------------
Receivables. Without limiting the obligations of the Borrower and the
- -----------
Borrower's Subsidiaries under Section 5.14 hereof or otherwise, to the extent
------------
that, and during any period of time that, any Leasehold Receivables are included
in the calculation of the Borrowing Base hereunder, the Borrower shall satisfy
and discharge, either directly or by means of loans or advances to the
applicable owners association(s) for such purposes, any deficiency(ies) between
(i) the aggregate amount of the costs and expenses of maintaining and operating
each Project to which any such Leasehold Receivables relate (including, without
limitation, taxes and assessments not levied by the appropriate taxing authority
directly against owners of Time-Share Interests in such Project) and the
aggregate amount of reasonable reserves for improvements, the replacement of
property and furnishings, and contingencies with respect to such Project, and
(ii) the aggregate amount of such costs, expenses and reserves as may have been
paid by owners of Time-Share Interests with respect to such Project, and as may
be available for, such purposes. Such costs, expenses and reserves shall be
determined by the Borrower, and the Borrower shall fund any deficiency with
respect thereto, at such times (but not less often than annually) as shall be
necessary to provide sufficient funding in order to maintain, preserve and
maximize the ownership, quality, safety, marketability, value and appearance of
the applicable Project.
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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, a Borrowing Base Report (with the information set
forth therein being as of the end of such month), in form and substance
satisfactory to the Administrative Agent. Prior to the last day of each month of
each fiscal year, a Borrowing Base Report (with the information set forth
therein being as of the 15th day of such month), in form and substance
satisfactory to the Administrative Agent.
Section 6.2 Eligible Notes Receivable Report. Within 30 days after the
--------------------------------
end of each calendar quarter, a report showing through the end of such calendar
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, (f)
the nature and status of any claims asserted or legal action pending with
respect to any Eligible Note Receivable, and (g) with respect to each Eligible
Note Receivable that was included in the calculation of the Borrowing Base as a
Standard Receivable as of the end of such calendar quarter, the compliance of
such Eligible Note Receivable with the requirements of clauses (b) and (c) of
the definition herein of the term "Standard Receivables".
Section 6.3 Quarterly Financial Statements and Information. Within 45
----------------------------------------------
days after the end of each of the first three fiscal quarters of each fiscal
year, the consolidated balance sheets of the Borrower and its Subsidiaries as at
the end of such fiscal quarter and the related consolidated 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 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.
Section 6.4 Annual Financial Statements and Information; Certificate of
-----------------------------------------------------------
No Default.
- ----------
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(a) Within 90 days after the end of each fiscal year, a copy of (i) the
consolidated balance sheets of the Borrower and its Subsidiaries, as of the end
of the current and prior fiscal years and (ii) the consolidated 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) As soon as available, but in any event within 30 days after December
31, 1999 and within 30 days after the end of each fiscal year thereafter, a copy
of the annual consolidated financial projections (containing such information as
may be requested by the Administrative Agent, including, but not limited to, pro
forma income statements, balance sheets and statements of cash flow) of the
Borrower and the Subsidiaries of the Borrower 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 6.4 hereof, and, if requested by the
-----------
Administrative Agent, 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 Agent, other
documents being used in connection with the Projects to the extent different
from those previously furnished to the Administrative Agent;
(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
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event, circumstance or condition which could reasonably be expected to be
classified as a Material Adverse Effect, a written notice specifying the details
thereof (or the nature of any claimed default or event of default) and what
action is being taken or is proposed to be taken with respect thereto;
(c) Promptly upon becoming aware that any party to any Capitalized Lease
Obligations or Operating Lease, in each case, in excess of $500,000, has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, a written notice specifying the details
thereof (or the nature of any claimed default or event of default) and what
action is being taken or is proposed to be taken with respect thereto;
(d) Promptly upon receipt thereof, information with respect to and copies
of any notices received from any Tribunal relating to any order, ruling, law,
information or policy that relates to a breach of or noncompliance with any Law,
or could reasonably be expected to result in the payment of money by the
Borrower or any Subsidiary of the Borrower in an amount of $500,000 or more in
the aggregate, or otherwise have a Material Adverse Effect, or result in the
loss or suspension of any Necessary Authorization where such loss could
reasonably be expected 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 Agent 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.
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Section 6.8 ERISA Reporting Requirements.
----------------------------
(a) Promptly and in any event (i) within 30 days after the Borrower or any
member of its Controlled Group has current actual knowledge that any ERISA Event
described in clause (a) of the definition of ERISA Event or any event described
in Section 4063(a) of ERISA with respect to any Plan of the Borrower or any
member of its Controlled Group has occurred, and (ii) within 10 days after the
Borrower or any member of its Controlled Group has current actual knowledge that
any other ERISA Event with respect to any Plan of the Borrower or any member of
its Controlled Group has occurred or a request for a minimum funding waiver
under Section 412 of the Code has been made with respect to any Plan of the
Borrower or any member of its Controlled Group, a written notice describing such
event and describing what action is being taken or is proposed to be taken with
respect thereto, together with a copy of any notice of such event that is given
to the PBGC;
(b) Promptly and in any event within three Business Days after receipt
thereof by the Borrower or any member of its Controlled Group from the PBGC,
copies of each notice received by the Borrower or any member of its Controlled
Group of the PBGC's intention to terminate any Plan or to have a trustee
appointed to administer any Plan;
(c) Promptly and in any event within 30 days after the filing thereof by
the Borrower or any member of its Controlled Group with the United States
Department of Labor or the 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
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(g) Within three Business Days after receipt of written notice of
commencement thereof, notice of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any member of
its Controlled Group with respect to any Plan, except those which, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
ARTICLE 7
Negative Covenants
------------------
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 7.1 Indebtedness. The Borrower shall not, and shall not permit
------------
any Subsidiary of the Borrower 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
-----
Subsidiary of the Borrower 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 Subsidiary of the Borrower to, make any Investment, except that the Borrower
and any such 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; provided, however, that the aggregate amount of Investments made
or incurred after the Agreement
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<PAGE>
Date by the Borrower and/or Subsidiaries in, or with respect to, Foreign
Subsidiaries shall not exceed $20,000,000;
(g) Guaranties of Indebtedness (i) of any Person other than the Borrower or
a Restricted Domestic Subsidiary to the extent that (x) the aggregate amount of
such Guaranties by the Borrower and the Subsidiaries of the Borrower does not
exceed ten percent (10%) of the combined total assets of the Borrower and the
Subsidiaries of the Borrower, 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 Domestic Subsidiary to the
extent that such Guaranty, and the Indebtedness guaranteed thereby, are
permitted by Section 7.1 hereof. For purposes of determining the amount of
-----------
Guaranties for purposes of clause (x) above, the amount of any Guaranty shall be
deemed to be the lower of (a) an amount equal to the stated amount (or, if there
is no stated amount, the amount that is readily subject to calculation) of the
primary obligation in respect of which such Guaranty is made and (b) the maximum
amount for which such guaranteeing Person may be liable pursuant to the terms of
the agreement(s) or instrument(s) embodying or evidencing such Guaranty, unless
such primary obligation and the maximum amount for which such guaranteeing
Person may be liable are not stated or readily subject to calculation, in which
case the amount of such Guaranty shall be such guaranteeing Person's maximum
reasonably anticipated liability in respect thereof, as reasonably determined by
the Borrower in good faith;
(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 joint venture shall be in the business
described in Schedule 4.1(d) hereof or other activities directly related
---------------
thereto, and (iii) if, immediately before or immediately after the making of
such Investment (and after taking into account any and all contemporaneous or
substantially contemporaneous Investments in such joint venture by other
Persons), the joint venture as to which such Investment is made has assets with
a fair market value in excess of $10,000,000, the Borrower shall, not later than
10 Business Days after the date of such Investment, deliver to the
Administrative Agent a Compliance Certificate setting forth the covenant
calculations, both immediately prior to and after giving effect to such
Investment;
(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 Subsidiaries of the Borrower does not at any
time exceed ten percent (10%) of the combined total assets of the Borrower and
the Subsidiaries of the Borrower, 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 Subsidiary of the Borrower to, at any time:
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(a) liquidate or dissolve itself (or suffer any liquidation or dissolution)
or otherwise wind up, except that a Subsidiary of the Borrower 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 Subsidiary
of the Borrower and not the Borrower, such 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 Subsidiary to, sell, lease, transfer or otherwise dispose of, any of
its assets except (a) inventory and Time-Share Interests in the ordinary course
of business, (b) obsolete or worn-out assets, (c) sales of tangible assets in
which the Net Cash Proceeds from the disposition thereof are reinvested, within
90 days before or after such disposition, in productive tangible assets of a
similar nature of the Borrower and the Subsidiaries of the Borrower, (d) asset
sales between Obligors, (e) sales of Notes Receivable (other than Notes
Receivable included as Collateral hereunder, unless such Notes Receivable are to
be released as Collateral hereunder contemporaneously with the consummation of
such sale) to unrelated third parties for full and fair consideration, (f)
transfers of Notes Receivable (other than Notes Receivable included as
Collateral hereunder, unless such Notes Receivable are to be released as
Collateral hereunder contemporaneously with the consummation of such transfer)
to related third parties for full and fair consideration, or as a capital
contribution, dividend or distribution to the transferee, in order to consummate
a Securitization, (g) other asset sales to unrelated third parties for full and
fair consideration not to exceed, in the aggregate amount during any fiscal
year, ten percent (10.0%) of the real estate and development costs of the
Borrower and its Subsidiaries, on a consolidated basis, for the immediately
preceding fiscal year, as reflected on the financial statements delivered to the
Lenders pursuant to the requirements of Section 6.4 hereof, (h) other
-----------
dispositions that constitute grants by the Borrower or a Subsidiary of the
Borrower of Permitted Liens, and (i) the sale by the Borrower of its corporate
headquarters building located at 1781 Park Center Drive, Orlando, Florida.
Section 7.6 Acquisitions. The Borrower shall not, and shall not permit
------------
any Subsidiary of the Borrower 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 Subsidiary of
the Borrower 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) the
assets, property or business acquired shall be in the business described in
Section 4.1(d) hereof, (iii) 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), and (iv) if the Person(s) acquired in any single Acquisition
owns or has property with, or if the asset(s), business(es) or other property
acquired in any single Acquisition has, an aggregate fair market value in excess
of $10,000,000, the Borrower shall, not later than 10 Business Days after the
date of such Acquisition, deliver to the Administrative Agent a Compliance
Certificate setting forth the covenant calculations, both immediately prior to
and after giving effect to such Acquisition.
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<PAGE>
Section 7.7 Capital Expenditures. The Borrower shall not, and shall not
--------------------
permit any Subsidiary of the Borrower to, make or commit to make any Capital
Expenditures during any period of four consecutive calendar quarters in an
aggregate amount, with respect to the Borrower and all of the Subsidiaries, in
excess of $25,000,000.
Section 7.8 Restricted Payments. The Borrower shall not, and shall not
-------------------
permit any Subsidiary of the Borrower to, directly or indirectly declare, pay or
make any Restricted Payments except (a) Dividends payable by a 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 Subsidiary of the Borrower 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 Subsidiary of the Borrower 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 Subsidiary than would be
the case if such transaction had been effected with a non-Affiliate. The
Borrower shall not, and shall not permit any Restricted Subsidiary to, incur or
suffer to exist any Indebtedness, or any Guaranty of any such Indebtedness, to
any Affiliate, unless (i) such Affiliate shall be a Restricted Subsidiary, (ii)
the maker and the payee with respect to such Indebtedness shall execute and
deliver to the Administrative Agent a subordination agreement (in substantially
the form of Exhibit "I" hereto, with only such modifications thereto as shall be
-----------
acceptable to the Administrative Agent), or (iii) such Affiliate shall pledge
the applicable Indebtedness to the Administrative Agent pursuant to
documentation acceptable to the Administrative Agent.
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
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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 Adjusted Net Worth. The Borrower shall not permit
--------------------------
the Adjusted Net Worth to be less than an amount equal to the sum of (a)
$200,000,000, plus (b) 50% of cumulative Net Income of the Borrower and the
Subsidiaries of the Borrower for the period from, but not including, December
31, 1998 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 such Subsidiary for
which Net Income was a negative number), plus (c) 75% of the Net Cash Proceeds
received by the Borrower after December 31, 1998 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 Subsidiary of the Borrower or is merged
into or consolidated with the Borrower or any Subsidiary of the Borrower after
December 31, 1998 or substantially all of the assets of which are acquired by
the Borrower or any Subsidiary of the Borrower after December 31, 1998, (in each
case determined as of the date that such Person becomes a Subsidiary of the
Borrower or is merged into or consolidated with the Borrower or a Subsidiary of
the Borrower or that such assets are so acquired), provided that the purchase
price paid therefor is paid in equity securities of the Borrower or any
Subsidiary of the Borrower.
Section 7.13 Maximum Senior Debt to Total Capital. The Borrower shall
------------------------------------
not permit the ratio of Senior Debt to Total Capital to exceed (a) 0.35 to 1 at
the end of any fiscal quarter ending on or before December 31, 1999, or (b) 0.30
to 1 at the end of any fiscal quarter ending after December 31, 1999.
Section 7.14 Maximum Total Debt to Total Capital Ratio. The Borrower
-----------------------------------------
shall not permit the Total Debt to Total Capital Ratio to exceed (a) 0.73 to 1
at the end of any fiscal quarter ending on or before December 31, 1999, or (b)
0.70 to 1 at the end of any fiscal quarter ending after December 31, 1999.
Section 7.15 Maximum Average Quarterly Charge-Off Rate. The Borrower
-----------------------------------------
shall not permit the Average Quarterly Charge-Off Rate to exceed 3.0% at the
end of any calendar quarter.
Section 7.16 Maximum Average Quarterly Default Rate. The Borrower shall
--------------------------------------
not permit the Average Quarterly Default Rate to exceed 4.5% at the end of any
calendar quarter.
Section 7.17 Maximum Average Quarterly Delinquency Rate. The Borrower
------------------------------------------
shall not permit the Average Quarterly Delinquency Rate to exceed 7.5% at the
end of any calendar quarter.
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Section 7.18 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 the any period of four consecutive
calendar quarters does not, in the aggregate, exceed $2,000,000.
Section 7.19 Business. Neither the Borrower nor any Subsidiary of the
--------
Borrower shall conduct any business other than the business described in Section
-------
4.1(d) hereof.
- ------
Section 7.20 Fiscal Year. The Borrower shall not, and shall not permit
-----------
any Subsidiary of the Borrower to, change its fiscal year except to a fiscal
year ending December 31.
Section 7.21 Amendment of Organizational Documents. The Borrower shall
-------------------------------------
not, and shall not permit any Subsidiary of the Borrower 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 Agent or
any Lender under any Loan Documents or in respect of any Collateral.
Section 7.22 Amendments and Waivers of Subordinated Debt. The Borrower
-------------------------------------------
shall not, and shall not permit any Restricted Subsidiary to, change or amend
(or take any action or fail to take any action the result of which is an
effective amendment or change) or accept any waiver or consent with respect to,
any document, instrument or agreement relating to any Subordinated Debt that
would result in (a) an increase in the principal, interest, overdue interest,
fees or other amounts payable under the Subordinated Debt, (b) an acceleration
in any date fixed for payment or prepayment of principal, interest, fees or
other amounts payable under the Subordinated Debt (including, without
limitation, as a result of any redemption), (c) a reduction in any percentage of
holders of the Subordinated Debt required under the terms of the Subordinated
Debt to take (or refrain from taking) any action under the Subordinated Debt,
(d) a change in any financial covenant under the Subordinated Debt making such
financial covenant more restrictive, (e) a change in any default or event of
default (however designated) under the Subordinated Debt which makes such
default or event of default more restrictive, (f) a change in the definition of
"Change of Control" as provided in the Subordinated Debt which would result in
such definition being more restrictive than such definition in this Agreement,
(g) a change in any of the subordination provisions of the Subordinated Debt,
(h) a change in any covenant, term or provision in the Subordinated Debt which
would result in such term or provision being more restrictive than the terms of
this Agreement and the other Loan Documents or (i) a change in any term or
provision of the Subordinated Debt that could have, in any material respect, an
adverse effect on the interest of the Lenders.
Section 7.23 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 7.24 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)
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thereunder may be replaced with other Person(s) who are reasonably acceptable to
the Administrative Agent. The Servicing and Collection Agreement shall be
cancelable by the Administrative Agent upon the occurrence of an Event of
Default.
Section 7.25 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 7.26 Notes Receivable. The Borrower shall not, and shall not
----------------
permit any Restricted Subsidiary to, amend, modify or waive any terms of any
Note Receivable included in the Borrowing Base or permit any departure from the
obligations thereunder unless, and only to the extent that, (a) at the time of
any such amendment, modification or waiver, no default, event of default or
breach (howsoever designated) exists under, or with respect to, the applicable
Note Receivable, and (b) either (x) such amendment, modification or waiver does
not, and could not reasonably be expected to, result in such Note Receivable not
constituting an Eligible Note Receivable hereunder or (y) such amendment,
modification or waiver is evidenced by a replacement Note Receivable that is an
Eligible Note Receivable.
ARTICLE 8
Default
-------
Section 8.1 Events of Default. Each of the following shall constitute
-----------------
an Event of Default, whatever the reason for such event, and whether voluntary,
involuntary, or effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or non-
governmental body:
(a) Any representation or warranty made under any Loan Document shall prove
to have been incorrect or misleading in any material respect when made;
(b) The Borrower shall fail to pay any (i) principal under any Note when
due or (ii) interest under any Note or any fees payable hereunder or any other
costs, fees, expenses or other amounts payable hereunder or under any other Loan
Document within two Business Days after the date due;
(c) The Borrower or any Subsidiary of the Borrower 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 Subsidiary of the Borrower 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 Agent thereof or actual notice thereof by the
Borrower or such Subsidiary;
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(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 Agent thereof or actual
notice thereof by an officer of any Obligor;
(f) There shall be commenced an involuntary proceeding or an involuntary
petition shall be filed in a court having competent jurisdiction seeking (i)
relief in respect of any Obligor or any Subsidiary of the Borrower, or a
substantial part of the property or the assets of such Obligor or Subsidiary of
the Borrower, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable Federal, state or foreign bankruptcy
law or other similar law, (ii) the appointment of a receiver, liquidator,
assignee, trustee, custodian, sequestrator or similar official of any Obligor or
any Subsidiary of the Borrower, or of any substantial part of their respective
properties, or (iii) the winding-up or liquidation of the affairs of any Obligor
or any Subsidiary of the Borrower, and any such proceeding or petition shall
continue unstayed and in effect for a period of forty-five days;
(g) Any Obligor or any Subsidiary of the Borrower shall (i) file a
petition, answer or consent seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other applicable Federal,
state or foreign bankruptcy law or other similar law, (ii) consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of any Obligor or any
Subsidiary of the Borrower or of substantially all of its properties, (iii) file
an answer admitting the material allegations filed against it in any such
proceeding, (iv) make a general assignment for the benefit of creditors, (v)
become unable, admit in writing its ability or fail generally to pay its debts
as they become due, or (vi) any Obligor or any Subsidiary of the Borrower shall
take any corporate action in furtherance of any of the actions described in this
Section 8.1(g);
- --------------
(h) A final judgment or judgments shall be entered by any court against any
Obligor for the payment of money which exceeds $500,000 in the aggregate for all
Obligors, or a warrant of attachment or execution or similar process shall be
issued or levied against property of any Obligor which, together with all other
such property of the Borrower and its Subsidiaries subject to any such process,
exceeds in value $500,000 in the aggregate, and if such judgment or award is not
insured or, within 30 days after the entry, issue or levy thereof, such
judgment, warrant or process shall not have been paid or discharged or stayed
pending appeal, or if, after the expiration of any such stay, such judgment,
warrant or process shall not have been paid or discharged;
(i) With respect to any Plan of the Borrower or any member of its
Controlled Group: (i) the Borrower, any such member, or any other party-in-
interest or disqualified person (other than any Lender) shall engage in
transactions which in the aggregate would reasonably be expected to result in a
direct or indirect liability to the Borrower or any member of its Controlled
Group under Section 409 or 502 of ERISA or Section 4975 of the Code; (ii) the
Borrower or any member of its Controlled Group shall incur any accumulated
funding deficiency, as defined in Section 412 of the Code, or request a funding
waiver from the Internal Revenue Service for contributions; (iii) the Borrower
or any member of its Controlled Group shall incur any withdrawal liability as a
result of
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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 Agent,
the Administrative Agent shall have notified the Borrower in writing that the
Determining Lenders have made a determination that, on the basis of such
Reportable Event, there are reasonable grounds for the termination of such Plan
by the PBGC or for the appointment by the appropriate United States District
Court of a trustee to administer such Plan and as a result thereof an Event of
Default shall have occurred hereunder; (viii) a trustee shall be appointed by a
court of competent jurisdiction to administer any Plan (other than a
Multiemployer Plan) or the assets thereof; or (ix) any ERISA Event with respect
to a Plan (other than a Multiemployer Plan) subject to Title IV of ERISA shall
have occurred, and 30 days thereafter (A) such ERISA Event, other than such
event described in clause (f) of the definition of ERISA Event herein, (if
correctable) shall not have been corrected and (B) the then present value of
such Plan's benefit liabilities, as defined in Title IV of ERISA, shall exceed
the then current value of assets accumulated in such Plan; provided, however,
-------- -------
that the events listed in subsections (i) - (ix) above shall constitute Events
of Default only if the maximum aggregate liability which the Borrower or any
member of its Controlled Group has a reasonable likelihood of incurring under
the applicable provisions of ERISA resulting from an event or events exceeds
$500,000.
(j) The Borrower or any Restricted Subsidiary shall (i) 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 (ii)
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 (x) cause any such Indebtedness or
lease obligation to be prepaid or to become due prior to its date of maturity or
(y) require the Borrower or any Restricted Subsidiary to purchase, prepay or
redeem any such Indebtedness or lease obligation;
(k) Any Subsidiary of the Borrower other than a 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 default,
event or condition is to cause the holder of such Indebtedness or lease
obligation (or a trustee on behalf of any such holder) to (x) cause any such
Indebtedness or lease obligation to be prepaid or to become
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due prior to its date of maturity or (y) require the Borrower or any Subsidiary
of the Borrower to purchase, prepay or redeem any such Indebtedness or lease
obligation;
(l) Any real property lease where the Borrower or any Subsidiary of the
Borrower 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;
(m) 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 Agent or any Lender) other than in accordance with its terms, or
any such party (other than the Administrative Agent or any Lender) shall so
assert in writing;
(n) 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
(o) 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 Agent shall, upon the direction of the
---
Determining Lenders, terminate the Commitments and/or declare the principal of
and interest on the Advances and all Obligations and other amounts owed under
the Loan Documents to be forthwith due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything in the Loan Documents to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in Section 8.1(f)
--------------
or (g) hereof, such principal, interest and other amounts shall thereupon and
---
concurrently therewith become due and payable and the Commitments shall
forthwith terminate, all without any action by the Administrative Agent, 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
Agent 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 Agent in same day funds at the office of the Administrative Agent
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 Agent and the Lenders may exercise all of the Rights
granted to them under the Loan Documents or under Applicable Law.
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(e) The Rights of the Administrative Agent 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 for such proposed LIBOR Advance
does not adequately cover the cost to any Lender(s) of making and maintaining
such proposed LIBOR Advance for such Interest Period, such Lender or Determining
Lenders, as the case may be, shall forthwith give notice thereof to the
Borrower, whereupon until such Lender or Determining Lenders, as the case may
be, notify the Borrower that the circumstances giving rise to such situation no
longer exist, the obligation of the applicable Lender(s) to make LIBOR Advances
shall be suspended; provided, however, such Lender or the Determining Lenders,
-------- -------
as the case may be, shall promptly notify the Borrower if the circumstances
giving rise to such situation no longer exist.
Section 9.2 Illegality. If any change in applicable law, rule or
----------
regulation, or adoption thereof, or any change in any interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its LIBOR Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency, shall make it unlawful or impossible for such Lender (or its
LIBOR Lending Office) to make, maintain or fund its LIBOR Advances, such Lender
shall so notify the Borrower and the Administrative Agent. 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, or 3.2, borrow a Reference Rate Advance from
----------- ---
such Lender, and such Lender shall make such Reference Rate Advance, in an
amount such that the outstanding principal amount of the Advances owing to such
Lender shall equal the outstanding principal amount of the Advances owing
immediately prior to such repayment.
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Section 9.3 Increased Costs.
---------------
(a) If after the Agreement Date any change in or adoption of any law, rule
or regulation, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by any Lender (or its
LIBOR Lending Office) with any request or directive (whether or not having the
force of law) of any such authority, central bank or compatible agency:
(i) shall subject a Lender (or its LIBOR Lending Office) to any Tax
(net of any tax benefit engendered thereby) with respect to its LIBOR
Advances or its obligation to make such Advances, or shall change the basis
of taxation of payments to a Lender (or to its LIBOR Lending Office) of the
principal of or interest on its LIBOR Advances or in respect of any other
amounts due under this Agreement, as the case may be, or its obligation to
make such Advances (except for changes in the rate of tax on the overall
net income, net worth or capital of the Lender and franchise taxes, doing
business taxes or minimum taxes imposed upon such Lender); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, a Lender's
LIBOR Lending Office or shall impose on the Lender (or its LIBOR Lending
Office) or on the London interbank market any other condition affecting its
LIBOR Advances or its obligation to make such Advances (but excluding any
reserves or deposits that are included in the calculation of LIBOR Basis);
and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material, then, within 5 Business 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
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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 Reference Rate Advance from the
Lender, and the Lender shall make such Reference 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 Reference 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 Reference Rate Advances.
Section 9.5 Capital Adequacy. If after the Agreement Date, (a) the
----------------
introduction of or any change in or in the interpretation of any law, rule or
regulation or (b) compliance by a Lender with any law, rule or regulation or any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) adopted or promulgated after the
Agreement Date affects or would affect the amount of capital required or
expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's commitment or Advances hereunder
and other commitments or advances of such Lender of this type, then, within 5
Business 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 Agent 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
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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 Agent. Each Lender hereby appoints the Administrative
--------------------
Agent 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 Agent shall have received
such requests, the Administrative Agent 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 Agent shall not
be required to take any action that exposes the Administrative Agent 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 Agent 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 Agent shall have no fiduciary
relationship in respect of any Lender by reason of this Agreement or any other
Loan Document. The Administrative Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement. The duties
of the Administrative Agent are mechanical and administrative in nature.
(b) Replacement of Administrative Agent. Should the Administrative Agent
-----------------------------------
or any successor Administrative Agent ever cease to be a Lender hereunder, or
should the Administrative Agent or any successor Administrative Agent ever
resign as Administrative Agent, or should the Administrative Agent or any
successor Administrative Agent ever be removed with cause or without cause by
the action of all Lenders (other than the Administrative Agent), 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
Agent, and the Borrower and the Lenders shall execute such documents as any
Lender may reasonably request to reflect such change. If the Administrative
Agent also then serves in the capacity of the Issuing Bank, such resignation or
removal shall constitute resignation or removal of the Issuing Bank. Any
resignation or removal of the Administrative Agent or any successor
Administrative Agent shall become effective upon (i) the
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appointment by the Lenders of a successor Administrative Agent; provided,
however, if no successor Administrative Agent shall have been so appointed and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent's giving of notice of resignation or the Lenders' removal
of the retiring Administrative Agent, then the retiring Administrative Agent
may, on behalf of the Lenders, appoint a successor Administrative Agent, 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, and (ii) to the extent that the Administrative Agent also
then serves in the capacity of the Issuing Bank, the termination, to the
reasonable satisfaction of the Administrative Agent, of any and all obligations
and liabilities of the Administrative Agent, in its capacity as the Issuing
Bank, under, or in connection with, this Agreement and the other Loan Documents.
Without limiting the requirements of the immediately preceding sentence, upon
the acceptance of any appointment as the Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under the Loan Documents, provided
that if the retiring or removed Administrative Agent is unable to appoint a
successor Administrative Agent, the Administrative Agent shall, after the
expiration of a 60 day period from the date of notice, be relieved of all
obligations as Administrative Agent hereunder. Notwithstanding any
Administrative Agent's resignation or removal hereunder, the provisions of this
Article shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Administrative Agent 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 Agent directly
and solely in connection with any of the Loan Documents if Administrative Agent
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
Agent shall be returned by the Administrative Agent 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 Agent.
(d) Delegation of Duties. The Administrative Agent 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 Agent. The Administrative Agent 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 Agent. The Administrative Agent 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 Agent's Liability. Neither the
----------------------------------------------
Administrative Agent nor any of its officers, directors, employees, attorneys or
agents shall be liable for any action taken or
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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 Agent shall be under no duty to enforce any rights
with respect to any of the Advances, or any security therefor. The
Administrative Agent 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 Agent shall not be
responsible in any manner to any Lender for the effectiveness, enforceability,
genuineness, validity or due execution of any of the Loan Documents, or for any
representation, warranty, document, certificate, report or statement made herein
or furnished in connection with any Loan Documents, or be under any obligation
to any Lender to ascertain or to inquire as to the performance or observation of
any of the terms, covenants or conditions of any Loan Documents on the part of
the Borrower. TO THE EXTENT NOT REIMBURSED BY THE BORROWER, EACH LENDER HEREBY
SEVERALLY INDEMNIFIES AND HOLDS HARMLESS THE ADMINISTRATIVE AGENT, 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 AGENT (IN SUCH
CAPACITY) IN ANY WAY WITH RESPECT TO ANY LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED BY THE ADMINISTRATIVE AGENT UNDER THE LOAN DOCUMENTS (INCLUDING ANY
NEGLIGENT ACTION OF THE ADMINISTRATIVE AGENT), 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 AGENT. 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 Agent shall
have the same rights as a Lender and may exercise the same as though it were not
the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent 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 Agent were not the Administrative Agent 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 Agent or any
other Lender and based upon the financial statements referred to in Sections
--------
4.1(j), 6.3, and 6.4 hereof, and such other documents and
- ------ --- ---
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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 Agent 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 Agent that such Lender
has deemed all of the conditions set forth in Section 3.1 to have been
satisfied.
Section 10.3 Benefits of Article. None of the provisions of this
-------------------
Article shall inure to the benefit of any Person other than Lenders and, with
respect to Section 10.1(b), the Borrower; consequently, no such other Person
---------------
shall be entitled to rely upon, or to raise as a defense, in any manner
whatsoever, the failure of the Administrative Agent 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 respective address(es) set forth in
Schedule 1 attached hereto.
- ----------
(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 Agent 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 Agent in connection with the administration of the
transactions contemplated in this Agreement and the other Loan Documents and the
preparation, negotiation, execution and delivery
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of any waiver, amendment or consent by the Administrative Agent 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 Agent 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 Agent and any Lender, and administrative fees for the
Administrative Agent.
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 Agent or any Lender in exercising any right shall operate as
a waiver of such right. The Lenders expressly reserve the right to require
strict compliance with the terms of this Agreement in connection with any
funding of a request for an Advance or issuance of a Letter of Credit. In the
event that any Lender decides to fund an Advance at a time when the Borrower is
not in strict compliance with the terms of this Agreement, such decision by such
Lender shall not be deemed to constitute an undertaking by the Lender to fund
any further requests for Advances or preclude the Lenders from exercising any
rights available under the Loan Documents or at law or equity. Any waiver or
indulgence granted by the Lenders shall not constitute a modification of this
Agreement, except to the extent expressly provided in such waiver or indulgence,
or constitute a course of dealing by the Lenders at variance with the terms of
the Agreement such as to require further notice by the Lenders of the Lenders'
intent to require strict adherence to the terms of the Agreement in the future.
Any such actions shall not in any way affect the ability of the Administrative
Agent 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 Agent 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 Agent 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
-----------
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<PAGE>
assignee or subsequent holder of any Note shall be subject to pro rata treatment
of all Obligations and other liabilities hereunder. Any Lender exercising any
Rights under this Section 11.5 shall give the Borrower prompt notice thereof
------------
after such exercise.
Section 11.6 Assignment.
----------
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder or under the other Loan Documents without the prior
written consent of the Lenders.
(b) No Lender shall be entitled to assign or grant a participation in its
interest in this Agreement, its Notes or its Advances, except as set forth in
this Agreement.
(c) Without the consent of the Borrower, any Lender may at any time sell
participations in all or any part of its Advances and Reimbursement Obligations
(collectively, "Participations") to any banks or other financial institutions
--------------
("Participants") provided that neither such Participation nor any agreement
- --------------
relating thereto shall confer on any Person (other than the parties hereto) any
right to vote on, approve or sign amendments or waivers, or any other
independent benefit or any legal or equitable right, remedy or other claim under
this Agreement or any other Loan Documents, other than the right to vote on,
approve, or sign amendments or waivers or consents with respect to items that
would result in (i) any increase in the commitment of any Participant; or
(ii)(A) the extension of the date of maturity of, or (B) the extension of the
due date for any payment of principal, interest or fees respecting, or (C) the
reduction of the amount of any installment of principal or interest on or the
change or reduction of any mandatory reduction required hereunder, or (D) a
reduction of the rate of interest on, the Advances, the Letters of Credit, or
the Reimbursement Obligations to which such Participant is entitled; or (iii)
the release of security for the Obligations, including without limitation any
guarantee, except pursuant to this Agreement or the other Loan Documents; or
(iv) the reduction of any fees payable hereunder to which such Participant is
entitled. Notwithstanding the foregoing, the Borrower agrees that the
Participants shall be entitled to the benefits of Article 9 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.
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<PAGE>
(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 Agent 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 Agent and
applicable Assignee shall execute and deliver to the Administrative Agent an
Assignment and Acceptance Agreement (an "Assignment Agreement") in substantially
--------------------
the form of Exhibit E hereto, together with the Notes subject to such
---------
assignment, (iv) the Assignee executing the Assignment, shall deliver to the
Administrative Agent a processing fee of $3,500 and (v) each such assignment
shall be a constant, not a varying, percentage of the assigning Lender's Rights
and obligations in respect of the Advances. Upon such execution, delivery and
acceptance from and after the effective date specified in each Assignment, which
effective date shall be at least three Business Days after the execution
thereof, (A) the Assignee thereunder shall be party hereto and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to such
Assignment, have the rights and obligations of a Lender hereunder and (B) the
applicable Lender shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment, relinquish such rights
(excluding any rights to indemnity which would have survived the termination of
this Agreement, which rights of indemnity shall apply to both the assigning
Lender and the Assignee) and be released from such obligations under this
Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary, any
Lender may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular issued by such Federal Reserve Bank; provided,
however, that no such assignment under this clause (e) shall release the
assignor Lender from its obligations hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a Lender and an
Assignee, and any Note or Notes subject to such assignment, the Borrower shall,
within five Business Days after its receipt of such Assignment Agreement, at no
expense to the Borrower, execute and deliver to the Administrative Agent in
exchange for the surrendered Notes new Notes to the order of such Assignee in an
amount equal to the portion of the Advances and Commitments assigned to it
pursuant to such Assignment Agreement and new Notes to the order of the assignor
Lender in an amount equal to the portion of the Advances and Commitments
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes, shall
be dated the effective date of such Assignment Agreement and shall otherwise be
in substantially the form of Exhibit A.
---------
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<PAGE>
(g) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 11.6, disclose to
------------
the assignee or Participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower, provided such Person agrees in writing to handle such information in
accordance with the standards set forth in Section 11.14 hereof.
-------------
(h) Except as specifically set forth in this Section 11.6, nothing in this
------------
Agreement or any other Loan Documents, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Documents.
(i) Notwithstanding anything in this Section 11.6 to the contrary, no
------------
Assignee or Participant (nor the assigning or participating Lender) shall be
entitled to receive (whether individually or collectively) any greater payment
under Section 2.14 or Section 9.3 or Section 9.5 than such assigning or
------------ ----------- -----------
participating Lender would have been entitled to receive with respect to the
interest assigned or participated to such Assignee or Participant.
Section 11.7 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 11.8 Severability. Any provision of this Agreement which is for
------------
any reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 11.9 Interest and Charges. It is not the intention of any
--------------------
parties to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, no Lender shall ever be entitled to receive, collect or apply,
as interest on the Obligations, any amount in excess of the Highest Lawful
Amount. If any Lender or participant ever receives, collects or applies, as
interest, any such excess, such amount which would be excessive interest shall
be deemed a partial repayment of principal and treated hereunder as such; and if
principal is paid in full, any remaining excess shall be paid to the Borrower.
In determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful 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
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<PAGE>
total principal amount of the Obligations owing, and, in such event, the Lenders
shall not be subject to any penalties provided by any laws for contracting for,
charging or receiving interest in excess of the Highest Lawful Amount or the
Highest Lawful Rate. This Section shall control every other provision of all
agreements pertaining to the transactions contemplated by or contained in the
Loan Documents.
Section 11.10 Headings. Headings used in this Agreement are for
--------
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
Section 11.11 Amendment and Waiver. The provisions of this Agreement may
--------------------
not be amended, modified or waived except by the written agreement of the
Borrower and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Specified Percentage or commitment of any Lender, or
(ii) extend or postpone the date of maturity of, extend the due date for any
payment of principal or interest on, reduce the amount of any installment of
principal or interest on, or reduce the rate of interest on, any Revolving
Credit Advance, the Reimbursement Obligations or other amount owing under any
Loan Documents to which such Lender is entitled, or (iii) release any security
for or guaranty of the Obligations (except pursuant to this Agreement or the
other Loan Documents), or (iv) reduce the fees payable hereunder to which such
Lender is entitled, or (v) revise this Section 11.11, or (vi) waive the date for
-------------
payment of any principal, interest or fees hereunder or (vii) amend the
definition of Determining Lenders; (b) without the consent of the Administrative
Agent, if it would alter the rights, duties or obligations of the Administrative
Agent; or (c) 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 Agent
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
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BEAR ANY REFERENCE OR ADEQUATE REFERENCE TO THE LETTER OF CREDIT, EXCEPT FOR ANY
PAYMENT MADE UPON THE ISSUING BANK'S GROSS NEGLIGENCE OR WILFUL MISCONDUCT; OR
(D) ANY OTHER CIRCUMSTANCES WHATSOEVER IN MAKING OR FAILING TO MAKE PAYMENT
UNDER ANY LETTER OF CREDIT, INCLUDING, WITHOUT LIMITATION, ANY SUCH
CIRCUMSTANCES INVOLVING THE SIMPLE OR MERE NEGLIGENCE OF THE ISSUING BANK EXCEPT
------
THAT THE BORROWER SHALL HAVE A CLAIM AGAINST THE ISSUING BANK, AND THE ISSUING
BANK SHALL BE LIABLE TO THE BORROWER, TO THE EXTENT OF ANY DIRECT, BUT NOT
CONSEQUENTIAL, DAMAGES SUFFERED BY THE BORROWER THAT A COURT OF COMPETENT
JURISDICTION DETERMINES WERE CAUSED BY (I) THE ISSUING BANK'S WILFUL MISCONDUCT
OR GROSS NEGLIGENCE OR (II) THE ISSUING BANK'S WILFUL FAILURE TO MAKE LAWFUL
PAYMENT UNDER A LETTER OF CREDIT AFTER THE PRESENTATION TO IT OF A DRAFT AND
CERTIFICATES STRICTLY COMPLYING WITH THE TERMS AND CONDITIONS OF THE LETTER OF
CREDIT. In furtherance and not in limitation of the foregoing, the Issuing Bank
may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
Section 11.14 Confidentiality. Each Lender and the Administrative Agent
---------------
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 Agent, 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 Agent, (c) to bank examiners, auditors or
accountants of any Lender, (d) to the Administrative Agent 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 Amendment, Restatement, Extension and Renewal. This
---------------------------------------------
Agreement is a renewal, extension, amendment and restatement of the Existing
Credit Agreement, and is not a novation of the "Obligations" (as defined in the
Existing Credit Agreement) thereunder. On the
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Agreement Date, the "Revolving Credit Notes" (as such term is defined in the
Existing Credit Agreement), all of the outstanding indebtedness of the Borrower
under the Existing Credit Agreement and all of the liens, security interests and
other rights and interests of each of the lenders under the Existing Credit
Agreement and of Bank of America, N.A., formerly NationsBank, N.A., as
Administrative Lender thereunder, and under the other Loan Documents (as defined
in the Existing Credit Agreement) shall be acquired by the Administrative Agent
hereunder for the ratable benefit of the Lenders hereunder in their respective
Specified Percentages. On the Agreement Date, the outstanding indebtedness of
the Borrower under the Revolving Credit Notes (as such term is defined in the
Existing Credit Agreement) shall be renewed, extended, modified and restated by
the Revolving Credit Notes hereunder. The Borrower hereby consents to the
acquisition by the Administrative Agent of the indebtedness, rights and
interests described above. All terms and provisions of this Agreement supersede
in their entirety the Existing Credit Agreement. Except insofar as any of same
may have heretofore been, or may contemporaneously herewith or hereafter be,
released pursuant to written release documentation executed and delivered by the
Administrative Agent, all Liens covering the Collateral, or any part thereof,
under the collateral documents executed in connection with the Existing Credit
Agreement shall remain valid, binding and enforceable Liens against the Persons
which granted such Liens, as security for the Obligations hereunder.
SECTION 11.17 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
-------------
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
CALIFORNIA (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS) AND THE
UNITED STATES OF AMERICA. THE LOAN DOCUMENTS ARE PERFORMABLE IN LOS ANGELES,
CALIFORNIA, 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 AGENT AND
EACH LENDER EACH AGREES THAT THE STATE AND FEDERAL COURTS OF CALIFORNIA LOCATED
IN LOS ANGELES, CALIFORNIA, SHALL HAVE JURISDICTION OVER PROCEEDINGS IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND HEREBY SUBMITS
WITH RESPECT TO ITSELF AND ITS PROPERTY TO THE JURISDICTION OF ANY SUCH COURT
FOR THE PURPOSE OF ANY SUIT, ACTION, PROCEEDING OR JUDGMENT RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
SECTION 11.18 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
--------------------
ADMINISTRATIVE AGENT 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.
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SECTION 11.19 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>
IN WITNESS WHEREOF, this Amended and Restated Credit Agreement is executed
as of the date first set forth above.
BORROWER: SUNTERRA CORPORATION
By: /s/ [ILLEGIBLE]
----------------------------------------
Treasurer and Vice President
ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A., formerly NationsBank,
N.A., as Administrative Agent
By: /s/ Mark Gregor-Pearse
---------------------------------------
Mark Gregor-Pearse
Principal
LENDERS: BANK OF AMERICA, N.A., formerly NationsBank,
N.A., as a Lender and Issuing Bank
Specified Percentage:
33.33333334%
By: /s/ Mark Gregor-Pearse
---------------------------------------
Mark Gregor-Pearse
Principal
UNION BANK OF CALIFORNIA, N.A., as a Lender
Specified Percentage:
25.00000000%
By: /s/ Alan J. Young
--------------------------------------
Name: Alan J. Young
Title: Assistant Vice President
BANK OF HAWAII, as a Lender
Specified Percentage:
25.00000000%
By: /s/ Brenda K. Testerman
--------------------------------------
Name: Brenda K. Testerman
Title: Vice President
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<PAGE>
SOCIETE GENERALE, as a Lender
Specified Percentage:
16.66666666%
By: /s/ Maureen Kelly
-------------------------------
Name: Maureen Kelly
Title: Director
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<PAGE>
SCHEDULE 1
----------
LIBOR LENDING OFFICES, ADDRESSES FOR NOTICES
(i) BORROWER:
Sunterra Corporation
1781 Park Center Drive
Orlando, Florida 32835
Attn: Chief Financial Officer, Treasurer
and General Counsel
Telephone: 407-532-1218
Facsimile: 407-532-1141
With a copy to:
Leo Rose III
Schreeder, Wheeler & Flint, LLP
The Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Telephone: 404-681-3450
Facsimile: 404-681-1046
(ii) ADMINISTRATIVE AGENT:
Credit Notices and Communications:
Bank of America, N.A.
Real Estate Structured Debt
555 South Flower, CA9-706-06-02
Sixth Floor
Los Angeles, California 90071
Attn: Mark Gregor-Pearse
Principal
Telephone: 213-228-3244
Facsimile: 213-228-3421
Administrative, Operational, Funding, Conversion and Other Notices and
Communications:
<PAGE>
Bank of America, N.A.
Real Estate Structured Debt
SDG-Homebuilding/Irvine
5 Park Plaza, Suite 500, CA6-503-05-17
Irvine, California 92614-8525
Attn: Alexandra W. Bax
Relationship Administrator
Telephone: 949-260-5666
Facsimile: 949-260-5637
(iii) BANK OF AMERICA, N.A., as a Lender:
Credit Notices and Communications:
Bank of America, N.A.
Real Estate Structured Debt
555 South Flower, CA9-706-06-02
Sixth Floor
Los Angeles, California 90071
Attn: Mark Gregor-Pearse
Principal
Telephone: 213-228-3244
Facsimile: 213-228-3421
LIBOR Lending Office:
Bank of America, N.A.
Real Estate Structured Debt
SDG-Homebuilding/Irvine
5 Park Plaza, Suite 500, CA6-503-05-17
Irvine, California 92614-8525
Attn: Alexandra W. Bax
Relationship Administrator
Telephone: 949-260-5666
Facsimile: 949-260-5637
2
<PAGE>
Administrative, Operational, Funding, Conversion and Other Notices and
Communications:
Bank of America, N.A.
Real Estate Structured Debt
SDG-Homebuilding/Irvine
5 Park Plaza, Suite 500, CA6-503-05-17
Irvine, California 92614-8525
Attn: Alexandra W. Bax
Relationship Administrator
Telephone: 949-260-5666
Facsimile: 949-260-5637
(iv) UNION BANK OF CALIFORNIA, N.A., as a Lender:
All Notices and Other Communications:
Union Bank of California, N.A.
445 South Figueroa Street, 15th Floor
Los Angeles, California 90071
Attn: Alan Young
Assistant Vice President
Telephone: 213-236-6070
Facsimile: 213-236-6089
LIBOR Lending Office:
Union Bank of California, N.A.
445 South Figueroa Street, 15th Floor
Los Angeles, California 90071
Attn: Agatha Lok-Ng
3
<PAGE>
Telephone: 213-236-6078
Facsimile: 213-236-6088
(v) BANK OF HAWAII, as a Lender:
All Notices and Other Communications:
Bank of Hawaii
1250 North Central Avenue, 4th Floor
Phoenix, Arizona 85004
Attn: Brenda Testerman
Vice President
Telephone: 602-257-2489
Facsimile: 602-257-2444
LIBOR Lending Office:
Bank of Hawaii
11 Puunene Avenue
Kahului, Hawaii 96733
Attn: Donna Arakawa
Telephone: 808-693-1698
Facsimile: 808-693-1672
(vi) SOCIETE GENERALE, as a Lender:
All Notices and Other Communications:
Societe Generale
Trammell Crow Center, Suite 4800
Dallas, Texas 75201
Attn: Ralph Sahed
4
<PAGE>
Telephone: 214-979-2000
Facsimile: 214-754-0171
LIBOR Lending Office:
Societe Generale
1221 Avenue of the Americas, 13th Floor
New York, New York 10020
Attn: Jessica McAfee
Telephone: 214-979-2724
Facsimile: 214-754-0171
5
<PAGE>
SCHEDULE 2
----------
EXISTING LIENS
PROPERTY SUBJECT AMOUNT OF
TO LIEN LIENHOLDER DEBT SECURED MATURITY DATE
------- ---------- ------------ -------------
<PAGE>
SCHEDULE 3
----------
EXISTING LITIGATION
AND MATERIAL LIABILITIES
<PAGE>
SCHEDULE 4
----------
SUBSIDIARIES
State of
Incorporation Percentage
Name or Organization of Ownership Owner
- ------ --------------- ------------ -----
<PAGE>
SCHEDULE 5
----------
EXISTING INVESTMENTS
<PAGE>
SCHEDULE 6
----------
EXISTING INDEBTEDNESS
<PAGE>
SCHEDULE 7
----------
AUTHORIZATION, QUALIFICATION AND GOOD STANDING
<PAGE>
SCHEDULE 8
----------
INTELLECTUAL PROPERTY AND DISPUTES
RELATING THERETO
<PAGE>
SCHEDULE 9
----------
LABOR RELATIONS
<PAGE>
EX-10.26
CONSULTING AGREEMENT
--------------------
This Consulting Agreement is entered into this _____ day of January, 2000,
effective as of the 20th day of January, 2000 by and between SUNTERRA
CORPORATION, a Maryland corporation (the "Company") and L. STEVEN MILLER (the
"Executive").
WHEREAS, the Company and the Executive have previously entered into an
Employment Agreement (the "Employment Agreement") dated as of September 11,
1998; and
WHEREAS, the parties desire that the Employment Agreement shall be converted
into a consulting arrangement pursuant to the terms and conditions set forth
herein, and, consequently, that from the date of this Agreement forward, the
Employment Agreement shall be referred to as the "Consulting Agreement"; and
WHEREAS, the Company and Executive have entered into a Severance Payment
Agreement on even date herewith (the "Severance Payment Agreement"), providing
for the payment of certain specified sums to Executive, which sums are in
addition to the amounts due and payable under this Consulting Agreement; and
NOW THEREFORE, in furtherance of the foregoing objectives and in consideration
of and for the payment and receipt of good, valuable and sufficient
consideration, which is hereby acknowledged as having been received by each of
the parties hereto, they agree to the terms of this Consulting Agreement, which
are set forth as follows:
1. Term.
-----
The parties agree that commencing January 20, 2000, Executive's employment
pursuant to the Employment Agreement is converted into a consulting
arrangement as detailed herein. Except as expressly provided in this
Consulting Agreement, all provisions of the Employment Agreement are
deleted and, as appropriate, are superceded or replaced by the provisions
of this Consulting Agreement. The term of this Consulting Agreement (also
referred to herein as the "Consulting Period") shall continue until January
19, 2004 (the "Termination Date") or such sooner time as provided in
Section 4, herein. Notwithstanding any language to the contrary contained
within the Employment Agreement, Executive's total compensation for the
period between January 1 and January 31, 2000 including all base salary and
bonuses shall be $29,167. Except for the payments set forth below, and the
$29,167 for January referenced above, and the payments due under the
Severance Payment Agreement, Company has no other compensation obligations
to Executive, including payments for vacation, sick days, discretionary
time off, or otherwise, it being agreed that all such obligations have been
fully satisfied by the Company. Notwithstanding the foregoing, the Company
shall also reimburse Executive for his reasonable out of pocket moving
1
<PAGE>
expenses incurred in connection with relocating his household and personal
effects to Indianapolis, Indiana.
2. Duties and Responsibilities.
----------------------------
During the Consulting Period, the Executive agrees to consult with and
advise the Company on any and all matters consistent with his prior duties
that the Company might request including, but not limited to, the areas
covered by the Executive's responsibilities pursuant to Section 3 of the
Employment Agreement, for not more than ten (10) hours per month. Monthly
hours are not cumulative.
3. Compensation and Related Matters.
---------------------------------
(a) During the Consulting Period, the Company shall pay the Executive 48
consecutive monthly payments on the last day of each month commencing
on February 29, 2000, in the amount of $3,000 each, which shall not be
subject to set off or reduction except as otherwise provided in this
Consulting Agreement. All consulting fees shall be paid by the
Company in a manner consistent with the standard payroll practices of
the Company (e.g., timing of payments and required deductions or other
----
withholdings). The Executive shall be considered an independent
consultant for purposes of determining appropriate withholding,
unemployment insurance and any other related matters. The Executive
is free to pursue and engage in other business activities, subject to
the confidentiality and non-solicitation provisions contained in this
Consulting Agreement.
(b) Business Expenses.
------------------
The Company shall reimburse the Executive for reasonable and customary
expenses incurred by the Executive in connection with the performance
and services pursuant to this Consulting Agreement upon presentation
of sufficient evidence of such expenditures consistent with the
Company's policies as may be in place from time to time.
(c) Other Benefits.
---------------
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.
(d) Stock Options.
--------------
Notwithstanding anything to the contrary contained within this
Consulting Agreement, the Employment Agreement or the Option Agreement
described on Exhibit "A" to the Employment Agreement, (hereinafter
"Option Agreement"), or the Stock Option Agreement, dated as of
January
2
<PAGE>
21, 1999 (hereinafter the "Additional Option Agreement") the Company
and the Executive hereby agree (a) that Section 3.1(a) and Sections
3.3(b) and (c) of the Option Agreement are hereby clarified and, to
the extent necessary, modified, to state that those options that have
been granted and which are exercisable as of January 19, 2000 (namely
276,750 shares) shall continue to be exercisable until 90 days after
the termination of this Consulting Agreement, but that no additional
options will become exercisable at any time, (b) that Section 3.1(a)
and Sections 3.3(b) and (c) of the Additional Option Agreement are
hereby clarified and, to the extent necessary, modified to state that
those options that have been granted and which are exercisable as of
January 19, 2000 (namely 19,110 shares) shall continue to be
exercisable until 90 days after the termination of this Consulting
Agreement, but that no additional options will become exercisable at
any time, and (c) that notwithstanding any provisions of the Option
Agreement or the Additional Option Agreement, options that have been
granted but are not exercisable as of January 19, 2000 under Section
3.1(a) of both the Option Agreement or the Additional Option Agreement
shall terminate as of the first day of this Consulting Agreement.
Nothing contained herein, however, shall require that such provision
be included in any subsequent option agreement that may be entered
into between the Company and the Executive. This Section 3(d) is
intended to supercede the provisions of Section 3.3(a) of the Option
Agreement and the Additional Option Agreement, respectively.
Company agrees (a) that the relationship established by this Agreement
constitutes the "simultaneous establishment of a consulting
relationship" between the Company and the Executive as described in
the Option Agreement and the Additional Option Agreement, and (b) to
process Executive's exercise of options in the same fashion and as
expeditiously as it normally processes similar actions for other
persons. To the extent that registered shares are available for
issuance upon exercise of the option, Company will issue registered
shares to Executive. Executive further agrees that to the extent he
anticipates entering into the market to sell any of the shares
received upon exercise, that he will consult with and cooperate with
reasonable requests of the Company or the Company's designated
investment banker with respect to the timing and amount of such sales
in order to avoid any adverse market affect from such dispositions.
4. Termination.
------------
This Consulting Agreement shall be, or may be, as the case may be,
terminated under the following circumstances:
(a) Death. This Consulting Agreement shall terminate upon the death of the
------
Executive.
3
<PAGE>
(b) Disability. This Consulting Agreement shall terminate upon the
-----------
physical or mental disability of the Executive which, in the opinion
of a competent physician selected by the Board of Directors of the
Company, renders the Executive unable to perform his duties under this
Consulting Agreement for more than 120 days in any 180-day period.
(c) Cause. The Company may terminate this Consulting Agreement for
------
"cause". Cause shall be defined as Section 5(c) of the Employment
Agreement, except that reference is made to the duties under this
Consulting Agreement, and that Executive satisfies his duties pursuant
to Section 2 by making himself available for the time required
therein.
(d) Executive's Termination. The Executive may voluntarily terminate this
------------------------
Consulting Agreement at any time by delivery of a written notice to
the Company (the "Notice of Termination"). The Notice of Termination
shall set forth the dates that termination shall become effective (the
"Date of Termination"), 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 Termination 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.
(e) Notice. Any termination of this Agreement by the Company shall be
-------
communicated by a 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
Consulting Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Consulting Agreement under the provision so
indicated.
(f) Date of Consulting Termination. "Date of Consulting Termination" shall
-------------------------------
mean (i) if the Consulting Agreement is terminated by death, the date
of death, (ii) if the Consulting Agreement is terminated by reason of
disability, the date of the opinion of the physician referred to in
Section 4(b) above, (iii) if the Consulting Agreement is terminated by
the Company for cause pursuant to Section 4(c) above, the date
specified in the Notice of Termination, and (iv) if the Executive
should terminate this Agreement pursuant to Section 4(d) above, the
Date of Termination.
(g) Termination Obligations. The termination obligations contained in
------------------------
Section 5(h) and 5(i) of the Employment Agreement shall also apply to
a termination of the Consulting Agreement, it being understood that
the phrase "Employment Period" as contained in Section 5(h) of the
Employment Agreement shall be amended to read "Consulting Period" and
the reference in such Section to Section "8" shall have no further
effect.
4
<PAGE>
5. Compensation upon Termination.
------------------------------
(a) Death. If this Consulting Agreement should be terminated pursuant to
------
Section 4(a), the Company shall pay the Executive's Personal
Representative pursuant to Section 3(a) the amounts entitled to be
received, by the Executive and according to the same schedule of
payments, (the "Post Consulting Payment"), until the Termination Date.
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.
(b) Disability. If this Consulting Agreement should be terminated by
-----------
reason of disability pursuant to Section 4(b), the Executive shall,
receive the Post-Consulting Payment, until the earlier of (i) the
determination of such disability in accordance with Section 4(b), or
(ii) the Termination Date, provided that any payments so made to the
Executive during the disability should 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. At
the Executive's own expense, the Executive and his dependents shall
also be entitled to any continuation of health insurance rights under
any applicable law.
(c) Cause. If the Company terminates this Consulting Agreement for Cause
------
pursuant to Section 4(c) hereof, the Company shall pay the Executive
any accrued consulting fee through the Termination Date. 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) Executive's Termination. If the Executive terminates this Consulting
------------------------
Agreement for any reason other than "Good Cause" as defined herein,
the Company shall only be required to pay to the Executive the amounts
of consulting fees described in Sections 3(a) and 3(b) hereof through
the Date of Termination. In the event the Executive terminates his
Consulting Agreement for "Good Cause," the Company shall pay the
Executive the consulting payment until the expiration date of the
Consulting Agreement. If the Executive terminates this agreement
without "Good Cause," the Company shall have no obligation to
compensate the Executive following such termination. In this 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 Consulting Agreement,
"Good Cause" shall mean a material breach by the Company of any
material provision of this Consulting Agreement.
5
<PAGE>
(e) The provisions of Sections 6(i) of the Employment Agreement, shall
apply to this Consulting Agreement, by substituting for the term
"Severance Payment" the term "Post-Consulting Payment" and by reading
such provisions to apply to the termination of the Consulting
Agreement hereunder; furthermore the reference such Section to Section
"8" shall have no further effect.
6. Personal Computer, Laptop, etc.
-------------------------------
Executive shall be permitted to retain the Company's personal computer,
laptop and printer provided that all files, data and information contained
therein shall be downloaded to disks, the disks delivered to the Company
and the files resident on the personal computer and laptops deleted and
purged therefrom Executive shall also be entitled to retain the following
items of personal property: palm pilot and cell phone.
7. Confidentiality, Non-Solicitation, Non-Compete and Injunctive Relief.
---------------------------------------------------------------------
The parties acknowledge that the provisions of Sections 7 and 9 of the
Employment Agreement shall equally apply to the provisions of this
Consulting Agreement; provided that the "employment period" shall include
the "consulting period" and that all time periods for the obligations set
forth in those Sections 7 and 9 shall continue for a period of two years
following the termination of this Consulting Agreement. Until two years
following termination of this Consulting Agreement, Executive agrees not to
talk about, write about or otherwise publicize any derogatory information
or documentation concerning the business of the Company, the financial
affairs of the Company, the operation of any of the resorts owned or
managed by the Company, his employment with the Company, the termination of
his employment, other Company employees, or the terms or existence of this
Agreement unless required by law or for accounting or tax purposes. The
provisions of paragraph 8 containing Employee's agreement not to compete
with the Company are hereby deleted in their entirety. Executive and
Company agree to reasonably cooperate in defending any litigation against
the Company and/or Executive for events or actions that occurred during the
Executive's employment including, but not limited to, providing truthful
information and testimony in connection with any such legal proceedings.
The Company agrees that in any letter or reference, referral or
recommendation that it will not make any derogatory statements concerning
Executive, his employment with the Company, the termination of his
employment, or publicly disseminate any information concerning the terms or
existence of this Agreement, unless required by law or for accounting or
tax purposes.
8. Miscellaneous Provisions. The parties acknowledge that the provisions of
-------------------------
Sections 10 (except that the Company's address for notice is hereby changed
to: Sunterra Corporation, 1781 Park Center Drive, Orlando FL. 32835, Attn.:
Thomas A. Bell), 12, 13,14, 15, 16, 17, 18, 19 and 20 of the Employment
Agreement shall continue to apply during the term of this Consulting
Agreement. Except as
6
<PAGE>
modified herein, all terms and conditions of the Option Agreement and the
Additional Option Agreement shall remain in full force & effect.
9. Indemnification.
-----------------
Nothing contained in this Agreement, the Severance Payment Agreement or the
Release shall affect the right of the Executive to the indemnification
provided by the Company pursuant to Article IX of the Bylaws of the Company
as in effect on the date hereof, as well as all rights to indemnification
by the Company to which he is entitled under the articles of incorporation
of the Company and the Maryland General Corporation Law, and shall be
entitled to the benefit of any directors and officers liability insurance
coverage maintained by the Company.
10. Severability.
-------------
The invalidity or unenforceability of any provision or provisions of this
Consulting Agreement shall not affect the validity or enforceability of any
other provision of this Consulting Agreement, which shall remain in full
force and effect.
11. Effect of Revocation of General Release.
----------------------------------------
The parties acknowledge that Executive has executed a General Release and
Waiver in favor of Company dated January 29, 2000 (the "Release"). In the
event that Executive should exercise his right to revoke the Release as
described therein, the parties agree that such revocation will
automatically revoke this Consulting Agreement as of its effective date as
if it had never been executed by the parties.
In witness whereof, the undersigned have hereunto set their hands and seal,
either personally or through an authorized corporate representative, as of the
day and year first written above.
COMPANY: EXECUTIVE:
SUNTERRA CORPORATION,
a Maryland corporation /s/ L. Steven Miller
-------------------------
L. Steven Miller
By: /s/ [ILLEGIBLE]
-----------------------
As its: Co-Chairman
7
<PAGE>
EX-10.27
Severance Payment Agreement
This Agreement is entered into this 29th day of January, 2000, but effective as
of the 20th day of January, 2000 by and between Sunterra Corporation, a Maryland
Corporation (hereinafter "Sunterra") and L. Steven Miller (hereinafter
"Miller").
WHEREAS, Sunterra and Miller have previously entered into that certain
Employment Agreement dated as of September 11, 1998 (hereinafter "Employment
Agreement") which provided for employment of Miller by Sunterra and terms
related to the termination of that employment, and
WHEREAS, Sunterra and Miller have mutually agreed to the cessation, without
cause, of Miller's full time employment by Sunterra, and
WHEREAS, Sunterra and Miller have mutually agreed that as a result of such
cessation, Miller shall be paid certain severance payments;
NOW THEREFORE in consideration of the mutual promises herein contained as
well as in full satisfaction of Sunterra's severance obligations pursuant to the
Employment Agreement, both Miller and Sunterra agree as follows:
1) Miller and Sunterra each agree to enter into that certain Consulting
Agreement, a copy of which is attached hereto as Exhibit "A".
2) Sunterra shall pay to Miller the sum of $876,000 payable in 24 equal monthly
installments of $36,500 commencing February 29, 2000 and continuing on the
last day of each month thereafter until paid in full (the "Severance
Payments").
3) Any violation or breach of the Consulting Agreement shall not affect
Sunterra's obligation to make all of the Severance Payments due hereunder.
4) In the event that Miller should exercise his right to revoke the General
Release and Waiver executed by Miller in favor of Sunterra dated January 28,
2000, then this Agreement shall be revoked as of its effective date as if
never entered into between the parties without any liability for any accrued
payment.
5) In the event of any dispute related to this Agreement, venue for such action
shall be in Orange County, Florida.
Agreed to by and between the parties hereto as of the date set forth above.
Sunterra Corporation
By: /s/ Stan Chapman /s/ L. Steven Miller
--------------------------- -----------------------------
As its: CO. CHAIRMAN L. Steven Miller
<PAGE>
EX-10.28
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "First
Amendment"), dated as of March __, 2000, is entered into by and among SUNTERRA
CORPORATION, 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, HARICH TAHOE DEVELOPMENTS, a
Nevada general partnership, 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") and BANK OF
AMERICA, N.A., in its capacity as the Administrative Agent under the Credit
Agreement (the "Administrative Agent").
BACKGROUND
----------
A. The Borrower, the Lenders and the Administrative Agent are parties to a
certain Amended and Restated Credit Agreement, dated as of December 31, 1999
(the "Original Credit Agreement") (the Original Credit Agreement, as amended and
modified by that certain letter agreement, dated as of January 24, 2000, and as
otherwise amended, supplemented, modified and/or restated from time to time,
being referred to herein as 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 Guarantors, the Administrative Agent and the Lenders
have heretofore entered into the Forbearance Agreement, as such term is defined
herein.
D. The Lenders and the Administrative Agent have been requested by the
Borrower and the Guarantors to expand their respective obligations under the
Credit Agreement and to make additional advances beyond their current
obligations and none of the Lenders nor the Administrative Agent are willing to
enter into this First Amendment or to expand their obligations in connection
therewith in the absence of the agreements of the Borrower and the Guarantors
set forth herein and the delivery of additional collateral to the Lenders and
the Administrative Agent on the effective date of this First Amendment.
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
<PAGE>
hereby acknowledged, the Borrower, the Guarantors, the Administrative Agent and
the Lenders covenant and agree as follows:
1. AMENDMENTS.
----------
1.1 Article I of the Credit Agreement is hereby amended by adding
thereto the following additional defined terms:
"`Extension of Forbearance Agreement' means that certain Extension of
----------------------------------
Forbearance Agreement, dated as of February 18, 2000, among the
Borrower, the Guarantors, the Administrative Agent and the Lenders."
"`Existing Violations' means, collectively, the events and
-------------------
circumstances specifically described in Schedule "1" attached hereto,
------------
insofar and only insofar, as the occurrence and/or existence of such
------------------------
events or circumstances (as such events and circumstances are
specifically described in Schedule "1" attached hereto and as such
------------
events and circumstances exist as of the date of the First Amendment)
might constitute a Default and/or an Event of Default under the Credit
Agreement and/or the other Loan Documents as of the date of the First
Amendment. Provided, however, that the term `Existing Violations'
-------------------
shall not mean or include (i) any of the events or circumstances
described in Schedule "1" attached hereto insofar as the occurrence
------------
and/or continuation of such event or circumstance may constitute, or
result in, any violation, breach, default or event of default
(howsoever designated) under any note, bond, other evidence of
indebtedness, agreement, contract or other arrangement (in each case,
other than the Credit Agreement and the other Loan Documents), or (ii)
any of the events or circumstances described in Schedule "1" attached
------------
hereto insofar as such event or circumstance may, at any time after
the date of the First Amendment, change, vary, develop, or otherwise
be, or become, different, in any adverse and material respect, than it
is as of the date of the First Amendment. By way of illustration only,
and without limiting the generality of the foregoing, the existence of
any lawsuit described or referred to in Schedule "1" attached hereto
------------
would constitute an `Existing Violation'; however, any adverse and
------------------
material ruling, judgment, determination or other development in
connection with any such lawsuit would constitute an adverse and
material change with respect to such lawsuit and, as such, such
lawsuit would not, thereafter, constitute an `Existing Violation'."
------------------
-2-
<PAGE>
"`First Amendment' means that certain First Amendment to Amended and
---------------
Restated Credit Agreement, dated as of March __, 2000, among the
Borrower, the Guarantors, the Administrative Agent (for the limited
purposes set forth therein) and the Lenders."
"`Forbearance Agreement' means the Original Forbearance Agreement, as
---------------------
modified, amended and extended by the Extension of Forbearance
Agreement."
"`Original Forbearance Agreement' means that certain Forbearance
------------------------------
Agreement, dated as of February 8, 2000, among the Borrower, the
Guarantors, the Administrative Agent and the Lenders."
1.2 The definition of "Commitment" set forth in Article I of the
Credit Agreement is hereby amended to read as follows:
"`Commitment' means $38,400,000, as reduced from time to time pursuant
----------
to Section 2.6 hereof."
------------
1.3 The definition of "Maturity Date" set forth in Article I of the
Credit Agreement is hereby amended to read as follows:
"`Maturity Date' means January 3, 2001, or the earlier date of
-------------
termination in whole of the Commitment pursuant to Section 2.6 or 8.2
----------- ---
hereof."
1.4 The Lenders and the Administrative Agent hereby waive the
Defaults and the Events of Default that are specifically described in
Schedule "1" attached hereto and that exist, or that may exist, as of the
- ------------
effective date of this First Amendment by virtue of the occurrence and/or
existence of the Existing Violations. The foregoing waiver by the Administrative
Agent and the Lenders shall apply exclusively to the events and circumstances
expressly set forth therein and shall not constitute a waiver with respect to
any other or additional Default(s), Event(s) of Default, event(s) or
circumstance(s), whether now existing or hereafter arising, and shall not
otherwise limit, impair, reduce or affect the rights and/or remedies that may
now or hereafter be available to the Administrative Agent and/or any of the
Lenders under the Credit Agreement, the other Loan Documents or otherwise in
connection with, or as a result of, the occurrence and/or existence of any other
or additional Default and/or Event of Default, whether now existing or hereafter
arising.
1.5 Notwithstanding anything to the contrary contained in the Credit
Agreement and/or the Forbearance Agreement, the Borrower, the Administrative
Agent and the Lenders hereby agree that, unless and until the Determining
Lenders agree to the contrary in writing, the Borrower shall not be entitled to
borrow, and no Lender shall be obligated to make, any
-3-
<PAGE>
Advance if, after giving effect to such requested Advance, the aggregate amount
of (i) all outstanding Advances, plus (ii) all outstanding Reimbursement
Obligations would exceed (x) $35,400,000, less (y) the amount of any repayments
of the principal balance of the Advances after the effective date of this First
Amendment.
1.6 Notwithstanding anything to the contrary contained in the Credit
Agreement and/or the Forbearance Agreement, the Administrative Agent and the
Lenders agree that, notwithstanding the sublimit with respect thereto contained
in the definition of the term "Borrowing Base" in the Credit Agreement but
subject to the other terms hereof and of the Credit Agreement and the other Loan
Documents, they will allow up to 22% of the Borrowing Base to be attributable to
Eligible Notes Receivable having an original term greater than 121 months.
1.7 Notwithstanding anything to the contrary contained in the Credit
Agreement and/or the Forbearance Agreement, the Borrower, the Administrative
Agent and the Lenders hereby agree that, notwithstanding anything to the
contrary contained in the Credit Agreement or any of the other Loan Documents,
the portion of the Borrowing Base attributable to Notes Receivable in respect of
which the applicable Purchaser has not timely made at least the first regularly
scheduled installment payment thereon in accordance with the terms of the
applicable Note Receivable shall equal thirty percent (30%) of the aggregate
unpaid principal balance of such Notes Receivable; provided, however, the
-----------------
portion of the Borrowing Base attributable to such Notes Receivable shall not,
at any time, exceed fifteen percent (15%) of the total amount of the Borrowing
Base.
1.8 Notwithstanding anything to the contrary contained in the Credit
Agreement and/or the Forbearance Agreement, the Administrative Agent and the
Lenders agree that, from and after the effective date of this First Amendment,
the Lenders will allow up to 100% of the Borrowing Base to be attributable to
Non-Standard Receivables.
1.9 Notwithstanding anything to the contrary contained in the Credit
Agreement and/or the Forbearance Agreement, the Borrower, the Administrative
Agent and the Lenders hereby agree that, unless and until the Determining
Lenders agree to the contrary in writing, the component of the Borrowing Base
attributable to Non-Standard Receivables (other than Non-Standard Receivables
referred to in Section 1.7 of this First Amendment) shall be equal to fifty five
-----------
percent (55%) of the aggregate unpaid principal balance of such Non-Standard
Receivables.
1.10 Notwithstanding anything to the contrary contained in the Credit
Agreement and/or the Forbearance Agreement, the Borrower, the Administrative
Agent and the Lenders hereby agree that, unless and until the Administrative
Agent advises the Borrower to the contrary, Notes Receivable that would
otherwise qualify as Eligible Notes Receivables, except solely for the fact that
the Purchaser in respect of such Notes Receivable did not initially make a cash
down payment of at least ten percent (10%) of the aggregate actual
-4-
<PAGE>
purchase price of all Time-Share Interests purchased by such Purchaser, shall
constitute Eligible Notes Receivable for purposes of calculating the Borrowing
Base if, and only to the extent that, (i) the outstanding principal balance of
-------------------------------
any such Note Receivable does not, at any time that any such Note Receivable is
included in the Borrowing Base, exceed ninety percent (90%) of the actual
purchase price of the corresponding Time-Share Interest purchased by the
applicable Purchaser, and (ii) not more than fifteen percent (15%) of the total
Borrowing Base is attributable, at any time, to such Notes Receivable in the
aggregate.
1.11 The Borrower, the Administrative Agent and the Lenders hereby agree
that, notwithstanding anything to the contrary contained in the Credit Agreement
or any of the other Loan Documents, from and after the effective date of this
First Amendment, unless all of the Lenders agree to the contrary, the Borrower
shall not be entitled to re-borrow, and no Lender shall have any obligation to
advance, any portion of the outstanding principal amount of Advances repaid
after the effective date of this First Amendment.
1.12 The Borrower, the Administrative Agent and the Lenders hereby agree
that, notwithstanding anything to the contrary contained in the Credit Agreement
or any of the other Loan Documents, from and after the effective date of this
First Amendment, except as expressly provided to the contrary in this Section
-------
1.12, until all of the Obligations have been finally and indefeasibly paid in
- ----
full, the Borrower shall not be entitled to obtain the release of any Collateral
without the prior consent of all Lenders; provided, however, that
notwithstanding the occurrence, existence and continuation of any Default or
Event of Default, the Lenders expressly authorize the Administrative Agent to
release any Lien in favor of the Administrative Agent and/or the Lenders with
respect to, and/or deliver (or authorize the delivery of) physical possession
of, any Note(s) Receivable as to which (a) the Borrower certifies to the
Administrative Agent that such Note Receivable (i) has been paid in full by the
obligor(s) with respect thereto, (ii) evidences the prior obligation of a
Purchaser with respect to which such Purchaser has upgraded such Purchaser's
Time-Share Interest and, as such, the Note Receivable as to which such release
is requested has been replaced by a replacement Note Receivable from such
Purchaser, or (iii) is in default and the possession of such Note Receivable by
the Borrower or the applicable Guarantor is necessary for purposes of the
exercise by the Borrower or the applicable Guarantor of its foreclosure or other
remedies thereunder or in connection therewith, and (b) contemporaneously with
any such release of Lien or delivery of physical possession of any such Note
Receivable, the Borrower makes a mandatory prepayment of the outstanding
Advances in an amount (calculated on a Note Receivable-by-Note Receivable basis)
equal to the greater of (i) the portion of the Borrowing Base, if any,
attributable, as of the date of such requested release or delivery, to each Note
Receivable covered or affected thereby, and (ii) as applicable, (x) with respect
to each Note Receivable of the type described in clause (a)(i) above and covered
or affected by such release or delivery, 60% of the outstanding principal
balance thereof as of the date of the making by the obligor(s) with respect
thereto of the most recently scheduled payment thereon, or (y) with respect to
each Note Receivable of the type described in clause (a)(ii) above and covered
or affected by such release or delivery, 60% of the
-5-
<PAGE>
outstanding principal balance thereof as of the date of the requested release of
Lien or delivery of possession with respect thereto, or (z) with respect to each
Note Receivable of the type described in clause (a)(iii) above and covered or
affected by such release or delivery, 30% of the outstanding principal balance
thereof as of the date of the requested release of Lien or delivery of
possession with respect thereto.
1.13 Notwithstanding anything to the contrary contained in the Credit
Agreement and/or the Forbearance Agreement, the Borrower, the Administrative
Agent and the Lenders hereby agree that all Advances shall be and shall
constitute Reference Rate Advances and shall, from (and including) and after the
date of the First Amendment, bear interest at a per annum rate equal to (i) the
Reference Rate, plus (ii) 2.00%.
1.14 Notwithstanding anything to the contrary contained in the Credit
Agreement and/or the Forbearance Agreement, the Letter of Credit Facility is
terminated, effective as of the date of this First Amendment, and the Borrower
shall not be entitled to request, and the Issuing Bank shall be not be obligated
to issue, any Letter of Credit.
1.15 Notwithstanding anything to the contrary contained in the Credit
Agreement and/or the Forbearance Agreement, the Borrower shall not be entitled
to request, and none of the Lenders shall be obligated to make, any Advances as
LIBOR Advances.
1.16 The Borrower hereby acknowledges and agrees that the audit and
consultation work currently being performed for the Administrative Agent and the
Lenders by Pricewaterhouse Coopers L.L.P. is warranted pursuant to Section 5.7
-----------
of the Credit Agreement and the Borrower hereby acknowledges its obligation to
cooperate with such financial consultation and to pay the expenses thereof.
2. ADDITIONAL COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF
-------------------------------------------------------------------
BORROWER AND GUARANTORS. 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 and waiver contemplated by the
foregoing Section 1:
(a) The representations and warranties contained in the Credit Agreement
are true and correct on and as of the date hereof as if made on and as of such
date;
(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; this First Amendment constitutes a Loan Document; 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
-6-
<PAGE>
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);
(e) No authorization, approval, consent, or other action by, notice to, or
filing with, any governmental authority or other Person (including, without
limitation, 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; the execution, delivery and
performance by the Borrower and the Guarantors of this First Amendment do not
violate or contravene, or constitute a breach, violation, default or event of
default (howsoever designated) under any contract, indenture or other agreement
to which the Borrower or any Guarantor is a party or by which the Borrower, any
Guarantor or any of their respective property or assets are bound;
(f) Each of the Guarantors hereby acknowledges and agrees that its
obligations and liabilities to the Administrative Agent and the Lenders under
its guaranty of the Obligations of the Borrower to the Administrative Agent and
the Lenders (i) are hereby ratified and confirmed, and (ii) shall not be
limited, reduced, impaired or otherwise effected by this First Amendment, the
transactions contemplated hereby or any other event or circumstance (other than
the execution and delivery by the Administrative Agent and the requisite Lenders
under the Loan Documents of a written release with respect to such guaranty by
such Guarantor);
(g) The Borrower and each of the Guarantors hereby acknowledges and agrees
that it has heretofore executed and delivered certain collateral documents in
favor of the Administrative Agent and/or the Lenders, as security for the
Obligations, all of which (i) are hereby ratified and confirmed by the Borrower
or the applicable Guarantor, and (ii) shall not be limited, reduced, impaired or
otherwise affected by this First Amendment, the transactions contemplated hereby
or any other event or circumstance (other than the execution and delivery by the
Administrative Agent of a written release or reconveyance with respect to any
collateral document, or any specific property covered thereby). In furtherance
of the foregoing and without limiting any collateral document heretofore or
hereafter executed, or otherwise existing, in connection with the Obligations,
as security for the Obligations, the Borrower and each Guarantor hereby grants
to the Administrative Agent, for the ratable benefit of the Lenders (the
"Secured Party"), a first-priority security interest in, and
-7-
<PAGE>
collaterally transfers, assigns and conveys unto the Secured Party, the
following described property, to-wit:
Any and all promissory notes (and the indebtedness evidenced thereby) (together
with any and all modifications, amendments, extensions, renewals and/or
restatements thereto or thereof or of the indebtedness evidenced thereby), and
liens securing same, together with any and all other or additional extensions,
modifications, restatements, guaranties, deeds of trust, vendor's liens,
security agreements, financing statements and/or other documents, instruments or
agreements executed in connection therewith or securing the payment of same, and
any and all proceeds, increases, substitutions, products, accessions, and
attachments thereof or thereto, including, without limitation, all securities,
subscription rights, dividends, payments under insurance policies covering any
such property (whether or not Secured Party is named as loss payee thereof),
other payments or remittances, funds, bank accounts, contract rights,
receivables, general intangibles or other property (whether tangible, intangible
or otherwise), rights or benefits which the Borrower or the applicable Guarantor
is entitled to receive on account of any such property, to the extent that such
------------------
promissory note(s), or any of same, may (i) heretofore, contemporaneously
herewith or hereafter be, or have been, delivered to, or may otherwise be in the
actual or constructive possession of, any other person acting as custodian or
bailee for the Secured Party pursuant to agreement among the Secured Party, the
Borrower or the applicable Guarantor and such other person, or (ii) heretofore,
contemporaneously herewith or hereafter be, or have been, delivered to, or may
otherwise be in the actual possession of, the Secured Party; and
(h) At any time or from time to time upon request by the Determining
Lenders, the Borrower and each Guarantor shall execute and deliver to the
Administrative Agent such financing statements, continuations statements,
collateral documents and other or additional agreements, certificates and other
documents, and shall do such other acts and things, as the Determining Lenders
may reasonably request in order to more fully effectuate the purposes of this
First Amendment, the Credit Agreement and/or the other Loan Documents.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
---------------------------
upon the satisfaction of the following conditions precedent, unless the
Determining Lenders, in their sole discretion waive, any of such conditions
precedent:
(a) the Administrative Agent shall have received a counterpart of this
First Amendment executed by all of the Lenders under the Credit Agreement;
(b) the Administrative Agent shall have received a counterpart of this
First Amendment executed by the Borrower and by each Guarantor;
(c) the Lenders shall have received, as additional Collateral for the
Obligations, a valid and perfected first-priority Lien upon, and pledge of, such
Notes Receivable of the Borrower and/or the Guarantors, attributable to the
Ridge Pointe Project, located in South
-8-
<PAGE>
Lake Tahoe, Nevada, as shall be acceptable to the Lenders, pursuant to, and in
accordance with the terms of, the applicable Custody Agreement(s) and such other
or additional documentation as the Lenders shall deem necessary and/or
appropriate;
(d) the Administrative Agent 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
any and all documents required hereunder;
(e) To the extent that the Administrative Agent and/or any Lender(s) shall
have notified the Borrower of same prior to the satisfaction of the other
conditions precedent set forth in this Section 3, the Borrower shall have
---------
reimbursed the Administrative Agent and each such Lender, as applicable, for all
costs and expenses of the Administrative Agent and of each such Lender in
connection with the negotiation, preparation, reproduction, execution and
delivery of this First Amendment and the other instruments and documents to be
delivered hereunder, and the due diligence investigation in connection
therewith, (including, without limitation, the reasonable fees and out-of-pocket
expenses of the respective counsel for the Administrative Agent and each Lender
with respect thereto and with respect to advising the Administrative Agent or
such Lender, as applicable, as to its rights and responsibilities under the
Credit Agreement, as hereby amended, and all due diligence expenses, travel
costs and expenses, title insurance costs and filing and recordation fees); and
(f) the Administrative Agent shall have received, in form and substance
satisfactory to the Determining Lenders, such other documents, certificates,
legal opinions and instruments as the Determining Lenders shall require.
4 RELEASE. THE BORROWER AND EACH OF THE GUARANTORS (INDIVIDUALLY, A
-------
"RELEASING PARTY" AND, COLLECTIVELY, THE "RELEASING PARTIES") HEREBY ACKNOWLEDGE
--------------- -----------------
AND AGREE THAT NONE OF THE RELEASING PARTIES HAVE ANY DEFENSES, COUNTERCLAIMS,
OFFSETS, CROSS-COMPLAINTS, CLAIMS OR DEMANDS OF ANY KIND OR NATURE WHATSOEVER
THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF LIABILITY OF SUCH
RELEASING PARTY(IES) TO REPAY THE ADMINISTRATIVE AGENT OR EACH LENDER AS
PROVIDED IN THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS OR TO SEEK
AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM THE ADMINISTRATIVE
AGENT OR ANY LENDER. EACH RELEASING PARTY HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES THE ADMINISTRATIVE AGENT, BANC OF AMERICA
SECURITIES, LLC, EACH LENDER, AND THEIR RESPECTIVE PREDECESSORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS,
CAUSES OF ACTION, DAMAGES, COSTS, OR EXPENSES, AND LIABILITIES
-9-
<PAGE>
WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR
UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING
IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH ANY
RELEASING PARTY MAY NOW OR HEREAFTER HAVE AGAINST THE ADMINISTRATIVE AGENT, BANC
OF AMERICA SECURITIES, LLC, OR ANY LENDER, AND/OR THEIR RESPECTIVE PREDECESSORS,
AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER
ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE CREDIT AGREEMENT OR OTHER LOAN DOCUMENT, AND NEGOTIATION AND
EXECUTION OF THIS AGREEMENT.
The Releasing Parties acknowledge and agree that they understand the
meaning and effect of Section 1542 of the California Civil Code which provides:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
THE RELEASING PARTIES AGREE TO ASSUME THE RISK OF ANY AND ALL UNKNOWN,
UNANTICIPATED OR MISUNDERSTOOD DEFENSES, CLAIMS, CONTRACTS, LIABILITIES,
INDEBTEDNESS AND OBLIGATIONS WHICH ARE RELEASED, WAIVED AND DISCHARGED BY THIS
AGREEMENT. THE RELEASING PARTIES HEREBY WAIVE AND RELINQUISH ALL RIGHTS AND
BENEFITS WHICH THEY MIGHT OTHERWISE HAVE UNDER THE AFOREMENTIONED SECTION 1542
OF THE CALIFORNIA CIVIL CODE OR ANY SIMILAR LAW, TO THE EXTENT SUCH LAW MAY BE
APPLICABLE, WITH REGARD TO THE RELEASE OF SUCH UNKNOWN, UNANTICIPATED OR
MISUNDERSTOOD DEFENSES, CLAIMS, CONTRACTS, LIABILITIES, INDEBTEDNESS AND
OBLIGATIONS. TO THE EXTENT THAT SUCH LAWS MAY BE APPLICABLE, THE RELEASING
PARTIES WAIVE AND RELEASE ANY RIGHT OR DEFENSE WHICH THEY MIGHT OTHERWISE HAVE
UNDER ANY OTHER LAW OF ANY APPLICABLE JURISDICTION WHICH MIGHT LIMIT OR RESTRICT
THE EFFECTIVENESS OR SCOPE OF ANY OF ITS WAIVERS OR RELEASES HEREUNDER.
5 COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
-------------------------
costs and expenses of the Administrative Agent and of each 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-
-10-
<PAGE>
of-pocket expenses of the respective counsel for the Administrative Agent and
each Lender with respect thereto and with respect to advising the Administrative
Agent or such Lender, as applicable, as to its rights and responsibilities under
the Credit Agreement, as hereby amended, and including travel costs and expenses
and the audit and consulting fees and expenses of Pricewaterhouse Coopers L.L.P.
or any other accountant(s) retained by the Administrative Agent under the Credit
Agreement).
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 California and
shall be binding upon the parties hereto and their respective successors and
assigns.
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 SEVERABILITY. Any provision of this First Amendment held by a court of
------------
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this First Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
10 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: SUNTERRA CORPORATION
By: /s/ Richard Goodman
---------------------------------
Richard Goodman
---------------------------------
Executive Vice President
---------------------------------
Chief Financial Officer
-11-
<PAGE>
GUARANTORS: ALL SEASONS RESORTS, INC., an Arizona
corporation
By: /s/ Richard Goodman
-----------------------------------
Name: Richard Goodman
---------------------------------
Title: Treasurer
--------------------------------
ALL SEASONS RESORTS, INC., a Texas
corporation
By: /s/ Richard Goodman
----------------------------------
Name: Richard Goodman
--------------------------------
Title: Treasurer
-------------------------------
GRAND BEACH RESORT, LIMITED PARTNERSHIP,
a Georgia limited partnership
By: Grand Beach Partners, L.P., a
California limited partnership, its
general partner
By: Argosy/KGI Grand Beach Investments
Partnership, a California general
partnership, its general partner
By: KGI Grand Beach Investments,
Inc., its managing general partner
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
-12-
<PAGE>
GREENSPRINGS ASSOCIATES, a Virginia joint
venture
By: Plantation Resort Group, Inc., a Virginia
corporation, a joint venturer
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
By: Greensprings Plantation Resort, Inc., a
Virginia corporation, a joint venturer
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
HARICH TAHOE DEVELOPMENTS, a Nevada general
partnership
By: Lakewood Development, Inc., a Nevada
corporation, its general partner
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
By: Ridgewood Development, Inc., a Nevada
corporation, its general partner
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
-13-
<PAGE>
LAKE TAHOE RESORT PARTNERS, LLC, a
California limited liability company
By: AKGI Lake Tahoe Investments, Inc., a
California corporation, its managing
member
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
By: KGK Lake Tahoe Development, Inc., a
California corporation, its member
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
MMG DEVELOPMENT CORP., a Florida corporation
By: /s/ Richard Goodman
-----------------------------------------
Name: Richard Goodman
---------------------------------------
Title: Treasurer
--------------------------------------
PORT ROYAL RESORT, L.P., a South Carolina
limited partnership
By: Argosy/KGI Port Royal Partners, a South
Carolina general partnership, its
general partner
By: KGI Port Royal, Inc., a South
Carolina
corporation, its general partner
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
-14-
<PAGE>
POWHATAN ASSOCIATES, a Virginia joint venture
By: Plantation Resort Group, Inc., a Virginia
corporation, a joint venturer
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
By: Williamsburg Vacations, Inc., a Virginia
corporation, a joint venturer
By: /s/ Richard Goodman
------------------------------------
Name: Richard Goodman
----------------------------------
Title: Treasurer
--------------------------------
-15-
<PAGE>
ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A., as Administrative Agent
By: /s/ Kurt Y. Kodama
------------------------------------------
Kurt Y. Kodama
Vice President
LENDERS: BANK OF AMERICA, N.A., as a Lender
By: /s/ Kurt Y. Kodama
-----------------------------------------
Kurt Y. Kodama
Vice President
-16-
<PAGE>
UNION BANK OF CALIFORNIA, N.A., as a Lender
By: /s/ Alan J. Young
----------------------------------------
Name: Alan J. Young
Title:
-17-
<PAGE>
BANK OF HAWAII, as a Lender
By: /s/ Patricia Bohlfing
-----------------------------------------
Name: Patricia Bohlfing
--------------------------------------
Title: Vice President
--------------------------------------
-18-
<PAGE>
SOCIETE GENERALE, as a Lender
By: /s/ [ILLEGIBLE]
-----------------------------------------
Name: [ILLEGIBLE]
--------------------------------------
Title: Managing Director
--------------------------------------
-19-
<PAGE>
EX-10.29
AMENDED AND RESTATED [LOGO OF FINOVA
MASTER LOAN AND FINANCIAL INNOVATORS
SECURITY AGREEMENT APPEARS HERE]
Primary Borrower:
Sunterra Corporation
95-4582157
Federal Employee Identification No.
1781 Park Center Drive
Orlando, Florida 32835
$75,000,000
March __, 2000
RESORT FINANCE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. DEFINITIONS....................................................................... 1
2. LOAN COMMITMENT; USE OF PROCEEDS.................................................. 7
2.1 Inventory Loan Commitment; Determination of Advance Amounts.................. 7
2.2 Inventory Loan Revolver...................................................... 7
2.3 Continuation of Obligations Throughout Term.................................. 7
2.4 Use of Advances.............................................................. 8
2.5 Repayment of Inventory Loan.................................................. 8
2.6 Interest..................................................................... 8
2.7 Inventory Loan Required Payments............................................. 8
2.8 Prepayment................................................................... 9
2.9 Loan Fee; Custodial Fee; Availability Fee.................................... 9
2.10 Application of Proceeds of Collateral and Payments........................... 10
2.11 Borrower's Unconditional Obligation to Make Payments......................... 10
3. SECURITY.......................................................................... 10
3.1 Grant of Security Interest in Collateral..................................... 10
3.2 Ineligible Inventory......................................................... 10
3.3 Borrowing Base Reporting..................................................... 11
3.4 Maintenance of Security...................................................... 11
4. CONDITIONS PRECEDENT TO ADVANCES; MINIMUM AMOUNT AND MAXIMUM
FREQUENCY OF ADVANCES; METHOD OF DISBURSEMENT..................................... 11
4.1 Delivery of Loan Documents and Due Diligence Items Prior to Initial Advance.. 12
4.2 Additional Conditions Precedent for Subsequent Advances...................... 14
4.3 General Conditions Precedent to All Advances................................. 14
4.4 Conditions Satisfied at Borrower's Expense................................... 15
4.5 Minimum Amount and Maximum Frequency of Advances............................. 15
4.6 Disbursement of Advances..................................................... 15
4.7 No Waiver.................................................................... 15
5. BORROWER'S REPRESENTATIONS AND WARRANTIES......................................... 15
5.1 Good Standing................................................................ 15
5.2 Power and Authority; Enforceability.......................................... 15
5.3 Borrower's Principal Place of Business....................................... 15
5.4 No Litigation................................................................ 15
5.5 Compliance with Legal Requirements........................................... 15
5.6 No Misrepresentations........................................................ 16
5.7 No Default for Third Party Obligations....................................... 16
5.8 Payment of Taxes and Other Impositions....................................... 16
5.9 Sales Activities............................................................. 16
5.10 Time-Share Interest Not a Security........................................... 16
5.11 Zoning Compliance............................................................ 16
5.12 Eligible Inventory........................................................... 16
5.13 Association; Assessments and Reserves........................................ 16
5.14 Title to and Maintenance of Common Areas and Amenities....................... 16
5.15 Year 2000.................................................................... 17
5.16 Survival and Additional Representations and Warranties....................... 17
6. BORROWER'S COVENANTS.............................................................. 17
6.1 Borrower's Affirmative Covenants............................................. 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6.2 Borrower's Negative Covenants................................................ 21
6.3 Survival of Covenants........................................................ 22
7. DEFAULT........................................................................... 22
7.1 Events of Default............................................................ 22
7.2 Remedies..................................................................... 24
7.3 Application of Proceeds During an Event of Default........................... 24
7.4 Uniform Commercial Remedies; Sale; Assembly of Collateral.................... 24
7.5 Application of Proceeds...................................................... 24
7.6 Lender's Right to Perform.................................................... 25
7.7 Non-Exclusive Remedies....................................................... 25
7.8 Waiver of Marshalling........................................................ 25
7.9 Attorney-in-Fact............................................................. 25
8. COSTS AND EXPENSES; INDEMNIFICATION............................................... 25
8.1 Costs and Expenses........................................................... 25
8.2 Indemnification.............................................................. 25
9. CONSTRUCTION AND GENERAL TERMS.................................................... 26
9.1 Payment Location............................................................. 26
9.2 Entire Agreement............................................................. 26
9.3 Powers Coupled with an Interest.............................................. 26
9.4 Counterparts................................................................. 26
9.5 Notices...................................................................... 26
9.6 Successors and Assigns....................................................... 26
9.7 Severability................................................................. 26
9.8 Time of Essence.............................................................. 27
9.9 Miscellaneous................................................................ 27
9.10 CHOICE OF LAW................................................................ 27
9.11 CHOICE OF JURISDICTION; WAIVER OF VENUE...................................... 27
9.12 WAIVER OF JURY TRIAL......................................................... 27
9.13 INDUCEMENT TO LENDER......................................................... 27
9.14 Compliance With Applicable Usury Law......................................... 27
9.15 NO RELATIONSHIP WITH PURCHASERS.............................................. 27
9.16 NO JOINT VENTURE............................................................. 28
9.17 Standards Applied to Lender's Actions........................................ 28
9.18 Meaning of Subordination..................................................... 28
9.19 Scope of Reimbursable Attorney's Fees........................................ 28
9.20 Publicity.................................................................... 28
9.21 Permitted Contests........................................................... 28
9.22 Reliance..................................................................... 28
Schedule of Additional Terms...................................................... 33
Exhibit A - Conditions of Eligible Inventory................................. 35
Exhibit B - Permitted Encumbrances........................................... 37
Exhibit C - Borrower's Certificate........................................... 38
Exhibit D - (NOT USED).......................................................
Exhibit E - Additional Conditions to Inventory Loan Advances................. 39
Exhibit E-1 - Request for Inventory Loan Advance and Certification........... 40
</TABLE>
<PAGE>
This AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT is entered
into for good and valuable consideration, by and between FINOVA CAPITAL
CORPORATION, a Delaware corporation, and SUNTERRA CORPORATION, a Maryland
corporation (referred to herein as the "Primary Borrower"), together with those
----------------
business organizations which are affiliated with Primary Borrower and which
either join in the execution of this Agreement below as a "Borrower" or
subsequently join in this Agreement as a "Borrower" hereunder pursuant to an
Assumption Agreement in form and substance satisfactory to Lender (all such
persons being collectively referred to herein as "Borrowers"). This Amended and
---------
Restated Master Loan and Security Agreement amends and restates that certain
Master Loan and Security Agreement dated September 30, 1999 previously entered
into between Lender, Primary Borrower, and certain Subsidiary Borrowers (herein,
the "Original Loan Agreement"). As of the Effective Date (defined below), this
-----------------------
Agreement shall supercede and replace the Original Loan Agreement in its
entirety.
1. DEFINITIONS
As used in this Agreement and the other Loan Documents unless otherwise
expressly indicated in this Agreement or the other Loan Documents, the following
terms shall have the following meanings (such meanings to be applicable equally
both to the singular and plural terms defined)
"Access Agreement": that certain Agreement Regarding Access to Club
----------------
Sunterra dated as of September 30, 1999 by and among Primary Borrower, Lender,
and Club Sunterra, Inc., a Florida corporation and wholly owned subsidiary of
Primary Borrower.
"Advance": an advance of the proceeds of the Inventory Loan by Lender to,
-------
or on behalf of, Borrower in accordance with the terms and conditions of this
Agreement.
"Affiliate": with respect to any individual or entity, any other
---------
individual or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such individual or entity.
"Agreement": this Amended and Restated Master Loan and Security Agreement,
---------
as it may be from time to time renewed, amended, restated or replaced.
"Applicable Usury Law": the usury law chosen by the parties pursuant to
--------------------
the terms of paragraph 9.10 or such other usury law which is applicable if such
--------------
usury law is not.
"Approved Alternative Interest": any ownership right to a dwelling space
-----------------------------
in a parcel of real property owned by Primary Borrower or any Subsidiary
Borrower which rights have yet to be included within an established Time-Share
Program pursuant to a Time-Share Declaration, but which Lender has approved as
Eligible Completed Project Inventory for inclusion as part of either Borrowing
Base hereunder. As of the Closing Date, Lender agreed that the seventy-five
(75) Units located in the Villas de Santa Fe Time-Share Project, Santa Fe, New
Mexico, which is owned by Primary Borrower, but which Units have not yet been
converted into Time-Share Interests, shall constitute Approved Alternative
Interests, and Primary Borrower contributed such Approved Alternative Interests
to the Primary Borrowing Base.
"Articles of Organization": the charter, articles, operating agreement,
------------------------
joint venture agreement, partnership agreement, by-laws and any other written
documents evidencing the formation, organization, governance and continuing
existence of an entity.
"Basic Interest": the meaning given to it in paragraph 2.6.
-------------- -------------
"Borrower or Borrowers": means Primary Borrower, together with each
---------------------
Subsidiary Borrower, as the same exist from time to time, and subject to the
restrictions on assignment and transfer contained in this Agreement, the
successors and assigns of each such Person.
"Borrowing Base": means, as the context requires, either the Primary
--------------
Borrowing Base or the Supplemental Borrowing Base.
"Borrowing Base Report": the same meaning given to it in paragraph 3.3.
--------------------- -------------
"Borrowing Base Shortfall": at any time, the amount by which the unpaid
------------------------
principal balance of the Inventory Loan exceeds the Primary Borrowing Base.
"Borrowing Term": the period commencing on the date of this Agreement and
--------------
ending on the Maturity Date.
"Business Day": any day other than a Saturday, a Sunday, a national
------------
holiday or a day on which banks in Phoenix, Arizona are required to be closed.
"CILP Assignment": a written assignment to be executed and delivered to
---------------
Lender by Borrower and creating in favor of Lender a perfected, direct
collateral assignment of the Contracts, Intangibles, Licenses and Permits in
order to facilitate Performance of the Obligations, as it may be from time to
time renewed, amended, restated or replaced.
"Collateral": collectively, (a) the Inventory; (b) the Insurance Policies;
----------
(c) all Borrower's rights under all escrow agreements and accounts pertaining to
any of the foregoing; (d) the furniture, fixtures and equipment located in the
Units to which the Completed Project Inventory relates, to the extent that any
Borrower has rights in such furniture, fixtures or equipment; and (e) any and
all other property now or hereafter serving as security
<PAGE>
for the Performance of the Obligations, and all products and proceeds thereof.
"Completed Project Borrowing Base": an amount equal to twenty-five percent
--------------------------------
(25%) of the Retail Value of the Eligible Completed Project Inventory.
"Completed Project Inventory": collectively, all unsold Time-Share
---------------------------
Interests, together with any unsold Approved Alternative Interests which may
then exist, but as to either unsold Time-Share Interests or unsold Approved
Alternative Interest, solely to the extent that such interests have been
encumbered by Lender pursuant to a Mortgage.
"Contracts, Intangibles, Licenses, Permits": all contracts, licenses,
-----------------------------------------
permits, plans and other intangibles in which Borrower now or hereafter has
rights (but only to the extent Borrower has rights in any such items and to the
extent such items primarily pertain to one or more of the Projects) and are now
or hereafter either (i) used in connection with the marketing and sale of
Completed Project Inventory and the management and/or operation of the Time-
Share Projects in which the Completed Project Inventory is situated or (ii)
related to the construction or renovation of any Project Inventory Under
Construction, including without limitation all agreements between the applicable
Borrower and any architect, engineer, or general contractor engaged in the
design or construction of the applicable improvements.
"Construction Reserve": with respect to any Project Inventory Under
--------------------
Construction, a reserve against borrowing availability hereunder, in an amount
equal to the amount of any mechanics', materialmen's, or other artisan's liens
which may at any time be outstanding against the applicable Project and as to
which Borrowers have not satisfied the requirements of paragraph 6.1(e) hereof.
----------------
"Default Rate": the per annum rate of interest identified in the Schedule
------------
as the Default Rate.
"Designated Supplemental Collateral": means those Projects which, at any
----------------------------------
given time, have been designated by the applicable Borrower as intended to
satisfy the Supplemental Borrowing Base requirement of paragraph 2.1(b).
----------------
"Effective Date": means the date upon which this Agreement has been
---------------
executed and delivered by all parties hereto.
"Eligible Completed Project Inventory": all Completed Project Inventory
------------------------------------
which conforms to the standards set forth in Exhibit A. Unsold Completed
---------
Project Inventory that has qualified as Eligible Completed Project Inventory
shall cease to be Eligible Completed Project Inventory upon the date such
Inventory fails to continue to conform to the standards set forth in Exhibit A.
---------
"Eligible Inventory": means, collectively, all Eligible Completed Project
------------------
Inventory, all Eligible Project Inventory Under Construction, and all Land
Inventory.
"Eligible Project Inventory Under Construction": all Project Inventory
---------------------------------------------
Under Construction which conforms to the standards set forth in Exhibit F.
---------
Project Inventory Under Construction which at any time conforms to the standards
set forth in Exhibit A, and therefore qualifies as Eligible Completed Project
---------
Inventory, shall cease to be treated as Eligible Project Inventory Under
Construction, and shall thereafter be treated as Eligible Completed Project
Inventory. Any Eligible Project Inventory Under Construction which fails to
conform to the standards set forth in Exhibit F shall, on the date such
---------
Inventory fails to so conform, cease to qualify as Eligible Project Inventory
Under Construction.
"Environmental Certificate": an environmental certificate executed and
-------------------------
delivered to Lender by Borrower and such other persons as Lender may require, as
it may be from time to time renewed, amended, restated or replaced.
"Event of Default": the meaning set forth in paragraph 7.1.
---------------- -------------
"GAAP": means generally accepted accounting principles in the United
----
States of America as in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are applicable to the circumstances
as of the date of determination consistently applied, except that, for the
financial covenants set forth in this Agreement, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to FINOVA
prior to the date hereof. In the event that changes in GAAP shall be mandated
by the Financial Accounting Standards Board and/or the American Institute of
Certified Public Accountants or any similar accounting body of comparable
standing, or shall be recommended by Borrower's certified public accountants, to
the extent that such changes would modify such accounting terms or the
interpretation or computation thereof as contemplated by this Agreement at the
time of execution hereof, then in such event such changes shall be followed in
defining such accounting terms, and Borrower and Lender shall use reasonable
good faith efforts to agree upon an appropriate amendment to this Agreement to
reflect the original intent of such terms in light of such changes, whereupon
such new accounting terms shall apply.
2
<PAGE>
"Impositions": all real estate, personal property, excise, privilege,
-----------
transaction, documentary stamp and other taxes, charges, assessments and levies
(including non-governmental assessments and levies such as maintenance charges,
association dues and assessments under private covenants, conditions and
restrictions) and any interest, costs, fines or penalties with respect thereto,
general and special, ordinary and extraordinary, foreseen and unforeseen, of any
kind and nature whatsoever which at any time prior to or after the execution
hereof may be assessed, levied or imposed.
"Incipient Default": an event which after notice and/or lapse of time
-----------------
would constitute an Event of Default.
"Initial Maximum Inventory Loan Amount": means the Maximum Inventory Loan
-------------------------------------
Amount permitted as of the Effective Date.
"Installment Date": the meaning given to it in paragraph 2.7.
---------------- -------------
"Insurance Policies": the insurance policies that Borrower is required to
------------------
maintain and deliver pursuant to paragraph 6.1(c).
----------------
"Interest Period": shall mean a thirty (30) day period commencing on each
---------------
Interest Rate Determination Date.
"Interest Rate Determination Date": shall mean the first Business Day of
--------------------------------
each calendar month.
"Inventory": collectively, all Completed Project Inventory, all Project
---------
Inventory Under Construction and all Land Inventory which may then exist,
including any such Inventory which constitutes Designated Supplemental
Collateral.
"Inventory Loan": the revolving line of credit loan made pursuant to
--------------
Article 2.
- ---------
"Land Borrowing Base": an amount equal to twenty-five percent (25%) of the
-------------------
applicable Borrower's total funds invested (as determined by Lender in its sole
discretion) with respect to all Land Inventory.
"Land Inventory": all undeveloped real estate owned by any Borrower, to
--------------
the extent such Borrower has encumbered such real estate in favor of Lender
pursuant to a Mortgage.
"Legal Requirements": (a) all present and future judicial decisions,
------------------
statutes, regulations, permits or certificates of any governmental authority in
any way applicable to Borrower or its property; and (b) all material contracts
or agreements (written or oral) by which Borrower or its property is bound or,
if compliance therewith would otherwise be in conflict with any of the Loan
Documents, by which Borrower or its property becomes bound with Lender's prior
written consent.
"Lender": FINOVA Capital Corporation, a Delaware corporation, and its
------
successors and assigns.
"LIBO Adjusted Rate": shall mean the rate per annum determined by Lender
------------------
by dividing (the resulting quotient to be rounded upward to the nearest 1/100 of
one percent) (i) the per annum rate of interest at which deposits in U.S.
Dollars in an amount substantially equal to the outstanding balance of the
Inventory Loan and having a maturity comparable to the Interest Period are
offered by Citibank, N.A. or its affiliates in the London interbank market at
approximately 11:00 a.m. (London time) on the applicable Interest Rate
Determination Date, by (ii) a number equal to 1.0 minus the aggregate (but
without duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the applicable Interest Rate Determination Date
(including, without limitation, basic supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal reserve
system or other governmental authority having jurisdiction with respect thereto,
as now and from time to time in effect) for eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of such board) which
are required to be maintained by Lender.
"LIBO Rate": shall mean the per annum rate of interest which is ordinarily
---------
reported on page 3750 of the Telerate Matrix (in U.S. Dollars) that will be paid
for a deposit, in immediately available funds, of a principal amount
substantially equal to the outstanding balance of the Inventory Loan and having
a maturity comparable to the Interest Period; provided, however, if, for
whatever reason, Lender shall be unable to ascertain the LIBO Rate pursuant to
the preceding provisions, the LIBO Rate in such circumstances shall, for the
Interest Period in question, be the LIBO Adjusted Rate.
"Loan Documents": this Agreement, the Master Note, the Subsidiary Notes,
--------------
the Environmental Certificate, the Access Agreement, the Security Documents, and
all other documents now or hereafter executed in connection with the Inventory
Loan, as they may be from time to time renewed, amended, restated or replaced,
together with such additional documents as Lender may require to amend those
Loan Documents previously executed and delivered in connection with the Original
Loan Agreement or any Project contributed to the Primary Borrowing Base prior to
the Effective Date.
"Loan Fee": the amount identified in the Schedule as the Loan Fee.
--------
"Master Note": the Amended and Restated Master Promissory Note to be made
-----------
and delivered by Primary Borrower to Lender pursuant to paragraph 4.1, having a
-------------
face amount equal to the Initial Maximum Inventory Loan Amount, dated as of even
date herewith, and made payable to Lender to evidence the Inventory
3
<PAGE>
Loan, as it may be from time to time renewed, amended, restated or replaced,
together with any allonges thereto.
"Material Adverse Effect": shall mean a material adverse effect on (a) the
-----------------------
business, financial condition, or operations of (i) Primary Borrower
individually or (ii) all Subsidiary Borrowers collectively, (b) the ability of
(i) Primary Borrower individually or (ii) all Subsidiary Borrowers collectively,
to Perform their Obligations to Lender, (c) one or more Projects which, in the
aggregate, have contributed at least fifteen percent (15%) of the total Eligible
Inventory constituting the Primary Borrowing Base, (d) one or more Projects
which, in the aggregate, have contributed at least twenty-five percent (25%) of
the total Eligible Inventory constituting the Supplemental Borrowing Base, or
(e) the Collateral. In determining whether any individual event would result in
a Material Adverse Effect, notwithstanding the fact that such event does not of
--
itself have such effect, a Material Adverse Effect shall be deemed to have
- ------
occurred if the cumulative effect of such event and all other then existing
events would result in a Material Adverse Effect. The foregoing
notwithstanding, no Material Adverse Effect shall be deemed to have occurred due
to a reduction of either Borrowing Base resulting from either a revaluation of
any Collateral or from any Eligible Completed Project Inventory or Eligible
Project Inventory Under Construction having become ineligible unless Borrowers
have failed to provide substitute Collateral sufficient to remedy any resulting
Borrowing Base Shortfall or to restore the Supplemental Borrowing Base
Maintenance Requirement on or before the date which is ten (10) Business Days
following the earlier of (x) the date Borrowers submit a Borrowing Base Report
disclosing any Borrowing Base Shortfall or any failure to have maintained the
Supplemental Borrowing Base Maintenance Requirement, or (y) the date upon which
Lender notifies Borrower that such an adverse change has occurred.
"Maturity Date": the date (or if not a Business Day, the first Business
-------------
Day thereafter) which is identified in the Schedule as the Maturity Date.
"Maximum Inventory Loan Amount": the amount identified in the Schedule as
-----------------------------
the Maximum Inventory Loan Amount.
"Measuring Date": means the first Business Day of each calendar month
--------------
during the Term.
"Minimum Opinion Matters": due organization and good standing of Borrower
-----------------------
and (if any) other sureties for the Performance of the Obligations who are not
natural persons; due authorization, execution and delivery of the Loan
Documents; enforceability of the Loan Documents (including choice of law
provisions); compliance of the Inventory Loan with usury laws; the absence of
conflict between the Loan Documents and its Articles of Organization and Legal
Requirements; compliance by Borrower with applicable laws (other than with
respect to instances of noncompliance which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect); compliance
of the Time-Share Program Governing Documents and Time-Share Program Consumer
Documents with applicable laws; and proper perfection of the required liens and
security interests.
"Minimum Required Approvals": with respect to the particular Project
--------------------------
involved, either the Minimum Required Construction Approvals or the Minimum
Required Time-Share Approvals, whichever is applicable.
"Minimum Required Construction Approvals": all regulatory approvals
---------------------------------------
required for any Borrower to engage in the creation of improvements upon real
property, whether related to new construction, the addition to or renovation of
existing improvements or otherwise, including without limitation all necessary
zoning approvals, building permits, demolition permits, or any other approval
necessary to be in compliance with applicable law.
"Minimum Required Time-Share Approvals": all registrations/consents to
-------------------------------------
sell and all final subdivision public reports/public offering
statements/prospectus, as applicable.
"Mortgage": a mortgage/deed of trust/deed to secure debt recorded against
--------
the Inventory in a given Project (or other form of development), as it may be
from time to time renewed, amended, restated or replaced.
"Notes": means, collectively, the Master Note and each of the Subsidiary
-----
Notes.
"Obligations": all obligations, agreements, duties, covenants and
-----------
conditions of Borrower to Lender which Borrower is now or hereafter required to
Perform under the Loan Documents.
"Performance" or "Perform": full, timely and faithful performance.
------------------------
"Permitted Debt": the meaning given to it in paragraph 6.2(b).
-------------- ----------------
"Permitted Encumbrances": the rights, restrictions, reservations,
----------------------
encumbrances, easements and liens of record which Lender has agreed to accept,
as set forth in an exhibit which shall be attached to each Mortgage prior to the
time such Mortgage is recorded.
"Prepayment Premium": has the meaning given to it in paragraph 2.8.
------------------ -------------
"Primary Borrower": Sunterra Corporation, a Maryland corporation.
----------------
4
<PAGE>
"Primary Borrowing Base": the sum of the Completed Project Borrowing Base,
----------------------
the Project Under Construction Borrowing Base and the Land Borrowing Base, as
determined from time to time; provided that no Designated Supplemental
--------
Collateral shall be included in the calculation of the Primary Borrowing Base;
less, any applicable Construction Reserve.
- ----
"Principal Reduction Date": means each of December 29, 2000 and June 29,
------------------------
2001, at which times the permitted Maximum Inventory Loan Amount is reduced in
accordance with the Schedule attached to this Agreement.
"Project": shall mean, individually and collectively, as the context
-------
requires, all Time-Share Projects, all Project Inventory Under Construction, and
all Land Inventory, including any Project constituting Designated Supplemental
Collateral.
"Project Inventory Under Construction": all real estate owned by any
------------------------------------
Borrower and with respect to which such Borrower is in the process of
constructing improvements, renovating or adding to existing improvements, or
otherwise building or reconfiguring improvements, together with the improvements
under construction, but solely to the extent that such real estate has been
encumbered by Lender pursuant to a Mortgage.
"Project Under Construction Borrowing Base": an amount, as calculated from
-----------------------------------------
time to time, equal to fifty percent (50%) of the total development cost
(including, without limitation, the funds invested with respect to the
underlying land), as determined by Lender in its sole discretion, incurred
through the date of any such calculation with respect to all Project Inventory
Under Construction.
"Purchase Contracts": a purchase contract pursuant to which any Borrower
------------------
sold a Time-Share Interest to a Purchaser.
"Purchaser": shall mean each owner of one or more Time-Share Interests in
---------
those Time-Share Projects with respect to which unsold Time-Share Interests
constitute a portion of the Eligible Completed Project Inventory.
"Purchasers": shall mean all Purchasers with respect to a particular Time-
----------
Share Project, taken as a whole (with the result that representations,
warranties or covenants with respect to any Borrower's fulfillment of its
obligations to "Purchasers" shall not be breached as a result of the failure of
Borrower to have performed any obligations as to one or more individual
Purchasers unless such failure arises to the level of a material failure as to
all Purchasers considered collectively).
"Quiet Enjoyment Rights": the meaning given to it in paragraph 4.1(b).
---------------------- ----------------
"Release Fee": shall have the meaning set forth in paragraph 3.2.
----------- --------------
"Required Closing Date": the date identified in the Schedule as the
---------------------
Required Closing Date.
"Resolution": a resolution of a corporation certified as true and correct
----------
by an authorized officer of such corporation, a certificate signed by the
manager of a limited liability company and such members whose approval is
required, or a partnership certificate signed by all of the general partners of
such partnership and such other partners whose approval is required.
"Retail Value": shall mean (i) with respect to any Time-Share Project that
------------
has had a period of at least twelve consecutive months in which Time-Share
Interests have been sold, the actual average sales price of such Time-Share
Interests achieved during the most recent twelve-month period preceding a given
Measuring Date, and (ii) with respect to any Time-Share Project that has not had
a period of at least twelve consecutive months of sales of Time-Share Interests,
the average retail value of all unsold Time-Share Interests as determined by
Lender in its discretion; provided, that at such time as an individual Time-
Share Project has generated sales of Time-Share Interests for a minimum of
twelve consecutive months, Retail Value shall be established pursuant to clause
(i) of this definition. The Retail Value applicable to Eligible Completed
Project Inventory shall be established at the time such Eligible Completed
Project Inventory is contributed to the Primary Borrowing Base or the
Supplemental Borrowing Base (as applicable), and shall thereafter only be
adjusted pursuant to the revaluation process set forth in paragraph 2.7(c).
----------------
"Santa Fe Reserve": shall be a reserve against borrowing availability
----------------
hereunder, in the amount of $750,000, with respect to that part of the Eligible
Completed Project Inventory which consists of Approved Alternative Interests
located in the Villas de Santa Fe Time-Share Project owned by Primary Borrower.
"Schedule": the Schedule of Additional Terms which follows the signature
--------
pages of the parties.
"Security Documents": the CILP Assignment, the Mortgage, this Agreement
------------------
and all other documents now or hereafter securing the Obligations, as they may
be from time to time renewed, amended, restated or replaced.
"Subsidiary Borrower": means each Affiliate of Primary Borrower which has
-------------------
contributed Inventory to either Borrowing Base from time to time throughout the
Term; provided, that references to one or more Subsidiary Borrowers shall only
include entities which own unsold Inventory then constituting a portion of
either or both Borrowing Bases, with the result that any entity which may
previously have contributed Eligible Inventory to the
5
<PAGE>
Collateral, but which Eligible Inventory has now all been sold or otherwise
released from both Borrowing Bases, shall no longer be considered a Subsidiary
Borrower hereunder (unless such entity thereafter contributes additional
Inventory to either Borrowing Base).
"Subsidiary Notes": shall mean those promissory notes made and delivered
----------------
by Primary Borrower and individual Subsidiary Borrowers to Lender from time to
time, having a face amount equal to the original Borrowing Base attributable to
the Eligible Inventory contributed by the applicable Subsidiary Borrower,
together with any allonges thereto, as the same may from time to time be
renewed, amended, restated or replaced. Each Subsidiary Note shall indicate
that the indebtedness evidenced thereby constitutes a segregated portion of, and
is not in addition to, the indebtedness evidenced by the Master Note. Each
Subsidiary Borrower shall be liable only to the extent of the Collateral
contributed by such Subsidiary Borrower.
"Supplemental Borrowing Base": the sum of the Completed Project Borrowing
---------------------------
Base, the Project Under Construction Borrowing Base, and the Land Borrowing
Base, as determined from time to time; provided, that only Designated
--------
Supplemental Collateral shall be included in such calculation of the
Supplemental Borrowing Base; plus, at any given time, the amount by which the
----
Primary Borrowing Base exceeds the then outstanding balance of the Inventory
Loan; less, any applicable Construction Reserve.
----
"Supplemental Borrowing Base Maintenance Requirement": shall mean (i) for
---------------------------------------------------
the period from the Effective Date through the earlier to occur of (A) the date
the Supplemental Borrowing Base first equals or exceeds $25,000,000 or (B)
December 31, 2000, an amount equal to the amount by which the outstanding
principal balance of the Inventory Loan exceeds $50,000,000; (ii) for any period
after the date the Supplemental Borrowing Base first equals or exceeds
$25,000,000 until December 31, 2000, the amount of $25,000,000; and (iii) from
and after January 1, 2001, an amount equal to one-third (1/3rd) of the then
outstanding principal balance of the Inventory Loan.
"Supplemental Collateral Advance": means each Advance made on or after the
-------------------------------
Effective Date. Supplemental Collateral Advances are a sub-category of Advances
generally.
"Term": the duration of this Agreement, commencing on the date as of which
----
this Agreement is entered into and ending when all of the Obligations have been
Performed and Lender has no further obligation to extend credit in connection
with the Inventory Loan.
"Third Party Consents": those consents which Lender requires Borrower to
--------------------
obtain, or which Borrower is contractually or legally obligated to obtain, from
others in connection with the transaction contemplated by the Loan Documents.
"Time-Share Association": the association established in accordance with
----------------------
each Time-Share Declaration to manage the applicable Time-Share Program and in
which all owners of Time-Share Interests are or will be members.
"Time-Share Declaration": with respect to each Time-Share Project, that
----------------------
declaration of covenants, conditions and restrictions which has been executed by
Borrower, is recorded in the real estate records of the county where the Time-
Share Project is located, and establishes the Time-Share Program.
"Time-Share Interest": an undivided fractional fee simple interest as
-------------------
tenant-in-common (or an estate for years with a remainder over in fractional fee
simple as tenant-in-common) either (a) in a Unit (coupled with an undivided
fractional fee simple interest as tenant-in-common in the common areas of the
Time-Share Project) or (b) in the entire Time-Share Project, together with the
right to occupy assigned Units for use periods which have been properly reserved
pursuant to the rules and regulations of the Time-Share Program, and the non-
exclusive right to use such common elements during the same occupancy period.
"Time-Share Management Agreement": the management agreement from time to
-------------------------------
time entered into between the Time-Share Association and the Time-Share Manager
for the management of the Time-Share Program.
"Time-Share Manager": the person from time to time employed by the Time-
------------------
Share Association to manage the Time-Share Program.
"Time-Share Program": the program created under each Time-Share
------------------
Declaration by which purchasers may own Time-Share Interests, enjoy their
respective Time-Share Interests on a recurring basis, and share the expenses
associated with the operation and management of such program.
"Time-Share Program Consumer Documents": the Purchase Contract, notes,
-------------------------------------
security documents, deed of conveyance, credit application, credit disclosures,
rescission right notices, final subdivision public reports/prospectuses/public
offering statements, receipt for public report, exchange affiliation agreement
and other documents used or to be used by Borrower in connection with the sale
of Time-Share Interests.
"Time-Share Program Governing Documents": the Time-Share Declaration, the
--------------------------------------
Articles of Organization for the Time-Share Association, any and all rules and
regulations from time to time adopted by the Time-Share Association, the Time-
Share Management Agreement and
6
<PAGE>
any subsidy agreement by which Borrower is obligated to subsidize shortfalls in
the budget of the Time-Share Program in lieu of paying assessments.
"Time-Share Project": each Time-Share Project identified in the Schedule
------------------
as a Time-Share Project, together with all Time-Share Projects subsequently
encumbered by a Mortgage in favor of Lender and constituting a portion of either
Borrowing Base. References herein to one or more Time-Share Projects shall only
include such projects in which Completed Project Inventory then constituting a
portion of either or both Borrowing Bases is situated, with the result that any
project which may previously have contributed Inventory to the Collateral, but
as to which all such Inventory has now been sold or otherwise released from both
Borrowing Bases, shall no longer be considered a Time-Share Project hereunder
(unless the owner of such project thereafter contributes additional Completed
Project Inventory situated in such project to either Borrowing Base).
"Title Insurer": a title company which is acceptable to Lender and issues
-------------
a Title Policy.
"Title Policy": in connection with each Mortgage which encumbers a part of
------------
the Collateral, an ALTA lender's policy of title insurance in an amount not less
than the Borrowing Base of the Inventory secured by the Mortgage, insuring
Lender's interest in the Mortgage as a perfected, direct, first and exclusive
lien on the Inventory encumbered thereby, subject only to the Permitted
Encumbrances, issued by Title Insurer and in form and substance acceptable to
Lender.
"Unit": a dwelling unit in the Time-Share Project.
----
"Warehouse Loan": means that certain revolving receivables line of credit,
--------------
in the maximum principal amount of up to $25,000,000.00, which Lender and
Primary Borrower are negotiating, and intend to enter into, on or before May 10,
2000.
"Warrant": has the meaning given to it in paragraph 2.9(c).
------- ----------------
2. LOAN COMMITMENT; USE OF PROCEEDS
2.1 Inventory Loan Commitment; Determination of Advance Amounts. (a)
-----------------------------------------------------------
Lender hereby agrees, if Borrower has Performed all of the Obligations then due,
to make Advances to Borrower in accordance with the terms and conditions of this
Agreement for the purposes specified in paragraph 2.4. The maximum amount of an
-------------
Advance shall be equal to (a) the aggregate Primary Borrowing Base for all
Eligible Inventory less (b) the then unpaid principal balance of the Inventory
Loan; provided, however, at no time shall the unpaid principal balance of the
Inventory Loan exceed the Maximum Inventory Loan Amount; and provided further,
that with respect to the first Advance made on the basis of Inventory which has
not previously constituted a portion of either Borrowing Base, the maximum
amount of such Advance shall not exceed the applicable Borrowing Base amount
directly attributable to such new Inventory.
(b) With respect to each Supplemental Collateral Advance, in addition to
the requirements of paragraph 2.1(a) above, Borrowers shall have encumbered
----------------
Designated Supplemental Collateral which, after giving effect to the amount of
such Supplemental Collateral Advance, is sufficient to cause the Supplemental
Borrowing Base to equal or exceed the Supplemental Borrowing Base Maintenance
Requirement. The foregoing notwithstanding, in no event is the Supplemental
Borrowing Base required to exceed $25,000,000.
(c) The foregoing notwithstanding, Primary Borrower shall not be entitled
to borrow the amount contained in the Santa Fe Reserve until such time as (i)
those improvements which have been disclosed to Lender prior to the Closing Date
with respect to the Units situated in the Villas de Santa Fe project have been
completed for certain of such Units, and (ii) Primary Borrower has provided to
Lender evidence that all amounts required to complete such improvements for such
Units have been expended. Upon completion of the foregoing items, Primary
Borrower shall be permitted to borrow that percentage of the Santa Fe Reserve as
is equal to the percentage of Approved Alternative Interests which remain as
unsold Time-Share Interests following such conversion (with the result that
Primary Borrower shall not be permitted to borrow such portion of the Santa Fe
Reserve as arose with respect to Approved Alternative Interests which were sold
or otherwise disposed of prior to the time such interests were converted into
Time-Share Interests).
(d) In addition, Borrowers shall not be entitled to borrow any amount at
any time subject to the Construction Reserve until the requirements of paragraph
---------
6.2(e) have been satisfied.
- ------
2.2 Inventory Loan Revolver. The Inventory Loan is a revolving line of
-----------------------
credit; however, all Advances shall be viewed as a single loan. Borrower shall
not be entitled to obtain Advances after the expiration of the Borrowing Term
unless Lender, in its discretion, agrees in writing with Borrower to make
Advances thereafter on terms and conditions satisfactory to Lender.
2.3 Continuation of Obligations Throughout Term. Whether or not
-------------------------------------------
Borrower's right to obtain Advances has terminated, this Agreement and
Borrower's liability for Performance of the Obligations
7
<PAGE>
shall continue until the end of the Term and the repayment in full of the
Obligations.
2.4 Use of Advances. Borrower will use the proceeds of the Inventory Loan
---------------
only for working capital and other business purposes.
2.5 Repayment of Inventory Loan. The Inventory Loan shall be evidenced by
---------------------------
the Notes and shall be repaid in immediately available funds according to the
terms of the Notes and this Agreement.
2.6 Interest. Except as otherwise provided in the Notes or this
--------
Agreement, interest ("Basic Interest") shall accrue on the unpaid principal
--------------
balance of the Inventory Loan from time to time outstanding at the Basic
Interest Rate. Basic Interest shall be calculated on the basis of the actual
number of days elapsed during the period for which interest is being charged
predicated on a year consisting of three hundred sixty (360) days. Installments
of principal, Basic Interest and any other amounts due and payable under the
Loan Documents shall earn interest after they are due at the Default Rate. At
the option of Lender, while an Event of Default exists, interest shall accrue at
the Default Rate.
2.7 Inventory Loan Required Payments.
--------------------------------
(a) Monthly Payments; Maturity. Commencing on the last Business Day
--------------------------
of the calendar month in which the initial Advance is made and on the last
Business Day of each succeeding month thereafter during the Borrowing Term
(each, an "Installment Date"), Borrower will pay to Lender an installment
----------------
payment equal to accrued interest on the then outstanding balance of the
Inventory Loan. Following expiration of the Borrowing Term, accrued
interest on the outstanding principal balance of the Inventory Loan shall
be payable monthly, on the last Business Day of each month, and the
outstanding principal balance of the Inventory Loan shall be payable
through the payment of Release Fees concurrently with the sale or other
disposition of individual items of Inventory until the Maturity Date, at
which time all outstanding amounts shall be due and payable. Lender shall
provide to Primary Borrower, on or before the seventh day prior to the end
of each calendar month, a statement of accrued interest for such month
(which statement shall assume that the unpaid principal balance of the
Inventory Loan remains the same from the date of such statement through the
end of the applicable month). Lender shall deliver such statement of
accrued interest either via facsimile or e-mail, whichever method of
delivery is selected by Primary Borrower. In the event actual accrued
interest for a calendar month is different from the accrued interest set
forth on any monthly statement as a result of a change in the outstanding
principal balance of the Inventory Loan, an appropriate adjustment shall be
calculated by Lender and reflected in the next monthly accrued interest
statement.
(b) Borrowing Base Maintenance. If there exists a Borrowing Base
--------------------------
Shortfall and Borrower knows of the occurrence of such condition or should
have known of its occurrence by virtue of reports required to be delivered
to Lender, Borrower, without notice or demand, will immediately (a) make to
Lender a principal payment in an amount equal to the Borrowing Base
Shortfall plus accrued and unpaid interest on such principal payment or (b)
deliver to Lender additional Eligible Inventory having an aggregate Primary
Borrowing Base not less than the Borrowing Base Shortfall. Simultaneously
with the delivery of additional Eligible Inventory to correct a Borrowing
Base Shortfall, Borrower will deliver to Lender all of the items (except
for a "Request for Advance and Certification") required to be delivered by
-------------------------------------
Borrower to Lender pursuant to paragraph 4.2, together with a "Borrower's
------------- ----------
Certificate" in form and substance identical to Exhibit C.
----------- ---------
(c) Revaluation of Retail Value. Each party shall have the right to
---------------------------
request a revaluation of the Retail Value applicable to all then existing
Eligible Completed Project Inventory semi-annually, each such revaluation
to occur on a mid-year or annual anniversary of the Closing Date. In the
event either Lender or Borrower requests a revaluation of Retail Value,
each Borrower owning Eligible Completed Project Inventory as to which a
revaluation has been requested shall provide to Lender a summary of the
actual sales prices attained during the preceding twelve (12) months with
respect to the particular Eligible Completed Project Inventory involved,
and the average actual sales price realized upon sales of Eligible
Completed Project Inventory shall become the new Retail Value with respect
to the particular Time-Share Project in which such Eligible Completed
Project Inventory was sold. The foregoing notwithstanding, no revaluation
shall take place with respect to any Eligible Completed Project Inventory
which has constituted a part of the Collateral for less than six (6)
months. In the event that such recalculated Retail Value is less than the
Retail Value originally established when Eligible Completed Project
Inventory from such Time-
8
<PAGE>
Share Project was contributed to the applicable Borrowing Base, and as a
result thereof either a Borrowing Base Shortfall is created or the
Supplemental Borrowing Base falls below the Supplemental Borrowing Base
Maintenance Requirement, then Borrower shall either comply with the Primary
Borrowing Base maintenance requirements of paragraph 2.7(b) above or shall
----------------
contribute additional Designated Supplemental Collateral in an amount
sufficient to maintain the Supplemental Borrowing Base at a level greater
than or equal to the Supplemental Borrowing Base Maintenance Requirement,
whichever is applicable.
(d) Changes in Inventory Classification. At such time as any Project
-----------------------------------
Inventory Under Construction has been completed and has received the
Minimum Required Time-Share Approvals, such Inventory shall be reclassified
as Completed Project Inventory for purposes of computing the Primary
Borrowing Base hereunder, in which case a Retail Value for such Completed
Project Inventory shall be established in accordance with this Agreement.
In like manner, at such time as any Borrower has obtained the Minimum
Required Construction Approvals and commenced project development upon any
property constituting Land Inventory, such Inventory shall be reclassified
as Project Inventory Under Construction. Upon any reclassification of
Inventory, the applicable Borrowing Base and its component parts (i.e., the
Completed Project Borrowing Base, Project Under Construction Borrowing
Base, and Land Borrowing Base) shall be recalculated, for purposes of
determining whether any Borrowing Base Shortfall then exists, or whether
the Supplemental Borrowing Base Maintenance Requirement exceeds the
Supplemental Borrowing Base. In order to provide Borrowers the benefit, in
the calculation of the Project Under Construction Borrowing Base, of
additional investment made by Borrowers in Project Inventory Under
Construction, Borrowers shall be entitled to revalue the Project Under
Construction Borrowing Base from time to time, provided that such
revaluations shall occur not more often than once per month, and shall
result in a minimum increase in the Project Under Construction Borrowing
Base of at least $1,000,000. In addition to the foregoing, Borrowers can
reclassify Designated Supplemental Collateral as Primary Borrowing Base
Collateral subject to the contribution of new Designated Supplemental
Collateral in an amount sufficient to maintain the Supplemental Borrowing
Base at a level greater than or equal to the Supplemental Borrowing Base
Maintenance Requirement.
2.8 Prepayment. Without the prior written consent of Lender, Borrower
----------
shall not be entitled to prepay the Inventory Loan except in accordance with the
terms of this Agreement. Borrower shall have the option to prepay the Inventory
Loan in full, but not in part, upon thirty (30) days prior written notice and
conditioned on the payment of a prepayment premium equal to five percent (5%)
(the "Prepayment Premium") of the outstanding principal balance of the Inventory
------------------
Loan as of the date notice of prepayment is given to Lender. The foregoing to
the contrary notwithstanding, neither any principal payments required pursuant
to paragraphs 2.7 or 3.2 hereof, nor the payments required to have taken place
---------------------
on or before the Principal Reduction Dates in order to cause the outstanding
principal balance of the Inventory Loan to be reduced below the applicable
Maximum Inventory Loan Amount, shall be considered prepayments which are
prohibited hereby, and no Prepayment Premium shall be required in connection
with any such payments, nor shall any prepayment resulting from the application
of (i) insurance proceeds following an insured casualty, or (ii) condemnation
proceeds in the event any portion of the Inventory is condemned, or (iii) the
payment of the applicable Release Fee upon the sale or other disposition of any
Project as a whole, be considered prepayments which are prohibited hereby or as
to which any Prepayment Premium is required.
2.9 Loan Fee; Administrative Fee; Warrants.
--------------------------------------
(a) Loan Fee. Borrower will pay to Lender the Loan Fee in accordance
--------
with the requirements set forth in the Schedule. The Loan Fee was earned
by Lender upon distribution of the first draft of this Agreement, and is
non-refundable.
(b) Administrative Fee. In the event Borrower requests more than one
------------------
Advance in any given calendar month, Borrower shall pay to Lender a fee
("Administrative Fee"), equal to $500 for each such additional Advance.
--------------------
(c) Warrant. Simultaneously with the execution and delivery of this
-------
Agreement, Primary Borrower shall deliver to Lender a warrant agreement
(the "Warrant"), in form and substance satisfactory to Lender, entitling
-------
Lender to purchase 500,000 shares of Primary Borrower's common stock, at
any time for a period commencing with the Effective Date and expiring on
the tenth anniversary of the Effective Date, at a purchase price of $3.00
per share. The
9
<PAGE>
Warrant shall include, without limitation, demand registration rights,
piggy-back registration rights, and anti-dilution provisions, and shall
otherwise be in form and substance satisfactory to Lender.
2.10 Application of Proceeds of Collateral and Payments. Notwithstanding
--------------------------------------------------
anything in the Loan Documents to the contrary, the amount of all payments or
amounts received by Lender with respect to the Inventory Loan shall be applied
to the extent applicable under the Loan Documents: (a) first, to any past due
payments of interest on the Inventory Loan and to accrued interest on the
Inventory Loan through the date of such payment, including any default interest;
(b) then, to any late fees, overdue risk assessments, collection fees and
expenses and any other fees and expenses due to Lender under the Loan Documents
in connection with the Inventory Loan; and (c) last, the remaining balance, if
any, to the unpaid principal balance of the Inventory Loan; provided, however,
while an Event of Default or Incipient Default exists, each payment received
with respect to the Inventory Loan shall be applied to such amounts owed to
Lender by Borrower as Lender in its discretion may determine. In calculating
interest and applying payments as set forth above: (i) interest on the
Inventory Loan shall be calculated and collected through the date payment is
actually received by Lender; (ii) interest on the outstanding balance of the
Inventory Loan shall be charged during any grace period permitted under the Loan
Documents; (iii) at the end of each month, all past due interest and other past
due charges provided for under the Loan Documents with respect to the Inventory
Loan shall be added to the principal balance of the Inventory Loan; and (iv) to
the extent that Borrower makes a payment or Lender receives any payment or
proceeds of the Collateral for Borrower's benefit that is subsequently
invalidated, set aside or required to be repaid to any other person or entity,
then, to such extent, the Obligations in connection with the Inventory Loan
intended to be satisfied shall be revived and continue as if such payment or
proceeds had not been received by Lender, and Lender may adjust the Inventory
Loan balance in order to take into account such repayment, by restoring the
amount of the repayment to the outstanding balance of the Obligations (with the
particular Obligations deemed to have been revived to be such Obligations as
Lender, in its discretion, deems appropriate under the circumstances), giving
retroactive effect to the restoration of such particular Obligations as if the
payment required to be repaid had never been received by Lender. The provisions
of this paragraph 2.10 are also subject to the parties rights and obligations
--------------
under the Loan Documents as to the application of proceeds of the Collateral
following an Event of Default.
2.11 Borrower's Unconditional Obligation to Make Payments. Whether or not
----------------------------------------------------
the proceeds from the Collateral shall be sufficient for that purpose, Borrower
will pay when due all payments required to be made pursuant to any of the Loan
Documents, Borrower's obligation to make such payments being absolute and
unconditional.
3. SECURITY
3.1 Grant of Security Interest in Collateral. To secure the Performance
----------------------------------------
of all of the Obligations, together with the Performance of all obligations of
any Borrower to Lender arising in connection with the Warehouse Loan, Borrower
hereby grants to Lender a security interest in and collaterally assigns to
Lender the Collateral. Such security interest shall be absolute, continuing,
perfected, direct, first, exclusive and applicable to all existing and future
Advances and to all of the Obligations. In addition, each Borrower acknowledges
and agrees that, for purposes of administrative convenience to Borrowers
collectively, Borrowers have requested, and Lender has agreed, to permit the
Primary Borrowing Base to be calculated on a consolidated basis, with the
further result that the determination of any Borrowing Base Shortfall which
would obligate Borrower to make the payments required by paragraph 2.7(b) herein
----------------
shall only occur if a Borrowing Base Shortfall exists on a consolidated basis.
The foregoing approach results in significant administrative conveniences to
each Borrower, in that each Borrower may benefit from over-collateralization
existing on a consolidated basis by virtue of the fact that such an approach
permits the streamlined release procedure described in first sentence of
paragraph 3.2 hereof. Accordingly, each Borrower hereby acknowledges that it
- -------------
has received benefit from the consolidated Borrowing Base Reporting procedure
implemented by this Agreement, and each Borrower acknowledges that the security
interest granted in favor of Lender pursuant to this Agreement, and pursuant to
each of the Mortgages, shall secure, up to the full amount of the applicable
Borrowing Base contributed by each such Borrower, the payment and performance of
all Obligations of each Borrower to Lender. Borrower further warrants and
guarantees the enforceability of Lender's security interest in the Collateral.
Lender is hereby appointed Borrower's attorney-in-fact to take any and all
actions in Borrower's name and/or on Borrower's behalf deemed necessary or
appropriate by Lender with respect to the collection and remittance of payments
(including the endorsement of payment items) received on account of the
Collateral; provided, however, that Lender shall not take any action which is
described in paragraph 7.2(c) unless an Event of Default exists.
----------------
3.2 Release of Collateral. (a) Primary Borrowing Base. Borrower shall
--------------------- ----------------------
be entitled to sell or
10
<PAGE>
otherwise dispose of those unsold Time-Share Interests constituting a portion of
the Collateral, and to obtain a partial release of such Time-Share Interests
from the applicable Mortgage in favor of Lender without payment of a release
fee, or to sell or otherwise dispose of any Collateral through the sale of a
Project as a whole without payment of a release fee, if at the time such release
--
is requested: (i) no Event of Default or Incipient Default exists; (ii) after
giving effect to the proposed release of such Inventory, no Borrowing Base
Shortfall will exist or be created; and (iii) Borrower has requested Lender in
writing to release such items of Inventory. In the event that a proposed sale or
other disposition of Inventory will result in a Borrowing Base Shortfall, then
Lender shall only be obligated to release the Inventory being sold upon
satisfaction of the following conditions: (a) no Event of Default or Incipient
Default exists; (b) Borrower has paid a fee (the "Release Fee") (all Release
-----------
Fees paid under this Agreement shall apply against the outstanding principal
balance of the Inventory Loan), in an amount, (I) with respect to all Completed
Project Inventory, equal to twenty-five percent (25%) of the Retail Value which
was allocated to such item of Inventory at the time such item of Completed
Project Inventory was designated as Eligible Completed Project Inventory
hereunder and contributed to the Primary Borrowing Base, and (II) with respect
to either Land Inventory or Project Inventory Under Construction, which is
sufficient, after giving effect to the release of such Inventory, to avoid the
creation of a Borrowing Base Shortfall; and (c) Borrower has requested Lender in
writing to release such Inventory. Borrower will prepare all release documents
which shall be in form and substance satisfactory to Lender, and will deliver
them to Lender for execution. Lender will send Borrower the release documents
within a reasonable time after satisfaction of the conditions precedent
specified in the foregoing sentence.
(b) Supplemental Borrowing Base. Borrowers shall not be entitled to the
---------------------------
release of any Designated Supplemental Collateral except in accordance with the
provisions of this paragraph 3.2(b). Provided that no Event of Default or
----------------
Incipient Default exists, Borrowers (i) may replace Designated Supplemental
Collateral by contributing new Designated Supplemental Collateral, and may
obtain the release of a Project previously constituting Designated Supplemental
Collateral, provided that after giving effect to such substitution, the
Supplemental Borrowing Base remains equal to or greater than the Supplemental
Borrowing Base Maintenance Requirement; and (ii) may obtain the release of
certain Designated Supplemental Collateral in the context of a sale or other
disposition of any Project as a whole, or in the context of the sale or other
disposition of individual Time-Share Interests, provided that (A) Borrowers pay
a Release Fee in an amount equal to the difference between (I) the amount which
such Designated Supplemental Collateral originally added to the Supplemental
Borrowing Base less (II) the amount, if any, by which the Supplemental Borrowing
Base exceeds the Supplemental Borrowing Base Maintenance Requirement; and (B)
after giving effect to the release of such Designated Supplemental Collateral
and payment of such Release Fee, the Supplemental Borrowing Base equals or
exceeds the Supplemental Borrowing Base Maintenance Requirement.
3.3 Borrowing Base Reporting. At least two (2) Business Days prior to the
------------------------
date any Advance is requested hereunder, or prior to the date upon which
Borrower is requesting a partial release of Time-Share Interests pursuant to
paragraph 3.2 hereof, Borrower shall provide to Lender a report (herein, the
- -------------
"Borrowing Base Report") with respect to each Project which makes up a part of
- ----------------------
the Eligible Inventory upon which such request for an Advance is based, or in
which any Time-Share Interests or other Collateral proposed to be released is
situated. A form of the Borrowing Base Report is attached hereto as Exhibit B.
Each Borrowing Base Report shall be prepared and presented on both a
consolidated and consolidating basis (i.e., each Borrowing Base Report shall
have a section describing, for all Borrowers, the aggregate of the Eligible
Completed Project Inventory, Eligible Project Inventory Under Construction, and
Land Inventory contributed by such Persons, with separate sections identifying
Eligible Completed Project Inventory, Eligible Project Inventory Under
Construction, and Land Inventory contributed by each individual Project).
Borrower will also deliver to Lender, promptly after receipt of a written
request for them, such other reports with respect to Inventory constituting part
of the Collateral as Lender may from time to time reasonably require, provided
that the information requested by Lender is readily available on Borrower's
record keeping systems, or can be developed from information which is readily
available. In the event that the information requested by Lender is neither
readily available on Borrower's record keeping systems nor can it be developed
from such readily available information, then Borrower and Lender shall confer
and attempt to identify alternate information which is readily available to
Borrower to be substituted for the information requested.
3.4 Maintenance of Security. Borrower will deliver or cause to be
-----------------------
delivered to Lender and will maintain or cause to be maintained in full force
and effect throughout the Term (except as otherwise expressly provided in such
Loan Document), as security for the Performance of the Obligations, the Security
Documents and all other security required to be given to Lender pursuant to the
terms of this Agreement.
4. CONDITIONS PRECEDENT TO ADVANCES; MINIMUM AMOUNT AND
11
<PAGE>
MAXIMUM FREQUENCY OF ADVANCES; METHOD OF DISBURSEMENT
4.1 Delivery of Loan Documents and Due Diligence Items Prior to Initial
-------------------------------------------------------------------
Advance. Lender's obligation to make the initial Advance shall be subject to
- -------
and conditioned upon the terms and conditions set forth in the following
subparagraphs and elsewhere in this Agreement, and Lender's obligation to make
each subsequent Advance hereunder shall be subject to satisfaction of the
following terms and conditions, to the extent applicable to any Subsidiary
Borrower not previously a party to this Agreement, or any Project and Eligible
Inventory not previously contributed to either Borrowing Base:
(a) Loan Documents. Borrower shall have delivered to Lender or caused
--------------
to be delivered to Lender the following duly executed, delivered (where
appropriate) and in form and substance satisfactory to Lender, not later
than the Required Closing Date:
(i) the Loan Documents;
(ii) UCC financing statements for filing and/or recording, as
appropriate, where necessary to perfect the security interests in the
Collateral;
(iii) the Mortgage applicable to each Time-Share Project in
which unsold Time-Share Interests have been contributed as Collateral
hereunder, or applicable to each other Project which has been contributed
as Collateral hereunder;
(iv) the Title Policy applicable to each Mortgage (subject to the
provisions of paragraph 4.1(e) hereof);
(v) a favorable opinion or opinions from independent counsel for
Borrower, which counsel shall be satisfactory to Lender and which opinion
shall cover such matters as Lender may require, including, without
limitation, the Minimum Opinion Matters pertaining to Borrower and each
Project (the foregoing notwithstanding, in the event Lender funds an
Advance under the Inventory Loan upon the basis of an opinion delivered to
Lender as to which Lender has not specifically reserved the right to
require additional opinions or to have such opinion otherwise be
supplemented, then such opinion shall be deemed acceptable regardless of
whether each item included within the description of Minimum Opinion
Matters has been addressed therein);
(vi) the Third Party Consents, if any;
(vii) a request for the first Inventory Loan Advance in form
and substance identical to Exhibit E-1; and
-----------
(viii) such other documents as Lender may reasonably require
to effect the intent and purposes of this Agreement.
(b) Organizational, Project and Other Due Diligence Documents.
---------------------------------------------------------
Borrower shall have delivered to Lender (I) with respect to the initial
Advance hereunder, prior to the earlier of (a) the date of the initial
Advance or (b) the Required Closing Date; or (II) with respect to each
subsequent Advance hereunder, at least ten (10) Business Days (unless a
longer period is expressly specified) prior to the date such Advance is
requested to be funded, the following items (in applying the following
provisions, references to Borrower, a Project, Title Policies, etc., shall
be deemed to apply only to those Borrowers which have contributed a portion
of the Collateral supporting the requested Advance and only to the Projects
from which such contributed Collateral is derived, and the items requested
by clauses (viii) - (xi) and (xiv) - (xvii) shall only be applicable to
Completed Project Inventory):
(i) the Articles of Organization of Borrower and (if any) other
sureties for the Obligations and, if applicable, their respective managers,
members and partners, to the extent any such entity is not a natural
person;
(ii) the Resolutions of Borrower and (if any) other sureties for
the Obligations and, if applicable, their respective managers, members and
partners, to the extent any such entity is not a natural person,
authorizing the execution and delivery of the Loan Documents, the
transactions contemplated thereby and such other matters as Lender may
reasonably require;
(iii) a certificate of good standing for Borrower and (if any)
other sureties for the Performance of the Obligations and, if applicable,
their respective managers, members and partners, to the extent any such
entity is not a natural person, from the state of its organization;
(iv) at least fifteen (15) Business Days prior to the date of the
Advance,
12
<PAGE>
a Phase I environmental assessment of the Project;
(v) evidence that all taxes and assessments on the Project have
been paid;
(vi) a title commitment or preliminary title report for the
issuance of the Title Policy insuring the Mortgage together with copies of
all documents referred to therein and, in the event responsibility for
recordation of the Mortgage and such other matters as are involved in the
escrow with respect thereto are to be handled by a title agent rather than
by the Title Insurer through a direct operation, a closing protection
letter issued to Lender with respect to the issuing title agent by the
Title Insurer;
(vii) unless waived in writing by Lender, a 1997 ALTA/ACSM
survey map of the Project prepared by a licensed land surveyor acceptable
to Lender, certified to Lender in writing and showing the Project, evidence
of access to the Project, all easements necessary for the operation and use
of the Project, and such other details as Lender may reasonably require;
and/or at Lender's option, a condominium map if any part of any Project has
been dedicated to a condominium regime;
(viii) all permits, licenses, approvals and certificates for
the occupancy, use and operation of the Time-Share Project for time-share
and other intended uses, including any necessary architectural committee
approvals (and, with respect to any newly-completed construction, including
specifically the certificate of occupancy or other applicable form of final
governmental approval evidencing that such construction has been
satisfactorily completed), but excluding the Minimum Required Time-Share
Approvals;
(ix) evidence that the Project is zoned for time-share and other
intended uses and that all approvals required for such uses under any
covenants, conditions and restrictions have been obtained, which evidence
shall be deemed satisfied by Borrower providing to Lender a copy of the
certificate of occupancy (or other applicable form of final governmental
approval) for any individual Time-Share Project, in the absence of any
direct evidence indicating non-compliance with applicable zoning, the
absence of any necessary approval, or a violation of any existing covenant,
condition or restriction;
(x) at least fifteen (15) Business Days prior to such Advance,
the Minimum Required Time-Share Approvals;
(xi) at least fifteen (15) Business Days prior to such Advance, a
copy of the Time-Share Program Governing Documents;
(xii) the Insurance Policies;
(xiii) at least fifteen (15) Business Days prior to such
Advance, evidence that the Project is not located within a flood prone area
or, if within a flood zone, evidence that flood insurance has been
obtained;
(xiv) if requested by Lender, at least fifteen (15) Business
Days prior to such Advance, evidence of the current and continued
availability of utilities necessary to serve any Time-Share Project or
Project Inventory Under Construction for time-share and other intended
uses;
(xv) if requested by Lender, at least fifteen (15) Business Days
prior to such Advance, evidence of access to and parking for the Time-Share
Project adequate for time-share and hotel uses;
(xvi) if requested by Lender, a copy of all marketing
contracts, management contracts, service contracts, operating agreements,
equipment leases, space leases and other agreements pertaining primarily to
the Time-Share Project and which are necessary for the sale, operation and
intended time-share use of the Time-Share Project and are not otherwise
required pursuant to another item in this paragraph;
(xvii) evidence that each owner of a Time-Share Interest will
have available to it the quiet and peaceful enjoyment of the Time-Share
Interest (including promised amenities and necessary easements) owned by it
which cannot be disturbed so long as such owner is not in default of its
obligations to pay the purchase price of its Time-Share Interest, to pay
assessments to the Time-Share Association, and to comply with reasonable
rules and regulations pertaining to the use of the Time-Share Interest
("Quiet Enjoyment Rights");
------------------------
(xviii) the items required pursuant to Exhibit E; and
---------
(xix) such other items as Lender requests which are reasonably
necessary to evaluate the request for the Advance and the
13
<PAGE>
satisfaction of the conditions precedent to the Advance.
(c) Credit Reports; Search Reports; Site Inspections. Lender shall
------------------------------------------------
have received, in form and substance satisfactory to Lender, the results of
UCC searches with respect to Borrower and the Time-Share Association, if
any, and lien, litigation, judgment and bankruptcy searches for Borrower
and (if existing) the Time-Share Association conducted in such
jurisdictions as Lender deems appropriate and having a currency meeting
Lender's requirements. In addition, if requested by Lender, a member of
Lender's credit department shall have visited each Project and shall be
satisfied with the results of such inspection.
(d) Structural and Mechanical. With respect to any Completed Project
-------------------------
Inventory, if requested in writing by Lender, Borrower shall provide to
Lender, at Borrower's sole cost and expense, a structural inspection report
and mechanical inspection report covering the Time-Share Project prepared
by a construction consultant or engineer acceptable to Lender. The results
of such structural and mechanical inspection must be satisfactory to
Lender. In the event the structural and mechanical inspection report
reveals that repairs must be made to the Time-Share Project, Borrower's
budget shall include the cost of such repairs.
(e) Certain Matters Affecting Project Inventory Under Construction.
--------------------------------------------------------------
With respect to any Project Inventory Under Construction to be contributed
to the Primary Borrowing Base, the Title Policy shall be in form and
substance satisfactory to Lender and, without limiting the generality of
the foregoing, shall not contain any exceptions for mechanics',
materialmen's or other artisan's liens. With respect to Project Inventory
Under Construction which has been designated as Designated Supplemental
Collateral, Lender shall accept a Title Policy including an exception for
mechanics' or materialmens' liens, provided that Borrower has reaffirmed
the representations and warranties set forth in paragraph 5.16 as to the
--------------
applicable Project, and in reliance upon Borrowers' affirmative covenant as
set forth in paragraph 6.1(e) hereof.
----------------
4.2 Additional Conditions Precedent for Subsequent Advances. For each
-------------------------------------------------------
Advance, Lender's obligation to make such Advance shall be subject to the terms
and conditions set forth in Exhibit E, including delivery of the items called
---------
for therein at least five (5) Business Days prior to the date of such Advance.
4.3 General Conditions Precedent to All Advances. Lender's obligation to
--------------------------------------------
fund any Advance is subject to and conditioned upon the additional terms and
conditions set forth in the following subparagraphs being satisfied at the time
of such Advance:
(a) No material adverse change shall have occurred in the Projects,
the Collateral, the business or financial condition of Borrower (since the
date of the latest financial and operating statements given to Lender by or
on behalf of Borrower and after giving effect to those items disclosed on
Schedule 5.1 attached hereto which, for purposes of applying this provision
------------
following the Effective Date, shall not consider any change or circumstance
which took place or existed prior to the Effective Date and had been
---
disclosed to Lender in writing on or before the Effective Date), or the
ability of Borrower to Perform the Obligations.
(b) There shall have been no material, adverse change in the
warranties and representations made in the Loan Documents by Borrower
and/or any surety for the Performance of the Obligations.
(c) Neither an Event of Default nor Incipient Default shall have
occurred and be continuing.
(d) The interest rate applicable to the Advance (before giving effect
to any savings clause) will not exceed the maximum rate permitted by the
Applicable Usury Law.
(e) Borrower shall have paid to Lender the Loan Fee and any other
applicable fees which are required to be paid at the time of the Advance.
(f) To the extent that one or more of the Borrowers have requested
that they be permitted to make payments directly to the applicable Title
Insurers amounts which include, but are not necessarily limited to the
premium payable with respect to the issuance of the Title Policies in
connection with any prior disbursement of an Advance, Lender shall not be
obligated to fund a subsequent Advance until Borrower has made such payment
and Lender has received all Title Policies required hereunder. In the
event that Borrower for any reason fails to make such payment to the Title
Insurer, Lender shall be entitled to make such payment directly in order to
cause the Title
14
<PAGE>
Policy to be issued, and the amount of any such payment shall constitute an
Obligation hereunder.
4.4 Conditions Satisfied at Borrower's Expense. The conditions to
------------------------------------------
Advances shall be satisfied by Borrower at its expense.
4.5 Minimum Amount and Maximum Frequency of Advances. Advances shall be
------------------------------------------------
made in amounts not less than the amounts identified in the Schedule as the
Minimum Advance Amount. Advances shall be made no more frequently in any
calendar month than the frequency identified in the Schedule as the Maximum
Advance Frequency.
4.6 Disbursement of Advances. Advances may be payable to Borrower; or if
------------------------
requested by Borrower and approved in writing by Lender, to others, either
severally or jointly with Borrower, for the credit or benefit of Borrower.
Advances shall be disbursed by wire transfer or, at Borrower's option exercised
by written request to Lender, by check or drafts. Borrower will pay Lender's
reasonable charge in connection with any wire transfer, and Lender's current
charge is identified in the Schedule as the Wire Transfer Fee. Lender may, at
its option, withhold from any Advance any sum (including costs and expenses)
then due to it under the terms of the Loan Documents or which Borrower would be
obligated to reimburse Lender pursuant to the Loan Documents if first paid
directly by Lender.
4.7 No Waiver. Although Lender shall have no obligation to make an
---------
Advance unless and until all of the conditions precedent to the Advance have
been satisfied, Lender may, at its discretion, make Advances prior to that time
without waiving or releasing any of the Obligations.
5. BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender that, other than with
respect to those matters which have been disclosed in writing to Lender as of
the Effective Date, a listing of which is set forth on Schedule 5.1 attached
------------
hereto:
5.1 Good Standing. Borrower is and duly organized, validly existing and
-------------
in good standing as a business organization of the type identified in the
Schedule as Borrower's Type of Business Organization under the laws of the state
identified in the Schedule as Borrower's State of Organization and is in good
standing and authorized to do business in the jurisdiction where each Project is
located and in each jurisdiction where Borrower is at any time selling Time-
Share Interests or where at any time the location or nature of its properties or
its business makes such good standing and qualification necessary. Borrower has
full power and authority to carry on its business and own its property.
5.2 Power and Authority; Enforceability. Borrower has full power and
-----------------------------------
authority to execute and deliver the Loan Documents and to Perform the
Obligations. All action necessary and required by Borrower's Articles of
Organization and all other Legal Requirements for Borrower to obtain the
Inventory Loan, to execute and deliver the Loan Documents which have been or
will be executed and delivered in connection with the Loan Documents and to
Perform the Obligations has been duly and effectively taken. The Loan Documents
are, and to Borrower's knowledge shall be, legal, valid, binding and enforceable
against Borrower; and do not violate the Applicable Usury Law or constitute a
default or result in the imposition of a lien under the terms or provisions of
any agreement to which Borrower is a party. Except for the Third Party Consents
delivered pursuant to paragraph 4.1(a) and the consents evidenced by the
----------------
Resolutions delivered pursuant to paragraph 4.1(b), no consent of any
----------------
governmental agency or any other person not a party to this Agreement is or will
be required as a condition to the execution, delivery or enforceability of the
Loan Documents .
5.3 Borrower's Principal Place of Business. Borrower's principal place of
--------------------------------------
business and chief executive office are located at the addresses identified in
the Schedule as Borrower's Principal Place of Business and Borrower's Chief
Executive Office.
5.4 No Litigation. There is no action, litigation or other proceeding
-------------
pending or, to Borrower's knowledge, threatened before any arbitration tribunal,
court, governmental agency or administrative body against Borrower which could
reasonably be expected to result in a Material Adverse Effect, other than with
respect to actions or proceedings involving or relating to the operation of an
individual Project only (e.g., personal injury lawsuits) which are adequately
covered by insurance with respect to which the applicable insurance carrier has
neither denied coverage nor delivered to the applicable Borrower a letter
reserving its rights with respect to the claims asserted. Borrower will
promptly notify Lender if any such action, litigation or proceeding is commenced
or threatened, and the foregoing representation and warranty shall be deemed to
be true and accurate at any given time after giving effect to all disclosures of
any hereafter-arising matters of which Borrower has provided notice to Lender
after the date of this Agreement.
5.5 Compliance with Legal Requirements. Borrower has complied with all
----------------------------------
Legal Requirements, including, without limitation all Legal Requirements of (a)
the state in which the Project is located and (b) all other governmental
jurisdictions in which either (i) the
15
<PAGE>
Project is located or (ii) Time-Share Interests will be sold or offered for
sale, except to the extent that the failure of Borrower to have complied with
any such Legal Requirements would not reasonably be expected to have a Material
Adverse Effect.
5.6 No Misrepresentations. The Loan Documents and all certificates,
---------------------
financial statements and written materials furnished to Lender by or on behalf
of Borrower in connection with the Inventory Loan do not contain as of the date
furnished to Lender any untrue statement of a material fact or omit to state a
fact which materially adversely affects or in the future may materially
adversely affect any Project, the Collateral, the business or financial
condition of Borrower, or the ability of Borrower to Perform the Obligations.
5.7 No Default for Third Party Obligations. Borrower is not in default
--------------------------------------
under any other agreement evidencing, guaranteeing or securing borrowed money or
a receivables purchase financing or in violation of or in default under any
material term in any other material agreement, instrument, order, decree or
judgment of any court, arbitration or governmental authority to which it is a
party or by which it is bound.
5.8 Payment of Taxes and Other Impositions. Borrower has filed all tax
--------------------------------------
returns and, subject to the provisions of paragraph 9.21, has paid all
--------------
Impositions, if any, required to be filed by it or paid by it, including real
estate taxes and assessments relating to the Project or the Collateral.
5.9 Sales Activities. Prior to the date of this Agreement, Borrower has
----------------
sold Time-Share Interests and offered Time-Share Interests for sale only in the
jurisdictions identified in the Schedule as the Jurisdictions Where Sales And/or
Offers to Sell Have Occurred.
5.10 Time-Share Interest Not a Security. Borrower has not sold or offered
----------------------------------
for sale any Time-Share Interest as an investment. Neither the sale nor the
offering for sale of any Time-Share Interest will constitute the sale or the
offering for sale of a security under any applicable law.
5.11 Zoning Compliance. Neither time-share use nor other transient use and
-----------------
occupancy of any Time-Share Project violates or constitutes or will violate or
constitute a non-conforming use or require a variance under any private covenant
or restriction or any zoning, use or similar law, ordinance or regulation
affecting the use or occupancy of any Time-Share Project or Project Inventory
Under Construction.
5.12 Eligible Inventory. Each unsold Time-Share Interest which is
------------------
encumbered in favor of Lender pursuant to this Agreement and against which an
Advance is requested, or which is encumbered in favor of Lender pursuant to
Borrowers' obligations under paragraph 2.7 shall constitute Eligible Inventory
-------------
at the time such Advance is made. Borrower has Performed in all material
respects all of its obligations to Purchasers, to the extent that Borrower was
obligated to have performed such obligations as of the date hereof, and with
respect to any obligations to Purchasers as to which performance by Borrower is
to occur in the future, Borrower is not aware of any fact or circumstance which
causes it to believe that it will be unable to timely perform those obligations.
5.13 Association; Assessments and Reserves. Each Purchaser, upon the
-------------------------------------
closing of the purchase by such Person of a Time-Share Interest, automatically
became a member of the applicable Time-Share Association, and is thereafter
entitled to remain a member of the Time-Share Association and be entitled to
vote on the affairs thereof, subject only to retaining ownership of a Time-Share
Interest. At all times throughout the Term: (a) the Time-Share Association will
have authority to levy annual assessments to cover the costs of maintaining and
operating the Time-Share Project; (b) to Borrower's knowledge, the Time-Share
Association will be solvent; (c) to Borrower's knowledge, levied assessments
will be adequate to cover the current costs of maintaining and operating the
Time-Share Project and to establish and maintain a reasonable reserve for
capital improvements; and (d) to Borrower's knowledge, there will be no events
which could give rise to a material increase in such costs, except for additions
of subsequent phases of the Time-Share Project that will not materially increase
assessments.
5.14 Title to and Maintenance of Common Areas and Amenities. Except as
------------------------------------------------------
otherwise permitted and disclosed by the Time-Share Program Governing Documents:
(a) the Time-Share Association or the owners of Time-Share Interests in common
will at all times own the furnishings in the Units and all the common areas in
the Time-Share Project and other amenities which have been promised or
represented as being available to Purchasers (except to the extent of those
amenities which are available to the Purchasers pursuant to a lease or form of
access other than ownership, which alternate form of access was disclosed to the
Purchasers in the Time-Share Program governing documents), free and clear of
liens and security interests except for the Permitted Encumbrances; (b) no part
of the Time-Share Project is or will be subject to partition by the owners of
Time-Share Interests (provided, however, that individual owners of Time-Share
Interests have the right to partition those Time-Share Interests, which
partition does not affect the Time-Share Project taken as a whole); and (c) all
access roads and utilities and off-site improvements necessary to the use of the
Time-Share Project will have been dedicated to and/or accepted by the
responsible governmental authority or utility company or are owned by an
association of owners of property in a
16
<PAGE>
larger planned development or developments of which the Time-Share Project is a
part.
5.15 Year 2000. Borrower has taken all action reasonably believed to be
---------
sufficient to assure that there will be no material adverse change to Borrower's
business by reason of the advent of the year 2000, including without limitation
that all computer-based systems, embedded microchips and other processing
capabilities effectively recognize and process dates after April 1, 1999.
5.16 Certain Matters Affecting Project Inventory Under Construction. With
--------------------------------------------------------------
respect to all Project Inventory Under Construction which has been contributed
either to the Primary Borrowing Base or the Supplemental Borrowing Base,
Borrowers hereby represent and warrant that as of the time any such Project is
contributed, there are no outstanding mechanics', materialmen's or other
artisan's liens, and that there is no Person who would be entitled to file any
such lien claim except for those Persons who have performed services and whose
invoices are not past their due date.
5.17 Survival and Additional Representations and Warranties. The
------------------------------------------------------
representations and warranties and contained in this Article 5 are in addition
---------
to, and not in derogation of, the representations and warranties contained
elsewhere in the Loan Documents and shall be deemed to be made and reaffirmed
prior to the making of each Advance.
6. BORROWER'S COVENANTS
6.1 Borrower's Affirmative Covenants.
--------------------------------
(a) Good Standing. Borrower will maintain its existence as a business
-------------
organization of the type described below when it has signed this Agreement,
duly organized, validly existing and in good standing as the type of
organization identified in the Schedule as Borrower's Type of Business
Organization under the laws of the state identified in the Schedule as
State of Organization and remain in good standing and authorized to do
business in the jurisdiction where the Project is located and in each
jurisdiction where Borrower is then selling Time-Share Interests or where
at any time the location or nature of its properties or its business then
makes such good standing and qualification necessary. Borrower will
maintain full authority to Perform the Obligations and to carry on its
business and own its property.
(b) Compliance with Legal Requirements. Borrower will comply with all
----------------------------------
Legal Requirements in all material respects, including, without limitation,
all Legal Requirements of the state in which the Project is located and all
other governmental jurisdictions in which the Project is located or in
which Time-Share Interests will be sold or offered for sale.
(c) Insurance. Borrower will pay the cost of and will maintain and
---------
deliver to Lender evidence of insurance policies required by Lender which
cover such risks, are written by insurers and are in amounts and on forms
satisfactory to Lender. The foregoing notwithstanding, to the extent that
it is the responsibility of any Time-Share Association to maintain
insurance which is required by Lender, Borrower shall be permitted to
perform its obligations pursuant to this paragraph 6.1(c) by delivering
----------------
evidence to Lender confirming that the necessary insurance is being
maintained by such Time-Share Association; provided, however, that with
respect to any Time-Share Association as to which one or more Borrower has
the power to direct and control its activities, such Borrower shall be
responsible for providing satisfactory insurance in the event such Time-
Share Association has failed to do so.
(d) Reports.
-------
(i) Financial Information. Commencing with the period ending
---------------------
December 31, 1999, Borrower will furnish or cause to be furnished to Lender
within one hundred twenty (120) days after each fiscal year of the subject,
a copy of the current annual financial statements of Borrower and of each
Time-Share Association; and will furnish or cause to be furnished to Lender
within forty-five (45) days after each interim quarterly fiscal period of
the subject, a copy of the current financial statements of Borrower for the
period commencing with the first day of the fiscal year and concluding with
such quarter end. Such financial statements shall contain a balance sheet
as of the end of the relevant fiscal period and statements of income and of
cash flow for such fiscal period (together, in each case, with the
comparable figures for the corresponding period of the previous fiscal
year), all in reasonable detail. All financial statements shall be
prepared in accordance with generally accepted accounting principles,
consistently applied. All financial statements of Borrower and of each
Time-Share Association shall be certified by the chief financial officer of
such entity. Annual statements of Borrower and of each Time-Share
Association shall be audited, certified by a recognized firm of certified
public accountants reasonably satisfactory to Lender. Anything in
17
<PAGE>
this paragraph 6.1(d)(i) to the contrary notwithstanding, the following two
-------------------
conventions shall be applied to Borrower's reporting obligations hereunder.
With respect to Borrower's required financial information hereunder,
Borrower shall be permitted to satisfy its reporting obligations by
providing a copy of Primary Borrower's consolidated financial statements as
filed with the U.S. Securities and Exchange Commission (the "SEC"), as long
---
as those reports are in compliance with then existing SEC reporting
requirements for publicly traded companies. With respect to the financial
information required to be provided for the various Time-Share
Associations, in the event that no Borrower is in control of a given Time-
Share Association, then Borrower's obligation to provide the foregoing
financial information shall only require Borrower to use its reasonable
good faith efforts to obtain and deliver to Lender the information
requested. In the event that Primary Borrower shall ever cease to be a
reporting company with the SEC, with the result that the financial
statements provided by Primary Borrower hereunder shall no longer be
Primary Borrower's consolidated financial statements as filed with the SEC,
then upon such occurrence Primary Borrower shall be obligated to deliver to
Lender, together with such financial statements as Primary Borrower does
deliver to Lender, a certificate signed by Borrower's chief executive
officer and chief financial officer stating that, to the best of such
person's knowledge, there exists no Event of Default or Incipient Default
or, if any such Event of Default or Incipient Default exists, specifying
the nature and period of its existence and what action Borrower proposes to
take with respect to it. Such certificate shall state specifically that
Borrower is in compliance with paragraphs 6.1(c), 6.2(b) and 6.2(c), along
------------------------- ------
with any required financial covenants. For purposes of this paragraph, in
the case of a partnership or limited liability company, "chief executive
---------------
officer" of an entity shall mean the general partner, member or manager
-------
having primary responsibility for the operations of such entity; and "chief
-----
financial officer" of such an entity shall mean the general partner, member
-----------------
or manager having primary responsibility for the finances of such entity.
(ii) Litigation. Borrower will promptly notify Lender if any
----------
action, litigation or other proceeding becomes pending or, to Borrower's
knowledge, threatened before any arbitration tribunal, court, governmental
agency or administrative body against Borrower, which could reasonably be
expected to result in a Material Adverse Effect (exclusive of those items
which are related to an individual Project and with respect to which
adequate insurance coverage [which has not been denied or reserved against]
exist, in the manner described in paragraph 5.4 hereof). The foregoing
-------------
notwithstanding, with respect to any lawsuit involving a shareholder class
action against Primary Borrower, or seeking to establish or confirm a class
of shareholders for purposes of pursuing a shareholder class action against
Primary Borrower, Primary Borrower shall only be required to notify Lender
as of the fifteenth (15th) and last day of each month with respect to any
such lawsuits filed subsequent to the last such report provided by Primary
Borrower.
(iii) Sales Reports. On or before the fifteenth (15th) day
-------------
after the end of each month, Borrower will cause to be furnished to Lender,
if requested by Lender in writing, a sales report showing the number of
sales and closings of Time-Share Interests and the aggregate dollar amount
thereof, including down payments, during such month.
(iv) Time-Share Project and Sales Information. Borrower will
----------------------------------------
deliver current price lists for Time-Share Interests to Lender from to time
to time within ten (10) Business Days after receipt of a written request
from Lender to do so. Borrower will deliver to Lender from time to time,
as available and promptly upon amendment or effective date, upon written
request from Lender for such information, sales literature, registrations/
consents to sell, and final public reports/public offering statements/
prospectuses. Borrower will deliver to Lender, upon written request from
Lender for such information, any changes which Borrower proposes or any
other person having the power to do so proposes be made to the Time-Share
Program Governing Documents last delivered to Lender, together with a
description and explanation of the changes; and other items requested by
Lender which relate to the Time-Share Interests.
(v) Right to Inspect. Borrower will at its expense permit
----------------
Lender and its representatives at all reasonable times to inspect each
Project and to inspect, audit and copy Borrower's books and records.
(vi) Time-Share Association Budgets. Borrower will submit to
------------------------------
Lender (if the same had been requested by
18
<PAGE>
Lender in writing) within ten (10) days after each is available, proposed
annual maintenance and operating budgets of the Time-Share Association,
certified to be adequate by the Time-Share Manager (or if there is not a
Time-Share Manager, by an authorized officer of the Time-Share Association)
and a statement of the annual assessment to be levied upon the owners of
Time-Share Interests; and will use reasonable good faith efforts to cause
to be made available to Lender for inspection, auditing and copying, upon
Lender's request, the books and records of the Time-Share Association.
(vii) Material Increases to Assessments. If Borrower has
---------------------------------
knowledge or has reason to believe that an event (other than general
changes in the economy) has occurred or could occur which could give rise
to a material increase in assessments to cover the then current costs of
operating the Time-Share Project and to establish and maintain a reasonable
reserve for capital improvements to the Time-Share Project, it will notify
Lender of the occurrence of such event.
(viii) Additional Information. Borrower will deliver to
----------------------
Lender the reports and other information required pursuant to paragraph
---------
3.3, and Borrower will make available such further information as Lender
may from time to time reasonably request.
(e) Correction of Construction Liens. In the event that any
--------------------------------
mechanics', materialmen's or other artisan's liens (herein, the
"Construction Liens") are at any time filed or recorded against any Project
Inventory Under Construction, Borrowers shall promptly either (i) cause all
such liens to be paid in full and released; (ii) provide Lender with a
Title Policy or an endorsement to an existing Title Policy confirming the
priority of the lien of Lender's Mortgage over the priority of any such
Construction Liens; (iii) provide to Lender a bond or other form of
assurance, in form and substance satisfactory to Lender, assuring against
the foreclosure of any such Construction Liens; or (iv) deliver substitute
Collateral in favor of Lender in replacement of any Collateral subject to
such Construction Liens and in an amount sufficient to preserve the Primary
Borrowing Base or the Supplemental Borrowing Base Maintenance Requirement,
as applicable. In the event that any such Construction Liens at any time
are recorded, unless Borrower has effected one of the above remedies within
ten (10) days following the date such liens are recorded, Lender shall
create a Construction Reserve in an amount equal to the amount of the lien
claims.
(f) Payment of Taxes and Other Impositions. Subject to the provisions
--------------------------------------
of paragraph 9.21, Borrower will file all tax returns and will pay all
--------------
Impositions, if any, required to be filed by it or paid by it, including
real estate taxes and assessments relating to the Project or the
Collateral. Borrower will provide to Lender (if Lender has requested in
writing that Borrower provide such information) not more than thirty (30)
days after such Impositions required to be paid pursuant to the preceding
sentence become delinquent evidence that all Impositions required to be
paid pursuant to the preceding sentence on the Units and Time-Share Project
common areas and related amenities have been paid in full.
(g) Payment of Impositions. Borrower will promptly pay upon demand
----------------------
all Impositions imposed upon Lender by any state of the United States or
political subdivision thereof or the United States by reason of the Loan
Documents, the Collateral and/or any sale, rental, use, delivery or
transfer of title to the Collateral, other than any tax measured by net
income payable by Lender to any State of the United States or political
subdivision thereof or to the United States of America under Section 11 or
-------------
1201 of the Internal Revenue Code, as amended, in consequence of the
----
receipt of payments provided for in the Loan Documents. If it is unlawful
for Borrower to pay such Impositions, Borrower shall not be required to pay
such Impositions; but Lender may demand payment of such additional amount
as is necessary to maintain Lender's yields on the Inventory Loan in either
a single payment or at Lender's option, in installment payments, and
Borrower will pay such amount upon demand. If it is unlawful to pay such
additional amount, Borrower shall not be required to pay it; but Lender may
demand immediate payment of the Obligations in full, and Borrower will pay
the Obligations in full within sixty (60) days after such demand. If
Lender has not received evidence satisfactory to it from Borrower that such
Impositions have been paid by Borrower within five (5) Business Days after
demand was made upon Borrower to make such payment, Lender may, at its
option, pay the same, and Borrower shall immediately reimburse Lender for
such sums so expended, together with interest at the Default Rate.
19
<PAGE>
(h) Further Assurance. Borrower will execute or cause to be executed
-----------------
all documents and do or cause to be done all acts reasonably necessary for
Lender to perfect or evidence and to continue the perfection of the liens
and security interest of Lender in the Collateral or otherwise to
reasonably effectuate the intent and purposes of the Loan Documents.
(i) Fulfillment of Obligations to Purchasers. Borrower will fulfill,
----------------------------------------
and will cause its Affiliates, agents and independent contractors at all
times to fulfill, all their respective material obligations to Purchasers.
Borrower will Perform all of its material obligations under the Time-Share
Program Consumer Documents and the Time-Share Program Governing Documents.
(j) Material Increases to Assessments. Borrower (i) will use
---------------------------------
reasonable good faith efforts to cause the Time-Share Association to (A)
discharge its obligations under the Time-Share Program Governing Documents
and (B) maintain a reasonable reserve for capital improvements to the Time-
Share Project; and (ii) so long as Borrower controls the Time-Share
Association, will cause each such Time-Share Association to maintain a
budget requiring the payment of dues and assessments which are designed, on
an annual basis, to make available sufficient funds to adequately provide
for the maintenance and operating expenses incurred by the Time-Share
Association, together with a reasonable reserve for capital improvements
and the amount of any installment of real property taxes currently due and
payable with respect to the Time-Share Project and related amenities, and
in the event that, as a result of unexpected contingencies, the amount
budgeted in any given year fails to adequately provide for the foregoing,
Borrower shall cause such Time-Share Association to take reasonable steps,
either in the form of a special assessment or through an increase in the
annual assessment for upcoming years, in order to make-up for any budgetary
shortfalls.
(k) Maintenance of Time-Share Project and Other Property. Borrower
----------------------------------------------------
will maintain or cause to be maintained in good condition and repair all
common areas in the Time-Share Project and other on-site amenities which
have been promised or represented as being available to Purchasers and
which are not the responsibility of the Time-Share Association to maintain
and repair and, to the extent owned by Borrower or an Affiliate of
Borrower, all portions of improvements in which Units are located and are
not part of the Time-Share Project. Borrower will maintain or cause the
Time-Share Association to maintain a reasonable reserve to assure
compliance with the terms of the foregoing sentence, to the extent that
Borrower is in control of the applicable Time-Share Association. In
applying the foregoing provision, Borrower shall be permitted to implement
the funding of necessary reserves on a staged basis, through increases in
applicable Time-Share Association dues over a period of one or more years,
as deemed appropriate by Borrower in its reasonable and prudent business
judgment, to the extent that such increases would reasonably be expected to
cause sufficient reserve amounts to be available on or before the date the
expenditure of funds from such reserves was anticipated to occur. In the
event Borrower is no longer in control of such Time-Share Association,
Borrower shall use reasonable good faith efforts to cause such Time-Share
Association to include within its budget a reasonable reserve to assure
compliance with the terms of this paragraph 6.1(k).
----------------
(l) Maintenance of Larger Tract. To the extent either the Time-Share
---------------------------
Project is part of a larger common ownership regime or planned development
or parts of buildings in which Units are located are not part of the Time-
Share Project, Borrower will pay its share of such common expenses as has
been allocated to the Inventory. Borrower will use commercially reasonable
efforts to cause all such property which is not part of the Time-Share
Project to be professionally managed in a first class manner.
(m) Year 2000. Borrower shall take all action reasonably believed to
---------
be sufficient to assure that there will be no material adverse change to
Borrower's business by reason of the advent of the year 2000, including
without limitation that all computer-based systems, embedded microchips and
other processing capabilities effectively recognize and process dates after
April 1, 1999. At Lender's request, Borrower shall provide to Lender
assurance reasonably acceptable to Lender that Borrower's computer-based
systems, embedded microchips and other processing capabilities are year
2000 compatible.
(n) Tangible Net Worth. Primary Borrower shall maintain, on a
------------------
consolidated basis, Tangible Net Worth (as hereafter defined) in an amount
of not less than $120,000,000 for each test conducted through and including
the test as of September 30, 2000, and thereafter shall
20
<PAGE>
maintain, on a consolidated basis, Tangible Net Worth in an amount of not
less than $150,000,000. "Tangible Net Worth" shall be defined as Primary
------------------
Borrower's stockholders' equity, on a consolidated basis, less the amount
of any intangible assets shown on Primary Borrower's consolidated balance
sheet. The foregoing covenant shall be tested quarterly, commencing
December 31, 1999, concurrently with the delivery of Primary Borrower's
quarterly and annual financial information to the SEC, and on the basis of
the financial information reported to the SEC.
(o) Leverage Ratio. Primary Borrower shall maintain, on a
--------------
consolidated basis, a ratio of total liabilities to Tangible Net Worth of
not greater than 7.0:1.0 for each test conducted through and including the
test as of September 30, 2000, and thereafter shall maintain, on a
consolidated basis, a ratio of total liabilities to Tangible Net Worth of
not greater than 6.0:1.0. The foregoing covenant shall be tested
quarterly, commencing December 31, 1999, simultaneously with, and on the
basis of, Primary Borrower's financial information as reported to the SEC.
(p) Net Profit Margin. Primary Borrower shall maintain, on a
-----------------
consolidated basis, a "Net Profit Margin" (as hereafter defined) of at
least five percent (5%). "Net Profit Margin" shall be defined, for any
-----------------
period of measurement, as Primary Borrower's consolidated net income during
such period divided by Primary Borrower's consolidated gross revenue during
the same period (with respect to the determination of both net income and
gross revenues, excluding the effect of any extraordinary gains or losses
and any other non-recurring items not in the ordinary course of business,
as determined in accordance with GAAP). The foregoing covenant shall be
tested quarterly, commencing June 30, 2000, on the basis of the trailing
two fiscal quarters most recently completed as of each test date, on the
basis of Primary Borrower's financial information as reported to the SEC.
6.2 Borrower's Negative Covenants.
-----------------------------
(a) Change in Borrower's Name or Principal Place of Business.
--------------------------------------------------------
Borrower will not change its name or move its principal place of business
or chief executive office except upon not less than sixty (60) days prior
written notice to Lender.
(b) Restrictions on Additional Indebtedness. Borrower will not incur
---------------------------------------
any additional indebtedness which indebtedness is in any manner secured by
a lien on all or any part of the Inventory.
(c) Restrictions on Liens or Transfers. Borrower, without the prior
----------------------------------
written consent of Lender, will not: (i) sell, convey, lease, pledge,
hypothecate, encumber or otherwise transfer any security for the
Performance of the Obligations, except to the extent Borrower is permitted
to sell unsold Completed Project Inventory constituting a portion of the
Collateral and to obtain releases from Lender with respect to such sales,
in accordance with paragraph 3.2 hereof; (ii) permit or suffer to exist any
-------------
liens, security interests or other encumbrances on the Inventory, except
for the Permitted Encumbrances and liens and security interests expressly
granted to Lender; (iii) sell, convey, lease, transfer or dispose of all or
substantially all of its assets to another entity; or (iv) enter into any
merger, consolidation, or other form of corporate reorganization, unless
Borrower is the surviving corporation of such merger, consolidation or
reorganization. The foregoing notwithstanding, nothing in this paragraph
---------
6.2(c) is intended to restrict or otherwise prohibit the ability of Primary
------
Borrower to cause any Affiliate to be merged with or into Primary Borrower,
as long as Primary Borrower is the surviving entity of such merger.
(d) No Sales Activities Prior to Approval. Borrower will not sell any
-------------------------------------
Time-Share Interest or offer any Time-Share Interest for sale in any
jurisdiction, unless: (i) Borrower has delivered to Lender true and
complete copies of the Minimum Required Time-Share Approvals required in
such jurisdiction for its proposed conduct and all other evidence required
by Lender that Borrower has complied in all material respects with the
Legal Requirements of such jurisdiction governing its proposed conduct; and
(ii) Borrower has delivered to Lender the Time-Share Program Consumer
Documents and the Time-Share Program Governing Documents which Borrower is
using in connection with the Time-Share Project and the sale or offering
for sale of Time-Share Interests in such jurisdiction and such documents
have been approved by Lender, which approval shall not be unreasonably
withheld.
(e) No Modification of Time-Share Documents. Borrower will not cancel
---------------------------------------
or
21
<PAGE>
materially modify, or consent to or suffer to exist any cancellation or
material modification of any Time-Share Program Governing Document. The
foregoing notwithstanding, the following events shall not be deemed a
material modification to any Time-Share Program Governing Document
requiring the consent of Lender hereunder: (1) the addition of Units to any
Time-Share Program, to the extent such Units were contemplated to be added
in stages as an individual Time-Share Project was developed, or (2) a
conversion of all or a portion of the rights in a given Time-Share Project
from a structure in which such ownership rights are characterized as Time-
Share Interests which are identifiable to a specific Unit and/or period of
time to a structure in which such ownership rights are characterized as
"points" or other comparable form which may or may not be identifiable to a
specific Unit and/or period of time, in the manner from time to time
implemented by Borrower with respect to the program that Primary Borrower
refers to as "Club Sunterra," provided that the resulting interests in each
Time-Share Project constitute separately identifiable and legally described
direct ownership interests in real property.
(f) Maintenance of Larger Tract. To the extent either the Time-Share
---------------------------
Project is part of a larger common ownership regime or planned development
or parts of buildings in which Units are located are not part of the Time-
Share Project, for the period during which Borrower is in control of the
larger common ownership regime or planned development, Borrower will not
permit common expenses to be allocated to the Time-Share Project in an
unreasonably disproportionate manner.
6.3 Survival of Covenants. The covenants contained in this Article 6 are
--------------------- ---------
in addition to, and not in derogation of, the covenants contained elsewhere in
the Loan Documents and shall be deemed to be made and reaffirmed prior to the
making of each Advance.
7. DEFAULT
7.1 Events of Default. The occurrence of any of the following events or
-----------------
conditions shall constitute an Event of Default by Borrower under the Loan
Documents:
(a) failure of Lender to receive from Borrower within five (5)
Business Days of the date when due and payable (i) any amount payable under
the Notes or (ii) any other payment due under the Loan Documents, except
for the payments required as of each Principal Reduction Date (in order to
cause the then outstanding balance of the Inventory Loan to be less than or
equal to the then permitted Maximum Inventory Loan Amount) and the payment
due on the Maturity Date, for none of which any grace period shall be
allowed;
(b) any representation or warranty which is made by a person other
than Lender and is contained in the Loan Documents or in any certificate
furnished to Lender under the Loan Documents by or on behalf of Borrower
proves to be, in any material respect, false or misleading as of the date
deemed made, and Borrower has failed to cause such representation or
warranty to become true and correct, in all material respects, within
thirty (30) days following notice from Lender;
(c) a default in the Performance of the Obligations set forth in
paragraph 6.1(n), 6.1(o), 6.1(p), 6.2(b), 6.2(c)(i), 6.2(c)(iii), or
--------------------------------------------------------------------
6.2(c)(iv);
----------
(d) a default in the Performance of the Obligations or a violation of
any term, covenant or provision of the Loan Documents (other than a default
or violation referred to elsewhere in this paragraph 7.1) which continues
-------------
unremedied (i) for a period of thirty (30) days after notice of such
default or violation to Borrower in the case of a default under or
violation of paragraph 6.2(c)(ii) or any default or violation which can be
--------------------
cured by the payment of money alone or (ii) for a period of thirty (30)
days after notice to Borrower in the case of any other default or
violation;
(e) an "Event of Default," as defined in any of the other Loan
----------------
Documents;
(f) any default by Borrower under any other agreement evidencing,
guaranteeing or securing borrowed money or a receivables purchase financing
involving an obligation in excess of One Million Dollars ($1,000,000) to
make a payment of principal or interest or to repurchase receivables;
(g) any final, non-appealable judgment or decree for money damages or
for a fine or penalty against Borrower which is not paid and discharged or
stayed within thirty (30) days thereafter and which, when aggregated with
all other judgment(s) or decree(s) that have remained unpaid and
undischarged or are not stayed for such period, are in excess of One
Million Dollars ($1,000,000);
(h) any party holding a lien on or security interest in any Collateral
commences
22
<PAGE>
foreclosure or similar sale thereof, unless Borrower causes such proceeding
to be stayed pending determination of the rights of the respective parties
with respect to such Collateral, which stay continually prevents the party
holding the lien or security interest from proceeding against the
Collateral at issue;
(i) a material adverse change in any Project, the Collateral or the
business or financial condition of Borrower, which change is not enumerated
in this paragraph 7.1, as the result of which Lender in good faith deems
-------------
the prospect of Performance of the Obligations materially impaired or the
Collateral materially imperiled; provided, however, that no Event of
-------- -------
Default shall be deemed to occur as a result of this paragraph 7.1(i)
----------------
arising due to any reduction in either the Primary Borrowing Base or the
Supplemental Borrowing Base caused by any Eligible Completed Project
Inventory or any Eligible Project Inventory Under Construction having
become ineligible unless Borrowers have failed to provide substitute
Collateral sufficient to cure any Borrowing Base Shortfall, or to cause the
Supplemental Borrowing Base to equal or exceed the Supplemental Borrowing
Base Maintenance Requirement, by the date which is ten (10) Business Days
following the earlier of (x) the date Borrower submits a Borrowing Base
Report disclosing either any Borrowing Base Shortfall or any failure of the
Supplemental Borrowing Base to equal or exceed the Supplemental Borrowing
Base Maintenance Requirement, or (y) the date on which Lender notifies
Borrowers that an adverse change of this nature has occurred;
(j) Borrower shall (i) generally not be paying its debts as they
become due, (ii) file, or consent by answer or otherwise to the filing
against it of, a petition for relief or reorganization, arrangement or
liquidation or any other petition in bankruptcy or insolvency under the
laws of any jurisdiction, (iii) make an assignment for the benefit of its
creditors, (iv) consent to the appointment of a custodian, receiver,
trustee or other officer with similar powers for itself or any substantial
part of its property, (v) be adjudicated insolvent, (vi) dissolve or
commence to wind-up its affairs or (vii) take any action for purposes of
the foregoing; or a petition for relief or reorganization, arrangement or
liquidation or any other petition in bankruptcy or insolvency or the
appointment of a custodian under the laws of any jurisdiction is filed
against Borrower or a custodian is appointed for Borrower, the Collateral
or any material part of Borrower's property and such proceeding is not
dismissed and appointment vacated within ninety (90) days thereafter;
(k) any of the events enumerated in paragraphs 7.1(f), (g), (i) or (j)
--------------------------- ---
occurs with respect to any general partner or manager of Borrower, if
Borrower is a partnership or limited liability company, or any surety for
the Performance of the Obligations;
(l) failure of Lender to receive from Borrower, within thirty (30)
days of the date Borrower knows of such event, notice of any event which
renders any representation or warranty in any Loan Documents false in any
material, adverse respect were it made after the occurrence of such
condition;
(m) any "Event of Default" under the Warehouse Loan shall occur, as
defined in that certain Loan and Security Agreement to be entered into
between Primary Borrower and Lender which evidences the Warehouse Loan;
(n) if Primary Borrower shall have failed, on or before the date sixty
(60) days following the Effective Date, to have successfully closed, on
terms and conditions acceptable to Lender (and on economic terms
substantially in accordance with the terms set forth in those certain
proposal letters from Lender to Primary Borrower with respect to each of
the following), each of the following facilities: (i) the Warehouse Loan;
(ii) a facility pursuant to which Lender shall purchase up to $20,000,000
of receivables owned by Primary Borrower or one of its Affiliates; and
(iii) a facility pursuant to which Lender and/or its Affiliates shall make
available a $100,000,000 receivables conduit facility to Primary Borrower;
provided, however, that the failure of Primary Borrower to have closed all
---
of the foregoing facilities by the date specified shall not constitute an
Event of Default hereunder if the foregoing facilities fail to close by the
date specified either (x) as the result of reasons within Lender's control
but not under the control of Primary Borrower or (y) because Lender
declines to approve funding of any of the foregoing facilities (or, with
respect to the conduit facility described in clause (iii) above, as to
those terms for the conduit facility that are not yet specified in Lender's
proposal letter to Primary Borrower, Lender approves such facility on
economic terms materially less favorable to Primary Borrower
23
<PAGE>
than are otherwise available to Primary Borrower from other sources), in
which event Primary Borrower shall have a period of one hundred twenty
(120) days from the date Lender indicates its unwillingness to approve any
such facility (or, with respect to the conduit facility described above,
approves such facility on economic terms, as to presently unspecified
items, that Primary Borrower notifies Lender Primary Borrower believes are
materially less favorable to it than are otherwise available) to close the
relevant facility with another lender on terms and conditions which are
satisfactory to Lender; or
(o) with respect to the facilities described in clauses (ii) or (iii)
of paragraph 7.1(n) above, if either facility is funded by Lender, if
----------------
Primary Borrower fails to perform on any repurchase obligation in favor of
Lender set forth in the documentation for such facilities, after giving
effect to any applicable grace periods set forth in such documentation.
7.2 Remedies. At any time after an Event of Default has occurred and
--------
while it is continuing, Lender may but without obligation, in addition to the
rights and powers granted elsewhere in the Loan Documents and not in limitation
thereof, do any one or more of the following:
(a) cease to make further Advances;
(b) declare the Notes, together with all other sums owing by Borrower
to Lender in connection with the Inventory Loan, immediately due and
payable without notice, presentment, demand or protest, which are hereby
waived by Borrower;
(c) proceed to protect and enforce its rights and remedies under the
Loan Documents and to foreclose or otherwise realize upon its security for
the Performance of the Obligations, or to exercise any other rights and
remedies available to it at law, in equity or by statute; and
(d) without notice to Borrower, have a receiver appointed for Borrower
and/or its property.
7.3 Application of Proceeds During an Event of Default. Notwithstanding
--------------------------------------------------
anything in the Loan Documents to the contrary, while an Event of Default
exists, any cash received and retained by Lender in connection with the
Collateral may be applied to payment of the Obligations in the manner provided
in paragraph 7.5.
-------------
7.4 Uniform Commercial Remedies; Sale.
---------------------------------
(a) UCC Remedies; Sale of Collateral. Lender shall have all of the
--------------------------------
rights and remedies of a secured party under the Uniform Commercial Code of
the State of Arizona and of the state in which the applicable Collateral is
situated, and all other rights and remedies accorded to a Secured Party at
equity or law with respect to that portion of the Collateral not consisting
of an interest in real property. Any notice of sale or other disposition
of such non-real property Collateral given not less than ten (10) days
prior to such proposed action in connection with the exercise of Lender's
rights and remedies shall constitute reasonable and fair notice of such
action. Lender may postpone or adjourn any such sale from time to time by
announcement at the time and place of sale stated on the notice of sale or
by announcement of any adjourned sale, without being required to give a
further notice of sale. Any such sale may be for cash or, unless
prohibited by applicable law, upon such credit or installment as Lender may
determine. Borrower shall be credited with the net proceeds of such sale
only when such proceeds are actually received by Lender in good current
funds. Despite the consummation of any such sale, Borrower shall remain
liable for any deficiency on the Obligations which remains outstanding
following such sale. All net proceeds recovered pursuant to a sale shall
be applied in accordance with the provisions of paragraph 7.5.
-------------
(b) Lender's Right to Execute Conveyances. Lender may, in the name of
-------------------------------------
Borrower or in its own name, make and execute all conveyances, assignments
and transfers of the Collateral sold in connection with the exercise of
Lender's rights and remedies, and Lender is hereby appointed Borrower's
attorney-in-fact for this purpose.
7.5 Application of Proceeds. The proceeds of any sale of all or any part
-----------------------
of the Collateral made in connection with the exercise of Lender's rights and
remedies shall be applied in the following order of priorities; first, to the
payment of all costs and expenses of such sale, including without limitation,
reasonable compensation to Lender and its agents, attorneys' fees, and all other
expenses, liabilities and advances incurred or made by Lender, its agents and
attorneys, in connection with such sale, and any other unreimbursed expenses for
which Lender may be reimbursed pursuant to the Loan Documents; second, to the
payment of all late charges required by the Loan Documents to be paid by
Borrower, in such order and manner as Lender shall in its
24
<PAGE>
discretion determine; third, to the payment of the Obligations, in such order
and manner as Lender shall in its discretion determine, with no amounts applied
to payment of principal until all interest has been paid; fourth, to the other
Obligations in such order and manner as Lender may determine; and last, to the
payment to Borrower, its successors or assigns, or to whosoever may be lawfully
entitled to receive the same, or as a court of competent jurisdiction may
direct, of any surplus then remaining from such proceeds.
7.6 Lender's Right to Perform. Lender may, at its option, and without any
-------------------------
obligation to do so, pay, perform and discharge any and all obligations agreed
to be paid or Performed in the Loan Documents by Borrower or any surety for the
Performance of the Obligations if (a) such person fails to do so and (b) (i) an
Event of Default exists and at least five (5) Business Day's notice has been
given to such person of Lender's intention to take such action, (ii) the action
taken by Lender involves obtaining insurance which such person has failed to
maintain in accordance with the Loan Documents or to deliver evidence thereof,
or (iii) in the opinion of Lender, such action must be taken because an
emergency exists or to preserve any of the Collateral or its value. For such
purposes Lender may use the proceeds of the Collateral. All amounts expended by
Lender in so doing or in exercising its remedies under the Loan Documents
following an Event of Default shall become part of the Obligations, shall be
immediately due and payable by Borrower to Lender upon demand, and shall bear
interest at the Default Rate from the dates of such expenditures until paid.
7.7 Non-Exclusive Remedies. No remedy in any Loan Document conferred on
----------------------
or reserved to Lender is intended to be exclusive of any other remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under any Loan Document or now or hereafter
existing at law or in equity. No delay or omission to exercise any right or
power shall be construed to be a waiver of or acquiescence to any default or a
waiver of any right or power; and every such right and power may be exercised
from time to time and as often as may be deemed expedient.
7.8 Waiver of Marshalling. Borrower, for itself and for all who may claim
---------------------
through or under it, hereby expressly waives and releases all right to have the
Collateral, or any part of the Collateral, marshalled on any foreclosure, sale
or other enforcement of Lender's rights and remedies.
7.9 Attorney-in-Fact. For the purpose of exercising its rights and
----------------
remedies under paragraphs 7.2(c) and 7.6, Lender may do so in Borrower's name or
----------------- ---
its name and is hereby appointed as Borrower's attorney-in-fact to take any and
all actions in Borrower's name and/or on Borrower's behalf as Lender may deem
necessary or appropriate in its discretion in the accomplishment of such
purposes.
8. COSTS AND EXPENSES; INDEMNIFICATION
8.1 Costs and Expenses. Borrower will pay on demand any and all costs and
------------------
expenses incurred by Lender (exclusive of Lender's employees' expenses other
than travel expenses) in connection with the initiation, documentation and
closing of the Inventory Loan, the making of Advances, the protection of the
Collateral, or the enforcement of the Obligations against Borrower, including,
without limitation, all attorneys', inspecting architect's/engineer's and other
professionals' fees (including, without limitation, reasonable out-of-pocket
expenses and reasonable and normal charges of such attorneys' and other
professionals for photocopy, telecopy and computer services, and clerical
overtime), consumer credit reports, and revenue, documentary stamp, transaction
and intangible taxes. Without limiting the generality of the foregoing, if a
bankruptcy proceeding is commenced by or against Borrower or otherwise involving
the Collateral, Lender shall, to the extent not already provided for herein, be
entitled to recover, and Borrower shall be obligated to pay, Lender's attorneys'
fees and costs incurred in connection with: any determination of the
applicability of the bankruptcy laws to the terms of the Loan Documents or
Lender's rights thereunder; any attempt by Lender to enforce or preserve its
rights under the bankruptcy laws or to prevent Borrower or any other person from
seeking to deny Lender its rights thereunder; any effort by Lender to protect,
preserve or enforce its rights against the Collateral, or seeking authority to
modify the automatic stay of 11 U.S.C. Section 362 or otherwise seeking to
---------------------
engage in such protection, preservation or enforcement; or any proceeding(s)
arising under the bankruptcy laws, or arising in or related to a case under the
bankruptcy laws.
8.2 Indemnification. Borrower will INDEMNIFY, PROTECT, HOLD HARMLESS, and
---------------
defend Lender, its successors, assigns and shareholders (including corporate
shareholders), and the directors, officers, employees, servants and agents of
the foregoing, for, from and against: (a) any and all liability, damage,
penalties, or fines, loss, costs or expenses (including, without limitation,
court costs and attorneys' fees), claims, demands, suits, proceedings (whether
civil or criminal), orders, judgments, penalties, fines and other sanctions
whatsoever asserted against it and arising from or brought in connection with
any Project, the Collateral, Lender's status by virtue of the Loan Documents,
creation of liens and security interests, the terms of the Loan Documents or the
transactions related thereto, or any act or omission
25
<PAGE>
of Borrower or an Agent, or their respective employees or agents, whether actual
or alleged unless such act or omission is caused by Lender's gross negligence or
willful misconduct; and (b) any and all brokers' commissions or finders' fees or
other costs of similar type by any party in connection with the Inventory Loan.
Each Borrower and Lender hereby represents and warrants to the other that
neither such Person has engaged the services of a broker of any other Person to
act as an intermediary in connection with the Inventory Loan. On written request
by a person or other entity covered by the above agreement of indemnity,
Borrower will undertake, at its own cost and expense, on behalf of such
indemnitee, using counsel satisfactory to the indemnitee, the defense of any
legal action or proceeding to which such person or entity shall be a party. At
Lender's option, Lender may at Borrower's expense prosecute or defend any action
involving the priority, validity or enforceability of any of the Loan Documents
or Lender's lien on or security interest in any of the Collateral.
9. CONSTRUCTION AND GENERAL TERMS
9.1 Payment Location. All monies payable under the Loan Documents shall
----------------
be paid to Lender at its address set forth following its signature in lawful
monies of the United States of America, unless otherwise designated in the Loan
Documents or by Lender by notice.
9.2 Entire Agreement. The Loan Documents exclusively and completely state
----------------
the rights and obligations of Lender and Borrower with respect to the Inventory
Loan. No modification, variation, termination, discharge, abandonment or waiver
of any of the provisions or conditions of the Loan Documents shall be valid
unless in writing and signed by a duly authorized representative of the party
sought to be bound by such action. The Loan Documents supersede any and all
prior representations, warranties and/or inducements, written or oral,
heretofore made by Lender and Borrower concerning this transaction, including
any commitment for financing.
9.3 Powers Coupled with an Interest. The powers and agency hereby granted
-------------------------------
by Borrower are coupled with an interest and are irrevocable until the
Obligations have been paid in full and are granted as cumulative to Lender's
other remedies for collection and enforcement of the Obligations.
9.4 Counterparts; Facsimile Signatures. Any Loan Document may be executed
----------------------------------
in counterpart, and any number of copies of such Loan Document which have been
executed by all parties shall constitute one (1) original. Delivery of an
executed counterpart of any Loan Document by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of such Loan Document.
Any party delivering an executed counterpart of any Loan Document by
telefacsimile shall also deliver a manually executed counterpart of such Loan
Document, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of such Loan Document.
9.5 Notices. All notices, requests or demands required or permitted to be
-------
given under the Loan Documents shall be in writing, and shall be deemed
effective (a) upon hand delivery, if hand delivered; (b) one (1) Business Day
after such are deposited for delivery via Federal Express or other nationally
recognized overnight courier service; or (c) three (3) Business Days after such
are deposited in the United States mails, certified or registered mail, all with
delivery charges and/or postage prepaid, addressed as shown below, or to such
other address as the party being notified may have designated in a notice given
to the other party. Written notice may be given by telecopy to the telecopier
number shown below or to such other telecopier number as the party being
notified may have designated in a notice given to the other party, which notice
shall be effective on the day of receipt if received during the recipient's
normal business hours on the day of receipt or otherwise on the next Business
Day; provided that such notice shall not be deemed effective unless not later
than the next Business Day, a copy of such notice is hand delivered or deposited
for delivery via courier or in the United States mails in accordance with the
requirements set forth above. The notice addresses and telecopy numbers for
Primary Borrower and Lender are set forth at the end of this Agreement following
their respective signatures. All notices required to be given to any Borrower
may be given to such Borrower at the notice address for Primary Borrower set
forth herein, each Subsidiary Borrower at any time a party to this Agreement
acknowledging that such Subsidiary Borrower maintains executive offices and
functions sufficient for the receipt of notice at the offices of Primary
Borrower.
9.6 Successors and Assigns. All the covenants of Borrower and all the
----------------------
rights and remedies of the Lender contained in the Loan Documents shall bind
Borrower, and, subject to the restrictions on merger, consolidation and
assignment contained in the Loan Documents, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights in the Loan Documents in
whole or in part. Except as may be expressly provided in a Loan Document, no
person or other entity shall be deemed a third party beneficiary of any
provision of the Loan Documents.
9.7 Severability. If any provision of any Loan Document is held to be
------------
invalid, illegal or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of
26
<PAGE>
the Loan Documents shall not in any way be affected or impaired thereby. In lieu
of each such illegal, invalid or unenforceable provision, there shall be added
to the Loan Document affected, a provision that is legal, valid and enforceable
and as similar in terms to such illegal, invalid and unenforceable provision as
may be possible.
9.8 Time of Essence. Time is of the essence in the Performance of the
---------------
Obligations.
9.9 Miscellaneous. All headings are inserted for convenience only and
-------------
shall not affect any construction or interpretation of the Loan Documents.
Unless otherwise indicated, all references in a Loan Document to clauses and
other subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of the Loan Document; the words "herein," "hereof," "hereto,"
------ ------ ------
"hereunder" and words of similar import refer to the Loan Document as a whole
- ----------
and not to any particular paragraph, clause or other subdivision; and reference
to a numbered or lettered subdivision of an Article or paragraph shall include
relevant matter within the Article or paragraph which is applicable to but not
within such numbered or lettered subdivision. All Schedules and Exhibits
referred to in this Agreement are incorporated in this Agreement by reference.
Whenever the words "including", "include", or "includes" are used in the Loan
Documents, they shall be interpreted in a non-exclusive manner as though the
words, "without limitation," immediately followed the same.
9.10 CHOICE OF LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED THEREIN, THE
-------------
LOAN DOCUMENTS AND THE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES THERETO
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ARIZONA (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND TO THE
EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED STATES.
9.11 CHOICE OF JURISDICTION; WAIVER OF VENUE. EACH OF BORROWER AND LENDER:
---------------------------------------
(A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS, JURISDICTION AND VENUE OF
THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY, AND TO THE PROCESS,
JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER PROCEEDINGS ARISING OUT OF OR
RELATING TO ANY LOAN DOCUMENT OR THE SUBJECT MATTER THEREOF, OR, IF LENDER
INITIATES SUCH ACTION, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION, AND
THE CHOICE OF SUCH VENUE SHALL IN ALL INSTANCES BE AT LENDER'S ELECTION; AND (B)
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT
TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR
PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
THE ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH OF BORROWER AND LENDER HEREBY WAIVES THE RIGHT TO COLLATERALLY
ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM.
9.12 WAIVER OF JURY TRIAL. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT
--------------------
ANY CONTROVERSY WHICH MAY ARISE UNDER ANY LOAN DOCUMENT WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES; AND THEREFORE, THEY AGREE THAT ANY LAWSUIT ARISING
OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED BY A JUDGE SITTING WITHOUT A JURY,
AND KNOWINGLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN ANY SUCH PROCEEDING.
9.13 INDUCEMENT TO LENDER. ALL OF THE PROVISIONS SET FORTH IN THIS
--------------------
PARAGRAPH ARE A MATERIAL INDUCEMENT FOR LENDER'S MAKING ADVANCES TO BORROWER.
(BORROWER'S INITIALS
RE: 9.10 - 9.13 _____)
9.14 Compliance With Applicable Usury Law. It is the intent of the
------------------------------------
parties hereto to comply with the Applicable Usury Law. Accordingly,
notwithstanding any provisions to the contrary in the Loan Documents, in no
event shall the Loan Documents require the payment or permit the collection of
interest in excess of the maximum contract rate permitted by the Applicable
Usury Law.
9.15 USE OF LENDER'S NAME. EXCEPT AS REQUIRED BY LAW AND FOR FILINGS
--------------------
MADE WITH THE SECURITIES AND EXCHANGE COMMISSION, ANY STOCK EXCHANGE ON WHICH
BORROWER'S STOCK IS TRADED, ANY REGULATORY AGENCY HAVING JURISDICTION OVER
BORROWER OR ANY OF THE TIME-SHARE PROJECTS, OR WITH RESPECT TO FILINGS REQUIRED
TO BE MADE IN THE LAND RECORDS APPLICABLE TO ANY OF THE TIME-SHARE PROJECTS,
BORROWER WILL NOT, AT ANY TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER WITH
RESPECT TO THE TIME-SHARE
27
<PAGE>
PROJECT, THE SALE OF TIME-SHARE INTERESTS OR OTHERWISE, WITHOUT THE EXPRESS
WRITTEN CONSENT OF LENDER.
9.16 NO JOINT VENTURE. THE RELATIONSHIP OF BORROWER AND LENDER IS
----------------
THAT OF DEBTOR AND CREDITOR, AND IT IS NOT THE INTENTION OF EITHER OF SUCH
PARTIES BY THIS OR ANY OTHER INVENTORY BEING EXECUTED IN CONNECTION WITH THE
INVENTORY LOAN TO ESTABLISH A PARTNERSHIP, AND THE PARTIES HERETO SHALL NOT
UNDER ANY CIRCUMSTANCES BE CONSTRUED TO BE PARTNERS OR JOINT VENTURERS.
9.17 Standards Applied to Lender's Actions. Unless otherwise
-------------------------------------
specifically stipulated elsewhere in the Loan Documents, if a matter is left in
the Loan Documents to the decision, requirement, request, determination,
judgment, opinion, approval, consent, satisfaction, acceptance, agreement,
option or discretion of Lender, its employees, Lender's counsel or any agent for
or contractor of Lender, such action shall be deemed to be exercisable by Lender
or such other person in its sole and absolute discretion and according to
standards established in its sole and absolute discretion. Without limiting the
generality of the foregoing, "option" and "discretion" shall be implied by use
------ ----------
of the words "if" or "may."
-- ---
9.18 Participations. Lender shall have the right without the consent
--------------
of or notice to the Borrower to grant participating interests in the Inventory
Loan, or to assign all or any portion of Lender's interest in and to the
Inventory Loan to any other Person acceptable to Lender, and may disclose to
such other Person all information relating to Borrower as Lender may deem
appropriate in connection with such sales or assignments, provided that Lender
shall obtain from the Person receiving any such information an agreement to be
bound by and abide with such confidentiality provisions as are then binding upon
Lender. The foregoing notwithstanding, in the event Lender sells participating
interests in the Inventory Loan to any other Persons, Lender shall continue to
serve as the lender with responsibility for administration of the Inventory
Loan, shall continue to be the notice party for purposes of the giving of
notices by Borrower, and shall be responsible for disseminating financial and
other information received from Borrower to each participating lender.
9.19 Scope of Reimbursable Attorney's Fees. As used in the Loan
-------------------------------------
Documents, the term "attorneys' fees" includes the reasonable fees of attorneys
---------------
licensed to practice law in any jurisdiction, law clerks, paralegals,
investigators and others not admitted to the bar but performing services under
the supervision of a licensed attorney, and the expenses (including, without
limitation, normal and customary charges for telecopy and photocopy services and
clerical overtime) incurred by them in the performance of their services. As
used in the Loan Documents, attorneys' fees incurred by Lender in the
enforcement of any remedy or covenant include, without limitation, attorneys'
fees incurred in any foreclosure of the Security Documents, in protecting or
sustaining the lien or priority of the Collateral, or in any proceeding arising
from or connected with any such matter, including any bankruptcy, receivership,
injunction or other similar proceeding, or any appeal from or petition for
review of any such matter, and with or without litigation.
9.20 Publicity. Lender is hereby authorized to cause a tombstone to
---------
be published announcing the consummation of this transaction and the aggregate
amount thereof. Borrower consents to such advertising and authorizes Lender to
use Borrower's name, logo, insignia, descriptive art work, trade name,
trademark, or other similar material, whether or not protected by copyright (or
otherwise), in any such advertisement. The foregoing notwithstanding, Lender
shall not issue any press releases concerning this transaction without Primary
Borrower's prior written approval as to the content of such releases, which
approval shall not be unreasonably withheld or conditioned, or unduly delayed.
9.21 Permitted Contests. Notwithstanding anything in the Loan
------------------
Documents to the contrary, after prior written notice to Lender, Borrower at its
expense may contest, by appropriate legal or other proceedings conducted in good
faith and with due diligence, the amount or validity of any tax, Imposition,
Legal Requirement or any monetary lien on the Collateral, so long as: (a) in
the case of an unpaid Imposition or lien, such proceedings suspend the
collection thereof from Borrower and the Collateral, and shall not interfere
with the payment of any monies due under the Collateral in accordance with the
terms of the Security Documents; (b) none of the Collateral is, in the judgment
of Lender, in any imminent danger of being sold, forfeited or lost; (c) in the
case of a Legal Requirement, neither Borrower nor Lender is in any danger of any
civil or criminal liability for failure to comply therewith; and (d) Borrower
has furnished such security, if any, as may be required in the proceedings or as
Lender reasonably requests up to one hundred twenty-five percent (125%) of the
amount in controversy.
9.22 Reliance. Lender's examination, inspection, or receipt of
--------
information pertaining to Borrower, the Collateral or any Project shall not in
any way be deemed to reduce the full scope and protection of the warranties,
representations and Obligations contained in the Loan Documents.
28
<PAGE>
[SIGNATURE PAGE FOLLOWS]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their respective name, personally or by their duly authorized
representatives as of March ___, 2000.
PRIMARY BORROWER SUNTERRA CORPORATION, a Maryland corporation
By: /s/ Carol W. Sullivan
------------------------------------------
Name: Carol W. Sullivan
--------------------------------------
Title: Senior Vice President
-------------------------------------
Primary Borrower's Notice Address
and Telecopy Number:
---------------------------------------------
---------------------------------------------
Attention: General Counsel
Telecopy No.: (407) 532-1075
with a copy to:
SUNTERRA CORPORATION
9921 Covington Cross Drive, suite 105
Las Vegas, Nevada 89134
Attention: Ms. Carol Sullivan
with a further copy to:
SCHREEDER, WHEELER & FLINT, LLP
Candler Building, 16th Floor
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Attention: Leo Rose III, Esq.
SUBSIDIARY BORROWERS ALL SEASONS RESORTS, INC., an Arizona corporation
By: /s/ Carol W. Sullivan
------------------------------------------
Name: Carol W. Sullivan
--------------------------------------
Title: Assistant Treasurer
-------------------------------------
POWHATAN ASSOCIATES, a Virginia joint venture
By: PLANTATION RESORT GROUP, INC., a Virginia
corporation, Its Joint Venturer
By: /s/ Carol W. Sullivan
------------------------------------------
Name: Carol W. Sullivan
--------------------------------------
Title: Assistant Treasurer
-------------------------------------
30
<PAGE>
By: WILLIAMSBURG VACATIONS, INC., a Virginia
corporation, its Joint Venturer
By: /s/ Carol W. Sullivan
------------------------------------------
Name: Carol W. Sullivan
--------------------------------------
Title: Assistant Treasurer
-------------------------------------
GREENSPRINGS ASSOCIATES, a Virginia joint venture
By: PLANTATION RESORT GROUP, INC., a Virginia
corporation, Its Joint Venturer
By: /s/ Carol W. Sullivan
------------------------------------------
Name: Carol W. Sullivan
--------------------------------------
Title: Assistant Treasurer
-------------------------------------
By: GREENSPRINGS PLANTATION RESORTS, INC., a
Virginia Corporation, its Joint Venturer
By: /s/ Carol W. Sullivan
------------------------------------------
Name: Carol W. Sullivan
--------------------------------------
Title: Assistant Treasurer
-------------------------------------
MMG DEVELOPMENT CORP., a Florida corporation
By: /s/ Carol W. Sullivan
------------------------------------------
Name: Carol W. Sullivan
--------------------------------------
Title: Assistant Treasurer
-------------------------------------
Subsidiary Borrowers' Notice Address and
Telecopy Number:
c/o Sunterra Corporation
---------------------------------------------
---------------------------------------------
Attn.:
---------------------------------------
Telecopy:
------------------------------------
LENDER FINOVA CAPITAL CORPORATION, a Delaware corporation
By:
------------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
31
<PAGE>
Lender's Notice Address and Telecopy Number:
FINOVA Capital Corporation
4800 North Scottsdale Road
Scottsdale, Arizona 85251-7623
Attn.: Vice President-Resort Finance
Telecopy: (480) 636-6443
with a copy to:
FINOVA Capital Corporation
4800 North Scottsdale Road
Scottsdale, Arizona 85251-7623
Attn.: Vice President-Group Counsel
Telecopy: (480) 636-6444
32
<PAGE>
SCHEDULE OF ADDITIONAL TERMS
S.1 This Schedule has been incorporated by reference into and form a
part of that Amended and Restated Master Loan and Security Agreement dated as of
March __, 2000, between FINOVA Capital Corporation as "Lender" and Sunterra
Corporation as the "Primary Borrower," and the Subsidiary Borrowers party
thereto.
S.2 To the extent of any inconsistency between this Schedule and the
other provisions of the provisions of the Loan and Security Agreement, the
provisions of this Schedule shall prevail.
S.3 The provisions of the Loan and Security Agreement are
supplemented as follows (paragraph references are references to paragraphs of
the Loan and Security Agreement) which are intended to be supplemented by the
following provisions:
(a) (P)1. Basic Interest Rate: four and one-half percent
(4.50%) per annum in excess of the LIBO Rate or the LIBO
Adjusted Rate, as applicable, fluctuating monthly on the
first Business Day of each calendar month based upon the
LIBO Rate or the LIBO Adjusted Rate, as applicable, in
effect on such date, provided, however, that in no event
shall the Basic Interest Rate exceed the maximum contract
rate of interest permitted by the Applicable Usury Law.
(b) (P)1. Default Rate: two percent (2%) above the Basic
Interest Rate or the maximum contract rate permitted under
the applicable usury law, whichever is less.
(c) (P)1. [Intentionally not used.]
(d) (P)1. Maximum Inventory Loan Amount: (I) from the Effective
Date through and including December 28, 2000 - Seventy Five
Million Dollars ($75,000,000); (II) from December 29, 2000,
through and including June 28, 2001 - Sixty Million Dollars
($60,000,000); (III) from June 29, 2001 through and
including September 30, 2001 - Thirty Million Dollars
($30,000,000); and (IV) on October 1, 2001 $- 0.
(e) (P)1. [Intentionally not used.]
(f) (P)1. Original Borrowing Term Expiration Date:
September 30, 2001.
(g) (P)1. Loan Fee: Two Hundred Fifty Thousand Dollars
($250,000).
(h) (P)1. Maturity Date: October 1, 2001.
(i) (P)1. [Intentionally not used.]
(j) (P)1. Required Closing Date. March 15, 2000.
(k) (P)1. Initial Time-Share Projects: Powhatan Plantation,
Williamsburg, Virginia; Greensprings Plantation,
Williamsburg, Virginia; Scottsdale Villa Mirage, Scottsdale,
Arizona; Villas at Santa Fe, Santa Fe, New Mexico; Coral
Sands, Miami Beach; The Savoy, Miami Beach; San Luis Bay,
Avila Beach, California; The Village at Steamboat, Steamboat
Springs, Colorado; Gatlinburg Town Square, Gatlinburg,
Tennessee; Sedona Summit, Sedona, Arizona; and The
Breckenridge, Breckenridge, Colorado.
(l) (P)2.9(a). Payment of Loan Fee: The Loan Fee shall be
payable in full on the Closing Date. Any remaining portion
of Borrower's $250,000 good faith deposit that was delivered
to Lender in connection with Primary Borrower's acceptance
of Lender's Proposal Letter dated March 3, 2000, after the
payment of Lender's costs and expenses, shall be applied
toward the Loan Fee.
<PAGE>
(m) (P)4.5. Minimum Advance Amount: Five Hundred Thousand
Dollars ($500,000).
(n) (P)4.5. Maximum Advance Frequency: twice per calendar month
with a Five Hundred Dollar ($500) charge being imposed in
connection with the second Advance in any one (1) calendar
month. Lender shall have the right to withhold the amount of
such charge from such Advance.
(o) (P)4.6. Wire Transfer Fee: Twenty-Five Dollars ($25.00).
(p) (P)5.1, 6.1. Borrower's Type of Business Organization:
Primary Borrower - corporation
All Seasons Resorts, Inc. - corporation
Powhatan Associates - a joint venture
Greensprings Associates - a joint venture
MMG Development - corporation.
(q) (P)5.1, 6.1. Borrower's State of Organization:
Primary Borrower - Maryland
All Seasons Resorts, Inc.- Arizona
Powhatan Associates - Virginia
Greensprings Associates - Virginia
MMG Development - Florida
(r) (P)5.3. Borrower's Principal Place of Business: 1781 Park
Center Drive, Orlando, Florida 32825.
(s) (P)5.3. Borrower's Chief Executive Office: 1781 Park
Center Drive, Orlando, Florida 32825
(t) (P)5.9 Jurisdiction Where Sales and/or Offers to Sell Have
Occurred: See Exhibit 5.9 attached hereto.
S.4 In addition to the other representations, warranties and
covenants of Borrower set forth in the Loan and Security Agreement, Borrower
represents, warrants and covenants that each Borrowing Base Report shall be
signed by Primary Borrower and the applicable Subsidiary Borrower (if any) and
shall contain a representation and warranty of each such Person that all of the
information contained therein (including, but not limited to, the sales of Time-
Share Interests reported therein, and the Retail Value with respect to the
Eligible Completed Project Inventory located at the applicable Time-Share
Project) are true, complete and accurate in all material respects. Lender shall
be entitled to request copies of sales contracts to provide substantiation as to
the actual sales prices of those items of Completed Project Inventory sold by
Borrower and requested to be released from the lien of Lender's Mortgage.
<PAGE>
EXHIBIT A
CONDITIONS OF ELIGIBLE COMPLETED PROJECT INVENTORY
(a) The applicable Time-Share Project in which such Inventory exists is
located in the United States.
(b) The applicable Time-Share Project is owned one hundred percent (100%)
either by Primary Borrower or by an Affiliate of Primary Borrower which joins in
the Loan and Security Agreement as a Subsidiary Borrower thereunder.
(c) The Time-Share Association established in connection with the
applicable Time-Share Project must be in stable financial condition, as
demonstrated to Lender's satisfaction. Prior to a given Time-Share Project
being approved for the contribution of Eligible Completed Project Inventory to
the applicable Borrowing Base, Borrower shall have provided to Lender, and
Lender shall have reviewed and found satisfactory, the following information
relative to the applicable Time-Share Association:
(1) Most recent audited financial statement;
(2) A current statement of the replacement fund balance maintained by
such Time-Share Association;
(3) A current statement of the operating fund balance maintained by
such Time-Share Association;
(4) A description of the extent to which such Time-Share Association
is entitled to any continuing subsidy from the developer of the
applicable Time-Share Project, together with a statement of the
extent to which such Time-Share Association has utilized such
subsidy during the past three (3) fiscal years;
(5) A description of the annual dues paid by owners of Time-Share
Interests in such Time-Share Project, broken down to the type of
Unit involved; and
(6) An identification of the Time-Share Manager applicable to such
Time-Share Project, together with such additional information
concerning the Time-Share Manager as Lender may request
(including without limitation, if such Time-Share Manager is not
an Affiliate of Primary Borrower, financial statements for such
Time-Share Manager and a description of such Person's experience
and qualifications for management of the Time-Share Association).
(d) With respect to each Time-Share Project, evidence that the Unit(s) in
which the Time-Share Interest(s) are owned and the amenities that have been
promised to the Purchasers (and to prospective purchasers) have been completed
(taking into account the dates upon which any such amenities have been promised
to Purchasers, such that a Time-Share Project shall not be deemed ineligible
hereunder due to the fact that certain amenities have not yet been completed
unless the time by which those amenities were to have been completed, as
represented to the Purchasers, has passed), fully furnished and approved and
ready for occupancy and the furnishings in those Units are free of any lien
except for the Permitted Encumbrances; no Unit or other part of the common areas
of the Time-Share Project is subject to partition; and the time-share use of the
Units and amenities conform to all applicable restrictions and laws, necessary
approvals having been obtained.
(e) With respect to each Time-Share Project, Borrower shall have provided
to Lender, and Lender shall have reviewed and found satisfactory, the following
information concerning such project and the unsold Time-Share Interests which
are proposed to become Eligible Completed Project Inventory:
(1) Location of the project;
(2) Site plan for the project;
(3) Total number of Units planned for the project;
(4) Number of Units then completed;
(5) Number of Units presently under construction;
(6) A description of the total amenities which are planned to be
included in such project, together with a description of whether
such amenities have been constructed and, if such amenities have
not yet been constructed, a time-line describing the periods
remaining to completion; and
(7) A description of the complete amenity package which is to be
presented to prospective purchasers of the Time-Share Interests.
<PAGE>
(f) With respect to each Time-Share Project, a description of the following
matters relative to such project's marketing and sales history:
(1) The month and year in which sales of Time-Share Interests
commenced;
(2) Location of the sales and marketing center for such Time-Share
Project;
(3) A table depicting, for each Time-Share Project, the various
sources of tours generated during the prior twelve months as a
percentage of total tours generated; and
(4) A table describing the annual sales since the sale of Time-Share
Interests commenced, broken down by the number of Time-Share
Interests sold per year and the average sales price per year for
such Time-Share Interests.
(g) With respect to those specific unsold Time-Share Interests which are to
become Eligible Completed Project Inventory, Borrower shall have provided to
Lender, and Lender shall have reviewed and found satisfactory, the following
information:
(1) Total number of Units in the applicable Time-Share Project; and
(2) A report detailing the unsold number of Time-Share Interests,
categorized by type of Unit involved, price for each Time-Share
Interest, the total Retail Value of all such unsold Time-Share
Interests, and the average price at which all unsold Time-Share
Interests are offered for sale.
(h) Lender shall have a valid, direct and perfected first lien/security
interest in the Completed Project Inventory and the proceeds thereof.
(i) In the event that any Time-Share Project which Borrowers propose to
qualify for the contribution of Eligible Completed Project Inventory hereunder
includes unsold Time-Share Units which are valued and sold on a points basis
(which program Primary Borrower currently refers to as "Club Sunterra"), such
points must continue to qualify as "Time-Share Interests" as defined herein, and
Lender must be satisfied with the systems and procedures by which Borrowers (1)
assure that points sold are adequately supported by available and completed
Units and unsold Time-Share Interest and (2) calculate the number of points to
be assigned to each unsold Time-Share Interest contributed as Eligible Completed
Project Inventory hereunder. In the event Borrowers' systems and procedures are
not satisfactory to Lender, Lender reserves the right, in its discretion, to
require a quarterly third party audit, to be conducted at Borrowers' expense, to
assure that all points sold and credited to purchasers are adequately supported
by completed Units and unsold Time-Share Interests therein; provided, however,
-------- -------
that for so long as no Event of Default exists and is continuing, in no event
shall the total expense of such quarterly audits which Borrower is required to
bear exceed $7,500 during any calendar quarter.
<PAGE>
EXHIBIT B
FORM OF BORROWING BASE REPORT
<PAGE>
EXHIBIT C
BORROWER'S CERTIFICATE
[Borrower Name], [Type of Borrower Entity] ("Borrower") hereby certifies to
--------
FINOVA CAPITAL CORPORATION ("Lender") that the Inventory described in Schedule A
------ ----------
attached hereto and by this reference incorporated herein qualifies as Eligible
Inventory.
Except as otherwise defined herein or the context otherwise requires, all
capitalized terms used herein have the meaning given to them in the Loan and
Security Agreement between Borrower and Lender dated as of [Month Day,][Year],
as it may be from time to time renewed, amended, replaced or restated.
DATED: ____________, ______.
BORROWER: [Borrower Name], [Type of Borrower Entity]
By:
---------------------------------------
Type/Print Name:
-----------------------
Title:
---------------------------------
<PAGE>
EXHIBIT E
ADDITIONAL CONDITIONS
TO INVENTORY LOAN ADVANCES
(a) a completed and executed "Request for Inventory Loan Advance and
Certification," in form and substance identical to Exhibit E-1.
-----------
(b) a Mortgage in recordable form and otherwise in form and substance
satisfactory to Lender, properly completed, executed and acknowledged (with
respect to any Inventory not previously encumbered).
(c) with respect to any Completed Project Inventory, if not previously
furnished, evidence satisfactory to Lender that: (i) all Time-Share Interests
which are the subject of the Completed Project Inventory covered by item (b)
above have all necessary and promised on-site and off-site improvements thereto
(taking into account the dates upon which any such improvements have been
promised to Purchasers, such that this condition shall be deemed satisfied
unless the time by which those improvements were to have been completed, as
represented to the Purchasers, has passed) and necessary and promised utilities
are available; (ii) all Units and amenities which are to be available to
Purchasers obligated on the Completed Project Inventory covered by item (b)
above have been completed in accordance with all applicable building codes and
are fully furnished, necessarily equipped and will be available for use by
Purchasers without disturbance or termination of their use rights so long as
they are not in default of their obligations owed to the applicable Time-Share
Association, or to any Borrower with respect to financing owed by such Purchaser
to Borrower incurred in connection with the purchase of such Purchaser's Time-
Share Interest; and (iii) all furnishings in the Units and amenities are owned
either by the Purchasers directly or by an owners' association or associations
in which the Purchasers are members, free of charges, liens and security
interests other than the Permitted Encumbrances.
(d) a Title Policy with respect to each Mortgage covered by item (b) above.
(e) with respect to any Completed Project Inventory, if requested by Lender
following a material change of circumstances or not more often than annually at
Lender's discretion, an opinion from independent counsel to Borrower
satisfactory to Lender with respect to the continued compliance of any Time-
Share Project and such other matters as Lender shall reasonably require.
(f) if requested by Lender, such other items which are reasonably necessary
to evaluate the request for the Inventory Loan Advance and the satisfaction of
the conditions precedent thereto.
<PAGE>
EXHIBIT E-1
REQUEST FOR INVENTORY LOAN ADVANCE
AND CERTIFICATION
The undersigned ("Borrower") requests FINOVA CAPITAL CORPORATION
--------
("Lender") to make a Inventory Loan Advance in the sum of
------
_____________________________ ______________ UNITED STATES DOLLARS (U.S.
$_____________) upon receipt hereof, pursuant to the Amended and Restated Master
Loan and Security Agreement between such parties dated as of [Month Day,][Year]
(with any amendments, "Agreement").
---------
Borrower hereby certifies to Lender that (i) the Retail Value of all
Eligible Completed Project Inventory pledged to Lender is not less than
$_______________; (ii) Borrower's acquisition costs incurred to date with
respect to all Land Inventory which has been encumbered in favor of Lender is
not less than $_________________; (iii) Borrower's development costs incurred to
date with respect to all Project Inventory Under Construction which has been
encumbered in favor of Lender to date is not less than $_________________; (iv)
the Inventory against which the requested disbursement of the Inventory Loan is
sought constitutes Eligible Inventory; (v) no material adverse change has
occurred in the financial condition or in the business and operations of
Borrower since _______________, _____, the date of the last financial statements
delivered to Lender; (vi) all representations and warranties contained in the
Agreement are true and correct as of the date hereof in all material respects;
(vii) neither an Event of Default nor an Incipient Default exists; and (viii)
Borrower has Performed and complied with all agreements, covenants and
conditions required by the Agreement to be Performed and complied with prior to
or at the date of the requested disbursement of the Inventory Loan.
Except as otherwise defined herein or the context otherwise requires, all
capitalized terms used herein have the meaning given to them in the Agreement.
DATED: ________________, ______.
"BORROWER" [Borrower Name],
[Type of Borrower Entity]
By:
-----------------------------
Type/Print Name:
----------------
Title:
--------------------------
<PAGE>
EXHIBIT F
CONDITIONS OF ELIGIBLE PROJECT
INVENTORY UNDER CONSTRUCTION
(a) The applicable Project shall have obtained all Minimum Required
Construction Approvals.
(b) Borrower shall have provided Lender with a copy of the
construction budget and the plans for the Project.
(c) Borrower shall have provided to Lender copies of the construction
contract with the general contractor, the architect, and any engineer.
<PAGE>
EX-21
Subsidiaries of Sunterra Corporation
Name Jurisdiction of Organization
---- ----------------------------
AKGI Lake Tahoe Investments, Inc. CA
AKGI Poipu Investments, Inc. CA
AKGI St. Maarten, N.V., Inc. DE and N.A.
All Seasons Properties, Inc. AZ
All Seasons Realty, Inc. AZ
All Seasons Resorts, Inc. (AZ) AZ
All Seasons Resorts, Inc. (TX) TX
Alpine Apartments Hotel LmbH Austria
Andalucian Realty Limited UK
Argosy Grand Beach, Inc. GA
Argosy Hilton Head, Inc. SC
Argosy Partners, Inc. GA
Argosy/KGI Grand Beach Investment Partnership CA
Argosy/KGI Poipu Investment Partnership, L.P.: HI
Argosy/KGI Port Royal Partners General Partnership SC
ASR Realty-Northbay, Inc. CA
AVCOM International, Inc. DE
Benal Holdings Limited Gibraltar
Benal Management Limited Gibraltar
Berkeley Four Seasons Vacations, Inc. FL
Berkeley Resorts Management Corp. NJ
Blue Bison Funding Corporation DE
Broom Park Estates Ltd UK
Canaryroute Limited (f/k/a LSI Travel Club) UK
Carmen de Lanzarote SL Canary Islands
Club Sunterra, Inc. FL
Collie Inversion Inmobilario Santa Cruz SL Spain
Cotiempo SL Spain
Design Internationale-RMI, Inc. FL
Dutch Elm Holdings, Inc. NV
Dutch Elm, LLC NV
Fairweather Holdings, Inc. NV
Fairweather, LLC NV
First National Trustee Company (UK) Limited Wales
Flanesford Holdings Limited UK
Flanesford Management Limited UK
Flanesford Management Limited UK
<PAGE>
Name Jurisdiction of Organization
---- ----------------------------
Flanesford Priory Limited UK
Floriana Holdings Limited Gibraltar
Floriana Management Limited Gibraltar
George Acquisition Subsidiary, Inc. NV
Global Management Services Ltd Isle of Man
Grand Beach Partners, L.P. CA
Grand Beach Resort Condominium Association, Inc. FL
Grand Beach Resort, Limited Partnership GA
Grand Vacation Club Limited UK
Grand Vacation Management Limited Jersey
Great Cruz Villlas Partnership U.S.V.I.
Great Western Financial Resources, Inc. AZ
Greensprings Associates joint venture VA
Greensprings Plantation Resort, Inc. VA
Harich Tahoe Development General Partnership NV
Hellene Gibraltar
Hewicoon SL Spain
International Resort Marketing, Inc. FL
International Timeshares, Inc. FL
Kabushiki Gaisha Kei, LLC: CA
Kenmore Club Ltd Scotland
KGI Grand Beach Investments, Inc. CA
KGI Port Royal, Inc. SC
KGK Investors, Inc. CA
KGK Lake Tahoe Development, Inc. CA
KGK Partners, Inc. CA
KK Sunterra Japan Japan
Labrador Inversions Inmobiliaries Costa Spain
Lake Tahoe Resort Partners, LLC CA
Lakewood Development, Inc. NV
Los Amigos Beach Club Limted Isle of Man
Los Amigos Beach Club Management Limted Isle of Man
LS Financial Services Limited UK
LS International Resort Management Limited UK
LS Interval Ownership Limited UK
LSI (Wychnor Park) Limited UK
LSI Developers, Ltd UK
LSI Portugal, Clube de Ferias Portugal
LSI Properties Ltd UK
LSI Travel Club Limited UK
<PAGE>
Name Jurisdiction of Organization
---- ----------------------------
Marc Hotels & Resorts, Inc. HI
Mazatlan Development Inc. WA
Member Privileges International, Inc. CA
Menorca Leisure Limited UK
Mercadotecnia de Hospedaje S.A. de C.V. Mexico
MMG Development Corp FL
MMG Holding Corp. FL
Octopus GmbH Austria
Pine Lake Management Services Limited UK
Pine Lake plc UK
Plantation Resorts Group, Inc. VA
Pointe Partners Limited Partnership NV
Poipu Resort Management Company HI
Poipu Resort Partners, L.P. HI
Port Royal Resort, L.P. SC
Powhatan Associates, joint venture VA
Premier Vacations, Inc. FL
Rainham Limited Isle of Man
Resort Connections, Inc. NV
Resort Management International, Inc. (CA) CA
Resort Management International, Inc. (GA) GA
Resort Management Services SL Canary Islands
Resort Marketing International, Inc. CA
Resort Services, Inc. VA
Resorts Development International, Inc. NV
Ridge Lake, Inc. NV
Ridge Pointe Limited Partnership NV
Ridgewood Development, Inc. NV
RKG, Corp. VA
RMI Flamingo C.V.O.A. N.A.
RMI Royal Palm C.V.O.A. N.A.
Royal Dunes Beach Villas at Port Royal Resort Owners Assn. SC
Royal Tenerife Country Club Tenerife
RPM Management, Inc. AZ
S.V.L.H., Inc. VA
San Miguel Management Ltd Isle of Man
Signature Capital - West Maui L.L.C. DE
Signature Grand Villas, Inc. U.S.V.I.
<PAGE>
Name Jurisdiction of Organization
---- ----------------------------
SJVC Title Limited Scotland
Sunra, Inc. FL
SunSera Funding Corp. NV
Sunset Country Club Management Limited Isle of Man
Sunset Sur SL Tenerife
Sunset View UK
Sunterra Communications Corporation FL
Sunterra Corporation MD
Sunterra Europe Group Holdings plc (f/k/a LSI
Group Holdings plc) UK
Sunterra Europe Ltd (f/k/a LSI Promotions France) France
Sunterra Europe Ltd. (f/k/a LS Promotions Limited) UK
Sunterra Finance, L.L.C. GA
Sunterra Financial Services, Inc. NV
Sunterra Golf Holding Company CA
Sunterra Golf L.L.C. DE
Sunterra Interiors, LLC NV
Sunterra Italia Italy
Sunterra Japan Vacation Club Japan
Sunterra Mortgage, Inc. GA
Sunterra Pacific Realty, Inc. (f/k/a VI Realty, Inc.) CO
Sunterra Pacific, Inc. (f/k/a Vacation
Internationale, Inc.) WA
Sunterra Promotions Ltd. (f/k/a LSI Promotions) UK
Sunterra St. Croix, Inc. USVI
Sunterra Title Ltd UK
Sunterra Travel Ltd (f/k/a Canaryroute Ltd) UK
Sunterra Travel, Inc. (f/k/a Vacation Time Travel, Inc.) WA
Sunterra Voyages SARL (f/k/a LSI Voyages SARL) France
TerraSun Holding, Inc. NV
TerraSun, L.L.C. NV
The Marketing Advantage Europe Limited UK
The Ridge Spa and Racquet Club, Inc. AZ
The Vinings at Cypress Pointe FL
Torres Mazatlan S.A. de C.V. Mexico
Torres Vallarta S.A. de C.V. Mexico
Trion Capital Corporation I DE
Vacaciones Compartidos Mazatlan y Vallarta, S.A. de C.V. Mexico
Vacacionistas Internacionales Mazatlan S.A. de C.V. Mexico
Vacacionistas Internacionales Vallarta S.A. de C.V. Mexico
<PAGE>
Name Jurisdiction of Organization
---- ----------------------------
Vacation Club Partnership Limited UK
Vacation Owners Club SA Spain
Vacation Owners' Reinsurance, LLC Nevis
Vacation Time Share Travel, Inc. Bahamas
Vacation Travel Club, Inc. AZ
Villar Do Golf LDA Portugal
VTS Operating Fund WA
West Maui Resorts Partners, L.P. DE
Williamsburg Vacations, Inc. VA
Woodford Bridge Country Club Limited UK
Woodford Bridge Country Club Management Ltd UK
Woodford Bridge Hotel Limited UK
<PAGE>
EX-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 No. 333-63621, Registration Statement File No. 333-47215,
Registration Statement File No. 333-46511, Registration Statement File No. 333-
15361 and Registration Statement File No. 333-30285.
Arthur Andersen LLP
March 30, 2000,
Orlando, Florida
<PAGE>
EX-23.2
CONSENT OF EXPERT
We hereby consent to the reference to our firm in Sunterra Corporation's Form
10-K, Annual Report Pursuant to Section 13 and 15(d) of the Securities Exchange
Act of 1934, under the caption "Applicability of Federal Securities Laws to the
Sale of Vacation Interests" in the section entitled "BUSINESS AND PROPERTIES."
Dated: March 30, 2000
SCHREEDER, WHEELER & FLINT, LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 54,573
<SECURITIES> 0
<RECEIVABLES> 264,078
<ALLOWANCES> 20,060
<INVENTORY> 363,534
<CURRENT-ASSETS> 0
<PP&E> 130,321
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,058,410
<CURRENT-LIABILITIES> 0
<BONDS> 478,000
0
0
<COMMON> 360
<OTHER-SE> 230,428
<TOTAL-LIABILITY-AND-EQUITY> 1,058,410
<SALES> 423,733
<TOTAL-REVENUES> 506,968
<CGS> 106,996
<TOTAL-COSTS> 309,097
<OTHER-EXPENSES> 124,740
<LOSS-PROVISION> 52,290
<INTEREST-EXPENSE> 48,495
<INCOME-PRETAX> (27,654)
<INCOME-TAX> (10,232)
<INCOME-CONTINUING> (17,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,422)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
