<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1997
REGISTRATION NO. 333-26861
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TRENDWEST RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
OREGON 6552 93-1004403
(State or other jurisdiction (Primary standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
12301 N.E. 10TH PLACE, BELLEVUE, WASHINGTON 98005, (425) 990-2300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
GARY A. FLORENCE, VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
TRENDWEST RESORTS, INC.
12301 N.E. 10TH PLACE, BELLEVUE, WASHINGTON 98005, (425) 990-2300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<S> <C>
DAVID R. WILSON PETER LILLEVAND
FOSTER PEPPER & SHEFELMAN PLLC ORRICK, HERRINGTON & SUTCLIFFE LLP
1111 THIRD AVENUE, SUITE 3400 OLD FEDERAL RESERVE BANK BUILDING
SEATTLE, WASHINGTON 98101 400 SANSOME STREET
(206) 442-8116 SAN FRANCISCO, CALIFORNIA 94111
(415) 392-1122
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JULY 28, 1997
2,875,000 SHARES
[TRENDWEST RESORTS, INC. LOGO]
COMMON STOCK
Of the 2,875,000 shares of Common Stock ("Common Stock") of Trendwest
Resorts, Inc. (the "Company" or "Trendwest") offered hereby (the "Offering"),
2,745,000 shares are being sold by the Company and 130,000 shares are being sold
by the Selling Stockholder. See "Principal and Selling Stockholders." The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholder. Prior to the Offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $16.00 and $18.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "TWRI."
Immediately following the Offering, JELD-WEN, inc. ("Jeld-Wen") will own
13,725,821 shares of Common Stock (79.98% of the outstanding shares of Common
Stock). Accordingly, Jeld-Wen will be able to elect all members of the Board of
Directors and will have sufficient voting power to determine the outcome of all
matters submitted to the stockholders for approval.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Stockholder
- --------------------------------------------------------------------------------------------------
Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $1,100,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 431,250 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that the
delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about August ,
1997.
------------------------
MONTGOMERY SECURITIES SALOMON BROTHERS INC
August , 1997
<PAGE> 3
The following graphics are depicted:
Map of western U.S., Hawaii, British Columbia and Baja Peninsula
denoting the locations of WorldMark's resorts and the Company's sales
offices and future resort locations.
Photographs of Worldmark's resorts at Whistler, B.C.; Palm Springs, CA;
Lake Chelan, WA; Gleneden Beach, OR; Los Cabos, Mexico; Ocean Shores, WA; Lake
Tahoe, NV; Pismo Beach, CA; Leavenworth, WA; and Valley Isle, Hawaii.
Photographs depicting various aspects of the Company's operations.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
THIS PROSPECTUS RELATES ONLY TO THE SALE OF THE COMMON STOCK OFFERED
HEREBY. PURCHASERS OF SHARES OF TRENDWEST RESORTS, INC. WILL NOT RECEIVE ANY
INTEREST IN THE WORLDMARK RESORTS SHOWN HEREIN AS A RESULT OF THEIR OWNERSHIP OF
COMMON STOCK.
TRENDWEST RESORTS(R) and WORLDMARK, THE CLUB(R) are registered trademarks
of the Company and WorldMark, the Club, respectively.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Except as otherwise noted, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) gives
effect to the consummation of the Consolidation Transactions (as defined
herein), which will occur immediately prior to the closing of the Offering, and
(iii) reflects an adjustment for an approximately 513-for-1 stock split effected
in July 1997. Unless the context otherwise indicates, the "Company" and
"Trendwest" mean Trendwest Resorts, Inc. after giving effect to the consummation
of the Consolidation Transactions.
THE COMPANY
Trendwest Resorts, Inc. markets, sells and finances timeshare ownership
interests ("Vacation Ownership Interests") and acquires, develops and manages
timeshare resorts. In 1996, Trendwest was ranked as one of the largest timeshare
companies in the United States, according to published sales volume data in the
Vacation Ownership World trade magazine. The Company's timeshare resorts are
owned by and operated through WorldMark, the Club ("WorldMark"), a nonprofit
mutual benefit corporation organized by Trendwest in 1989 to provide an
innovative, flexible vacation ownership system. As of March 31, 1997, WorldMark
had in excess of 41,000 members ("Owners") and owned and maintained an aggregate
of 798 condominium-style units at 19 recreational resorts (the "WorldMark
Resorts") in the western United States, Hawaii, British Columbia and Mexico. The
Company presently sells Vacation Ownership Interests in Washington, Oregon and
California, primarily through eight off-site sales offices.
Trendwest sells Vacation Ownership Interests in the form of perpetual
timeshare credits ("Vacation Credits") which are created by the transfer to
WorldMark of resort units purchased or developed by the Company. Vacation
Credits can be used by Owners to reserve units at any of the WorldMark Resorts,
at any time during the year and in time increments as short as one day. The use
of Vacation Credits is not tied to any particular resort unit or time period as
is typical in the timeshare industry. The Company believes that the combination
of multiple resorts and its Vacation Credit system provides Owners with an
attractive range of vacation planning choices and values not generally available
within the timeshare industry. The Company's Vacation Credit system with
multiple WorldMark Resorts facilitates the sale of Vacation Credits at off-site
sales offices located in major metropolitan areas and reduces dependence on
on-site sales centers located at more remote resort locations.
According to the American Resort Development Association ("ARDA"), the
total annual sales volume for the timeshare industry increased from $490 million
in 1980 to $4.76 billion in 1994 (the latest year for which data is published).
Based on other industry information, the Company believes that timeshare sales
volume for the timeshare industry exceeded $5 billion in 1995. The Company
believes that, based on ARDA reports, the timeshare industry has benefited
recently from increased consumer acceptance of the timeshare concept resulting
from more effective governmental regulation of the industry, the entry into the
industry by national lodging and hospitality companies and increased vacation
flexibility resulting from the growth of timeshare exchange networks. The
Company expects the timeshare industry to continue to grow as consumer awareness
of the timeshare industry increases and as the baby boom generation (currently
ages 32-50) moves through the 40-55 year age bracket, the age group of persons
who purchased the most timeshare interests in 1994.
The Company believes its operating strategy and vacation ownership system
provide the following advantages over other timeshare companies:
- Vacation Flexibility. The Company's Vacation Credit system allows Owners
access to multiple WorldMark Resorts, permitting them to tailor their
vacation according to their schedules, desired vacation length, location
preferences and space requirements. The 19 WorldMark Resort locations
provide access to a variety of vacation experiences, from skiing to golf,
and a variety of settings, from beaches to mountains. Vacation time is
reserved on a first come, first served basis. In 1996, based on
3
<PAGE> 5
information provided by Owner comment cards, the Company believes that
approximately 73% of Owners received their first choice of resort location
when reserving vacation time. To enhance Owner usage and facilitate weekend
stays and stays shorter than one week, the Company purchases and develops a
large percentage of WorldMark Resort units within a reasonable driving
distance of the Company's primary metropolitan sales markets.
- Appeal to Broad Consumer Base. The Company believes its Vacation Credit
system enables it to market more effectively to potential customers with a
broader range of income levels and vacation requirements than is addressed
by most timeshare companies. The Company provides prospective purchasers
with the opportunity to purchase varying increments of Vacation Credits
suitable for their financial position and vacation needs. The Company's
minimum purchase requirement of 6,000 Vacation Credits, which presently
costs $7,800, makes entry into WorldMark affordable for a significant
number of households. The Company also offers additional Vacation Credits
to existing Owners ("Upgrades") in smaller increments, which accounted for
approximately 12% Vacation Credit sales in 1996.
- Marketing Through Off-Site Sales Offices. The Company's Vacation Credit
system facilitates marketing Vacation Ownership Interests effectively at
off-site sales offices. The Company believes the use of off-site sales
offices enables it to attract a larger number of prospective purchasers to
sales presentations than at sales offices at more remote resort locations.
In addition, the location of sales offices in metropolitan areas provides
the Company with the flexibility to establish sales offices in the most
demographically attractive areas within a geographic market and to relocate
sales offices quickly at a modest cost when conditions warrant.
- Inventory Control. The Company's sale of Vacation Credits rather than
deeded interests with weekly intervals at individual resorts enables it to
schedule its resort acquisition and development activities in accordance
with its anticipated sales volumes and to diversify the risk of its capital
commitments among several resorts. Since all Vacation Credits have the same
use rights and sell for the same price, the Company does not experience a
buildup of inventory of less desirable resort units or interval dates which
are difficult to sell. The Company can also develop resorts at desirable
remote locations since it does not depend on on-site sales offices to
generate sales.
- Owner Satisfaction. The Company places great importance on Owner
satisfaction. The Company believes that Owner satisfaction is achieved by
maintaining a high level of quality at WorldMark Resorts, by increasing the
number of resort locations and by satisfying Owners' first vacation
requests a high percentage of the time. Of the 19 WorldMark Resorts, 12
have the highest rating from Resort Condominiums International Inc.
("RCI"), the world's largest timeshare exchange network, four have the
second-highest rating from RCI, and three have been recently opened and
have not yet been rated. The Company has increased the number of WorldMark
Resorts from three in 1989 to its present 19 and intends to transfer two
additional WorldMark Resorts during the remainder of 1997 and 1998.
Although Owners have exchange privileges through the RCI network, the
Company believes that Owner satisfaction with the WorldMark Resorts is
demonstrated by the Owners' usage of approximately 74% of their Vacation
Credits at WorldMark Resorts in 1996. The satisfaction of existing Owners
with the WorldMark Resorts generates additional revenues to the Company
through the sale of Upgrades ("Upgrade Sales") and from Owner referrals of
new prospects.
The Company's growth strategy is to (i) expand existing WorldMark Resorts
and acquire and develop additional resorts primarily in the western United
States, Hawaii, British Columbia and Mexico to provide additional Vacation
Credits for sale by the Company and a wider range of WorldMark Resorts for use
by Owners; (ii) increase sales and financings of Vacation Credits to new
customers by expanding sales and marketing efforts, including opening additional
off-site sales offices; and (iii) increase Upgrade Sales by establishing and
maintaining long-term relationships with Owners through effective customer
service programs and innovative benefit programs and discount packages.
The Company's Vacation Ownership Interests are generally targeted to
purchasers in an age range from 35 to 60 with annual household incomes ranging
from $30,000 to $100,000. The average number of Vacation Credits purchased by a
new Owner in 1996 was approximately 6,600 cost of approximately $8,400. The
4
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number of Vacation Credits that is required to stay one day at the WorldMark
Resorts varies, depending upon the resort location, the size of the unit, the
vacation season and the day of the week. For example, a Friday or Saturday night
stay at a one-bedroom unit may require 825 Vacation Credits per night off-season
and 1,450 Vacation Credits per night in peak season. WorldMark Resort units are
fully furnished, condominium style accommodations and range in size from studios
to three bedrooms. WorldMark's participation in RCI provides Owners with access
to over 3,000 resorts worldwide which participate in the RCI network.
The Company sells Vacation Credits at its 11 sales offices, eight of which
are located off-site in metropolitan areas. The other sales offices are located
on-site at three of the WorldMark Resorts. The Company intends to establish an
additional off-site sales office in California in late 1997. The Company
contributed 224 resort units to WorldMark in 1996, 146 resort units in 1995 and
86 resort units in 1994. Revenues from Vacation Credit sales increased to
approximately $100.0 million in 1996 from approximately $77.8 million in 1995
and approximately $54.9 million in 1994. The Company contributed 48 resort units
to WorldMark during the first quarter of 1997. As of March 31, 1997, the Company
had purchase agreements and developments in progress to obtain an additional 163
units that are expected to be available during the remainder of 1997 and an
additional 201 units that are expected to be available during 1998. See
"Business -- Growth Strategy."
Since an important component of the Company's sales strategy is the
affordability of Vacation Credits, a significant portion of its sales of
Vacation Credits to new Owners is financed by the Company, thereby allowing
Owners to make monthly payments. In addition, existing Owners have the
opportunity to finance the purchase of Upgrades through the Company. At March
31, 1997, loans to Owners to finance the purchase of Vacation Credits ("Notes
Receivable") with an aggregate balance of $192.7 million were outstanding, of
which approximately $71.7 million with a weighted average interest rate of 14.1%
per annum had been retained by the Company. The remaining Notes Receivable
balance of approximately $121.0 million had been sold by the Company prior to
that date, although the Company retained limited recourse liability with respect
to these Notes Receivable. The Company may continue to sell a substantial amount
of its Notes Receivable. See "Business -- Customer Financing" and "-- Finance
Subsidiaries."
5
<PAGE> 7
THE WORLDMARK RESORTS
The following table sets forth certain information as of March 31, 1997
regarding each existing WorldMark Resort, planned expansion at existing
WorldMark Resorts through 1998, and planned new WorldMark Resorts through 1998.
<TABLE>
<CAPTION>
EXISTING
DATE UNITS
CONTRIBUTED IN PLANNED TOTAL UNITS
EXISTING RESORTS LOCATION TO WORLDMARK(A) SERVICE EXPANSION ANTICIPATED RCI RATING(B)
- ------------------------- ------------------ --------------- -------- --------- ------------ ---------------------
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BRITISH COLUMBIA
Sundance Whistler February 1992 25 -- 25 R.I.D.
CALIFORNIA
North Shore Estates Bass Lake September 1992 61 -- 61 Gold Crown
Beachcomber Pismo Beach April 1993 20 -- 20 Gold Crown
Palm Springs Palm Springs July 1995 64 -- 64 Gold Crown
Big Bear Big Bear Lake April 1996 12 58(c) 70 (d)
HAWAII
Valley Isle Maui December 1990 14 -- 14(e) Gold Crown
Kapaa Shores Kauai June 1991 42 -- 42(e) R.I.D.
NEVADA
Lake Tahoe Stateline January 1991 50 -- 50 Gold Crown/R.I.D.(f)
Las Vegas Las Vegas December 1996 42 -- 42 (d)
OREGON
Eagle Crest Redmond September 1989 62 --(g) 62(e) Gold Crown
Gleneden Beach Lincoln City February 1996 80 -- 80 Gold Crown
Running Y Ranch Klamath Falls February 1997 26 40(h) 66 (d)
WASHINGTON
Lake Chelan Shores Chelan July 1990 13 -- 13(e) R.I.D.
Surfside Long Beach September 1991 25 -- 25 R.I.D.
Discovery Bay Sequim January 1992 32 -- 32 Gold Crown
Park Village Leavenworth July 1992 72 -- 72 Gold Crown
Mariner Village Ocean Shores June 1994 32 -- 32 Gold Crown
Birch Bay Blaine January 1995 52 52(i) 104 Gold Crown
MEXICO
Coral Baja San Jose del Cabo November 1994 74 62(j) 136 Gold Crown
PLANNED RESORTS
- -------------------------
Clear Lake Nice, California (k) -- 88 88
Kona Hawaii, Hawaii (l) -- 64 64
--- --- ----
Total........ 798 364 1,162
=== === ====
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(a) The dates in this column indicate, for each resort, the month and year in
which the first completed units at such resort were contributed to
WorldMark. At certain resorts, additional units were contributed to
WorldMark at later dates.
(b) Gold Crown and Resort of International Distinction ("R.I.D.") are resort
ratings awarded annually by RCI. In 1996, approximately 13% of the resorts
reviewed by RCI received a Gold Crown rating, the highest rating awarded by
RCI, and approximately 14% of the resorts reviewed by RCI received an R.I.D.
rating, the second-highest rating awarded by RCI.
(c) Construction began on these units in January 1997. These units are expected
to be completed and contributed to WorldMark in the second and third
quarters of 1997.
(d) This resort has recently become available to WorldMark and has not yet been
rated by RCI.
(e) These units represent less than one-half of the total number of units at
this resort.
(f) Consists of three locations totalling 50 units. The units at Tahoe I and II
(totalling 15 units) are rated R.I.D., and the units at Tahoe III
(totalling 35 units) are rated Gold Crown.
(g) The Company has an agreement with Eagle Crest, Inc. ("Eagle Crest") whereby
the Company has assigned to Eagle Crest the right to sell Vacation Credits
in WorldMark at the Eagle Crest Resort and to retain the gross proceeds from
such sales. In exchange for such sales, Eagle Crest must transfer
condominium units to WorldMark at no cost to either the Company or
WorldMark. In addition, commencing July 1997, the Company will receive a fee
from Eagle Crest equal to 3% of net sales of Vacation Credits occurring at
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the Eagle Crest Resort. See "Certain Transactions -- Relationship with
Jeld-Wen." The number of additional units to be deeded to WorldMark will
depend on the number of Vacation Credits sold by Eagle Crest, an estimate of
which is not provided in this table.
(h) The Company is obligated to purchase 20 units in April 1998 and 20 units in
July 1998. Units will be contributed to WorldMark as they are purchased. The
Company has an agreement with Running Y Resort, Inc. ("Running Y") whereby
the Company has assigned to Running Y the right to sell Vacation Credits in
WorldMark at the Running Y Resort and to retain the gross proceeds from such
sales. In exchange for such sales, Running Y must transfer condominium units
to WorldMark at no cost to either the Company or WorldMark. In addition,
commencing July 1997, the Company will receive a fee from Running Y equal to
3% of net sales of Vacation Credits occurring at the Running Y Resort. See
"Certain Transactions -- Relationship with Jeld-Wen." The number of
additional units to be deeded to WorldMark will depend on the number of
Vacation Credits sold by Running Y, an estimate of which is not provided in
this table.
(i) The Company expects to obtain all necessary permits for construction by the
end of the second quarter of 1998. All 52 units are expected to be completed
and contributed to WorldMark by the end of 1998.
(j) Construction on these units began in July 1996. The project is expected to
add 62 units, with five units contributed to WorldMark each month beginning
December 1997 and all units are expected to be contributed by the end of
1998.
(k) Construction on these units began in April 1997. Of these units, 56 are
expected to be completed and contributed to WorldMark in the third quarter
of 1997, and the remaining 32 units are expected to be completed and
contributed to WorldMark in the first quarter of 1998.
(l) Construction on these units began in February 1997. Of these units, 44 are
expected to be completed and contributed to WorldMark in the fourth quarter
of 1997 and the remaining 20 units are expected to be completed and
contributed to WorldMark in the first quarter of 1998.
SALES REGIONS
The Company's sales of Vacation Credits primarily occur at eight off-site
sales offices located in metropolitan areas in three regions. The remainder of
the Company's sales of Vacation Credits occur at three on-site sales offices.
The Company plans to open a new off-site sales office in California in late
1997. Certain information with respect to the Company's sales offices in the
three regions is provided below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------------------------
1994 1995 1996
--------------------------------------- --------------------------------------- ---------------------------------------
(DOLLARS IN THOUSANDS)
AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER
OF SALES NUMBER OF OF SALES NUMBER OF OF SALES NUMBER OF
REGION REPRESENTATIVES(1) OWNERS(2) SALES(3) REPRESENTATIVES(1) OWNERS(2) SALES(3) REPRESENTATIVES(1) OWNERS(2) SALES(3)
- ------- ------------------- --------- ------- ------------------- --------- ------- ------------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pacific
Northwest(4) 61 11,414 $31,654 75 17,290 $43,926 86 23,979 $ 54,313
Northern
California(5) 32 7,326 23,250 58 10,371 31,324 55 13,786 37,287
Southern
California(6) -- -- -- 7 304 2,533 24 1,232 8,440
-- ------ ------- --- ------ ------- --- ------ --------
Total 93 18,740 $54,904 140 27,965 $77,783 165 38,997 $100,040
=== ====== ======= === ====== ======= === ====== ========
</TABLE>
- ------------------------
(1) Represents the average number of sales representatives during the year. This
calculation is based on the number of sales representatives at the end of
each calendar quarter during the indicated year.
(2) Cumulative number of Owners at the end of the year, including Owners who
purchased Vacation Credits at Eagle Crest and Running Y.
(3) Includes Upgrade Sales.
(4) Comprised of three off-site sales offices (Kirkland, Washington, which
opened in October 1989 and moved to Seatac, Washington in February 1994;
Vancouver, Washington, which opened in February 1994; and Lynnwood,
Washington, which opened in June 1995) and three on-site sales offices
(Leavenworth, Washington, which opened in September 1994, Birch Bay,
Washington, which opened in June 1995, and Gleneden Beach, Oregon, which
opened in February 1996). These figures include an off-site sales office in
Bellingham, Washington, which opened in July 1990, and was consolidated into
the Lynnwood and Birch Bay offices in June 1995.
(5) Comprised of three off-site sales offices: Santa Clara, which opened in
April 1991, Sacramento, which opened in July 1991, and Vallejo, which opened
in May 1995.
(6) Comprised of the Ontario off-site sales office which opened in April 1996.
These figures include sales from an on-site sales office at Palm Springs,
which opened in April 1995 and was consolidated into the Ontario sales
office in August 1996. The Company opened a new off-site sales office in
Costa Mesa in February 1997.
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CORPORATE BACKGROUND AND CONSOLIDATION OF FINANCE SUBSIDIARIES
The Company commenced its timeshare business as a wholly-owned subsidiary
of JELD-WEN, inc. ("Jeld-Wen") in 1989 with three condominium units. Jeld-Wen is
currently the Company's principal stockholder. See "Principal and Selling
Stockholders." Jeld-Wen is a privately owned company that was founded in 1960
and is a major manufacturer of doors, windows and millwork products.
Headquartered in Klamath Falls, Oregon, Jeld-Wen has diversified operations
located throughout the United States and in nine foreign countries that include
manufacturing, hospitality and recreation, retail, financial services and real
estate. Along with its subsidiaries, Jeld-Wen employs approximately 12,000
people.
The Company raises capital for property acquisitions and working capital by
selling or securitizing Notes Receivable through two subsidiaries of Jeld-Wen
(the "Finance Subsidiaries"). Effective June 30, 1997, the Company acquired the
Finance Subsidiaries from Jeld-Wen for 5,193,693 shares of the Company's Common
Stock (the "Consolidation Transactions"). The value of the shares of the Finance
Subsidiaries and the value of the shares of the Company's Common Stock were
determined in negotiations between Jeld-Wen and the Company, based on a multiple
of the historical earnings of the respective companies. The Company may continue
its program of selling and securitizing Notes Receivable through the Finance
Subsidiaries or similar entities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain
Transactions -- Acquisition of Finance Subsidiaries."
All of the WorldMark Resort units are owned by WorldMark, a California
nonprofit mutual benefit corporation that was formed by Trendwest in 1989 in
order to implement its Vacation Credit system and to protect the WorldMark
Resorts from claims of the Company's creditors. WorldMark's articles of
incorporation provide that the specific purpose for which it was formed is to
own, operate and manage the real property transferred to it by the Company. The
Company transfers properties to WorldMark, free from all monetary encumbrances,
which are then added to the inventory of WorldMark Resort units available for
use by Owners. In return for the transfer of property to WorldMark, Trendwest
has the exclusive right to market and sell Vacation Credits. Owners receive the
right to use all WorldMark Resort units at any available time and interval
selected by the Owner. Trendwest has a management agreement with WorldMark
whereby Trendwest acts as the exclusive manager and servicing agent of WorldMark
and the Vacation Ownership Interest program.
The Company was incorporated in Oregon in 1989. The Company's principal
executive offices are located at 12301 N.E. 10th Place, Bellevue, Washington
98005, and its telephone number is (425) 990-2300.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company.................................... 2,745,000 shares
By the Selling Stockholder........................ 130,000 shares
Common Stock to be outstanding after the Offering... 17,162,116 shares(1)
Use of proceeds..................................... To repay outstanding indebtedness, to
purchase and develop additional
resorts and for working capital and
other general corporate purposes.
Nasdaq National Market symbol....................... TWRI
</TABLE>
- ---------------
(1) Does not include approximately 858,000 shares of Common Stock authorized for
issuance under the Company's stock option plan. The Company has granted no
options under this plan. See "Management -- 1997 Stock Option Plan."
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<PAGE> 10
SUMMARY COMBINED FINANCIAL AND OPERATING INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Vacation Credit sales, net................... $35,798 $38,743 $54,904 $77,783 $ 100,040 $22,297 $ 27,945
Finance income............................... 3,069 3,813 3,736 5,368 7,143 1,868 3,219
Gains on sales of notes receivable........... -- 1,558 1,635 3,222 5,673 244 --
Resort management services................... 219 1,102 2,805 1,579 1,501 408 761
Other........................................ 241 344 763 1,226 2,552 386 688
------- ------- ------- ------- -------- ------- -------
Total revenues................................. 39,327 45,560 63,843 89,178 116,909 25,203 32,613
------- ------- ------- ------- -------- ------- -------
Costs and operating expenses:
Vacation Credit cost of sales................ 9,083 8,743 15,070 20,484 27,400 6,246 7,553
Resort management services................... 301 959 2,613 1,283 859 199 259
Sales and marketing.......................... 17,954 19,523 25,615 36,374 47,810 10,771 13,131
General and administrative................... 3,253 4,056 6,588 8,391 10,904 2,520 2,968
Provision for doubtful accounts and recourse
liability.................................. 2,031 2,805 4,537 6,522 7,467 1,674 1,816
Interest..................................... 2,457 1,929 881 2,380 2,445 526 634
------- ------- ------- ------- -------- ------- -------
Total costs and operating expenses............. 35,079 38,015 55,304 75,434 96,885 21,936 26,631
------- ------- ------- ------- -------- ------- -------
Income before income taxes....................... 4,248 7,545 8,539 13,744 20,024 3,267 6,252
Income tax expense........................... 1,542 2,909 3,214 4,979 7,348 1,211 2,253
------- ------- ------- ------- -------- ------- -------
Net income....................................... $ 2,706 $ 4,636 $ 5,325 $ 8,765 $ 12,676 $ 2,056 $ 3,999
======= ======= ======= ======= ======== ======= =======
PRO FORMA DATA:
Pro forma net income per share of Common Stock... $ 0.88 $ 0.28
Shares used in computing pro forma net income per
share of Common Stock(1)....................... 14,417,116 14,417,116
Supplemental pro forma net income per share of
Common Stock(2)................................ $ 0.89 $ 0.28
Shares used in computing supplemental pro forma
net income per share of Common Stock(2)........ 15,959,304 15,959,304
OPERATING DATA:
Number of WorldMark Resorts (at end of period)... 11 12 14 16 19 17 19
Number of units (at end of period)............... 147 239 325 499 746 554 798
Number of Vacation Credits sold (in thousands)... 32,636 34,296 47,025 65,308 82,270 18,685 21,367
Average price per Vacation Credit sold........... $ 1.11 $ 1.14 $ 1.18 $ 1.21 $ 1.24 $ 1.23 $ 1.27
Average cost per Vacation Credit sold............ $ 0.28 $ 0.25 $ 0.32 $ 0.31 $ 0.33 $ 0.33 $ 0.35
Number of Owners (at end of period).............. 8,252 12,732 18,740 27,965 38,997 30,503 41,871
Average purchase price for new Owners............ $ 7,693 $ 7,879 $ 8,141 $ 8,325 $ 8,432 $ 8,472 $ 8,506
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, including restricted cash........................................................ $ 1,195 $ 19,729
Total assets........................................................................... 110,433 128,967
Indebtedness(4)........................................................................ 38,899 15,135
Stockholders' equity................................................................... 53,743 96,041
</TABLE>
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(1) Includes the 5,193,693 shares to be issued to Jeld-Wen in connection with
the Consolidation Transactions.
(2) Includes the 5,193,693 shares to be issued to Jeld-Wen in connection with
the Consolidation Transactions; the 1,542,188 shares offered at an assumed
initial public offering price of $17.00 per share to be used to retire $23.8
million in debt; and the elimination of interest expense related to the
retirement of $23.8 million in debt.
(3) Adjusted to give effect to (i) the sale of 2,745,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$17.00 per share less the underwriting discount and the payment by the
Company of the estimated offering expenses and (ii) the retirement of $23.8
million of debt. See "Use of Proceeds."
(4) Indebtedness is comprised of notes payable to Jeld-Wen and others.
RECENT DEVELOPMENTS
During the three months ended June 30, 1997, total revenues grew to $39.8
million, a 28.4% increase over the $31.0 million in total revenues reported for
the same period in the prior year. Growth in total revenues was primarily
attributable to a $6.7 million increase in Vacation Credit Sales, and to a
lesser extent to improvements in finance income, gains on sales of notes
receivable, resort management services and other revenues.
The number of Vacation Credits sold and the average price of Vacation
Credits sold grew during the second quarter of 1997 over the same period in the
prior year. The Company sold 25.4 million Vacation Credits in the second quarter
of 1997, an increase of 18.1% over the 21.5 million Vacation Credits sold during
the same period in 1996. The average price of Vacation Credits sold grew from
$1.24 for the second quarter of 1996 to $1.27 for the same period in 1997.
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<PAGE> 11
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing any of the shares of Common Stock offered
hereby. The Company cautions the reader that this list of risk factors may not
be exhaustive. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results and the timing of certain
events could differ materially from those anticipated by such forward-looking
statements as a result of certain factors, including the factors set forth below
and in "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
DEPENDENCE ON ACQUISITIONS OF ADDITIONAL RESORT UNITS FOR GROWTH; NEED FOR
ADDITIONAL CAPITAL
The Company purchases or develops resort units for WorldMark in exchange
for the exclusive right to sell the Vacation Credits assigned to these units.
The Company can only sell additional Vacation Credits to the extent that it
acquires or develops additional resort units for WorldMark. The Company's future
growth and financial success therefore will depend to a significant degree on
the availability of attractive resort locations and the Company's ability to
acquire and develop additional resort units on favorable terms and to obtain
additional debt and equity capital to fund such acquisitions and development.
There can be no assurance that the Company will be successful in this regard. As
of March 31, 1997, the Company had purchase agreements and developments in
progress to obtain 364 additional resort units by the end of 1998. No assurance
can be given that all of such units will be acquired or completed on a timely
basis or at all. There are numerous potential buyers of resort real estate
competing to acquire resort properties which the Company may consider attractive
resort acquisition opportunities, and many of these potential buyers are better
capitalized than the Company. There can be no assurance that the Company will be
able to compete against such other buyers successfully.
When the Company purchases or develops a new resort or additional units at
an existing WorldMark Resort, the Company causes the units to be conveyed
directly to WorldMark free of any monetary encumbrances, and therefore must
purchase its properties without any financing secured by the properties. Since
the Company generally finances at least 85% of the aggregate purchase price of
Vacation Credits sold to new Owners, it does not generate sufficient cash from
sales to provide the necessary capital to acquire or develop additional resort
units. Accordingly, the Company has a continuous need for capital to purchase
additional resort units. Historically, the Company's primary source of capital
has been the sale of Notes Receivable to a group of banks and a securitization,
through one of the Finance Subsidiaries, of Notes Receivable to institutional
investors. Effective June 30, 1997, Jeld-Wen transferred the ownership of the
Finance Subsidiaries to the Company in exchange for 5,193,693 shares of the
Company's Common Stock. See "Summary -- Corporate Background and Consolidation
of Finance Subsidiaries." The Finance Subsidiaries' relationship with the
participating banks is expected to continue following the Consolidation
Transactions. No assurance can be given, however, that the Company will be able
to obtain adequate debt or equity capital through the sale or securitization of
its Notes Receivables, or otherwise, in order to continue to acquire additional
properties or that such future financing can be obtained on terms favorable to
the Company. See "Business -- Finance Subsidiaries" and "Certain
Transactions -- Acquisition of Finance Subsidiaries."
RISKS ASSOCIATED WITH DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to expand its acquisition, development, construction
and expansion of timeshare resorts. There can be no assurance that the Company
will complete current or future development or expansion projects. Risks
associated with these activities include the risks that (i) acquisition or
development opportunities may be abandoned; (ii) construction costs may exceed
original estimates, possibly making the development or expansion uneconomical or
unprofitable; (iii) financing may not be available on favorable terms or at all;
and (iv) construction may not be completed on schedule, resulting in increased
interest expense and delays in the availability for sale of Vacation Credits.
Development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and authorizations, the
ability of the Company to
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<PAGE> 12
coordinate construction activities with the process of obtaining such permits
and authorizations, and the ability of the Company to obtain the financing
necessary to complete the necessary acquisition, construction and conversion
work. In addition, the Company's construction activities are generally performed
by third-party contractors. These third-party contractors generally control the
timing, quality and completion of the construction activities. Nevertheless,
construction claims may be asserted against the Company for construction defects
and such claims may give rise to liabilities. New development activities,
regardless of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention. The ability of the
Company to expand its business to include new resorts will in part depend upon
the availability of suitable properties at reasonable prices and the
availability of financing for the acquisition and development of such
properties. In the future, the Company may undertake the development of larger
resort complexes. No assurance can be given that any such larger resort
complexes will be developed in a profitable manner, if at all.
FACTORS AFFECTING SALES VOLUME
As the number of potential customers in the geographic area of a sales
office who have attended a sales presentation increases, the Company may have
increasing difficulty in attracting additional potential customers to a sales
presentation at that office and it may become increasingly difficult for the
Company to maintain current sales levels at its existing sales offices.
Accordingly, the Company anticipates that a substantial portion of its future
sales growth will depend on the opening of additional off-site sales offices.
The Company intends to open an additional off-site sales office in California in
late 1997. No assurance can be given, however, that sales from existing or new
off-site sales offices will meet management's expectations. If the Company does
not open additional sales offices or if existing or new sales offices do not
perform as expected, the Company's business, results of operations and financial
condition could be materially adversely affected.
GEOGRAPHIC CONCENTRATION ON WEST COAST
The Company presently sells Vacation Credits in Washington, Oregon and
California, primarily to residents of those states and of British Columbia. The
Company intends to continue to sell Vacation Credits in these three states and
to increase the number of its off-site sales offices in California. Since all of
the Company's sales offices are in the western United States, any economic
downturn in this area of the country could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
the appeal of becoming an Owner may decrease if residents of Washington, Oregon,
California and British Columbia do not continue to view the locations of
WorldMark's Resorts (which are primarily located in these areas) as attractive
vacation destinations.
GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN TIMESHARE INDUSTRY
Any downturn in economic conditions or significant price increases or
adverse events related to the travel and tourism industry, such as the cost and
availability of fuel, could depress discretionary consumer spending and have a
material adverse effect on the Company's business, results of operations and
financial condition. Any such economic conditions, including recession, may also
adversely affect the future availability of attractive financing rates for the
Company or its customers and may materially adversely affect the Company's
business. Furthermore, adverse changes in general economic conditions may
adversely affect the collectibility of the Notes Receivable. Because the
Company's operations are conducted solely within the timeshare industry, any
adverse changes affecting the timeshare industry, such as a reduction in demand
for timeshare units, changes in travel and vacation patterns, an increase of
governmental regulation of the timeshare industry and increases in construction
costs or taxes, as well as negative publicity for the timeshare industry, could
have a material adverse effect on the Company's business, results of operations
and financial condition.
RISKS ASSOCIATED WITH CUSTOMER FINANCING
In 1996, the Company provided financing for approximately 87% of the
aggregate purchase price of Vacation Credits sold to new Owners, with an average
new Note Receivable of approximately $7,500. The
11
<PAGE> 13
Company also allows existing Owners the opportunity to finance the purchase of
Upgrades. The Company obtains a security interest in the purchased Vacation
Credits and it does not verify a prospective Owner's credit history. At March
31, 1997, an aggregate of $192.7 million of Notes Receivable were outstanding,
of which approximately $71.7 million had been retained by the Company. The
remaining balance of approximately $121.0 million of Notes Receivable had been
sold by the Company prior to that date, although the Company retained limited
recourse liability with respect to these Notes Receivable. See Notes 4, 5 and
15(a) of Notes to Combined Financial Statements.
Notes Receivable become delinquent when a scheduled payment is 30 days or
more past due and reservation privileges are suspended when a scheduled payment
is 60 days or more past due. At March 31, 1997, approximately $4.0 million of
Notes Receivable, including Notes Receivable previously sold by the Company,
were past due 60 days or more. The Notes Receivable are secured by a security
interest in the related Vacation Credits. The Company's practice has been to
continue to accrue interest on Notes Receivable until such accounts are deemed
uncollectible, at which time the Company writes off such Notes Receivable and
records an expense for any interest that had been accrued, reclaims the related
Vacation Credits that secure such Notes Receivable and returns such Vacation
Credits to inventory available for resale. However, the associated marketing
costs and sales commissions are not recovered by the Company and these expenses
must be incurred again to resell the Vacation Credits.
The Company maintains a reserve for doubtful accounts in respect of the
Notes Receivable owned by the Company and a reserve for recourse liability in
respect of the Notes Receivable that have been sold by the Company. The
aggregate amount of these reserves at December 31, 1995 and 1996, and March 31,
1997 were $8.0 million, $11.2 million and $11.9 million, respectively,
representing approximately 6.3%, 6.2% and 6.2%, respectively, of the total
portfolio of Notes Receivable at those dates, including the Notes Receivable
that had been sold by the Company. These reserves are estimates and if the
amount of the Notes Receivable that is ultimately uncollectible materially
exceeds the related reserves, the Company's business, results of operations and
financial condition could be materially adversely affected. See
"Business -- Customer Financing."
INTEREST RATE RISK
The Company generally provides financing for a significant portion of the
aggregate purchase price of Vacation Credits sold at a fixed interest rate. In
order to provide liquidity, the Company, through the Finance Subsidiaries, sells
or securitizes its Notes Receivable. Although a significant portion of the
existing financing of the Notes Receivable through the Finance Subsidiaries is
at a fixed rate or at a variable rate with a cap on the maximum rate, if
interest rates were to increase significantly, the Company's future cost of
funds would also likely increase significantly. The Company has the ability to
respond to rising interest rates by increasing the interest rate offered to
finance Vacation Credit purchases. However, such an increase could have a
material adverse effect on sales of Vacation Credits or on the percentage of
Owners who finance their Vacation Credit purchases through the Company, which
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Customer Financing" and "--
Finance Subsidiaries."
COMPETITION
The Company is subject to significant competition from other entities
engaged in the business of resort development, sales and operation, including
vacation interval ownership, condominiums, hotels and motels. Some of the
world's most recognized lodging, hospitality and entertainment companies have
begun to develop and sell vacation intervals in resort properties. Major
companies that now operate or are developing or planning to develop vacation
interval resorts include Marriott International, Inc. ("Marriott"), The Walt
Disney Company ("Disney"), Hilton Hotels Corporation ("Hilton"), Hyatt
Corporation ("Hyatt"), Four Seasons Hotels & Resorts, Inc. ("Four Seasons"),
InterContinental Hotels and Resorts, Inc. ("Inter-Continental"), Westin Hotels &
Resorts ("Westin") and Promus Hotels, Inc. ("Promus"). In addition, other
publicly-traded companies in the timeshare industry, such as Signature Resorts,
Inc. ("Signature"), Fairfield Communities, Inc. ("Fairfield") and Vistana, Inc.
("Vistana"), currently compete, or may in the future compete, with the Company.
Many of these entities possess significantly greater financial, marketing and
other
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<PAGE> 14
resources than those of the Company. Management believes that industry
competition will be increased by recent and potential future consolidation in
the timeshare industry.
The Company has entered into marketing agreements with affiliates of its
parent, Jeld-Wen, pursuant to which these affiliates may market Vacation Credits
for their own account at Eagle Crest Resort in Redmond, Oregon and Running Y
Resort in Klamath Falls, Oregon in exchange for their transfer to WorldMark of
condominium units at those resorts. These sales activities are competitive with
the Company's marketing activities, particularly in the Oregon and northern
California markets. See "Certain Transactions -- Relationship with Jeld-Wen."
Resales of Vacation Credits by Owners may compete with sales of Vacation
Credits by the Company and may inhibit the Company's ability to increase the
market price of Vacation Credits it sells.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of William F. Peare, the Company's President and Chief Executive
Officer, Jeffery P. Sites, the Company's Executive Vice President and Chief
Operating Officer, and Gary A. Florence, the Company's Vice President, Chief
Financial Officer and Treasurer. The loss of the services of any one of these
individuals could have a material adverse effect on the Company's business,
results of operations and financial condition. Prior to the closing of the
Offering, the Company intends to enter into employment agreements with Messrs.
Peare and Sites. The Company's success is also dependent upon its ability to
attract and retain qualified development, acquisition, marketing, management,
administrative and sales personnel for which there is keen competition. In
addition, the cost of retaining such key personnel could escalate over time.
There can be no assurance that the Company will be successful in attracting and
retaining such personnel. See "Management -- Employment Agreements."
APPLICABILITY OF FEDERAL SECURITIES LAWS TO THE SALE OF VACATION CREDITS
It is possible that the Vacation Credits may be deemed to be a security as
defined in Section 2(1) of the Securities Act of 1933, as amended (the
"Securities Act"). If the Vacation Credits were determined to be a security for
such purpose, their sale would require registration under the Securities Act.
The Company has not registered the sale of the Vacation Credits under the
Securities Act and does not intend to do so in the future. If the sale of the
Vacation Credits were found to have violated the registration provisions of the
Securities Act, purchasers of the Vacation Credits would have the right to
rescind their purchases of Vacation Credits. If a substantial number of
purchasers sought rescission and were successful, the Company's business,
results of operations and financial condition could be materially adversely
affected. The Company has been advised by its counsel, Foster Pepper & Shefelman
PLLC, that in the opinion of such counsel, based on its review of the Company's
Vacation Credit program and the sales practices utilized in such program, the
Vacation Credits do not constitute a security within the meaning of Section 2(1)
of the Securities Act.
REGULATION OF MARKETING AND SALES OF VACATION CREDITS; OTHER LAWS
The Company's marketing and sales of Vacation Credits and certain of its
other operations are subject to extensive regulation by the states and foreign
jurisdictions in which the WorldMark Resorts are located and in which Vacation
Credits are marketed and sold and also by the federal government.
State and Provincial Regulations. Most U.S. states and Canadian provinces
have adopted specific laws and regulations regarding the sale of vacation
interval ownership programs. Washington, Oregon, California, Hawaii and British
Columbia require the Company to register WorldMark Resorts, the Company's
vacation program and the number of Vacation Credits available for sale in such
state or province with a designated state or provincial authority. The Company
must amend its registration if it desires to increase the number of Vacation
Credits registered for sale in that state or province. Either the Company or the
state or provincial authority assembles a detailed offering statement describing
the Company and all material aspects of the project and sale of Vacation
Credits. The Company is required to deliver the offering statement to all new
purchasers of Vacation Credits, together with certain additional information
concerning the terms of the
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<PAGE> 15
purchase. Hawaii imposes particularly stringent and broad regulation
requirements for the sale of interests in interval ownership programs that have
resort units located in Hawaii. The Company has incurred substantial
expenditures over an extended period of time in the registration process in
Hawaii and still has not completed this process. Hawaii has allowed the use of
WorldMark units in Hawaii, provided that the Company continues in good faith to
pursue registration in Hawaii. Laws in each state where the Company sells
Vacation Credits grant the purchaser of Vacation Credits the right to cancel a
contract of purchase at any time within a period ranging from three to seven
calendar days following the later of the date the contract was signed or the
date the purchaser received the last of the documents required to be provided by
the Company. Most states have other laws which regulate the Company's
activities, such as real estate licensure laws, laws relating to the use of
public accommodations and facilities by disabled persons, sellers of travel
licensure laws, anti-fraud laws, advertising laws and labor laws.
Federal Regulations. The Federal Trade Commission has taken an active
regulatory role in the interval ownership industry 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
Opportunity Credit Act and Regulation B, the Interstate Land Sales Full
Disclosure Act, the Real Estate Standards Practices Act, the Telephone Consumer
Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act,
the Civil Rights Act of 1964 and 1968, the Fair Housing Act and the Americans
with Disabilities Act.
Although the Company believes that it is in material compliance with all
federal, state, local and foreign laws and regulations to which it is currently
subject, there can be no assurance that it is in fact in compliance. Any failure
by the Company to comply with applicable laws or regulations could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company will continue to incur significant
costs to remain in compliance with applicable laws and regulations, and such
costs could increase substantially in the future.
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORK; NO ASSURANCE OF CONTINUED
PARTICIPATION
The attractiveness of purchasing Vacation Credits is enhanced by the
ability of Owners to exchange Vacation Credits for an occupancy right in a
resort participating in the RCI network. RCI provides broad-based vacation
interval exchange services, and, subject to payment of a fee to RCI, Owners are
permitted to exchange their Vacation Credits for vacation use among the resorts
which participate in the RCI network. However, no assurance can be given that
the Company will continue to be able to ensure that Owners will be eligible to
participate in the RCI network or that the weekly RCI exchange value for
Vacation Credits will not become less favorable to Owners. Moreover, if the RCI
exchange network ceases to function effectively, or if Vacation Credits are not
accepted as exchanges for other desirable resorts, the Company's sales of
Vacation Credits could be materially adversely affected. See
"Business -- Participation in Vacation Interval Exchange Network."
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state, local and foreign laws, ordinances and
regulations, the owner or operator of real property generally is liable for the
costs of removal or remediation of certain hazardous or toxic substances located
on or in, or emanating from, such property, as well as related costs of
investigation and property damage. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. Other federal and state laws
require the removal or encapsulation of asbestos-containing material when such
material is in poor condition or in the event of construction, demolition,
remodeling or renovation. Other statutes may require the removal of underground
storage tanks. Noncompliance with these and other environmental, health or
safety requirements may result in the need to cease or alter operations at a
property. Although the Company conducts an environmental assessment with respect
to the properties it acquires for WorldMark, the Company has not received a
Phase I environmental report for any WorldMark Resort. There can be no assurance
that any environmental assessments undertaken by the Company with respect to the
WorldMark Resorts have revealed all potential environmental liabilities, or that
an environmental condition does not otherwise exist as to any one
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<PAGE> 16
or more of the WorldMark Resorts that could have a material adverse effect on
the Company's business, results of operations and financial condition.
NATURAL DISASTERS; UNINSURED LOSS
WorldMark maintains property insurance and liability insurance for the
units at the WorldMark Resorts, with certain policy specifications, insured
limits and deductibles. Certain types of losses, such as losses arising from
earthquakes, floods or acts of war, are generally excluded from WorldMark's
insurance coverage. Should an uninsured loss or loss in excess of insured limits
occur, WorldMark has the option to either (i) remove such units from the
Vacation Credit system, which would result in a proportionate dilution of
vacation time available for the Vacation Credits which have been sold, or (ii)
pay the related costs of replacement. Although WorldMark's board of directors
may impose a limited amount of special assessments to pay for capital
improvements or major repairs, there can be no assurance that WorldMark would be
able to increase assessments to provide sufficient funds to pay for all possible
capital improvements and major repairs of the units at the WorldMark Resorts. In
such an event, the Company may need to advance funds to WorldMark in order to
maintain the quality of the WorldMark Resorts or WorldMark may be required to
defer certain improvements or repairs. In addition, the Company may advance
funds to WorldMark if WorldMark does not have sufficient funds to pay its
obligations in a timely manner. See "Business -- Insurance; Legal Proceedings."
EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDER; ANTITAKEOVER PROVISIONS
Upon closing of the Offering, Jeld-Wen will own 79.98% of the outstanding
shares of Common Stock. This concentration of ownership will give Jeld-Wen
control of the election of directors and the management and affairs of the
Company and sufficient voting power to determine the outcome of all matters
submitted to the stockholders for approval, including mergers, consolidations
and the sale of all, or substantially all, of the Company's assets. In addition,
certain provisions of Oregon law and of the Company's Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws could have the effect
of making it more difficult or more expensive for a third party to acquire, or
of discouraging a third party from attempting to acquire, control of the
Company. In addition, the Company is authorized to issue Preferred Stock with
rights senior to, and that may adversely affect, the Common Stock, with such
rights, preferences and privileges as the Company's Board of Directors may
determine, without the necessity of stockholder approval. The Company, however,
has no present plans to issue any shares of Preferred Stock. See "Principal and
Selling Stockholders," "Description of Capital Stock" and "Certain Provisions of
Oregon Law and of Trendwest's Articles of Incorporation and Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of the Offering, all of the shares of Common Stock offered
hereby will be eligible for public sale without restriction. Holders of the
other 14,287,116 shares of Common Stock hold their shares subject to the
limitations of Rule 144 of the Securities Act. All holders of these shares have
entered into lock-up agreements with the Underwriters not to offer, sell or
otherwise dispose of any equity securities of the Company for 360 days after the
date of this Prospectus, in the case of Jeld-Wen and William Peare, and 180 days
after the date of this Prospectus in the case of all other holders, without the
prior written consent of Montgomery Securities. Montgomery Securities may, in
its sole discretion, at any time without notice, release all or any portion of
the shares subject to the lock-up agreements during the respective lock-up
periods. Future sales of substantial amounts of Common Stock, or the potential
for such sales, could adversely affect prevailing market prices. See "Shares
Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION; NO ANTICIPATED DIVIDENDS
Purchasers of Common Stock in the Offering will experience immediate
dilution in pro forma net tangible book value per share of Common Stock of
$11.40 from the initial public offering price per share (assuming an initial
public offering price of $17.00 per share). See "Dilution." In addition, the
Company does
15
<PAGE> 17
not anticipate that it will pay any cash dividends on its Common Stock in the
foreseeable future. See "Dividend Policy."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior public market for the Company's Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq National
Market, there can be no assurance that a viable public market for the Common
Stock will develop or be sustained after the Offering or that purchasers of the
Common Stock will be able to resell their Common Stock at prices equal to or
greater than the initial public offering price. The initial public offering
price will be determined by negotiations among the Company, the Selling
Stockholder and the representatives of the Underwriters and may not be
indicative of the prices that may prevail in the public market after the
Offering is completed. Numerous factors, including announcements of fluctuations
in the Company's or its competitors' operating results and market conditions for
hospitality and timeshare industry stocks in general, could have a significant
impact on the future price of the Common Stock. In addition, the stock market in
recent years has experienced significant price and volume fluctuations. These
fluctuations have had a substantial effect on the market prices for many growth
companies, and have often been unrelated or disproportionate to the operating
performance of these specific companies. These broad fluctuations may adversely
affect the market price of the Common Stock. See "Underwriting."
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,745,000 shares of
Common Stock offered by the Company hereby at an estimated initial public
offering price of $17.00 per share, after deducting the underwriting discount
and estimated expenses of the Offering, are estimated to be $42.3 million ($49.1
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use approximately $31.0 million of the estimated net proceeds
to repay all of the outstanding indebtedness and accrued interest owed to
Jeld-Wen. The balance of the net proceeds of approximately $11.3 million will be
used for working capital and general corporate purposes, including the
acquisition and development of additional resort properties. See "Summary -- The
WorldMark Resorts" and "Business -- Growth Strategy" for a discussion of the
projects which are currently under development or subject to acquisition
agreements. Pending application as described above, the net proceeds to the
Company will be invested in short-term, investment grade, interest bearing
securities.
Indebtedness to be repaid out of the net proceeds from the Offering bears
interest at the prime rate plus 1% (currently 9.50%) per annum and is payable on
demand. Indebtedness to be repaid that was incurred within the last year was
incurred for the acquisition and development of timeshare resorts and for
general corporate purposes.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholder.
DIVIDEND POLICY
Trendwest Resorts, Inc. has never declared or paid any cash dividends on
its capital stock and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. The Company currently intends to retain future
earnings to finance its operations and fund the growth of its business. Any
payment of future dividends will be at the discretion of the Board of Directors
of the Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect of the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth, as of March 31, 1997, the debt and total
capitalization of the Company on an actual basis and as adjusted to give effect
to the sale of Common Stock offered by the Company at an assumed initial public
offering price of $17.00 per share and the application of the estimated net
proceeds to the Company therefrom. This table should be read in conjunction with
the historical financial statements of the Company and the related notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds" and "Selected
Combined Financial and Operating Data."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------
AS
ACTUAL ADJUSTED
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Notes payable........................................ $ 15,135 $ 15,135
Due to parent company................................ 23,764 --
------- -------
Total debt(1)................................ 38,899 15,135
Stockholders' equity:
Preferred Stock, no par value; 10,000,000 shares
authorized; no shares issued and outstanding...... -- --
------- -------
Common Stock, no par value; 90,000,000 shares
authorized; 14,417,116 shares issued and
outstanding; 17,162,116 shares issued and
outstanding as adjusted(2)........................ 14,970 57,268
Retained earnings.................................... 38,773 38,773
------- -------
Total stockholders' equity........................... 53,743 96,041
------- -------
Total capitalization......................... $ 92,642 $111,176
======= =======
</TABLE>
- ---------------
(1) See Notes 5, 6 and 9 of Notes to Combined Financial Statements.
(2) Does not include approximately 858,000 shares of Common Stock authorized for
issuance under the Company's stock option plan. The Company has granted no
options under this plan. See "Management -- 1997 Stock Option Plan."
18
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company at March 31, 1997 was
approximately $53.7 million, or $3.73 per share of Common Stock. Pro forma net
tangible book value per share represents the Company's total tangible assets
less its total liabilities, divided by the total number of outstanding shares of
Common Stock after giving effect to the Consolidation Transactions. After giving
effect to the sale of 2,745,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $17.00 per share and the
application of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company at March 31, 1997 would have been approximately $96.0
million or $5.60 per share of Common Stock. This represents an immediate
increase in such pro forma net tangible book value of $1.87 per share to the
existing stockholders of the Company and an immediate dilution in pro forma net
tangible book value of $11.40 per share to purchasers of Common Stock in the
Offering. The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $17.00
Pro forma net tangible book value per share before the
Offering................................................ $3.73
Increase per share attributable to new investors........... 1.87
------
Pro forma net tangible book value per share after the
Offering................................................... 5.60
------
Dilution per share to new investors.......................... $11.40
======
</TABLE>
The following table sets forth, as of March 31, 1997, the number of shares
of Common Stock purchased, the total consideration paid therefor and the average
price paid per share by the existing stockholders of the Company and the
purchasers of Common Stock in the Offering, at an assumed initial public
offering price of $17.00 per share (before deducting the estimated underwriting
discount and offering expenses payable by the Company). The following table does
not include 431,250 shares of Common Stock which the Underwriters may purchase
pursuant to their over-allotment option. See "Underwriting."
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).... 14,417,116 84.0 $14,970,000 24.3 $ 1.04
New investors(2)............ 2,745,000 16.0 46,665,000 75.7 17.00
---------- ----- ----------- -----
Total............. 17,162,116 100.0 $61,635,000 100.0
========== ===== =========== =====
</TABLE>
- ---------------
(1) Sales of Common Stock by the Selling Stockholder in the Offering will cause
the number of shares of Common Stock held by the existing stockholders to be
reduced to 14,287,116 shares, or 83.2% of the total number of shares of
Common Stock to be outstanding after the Offering, and will increase the
number of shares of Common Stock held by new investors to 2,875,000 shares,
or 16.8% of the total number of shares to be outstanding after the Offering.
See "Principal and Selling Stockholders."
(2) Purchasers of Common Stock in the Offering.
19
<PAGE> 21
SELECTED COMBINED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of December 31, 1995 and 1996 and
for each of the years in the three-year period ended December 31, 1996 are
derived from the combined financial statements of Trendwest Resorts, Inc. and
certain affiliates, which financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. Such combined financial
statements and the report thereon are included elsewhere in this Prospectus. The
information as of December 31, 1994 and 1993 and for the year ended December 31,
1993 has been derived from the financial statements of Trendwest Resorts, Inc.
and the financial statements of TW Holdings, Inc., which have been audited by a
predecessor auditor as adjusted for certain prior period adjustments. The
information as of and for the year ended December 31, 1992 has been derived from
the financial statements of Trendwest Resorts, Inc., which have been audited by
a predecessor auditor as adjusted for certain prior period adjustments. The
following selected historical financial information at or for the three months
ended March 31, 1996 and 1997 has been derived from unaudited financial
statements that, in the opinion of management of the Company, reflect all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial information for such periods and as of such dates. The
combined historical results for the three months ended March 31, 1997 are not
necessarily indicative of results for the full year. The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the combined financial
information for the Company and the notes thereto which are contained elsewhere
herein. The information presented below under the captions "Pro Forma Data" and
"Operating Data" is unaudited.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------ ---------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Vacation Credit sales, net.................... $35,798 $38,743 $54,904 $77,783 $ 100,040 $22,297 $ 27,945
Finance income................................ 3,069 3,813 3,736 5,368 7,143 1,868 3,219
Gains on sales of notes receivable............ -- 1,558 1,635 3,222 5,673 244 --
Resort management services.................... 219 1,102 2,805 1,579 1,501 408 761
Other......................................... 241 344 763 1,226 2,552 386 688
------- ------- ------- ------- -------- ------- --------
Total revenues.......................... 39,327 45,560 63,843 89,178 116,909 25,203 32,613
Costs and operating expenses:
Vacation Credit cost of sales................. 9,083 8,743 15,070 20,484 27,400 6,246 7,553
Resort management services.................... 301 959 2,613 1,283 859 199 259
Sales and marketing........................... 17,954 19,523 25,615 36,374 47,810 10,771 13,131
General and administrative.................... 3,253 4,056 6,588 8,391 10,904 2,520 2,968
Provision for doubtful accounts and recourse
liability................................... 2,031 2,805 4,537 6,522 7,467 1,674 1,816
Interest...................................... 2,457 1,929 881 2,380 2,445 526 634
------- ------- ------- ------- -------- ------- --------
Total costs and operating expenses...... 35,079 38,015 55,304 75,434 96,885 21,936 26,631
------- ------- ------- ------- -------- ------- --------
Income before income taxes...................... 4,248 7,545 8,539 13,744 20,024 3,267 6,252
Income tax expense............................ 1,542 2,909 3,214 4,979 7,348 1,211 2,253
------- ------- ------- ------- -------- ------- --------
Net income...................................... $ 2,706 $ 4,636 $ 5,325 $ 8,765 $ 12,676 $ 2,056 $ 3,999
======= ======= ======= ======= ======== ======= ========
PRO FORMA DATA:
Pro forma net income per share of Common
Stock......................................... $ 0.88 $ 0.28
Shares used in computing pro forma net income
per share of Common Stock(1).................. 14,417,116 14,417,116
Supplemental pro forma net income per share of
Common Stock(2)............................... $ 0.89 $ 0.28
Shares used in computing supplemental pro forma
net income per share of Common Stock(2)....... 15,959,304 15,959,304
OPERATING DATA:
Number of WorldMark Resorts (at end of
period)....................................... 11 12 14 16 19 17 19
Number of units (at end of period).............. 147 239 325 499 746 554 798
Number of Vacation Credits sold (in
thousands).................................... 32,636 34,296 47,025 65,308 82,270 18,685 21,367
Average price per Vacation Credit sold.......... $ 1.11 $ 1.14 $ 1.18 $ 1.21 $ 1.24 $ 1.23 $ 1.27
Average cost per Vacation Credit sold........... $ 0.28 $ 0.25 $ 0.32 $ 0.31 $ 0.33 $ .33 $ .35
Number of Owners (at end of period)............. 8,252 12,732 18,740 27,965 38,997 30,503 41,871
Average purchase price for new Owners........... $ 7,693 $ 7,879 $ 8,141 $ 8,325 $ 8,432 $ 8,472 $ 8,506
BALANCE SHEET DATA:
Cash, including restricted cash................. $ 758 $ 528 $ 375 $ 516 $ 802 $ 902 $ 1,195
Total assets.................................... 27,205 36,007 51,143 71,289 89,330 79,729 110,433
Indebtedness(3)................................. 18,254 4,809 10,378 24,826 22,371 30,238 38,899
Stockholders' equity............................ 5,412 22,308 27,456 36,753 49,744 38,810 53,743
</TABLE>
- ---------------
(1) Includes the 5,193,693 shares to be issued to Jeld-Wen in connection with
the Consolidation Transactions.
(2) Includes the 5,193,693 shares to be issued to Jeld-Wen in connection with
the Consolidation Transactions; the 1,542,188 shares offered at an assumed
initial public offering price of $17.00 per share to be used to retire $23.8
million in debt; and the elimination of interest expense related to the
retirement of $23.8 million in debt.
(3) Indebtedness is comprised of notes payable to Jeld-Wen and others.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Trendwest markets, sells and finances timeshare ownership interests in the
form of Vacation Credits and acquires, develops and manages the WorldMark
Resorts. The Company derives revenues primarily from the sale of Vacation
Credits and, to a lesser extent, from the financing of Vacation Credits and from
management fees generated from its management agreement with WorldMark.
Vacation Credit sales and Upgrade Sales are recognized on the accrual basis
after the Company has received an executed sales contract and a minimum 10% down
payment, and the rescission period (generally three to seven days) has passed.
In instances where the Company finances an Upgrade Sale and the customer does
not make an additional cash down payment of at least 10% of the Upgrade Sale
amount, the Company uses the installment method to recognize revenue. Under the
installment method, gross profit on such Upgrade Sale is deferred and thereafter
recognized in relation to each principal payment received. Revenue is fully
recognized on the Upgrade Sales when the cash collected related to the Upgrade
Sale totals 10% of the amount of the Upgrade Sale. Commencing in the first
quarter of 1997, the Company modified its Upgrade Sales marketing practices so
as to encourage an additional cash down payment of at least 10% of the Upgrade
Sale amount. In the first and second quarters of 1997, 51.6% and 56.9%,
respectively, of Upgrade Sales had the additional 10% cash down payment, as
compared to 12.7% and 13.2%, respectively, in the first two quarters of 1996.
The Company acquires or develops additional resort units for WorldMark and
contributes those units to WorldMark free of monetary encumbrances, thereby
creating additional Vacation Credits for sale by the Company. The Company
assigns each WorldMark Resort unit a specific number of Vacation Credits based
on its vacation use value relative to existing WorldMark Resort units.
Acquisition and construction costs associated with the WorldMark Resort units
are recorded as inventory. Vacation Credit cost of sales are allocated as
Vacation Credit sales are recognized.
Financing of Vacation Credits is provided to Owners by Trendwest at an
interest rate of 13.9% or 14.9% per annum for a term of up to seven years. The
Company routinely sells Notes Receivable to financial institutions and other
investors to generate liquidity to acquire or develop new resort units and for
working capital. The Company recognizes a gain on the sale of Notes Receivable
at the time of sale equal to the present value of the estimated net future cash
flow of the payment streams. This gain is recorded as a residual interest in
Notes Receivable sold on the Company's balance sheet and is amortized over the
term of the Notes Receivable using the interest method.
RESULTS OF OPERATIONS
The following discussion of the results of operations relates to entities
comprising the Company on a combined historical basis.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Vacation Credit sales, net....................... 86.0% 87.2% 85.5% 88.5% 85.7%
Finance income................................... 5.8 6.0 6.1 7.4 9.9
Gains on sales of notes receivable............... 2.6 3.6 4.9 1.0 --
Resort management services....................... 4.4 1.8 1.3 1.6 2.3
Other............................................ 1.2 1.4 2.2 1.5 2.1
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF VACATION CREDIT SALES, NET:
Vacation Credit cost of sales.................... 27.4% 26.3% 27.4% 28.0% 27.0%
Sales and marketing.............................. 46.7 46.8 47.8 48.3 47.0
Provision for doubtful accounts and recourse
liability..................................... 8.3 8.4 7.5 7.5 6.5
AS A PERCENTAGE OF RESORT MANAGEMENT REVENUES:
Cost of resort management services............... 93.2% 81.3% 57.2% 48.8% 34.0%
AS A PERCENTAGE OF TOTAL REVENUES:
General and administrative....................... 10.3% 9.4% 9.3% 10.0% 9.1%
Total costs and operating expenses............... 86.6 84.6 82.9 87.0 80.8
</TABLE>
Comparison of the three months ended March 31, 1997 to the three months ended
March 31, 1996
For the three months ended March 31, 1997, the Company achieved total
revenues of $32.6 million compared to $25.2 million for the three months ended
March 31, 1996, an increase of 29.4%. The principal reason for the overall
improvement was a 25.3% increase in Vacation Credit sales. The increase in
Vacation Credit sales was primarily the result of a 14.4% increase in the number
of Vacation Credits sold from 18.7 million in the first quarter of 1996 to 21.4
million in the first quarter of 1997, which increase was largely attributable to
the opening of two new off-site sales offices (one in April 1996 and one in
February 1997), one new on-site sales office in February 1996 and increased
Upgrade Sales. Revenues from Upgrade Sales increased 65.4% from $2.6 million in
the first quarter of 1996 to $4.3 million in the first quarter of 1997 due
primarily to the increase in the number of Owners who made the necessary 10%
cash down payment to allow full revenue recognition at the time of the sale. The
number of Vacation Credits sold as Upgrades increased by approximately 3% in the
first quarter of 1997 compared to the first quarter of 1996. The average price
per Vacation Credit sold increased from $1.23 for the first quarter of 1996 to
$1.27 for the first quarter of 1997, an increase of 3.3%, which is due primarily
to a 4.5% increase in the sales price of Upgrade credits.
Finance income increased 68.4% from $1.9 million in the first quarter of
1996 to $3.2 million in the first quarter of 1997 due to increased carrying
balances of Notes Receivable and the recognition of the unrealized gain on
residual interest in the Notes Receivable sold of $1.1 million. Gains on sales
of Notes Receivable decreased $244,000 in the first quarter of 1997 compared
with the first quarter of 1996 as there were no sales of Notes Receivable in the
first quarter of 1997 which resulted in a gain. Revenues from resort management
services increased 86.5% from $408,000 in the first quarter of 1996 to $761,000
in the first quarter of 1997 due to an increase in WorldMark's revenue resulting
from the growth in number of WorldMark Resorts, increased income from use of
Bonus Time and increased developer dues. Other revenues increased 78.2% from
$386,000 in the first quarter of 1996 to $688,000 in the first quarter of 1997
due principally to increased servicing fees on Notes Receivable sold.
Vacation Credit cost of sales increased from $6.2 million in the first
quarter of 1996 to $7.6 million in the first quarter of 1997, an increase of
22.6%, primarily reflecting the increase in sales of Vacation Credits. As a
percentage of Vacation Credit sales, Vacation Credit cost of sales decreased
from 28.0% in the first quarter of 1996 to 27.0% in the first quarter of 1997
primarily due to the substantially higher percentage of Upgrade Sales in the
first quarter of 1997 that were entitled to full revenue recognition at the time
of sale. The Company believes that Vacation Credit cost of sales as a percentage
of Vacation Credit sales would have increased slightly in the first quarter of
1997 as compared with the first quarter of 1996 absent the increase in the
percentage of Owners who made a 10% cash down payment on Upgrade Sales.
Sales and marketing costs increased 21.3% from $10.8 million in the first
quarter of 1996 to $13.1 million in the first quarter of 1997. As a percentage
of Vacation Credit sales, sales and marketing costs decreased from 48.3% in the
first quarter of 1996 to 47.0% in the first quarter of 1997 primarily due to the
substantially higher percentage of Upgrade Sales in the first quarter of 1997
that were entitled to full revenue recognition at the time of sale. The Company
believes that sales and marketing costs as a percentage of Vacation Credit sales
22
<PAGE> 24
would have increased slightly in the first quarter of 1997 as compared with the
first quarter of 1996 absent the increase in the percentage of Owners who made a
10% cash down payment on Upgrade Sales. This increase reflects an increase in
expenses due to the opening of additional sales offices and marketing costs
incurred to generate prospective customers in new market areas.
General and administrative expenses increased 20.0% from $2.5 million in
the first quarter of 1996 to $3.0 million in the first quarter of 1997,
primarily reflecting the increased sales growth and increased administration
costs at regional sales offices. As a percentage of total revenues, general and
administrative expenses decreased from 10.0% in the first quarter of 1996 to
9.1% in the first quarter of 1997, due primarily to reduced office service
charges from Jeld-Wen and to the substantially higher percentage of Upgrade
Sales in the first quarter of 1997 that were entitled to full revenue
recognition at the time of sale. The Company believes that general and
administrative expenses as a percentage of Vacation Credit sales would have
decreased slightly in the first quarter of 1997 as compared with the first
quarter of 1996 absent the increase in the percentage of Owners who made a 10%
cash down payment on Upgrade Sales.
Provision for doubtful accounts and recourse liability increased 5.9% from
$1.7 million in the first quarter of 1996 to $1.8 million in the first quarter
of 1997. As a percentage of Vacation Credit sales, the provision declined from
7.5% in the first quarter of 1996 to 6.5% in the first quarter of 1997 due to
continued growth in the amount of Notes Receivable from Upgrade Sales. Owners
who Upgrade have a historically lower default rate than new Owners.
Comparison of the year ended December 31, 1996 to the year ended December 31,
1995
For 1996, the Company achieved total revenue of $116.9 million compared to
$89.2 million for 1995, an increase of 31.1%. This increase was primarily due to
a 28.5% increase in Vacation Credit sales, from $77.8 million to $100.0 million,
and a 31.5% increase in finance income, from $5.4 million to $7.1 million. The
increase in Vacation Credit sales was primarily the result of a 26.0% increase
in the number of Vacation Credits sold from 65.3 million in 1995 to 82.3 million
in 1996 due to the opening of two new off-site sales offices (one in May 1995
and one in April 1996) and three new on-site sales offices (one in April 1995,
one in June 1995 and one in February 1996). Revenues from Upgrade Sales,
increased from $6.6 million for 1995 to $12.4 million for 1996, due to the
increased number of Owners and more effective sales programs. The average price
per Vacation Credit sold increased slightly from $1.21 for 1995 to $1.24 for
1996, an increase of 2.5%. The increase in finance income was primarily due to
increased carrying balances of Notes Receivable related to higher Vacation
Credit sales in 1996 compared to 1995. Gains on sales of Notes Receivable
increased 78.1% from $3.2 million for 1995 to $5.7 million for 1996. This
increase was due to a greater amount of Notes Receivable sales, which increased
from $38.6 million for 1995 to $72.2 million for 1996.
Vacation Credit cost of sales increased from $20.5 million for 1995 to
$27.4 million for 1996, an increase of 33.7%, primarily reflecting the increase
in sales of Vacation Credits. As a percentage of Vacation Credit sales, Vacation
Credit cost of sales increased to 27.4% in 1996 from 26.3% in 1995. This
increase was due to the relatively higher cost of developing and constructing
the Gleneden Beach resort in Oregon compared to other WorldMark Resorts and the
reduction of revenue resulting from an increase in net deferred gross profit on
Upgrade Sales.
Cost of resort management services decreased 30.8% from $1.3 million in
1995 to $0.9 million in 1996, primarily as a result of the shift in the
management responsibility for WorldMark's resort level operations from Trendwest
to WorldMark which occurred in the second quarter of 1995.
For 1996, sales and marketing costs increased 31.3% from $36.4 million in
1995 to $47.8 million in 1996. As a percentage of Vacation Credit sales, sales
and marketing costs increased slightly from 46.8% in 1995 to 47.8% in 1996. The
growth in sales and marketing costs reflects the increase in Vacation Credit
sales and the opening of two new sales offices.
General and administrative expenses increased 29.8% from $8.4 million in
1995 to $10.9 million in 1996, primarily reflecting the growth in the overall
business of Trendwest. General and administrative expenses decreased as a
percentage of total revenues from 9.4% in 1995 to 9.3% in 1996, primarily
reflecting the
23
<PAGE> 25
realization of certain economies of scale causing administrative expenses to
increase at a lower rate than total revenues.
Interest expense remained consistent at $2.4 million, as lower average
interest rates offset the effect of somewhat higher average loan balances.
Provision for doubtful accounts and recourse liability increased 15.4% from
$6.5 million in 1995 to $7.5 million in 1996. As a percentage of Vacation Credit
sales, the provision declined from 8.4% in 1995 to 7.5% in 1996. Reserve
strengthening contributed to the higher percentage in 1995 and a higher
percentage of the Company's Notes Receivable being held by Upgrade Owners at the
end of 1996 contributed to the lower percentage in 1996.
Comparison of the year ended December 31, 1995 to the year ended December 31,
1994
For the year ended December 31, 1995, the Company achieved total revenues
of $89.2 million compared to $63.8 million for 1994, an increase of 39.8%. This
increase was primarily due to a 41.7% increase in Vacation Credit sales, from
$54.9 million in 1994 to $77.8 million in 1995, a 45.9% increase in finance
income, from $3.7 million in 1994 to $5.4 million in 1995, and a 100.0% increase
in gains on sales of Notes Receivable, from $1.6 million in 1994 to $3.2 million
in 1995. These increases were partially offset by a decrease in resort
management service revenues from $2.8 million in 1994 to $1.6 million in 1995.
The increase in Vacation Credit sales was primarily the result of a 38.9%
increase in the number of Vacation Credits sold from 47.0 million in 1994 to
65.3 million in 1995, primarily due to the addition of one new off-site sales
office (in May 1995) and three new on-site sales offices (one in September 1994,
one in April 1995 and one in June 1995). In addition, the growth in Upgrade
Sales contributed to the increase in Vacation Credit sales. The average price
per Vacation Credit sold in 1995 increased 2.5% from $1.18 in 1994 to $1.21 in
1995. Finance income increased as a result of a higher average balance of Notes
Receivable outstanding due to financing associated with the increased Vacation
Credit sales. Gains on sales of notes receivable increased from $1.6 million in
1994 to $3.2 million in 1995 reflecting the increase in the amount of Notes
Receivable sold from $23.9 million in 1994 to $38.6 million in 1995 and improved
interest rate spread on the Notes Receivable sold. The decrease in resort
management service revenues was attributable to the shift in Worldmark's
resort-level operations from Trendwest to WorldMark which occurred in the second
quarter of 1995.
Vacation Credit cost of sales increased 35.8% from $15.1 million in 1994 to
$20.5 million in 1995. The increase in Vacation Credit costs of sales reflects
the increase in the number of Vacation Credits sold in 1995. As a percentage of
Vacation Credit sales, Vacation Credit cost of sales declined from 27.4% in 1994
to 26.3% in 1995 due to favorable product costs and economies of scale
associated with developing and acquiring larger projects.
Cost of resort management services decreased 50.0% from $2.6 million in
1994 to $1.3 million in 1995, primarily as a result of the shift in the
management responsibility for WorldMark's resort-level operations from Trendwest
to WorldMark.
Sales and marketing costs increased 42.2% from $25.6 million in 1994 to
$36.4 million in 1995, primarily as a result of increased Vacation Credit sales.
As a percentage of Vacation Credit sales, sales and marketing costs increased
from 46.7% in 1994 to 46.8% in 1995, primarily as a result of the increased
costs associated with opening the three new sales offices in 1995.
General and administrative expenses increased 27.3% from $6.6 million in
1994 to $8.4 million in 1995, reflecting the growth in the overall business of
Trendwest. General and administrative expenses decreased as a percentage of
total revenues from 10.3% in 1994 to 9.4% in 1995, reflecting the realization of
certain economies of scale causing a lower rate of growth in administrative
expenses compared to the increase in total revenues.
Interest expense increased from $0.9 million in 1994 to $2.4 million in
1995. The increase in interest expense reflects the higher average loan balance
associated with carrying a higher average Notes Receivable balance.
24
<PAGE> 26
Provision for doubtful accounts and recourse liability increased 44.4% from
$4.5 million in 1994 to $6.5 million in 1995 reflecting the increase in Vacation
Credit sales. As a percentage of Vacation Credit sales, provision for doubtful
accounts and recourse liability increased from 8.3% in 1994 to 8.4% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from operations from down payments on sales of
Vacation Credits which are financed, cash sales of Vacation Credits, principal
and interest on Notes Receivable, and proceeds from sales and borrowings
collateralized by Notes Receivable. The Company also generates cash on the
interest differential between the interest charged on the Notes Receivable and
the interest paid on loans collateralized by Notes Receivable.
During the three months ended March 31, 1996 and 1997, and the years ended
December 31, 1994, 1995 and 1996, cash flow provided by (used in) operating
activities was ($4.9) million, ($15.9) million, ($11.6) million, ($14.2) million
and $3.5 million, respectively. While net income was higher for the three months
ended March 31, 1997 compared to the same period in the prior year, cash
generated from operating activities decreased principally due to the increased
issuance of Notes Receivable to finance the purchase of Vacation Credits,
reduced proceeds from sales of Notes Receivable and higher expenditures to
increase inventory levels of Vacation Credits. For the first quarter of 1997,
cash flows from operating activities resulted primarily from repayments of Notes
Receivable of $5.3 million, and cash flow used in operating activities was
principally for the issuance of Notes Receivable of $25.3 million to finance the
purchase of Vacation Credits by Owners. For 1996, cash flows from operating
activities resulted primarily from the sale and repayment of Notes Receivable of
$88.6 million and net income of $12.7 million. Cash flow used in operating
activities in 1996 was principally due to an increase in Notes Receivable of
$91.6 million to finance the purchase of Vacation Credits by Owners and to an
increase in inventory level of $5.7 million due to the increasing sales of
Vacation Credits. In 1994 and 1995, the cash flow used in operating activities
was primarily due to an increase in Notes Receivable of $50.3 million and $71.1
million, respectively, partially offset by cash received from the sale and
repayment of Notes Receivable of $42.9 million and $57.7 million, respectively,
and net income of $5.3 million and $8.8 million, respectively.
Net cash used in investing activities for the three months ended March 31,
1996 and 1997, and the years ended December 31, 1994, 1995 and 1996 was
$264,000, $630,000, $229,000, $93,000 and $1.4 million, respectively. Cash used
in the acquisition of property, plant and equipment was primarily used to
acquire furniture and fixtures and data processing equipment required to meet
the growth of the Company. In 1995, cash of $4.2 million was provided from the
sale of marketable securities, while $4.3 million was used to purchase property
and equipment, primarily the Company's corporate office facility in Bellevue,
Washington.
Net cash provided by (used in) financing activities for the three months
ended March 31, 1996 and 1997, and the years ended December 31, 1994, 1995 and
1996 was $5.4 million, $16.5 million, $11.5 million, $14.4 million and ($2.1)
million, respectively. For the three months ended March 31, 1997, the Company
borrowed $14.7 million from a group of banks led by Seattle-First National Bank
(the "Bank Group") secured by Notes Receivable to meet working capital needs.
Other net cash provided by (used in) financing activities primarily related to
net loan repayments or borrowings from Jeld-Wen.
Since completed units at various resort properties are acquired or
developed in advance and a significant portion of the purchase price of Vacation
Credits is financed by the Company, the Company continually needs funds to
acquire and develop property, to carry Notes Receivable contracts and to provide
working capital. The Company has historically secured additional funds through
loans from Jeld-Wen and the sale of Notes Receivable through the Finance
Subsidiaries. See "Risk Factors -- Dependence on Acquisitions of Additional
Resort Units for Growth; Need for Additional Capital."
The Company has an open line of credit with Jeld-Wen which bears interest
at prime plus 1% (currently 9.50%) per annum. The limit on the amount of the
credit line has not been set by Jeld-Wen and the amount outstanding on the line
of credit is payable on demand. As of March 31, 1997, the outstanding
indebtedness to Jeld-Wen was $23.8 million, and the income taxes payable to
Jeld-Wen were $3.4 million. Upon consummation of the Offering, the Company
intends to repay the indebtedness to Jeld-Wen.
25
<PAGE> 27
Financing of Notes Receivable has been accomplished by use of a $68.0
million purchase commitment from the Bank Group. As of March 31, 1997, Notes
Receivable totaling $67.0 million had been transferred to the Bank Group. As
discussed in note 2(i) to the accompanying combined financial statements, the
Company's transfer of receivables to the Bank Group in the first quarter of 1997
did not meet the sale recognition criteria of SFAS No. 125 and were treated as
secured borrowings. The Notes Receivable transferred to the Bank Group are
collateralized by a pool of Notes Receivable equal to 25% of the amount
transferred to the Bank Group. Interest rates under the line of credit with the
Bank Group are at 30 day, 60 day, 90 day or 180 day LIBOR plus 150 basis points.
The Company has purchased a three year, 30-day LIBOR interest rate cap at
10.125% per annum on $31.8 million. The interest rate cap expires on April 10,
1998. The agreement with the Bank Group is subject to annual renewal on June 30
of each year. The Company has obtained a one-year extension to June 30, 1998, an
increase in the size of this facility to $93.0 million, and a reduction in the
interest rate to LIBOR plus 125 basis points effective June 30, 1997. In
addition, the Company has modified its transfer arrangements so that Notes
Receivable transferred to the Bank Group qualify for sales recognition under
SFAS 125. In the future, the Company may hypothecate its Notes Receivable.
The Company also has a $5.0 million line of credit with FINOVA Capital
Corporation. At March 31, 1997, the outstanding balance on this line was
$717,340. Notes Receivable are assigned to the lender and principal payments are
applied to the line of credit as received. The line of credit bears interest at
10.5% per annum. The loan agreement requires the Company to maintain minimum
financial ratios, restricts certain expenses and limits cash distributions. At
March 31, 1997, the Company was in compliance with all covenants under this line
of credit. The line of credit matures in 2000, but it is anticipated that
principal payments on the assigned Notes Receivable will fully repay the line of
credit in December 1997. The Company does not anticipate renewing this line of
credit.
Through the end of 1998, the Company anticipates spending approximately
$68.0 million for acquisitions and development of new resort properties and for
expansion and development activities at the existing WorldMark Resorts. The
Company plans to fund these expenditures with the net proceeds of the Offering
(after reduction of debt) and cash generated from operations, including further
sales or securitizations of Notes Receivable. The Company believes that, with
respect to its current operations, the net proceeds to the Company from the
Offering, together with cash generated from operations and future borrowings,
will be sufficient to meet the Company's working capital and capital expenditure
needs through the end of 1998.
WorldMark maintains a replacement reserve for the WorldMark Resorts which
is funded from the annual assessments of the Owners. At March 31, 1997, the
amount of such reserve was approximately $3.8 million. The replacement reserve
is utilized to refurbish and replace the interiors and furnishings of the
condominium units and to maintain the exteriors and common areas in WorldMark
Resorts in which all units are owned by WorldMark. The Company may advance funds
to WorldMark from time to time.
In the future, the Company may negotiate additional credit facilities, or
issue corporate debt or equity securities. Any debt incurred or issued by the
Company may be secured or unsecured, at a fixed or variable rate interest, and
may be subject to such additional terms as management deems appropriate.
RECENT DEVELOPMENTS
Total revenues for the second quarter of 1997 compared to the second
quarter of 1996 improved 28.4% from $31.0 million to $39.8 million with each
segment of revenue reflecting an improvement. Vacation Credit sales increased
from $26.2 million in the second quarter of 1996 to $32.9 million in the second
quarter of 1997, an increase of 25.6%, reflecting an increase in Vacation
Credits sold of 18.1% from 21.5 million to 25.4 million. The increase in
Vacation Credit sales is due primarily to two additional off-site sales offices,
Ontario and Costa Mesa, which opened in April 1996 and February 1997,
respectively, and improved results of the on-site sales office at Gleneden Beach
which opened in February 1996. In addition, the average price per Vacation
Credit sold increased from $1.24 in the second quarter of 1996 to $1.27 in the
second quarter of 1997, primarily attributable to a 4.5% increase in the sales
price of Upgrade credits sold. Revenues from Upgrade Sales improved 71.4% from
$2.8 million to $4.8 million due to increased Upgrade Sales and the higher
proportion of Upgrade Sales which were entitled to full revenue recognition at
the time of sale. Finance income improved
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<PAGE> 28
85.7% from $1.4 million to $2.6 million due principally to increased carrying
balances of Notes Receivable. While sales of Notes Receivable declined from
$31.9 million in the second quarter of 1996 to $28.0 million in the second
quarter of 1997, the related gains from such sales increased from $2.6 million
to $3.2 million, respectively. The increase resulted primarily from a higher net
interest spread and the positive impact of applying SFAS 125 during 1997.
Revenues from resort management services increased from $167,000 to $517,000 due
to an increase in WorldMark's revenue resulting from the growth in membership,
the number of units in the system, increased income from the use of Bonus Time
by members and increased developer dues. Other revenues increased 10.1% from
$603,000 to $664,000 over the second quarter of 1996 due principally to
increased servicing fees on Notes Receivable sold.
Total revenues increased from $56.2 million for the six months ended June
30, 1996 to $72.4 million for the six months ended June 30, 1997, an increase of
28.8%. Although all revenue segments improved over the prior six month period,
the improvement in revenues was due primarily to the increase in Vacation Credit
sales and finance income. Vacation Credit sales improved from $48.5 million to
$60.8 million, an increase of 25.4%. This improvement was due to increased sales
to new Owners, increased Upgrade Sales, the higher proportion of Upgrade Sales
that were entitled to full revenue recognition at the time of sale and an
increase in the average sales price of Vacation Credits sold resulting primarily
from a 4.5% increase in the sales price of Upgrade credits. The number of
Vacation Credits sold improved from 40.2 million to 46.8 million, an increase of
16.4% and is primarily due to additional off-site sales offices and improved
results for the on-site sales office at Gleneden Beach. Finance income increased
75.8% over the six months ended June 30, 1996 from $3.3 million to $5.8 million
due principally to increased carrying balances of Notes Receivable and the
recognition of the unrealized gain on residual interest in Notes Receivable sold
of $1.2 million.
27
<PAGE> 29
BUSINESS
OVERVIEW
Trendwest Resorts, Inc. markets, sells and finances timeshare Vacation
Ownership Interests and acquires, develops and manages timeshare resorts. In
1996, Trendwest was ranked as one of the largest timeshare companies in the
United States, according to published sales volume data in the Vacation
Ownership World trade magazine. The Company's timeshare resorts are owned by and
operated through WorldMark, a non-profit mutual benefit corporation organized by
Trendwest in 1989 to provide an innovative, flexible vacation ownership system.
As of March 31, 1997, WorldMark had in excess of 41,000 Owners and owned and
maintained an aggregate of 798 condominium-style units at 19 WorldMark Resorts
in the western United States, Hawaii, British Columbia and Mexico. The Company
presently sells Vacation Ownership Interests in Washington, Oregon and
California, primarily through eight off-site sales offices.
Trendwest sells Vacation Ownership Interests in the form of Vacation
Credits which are created by the transfer to WorldMark of resort units purchased
or developed by the Company. Vacation Credits can be used by Owners to reserve
units at any of the WorldMark Resorts, at any time during the year and in time
increments as short as one day. The use of Vacation Credits is not tied to any
particular resort unit or time period as is typical in the timeshare industry.
The Company believes that the combination of multiple WorldMark Resorts and the
Company's Vacation Credit system provides Owners with an attractive range of
vacation planning choices and values not generally available within the
timeshare industry. The Company's Vacation Credit system with multiple WorldMark
Resorts facilitates the sale of Vacation Credits at off-site sales offices
located in major metropolitan areas and reduces dependence on on-site sales
centers located at more remote resort locations.
The Company sells Vacation Credits at its 11 sales offices, eight of which
are located off-site in metropolitan areas. The other sales offices are located
on-site at three of the WorldMark Resorts. The Company intends to establish an
additional off-site sales office in California in late 1997. The Company
transferred 224 resort units to WorldMark in 1996, 146 resort units in 1995 and
86 resort units in 1994. Revenues from Vacation Credit sales increased to
approximately $100.0 million in 1996 from $77.8 million in 1995 and
approximately $54.9 million in 1994. The Company transferred 48 resort units to
WorldMark during the first quarter of 1997. As of March 31, 1997, the Company
had purchase agreements and developments in progress to obtain an additional 364
resort units during the remainder of 1997 and 1998, of which 163 units are
expected to be available in 1997, and the remaining 201 resort units are
expected to be available during 1998.
OPERATING STRATEGY
The Company believes its operating strategy and vacation ownership system
provide the following advantages over other timeshare companies:
- Vacation Flexibility. The Company's Vacation Credit system allows Owners
access to multiple WorldMark Resorts, permitting them to tailor their
vacation according to their schedules, desired vacation length, location
preferences and space requirements. The 19 WorldMark Resort locations
provide access to a variety of vacation experiences, from skiing to golf,
and a variety of settings, from beaches to mountains. Vacation time is
reserved on a first come, first served basis. In 1996, based on information
provided by Owner comment cards, the Company believes that approximately
73% of Owners received their first choice of resort location when reserving
vacation time. To enhance Owner usage and facilitate weekend stays and
stays shorter than one week, the Company purchases and develops a large
percentage of WorldMark Resort units within a reasonable driving distance
of the Company's primary metropolitan sales markets.
- Appeal to Broad Consumer Base. The Company believes its Vacation Credit
system enables it to market effectively to potential customers with a
broader range of income levels and vacation requirements than is addressed
by most timeshare companies. The Company provides prospective purchasers
with the opportunity to purchase varying increments of Vacation Credits
suitable for their financial position and vacation needs. The Company's
minimum purchase requirement of 6,000 Vacation Credits, which
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<PAGE> 30
presently costs $7,800, makes entry into WorldMark affordable for a
significant number of households. The Company also markets Upgrades to
existing Owners in smaller increments, which accounted for approximately
12% of Vacation Credit sales in 1996.
- Marketing Through Off-Site Sales Offices. The Company's Vacation Credit
system facilitates marketing Vacation Ownership Interests effectively at
off-site sales offices. The Company believes the use of off-site sales
offices enables it to attract a larger number of prospective purchasers to
sales presentations than at sales offices at more remote resort locations.
In addition, the location of sales offices in metropolitan areas provides
the Company with the flexibility to establish sales offices in the most
demographically attractive areas within a geographic market and to relocate
sales offices quickly at a modest cost when conditions warrant.
- Inventory Control. The Company's sale of Vacation Credits rather than
deeded interests with weekly intervals at individual resorts enables it to
schedule its resort acquisition and development activities in accordance
with its anticipated sales volumes and to diversify the risk of its capital
commitments among several resorts. Since all Vacation Credits have the same
use rights and sell for the same price, the Company does not experience a
buildup of inventory of less desirable resort units or interval dates which
are difficult to sell. The Company can also develop resorts at desirable
remote locations since it does not depend on on-site sales offices to
generate sales.
- Owner Satisfaction. The Company places great importance on Owner
satisfaction. The Company believes that Owner satisfaction is achieved by
maintaining a high level of quality at the WorldMark Resorts, by increasing
the number of resort locations and by satisfying Owners' first vacation
requests a high percentage of the time. Of the 19 WorldMark Resorts, 12
have the highest rating from Resort Condominiums International Inc.
("RCI"), the world's largest timeshare exchange network, four have the
second-highest rating from RCI and three have been recently opened and have
not yet been rated. The Company has increased the number of WorldMark
Resorts from three in 1989 to its present 19 and intends to add two
additional WorldMark Resorts during the remainder of 1997 and 1998.
Although Owners have exchange privileges through the RCI network, the
Company believes that Owner satisfaction with the WorldMark Resorts is
demonstrated by the Owners' usage of approximately 74% of their Vacation
Credits at WorldMark Resorts in 1996. The satisfaction of existing Owners
with WorldMark and the WorldMark Resorts generates additional revenues to
the Company through Upgrade Sales and from Owner referrals of new
prospects.
GROWTH STRATEGY
The Company's growth strategy is to (i) expand existing WorldMark Resorts
and acquire and develop additional resorts primarily in the western United
States, Hawaii, British Columbia and Mexico to provide additional Vacation
Credits for sale by the Company and a wider range of WorldMark Resorts for use
by Owners; (ii) increase sales and financings of Vacation Credits to new
customers by expanding sales and marketing efforts, including opening additional
off-site sales offices; and (iii) increase Upgrade Sales by establishing and
maintaining long-term relationships with Owners through effective customer
service programs and innovative benefit programs and discount packages.
Acquisition and Development of Additional Resorts. The Company acquires and
develops additional resort units for WorldMark, thereby providing additional
Vacation Credits for sale by the Company and a greater variety of resort
locations for the Owners. The Company acquires and develops properties in
attractive vacation areas that are either within a reasonable driving distance
(generally two to five hours) from an off-site sales office or are easily
accessible by air travel. The Company's goal is to obtain a mix of resort
locations that can accommodate purchasers of approximately 70% of the Vacation
Credits sold in a particular geographic market within a reasonable driving
distance of that market. The Company intends to acquire new resort locations in
the western United States (west of the Rocky Mountains) and in Hawaii, British
Columbia and Mexico. The Company seeks properties that have on-site resort
amenities, or are located close to such amenities, such as ski lifts, golf
courses, tennis courts, swimming pools, rivers, lakes and beaches. As of March
31, 1997, the Company had an existing inventory of 24.3 million Vacation Credits
and had purchase
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<PAGE> 31
agreements and developments in progress to add 163 units that are expected to be
available during the remainder of 1997, and an additional 201 units that are
expected to be available during 1998. These new units are expected to provide an
aggregate of approximately 167.5 million Vacation Credits.
Sales and Financings of Vacation Credits. The Company plans to increase the
sales and financings of Vacation Credits to new customers primarily through the
opening of additional off-site sales offices. The Company opened a new off-site
sales office in Costa Mesa, California in February 1997 and anticipates opening
an additional off-site sales office in late 1997 in California. While sales at
existing sales offices have generally experienced annual increases, the Company
believes that a substantial portion of its sales growth will come from recently
established and new off-site sales offices. The Company believes that the
success of its owner referral program will also be a significant factor to
increase sales. The Company's owner referral program, where existing Owners
refer prospective new Owners to the Company, was the source for approximately
16% of sales of Vacation Credits during 1996.
Since an important component of the Company's sales strategy is the
affordability of Vacation Credits, the Company believes that a significant
portion of its sales of Vacation Credits will continue to be financed by the
Company. In 1996, the Company provided financing for approximately 87% of the
aggregate purchase price of Vacation Credits sold to new Owners. During 1996,
the average new Note Receivable had a principal amount of approximately $7,500,
and the aggregate amount of Notes Receivable generated in connection with the
sale of Vacation Credits to new Owners was approximately $79.1 million. The
Company has sold, and expects in the future to sell, a substantial amount of its
Notes Receivable. See "-- Customer Financing," "-- Finance Subsidiaries" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Sales of Additional Vacation Credits to Existing Owners. The Company places
significant emphasis on Upgrade Sales to existing Owners. Upgrade Sales
accounted for approximately 8% and 12% of the Company's sales of Vacation
Credits during 1995 and 1996, respectively. With an increasing number of Owners,
the Company believes that Upgrade Sales will continue to increase. Since a new
Owner may purchase as few as 6,000 Vacation Credits to become an Owner, Owners
often are interested in purchasing Upgrades in order to expand their ability to
use the WorldMark Resorts. Upgrades are offered in increments of 1,000 Vacation
Credits and generally may be purchased at a discount from the then current
price. Owners have the opportunity to finance the purchase of Upgrades through
the Company. Upgrade Sales to existing Owners provide a higher gross margin to
the Company due to substantially lower sales and marketing costs associated with
such sales. The Company has a segment of its sales and marketing group which
concentrates on Upgrade Sales. See "-- Customer Financing."
THE TIMESHARE INDUSTRY
The Market. The resort component of the leisure industry primarily is
serviced by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare or "vacation ownership" resorts. Commercial
lodging consists of hotels, motels, privately owned condominiums and houses
rented on a nightly, weekly or monthly basis. For many vacationers, particularly
those with families, a lengthy stay at a quality commercial lodging
establishment is above the available budget, and the space provided relative to
the cost is not adequate. The Company believes that vacation ownership programs
present an economical alternative to commercial lodging for vacationers.
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<PAGE> 32
According to ARDA, a nonprofit industry organization, the timeshare
industry experienced a record year in 1994 with 384,000 new owners purchasing
560,000 vacation intervals generating sales of $4.76 billion. First introduced
in Europe in the mid-1960s, ownership of vacation intervals has been one of the
fastest growing segments of the hospitality industry over the past two decades.
As shown in the following charts the worldwide timeshare industry has expanded
significantly since 1980 both in vacation interval sales volume and number of
vacation interval owners.
DOLLAR VOLUME OF VACATION INTERVAL SALES
(IN BILLIONS)
<TABLE>
<S> <C> <C> <C> <C>
1980 0.49
1981 0.97
1982 1.17
1983 1.34
1984 1.74
1985 1.58
1986 1.61
1987 1.94
1988 2.39
1989 2.97
1990 3.24
1991 3.74
1992 4.25
1993 4.51
1994 4.76
</TABLE>
NUMBER OF VACATION INTERVAL OWNERS
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C>
1980 155
1981 220
1982 335
1983 470
1984 620
1985 805
1986 970
1987 1125
1988 1310
1989 1530
1990 1800
1991 2070
1992 2363
1993 2760
1994 3144
</TABLE>
- ---------------
Source: American Resort Development Association, The 1995 Worldwide Timeshare
Industry.
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<PAGE> 33
The Company believes that, based on published industry data, the following
factors have contributed to the increased acceptance of the timeshare concept
among the general public and the substantial growth of the timeshare industry
over the past 15 years:
- Increased consumer confidence resulting from consumer protection
regulation of the timeshare industry and the entry of brand name national
lodging companies into the industry;
- Increased flexibility of timeshare ownership due to the growth of
exchange organizations such as RCI and Interval International;
- Improvement in the quality of both the facilities themselves and the
management of available timeshare resorts;
- Increased consumer awareness of the value and benefits of timeshare
ownership, including the cost savings relative to other lodging
alternatives; and
- Improved availability of financing for purchasers of vacation intervals.
The timeshare industry traditionally has been highly fragmented and
dominated by a large number of local and regional resort developers and
operators, most with relatively small resort portfolios consisting of units with
differing quality. The Company believes that one of the most significant factors
contributing to the current success of the timeshare industry is the entry into
the market of some of the world's major lodging, hospitality and entertainment
companies. Such major companies which now operate or are developing or
franchising vacation interval resorts include Marriott, Disney, Hilton, Hyatt,
Four Seasons, InterContinental, Westin and Promus. Unlike the Company, however,
the timeshare operations of each of these companies comprise only a relatively
small portion of such company's overall operations. Moreover, brand name lodging
companies are believed by the Company to have had less than 10% of the worldwide
vacation interval market in 1995. The timeshare products offered by most
companies are limited to the use of one resort in weekly intervals and only
provide use of the resort for a fixed period of time. Vacation Credits can be
used by Owners at any WorldMark Resort, at any time during the year and for any
number of days. Unlike the typical requirements imposed by other timeshare
companies, the use of Vacation Credits is not related to any specific resort,
fixed usage period, or time of year. The Company believes that the combination
of its system of Vacation Credits and numerous WorldMark Resorts provides its
customers with a range of vacation choices not offered by any other timeshare
company. See "-- Competition."
The Consumer. According to 1995 information compiled by ARDA, (i) the prime
market for vacation intervals is customers in the 40-55 year age range who are
reaching the peak of their earning power, (ii) the median age of a vacation
interval buyer was 50, and (iii) the median annual household income of vacation
interval owners in the United States was approximately $63,000, with
approximately 35% of all vacation interval owners having an annual household
income greater than $75,000 and approximately 17% of such owners having an
annual household income greater than $100,000. Despite the growth in the
timeshare industry, vacation interval ownership as of December 31, 1994 had
achieved only a 3.0% market penetration among United States households with
income above $35,000 per year and a 3.9% market penetration among United States
households with income above $50,000 per year.
According to the ARDA study, the three primary reasons cited by consumers
for purchasing a vacation interval are (i) the ability to exchange the vacation
interval for accommodations at other resorts through exchange networks such as
RCI (cited by 82% of vacation interval purchasers), (ii) the savings as compared
to traditional resort vacations (cited by 61% of such purchasers), and (iii) the
quality and appeal of the resort at which they purchased a vacation interval
(cited by 54% of such purchasers). According to the ARDA study, vacation
interval buyers have a high rate of repeat purchases. Approximately 41% of all
vacation interval owners own more than one interval, and approximately 51% of
all owners who bought their first vacation interval before 1985 subsequently
purchased a second vacation interval. In addition, the ARDA study suggests that
customer satisfaction increases with length of ownership, age, income, multiple
location ownership and accessibility to vacation interval exchange networks.
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<PAGE> 34
The Company believes it is well positioned to take advantage of these
trends because its vacation ownership program provides (i) an increasing number
of high quality resorts, (ii) the flexibility to stay at any of the WorldMark
Resorts, (iii) the opportunity to participate in the RCI network, (iv) the
relative affordability of becoming an Owner compared to alternative vacation
interval programs, and (v) an innovative combination of features that provides
Owners with a more flexible timeshare product than those presently offered in
the timeshare industry. The Company expects the timeshare industry to continue
to grow as the baby-boom generation (currently ages 32 to 50) moves through the
40-55 year age bracket, the age group which purchased the most vacation
intervals in 1994.
DESCRIPTION OF THE WORLDMARK RESORTS
The following table sets forth certain information with respect to the
WorldMark Resorts as of March 31, 1997. All of the units are fully-furnished,
including telephones, televisions, VCRs and stereos, and all but the studio
units feature full kitchens. Most of the units contain a washer and dryer,
fireplace, microwave and private outdoor barbecue grill. Many units also include
a private deck.
<TABLE>
<CAPTION>
SIZE OF UNITS(1) WORLDMARK RESORT AMENITIES
------------------------ -----------------------------------------------
SWIMMING WHIRLPOOL/ RESTAURANT/
EXISTING RESORTS LOCATION S 1BR 2BR 3BR TENNIS POOL JACUZZI LOUNGE
- ------------------- ------------------- - --- --- --- ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BRITISH COLUMBIA
Sundance Whistler 0 10 9 6 --
CALIFORNIA
North Shore Bass Lake 0 0 61 0 -- -- --
Estates
Beachcomber Pismo Beach 0 20 0 0 --
Palm Springs Palm Springs 10 12 35 7 -- -- --
Big Bear Big Bear Lake 0 12 0 0
HAWAII
Valley Isle Maui 2 6 6 0 -- --
Kapaa Shores Kauai 0 25 17 0 -- -- --
NEVADA
Lake Tahoe Stateline 0 23 21 6 -- --
Las Vegas Las Vegas 0 22 20 0 --
OREGON
Eagle Crest Redmond 1 28 21 12 -- -- -- --
Gleneden Beach Lincoln City 0 35 41 4 -- -- --
Running Y Resort Klamath Falls 0 12 13 1 -- -- --
WASHINGTON
Lake Chelan Shores Chelan 0 5 8 0 -- -- --
Surfside Long Beach 0 20 5 0 -- --
Discovery Bay Sequim 0 0 32 0 -- -- -- --
Park Village Leavenworth 0 0 72 0 -- --
Mariner Village Ocean Shores 0 8 24 0 -- --
Birch Bay Blaine 0 16 36 0 -- --
MEXICO
Coral Baja San Jose del Cabo 0 50 23 1 -- -- -- --
PLANNED RESORTS:
Clear Lake(2) Nice, California
Kona(2) Hawaii, Hawaii
EXISTING RESORTS NEARBY AMENITIES
- ------------------- ----------------------------
<S> <C>
BRITISH COLUMBIA
Sundance Golf, Skiing
CALIFORNIA
North Shore Water Activities, Yosemite
Estates National Park
Beachcomber Beaches
Palm Springs Golf
Big Bear Skiing, Water Activities
HAWAII
Valley Isle Golf, Beaches
Kapaa Shores Golf, Beaches
NEVADA
Lake Tahoe Skiing, Golf, Water
Activities, Gaming
Las Vegas Gaming, Golf
OREGON
Eagle Crest Golf, Equestrian Center,
Fitness Center
Gleneden Beach Golf, Beaches, Gaming
Running Y Resort Golf, Water Activities
WASHINGTON
Lake Chelan Shores Water Activities
Surfside Beaches
Discovery Bay Water Activities
Park Village Golf, Skiing
Mariner Village Beaches
Birch Bay Beaches, Gaming
MEXICO
Coral Baja Beaches, Golf
PLANNED RESORTS:
Clear Lake(2) Golf, Water Activities
Kona(2) Golf, Beaches
</TABLE>
- ---------------
(1) S indicates studio; 1BR indicates one bedroom; 2BR indicates two bedrooms;
and 3BR indicates three bedrooms. Units with the same number of bedrooms may
vary in size and amenities.
(2) These units are expected to be contributed to WorldMark in 1997 and 1998.
33
<PAGE> 35
In addition to the planned additions of Clear Lake and Kona as WorldMark
Resorts, the Company currently has several other resorts in the permitting stage
and several more in the advanced planning stage. One potential development is
the MountainStar project which initially would involve an 1,100 acre parcel in
central Washington owned by Jeld-Wen. On behalf of Jeld-Wen, the Company is
currently pursuing the necessary regulatory approvals. Should the required
approvals be obtained in a timely manner, active development of this project
could commence as early as the summer of 1998, and the Company anticipates that
it would purchase a portion of the real estate involved in the project and
construct condominium units for its own account and for transfer to WorldMark.
In addition, the Company may be retained by Jeld-Wen to act as project manager
for the overall development of MountainStar.
The WorldMark Resorts are owned by WorldMark free and clear of all monetary
encumbrances. WorldMark maintains a replacement reserve for the WorldMark
Resorts which is funded from the annual assessments of the Owners. At March 31,
1997, the amount of such reserve was approximately $3.8 million. The replacement
reserve is utilized to refurbish and replace the interiors and furnishings of
the condominium units and to maintain the exteriors and common areas in
WorldMark Resorts in which all units are owned by WorldMark.
WORLDMARK
WorldMark is a California nonprofit mutual benefit corporation that was
formed by Trendwest in 1989. WorldMark's articles of incorporation provide that
the specific purpose for which it was formed is to own, operate and manage the
real property conveyed to it by the Company. Owners receive the right to use all
WorldMark Resort units at any available time and interval selected by the Owner,
and the right to vote to elect WorldMark's board members and with respect to
certain major WorldMark matters. The number of votes that each Owner has is
based on the number of Vacation Credits owned.
Compared to other timeshare arrangements, the WorldMark concept provides
Owners significant flexibility in planning vacations. Depending on how many
Vacation Credits an Owner has purchased, the Owner may use the Vacation Credits
for one or more vacations annually. The number of Vacation Credits that are
required to stay one day at WorldMark's units varies, depending upon the resort
location, the size of the unit, the vacation season and the day of the week. For
example, a Friday or Saturday night stay at a one-bedroom unit may require 825
Vacation Credits per night off-season and 1,450 Vacation Credits per night in
peak season. A midweek stay at the same one-bedroom unit would require less
Vacation Credits. This range of Vacation Credits that is required to stay one
day enables an Owner to receive a varying number of days at the WorldMark
Resorts depending on the vacation choices made by the Owner. Under this system,
Owners can select vacations according to their schedules, space needs and
available Vacation Credits. Vacation Credits are reissued on an anniversary date
basis and any unused Vacation Credits may be carried over for one year. An Owner
may also borrow Vacation Credits from the Owner's succeeding year's allotment.
An Owner may also purchase bonus time ("Bonus Time") from WorldMark for use
when space is available. Bonus Time can only be reserved within two weeks of
use. Bonus Time gives Owners the opportunity to use available units on short
notice at a reduced rate (generally from $20 to $50 per night for a two bedroom
unit, mid-week in the off-season) and to obtain usage beyond their Vacation
Credit allotment.
WorldMark collects maintenance dues from Owners based on the number of
Vacation Credits owned. Currently, the annual dues are $237 for the first 5,000
Vacation Credits owned, plus $72 for each additional increment of 2,500 Vacation
Credits owned. These dues are intended to cover WorldMark's operating costs,
including condominium association dues at the WorldMark Resorts. Trendwest pays
WorldMark the dues on all unsold Vacation Credits. Such payments totaled
$137,000, $512,000 and $273,000 in 1994, 1995 and 1996, respectively.
WorldMark has a five member board of directors that manages its business
and affairs. Three of the directors and principal executive officers of
WorldMark are also officers of the Company. The Board must obtain the approval
of a majority of the voting power of the Owners represented (excluding
Trendwest) to take certain actions, including (i) incurrence of capital
expenditures exceeding 5% of WorldMark's budgeted gross
34
<PAGE> 36
expenses during any fiscal year and (ii) selling property of WorldMark during
any fiscal year with an aggregate fair market value in excess of 5% of
WorldMark's budgeted gross expenses for such year.
Trendwest has a Management Agreement with WorldMark whereby Trendwest acts
as the exclusive manager and servicing agent of WorldMark and the vacation owner
program. Trendwest's responsibilities under the Management Agreement include
general management of WorldMark, overseeing the property management and service
levels of the resorts, and preparing financial forecasts and budgets for
WorldMark. The Management Agreement provides for automatic one-year renewals
unless such renewal is denied by a majority of the voting power of the Owners
(excluding Trendwest). As compensation for its services, Trendwest receives the
portion of total revenues received by WorldMark remaining after WorldMark pays
or reserves for its expenses plus reserves for repair and replacement of
WorldMark Resorts. This amount is subject to a ceiling equal to 15% of the
budgeted annual expenses and reserves of WorldMark (exclusive of Trendwest's
fee). Trendwest's management revenues from WorldMark during 1994, 1995 and 1996
were approximately $173,000, $747,000 and $1,103,000, respectively.
SALES AND MARKETING
The Company's sales of Vacation Credits primarily occur at eight off-site
sales offices located in metropolitan areas in three regions. The remainder of
the Company's sales of Vacation Credits occur at three on-site sales offices in
these regions. The Company plans to open a new off-site sales office in
California in late 1997. Certain information with respect to the Company's sales
offices in the three regions is provided below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------------
1994 1995
-------------------------------------- -------------------------------------- 1996
(DOLLARS IN THOUSANDS) ---------------------------------------
AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER
OF SALES NUMBER OF OF SALES NUMBER OF OF SALES NUMBER OF
REGION REPRESENTATIVES(1) OWNERS(2) SALES(3) REPRESENTATIVES(1) OWNERS(2) SALES(3) REPRESENTATIVES(1) OWNERS(2) SALES(3)
- --------- ------------------ --------- ------- ------------------ --------- ------- ------------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pacific
Northwest(4)... 61 11,414 $31,654 75 17,290 $43,926 86 23,979 $ 54,313
Northern
California(5).. 32 7,326 23,250 58 10,371 31,324 55 13,786 37,287
Southern
California(6).. -- -- -- 7 304 2,533 24 1,232 8,440
--
------ ------- --- ------ ------- --- ------ --------
Total... 93 18,740 $54,904 140 27,965 $77,783 165 38,997 $100,040
== ====== ======= === ====== ======= === ====== ========
</TABLE>
- ---------------
(1) Represents the average number of sales representatives during the year. This
calculation is based on the number of sales representatives at the end of
each calendar quarter during the indicated year.
(2) Cumulative number of Owners at the end of the year, including Owners who
purchased Vacation Credits at Eagle Crest and Running Y.
(3) Includes Upgrade Sales.
(4) Comprised of three off-site sales offices (Kirkland, Washington, which
opened in October 1989 and moved to Seatac, Washington in February 1994;
Vancouver, Washington, which opened in February 1994; and Lynnwood,
Washington, which opened in June 1995) and three on-site sales offices
(Leavenworth, Washington, which opened in September 1994, Birch Bay,
Washington, which opened in June 1995, and Gleneden Beach, Oregon, which
opened in February 1996). Those figures include an off-site sales office in
Bellingham, Washington, which opened in July 1990, and was consolidated into
the Lynnwood and Birch Bay offices in June 1995.
(5) Comprised of three off-site sales offices: Santa Clara, which opened in
April 1991, Sacramento, which opened in July 1991, and Vallejo, which opened
in May 1995.
(6) Comprised of the Ontario off-site sales office which opened in April 1996.
These figures include sales from an on-site sales office at Palm Springs,
which opened in April 1995 and was consolidated into the Ontario sales
office in August 1996. The Company opened a new off-site sales office in
Costa Mesa in February 1997.
The Company believes the advantages of using off-site sales offices
compared to sales offices located at more remote resorts include (i) access to
larger numbers of potential customers, (ii) convenience for prospective
customers to attend a sales presentation, (iii) access to a wider group of
qualified sales personnel due to more convenient work locations, (iv) ability to
open new sales offices quickly and without significant capital expenditures and
(v) lower marketing costs to attract prospective customers to visit a sales
office.
The Company's off-site sales offices are approximately 5,000 square feet
and include a theater, sales area and reception area. Each off-site sales center
is staffed by a sales manager, an office administrator, approximately 10 to 25
salespeople, two verification representatives, and additional staff for guest
registration
35
<PAGE> 37
and clerical assistance. The on-site sales offices are approximately 2,500
square feet and generally include similar facilities and a smaller number of
staff compared to the off-site sales offices.
The Company uses a variety of marketing programs to attract prospective
Owners, including sponsored promotional contests offering vacation packages or
gifts, targeted mailings and telemarketing efforts, and various other
promotional programs. The Company also co-sponsors sweepstakes, giveaways and
other promotional programs with professional teams at major sporting events
(such as Portland Trail Blazers basketball games and Seattle Mariners baseball
games) and with supermarkets. Management believes that a variety of marketing
programs supplemented with the use of independent marketing agents is the most
effective strategy to reach different segments of the population. The Company
continually monitors and adjusts its marketing programs to improve efficiency
and recently established a website on the Internet. Trendwest targets
prospective Owners through an analysis of age, income and travel interests. The
Company delivers targeted prospective Owners a notice related to the specific
promotion, inviting the prospective Owner to call the Company's toll-free voice
mail system to leave a return phone number. Those persons who call the Company
and leave their phone number receive a call from the Company to invite them to
visit an off-site sales office and attend a sales presentation. As an incentive
to attend the presentation, the Company offers gifts, such as an overnight trip
or electronic equipment. The Company believes that its non-obtrusive method of
marketing helps maintain the quality image of the Company with its prospective
Owners and the public.
When prospective Owners visit a sales facility, they are greeted by a host
or hostess and are shown to the theater to view a 30-minute, multi-media
presentation describing the benefits of timeshares in general, and WorldMark
specifically. After the presentation, all prospective owners are introduced to
WorldMark and the benefits of becoming an Owner by a representative of
Trendwest. The speaker introduces the guests to their salesperson, who provides
more specific information, answers questions and invites the guest to join
WorldMark. Audience size is limited to about 20 prospects per presentation. Each
sales office generally conducts three or four presentations per day, five days a
week.
Printed information regarding Trendwest and its properties, as well as the
rights and obligations of Owners, is provided to each prospective member before
Vacation Ownership Interests are sold. Prior to finalizing a sale, each new
Owner meets with one of the Company's verification representatives to discuss
the new Owner's reasons for joining and to review the rights and obligations of
Owners. The purpose of this meeting is to allow prospective Owners to review
their proposed commitment in an environment separate from the sales process.
Under the laws of each state where the Company sells Vacation Ownership
Interests, each purchaser has a right to rescind the purchase of Vacation
Credits for a period ranging from three to seven calendar days following the
later of the date the contract was signed or the date the purchaser received the
last of the documents required to be provided by the Company, depending on the
state. The Company's current practice is to allow all purchasers a seven day
rescission period, even if state law allows a shorter period. During 1995 and
1996, the Company had a rescission rate of 19.0% and 17.7%, respectively, which
is consistent with the Company's historical experience.
The Company's salespeople are trained to use a soft sales approach. The
salespeople emphasize the advantages of becoming an Owner, including
convenience, flexibility, ownership and affordability. The Company believes the
success of its sales approach is reflected not only by the amount of sales of
Vacation Credits to new Owners, but also by the amount of sales of Vacation
Credits to "non-Owner" referrals. Sales to non-Owner referrals, who are persons
referred to the Company by those who have attended a sales presentation but who
did not purchase Vacation Credits themselves, accounted for $2.3 million and
$4.0 million of the Company's net sales of Vacation Credits during 1995 and
1996, respectively.
Trendwest offers existing Owners cash awards for referrals of new Owners.
The Company maintains a staff of marketing individuals who specialize in
promoting referrals by existing Owners. In addition, as part of the Company's
ongoing marketing efforts, it offers existing Owners the opportunity to purchase
additional Vacation Credits generally at a discount from the current price.
Owners may purchase additional Vacation Credits in increments of 1,000.
Trendwest currently employs 20 sales representatives who specialize in Upgrade
Sales. Sales of Vacation Credits from the Company's owner referral program and
Upgrade Sales
36
<PAGE> 38
contributed in the aggregate approximately 25.3% and 29.0% of the Company's net
sales in 1995 and 1996, respectively.
CUSTOMER FINANCING
Since an important component of the Company's sales strategy is the
affordability of Vacation Credits, the Company believes that a significant
portion of its sales of Vacation Credits will continue to be financed by the
Company. In 1996, the average new Owner purchased approximately 6,600 Vacation
Credits for a purchase price of approximately $8,400 and the Company financed
approximately 87% of the aggregate purchase price of Vacation Credits sold to
new Owners with an average new Note Receivable of approximately $7,500. During
1996, the aggregate amount of Notes Receivable generated in connection with the
sale of Vacation Credits to new Owners was approximately $79.1 million. The
Company requires a down payment of at least 10% of the purchase price and
provides a term of up to seven years and an interest rate of 13.9% or 14.9% per
annum, depending on the method of payment selected. Because the Company offers a
discount if the full purchase price for Vacation Credits is received within 90
days after the purchase is completed, the Company received full payment in 1996
for approximately 21% of Vacation Credit sales to new Owners during this 90 day
period.
Existing Owners purchasing additional Vacation Credits must either make a
down payment of 10% of the price of the Upgrade Sales or have sufficient equity
in their existing Vacation Credits to provide at least 10% of the value of all
Vacation Credits, including the Upgrade. The amount of the existing receivable
is combined with the purchase price of the additional Vacation Credits purchased
and the interest rate and the term of the Note Receivable may be modified,
subject to a maximum term of ten years.
At March 31, 1997, an aggregate of $192.7 million of Notes Receivable were
outstanding, of which approximately $71.7 million with a weighted average
interest rate of 14.1% per annum had been retained by the Company. The balance
of approximately $121.0 million of Notes Receivable had been sold by the Company
prior to that date, although the Company retained limited recourse liability
with respect to these Notes Receivable. See Notes 4, 5 and 15(a) to Notes to
Combined Financial Statements. The Company may continue to sell a substantial
amount of its Notes Receivable. See "-- Finance Subsidiaries" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Notes Receivable become delinquent when a scheduled payment is 30 days or
more past due and reservation privileges are suspended when a scheduled payment
is 60 days or more past due. At March 31, 1997, approximately $4.0 million of
Notes Receivable, including Notes Receivable previously sold by the Company,
were past due 60 days or more. The Notes Receivable are secured by a security
interest in the related Vacation Credits. The Company's practice has been to
continue to accrue interest on Notes Receivable until such accounts are deemed
uncollectible, at which time the Company writes off such Notes Receivable and
records as an expense any interest that had been accrued, reclaims the related
Vacation Credits that secure such Notes Receivable and returns such Vacation
Credits to inventory available for resale.
The Company maintains a reserve for doubtful accounts in respect of the
Notes Receivable owned by the Company and a reserve for recourse liability in
respect of the Notes Receivable that have been sold by the Company. The
aggregate amount of these reserves at December 31, 1995 and 1996 and March 31,
1997 were $8.0 million, $11.2 million and $11.9 million, respectively,
representing approximately 6.3%, 6.2% and 6.2%, respectively, of the total
portfolio of Notes Receivable at those dates, including the Notes Receivable
that had been sold by the Company. No assurance can be given that these reserves
will be adequate, and if the amount of the Notes Receivable that is ultimately
written off materially exceeds the related reserves, the Company's business,
results of operations and financial condition could be materially adversely
affected.
Sage Systems, Inc. ("Sage"), a licensed escrow company, services the
Company's entire portfolio of Notes Receivable under an Escrow Agreement with
the Company. Under the Escrow Agreement, contracts for the sale of Vacation
Credits by the Company, and the funds received from such sales, are placed in
escrow with Sage. The escrowed funds and documents are released to the Company
when the Company certifies that it has sufficient Vacation Credits available for
sale, the applicable state-mandated cancellation period (under which a purchaser
may rescind his purchase) has expired, and Sage receives notice from the Company
that a
37
<PAGE> 39
rescission notice has not been received from the purchaser. The Company pays
Sage a fee of $35 to $40 per account serviced under the Escrow Agreement. The
Company and Sage are also parties to a Service Agreement under which Sage is
responsible for maintaining a data processing system to process bills and
receive monthly receivable payments. The Company pays Sage a monthly fee of
$1.70 per account under the Service Agreement. The Company handles billing
inquiries and all other personal interaction with the Owners, including
collections on its Notes Receivable. Collections of delinquent installment
accounts are administered by 22 collection representatives. See "Certain
Transactions -- Relationship with Sage Systems."
FINANCE SUBSIDIARIES
TW Holdings, Inc. ("TW") was organized in 1993 to purchase Notes Receivable
at face value plus accrued interest. TW transfers these Notes Receivable to a
group of banks led by Seattle-First National Bank (the "Bank Group") pursuant to
a receivables transfer agreement. Through TW, the Company transferred eligible
Notes Receivable of $23.9 million in 1994, $38.6 million in 1995 and $42.1
million in 1996 to the Bank Group. The transfers are subject to recourse for
defaults and the Company maintains a reserve for recourse liability. See Note 5
of Notes to Combined Financial Statements.
The present commitment of the Bank Group is $93.0 million and it is subject
to an overcollateralization pool of 25% of the balance of outstanding Notes
Receivable sold to the Bank Group. At March 31, 1997, the Bank Group held Notes
Receivable with a remaining principal balance of $67.0 million. TW's agreement
with the Bank Group is subject to annual renewals on June 30 of each year, with
the present commitment expiring on June 30, 1998. In the event of nonrenewal of
the commitment, the Company would not be able to transfer additional Notes
Receivable to the Bank Group.
In April 1996, the Company sold $30.1 million of Notes Receivable to a
special purpose company, Trendwest Funding I, Inc. ("TFI"). In addition, the
Bank Group sold $47.1 million of Notes Receivable purchased from TW to another
special purpose company. The special purpose companies sold the receivables to
TRI Funding Company I, L.L.C. ("TFL"), a special purpose limited liability
company, and TFL issued $70.0 million of 7.42% fixed rate senior notes, series
1996-1 to private institutional investors. The notes were rated 'A' by Fitch
Investors and are secured by the Notes Receivable owned by TFL. The rating
reflects credit enhancements of a 10% overcollateralization and a 2% minimum
reserve account. The notes have a stated maturity of May 15, 2004.
Both TW and TFI are wholly owned by Jeld-Wen. Effective June 30, 1997, the
Company acquired TW and TFI from Jeld-Wen in exchange for 5,193,693 shares of
the Company's Common Stock. See "Certain Transactions -- Acquisition of Finance
Subsidiaries."
PROPERTY OWNERSHIP
Unlike many "right-to-use" timeshare operations in which a developer sells
timeshare interests in properties it owns, the Company does not own the
properties designated for timeshare use. Rather, when the Company purchases
resort property, it vests in WorldMark title to the property free and clear of
any debt encumbrance. With respect to property developed by the Company, the
Company may initially obtain title in the undeveloped property and then deed the
developed resort property to WorldMark. At the time the Company vests title to
the property in WorldMark, a "Declaration of Vacation Owner Program" is recorded
on the property. This declaration establishes the usage rights of Owners as a
covenant on title, thus protecting those rights against the effect of any future
blanket encumbrance. This ownership structure is designed to protect the
timeshare usage rights of the Owners and complies with statutory regulations.
The Company's only consideration for paying for the properties and for
arranging for the seller of the property to transfer title of the property
directly to WorldMark is the exclusive right to sell Vacation Credits and to add
new properties and additional units at the Company's discretion. The Company's
rights to sell Vacation Credits against the deeded properties are protected by a
security interest in the unsold inventory of Vacation Credits. This lien
prevents WorldMark from revoking such rights or transferring them to another
party.
38
<PAGE> 40
Vacation Credits are allocated to each unit based on its vacation use value
relative to existing properties. Vacation Credits are assigned for weeks of
peak, shoulder and off-peak use, reserving time for Bonus Time, repairs and
maintenance. The aggregate Vacation Credits assigned to each unit may not be
changed in the future, and the actual number of Credits assigned are contained
in the recorded declaration. This system of irrevocable allocation and
registration with the state protects the Owners by preventing dilution in the
usage value of the Owner's Vacation Credits.
As of March 31, 1997, WorldMark had a reserve for replacement costs of
approximately $3.8 million for all depreciable assets (e.g., furniture,
appliances, carpeting, roofs and decks) of the WorldMark Resorts. In those
WorldMark Resorts where WorldMark owns only a small percentage of the units in a
complex and belongs to an independent homeowners' association, the dues paid to
such association by WorldMark are partially used to provide adequate reserves
for replacement costs relating to such properties.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORK
The Company believes that sale of Vacation Credits is made more attractive
by the Company's participation in the vacation interval exchange network
operated by RCI. In a 1995 study sponsored by the Alliance for Timeshare
Excellence and ARDA, the exchange opportunity was cited by purchasers of
vacation intervals as the most significant factor in determining whether to
purchase a vacation interval. For an annual membership fee (currently $67),
Owners may participate in RCI, which allows Owners to exchange Vacation Credits
for an occupancy right at a participating resort in RCI based upon availability
and the payment of an additional exchange fee (currently $90 to $100). WorldMark
pays the RCI annual membership fee for the Owner's first year. An Owner may
exchange Vacation Credits for an occupancy right in a resort participating in
the RCI network by requesting occupancy and specifying the desired unit size and
time period. RCI provides an Owner hotline with direct phone access to
representatives who are knowledgeable about WorldMark and are responsible for
assisting Owners with an exchange. RCI assigns a weekly exchange value for
Vacation Credits. This exchange value is based upon a number of factors. If RCI
is unable to meet the Owner's initial request, it suggests alternative resorts
based on availability.
Founded in 1974, RCI, which was recently acquired by HFS Incorporated, has
grown to be the world's largest vacation interval exchange organization. As of
March 20, 1997, RCI had a total of 3,109 participating resort facilities and
over 2.2 million members worldwide. During 1995, RCI processed approximately 1.7
million vacation interval exchanges. During 1995, approximately 97% of all
exchange requests were ultimately fulfilled by RCI, and approximately 58% of all
exchange requests were confirmed on the day of the request.
COMPETITION
The Company is subject to significant competition from other entities
engaged in the business of resort development, sales and operation, including
vacation interval ownership, condominiums, hotels and motels. Some of the
world's most recognized lodging, hospitality and entertainment companies have
begun to develop and sell vacation intervals in resort properties. Major
companies that now operate or are developing or planning to develop vacation
interval resorts include Marriott, Disney, Hilton, Hyatt, Four Seasons, Inter-
Continental, Westin and Promus. In addition, other publicly-traded companies in
the timeshare industry, such as Signature, Fairfield and Vistana, currently
compete, or may in the future compete, with the Company. Many of these entities
possess significantly greater financial, marketing and other resources than
those of the Company. Management believes that industry competition will be
increased by recent and potential future consolidation in the timeshare
industry.
The Company has entered into marketing agreements with affiliates of its
parent, Jeld-Wen, pursuant to which these affiliates may market Vacation
Ownership Interests for their own account at Eagle Crest Resort in Redmond,
Oregon and Running Y Resort in Klamath Falls, Oregon in exchange for their
contribution to WorldMark of condominium units at those resorts. These sales
activities are competitive with the Company's marketing activities, particularly
in the Oregon and northern California markets. See "Certain Transactions --
Relationship with Jeld-Wen."
39
<PAGE> 41
GOVERNMENTAL REGULATION
General. The Company's marketing and sales of Vacation Credits and certain
of its other operations are subject to extensive regulation by the states and
foreign jurisdictions in which the WorldMark Resorts are located and in which
Vacation Credits are marketed and sold and also by the federal government.
State and Provincial Regulations. Most U.S. states and Canadian provinces
have adopted specific laws and regulations regarding the sale of vacation
interval ownership programs. Washington, Oregon, California, Hawaii and British
Columbia require the Company to register WorldMark Resorts, the Company's
vacation program and the number of Vacation Credits available for sale in such
state or province with a designated state or provincial authority. The Company
must amend its registration if it desires to increase the number of Vacation
Credits registered for sale in that state or province. Either the Company or the
state or provincial authority assembles a detailed offering statement describing
the Company and all material aspects of the project and sale of Vacation
Credits. The Company is required to deliver the offering statement to all new
purchasers of Vacation Credits, together with certain additional information
concerning the terms of the purchase. Hawaii imposes particularly stringent and
broad regulation requirements for the sale of interests in interval ownership
programs that have resort units located in Hawaii. The Company has incurred
substantial expenditures over an extended period of time in the registration
process in Hawaii and still has not completed this process. Hawaii has allowed
the use of WorldMark units in Hawaii, provided that the Company continues in
good faith to pursue registration in Hawaii. Laws in each state where the
Company sells Vacation Credits grant the purchaser of Vacation Credits the right
to cancel a contract of purchase at any time within a period ranging from three
to seven calendar days following the later of the date the contract was signed
or the date the purchaser received the last of the documents required to be
provided by the Company. Most states have other laws which regulate the
Company's activities, such as real estate licensure laws, laws relating to the
use of public accommodations and facilities by disabled persons, sellers of
travel licensure laws, anti-fraud laws, advertising laws, and labor laws.
Federal Regulations. The Federal Trade Commission has taken an active
regulatory role in the interval ownership industry 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
Opportunity Credit Act and Regulation B, the Interstate Land Sales Full
Disclosure Act, the Real Estate Standards Practices Act, the Telephone Consumer
Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act,
the Civil Rights Act of 1964 and 1968, the Fair Housing Act and the Americans
with Disabilities Act.
Although the Company believes that it is in material compliance with all
federal, state, local and foreign laws and regulations to which it is currently
subject, there can be no assurance that it is in fact in compliance. Any failure
by the Company to comply with applicable laws or regulations could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company will continue to incur significant
costs to remain in compliance with applicable laws and regulations, and such
costs could increase substantially in the future.
Environmental Matters. Under various federal, state, local and foreign
laws, ordinances and regulations, the owner or operator of real property
generally is liable for the costs of removal or remediation of certain hazardous
or toxic substances located on or in, or emanating from, such property, as well
as related costs of investigation and property damage. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. Other
federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at a property. Although the Company conducts an
environmental assessment with respect to the properties it acquires for
WorldMark, the Company has not received a Phase I environmental report for any
WorldMark Resort. There can be no assurance that any environmental assessments
undertaken by the Company with respect to the WorldMark Resorts have revealed
all potential environmental liabilities, or that an environmental condition does
not otherwise exist as
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to any one or more of the WorldMark Resorts that could have a material adverse
effect on the Company's business, financial condition and results of operations.
EMPLOYEES
As of March 31, 1997, Trendwest had 681 full-time employees, with 403 in
sales, 122 in marketing and 156 in administration. The Company believes that its
employee relations are good. None of the Company's employees is represented by a
labor union.
The Company enforces a stringent drug policy with all employees. All
prospective employees are tested for the presence of impairing substances before
being hired by the Company. Employees of the Company are tested periodically for
the presence of impairing substances and, in addition, any Company employee may
be tested for such substances for cause. Any employee who is found to be under
the influence of an impairing substance is subject to appropriate disciplinary
action, including termination.
INSURANCE; LEGAL PROCEEDINGS
WorldMark maintains property insurance and liability insurance for the
units at the WorldMark Resorts, with certain policy specifications, insured
limits and deductibles. Certain types of losses, such as losses arising from
earthquakes, floods, or acts of war, are generally excluded from WorldMark's
insurance coverage. Should an uninsured loss or loss in excess of insured limits
occur, WorldMark has the option to either (i) remove such units from the
Vacation Credit system, which would result in a proportionate dilution of
vacation time available for the Vacation Credits which have been sold, or (ii)
pay for the related costs of replacement. Although WorldMark's board of
directors may impose a limited amount of special assessments to pay for capital
improvements or major repairs, there can be no assurance that WorldMark would be
able to increase assessments to provide sufficient funds to pay for all possible
capital improvements and major repairs of the units at the WorldMark Resorts. In
such an event, the Company may be required to advance funds to WorldMark in
order to maintain the quality of the WorldMark Resorts or WorldMark may need to
defer certain improvements or repairs, which could have an adverse effect on the
Company's liquidity and the sale of Vacation Credits. See "Risk
Factors -- Natural Disasters; Uninsured Loss."
The Company is not aware of any material legal proceedings pending against
it. The Company may be subject to claims and legal proceedings from time to time
in the ordinary course of business.
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MANAGEMENT
DIRECTORS, PROPOSED DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's directors, proposed directors and executive officers, as well as
certain other key employees of the Company. The Company intends to add the three
proposed directors named below to its Board of Directors after consummation of
the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Directors and Executive Officers:
William F. Peare...................... 59 President, Chief Executive Officer and Director
Jeffery P. Sites...................... 41 Executive Vice President, Chief Operating Officer,
Secretary and Director
Gary A. Florence...................... 55 Vice President, Chief Financial Officer and Treasurer
J. Michael Moyer...................... 60 Senior Vice President
Ronald A. Buzard...................... 66 Vice President -- Sales
Gene F. Hensley....................... 44 Vice President -- Operations
Alice R. Heuple....................... 51 Vice President -- Product Development
Gerald T. Lynch....................... 54 Vice President -- Marketing
Alan B. Schriber...................... 45 Vice President -- Administration
Dan Stearns........................... 52 Vice President -- Corporate Communications
Jerol E. Andres....................... 53 Director
Douglas P. Kintzinger................. 35 Director
Roderick C. Wendt..................... 43 Director
Harry L. Demorest..................... 55 Proposed Director
Michael P. Hollern.................... 58 Proposed Director
Linda M. Tubbs........................ 50 Proposed Director
</TABLE>
WILLIAM F. PEARE has served as its President and Chief Executive Officer,
and as a director, since 1989. Mr. Peare also serves as a director and as
President of WorldMark. Mr. Peare developed the WorldMark concept and attracted
key management personnel to the Company. From 1987 to 1989, Mr. Peare served as
a management consultant for Eagle Crest Resort in Redmond, Oregon and for
Elkhorn Resort in Sun Valley, Idaho. From 1985 to 1987, Mr. Peare was a Senior
Vice President of Horizon Airlines. From 1983 to 1985, Mr. Peare served as Chief
Executive Officer of All Seasons Resorts, Inc. ("All Seasons"), a
publicly-traded membership campground company. From 1975 to 1982, Mr. Peare
served as President of Thousand Trails Inc. ("Thousand Trails"), the nation's
largest membership campground company.
JEFFERY P. SITES has served as Executive Vice President, Chief Operating
Officer, Secretary of the Company since 1989, and served as Treasurer from 1989
to January 1997. Mr. Sites has been a director of the Company since 1991. Mr.
Sites also serves as a director and as Treasurer of WorldMark. Mr. Sites
oversees the day-to-day operations of the Company. From 1987 to 1989, Mr. Sites
was Chief Financial Officer of OMT, Inc., a holding company with a variety of
businesses including an interval ownership project in Sun Valley, Idaho. From
1985 to 1987, Mr. Sites was Executive Vice President and co-founder of Venture
Out Resorts, a regional membership campground company. From 1983 to 1985, Mr.
Sites was the Controller for All Seasons.
GARY A. FLORENCE has served as Vice President, Chief Financial Officer and
Treasurer of the Company since January 1997. Prior to that time, he served as
Treasurer of Jeld-Wen, a position he held since July 1991. From 1973 to 1991,
Mr. Florence served as Jeld-Wen's Corporate Controller. Mr. Florence has been
responsible for establishing the Finance Subsidiaries and structuring the Notes
Receivable sales transactions.
J. MICHAEL MOYER has served as Senior Vice President of the Company since
1989. Mr. Moyer also serves as a director and as Secretary of WorldMark. Mr.
Moyer oversees the Company's legal affairs, including property closings,
registration of the Company's product under state timeshare laws, permitting of
new
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developments, managing the governance of WorldMark, and directing outside legal
counsel. From 1978 to 1986, Mr. Moyer served in a similar capacity at Thousand
Trails and All Seasons.
RONALD A. BUZARD has served as Vice President -- Sales since August 1993
and has overall responsibility for the Company's sales activities. Mr. Buzard
joined the Company in 1990, serving in various sales management positions. From
1987 to 1990, Mr. Buzard was a consultant in the timeshare and development
business. From 1984 to 1986, Mr. Buzard served as Vice President -- Sales for
All Seasons.
GENE F. HENSLEY has served as Vice President -- Operations since December
1995 and has been employed by the Company in various managerial and sales
positions since 1990. Mr. Hensley is responsible for the day to day operations
of the WorldMark Resorts as well as the Company's reservation, exchange and
owner service departments and travel. From 1979 to 1988, Mr. Hensley worked for
Thousand Trails, ultimately assuming regional management responsibilities.
ALICE R. HEUPLE has served as Vice President -- Product Development since
January 1996 and has been employed by the Company in product development since
February 1992. Ms. Heuple is responsible for the development of the WorldMark
Resorts, managing site development, construction, specifications and design, and
purchasing. From 1980 to 1992, Ms. Heuple worked for Vacation Internationale, a
vacation interval company, serving in various management positions.
GERALD T. LYNCH has served as Vice President -- Marketing of the Company
since 1991. From 1984 to 1991, Mr. Lynch served as Director and President of
Omni Concepts, a contract sales, marketing and business management company
serving the direct sales industry. From 1983 to 1984, Mr. Lynch served as Vice
President of sales and marketing for National American Corporation, a national
developer of resort communities. From 1973 to 1983, Mr. Lynch served as Vice
President of Sweet Water Corporation ("Sweet Water"), an interval ownership
company, and as President of Time Share Realty, a wholly-owned subsidiary of
Sweet Water, responsible for all sales and marketing activities.
ALAN B. SCHRIBER has served as Vice President -- Administration of the
Company since June 1996, and served as Director -- Administration and Finance
from September 1994 to June 1996. Mr. Schriber is responsible for the accounts
receivable, data processing, contract processing, and human resources functions
for the Company. From 1987 to 1994, Mr. Schriber was Senior Vice President of
Gulf American Financial Services, which specialized in the development,
implementation, and project management of consumer credit and accounts
receivable operations and systems. From 1981 to 1987, Mr. Schriber was Vice
President of Administration for Thousand Trails.
DAN STEARNS has served as Vice President -- Corporate Communications since
December 1995 and has been employed by the Company in corporate communications
since January 1990. Mr. Stearns oversees the Company's audio visual, design and
printing needs, and oversees the production of monthly communications to both
Owners and Company employees. From 1988 to 1990, Mr. Stearns worked with Harmon
& Associates Real Estate as Director of Corporate Communications. From 1980 to
1988, Mr. Stearns served as President of the Stearns Group, an audio visual and
video production services company serving the vacation interval industry.
JEROL E. ANDRES has served as a director of the Company since 1989. Since
1988, Mr. Andres has served as Chief Executive Officer and President of Eagle
Crest. From 1984 to 1988, Mr. Andres founded and was Chief Executive Officer and
President of Happy Trails Resort. Since 1993, Mr. Andres has served as a
director of Bank of the Cascades, a publicly-traded bank company. Mr. Andres
served on the board of ARDA for 11 years, serving as Chairman from 1984 to 1986.
From 1978 to 1984, Mr. Andres served as a Vice President of Thousand Trails.
DOUGLAS P. KINTZINGER has been a director of the Company since 1994. Mr.
Kintzinger has been Vice President of Administration and Corporate Development
of Jeld-Wen since 1994 and is responsible for the accounting, data processing,
legal, employee benefits, risk management, insurance, corporate services,
treasury and corporate development of Jeld-Wen. Mr. Kintzinger was first
employed by Jeld-Wen in 1987 and served as special projects manager, corporate
counsel and manager of corporate development prior to becoming Vice President.
He has been a director of Jeld-Wen since 1994 and Jeld-Wen's corporate secretary
since 1992.
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Mr. Kintzinger has also been an officer/director of various Jeld-Wen affiliates
and subsidiaries, including Eagle Crest G.P. Inc., Running Y Resort, Inc., West
One Automotive Group, Inc. and Brooks Resources Corporation. Mr. Kintzinger also
has served as a director of South Valley State Bank since 1991 and as a Regent
of Luther College since 1990.
RODERICK C. WENDT has been a director of the Company since 1993. Mr. Wendt
has been President of Jeld-Wen since 1992 and is responsible for the overall
day-to-day performance of Jeld-Wen. Mr. Wendt was first employed by Jeld-Wen in
1980 and served as corporate counsel, Vice President and Senior Vice President
prior to becoming President. He has been a director of Jeld-Wen since 1985. Mr.
Wendt has also been an officer and/or director of various Jeld-Wen affiliates
and subsidiaries, including Eagle Crest G.P., Inc., Running Y Resort, Inc.,
Windmill Inns of America, Inc., West One Automotive Group, Inc., Frank Paxton
Company and Brooks Resources Corporation. Mr. Wendt also served as a director of
South Valley State Bank from 1983 to 1994 and has served as a director of the
High Desert Museum since 1994.
HARRY L. DEMOREST has served as Chief Executive Officer of Columbia Forest
Products, Inc. since March 1996. He served as President of Columbia Forest
Products, Inc. from March 1994 to April 1996, and as Executive Vice President
from April 1992 to February 1994. Prior to his employment by Columbia Forest
Products, Inc., Mr. Demorest was a partner with Arthur Andersen & Co., serving
as Office Managing Partner of the Portland, Oregon office from 1981 to 1991 and
as Partner-in-Charge of the tax division of the Portland office from 1979 to
1985. Mr. Demorest also serves on the boards of directors of several civic and
charitable organizations.
MICHAEL P. HOLLERN has served as Chairman of the Board of Directors of
Brooks Resources Corporation since 1970, and has served as President of Brooks
Resources since 1983. Mr. Hollern served as President of Brooks-Scanlon, Inc.
from 1970 until its sale to Diamond International in June 1980. Mr. Hollern also
serves on the boards of directors of several corporate, civic and charitable
organizations.
LINDA M. TUBBS is an Executive Vice President of Wells Fargo Bank, serving
as its Division Manager for the Northwest Commercial Banking Group since Wells
Fargo's merger with First Interstate Bank in April 1996. Prior to the merger,
Ms. Tubbs served as Senior Vice President and Manager of First Interstate's
Portland, Oregon Commercial Banking Administration and served in various other
capacities at First Interstate since 1972, including her appointment in March
1990 as Senior Vice President and Manager of the Oregon head office. Ms. Tubbs
also serves on the boards of directors of several civic and charitable
organizations.
CLASSIFIED BOARD OF DIRECTORS
Upon the closing of the Offering, the Company's board of directors will be
divided into three classes. The directors in Class I will be Messrs. Andres and
Wendt and Ms. Tubbs, whose terms will expire at the annual stockholders meeting
in 1998. The directors in Class II will be Messrs. Sites, Hollern and
Kintzinger, whose terms will expire at the annual stockholders meeting in 1999.
The directors in Class III will be Messrs. Peare and Demorest, whose terms will
expire at the annual stockholders meeting in 2000. Commencing with the annual
stockholders meeting in 1998 and thereafter, each director will serve for a term
of three years following the annual stockholders meeting at which such director
was elected. See "Certain Provisions of Oregon Law and of Trendwest's Articles
of Incorporation and Bylaws -- Classification of the Board of Directors."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has authorized an Audit Committee and a Compensation Committee.
Upon consummation of the Offering, the Audit Committee will be comprised of
Messrs. Sites, Demorest and Kintzinger, and will recommend the selection of the
Company's independent auditors and consult with the independent auditors on the
Company's internal accounting controls. Upon consummation of the Offering, the
Compensation Committee will be comprised of Messrs. Hollern and Kintzinger and
Ms. Tubbs and will recommend to the Board salaries and bonuses for the Company's
executive officers and administer the Company's stock option plan.
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<PAGE> 46
DIRECTOR FEES
Directors who are not employees of the Company or Jeld-Wen will receive a
fee of $1,000 for each Board meeting attended. All non-employee directors will
be reimbursed for out of pocket expenses for each Board meeting attended.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation provide that the liability of the
directors of the Company for monetary damages will be eliminated to the fullest
extent permissible under Oregon law. This is intended to eliminate the personal
liability of a director for monetary damages in an action brought by or in the
right of the Company for breach of a director's duties to the Company or its
stockholders except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for any unlawful distribution to stockholders, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision does not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief, such as an injunction or rescission, in
the event of a breach of a director's duty of care. This provision also does not
affect the director's responsibilities under any other laws, such as the federal
or state securities or environmental laws.
The Articles of Incorporation and the Bylaws also provide that the Company
shall indemnify, to the fullest extent permitted under Oregon law, any person
who has been made, or is threatened to be made, a party to an action, suit or
legal proceeding by reason of the fact that the person is or was a director or
officer of the Corporation. The Company intends to enter into separate
indemnification agreements with each of its directors. These agreements will
require the Company to indemnify its directors to the fullest extent permitted
by law, including circumstances in which indemnification would otherwise be
discretionary. Among other things, the agreements require the Company to
indemnify directors against certain liabilities that may arise by reason of
their status or service as a director and to advance their expenses incurred as
a result of any proceeding against them as to which they could be indemnified.
The Company also intends to obtain insurance on behalf of it executive officers
and directors for certain liabilities arising out of their actions in such
capacities. The Company believes that these contractual arrangements, the
provisions in its Articles of Incorporation and Bylaws and insurance coverage
are necessary to attract and retain qualified persons as directors and officers.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the annual
compensation during 1996 for Trendwest's chief executive officer and each of the
Company's other four most highly compensated executive officers (the "Named
Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION(1)
- ------------------------------------------- ------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
William F. Peare........................... $96,000 $192,013 $7,660 $10,500
President and Chief Executive Officer
Jeffery P. Sites........................... 70,000 139,991 5,953 10,500
Executive Vice President and Chief
Operating Officer
J. Michael Moyer........................... 90,000 58,159 -- 10,371
Senior Vice President
Ronald A. Buzard........................... 50,000 198,544 -- 10,500
Vice President -- Sales
Gerald T. Lynch............................ 50,000 170,005 -- 10,500
Vice President -- Marketing
</TABLE>
- ---------------
(1) These amounts were paid by the Company under the Company's retirement plan.
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No options or other equity-based compensation were granted to or exercised
by any of the Named Executive Officers in 1996 and none of the Named Executive
officers beneficially owned any options at December 31, 1996.
EMPLOYMENT AGREEMENTS
Messrs. Peare and Sites will enter into employment agreements with the
Company prior to the Offering. Under the employment agreements, Mr. Peare will
receive a base annual salary of $100,000, and Mr. Sites will receive a base
annual salary of $75,000, and each will have the opportunity to receive
performance bonuses. The agreements will contain a covenant not to compete for a
period of two years in the event of termination of employment for any reason. If
employment is terminated by the Company without cause, the employee will receive
his base salary for a period of one year following the date of termination plus
the amount of bonus earned during the preceding twelve months.
1997 STOCK OPTION PLAN
In May 1997, the Board of Directors adopted the Company's 1997 Stock Option
Plan (the "1997 Plan") and authorized up to 5% of the number of shares of Common
Stock outstanding from time to time for issuance thereunder. Under the 1997
Plan, options may be granted to the Company's employees, directors, consultant
and independent contractors. Only employees may receive "incentive stock
options," which are intended to qualify for certain tax treatment; employees and
nonemployees, including nonemployee directors, may receive "nonqualified stock
options," which do not qualify for such treatment. The exercise price of all
stock options under the 1997 Plan must at least equal the fair market value of
the Common Stock on the date of grant. All incentive stock options granted under
the 1997 Plan will expire ten years from the date of grant unless terminated
sooner pursuant to the provisions of the 1997 Plan. Nonqualified stock options
may have a term which exceeds ten years at the discretion of the Board of
Directors. In the event of a change of control of the Company, including a
merger or sale of substantially all of the Company's assets, outstanding options
must be assumed by any successor corporation, or equivalent options must be
substituted, or they will become fully vested and exercisable.
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH JELD-WEN
Background. Prior to the Offering, Jeld-Wen owned 95.21% of the outstanding
shares of Common Stock, and following completion of the Offering will own 79.98%
of the outstanding shares of Common Stock. Roderick Wendt and Douglas Kintzinger
are directors of the Company and Richard Wendt was a director of the Company
until March 1997. Richard Wendt, Roderick Wendt and Douglas Kintzinger are all
directors of Jeld-Wen. In addition, Richard Wendt, Roderick Wendt and Douglas
Kintzinger own 38.2%, 1.4% and 0.5%, respectively, of the outstanding shares of
Jeld-Wen. Jeld-Wen has established the Jeld-Wen Foundation, which is a
charitable foundation of which Richard Wendt, Roderick Wendt and William Early,
an officer and director of Jeld-Wen, are members of the Foundation's Board of
Directors. Eagle Crest GP, Inc. ("Eagle Crest"), a wholly-owned subsidiary of
Jeld-Wen, is developing the Eagle Crest Resort. Running Y Resort, Inc. ("Running
Y"), a wholly-owned subsidiary of Eagle Crest, is developing the Running Y
Resort.
Administrative Services. Jeld-Wen has provided certain administrative
services to the Company, including management services, payroll and accounting
services. The Company paid Jeld-Wen approximately $544,000, $723,000 and
$913,000 in 1994, 1995 and 1996, respectively, for such services. Jeld-Wen
provides a self-insured health, life and disability benefits plan to its
employees, in which the Company participated. The Company paid Jeld-Wen
approximately $608,000, $834,000 and $1,157,000 in 1994, 1995 and 1996,
respectively, to include the Company's employees within the Jeld-Wen plan.
Jeld-Wen also self-insures its workmen's compensation liability and the Company
also participates in that plan. The Company paid Jeld-Wen approximately
$178,000, $45,000 and $147,000 in 1994, 1995 and 1996, respectively, to include
the Company's employees within the Jeld-Wen plan. The Company did not
participate in the foregoing plans prior to January 1, 1994. The Company intends
to maintain its relationship with Jeld-Wen for certain of these administrative
services after consummation of the Offering. Jeld-Wen charges the Company for
these services on the same basis that it charges its other subsidiaries and
divisions. The Company believes that the terms are no less favorable than could
be obtained from an unaffiliated third party.
Credit Facility. The Company maintains an unsecured, open, revolving credit
line with Jeld-Wen. The credit line has no stated maximum balance restriction
and is payable on demand. The Company pays Jeld-Wen interest at prime plus one
percent. The maximum month-end balance of the line outstanding to Jeld-Wen
during 1994, 1995 and 1996 was approximately $5,767,000, $30,651,000 and
$27,954,000, respectively. At March 31, 1997, the Company owed Jeld-Wen
approximately $23,764,000 under the line of credit. The terms of the line of
credit are the same as Jeld-Wen provides to its other subsidiaries and
divisions. The Company believes that the terms of the line of credit as a whole
are no less favorable than could be obtained from an unaffiliated third party.
The Company intends to repay the entire principal amount of the line of credit
from the net proceeds of the Offering. See "Use of Proceeds."
Agreement with Eagle Crest. The Company has an agreement with Eagle Crest
whereby the Company has assigned to Eagle Crest the nonexclusive right to sell
Vacation Credits in WorldMark at Eagle Crest's resort in Redmond, Oregon and to
retain the gross proceeds from such sales. Eagle Crest must transfer condominium
units to WorldMark at no cost to WorldMark. Eagle Crest cannot sell more
Vacation Credits than has been allocated to the condominium units transferred to
WorldMark. Trendwest determines the number of Vacation Credits allocated to
those condominium units transferred to WorldMark using the same bases as other
resort units transferred by Trendwest to WorldMark. Effective September 1, 1997,
the agreement will require Eagle Crest to pay the Company a fee equal to 3% of
net sales of Vacation Credits sold at Eagle Crest. In addition, the Company
purchases Notes Receivable from Eagle Crest at face value plus accrued interest.
During 1994, 1995 and 1996, the Company purchased Notes Receivable in the
principal amount of approximately $6,005,000, $11,305,000 and $8,993,000,
respectively. The terms of the agreement with Eagle Crest were negotiated
between the managements of the Company and Eagle Crest.
Agreement with Running Y. The Company and Running Y are parties to an
agreement under which Running Y will develop at its expense condominium units at
the Running Y Resort. The Company will pay Running Y a purchase price for each
such unit equal to the number of Vacation Credits attributable to such
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<PAGE> 49
unit (as determined by the Company), multiplied by the then-current price per
Vacation Credit, multiplied by 26%. The Company has purchased 20 units through
March 31, 1997 at a cost of $2,680,000, and is required to purchase an
additional 80 units prior to April 2000. Effective September 1, 1997, the
agreement will require Running Y to pay the Company a fee equal to 3% of net
sales of Vacation Credits sold at Running Y. In addition, the Company purchased
Notes Receivable from Running Y in the principal amount of approximately
$2,157,000 in 1996. The terms of the agreement with Running Y were negotiated
between the managements of the Company and Running Y.
Purchase of Notes Receivable. I&I Holdings, Ltd., a wholly-owned subsidiary
of Jeld-Wen, has purchased Notes Receivable from the Company at face value plus
accrued interest on a full recourse basis. During 1994, 1995 and 1996, I&I
Holdings, Ltd. purchased Notes Receivables with outstanding balances of
approximately $13,000, $1,321,000 and $232,000, respectively.
R & R Vista, an Oregon general partnership comprised of Richard L. Wendt
and Roderick C. Wendt, has purchased Notes Receivable from the Company at face
value plus accrued interest on a full recourse basis. During 1994, 1995 and
1996, R & R Vista purchased Notes Receivable with outstanding balances of
approximately $9,714,000, $3,905,000 and $3,350,000, respectively.
The Jeld-Wen Foundation purchased Notes Receivable from the Company at face
value plus accrued interest on a full recourse basis. During 1994, 1995 and
1996, the Foundation purchased Notes Receivable with outstanding balances of
approximately $297,000, $191,000 and $211,000, respectively.
The terms of the purchase of the Notes Receivable by the affiliated parties
were negotiated between the Company and the principals of R&R Vista. The Company
believes that the terms of such financing are no less favorable than could have
been obtained from an unaffiliated third party.
Indebtedness of Management. The Company entered into a Stock Purchase
Agreement in 1995 with each of William Peare and Jerol Andres for the purchase
of 449,060 shares of Common Stock from the Company. As full consideration for
each such sale, Messrs. Peare and Andres executed a promissory note to the
Company in the amount of $303,210 bearing interest at 9% per annum. Mr. Andres
sold his shares to the Company and repaid his promissory note in December 1995,
and Mr. Peare repaid his promissory note in November 1996.
ACQUISITION OF FINANCE SUBSIDIARIES
Prior to June 30, 1997, TW Holdings, Inc. ("TW") and Trendwest Funding I,
Inc. ("TFI") were wholly-owned subsidiaries of Jeld-Wen. TW and TFI (the
"Finance Subsidiaries") were formed to enable the Company to sell Notes
Receivable. In 1994, 1995 and 1996, TW and TFI purchased $22,031,000,
$45,195,000 and $75,522,000, respectively, of Notes Receivable from the Company
at face value plus accrued interest. See "Business -- Finance Subsidiaries."
Effective June 30, 1997, the Company acquired all of the shares of common
stock of the Finance Subsidiaries in exchange for 5,193,693 shares of the
Company's Common Stock. The value of the shares of the Finance Subsidiaries and
the value of the shares of Common Stock were determined in negotiations between
Jeld-Wen and the Company, based on a multiple of the historical earnings of the
respective companies. As a result of this acquisition, the Finance Subsidiaries
are wholly-owned subsidiaries of the Company. See Note 1(b) of Notes to Combined
Financial Statements.
RELATIONSHIP WITH WORLDMARK
WorldMark is a California nonprofit mutual benefit corporation that was
formed by Trendwest for the specific purposes of owning, operating and
maintaining the real property conveyed to it by Trendwest. Trendwest has the
exclusive, non-terminable right to contribute properties to WorldMark. The
Company contributes properties to WorldMark, free from all monetary
encumbrances, which are then added to the inventory of WorldMark Resort units
available for use by Owners. In return for the contribution of property to
WorldMark, Trendwest has the exclusive right to market and sell Vacation
Credits.
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<PAGE> 50
WorldMark is managed by a Board of Directors elected by the Owners, who
vote in proportion to the number of Vacation Credits owned. At present, three of
WorldMark's five Board members are executive officers of Trendwest, Mr. William
F. Peare, Mr. Jeffery P. Sites and Mr. J. Michael Moyer. In addition, Mr. Peare
is the President of WorldMark.
Trendwest has a Management Agreement with WorldMark whereby Trendwest acts
as the exclusive manager and servicing agent of WorldMark and the vacation owner
program. Trendwest's responsibilities under the Management Agreement include
general management of WorldMark, overseeing the property management and service
levels of the WorldMark Resorts, and preparing financial forecasts and budgets
for WorldMark. The Management Agreement provides for automatic one-year renewals
unless such renewal is denied by a majority of the Owners (excluding Trendwest).
As compensation for its services, Trendwest receives the portion of total
revenues received by WorldMark remaining after WorldMark pays or reserves for
its expenses plus reserves for repair and replacement of WorldMark Resorts. This
amount is subject to a ceiling equal to 15% of the budgeted annual expenses and
reserves of WorldMark (exclusive of Trendwest's fee). Trendwest's management
revenues from WorldMark during 1994, 1995 and 1996 were approximately $173,000,
$747,000 and $1,103,000, respectively.
RELATIONSHIP WITH SAGE SYSTEMS
Background. The Company and Sage, a licensed escrow company, are parties to
several administrative agreements. See "Business -- Customer Financing." Woodrow
O'Rourke, the President of Sage, is the brother-in-law of William F. Peare, a
director and the President and Chief Executive Officer of the Company.
Escrow. The Company and Sage are parties to an Escrow Agreement under which
contracts for the sale of Vacation Credits by the Company, and the funds
received from such sales, must be placed in escrow with Sage. The Company pays
Sage a fee of $35 to $40 per account for which Sage holds escrowed funds. Under
the Escrow Agreement, the Company paid Sage approximately $104,000 in 1996.
Servicing of Accounts. The Company and Sage are parties to a Service
Agreement under which Sage is responsible for maintaining a data processing
system to bill and receive monthly receivable payments. The Company pays Sage a
monthly fee of $1.70 per account serviced by Sage. Under the Service Agreement,
the Company paid Sage approximately $274,000, $387,000 and $555,000 in 1994,
1995 and 1996, respectively.
Software. The Company, Sage and James McBride, Sr., an employee of Sage,
entered into a Software Transfer Agreement in August 1994, under which Sage and
Mr. McBride granted the Company an irrevocable, royalty-free license to use
certain computer software programs. Concurrently with the Software Transfer
Agreement, the Company and Sage entered into a Software Support and Maintenance
Agreement (the "Maintenance Agreement"), under which Sage provides
modifications, improvements and customer service to the Company in connection
with the licensed computer software programs. Under the Maintenance Agreement,
the Company paid Sage an initial fee of $12,000, a retainer of $2,000 per month
and labor charges of $50 per hour for services in excess of ten hours per month.
Under the Maintenance Agreement, the Company has paid Sage approximately
$47,000, $35,000 and $35,000 in 1994, 1995 and 1996, respectively.
The terms of the various agreements with Sage were negotiated between the
managements of the Company and Sage. The Company believes that the terms of such
agreements are no less favorable than could have been obtained from an unrelated
third party.
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<PAGE> 51
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company and as adjusted to reflect the sale
of shares offered hereby, with respect to (i) each person known by the Company
to beneficially own more than 5% of the outstanding shares of Common Stock, (ii)
each person who is a director or Named Executive Officer of the Company and
(iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) AFTER THE OFFERING
NAME AND ADDRESS ------------------------- SHARES TO BE SOLD -------------------------
OF BENEFICIAL OWNER SHARES PERCENTAGE IN THE OFFERING SHARES PERCENTAGE
- ---------------------------- ---------- ---------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Jeld-Wen(2)................. 13,725,821 95.21 -- 13,725,821 79.98
William F. Peare............ 449,060 3.11 130,000 319,060 1.86
Jeffery P. Sites............ 89,812 * -- 89,812 *
J. Michael Moyer............ 53,887 * -- 53,887 *
Ronald A. Buzard............ 23,095 * -- 23,095 *
Gerald T. Lynch............. 25,147 * -- 25,147 *
Jerol E. Andres............. -- -- -- -- --
Douglas P. Kintzinger....... -- -- -- -- --
Roderick C. Wendt........... -- -- -- -- --
All directors and executive
officers as a group (11
persons).................. 641,001 4.45 130,000 511,001 2.98
</TABLE>
- ---------------
* Less than 1%.
(1) Each beneficial owner has the sole power to vote and to dispose of all
shares of Common Stock owned by such beneficial owner.
(2) The address of this stockholder is 3250 Lakeport Blvd., Klamath Falls,
Oregon 97601.
DESCRIPTION OF CAPITAL STOCK
The following descriptions of the Company's capital stock and of certain
provisions of the Articles of Incorporation and Bylaws are summaries of the
material terms thereof and do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the Articles of Incorporation and
Bylaws, forms of which are filed as exhibits to the Registration Statement of
which this Prospectus is a part. Reference is made to such exhibits for a
detailed description of the provisions summarized below.
The Company's authorized capital stock consists of 90,000,000 shares of
Common Stock, no par value per share, and 10,000,000 shares of preferred stock,
no par value per share (the "Preferred Stock").
On the date of this Prospectus, there were 14,417,116 shares of Common
Stock and no shares of Preferred Stock issued and outstanding. Upon the closing
of the Offering, there will be 17,162,116 shares of Common Stock and no shares
of Preferred Stock issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by the stockholders. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. In the event of
the liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to share ratably in all assets remaining after payment of the
Company's liabilities. The right of holders of the Common Stock to elect all of
the Company's directors, to receive dividends and to share ratably in assets
upon a liquidation of the Company may be subject to the rights of holders of
shares of Preferred Stock, if any such shares are issued.
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<PAGE> 52
PREFERRED STOCK
Pursuant to the Articles of Incorporation, the Company is authorized to
issue "blank check" Preferred Stock, which may be issued from time to time in
one or more series upon authorization by the Company's Board of Directors. The
Board of Directors, without further approval of the stockholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, and any other rights,
preferences, privileges and restrictions applicable to each series of the
Preferred Stock. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, among other
things, could adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a third party to
gain control of the Company, discourage bids for the Company's Common Stock at a
premium to the prevailing market price or otherwise adversely affect the market
price of the Common Stock. Currently, the Company has no plans to issue shares
of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Company has appointed American Stock Transfer & Trust Company, New
York, New York as its transfer agent and registrar.
CERTAIN PROVISIONS OF OREGON LAW
AND OF TRENDWEST'S ARTICLES OF INCORPORATION AND BYLAWS
The following paragraphs summarize certain provisions of Oregon law and the
Company's Articles of Incorporation and Bylaws. The summary does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the Articles of Incorporation and Bylaws, forms of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part, and to Oregon
law.
CONTROL SHARE ACQUISITIONS
Upon completion of the Offering, the Company will become subject to the
Oregon Control Share Act (Oregon Revised Statutes Sections 60.801 - 60.816). The
Oregon Control Share Act generally provides that a person (the "Acquiring
Person") who acquires voting stock of an Oregon corporation in a transaction
which results in such Acquiring Person holding more than 20%, 33 1/3% or 50% of
the total voting power of such corporation (a "Control Share Acquisition")
cannot vote the shares it acquires in the Control Share Acquisition ("control
shares") unless voting rights are accorded to such control shares by the holders
of a majority of the outstanding voting shares, excluding the control shares
held by the Acquiring Person and shares held by the Company's officers and
inside directors ("interested shares"), and by the holders of a majority of the
outstanding voting shares, including interested shares. This vote would be
required at the time an Acquiring Person's holdings exceed 20% of the total
voting power of a company, and again at the time the Acquiring Person's holdings
exceed 33 1/3% and 50%, respectively. The term "Acquiring Person" is broadly
defined to include persons acting as a group. A transaction in which voting
power is acquired solely by receipt of an immediately revocable proxy does not
constitute a "Control Share Acquisition."
The Acquiring Person may, but is not required to, submit to the Company an
"Acquiring Person Statement" setting forth certain information about the
Acquiring Person and its plans with respect to the Company. The Acquiring Person
Statement may also request that the Company call a special meeting of
stockholders to determine whether the control shares will be allowed to retain
voting rights. If the Acquiring Person does not request a special meeting of
stockholders, the issue of voting rights of control shares will be considered at
the next annual meeting or special meeting of stockholders that is held more
than 60 days after the date of the Control Share Acquisition. If the Acquiring
Person's control shares are accorded voting rights and represent a majority or
more of all voting power, stockholders who do not vote in favor of the
restoration of such voting rights will have the right to receive the appraised
"fair value" of their shares, which may not be less than the highest price paid
per share by the Acquiring Person for the control shares.
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<PAGE> 53
The Oregon Control Share Act will have the effect of encouraging any
potential acquiror to negotiate with the Company's Board of Directors and will
also discourage certain potential acquirors unwilling to comply with the
provisions of this law. A corporation may provide in its articles of
incorporation or bylaws that this law does not apply to its shares. The Company
has not adopted such a provision and does not currently intend to do so. This
law may make the Company less attractive for takeover, and thus stockholders may
not benefit from a rise in the price of the Common Stock that a takeover could
cause.
BUSINESS COMBINATIONS
Upon completion of the Offering, the Company will become subject to the
Oregon Business Combination Act (Oregon Revised Statutes Sections
60.825 - 60.845). The Oregon Business Combination Act generally provides that in
the event a person or entity acquires 15% or more of the voting stock of an
Oregon corporation (an "Interested Stockholder"), the corporation and the
Interested Stockholder, or any affiliated entity, may not engage in certain
business combination transactions for a period of three years following the date
the person became an Interested Stockholder. Business combination transactions
for this purpose include (a) a merger or plan of share exchange, (b) any sale,
lease, mortgage or other disposition of the assets of the corporation where the
assets have an aggregate market value equal to 10% or more of the aggregate
market value of the corporation's assets or outstanding capital stock, and (c)
certain transactions that result in the issuance of capital stock of the
corporation to the Interested Stockholder. These restrictions do not apply if
(i) the Interested Stockholder, as a result of the transaction in which such
person became an Interested Stockholder, owns at least 85% of the outstanding
voting stock of the corporation (disregarding shares owned by directors who are
also officers and certain employee benefit plans), (ii) the Board of Directors
approves the share acquisition or business combination before the Interested
Stockholder acquired 15% or more of the corporation's voting stock, or (iii) the
Board of Directors and the holders of at least two-thirds of the outstanding
voting stock of the corporation (disregarding shares owned by the Interested
Stockholder) approve the transaction after the Interested Stockholder acquires
15% or more of the corporation's voting stock.
The Oregon Business Combination Act will have the effect of encouraging any
potential acquiror to negotiate with the Company's Board of Directors and will
also discourage certain potential acquirors unwilling to comply with the
provisions of this law. A corporation may provide in its articles of
incorporation or bylaws that this law does not apply to its shares. The Company
has not adopted such a provision and does not currently intend to do so. This
law may make the Company less attractive for takeover, and thus stockholders may
not benefit from a rise in the price of the Common Stock that a takeover could
cause.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Articles provide for a Board of Directors with three classes (Class I,
Class II and Class III), each class consisting as nearly as possible of
one-third of the directors. A classified Board of Directors makes it more
difficult for stockholders, including those holding a majority of the
outstanding shares, to effect an immediate change in a majority of the members
of the Board of Directors. At least two annual meetings of stockholders may be
required for the stockholders to change a majority of the members of the Board
of Directors, whether or not a change in the Board of Directors would be
beneficial to the Company and its stockholders and whether or not a majority of
the Company's stockholders believe that such a change would be beneficial.
SPECIAL STOCKHOLDER MEETINGS
In order for stockholders to call special meetings, the Bylaws require the
written request of holders of shares entitled to cast at least 10% of all votes
entitled to be cast at such meeting. This provision could preclude stockholders
owning small percentages of the Company's Common Stock from calling a special
meeting to elect new directors or to take other major corporate actions, even if
such elections or other actions would be beneficial to the Company or its
stockholders. Special stockholder meetings may also be called by the President
of the Company or the Board of Directors.
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<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 17,162,116 shares of
Common Stock outstanding. The 2,875,000 shares sold in the Offering (3,306,250
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradable on the public market without restriction or further registration
under the Securities Act, except to the extent that such shares are held by an
affiliate of the Company. The remaining outstanding shares of Common Stock were
issued and sold by the Company in private transactions, and public sale thereof
will be restricted except to the extent such shares are registered under the
Securities Act or sold in accordance with an exemption from such registration.
The 14,287,116 restricted shares of Common Stock will be eligible for public
sale pursuant to Rule 144 under the Securities Act commencing 90 days after the
date of this Prospectus. The holders of these shares have entered into
agreements with the Underwriters not to offer, sell or otherwise dispose of any
equity securities of the Company ("Lock-up Agreements") for 360 days after the
date of this Prospectus in the case of Jeld-Wen and William Peare, and 180 days
in the case of the remaining stockholders, without the prior written consent of
Montgomery Securities. Montgomery Securities may, in its sole discretion, at any
time without notice, release all or any part of the shares subject to the
Lock-Up Agreements during the respective lock-up periods.
In general, Rule 144, as currently in effect, provides that any person who
has beneficially owned shares for at least one year, including an "affiliate"
(as defined in Rule 144), is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of (i) the average weekly
trading volume during the four calendar weeks preceding the sale or (ii) 1% of
the shares of Common Stock then outstanding. Sales under Rule 144 are subject to
certain manner of sale restrictions, notice requirements and availability of
current public information concerning the Company. A person who is not an
affiliate of the Company, and who has not been an affiliate within three months
prior to the sale, generally may sell shares without regard to the limitations
of Rule 144 provided that the person has held such shares for a period of at
least two years.
Any employee, director or officer of the Company holding shares purchased
pursuant to a written compensatory plan or contract (including options) entered
into prior to the Offering is entitled to rely on the resale provisions of Rule
701, which permit nonaffiliates to sell such shares without having to comply
with the public information, holding period, volume limitations or notice
requirements of Rule 144 and permit affiliates to sell their Rule 701 shares
without having to comply with the holding period restrictions of Rule 144, in
each case commencing 90 days after the date of this Prospectus.
Prior to the Offering, there has been no public market for the Common Stock
and no prediction can be made of the effect, if any, that the sale or
availability for sale of shares of Common Stock will have on the market price of
the Common Stock. Nevertheless, sales of substantial amounts of such shares in
the public market could adversely affect the market price of the Common Stock.
53
<PAGE> 55
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
Montgomery Securities and Salomon Brothers Inc (the "Representatives"), have
severally agreed, subject to the terms and conditions of the underwriting
agreement (the "Underwriting Agreement") by and among the Company, the Selling
Stockholder, Jeld-Wen and the Underwriters, to purchase from the Company and the
Selling Stockholder the number of shares of Common Stock indicated below
opposite their respective names, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITER PURCHASED
----------------------------------------------------------------- ------------
<S> <C>
Montgomery Securities............................................
Salomon Brothers Inc.............................................
---------
Total.................................................. 2,875,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose to offer the shares of Common Stock to the public
initially at the public offering price set forth on the cover of this Prospectus
and to certain dealers at such price less a concession not in excess of
$ per share, and that the Underwriters and such selected dealers may
reallow a concession to other dealers not in excess of $ per share.
After the public offering of the Common Stock, the public offering price, the
concessions to selected dealers and reallowance to other dealers may be changed
by the Representatives.
The Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to an additional
431,250 shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discount. To the extent the
Underwriters exercise such option, each of the Underwriters will become
obligated, subject to certain conditions, to purchase such percentage of such
additional shares of Common Stock as is approximately equal to the percentage of
shares of Common Stock that it is obligated to purchase as shown in the table
set forth above. The Underwriters may exercise such option only to cover
over-allotments, if any, incurred in the sales of shares of Common Stock.
The Company, Jeld-Wen and the Selling Stockholder have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Jeld-Wen and the Selling Stockholder have agreed that, for a period of 360
days from the date of this Prospectus, they will not sell, offer to sell,
contract to sell, or otherwise sell or dispose of any shares of the Common
Stock, or options or warrants to acquire shares of Common Stock, without the
prior written consent of Montgomery Securities. The remaining directors and
executive officers of the Company and all of the remaining existing stockholders
of the Company have agreed that, for a period of 180 days from the date of this
Prospectus, they will not sell, offer to sell, contract to sell, or otherwise
sell or dispose of any shares of the
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<PAGE> 56
Common Stock, or options or warrants to acquire shares of Common Stock, without
the prior written consent of Montgomery Securities. The Company has agreed not
to sell any shares of Common Stock for a period of 180 days from the date of
this Prospectus without the prior written consent of Montgomery Securities.
Montgomery Securities may, in its sole discretion at any time without notice,
release all or any part of the shares subject to the Lock-Up Agreements during
the respective lock-up periods.
The Representatives have informed the Company that they do not intend to
confirm sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations among the Company, the Selling Stockholder and the Representatives.
Among the factors to be considered in determining the initial public offering
price, in addition to prevailing market conditions, will be certain financial
information of the Company, the history of, and the prospects for, the Company
and the industry in which it competes, an assessment of the Company's
management, its past and present operations, the prospects for, and timing of,
future revenues of the Company, the present state of the Company's development,
and the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to the Company. The
initial public offering price should not, however, be considered an indication
of the actual value of the Common Stock. Such price is subject to change as a
result of market conditions and other factors. There can be no assurance that an
active trading market will develop for the Common Stock or that the Common Stock
will trade in the public market subsequent to the Offering at or above the
initial public offering price.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefor not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholder by Foster Pepper & Shefelman PLLC, Seattle,
Washington. Certain legal matters in connection with the Offering will be passed
upon for the Underwriters by Orrick, Herrington & Sutcliffe LLP, San Francisco,
California.
EXPERTS
The combined financial statements of Trendwest Resorts, Inc. and certain
affiliates as of December 31, 1995 and 1996 and for each of the years in the
three year period ended December 31, 1996 have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The financial statements of WorldMark, The Club as of December 31, 1995 and
1996 and for each of the years in the three year period ended December 31, 1996
have been included herein and in the registration
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<PAGE> 57
statement in reliance upon the report of Molatore, Peugh, McDaniel, Scroggin &
Co. LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
The Company engaged KPMG Peat Marwick LLP ("KPMG") on March 12, 1997 as the
Company's independent accountants to report on the Company's balance sheets as
of December 31, 1996 and 1995, and the related combined statements of income,
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1996. The decision to appoint KPMG was approved by the
Company's Board of Directors.
Molatore, Peugh, McDaniel, Scroggin & Co. LLP ("MPMS") had acted as the
Company's independent accountants since 1992. None of such accountant's reports
on the Company's financial statements for any of the years reported on contained
an adverse opinion or disclaimer of opinion, nor were the opinions modified as
to uncertainty, audit scope or accounting principles, nor were there any events
of the type requiring disclosure under Item 304(a)(1)(v) of Regulation S-K under
the Securities Act. There were no disagreements with MPMS, resolved or
unresolved, on any matter of accounting principles or practices, financial
disclosure, or auditing scope or procedure, which, if not resolved to MPMS's
satisfaction, would have caused it to make reference to the subject matter of
the disagreement in connection with its reports. MPMS was not retained to report
on the Company's 1996 financial statements.
In August 1996, the Company engaged Coopers & Lybrand LLP ("C&L") as the
Company's independent accountants to report on the Company's balance sheet as of
December 31, 1995 and 1994, and the related statements of income, stockholders'
equity and cash flow for each of the years in the three year period ended
December 31, 1995. C&L did not render any report on the Company's financial
statements and was dismissed as the Company's independent accountants on
February 10, 1997. The decision to retain and subsequently to dismiss C&L was
approved by the Company's Board of Directors.
During the period of C&L's engagement, disagreements arose over the
accounting treatment of the sales of additional Vacation Credits to existing
Owners ("Upgrade Sales"). The Company contended that Upgrade Sales could be
fully recognized as income under Financial Accounting Standards Board Statement
No. 66 ("SFAS 66") without an additional 10% cash down payment, provided that
the Owner had sufficient equity in previously purchased Vacation Credits
(including prior principal payments on the Note Receivable from the previous
purchases) and additional cash down payments, if any, at the time of the Upgrade
Sale, to satisfy the 10% down payment requirement for full accrual profit
recognition under SFAS 66. C&L's position was that SFAS 66 and Emerging Issues
Task Force Issue No. 88-12 required each Upgrade Sale to have a separate 10%
cash down payment (without consideration of equity from previously purchased
Vacation Credits) before the full accrual of revenue could be recognized on such
sale. Prior to C&L's dismissal, the Company agreed to modify its revenue
recognition policies in accordance with C&L's position.
Upon an Upgrade Sale, any existing Note Receivable is cancelled and a new
Note Receivable with a seven year term is executed for the balance of the
existing Note Receivable and the financed amount of the Upgrade Sale. The
Company and C&L discussed the allocation of payments on the new Note Receivable
for the purpose of profit recognition on the Upgrade Sale. The Company's view,
as reflected in the financial statements included herein, is that the payment
due on the new Note Receivable could be bifurcated between the amount
attributable to the Upgrade Sale and the amount attributable to the extended
balance of the previous Note Receivable, and that the excess of the payment due
under the new Note Receivable over the part of the bifurcated payment
attributable to the extended balance of the previous Note Receivable could be
allocated to the financed portion of the Upgrade Sale without affecting the
accounting for the previous sale. Profit on the Upgrade Sale would be recognized
on the installment method until allocated principal payments equal to 10% of the
Upgrade Sale are received. Profit would then be recognized on the accrual
method. C&L recommended that the concurrence of the Securities and Exchange
Commission ("Commission") staff with this methodology be obtained prior to the
filing of this Registration Statement. C&L was prepared to accept the Company's
view, provided that the Commission staff concurred. Accordingly, at the time of
C&L's
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<PAGE> 58
dismissal, with the exception of the issue of profit recognition on the new Note
Receivable and the effect of the allocation of principal payments on the new
Note Receivable on the recognition of profit on the previous sale, the Company
does not believe that there were any unresolved disagreements with C&L on any
matter of accounting principles or practices, financial disclosure, or auditing
scope or procedure, which, if not resolved to C&L's satisfaction, would have
caused it to make reference to the subject matter of the disagreements in
connection with its reports. C&L discussed each of these issues with members of
the Board of Directors of the Company and of the board of directors of the
Company's parent, Jeld-Wen. The Company has authorized C&L to respond fully to
the inquiries of KPMG concerning each of the disagreements.
In addition, C&L advised the Company of two matters that, if further
considered in connection with its audit of the financial statements, could
materially impact the fairness of the financial statements. The matters relate
to the adequacy of the Company's allowance for doubtful accounts for receivables
from the sale of Vacation Credits and the method of calculating gains on the
sale of such receivables. Due to their dismissal, C&L did not complete the audit
procedures and inquiries necessary to conclude on these matters.
Prior to the engagement of KPMG, the Company met with representatives of
KPMG at a meeting on January 22, 1997 to discuss KPMG's experience in the
Company's industry and industry accounting practices in connection with Upgrade
Sales. At that meeting, the disagreements between the Company and C&L were
discussed. KPMG orally advised the Company that they believed that C&L's view on
the revenue recognition principles applicable to the required down payment on
Upgrade Sales was the correct interpretation of SFAS 66. KPMG did not express
any views on the other area of discussion between the Company and C&L, the
recognition of revenue from Upgrade Sales based on an allocation of principal
payments on Notes Receivable. The Company did not request, nor did it receive,
any oral or written reports from KPMG concerning the subject of the unresolved
disagreements with C&L. The Company did not consult C&L regarding the issues
which were the subject of the disagreement following the date of dismissal. KPMG
did discuss with C&L the subject matter of the disagreements and other matters
relevant to the audit of the Company's financial statements prior to KPMG's
agreement to the engagement as the Company's auditors. The Company has requested
KPMG to review the disclosure contained herein and has provided KPMG the
opportunity to furnish the Company with a letter addressed to the Commission
containing any new information, clarification of the Company's expression of
KPMG's views or the respects in which KPMG does not agree with the statements
contained herein. KPMG has reviewed the disclosure contained herein and has
advised the Company that it does not intend to deliver such a letter to the
Company.
As previously discussed, C&L was prepared to accept the Company's view
regarding revenue recognition for Upgrade Sales, provided that the Commission
staff concurred. In addition, due to their dismissal, C&L did not complete the
audit procedures and inquiries necessary to conclude on certain other matters.
The Company believes that, if C&L were allowed to complete their engagement and
if pre-filing acceptance by the Commission staff were obtained with regard to
revenue recognition for Upgrade Sales, the resolution of the aforementioned
issues and matters would have been treated no differently than as presently
treated in the Company's combined financial statements, and therefore there
would not have been any effect on the combined financial statements of the
Company as presented herein.
57
<PAGE> 59
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to Trendwest and
the Common Stock offered hereby, reference is hereby made to such Registration
Statement and the exhibits thereto. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete,
and in each instance, reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. Copies of the Registration
Statement may be obtained from the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the public reference section of the Commission at its
Washington address upon payment of the fees prescribed by the Commission or may
be examined without charge at the offices of the Commission. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's World Wide Web site is
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent public accounting firm
and quarterly reports for the first three quarters of each fiscal year
containing unaudited financial information.
58
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
TRENDWEST RESORTS, INC. AND CERTAIN AFFILIATES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Combined Balance Sheets............................................................... F-3
Combined Statements of Income......................................................... F-4
Combined Statements of Stockholders' Equity........................................... F-5
Combined Statements of Cash Flows..................................................... F-6
Notes to Combined Financial Statements................................................ F-7
</TABLE>
WORLDMARK, THE CLUB
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-21
Balance Sheets........................................................................ F-22
Statements of Revenues, Expenses and Changes in Fund Balances......................... F-23
Statements of Cash Flows.............................................................. F-24
Notes to Financial Statements......................................................... F-26
Supplementary Information............................................................. F-30
</TABLE>
F-1
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
The Stockholders
Trendwest Resorts, Inc.
TW Holdings, Inc.
Trendwest Funding I, Inc.:
We have audited the accompanying combined balance sheets of Trendwest Resorts,
Inc. and certain affiliates as of December 31, 1995 and 1996, and the related
combined statements of income, stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1996. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Trendwest Resorts,
Inc. and certain affiliates as of December 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Seattle, Washington
May 2, 1997, except for note 17,
to the combined financial statements,
which is as of July 2, 1997
F-2
<PAGE> 62
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Cash...................................................... $ 135 $ 93 $ 119
Restricted cash........................................... 381 709 1,076
Notes receivable, net of allowance for doubtful accounts,
sales returns and deferred gross profit................ 40,643 45,448 63,273
Accrued interest and other receivables.................... 4,184 4,606 4,590
Residual interest in notes receivable sold................ 6,451 10,839 11,003
Inventories............................................... 10,594 16,247 18,078
Property and equipment, net............................... 4,834 5,912 6,422
Deferred income taxes..................................... 1,938 2,360 2,297
Other assets.............................................. 2,129 3,116 3,575
------- ------- --------
Total assets...................................... $71,289 $89,330 $ 110,433
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 1,057 $ 1,037 $ 1,021
Accrued liabilities....................................... 1,490 2,100 2,906
Accrued construction in progress.......................... 950 2,089 1,532
Due to Parent............................................. 22,284 21,316 23,764
Allowance for recourse liability and deferred gross profit
on notes sold.......................................... 5,017 10,080 8,907
Income taxes payable to Parent............................ 1,196 1,909 3,425
Notes payable............................................. 2,542 1,055 15,135
------- ------- --------
Total liabilities................................. 34,536 39,586 56,690
------- ------- --------
Stockholders' equity:
Common stock, 9,224,723 shares outstanding at March 31,
1997................................................... 14,969 14,970 14,970
Employee notes receivable for common stock................ (314) -- --
Retained earnings......................................... 22,098 34,774 38,773
------- ------- --------
Total stockholders' equity........................ 36,753 49,744 53,743
Commitments and contingencies
------- ------- --------
Total liabilities and stockholders' equity........ $71,289 $89,330 $ 110,433
======= ======= ========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 63
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Vacation Credit sales, net.... $ 54,904 $ 77,783 $ 100,040 $ 22,297 $ 27,945
Finance income................ 3,736 5,368 7,143 1,868 3,219
Gains on sales of notes
receivable................. 1,635 3,222 5,673 244 --
Resort management services.... 2,805 1,579 1,501 408 761
Other......................... 763 1,226 2,552 386 688
----------- ----------- ----------- ----------- -----------
Total revenues........ 63,843 89,178 116,909 25,203 32,613
----------- ----------- ----------- ----------- -----------
Costs and operating expenses:
Vacation Credit cost of
sales...................... 15,070 20,484 27,400 6,246 7,553
Resort management services.... 2,613 1,283 859 199 259
Sales and marketing........... 25,615 36,374 47,810 10,771 13,131
General and administrative.... 6,588 8,391 10,904 2,520 2,968
Provision for doubtful
accounts and recourse
liability.................. 4,537 6,522 7,467 1,674 1,816
Interest...................... 881 2,380 2,445 526 634
----------- ----------- ----------- ----------- -----------
Total costs and
operating
expenses............ 55,304 75,434 96,885 21,936 26,361
----------- ----------- ----------- ----------- -----------
Income before income
taxes............... 8,539 13,744 20,024 3,267 6,252
Income tax expense.............. 3,214 4,979 7,348 1,211 2,253
----------- ----------- ----------- ----------- -----------
Net income............ $ 5,325 $ 8,765 $ 12,676 $ 2,056 $ 3,999
=========== =========== =========== =========== ===========
Unaudited pro forma net income
per share of common stock..... $ 0.88 $ 0.28
Shares used in computing
unaudited pro forma net income
per share of common stock..... 14,417,116 14,417,116
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 64
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EMPLOYEE
CLASS A CLASS B NOTES TOTAL
COMMON STOCK COMMON STOCK RECEIVABLE STOCK-
------------------ --------------- FOR COMMON RETAINED HOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCK EARNINGS EQUITY
--------- ------ ------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993........................... 7,185,150 $5,200 100 $8,500 $ -- $ 8,608 $22,308
Issuance of Trendwest common stock to employees for
notes................................................ 1,347,178 910 -- -- (910) -- --
Issuance of Trendwest common stock to Parent........... 449,060 303 -- -- -- -- 303
Dividends declared and paid by TW Holdings............. -- -- -- -- -- (480) (480)
Net Income............................................. -- -- -- -- -- 5,325 5,325
--------- ------ --- ------ ---- ------ -------
Balance at December 31, 1994........................... 8,981,388 6,413 100 8,500 (910) 13,453 27,456
Exchanges for parent company stock..................... -- -- -- -- 607 -- 607
Issuance of Trendwest common stock to employees for
notes................................................ 242,235 56 -- -- (41) -- 15
Note payments.......................................... -- -- -- -- 30 -- 30
Dividends declared and paid by TW Holdings............. -- -- -- -- -- (120) (120)
Net income............................................. -- -- -- -- -- 8,765 8,765
--------- ------ --- ------ ---- ------ -------
Balance at December 31, 1995........................... 9,223,623 6,469 100 8,500 (314) 22,098 36,753
Issuance of common stock, Trendwest Funding............ 1,000 1 -- -- -- -- 1
Note payments.......................................... -- -- -- -- 314 -- 314
Net income............................................. -- -- -- -- -- 12,676 12,676
--------- ------ --- ------ ---- ------ -------
Balance at December 31, 1996........................... 9,224,623 6,470 100 8,500 -- 34,774 49,744
Net income for three months ended March 31, 1997
(unaudited).......................................... -- -- -- -- -- 3,999 3,999
--------- ------ --- ------ ---- ------ -------
Balance at March 31, 1997 (unaudited).................. 9,224,623 $6,470 100 $8,500 $ -- $38,773 $53,743
========= ====== === ====== ==== ====== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
MARCH 31, 1997 MARCH 31, 1997
1995 1996 (UNAUDITED) PRO FORMA (UNAUDITED)
------------------------ ------------------------ ------------------------ ------------------------
ISSUED AND ISSUED AND ISSUED AND ISSUED AND
AUTHORIZED OUTSTANDING AUTHORIZED OUTSTANDING AUTHORIZED OUTSTANDING AUTHORIZED OUTSTANDING
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Trendwest:
Common stock, voting
no par value...... 10,264,215 9,223,423 10,264,215 9,223,423 10,264,215 9,223,423 90,000,000 14,417,116
Preferred stock, no
par value......... -- -- -- -- -- -- 10,000,000 --
TW Holdings:
Class A, voting, no
par value......... 200 200 200 200 200 200 -- --
Class B, nonvoting,
no par value...... 200 100 200 100 200 100 -- --
Trendwest Funding
common stock,
voting, no par
value............... -- -- 1,000 1,000 1,000 1,000 -- --
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 65
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 5,325 $ 8,765 $ 12,676 $ 2,056 $ 3,999
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 302 330 502 135 154
Amortization of excess servicing asset............... 883 1,481 2,735 441 949
Provision for doubtful accounts, recourse liability
and sales reversals................................ 5,500 7,655 10,078 2,294 2,656
Recoveries of notes receivable charged off........... 138 113 72 12 81
Excess servicing spread on notes receivables sold.... (2,174) (3,258) (5,674) (244) --
Unrealized gain on residual interest in notes
receivable sold.................................... -- -- -- -- (1,113)
Change in deferred gross profit...................... 711 1,480 2,737 817 (441)
Deferred income tax (benefit) expense................ (1,000) (364) (422) (551) 63
Issuance of notes receivable......................... (50,278) (71,052) (91,593) (20,481) (25,277)
Proceeds from sale of notes receivable............... 30,112 33,482 58,411 3,215 624
Proceeds from repayment of notes receivable.......... 12,772 24,267 30,234 5,984 5,250
Purchase of notes receivable......................... (6,005) (11,305) (11,150) (1,646) (1,838)
Changes in certain assets and liabilities:
Increase in restricted cash........................ (161) (110) (328) (99) (367)
Inventories........................................ (9,576) 1,493 (5,653) 3,632 (1,831)
Accounts payable and accrued liabilities........... 3,928 (3,279) 1,729 (247) 233
Income taxes payable to Parent..................... (134) (2,207) 713 564 1,516
Other assets....................................... (1,951) (1,740) (1,540) (743) (531)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities.................................... (11,608) (14,249) 3,527 (4,861) (15,873)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment..................... (229) (4,312) (1,429) (264) (630)
Proceeds from sale of marketable equity securities..... -- 4,219 -- -- --
-------- -------- -------- -------- --------
Net cash used in investing activities........... (229) (93) (1,429) (264) (630)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable............................ 5,366 100 -- -- 14,727
Payments on notes payable.............................. (6,203) (1,529) (1,487) (505) (646)
Net change in due to Parent............................ 12,538 15,877 (968) 5,917 2,448
Dividends paid......................................... (480) (120) -- -- --
Issuance of common stock............................... 303 15 1 -- --
Payments on notes receivable for stock................. -- 30 314 -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities.................................... 11,524 14,373 (2,140) 5,412 16,529
-------- -------- -------- -------- --------
Net increase (decrease) in cash................. (313) 31 (42) 287 26
Cash at beginning of period.............................. 417 104 135 135 93
-------- -------- -------- -------- --------
Cash at end of period.................................... $ 104 $ 135 $ 93 $ 422 $ 119
======== ======== ======== ======== ========
Supplemental disclosures of cash flow information -- cash
paid during the period for:
Interest............................................. $ 905 $ 2,091 $ 2,579 $ 595 $ 735
Income taxes......................................... 5,111 7,547 7,056 1,196 675
Supplemental schedule of noncash investing and financing
activities -- issuance of common stock for notes
receivable............................................. $ 910 $ 41 $ -- $ -- $ --
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE> 66
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
(A) DESCRIPTION OF BUSINESS
Trendwest Resorts, Inc. (Trendwest) and certain affiliates as identified in
note 1(b) (Company) is comprised of certain entities under the control of a
common stockholder. The Company generates revenues from the sale and financing
of Vacation Credits in WorldMark, The Club (WorldMark), which entitle the owner
to use a fully furnished vacation resort based on the number of Vacation Credits
purchased. Vacation Credits are created through the contribution to WorldMark of
resort units developed or purchased by the Company. The Company also manages
resort properties under a management agreement with WorldMark (see note 15(b)).
WorldMark is a separate entity which owns the contributed properties for the
benefit of Vacation Credit owners (Members).
The Company sells Vacation Credits to individuals principally in the
Western United States. Sales to new owners are financed by the Company after
requiring a minimum 10% down payment. Sales to existing owners (Upgrades) are
financed by the Company and require down payments to the extent that the owner's
equity interest in Vacation Credits owned, including the Upgrade, is less than
10% (see note 2(d)(i)). The resulting note balances are secured by the Vacation
Credits sold.
(B) BASIS OF PRESENTATION
The combined financial statements include the accounts of Trendwest, TW
Holdings, Inc. (TW Holdings) and Trendwest Funding I, Inc. (Trendwest Funding).
Trendwest Funding is included in the combined financial statements from April
19, 1996 (inception). The financial statements of these three entities have been
combined due to the planned transactions discussed below.
Trendwest is a majority owned subsidiary of JELD-WEN, inc. (Parent) and TW
Holdings and Trendwest Funding are wholly-owned subsidiaries of the Parent. As
described in note 17, effective June 30, 1997, the Parent transferred to
Trendwest all of the outstanding common stock of TW Holdings and Trendwest
Funding in exchange for 5,193,693 shares of additional common stock of Trendwest
(Consolidation Transactions). TW Holdings and Trendwest Funding are thereafter
wholly-owned subsidiaries of Trendwest.
The Consolidation Transactions are considered a reorganization of entities
under common control and will be accounted for in a manner similar to a pooling
of interests. The assets and liabilities of the combining entities will be
carried forward at their recorded amounts to the combined enterprise and the
income of the combining enterprises for the period of the combination and prior
periods will be combined and reported as income of the combined enterprise.
All intercompany balances and transactions have been eliminated in
combination.
(C) UNAUDITED PRO FORMA NET INCOME PER SHARE
Unaudited pro forma net income per share for 1996 and the three months
ended March 31, 1997 have been computed based on the number of shares of
Trendwest common stock outstanding at December 31, 1996 and March 31, 1997,
respectively, increased by the 5,193,693 additional shares subsequently issued
to the Parent in connection with the Consolidation Transactions described in
note 1(b). Due to the significant impact of the Consolidation Transactions on
the number of outstanding shares of Trendwest common stock,
F-7
<PAGE> 67
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
historical net income per share is not meaningful and is therefore not
presented. No common stock equivalents were outstanding at December 31, 1996 or
March 31, 1997.
(d) PRIOR PERIOD ADJUSTMENTS
The accompanying combined financial statements were prepared in connection
with the proposed IPO and present for the first time the combined results of
Trendwest, TW Holdings and Trendwest Fundings. Certain adjustments were made to
conform accounting policies and to record certain prior period adjustments to
the individual entities. Prior period adjustments were made to the allowance for
doubtful accounts, gains on sales of notes receivable and recognition of revenue
on Upgrade sales.
(e) INTERIM FINANCIAL DATA
The unaudited interim combined financial statements have been prepared on
the same basis as the audited combined financial statements and, in the opinion
of management, include all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial information set forth
therein in accordance with generally accepted accounting principles. The
Company's interim results may be subject to fluctuations. As a result, the
Company believes the results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future period.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) RESTRICTED CASH
Restricted cash consists primarily of deposits received on sales of
Vacation Credits that are held in escrow until the applicable statutory
rescission period has expired and the related customer note receivable has been
recorded and amounts received prior to the attainment of the required 10% down
payment.
(b) ALLOWANCE FOR DOUBTFUL ACCOUNTS AND RECOURSE LIABILITY
The Company provides for estimated future losses to be incurred related to
uncollectible notes receivable and notes receivable sold with recourse. The
provision for credit losses is charged to income in amounts sufficient to
maintain the allowance and the recourse liability at levels considered adequate
to cover anticipated losses resulting from liquidation of notes receivable and
notes receivable sold with recourse. The allowance for doubtful accounts and
recourse liability are based on the collection history of the receivables and
are net of anticipated cost recoveries of the underlying Vacation Credits.
Management believes that all such allowances and estimated liabilities are
adequate; however, such amounts are based on estimates and there is no assurance
that the actual amounts incurred will not be more or less than the amount
recorded.
The Company charges off notes receivable when deemed to be uncollectible.
Interest income previously accrued and unpaid is reversed. Vacation credits
recovered are recorded at the weighted average cost of credits at the time of
recovery.
F-8
<PAGE> 68
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(c) INVENTORIES
Inventories consist of Vacation Credits and construction in progress as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Vacation Credits.............................. $ -- $ 7,784 $ 8,028
Construction in progress...................... 10,594 8,463 10,050
------- ------- -------
Total inventories................... $10,594 $16,247 $18,078
======= ======= =======
</TABLE>
Vacation Credits represent the costs of unsold ownership interests in
WorldMark. Resort properties are completed and ownership is transferred by the
Company to WorldMark in return for the right to sell Vacation Credits in these
properties based on the number of credits available for the properties. Credits
available are determined using a formula based on the number of user days
available as well as the relative value of each property. Vacation Credits are
carried at the lower of cost, based on the moving weighted average of property
cost per Vacation Credit established, or net realizable value.
Construction in progress is valued at the lower of cost or net realizable
value. Interest, taxes and other carrying costs incurred during the construction
period are capitalized. The amount of interest capitalized during the years
ended December 31, 1994, 1995 and 1996 amounted to $0, $0 and $343,
respectively.
(d) REVENUE RECOGNITION
(i) Vacation Credits
Substantially all Vacation Credits sold by the Company generate installment
notes receivable secured by an interest in the related Vacation Credits. These
notes receivable are payable in monthly installments, including interest, with
maturities up to seven years. Sales are included in revenues when at least a 10%
down payment requirement has been met and any rescission period has expired.
Vacation Credit cost of sales and direct selling expenses related to a
Vacation Credit sale are recorded at the time the sale is recognized. Vacation
Credit costs include the cost of land, improvements to the property, including
costs of amenities constructed for the use and benefit of the Vacation Credit
owners, and other direct acquisition costs. Direct selling expenses are recorded
as sales and marketing expenses.
The Company also finances sales of Upgrades which result in the
cancellation of any existing note receivable and the issuance of a new
seven-year note secured by an interest in all Vacation Credits owned. No
additional down payment is required by the Company as long as the owner's equity
interest in the original Vacation Credits is equal to 10% of the value of all
Vacation Credits, including those from the Upgrade sale, and the customer is not
delinquent in his payments on his existing note receivable. When the Company
finances an Upgrade sale and the customer does not make an additional cash down
payment of at least 10% of the Upgrade sale amount, the Company uses the
installment method to recognize revenue whereby profit is recognized as a
portion of each principal payment received on the Upgrade. Revenue is fully
recognized on the Upgrade sale when the cash collected relating to the Upgrade
sale totals 10% of the Upgrade sale. Cash collected relating to a financed
Upgrade sale is measured as the sum of any additional down payment received at
the time of the Upgrade sale and the principal repayment of the new note
receivable which is allocable to the Upgrade sale. Principal repayments are
allocated to the Upgrade sale component of the new note
F-9
<PAGE> 69
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
receivable and the pre-Upgrade sale component of the new note receivable based
on the ratio of such components at the time of the Upgrade sale.
Management fees are recognized using the accrual method as earned.
(ii) Sales of Notes Receivable
The Company sells notes receivable to outside investors and to a limited
liability company (LLC) which is controlled and 99% owned by an independent
third party who has made a substantial capital investment and has substantial
risks and rewards of the assets of the limited liability company LLC.
Gains on sales of notes receivable represent the present value of the
differential between contractual interest rates charged to borrowers on notes
receivable sold by the Company and the interest rates to be received by the
purchasers of such notes receivable, after considering the effects of estimated
prepayments and the costs of servicing, net of transaction costs. The Company
recognizes such gains on sales of notes receivable on the settlement date. Gains
on the sale of a portion of notes receivable are based on the relative fair
market value of the note receivable portions sold and retained.
The Company discounts cash flows on its notes receivable sold at a rate of
12.25% which it believes a purchaser would require as a rate of return. The
Company has developed its assumptions based on experience with its own
portfolio, available market data and ongoing consultation with its investment
bankers.
Income from the differential retained is recorded in finance income using
the interest method. In addition, finance income includes interest income on
notes receivable retained by the Company. Prior to January 1, 1997, the residual
interest in notes receivable sold was classified as an excess servicing asset
and carried at the lower of amortized cost or net realizable value. As further
described in note 2(i), beginning January 1, 1997, the residual interest in
notes receivable sold is classified as a trading security in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for
Certain Investments in Debt or Equity Securities" and is carried at market
value. Also, beginning January 1, 1997, changes in the fair market value of the
residual interest in notes receivable sold will be recognized as finance income.
Prior to January 1, 1997, the carrying value of the excess servicing asset
was analyzed quarterly by the Company on a disaggregated basis to determine
whether prepayment experience had an impact on carrying value. Expected cash
flows of the underlying notes receivable sold were reviewed based upon current
economic conditions and the type of notes receivable originated and revised as
necessary using the original discount rate used in calculating the gain on sale.
Losses arising from adverse prepayment experience were recognized as a charge to
earnings while favorable experience was not recognized until realized [see note
2(i)].
(e) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the following assets' estimated useful lives:
<TABLE>
<S> <C>
Building and improvements............................. 20 to 45 years
Equipment, furniture and fixtures..................... 3 to 12 years
Leasehold improvements................................ 2 to 5 years
</TABLE>
F-10
<PAGE> 70
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(f) ADVERTISING
Advertising costs, included in sales and marketing expenses in the
accompanying combined statements of income, are expensed as incurred and
amounted to $1,783, $2,012 and $4,036 for the years ended December 31, 1994,
1995 and 1996, respectively.
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Company is included in the consolidated tax return of the Parent. TW
Holdings filed a separate tax return for 1994. The Parent allocates the combined
current and deferred tax expense to the Company as if the Company had filed on a
stand-alone basis.
(h) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the combined financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these combined financial statements in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates and assumptions.
(i) EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS No. 121 in the first quarter of 1996 and there was no
material impact on the Company's operations or financial position upon adoption.
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Those standards are based
on consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively.
F-11
<PAGE> 71
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
The adoption of SFAS No. 125 on January 1, 1997 resulted in an increase in
the carrying value of the Company's residual interest in notes receivable sold
at December 31, 1996 of $755 and $111 related to the sales of notes receivable
to Investors and to the LLC, respectively, (see note 5); and a corresponding
increase in finance income for the three months ended March 31, 1997 as the
Company classifies the residual interest in notes receivable sold as a trading
security under SFAS No. 115.
Beginning January 1, 1997, changes in the fair market value of the residual
interest in notes receivable sold will be recognized as finance income. For the
three months ended March 31, 1997, there was an increase in such fair market
value in the amount of $247 recorded as finance income related to the Company's
residual interest in notes receivable sold to Investors and to the LLC. The
Company's transfer of receivables to Investors did not meet the sale recognition
criteria of SFAS No. 125 during the three months ended March 31, 1997 and have
therefore been accounted for as secured borrowings. Subsequent to March 31,
1997, the Company modified its transfer arrangements so that notes receivable
transferred to the Investors will qualify for sales recognition under SFAS No.
125.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. SFAS
No. 128 establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential common
stock. This statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. The Company does not anticipate a material impact upon
adoption of this standard.
(3) MARKETABLE SECURITIES
In 1995, the Company sold marketable equity securities to the Parent. No
gain or loss was realized on this transaction.
(4) NOTES RECEIVABLE
The Company provides financing to the purchasers of Vacation Credits. The
notes resulting from sales of Vacation Credits in 1995 and 1996 bear interest at
13.9% or 14.9%, depending on method of payment, and are written with initial
terms of up to 84 months. Once a 10% down payment has been received, the Company
has no obligation under the notes to refund monies or provide further services
to Owners in the event membership is terminated for nonpayment of contract
obligations.
Maturities of notes receivable at December 31, 1996 are as follows during
the next five years and thereafter:
<TABLE>
<S> <C>
1997....................................... $ 6,369
1998....................................... 7,116
1999....................................... 7,796
2000....................................... 8,326
2001....................................... 8,477
Thereafter................................. 14,364
-------
$52,448
=======
</TABLE>
Customers over 60 days past due on monthly payments are considered
delinquent. Delinquent notes receivable represent 3.78% and 4.17% of notes
receivable at December 31, 1995 and 1996, respectively.
F-12
<PAGE> 72
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
The activity in the allowance for doubtful accounts, recourse liability and
sales returns is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balances at beginning of period............... $ 2,930 $ 5,284 $ 7,964
Provision for doubtful accounts, recourse
liability and sales returns................. 5,500 7,655 10,078
Notes receivable charged-off and sales returns
net of Vacation Credits recovered........... (3,284) (5,088) (6,873)
Recoveries.................................... 138 113 72
------- ------- -------
Balances at end of period..................... $ 5,284 $ 7,964 $11,241
======= ======= =======
Allowance for doubtful accounts and sales
returns..................................... 3,584 5,429 5,832
Allowance for recourse liability on notes
receivable sold............................. 1,700 2,535 5,409
------- ------- -------
$ 5,284 $ 7,964 $11,241
======= ======= =======
</TABLE>
At March 31, 1997, the allowance for doubtful accounts and sales returns is
$7,060 and the allowance for recourse liability on notes receivable sold is
$4,859.
Total notes receivable outstanding, including notes receivable sold (see
note 5), amounted to $127,335 and $180,323 at December 31, 1995 and 1996,
respectively.
(5) SALES OF NOTES RECEIVABLE
(i) TW HOLDINGS
Prior to January 1, 1997, the Company sold through TW Holdings, an 80%
interest in certain notes receivable to outside investors primarily through an
agreement, as amended on December 31, 1996, expiring June 30, 1997 (Agreement)
with Seattle-First National Bank and other purchasers (Investors). Under the
terms of the Agreement, up to $68,000 of receivables could be sold to the
Investors and proceeds from the collection of sold note receivables could be
used to purchase additional notes receivable. The notes receivable have stated
rates of 13.9%-14.9% and were sold at par to yield LIBOR plus 1.5% per annum to
the Investors. The 20% retained interest is recorded as notes receivable whereas
the residual interest in the excess cash flows of notes receivable sold is
classified as residual interest in notes receivable sold, and beginning January
1, 1997 is measured at fair value under SFAS No. 125.
Total notes receivable sold and outstanding under this Agreement amounted
to $68,000 and $55,000 at December 31, 1995 and 1996, respectively.
The Investors have recourse to the Company's retained interest in notes
receivable sold under certain default provisions related primarily to the
delinquency status of the notes receivable sold. The Company's retained interest
included in notes receivable in the accompanying combined balance sheets
amounted to $17,000 and $13,750 at December 31, 1995 and 1996, respectively.
As described in note 2(i), transactions during the three months ended March
31, 1997 under the Agreement have been accounted for as secured borrowings.
Borrowings under the Agreement amounted to $14,419 at March 31, 1997, are
secured by notes receivable and bear interest at LIBOR plus 1.5% per annum.
F-13
<PAGE> 73
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
The borrowings require payments of interest. Principal collections on the notes
receivable are required to be reinvested in additional notes receivable or used
to reduce the outstanding borrowings. Subsequent to March 31, 1997, the
Agreement was amended to increase the amount which could be sold or borrowed to
$93,000, extend the term to June 30, 1998 and reduce the yield rate to LIBOR
plus 1.25% per annum.
(ii) TRENDWEST FUNDING
In 1996 the Company sold through Trendwest Funding, certain notes
receivable to the LLC in exchange for cash, a subordinated note payable from the
LLC and a residual interest in the excess cash flows of the LLC. The
subordinated note payable from the LLC represents the Company's retained
interest in notes receivable which provide collateral to holders of notes issued
by the LLC (the LLC noteholders) and is classified as notes receivable in the
accompanying combined balance sheet. The residual interest in the excess cash
flows of the LLC is classified as residual interest in notes receivable sold,
and beginning January 1, 1997 is measured at fair value under SFAS No. 125.
The LLC noteholders and the LLC outside investor have recourse to the
Company's retained interest in notes receivable sold under certain default
provisions related primarily to the delinquency status of the notes receivable
sold. The Company's retained interest is included in notes receivable in the
accompanying combined balance sheets, and amounted to approximately $12,600 at
December 31, 1996.
(6) DUE TO PARENT
The Company has an open revolving credit line with its Parent to meet
operating needs and invest excess funds. The Parent has not set a limit on the
credit line, which line is payable on demand. It bears interest at the prime
rate plus 1% per annum (9.25% at December 31, 1996).
(7) PROPERTY AND EQUIPMENT
Property and equipment, net, consists primarily of the Company's corporate
headquarters and leased sales offices as follows at December 31:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Land....................................................... $ 877 $ 877
Building and improvements.................................. 3,005 3,586
Equipment, furniture and fixtures.......................... 1,807 2,504
Leasehold improvements..................................... 185 336
------ ------
5,874 7,303
Less accumulated depreciation and amortization............. 1,040 1,391
------ ------
$4,834 $5,912
====== ======
</TABLE>
F-14
<PAGE> 74
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(8) DEFERRED GROSS PROFIT
The Company accounts for certain Upgrade sales on the installment method
prior to satisfaction of minimum down payment requirements. Information for
those transactions follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Gross sales value............................... $4,229 $8,266 $15,618
====== ====== =======
Gross profit deferred........................... $1,958 $3,826 $ 7,328
Gross profit recognized......................... 1,247 2,346 4,591
------ ------ -------
Net gross profit deferred during period......... $ 711 $1,480 $ 2,737
====== ====== =======
</TABLE>
Notes receivable is presented net of deferred gross profit in the
accompanying combined balance sheets. Such deferred amounts aggregated $620 and
$1,168 at December 31, 1995 and 1996, respectively.
Deferred gross profit related to notes receivable sold is combined with
allowance for recourse liability on notes receivable sold in the accompanying
combined balance sheets. Such deferred amounts aggregated $2,482 and $4,671 at
December 31, 1995 and 1996, respectively.
(9) NOTES PAYABLE
The Company has a line of credit of $5,000 with FINOVA Capital Corporation.
The outstanding balance at December 31, 1995 and 1996 was $2,443 and $1,054,
respectively. Notes receivable are assigned to the lender and as principal
payments are received, they are applied to this loan. The agreement requires
replacement of notes that become 60 days past due and bears interest at 10.5%
per annum. The agreement also requires the Company to maintain minimum financial
ratios, restricts certain expenses and limits cash distributions. The line of
credit matures in 2000.
(10) INCOME TAXES
The provision for income taxes consists of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Federal:
Current........................................ $4,141 $5,218 $7,426
Deferred....................................... (936) (308) (450)
------ ------ ------
3,205 4,910 6,976
------ ------ ------
State:
Current........................................ 73 125 344
Deferred....................................... (64) (56) 28
------ ------ ------
9 69 372
------ ------ ------
Total.................................. $3,214 $4,979 $7,348
====== ====== ======
</TABLE>
F-15
<PAGE> 75
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below at December 31:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses.............................. $2,980 $4,206
Deferred gross profit.................................... 1,161 2,185
Other.................................................... 516 571
------ ------
Total deferred tax assets........................ 4,657 6,962
------ ------
Deferred tax liability:
Residual interest in notes receivable sold............... 1,807 3,375
Other assets............................................. 253 196
Property and equipment................................... 59 120
Other.................................................... 600 911
------ ------
Total deferred tax liability..................... 2,719 4,602
------ ------
Net deferred tax asset........................... $1,938 $2,360
====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will
realize the benefits of these deferred tax assets.
Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to pretax income as a result of the following for
the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income tax at Federal statutory rate............... 35.0% 35.0% 35.0%
State tax, net of Federal benefit.................. 2.0 2.0 2.4
Other.............................................. 0.6 (0.8) (0.7)
---- ---- ----
37.6% 36.2% 36.7%
==== ==== ====
</TABLE>
(11) EMPLOYEE NOTES FOR COMMON STOCK
Notes accepted upon the purchase of Company common stock are secured by the
stock, bear interest at 9% per annum and are included as a reduction to
stockholders' equity. In 1995, certain individuals exchanged their Company
common stock for common stock of the Parent and the notes were repaid.
F-16
<PAGE> 76
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(12) PARENT 401(k) Plan
The Company participates in the Parent 401(k) plan. Company contributions,
which are invested in Parent common stock, are at the discretion of the Board of
Directors of the Parent and totaled $945, $1,283 and $1,686 for the years ended
December 31, 1994, 1995 and 1996, respectively.
(13) INTEREST RATE CAP AGREEMENT
In March 1995, the Company entered into an interest rate cap agreement at a
cost of $92 to reduce the impact of changes in interest rates on its notes
receivable sold. The interest rate cap agreement has a 30-day notional principal
amount of $31,800 on which the Company receives interest payments to the extent
that LIBOR exceeds an annualized rate of 10.125%.
The interest rate cap agreement expires in April 1998. The Company is
exposed to credit loss in the event of nonperformance by the other party to the
interest rate cap agreement. However, the Company believes the risk of incurring
losses related to credit risk is remote and any losses would be immaterial. No
payments have been received by the Company under the terms of the agreement.
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition. Fair values
are based on estimates using present value or other valuation techniques in
cases where quoted market prices are not available. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
Estimated fair values, carrying values and various methods and assumptions
used in valuing the Company's financial instruments are set forth below at
December 31:
<TABLE>
<CAPTION>
1995 1996
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash(a)........................... $ 135 $ 135 $ 93 $ 93
Restricted cash(a)................ 381 381 709 709
Notes receivable(a)............... 41,263 41,263 46,616 46,616
Residual interest in notes
receivable sold(b)............. 6,451 7,323 10,839 11,705
Financial liabilities:
Due to Parent(c).................. 22,284 22,284 21,316 21,316
Recourse liability on notes
sold(a)........................ 2,535 2,535 5,409 5,409
Notes payable(c).................. 2,542 2,542 1,055 1,055
</TABLE>
F-17
<PAGE> 77
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
- ---------------
(a) The carrying value, prior to consideration of deferred gross profit in the
case of notes receivable, is considered to be a reasonable estimate of fair
value.
(b) Fair value is determined using estimated discounted future cash flows taking
into consideration anticipated prepayment rates.
(c) The carrying value reported approximates fair value due to the variable
interest rates charged on the borrowings.
Because no market exists for a portion of the financial instruments, fair
value estimates may be based on judgments regarding future instruments and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
The fair market value of the interest rate cap agreement is based on
current interest rates and is estimated to be $0 at December 31, 1995 and 1996.
(15) RELATED PARTY TRANSACTIONS
(a) NOTES RECEIVABLE
The Company, on an ongoing basis, acquires from and sells notes receivable
to related parties. A summary of these transactions follows for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- ------
<S> <C> <C> <C>
Sales of notes receivable:
Members of the Board of Directors of the
Parent (at face value, full recourse)...... $9,714 $ 3,905 $3,350
I&I Holdings, a subsidiary of the Parent (at
face value, full recourse)................. 13 1,321 232
Parent Foundation (at face value, full
recourse).................................. 297 191 211
Purchases of notes receivable:
Eagle Crest Partners, Ltd., a subsidiary of
the Parent (at face value, full
recourse).................................. 6,005 11,305 8,993
Running Y Resorts, Ltd., a subsidiary of the
Parent (at face value, full recourse)...... -- -- 2,157
</TABLE>
With respect to notes receivable sold to members of the Board of Directors
of the Parent and I&I Holdings of the Parent, the Company services such
receivables without compensation.
The outstanding balance of notes receivable sold with full recourse to
related parties amounted to $18,747 and $18,512 at December 31, 1995 and 1996,
respectively.
F-18
<PAGE> 78
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(b) WORLDMARK
The Company manages the resort properties transferred to WorldMark under
the terms of a management agreement which is subject to annual approval by the
Members. Under the terms of the management agreement, the Company receives a
management fee equal to the lesser of 15% of WorldMark's budgeted expenditures
or net profit of WorldMark and is reimbursed for certain expenses. In addition,
the Company is responsible for paying annual dues on Vacation Credits which it
owns prior to their sale to customers. A summary of these transactions follows
for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
WorldMark:
Management fee income.......................... $ 173 $ 747 $1,103
Dues expense incurred by Trendwest............. 137 512 273
Reimbursed salaries............................ 528 1,533 3,103
Resort operations, maid and key service
income...................................... 1,034 332 --
Other reimbursed expenses...................... 170 297 323
</TABLE>
(c) PARENT AND OTHER RELATED PARTY
In addition to the note payable to Parent described in note 6, the Company
reimburses the Parent for administrative services received and its share of
insurance expenses. Also, the Parent is named as the master servicer under the
terms of certain sales of notes receivable and receives a servicing fee of 1.75%
per annum of the sold receivables to service the receivable. The Parent
subcontracts the servicing to Trendwest for a servicing fee of 1.25% per annum
of the sold receivable balance. Trendwest also received a servicing fee from TRI
Funding Company I, LLC of 1.75% per annum of the sold receivables' balance.
Trendwest, in turn, subcontracts components of the servicing to a third-party
servicer, SAGE. A summary of these transactions follows for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1995 1996
---- ------ ------
<S> <C> <C> <C>
Parent:
Interest income.................................. $167 $ -- $ 451
Interest expense................................. 114 1,993 2,564
Insurance expense................................ 786 879 1,304
Administrative service expense................... 544 723 913
Servicing fee expense, net....................... 604 1,163 1,008
TRI Funding Company I, LLC -- servicing fee
income........................................... -- -- 925
</TABLE>
(16) COMMITMENTS AND CONTINGENCIES
(a) PURCHASE COMMITMENTS
The Company routinely enters into purchase agreements with various
developers to acquire and build resort properties. At December 31, 1996 and
March 31, 1997, the Company had outstanding purchase commitments of $28,077 and
$23,219, respectively, related to properties under development.
F-19
<PAGE> 79
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(b) TAX CONTINGENCY
The Internal Revenue Service (IRS) is currently auditing the 1991, 1992 and
1993 tax returns of Trendwest, Inc., the former parent of the Company. The
Company is a party to this matter. The IRS has issued a letter to Trendwest,
Inc. setting forth the adjustments proposed by the examining agent. The letter
recommends a finding for tax and interest totaling approximately $9,300. The
finding relates primarily to the disallowance of all resort property costs.
Trendwest, Inc. has appealed the letter and the Company believes that this
matter is close to resolution and that the amount of any actual deficiency will
not be material to the Company's financial position, results of operations or
liquidity.
(c) LITIGATION
The Company is involved in various claims and lawsuits arising in the
ordinary course of business. Management believes the outcome of these matters
will not have a material adverse effect on the Company's financial position,
results of operations or liquidity.
(d) LEASE COMMITMENTS
The Company has various operating lease agreements, primarily for sales
offices. These obligations generally have remaining noncancelable terms of five
years or less. Future minimum lease payments are as follows for the years ending
December 31:
<TABLE>
<S> <C>
1997........................................ $1,255
1998........................................ 1,044
1999........................................ 922
2000........................................ 807
2001........................................ 363
</TABLE>
Rental expense amounted to $877, $1,126 and $1,426 for the years ended
December 31, 1994, 1995 and 1996, respectively.
(17) SUBSEQUENT EVENTS
On May 8, 1997, the Board of Directors of Trendwest (Board) authorized the
filing of a registration statement with the Securities and Exchange Commission
and the issuance of 5,193,693 shares of common stock (post-stock split) to
Parent in conjunction with the Consolidation Transactions. The Consolidation
Transactions occurred on June 30, 1997. The Board also authorized the pricing
committee of the Board to declare a stock split in contemplation of the IPO, and
amended the Company's articles of incorporation, subject to stockholder
approval, to increase the number of authorized shares of common stock to
90,000,000 and to establish preferred stock with 10,000,000 shares authorized
and terms to be determined by the Board.
The Board also adopted the 1997 Stock Option Plan (the "1997 Plan") and
authorized up to 5% of the number of common stock outstanding from time to time
for issuance thereunder.
As authorized, the pricing committee of the Board declared a 513.211 for 1
stock split effective July 2, 1997, the date of the filing of the amended
articles of incorporation. The accompanying combined financial statements have
been retroactively restated to give effect to this stock split.
F-20
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
Board of Directors
WorldMark, The Club
We have audited the accompanying balance sheets of WorldMark, The Club (the
Club) as of December 31, 1995 and 1996 and the related statements of revenues,
expenses and changes in fund balances and cash flows for each of the years in
the three year period ended December 31, 1996. These financial statements are
the responsibility of the Club's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 WorldMark, The Club as of
December 31, 1995 and 1996 and the results of its operations and cash flows for
each of the years in the three year period ended December 31, 1996 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying information on future
major repairs and replacements is not a required part of the basic financial
statements but is supplementary information required by the American Institute
of Certified Public Accountants. The information on condominiums owned is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. We have applied certain limited procedures, which
consisted principally of inquiries of management regarding the methods of
measurement and presentation of the supplementary information. However, we did
not audit the information and express no opinion on it.
Molatore, Peugh, McDaniel, Scroggin &
Co. LLP
CERTIFIED PUBLIC ACCOUNTANTS
Klamath Falls, Oregon
March 31, 1997
F-21
<PAGE> 81
WORLDMARK, THE CLUB
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1997
DECEMBER 31, 1995 DECEMBER 31, 1996 (UNAUDITED)
------------------------------------- -------------------------------------- ------------------------
OPERATING REPLACEMENT TOTAL OPERATING REPLACEMENT TOTAL OPERATING REPLACEMENT
FUND FUND ALL FUNDS FUND FUND ALL FUNDS FUND FUND
---------- ----------- ---------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents..... $ 437,748 $ -- $ 437,748 $ 261,864 $ 158,429 $ 420,293 $ 588,909 $ 603,115
Member dues
receivable...... 4,796,433 -- 4,796,433 6,693,880 -- 6,693,880 6,357,389 --
Other
receivables..... 68,556 -- 68,556 261,968 -- 261,968 453,050 --
Marketable
securities held
to maturity..... 563,807 1,960,237 2,524,044 592,479 3,153,098 3,745,577 592,479 3,152,351
Property and
equipment,
net............. 71,764 -- 71,764 188,357 -- 188,357 228,518 --
Prepaids and other
assets.......... 227,585 -- 227,585 458,079 -- 458,079 607,884 --
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Total
Assets...... $6,165,893 $1,960,237 $8,126,130 $8,456,627 $3,311,527 $11,768,154 $8,828,229 $3,755,466
========== ========== ========== ========== ========== =========== ========== ==========
LIABILITIES AND FUND EQUITY
Liabilities
Accounts payable
and accrued
expenses........ $ 533,427 $ -- $ 533,427 $ 393,172 $ -- $ 393,172 $1,078,095 $ --
Accounts payable
to Developer.... 500,698 -- 500,698 622,370 -- 622,370 497,895 --
Deferred
revenue......... 5,131,768 -- 5,131,768 7,441,085 -- 7,441,085 7,252,239 --
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Total
Liabilities... 6,165,893 -- 6,165,893 8,456,627 -- 8,456,627 8,828,229 --
Fund Balance
Reserve for
replacements.... -- 1,960,237 1,960,237 -- 3,311,527 3,311,527 -- 3,755,466
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Total
Liabilities
and Fund
Balance..... $6,165,893 $1,960,237 $8,126,130 $8,456,627 $3,311,527 $11,768,154 $8,828,229 $3,755,466
========== ========== ========== ========== ========== =========== ========== ==========
<CAPTION>
TOTAL
ALL FUNDS
-----------
<S> <C>
Cash and cash
equivalents..... $ 1,192,024
Member dues
receivable...... 6,357,389
Other
receivables..... 453,050
Marketable
securities held
to maturity..... 3,744,830
Property and
equipment,
net............. 228,518
Prepaids and other
assets.......... 607,884
-----------
Total
Assets...... $12,583,695
===========
Liabilities
Accounts payable
and accrued
expenses........ $ 1,078,095
Accounts payable
to Developer.... 497,895
Deferred
revenue......... 7,252,239
-----------
Total
Liabilities... 8,828,229
Fund Balance
Reserve for
replacements.... 3,755,466
-----------
Total
Liabilities
and Fund
Balance..... $12,583,695
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 82
WORLDMARK, THE CLUB
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND BALANCES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1995 1996
-------------------------------------- -------------------------------------- -------------------------
OPERATING REPLACEMENT TOTAL OPERATING REPLACEMENT TOTAL OPERATING REPLACEMENT
FUND FUND ALL FUNDS FUND FUND ALL FUNDS FUND FUND
---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Member
assessments..... $4,327,421 $ -- $ 4,327,421 $ 7,216,611 $ -- $7,216,611 $10,733,308 $ --
Interest income... 13,763 27,292 41,055 15,366 86,630 101,996 20,558 177,421
Other income...... 700,538 -- 700,538 1,459,503 -- 1,459,503 2,090,532 --
---------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total
income.... 5,041,722 27,292 5,069,014 8,691,480 86,630 8,778,110 12,844,398 177,421
---------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Expenses
Property operating
expenses........ 3,100,576 350,910 3,451,486 5,287,309 410,897 5,698,206 7,665,860 576,555
General and
administrative.. 1,008,679 -- 1,008,679 1,502,570 -- 1,502,570 2,325,160 --
Management fees
paid to
developer....... 172,531 -- 172,531 746,672 -- 746,672 1,102,954 --
---------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Total
expenses... 4,281,786 350,910 4,632,696 7,536,551 410,897 7,947,448 11,093,974 576,555
---------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Excess (Deficit) of
Revenues Over
Expenses.......... 759,936 (323,618) 436,318 1,154,929 (324,267) 830,662 1,750,424 (399,134)
Fund Balance,
Beginning of
Year.............. 3,324 689,933 693,257 -- 1,129,575 1,129,575 -- 1,960,237
Transfer to
Replacement
Fund.............. (763,260) 763,260 -- (1,154,929) 1,154,929 -- (1,750,424) 1,750,424
---------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Fund Balance, End of
Year................ $ -- $1,129,575 $ 1,129,575 $ -- $1,960,237 $1,960,237 $ -- $3,311,527
========== ========== ========== =========== ========== ========== =========== ==========
<CAPTION>
TOTAL
ALL FUNDS
-----------
<S> <<C>
Revenues
Member
assessments..... $10,733,308
Interest income... 197,979
Other income...... 2,090,532
-----------
Total
income.... 13,021,819
-----------
Expenses
Property operating
expenses........ 8,242,415
General and
administrative.. 2,325,160
Management fees
paid to
developer....... 1,102,954
-----------
Total
expenses... 11,670,529
-----------
Excess (Deficit) of
Revenues Over
Expenses.......... 1,351,290
Fund Balance,
Beginning of
Year.............. 1,960,237
Transfer to
Replacement
Fund.............. --
-----------
Fund Balance, End of
Year................ $ 3,311,527
===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996 FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED) (UNAUDITED)
------------------------------------------ -----------------------------------------
OPERATING REPLACEMENT TOTAL OPERATING REPLACEMENT TOTAL
FUND FUND ALL FUNDS FUND FUND ALL FUNDS
---------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Member assessments..................... $2,329,728 $ -- $ 2,329,728 $3,574,745 $ -- $3,574,745
Interest income........................ 15,479 30,290 45,769 14,236 49,405 63,641
Other income........................... 482,497 -- 482,497 672,862 -- 672,862
---------- ---------- ---------- ---------- ---------- ----------
Total income..................... 2,827,704 30,290 2,857,994 4,261,843 49,405 4,311,248
---------- ---------- ---------- ---------- ---------- ----------
Expenses
Property operating expenses............ 1,655,429 54,930 1,710,359 2,341,618 165,368 2,506,986
General and administrative............. 527,767 -- 527,767 700,265 -- 700,265
Management fees paid to Developer...... 280,577 -- 280,577 660,058 -- 660,058
---------- ---------- ---------- ---------- ---------- ----------
Total expenses................... 2,463,773 54,930 2,518,703 3,701,941 165,368 3,867,309
---------- ---------- ---------- ---------- ---------- ----------
Excess (Deficit) of Revenues Over
Expenses............................... 363,931 (24,640) 339,291 559,902 (115,963) 443,939
Fund Balance, Beginning of Period........ -- 1,960,237 1,960,237 -- 3,311,527 3,311,527
Transfer to Replacement Fund............. (363,931) 363,931 -- (559,902) 559,902 --
---------- ---------- ---------- ---------- ---------- ----------
Fund Balance, End of Period.............. $ -- $2,299,528 $ 2,299,528 $ -- $3,755,466 $3,755,466
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 83
WORLDMARK, THE CLUB
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1995 1996
------------------------------------- ------------------------------------- ------------------------
OPERATING REPLACEMENT TOTAL OPERATING REPLACEMENT TOTAL OPERATING REPLACEMENT
FUND FUND ALL FUNDS FUND FUND ALL FUNDS FUND FUND
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities
Excess (deficit) of
revenues over
expenses......... $ 759,936 $(323,618) $ 436,318 $ 1,154,929 $ (324,267) $ 830,662 $ 1,750,424 $ (399,134)
Add non-cash items
included in
excess (deficit)
of revenues over
expenses
Depreciation..... 12,698 -- 12,698 13,538 -- 13,538 33,206 --
Amortization of
premium and
discount on
marketable
securities..... 2,752 -- 2,752 452 -- 452 -- --
Changes in assets
and liabilities
Transfer to
replacement
fund............. (763,260) 763,260 -- (1,154,929) 1,154,929 -- (1,750,424) 1,750,424
(Increase) in
member dues
receivable..... (1,098,738) -- (1,098,738) (1,722,150) -- (1,722,150) (1,897,447) --
(Increase)
decrease in
other
receivables.... 5,900 -- 5,900 (63,986) -- (63,986) (193,412) --
(Increase) in
prepaids and
other assets... (61,408) -- (61,408) (82,596) -- (82,596) (230,494) --
Increase
(decrease) in
accounts
payable and
accrued
expenses....... 85,123 -- 85,123 252,264 -- 252,264 (140,255) --
Increase in
accounts
payable to
Developer...... 46,132 -- 46,132 454,204 -- 454,204 121,672 --
Increase in
deferred
revenue........ 1,090,183 -- 1,090,183 1,985,299 -- 1,985,299 2,309,317 --
----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Net Cash Provided
From Operating
Activities..... 79,318 439,642 518,960 837,025 830,662 1,667,687 2,587 1,351,290
----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Cash Flows From
Investing
Activities
Provided by
maturity of
marketable
securities......... 99,000 -- 99,000 -- 275,000 275,000 100,000 254,000
Used for
investments in
marketable
securities....... (255,774) (567,936) (823,710) (347,257) (1,236,456) (1,583,713) (136,107) (1,446,861)
Used for purchases
of property and
equipment........ (5,971) -- (5,971) (73,412) -- (73,412) (142,364) --
----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Net Cash Used For
Investing
Activities..... (162,745) (567,936) (730,681) (420,669) (961,456) (1,382,125) (178,471) (1,192,861)
----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Net Increase
(Decrease) in
Cash and Cash
Equivalents.... (83,427) (128,294) (211,721) 416,356 (130,794) 285,562 (175,884) 158,429
Cash and Cash
Equivalents,
Beginning of
Year............... 104,819 259,088 363,907 21,392 130,794 152,186 437,748 --
----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Cash and Cash
Equivalents, End of
Year............... $ 21,392 $ 130,794 $ 152,186 $ 437,748 $ -- $ 437,748 $ 261,864 $ 158,429
=========== ========= =========== =========== =========== =========== =========== ===========
<CAPTION>
TOTAL
ALL FUNDS
-----------
<S> <C>
Cash Flows From Operating
Activities
Excess (deficit) of
revenues over
expenses......... $ 1,351,290
Add non-cash items
included in
excess (deficit)
of revenues over
expenses
Depreciation..... 33,206
Amortization of
premium and
discount on
marketable
securities..... --
Changes in assets
and liabilities
Transfer to
replacement
fund............. --
(Increase) in
member dues
receivable..... (1,897,447)
(Increase)
decrease in
other
receivables.... (193,412)
(Increase) in
prepaids and
other assets... (230,494)
Increase
(decrease) in
accounts
payable and
accrued
expenses....... (140,255)
Increase in
accounts
payable to
Developer...... 121,672
Increase in
deferred
revenue........ 2,309,317
-----------
Net Cash Provided
From Operating
Activities..... 1,353,877
-----------
Cash Flows From
Investing
Activities
Provided by
maturity of
marketable
securities......... 354,000
Used for
investments in
marketable
securities....... (1,582,968)
Used for purchases
of property and
equipment........ (142,364)
-----------
Net Cash Used For
Investing
Activities..... (1,371,332)
-----------
Net Increase
(Decrease) in
Cash and Cash
Equivalents.... (17,455)
Cash and Cash
Equivalents,
Beginning of
Year............... 437,748
-----------
Cash and Cash
Equivalents, End of
Year............... $ 420,293
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 84
WORLDMARK, THE CLUB
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH FOR THE THREE MONTHS ENDED MARCH 31,
31, 1996 (UNAUDITED) 1997 (UNAUDITED)
----------------------------------- ------------------------------------
OPERATING REPLACEMENT TOTAL OPERATING REPLACEMENT TOTAL
FUND FUND ALL FUNDS FUND FUND ALL FUNDS
--------- ----------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Excess (deficit) of revenues over
expenses................................. $ 363,931 $ (24,640) $ 339,291 $ 559,902 $(115,963) $ 443,939
Add non-cash items included in excess
(deficit) of revenues over expenses
Depreciation............................. 5,097 -- 5,097 12,972 -- 12,972
Amortization of premium and discount on
marketable securities.................. -- -- -- -- 747 747
Changes in assets and liabilities..........
Transfer to replacement fund............. (363,931) 363,931 -- (559,902) 559,902 --
Decrease in member dues receivable....... 227,514 -- 227,514 336,461 -- 336,461
(Increase) decrease in other
receivables............................ 45,626 -- 45,626 (191,082) -- (191,082)
(Increase) decrease in prepaids and other
assets................................. 13,302 -- 13,302 (149,805) -- (149,805)
Increase in accounts payable and accrued
expenses............................... 64,057 -- 64,057 684,923 -- 684,923
(Decrease) in accounts payable to
Developer.............................. (106,702) -- (106,702) (124,475) -- (124,475)
Increase (decrease) in deferred
revenue................................ 11,993 -- 11,993 (188,846) -- (188,846)
--------- --------- --------- --------- --------- ----------
Net Cash Provided From Operating
Activities........................ 260,887 339,291 600,178 380,148 444,686 824,834
--------- --------- --------- --------- --------- ----------
Cash Flows From Investing Activities
Provided by maturity of marketable
securities............................... -- 98,346 98,346 -- -- --
Used for investments in marketable
securities............................... (136,722) (423,008) (559,730) -- -- --
Used for purchases of property and
equipment................................ (52,888) -- (52,888) (53,103) -- (53,103)
--------- --------- --------- --------- --------- ----------
Net Cash Used For Investing
Activities........................ (189,610) (324,662) (514,272) (53,103) -- (53,103)
--------- --------- --------- --------- --------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents.................. 71,277 14,629 85,906 327,045 444,686 771,731
Cash and Cash Equivalents, Beginning of
Period..................................... 437,748 -- 437,748 261,864 158,429 420,293
--------- --------- --------- --------- --------- ----------
Cash and Cash Equivalents, End of Period..... $ 509,025 $ 14,629 $ 523,654 $ 588,909 $ 603,115 $1,192,024
========= ========= ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 85
WORLDMARK, THE CLUB
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- The Club is organized as a nonprofit mutual
benefit corporation and is engaged in the business of operating and maintaining
resort properties for use by its members. The Club has entered into a vacation
timeshare program with Trendwest Resorts, Inc. (the Developer) whereby the
Developer acquires or develops condominium resort properties and transfers
ownership of completed units free and clear of any liens or encumbrances to the
Club in exchange for the exclusive right to sell vacation timeshare credits
assigned to those units.
Parties purchasing timeshare credits from the Developer become members of
the Club and have the right to use any resort condominium in the system subject
to availability and the number of credits the member has available for use.
The Club has entered into a management agreement with the Developer to
manage and operate the resort properties. The Club pays for all operating,
maintenance and replacement costs.
Member Assessments -- Members pay dues and special assessments to the Club
to cover operating costs and to provide funds for estimated future replacements
of the resort properties. Members are billed annually on their membership date
for their total annual dues which are due and payable on a quarterly basis.
Revenue is recognized on member dues as it is earned on a monthly basis.
Member dues receivable at the balance sheet date represent the total annual
dues billed to the members less the amount of quarterly dues paid. Deferred
revenue at the balance sheet date represents dues billed but not yet earned.
To encourage prompt payment of member dues, the Club's policy is to suspend
the member's right to use the Club facilities when members become thirty days or
more delinquent in payment of their dues. The Club has the right to foreclose
vacation credits for the nonpayment of dues and allow the Developer to resell
the vacation credits subject to the Developer paying any outstanding membership
dues associated with the credits repossessed. Since the Developer desires to
resell the credits, delinquent dues are generally paid by the Developer
resulting in no loss to the Club.
Unsold vacation timeshare credits are held by the Developer and any dues
assessed against those credits are paid by the Developer.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Vacation credits........................ 212,120,790 304,713,004 348,525,000
Vacation credits held by the
Developer............................. 3,215,790 8,085,004 29,271,003
</TABLE>
Basis of Presentation -- The Club follows the financial reporting practices
of Common Interest Realty Associations (CIRAs) as presented in the AICPA Audit
and Accounting Guide for CIRAs (AICPA Guide). The Guide defines as common
property, property such as the Club's, wherein title or other evidence of
ownership is held directly by a CIRA.
Fund Accounting -- The Club uses fund accounting to observe the limitations
and restrictions placed on its financial resources by its governing documents.
Financial resources are classified for accounting and reporting purposes in the
following funds established according to their nature and purpose:
Operating Fund -- This fund is used to account for financial resources
available for the general operations of the Club.
F-26
<PAGE> 86
WORLDMARK, THE CLUB
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Replacement Fund -- This fund is used to accumulate financial
resources designated for future major repairs and replacements.
Other Income -- Consists primarily of fees paid by members (bonus time) for
additional usage of condominiums not in use by members subject to availability
which primarily covers operating costs.
Cash And Cash Equivalents -- The Club considers all highly liquid
investments purchased with an original maturity date of 90 days or less to be
cash equivalents.
Reserve for Replacements -- An annual provision for replacements, based on
management's study of useful lives, is made to the extent required for the
estimated cost of refurbishing and replacing the interiors and furnishings of
the condominium units owned by the Club and maintaining the exteriors and common
areas of properties wholly owned by the Club. Actual expenditures may vary from
estimated future expenditures and the variations may be material. Actual
expenditures for replacements and renovations are charged to the replacement
fund.
Reserve funds for replacement are held in separate savings accounts and
investments and are generally not available for expenditures for normal
operations.
Estimates Required for Financial Reporting -- The preparation of financial
statements in conformity with generally accepted accounting principles requires
the use of estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
Interim Financial Data -- The unaudited interim financial statements have
been prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting principles. The
Club's interim results may be subject to fluctuations. As a result the Club
believes the results of operations for the interim periods are not necessarily
indicative of the results to be expected for any future period.
NOTE 2. FINANCIAL INSTRUMENTS
Financial Instruments -- The Company's recorded financial instruments
consist of cash, cash equivalents, member dues receivable, marketable securities
and accounts payable. The fair value of these financial instruments (except
marketable securities) approximate their recorded values.
Marketable securities consist entirely of long-term U.S. Treasury Notes
that management intends to hold to maturity.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Amortized cost...................... $2,524,044 $3,745,577
Fair market value................... 2,551,361 3,714,530
Gross unrealized gains.............. 34,638 11,697
Gross unrealized losses............. 7,321 42,744
</TABLE>
F-27
<PAGE> 87
WORLDMARK, THE CLUB
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
NOTE 2. FINANCIAL INSTRUMENTS (CONTINUED)
Marketable securities held to maturity will mature at face value without
regard to market gains or losses. Maturities as of December 31, 1996 were as
follows:
<TABLE>
<S> <C>
Within 1 year.................................... $ 908,000
1-5 years........................................ 1,892,000
6-10 years....................................... 917,000
----------
Total.................................. $3,717,000
==========
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Major classifications of property and equipment include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Office equipment....................... $115,323 $264,224
Building improvements.................. 650 1,726
-------- --------
115,973 265,950
Accumulated depreciation............... 44,209 77,593
-------- --------
$ 71,764 $188,357
======== ========
</TABLE>
In conformity with industry practice, as stated in the AICPA Guide, the
Club's policy for recognizing common property as assets in its balance sheet is
to recognize (a) common personal property and (b) real property to which it has
title and that it can dispose of for cash while retaining the proceeds or that
is used to generate significant cash flows from members on the basis of usage or
from nonmembers. The AICPA Guide defines as common property, property such as
the Club's, wherein title or other evidence of ownership is held directly by a
CIRA. All condominium units in the WorldMark system are held by the Club
directly because the Developer transfers the real property directly to the Club
when it is placed in service. The primary purpose of the properties is for use
by members. The properties are not held for sale, nor do they generate
significant cash flows on the basis of usage. Accordingly, condominium units
transferred from the Developer, and the related furnishings of such properties,
are not recorded in the Club's financial statements because of the restrictions
imposed by the by-laws on the board of directors' right to dispose of common
properties. Common personal property used to operate and maintain the units and
office equipment are recorded at cost and depreciated using the straight-line
method over the estimated useful life. Depreciation expense for the years ended
December 31, 1994, 1995 and 1996 totaled $12,698, $13,538 and $33,206,
respectively.
The Club held title to 499 and 746 condominium units at December 31, 1995
and 1996, respectively. The condominium units are located in Washington, Oregon,
Hawaii, Nevada, California, British Columbia and Mexico.
NOTE 4 -- INCOME TAXES
The Club is taxed as a corporation under Section 277 of the Internal
Revenue Code. No provision for current or deferred income taxes has been
included in these financial statements as net income for the operating fund is
zero and taxable income is insignificant. The Club treats a portion of the dues
paid by members as a nontaxable contribution to capital for future capital
improvements under Section 118 of the Internal Revenue Code.
F-28
<PAGE> 88
WORLDMARK, THE CLUB
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996 AND MARCH 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
NOTE 5 -- COMMITMENTS
The Club holds title to condominiums in Hawaii on land subject to
noncancelable operating leases which expire in the years 2024 and 2029.
Future minimum rental payments for years ending December 31 are:
<TABLE>
<S> <C>
1997............................................. $ 30,284
1998............................................. 30,284
1999............................................. 30,284
2000............................................. 30,284
2001............................................. 30,284
Thereafter....................................... 906,210
----------
$1,057,630
==========
</TABLE>
Total rental expense for operating leases amounted to $15,090, $24,485 and
$25,337 for the years ended December 31, 1994, 1995 and 1996, respectively.
NOTE 6 -- RELATED PARTY TRANSACTIONS
The Club has entered into a management agreement with the Developer which
is subject to annual approval by the members. Under the terms of the management
agreement, the Club pays a management fee equal to the lesser of 15% of the
Club's budgeted expenditures or net profit of the Club. In addition, the
Developer is responsible for paying annual dues on vacation credits which it
owns prior to their sale to members. The Club reimburses the Developer for
certain direct expenses including payroll and payroll taxes, rent, telephone and
postage. A summary of these transactions follows for the years ended December
31:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Dues on unsold vacation credits held in
inventory.................................... $ 136,546 $ 512,353 $ 273,234
Management fee expense......................... 172,531 746,672 1,102,954
Reimbursed wages............................... 528,321 1,533,074 3,102,717
Other reimbursed expenses...................... 170,276 296,755 323,495
Resort operations, maid and key services....... 1,033,975 331,729 --
</TABLE>
NOTE 7 -- CONCENTRATIONS OF CREDIT RISK
Member assessments receivable are due from economically diverse individuals
principally in the Western United States; the Developer has indicated that as
long as it is financially capable it would purchase all foreclosed vacation
credits for the unpaid dues recorded on the books of the Club and the Club is
secured by a collateral position in the vacation memberships sold.
Marketable securities consist entirely of obligations of the U.S.
Government.
The Club regularly has demand accounts on hand in financial institutions
which exceed depositors' insurance provided by the applicable guarantee agency.
F-29
<PAGE> 89
SUPPLEMENTARY INFORMATION
F-30
<PAGE> 90
WORLDMARK, THE CLUB
SCHEDULE OF CONDOMINIUMS OWNED
DECEMBER 31, 1996
<TABLE>
<CAPTION>
DEVELOPER'S
NUMBER OF ACQUISITION COST OF
NAME/LOCATION UNITS DATES ACQUISITION
- ----------------------------------------------- --------- ----------------- -----------
<S> <C> <C> <C>
Northshore Estates............................. 57 9/10/91-11/25/96 $ 7,082,210
Bass Lake, California
Palm Springs................................... 64 7/14/95-8/12/96 8,244,535
Palm Springs, California
Discovery Bay.................................. 32 1/24/92-12/21/95 4,546,791
Port Townsend, Washington
Eagle Crest.................................... 55 12/15/89-12/31/96 6,082,962
Redmond, Oregon
Birch Bay...................................... 52 11/26/90-7/21/95 7,305,114
Blaine, Washington
Kapaa Shores................................... 42 7/5/91-7/31/96 7,060,943
Kapaa, Kauai, Hawaii
Lake Chelan Shores............................. 13 8/1/90-3/25/94 1,545,937
Chelan, Washington
Mariner Village................................ 32 6/30/94-10/27/94 4,282,346
Ocean Shores, Washington
Otter Crest.................................... 9 9/12/89-5/10/91 698,170
Otter Rock, Oregon
Park Village................................... 48 7/8/92-11/13/96 6,512,717
Leavenworth, Washington
Sundance on the Edge........................... 25 2/28/92-12/21/94 4,088,792
Whistler, BC Canada
Surfside Inn................................... 25 9/20/91-11/6/92 1,441,659
Ocean Park, Washington
Tahoe Summit Village........................... 50 1/25/91-9/10/93 5,055,088
Stateline, Nevada
Valley Isle.................................... 14 9/26/89-8/29/94 2,595,247
Lahaina, Maui, Hawaii
Pismo Beach.................................... 20 4/30/93 2,783,686
Pismo Beach, California
Coral Baja..................................... 74 11/16/94-9/20/96 13,106,817
San Jose Del Cabo, Mexico
Gleneden....................................... 80 3/13/96-9/16/96 12,532,945
Gleneden Beach, Oregon
Big Bear....................................... 12 4/5/96 1,160,844
Big Bear Lake, California
Las Vegas...................................... 42 12/16/96 2,698,863
Las Vegas, Nevada
--- -----------
Total..................................... 746 $98,825,666
=== ===========
</TABLE>
F-31
<PAGE> 91
WORLDMARK, THE CLUB
SUPPLEMENTAL INFORMATION ON FUTURE MAJOR REPAIRS AND REPLACEMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED COMPONENTS
REMAINING CURRENT OF
USEFUL LIVES REPLACEMENT RESERVE
(YEARS) COSTS BALANCE
------------ ----------- ----------
<S> <C> <C> <C>
Roofs, decks and exteriors................................. 2.5 to 19.5 $ 1,349,480 $ 187,894
Cabinets, counters, furnaces, water heaters, tile, vinyl... 5.5 to 14.5 3,415,893 1,468,834
Furnishing and equipment................................... 1.5 to 9.5 4,528,045 1,654,799
---------- ----------
Total............................................ $ 9,293,418 $3,311,527
========== ==========
</TABLE>
F-32
<PAGE> 92
=========================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, by the Selling
Stockholder or by any of the Underwriters. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any security other than
the registered securities to which this Prospectus relates or any offer to any
person in any jurisdiction where such an offer would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information herein is correct as
of any time subsequent to the date hereof.
--------------------------
TABLE OF CONTENTS
--------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 10
Use of Proceeds......................... 17
Dividend Policy......................... 17
Capitalization.......................... 18
Dilution................................ 19
Selected Combined Financial and
Operating Data........................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 21
Business................................ 28
Management.............................. 42
Certain Transactions.................... 47
Principal and Selling Stockholders...... 50
Description of Capital Stock............ 50
Certain Provisions of Oregon Law and of
Trendwest's Articles of Incorporation
and Bylaws............................ 51
Shares Eligible For Future Sale......... 53
Underwriting............................ 54
Legal Matters........................... 55
Experts................................. 55
Change in Accountants................... 56
Additional Information.................. 58
Index to Financial Statements........... F-1
</TABLE>
Until September , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotment or
subscriptions.
=========================================================
=========================================================
2,875,000 SHARES
[TRENDWEST RESORTS, INC. LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MONTGOMERY SECURITIES
SALOMON BROTHERS INC
August , 1997
=========================================================
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, in connection with the sale and
distribution of the shares of Common Stock being registered hereby. All of such
costs and expenses are estimates, except the Commission registration fee and the
NASD filing fee, and all of such costs are payable by the Company.
<TABLE>
<S> <C>
Commission registration fee...................................... $ 14,978
NASD filing fee.................................................. 5,176
The Nasdaq Stock Market listing fee.............................. 50,000
Accounting fees and expenses..................................... 600,000
Blue Sky fees and expenses....................................... 10,000
Legal fees and expenses.......................................... 250,000
Printing and engraving expenses.................................. 130,000
Transfer agent fees.............................................. 5,000
Miscellaneous expenses........................................... 34,846
----------
Total.................................................. $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 60.387 through 60.414 of the Oregon Business Corporation Act
authorize a court to award, or a corporation's board of directors to grant,
indemnification to directors and officers on terms sufficiently broad to permit
indemnification under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). Article X of the
Registrant's Articles of Incorporation (Exhibit 3.1 hereto) provide for
indemnification of the Registrant's directors to the maximum extent permitted by
Oregon law. Article X of the Registrant's Articles of Incorporation also permits
the Registrant's board of directors to indemnify the Registrant's officers,
employees and agents up to the maximum extent permitted by Oregon law. The
directors and officers of the Registrant also may be indemnified against
liability they may incur for serving in such capacity pursuant to a liability
insurance policy maintained by the Company for such purpose.
Section 60.047(2)(d) of the Oregon Business Corporation Act authorizes a
corporation to limit a director's liability to the corporation or its
stockholders for monetary damages for acts or omissions as a director, except in
the event of (i) a breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) an unlawful
corporate distribution, or (iv) a transaction from which the director derived an
improper personal benefit. Article IX of the Registrant's Articles of
Incorporation contains provisions implementing, to the fullest extent permitted
by Oregon law, such limitations on a director's liability to the Registrant and
its stockholders.
The proposed form of Underwriting Agreement (Exhibit 1.1 hereto) contains
certain provisions regarding the indemnification of officers and directors of
the Registrant by the Underwriters.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction
II-1
<PAGE> 94
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During 1995, the Registrant sold the indicated number of shares of its
Common Stock (pre-split) to the following individuals who were directors or
executive officers of the Registrant:
<TABLE>
<CAPTION>
PURCHASE
NAME NUMBER OF SHARES PRICE
------------------------------------------ ---------------- --------
<S> <C> <C>
Jerol Andres 875 $303,210
Paul Loberg 875 303,210
William F. Peare 875 303,210
Jeffrey Sites 175 17,900
Michael Moyer 105 10,050
Jerry Lynch 49 6,300
Ron Buzard 45 8,865
Jules Wolfson 35 4,500
Larry Kenney 35 4,500
Alice Heuple 14 1,800
Jim McBride 14 1,800
</TABLE>
Payments for all of these sales were made in the form of a promissory note
with interest at 9% per annum. All of the promissory notes have been fully paid.
These sales were exempt under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement among the Registrant, the Selling Stockholder,
JELD-WEN, inc. ("Jeld-Wen") and the Underwriters.
3.1 Amended and Restated Articles of Incorporation of the Registrant, dated July
2, 1997.
3.2 Amended and Restated Bylaws of the Registrant.
5.1 Opinion of Foster Pepper & Shefelman PLLC.
*10.1 Management Agreement (Fourth Amended) between the Registrant and WorldMark,
the Club ("WorldMark"), dated September 30, 1994.
*10.2 Software Support and Maintenance Agreement between the Registrant and Sage
Systems, Inc. ("Sage"), dated , 1994.
*10.3 Service Agreement between the Registrant and Sage, dated January 1, 1996.
*10.4 Software Transfer Agreement between the Registrant, Sage and James McBride,
Sr., dated August, 1994.
10.5 Escrow Agreement between the Registrant, Club Esprit (predecessor to
WorldMark) and Sage, dated as of October 25, 1990.
*10.6 Form of WorldMark Retail Installment Contract Vacation Owner Agreement.
10.7 Indenture among the Registrant, TRI Funding Company I, L.L.C. and LaSalle
National Bank, dated as of March 1, 1996.
10.8 Servicing Agreement among the Registrant, TRI Funding Company I, L.L.C., Sage
and LaSalle National Bank, dated as of March 1, 1996.
10.9 Purchase and Sale Agreement among the Registrant, Trendwest Funding I, Inc.,
TWH Funding I, Inc. and TRI Funding Company I, L.L.C., dated March 1, 1996.
</TABLE>
II-2
<PAGE> 95
<TABLE>
<C> <S>
10.10 Receivables Purchase Agreement among the Registrant, TW Holdings, Inc. and
Trendwest Funding I, Inc., dated March 1, 1996.
*10.11 Loan and Security Agreement between the Registrant and Greyhound Financial
Corporation, dated as of May 5, 1993.
*10.12 Receivables Purchase Agreement between Registrant and TW Holdings, Inc., dated
December 1, 1993.
*10.13 Receivables Purchase Agreement between Eagle Crest Partners, Ltd. and TW
Holdings, Inc., dated December 1, 1993.
*10.14 Receivables Transfer Agreement among TW Holdings, Inc., Seattle-First National
Bank and Jeld-Wen, dated as of December 1, 1993.
10.15 Nonexclusive Limited Assignment among the Registrant, Eagle Crest Partners,
Ltd. and WorldMark, dated September 20, 1996.
10.16 Nonexclusive Limited Assignment among the Registrant, Running Y, Inc. and
WorldMark dated September 20, 1996.
*10.17 Purchase Agreement among the Registrant, Eagle Crest Partnership, Ltd.,
Roderick C. Wendt and Richard L. Wendt, dated December 30, 1992.
*10.18 Purchase Agreement among the Registrant, Roderick C. Wendt and Richard L.
Wendt, dated April 1, 1993.
10.19 Purchase Agreement between the Registrant and Jeld-Wen Foundation, dated March
13, 1992.
*10.20 Purchase Agreement between the Registrant and Jeld-Wen, dated March 15, 1993.
*10.21 Purchase Agreement between the Registrant and Jeld-Wen, dated September 30,
1993.
*10.22 Purchase Agreement between the Registrant and Jewel W. Kintzinger, dated
October 12, 1993.
10.23 Servicing Escrow Agreement between Jewel Kintzinger, the Registrant and Sage,
dated October 12, 1993.
*10.24 Articles of Incorporation of WorldMark, the Club, dated December 10, 1992.
10.25 Bylaws of WorldMark, dated December 2, 1994.
10.26 Form of Employment Agreement between William F. Peare and the Registrant.
10.27 Form of Employment Agreement between Jeffery P. Sites and the Registrant.
10.28 Trendwest Resorts, Inc. 1997 Employee Stock Option Plan.
10.29 Stock Purchase Agreement between Trendwest Resorts, Inc. and JELD-Wen, inc.
10.30 Stock Purchase Agreement between Trendwest Resorts, Inc. and I&I Holdings,
Ltd.
*16.1 Letter re change in Certifying Accountant.
16.2 Letter re change in Certifying Accountant.
21.1 List of all Subsidiaries of the Registrant.
23.1 Consent of Foster Pepper & Shefelman PLLC (contained in its opinion included
as Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Molatore, Peugh, McDaniel, Scroggin & Co. LLP.
23.4 Consent of Harry L. Demorest
23.5 Consent of Michael P. Hollern
23.6 Consent of Linda M. Tubbs
*24.1 Power of Attorney from officers and directors (contained on signature page).
27.1 Financial Data Schedule (three months)
27.2 Financial Data Schedule (one year)
</TABLE>
- ---------------
*Previously filed
II-3
<PAGE> 96
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter
to permit prompt delivery to each purchaser.
II-4
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Trendwest Resorts, Inc. has duly caused this Amendment No. 2 to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Bellevue, State of Washington, on July 23, 1997.
TRENDWEST RESORTS, INC.
By: /s/ JEFFERY P. SITES
------------------------------------
Jeffery P. Sites
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<C> <C> <S>
/s/ WILLIAM F. PEARE* President, Chief Executive Officer July 23, 1997
- ------------------------------------------ and Director (Principal Executive
William F. Peare Officer)
/s/ JEFFERY P. SITES* Executive Vice President, July 23, 1997
- ------------------------------------------ Chief Operating Officer and
Jeffery P. Sites Director
/s/ GARY A. FLORENCE* Vice President, Treasurer July 23, 1997
- ------------------------------------------ and Chief Financial Officer
Gary A. Florence (Principal Financial Officer)
/s/ JEROL E. ANDRES* Director July 23, 1997
- ------------------------------------------
Jerol E. Andres
/s/ DOUGLAS KINTZINGER* Director July 23, 1997
- ------------------------------------------
Douglas Kintzinger
/s/ RODERICK C. WENDT* Director July 23, 1997
- ------------------------------------------
Roderick C. Wendt
*By: /s/ JEFFERY P. SITES
- ------------------------------------------
Jeffery P. Sites
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 98
EXHIBIT INDEX
(a) Exhibits
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- --------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement among the Registrant, the Selling
Stockholder, JELD-WEN, inc. ("Jeld-Wen") and the Underwriters........
3.1 Amended and Restated Articles of Incorporation of the Registrant,
dated July 2, 1997...................................................
3.2 Amended and Restated Bylaws of the Registrant........................
5.1 Opinion of Foster Pepper & Shefelman PLLC............................
*10.1 Management Agreement (Fourth Amended) between the Registrant and
WorldMark, the Club ("WorldMark"), dated September 30, 1994..........
*10.2 Software Support and Maintenance Agreement between the Registrant and
Sage Systems, Inc. ("Sage"), dated , 1994..................
*10.3 Service Agreement between the Registrant and Sage, dated January 1,
1996.................................................................
*10.4 Software Transfer Agreement between the Registrant, Sage and James
McBride, Sr., dated August, 1994.....................................
10.5 Escrow Agreement between the Registrant, Club Esprit (predecessor to
WorldMark) and Sage, dated as of October 25, 1990....................
*10.6 Form of WorldMark Retail Installment Contract Vacation Owner
Agreement............................................................
10.7 Indenture among the Registrant, TRI Funding Company I, L.L.C. and
LaSalle National Bank, dated as of March 1, 1996.....................
10.8 Servicing Agreement among the Registrant, TRI Funding Company I,
L.L.C., Sage and LaSalle National Bank, dated as of March 1, 1996....
10.9 Purchase and Sale Agreement among the Registrant, Trendwest Funding
I, Inc., TWH Funding I, Inc. and TRI Funding Company I, L.L.C., dated
March 1, 1996........................................................
10.10 Receivables Purchase Agreement among the Registrant, TW Holdings,
Inc. and Trendwest Funding I, Inc., dated March 1, 1996..............
*10.11 Loan and Security Agreement between the Registrant and Greyhound
Financial Corporation, dated as of May 5, 1993.......................
*10.12 Receivables Purchase Agreement between Registrant and TW Holdings,
Inc., dated December 1, 1993.........................................
*10.13 Receivables Purchase Agreement between Eagle Crest Partners, Ltd. and
TW Holdings, Inc., dated December 1, 1993............................
*10.14 Receivables Transfer Agreement among TW Holdings, Inc., Seattle-First
National Bank and Jeld-Wen, dated as of December 1, 1993.............
10.15 Nonexclusive Limited Assignment among the Registrant, Eagle Crest
Partners, Ltd. and WorldMark, dated September 20, 1996...............
10.16 Nonexclusive Limited Assignment among the Registrant, Running Y, Inc.
and WorldMark dated September 20, 1996...............................
*10.17 Purchase Agreement among the Registrant, Eagle Crest Partnership,
Ltd., Roderick C. Wendt and Richard L. Wendt, dated December 30,
1992.................................................................
*10.18 Purchase Agreement among the Registrant, Roderick C. Wendt and
Richard L. Wendt, dated April 1, 1993................................
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- --------------------------------------------------------------------- ------------
<C> <S> <C>
10.19 Purchase Agreement between the Registrant and Jeld-Wen Foundation,
dated March 13, 1992.................................................
*10.20 Purchase Agreement between the Registrant and Jeld-Wen, dated March
15, 1993.............................................................
*10.21 Purchase Agreement between the Registrant and Jeld-Wen, dated
September 30, 1993...................................................
*10.22 Purchase Agreement between the Registrant and Jewel W. Kintzinger,
dated October 12, 1993...............................................
10.23 Servicing Escrow Agreement between Jewel Kintzinger, the Registrant
and Sage, dated October 12, 1993.....................................
*10.24 Articles of Incorporation of WorldMark, the Club, dated December 10,
1992.................................................................
10.25 Bylaws of WorldMark, dated December 2, 1994..........................
10.26 Form of Employment Agreement between William F. Peare and the
Registrant...........................................................
10.27 Form of Employment Agreement between Jeffery P. Sites and the
Registrant...........................................................
10.28 Trendwest Resorts, Inc. 1997 Employee Stock Option Plan..............
10.29 Stock Purchase Agreement between Trendwest Resorts, Inc. and
JELD-WEN, inc.
10.30 Stock Purchase Agreement between Trendwest Resorts, Inc. and I&I
Holdings, Ltd.
*16.1 Letter re change in Certifying Accountant............................
16.2 Letter re change in Certifying Accountant............................
21.1 List of all Subsidiaries of the Registrant...........................
23.1 Consent of Foster Pepper & Shefelman PLLC (contained in its opinion
included as Exhibit 5.1).............................................
23.2 Consent of KPMG Peat Marwick LLP.....................................
23.3 Consent of Molatore, Peugh, McDaniel, Scroggin & Co. LLP.............
23.4 Consent of Harry L. Demorest.........................................
23.5 Consent of Michael P. Hollern........................................
23.6 Consent of Linda M. Tubbs............................................
*24.1 Power of Attorney from officers and directors (contained on signature
page)................................................................
27.1 Financial Data Schedule (three months)...............................
27.2 Financial Data Schedule (one year)...................................
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
Draft of July 25, 1997
EXHIBIT 1.1
2,875,000 SHARES
TRENDWEST RESORTS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
August __, 1997
MONTGOMERY SECURITIES
SALOMON BROTHERS INC
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
1. Introductory. Trendwest Resorts, Inc., an Oregon corporation (the
"Company"), proposes to issue and sell 2,745,000 shares of its authorized but
unissued Common Stock (the "Common Stock") and the stockholder of the Company
named in Schedule B annexed hereto (the "Selling Stockholder") proposes to sell
an aggregate of 130,000 shares of the Company's issued and outstanding Common
Stock to the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as Representatives. Said aggregate of
2,875,000 shares are herein called the "Firm Common Shares." In addition, the
Company proposes to grant to the Underwriters an option to purchase up to
431,250 additional shares of Common Stock (the "Optional Common Shares"), as
provided in Section 5 hereof. The Firm Common Shares and, to the extent such
option is exercised, the Optional Common Shares are hereinafter collectively
referred to as the "Common Shares."
You have advised the Company, the Selling Stockholder and the
Company's parent, JELD-WEN, inc. (the "Major Stockholder") that the Underwriters
propose to make a public offering of their respective portions of the Common
Shares on the effective date of the registration statement hereinafter referred
to, or as soon thereafter as in your judgment is advisable.
The Company, the Selling Stockholder and the Major Stockholder
hereby confirm their respective agreements with respect to the purchase of the
Common Shares by the Underwriters as follows:
2. Representations and Warranties of the Company and the Selling
Stockholder. The Company and the Selling Stockholder represent and warrant to
the several Underwriters as of the date hereof, as of the First Closing Date
and, if applicable, as of the Second Closing Date, that:
<PAGE> 2
(a) A registration statement on Form S-1 (File No. 333-26861)
with respect to the Common Shares has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The Company has prepared and has filed or proposes to file prior to
the effective date of such registration statement and amendment or amendments to
such registration statement, which amendment or amendments have been or will be
similarly prepared. There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of each exhibit
filed therewith. Conformed copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a further
amendment thereto, including the form of final prospectus, (ii) a final
prospectus in accordance with Rules 430A and 424(b) of the Rules and Regulations
of (iii) a term sheet (the "Term Sheet") as described in and in accordance with
Rules 434 and 424(b) of the Rules and Regulations. As filed, the final
prospectus, if one is used, or the Term Sheet and Preliminary Prospectus, if a
final prospectus is not used, shall include all Rule 430A Information (as
hereinafter defined) and, except to the extent that you shall agree in writing
to a modification, shall be in all substantive respects in the form furnished to
you prior to the date and time that this Agreement was executed and delivered by
the parties hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Representatives shall
have approved.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such registration statement
becomes effective and, in the event any post-effective amendment thereto
becomes effective prior to the First Closing Date, shall also mean such
registration statement as so amended; provided, however, that such term shall
also include (i) all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes
effective as provided by Rule 430A of the Rules and Regulations and (ii) any
registration statement filed pursuant to 462(b) of the Rules and Regulations
relating to the Common Shares. The term "Preliminary Prospectus" shall mean
any preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean either (i) the prospectus relating to the
Common Shares in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, (ii) if a Term Sheet
is not used and no filing pursuant to Rule 424(b) of the Rules and Regulations
is required, shall mean the form of final prospectus included in the
Registration Statement at the time such registration statement becomes
effective or (iii) if a Term Sheet is used, the Term Sheet in the form in which
it is first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations, together with the Preliminary Prospectus included in the
Registration Statement at the time it becomes effective. The term "Rule 430A
Information" means information with respect to the Common Shares and the
offering thereof permitted to be omitted from the Registration Statement when
it becomes effective pursuant to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements of the
Act and the Rules and Regulations and, as of its date, has not included any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto up to and
including each Closing Date hereinafter mentioned, the Registration Statement
and the Prospectus, and any amendments or supplements thereto, will contain all
material statements and information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or warranty
contained in this subsection 2(b) shall be applicable to information contained
in or omitted from any Preliminary Prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter, directly or through the Representatives or their counsel,
specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 22 to the Registration Statement. WorldMark, the
Club, a California nonprofit mutual benefit corporation ("WorldMark"), does not
own or control, directly or indirectly, any corporation, association or other
entity (other than homeowners' associations). Each of the Company, its
subsidiaries and WorldMark has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, with full power and authority (corporate and other) to own and
lease its properties and conduct its business as described in the Prospectus;
the Company owns all of the outstanding capital stock of its subsidiaries free
and clear of all claims, liens, charges and encumbrances; each of the Company,
its subsidiaries and WorldMark is in possession of and operating in compliance
with all authorizations, licenses, permits, consents, certificates and orders
material to the conduct of its business, all of which are valid and in full
force and effect; each of the Company, its subsidiaries and WorldMark is duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which the ownership or leasing of properties or the conduct of
its business requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect on the condition
(financial or otherwise), business, properties, results of operations or
prospects of the Company and its subsidiaries taken as a whole or WorldMark (a
"Material Adverse Effect"); and no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
(d) The Company has an authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the Prospectus; the
issued and outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, were not issued in violation of or
2
<PAGE> 3
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the Registration
Statement and the Prospectus. The form of certificate, if any, evidencing the
Common Stock complies with all applicable requirements of Oregon law. All issued
and outstanding shares of capital stock of each subsidiary of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
All issued and outstanding membership interests of WorldMark have been duly
authorized and validly issued and have been issued in compliance with all
federal and state securities laws. Except as disclosed in or specifically
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, neither the Company nor
any of its subsidiaries has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(d) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set forth in
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will be registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), have been duly authorized
for quotation by the Nasdaq National Market upon official notice of issuance and
will conform to the description thereof contained in the Prospectus. No
preemptive rights or other rights to subscribe for or purchase exist with
respect to the issuance and sale of the Common Shares by the Company pursuant to
this Agreement. No stockholder of the Company has any right which has not been
waived to require the Company to register the sale of any shares owned by such
stockholder under the Act in the public offering contemplated by this Agreement.
No further approval or authority of the stockholders or the Board of Directors
of the Company will be required for the transfer and sale of the Common Shares
to be sold by the Selling Stockholder or the issuance and sale of the Common
Shares to be sold by the Company as contemplated herein.
(e) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company in accordance with its
terms. The making and performance of this Agreement by the Company and the
consummation of the transactions herein contemplated will not violate any
provisions of the certificate of incorporation or bylaws, or other
organizational documents, of the Company or any of its subsidiaries, and will
not materially conflict with, result in the material breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both, a
material default under (i) any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of its respective properties may be bound or affected, or
(ii) any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries or any of
its respective properties. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body is
required
3
<PAGE> 4
for the execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance with the Act,
the Blue Sky laws applicable to the public offering of the Common Shares by the
several Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
(f) The Company and WorldMark had full right, power and
authority to enter into (i) the Management Agreement dated as of September 30,
1994 by and between the Company and WorldMark, as amended, and (ii) the Vacation
Program Agreement dated as of June 3, 1994 by and between the Company and
WorldMark, as amended (collectively, the "Key Agreements"). The Key Agreements
were duly and validly authorized by all necessary corporate action by the
Company and WorldMark, were duly and validly executed and delivered by and on
behalf of the Company and WorldMark, and are valid and binding agreements of the
Company and WorldMark enforceable in accordance with their terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally; and no approval, authorization, order, consent, registration, filing,
qualification, license or permit of or with any court, regulatory,
administrative or other governmental body was required for the execution and
delivery of the Key Agreements by the Company and WorldMark.
(g) Each of KPMG Peat Marwick LLP and Molatore, Peugh,
McDaniel, Scroggin & Co. LLP, who have expressed their opinion with respect to
the financial statements of the Company and WorldMark, respectively, which were
filed with the Commission as a part of the Registration Statement and included
in the Prospectus and in the Registration Statement, are independent accountants
as required by the Act and the Rules and Regulations.
(h) The financial statements of the Company, and the related
notes thereto, included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the respective dates of such
financial statements and the results of operations and changes in financial
position of the Company for the respective periods covered thereby. Such
statements and related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis as certified by the
independent accountants named in subsection 2(g). No other financial statements
or schedules are required to be included in the Registration Statement. The
selected combined financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Combined Financial and Operating Data" fairly
present the information set forth therein on the basis stated in the
Registration Statement.
(i) Except as disclosed in the Prospectus, and except as to
defaults which individually or in the aggregate would not have a Material
Adverse Effect, neither the Company, any of its subsidiaries nor WorldMark is in
violation or default of any provision of its certificate of incorporation or
bylaws, or other organizational documents, or is in breach of or in default with
respect to any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound; and
there does not exist any state of facts which constitutes an event of default on
the part of the Company, any of its subsidiaries or WorldMark as defined in such
documents or which, with notice or lapse of time or both, would constitute such
an event of default.
4
<PAGE> 5
(j) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which have not
been described or filed as required. The description of the contracts in the
Prospectus is accurate and complete in all material respects; all such contracts
are in full force and effect; and neither the Company, any of its subsidiaries
nor WorldMark, nor to the best of the Company's knowledge, any other party is in
breach of or in default under any of such contracts.
(k) Except as disclosed in the Prospectus, there are no legal
or governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company, any of its subsidiaries or
WorldMark is or may be a party or of which property owned or leased by the
Company, any of its subsidiaries or WorldMark is or may be the subject, or
related to environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or adversely affect
the transactions contemplated by this Agreement or result in a material adverse
change in the condition (financial or otherwise), properties, results of
operations or prospects of the Company and its subsidiaries taken as a whole or
WorldMark (a "Material Adverse Change"); and no labor disturbance by the
employees of the Company, any of its subsidiaries or WorldMark exists or is
imminent which might be expected to have a Material Adverse Effect. Neither the
Company, any of its subsidiaries nor WorldMark is a party or subject to the
provisions of any injunction, judgment, decree or order of any court, regulatory
body, administrative agency or other governmental body which would have a
Material Adverse Effect.
(l) The Company or the applicable subsidiary has good and
marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
(i) those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount and do not adversely
affect the use made and proposed to be made of such property by the Company and
its subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company and its
subsidiaries taken as a whole. Except as disclosed in the Prospectus, the
Company owns or leases all such properties as are necessary to its operations as
now conducted or as proposed to be conducted.
(m) WorldMark has good and marketable title to all the
timeshare resorts, properties and assets reflected as owned by it in the
Prospectus, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except (i) those, if any, reflected in the Prospectus, or (ii) those which
are not material in amount and do not adversely affect the use made and proposed
to be made of such property by WorldMark. WorldMark holds its leased properties
under valid and binding leases, with such exceptions as are not materially
significant in relation to the business of WorldMark. Except as disclosed in the
Prospectus, WorldMark owns or leases all such properties as are necessary to its
operations as now conducted or as proposed to be conducted.
(n) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as described in
or specifically contemplated by the Prospectus: (i) neither the Company, any of
its subsidiaries nor WorldMark has incurred any material liabilities or
obligations, indirect, direct or contingent, or entered into any material verbal
or
5
<PAGE> 6
written agreement or other transaction which is not in the ordinary course of
business or which is reasonably likely to result in a material reduction in the
future earnings of the Company or any of its subsidiaries; (ii) neither the
Company, any of its subsidiaries nor WorldMark has sustained any loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity, whether or not covered by insurance, that would have
a Material Adverse Effect; (iii) neither the Company nor any of its subsidiaries
has paid or declared any dividends or other distributions with respect to its
capital stock and neither the Company, any of its subsidiaries nor WorldMark is
in default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock of the
Company (other than upon the sale of the Common Shares hereunder) or
indebtedness material to the Company, any of its subsidiaries or WorldMark
(other than in the ordinary course of business); and (v) there has not been any
Material Adverse Change.
(o) Except as specifically disclosed in or specifically
contemplated by the Prospectus, each of the Company, its subsidiaries and
WorldMark has sufficient trademarks, trade names, patent rights, mask works,
shop rights, copyrights, licenses, or other similar rights and proprietary
knowledge (collectively, "Intangibles"), approvals and governmental
authorizations to conduct its business as now conducted; the expiration of any
Intangibles, approvals or governmental authorizations would not have a Material
Adverse Effect; and the Company has no knowledge of any material infringement by
the Company, any of its subsidiaries or WorldMark of any Intangibles of others,
and there is no claim being made against the Company, any of its subsidiaries or
WorldMark regarding any Intangibles or other infringement which could have a
Material Adverse Effect.
(p) The Company has not been advised, and has no reason to
believe, that the Company, any of its subsidiaries or WorldMark is not
conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which the Company, any of its subsidiaries
or WorldMark is conducting business, including, without limitation, all
applicable local, state and federal environmental laws and regulations; except
where failure to be so in compliance would not have a Material Adverse Effect.
(q) Each of the Company, its subsidiaries and WorldMark has
filed all necessary federal, state and foreign income and franchise tax
returns and, except for those taxes currently being contested in good faith or
for which adequate reserves have been provided, have paid all taxes shown as due
thereon; and, except as disclosed in the Prospectus, the Company has no
knowledge of any tax deficiency which has been or might be asserted or
threatened against the Company, any of its subsidiaries or WorldMark which could
have a Material Adverse Effect.
(r) Neither the Company nor WorldMark is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended
(the "1940 Act").
(s) Neither the Company, any of its subsidiaries nor WorldMark
has distributed nor will any such entity distribute prior to the First Closing
Date any offering material in connection with the offering and sale of the
Common Shares other than the Prospectus, the Registration Statement and the
other materials permitted by the Act.
(t) Each of the Company, its subsidiaries and WorldMark
maintains insurance of the types and in the amounts generally deemed adequate
for its business, including, but not limited
6
<PAGE> 7
to, insurance covering real and personal property owned or leased by it against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.
(u) Neither the Company, any of its subsidiaries nor WorldMark
has at any time during the last five years (i) made any unlawful contribution to
any candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
(v) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(w) Title insurance in favor of WorldMark is in force with
respect to each of the timeshare resorts reflected as owned or leased by
WorldMark in the Prospectus (collectively, the "Resorts") in amounts and with
such endorsements generally deemed adequate for its business, except for those
Resorts located in Mexico.
(x) There are no monetary encumbrances on any of the Resorts.
(y) Each of the Company, its subsidiaries and WorldMark (i) is
in compliance with any and all applicable foreign, federal, state and local
rules, laws and regulations relating to the protection of human health and
safety, the environment or any Hazardous Material (as hereinafter defined)
(collectively, "Environmental Laws"), (ii) has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to conduct
its business and (iii) is in compliance with all terms and conditions of any
such permit, license or approval, except where any such noncompliance or failure
to receive or comply with such permits, licenses or approvals would not have a
Material Adverse Effect. As used herein, "Hazardous Material" shall mean (a) any
"hazardous substance" as defined by the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended ("CERCLA"), (b) any
"hazardous waste" as defined by the Resource Conservation and Recovery Act, as
amended, (c) any petroleum or petroleum product, (d) any polyclorinated biphenyl
and (e) any pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulated under or within the meaning of any other
Environmental Law.
(z) To the best of the Company's knowledge, there is no
liability, alleged liability or potential liability (including, without
limitation, liability, alleged liability or potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) of the
Company, any of its subsidiaries or WorldMark arising out of, based on or
resulting from (a) the presence or release in the environment of any Hazardous
Material at any location, whether or not owned by the Company, any of its
subsidiaries or WorldMark or (b) the violation or alleged violation of any
Environmental Law, which liability, alleged liability, potential liability,
violation or alleged violation is required to be disclosed in the Registration
Statement, other than as disclosed therein.
7
<PAGE> 8
(aa) Neither the assets of the Company, any of its
subsidiaries nor WorldMark constitute "plan assets" under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(bb) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (iii)
access to financial and corporate books and records is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(cc) No environmental engineering firm which prepared Phase I
environmental assessment reports (or other similar reports) with respect to any
of the Resorts was employed for such purpose on a contingent basis or has any
substantial interest in the Company, any of its subsidiaries or WorldMark.
(dd) To the best of the Company's knowledge, no labor problem
exists or is imminent with respect to the employees of the Company, any of its
subsidiaries or WorldMark.
(ee) All agreements, deeds, assignments of leases and other
documents delivered in connection with the acquisition of the Resorts by the
Company and the transfer of such Resorts to WorldMark are sufficient to effect
the transfer to WorldMark of all right, title and interest in and to all real
and personal property of the Resorts upon payment of the consideration therefor.
(ff) Each of the Company, its subsidiaries and WorldMark is in
compliance with all federal, state, local and foreign laws and regulations
regarding the marketing, offers to sell and sales of timeshare interests in each
state in which it is doing business, including but not limited to the Federal
Trade Commission Act, Regulation Z (the truth-in-lending act), Equal Opportunity
Credit Act and Regulation B, Interstate Land Sales Full Disclosure Act, Real
Estate Standards Practices Act, Telephone Consumer Protection Act, Telemarketing
and Consumer Fraud and Abuse Prevention Act, Fair Housing Act and Civil Rights
Acts of 1964 and 1968, except where noncompliance would not have a Material
Adverse Effect. Each of the Company, its subsidiaries and WorldMark has filed
all required documents and supporting information in compliance with federal,
state, local and foreign laws and regulations, and the Company, each of its
subsidiaries and WorldMark is in compliance with all licensure, anti-fraud,
telemarketing, price, gift and sweepstakes and labor laws to which it is or may
become subject, except where noncompliance would not have a Material Adverse
Effect. Each of the Company, its subsidiaries and WorldMark has all permits and
licenses which are required of it to sell timeshare interests in each state and
foreign jurisdiction where it conducts business.
(gg) No person has an option or right of first refusal to
purchase all or part of any of the Resorts or any interest therein. Each of the
Resorts complies with all applicable codes, laws and regulations (including,
without limitation, building and zoning codes and laws relating to handicapped
access), except where noncompliance would not have a Material Adverse Effect.
The
8
<PAGE> 9
Company has no knowledge of any pending or threatened condemnation proceedings,
zoning changes, or other proceedings or actions that will in any manner affect
the size of, number of timeshare credit units planned for, the use of any
improvements on, or access to, any of the Resorts.
(hh) To the best of the Company's knowledge, no dispute exists
or is imminent between the Company and WorldMark or between the Company and the
Major Stockholder (or any affiliate of the Major Stockholder) and no officer or
director of the Company has any material agreement or understanding (verbally or
in writing) with WorldMark or the Major Stockholder (or any affiliate of the
Major Stockholder), except as set forth in the Prospectus.
3. Representations and Warranties of the Major Stockholder and
Additional Representations, Warranties and Covenants of the Selling Stockholder.
(a) The Major Stockholder represents and warrants to the
several Underwriters as of the date hereof, as of the First Closing Date and, if
applicable, as of the Second Closing Date, that:
(i) The Major Stockholder has full legal right, power
and authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed
and delivered by the Major Stockholder and constitutes a valid and
binding obligation of the Major Stockholder in accordance with its
terms. The making and performance of this Agreement by the Major
Stockholder and the consummation of the transactions herein
contemplated will not violate any provisions of the certificate of
incorporation or bylaws, or other organizational documents, of the
Major Stockholder or any of its subsidiaries, and will not conflict
with, result in the breach or violation of, or constitute, either by
itself or upon notice or the passage of time or both, a default under
(i) any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Major Stockholder or
any of its subsidiaries is a party or by which the Major Stockholder or
any of its subsidiaries or any of its respective properties may be
bound or affected, or (ii) any statute or any authorization, judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the
Major Stockholder or any of its subsidiaries or any of its respective
properties. No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery of this Agreement or
the consummation of the transactions contemplated by this Agreement,
except for compliance with the Act, the Blue Sky laws applicable to the
public offering of the Common Shares by the several Underwriters and
the clearance of such offering with the NASD.
(ii) The information pertaining to the Major
Stockholder in the Registration Statement and the Prospectus under the
captions "Summary -- Corporate Background and Consolidation of Finance
Subsidiaries,""Certain Transactions -- Relationship with Jeld-Wen" and
"Principal and Selling Stockholders" is complete and accurate in all
material respects.
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<PAGE> 10
(iii) The Major Stockholder has reviewed and is
familiar with the Registration Statement and the Prospectus and has no
reason to believe the Registration Statement or the Prospectus contains
any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The Selling Stockholder represents and warrants to, and
agrees with, the several Underwriters, as of the First Closing Date and, if
applicable, as of the Second Closing Date, that:
(i) Such Selling Stockholder has good and marketable
title to the Common Shares proposed to be sold by such Selling
Stockholder hereunder on the applicable Closing Date and full right,
power and authority to enter into this Agreement and to sell, assign,
transfer and deliver such Common Shares hereunder, free and clear of
all voting trust arrangements, liens, encumbrances, equities, security
interests, restrictions and claims whatsoever; and upon delivery of and
payment for such Common Shares hereunder, the Underwriters will acquire
good and marketable title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests,
voting trusts or other defects of title whatsoever.
(ii) Such Selling Stockholder has executed and
delivered a Power of Attorney and caused to be executed and delivered
on his behalf a Custody Agreement (hereinafter collectively referred to
as the "Stockholder Agreement") and in connection herewith such Selling
Stockholder further represents, warrants and agrees that such Selling
Stockholder has deposited in custody, under the Stockholder Agreement,
with the agent named therein as custodian (the "Agent"), certificates
in negotiable form for the Common Shares to be sold hereunder by such
Selling Stockholder, for the purpose of further delivery pursuant to
this Agreement. Such Selling Stockholder agrees that the Common Shares
to be sold by such Selling Stockholder on deposit with the Agent are
subject to the interests of the Company and the Underwriters, that the
arrangements made for such custody are to that extent irrevocable, and
that the obligations of such Selling Stockholder hereunder shall not be
terminated, except as provided in this Agreement or in the Stockholder
Agreement, by any act of such Selling Stockholder, by operation of law,
by the death or incapacity of such Selling Stockholder or by the
occurrence of any other event. If the Selling Stockholder should die or
become incapacitated, or if any other event should occur, before the
delivery of the Common Shares hereunder, the documents evidencing
Common Shares then on deposit with the Agent shall be delivered by the
Agent in accordance with the terms and conditions of this Agreement as
if such death, incapacity or other event had not occurred, regardless
of whether or not the Agent shall have received notice thereof. This
Agreement and the Stockholder Agreement have been duly executed and
delivered by or on behalf of such Selling Stockholder and the form of
such Stockholder Agreement has been delivered to you.
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<PAGE> 11
(iii) The performance of this Agreement and the
Stockholder Agreement and the consummation of the transactions
contemplated hereby and by the Stockholder Agreement will not result in
a breach or violation by such Selling Stockholder of any of the terms
or provisions of, or constitute a default by such Selling Stockholder
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement or
instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to such Selling
Stockholder or any of its properties.
(iv) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
(c) The Selling Stockholder and the Major Stockholder agree
with the Company and the Underwriters not to offer to sell, sell or contract to
sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable for any shares of Common Stock, for a period of
one year after the first date that any of the Common Shares are released by you
for sale to the public, without the prior written consent of Montgomery
Securities, which consent may be withheld at the sole discretion of Montgomery
Securities.
4. Representations and Warranties of the Underwriters. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company, the Selling Stockholder and the Major Stockholder that the
information set forth (i) on the cover page of the Prospectus with respect to
price, underwriting discount and terms of the offering and (ii) under
"Underwriting" (other than the fifth paragraph thereof) in the Prospectus was
furnished to the Company by and on behalf of the Underwriters for use in
connection with the preparation of the Registration Statement and the Prospectus
and is correct in all material respects. The Representatives represent and
warrant that they have been authorized by each of the other Underwriters as the
Representatives to enter into this Agreement on its behalf and to act for it in
the manner herein provided.
5. Purchase, Sale and Delivery of Common Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, (i) the Company agrees to issue and sell
to the Underwriters 2,745,000 of the Firm Common Shares, and (ii) the Selling
Stockholder agrees to sell to the Underwriters 130,000 of the Firm Common
Shares. The Underwriters agree, severally and not jointly, to purchase from the
Company and the Selling Stockholder, respectively, the number of Firm Common
Shares described below. The purchase price per share to be paid by the several
Underwriters to the Company and to the Selling Stockholder, shall be $___ per
share.
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<PAGE> 12
Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payment therefor shall be made at the offices
of Montgomery Securities, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed upon by the Company and the Representatives)
at such time and date, not later than the third (or, if the Firm Common Shares
are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30
P.M. Washington D.C. time, the fourth) full business day following the first
date that any of the Common Shares are released by you for sale to the public,
as you shall designate by at least 48 hours prior notice to the Company (or at
such other time and date, not later than one week after such third or fourth, as
the case may be, full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the later of the first
date that any of the Common Shares are released by you for sale to the public
and the date that is 48 hours after the date that the Prospectus has been so
recirculated.
Delivery of certificates for the Firm Common Shares shall be
made by or on behalf of the Company and the Selling Stockholder to you, for the
respective accounts of the Underwriters with respect to the Firm Common Shares
to be sold by the Company and by the Selling Stockholder against payment by you,
for the accounts of the several Underwriters, of the purchase price therefor by
a wire transfer of immediately available funds to an account designated by the
Company and by the Agent in proportion to the number of Firm Common Shares to be
sold by the Company and the Selling Stockholder, respectively. The certificates
for the Firm Common Shares shall be registered in such names and denominations
as you shall have requested at least two full business days prior to the First
Closing Date, and shall be made available for checking and packaging on the
business day preceding the First Closing Date at a location in New York, New
York, or such other location as may be designated by you. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 431,250 Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for the
account of the Underwriters in the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not more
than once) within 30 days after the first date that any of the Common Shares are
released by you for sale to the public, upon notice by you to the Company
setting forth the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, the names and denominations in which the
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which is the
number of Firm Common Shares to be
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<PAGE> 13
purchased by such Underwriter as set forth opposite its name in Schedule A and
the denominator of which is 2,875,000 (subject to such adjustments to eliminate
any fractional share purchases as you in your discretion may make). Certificates
for the Optional Common Shares will be made available for checking and packaging
on the business day preceding the Second Closing Date at a location in New York,
New York, or such other location as may be designated by you. The manner of
payment for and delivery of the Optional Common Shares shall be the same as for
the Firm Common Shares purchased from the Company as specified in the two
preceding paragraphs. At any time before lapse of the option, you may cancel
such option by giving written notice of such cancellation to the Company. If the
option is cancelled or expires unexercised in whole or in part, the Company will
deregister under the Act the number of Optional Common Shares as to which the
option has not been exercised.
You have advised the Company and the Selling Stockholder that
each Underwriter has authorized you to accept delivery of its Common Shares, to
make payment and to issue a receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement. Subject to the terms and conditions hereof, the
Underwriters propose to make a public offering of their respective portions of
the Common Shares as soon after the effective date of the Registration Statement
as in the judgment of the Representatives is advisable and at the public
offering price set forth on the cover page of and on the terms set forth in the
final prospectus, if one is used, or on the first page of the Term Sheet, if one
is used.
6. Covenants of the Company. The Company covenants and agrees that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you in writing (i) of the receipt of
any comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before or after
it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the lifting
of such order at the earliest possible moment. The Company will not file any
amendment or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus of which you
have not been furnished with a copy a reasonable time prior to such filing or to
which you reasonably object or which is not in compliance with the Act and the
Rules and Regulations.
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<PAGE> 14
(b) The Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the Registration
Statement or the Prospectus which in your judgment may be necessary or advisable
to enable the several Underwriters to continue the distribution of the Common
Shares and will use its best efforts to cause the same to become effective as
promptly as possible. The Company will fully and completely comply with the
provisions of Rule 430A of the Rules and Regulations with respect to information
omitted from the Registration Statement in reliance upon such Rule.
(c) If at any time within the applicable period referred to in
Section 10(a)(3) of the Act or Rule 174 of the Rules and Regulations during
which a prospectus relating to the Common Shares is required to be delivered
under the Act any event occurs, as a result of which the Prospectus, including
any amendments or supplements, would include an untrue statement of a material
fact, or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or if it is necessary
at any time to amend the Prospectus, including any amendments or supplements, to
comply with the Act or the Rules and Regulations, the Company will promptly
advise you thereof and will promptly prepare and file with the Commission, at
its own expense, an amendment or supplement which will correct such statement or
omission or an amendment or supplement which will effect such compliance and
will use its best efforts to cause the same to become effective as soon as
possible; and, in case any Underwriter is required to deliver a prospectus after
such applicable period, the Company upon request, but at the expense of such
Underwriter, will promptly prepare such amendment or amendments to the
Registration Statement and such Prospectus or Prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act and
Rule 174 of the Rules and Regulations.
(d) As soon as practicable, but not later than 45 days after
the end of the first quarter ending after one year following the "effective date
of the Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of Section
11(a) of the Act.
(e) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the Company,
at its expense, but only for the applicable period referred to in Section
10(a)(3) of the Act and Rule 174 of the Rules and Regulations, will furnish to
you and the Selling Stockholder or mail to your order copies of the Registration
Statement, the Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents in each case as soon as available and in such
quantities as you and the Selling Stockholder may request, for the purposes
contemplated by the Act and the Rules and Regulations.
(f) The Company shall cooperate with you and your counsel in
order to qualify or register the Common Shares for sale under (or obtain
exemptions from the application of) the Blue Sky laws of such jurisdictions as
you designate will comply with such laws and will continue such qualifications,
registrations and exemptions in effect so long as reasonably required for the
distribution of the Common Shares. The Company shall not be required to qualify
as a foreign
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<PAGE> 15
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any jurisdiction
or any initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification, registration
or exemption, the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and their counsel and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as practicable
after the end of each fiscal year, copies of the Annual Report of the Company
containing the balance sheet of the Company as of the close of such fiscal year
and statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its Common Stock.
(h) During the period of 180 days after the first date that
any of the Common Shares are released by you for sale to the public, without the
prior written consent of Montgomery Securities (which consent may be withheld at
the sole discretion of Montgomery Securities), the Company will not issue,
offer, sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities or any other securities convertible into or
exchangeable with its Common Stock or other equity security; provided, however,
that the Company may issue shares of its Common Stock or options to purchase its
Common Stock, or Common Stock upon exercise of options, pursuant to any stock
option, stock bonus or other stock plan or arrangement described in the
Prospectus, but only if the holders of such shares, options, or shares issued
upon exercise of such options, agree in writing not to, directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of (including by devise or descent unless such devisees or descendants take
subject to such agreement) any such shares or options during such 180 day period
without the prior written consent of Montgomery Securities (which consent may be
withheld at the sole discretion of the Montgomery Securities).
(i) The Company will apply the net proceeds of the sale of the
Common Shares sold by it substantially in accordance with its statements under
the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to continue the
quotation of the Common Stock as a national market system security on the NASD
Automated Quotation System.
(k) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of formation of the Company, a registrar (which
may be the same entity as the transfer agent).
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<PAGE> 16
You, on behalf of the Underwriters, may, in your sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
7. Payment of Expenses. Whether or not the transactions contemplated
hereunder are consummated or this Agreement becomes effective or is terminated,
the Company and, unless otherwise paid by the Company, the Selling Stockholder
agree to pay in such proportions as they may agree upon among themselves all
costs, fees and expenses incurred in connection with the performance of their
obligations hereunder and in connection with the transactions contemplated
hereby, including without limiting the generality of the foregoing, (i) all
expenses incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs), (ii) all fees and expenses of the registrar
and transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's and the Selling
Stockholder's counsel (and any counsel retained to represent WorldMark) and the
Company's independent accountants, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement, each Preliminary Prospectus and the Prospectus
(including all exhibits and financial statements) and all amendments and
supplements provided for herein, this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreement, the Underwriters' Questionnaire,
the Underwriters' Power of Attorney and the preliminary and final Blue Sky
memoranda, (vi) all filing fees, attorneys' fees and expenses incurred by the
Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the Blue Sky laws, (vii) the
filing fee of the NASD and the fees and expenses related to the inclusion of the
Common Stock on the Nasdaq National Market, and (viii) all other fees, costs and
expenses referred to in Item 13 of Part II of the Registration Statement. The
Underwriters may deem the Company to be the primary obligor with respect to all
costs, fees and expenses to be paid by the Company and by the Selling
Stockholder. Except as provided in this Section 7, Section 9 and Section 11
hereof, the Underwriters shall pay all of their own expenses, including the fees
and disbursements of their counsel (excluding those relating to qualification,
registration or exemption under the Blue Sky laws and the preliminary and final
Blue Sky memoranda referred to above). This Section 7 shall not affect any
agreements relating to the payment of expenses between the Company and the
Selling Stockholder.
The Selling Stockholder will pay (directly or by
reimbursement) all fees and expenses incident to the performance of its
obligations under this Agreement which are not otherwise specifically provided
for herein, including but not limited to (i) any fees and expenses of counsel
for such Selling Stockholder; (ii) any fees and expenses of the Agent; and (iii)
all expenses and taxes incident to the sale and delivery of the Common Shares to
be sold by such Selling Stockholder to the Underwriters hereunder.
8. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Common Shares on
the First Closing Date and the Optional Common Shares on the Second Closing Date
shall be subject to the accuracy of the representations and warranties on the
part of the Company, the Selling Stockholder and the Major
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<PAGE> 17
Stockholder herein set forth as of the date hereof and as of the First Closing
Date or the Second Closing Date, as the case may be, to the accuracy of the
statements of Company officers, the Selling Stockholder and the Major
Stockholder made pursuant to the provisions hereof, to the performance by the
Company and the Selling Stockholder of their respective obligations hereunder,
and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares, not
later than 10:00 P.M.), Washington, D.C. Time, on the date of this Agreement, or
at such later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, the Selling Stockholder or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as
of which information is given in the Registration Statement and Prospectus, (i)
there shall not have been any change in the capital stock of the Company or any
of its subsidiaries or any material change in the indebtedness (other than in
the ordinary course of business) of the Company, any of its subsidiaries or
WorldMark, (ii) except as set forth in or specifically contemplated by the
Registration Statement or the Prospectus, no material verbal or written
agreement or other transaction shall have been entered into by the Company, any
of its subsidiaries, or WorldMark which is not in the ordinary course of
business or which is reasonably likely to result in a material reduction in the
future earnings of the Company or any of its subsidiaries, (iii) no loss or
damage (whether or not insured) to the property of the Company, any of its
subsidiaries or WorldMark shall have been sustained which results in a Material
Adverse Change, (iv) no legal or governmental action, suit or proceeding
affecting the Company, any of its subsidiaries or WorldMark which affects or may
affect the transactions contemplated by this Agreement or which can be expected
to result in a Material Adverse Change shall have been instituted or threatened,
and (v) there shall not have been any Material Adverse Change which makes it
impractical or inadvisable in the judgment of the Representatives to proceed
with the public offering or purchase the Common Shares as contemplated hereby.
(c) The Firm Common Shares and the Optional Common Shares
shall have been approved for listing on the Nasdaq National Market, subject to
official notice of issuance, and the NASD, upon review of the terms of the
public offering, shall not have objected to such offering, such terms or the
Underwriters' participation in the same.
(d) There shall have been furnished to you, as Representatives
of the Underwriters, on each Closing Date, in form and substance satisfactory to
you, except as otherwise expressly provided below:
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<PAGE> 18
(i) An opinion of Foster Pepper & Shefelman PLLC, counsel for
the Company, WorldMark, the Selling Stockholder and the Major Stockholder,
addressed to the Underwriters and dated the First Closing Date, or the Second
Closing Date (in the latter case with respect to the Company only), as the case
may be, to the effect that:
(1) Each of the Company, its subsidiaries, WorldMark
and the Major Stockholder has been duly incorporated and is validly
existing as a corporation under the laws of its jurisdiction of
incorporation, is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions where
the ownership or leasing of properties or the conduct of its business
requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect, and has
full corporate power and authority to own its properties and conduct
its business as described in the Registration Statement;
(2) The authorized, issued and outstanding capital
stock of the Company is as set forth under the caption "Capitalization"
in the Prospectus; all necessary and proper corporate proceedings have
been taken in order to authorize validly such authorized Common Stock;
all outstanding shares of Common Stock (including the Firm Common
Shares and any Optional Common Shares) have been duly and validly
issued, are fully paid and nonassessable, have been issued in
compliance with the registration provisions of federal and state
securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase any
securities and conform to the description thereof contained in the
Prospectus; without limiting the foregoing, there are no preemptive or
other rights to subscribe for or purchase any of the Common Shares to
be sold by the Company hereunder;
(3) All of the issued and outstanding shares of the
Company's subsidiaries have been duly and validly authorized and
issued, are fully paid and nonassessable and are owned beneficially by
the Company free and clear of all liens, encumbrances, equities,
claims, security interests, voting trusts or other defects of title
whatsoever;
(4) All of the issued and outstanding membership
interests of WorldMark have been duly and validly authorized and issued
and have been issued in compliance with federal and state securities
laws;
(5) The certificates evidencing the Common Shares to
be delivered hereunder are in due and proper form under Oregon law, and
when duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of this
Agreement, the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and nonassessable, will not
have been issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities and will conform
in all material respects to the description thereof contained in the
Prospectus;
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(6) Except as disclosed in or specifically
contemplated by the Prospectus, to the best of such counsel's
knowledge, there are no outstanding options, warrants or other rights
calling for the issuance of, and no commitments, plans or arrangements
to issue, any shares of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the Company;
(7) The Registration Statement has become effective
under the Act and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated by
the Commission; any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) of the Rules and Regulations
has been made in the manner and within the time period required by such
Rule 424(b);
(8) The Registration Statement, the Prospectus and
each amendment or supplement thereto (except for the financial
statements and schedules included therein as to which such counsel need
express no opinion) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
(9) To the best of such counsel's knowledge, there
are no franchises, leases, licenses, contracts, agreements or documents
of a character required to be disclosed in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement
which are not disclosed or filed, as required;
(10) To the best of such counsel's knowledge, there
are no legal or governmental actions, suits or proceedings pending or
threatened against the Company, any of its subsidiaries or WorldMark
which are required to be described in the Prospectus which are not
described as required;
(11) The Company and the Major Stockholder have full
right, power and authority to enter into this Agreement and the Company
has full right, power and authority to sell and deliver the Common
Shares to be sold by it to the several Underwriters; this Agreement has
been duly and validly authorized by all necessary corporate action by
the Company and the Major Stockholder, has been duly and validly
executed and delivered by and on behalf of the Company and the Major
Stockholder, [and is a valid and binding agreement of the Company and
the Major Stockholder enforceable in accordance with its terms, except
as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except as to those provisions
relating to indemnity or contribution for liabilities arising under the
Act as to which no opinion need be expressed]; and no approval,
authorization, order, consent, registration, filing, qualification,
license or permit of or with any court, regulatory, administrative or
other governmental body is required for the execution and delivery of
this Agreement by the Company or the consummation of the transactions
contemplated by this Agreement, except such as have been obtained and
are in full force and effect under the Act and such as may be required
under applicable Blue Sky laws in connection with the purchase and
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distribution of the Common Shares by the Underwriters and the clearance
of such offering with the NASD;
(12) The Company and WorldMark had full right, power
and authority to enter into (i) the Management Agreement dated as of
September 30, 1994 by an between the Company and WorldMark, as amended,
and (ii) the Vacation Program Agreement dated as of June 3, 1994 by and
between the Company and WorldMark, as amended (collectively, the "Key
Agreements"); the Key Agreements were duly and validly authorized by
all necessary corporate action by the Company and WorldMark, were duly
and validly executed and delivered by and on behalf of the Company and
WorldMark, and are valid and binding agreements of the Company and
WorldMark enforceable in accordance with their terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally; and no approval, authorization,
order, consent, registration, filing, qualification, license or permit
of or with any court, regulatory, administrative or other governmental
body was required for the execution and delivery of the Key Agreements
by the Company and WorldMark;
(13) The execution and performance of this Agreement
and the consummation of the transactions herein contemplated will not
(i) conflict with, result in the material breach of, or constitute,
either by itself or upon notice or the passage of time or both, a
material default under, any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument known to such
counsel to which the Company, any of its subsidiaries or WorldMark is a
party or by which the Company, any of its subsidiaries or WorldMark or
any of its or their property may be bound or affected which conflict,
breach or default would have a Material Adverse Effect, or (ii) violate
any of the provisions of the certificate of incorporation or bylaws, or
other organizational documents, of the Company, any of its subsidiaries
or WorldMark or, so far as is known to such counsel, violate any
statute, judgment, decree, order, rule or regulation of any court or
governmental body having jurisdiction over the Company, any of its
subsidiaries or WorldMark or any of their property;
(14) Neither the Company, any of its subsidiaries nor
WorldMark is in violation of its articles of incorporation or bylaws,
or other organizational documents, or to the best of such counsel's
knowledge, in breach of or default with respect to any provision of any
agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument known to such counsel to which
the Company, any of its subsidiaries or WorldMark is a party or by
which such entity or any of its properties may be bound or affected,
except where such default would not have a Material Adverse Effect;
and, to the best of such counsel's knowledge, the Company, its
subsidiaries and WorldMark are in compliance with all laws, rules,
regulations, judgments, decrees, orders and statutes of any court or
jurisdiction to which they are subject, except where noncompliance
would not have a Material Adverse Effect;
(15) To the best of such counsel's knowledge, no
holders of securities of the Company have rights which have not been
waived to the registration of
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<PAGE> 21
shares of Common Stock or other securities because of the filing of the
Registration Statement by the Company or the offering contemplated
hereby;
(16) Neither the Company nor WorldMark is an
"investment company" within the meaning of the 1940 Act;
(17) To the best of such counsel's knowledge, this
Agreement and the Stockholder Agreement have been duly authorized,
executed and delivered by or on behalf of the Selling Stockholder; the
Agent has been duly and validly authorized to act as the custodian of
the Common Shares to be sold by such Selling Stockholder; and the
performance of this Agreement and the Stockholder Agreement and the
consummation of the transactions herein contemplated by the Selling
Stockholder will not result in a breach of, or constitute a default
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement or
instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder or any of his properties may be bound, or violate
any statute, judgment, decree, order, rule or regulation known to such
counsel of any court or governmental body having jurisdiction over any
of the Selling Stockholder or any of his properties; and to the best of
such counsel's knowledge, no approval, authorization, order or consent
of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement or the Stockholder Agreement or the consummation by the
Selling Stockholder of the transactions contemplated by this Agreement,
except such as have been obtained and are in full force and effect
under the Act and such as may be required under the rules of the NASD
and applicable Blue Sky laws;
(18) To the best of such counsel's knowledge, the
Selling Stockholder has full right, power and authority to enter into
this Agreement and the Stockholder Agreement and to sell, transfer and
deliver the Common Shares to be sold on such Closing Date by such
Selling Stockholder hereunder and good and marketable title to such
Common Shares so sold, free and clear of all liens, encumbrances,
equities, claims, restrictions, security interests, voting trusts, or
other defects of title whatsoever, has been transferred to the
Underwriters (whom counsel may assume to be bona fide purchasers) who
have purchased such Common Shares hereunder;
(19) To the best of such counsel's knowledge, this
Agreement and the Stockholder Agreement are valid and binding
agreements of the Selling Stockholder, enforceable in accordance with
their terms except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and
except with respect to those provisions relating to indemnities or
contributions for liabilities under the Act, as to which no opinion
need be expressed;
(20) No transfer taxes are required to be paid in
connection with the sale and delivery of the Common Shares to the
Underwriters hereunder;
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<PAGE> 22
(21) Except as described in the Prospectus with
respect to the Resorts located in Hawaii, the Company, each of its
subsidiaries which sells timeshare interests, if any, and WorldMark
have obtained the material approvals and permits from all relevant
state timeshare authorities necessary to offer for sale and to sell
timeshare interests and to offer purchase money financing in connection
with such sales in accordance with all applicable state timeshare laws
and regulations;
(22) To such counsel's knowledge and based upon its
review of certificates and letters from state timeshare authorities,
the Company, WorldMark and other pertinent parties (collectively,
"Reliance Certificates and Letters"), neither the Company, any of its
subsidiaries nor WorldMark has received any written notice from any
regulatory authority that they are in violation of any applicable
federal or state law or regulation regarding the offering for sale and
sale of timeshare interests in the Resorts, the violation of which
could have a Material Adverse Effect;
(23) To such counsel's knowledge, there are no
material franchises, licenses, leases, contracts, agreements or other
documents (collectively, the "Material Agreements") entered into by the
Company, any of its subsidiaries or WorldMark outside the ordinary
course of business, which involve matters relating to the ownership,
purchase money financing or use of real property or the offering for
sale or sale of timeshare interests in the Resorts, which are of a
character required to be disclosed in the Prospectus or to be filed as
exhibits to the Registration Statement which are not disclosed or filed
as required;
(24) To such counsel's knowledge, there are no real
estate or timeshare related governmental actions, governmental suits or
governmental proceedings pending or threatened against the Company, any
of its subsidiaries or WorldMark with respect to the business and
property relating to the Resorts except (a) those which have been
disclosed in the Prospectus, and (b) those which, if determined
adversely to the Company, any of its subsidiaries or WorldMark, would
not have a Material Adverse Effect;
(25) The consummation by the Company of the
transactions contemplated by the Underwriting Agreement do not require
the consent, approval, authorizations, registration or qualification of
(i) any governmental agency or authority of the timeshare authority of
the states where each of the Resorts are located or in which timeshare
interests are sold, or (ii) any lender which has a recorded security
interest in the Resorts, except those which have been obtained and are
in full force and effect and those as to which the failure to so obtain
would not have a Material Adverse Effect;
(26) The consummation by the Company of the
transactions contemplated by the Underwriting Agreement does not
conflict with or result in a material breach or violation by the
Company, any of its subsidiaries or WorldMark of: (i) any of the terms
or provisions of any loans which encumber the Resorts; or (ii) any
terms or provisions of any applicable state timeshare laws or
regulations;
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<PAGE> 23
(27) The statements (i) in the Prospectus under the
captions "Dividend Policy," "Business -- Governmental Regulation,"
"Business -- Insurance; Legal Proceedings," "Management -- Limitation
of Liability and Indemnification Matters," "Management -- Employment
Agreements," "Management -- 1997 Stock Option Plan," "Certain
Transactions," "Description of Capital Stock" and "Certain Provisions
of Oregon Law and of Trendwest's Articles of Incorporation and Bylaws"
and "Shares Eligible for Future Sale" and (ii) in the Registration
Statement in Items 14 and 15, in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein;
(28) A statement to the effect that although such
counsel is not passing upon, and does not assume any responsibility
for, the accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus and has not made any
independent check or verification thereof, during the course of such
participation (relying as to the factual matters upon the Reliance
Certificates and Letters), no facts came to such counsel's attention
that have caused such counsel to believe that the Registration
Statement at the time it became effective or the Prospectus contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading with respect to (i) indebtedness secured by the Resorts,
(ii) environmental matters with respect to the Resorts, (iii) ownership
of the Resorts, (iv) regulation by applicable state timeshare
authorities, (v) WorldMark's contractual relationships with the
Company, and (vi) the statements in the Prospectus under the caption
"Business - Governmental Regulation," to the extent that such
information constitutes matters of law or legal conclusions as it
pertains to the ownership, operation, sale and offering of timeshare
interests in the Resorts.
In rendering such opinion, such counsel may rely as to matters of local
law, on opinions of local counsel, and as to matters of fact, on certificates of
the Selling Stockholder and of officers of the Company and of governmental
officials, in which case their opinion is to state that they are so doing and
that the Underwriters are justified in relying on such opinions or certificates
and copies of said opinions or certificates are to be attached to the opinion.
Such counsel shall also include a statement to the effect that nothing has come
to such counsel's attention that would lead such counsel to believe that either
at the effective date of the Registration Statement or at the applicable Closing
Date the Registration Statement or the Prospectus, or any such amendment or
supplement thereto, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (it being understood that such counsel need
express no belief as to the financial statements, schedules and other financial
and statistical information, included in the Registration Statement or the
Prospectus or any amendments or supplements thereto).
(ii) Such opinion or opinions of Orrick, Herrington &
Sutcliffe LLP, counsel for the Underwriters, dated the First Closing Date or the
Second Closing Date,
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<PAGE> 24
as the case may be, with respect to the incorporation of the Company, the
sufficiency of all corporate proceedings and other legal matters relating to
this Agreement, the validity of the Common Shares, the Registration Statement
and the Prospectus and other related matters as you may reasonably require, and
the Company and the Selling Stockholder shall have furnished to such counsel
such documents and shall have exhibited to them such papers and records as they
may reasonably request for the purpose of enabling them to pass upon such
matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company, the Selling
Stockholder and governmental officials.
(iii) A certificate of the Company executed by the Chairman of
the Board or President and the chief financial or accounting officer of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) The representations and warranties of the
Company set forth in Section 2 of this Agreement are true and correct
as of the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order
preventing or suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best of the
knowledge of the respective signers, no proceedings for that purpose
have been instituted or are pending or contemplated under the Act;
(3) Each of the respective signers of the
certificate has carefully examined the Registration Statement and the
Prospectus; in his opinion and to the best of his knowledge, the
Registration Statement and the Prospectus and any amendments or
supplements thereto contain all statements required to be stated
therein regarding the Company and its subsidiaries; and neither the
Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction or
event has occurred which should have been set forth in an amendment to
the Registration Statement or in a supplement to or amendment of any
prospectus which has not been disclosed in such a supplement or
amendment;
(5) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
and except as disclosed in or specifically contemplated by the
Prospectus, there has not been any Material Adverse Change or a
development involving a Material Adverse Change; and no legal or
governmental action, suit or proceeding is pending or threatened
against the Company,
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<PAGE> 25
any of its subsidiaries or WorldMark, whether or not arising from
transactions in the ordinary course of business, which may adversely
affect the transactions contemplated by this Agreement, or which would
have a Material Adverse Effect; since such dates and except as so
disclosed, neither the Company, any of its subsidiaries nor WorldMark
has entered into any verbal or written agreement or other transaction
which is not in the ordinary course of business or which could result
in a material reduction in the future earnings of the Company or
incurred any material liability or obligation, direct, contingent or
indirect, made any change in its capital stock, made any material
change in its short-term debt or funded debt or repurchased or
otherwise acquired any of the Company's capital stock; and neither the
Company nor WorldMark has declared or paid any dividend, or made any
other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the First Closing Date or
Second Closing Date, as the case may be; and
(6) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus
and except as disclosed in or specifically contemplated by the
Prospectus, neither the Company, any of its subsidiaries nor WorldMark
has sustained a loss or damage by strike, fire, flood, windstorm,
accident or other calamity (whether or not insured), that could have a
Material Adverse Effect.
(iv) On the First Closing Date, and if applicable, on the
Second Closing Date, a certificate, dated such Closing Date and addressed to
you, signed by or on behalf of the Selling Stockholder to the effect that the
representations and warranties of such Selling Stockholder in this Agreement are
true and correct, as if made at and as of such Closing Date, and such Selling
Stockholder has complied with all the agreements and satisfied all the
conditions on his part to be performed or satisfied prior to such Closing Date.
(v) On the date before this Agreement is executed and also on
the First Closing Date and the Second Closing Date a letter addressed to you, as
Representatives of the Underwriters, from each of KPMG Peat Marwick LLP and
Molatore, Peugh, McDaniel, Scroggin & Co. LLP, each independent accountants, the
first one to be dated the day before the date of this Agreement, the second one
to be dated the First Closing Date and the third one (in the event of a Second
Closing) to be dated the Second Closing Date, in form and substance satisfactory
to you.
(vi) On or before the First Closing Date, letters from each
holder of the Company's Common Stock and each director and officer of the
Company, in form and substance satisfactory to you, confirming that for a period
of 180 days after the first date that any of the Common Shares are released by
you for sale to the public, such person will not directly or indirectly sell or
offer to sell or otherwise dispose of any shares of Common Stock or any right to
acquire such shares without the prior written consent of Montgomery Securities,
which consent may be withheld at the sole discretion of Montgomery Securities.
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(vii) The Company shall have furnished to you such further
certificates and documents as you shall have reasonably requested.
(viii) There shall have been delivered to you the Firm Common
Shares and, if any Optional Common Shares are purchased, the Optional Common
Shares in the manner required pursuant to Section 5 hereof.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Orrick, Herrington & Sutcliffe LLP, counsel for the Underwriters. The Company
shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to the Representatives or to
counsel for the Underwriters shall be deemed to be a representation and warranty
by the Company to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you to the
Company and the Selling Stockholder without liability on the part of any
Underwriter, the Company or the Selling Stockholder except for the expenses to
be paid or reimbursed by the Company and by the Selling Stockholder pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof.
9. Reimbursement of Underwriters' Expenses. Notwithstanding any other
provisions hereof, if this Agreement shall be terminated by you pursuant to
Section 8, or if the sale to the Underwriters of the Common Shares at the First
Closing is not consummated because of any refusal, inability or failure on the
part of the Company or the Selling Stockholder to perform any agreement herein
or to comply with any provision hereof, the Company agrees to reimburse you and
the other Underwriters upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by you and them in connection with the proposed
purchase and the sale of the Common Shares, including but not limited to fees
and disbursements of counsel, printing expenses, travel expenses, postage,
telegraph charges and telephone charges relating directly to the offering
contemplated by the Prospectus. Any such termination shall be without liability
of any party to any other party except that the provisions of this Section,
Section 7 and Section 11 shall at all times be effective and shall apply.
10. Effectiveness of Registration Statement. You, the Company and the
Selling Stockholder will use your, its and his best efforts to cause the
Registration Statement to become effective, to prevent the issuance of any stop
order suspending the effectiveness of the Registration Statement and, if such
stop order be issued, to obtain as soon as possible the lifting thereof.
11. Indemnification. (a) The Company, the Selling Stockholder and the
Major Stockholder, jointly and severally, agree to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Underwriter or such controlling person
may become subject, under the Act, the Exchange Act, or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims,
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<PAGE> 27
damages, liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state in
any of them a material fact required to be stated therein or necessary to make
the statements in any of them not misleading, or arise out of or are based in
whole or in part on any inaccuracy in the representations and warranties of the
Company, the Selling Stockholder or the Major Stockholder contained herein or
any failure of the Company or the Selling Stockholder to perform their
respective obligations hereunder or under law; and will reimburse each
Underwriter and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that, notwithstanding the foregoing, the Selling Stockholder and the
Major Stockholder shall have no liability pursuant to this Section 11(a) with
respect to the inaccuracy of the aforementioned representations and warranties
or the failure to perform the aforementioned obligations unless the
representation and warranty was made by, or the obligation was incurred by, the
Selling Stockholder or the Major Stockholder, as applicable, pursuant to this
Agreement; provided, further, that (i) neither the Company, the Selling
Stockholder nor the Major Stockholder will be liable in any such case to the
extent that any such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof, (ii) the maximum liability of the Major Stockholder under this Section
11(a) shall not exceed the lesser of (a) $15,000,000 or (b) the aggregate amount
of all sums paid by the Company to the Major Stockholders during the six month
period following the date of this Agreement in respect of the outstanding
indebtedness and accrued interest described under "Use of Proceeds" in the
Prospectus, (iii) the Major Stockholder shall not be liable under the provisions
of this Section 11(a) unless and until the Underwriters have made written demand
on the Company for payment under this Section 11(a) which shall not have been
paid by the Company within 30 days after receipt of such demand and (iv) the
maximum liability of the Selling Stockholder under this Section 11(a) shall not
exceed the amount equal to the initial public offering price of the Common
Shares sold by such Selling Stockholder, less the underwriting discount as set
forth on the cover page of the Prospectus; and provided, further, that with
respect to any preliminary prospectus, the foregoing indemnity agreement shall
not inure to the benefit of any Underwriter from whom the person asserting any
loss, claim, damage, liability or expense purchased Common Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely delivered
to the Underwriter pursuant to Section 2 hereof and a copy of the Prospectus (as
then amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Common Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or expense. The
Company, the Selling Stockholder and the Major Stockholder may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible. In addition to its other obligations under this Section
11(a), the Company, the Selling Stockholder and the Major Stockholder agree
that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, or any inaccuracy
in the representations and warranties of the Company, the Selling Stockholder or
the Major Stockholder
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herein or failure to perform its obligations hereunder, all as described in this
Section 11(a), it will reimburse each Underwriter on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's, the Selling Stockholder's or the Major
Stockholder's obligation to reimburse each Underwriter for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each Underwriter shall
promptly return it to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time by Bank of
America NT&SA, San Francisco, California (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the date of
such request. This indemnity agreement will be in addition to any liability
which the Company, the Selling Stockholder or the Major Stockholder may
otherwise have.
(b) Each Underwriter will severally indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Stockholder, the Major Stockholder and each
person, if any, who controls the Company, the Selling Stockholder or the Major
Stockholder within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such director, officer,
Selling Stockholder, Major Stockholder or controlling person may become subject,
under the Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and will reimburse the
Company, or any such director, officer, Selling Stockholder, Major Stockholder
or controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer, Selling Stockholder, Major Stockholder
or controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. In addition to its other obligations under this Section 11(b), each
Underwriter severally agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 11(b) which relates to information furnished to the
Company pursuant to Section 4 hereof, it will reimburse the Company (and, to the
extent applicable, each officer, director, controlling person, Selling
Stockholder or Major Stockholder) on a quarterly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the
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propriety and enforceability of the Underwriters' obligation to reimburse the
Company (and, to the extent applicable, each officer, director, controlling
person, Selling Stockholder or Major Stockholder) for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to the
extent applicable, each officer, director, controlling person, Selling
Stockholder or Major Stockholder) shall promptly return it to the Underwriters
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made to the Company
within 30 days of a request for reimbursement, shall bear interest at the Prime
Rate from the date of such request. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained in this
Section or to the extent it is not prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified party and
such indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel, approved by the Representatives in the case of paragraph
(a), representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) If the indemnification provided for in this Section 11 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) in respect of any losses, claims, damages, liabilities
29
<PAGE> 30
or expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to herein (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company, the Selling Stockholder, the Major Stockholder and the
Underwriters from the offering of the Common Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, the Selling
Stockholder, the Major Stockholder and the Underwriters in connection with the
statements or omissions or inaccuracies in the representations and warranties
herein which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations; provided, however, that
in no event shall the Major Stockholder be required to contribute more than the
lesser of (a) $15,000,000 or (b) the aggregate amount of all sums paid by the
Company to the Major Stockholders during the six month period following the date
of this Agreement in respect of the outstanding indebtedness and accrued
interest described under "Use of Proceeds" in the Prospectus. The respective
relative benefits received by the Company, the Selling Stockholder, the Major
Stockholder and the Underwriters shall be deemed to be in the same proportion,
in the case of the Company, the Selling Stockholder and the Major Stockholder as
the total price paid to the Company and to the Selling Stockholder,
respectively, for the Common Shares sold by them to the Underwriters (net of
underwriting commissions but before deducting expenses) bears to the total price
to the public set forth on the cover of the Prospectus, and in the case of the
Underwriters as the total underwriting discount received by them bears to the
total price to the public set forth on the cover of the Prospectus. The relative
fault of the Company, the Selling Stockholder, the Major Stockholder and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact or the inaccurate or the alleged
inaccurate representation and/or warranty relates to information supplied by the
Company, the Selling Stockholder, the Major Stockholder or the Underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in subparagraph (c) of this Section 11, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in subparagraph (c) of
this Section 11 with respect to notice of commencement of any action shall apply
if a claim for contribution is to be made under this subparagraph (d); provided,
however, that no additional notice shall be required with respect to any action
for which notice has been given under subparagraph (c) for purposes of
indemnification. The Company, the Selling Stockholder, the Major Stockholder and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 11 were determined solely by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
11, no Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting discount received by such Underwriter in
connection with the Common Shares underwritten by it and distributed to the
public. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 11 are several in proportion
to their respective underwriting commitments and not joint.
30
<PAGE> 31
(d) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections 11(a)
and 11(b) hereof, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 11(a) and 11(b)
hereof and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
Sections 11(a) and 11(b) hereof.
12. Default of Underwriters. It shall be a condition to this Agreement
and the obligation of the Company and the Selling Stockholder to sell and
deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for all
the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Representatives of all such shares in accordance with the terms
hereof. If any Underwriter or Underwriters default in their obligations to
purchase Common Shares hereunder on either the First or Second Closing Date and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
10% of the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Common Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than the above percentage and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholder except for the expenses to be paid by the
Company and the Selling Stockholder pursuant to Section 7 hereof and except to
the extent provided in Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
13. Effective Date. This Agreement shall become effective immediately
as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions, (i) if at
the time of execution of this Agreement the Registration Statement has not
become effective, at 2:00 P.M., California time, on the first full
31
<PAGE> 32
business day following the effectiveness of the Registration Statement, or (ii)
if at the time of execution of this Agreement the Registration Statement has
been declared effective, at 2:00 P.M., California time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the public.
For the purposes of this Section 13, the Common Shares shall be deemed to have
been so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
14. Termination. Without limiting the right to terminate this Agreement
pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice
to you and the Selling Stockholder or by you by notice to the Company and the
Selling Stockholder at any time prior to the time this Agreement shall become
effective as to all its provisions, and any such termination shall be without
liability on the part of the Company or the Selling Stockholder to any
Underwriter (except for the expenses to be paid or reimbursed by the Company and
the Selling Stockholder pursuant to Sections 7 and 9 hereof and except to the
extent provided in Section 11 hereof) or of any Underwriter to the Company or
the Selling Stockholder (except to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the
First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
Exchange or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Representatives, to affect
adversely the marketability of the Common Shares, (iii) if any adverse event
shall have occurred or shall exist which makes untrue or incorrect in any
material respect any statement or information contained in the Registration
Statement or Prospectus or which is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect, or (iv) if
there shall be any action, suit or proceeding pending or threatened, or there
shall have been any development or prospective development involving
particularly the business or properties or securities of the Company or any of
its subsidiaries or the transactions contemplated by this Agreement, which, in
the reasonable judgment of the Representatives, may materially and adversely
affect the Company's business or earnings and makes it impracticable or
inadvisable to offer or sell the Common Shares. Any termination pursuant to this
subsection (b) shall without liability on the part of any Underwriter to the
Company or the Selling Stockholder or on the part of the Company or the Selling
Stockholder to any Underwriter (except for expenses to be paid or reimbursed by
the Company and the Selling
32
<PAGE> 33
Stockholder pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
(c) This Agreement shall also terminate at 5:00 P.M.,
California time, on the tenth full business day after the Registration Statement
shall have become effective if the initial public offering price of the Common
Shares shall not then as yet have been determined as provided in Section 5
hereof. Any termination pursuant to this subsection (c) shall be without
liability on the part of any Underwriter to the Company or the Selling
Stockholder or on the part of the Company or the Selling Stockholder to any
Underwriter (except for expenses to be paid or reimbursed by the Company and the
Selling Stockholder pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof).
15. Failure of the Selling Stockholder to Sell and Deliver. If the
Selling Stockholder shall fail to sell and deliver to the Underwriters the
Common Shares to be sold and delivered by such Selling Stockholder at the First
Closing Date under the terms of this Agreement, then the Underwriters may at
their option, by written notice from you to the Company and the Selling
Stockholder, either (i) terminate this Agreement without any liability on the
part of any Underwriter or, except as provided in Sections 7, 9 and 11 hereof,
the Company or the Selling Stockholder, or (ii) purchase the shares which the
Company has agreed to sell and deliver in accordance with the terms hereof. In
the event of a failure by the Selling Stockholder to sell and deliver as
referred to in this Section, either you or the Company shall have the right to
postpone the Closing Date for a period not exceeding seven business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected.
16. Representations and Indemnities to Survive Delivery. The respective
indemnities, agreements, representations, warranties and other statements of the
Company, of its officers, of the Selling Stockholder, of the Major Stockholder
and of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholder, or
the Major Stockholder, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement; provided, however, that notwithstanding the foregoing, the
indemnification obligations of the Major Stockholder pursuant to Section 11(a)
of this Agreement shall expire with respect to any claim as to which the Major
Stockholder is not notified by the Underwriters within three (3) years after the
date of this Agreement.
17. Notices. All communications hereunder shall be in writing and, if
sent to the Representatives shall be mailed, delivered or telegraphed and
confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: Karl C. Matthies, with a copy to Peter Lillevand, Esq. at Orrick,
Herrington & Sutcliffe LLP, 400 Sansome Street, San Francisco, California 94111;
and if sent to the Company, the Selling Stockholder or the Major Stockholder
shall be mailed, delivered or telegraphed and confirmed to the Company at 12301
NE 10th Place, Bellevue, Washington 98005, with a copy to David Wilson, Esq. at
Foster Pepper & Shefelman PLLC, 1111 3rd Avenue, Suite 3400, Seattle, Washington
98101. The Company, the Selling Stockholder, the Major Stockholder or you may
change the address for receipt of communications hereunder by giving notice to
the others.
33
<PAGE> 34
18. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 12 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 11, and in each case their respective
successors, personal representatives and assigns, and no other person will have
any right or obligation hereunder. No such assignment shall relieve any party of
its obligations hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
19. Representation of Underwriters. You will act as Representatives for
the several Underwriters in connection with all dealings hereunder, and any
action under or in respect of this Agreement taken by you jointly or by
Montgomery Securities, as Representatives, will be binding upon all the
Underwriters.
20. Partial Unenforceability. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
21. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws (and not the laws pertaining to conflicts
of laws) of the State of California.
22. General. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholder, the Major
Stockholder and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on the Selling Stockholder.
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<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company, the Selling Stockholder, the
Major Stockholder and the several Underwriters including you, all in accordance
with its terms.
Very truly yours,
TRENDWEST RESORTS, INC.
By:
------------------------------------
President
SELLING STOCKHOLDER
By:
------------------------------------
(Attorney-in-fact)
JELD-WEN, inc.
By:
------------------------------------
President
The foregoing Underwriting Agreement is hereby confirmed and accepted by us in
San Francisco, California as of the date first above written.
MONTGOMERY SECURITIES
SALOMON BROTHERS INC
Acting as Representatives of the several Underwriters named in the attached
Schedule A.
By MONTGOMERY SECURITIES
By:
------------------------------------
35
<PAGE> 36
(Authorized Signatory)
36
<PAGE> 37
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
Montgomery Securities..........................................
Salomon Brothers Inc...........................................
---------
TOTAL 2,875,000
=========
</TABLE>
37
<PAGE> 38
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm Common
Shares to be Sold by
Name of Selling Stockholder Selling Stockholder
- --------------------------- -------------------
<S> <C>
William F. Peare..................................................130,000
</TABLE>
38
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TRENDWEST RESORTS, INC.
ARTICLE I
NAME
The name of this corporation is Trendwest Resorts, Inc. (the "Corporation").
ARTICLE II
PURPOSES AND POWERS
The Corporation is organized to engage in any lawful activity for
which a corporation may be organized under the Oregon Business Corporation Act,
including, but not limited to, the acquisition and sale of credits for
participation in an internal ownership program. The Corporation will have the
same powers as an individual to do all things necessary or convenient to carry
out its business and affairs, including but not limited to, the powers
specified in the Oregon Business Corporation Act or which may be hereafter
granted by such law.
ARTICLE III
AUTHORIZED CAPITAL STOCK
A. Authorized Classes of Shares. The Corporation may issue
100,000,000 shares of stock ("Capital Stock") divided into two classes as
follows:
90,000,000 shares of common stock ("Common Stock").
10,000,000 shares of preferred stock ("Preferred Stock"). The
Preferred Stock may be further divided into one or more series of Preferred
Stock. Each series of Preferred Stock will have the preferences, limitations
and relative rights as may be set forth for such series either in these
Articles or in an amendment to these Articles ("Preferred Stock Designation").
A Preferred Stock Designation may be adopted either by action of the Board of
Directors of the Corporation pursuant to Section G of this Article III or by
action of the shareholders of the Corporation; and
90,000,000 shares of common stock ("Common Stock").
-1-
<PAGE> 2
Except as may otherwise be provided in a Preferred Stock Designation,
all shares of a class will have preferences, limitations and relative rights
identical to those of all other shares of the same class. All shares of a
series of Preferred Stock will have preferences, limitations and relative
rights identical to those of all other shares of that series of Preferred
Stock.
B. Voting Rights. The Corporation's Capital Stock will have
voting rights as follows:
1. Common Stock Voting Rights. Subject to the voting
rights, if any, of any Preferred Stock that may be outstanding, the
outstanding shares of Common Stock will (a) each have one (1) vote,
(b) vote together as a single voting group and (c) together have
unlimited voting rights.
2. Preferred Stock Voting Rights. Except as otherwise
provided by the Oregon Business Corporation Act or in a Preferred
Stock Designation, each share of Preferred Stock will, on each matter
which that series of Preferred Stock is entitled to vote, either have
(a) one (1) vote if that series of Preferred Stock is not by its terms
convertible into Common Stock, or (b) if that series of Preferred
Stock is convertible into Common Stock, (i) one (1) vote for each
share of Common Stock which that series of Preferred Stock may be
converted into as of the record date for the meeting at which the vote
is to be taken and (ii) the right to vote together with shares of the
Common Stock as a single voting group.
3. Nonvoting Preferred Stock. Shares of any series of
Preferred Stock which are designated as being "nonvoting" will
nonetheless have such voting rights as are required by the Oregon
Business Corporation Act.
4. Noncumulative Voting for Directors. The holders of
shares of Common Stock and the holders of shares of any series of
Preferred Stock which is entitled to vote with respect to the election
of directors will not have the right to cumulate votes in the election
of directors.
5. Quorum at Shareholder Meetings. For all meetings of
shareholders, one-third of the votes entitled to be cast by each
voting group with respect to a matter shall constitute a quorum of
that voting group for action on that matter.
6. Special Meeting of Shareholders. Special meetings of
the shareholders of the Corporation may only be called by (a) a
majority of the Board of Directors of the Corporation, (b) the
President of the Corporation, or (c) a written demand by shareholders
of record holding shares with at least 10% of the votes entitled to be
cast on any matter proposed to be considered at the special meeting.
C. Dividends. Subject to any priority or participating rights of
any Preferred Stock that may be outstanding, the holders of Common Stock will
be entitled to receive, out of any legally available assets of the Corporation,
any dividends declared by the Board of Directors of the Corporation. Except as
may otherwise be provided in a Preferred Stock Designation, the
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<PAGE> 3
Board of Directors of the Corporation will have the sole authority and
discretion to determine the time, amount and terms of payment for any dividend
which may be declared. Nothing in these Articles will be construed as
obligating the Board of Directors of the Corporation to declare a dividend at
any time, even though the Corporation may have assets legally available to pay
a dividend.
D. Redemption. Subject to any provision to the contrary
contained in any Preferred Stock Designation, the Corporation may repurchase
all or any of its outstanding shares of Common Stock or Preferred Stock even
though the distribution made to effect that repurchase would cause the
difference between the Corporation's total assets and its total liabilities to
be less than the amount that would be needed to satisfy the preferential
liquidation rights of all outstanding shares of classes or series of a class
with liquidation rights that are prior to those of the shares being repurchased
if the Corporation were to be liquidated at the time of such repurchase.
E. Liquidation. In liquidating, dissolving or winding up the
Corporation, the Board of Directors must first discharge or make adequate
provision for discharging all liabilities of the Corporation. The remaining
net assets of the Corporation shall be distributed to the holders of the Common
Stock according to their respective share holdings, subject to the priority and
participating rights of any Preferred Stock that may be outstanding.
F. Preemptive Rights. No holder of any shares of Common Stock or
Preferred Stock will be entitled to any preemptive right to purchase or
subscribe for any unissued or treasury shares of the Corporation.
G. Preferences, Limitations and Relative Rights of Preferred
Stock. The Board of Directors of the Corporation is expressly authorized to,
from time to time by resolution duly adopted, designate the preferences,
limitations and relative rights of one or more series of Preferred Stock. A
Preferred Stock Designation by the Board of Directors may set forth, with
respect to the shares of the series of Preferred Stock so designated, the
following preferences, limitations and relative rights:
1. Voting. The voting rights of the shares of that
series of Preferred Stock, including whether the shares have special,
conditional or limited voting rights. Alternatively, the Preferred
Stock Designation may include a statement to the effect that the
shares of that series of Preferred Stock are "nonvoting" except to the
extent voting rights are required by the Oregon Business Corporation
Act.
2. Dividends. The dividend rate and preference, if any,
of the shares of that series of Preferred Stock. The Preferred Stock
Designation will also state (a) whether the dividend rights of shares
of that series of Preferred Stock are cumulative, noncumulative or
partially cumulative and (b) whether or not the shares of that series
of Preferred Stock will participate in any dividends that may be
declared with respect to the Common Stock.
-3-
<PAGE> 4
3. Liquidations. The amount of the liquidation
preference, if any, of the shares of that series of Preferred Stock.
The Preferred Stock Designation will also state whether or not and, if
so, when the shares of that series of Preferred Stock will participate
with the Common Stock in any liquidating distributions.
4. Redemption. Whether the shares of that series of
Preferred Stock are redeemable at the option of the Corporation, at
the option of the holder of the shares or another person or upon the
occurrence of a designated event and whether the redemption price for
the shares of that series of Preferred Stock will be a designated
amount or determined by a designated formula or by reference to an
extrinsic event or extrinsic data, whether the redemption price for
the shares of such series of Preferred Stock will be paid in cash,
indebtedness or other property. The Preferred Stock Designation will
also state (a) the terms and conditions, if any, of any redemption,
(b) the procedures for effecting any redemption and (c) whether or not
and, if so, where and in what manner a sinking fund must be created by
the Corporation for the purpose of funding any redemption.
5. Conversion. Whether the shares of that series of
Preferred Stock are convertible at the option of the Corporation, at
the option of the holder of the shares or another person or upon the
occurrence of a designated event into other securities of the
Corporation in a designated amount or in an amount determined by a
designated formula or by reference to an extrinsic event or extrinsic
data. The Preferred Stock Designation will also state the terms and
conditions of the conversion, if any, and the procedures for effecting
such a conversion.
6. Other Terms. Such other preferences, limitations and
relative rights as the Board of Directors of the Corporation may
determine.
Every Preferred Stock Designation must identify that series of
Preferred Stock in a manner that will distinguish that series from all other
series of Preferred Stock and from the undesignated Preferred Stock. The
Preferred Stock Designation must also set forth the number of shares to be
included in that series. All shares of that series that are thereafter
redeemed, converted, or, if so provided in the Preferred Stock Designation,
remain unissued on a designated date or on the occurrence of an event will
cease to be of that series and will automatically become undesignated Preferred
Stock.
Any Preferred Stock Designation adopted by the Board of Directors of
the Corporation pursuant to this Section G of Article III will constitute
articles of amendment to these Articles of Incorporation and will become
effective, without shareholder action, upon filing as prescribed by the Oregon
Business Corporation Act. No shares of Preferred Stock or of a series of
Preferred Stock may be issued by the Corporation prior to the filing of
articles of amendment determining the preferences, limitations and relative
rights of such shares.
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ARTICLE IV
REGISTERED AGENT AND OFFICE AND ADDRESS FOR NOTICES
The registered agent of the Corporation is FP&S Registry Services,
Inc., and the street address of the registered office and mailing address of the
registered agent is 101 S.W. Main Street, 15th Floor, Portland, Oregon
97204-3223. The address where the Secretary of State may mail notices is 101
S.W. Main Street, 15th Floor, Portland, Oregon 97204-3223. The agent has
consented to this appointment.
ARTICLE V
BOARD OF DIRECTORS
Effective at the first annual meeting of shareholders following the
filing of these Amended and Restated Articles of Incorporation, the board of
directors shall be divided into three classes: Class I, Class II, and Class
III. Such classes shall be as nearly equal in number of directors as possible.
Each director shall serve for a term ending at the third annual shareholders'
meeting following the annual meeting at which such director was elected;
provided, however, that the directors first elected to Class I shall serve for
a term ending at the annual meeting to be held in the year following the first
election of directors by classes, the directors first elected to Class II shall
serve for a term ending at the annual meeting to be held in the second year
following the first election of directors by classes, and the directors first
elected to Class III shall serve for a term ending at the annual meeting to be
held in the third year following the first election of directors by classes.
ARTICLE IX
LIMITATIONS ON LIABILITY OF DIRECTORS
No director of the Corporation is personally liable to the Corporation
or its shareholders for monetary damages for conduct as a director, except for
the following:
(a) Any breach of the director's duty of loyalty to the
Corporation or its shareholders;
(b) Acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(c) Any distribution to shareholders that is unlawful under the
Oregon Business Corporation Act or successor statute; or
(d) Any transaction from which the director derived an improper
personal benefit.
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This Article does not limit or eliminate the liability of a director
for any act or omission occurring before the effective date of this Article.
No amendment to or repeal of this Article may make any director of the
Corporation personally liable to the Corporation or its shareholders for
monetary damages for any act or omission as a director occurring before the
effective date of that amendment or repeal.
This Article is intended to limit the liability of any director of the
Corporation to the greatest extent authorized under the Oregon Business
Corporation Act. Any further limitation on the liability of directors
authorized under any amendment to the Oregon Business Corporation Act is
incorporated into this Article on the effective date of that amendment.
ARTICLE X
INDEMNIFICATION
A. Non-Derivative Actions. Subject to the provisions of Sections
C, E and F below, the Corporation shall indemnify any person who was or is a
party to or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative, (including all appeals) (other than an action by or in the
right of the Corporation) by reason of or arising from the fact that the person
is or was a director or officer of the Corporation or one of its subsidiaries,
or is or was serving at the request of the Corporation as a director, officer,
partner, or trustee of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
reasonable expenses (including attorney's fees), judgments, fines, penalties,
excise taxes assessed with respect to any employee benefit plan and amounts
paid in settlement actually and reasonably incurred by the person to be
indemnified in connection with such action, suit or proceeding if the person
acted in good faith, did not engage in intentional misconduct, and, with
respect to any criminal action or proceeding, did not know the conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith or, with respect to any criminal action or proceeding, that
the person knew that the conduct was unlawful.
B. Derivative Actions. Subject to the provisions of Sections C,
E and F below, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit (including all appeals) by or in the right of the Corporation to
procure a judgment in its favor by reason of or arising from the fact that the
person is or was a director or officer of the Corporation or one of its
subsidiaries, or is or was serving at the request of the Corporation as a
director, officer, partner, or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against reasonable expenses (including attorneys' fees) actually
incurred by the person to be indemnified in connection with the defense or
settlement of such action or suit if the person acted in good faith, provided,
however, that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be
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<PAGE> 7
liable for deliberate misconduct in the performance of that person's duty to
the Corporation, for any transaction in which the person received an improper
personal benefit, for any breach of the duty of loyalty to the Corporation, or
for any distribution to shareholders which is unlawful under the Oregon
Business Corporation Act, or successor statute, unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
C. Determination of Right to Indemnification in Certain Cases.
Subject to the provisions of Sections E and F below, indemnification under
Sections A and B of this Article shall not be made by the Corporation unless it
is expressly determined that indemnification of the person who is or was an
officer or director, or is or was serving at the request of the Corporation as
a director, officer, partner, or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, is proper in the circumstances because the person has met the
applicable standard of conduct set forth in Sections A or B. That
determination may be made by any of the following:
(a) By the Board of Directors by majority vote of a
quorum consisting of directors who are not or were not parties to the action,
suit or proceeding;
(b) If a quorum cannot be obtained under paragraph (a) of
this subsection, by majority vote of a committee duly designated by the Board
of Directors consisting solely of two or more directors not at the time parties
to the action, suit or proceeding (directors who are parties to the action,
suit or proceeding may participate in designation of the committee);
(c) By special legal counsel selected by the Board of
Directors or its committee in the manner prescribed in (a) or (b) or, if a
quorum of the Board of Directors cannot be obtained under (a) and a committee
cannot be designated under (b) the special legal counsel shall be selected by
majority vote of the full Board of Directors, including directors who are
parties to the action, suit or proceeding;
(d) If referred to them by Board of Directors of the
Corporation by majority vote of a quorum (whether or not such quorum consists
in whole or in part of directors who are parties to the action, suit or
proceeding), by the shareholders; or
(e) By a court of competent jurisdiction.
D. Indemnification of Persons Other than Officers or Directors.
Subject to the provisions of Section F, in the event any person not entitled to
indemnification under Sections A and B of this Article was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding of a type referred to in Sections A or B of this Article by
reason of or arising from the fact that such person is or was an employee or
agent (including an attorney) of the Corporation or one of its subsidiaries, or
is or was serving at the request of the Corporation as an employee or agent
(including an attorney) of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other
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<PAGE> 8
enterprise, the Board of Directors of the Corporation by a majority vote of a
quorum (whether or not such quorum consists in whole or in part of directors
who were parties to such action, suit or proceeding) or the stockholders of the
Corporation by a majority vote of the outstanding shares upon referral to them
by the Board of Directors of the Corporation by a majority vote of a quorum
(whether or not such quorum consists in whole or in part of directors who were
parties to such action, suit or proceeding) may, but shall not be required to,
grant to such person a right of indemnification to the extent described in
Sections A or B of this Article as if the person were acting in a capacity
referred to therein, provided that such person meets the applicable standard of
conduct set forth in such Sections. Furthermore, the Board of Directors may
designate by resolution in advance of any action, suit or proceeding, those
employees or agents (including attorneys) who shall have all rights of
indemnification granted under Sections A and B of this Article.
E. Successful Defense. Notwithstanding any other provision of
Sections A, B, C or D of this Article, but subject to the provisions of Section
F, to the extent a director, officer, or employee is successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections A, B or D of this Article, or in defense of any claim, issue or matter
therein, that person shall be indemnified against expenses (including attorneys
fees) actually and reasonably incurred by him in connection therewith.
F. Condition Precedent to Indemnification Under Sections A, B, D
or E. Any person who desires to receive the benefits otherwise conferred by
Sections A, B, D or E of this Article shall promptly notify the Corporation
that the person has been named a defendant to an action, suit or proceeding of
a type referred to in Sections A, B, D, or E and intends to rely upon the right
of indemnification described in Sections A, B, D or E of this Article. The
notice shall be in writing and mailed, via registered or certified mail, return
receipt requested, to the President of the Corporation at the executive offices
of the Corporation or, in the event the notice is from the President, to the
registered agent of the Corporation. Failure to give the notice required
hereby shall entitle the Board of Directors of the Corporation by a majority
vote of a quorum (consisting of directors who, insofar as indemnity of officers
or directors is concerned, were not parties to such action, suit or proceeding,
but who, insofar as indemnity of employees or agents is concerned, may or may
not have been parties) or, if referred to them by the Board of Directors of the
Corporation by a majority vote of a quorum (consisting of directors who,
insofar as indemnity of officers or directors is concerned, were not parties to
such action, suit or proceeding, but who, insofar as indemnity of employees or
agents is concerned, may or may not have been parties), the stockholders of the
Corporation by a majority of the votes entitled to be cast by holders of shares
of the Corporation's stock which have unlimited voting rights to make a
determination that such a failure was prejudicial to the Corporation in the
circumstances and that, therefore, the right to indemnification referred to in
Sections A, B or D of this Article shall be denied in its entirety or reduced
in amount.
G. Advances for Expenses. Expenses incurred by a person
indemnified hereunder in defending a civil, criminal, administrative or
investigative action, suit or proceeding (including all appeals) or threat
thereof, may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such person to repay such expenses if it shall ultimately be determined that
the person is not
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<PAGE> 9
entitled to be indemnified by the Corporation and a written affirmation of the
person's good faith belief that he or she has met the applicable standard of
conduct. The undertaking must be a general personal obligation of the party
receiving the advances but need not be secured and may be accepted without
reference to financial ability to make repayment.
H. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation or one of its subsidiaries or is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against any
liability asserted against and incurred by that person in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify that person against such liability under the provisions
of this Article or under the Oregon Business Corporation Act.
I. Purpose and Exclusivity. The indemnification referred to in
the various Sections of this Article shall be deemed to be in addition to and
not in lieu of any other rights to which those indemnified may be entitled
under any statute, rule of law or equity, agreement, vote of the stockholders
or Board of Directors or otherwise. The Corporation is authorized to enter
into agreements of indemnification. The purpose of this Article is to augment
the provisions of the Oregon Business Corporation Act dealing with
indemnification.
J. Severability. If any of the provisions of this Article are
found, in any action, suit or proceeding, to be invalid or ineffective, the
validity and the effect of the remaining provisions shall not be affected.
These Articles of Incorporation are dated July 1, 1997.
/s/ JEFFREY P. SITES
___________________________________________
Jeffrey P. Sites, Executive Vice President
and Chief Operating Officer
Person to contact about this filing: David R. Wilson, daytime phone number
(206) 442-8116.
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
TRENDWEST RESORTS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . 1
Section 1.1 Annual Meeting . . . . . . . . . . . . . . . . . 1
Section 1.2 Special Meetings . . . . . . . . . . . . . . . . 1
Section 1.3 Notice . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4 Waiver of Notice . . . . . . . . . . . . . . . . 1
Section 1.5 Voting . . . . . . . . . . . . . . . . . . . . . 1
Section 1.6 Quorum; Vote Required . . . . . . . . . . . . . . 2
Section 1.7 Action Without Meeting . . . . . . . . . . . . . 2
ARTICLE 2. BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Number and Election of Directors . . . . . . . . 2
Section 2.2 Vacancies . . . . . . . . . . . . . . . . . . . . 2
Section 2.3 Annual Meeting . . . . . . . . . . . . . . . . . 2
Section 2.4 Regular Meetings . . . . . . . . . . . . . . . . 3
Section 2.5 Special Meetings . . . . . . . . . . . . . . . . 3
Section 2.6 Telephonic Meetings . . . . . . . . . . . . . . . 3
Section 2.7 Waiver of Notice . . . . . . . . . . . . . . . . 3
Section 2.8 Quorum . . . . . . . . . . . . . . . . . . . . . 3
Section 2.9 Voting . . . . . . . . . . . . . . . . . . . . . 3
Section 2.10 Action Without Meeting . . . . . . . . . . . . . 3
Section 2.11 Removal of Directors . . . . . . . . . . . . . . 4
Section 2.12 Powers of Directors . . . . . . . . . . . . . . 4
Section 2.13 Committees . . . . . . . . . . . . . . . . . . . 4
Section 2.14 Chairman of the Board . . . . . . . . . . . . . 5
ARTICLE 3. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 Composition . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Chief Executive Officer . . . . . . . . . . . . . 5
Section 3.3 President . . . . . . . . . . . . . . . . . . . . 5
Section 3.4 Vice President . . . . . . . . . . . . . . . . . 6
Section 3.5 Secretary . . . . . . . . . . . . . . . . . . . . 6
Section 3.6 Treasurer . . . . . . . . . . . . . . . . . . . . 6
Section 3.7 Removal . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4. STOCK AND OTHER SECURITIES . . . . . . . . . . . . . . . . 6
Section 4.1 Certificates . . . . . . . . . . . . . . . . . . 6
Section 4.2 Transfer Agent and Registrar . . . . . . . . . . 6
Section 4.3 Transfer . . . . . . . . . . . . . . . . . . . . 6
Section 4.4 Necessity for Registration . . . . . . . . . . . 7
Section 4.5 Fixing Record Date . . . . . . . . . . . . . . . 7
Section 4.6 Record Date for Adjourned Meeting . . . . . . . . 7
Section 4.7 Lost Certificates . . . . . . . . . . . . . . . . 7
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 5. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 6. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 7. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
TRENDWEST RESORTS, INC.
ARTICLE 1.
SHAREHOLDERS' MEETINGS
Section 1.1 Annual Meeting. The annual meeting of the shareholders
will be held at 10:00 a.m. on the 15th day in the month of March of every year
at the principal office of the Corporation or at such other time, date or place
as may be determined by the Board of Directors. At such meeting the
shareholders entitled to vote will elect a Board of Directors and transact such
other business as may come before the meeting.
Section 1.2 Special Meetings. Special meetings of shareholders will
be held at any time on call of the President or the Board of Directors, or on
demand in writing by shareholders of record holding shares with at least 10
percent of the votes entitled to be cast on any matter proposed to be
considered at the special meeting.
Section 1.3 Notice. Written notice stating the place, date and time
of the meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, will be delivered not less than ten nor more
than sixty days before the date of the meeting, either personally or by mail,
by or at the direction of the President or the Secretary, to each shareholder
of record entitled to vote at such meeting. If mailed, the notice will be
deemed to be delivered when deposited in the United States mail addressed to
the shareholder at the shareholder's address as it appears on the current
shareholder records of the Corporation, with postage prepaid.
Section 1.4 Waiver of Notice. A shareholder may, at any time, waive
any notice required by these Bylaws, the Articles of Incorporation or the
Oregon Business Corporation Act. Except as otherwise provided by this Section
1.4, the waiver must be in writing, must be signed by the shareholder and must
be delivered to the Corporation for inclusion in the minutes and filing in the
corporate records. A shareholder's attendance at a meeting waives any
objection to (a) lack of notice or defective notice, unless the shareholder
objects at the beginning of the meeting to holding the meeting or transacting
business at the meeting and (b) consideration of any matter at the meeting that
is not within the purpose or purposes described in the notice of a special
meeting, unless the shareholder objects to considering the matter when it is
first presented.
Section 1.5 Voting. Except as otherwise provided in the Articles of
Incorporation, each shareholder will be entitled to one vote, in person or by
proxy, on each matter voted on at a shareholder's meeting for each share of
stock outstanding in such shareholder's name on the records of the Corporation
which is entitled to vote on such matter. Unless held as trustee or in another
fiduciary capacity, shares may not be voted if held by another corporation in
which the Corporation holds a majority of the shares entitled to vote for
directors of such other corporation.
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Section 1.6 Quorum; Vote Required. A majority of the shares entitled
to vote on a matter, represented in person or by proxies, will constitute a
quorum with respect to that matter at any meeting of the shareholders. If a
quorum is present, action on a matter, other than the election of directors, is
approved if the votes cast in favor of the action exceed the votes cast in
opposition, unless the vote of a greater number is required by the Oregon
Business Corporation Act or the Articles of Incorporation. Election of
directors is governed by Section 2.1 of these Bylaws. Unless otherwise
provided in the Articles of Incorporation, a majority of votes represented at a
meeting of shareholders, whether or not a quorum, may adjourn the meeting to a
different time, date, or place. No further notice of the adjourned meeting is
required if the new time, date, and place is announced at the meeting prior to
adjournment and the date is set 120 days or less from the date of the original
meeting.
Section 1.7 Action Without Meeting. Any action required or permitted
to be taken at a meeting of shareholders may be taken without a meeting if a
written consent, or consents, describing the action taken is signed by all of
the shareholders entitled to vote on the action and is delivered to the
Corporation for inclusion in the minutes and filing with the corporate records.
The action is effective when the last shareholder signs the consent, unless the
consent specifies an earlier or later effective date. A consent signed under
this section has the effect of a meeting vote and may be described as such in
any document. Unless a record date for determining the shareholders entitled
to take action without a meeting is otherwise established, the record date for
that purpose is the date the first shareholder signs the consent. If the
Oregon Business Corporation Act requires that notice of a proposed action be
given to non-voting shareholders and that the action is to be taken by
unanimous consent of the shareholders, at least 10 days written notice of the
proposed action will be given to non-voting shareholders before the action is
taken.
ARTICLE 2.
BOARD OF DIRECTORS
Section 2.1 Number and Election of Directors. The Board of Directors
will consist of not less than six (6) members and not more than eleven (11)
members. The number of directors will be established within this range from
time to time by the Board of Directors. A decrease in the number of directors
will not have the effect of shortening the term of any incumbent director. At
each annual meeting, the shareholders will elect directors by a plurality of
the votes cast by the shares entitled to vote in the election. Each director
will be elected to hold office until the next annual meeting of shareholders
and until the election and qualification of a successor, subject to prior
death, resignation or removal.
Section 2.2 Vacancies. Unless otherwise provided in the Articles of
Incorporation, any vacancy occurring in the Board of Directors, including a
vacancy resulting from an increase in the number of directors, may be filled by
the Board of Directors or if the remaining directors do not constitute a
quorum, by the affirmative vote of a majority of the remaining directors. A
director elected to fill a vacancy will serve for the unexpired term of the
director's predecessor in office, subject to prior death, resignation or
removal.
Section 2.3 Annual Meeting. An annual meeting of the Board of
Directors will be held without notice immediately after the adjournment of the
annual meeting of the shareholders or at another time designated by the Board
of Directors upon notice in the same manner as
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<PAGE> 6
provided in Section 2.5. The annual meeting will be held at the principal
office of the Corporation or at such other place as the Board of Directors may
designate.
Section 2.4 Regular Meetings. The Board of Directors may provide by
resolution for regular meetings. Unless otherwise required by such resolution,
regular meetings may be held without notice of the date, time, place or purpose
of the meeting.
Section 2.5 Special Meetings. Special meetings of the Board of
Directors may be called by the President, the Chief Executive Officer or any
member of the Board of Directors. Notice of each special meeting will be given
to each director, either by oral or in written notification actually received
not less than 24 hours prior to the meeting or by written notice mailed by
deposit in the United States mail, first class postage prepaid, addressed to
the director at the director's address appearing on the records of the
Corporation not less than 72 hours prior to the meeting. Special meetings of
the directors may also be held at any time when all members of the Board of
Directors are present and consent to a special meeting. Special meetings of
the directors will be held at the principal office of the Corporation or at any
other place designated by a majority of the Board of Directors.
Section 2.6 Telephonic Meetings. The Board of Directors may permit
directors to participate in a meeting by any means of communication by which
all of the persons participating in the meeting can hear each other at the same
time. Participation in such a meeting will constitute presence in person at
the meeting.
Section 2.7 Waiver of Notice. A director may, at any time, waive any
notice required by these Bylaws, the Articles of Incorporation or the Oregon
Business Corporation Act. Except as otherwise provided in this Section 2.7,
the waiver must be in writing, must be signed by the director, must specify the
meeting for which notice is waived, and must be delivered to the Corporation
for inclusion in the minutes and filing in the corporate records. A director's
attendance at a meeting waives any required notice, unless the director at the
beginning of the meeting or promptly upon the director's arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to any action taken at the meeting.
Section 2.8 Quorum. A majority of the number of directors that has
been established by the Board of Directors pursuant to Section 2.1 of these
Bylaws will constitute a quorum for the transaction of business.
Section 2.9 Voting. The act of the majority of the directors present
at a meeting at which a quorum is present will for all purposes constitute the
act of the Board of Directors, unless otherwise provided by the Articles of
Incorporation or these Bylaws.
Section 2.10 Action Without Meeting. Unless otherwise provided by
the Articles of Incorporation, any action required or permitted to be taken at
a Board of Directors meeting may be taken without a meeting if a written
consent, or consents, describing the action taken is signed by each director
and included in the minutes and filed with the corporate records. The action
is effective when the last director signs the consent, unless the consent
specifies an earlier or later effective date. A consent signed under this
section has the effect of an act of the Board of Directors at a meeting and may
be described as such in any document.
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<PAGE> 7
Section 2.11 Removal of Directors. Unless otherwise provided by the
Articles of Incorporation, the shareholders, at any meeting of the shareholders
called expressly for that purpose, may remove any director from office, with or
without cause.
Section 2.12 Powers of Directors. The Board of Directors will have
the sole responsibility for the management of the business of the Corporation.
In the management and control of the property, business and affairs of the
Corporation, the Board of Directors is vested with all of the powers possessed
by the Corporation itself, so far as this delegation of power is not
inconsistent with the Oregon Business Corporation Act, the Articles of
Incorporation, or these Bylaws. The Board of Directors will have the power to
determine what amount constitutes net earnings of the Corporation, what amount
will be reserved for working capital and for any other purpose, and what
amount, if any, will be declared as dividends. Such determinations by the
Board of Directors will be final and conclusive except as otherwise expressly
provided by the Oregon Business Corporation Act or the Articles of
Incorporation. The Board of Directors may designate one or more officers of
the Corporation who will have the power to sign all deeds, leases, contracts,
mortgages, deeds of trust and other instruments and documents executed by and
binding upon the Corporation. In the absence of a designation of any other
officer or officers, the Chief Executive Officer is so designated.
Section 2.13 Committees. Unless the Articles of Incorporation
provide otherwise, a majority of the Board of Directors may designate from
among its members an Executive Committee and any number of other committees.
Each committee must consist of two or more directors and will have such powers
and will perform such duties as may be delegated and assigned to the committee
by the Board of Directors. No committee will have the authority of the Board
of Directors with respect to (a) approving dividends or other distributions to
shareholders, except as permitted by (h), below, (b) amending the Articles of
Incorporation, except as permitted by (j), below (c) adopting a plan of merger,
(d) recommending to the shareholders the sale, lease, exchange, or other
disposition of all or substantially all the property and assets of the
Corporation other than in the usual and regular course of its business, (e)
recommending to the shareholders a voluntary dissolution of the Corporation or
a revocation thereof, (f) approving or proposing to shareholders other actions
required to be approved by the shareholders, (g) approving a plan of merger
which does not require shareholder approval, (h) authorizing or approving any
reacquisition of shares of the Corporation, except pursuant to a formula or
method prescribed by the Board of Directors, (i) authorizing or approving the
issuance, sale or contract for sale of shares of the Corporation's stock except
either pursuant to a stock option or other stock compensation plan or where the
Board of Directors has determined the maximum number of shares and has
expressly delegated this authority to the committee, (j) determining the
designation and relative rights, preferences and limitations of a class or
series of shares, unless the Board of Directors has determined a maximum number
of shares and expressly delegated this authority to the committee, (k)
adopting, amending or repealing Bylaws for the Corporation, or (l) filling
vacancies on the Board of Directors or on any of its committees or (m) taking
any other action which the Oregon Business Corporation Act prohibits a
committee of a board of directors to take. The provisions of Sections 2.4,
2.5, 2.6, 2.7, 2.8, 2.9, and 2.10 of the Bylaws will also apply to all
committees of the Board of Directors. Each committee will keep written records
of its activities and proceedings. All actions by committees will be reported
to the Board of Directors at the next meeting following the action and the
Board of Directors may ratify, revise or alter such action, provided that no
rights or acts of third parties will be affected by any such revision or
alteration.
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<PAGE> 8
Section 2.14 Chairman of the Board. The Board of Directors may elect
one of its members to be Chairman of the Board of Directors. The Chairman will
advise and consult with the Board of Directors and the officers of the
Corporation as to the determination of policies of the Corporation, will
preside at all meetings of the Board of Directors and of the shareholders, and
will perform such other functions and responsibilities as the Board of
Directors may designate from time to time.
ARTICLE 3.
OFFICERS
Section 3.1 Composition. The officers of this Corporation will
consist of at least a President and a Secretary and may also include a separate
Chief Executive Officer, one or more Vice Presidents and a Treasurer, each of
whom will be elected by the Board of Directors at the annual meeting of the
Board of Directors or at any regular meeting of the Board of Directors or at
any special meeting called for that purpose. Other officers and assistant
officers and agents may be elected or appointed by or in the manner directed by
the Board of Directors as the Board of Directors may deem necessary or
appropriate. Any vacancies occurring in any office of this Corporation may be
filled by election or appointment by the Board of Directors at any regular
meeting or any special meeting called for that purpose. Each officer will hold
his or her office until the next annual meeting of the Board of Directors and
until the election and qualification of a successor in such office, subject to
prior death, resignation or removal.
Section 3.2 Chief Executive Officer. The Board of Directors may
designate one of the officers of the Corporation or the Chairman of the Board
of Directors to serve as the Chief Executive Officer of the Corporation. The
Chief Executive Officer will be responsible for implementing the policies and
goals of the Corporation as stated by the Board of Directors and will have
general supervisory responsibility and authority over the property, business
and affairs of the Corporation. Unless otherwise provided by the Board of
Directors, the Chief Executive Officer will have the authority to hire and fire
employees and agents of the Corporation and to take such other actions as the
Chief Executive Officer deems to be necessary or appropriate to implement the
policies, goals and directions of the Board of Directors.
Section 3.3 President. In the absence of a specific designation by
the Board of Directors of a separate Chief Executive Officer, the President
will have all the responsibilities and authority of the Chief Executive Officer
as set forth in Section 3.1 and may be referred to as the Corporation's Chief
Executive Officer. The President may sign any documents and instruments of the
Corporation which require the signature of the President under the Oregon
Business Corporation Act, the Articles of Incorporation or these Bylaws. The
President will also have such responsibilities and authority as may be
delegated to the President by the Chief Executive Officer or prescribed by the
Board of Directors. At the request of the Chairman of the Board of Directors
or in the Chairman's absence, the President will preside at meetings of the
Board of Directors and at meetings of the shareholders. Upon the death,
resignation or removal of the President, the Board of Directors may appoint a
Vice President or another person to serve as an "acting" or "interim" President
to serve as such until the position is filled by action of the Board of
Directors. Unless otherwise provided by the Board of
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Directors, an "acting" or "interim" President will have all responsibilities
and authority of the President.
Section 3.4 Vice President. A Vice President will have such
responsibilities and authority as may be prescribed by the Board of Directors
or as may be delegated by the Chief Executive Officer or the President to such
Vice President. If at any time there is more than one Vice President, the
Board of Directors may designate the order of seniority or the areas of
responsibility of such Vice Presidents. A Vice President (or if more than one,
the Vice Presidents in order of seniority by designation or order of
appointment) will have all of the powers and perform all of the duties of the
President during the absence or disability of the President.
Section 3.5 Secretary. The Secretary will keep the minutes and
records of all the meetings of the shareholders and directors and of all other
official business of the Corporation. The Secretary will give notice of
meetings to the shareholders and directors and will perform such other duties
as may be prescribed by the Board of Directors.
Section 3.6 Treasurer. The Treasurer will receive all moneys and
funds of the Corporation and deposit such moneys and funds in the name of and
for the account of the Corporation with one or more banks designated by the
Board of Directors or in such other short-term investment vehicles as may from
time to time be designated or approved by the Board of Directors. The
Treasurer will keep accurate books of account and will make reports of
financial transactions of the Corporation to the Board of Directors, and will
perform such other duties as may be prescribed by the Board of Directors. If
the Board of Directors elects a Vice President, Finance or a Chief Financial
Officer, the duties of the office of Treasurer may rest in that officer.
Section 3.7 Removal. The directors, at any regular meeting or any
special meeting called for that purpose, may remove any officer from office
with or without cause; provided, however, that no removal will impair the
contract rights, if any, of the officer removed or of this Corporation or of
any other person or entity.
ARTICLE 4.
STOCK AND OTHER SECURITIES
Section 4.1 Certificates. All stock and other securities of this
Corporation will be represented by certificates which will be signed by the
President or a Vice President and the Secretary or an Assistant Secretary of
the Corporation, and which may be sealed with the seal of the Corporation or a
facsimile thereof.
Section 4.2 Transfer Agent and Registrar. The Board of Directors may
from time to time appoint one or more Transfer Agents and one or more
Registrars for the stock and other securities of the Corporation. The
signatures of the President or a Vice President and the Secretary or an
Assistant Secretary upon a certificate may be facsimiles if the certificate is
manually signed by a Transfer Agent, or registered by a Registrar.
Section 4.3 Transfer. Title to a certificate and to the interest in
this Corporation represented by that certificate can be transferred only (a) by
delivery of the certificate
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endorsed by the person designated by the certificate to be the owner of the
interest represented thereby either in blank or to a specified person or (b) by
delivery of the certificate and a separate document containing a written
assignment of the certificate or a power of attorney to sell, assign or
transfer the same, signed by the person designated by the certificate to be the
owner of the interest represented thereby either in blank or to a specified
person.
Section 4.4 Necessity for Registration. Prior to presentment for
registration upon the transfer books of the Corporation of a transfer of stock
or other securities of this Corporation, the Corporation or its agent for
purposes of registering transfers of its securities may treat the registered
owner of the security as the person exclusively entitled to vote the
securities; to receive any notices to shareholders; to receive payment of any
interest on a security, or of any ordinary, extraordinary, partial liquidating,
final liquidating, or other dividend, or of any other distribution, whether
paid in cash or in securities or in any other form; and otherwise to exercise
or enjoy any or all of the rights and powers of an owner.
Section 4.5 Fixing Record Date. The Board of Directors may fix in
advance a date as record date for the purpose of determining the registered
owners of stock or other securities (a) entitled to notice of or to vote at any
meeting of the shareholders or any adjournment thereof; (b) entitled to receive
payment of any interest on a security, or of any ordinary, extraordinary,
partial liquidating, final liquidating, or other dividend, or of any other
distribution, whether paid in cash or in securities or in any other form; or
(c) entitled to otherwise exercise or enjoy any or all of the rights and powers
of an owner, or in order to make a determination of registered owners for any
other proper purpose. The record date will be not more than 70 days and, in
the case of a meeting of shareholders, not less than 10 days prior to the date
on which the particular action which requires such determination of registered
owners is to be taken.
Section 4.6 Record Date for Adjourned Meeting. A determination of
shareholders entitled to notice of or to vote at a meeting of the shareholders
is effective for any adjournment of the meeting unless the Board of Directors
fixes a new record date. A new record date must be fixed if a meeting of the
shareholders' is adjourned to a date more than 120 days after the date fixed
for the original meeting.
Section 4.7 Lost Certificates. In case of the loss or destruction of
a certificate of stock or other security of this Corporation, a duplicate
certificate may be issued in its place upon such conditions as the Board of
Directors may prescribe.
ARTICLE 5.
CORPORATE SEAL
If the Corporation has a corporate seal, its size and style is shown by the
impression below:
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ARTICLE 6.
AMENDMENTS
Unless otherwise provided in the Articles of Incorporation, the Bylaws
of the Corporation may be amended or repealed by the directors, subject to
amendment or repeal by action of the shareholders, at any regular meeting or at
any special meeting called for that purpose, provided notice of the proposed
change is given in the notice of the meeting or notice thereof is waived in
writing.
ARTICLE 7.
SEVERABILITY
If any provision of these Bylaws is found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and the effect of the
remaining provisions will not be affected.
Adopted by action of the Board of Directors of Trendwest Resorts, Inc.
as of ___________________, 1997.
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<PAGE> 1
EXHIBIT 5.1
July 25, 1997
Board of Directors
Trendwest Resorts, Inc.
12301 N.E. 10th Place
Bellevue, WA 98005
Gentlemen:
We have acted as counsel for Trendwest Resorts, Inc. (the "Company"),
an Oregon corporation, in connection with the (i) authorization and issuance of
2,745,000 shares of common stock of the Company, no par value per share (the
"Issuer Shares"), (ii) the sale of 130,000 shares of common stock of the Company
by William F. Peare ("the Selling Stockholder Shares"), (iii) the possible sale
of an additional 431,250 shares of common stock of the Company by the Company
pursuant to an over-allotment option granted to the underwriters (the "Option
Shares") and (iv) the preparation of a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933, as amended. We have
examined the Registration Statement and such other documents as we deemed
necessary for the purpose of this opinion.
Based on the foregoing, we are of the opinion that:
1. Upon effectiveness of the Registration Statement, due execution by
the Company and the registration by the Company's registrar of the Issuer Shares
and the Option Shares and the receipt by the Company of the consideration from
the sale of the Issuer Shares and the Option Shares as contemplated by the
Registration Statement, each of the Issuer Shares and the Option Shares will be
duly authorized, validly issued, fully paid and non-assessable.
2. The Selling Stockholder Shares are validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus
included in the Registration Statement under the captions "Legal Matters" and
"Risk Factors -- Applicability of Federal Securities Laws to the Sale of
Vacation Credits."
Very truly yours,
FOSTER PEPPER & SHEFELMAN PLLC
<PAGE> 1
Exhibit 10.5
------------------
ESCROW AGREEMENT
(Amended)
This Amended Agreement is dated for reference purposes and entered into
as of October 25, 1990 by TRENDWEST RESORTS, INC., an Oregon corporation,
("Developer"), CLUB ESPRIT, A California nonprofit mutual benefit corporation
("Club") and SAGE SYSTEMS, INC., a Washington corporation, ("Escrow Agent"), for
the purpose of amending, and restating in its entirety as amended, that Escrow
Agreement dated May 15, 1990.
1: RECITALS
1.1 Services. Escrow Agent agrees to provide escrow services to
Developer and Buyers of Memberships in Club.
1.2 Scope. This Escrow Agreement is part of each Membership Agreement
and Salesperson Agreement. The Developer, Escrow Agent and Developer's Sales
Agent(s) and the Members are bound by this Escrow Agreement.
1.3 Developer. Developer acquires Units in Resort Properties which it
transfers to Club for use in the Club Vacation Timeshare Program.
1.4 Club. Club holds and manages the Units for the benefit of the
Members. Membership in Club includes voting rights to elect directors and to
vote directly on certain Club decisions.
1.5 Timeshare Program Agreement. Under the Vacation Timeshare Program
Agreement made September 1, 1989 and amended February 27, 1990, Developer has
the exclusive right to market and sell all Memberships in Club and to receive
all the proceeds from Membership sales.
1.6 Declaration. Developer and/or Club has recorded or will record a
"Declaration of Vacation Timeshare Program (Club Esprit)" ("Declaration") with
respect to each Unit in the Program.
1.7 Escrow Account. As at registered time share plan under HRS Chapter
514E, and pursuant to other states' consumer protection requirements, the Funds
and Contract Documents associated with the purchase of Memberships must be
placed in an escrow account approved by the State of Hawaii for protection of
purchasers until certain events occur as described below, providing for the
release of those funds and documents to the Developer ("closing"), or the return
of those funds and documents to the purchaser ("no closing").
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<PAGE> 2
1.8 Table of Contents
<TABLE>
<CAPTION>
Article/Section/Title Page
--------------------- ----
<S> <C> <C>
1: RECITALS......................................................... 1
1.1 Services................................................ 1
1.2 Scope................................................... 1
1.3 Developer............................................... 1
1.4 Club.................................................... 1
1.5 Timeshare Program Agreement............................. 1
1.6 Declaration............................................. 1
1.7 Escrow Account.......................................... 1
1.8 Table of Contents....................................... 2
2: DEFINITIONS...................................................... 3
2.1 "Buyer.................................................. 3
2.2 "Close" and "Closing.................................... 3
2.3 "Closing Costs.......................................... 3
2.4 "Contract Documents..................................... 3
2.5 "Declaration............................................ 3
2.6 "Funds.................................................. 3
2.7 "Hawaii Administrative Rules............................ 3
2.8 "HRS.................................................... 3
2.9 "Sales Contract......................................... 3
3: HANDLING FUNDS AND DOCUMENTS..................................... 3
3.1 Escrow Account.......................................... 3
3.2 Documents............................................... 4
3.3 Affiliates.............................................. 4
4: CLOSING.......................................................... 4
4.1 Closing Conditions...................................... 4
4.2 Closing Procedures...................................... 6
4.3 Release of Funds and Sales Contract without a
Closing................................................. 6
4.4 Release of Buyer's Funds................................ 6
5: GENERAL MATTERS.................................................. 7
5.1 Notice.................................................. 7
5.2 Interest................................................ 7
5.3 Indemnity............................................... 7
5.4 Copies of Documents..................................... 7
5.5 Cancellation Charge..................................... 7
5.6 Exhibit................................................. 8
</TABLE>
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2: DEFINITIONS. Unless the context otherwise specifies or requires, the
terms used in this Agreement shall have the meanings set forth in HRS or below
or in the recorded Declaration, in that order of preference.
2.1 "Buyer" means each person shown as a Buyer, Member or Purchaser in
a Sales Contract or Membership Agreement.
2.2 "Close" and "Closing" refer to completing the sale of and issuing a
Membership to a Buyer.
2.3 "Closing Costs" means all costs and expenses of closing a sale. It
includes, for example, if applicable: (a) Escrow Agent's fees, (b) notary fees,
(c) charges for credit reports, (d) costs of drafting documents, (e) financing
fees and costs, and/or (f) postage and handling fees.
2.4 "Contract Documents" means, for each Buyer, (a) this Escrow
Agreement, (b) the Buyer's Sales Contract or Membership Agreement, and (c) any
written changes to either of those documents if the changes have been signed by
the person whose duties are changed.
2.5 "Declaration" means the recorded Declaration of Vacation Timeshare
Program (Club Esprit), which creates the vacation timeshare program and makes
the respective Units subject thereto, and which constitutes a Notice of Time
Share Plan under HRS Chapter 514E.
2.6 "Funds" means any money, "negotiable instruments" and "purchase
money contracts" (as those terms are defined in HRS) received before closing
from or on behalf of any Buyer or potential Buyer.
2.7 "Hawaii Administrative Rules" means the rules and regulations
adopted under HRS by the State of Hawaii, as they may be revised from time to
time, as contained in Chapter 106 of Title 16 of the Regulations of the
Department of Commerce And Consumer Affairs of the State of Hawaii.
2.8 "HRS" means the Hawaii Time Share Law (Chapter 514E, Hawaii Revised
Statutes), as it may be revised from time to time.
2.9 "Sales Contract" means a Membership Agreement, a sample of which is
attached hereto as Exhibit "A", which may be revised from time to time by
Developer and Club, provided it is not inconsistent with the Declaration and
Governing Documents.
3: HANDLING FUNDS AND DOCUMENTS.
3.1 Escrow Account. All Funds and Sales Contracts received before
closing from or on behalf of Buyers or prospective Buyers in connection with the
purchase or reservation of a Membership must be placed in an escrow account with
Escrow Agent; however the
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Developer or a Sales Agent may hold until the expiration of the cancellation
period, or any longer cancellation period provided in the Sales Contract, Funds
or Sales Contracts made payable to the Escrow Agent.
3.2 Documents. The Escrow Agent will accept and hold any Funds, Sales
Contract, receipts for (a) the Hawaii Disclosure Statement and (b) the Notice of
Mutual Right of Cancellation, any closing statement and all other papers from
the Developer or any lender supplying money to the Buyer or for the Buyer. The
Escrow Agent will handle and deliver those documents as instructed by the person
who provided them and this Escrow Agreement.
3.3 Affiliates. Escrow Agent, Developer and Club may enter into
Affiliation Escrow Agreements with licensed escrow companies in states other
than Washington, if necessary to facilitate closings of sales in such states
and/or if required for compliance with timeshare sales laws, regulations and
regulatory policies.
4: CLOSING
4.1 Closing Conditions. Closing of the escrow for the sale of a
Membership shall not occur, and the Buyer's Funds and Sales Contract shall not
be delivered by the Escrow Agent according to paragraph 4.2, until after all of
the following have occurred:
(a) Cancellation Period. The "cancellation period" or rescission
rights period, prescribed by the state(s) where the sale is made and/or
advertised, has expired. At the date of this Agreement, Developer is now selling
or advertising, or may in the foreseeable future sell or advertise, in states or
provinces which prescribe the following cancellation periods:
(i) Arizona, midnight of the seventh (7th) calendar day
following the day on which the purchaser executed the Sales Contract, pursuant
to Title 32, Chapter 20, Arizona Revised Statutes, Section 32-2197.02;
(ii) British Columbia, seven (7) days after the later of the
purchaser signs the Sales Contract or the purchaser receives the required
prospectus, pursuant to the Real Estate Act, Revised Statutes, Chapter 356,
Section 63 (1.1).
(iii) California, midnight of the third (3rd) calendar day
after the Buyer executed the Sales Contract, pursuant to Business and
Professions Code Section 11024 and Title 10, California Code of Regulations,
Sections 2813.12 and 2813.13;
(iv) Hawaii, seven (7) calendar days after the Buyer's
execution of the Sales Contract or seven (7) calendar days after the Buyer's
receipt of the Hawaii Disclosure Statement, whichever occurs later, pursuant to
HRS Section 514E-8;
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<PAGE> 5
(v) Nevada, midnight of the fifth (5th) calendar day
following the execution of the Sales Contract, pursuant to Chapter 119A. Nevada
Revised Statutes, Section 119A.410.
(vi) Oregon, midnight of the fifth (5th) calendar day from the
date the purchaser signs the Sales Contract, pursuant to Chapter 94, Oregon
Revised Statutes, Section 94.836.
(vii) Washington, within seven (7) days after receipt of the
disclosure document or the signing of the Sales Contract by Buyer, whichever is
later, pursuant to Chapter 64.36, Revised Code of Washington, Section
64.36.140(13).
(b) Notice of Cancellation. The Escrow Agent has received a sworn
statement from the Developer, signed by its duly authorized representative, that
no cancellation notice postmarked on a date within the cancellation period has
been received from the Buyer whose funds are being released; and that no
cancellation notice was otherwise received during the cancellation period from
the Buyer whose funds are being released.
(c) Declaration. The Escrow Agent shall have independently verified
that a Declaration has been recorded and remains in effect against every Club
Esprit Unit for which Memberships are being sold.
(d) Title Insurance. Escrow Agent shall have procured a policy of
title insurance insuring title to each Unit in Club for the market value at the
time of acquisition, and insuring that each and every person holding an interest
in a recorded blanket lien, as defined in applicable law, executes and records a
Nondisturbance Agreement as required by HRS Section 514E19(b)(2)(A) and as
defined in Sections 514E-20 and 514E-1, Escrow Agent must be satisfied that
appropriate blanket lien protections (nondisturbance covenants) are fully in
place.
(e) Cancellation by Developer. Developer has certified to the
Escrow Agent that it is not exercising its cancellation rights under HRS Section
514E-8 or any other applicable law.
(f) Receipt. Developer has provided the Escrow Agent with a copy of
the receipt for the Public Report, Disclosure Statement or other disclosure
documents required by the state where the sale is made, signed by the Buyer and
dated with the date that such disclosure document was received by the Buyer.
(g) Vacation Credits Available. The Escrow Agent shall have
determined that there are sufficient Vacation Credits available in the timeshare
program, The Escrow Agent may rely on a certification from Developer and Club as
to the allocations of Vacation Credits to respective Units as the Units are
transferred to the Club and dedicated to the Timeshare Program, Escrow Agent
shall prepare an audit report at least quarterly verifying the
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<PAGE> 6
availability of unsold Vacation Credits, pursuant to the Audit Agreement dated
June 21, 1990 between Developer and Escrow Agent.
4.2 Closing Procedures. To close each sale, the Escrow Agent will:
(a) Date all documents; and
(b) Deliver a copy of the Membership Agreement and closing
statement to the Buyer; and
(c) Deliver the original of the Membership Agreement, any closing
statement and any other documents to, and do anything else reasonably required
by, the Developer or anyone else loaning money to the Buyer for the purchase;
and
(d) Pay, out of the funds in escrow and after Developer's approval,
all of the closing costs and additional charges; and
(e) Pay to the Developer all sums due it under the Sales Contract
less closing costs chargeable to Developer; and
(f) Refund any over-payment to the Buyer.
4.3 Release of Funds and Sales Contract without a Closing.
(a) Notice of Cancellation. If the Buyer or Developer gives a valid
Notice of Cancellation of the Sales Contract, under any applicable law, all of
the Buyer's Funds and Sales Contracts made by the Buyer shall be returned to the
Buyer within 15 days after the Notice of Cancellation is received.
(b) Termination of Contract. If the Buyer or Developer properly
terminates a Sales Contract pursuant to its terms, or if Developer or a
prospective Buyer terminates a reservation agreement, all of the Buyer's Funds
and Sales Contracts made by the Buyer shall be delivered in accordance with the
Contract or reservation agreement.
(c) Buyer Default. If the Buyer defaults in the performance of the
Buyer's obligations under the Sales Contract, all the Buyer's Funds and Sales
Contracts made by the Buyer shall be delivered in accordance with the Contract.
(d) Sworn Statements. If Developer fails to provide to Escrow
Agent, within ten (10) days after expiration of the cancellation period, any of
those items described in paragraphs 4.1(b), (e), (f) and (g) above, then all of
the Buyer's Funds and Sales Contracts made by the Buyer shall be returned to the
Buyer within 15 days.
4.4 Release of Buyer's Funds. This Escrow Agreement explicitly
prohibits the release of Buyer's funds from escrow to or
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<PAGE> 7
for the benefit of the Developer or Sales Agent or anyone else (except by way of
refunds to the Buyer) in any circumstances other than those set forth in this
Article 4.
5: GENERAL MATTERS
5.1 Notice. Any notice from the Developer or the Escrow Agent to the
Buyer must be given by in writing. If more than one person is listed as the
Buyer on a Sales Contract, the notice may be given to or received from any one
of them. If the Buyer is a corporation or partnership, the notice may be
delivered or mailed to any officer or partner of the Buyer. Notices must be
personally delivered or mailed by certified (or registered mail, postage
prepaid, addressed to the person at the address shown for each on the Buyer's
Sales Contract. Any party may change its address by sending written notice of
the new address to the other. All notices are considered given when they are
deposited in the mail, first class postage prepaid, or when personally received.
5.2 Interest. Any interest earned on Funds placed with the Escrow Agent
will belong to Developer.
5.3 Indemnity. Developer agrees to indemnify the Escrow Agent for
losses it suffers as a result of performing its duties, except for losses due to
the Escrow Agent's negligence or misconduct.
5.4 Copies of Documents. Developer will provide Escrow Agent with
copies of title reports, recorded Declarations, blanket liens, Nondisturbance
agreements and any other documents required by the Escrow Agent to verify
statements made under paragraph 4,1(c) of this Agreement.
5.5 Cancellation Charge. Upon a cancellation, Developer must notify
Escrow Agent within ten (10) days of the date of deciding upon or receiving
notice of cancellation whether to deduct from the Buyer's monies a reasonable
charge for materials received by the Buyer and not returned, and the amount of
such charge. This charge will not exceed $25.00. If deducted the charge will be
remitted to Developer.
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5.6 Exhibit.
A - Membership Agreement
ESCROW AGENT: DEVELOPER:
SAGE SYSTEMS, INC., TRENDWEST RESORTS, INC.,
a Washington corporation an Oregon corporation
and Washington Licensed
Escrow Agent
By_______________________ By___________________________
W.J. O'Rourke, President William F. Peare, President
555 116th Ave. N.E. 4010 Lake Washington Blvd.
Suite 130 Suite 210
Bellevue, WA 98004 Kirkland, WA 98033
CLUB:
CLUB ESPRIT, a California
nonprofit mutual benefit
corporation
By______________________________
Jeffrey Sites, Secretary
4010 Lake Washington Blvd.
Suite 210
Kirkland, WA 98033
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EXHIBIT A
MEMBERSHIP AGREEMENT
(TO BE PROVIDED]
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<PAGE> 10
EXHIBIT A
Worldmark, The Club, and Trendwest Resorts, Inc.
2901 Tasman Drive, Suite 209
Santa Clara, CA 95054
Phone: (408) 980-0107
SECURITY AGREEMENT
Vacation Credit Purchased: _____
Owner Number: _______
WORLDMARK, THE CLUB
RETAIL INSTALLMENT CONTRACT
VACATION OWNER AGREEMENT
(California)
Worldmark, the Club, a California nonprofit mutual benefit corporation (Club),
and Trendwest Resorts, Inc., an Oregon corporation (TRI), agree to sell to the
undersigned Owner ____ Vacation Credits and Membership in the Club as a (choose
one) Premier __ or Standard __ Ownership, and Owner agrees to purchase and hold
the Vacation Credits and Membership on these terms and conditions:
A. BENEFITS AND NATURE OF OWNERSHIP
1. VACATION CREDIT OWNERSHIP.
As an Owner of Vacation Credits, Owner is a Member of Club and is entitled to:
(a) reserve the use of Club Resort Units; (b) vote for Club directors; (c) vote
on major Club decisions; and (d) through the Club, participate in the corporate
ownership of the real estate and other assets of the Club.
2. DURATION OF OWNERSHIP.
Ownership shall be effective from the date of issuance by Club. Premier
ownership is perpetual. Standard ownership expires 40 years after issuance.
HOWEVER, THE OWNER HAS UNTIL MIDNIGHT OF THE THIRD CALENDAR DAY AFTER SIGNING
THIS AGREEMENT TO CANCEL THIS AGREEMENT. THE CANCELLATION MUST BE IN WRITING AND
EITHER DELIVERED IN PERSON OR MAILED TO WORLDMARK, THE CLUB.
3. TRANSFERABILITY OF VACATION CREDITS.
Vacation Credits may be transferred entirely or partially at any time during
their term and without limitation to the number of transfers, through sale,
gift, inheritance, dissolution of marriage or by any operation of law, subject
to the following terms: (a) a transfer fee of $150.00 has been paid to Club;
(b) all payments or charges due Club are current; (c) the Vacation Credits
transferred and the Vacation Credits retained, if any, must each be enough
Vacation Credits to hold a Basic Membership in the Club at the then current
requirement; and (d) the transferee must satisfy all qualifications of an Owner
and Club's credit requirements. TRI and Club will not repurchase the Vacation
Credits or assist in locating a buyer.
B. ASSURANCE OF CONTINUED CLUB QUALITY
4. NO REDUCTION IN NUMBER AND QUALITY OF UNITS AND RESORTS.
Owners shall have access to all existing and future Resorts and Units owned or
operated by or associated with Club, wherever located, which have been
registered with the applicable agencies where the properties are located. The
location and specific nature of Resorts and Units shall be subject to change by
the Club, but Club is obligated to continue to provide Resorts and Units
comparable to those available at the date of this Agreement, and sufficient
Units in reasonable locations to provide annual reservations for all issued
Vacation Credits.
5. PARTICIPATION OF OWNER IN GOVERNING CLUB.
The ARTICLES and BYLAWS of Club provide for: (a) meetings and votes by Owners;
(b) election and meetings of, and limitation on powers of, directors; (c)
assessment of annual dues and special assessments; (d) enforcement and
discipline procedures; (e) appointment of officers and their duties; and
(f) insurance.
6. ULTIMATE CONTROL OF PROPERTIES BY CLUB.
The Club shall hold the deed or the lease to each Unit free of the effects of
debt encumbrances, and subject to a DECLARATION OF VACATION OWNER PROGRAM
which: (a) shall be recorded or filed against each Unit; (b) provides for
dedication of the Unit to the Vacation Owner Program; and (c) establishes the
Vacation Credits.
Page 1 of 4
<PAGE> 11
7. GUIDELINES (RULES) SUPPORTING OWNER SATISFACTION.
Guidelines (Rules) may be adopted and amended from time to time by Club for
benefit of Owners and the management of the Resorts, whether general rules or
rules applicable to a specific location only, which may govern Owner usage of
Resort Units in the following subjects, among others; (a) reservations; (b)
number of occupants; (c) guest policies; (d) fees; (e) rental of Units by Club
to non-owners when not in use by Owners; (f) charges for use of specific
facilities; (g) personal conduct and behavior; (h) check-out times; (i) care and
maintenance of Units and facilities; and (j) conditions for the use and purchase
of Bonus Time. A copy of the current Guidelines (Rules) is provided herewith.
8. PROFESSIONAL DEVELOPMENT AND MANAGEMENT OF CLUB.
TRI has developed Club and acquired certain Resort properties which it has
transferred to Club in exchange for the proceeds of sale as well as exclusive
marketing rights, and the right to add additional properties under the same
conditions. TRI will also manage Club and Club properties under a Management
Agreement with Club.
C. VACATION CREDIT USE
9. VACATION CREDITS PROGRAM.
The benefits and obligations of Ownership are determined by the number of
Vacation Credits purchased.
(a) Use. Vacation Credits, up to the amount purchased, may be used for all
nights and all seasons and at all Resorts on a space available basis, but
the number of Credits required for occupancy will be based on factors such
as the season, location, Unit size and type, and day of the week.
(b) Issuance. Vacation Credits are renewed annually throughout the term of
the Ownership, at the beginning of Owner's Anniversary Year, in the total
amount purchased by Owner.
(c) Banking (carry-over) Credits. Vacation Credits which remain unused at
the end of each Anniversary Year will automatically carry over for use during
the following year, and will expire at the end of that year. Use will be
charged first against any carry-over Vacation Credits and then against the
current year's Credits. Credits might also be carried over for future use
with an exchange organization.
(d) Borrowing Future Credits. Owner may use Vacation Credits one Anniversary
Year in advance by borrowing against the following year's assignment of
Credits if Owner has paid his or her Club dues for the following year.
(e) Additional Credits. Owner may purchase additional Vacation Credits in
increments of 1000 at any time after the date of this Agreement, subject to
the following: (i) the Credits are available; (ii) Owner is not in default
under this Agreement; and (iii) the then current price is paid.
10. VACATION CREDITS PURCHASED.
Owner is currently purchasing the number of Vacation Credits shown on page one.
11. BONUS TIME.
Premier Owners may purchase additional reserved time, referred to as Bonus
Time. Conditions for purchase and use of Bonus Time are determined by space
availability and Club Guidelines (Rules), which are subject to change.
D. QUALIFICATIONS AND CONDITIONS TO PURCHASE VACATION CREDITS
12. LEGAL CAPACITY.
Owner represents that Owner is a person or entity with the legal capacity to
enter into this Agreement.
13. NON-INVESTMENT PURCHASE.
Owner represents that Owner is purchasing Vacation Credits for the purpose of
recreational and social use, and not for financial profit.
14. CREDIT REQUIREMENT.
Owner shall satisfy Club's reasonable credit requirements for purchase to be
accepted.
E. CONTRACTUAL STANDARDS
15. LIABILITY LIMITATIONS.
Owner agrees that Owner and Owner's family or guests assume all risks of loss
or damage to persons or property in using the Resorts, except that this
limitation of liability shall not apply in cases of negligence of the Resort,
the Club or TRI. Owner also agrees to maintain liability and property damage
insurance in connection with any motor vehicle(s) brought to the Resorts, in
amounts customarily carried on such vehicle(s). Liability for breach of any
warranty under this Agreement shall not exceed the amounts Owner has paid Club
under this Agreement.
16. EVENTS OF DEFAULT.
Each of the following constitutes an Event of Default by Owner if not cured (a)
within 30 days from the due date, (b) within 30 days from giving of written
notice by Club or TRI as to a breach by omission or inaction, or (c) upon
continued active breach or violation after receipt of a written notice or
warning thereof, which notice or warning shall include the details of the
default and how the default may be remedied, if at all, within a specified
reasonable period (whichever of the foregoing is most applicable): (i) not
paying a purchase price installment, the annual dues or installment thereof, or
any other charge of Club when due; (ii) transfer of Vacation Credits, whether
voluntarily or involuntarily, except as specifically allowed herein; (iii)
misrepresentation or omission of a material fact in connection with this
Agreement or the extension of credit hereunder, or (iv) material breach of a
provision of this Agreement, the Guidelines (Rules) of Club, or the rules of a
company with which Club has exchange arrangements.
Page 2 of 4
<PAGE> 12
17. REMEDIES/SECURITY INTEREST.
No waiver by Club, TRI or any Holder or Co-Holder of this Agreement, of any
default or breach by Owner shall operate as a waiver of the same or any other
default or breach by Owner or any other Owner in the future. Each Owner signing
below hereby appoints each other Owner signing below as his or her agent for
dealing with the Holder of this Agreement for any purpose. Upon the occurance of
an Event of Default, Club or the Holder of this Agreement may choose one or more
of the following remedies: (a) declare the entire unpaid balance of the Cash
Price immediately due, unless prohibited by law; (b) foreclose the lien created
by the grant of the security interest and sell or retain the Vacation Credits in
satisfaction of Owner's obligations hereunder, or exercise any other right under
the Uniform Commercial Code, Division 9 (To secure compliance with his or her
obligations hereunder, Owner hereby grants to Club and TRI security interests in
the Vacation Credits and any proceeds therefrom, which Vacation Credits were
purchased under this Agreement. These security interests constitute liens on the
Vacation Credits and any proceeds therefrom. These security interests and liens
shall remain in effect as long as there are obligations of Owner to be fulfilled
under this Agreement); (c) terminate the Vacation Credits and retain all amounts
previously paid by Owner as compensation for damages incurred in proceeding
pursuant to this Agreement (Club, TRI and Owner agree that in such case it would
be impractical or extremely difficult to fix the actual damage); (d) suspend use
rights; (e) sue for the unpaid balance due hereunder; and/or (f) pursue any
other remedy allowed by law, except Club cannot terminate this Agreement or
foreclose against the Vacation Credits without the consent of the Holder of any
right to the unpaid purchase price hereunder.
18. ADDITIONAL CREDITOR.
The right to receive payment of the purchase price under this Agreement belongs
to TRENDWEST RESORTS, INC., but could be assigned to another creditor.
NOTICE:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND
DEFENSES WHICH THE DEBTOR (OWNER) COULD ASSERT AGAINST THE SELLER OF GOODS OR
SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY
HEREUNDER BY THE DEBTOR (OWNER) SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR
(OWNER) HEREUNDER.
19. GENERAL PROVISIONS.
Any written notice required or desired to be given hereunder shall be deemed
given when personally delivered or upon deposit in the U.S. Mail, first class
postage prepaid, addressed to the address given herein or such subsequent
address as is given by proper notice. This Agreement, and any and all other
documents executed at the same time as this Agreement, constitute the entire
agreement between the parties hereto. No representation or warranties, oral or
written, other than the representations set forth in said documents, have been
relied upon by the parties. This Agreement shall be binding upon and benefit
the heirs, executors, administrators and successors of each of the parties. If
any provision of this Agreement shall be found to be invalid, the remaining
provisions shall nevertheless remain in full force and effect. This Agreement
shall survive the issuance of Vacation Credits and shall survive the final
payment toward the purchase hereunder.
20. PURCHASER RESPONSIBILITY.
Transfer or abandonment of Vacation Credits does not relieve Owner of Owner's
obligations hereunder unless such transfer or termination of this Agreement is
agreed to by the Club and the holder of any right to the unpaid purchase price
under this Agreement.
F. CLUB CHARGES
21. ANNUAL DUES.
The beginning annual dues for these Vacation Credits is $______ (U.S. Funds),
based on the formula and rate of annual dues currently established by Club. The
annual dues shall be paid in advance on a quarterly basis beginning ________.
Such dues shall be used first for maintenance and operation of Resort Units,
then for other expenses authorized in the Club Bylaws. Annual dues may be
increased annually subject to Club Bylaws.
22. SPECIAL ASSESSMENTS AND TAXES.
Club may levy special assessments subject to Club Bylaws. The Owner is also
responsible for any tax that might be assessed by a civil taxing authority on
the purchase or use of the facilities.
23. EXTRA USE CHARGES.
Owner must pay separately for extra benefits including, but not limited to, if
available, food, storage, extra maid service, purchase of goods, use of
equipment, furnishings or facilities not normally provided as part of the Unit
or Resort facilities, and exchange program services if available.
24. DAMAGE CHARGES.
Owner must pay any cost of repair or replacement for any damage caused by
Owner, Owner's family or guests.
Page 3 of 4
<PAGE> 13
G. PURCHASE PRICE, FINANCE CHARGE, AND PAYMENTS
25. PURCHASE PRICE.
Owner agrees to pay TRI the purchase price of $ (U.S. Funds), together
with the credit service charge (Finance Charge) stated below. Payments shall be
credited first on the interest then due, then on principal. Payments shall not
begin prior to thirty (30) days after signing of this Agreement by Club. The
interest (Finance Charge) shall begin to accrue on the date thirty (30) days
prior to the due date of the first monthly payment.
26. CREDIT TERMS.
Disclosure Required By: Federal Truth In Lending Act, and State Law.
Creditors: WORLDMARK, THE CLUB and TRENDWEST RESORTS, INC.; 2901 Tasman Drive,
Suite 209, Santa Clara, CA 95054
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL FINANCE AMOUNT TOTAL OF TOTAL SALE
PERCENTAGE CHARGE FINANCED PAYMENTS PRICE
RATE
<S> <C> <C> <C> <C>
The cost of your credit The dollar amount the The amount of credit The amount you will have The total cost of your
as a yearly rate: credit will cost you: provided to you or paid after you have made purchase on credit
on your behalf: all payments as scheduled: including your
downpayment of:
$
______% $__________ $__________ $___________ $__________
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Your payment schedule will be:
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------
No. of payments: Amount of Each Payment: Payments are due monthly on the
same date of each month
$ Beginning:
- -------------------------------------------------------------------------------
</TABLE>
Security: You are giving the Club and TRI a security interest in the
Vacation Credits being purchased.
Prepayment: If you prepay the balance due, there will be no penalty.
Late Charge: Owner will be charged a late charge of $5.00 for each
payment or charge that is more than 10 days late, to
compensate Club or TRI for additional carrying and
collection costs.
Variable Rate: The Annual Percentage Rate disclosed above will
automatically increase by 1 Percentage Point (which is the
maximum increase) in the event any one of the following
occurs: (a) you discontinue participation in our
preauthorized check (PAC) plan, (b) your financial
institution is unable to participate, or (c) we discontinue
your participation for a reasonable cause. The Annual
Percentage Rate will not increase above 14.9%. An increase
in the Annual Percentage Rate would increase your monthly
payment by not more than $10.00.
Contract Reference: You should refer to this Agreement for information about
nonpayment, default and the right to accelerate maturity
of your payment obligation.
ITEMIZATION OF AMOUNT FINANCED:
1. Cash Price: $______ 4. Total Cash Price: $______
2. Other Credits/Discounts: $______ 5. Downpayment: $______
3. State and Local Taxes: $______ 6. Amount Financed: $______
NOTICE TO BUYER (OWNER):
(a) DO NOT SIGN THIS AGREEMENT BEFORE YOU READ IT OR IF IT CONTAINS ANY BLANK
SPACES TO BE FILLED IN; (b) YOU ARE ENTITLED TO A COMPLETELY FILLED-IN COPY OF
THIS AGREEMENT; (c) YOU CAN PREPAY THE FULL AMOUNT DUE UNDER THIS AGREEMENT AT
ANY TIME; (d) IF YOU DESIRE TO PAY OFF IN ADVANCE THE FULL AMOUNT DUE, THE
AMOUNT WHICH IS OUTSTANDING WILL BE FURNISHED UPON REQUEST; (e) RECEIPT. OWNER
HAS RECEIVED AN EXACT COPY OF THIS AGREEMENT AND ANY OTHER DOCUMENT(S) SIGNED
WITH THIS AGREEMENT, WITH ALL BLANKS FILLED IN.
X
- ------------------------------------ --------------------------------
Owner Date Signed Owner Name Date Signed
X
- ------------------------------------ --------------------------------
Owner Date Signed Street Address
TRENDWEST RESORTS, INC. and WORLDMARK, --------------------------------
THE CLUB City State Zip
X
- ------------------------------------ --------------------------------
Authorized Agent Date Signed Phone (area code)
<PAGE> 1
EXHIBIT 10.7
INDENTURE
among
TRI FUNDING COMPANY I, L.L.C.
("Issuer")
and
TRENDWEST RESORTS, INC.
("Servicer")
and
LASALLE NATIONAL BANK
("Trustee")
Dated as of March 1, 1996
Providing for
$70,000,000
7.42% Receivables-Backed Notes, Series 1996-1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION DESCRIPTION PAGE
<S> <C> <C>
Parties.....................................................................1
Preliminary Statement.......................................................1
Granting Clause.............................................................1
ARTICLE ONE DEFINITIONS .................................2
Section 1.01 Definitions .................................2
ARTICLE TWO NOTE FORM ..................................16
Section 2.01 Form .......................................16
ARTICLE THREE THE NOTES ..................................17
Section 3.01 Denomination ...............................17
Section 3.02 Execution, Authentication, Delivery
and Dating .................................17
Section 3.03 Notes as Debt ..............................17
Section 3.04 Registration, Registration of Transfer
and Exchange ...............................17
Section 3.05 Limitation on Transfer and Exchange ........18
Section 3.06 Mutilated, Destroyed, Lost or Stolen
Notes ......................................19
Section 3.07 Payment of Principal and Interest;
Principal and Interest Rights
Preserved ..................................20
Section 3.08 Persons Deemed Owner .......................21
Section 3.09 Cancellation ...............................21
ARTICLE FOUR ORIGINAL ISSUANCE OF NOTES; SUBSTITUTIONS OF
COLLATERAL .................................22
Section 4.01 Conditions to Original Issuance of
Notes ......................................22
Section 4.02 Security for Notes .........................23
Section 4.03 Substitution and Purchase of
Receivables; Upgrade Contracts .............24
Section 4.04 Releases ...................................26
Section 4.05 Trust Estate ...............................26
Section 4.06 Notice of Release ..........................26
Section 4.07 Opinions as to Trust Estate ................27
ARTICLE FIVE SATISFACTION AND DISCHARGE .................27
Section 5.01 Satisfaction and Discharge of Indenture ....27
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE SIX DEFAULTS AND REMEDIES 28
Section 6.01 Events of Default ..........................28
Section 6.02 Acceleration of Maturity; Rescission
and Annulment ..............................29
Section 6.03 Collection of Indebtedness and Suits
for Enforcement by Trustee .................30
Section 6.04 Remedies ...................................30
Section 6.05 Optional Preservation of Trust Estate ......31
Section 6.06 Trustee May File Proofs of Claim ...........31
Section 6.07 Trustee May Enforce Claims Without
Possession of Notes ........................32
Section 6.08 Application of Money Collected .............33
Section 6.10 Unconditional Right of Noteholders to
Receive Principal and Interest .............34
Section 6.11 Restoration of Rights and Remedies .........34
Section 6.12 Rights and Remedies Cumulative .............34
Section 6.13 Delay or Omission; Not Waiver ..............35
Section 6.14 Control by Noteholders .....................35
Section 6.15 Waiver of Past Defaults ....................35
Section 6.16 Undertaking for Costs ......................36
Section 6.17 Waiver of Stay or Extension Laws ...........36
Section 6.18 Sale of Trust Estate .......................36
Section 6.19 Action on Notes ............................37
ARTICLE SEVEN THE TRUSTEE ................................38
Section 7.01 Certain Duties and Responsibilities ........38
Section 7.02 Notice of Default ..........................40
Section 7.03 Certain Rights of Trustee ..................40
Section 7.04 Not Responsible for Recitals or
Issuance of Notes ..........................41
Section 7.05 May Hold Notes .............................42
Section 7.06 Money Held in Trust ........................42
Section 7.07 Compensation and Reimbursement .............42
Section 7.08 Corporate Trustee Required;
Eligibility ................................43
Section 7.09 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 ..........44
Section 7.12 Co-Trustees and Separate Trustees ..........45
Section 7.13 Rights with Respect to the Servicer ........46
Section 7.14 Appointment of Authenticating Agent ........46
Section 7.15 Custodian to Hold Contracts ................47
ARTICLE EIGHT OPTIONAL PURCHASE OF RECEIVABLES ...........48
Section 8.01 Optional Purchase of All Receivables .......48
-ii-
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE NINE SUPPLEMENTAL INDENTURES ....................48
Section 9.01 Supplemental Indentures Without
Consent of Noteholders .....................48
Section 9.02 Supplemental Indentures with Consent
of Noteholders .............................49
Section 9.03 Execution of Supplemental Indentures .......50
Section 9.04 Effect of Supplemental Indentures ..........50
Section 9.05 Reference in Notes to Supplemental
Indentures .................................50
ARTICLE TEN REDEMPTION OF NOTES ........................51
Section 10.01 Redemption at the Option of the
Issuer; Election to Redeem .................51
Section 10.02 Notice to Trustee ..........................51
Section 10.03 Notice of Redemption by the Issuer .........51
Section 10.04 Deposit of the Redemption Price ............52
Section 10.05 Notes Payable on Redemption Date ...........52
ARTICLE ELEVEN REPRESENTATIONS, WARRANTIES AND COVENANTS ..52
Section 11.01 Representations and Warranties .............52
Section 11.02 Covenants ..................................56
Section 11.03 Other Matters as to the Issuer .............62
ARTICLE TWELVE ACCOUNTS AND ACCOUNTINGS ...................62
Section 12.01 Collection of Money ........................62
Section 12.02 Collection Account .........................62
Section 12.03 Reserve Account ............................65
Section 12.04 Reports by Trustee to Noteholders ..........67
ARTICLE THIRTEEN PROVISIONS OF GENERAL APPLICATION ..........68
Section 13.01 Acts of Noteholders ........................68
Section 13.02 Notices, etc., to Trustee, Issuer,
Servicer and the Rating Agency .............68
Section 13.03 Notices and Other Documents to
Noteholders; Waiver ........................69
Section 13.04 Effect of Headings and Table of
Contents ...................................69
Section 13.05 Successors and Assigns .....................70
Section 13.06 Separability ...............................70
Section 13.07 Benefits of Indenture ......................70
Section 13.08 Legal Holidays .............................70
Section 13.09 Governing Law ..............................70
Section 13.10 Counterparts ...............................70
Section 13.11 Obligation .................................70
Section 13.12 Compliance Certificates and Opinions .......70
Section 13.13 Effective Date of Transactions .............71
Signatures.................................................................72
-iii-
</TABLE>
<PAGE> 5
EXHIBIT A Form of Investment Letter
EXHIBIT B Form of Supplement for Grant of Substitute Contracts
and Upgrade Contracts
EXHIBIT C Form of Note
SCHEDULE A Contract Schedule
SCHEDULE B Members of the Issuer and Encumbrances on the
Membership Interests of the Members of the Issuer
SCHEDULE C Pool Information
-iv-
<PAGE> 6
INDENTURE, dated as of March 1, 1996 (herein, as amended and
supplemented from time to time as permitted hereby, called this "Indenture"),
among TRI FUNDING COMPANY I, L.L.C., a Delaware limited liability company
(herein, together with its permitted successors and assigns, called the
"Issuer"), TRENDWEST RESORTS, INC., an Oregon corporation, as servicer (herein,
together with its permitted successors and assigns, called the "Servicer"), and
LASALLE NATIONAL BANK, a nationally chartered bank, as trustee (the "Trustee").
PRELIMINARY STATEMENT
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for the issuance of the Issuer's 7.42% Receivables-Backed
Notes, Series 1996-1 (the "Notes"). All covenants and agreements made by the
Issuer, the Servicer and the Trustee herein are for the benefit and security of
the Holders of the Notes. The Issuer, the Servicer and the Trustee are entering
into this Indenture, and the Trustee is accepting the trusts created hereby, for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
All things necessary to make this Indenture a valid agreement of the
Issuer, the Servicer and the Trustee in accordance with its terms have been
done.
GRANTING CLAUSE
To secure the payment of the principal of and interest on the Notes in
accordance with their terms, the payment of all of the sums payable under this
Indenture and the performance of the covenants contained in this Indenture, the
Issuer hereby Grants to the Trustee, solely in trust and as collateral security
as provided in this Indenture, for the ratable benefit of the Holders of the
Notes, all of the Issuer's rights, title and interest in and to the following
whether now owned or hereafter acquired and any and all benefits accruing to the
Issuer from: (a) the Receivables and Contracts, including all proceeds of the
Contracts and Receivables and all payments received on or with respect to the
Contracts and Receivables and due after the CutOff Date; (b) the Contract Files
and the Custodian Files; (c) the Issuer's rights and interests in the related
Credits; (d) the Receivables Purchase Agreement; (e) the Sale Agreement; (f) the
Servicing Agreement; (g) all amounts from time to time on deposit in the
Collection Account, the Clearing Account, the Distribution Account and the
Reserve Account (including any Eligible Investments and other property in such
accounts); and (h) proceeds of the foregoing (including, but not by way of
limitation, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part or are
included in the proceeds of any of the foregoing) (all of the foregoing being
hereinafter referred to as the "Collateral" or "Trust Estate").
<PAGE> 7
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions hereof and agrees to perform the duties herein
required to the best of its ability to the end that the interests of the
Noteholders may be adequately and effectively protected.
ARTICLE ONE
DEFINITIONS
Section 1.01 Definitions. Except as otherwise expressly provided herein
or unless the context otherwise requires, the following terms have the
respective meanings set forth below for all purposes of this Indenture, and the
definitions of such terms are equally applicable both to the singular and plural
forms of such terms.
"Acquisition Consideration": The meaning specified in the Receivables
Purchase Agreement.
"Act": With respect to any Noteholder, the meaning specified in Section
13.01.
"Affiliate": At any time, and with respect to any Person, (a) any other
Person that at such time directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of such
first mentioned Person or any Person of which such first mentioned Person
beneficially owns or holds, in the aggregate, directly or indirectly, 10% or
more of any class of voting or equity interests. As used in this definition,
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Aggregate Collateral Value": As of any date, the sum of the aggregate
of the Collateral Values outstanding at such date; provided, however, that the
Collateral Value of any Defaulted Contract shall not be included in the
calculation of Aggregate Collateral Value in any Due Period after the Due Period
in which such Contract became a Defaulted Contract.
"Asset Assignment": The meaning specified in the Receivables Purchase
Agreement.
"Assignment": The meaning specified in the Sale Agreement.
"Authenticating Agent": Any entity appointed by the Trustee pursuant to
Section 7.14 hereof.
"Board of Directors": Either the board of directors of the Issuer or of
the Servicer, as the context requires, or any duly authorized committee of such
Board.
-2-
<PAGE> 8
"Board Resolution": A copy of a resolution delivered to the Trustee and
certified by the Secretary or an Assistant Secretary of the Servicer or a
corporate member of the Issuer, as the case may be, to have been duly adopted by
its respective Board of Directors and to be in full force and effect on the date
of such certification.
"Business Day": Any day other than a Saturday, a Sunday or a day on
which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee is located are authorized or obligated by
law or executive order to close.
"Calculation Date": The last day of a Due Period.
"Cash Accumulation Event": The occurrence of any of the following
events or conditions: (i) as of any Calculation Date, the average Delinquency
Level for the immediately preceding three Due Periods ending on such Calculation
Date is greater than or equal to 8.0%, (ii) as of any Calculation Date, the
average Default Rate for the immediately preceding three Due Periods ending on
such Calculation Date is greater than or equal to 0.6% or (iii)(a) the Issuer
and Trendwest shall have failed to cause SeaFirst Bank, as agent under the
Receivables Transfer Agreement ("SeaFirst"), to execute and deliver to the
Trustee (and the Issuer promptly shall cause a copy thereof to be sent to each
Noteholder) an estoppel and subordination agreement reasonably satisfactory in
form and substance to the Holders of not less than 66-2/3% in aggregate
principal amount of the Notes Outstanding with respect to the Contracts listed
on Schedule A hereto and the related Collateral as of the Closing Date (the
"Initial Collateral") substantially to the effect that (unless the Holders of
not less than 66-2/3% in aggregate principal amount of Notes Outstanding
otherwise agree) SeaFirst has no ownership interest, security interest or other
interest in the Initial Collateral, and, in the event that Seafirst at any time
in the future obtains any such interest, such interest of Seafirst shall be
subordinate and inferior to the interest of the Trustee in the Initial
Collateral and that in no event shall SeaFirst enforce any rights, whether as
secured party or otherwise, against the Initial Collateral until all of the
Issuer's obligations in respect of the Notes and the other Transaction Documents
have been paid in full (nothing in this clause shall be deemed to permit the
Issuer, Trendwest or any other Person to grant an interest in the Initial
Collateral to SeaFirst or any other Person unless first released from the lien
of the Trustee under this Indenture) and (b) the stockholders' equity of the
Servicer and its consolidated subsidiaries, determined in accordance with
generally accepted accounting principles, as would be shown on a consolidated
balance sheet for such Persons, is at any time below $15,000,000; provided,
however, that this clause (iii) not apply during the sixty days immediately
succeeding the Closing Date.
"Cash Accumulation Event Period": Each period commencing at the
beginning of a Due Period in which any Cash Accumulation Event occurs and ending
immediately prior to the beginning of the first subsequent Due Period during
which no Cash Accumulation Event occurs. For purposes of this definition, a Cash
Accumulation Event shall be deemed to occur during a Due Period if as of the
Calculation Date occurring on the last day of such Due Period there is an
occurrence or existence of a Cash Accumulation Event.
"Clearing Account Bank": The meaning specified in the Servicing
Agreement.
-3-
<PAGE> 9
"Clearing Account": The meaning specified in the Servicing Agreement.
"Closing Date": April 19, 1996, the date that the Transaction Documents
are originally executed and delivered by the parties thereto.
"Club" or "WorldMark": WorldMark, the Club, a California mutual benefit
corporation, and its successors in interest.
"Code": The Internal Revenue Code of 1986, as amended.
"Collateral": The meaning specified in the Granting Clause of this
Indenture.
"Collateral Value": With respect to each Receivable as of any
Calculation Date, the amount of principal outstanding with respect to such
Receivable at the end of such Calculation Date (without giving effect to any
write-off or writedown of such Receivable).
"Collection Account": The account or accounts created and maintained
pursuant to Section 12.02 hereof.
"Competitor" shall mean any Person which is engaged in the vacation
time share business.
"Contract Files": The meaning specified in the Sale Agreement.
"Contract Schedule": The listing of Contracts and Receivables on
Schedule A hereto, which shall include with respect to each Contract listed on
such schedule: (a) a number identifying such Contract, (b) the Collateral Value
of the related Receivable as of the date of execution and as of the CutOff Date,
(c) the Obligor, (d) the date entered into, (e) the original term and the number
of payments made as of the Cut-Off Date, (f) the Scheduled Payment, (g) the
interest rate and (h) the number of Credits financed, as such schedule may be
amended upon any purchase or substitution of Contracts made in accordance with
the terms of the Transaction Documents.
"Contracts": The retail installment contracts (and all rights with
respect thereto, including all guaranties and other agreements or arrangements
of whatever character from time to time supporting or securing payment of any
such contract and all rights with respect to the Credits to the extent
specifically related to any such contract), certain interests in which are
acquired by the Issuer from time to time pursuant to the Sale Agreement and
identified on the Contract Schedule attached hereto as Schedule A, including
Substitute Contracts and Upgrade Contracts, and any amendments, riders and
annexes thereto; provided that, from and after the date on which a Receivable
relating to a Contract is purchased or substituted by the Issuer, TFI or
Trendwest in accordance with Section 4.03 hereof, such Contract shall no longer
constitute a "Contract" for purposes of the Transaction Documents.
"Corporate Trust Office": The principal corporate trust office of the
Trustee located at 135 South LaSalle Street, Suite 1740, Chicago, Illinois
60603, Attention: Asset Backed
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Securities Trust Services Group -- TRI Funding 1996-1, or at such other address
as the Trustee may designate from time to time by notice to the Noteholders and
the Issuer, or the principal corporate trust office of any successor Trustee.
"Credits": The vacation credits financed by an Obligor pursuant to a
Contract.
"Custodian": Sage Systems, Inc., a Washington corporation, and its
permitted successors and assigns.
"Custodian Files": The meaning set forth in the Sale Agreement.
"Cut-Off Date": With respect to Contracts pledged to the Trustee on the
Closing Date, March 16, 1996, and with respect to any Substitute Contract or
Upgrade Contract, the date on which such Contract is pledged to the Trustee by
the Issuer.
"Default": Any occurrence or circumstance which with notice or the
lapse of time or both would become an Event of Default.
"Default Rate": For any Due Period, the sum of the Collateral Values as
of the Calculation Date occurring in such Due Period of all Contracts that
became Defaulted Contracts in such Due Period and remained Defaulted Contracts
as of such Calculation Date divided by the Aggregate Collateral Value on the
Calculation Date immediately preceding such Due Period.
"Defaulted Contract": A Contract shall become a Defaulted Contract at
the earliest of (i) the date on which the Servicer receives notice that the
related Obligor has (or, if a Contract has two Obligors, both Obligors have)
become the subject of bankruptcy proceedings, (ii) the Calculation Date on which
any portion of the related Receivable would (if such Receivable were owned by
Trendwest) be written off Trendwest's financial statements or books of account
or would otherwise be deemed uncollectible in the normal course of business (for
reasons other than disputes of amounts owed with respect to such Receivable),
(iii) the Calculation Date on which all or part of any Scheduled Payment with
respect to such Contract has not been received and remains unpaid for a period
of 180 or more days as of such Calculation Date or (iv) the date on which the
related Obligor has (or, if a Contract has two Obligors, both Obligors have)
given notice to the Servicer, or the Servicer otherwise has reason to believe,
that the related Receivable will not be paid (for reasons other than disputes of
amounts owed with respect to such Receivable).
"Delinquent Contract": As of any Calculation Date, a Contract (a) as to
which a Scheduled Payment was not received by or on behalf of the Issuer within
60 days of when such Scheduled Payment was due and remains unpaid as of such
Calculation Date and (b) is not a Defaulted Contract.
"Delinquency Level": For any Due Period, the sum of the Collateral
Values as of the Calculation Date occurring in such Due Period of all Delinquent
Contracts as of such
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Calculation Date, divided by the Aggregate Collateral Value on the Calculation
Date immediately preceding such Due Period.
"Delivery Date": The date on which a Note is issued in accordance with
this Indenture.
"Determination Date": The fifth day preceding each Payment Date or, if
such day is not a Business Day, the next succeeding Business Day.
"Distribution Account": The trust account created and maintained
pursuant to Section 12.02 hereof.
"Due Date": With respect to each Receivable, the date of the month on
which payment is due thereunder.
"Due Period": As to any Determination Date or Payment Date, as the case
may be, the period beginning on and including the first day and ending at the
end of the last day of the calendar month preceding the month in which such
Determination Date or Payment Date, as the case may be, occurs.
"Eligible Account": A segregated account, which may be an account
maintained with the Trustee, which is maintained with a depository institution
or trust company whose long term unsecured debt obligations are rated at least
A-1 by Fitch, (or, if not rated by Fitch, an equivalent rating from S&P or
Moody's).
"Eligible Investments": Any and all of the following:
(i) direct obligations of, and obligations fully guaranteed
by, the United States of America or any agency or instrumentality of
the United States of America the obligations of which are backed by the
full faith and credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of deposit
of, banker's acceptances issued by or federal funds sold by any
depository institution or trust company (including the Trustee or its
agent acting in their respective commercial capacities) incorporated
under the laws of the United States of America or any State thereof and
subject to supervision and examination by federal and/or state
authorities, so long as at the time of such investment or contractual
commitment providing for such investment, such depository institution
or trust company has a short term unsecured debt rating of F-1+ (or its
equivalent) of Fitch, (or, if not rated by Fitch, an equivalent rating
from S&P or Moody's) and provided that each such investment has an
original maturity of no more than 180 days, and (B) any other demand or
time deposit or deposit which is fully insured by the Federal Deposit
Insurance Corporation;
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(iii) securities bearing interest or sold at a discount issued
by any corporation incorporated under the laws of the United States of
America or any State thereof which has a long term unsecured debt
rating in the highest available rating category of Fitch (or, if not
rated by Fitch, an equivalent rating from S&P or Moody's) at the time
of such investment;
(iv) commercial paper having, or demand notes constituting an
investment vehicle in commercial paper having, an original maturity of
less than 180 days and issued by an institution having a short term
unsecured debt rating in the highest available rating category of Fitch
(or, if not rated by Fitch, an equivalent rating from S&P or Moody's)
at the time of such investment (the issuer of any demand notes under
this paragraph (iv) must also be an institution that satisfies the
unsecured debt rating test specified in this paragraph (iv));
(v) a guaranteed investment contract issued by an insurance
company or other corporation having a long term unsecured debt rating
or a claims paying ability rated in the highest available rating
category of Fitch (or, if not rated by Fitch, an equivalent rating from
S&P or Moody's) at the time of such investment; and
(vi) money market funds having ratings in the highest or
second highest available rating category of Fitch (or, if not rated by
Fitch, an equivalent rating from S&P or Moody's) at the time of such
investment which invest only in other Eligible Investments; any such
money market funds which provide for demand withdrawals being
conclusively deemed to satisfy any maturity requirement for Eligible
Investments set forth in this Indenture.
Any Eligible Investments may be purchased by or through the Trustee or any of
its Affiliates.
"Event of Default": The meaning specified in Section 6.01 hereof.
"Final Due Date": With respect to each Receivable, the last Due Date
specified in the related Contract.
"Final Payment Date": The date on which the final principal payment on
the Notes becomes due and payable as therein or herein provided, whether at the
Stated Maturity or by acceleration or redemption.
"Fitch": Fitch Investors Service, L.P. and its successors in interest.
"Grant": 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
Contracts, the Receivables 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 Contracts and
the
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Receivables, 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.
"Guaranty Amounts": Any and all amounts paid by a guarantor, if any,
indicated on the applicable Contract.
"Holder" or "Noteholder": The person in whose name a Note is registered
in the Note Register.
"Indenture" or "this Indenture": This instrument as originally executed
as from time to time supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
as so supplemented or amended. All references in this Indenture to designated
"Articles," "Sections," "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions of this
Indenture as originally executed, or if amended or supplemented, as so amended
and supplemented. The words "herein," "hereof," "hereunder" and other words of
similar import, when not related to a specific subdivision of this Indenture,
refer to this Indenture as a whole and not to any particular Article, Section,
Subsection or other subdivision.
"Independent": When used with respect to any specified Person means
such a Person, who (1) is in fact independent of the Issuer, (2) does not have
any direct financial interest or any material indirect financial interest in the
Issuer or in any Affiliate of the Issuer, (3) is not connected with the Issuer
as an officer, employee, promoter, underwriter, Trustee, partner, director, a
person performing similar functions and (4) is not a brother, sister, spouse,
parent or child of any Person listed in clauses (2) and (3) above. Whenever it
is herein provided that any Independent Person's opinion or certificate shall be
furnished to the Trustee, such Person shall be appointed by a Issuer Order and
approved by the Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read this definition and that the
signer is Independent within the meaning hereof.
"Initial Aggregate Collateral Value": $77,779,368.
"Initial Payment Date": May 15, 1996, the first Payment Date following
the Closing Date.
"Institutional Investor": Any original purchaser of a Note, any holder
of a Note holding more than 5% of the aggregate principal amount of the Notes
Outstanding and 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 similar financial institution or entity,
regardless of legal form.
"Investor": Shall mean R & R Vista, an Oregon partnership, and its
permitted successors and assigns.
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"Investor Interest Distribution Amount": With respect to each Payment
Date, an amount equal to the lesser of (a) an amount equal to the product of (i)
14% per annum and (ii) the difference between (A) $2,333,381 and (B) the
aggregate amount distributed pursuant to Section 12.02(d)(viii) hereof on all
Payment Dates prior to such Payment Date or distributed to the Investors from
the reserves of the Issuer (solely out of funds that have been released to the
Issuer pursuant to Section 12.02(d)(xiv) hereof) and (b) the amount of cash
available after payment of all amounts required by clauses (i) through (vi) of
Section 12.02(d) hereof.
"Investor Principal Distribution Amount": With respect to each Payment
Date, (a) for any Payment Date prior to the Stated Maturity, an amount equal to
the lesser of (i) 3% of the sum of (A) the principal portion of the amounts
collected by or on behalf of the Issuer in the immediately preceding Due Period
attributable to (1) payments by or on behalf of each Obligor of amounts owed on
the related Receivable, (2) Residual Proceeds and Recoveries (without
duplication of amounts in clause (1)) and (3) payments of Purchase Price by TFI,
SPC, the Issuer or Trendwest (without duplication of amounts in clauses (1) or
(2)), and (B) the Collateral Value as of the related Calculation Date of any
Contract that became a Defaulted Contract in the immediately preceding Due
Period; and (ii) the amount of cash available after payment of all amounts
required by clauses (i) through (viii) of Section 12.02(d) hereof; (b) for any
Payment Date on which the Investor Principal Shortfall Amount is greater than
zero, the lesser of (i) the amount set forth in clause (a) above plus an amount
equal to the Investor Principal Shortfall Amount and (ii) the amount of cash
available after payment of all amounts required by clauses (i) through (viii) of
Section 12.02(d) hereof; and (c) on the Stated Maturity, an amount equal to the
lesser of (i) aggregate principal amount of the Investor's investment
outstanding as of such date and (ii) the amount of cash available after payment
of all amounts required by clauses (i) through (viii) of Section 12.02(d)
hereof.
"Investor Principal Shortfall Amount": With respect to any Payment
Date, an amount equal to the aggregate amount of distributions of the Investor
Principal Distribution Amount that were not made on any prior Payment Dates
(without duplication).
"Issuer": TRI Funding Company I, L.L.C., a Delaware limited liability
company, until a successor Person shall have become the Issuer pursuant to the
applicable provisions of this Indenture, and thereafter "Issuer" shall mean such
successor Person.
"Issuer Order" and "Issuer Request": A written order or request signed
in the name of the Issuer by the Chairman of the Board, President, a Vice
President, the Treasurer or Secretary of a member of the Issuer, and delivered
to the Trustee.
"Lien": Any mortgage, deed of trust, pledge, hypothecation, assignment,
participation or equity interest, deposit arrangement, encumbrance, charge, lien
(statutory or other), preferences priority or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such
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financing statement filed for informational purposes only) or comparable law of
any jurisdiction to evidence any of the foregoing.
"Monthly Servicer's Report": The report prepared by the Servicer
pursuant to Section 4.01 of the Servicing Agreement.
"Moody's: Moody's Investors Service, Inc. and its successors in
interest.
"Note" or "Notes": The notes authenticated and delivered under this
Indenture.
"Noteholder" or "Holder": The Person in whose name a Note is registered
in the Note Register.
"Note Interest Rate": 7.42% per annum.
"Note Purchase Agreements": Each of the Note Purchase Agreements, dated
as of March 1, 1996, between the Issuer and the purchasers named therein.
"Note Register" and "Note Registrar": The respective meanings specified
in Section 3.04 hereof.
"Obligor": The borrower under each related Contract, including any
guarantor of such borrower, and their respective successors and assigns.
"Officer's Certificate": A certificate signed by the Chairman of the
Board, the President, a Vice President, the Treasurer, the Controller, an
Assistant Controller or the Secretary of the company (or, with respect to the
Issuer, the corporate member of the Issuer) on whose behalf the certificate is
delivered, and delivered to the Trustee, which certificate shall comply with the
applicable requirements of Section 13.12 hereof. Unless otherwise specified, any
reference in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate of the corporate member of the Issuer on behalf of the Issuer.
"Opinion of Counsel": A written opinion of counsel who may, except as
otherwise expressly provided in this Indenture, be counsel for the Issuer and
who shall be reasonably satisfactory to the Trustee and which opinion shall
comply with the applicable requirements of Section 13.12 hereof.
"Outstanding": With respect to the Notes, as of any date of
determination, all Notes theretofore authenticated and delivered under this
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 this Indenture,
unless proof satisfactory to the Trustee is presented that any such
Notes are held by a bona fide purchaser;
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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 hereunder, Notes
owned by the Issuer or any other obligor upon such Notes, any Affiliate of the
Issuer or Trendwest shall be disregarded and deemed not to be 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 such Notes which the Trustee knows to be so owned shall be so
disregarded.
"Overdue Payment": With respect to a Due Period and a Delinquent
Contract, all payments due in a prior Due Period that the Servicer receives from
or on behalf of an Obligor during the related Due Period on such Delinquent
Contract, including any Servicing Charges.
"Paying Agent": The Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 7.08 hereof and is
authorized by the Issuer pursuant to Section 11.15(o) hereof to pay the
principal of, or interest on, any Notes on behalf of the Issuer.
"Payment Date": The fifteenth day of each calendar month (or if such
day is not a Business Day, the next succeeding Business Day) commencing on the
Initial Payment Date.
"Permitted Institutional Investor" means (a) any original purchaser of
a Note and (b) 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.
"Person": Any individual, corporation, limited liability company,
partnership, association, joint-stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"Placement Agents": Each of SPP Hambro & Co., LLC and NBD Bank.
"Principal Distribution Amount": With respect to each Payment Date, (a)
for any Payment Date prior to the Stated Maturity, an amount equal to 90% of the
sum (without duplication) of (i) the principal portion of the amounts collected
by or on behalf of the Issuer in the immediately preceding Due Period
attributable to (A) payments by or on behalf of each Obligor of amounts owed on
the related Receivable, (B) Residual Proceeds and Recoveries and (C) payments of
Purchase Price by TFI, SPC, the Issuer or Trendwest, and (ii) the Collateral
Value as of the related Calculation Date of any Contract that became a Defaulted
Contract in the immediately preceding Due Period; (b) for any Payment Date on
which the Principal Shortfall Amount is greater than zero, the amount set forth
in clause (a) above plus an amount equal to the Principal Shortfall Amount and
(c) on the Stated Maturity, an amount equal to the aggregate principal amount of
Notes Outstanding as of such date.
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"Principal Shortfall Amount": With respect to any Payment Date, an
amount equal to the aggregate amount of principal payments on the Notes that
were owed on prior Payment Dates but not made to the Holders prior to such
Payment Date.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Purchase and Substitution Limit": With respect to the Contracts, 10%
of the Initial Aggregate Collateral Value.
"Purchase Price": With respect to any Contract or interest therein
repurchased by the Issuer or Trendwest, as the case may be, pursuant to Section
3.03 of the Receivables Purchase Agreement, Section 3.03 of the Sale Agreement,
Section 4.03 hereof or Section 3.10(b) of the Servicing Agreement, the sum of
(i) the Collateral Value of related Receivable on the Calculation Date on or
immediately succeeding the date when the Receivable is repurchased and (ii) any
interest portion of Scheduled Payments with respect to such Receivable due on or
prior to such Calculation Date but not received through such Calculation Date.
"Rating Agency": Fitch.
"Receivables": With respect to any Contract, all of, and the right to
receive all of (i) the Scheduled Payments, (ii) any Guaranty Amounts, (iii) any
Residual Proceeds, (iv) any Recoveries and (v) any Servicing Charges.
"Receivables Purchase Agreement": The Receivables Purchase Agreement,
dated as of March 1, 1996, by and among TFI, Trendwest and TW Holdings, as
amended and supplemented from time to time, together with the Asset Assignment
executed in connection therewith.
"Receivables Transfer Agreement": The Amended and Restated Receivables
Transfer Agreement, dated as of June 1, 1994, as amended, among TW Holdings, as
Seller, Bank of America NW, N.A. d/b/a SeaFirst Bank, as agent for the
purchasers named therein, and JELD-WEN, inc.
"Record Date": The close of business on the last day of the month
preceding the applicable Payment Date, whether or not a Business Day, except
with respect to the Initial Payment Date for the Notes, the Record Date shall be
the Closing Date.
"Recoveries": For any Due Period occurring during or after the date on
which any Contract becomes a Defaulted Contract and with respect to such
Defaulted Contract, all payments that the Servicer received from or on behalf of
an Obligor during such Due Period in respect of such Defaulted Contract or from
liquidation or reselling the related Credits (including purchases by Trendwest
pursuant to Section 3.10(e) of the Servicing Agreement), including but not
limited to Scheduled Payments, Overdue Payments and Guaranty Amounts,
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as reduced by any reasonably incurred out-of-pocket expenses incurred by the
Servicer in enforcing such Defaulted Contract.
"Redemption Date": A date fixed pursuant to Section 10.01 hereof.
"Redemption Price": With respect to any Note, and as of any Redemption
Date, the Outstanding principal amount of such Note, together with interest
accrued thereon through the Redemption Date at the Note Interest Rate (exclusive
of installments of interest and principal maturing on or prior to the Redemption
Date, payment of which shall have been made or duly provided for to the Holder
of such Note on the applicable Record Date or as otherwise provided in this
Indenture).
"Redemption Record Date": With respect to any redemption of any Note, a
date fixed pursuant to Section 10.01 hereof.
"Registered Holder": The Person whose name appears on the Note Register
on the applicable Record Date or Redemption Record Date.
"Reinvestment Income": Any interest or other earnings earned on all or
part of the Trust Estate.
"Remittance Date": The Business Day immediately preceding each Payment
Date.
"Reserve Account": The trust account created and maintained pursuant to
Section 12.03 hereof.
"Reserve Account Required Balance": As of any Payment Date, an amount
equal to the greater of (i) the product of (a) the sum (expressed as a
percentage) of (1) 2% plus (2) the product of .25% and the total number of times
a Cash Accumulation Event has occurred (for the purposes of this definition, a
Cash Accumulation Event shall be deemed to have occurred only once for any
period of consecutive Due Periods occurring during a single Cash Accumulation
Event Period) and (b) the principal balance of the Notes Outstanding as of such
Payment Date (after any distributions made pursuant to Section 12.02(d) hereof
on such date), (ii) $500,000 and (iii) during a Cash Accumulation Event Period,
$500,000,000; provided, however, that if the event or condition specified in
clause (iii)(a) of the definition of Cash Accumulation Event occurs, the
percentage in clause (1) above shall be 2.5%, and provided further, that if such
event or condition is cured, such percentage shall thereafter be 2.0%.
"Reserve Account Standard Balance": As of any Payment Date, an amount
equal to the Reserve Account Required Balance without giving effect to clause
(iii) thereof.
"Residual Proceeds": With respect to a Contract that is not a Defaulted
Contract and the related Credits, the net proceeds of any resale or other
disposition of such Credits.
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"Responsible Officer": When used with respect to the Trustee, any
officer assigned to the Corporate Trust Department (or any successor thereto),
including any Vice President, Assistant Vice President, Trust Officer, Assistant
Secretary or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and having
direct responsibility for the administration of this Indenture, 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.
"Restricted Investor" means (a) any investment company or pension plan
(other than a pension plan held or managed by an insurance company) that,
directly or indirectly through any subsidiary or through any parent corporation
is engaged in the vacation time share business and (b) any other Person that is
not a Permitted Institutional Investor that, directly or indirectly through any
subsidiary or through any parent corporation is engaged in the vacation time
share business.
"S&P": Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., and its successors in interest.
"Sale": The meaning specified in Section 6.18 hereof.
"Sale Agreement": The Purchase and Sale Agreement, dated as of March 1,
1996, by and among TFI, SPC, Trendwest and the Issuer, as amended and
supplemented from time to time, together with the Assignment executed in
connection therewith.
"Scheduled Payment": With respect to a Payment Date and a Contract, the
periodic payment set forth in such Contract due from the Obligor in the related
Due Period. Scheduled Payments shall not include any membership dues or other
housekeeping payments relating to the use of the Club.
"Servicer": Initially, Trendwest Resorts, Inc., an Oregon corporation,
and any successor Servicer appointed pursuant to Section 6.02 of the Servicing
Agreement.
"Servicer Fee": On each Payment Date, an amount equal to the product of
(i) one-twelfth of 1.75% and (ii) the Aggregate Collateral Value on the
preceding Payment Date, after distributions made on such date.
"Servicing Agreement": The Servicing Agreement, dated as of March 1,
1996, by and among the Issuer, the Servicer, the Subservicer and the Trustee, as
amended or supplemented from time to time.
"Servicing Charges": The sum of (i) all late payment charges paid by
Obligors on Delinquent Contracts after payment in full of any Scheduled Payments
due in a prior Due Period and Scheduled Payments for the related Due Period and
(ii) any other incidental charges or fees received from an Obligor, including,
but not limited to, late fees, collection fees and bounced check charges.
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"Servicing Officers": The meaning set forth in the Servicing Agreement.
"SPC": TWH Funding I, Inc., a Delaware corporation, and its permitted
successors and assigns.
"State": Any state of the United States of America and, in addition,
the District of Columbia and Puerto Rico.
"Stated Maturity": May 15, 2004.
"Subordinated Note": The subordinated note dated as of the Closing
Date, made by the Issuer to TFI as a part of the consideration for the Purchased
Assets and the payments of which are subordinated by its terms to distributions
made pursuant to clauses (i)-(ix) of Section 12.02(d) hereof. The form of the
Subordinated Note is attached to the Sale Agreement as Exhibit C.
"Subservicer": Sage Systems, Inc. and its permitted successors and
assigns.
"Substitute Contract": The meaning specified in the Sale Agreement.
"Substitute Receivable": The meaning specified in the Sale Agreement.
"Substitution Limit": 1.5% of the Initial Aggregate Collateral Value.
"TFI": Trendwest Funding I, Inc., a Delaware corporation, and its
permitted successors and assigns.
"Transaction Documents": This Indenture, the Note Purchase Agreements,
the Servicing Agreement, the Receivables Purchase Agreement, the Custodian
Agreement, the Sale Agreement and the Notes.
"Trendwest": Trendwest Resorts, Inc., an Oregon corporation, and its
permitted successors and assigns.
"Trigger Event": Any of the following events or conditions: (1) if, as
of any Calculation Date, the aggregate Collateral Value of Contracts that are
Delinquent Contracts is greater than or equal to 12% of the Aggregate Collateral
Value as of the immediately preceding Calculation Date; (2) if, as of any
Calculation Date, the aggregate Collateral Value of Defaulted Contracts that
became Defaulted Contracts in the related Due Period is greater than or equal to
1.0% of the Aggregate Collateral Value as of the immediately preceding
Calculation Date; (3) an Event of Default or Servicer Event of Default has
occurred and is continuing; (4) (a) WorldMark voluntarily incurs or is any time
voluntarily liable for any debt, or any of its property voluntarily is or
voluntarily becomes subject to any Liens (other than (i) utility or similar
easements or licenses which do not relate to borrowings by WorldMark or (ii)
Liens that in the aggregate for all properties do not exceed $100,000), or (b)
WorldMark involuntarily incurs or is any time involuntarily liable
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for any debt, or any of its property involuntarily is or involuntarily becomes
subject to any Liens (other than utility or similar easements or licenses which
do not relate to borrowings by WorldMark) that individually or in the aggregate
(with respect to all such debt and the obligations secured by all such Liens)
exceed $1,000,000; (5) WorldMark sells, leases or otherwise transfers
voluntarily or otherwise, any of its real estate properties or any interest
therein so that, in the aggregate, there is a net decrease in Credits available
for member use greater than or equal to 10% from the number of Credits available
for member use on the Closing Date; (6) if on the Payment Date after the fifth
anniversary of the Closing Date, the aggregate principal amount of Notes
Outstanding is greater than $9,307,415; (7) WorldMark exchanges one of its
present properties for another property that is worth fewer Credits than the
property so exchanged; or (8) WorldMark has interests in units at fewer than 15
developed resort properties.
"Trigger Event Period": Each period commencing at the beginning of a
Due Period in which any Trigger Event occurs or exists and ending immediately
prior to the beginning of the first subsequent Due Period that follows a period
of six consecutive Due Periods during which no Trigger Event occurs or exists.
"Trustee": LaSalle National Bank, until a successor Person shall have
become the Trustee pursuant to the applicable provisions of this Indenture, and
thereafter "Trustee" shall mean such successor Person.
"Trust Estate": The meaning specified in the Granting Clause of this
Indenture.
"Trustee Fee": The fee payable on each Payment Date to the Trustee in
consideration for the Trustee's performance of its duties pursuant to this
Indenture as Trustee, in an amount equal to the product of (i) one-twelfth of
the Trustee Fee Rate and (ii) the aggregate principal amount of Outstanding
Notes on the preceding Payment Date after giving effect to distributions on such
date (or, in the case of the Initial Payment Date, the initial aggregate
principal amount of the Notes).
"Trustee Fee Rate": .04% per annum.
"TW Holdings": TW Holdings, Inc., a Nevada corporation, and its
permitted successors and assigns.
"UCC": The Uniform Commercial Code as it may from time to time be in
effect in the applicable State.
"Upgrade": The cancellation of a Contract and entry into a new contract
by an Obligor, WorldMark and Trendwest, pursuant to which the Obligor purchases
additional Credits in exchange for an increase in the principal balance owed by
the Obligor.
"Upgrade Contract": The new contract entered into by an Obligor,
Trendwest and the Club related to an Upgrade by such Obligor. The Upgrade
Contract shall be pledged to the Trustee pursuant to Section 4.03(g) hereof.
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"Vice President": With respect to a member of the Issuer or the
Trustee, any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"WorldMark" or the "Club": WorldMark, the Club, a California mutual
benefit corporation, and its successors in interest.
ARTICLE TWO
NOTE FORM
Section 2.01 Form. The Notes, together with the certificates of
authentication, shall be in substantially the form set forth in Exhibit C
hereto, 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, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of such Notes.
The definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any manner acceptable to the Trustee and the initial purchasers of the Notes,
all as determined by the officers executing such Notes, as evidenced by their
execution of such Notes.
ARTICLE THREE
THE NOTES
Section 3.01 Denomination. The aggregate principal amount of Notes
which may be authenticated and delivered under this Indenture is limited to an
aggregate principal amount of $70,000,000 (except for Notes authenticated and
delivered upon registration of transfer or in exchange for or in lieu of, other
Notes pursuant to Sections 3.03, 3.04, 3.06 or 9.05 hereof). The Notes shall be
issuable only as registered Notes without coupons in the denominations of at
least $100,000; provided, however, that, the foregoing shall not restrict or
prevent the transfer in accordance with Sections 3.04 and 3.05 hereof of any
Note with a remaining outstanding principal amount of less than $100,000.
Section 3.02 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by the President, one of the Vice
Presidents or the Treasurer of a corporate member of the Issuer. The signature
of these officers on the Notes must be manual.
Notes bearing the manual signatures of individuals who were at any time
the proper officers of such corporate member of the Issuer shall bind the
Issuer, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication
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or delivery of such Notes or did not hold offices at the date of authentication
or delivery of such Notes.
Each Note shall bear on its face the appropriate Delivery 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 on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee or by any Authenticating Agent 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 3.03 Notes as Debt. For all federal, state, local and
foreign tax purposes, all Noteholders shall treat the Notes as debt of the
Issuer.
Section 3.04 Registration, Registration of Transfer and Exchange.
(a) The Issuer shall cause to be kept initially at the Corporate Trust Office of
the Trustee a register (the "Note Register"), in which, subject to such
reasonable regulations as it may prescribe, the Issuer shall provide for the
registration of Notes and the registration of transfers of Notes. LaSalle
National Bank, 135 South LaSalle Street, Suite 1740, Chicago, Illinois 60603, is
hereby appointed "Note Registrar" for the purpose of registering Notes and
transfers of Notes as herein provided. The Trustee shall have the right to rely
conclusively upon a certificate of the Note Registrar as to the names and
addresses of the holders of the Notes and the principal amounts and numbers of
such Notes as held. Upon request of any Holder, the Trustee shall, to the extent
it may lawfully do so, furnish such Holder with a list of the names and
addresses of all Holders entered on the Note Register indicating the principal
amount and serial number, if any, of each Note held by each Holder.
(b) Only upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 11.02(n)
hereof and subject to the conditions set forth in Section 3.05 and Section 3.06
hereof, the Issuer shall execute, and the Trustee or its agent shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denominations, and of a
like aggregate principal amount and Stated Maturity.
(c) At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denominations and of a like aggregate principal amount
and Stated Maturity, only upon surrender of the Notes to be exchanged at such
office or agency, subject to Section 3.06 hereof. Whenever any Notes are so
surrendered for exchange, the Issuer shall execute, and the Trustee or its agent
shall authenticate and deliver, the Notes which the Noteholder making the
exchange is entitled to receive.
(d) All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt and
entitled to the same benefits
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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 Issuer or the Note Registrar) be duly
endorsed or be accompanied by a written instrument of transfer in form
reasonably satisfactory to the Issuer and the Note Registrar duly executed, by
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer 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 3.03 or 9.05 hereof not involving any registration
of transfer.
Notwithstanding anything else to the contrary contained in this
Indenture, the obligation of the Issuer to pay the principal of and interest on
the Notes is not a general obligation of the Issuer, but is limited solely to
the amounts available out of the Collateral pledged to the Trustee under this
Indenture.
Section 3.05 Limitation on Transfer and Exchange. The Notes will not be
registered or qualified under the Securities Act of 1933, as amended (the "1933
Act"), or the securities laws of any State. No transfer of any Note shall be
made unless that transfer is made in a transaction which does not require
registration or qualification under the 1933 Act or under applicable State
securities laws. In the event that a transfer is to be made without registration
or qualification, such Noteholder's prospective transferee shall either (i)
deliver to the Trustee an investment letter substantially in the form set forth
on Exhibit A hereto (the "Investment Letter") or (ii) deliver to the Trustee an
opinion of counsel that the transfer is exempt from the 1933 Act and will not
result in the Issuer being required to register as an "investment company" under
the Investment Company Act of 1940, as amended. Such opinion may be given by an
attorney that is an employee or officer of such transferee. Neither the Issuer
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 any
Noteholder arising from a transfer of any such Note in reliance upon a
certification or opinion described in this Section 3.05.
Each Holder, by acceptance of any Note, agrees that such Holder will
not offer, sell or transfer any Note to a Restricted Investor. Notwithstanding
the foregoing restrictions on the offer, transfer or sale of the Notes, any
Noteholder may offer, sell or transfer any of its Notes to any Permitted
Institutional Investor (other than a Restricted Investor) holding securities in
a Competitor as part of its investment portfolio. In determining whether a
transferee is a Restricted Investor, a Noteholder shall be entitled to rely on a
certificate to that effect executed by an authorized officer of such Person.
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Section 3.06 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Note Registrar, or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such destruction, loss, theft
or mutilation), and (ii) there is delivered to the Trustee such security or
indemnity as may be required by the Trustee to save the Issuer and the Trustee
or any agent of any of them harmless, then, in the absence of notice to the
Issuer or the Note Registrar that such Note has been acquired by a bona fide
purchaser, the Issuer 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 tenor, initial principal
amount and Stated Maturity, bearing a number not contemporaneously outstanding.
If the Holder of such Note is, or is a nominee for, an original purchaser of the
Notes or another Holder with a minimum net worth of at least $50,000,000, such
Person's own unsecured agreement of indemnity shall be deemed to be satisfactory
for the purposes of clause (ii) above. If after the delivery of such new Note, a
bona fide purchaser of the original Note in lieu of which such new Note was
issued presents for payment such original Note, the Issuer and the Trustee shall
be entitled to recover such new Note from the person to whom it was delivered or
any person taking therefrom, except a bona fide purchaser, and shall be entitled
to recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expenses incurred by the Issuer or the Trustee or any
agent of any of them in connection therewith. If any such mutilated, destroyed,
lost or stolen Note shall have become or shall be about to become due and
payable, or shall have become subject to redemption in full, instead of issuing
a new Note, the Issuer may pay such Note without surrender thereof, except that
any mutilated Note shall be surrendered.
Upon the issuance of any new Note under this Section 3.06, the Issuer
may require the payment 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 3.06, in lieu of any
destroyed, lost or stolen Note, shall constitute an original additional
contractual obligation of the Issuer, 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 duly issued hereunder.
The provisions of this Section 3.06 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 3.07 Payment of Principal and Interest; Principal and
Interest Rights Preserved. (a) The Notes shall bear interest on the unpaid
principal amount thereof from and including the Closing Date at the Note
Interest Rate (calculated on the basis of a 360-day year consisting of 12 months
of 30 days each) through the day immediately preceding the Initial Payment Date
and thereafter, monthly from and including the most recent Payment Date through
the day immediately preceding the applicable Payment Date and (to the extent
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that the payment of such interest shall be legally enforceable) on any overdue
installment of principal or interest from the date such principal or interest
became due and payable until fully paid. Interest shall be due and payable in
arrears on each Payment Date, with each payment of interest calculated as
described above on the unpaid principal amount of the Outstanding Notes on the
day immediately preceding such Payment Date or, with respect to interest payable
on the Initial Payment Date, on the principal amount of the Outstanding Notes on
the Closing Date; provided, however, that in making any interest payment, if the
interest calculation with respect to any Note shall result in a portion of such
payment being less than $.01, then such payment shall be decreased to the
nearest whole cent, and no subsequent adjustment shall be made in respect
thereof.
(b) The principal of each Note shall be payable in installments
ending no later than the Stated Maturity unless such Note becomes due and
payable at an earlier date by declaration of acceleration or automatic
acceleration, call for redemption or otherwise. All reductions in the principal
amount of any Note effected by payments of installments of principal made on any
Payment Date shall be binding upon all future Holders of such Note, and of any
Note issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, whether or not such payment is noted on such Note. Each
installment of principal payable on the Notes shall be in an amount equal to the
Principal Distribution Amount. The principal payable on the Notes shall be paid
on each Payment Date beginning on the Initial Payment Date and ending on the
Final Payment Date on a pro rata basis based upon the face amount of each Note;
provided, however, that if as a result of such proration a portion of such
principal would be less than $.01, then such payment shall be decreased to the
nearest whole cent, and such portion shall be applied to the next succeeding
principal payment.
(c) The principal of and interest on the Notes are payable by check
mailed by first-class mail to the Person whose name appears as the Registered
Holder of such Note on the Note Register at the address of such Person as it
appears on the Note Register or, if requested by such Registered Holder, by wire
transfer in immediately available funds to the account specified in writing to
the Trustee by such Registered Holder at least five Business Days prior to the
Record Date for the Payment Date on which wire transfers will commence, in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public and private debts; provided, however,
that the Trustee shall, unless and until otherwise instructed by such
Noteholder, pay each initial Noteholder via wire transfer in immediately
available funds to the accounts specified, if any, in Annex 1 to each Note
Purchase Agreement. The Trustee hereby acknowledges receipt of Annex 1 to each
Note Purchase Agreement, which sets forth such information with respect to the
initial Holders. All payments on the Notes shall be paid without any requirement
of presentment. The Issuer shall notify the Trustee at the close of business on
the Record Date next preceding the Payment Date on which the Issuer expects that
the final installment of principal of such Note will be paid that the Issuer
expects that such final installment will be paid on such Payment Date. Notice of
final payment on any Note shall be mailed by the Trustee to the Holder of such
Note in accordance with Section 12.05(a) hereof. Funds representing any such
checks returned undeliverable shall be held in accordance with Section 11.02(o).
Upon payment in full of all amounts owed to the Noteholders under the
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Notes, the Notes shall be void and the Noteholders shall use reasonable efforts
to return their Notes to the Trustee at the Corporate Trust Office for
cancellation upon written request of the Trustee or the Issuer. In the event a
Noteholder cannot return its Note to the Trustee within 60 days following
payment in full of the Note, it shall send the Trustee an affidavit certifying
such loss upon request.
Section 3.08 Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Trustee and any agent of
the Issuer or the Trustee shall 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 Issuer, the Trustee nor any
agent of the Issuer or the Trustee shall be affected by notice to the contrary.
Section 3.09 Cancellation. All Notes surrendered to the Trustee for
payment, 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. No Notes shall be authenticated in lieu of
or in exchange for any Notes canceled as provided in this Section 3.09, except
as expressly permitted by this Indenture. All canceled Notes held by the Trustee
shall be disposed of by the Trustee as is customary with its standard practice.
ARTICLE FOUR
ORIGINAL ISSUANCE OF NOTES; SUBSTITUTIONS OF COLLATERAL
Section 4.01 Conditions to Original Issuance of Notes. (a) The
Trustee shall, upon receipt of an Issuer Order and upon the satisfaction of the
conditions set forth below, authenticate and deliver the Notes on the Delivery
Date. The Outstanding Notes shall be equally and ratably entitled, with all
other Notes as provided herein, to the benefits of this Indenture without
preference, priority or distinction, all in accordance with the terms and
provisions of this Indenture.
(b) The obligation of the Trustee to authenticate, execute and
deliver the Notes is subject to the satisfaction of the following conditions:
(i) the Issuer shall have executed the Notes to be
authenticated and delivered on the Closing Date and shall have
delivered such Notes to the Trustee on or prior to the Closing Date;
(ii) the Issuer shall have delivered to the Custodian on or
prior to the Closing Date the original executed counterpart of each
Contract (and the rest of the contents of the related Custodian File)
identified in the Contract Schedule on the Closing Date, and the
Trustee shall have received a receipt from the Custodian evidencing
such delivery;
(iii) the Issuer and the Servicer shall have delivered to the
Trustee on or prior to the Closing Date an Officer's Certificate dated
as of the Closing Date of each of the
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Issuer and the Servicer, stating, as applicable, that (A) such Person
is not in Default under this Indenture or the Servicing Agreement and
that the issuance of the Notes will not result in any breach of any of
the terms, conditions or provisions of, or constitute a default under,
such Person's certificate of incorporation, by-laws or other
organizational documents, as applicable, or any material indenture,
mortgage, deed of trust or other agreement or instrument to which such
Person is a party or by which it is bound, or any order of any court or
administrative agency entered in any proceeding to which such Person is
a party or by which it may be bound or to which it may be subject; and
(B) that all conditions precedent provided in this Indenture relating
to the authentication and delivery of the Notes have been complied
with;
(iv) each of the Issuer, TFI, SPC, the Custodian and the
Servicer shall have delivered to the Trustee on or prior to the Closing
Date a Board Resolution of its board of directors authorizing, as
applicable, the execution, delivery and performance of this Indenture
and the other Transaction Documents and the transactions contemplated
hereby and thereby, certified by an officer of the Issuer, TFI, SPC or
the Servicer, as applicable;
(v) each of the Issuer, TFI, SPC, the Custodian and the
Servicer shall have delivered to the Trustee on or prior to the Closing
Date a copy of an officially certified document, dated not more than 30
days prior to the Closing Date, evidencing its due organization and
good standing;
(vi) each of the Issuer, TFI, SPC, the Custodian and the
Servicer shall have delivered to the Trustee on or prior to the Closing
Date copies of its charter and by-laws certified by its Secretary or an
Assistant Secretary;
(vii) the Issuer shall have delivered, or cause to be
delivered, to the Trustee, on or prior to the Closing Date, evidence of
filing (a) with the Secretary of State of the State of the Issuer's
chief executive office, UCC-1 financing statements executed by the
Issuer, as debtor, and naming the Trustee for the benefit of the
Noteholders as secured party, and the Trust Estate as collateral; and
(b) with the Secretary of State of the States in which the chief
executive office of each of Trendwest, TW Holdings, TFI and SPC is
located, UCC-1 financing statements executed by the applicable
transferor as debtor and naming the applicable transferee as secured
party and naming as collateral the collateral transferred by each
transferor;
(viii) the Servicer shall have delivered to the Trustee on or
prior to the Closing Date a certificate listing the Servicing Officers
of the Servicer as of the Closing Date and setting forth specimen
signatures of such Servicing Officers;
(ix) the Issuer shall have delivered to the Trustee on or
prior to the Closing Date an executed copy of the Servicing Agreement,
the Receivables Purchase Agreement and the Sale Agreement and all
amendments and supplements thereto;
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(x) TFI and SPC shall have delivered to the Trustee on or
prior to the Closing Date an executed copy of the Receivables Purchase
Agreement and the Sale Agreement and all amendments and supplements
thereto; and
(xi) the Custodian shall have delivered to the Trustee on or
prior to the Closing Date an Officer's Certificate dated as of the
Closing Date stating that (A) the execution, delivery and performance
of the Custodian Agreement will not result in a breach of any of the
terms, conditions, provisions of, or constitute a default under, the
Custodian's certificate of incorporation or by-laws or any material
indenture, mortgage, deed of trust or other agreement or instrument to
which such Person is a party or by which it is bound, or any order of
any court or administrative agency entered into in any proceeding to
which the Custodian is a party or by which it may be bound or to which
it may be subject.
Section 4.02 Security for Notes. (a) Filing. The Issuer shall file
UCC-1 financing statements described in Section 4.01(b)(vii) hereof in
accordance with such Section 4.01(b)(vii). From time to time, the Servicer shall
take or cause to be taken such actions and execute such documents as are
necessary or deemed by the Trustee to be appropriate to perfect the Trustee's
interests in the Contracts and the Receivables and protect the Trustee's
interest in the related Credits against all other Persons, including, without
limitation, the filing of financing statements, amendments thereto and
continuation statements, the execution of transfer instruments and the making of
notations on or taking possession of all records or documents of title.
(b) Name Change or Relocation. If any change in the Issuer's name,
identity, structure or the location of its principal place of business or chief
executive office occurs, then the Issuer shall deliver 30 days' prior written
notice of such change or relocation to the Servicer, the Trustee, the Rating
Agency and the Noteholders and no later than the effective date of such change
or relocation, the Servicer shall file such amendments or statements as may be
required to preserve and protect the Trustee's interests in the Trust Estate.
(c) Chief Executive Office. During the term of this Indenture, the
Issuer will maintain its chief executive office and principal place of business
in one of the States of the United States.
(d) Costs and Expense. The Servicer agrees to pay all reasonable costs
and disbursements in connection with the perfection and the maintenance of
perfection, as against all third parties, of the Trustee's right, title and
interest in and to the Trust Estate.
Section 4.03 Substitution and Purchase of Receivables; Upgrade
Contracts. (a) If at any time the Issuer or the Trustee obtains knowledge
(within the meaning of 7.01(e) hereof), discovers or is notified by the Servicer
that any of the representations and warranties of Trendwest, TFI or SPC in the
Sale Agreement or Trendwest or TW Holdings in the Receivables Purchase Agreement
were incorrect at the time as of which such representations and warranties were
made, then the Person discovering such defect, omission, or
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circumstance shall promptly notify the other parties to this Indenture, the
Noteholders and Trendwest.
(b) In the event any representation or warranty of Trendwest, TFI or
SPC in the Sale Agreement or Trendwest or TW Holdings in the Receivables
Purchase Agreement is incorrect and materially and adversely affects the value
of a Contract, the related Receivable or the related Credits, or the interests
of the Holders of the Notes, or in the event of any breach of any of the
representations and warranties set forth in Sections 3.01(a)(v), 3.01(a)(vi),
3.01(a)(vii), 3.01(a)(xiii), 3.01(a)(xiv), 3.01(a)(xvi), 3.01(a)(xxii) or
3.01(a)(xxiii) of each of the Sale Agreement or the Receivables Purchase
Agreement, then the Issuer shall require TFI or Trendwest, pursuant to the Sale
Agreement or the Receivables Purchase Agreement, as applicable, to eliminate or
otherwise cure the circumstance or condition which has caused such
representation or warranty to be incorrect within 30 days of discovery or notice
thereof. If TFI or Trendwest fails or is unable to cure such circumstance or
condition in accordance with the Sale Agreement or the Receivables Purchase
Agreement, as applicable, then the Issuer shall require TFI or Trendwest to
substitute or purchase pursuant to the Sale Agreement or the Receivables
Purchase Agreement, as applicable, any Receivable related to any Contract as to
which such representation or warranty is incorrect within the time specified in
Section 3.03 of the Sale Agreement or the Receivables Purchase Agreement. The
Servicer shall remit the proceeds of a purchase to the Subservicer for deposit
into the Clearing Account upon receipt of such amounts by the Servicer pursuant
to Section 3.03 of the Sale Agreement or Section 3.03 of the Receivables
Purchase Agreement, as applicable.
(c) If the Issuer fails to enforce the purchase or substitution
obligation of TFI or Trendwest under the Sale Agreement or the Receivables
Purchase Agreement, the Trustee is hereby appointed attorney-in-fact to act on
behalf of and in the name of the Issuer to require such purchase or
substitution.
(d) With respect to any Defaulted Contract or Delinquent Contract, the
Issuer shall be entitled to purchase the Receivable related to such Contract or
to deliver a Substitute Receivable meeting the same requirements as those
specified in Section 3.04 of each of the Sale Agreement or the Receivables
Purchase Agreement for substitutions and purchases by TFI or Trendwest upon
breaches of a representation or warranty by TFI, SPC, Trendwest or TW Holdings
thereunder; provided, however, that the cumulative Collateral Value of Defaulted
Contracts and Delinquent Contracts which are purchased or substituted by the
Issuer (measured as of the date of substitution) shall not exceed the Purchase
and Substitution Limit; provided, further, that the aggregate Collateral Value
of all Substitute Contracts in any calendar year cannot exceed the Substitution
Limit.
(e) The Issuer shall provide to the Trustee, or with respect to item
(ii) below the Custodian, on the date of delivery of any Substitute Contract the
items listed in (i) and (ii) below.
(i) a supplement to the Sale Agreement substantially in the
form of Annex A to the Sale Agreement and Exhibit B hereto, subjecting
such Substitute Contract to the
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provisions thereof and hereof and providing with respect to such
Substitute Contract the information set forth in the Contract Schedule;
and
(ii) the original executed counterpart of the Contract and the
Custodian File relating to such Substitute Contract.
(f) If a Contract becomes a Defaulted Contract, the Issuer may
purchase such Contract by paying to the Trustee out of the amount paid to the
Issuer pursuant to clause (xiv) of Section 12.02(d) the Purchase Price for such
Defaulted Contract; provided, however, the Issuer cannot purchase a Defaulted
Contract if the Collateral Value of all such Defaulted Contracts so purchased
would exceed the amount paid to the Issuer pursuant to clause (xiv) of Section
12.02(d); further provided, that the purchases pursuant to this Section 4.03(f)
shall be deemed to be purchases subject to the Purchase and Substitution Limit
as if repurchased pursuant to Section 4.03(b).
(g) If an Obligor desires to enter into an Upgrade Contract and the
Issuer purchases such Contract from TFI in exchange for the existing Contract
pursuant to Section 3.04(e) of the Sale Agreement, then the Servicer shall cause
Trendwest to deliver such Upgrade Contract to the Issuer immediately upon
execution by Trendwest, WorldMark and the Obligor, and the Issuer shall pledge
such Upgrade Contract to the Trustee immediately upon such execution by
delivering (i) to the Trustee a supplemental grant in the form of Annex A to the
Sale Agreement and Exhibit B hereto, subjecting such Upgrade Contract to the
provisions thereof and hereof and providing with respect to such Upgrade
Contract the information set forth in the Contract Schedule and (ii) to the
Custodian the original executed counterpart of the Upgrade Contract and the rest
of the contents of the related Custodian File.
Section 4.04 Releases. (a) The Issuer shall be entitled to obtain a
release from the lien of this Indenture for any Contract, the related Receivable
and the related Credits at any time (i) after a payment by TFI or Trendwest of
the Purchase Price of the Receivable, (ii) after a Substitute Contract is
substituted for such Contract, or (iii) upon the purchase of a Contract in
accordance with Section 3.10(b) of the Servicing Agreement, if the Issuer
delivers to the Trustee an Officer's Certificate (A) identifying the Receivable
and the related Contract and the related Credits to be released, (B) requesting
the release thereof, (C) setting forth the amount deposited in the Clearing
Account with respect thereto, in the event a Contract, the related Receivable
and the related Credits are being released from the lien of this Indenture
pursuant to (i) or (iii) above, and (D) certifying that the amount deposited in
the Clearing Account equals (x) the Purchase Price of the Receivable related to
such Contract, in the event a Contract, the related Receivable and the related
Credits are being released from the lien of this Indenture pursuant to (i) above
or (y) the entire amount set forth in Section 3.10(b) of the Servicing Agreement
with respect to such Contract, the related Receivable and related Credits in the
event of a release from the lien of this Indenture pursuant to (iii) above;
provided, however, that upon the termination of a Contract, any residual
proceeds from the related Credits shall be placed in the Clearing Account prior
to the Trustee or the Issuer releasing the related Credits from the security
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interest granted to the Trustee by the Issuer pursuant to this Indenture or to
the Issuer by either TFI or SPC pursuant to the Sale Agreement.
(b) Upon satisfaction of the conditions specified in subsection (a)
above or upon the satisfaction of the conditions in Section 4.03(e) or the
remittance of the Purchase Price by the Issuer pursuant to Section 4.03(d) or
Section 4.03(f) hereof and Section 3.04 of the Sale Agreement with respect to a
Contract, the Trustee shall release from the lien of this Indenture the
Contract, the related Receivable and the related Credits described in the
Issuer's request for release and shall deliver, or instruct the Custodian to
deliver, to or upon the order of the Issuer such Contract and the related
Custodian File.
Section 4.05 Trust Estate. When required by the provisions of Articles
Four, Six and Twelve hereof, the Trustee 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 Four 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 4.06 Notice of Release. The Trustee shall be entitled to
receive at least 10 days' notice of any action to be taken pursuant to Section
4.04(a) hereof, accompanied by copies of any instruments involved.
Section 4.07 Opinions as to Trust Estate. (a) On the Closing Date, the
Issuer shall furnish to the Trustee an Opinion of Counsel either stating that,
in the opinion of such counsel, such action has been taken with respect to the
recording and filing of this Indenture, any indentures supplemental hereto, and
any other requisite documents, and with respect to the execution and filing of
any UCC financing statements and continuation statements, as are necessary to
(x) perfect the transfers from and grants of security interests by, (i)
Trendwest and TW Holdings to TFI and (ii) TFI and SPC to the Issuer, and (y)
perfect and make effective the first priority lien and security interest in
favor of the Trustee, for the benefit of the Noteholders, created by this
Indenture and reciting the details of such action, or stating that, in the
opinion of such counsel, no such action is necessary to make such lien and
security interest effective.
(b) On or before each anniversary of the Closing Date, the Issuer
shall furnish to the Trustee (with a copy to each of the Noteholders) an Opinion
of Counsel with respect to each jurisdiction in which a UCC financing statement
has been filed against each of TFI, SPC, Trendwest, TW Holdings and the Issuer
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, filing, rerecording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any UCC financing statements and
continuation statements as is necessary to maintain the first priority lien and
security interest created by this Indenture, and the security interest, if
applicable, created by the Sale Agreement or the Receivables Purchase Agreement
and reciting the details of such action or stating that in the opinion of such
counsel no such action is necessary to maintain such lien
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and security interest. Such Opinion of Counsel shall also describe the
recording, filing, re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and the execution and
filing of any UCC financing statements and continuation statements that will, in
the opinion of such counsel, be required to maintain the lien and security
interest of this Indenture and the security interest, if applicable, created by
the Sale Agreement or the Receivables Purchase Agreement until the next date a
continuation statement must be filed to maintain the Trustee's interest in the
Collateral.
ARTICLE FIVE
SATISFACTION AND DISCHARGE
Section 5.01 Satisfaction and Discharge of Indenture. (a) Following
payment in full of (i) the Notes, (ii) the fees and charges of the Trustee and
(iii) all other obligations of the Issuer under this Indenture, and the release
by the Trustee of the Trust Estate in accordance with Section 5.01(b) hereof,
this Indenture shall be discharged.
(b) In connection with the discharge of this Indenture and the release
of the Trust Estate, the Trustee shall release from the lien of this Indenture
and shall deliver, or instruct the Custodian to deliver, to or upon the order of
the Issuer all property remaining in the Trust Estate and shall execute and
file, at the expense of the Issuer, UCC financing statements evidencing such
discharge and release.
ARTICLE SIX
DEFAULTS AND REMEDIES
Section 6.01 Events of Default. "Event of Default" wherever used herein
means any one of the following events:
(1) default in the payment of any interest upon any Note
within one Business Day after the same becomes due and payable; or
(2) default in the payment of any principal of any Note within
one Business Day after the same becomes due and payable; or
(3) default in the observance or performance of any covenant
or agreement of the Issuer made in this Indenture, the Note Purchase
Agreements, the Sale Agreement, the Custodian Agreement or the
Servicing Agreement (other than a covenant or warranty default, the
observance or performance of which is elsewhere in this Section 6.01
specifically dealt with), or any representation or warranty of the
Issuer made in this Indenture, the Note Purchase Agreements, the Sale
Agreement, the Custodian Agreement, the Servicing Agreement or in any
certificate or other writing delivered pursuant hereto or thereto or in
connection herewith or therewith proving to have been incorrect in any
material respect as of the time when the same shall have
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been made and such default shall continue or not be cured, or the
circumstance or condition in respect of which such representation or
warranty was incorrect shall not have been eliminated or otherwise
cured, for a period of 30 days (except for defaults relating to
Sections 4.03 and 11.02(a), (b), (i), (j), (l), (q) and (s) hereof,
which shall have no grace period) from the earlier of the Issuer
obtaining actual knowledge of, or receiving from the Trustee or any
Holder notice of, such default or incorrect representation or warranty;
or
(4) the Issuer becomes subject to registration as an
"investment company" under the Investment Company Act of 1940, as
amended; or
(5) the filing of a petition or the entry of a decree or order
for relief by a court having jurisdiction in the premises in respect of
the Issuer under the Federal Bankruptcy Code or any other applicable
federal or State bankruptcy, insolvency, reorganization, liquidation or
other similar law now or hereafter in effect or any arrangement with
creditors or appointing a receiver, liquidator, assignee, trustee, or
sequestrator (or other similar official) for the Issuer or for any
substantial part of its property in an involuntary case, or ordering
the winding up or liquidation of the Issuer's affairs, and the
continuance of any such petition undismissed or of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
(6) the institution by the Issuer of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by the Issuer to
the institution of bankruptcy or insolvency proceedings against the
Issuer, or the filing by the Issuer of a petition or answer or consent
seeking reorganization or relief under the Federal Bankruptcy Code or
any other applicable federal or State bankruptcy, insolvency,
reorganization, liquidation or other similar law now or hereafter in
effect, or the consent by the Issuer to the filing of any such petition
or to the appointment of or possession by a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or other similar
official) of the Issuer or of any substantial part of the Issuer's
property, or the making by the Issuer of any assignment for the benefit
of creditors, or the admission by either in writing of its inability,
or the failure by it generally, to pay its debts as they become due, or
the taking of corporate action by the Issuer in furtherance of any such
action; or
(7) (i) the impairment of the validity of any security
interest of the Trustee in the Trust Estate, except as expressly
permitted, or (ii) creation of any encumbrance not otherwise permitted
which is not stayed or released within 10 days of the Issuer having
knowledge of its creation; or
(8) a default in the observance or performance by Trendwest,
with respect to Contracts transferred by SPC, or both TFI and
Trendwest, with respect to Contracts transferred by TFI, of their
repurchase obligations pursuant to Section 3.03 of the Sale Agreement
or by Trendwest of its repurchase obligations under Section 3.03 of the
Receivable Purchase Agreement.
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Section 6.02 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default with respect to the Notes at the time Outstanding occurs and is
continuing, then Holders of not less than 66-2/3 % in aggregate principal amount
of the Outstanding Notes may declare, by notice in writing to the Trustee and
the Issuer, or may direct the Trustee to declare, by notice in writing to the
Issuer, the principal of all the Notes to be immediately due and payable, and
upon any such declaration, such principal shall become immediately due and
payable without any presentment, demand, protest or other notice of any kind
(except such notices as shall be expressly required by the provisions of this
Indenture), all of which are hereby expressly waived; provided, however, that if
an Event of Default under paragraph (5) or (6) of Section 6.01 hereof occurs
with respect to the Issuer, the Notes shall automatically become due and payable
without any declaration notice to the Issuer or the Trustee. The Trustee shall
send a copy of any such notice to the Rating Agency.
At any time after such a declaration of acceleration has been made, or
after such acceleration has automatically become effective, 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 not less than 66-2/3% in aggregate principal amount of
the Outstanding Notes, by written notice to the Issuer and the Trustee, may
rescind and annul such declaration or automatic acceleration and its
consequences (except that in the case of a payment default on the Notes, the
consent of all the Noteholders shall be required to rescind and annul such
declaration or automatic acceleration and its consequences) if:
(1) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all Notes,
(B) the principal of any Notes which has become due
otherwise than by such declaration of acceleration or
automatic acceleration and interest thereon at the rate borne
by such Notes from the time such principal first became due
until the date when paid, and
(C) all sums paid or advanced, together with interest
thereon, by the Trustee or any Noteholder hereunder and the
reasonable compensation, expenses, disbursements and advances
of the Trustee and the Noteholders, their agents and counsel
incurred in connection with the enforcement of this Indenture
to the date of such payment or deposit; and
(2) all Events of Default, other than the nonpayment of the
principal of the Notes which have become due solely by such declaration
of acceleration or by automatic acceleration, have been cured or waived
as provided in Section 6.15 hereof.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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Section 6.03 Collection of Indebtedness and Suits for Enforcement by
Trustee. The Issuer covenants that if an Event of Default shall occur and be
continuing and the Notes have been declared, or automatically become, due and
payable and such declaration or automatic acceleration has not been rescinded
and annulled, the Issuer will, upon demand of the Trustee, pay to the Trustee,
for the benefit of the Holders of the Notes, the whole amount then due and
payable on the Notes for principal and interest, with interest upon the overdue
principal and overdue interest at the Note Interest Rate and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Issuer fails to pay such amount forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust may, institute
Proceedings for the collection of the sums so due and unpaid, and prosecute such
Proceeding to judgment or final decree, and enforce the same against the Issuer
and collect the monies adjudged or decreed to be payable in the manner provided
by law out of the property of the Issuer, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate Proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 6.04 Remedies. If an Event of Default shall have occurred and
be continuing, the Trustee may do one or more of the following:
(a) institute Proceedings for the collection of all amounts
then due and payable on the Notes or under this Indenture, whether by
declaration, automatic acceleration or otherwise, enforce any judgment
obtained, and collect from the Issuer the monies adjudged due;
(b) take possession of and sell the Trust Estate securing the
Notes 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 any Proceedings from time to time for the
complete or partial foreclosure of the lien created by this Indenture
with respect to the Trust Estate securing the Notes;
(d) during the continuance of a default under a Contract,
exercise any of the rights of the lender under such Contract; and
(e) exercise any remedies of a secured party under the UCC or
any 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;
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provided, however, that without the consent of the Holders of not less than
66-2/3% in principal amount of Notes Outstanding, the Trustee may not sell or
otherwise liquidate any portion of the Trust Estate unless the proceeds of such
Sale or liquidation distributable to the Noteholders are sufficient to discharge
in full the amounts then due and unpaid upon the Notes for principal and
interest.
Section 6.05 Optional Preservation of Trust Estate. If (i) an Event of
Default shall have occurred and be continuing with respect to the Notes and (ii)
no Notes have been declared, or have automatically become, due and payable, or
such declaration or automatic acceleration and its consequences have been
annulled and rescinded, the Trustee, upon request from the Holders of a majority
in principal amount of the Outstanding Notes, may elect, by giving written
notice of such election to the Issuer, to take possession of and retain the
Trust Estate securing the Notes intact, collect or cause the collection of the
proceeds thereof and make and apply all payments and deposits and maintain all
accounts in respect of such Notes in accordance with the provisions of Article
Twelve of this Indenture. If the Trustee is unable to or is stayed from giving
such notice to the Issuer for any reason whatsoever, such election shall be
effective as of the time of such determination or request, as the case may be,
notwithstanding any failure to give such notice, and the Trustee shall give such
notice upon the removal or cure of such inability or stay (but shall have no
obligation to effect such removal or cure). Any such election may be rescinded
with respect to any portion of the Trust Estate securing the Notes remaining at
the time of such rescission by written notice to the Trustee and the Issuer from
the Holders of a majority in principal amount of the Outstanding Notes.
Section 6.06 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 Issuer or any other obligor upon any of the Notes or the property of the
Issuer or of such other obligor or their creditors, the Trustee (irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration, automatic acceleration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Issuer 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 the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of
the Notes issued hereunder and to file such other papers or documents
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
any other amounts due the Trustee under Section 7.07 hereof) and of the
Noteholders allowed in such judicial Proceeding, and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same;
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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 7.07 hereof.
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
of 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 6.07 Trustee May Enforce Claims Without Possession of Notes.
(a) In all Proceedings brought by the Trustee (and also any Proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all of the
Noteholders, and it shall not be necessary to make any Noteholder a party to any
such Proceedings.
(b) 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 whether by judgment,
settlement or otherwise shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the benefit of the Holders of the Notes and shall be
distributed as set forth in Section 6.08 hereof.
Section 6.08 Application of Money Collected. If the Notes have been
declared, have automatically become, or otherwise become due and payable
following an Event of Default and such declaration or automatic acceleration has
not been rescinded or annulled, any money collected by the Trustee with respect
to the Notes pursuant to this Article Six or otherwise and any other money that
may be held thereafter by the Trustee as security for the Notes, including
without limitation the amounts in the Reserve Account, shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal or interest, without
presentation of any Notes:
FIRST: To the payment to the Trustee of the Trustee Fee and
its expenses then due and to the Trustee its costs incurred in
connection with enforcing the remedies provided for in this Article
Six;
SECOND: To the payment of, if Trendwest or an Affiliate
thereof is not the Servicer, all amounts due the Servicer pursuant to
Section 3.09 of the Servicing Agreement and Section 12.02(d)(ii)
hereof;
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THIRD: To the payment of the amounts then due and unpaid upon
the Notes for interest, with 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 respective
rate or rates prescribed therefor in the Notes) on overdue principal
and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for interest;
FOURTH: To the payment of the remaining outstanding principal
balance of the Notes ratably without preference or priority of any
kind;
FIFTH: To the payment to the Trustee any other amounts due to
the Trustee as expressly provided herein and in the Servicing
Agreement;
SIXTH: To reimburse the Noteholders for any costs or expenses
incurred in connection with any enforcement action with respect to this
Indenture or the Notes or any other Transaction Document;
SEVENTH: To the payment of amounts due and unpaid to the
Investor for principal and interest;
EIGHTH: To the payment of, if Trendwest or an Affiliate
thereof is the Servicer, all amounts due the Servicer pursuant to
Section 3.09 of the Servicing Agreement and Section 12.02(d)(ii)
hereof;
NINTH: To the payment of any surplus to or at the written
direction of the Issuer or any other person legally entitled thereto.
Section 6.09 Limitation on Suits. No Holder of any Note 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 not less than 66-2/3% in principal amount
of the Outstanding 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
reasonable indemnity 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 security or indemnity has failed to institute any
such Proceedings; and
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(5) no direction inconsistent with such written request has
been given to the Trustee during such 30-day period by the Holders of
not less than 66-2/3% or more in principal amount of the Outstanding
Notes; it being understood and intended that no one or more Holders of
Notes 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 of Notes, or to obtain or to
seek to obtain priority or preference over any other Holders of Notes
or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all the
Holders of Notes.
Section 6.10 Unconditional Right of Noteholders to Receive Principal
and Interest. Notwithstanding any other provision in this Indenture, the
Noteholders shall have the right, which is absolute and unconditional, to
receive payment of the principal, interest, and premium, if any, on such Note as
such principal, interest, and premium, if any, becomes due and payable and to
institute any Proceeding for the enforcement of any such payment, and such right
shall not be impaired without the consent of such Noteholder.
Section 6.11 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 case, the Issuer, 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 had been instituted.
Section 6.12 Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Notes in the last paragraph of Section 3.06 hereof, 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 6.13 Delay or Omission; Not Waiver. No delay or omission of the
Trustee or of any Holder of any Note 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 any acquiescence therein. Every right and
remedy given by this Article Six or by law to the Trustee or to the Noteholders
may be exercised from time to time, and as often as may be deemed expedient, by
the Trustee or by the Noteholders, as the case may be.
Section 6.14 Control by Noteholders. The Holders of not less than
66-2/3% in principal amount of the Outstanding Notes, shall have the right to
direct the time, method
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and place of conducting any Proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee; provided that:
(1) such direction shall not be in conflict with any rule of
law or with this Indenture including, without limitation, any provision
hereof which expressly provides for greater percentage of principal of
Outstanding Notes;
(2) any direction to the Trustee by the Noteholders to
undertake a private Sale of the Trust Estate shall be by the Holders of
not less than 66-2/3% in principal amount of Outstanding Notes, unless
the condition set forth in Section 6.18(b)(ii) hereof is met;
(3) 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 7.01 hereof, the Trustee need not
take any action which a Responsible Officer or Officers of the Trustee
in good faith determines might involve it in personal liability or be
unjustly prejudicial to the Noteholders not consenting; and
(4) the Trustee has been furnished reasonable indemnity
against costs, expenses and liabilities which it might incur in
connection therewith as provided in Section 7.01(f) hereof; provided,
that the unsecured agreement to indemnify the Trustee by any Holder
(or, in the case of any Note held in nominee name, the principal of
such nominee) that is an Institutional Investor that has a minimum net
worth of at least $50,000,000 shall be deemed to be satisfactory.
Section 6.15 Waiver of Past Defaults. The Holders of not less than
66-2/3% in principal amount of the Outstanding Notes may on behalf of the
Holders of all the Notes waive any past Default hereunder and its consequences,
except a Default:
(1) in the payment of the principal of, or premium, if any, or
interest on any Note, or a Default described in Sections 6.01(5) and
(6) hereof, or
(2) in respect of a covenant or provision hereof which under
Article Nine hereof cannot be modified or amended without the consent
of the Holder of each Outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 6.16 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 for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
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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 notwithstanding such assessment, the provisions of this
Section 6.16 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 50% in principal amount of the Outstanding Notes, or to any
suit instituted by any Noteholder for the enforcement of the payment of the
principal of or interest on any Note on or after the Stated Maturity provided
that such suit is not deemed to be frivolous under the applicable rules of civil
procedure by such court.
Section 6.17 Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not, at any time, insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 6.18 Sale of Trust Estate. (a) The power to effect any sale (a
"Sale") of any portion of the Trust Estate pursuant to Section 6.04 hereof 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 on the Notes and
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.
(b) To the extent permitted by applicable law, the Trustee shall not,
in any private Sale, sell to a third party the Trust Estate, or any portion
thereof unless:
(i) the Holders of not less than 66-2/3% in principal amount
of Notes Outstanding, consent to or direct the Trustee to make such
Sale; or
(ii) the proceeds of such Sale would not be less than the sum
of all amounts due to the Trustee hereunder and the entire unpaid
principal amount of the Notes and interest due or to become due thereon
on the Payment Date next succeeding such Sale.
(c) The Trustee or the Noteholders may bid for and acquire any portion
of the Trust Estate in connection with a public Sale thereof, and in lieu of
paying cash therefor, any Noteholder may make settlement for the purchase price
by crediting against amounts owing on the Notes of such Holder or other amounts
owing to such Holder secured by this Indenture, that portion of the net proceeds
of such Sale to which such Holder would be entitled, after deducting the
reasonable costs, charges and expenses incurred by the Trustee or the
Noteholders in connection with such Sale. The Notes need not be produced in
order to complete any such Sale, or in order for the net proceeds of such Sale
to be credited
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against the Notes. The Trustee or the Noteholders may hold, lease, operate,
manage or otherwise deal with any property so acquired in any manner permitted
by law.
(d) The Trustee shall execute and deliver an appropriate instrument
of conveyance 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 Issuer 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.
(e) The method, manner, time, place and terms of any Sale of all or
any portion of the Trust Estate shall be commercially reasonable.
Section 6.19 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 Issuer 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
Issuer.
ARTICLE SEVEN
THE TRUSTEE
Section 7.01 Certain Duties and Responsibilities. (a) Except during the
continuance of an Event of Default known to the Trustee as provided in
subsection (e) below:
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith or negligence 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
and to determine whether or not they conform to the requirements of
this Indenture.
(b) In case an Event of Default known to the Trustee as provided in
subsection (e) below has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Indenture, and shall use the
same degree of care and skill in its
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exercise, as a reasonable person would exercise or use under the circumstances
in the conduct of his or her 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 or bad faith, except that:
(i) this subsection (c) shall not be construed to limit the
effect of subsection (a) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iii) 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 the Holders of a majority (or other such percentage
as may be required by the terms hereof) in principal amount of the
Outstanding Notes in accordance with Section 6.14 hereof 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, the Sale Agreement or the
Servicing Agreement; and
(iv) 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.
(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 7.01.
(e) For all purposes under this Indenture, the Trustee shall not be
deemed to have notice or knowledge of any Event of Default described in Section
6.01(4), 6.01(5) or 6.01(6) hereof, any Default described in Section 6.01(3)
hereof or Section 4.03(a) hereof unless a Responsible Officer has actual
knowledge thereof or unless written notice of any event which is in fact such an
Event of Default or Default is received by the Trustee at the Corporate Trust
Office, and such notice references the Notes generally, the Issuer, the Trust
Estate or this Indenture.
(f) The Trustee shall be under no obligation to institute any suit, or
to take any remedial proceeding under this Indenture, or to enter any appearance
or in any way defend in any suit in which it may be made defendant, or to take
any steps in the execution of the trusts hereby created or in the enforcement of
any rights and powers hereunder until it shall be indemnified to its reasonable
satisfaction against any and all costs and expenses, outlays and counsel fees
and other reasonable disbursements and against all liability, except liability
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resulting from the Trustee's negligence or willful misconduct as adjudicated, in
connection with any action so taken; provided, that the unsecured agreement to
indemnify the Trustee by any Holder (or, in the case of any Note held in nominee
name, the principal of such nominee) that is an Institutional Investor that has
a minimum net worth of at least $50,000,000 shall be deemed to be satisfactory.
(g) Notwithstanding any extinguishment of all right, title and interest
of the Issuer in and to the Trust Estate following an Event of Default and a
consequent declaration of acceleration or automatic acceleration of the maturity
of the Notes, whether such extinguishment occurs through a Sale of the Trust
Estate to another person, the acquisition of the Trust Estate by the Trustee
with respect to the Trust Estate (or the proceeds thereof) and the Noteholders
and the rights of the Noteholders shall continue to be governed by the terms of
this Indenture.
(h) Notwithstanding anything to the contrary contained herein, the
provisions of subsections (e) through (g), inclusive, of this Section 7.01 shall
be subject to the provisions of subsections (a) through (c), inclusive, of this
Section 7.01.
(i) The Trustee shall provide the reports and accountings as required
pursuant to Section 12.04 hereof.
(j) The duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture. The Trustee shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Indenture, no implied covenant shall be read into
this Indenture and, in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely on the truth of the statements and corrections of
the opinions furnished to the Trustee.
Section 7.02 Notice of Default. Promptly after the occurrence of any
Default known to the Trustee (within the meaning of Section 7.01(e) hereof)
which is continuing, the Trustee shall transmit by mail to all Holders of Notes,
as their names and addresses appear on the Note Register, notice of such Default
hereunder known to the Trustee.
Section 7.03 Certain Rights of Trustee. Except as otherwise provided in
Section 7.01,
(a) the Trustee may 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 Issuer mentioned herein
shall be sufficiently evidenced by an Issuer Request or Issuer Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
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(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, rely upon an Officer's
Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel selected by the Trustee with due care 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 reasonable
security or indemnity against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction;
provided, that the unsecured agreement to indemnify the Trustee by any
Holder (or, in the case of any Note held in nominee name, the principal
of such nominee) that is an Institutional Investor that has a minimum
net worth of at least $50,000,000 shall be deemed to be satisfactory.
(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 Issuer, upon
reasonable notice and at reasonable times personally or by agent or
attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney,
appointed with due care by it hereunder.
Section 7.04 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 Issuer, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or condition of the Trust Estate or any
part thereof, or as to the title of the Issuer 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 Issuer of Notes or the
proceeds thereof or of any money paid to the Issuer or upon Issuer Order under
any provisions hereof.
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(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 of the Credits
or Contracts, 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
Contract (it being understood that the Trustee has not reviewed and does not
intend to review the substance or form of any such Contract), the performance or
enforcement of any Contract, the compliance by the Issuer, Trendwest, SPC, TFI
or the Servicer with any covenant or the breach by the Issuer, Trendwest, SPC,
TFI 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 the Reserve Account or any
loss resulting therefrom, the acts or omissions of the Issuer, Trendwest, SPC,
TFI, the Servicer or any Obligor, any action of the Servicer taken in the name
of the Trustee, or the validity of the Servicing Agreement, the Sale Agreement
or the Receivables Purchase Agreement.
(c) The Trustee shall not have any obligation or liability under any
Contract by reason of or arising out of this Indenture or the granting of a
security interest in such Contract hereunder or the receipt by the Trustee of
any payment relating to any Contract pursuant hereto, nor shall the Trustee be
required or obligated in any manner to perform or fulfill any of the obligations
of the Seller under or pursuant to any Contract, 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 Contract.
Section 7.05 May Hold Notes. The Trustee, the Servicer, any Paying
Agent, the Note Registrar, any Authenticating Agent or any other agent of the
Issuer, in its individual or any other capacity, may become the owner or pledgee
of Notes, and if operative, may otherwise deal with the Issuer with the same
rights it would have if it were not Trustee, Servicer, Paying Agent, Note
Registrar, Authenticating Agent or such other agent.
Section 7.06 Money Held in Trust. Money and investments held in trust
by the Trustee or any Paying Agent hereunder shall be held in one or more trust
accounts hereunder but need not be segregated from other funds except to the
extent required herein or required by law. The Trustee or any Paying Agent shall
be under no liability for interest on any money received by it hereunder except
as otherwise agreed with the Issuer or otherwise specifically provided herein.
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Section 7.07 Compensation and Reimbursement. The Issuer agrees:
(i) to pay the Trustee monthly its fee for all services
rendered by it hereunder as Trustee, in the amount of the Trustee Fee
(which compensation shall not otherwise be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(ii) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable out-of-pocket
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture or the Servicing
Agreement (including the reasonable compensation and the expenses and
disbursements of the Trustee's agents and counsel), except any such
expense, disbursement or advance as may be attributable to its
negligence, bad faith or willful misconduct; and
(iii) to indemnify and hold harmless the Trust Estate and the
Trustee from and against any loss, liability, expense, damage or injury
sustained or suffered pursuant to this Indenture by reason of any acts,
omissions or alleged acts or omissions arising out of activities of the
Trust Estate or the Trustee (including without limitation any violation
of any applicable laws by the Issuer as a result of the transactions
contemplated by this Indenture), including, but not limited to, any
judgment, award, settlement, reasonable attorneys' fees and other
expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim; provided that the Issuer shall
not indemnify the Trustee if such loss, liability, expense, damage or
injury is due to the Trustee's negligence or willful misconduct,
willful misfeasance or bad faith in the performance of duties. Any
indemnification pursuant to this Section 7.07 shall only be payable
from the assets of the Issuer and shall not be payable from the assets
of the Trust Estate. The provisions of this indemnity shall run
directly to and be enforceable by an injured person subject to the
limitations hereof and this indemnification agreement shall survive the
termination of this Indenture.
Upon the occurrence of an Event of Default resulting in an acceleration
of maturity of the Notes that has not been rescinded and annulled, the Trustee
shall have, as security for the performance of the Issuer under this Section
7.07, a lien ranking senior to the lien of the Notes with respect to which any
claim of the Trustee under this Section 7.07 arose upon all property and funds
held or collected as part of the Trust Estate by the Trustee in its capacity as
such. The Trustee shall not institute any Proceeding seeking the enforcement of
such lien against any Trust Estate unless (i) such Proceeding is in connection
with a proceeding in accordance with Article Six hereof for enforcement of the
lien of this Indenture for the benefit of the Holders of the Notes secured by
such Trust Estate after the occurrence of an Event of Default (other than an
Event of Default due solely to a breach of this Section 7.07) and a resulting
declaration of acceleration or automatic acceleration of maturity of such Notes
that has not been rescinded and annulled, or (ii) such Proceeding does not
result in or cause a Sale or other disposition of such Trust Estate. All monies
so collected by the Trustee shall be applied in accordance with Section 6.08
hereof, and the Trustee shall receive
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amounts pursuant to Section 6.08 hereof only to the extent that payment thereof
will not result in a subsequent Event of Default caused by such payments to the
Trustee.
Section 7.08 Corporate Trustee Required; Eligibility. There shall at
all times be a trustee hereunder which shall be a corporation or association
organized and doing business under the laws of the United States of America or
of any State, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $100,000,000, or be a member
of a consolidated bank holding company with a combined capital and surplus of at
least $100,000,000, subject to supervision or examination by Federal or state
authority and having an office within the United States of America, and, except
with respect to the initial Trustee hereunder, which shall have a commercial
paper or other short-term rating of the highest short term rating categories by
Fitch (or, if not rated by Fitch, by S&P or Moody's) or otherwise acceptable to
the Holders of not less than 66-2/3% in principal amount of the Outstanding
Notes. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 7.08, 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 7.08, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article Seven.
Section 7.09 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 Seven shall become effective until the
acceptance of appointment by the successor Trustee under Section 7.10 hereof.
(b) The Trustee may resign at any time by giving 60 days' written
notice thereof to the Issuer and to each Noteholder. If an instrument of
acceptance by a successor Trustee shall not have been delivered to the Trustee
within 60 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. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor Trustee.
(c) The Trustee may be removed with or without cause by the Act of
the Holders of not less than 66-2/3% in principal amount of the Outstanding
Notes by notice to the Trustee at any time.
(d) 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
with respect to the Notes, the Holders of not less than 66-2/3% in principal
amount of the Notes Outstanding or the Issuer, with the written consent of
Holders of not less than 66-2/3% in principal amount of Notes Outstanding, may
appoint a successor Trustee.
(e) The Issuer shall give notice to the Servicer, the Custodian and
the Noteholders in the manner provided in Section 13.03 hereof of each
resignation and each removal of the
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Trustee and each appointment of a successor Trustee with respect to the Notes.
Each notice shall include the name of the successor Trustee and the address of
its Corporate Trust Office.
Section 7.10 Acceptance of Appointment by Successor. Every successor
Trustee appointed hereunder shall execute, acknowledge and deliver to the
Issuer, each Noteholder 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 Issuer or the successor
Trustee, such retiring Trustee shall, upon payment of its reasonable
out-of-pocket costs and expenses, execute and deliver an instrument transferring
to such successor Trustee all the rights, powers and trusts 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 7.07 hereof. Upon
request of any such successor Trustee, the Issuer 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 eligible under this Article
Seven.
Section 7.11 Merger, Conversion, Consolidation or Succession to
Business of Trustee. Any Person into which the Trustee may be merged or
converted or with which it may be consolidated, or any Person 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 Person shall be otherwise qualified and eligible under this
Article Seven, without the execution or filing of any paper or any further act
on the part of any of the parties hereto. In case any Notes have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes.
Section 7.12 Co-Trustees and Separate Trustees. At any time or times,
for the purpose of meeting the legal requirements of any jurisdiction in which
any of the Trust Estate may at the time be located, the Issuer, 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 principal amount
of the Outstanding Notes, the Issuer 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 7.12. If the Issuer 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
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of Default has occurred and is continuing, the Trustee alone shall have power to
make such appointment.
Should any written instrument from the Issuer be reasonably 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 Issuer.
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:
(i) the Notes shall be authenticated and delivered by, 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;
(ii) 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;
(iii) the Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Issuer evidenced by a Board
Resolution, may accept the resignation of or remove any co-Trustee or
separate Trustee, appointed under this Section 7.12, 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 Issuer. Upon the
written request of the Trustee, the Issuer 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 7.12;
(iv) 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
selected by the Trustee with due care or appointed in accordance with
directions to the Trustee pursuant to Section 6.14 hereof; and
(v) 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. The Trustee's rights
and obligations with respect to the Servicer shall be governed by the Servicing
Agreement.
Section 7.14 Appointment of Authenticating Agent. The Trustee may
appoint an Authenticating Agent or Agents with respect to the Notes which shall
be authorized to act on behalf of the Trustee to authenticate Notes issued upon
original issue or upon exchange, registration of transfer or pursuant to Section
3.06 hereof, and Notes so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Notes by the Trustee or the
Trustee's certificate of authentication or the delivery of Notes to the Trustee
for authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent
and delivery of the Notes to the Authenticating Agent on behalf of the Trustee.
Each Authenticating Agent shall be acceptable to the Issuer and a majority in
principal amount Outstanding of the Noteholders and shall at all times be a
corporation having a combined capital and surplus of not less than the
equivalent of $50,000,000 and subject to supervision or examination by Federal
or state authority or the equivalent foreign authority, in the case of an
Authenticating Agent who is not organized and doing business under the laws of
the United States of America, any state thereof or the District of Columbia. If
such Authenticating Agent publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section 7.14, the combined capital and
surplus of such Authenticating Agent 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 an Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section 7.14, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 7.14.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of such Authenticating Agent, shall continue to be an
Authenticating Agent without the execution or filing of any paper or any further
act on the part of the Trustee or such Authenticating Agent; provided, such
corporation shall be otherwise eligible under this Section 7.14.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Issuer. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Issuer. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 7.14, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Issuer and shall mail
written notice of such appointment by first-class mail, postage prepaid, to all
Holders of Notes, if any, with respect to which such Authenticating Agent will
serve, as their names and addresses appear in the Note Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall
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become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section 7.14.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section 7.14, but the
Trustee shall not be entitled to be reimbursed for such payments.
If an appointment is made pursuant to this Section 7.14, the Notes may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the Notes described in the within-mentioned Indenture.
LASALLE NATIONAL BANK, as Trustee
By _______________________________
As Authenticating Agent
By _______________________________
Authorized Officer
Section 7.15 Custodian to Hold Contracts. The Custodian, as agent
(solely for the purpose of perfecting the security interest of the Trustee in
the Contracts and the related Custodian Files) and bailee of the Trustee, shall
hold each Contract, together with any documents relating thereto that may from
time to time be delivered to the Custodian, until such time as such Contract is
released from the lien of this Indenture pursuant to the terms hereof. Within 10
days of the Closing Date, the Custodian will review each Custodian File to
determine whether or not such file is complete, and it shall file an exception
report with the Issuer, the Trustee, the Servicer and each Noteholder within
such time period. If an exception is not cured within 40 days of the Closing
Date, the related Contract must be repurchased by Trendwest within 30 days of
the end of such 40-day period. The Trustee shall have no responsibility or
liability for the actions or inactions of the Custodian.
The Trustee shall be under no duty or obligation to inspect, review
or examine the Contracts or the related Custodian Files for any purpose,
including, without limitation, to determine that the same are genuine,
enforceable or appropriate for the represented purpose or that they have
actually been recorded or that they are other than what they purport to be on
their face.
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ARTICLE EIGHT
OPTIONAL PURCHASE OF RECEIVABLES
Section 8.01 Optional Purchase of All Receivables; Liquidation of
Trust Estate. (a) On the Business Day immediately preceding any Payment Date
after the aggregate principal amount of the then Outstanding Notes is less than
10% of the original aggregate principal amount of the Notes, the initial
Servicer and TFI each shall have the option to purchase all of the Collateral;
provided, however, that the amount to be paid for such purchase (as set forth in
the following sentence) shall be sufficient to pay any amounts then due and
payable to the Trustee and the Servicer, and the full amount of principal,
premium, if any, and interest then due and payable on the Notes and the Issuer
shall redeem the Notes on such Payment Date pursuant to Article X hereof. To
exercise such option, the initial Servicer or TFI, as the case may be, shall pay
the aggregate Purchase Price for all of the Receivables and shall succeed to all
interests in and to the Collateral. The party exercising such option to
repurchase shall deposit the aggregate Purchase Price for the Receivables into
the Collection Account, and the Trustee shall distribute the amounts so
deposited in accordance with Section 12.02.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 9.01 Supplemental Indentures Without Consent of Noteholders.
The Issuer, the Servicer and the Trustee, without the consent of the Holders of
any Notes, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes, provided that any such amendment, as evidenced by an
Opinion of Counsel, will not have a material adverse effect on Noteholders:
(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 to the lien
of this Indenture additional property; or
(2) to evidence the succession of another Person to the
Issuer, and the assumption by such successor of the covenants of the
Issuer herein and in the Notes contained, in accordance with Section
11.02(q) hereof; or
(3) to add to the covenants of the Issuer, for the benefit of
the Holders of all Notes, or to surrender any right or power herein
conferred upon the Issuer; or
(4) to convey, transfer, assign, mortgage or pledge any
property to or with the Trustee for the benefit of the Noteholders; or
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(5) to evidence the succession of the Trustee pursuant to
Article Seven hereof.
No supplemental indenture that permits the issuance of the Notes in
coupon form will be of any force and effect unless the Trustee and the Issuer
shall have received an Opinion of Counsel to the effect that such amendment will
not adversely affect the Issuer's ability to deduct the interest paid on the
Notes. The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into any such supplemental indenture that affects the
Trustee's own rights, duties, liabilities or immunities under this Indenture or
otherwise.
Promptly after the execution by the Issuer, the Servicer and the
Trustee of any supplemental indenture pursuant to this Section 9.01, the Issuer
shall mail to each Noteholder and to the Rating Agency a copy of such
supplemental indenture.
Section 9.02 Supplemental Indentures with Consent of Noteholders.
With the consent of the Holders of not less than 66-2/3% in principal amount of
the Outstanding Notes, by Act of said Holders delivered to the Issuer and the
Trustee, the Issuer, the Servicer and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent of the Holders of each Outstanding Note affected thereby:
(1) change the Stated Maturity of any Note or the due date of
any installment of principal of, or any installment of interest on, any
Note, or reduce the principal amount thereof or the Note Interest Rate
or change 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) reduce the percentage in principal amount of the
Outstanding Notes, the consent of the Holders of which is required for
any such supplemental indenture, or the consent of the Holders of which
is required for any waiver of compliance with certain provisions of
this Indenture or Events of Default or their consequences; or
(3) impair or adversely affect the Trust Estate except as
otherwise permitted herein; or
(4) modify or alter the provisions of the proviso to the
definition of the term "Outstanding"; or
(5) modify any of the provisions of this Section 9.02, except
to increase the percentage of Holders of the Outstanding Notes required
for any modification or waiver or to provide that certain other
provisions of this Indenture cannot be modified
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or waived without the consent of the Holder of each Outstanding Note
affected thereby; 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 the
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; or
(7) modify any of Sections 6.01(l) or (2), 6.02, 6.03, 6.08,
6.18, or 12.02(d) hereof.
It shall be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture.
Promptly after the execution by the Issuer, the Servicer and the
Trustee of any supplemental indenture pursuant to this Section 9.02, the Issuer
shall mail to the Holders of the Notes and the Placement Agents a copy of such
supplemental indenture.
Section 9.03 Execution of Supplemental Indentures. In executing any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive upon request, and (subject to Section 7.01 hereof) shall be fully
protected in relying in good faith upon, an Opinion of Counsel reasonably
acceptable to the Trustee 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 9.04 Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture under this Article Nine, 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 9.05 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article Nine 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 Issuer shall so determine, new Notes so modified
as to conform, in the opinion of the Trustee and the Issuer, to any such
supplemental indenture may be prepared and executed by the Issuer and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
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ARTICLE TEN
REDEMPTION OF NOTES
Section 10.01 Redemption at the Option of the Issuer; Election to
Redeem. The Issuer shall have the option to redeem the Notes, in whole but not
in part, as to the then Outstanding Notes, on any Payment Date (the "Redemption
Date") after the aggregate principal amount of the then Outstanding Notes is
less than 10% of the original aggregate principal amount of the Notes, at the
applicable Redemption Price plus any fees due hereunder.
The Issuer shall set the Redemption Date and the Redemption Record Date
and give notice thereof to the Trustee pursuant to Section 10.02 hereof.
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 3.07 hereof. The election of the Issuer to redeem any Notes pursuant to
this Section 10.01 shall be evidenced by a Board Resolution directing the
Trustee to make the payment of the applicable Redemption Price on all of the
Notes to be redeemed from monies deposited with the Trustee pursuant to Section
10.04 hereof.
Section 10.02 Notice to Trustee. In the case of any redemption pursuant
to Section 10.01 hereof, the Issuer shall, at least 15 days prior to the
Redemption Date, notify the Trustee of such Redemption Date.
Section 10.03 Notice of Redemption by the Issuer. Upon receipt of such
notice and such deposit set forth in Section 10.02 above, the Trustee shall
provide notice of redemption pursuant to Section 10.01 hereof by first-class
mail, postage prepaid, mailed no later than the Business Day following the
Calculation Date on which such deposit was made, to each Holder of Notes whose
Notes are to be redeemed, at his address in the Note Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price; and
(3) that on the Redemption Date, the Redemption Price will
become due and payable upon each such Note, and that interest thereon
shall cease to accrue on the Redemption Date if the Redemption Price is
paid on such date.
Notice of redemption of Notes shall be given by the Trustee in the name
and at the expense of the Issuer. 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.
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Section 10.04 Deposit of the Redemption Price. On or before the
Business Day next preceding any Redemption Date, the Issuer shall deposit with
the Trustee or, if there is a Paying Agent, with the Paying Agent an amount of
monies sufficient to pay the Redemption Price of all Notes which are to be
redeemed on such Redemption Date plus any fees due hereunder.
Section 10.05 Notes Payable on Redemption Date. Notice of redemption
having been given as provided in Section 10.03 hereof, the Notes shall, on the
Redemption Date, become due and payable at the Redemption Price and on such
Redemption Date (unless the Issuer shall default in the payment of the
Redemption Price) such Notes shall cease to bear interest. The Holders of such
Notes shall be paid the Redemption Price by the Paying Agent on behalf of the
Issuer; 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 3.07 hereof.
If the Holders of any Note called for redemption shall not be so paid,
the principal and premium, if any, shall, until paid, bear interest from the
Redemption Date at the Note Interest Rate.
ARTICLE ELEVEN
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 11.01 Representations and Warranties. The Issuer hereby makes
the following representations and warranties for the benefit of the Trustee and
the Noteholders on which the Trustee relies in accepting the Trust Estate in
trust and in authenticating the Notes. Such representations and warranties are
made as of the Closing Date, but shall survive the transfer, grant and
assignment of the Trust Estate to the Trustee.
(a) Organization and Good Standing. The Issuer is a limited liability
company duly organized, validly existing and in good standing under the law of
the State of Delaware and each other State where the nature of its business
requires it to qualify, except to the extent that the failure to so qualify
would not in the aggregate materially adversely affect the ability of the Issuer
to perform its obligations under this Indenture, the Notes, the Note Purchase
Agreements, the Custodian Agreement or the Sale Agreement.
(b) Authorization. The Issuer has the power, authority and legal right
to execute, deliver and perform this Indenture, the Notes, the Note Purchase
Agreements, the Custodian Agreement and the Sale Agreement and the execution,
delivery and performance of this Indenture, the Notes, the Note Purchase
Agreements, the Custodian Agreement and the Sale Agreement have been duly
authorized by the Issuer by all necessary action.
(c) Binding Obligation. This Indenture, the Notes, the Note Purchase
Agreements, the Custodian Agreement and the Sale Agreement have been duly
executed and delivered by
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the Issuer, and this Indenture, assuming due authorization, execution and
delivery by the Trustee and the Servicer, the Sale Agreement, assuming due
authorization, execution and delivery by TFI, SPC and Trendwest, each Note
Purchase Agreement, assuming due authorization, execution and delivery by each
initial purchaser of Notes, and the Custodian Agreement, assuming due
authorization, execution and delivery by the Trustee, the Custodian and the
Servicer, each constitutes a legal, valid and binding obligation of the Issuer,
enforceable against the Issuer in accordance with its terms except that (A) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws (whether statutory, regulatory or decisional) now or
hereafter in effect relating to creditors' rights generally and (B) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to certain equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought, whether a proceeding at law
or in equity.
(d) No Violation. The consummation of the transactions contemplated by
the fulfillment of the terms of this Indenture, the Notes, the Note Purchase
Agreements, the Custodian Agreement and the Sale Agreement will not conflict
with, result in any breach of any of the terms and provisions of or constitute
(with or without notice, lapse of time or both) a default under the
organizational documents or bylaws of the Issuer, or any material indenture,
agreement, mortgage, deed of trust or other instrument to which the Issuer is a
party or by which it is bound, or in the creation or imposition of any Lien upon
any of its properties pursuant to the terms of such indenture, agreement,
mortgage, deed of trust or other such instrument, other than any Lien created or
imposed pursuant to the terms of this Indenture or the Sale Agreement, or
violate any law or, to the best of the Issuer's knowledge, after due inquiry,
any material order, rule or regulation applicable to the Issuer of any court or
of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Issuer or any of its
properties.
(e) No Proceedings. There are no Proceedings or investigations to which
the Issuer, or any of the Issuer's Affiliates, is a party pending, or, to the
knowledge of Issuer, threatened, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality (A)
asserting the invalidity of this Indenture, the Sale Agreement, the Receivables
Purchase Agreement, the Note Purchase Agreements, the Custodian Agreement or the
Notes, (B) seeking to prevent the issuance of the Notes or the consummation of
any of the transactions contemplated by the Sale Agreement, the Receivables
Purchase Agreement, this Indenture, the Note Purchase Agreements, the Custodian
Agreement or the Notes or (C) seeking any determination or ruling that would
materially and adversely affect the performance by the Issuer of its obligations
under, or the validity or enforceability of, this Indenture, the Sale Agreement,
the Receivables Purchase Agreement, the Note Purchase Agreements, the Custodian
Agreement or the Notes.
(f) Approvals. All approvals, authorizations, consents, orders or other
actions of any Person, or of any court, governmental agency or body or official,
required in connection with the execution and delivery of this Indenture, the
Note Purchase Agreements, the Custodian Agreement or the Sale Agreement and with
the valid and proper authorization, issuance and sale of the Notes pursuant to
this Indenture and the Note Purchase Agreements
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(except approvals of State securities officials under the Blue Sky laws), have
been or will be taken or obtained on or prior to the Closing Date.
(g) Name and Place of Business. The Issuer's legal name is as set forth
in this Indenture. The Issuer has not used or done business under any other name
in the previous five-year period. The Issuer's principal place of business and
chief executive office is located at 3250 Lakeport Boulevard, Klamath Falls,
Oregon 97601, or at such other location where all action required by Section
11.02(f) hereof shall have been taken place with respect to the Trust Estate.
The Issuer has not used any other address in the previous five-year period.
(h) Transfer and Assignment. Upon the delivery to the Custodian of the
Contracts and the filing of the UCC financing statements described in Sections
4.01(b)(vii) and 4.02(a) hereof, the Trustee for the benefit of the Noteholders
shall have a first priority perfected security interest in the Receivables, the
Contracts and in the proceeds thereof, except for Liens permitted under Section
11.02(a) and limited to the extent set forth in Section 9-306 of the UCC as in
effect in the applicable jurisdiction. All filings (including, without
limitation, UCC filings) as are necessary in any jurisdiction to perfect the
interest of the Trustee in the Trust Estate (other than the Credits), including
the transfer of the Contracts and the payments to become due thereunder, have
been made.
(i) Members of the Issuer. All of the members of the Issuer are listed
on Schedule B hereto, and each is the registered owner of such Person's
membership interests in the Issuer; all of such interests have been fully paid
and are owned of record, free and clear of all mortgages, assignments, pledges,
security interests, warrants, options and rights to purchase, except as set
forth on Schedule B hereof. The Issuer will not permit any member to transfer
its membership interest, other than for estate planning purposes, without the
consent of the Holders of a majority in principal amount of Notes Outstanding.
The Issuer shall ensure that at all times at least one of its members will be a
bankruptcy remote special purpose entity.
(j) Sale Agreement. As of the Closing Date, the Issuer has entered into
the Sale Agreement and the Assignment with TFI and SPC relating to its
acquisition of the Receivables related to the Contracts identified therein and a
security interest in related Credits, and the representations and warranties
made by TFI and SPC relating to such Contracts, such Receivables and such
interests in the related Credits have been validly assigned to and are for the
benefit of the Issuer, the Trustee and the Noteholders and such representations
and warranties are true and correct in all material respects.
(k) Bulk Transfer Laws. The transfer, assignment and conveyance of the
Contracts and the related Receivables and the grant of a security interest in
the related Credits by TFI and SPC to the Issuer pursuant to the Sale Agreement
or by the Issuer pursuant to this Indenture is not subject to the bulk transfer
or any similar statutory provisions in effect in any applicable jurisdiction.
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(l) Solvency. Neither on the date of the transactions contemplated by
the Transaction Documents or immediately before or after such transactions, nor
as a result of the transactions, will the Issuer:
(A) be insolvent such that the sum of its debts is greater
than all of its respective property, at a fair valuation;
(B) be engaged in, or about to engage in, business or a
transaction for which any property remaining with the Issuer will be an
unreasonably small capital or the remaining assets of the Issuer will
be unreasonably small in relation to its respective business or the
transaction; and
(C) have intended to incur, or believed it would incur, debts
that would be beyond its respective ability to pay as such debts mature
or become due. The Issuer's assets and cash flow enable it to meet its
present obligations in the ordinary course of business as they become
due.
(m) Tax Returns. All tax returns or extensions required to be filed by
the Issuer in any jurisdiction have in fact been filed, and all taxes,
assessments, fees and other governmental charges upon the Issuer, or upon any of
the respective properties, income or franchises shown to be due and payable on
such returns have been, or will be, paid. To the best of the Issuer's knowledge,
all such tax returns are true and correct and the Issuer has no knowledge of any
proposed additional tax assessment against it in any material amount nor of any
basis therefor. The provisions for taxes on the books of the Issuer are in
accordance with generally accepted accounting principles.
(n) Tax Reporting. The Issuer will treat the acquisition of the
Contracts and the related Receivables and the security interest in the related
Credits as a sale to the Issuer for federal, State and local income tax
reporting and accounting purposes.
(o) Subsidiaries. The Issuer has no subsidiaries.
(p) Pension Plans. Each pension plan or profit sharing plan to which
the Issuer is a party has been fully funded in accordance with the obligations
of the Issuer set forth in such plan.
(q) Constituent Documents. The Issuer will not amend its Certificate of
Formation or its Limited Liability Company Agreement without the consent of the
Trustee and the Holders of a majority in principal amount of the Notes
Outstanding.
(r) Value of Contracts. As of the Cut-off Date, the aggregate principal
balance of the Contracts equaled the Initial Aggregate Collateral Value.
(s) Term of Contracts. As of the Closing Date, the Schedule of
Contracts accurately reflects the duration of each Contract.
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(t) Pool Information. As of the Cut-Off Date, the information set forth
on Schedule C hereto is true and correct.
(u) Number of Credits. As of the Closing Date, the aggregate number of
Credits is 241,169,000.
Section 11.02 Covenants. The Issuer hereby makes the following
covenants on which the Trustee relies in accepting the Trust Estate in trust and
in authenticating the Notes. Such covenants are made as of the Closing Date, but
shall survive the transfer, grant and assignment of the Trust Estate to the
Trustee.
(a) No Liens. Except for the conveyances and grant of security
interests hereunder, the Issuer will not sell, pledge, assign or transfer to any
other Person, or grant, create, incur, assume or suffer to exist any Lien on any
portion of the Trust Estate now existing or hereafter created, or any interest
therein prior to the termination of this Indenture pursuant to Section 5.01
hereof; the Issuer will notify the Trustee of the existence of any Lien on any
portion of the Trust Estate immediately upon discovery thereof; and the Issuer
shall defend the right, title and interest of the Trustee in, to and under the
Trust Estate now existing or hereafter created, against all claims of third
parties claiming through or under the Issuer; provided, however, that nothing in
this Section 11.02(a) shall prevent or be deemed to prohibit the Issuer from
suffering to exist upon any of the Trust Estate any Liens for municipal or other
local taxes and other governmental charges if such taxes or governmental charges
shall not at the time be due and payable or if the Issuer shall currently be
contesting the validity thereof in good faith by appropriate proceedings and
shall have set aside on its books adequate reserves with respect thereto.
(b) Delivery of Collections. The Issuer agrees to hold in trust and
promptly pay to the Servicer all amounts received by the Issuer in respect of
the Trust Estate (other than amounts distributed to or for the benefit of the
Issuer pursuant to Article Twelve hereof).
(c) Obligations with Respect to Contracts. The Issuer will duly fulfill
all obligations on its part to be fulfilled under or in connection with each
Contract and will do nothing to impair the rights of the Trustee (for the
benefit of the Noteholders) in the Receivables, the Contracts and any other part
of the Trust Estate. As long as there is no event of default under the
applicable Contract, the Issuer will not disturb the Obligor's use of the Club
in accordance with the rules of the Club.
(d) Compliance with Law. The Issuer will comply, in all material
respects, with all acts, rules, regulations, orders, decrees and directions of
any governmental authority applicable to the Contracts or any part thereof,
provided, however, that the Issuer may contest any act, regulation, order,
decree or direction in any reasonable manner which shall not materially and
adversely affect the rights of the Trustee (for the benefit of the Noteholders)
in the Receivables, the Contracts and the related Credits. The Issuer will
comply, in all material respects, with all requirements of law applicable to the
Issuer.
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(e) Preservation of Security Interest. The Issuer shall execute and
file such continuation statements and any other documents which may be required
by law or which the Trustee deems appropriate to fully preserve and protect the
interest of the Trustee (for the benefit of the Noteholders) in the Trust
Estate.
(f) Maintenance of Office, etc. The Issuer will not, without
providing 30 days' prior written notice to the Trustee and each Noteholder and
without filing such amendments to any previously filed financing statements as
the Trustee may require or as may be required in order to maintain the Trustee's
perfected security interest in the Trust Estate (other than the Credits), (a)
change the location of its chief executive office, or (b) change its name,
identity or corporate structure in any manner which would make any financing
statement or continuation statement filed by the Issuer in accordance with the
Servicing Agreement or this Indenture seriously misleading within the meaning of
Article 9-402(7) of any applicable enactment of the UCC.
(g) Further Assurances. Except as set forth in Section 11.02(e), the
Issuer will make, execute or endorse, acknowledge, and file or deliver to the
Trustee from time to time such schedules, confirmatory assignments, conveyances,
transfer endorsements, powers of attorney, certificates, reports and other
assurances or instruments and take such other steps relating to the Trust
Estate, as the Trustee may request and reasonably require.
(h) Notice of Liens. The Issuer shall notify the Trustee and each
Noteholder promptly after becoming aware of any Lien on any Trust Estate, except
for any Liens for municipal or other local taxes if such taxes shall not at the
time be due or payable without penalty.
(i) Activities of the Issuer. The Issuer (a) shall engage in only (1)
the acquisition, ownership, selling and pledging of the property acquired by the
Issuer pursuant to the Sale Agreement (including the ability to enter into a new
installment contract with an Obligor pursuant to an Upgrade), and causing the
issuance of, receiving and selling the Notes issued pursuant to this Indenture
and (2) the exercise of any powers permitted to limited liability companies
under the limited liability company law of the State of Delaware which are
incidental to the foregoing or necessary to accomplish the foregoing; (b) will
(1) maintain its books and records separate from the books and records of any
other entity, (2) maintain separate bank accounts and no funds of the Issuer
shall be commingled with funds of any other entity, (3) keep in full effect its
existence, rights and franchises as a limited liability company under the laws
of the State of Delaware, and will 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, (4) conduct its business from an office or
office space separate from the office of TFI, SPC and Trendwest and will
maintain a telephone number separate from that of TFI, SPC and Trendwest, and
(5) operate its business generally so as not to be substantively consolidated
with any of its Affiliates; and (c) will not (1) dissolve or liquidate in whole
or in part, (2) own any subsidiary or lend or advance any moneys to, or make an
investment in, any Person, (3) make any capital expenditures, (4)(A) commence
any case, proceeding or other action under any existing or future bankruptcy,
insolvency or similar
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law seeking to have an order for relief entered with respect to it, or seeking
reorganization, arrangement, adjustment, wind-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, (B) seek
appointment of a receiver, trustee, custodian or other similar official for it
or any part of its assets, (C) make a general assignment for the benefit of
creditors (other than as contemplated herein), or (D) take any action in
furtherance of, or consenting or acquiescing in, any of the foregoing, (5)
guarantee (directly or indirectly), endorse or otherwise become contingently
liable (directly or indirectly) for the obligations of, or own or purchase any
stock, obligations or securities of or any other interest in, or make any
capital contribution to, any other Person, (6) merge or consolidate with any
other Person, except as permitted pursuant to Section 11.02(q) hereof, (7)
engage in any other action that adversely affects whether the separate legal
identity of the Issuer will be respected, including without limitation (A)
holding itself out as being liable for the debts of any other party or (B)
acting other than in its corporate name and through its duly authorized officers
or agents, or (8) create, incur, assume, or in any manner become liable in
respect of any indebtedness other than that contemplated herein or trade
payables and expense accruals incurred in the ordinary course of business and
which are incidental to its business purpose. The Issuer shall not amend any
article in its Certificate of Formation or its Limited Liability Company
Agreement that deals with any matter discussed above without the prior written
consent of the Holders of not less than 66-2/3% in aggregate principal amount of
the Outstanding Notes.
(j) Directors. The Issuer agrees that at all times, at least one
member of the Issuer shall have at least one director and one executive officer
of such member that will not be a director, officer or employee of any direct or
ultimate parent, or Affiliate of such parent or of the Issuer (other than such
member) or a brother, sister, parent, child or spouse of any of the foregoing;
provided, however, that (a) such independent director may also be the
independent officer and (b) such independent director and such independent
officer may serve in similar capacities for other "special purpose corporations"
formed by the Issuer and its Affiliates. Such member's Certificate of
Incorporation shall at all times provide that such independent director shall
have a fiduciary duty to the Holders of the Notes.
(k) Consolidated Return. The Issuer is not a member of an affiliated
group with TFI or Trendwest within the meaning of Section 1504 of the Code and
will not file a consolidated return with either of TFI or Trendwest for federal
income tax purposes at any time until after the termination of this Indenture.
(l) Security Interest in the Credits. The Issuer warrants that it has
a valid security interest in the Credits and that it will defend its security
interest in such Credits against all Persons, claims and demands whatsoever. The
Issuer shall not assign, sell, pledge, or exchange, or in any way encumber or
otherwise dispose of its interest in the Credits, except as permitted under this
Indenture.
(m) Taxable Income from the Receivables. The Issuer shall treat the
Receivables as owned by it for federal, State and local income tax purposes, and
any affiliated group of which the Issuer is a member within the meaning of
section 1504 of the Code shall treat the Receivables as owned by the Issuer for
federal, State and local income tax purposes, shall
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report and include in the computation of the Issuer's gross income for such tax
purposes in its consolidated or combined return the income from the Receivables
and the Contracts, and shall deduct the interest paid or accrued with respect to
the Notes in accordance with its applicable method of accounting for such
purposes.
(n) Maintenance of Office or Agency. The Issuer will 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 demand to or upon the
Issuer in respect of the Notes and this Indenture may be served. The Issuer
hereby initially appoints the Trustee at the Corporate Trust Office for each of
said purposes. The Issuer will give 30 days' prior written notice to the Trustee
and the Noteholders of any change in the location, of any such office or agency.
If at any time the Issuer shall fail to maintain any such office or agency or
shall fail to furnish the Trustee and the Noteholders with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Trustee, and the Issuer hereby appoints the Trustee its agent to receive all
such presentations, surrenders, notices and demands.
(o) Money for Note Payments to Be Held in Trust. The Trustee shall
execute and deliver, and if there is any Paying Agent other than the Trustee,
the Issuer will 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 that, subject to the provisions of this Section 11.02, such Paying
Agent will:
(i) hold all sums held by it for the payment of principal of
or interest 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;
(ii) give the Trustee notice of any Default by the Issuer (or
any other obligor upon the Notes) in the making of any payment of
principal or interest; and
(iii) 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 Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Issuer 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.
(p) Enforcement of Servicing Agreement, the Sale Agreement and
Receivables Purchase Agreement. The Issuer will take all actions necessary, and
diligently pursue all remedies available to it, to the extent commercially
reasonable, to enforce the obligations of the Servicer under the Servicing
Agreement, TFI, Trendwest and SPC under the Sale
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Agreement and Trendwest and TW Holdings under the Receivables Purchase Agreement
and to secure its rights thereunder.
(q) Issuer May Consolidate, etc., Only on Certain Terms. The Issuer
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,
unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger or which acquires by conveyance
or transfer the properties and assets of the Issuer substantially as an
entirety shall be a Person organized and existing as a limited purpose
entity under the laws of the United States of America or any State
thereof and shall have expressly assumed, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form reasonably
satisfactory to the Trustee, the obligation to make due and punctual
payments of the principal of and interest on all of the Notes and to
perform every covenant of this Indenture on the part of the Issuer to
be performed or observed; and
(ii) immediately after giving effect to such transaction, no
Event of Default or Default shall have occurred and be continuing; and
(iii) the Issuer shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with this Article Eleven and that all conditions
precedent herein relating to such transaction have been complied with;
and
(iv) such consolidation, merger, conveyance or transfer shall
be on such terms as shall fully preserve the lien and security hereof,
the perfection and priority thereof and the rights and powers of the
Trustee and the Holders of the Notes hereunder; and
(v) the surviving entity shall be a "special purpose entity";
i.e., shall have an organizational charter substantially similar to the
Certificate of Formation and the Limited Liability Company Agreement of
the Issuer including specific limitations on the business purposes, and
provisions for independent directors; and
(vi) the Issuer shall have obtained the prior written consent
of the Holders of the Notes, which shall not be unreasonably withheld.
(r) Successor Substituted. Upon any consolidation or merger, or any
conveyance or transfer of the properties and assets of the Issuer substantially
as an entirety in accordance with Section 11.02(q) hereof, the Person formed by
or surviving such consolidation or merger (if other than the Issuer) or the
Person to which such conveyance or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer under
this Indenture with the same effect as if such Person had been named as the
Issuer herein. In the event of any such conveyance or transfer, the Person named
as the "Issuer" in the first paragraph of this instrument or any successor which
shall theretofore have become such in the manner prescribed in this Article
Eleven shall be released from its
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liabilities as obligor and maker on all the Notes and from its obligations under
this Indenture and may be dissolved, wound-up and liquidated at any time
thereafter.
(s) Use of Proceeds. The proceeds from the sale of the Notes will be
used by the Issuer (i) to pay the Acquisition Consideration, (ii) to pay the
expenses associated with the issuance of Notes pursuant to this Indenture and
the transactions contemplated hereby and by the Sale Agreement, the Receivables
Purchase Agreement and the Servicing Agreement and (iii) for the Issuer's
general business purposes. None of the transactions contemplated in this
Indenture, the Sale Agreement, the Receivables Purchase Agreement or the
Servicing Agreement (including the use of the proceeds from the sale of the
Notes) will result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulations issued pursuant thereto, including
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II. The Issuer does not own or intend to carry or
purchase any "margin security" within the meaning of said Regulation G,
including margin securities originally issued by it or any "margin stock" within
the meaning of said Regulation U.
(t) Investment Company Act of 1940. The Issuer will at all times
conduct its operations in a manner which will not subject it to registration as
an "investment company" under the Investment Company Act of 1940, as amended.
(u) Transactions with Affiliates. The Issuer will not enter into or
cause, suffer or permit to exist any arrangement or contract with any of its
Affiliates unless such arrangement or contract is fair and equitable to the
Issuer, is commercially reasonable and is an arrangement or contract no less
favorable to the Issuer than generally available on an arms-length basis in
equitable transactions with third parties.
(v) Delivery of Custodian Files. The Issuer shall deliver, or cause
to be delivered, to the Custodian the Custodian Files related to the Contracts
identified on the Contract Schedule within 10 days of the Closing Date in
accordance with Section 4.01(b)(ii) hereof.
(w) Rule 144A Transfers. The Issuer will deliver with reasonable
promptness any financial or other information that a Holder may reasonably
request from time to time to permit such Holder to comply with the requirements
of Rule 144A under the Securities Act of 1933, as amended, in connection with
the resale of Notes by such Holder.
(x) The Issuer will not, and will not permit any of its Affiliate
to, purchase, redeem, prepay or otherwise acquire, directly or indirectly, any
of the Notes except in accordance with Article 10 hereof.
(y) The Issuer shall provide to the Trustee or any Noteholder and
their duly authorized representatives, attorneys or accountants access to any
and all documentation and to any existing data processing systems (including,
but not limited to, any data that can reasonably be generated therefrom)
regarding the Trust Estate (including the Contract Schedule) that the Issuer may
possess, such access being afforded at no cost to the Issuer (except during the
continuance of an Event of Default hereunder), but only upon reasonable
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request and during normal business hours so as not to interfere unreasonably
with the Issuer's normal operations or customer or employee relations, at
offices designated by the Issuer.
Section 11.03 Other Matters as to the Issuer. (a) Limitation on
Liability of Directors, Officers, or Employees of Bankruptcy Remote Member of
the Issuer. The directors, officers, or employees of TFI shall not be under any
liability to the Trustee, the Noteholders, the Issuer, the Servicer or any other
Person hereunder or pursuant to any document delivered hereunder, it being
expressly understood that all such liability is expressly waived and released as
a condition of, and as consideration for, the execution of this Indenture and
the issuance of the Notes.
(b) Parties Will Not Institute Insolvency Proceedings. So long as
this Indenture is in effect, and for one year and one day following its
termination, none of the parties hereto or any Affiliate thereof will file any
involuntary petition or otherwise institute any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other proceeding under any
federal or State bankruptcy or similar law against or by the Issuer; provided,
however, that the Trustee shall not be prohibited from taking any such actions
after an Event of Default if it is acting at the direction of Holders of not
less than 66-2/3% in principal amount of Notes Outstanding.
ARTICLE TWELVE
ACCOUNTS AND ACCOUNTINGS
Section 12.01 Collection of Money. Except as otherwise expressly
provided 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. 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 Contract becomes a Defaulted
Contract, the Trustee, upon the written request of the Issuer or the Servicer
may, and upon the request of the Holders of a majority in principal amount of
the Outstanding Notes shall, take such action as may be reasonably necessary to
assist the Servicer 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 a Default or Event of Default under this
Indenture and to proceed thereafter as provided in Article Six hereof.
Section 12.02 Collection Account; Distribution Account. (a) Prior to
the Closing Date, the Trustee shall open and maintain an account (which shall be
comprised of a depository account and a daily investment account (collectively,
the "Collection Account")), which at all times shall be an Eligible Account and
which may be established at the Clearing Account Bank, for the benefit of the
Noteholders, for the receipt of (i) amounts deposited by the Subservicer into
the Clearing Account and (ii) any Reinvestment Income. Funds in the
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Collection Account shall not be commingled with any other monies. All monies
deposited from time to time in the Collection Account pursuant to this Indenture
shall be held in the name of the Trustee as part of the Trust Estate as herein
provided. The fees relating to the Collection Account shall be paid out of the
investment income of the Collection Account, and the Servicer and the Issuer
shall be responsible for paying any fees or expenses not paid out of such
investment income. The Trustee shall not be responsible for paying such fees and
expenses.
Prior to the Closing Date, the Trustee shall open and maintain a trust
account (the "Distribution Account"), which at all times shall be an Eligible
Account for the benefit of the Noteholders, for the receipt of (i) amounts
transferred from the Collection Account pursuant to Section 12.02(d) hereof, and
(ii) amounts transferred from the Reserve Account in accordance with Section
12.03(d)(i) and (iii) hereof. Funds in the Distribution Account shall not be
commingled with any other monies. All payments to be made from time to time by
the Issuer to the Noteholders out of funds in the Distribution Account pursuant
to this Indenture shall be made by the Trustee or the Paying Agent of the
Issuer. All monies deposited from time to time in the Distribution Account
pursuant to this Indenture shall be held by the Trustee as part of the Trust
Estate as herein provided. Amounts deposited in the Distribution Account shall
remain uninvested; provided, however, that if the Trustee has actual knowledge
that any such amounts will remain in the Distribution Account more than one
Business Day after the day amounts are deposited in such account, such amounts
shall be deposited in Eligible Investments, and any earnings thereon shall be
remitted by the Trustee to Collection Account.
(b) Upon Issuer Order, the Trustee shall direct the depository
institution or trust company holding the Collection Account to invest the funds
in the Collection Account in Eligible Investments. The Issuer Order shall
specify the Eligible Investments in which such amounts shall be invested, shall
state that the same are Eligible Investments and shall further specify the
percentage of funds to be invested in each Eligible Investment. No such Eligible
Investment shall mature later than the Business Day preceding the next following
Remittance Date and shall not be sold or disposed of prior to its maturity. In
the absence of a Issuer Order, the Trustee shall invest funds in the Collection
Account in Eligible Investments described in clause (vi) of the definition
thereof. Eligible Investments shall be made in the name of the Trustee for the
benefit of the Noteholders. The Trustee shall have no responsibility for
verifying that any investments directed by the Issuer are Eligible Investments.
(c) Any income or other gain from investments in Eligible
Investments as outlined in (b) above shall be credited to the Collection Account
and any loss resulting from such investments shall be charged to such account;
provided, however, that the Issuer shall make or cause to be made no later than
the applicable Payment Date a deposit to the Collection Account to the extent of
any losses therein caused as a result of the Issuer's investment instructions
provided for herein. The Trustee shall not be liable for any loss incurred on
any funds invested in Eligible Investments pursuant to the provisions of this
Section 12.02.
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(d) On each Payment Date if either no Default or Event of Default
shall have occurred and be continuing or a Default or Event of Default shall
have occurred and be continuing but the entire unpaid principal amount of the
Notes shall not have been declared, have automatically become or otherwise have
become, due and payable pursuant to Section 6.02 hereof, then on such Payment
Date, after making all transfers and deposits into the Distribution Account from
the Collection Account pursuant to Section 12.02(a) hereof or from the Reserve
Account pursuant to clauses (i) and (iii) of Section 12.03(d) hereof, the
Trustee shall withdraw from the Distribution Account (other than amounts
representing payments of Receivables due after the related Calculation Date
immediately preceding such Payment Date), and shall make the following
disbursements in the following order in accordance with the provisions of and
instructions on the Monthly Servicer's Report; provided that the Trustee shall,
to the extent funds are available in the Distribution Account, make interest
payments based on the outstanding principal balance of the Notes even if it
shall not have received the Monthly Servicer's Report:
(i) to pay to the Trustee the Trustee Fee and any expenses
incurred by the Trustee in accordance with Section 7.07(ii) hereof then
due;
(ii) to pay to the Servicer: (A) the Servicer Fee; and (B) the
amounts necessary to reimburse the Servicer and any successor Servicer
as provided in Section 3.09 of the Servicing Agreement for reasonable
costs and expenses incurred by the Servicer (including reasonable
attorney's fees and out-of-pocket expenses) in connection with the
realization, attempted realization or enforcement of rights and
remedies upon Defaulted Contracts, from amounts received as Recoveries
from any Defaulted Contracts;
(iii) to pay the aggregate interest due on the Outstanding
Notes on that Payment Date and any overdue interest, to be applied as
provided in Section 3.07 hereof;
(iv) to pay the Principal Distribution Amount for all
Outstanding Notes on that Payment Date, to be applied to the payment of
Note principal as provided in Section 3.07 hereof;
(v) on each Payment Date relating to a Due Period occurring
during a Trigger Event Period, apply any remaining funds to the payment
of principal on a pro rata basis to the Holders of the Outstanding
Notes (after taking into account the payments of Note principal made
pursuant to clause (iv) above);
(vi) to deposit into the Reserve Account (A) an amount
necessary to bring the balance therein to an amount equal to the
Reserve Account Required Balance or (B) on each Payment Date relating
to a Due Period occurring during a Cash Accumulation Event Period, all
remaining funds in the Distribution Account;
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(vii) to reimburse the Noteholders for any reasonable costs and
expenses incurred in connection with any enforcement action with
respect to this Indenture or the Notes or any other Transaction
Documents;
(viii) to pay to the Investors the Investor Interest Distribution
Amount;
(ix) to pay to the Investors the Investor Principal
Distribution Amount;
(x) to pay to TFI the interest due TFI under the Subordinated
Note;
(xi) to pay to TFI, to the extent available, the principal due
to TFI under the Subordinated Note;
(xii) to pay to the Trustee any other amounts due to the
Trustee as expressly provided herein and in the Servicing Agreement;
(xiii) to pay to the Servicer any other amounts due the Servicer
as expressly provided herein and in the Servicing Agreement; and
(xiv) to remit any excess funds to or at the direction of the
Issuer.
The Trustee, based solely on the information set forth on the Monthly
Servicer's Report, shall cause the funds necessary to make the distributions set
forth in this Section 12.02(d) to be transferred into the Distribution Account
from funds in the Collection Account on the Business Day immediately preceding
the related Payment Date.
The foregoing provisions of paragraph 12.02(d) notwithstanding, any
monies deposited in the Distribution Account for purposes of redeeming Notes
pursuant to Article Ten hereof shall, subject to Section 11.02(o) hereof, remain
in the Distribution Account until used to redeem such Notes.
(e) Upon the Issuer's or the Trustee's obtaining actual knowledge
of the occurrence of any Trigger Event, the Issuer or the Trustee, as the case
may be, shall within two Business Days of obtaining such actual knowledge notify
the Noteholders of such occurrence.
Section 12.03 Reserve Account. (a) Prior to the Closing Date, the
Trustee shall open and maintain a trust account (the "Reserve Account"), which
at all times will be an Eligible Account, for the benefit of the Noteholders,
for the receipt of the initial deposit of the initial Reserve Account Required
Balance by Issuer and of deposits pursuant to Section 12.02(d)(vi) hereof. The
Issuer agrees to deposit $1,400,000 in the Reserve Account on or prior to the
Closing Date. Monies received in the Reserve Account will be invested at the
written direction of the Issuer in Eligible Investments during the term of this
Indenture, and any income or other gain realized from such investment, shall be
held by the Trustee in the Reserve Account as part of the Trust Estate as
security for the Notes subject to disbursement and withdrawal as herein
provided. Monies shall be subject to withdrawal in accordance with Section
12.03(d) hereof.
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(b) Upon Issuer Order all or a portion of the Reserve Account shall
be invested and reinvested at TFI's written direction in one or more Eligible
Investments. In the absence of an Issuer Order, the Trustee shall invest funds
in the Reserve Account in Eligible Investments described in clause (vi) of the
definition thereof. All income or other gain from such investments shall be
credited to such Reserve Account and any loss resulting from such investments
shall be charged to such Reserve Account; provided, however, that the Issuer
shall make or cause to be made on any Remittance Date a deposit to the Reserve
Account to the extent of any losses therein caused as a result of the Issuer's
investment instructions. No Eligible Investment shall mature later than the
Business Day preceding the next following Payment Date and shall not be sold or
disposed of prior to its maturity. Eligible Investments shall be made in the
name of the Trustee for the benefit of the Noteholders. The Trustee shall
provide to the Servicer a monthly account statement showing deposits and
withdrawals in such month and listing such investments, describing the Eligible
Investments in which such amounts have been invested.
(c) If any amounts invested as provided in Section 12.03(b) hereof
shall be needed for disbursement from the Reserve Account as set forth in
Section 12.03(d) hereof, the Trustee shall cause such investments of such
Reserve Account to be sold or otherwise converted to cash to the credit of such
Reserve Account. The Trustee shall not be liable for any investment loss
resulting from investment of money in the Reserve Account in any Eligible
Investment in accordance with the terms hereof (other than in its capacity as
obligor under any Eligible Investment).
(d) Disbursements from the Reserve Account shall be made, to the
extent funds therefor are available, only as follows:
(i) in the event that the amount in the Collection Account at
1:00 p.m., Chicago time, on the Determination Date immediately
preceding any Payment Date (other than amounts representing payments of
Receivables due after the related Calculation Date immediately
preceding such Payment Date) is less than the sum of the amounts
required to be transferred to the Distribution Account on the related
Remittance Date for distribution pursuant to clauses (i), (ii), (iii)
and (iv) of Section 12.02(d) hereof, the Trustee shall, in accordance
with the related Monthly Servicer's Report, withdraw funds from the
Reserve Account on or prior to 4:00 p.m., Chicago time, on the Business
Day immediately preceding such Payment Date to the extent necessary to
make such payments on such Payment Date and deposit such funds into the
Distribution Account;
(ii) subject to subparagraphs (iii), (iv) and (v) of this
Section 12.03(d), in the event that on any Payment Date the balance in
the Reserve Account equals an amount greater than the Reserve Account
Required Balance (after giving effect to the distributions listed in
Section 12.02(d)(i) through (v) hereof on such Payment Date in
accordance with the Monthly Servicer's Report), the Trustee shall
withdraw funds in the Reserve Account in such amount so that the
remaining amount in the Reserve Account after such withdrawal will
equal the Reserve Account Required Balance, and disburse such amounts
to or at the direction of the Issuer; no funds shall be released
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to the Issuer pursuant to this subparagraph (ii) if any of a Trigger
Event Period, a Cash Accumulation Event Period or an Event of Default
has occurred and is continuing;
(iii) in the event that on any Payment Date a Trigger Event has
occurred and is continuing, the Trustee shall, but only at the
direction of Holders of not less than 66-2/3% in principal amount of
Notes Outstanding, withdraw all funds from the Reserve Account (or any
such lesser amount of such funds as such Holders may direct) and
deposit such funds into the Distribution Account for disbursement in
accordance with the provisions of Section 12.02(d) hereof;
(iv) subject to subparagraph (iii) of this Section 12.03(d),
in the event that on any Payment Date a Trigger Event has occurred and
is continuing at a time when the amount in the Reserve Account is
greater than the Reserve Account Standard Balance, the Trustee shall
withdraw funds from the Reserve Account and deposit such funds into the
Distribution Account for disbursement in accordance with the provisions
of Section 12.02(d) hereof to the extent necessary so that after such
withdrawal the amount in the Reserve Account equals the Reserve Account
Standard Balance;
(v) in the event that a Cash Accumulation Event occurs and is
subsequently cured, the Trustee shall withdraw the amount that is in
the Reserve Account that is greater than the Reserve Account Required
Balance (after giving effect to the distributions listed in clauses (i)
through (iv) of Section 12.02(d) on such Payment Date) and distribute
such amount pursuant to clauses (vii) through (xiv), in accordance with
the Monthly Servicer's Report; and
(vi) on the Final Payment Date, to the extent any funds remain
in the Reserve Account after distributions pursuant to clauses (i)
through (v) of Section 12.02(d), such remaining amounts shall be used
to pay the amounts set forth in clauses (vi) through (xiv) of Section
12.02(d) hereof.
Section 12.04 Reports by Trustee to Noteholders. (a) On each Payment Date
the Trustee shall account to each Holder of Notes and to Fitch on which payments
of principal and interest are then being made the amount which represents
principal and the amount which represents interest, and shall contemporaneously
advise the Issuer of all such payments. The Trustee may satisfy its obligations
under this Section 12.04 by delivering the Monthly Servicer's Report to each
such Holder of the Notes, Fitch and the Issuer. On or before the 10th day prior
to the Final Payment Date, the Trustee shall provide notice to Fitch and to the
Holders of the Notes of the Final Payment Date. Such notice shall include a
statement that if the Notes are paid in full on the Final Payment Date interest
shall cease to accrue as of the last day preceding the date on which such Final
Payment Date occurs.
(b) The Issuer shall, on a monthly basis beginning on the first
Calculation Date, confirm the credit rating or, if more than one credit rating
has been assigned, each such credit rating of each institution in which funds
are invested pursuant to clause (vi) of the
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definition of Eligible Investments and shall promptly notify the Trustee and the
Noteholders if any such credit rating has been lowered.
(c) At least annually, the Trustee shall distribute to Noteholders
any Form 1099 or similar information returns required by applicable tax law to
be distributed to the Noteholders and received in accordance with the next
sentence. The Trustee shall prepare or cause to be prepared all such information
for distribution by the Trustee to the Noteholders.
ARTICLE THIRTEEN
PROVISIONS OF GENERAL APPLICATION
Section 13.01 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 Issuer. 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 7.01
hereof) conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Section 13.01.
(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 Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
Section 13.02 Notices, etc., to Trustee, Issuer, Servicer and the Rating
Agency. 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 any party hereto shall be
sufficient for every purpose hereunder if in writing and telecopied or mailed,
first-class postage prepaid and addressed to the appropriate address below:
(a) to the Trustee at 135 South LaSalle Street, Suite 1740,
Chicago, Illinois 60603 (facsimile number (312) 904-2084), Attention:
Asset Backed Securities Trust
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Services, TRI Funding 1996-1, or at any other address previously
furnished in writing to the Issuer, the Noteholders and the Servicer;
or
(b) to the Issuer at TRI Funding Company I, c/o JELD-WEN,
inc., 3250 Lakeport Boulevard, Klamath Falls, Oregon 97601 (facsimile
number (503) 885-7454), Attention: Treasurer, or at any other address
previously furnished in writing to the Trustee, the Noteholders and the
Servicer by the Issuer; or
(c) to the Servicer at Trendwest Resorts, Inc., 12301 N.E.
10th Place, Bellevue, Washington 98005 (facsimile number (206)
990-2305), Attention: Executive Vice President, or at any other address
previously furnished in writing to the Trustee, the Noteholders and the
Issuer; or
(d) to Fitch at One State Street Plaza, New York, New York
10004 (facsimile number (212) 480-4438), Attention: Kenneth Rosenberg,
or at any other address previously furnished in writing to the Trustee,
the Noteholders or the Issuer.
Section 13.03 Notices and Other Documents to Noteholders; Waiver. (a) Where
this Indenture provides for notice to Noteholders of any event, such notice
shall be in writing and sent (i) by telefacsimile if the sender on the same day
sends a confirming copy of such notice by a recognized overnight delivery
service (charges prepaid), or (ii) by registered or certified mail with return
receipt requested (postage prepaid), or (iii) by a recognized overnight delivery
service (with charges prepaid). Any such notice to a Noteholder or its nominee
must be sent (i) to such Person at the address specified for such communications
in the Note Register, or at such other address as the Noteholder shall have
specified to the Trustee in writing and (ii) if specified, to such other Person
as shall be identified in writing to the Trustee by each Noteholder or its
nominee.
Notice under this Section 13.03 will be deemed to be given only when
actually received.
(b) 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.
(c) Any reports, documents or other communications other than notices
to be sent to Noteholders may be telecopied or mailed, first-class postage
prepaid and shall be addressed to the Noteholders and their nominees and
designees, if applicable, as set forth in paragraph (a) above.
Section 13.04 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.
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<PAGE> 76
Section 13.05 Successors and Assigns. All covenants and agreements in this
Indenture by the Issuer shall bind its successors and assigns, whether so
expressed or not.
Section 13.06 Separability. 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
unpaired thereby.
Section 13.07 Benefits of Indenture. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto, the Noteholders, and any Paying Agent which may be appointed pursuant to
the provisions hereof, and any of their successors hereunder, any benefit or any
legal or equitable right, remedy or claim under this Indenture or under the
Notes.
Section 13.08 Legal Holidays. In any case in which the date of any Payment
Date or the Stated Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of the Notes or this Indenture) payment of
principal, interest, or premium, if any, 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 Stated Maturity or Payment Date and,
assuming such payment is actually made on such subsequent Business Day, no
additional interest shall accrue on the amount so paid for the period from and
after any such nominal date.
Section 13.09 Governing Law. This Indenture and each Note shall be
construed in accordance with and governed by the internal laws of the State of
New York applicable to agreements made and to be performed therein, without
regard to the conflict of laws provisions of any State.
Section 13.10 Counterparts. This Indenture 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.
Section 13.11 Obligation. No recourse may be taken, directly or indirectly,
against any incorporator, subscriber to the capital stock, stockholder, member,
partner, employee, officer or director of the Issuer or of any predecessor or
successor of the Issuer with respect to the Issuer's obligations on the Notes or
under this Indenture or any certificate or other writing delivered in connection
herewith; provided, however, that this Section 13.11 shall not protect any
Person from his, her or its own fraud or willful misconduct or from any
liability that such Person may incur in another capacity under the Transaction
Documents.
Section 13.12 Compliance Certificates and Opinions. Upon any application,
order or request by the Issuer or the Servicer to the Trustee to take any action
under any provision of this Indenture for which a specific request is required
under this Indenture, the Issuer or the Servicer, as applicable, shall furnish
to the Trustee an Officer's Certificate of the Issuer or the Servicer, as
applicable, stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with, except that
in the case of any such application or request as to which the furnishing of a
different certificate is
-71-
<PAGE> 77
specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate
or opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
such individual has made such examination or investigation as is
necessary to enable such individual to express an informed opinion as
to whether or not such covenant or condition has been complied with;
and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 13.13 Effective Date of Transactions. This Indenture and the other
Transaction Documents shall be deemed to be effective and shall be valid and
enforceable as of the Closing Date.
-72-
<PAGE> 78
IN WITNESS WHEREOF, the Issuer, the Servicer and the Trustee have
caused this Indenture to be duly executed by the persons thereunto duly
authorized as of the day and year first above written.
TRI FUNDING COMPANY I, L.L.C., Issuer
By: TRENDWEST FUNDING I, INC., Member
By:
-------------------------------------
Name:
Title:
TRENDWEST RESORTS, INC.,
Servicer
By:
-------------------------------------
Name:
Title:
LASALLE NATIONAL BANK, Trustee
By:
-------------------------------------
Name:
Title:
-73-
<PAGE> 79
EXHIBIT A
FORM OF INVESTMENT LETTER
TRI FUNDING COMPANY I, L.L.C.
7.42% RECEIVABLE-BACKED NOTES, SERIES 1996-1
TRI Funding Company I, L.L.C.
3250 Lakeport Boulevard
Klamath Falls, Oregon 97601
LaSalle National Bank,
as Trustee
135 South LaSalle Street
Suite 200
Chicago, Illinois 60603
[Name and Address of Transferor]
The undersigned hereby certifies with respect to the above-referenced
notes (the "Notes") on behalf of the purchaser named below (the "Purchaser") as
follows:
1. I __________________, am the chief financial officer,
a person fulfilling an equivalent function or other executive officer
of the Purchaser.
2. I am familiar with the provisions of Rule 144A ("Rule
144A") under the Securities Act of 1933, as amended (the "Act").
3. The Purchaser is a "qualified institutional buyer," as
defined in Rule 144A.
4. The Purchaser is aware that the addressees may rely on the
exemption from the registration requirements of the Act provided by
Rule 144A.
5. The Purchaser acknowledges that the Purchaser has (i)
received such information regarding the issuer of the Notes as the
Purchaser may require pursuant to Rule 144A or (ii) the Purchaser has
determined not to request such information.
6. The Purchaser understands that the Notes are being issued
only in transactions not involving any public offering within the
meaning of the Act and Section 3(c)(1) of the Investment Company Act of
1940, as amended (the "Investment Company Act").
<PAGE> 80
7. The Purchaser is considered to be "one person" for
purposes of calculating the number of beneficial owners of securities
of TRI Funding Company I, L.L.C. under Section 3(c)(1) of the
Investment Company Act.
8. The Purchaser acknowledges that transfer of a Note can
only be effected in accordance with the Indenture executed and
delivered in connection with the issuance of the Notes.
The representations and warranties contained herein shall be binding
upon the heirs, executors, administrators and other successors of the
undersigned. If there is more than one signatory hereto, the obligations,
representations, warranties and agreements of the undersigned are made jointly
and severally.
Executed at _________________________, ____________________, this ____
day of ______________, 19__.
- ----------------------------------- ------------------------------------
Purchaser's Name and Title (Print) Signature of Purchaser
- -----------------------------------
Address of Purchaser
- -----------------------------------
Purchaser's Taxpayer
Identification or Social
Note Number
-2-
<PAGE> 81
EXHIBIT B
FORM OF SUPPLEMENT FOR GRANT OF INTERESTS IN
SUBSTITUTE CONTRACTS AND UPGRADE CONTRACTS
Pursuant to Section 4.03(e) and Section 4.03(g) of the Indenture, dated
as of March 1, 1996, among TRI Funding Company I, L.L.C. (the "Issuer"),
Trendwest Resorts, Inc. (the "Servicer") and LaSalle National Bank, as Trustee
(the "Trustee"), (such Indenture as amended and supplemented from time to time,
the "Indenture"), attached hereto as Annex I is a supplement to Schedule A of
the Indenture, which includes information regarding certain interests in
Contracts, the related Receivables and the related Credits that are hereby
Granted by the Issuer to the Trustee in accordance with the Indenture. For
purposes of this Supplement, all defined terms used herein and not otherwise
defined herein shall have the meanings assigned to them in the Indenture.
Dated:
TRI FUNDING COMPANY I, L.L.C.
By: TRENDWEST FUNDING I, INC., Member
By
--------------------------------------
Name:
Title:
<PAGE> 82
ANNEX I
SUPPLEMENT FOR SUBSTITUTE CONTRACTS
AND UPGRADE CONTRACTS
<PAGE> 83
EXHIBIT C
FORM OF NOTE
THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"), AND THIS NOTE
HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE TRANSFER OF THIS
NOTE IS SUBJECT TO CERTAIN RESTRICTIONS AND CONDITIONS SET FORTH IN THE
INDENTURE UNDER WHICH THIS NOTE IS ISSUED (A COPY OF WHICH IS AVAILABLE FROM THE
TRUSTEE UPON REQUEST).
DUE TO THE PROVISIONS FOR THE PAYMENT OF PRINCIPAL CONTAINED HEREIN,
THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE AMOUNT SHOWN
ON THE FACE HEREOF. ANYONE PURCHASING THIS NOTE MAY ASCERTAIN THE OUTSTANDING
PRINCIPAL AMOUNT HEREOF BY INQUIRY OF THE TRUSTEE.
PPN: 87264# AA 2
No. R-__ $__________
TRI FUNDING COMPANY I, L.L.C.
7.42% RECEIVABLE-BACKED NOTE, SERIES 1996-1
Delivery Date: _____________ Stated Maturity: May 15, 2004
TRI Funding Company I, L.L.C., a limited liability company duly
organized and existing under the laws of the State of Delaware (the "Issuer,"
which term includes any successor entity under the Indenture referred to below),
for value received, hereby promises to pay to __________, or registered assigns,
the principal sum of __________ Dollars ($__________) in monthly installments
beginning on May 15, 1996 (the "Initial Payment 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 principal of or interest on this Note) on the fifteenth
day of each calendar month or, if such fifteenth day is not a Business Day, the
Business Day immediately following (each, a "Payment Date"), for the period from
and including the Delivery Date through the day immediately preceding the
Initial Payment Date, and thereafter, monthly from and including the most recent
Payment Date through the day immediately preceding the applicable Payment Date,
at the rate of 7.42% per annum (calculated on the basis of a 360-day year
consisting of 12 months of 30 days each). Each monthly installment of
<PAGE> 84
principal payable on this Note shall be an amount equal to the pro rata share of
the Principal Distribution Amount, as such term is defined in the Indenture
described herein. Any remaining unpaid portion of the principal amount of this
Note shall be due and payable no later than the Stated Maturity referred to
above. The interest and principal so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Note is
registered on the Record Date for such Payment Date, which shall be the close of
business on the last day of the month prior to such Payment Date (whether or not
a Business Day).
The principal and interest on this Note are payable by check mailed by
first-class mail to the Person whose name appears as the Registered Holder of
this Note on the Note Register at the address of such Person as it appears on
the Note Register, or by wire transfer in immediately available funds to the
account specified in writing to the Trustee by the Person whose name appears as
the Registered Holder of this Note on the Note Register received at least five
Business Days prior to the Record Date for the Payment Date on which wire
transfers will commence, 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; provided, however, that the Trustee will deliver to the initial
Noteholders payments of principal and interest by wire transfer in immediately
available funds to the accounts specified in Annex 1 to the Note Purchase
Agreements between the Issuer and such initial Noteholders. Funds represented by
checks returned undelivered will 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 Issuer for such purpose
pursuant to the Indenture.
This Note is one of a duly authorized issue of Notes of the Issuer
designated as its 7.42% Receivable-Backed Notes, Series 1996-1 (herein called
the "Notes") issued under an Indenture (referred to herein as the "Indenture"),
dated as of March 1, 1996, among the Issuer, Trendwest Resorts, Inc., as
Servicer, and LaSalle National Bank, as Trustee (the "Trustee," which term
includes any successor Trustee under such Indenture). Reference is hereby made
to the Indenture for a statement of the respective rights thereunder of the
Issuer, the Trustee and the Holders of the Notes, and the terms upon which the
Notes are 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.
The Notes are secured by certain Receivables and by certain other
Collateral described in the Indenture. The Trust Estate secures the Notes
equally and ratably without prejudice, priority or distinction between any Note
and any other Note by reason of time of issue or otherwise, and also secures the
payment of certain other amounts and certain other obligations as described in
the Indenture.
Unless earlier declared or automatically becoming 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 Issuer before such time, except that the Notes shall be redeemable
at the option of the Issuer, in whole but not in part, at any time after the
Outstanding principal amount of Notes declines to 10% or less of the original
principal amount of the Notes at a redemption price equal to the Outstanding
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<PAGE> 85
principal amount thereof plus accrued interest thereon through the Redemption
Date at the Note Interest Rate (exclusive of installments of interest and
principal maturing on or prior to the Redemption Date, payment of which shall
have been made or duly provided for to the Holder of this Note on the applicable
Record Date or as otherwise provided in the Indenture). If an Event of Default
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 Issuer only upon surrender of this Note for registration of transfer at the
office or agency of the Issuer in the United States of America maintained for
such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Issuer and the Trustee and duly executed by
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Notes of the same Stated Maturity of authorized denominations and
for the same initial aggregate principal amount will be issued to the designated
transferees.
Prior to due presentment for registration of transfer of this Note, the
Issuer, the Trustee and any agent of the Issuer 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 Issuer, 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
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer, the Trustee and the Servicer with the consent of the Holders
of not less than 66-2/3% in aggregate principal amount of Notes at the time
Outstanding under the Indenture. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Notes at the time Outstanding under the Indenture, to waive compliance by
the Issuer with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. 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 therefor 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.
For federal, State, local and foreign tax purposes, all Noteholders
shall treat the Notes as debt of the Issuer.
This Note and the Indenture shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
conflicts of laws principles.
-3-
<PAGE> 86
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note,
but solely from the Collateral pledged to the Trustee under the Indenture at the
times, place and rate, and in the coin or currency, herein prescribed.
Notwithstanding anything else to the contrary contained in this Note or the
Indenture, the obligation of the Issuer to pay the principal of and interest on
this Note is not a general obligation of the Issuer, nor its officers or
directors, but is limited solely to the Collateral pledged under the Indenture.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, TRI Funding Company I, L.L.C. has caused this Note
to be signed, manually, by the President, a Vice President or the Treasurer of
one of its members.
TRI FUNDING COMPANY I, L.L.C.
By: TRENDWEST FUNDING I, INC., Member
By
--------------------------------------
Title:
-4-
<PAGE> 87
[FORM OF TRUSTEE'S
CERTIFICATE OF AUTHENTICATION]
This is one of the Notes described in the within-mentioned Indenture.
Dated: [Date]
LASALLE NATIONAL BANK,
as Trustee
By:
-------------------------------
Authorized Signatory
-5-
<PAGE> 88
SCHEDULE A
CONTRACT SCHEDULE
<PAGE> 89
SCHEDULE B
MEMBERS OF THE ISSUER
Trendwest Funding I, Inc.
R&R Vista
ENCUMBRANCES ON THE MEMBERSHIP
INTERESTS OF THE MEMBERS OF THE ISSUER
R&R Vista has pledged its membership interest in the Issuer to NBD Bank
to secure a loan from NBD Bank to R&R Vista.
<PAGE> 90
SCHEDULE C
POOL INFORMATION
[PORTFOLIO ANALYSIS TO BE ATTACHED]
<PAGE> 1
EXHIBIT 10.8
SERVICING AGREEMENT
among
TRI FUNDING COMPANY I, L.L.C.
("Issuer")
and
TRENDWEST RESORTS, INC.
("Servicer")
and
SAGE SYSTEMS, INC.
("Subservicer")
and
LASALLE NATIONAL BANK, as Trustee
("Trustee")
Dated as of March 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS.................................... 1
Section 1.01. Defined Terms............................... 1
ARTICLE 2 SERVICER REPRESENTATIONS, WARRANTIES AND
COVENANTS...................................... 4
Section 2.01. Representations and Warranties.............. 4
Section 2.02. Covenants................................... 6
ARTICLE 3 ADMINISTRATION AND SERVICING OF CONTRACTS...... 6
Section 3.01. Responsibilities of Servicer................ 6
Section 3.02. Standard of Care............................ 9
Section 3.03. Clearing Account, ACH Payments and Servicer
Remittances................................. 9
Section 3.04. Property Management......................... 10
Section 3.05. Financing Statements........................ 10
Section 3.06. [Reserved.]................................. 10
Section 3.07. [Reserved.]................................. 10
Section 3.08. No Offset................................... 10
Section 3.09. Servicing Compensation...................... 11
Section 3.10. Substitution or Purchase of Contracts and
Receivables................................. 11
ARTICLE 4 ACCOUNTINGS, STATEMENTS AND REPORTS............ 12
Section 4.01. Monthly Servicer's Reports.................. 12
Section 4.02. Financial Statements; Certification as to
Compliance; Notice of Default............... 13
Section 4.03. Independent Accountants' Reports............ 14
Section 4.04. Access to Certain Documentation and
Information................................. 15
Section 4.05. Trustee to Cooperate........................ 17
Section 4.06. Oversight of Servicing...................... 17
ARTICLE 5 THE SERVICER, THE SUBSERVICER AND THE ISSUER... 18
Section 5.01. Servicer and Subservicer Indemnification.... 18
Section 5.02. Corporate Existence; Reorganizations........ 19
Section 5.03. Limitation on Liability of the Servicer, the
Subservicer and Others...................... 19
Section 5.04. The Servicer and Subservicer Not to Resign.. 20
Section 5.05. Issuer Indemnification...................... 20
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 6 SERVICING TERMINATION.......................... 21
Section 6.01. Servicer Events of Default.................. 21
Section 6.02. Appointment of Successor Servicer........... 23
Section 6.03. Notification to Noteholders................. 24
Section 6.04. Waiver of Past Defaults..................... 24
Section 6.05. Effects of Termination of Servicer.......... 24
Section 6.06. No Effect on Other Parties.................. 25
ARTICLE 7 THE SUBSERVICER................................ 25
Section 7.01. Representations and Warranties.............. 25
Section 7.02. Subservicer Events of Default............... 26
Section 7.03. Appointment of Successor Subservicer........ 28
Section 7.04. Notification to Noteholders................. 28
Section 7.05. Waiver of Past Defaults..................... 28
Section 7.06. Effects of Termination of Subservicer....... 28
ARTICLE 8 MISCELLANEOUS PROVISIONS....................... 29
Section 8.01. Termination of the Servicing Agreement...... 29
Section 8.02. Amendments.................................. 29
Section 8.03. Governing Law............................... 30
Section 8.04. Notices, etc., to Trustee, Issuer, Servicer
and Subservicer............................. 30
Section 8.05. Notices and Other Documents to Noteholders;
Waiver...................................... 31
Section 8.06. Severability of Provisions.................. 31
Section 8.07. Binding Effect.............................. 31
Section 8.08. Article Headings and Captions............... 32
Section 8.09. Legal Holidays.............................. 32
Section 8.10. Assignment for Security for the Notes....... 32
Section 8.11. No Servicing Assignment..................... 32
Section 8.12. Counterparts................................ 32
Signatures....................................................... 33
Exhibit A -- Form of Monthly Servicer's Report
Exhibit B -- Form of Report of Independent Accountants
</TABLE>
-ii-
<PAGE> 4
SERVICING AGREEMENT
THIS SERVICING AGREEMENT, dated as of March 1, 1996 (the "Agreement"), by
and among TRI FUNDING COMPANY I, L.L.C., a Delaware limited liability company
(herein, together with its permitted successors and assigns, the "Issuer"),
TRENDWEST RESORTS, INC., an Oregon corporation, as servicer hereunder (herein,
together with its permitted successors and assigns, the "Servicer"), SAGE
SYSTEMS, INC., a Washington corporation, as subservicer hereunder (herein,
together with its permitted successors and assigns, the "Subservicer") and
LASALLE NATIONAL BANK, as trustee (herein, together with its permitted
successors and assigns, the "Trustee") under the Indenture (defined below).
PRELIMINARY STATEMENT
The Issuer has entered into an Indenture, dated as of March 1, 1996 (as
amended and supplemented from time to time, the "Indenture"), with the Trustee
and the Servicer, pursuant to which the Issuer intends to issue its 7.42%
Receivables-Backed Notes, Series 1996-1 (collectively, the "Notes").
The Issuer, Trendwest Resorts, Inc. (not as Servicer, but acting on its
own behalf, "Trendwest"), Trendwest Funding I, Inc., a Delaware corporation
("TFI"), and TWH Funding I, Inc., a Delaware corporation ("SPC"), have entered
into a Purchase and Sale Agreement, dated as of March 1, 1996 (as amended and
supplemented from time to time, the "Sale Agreement"), providing for, among
other things, the sale by SPC and TFI to the Issuer of the Purchased Assets, as
defined in the Sale Agreement. Under the terms and conditions set forth in the
Indenture, the Issuer is and will be pledging such Purchased Assets to the
Trustee as security for the Notes. As a precondition to the effectiveness of the
Sale Agreement, the Sale Agreement requires that the Servicer, the Subservicer,
the Issuer and the Trustee enter into this Agreement to provide for the
servicing of the Purchased Assets.
In order to further secure the Notes, the Issuer is granting to the
Trustee a security interest in, among other things, the Issuer's rights derived
under this Agreement and the Sale Agreement, and the Servicer and the
Subservicer agree that all covenants and agreements made by the Servicer and the
Subservicer herein with respect to the Purchased Assets shall also be for the
benefit and security of the Trustee and all Holders from time to time of the
Notes. For its services under this Agreement, the Servicer will receive a
Servicer Fee as provided herein and in the Indenture.
ARTICLE 1
DEFINITIONS
Section 1.01. Defined Terms. Except as otherwise specified or as the context
may otherwise require, the following terms have the respective meanings set
forth below for all purposes of this Agreement, and the definitions of such
terms are equally applicable both to the singular and plural forms of such terms
and to the masculine, feminine and neuter
<PAGE> 5
genders of such terms. Capitalized terms used but not otherwise defined herein
shall have the respective meanings assigned to such terms in the Indenture.
"Clearing Account" shall mean the account established by the Subservicer
at the Clearing Account Bank, into which account collections with respect to the
Contracts will be deposited by the Subservicer.
"Clearing Account Bank" shall mean First Interstate Bank of Washington (or
an affiliate thereof), and its successors and assigns.
"Contract Files" shall have the meaning specified in the Sale Agreement.
"Custodian Agreement" shall mean the Custodian Agreement, dated as of
March 1, 1996, among Sage Systems, Inc., as Custodian, the Trustee, the Issuer
and Trendwest, as amended and supplemented from time to time.
"Custodian Files" shall have the meaning specified in the Sale
Agreement.
"Independent Accountants" shall mean Molatore, Peugh, McDaniel, Scroggin &
Co. or another firm of public accountants of recognized standing; provided, that
such firm is independent with respect to the Servicer within the meaning of the
Securities Act of 1933, as amended.
"Institutional Investor" shall have the meaning specified in the
Indenture.
"Issuer" shall mean TRI Funding Company I, L.L.C., a Delaware limited
liability company and its permitted successors and assigns.
"Liquidated Receivable" shall mean a Receivable that has been liquidated
pursuant to Section 3.01(b) hereof.
"Monthly Servicer's Report" shall mean the report prepared by the Servicer
pursuant to Section 4.01 hereof.
"Officer's Certificate" shall mean, for any Person, a certificate signed
by the President, any Vice President, Treasurer or Secretary of such Person and,
in the case of the Issuer, any authorized representative of the Issuer.
"Opinion of Counsel" shall mean a written opinion of counsel in a form
that is, and from counsel who is, reasonably acceptable to the person requesting
such opinion.
"Projected Income" shall mean, with respect to each Due Period, the amount
set forth under the line item "Amount Billed" on the Monthly Servicer's Report.
"Purchased Assets" shall have the meaning specified in the Sale
Agreement.
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"Receivables Purchase Agreement" shall mean the Receivables Purchase
Agreement, dated as of the date hereof, among Trendwest, TW Holdings, Inc. and
TFI as the same may be amended or modified from time to time, together with any
annexes, appendices, exhibits or schedules thereto and including the Assignment
executed and delivered in connection therewith.
"Remittance Date" shall mean the Business Day immediately preceding each
Payment Date.
"Reported Company" shall mean each of the Issuer, the Subservicer,
WorldMark, Trendwest and its subsidiaries, provided, however, if Trendwest is no
longer acting as Servicer or Sage is no longer acting as Subservicer, then
"Reported Company" shall also mean any successor Servicer or successor
Subservicer, as the case may be, appointed pursuant to this Agreement.
"Reported Company's Financial Statements" shall include each Reported
Company's audited consolidated balance sheet, income statement, statement of
cash flows, auditors opinion letter regarding audited financial statements and
all notes to the audited financial statements; Trendwest's and WorldMark's
financial statements shall be audited, but, with respect to any other Reported
Company, if such information is not currently being audited, then such
information may be unaudited.
"Sage" shall mean Sage Systems, Inc., a Washington corporation and its
successors in interest.
"Sale Agreement" shall mean the Purchase and Sale Agreement, together with
any annexes, appendices, exhibits or schedules attached thereto, by and among
TFI, SPC, Trendwest and the Issuer dated as of the date hereof, and including
the Assignment executed and delivered in connection therewith.
"Servicer" shall initially mean Trendwest Resorts, Inc. until a successor
Person shall have become the Servicer pursuant to the applicable provisions of
this Agreement, and thereafter "Servicer" shall mean such successor Person.
"Servicer Default" shall mean any occurrence or circumstance which with
notice or the lapse of time or both would be a Servicer Event of Default under
this Agreement.
"Servicer Event of Default" shall mean each of the occurrences or
circumstances enumerated in Section 6.01 hereof.
"Servicer Termination Notice" means the notice described in Section
6.01 hereof.
"Servicing Officer" shall mean those officers of the Servicer involved in,
or responsible for, the administration and servicing of the Purchased Assets, as
identified on the list of Servicing Officers furnished by the Servicer to the
Trustee and the Noteholders from time to time.
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"SPC" shall mean TWH Funding I, Inc., a Delaware corporation, and its
permitted successors and assigns.
"Subservicer" shall initially mean Sage until a successor Person shall
have become the Subservicer pursuant to the applicable provisions of this
Agreement, and thereafter "Subservicer" shall mean such successor Person.
"Subservicer Default" shall mean each of the occurrences or circumstances
which with notice or the lapse of time or both would be a Subservicer Event of
Default under this Agreement.
"Subservicer Event of Default" shall mean each of the occurrences or
circumstances enumerated in Section 7.02 hereof.
"Substitution Criterion" shall have the meaning specified in the Sale
Agreement.
"Substitute Receivable" shall have the meaning specified in the Sale
Agreement.
"TFI" shall mean Trendwest Funding I, Inc., a Delaware corporation, and
its permitted successors and assigns.
"Trustee" shall initially mean LaSalle National Bank, until a successor
Person shall have become the Trustee pursuant to the applicable provisions of
the Indenture, and thereafter "Trustee" shall mean such successor Person.
"Upgrade" shall have the meaning specified in the Indenture.
"Upgrade Contract" shall have the meaning specified in the Indenture.
ARTICLE 2
SERVICER REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties. The Servicer makes the
following representations and warranties to the Trustee and for the benefit
of the Noteholders which shall survive the Closing Date:
(a) Organization and Good Standing. The Servicer has been duly
incorporated and is validly existing in good standing as a corporation
under the laws of the State of Oregon, with requisite corporate power and
authority to own its properties, perform its obligations under this
Agreement and the Indenture and to transact the business in which it is
now engaged or in which it proposes to engage; the Servicer is duly
qualified to do business and is in good standing in each State in which
the nature of its business requires it to be so qualified, except where
failure to so qualify would not have a material adverse effect on the
ability of the Servicer to perform its obligations under this Agreement
and the Indenture.
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(b) Authorization and Binding Obligation. Each of this Agreement and
the Indenture has been duly authorized, executed and delivered by the
Servicer and constitutes the valid and legally binding obligation of the
Servicer enforceable against the Servicer in accordance with its terms,
subject as to enforcement to any bankruptcy, insolvency, reorganization
and other similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity regardless
of whether enforcement is sought in a court of equity or law.
(c) No Violation. The entering into of this Agreement and the
Indenture and the performance by the Servicer of its obligations under
this Agreement and the Indenture and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of the Servicer pursuant to
the terms of any material indenture, mortgage, deed of trust or other
agreement or instrument to which it is a party or by which it is bound or
to which any of its property or assets is subject, nor will such action
result in any violation of the provisions of its Articles of Incorporation
or By-laws, or any statute or any order, rule or regulation of any court
or any regulatory authority or other governmental agency or body having
jurisdiction over it or any of its properties; and no consent, approval,
authorization, order, registration or qualification of or with any court,
or any such regulatory authority or other governmental agency or body is
required for the Servicer to enter into this Agreement and the Indenture.
(d) No Proceedings. There are no proceedings or investigations
pending, or to the knowledge of the Servicer, threatened against or
affecting the Servicer or any subsidiary in or before any court,
governmental authority or agency or arbitration board or tribunal,
including but not limited to any such proceeding or investigation with
respect to any environmental or other liability resulting from the
ownership or use of any of the Credits, which, individually or in the
aggregate, involve the possibility of materially and adversely affecting
the properties, business, prospects, profits or condition (financial or
otherwise) of the Servicer and its subsidiaries, or the ability of the
Servicer to perform its obligations under this Agreement or the Indenture.
The Servicer is not in default with respect to any order of any court,
governmental authority or agency or arbitration board or tribunal.
(e) Approvals. The Servicer (i) is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject, (ii)
has not failed to obtain any licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its property or
to the conduct of its business, and (iii) is not in violation in any
material respect of any term of any agreement, charter instrument, bylaw
or instrument to which it is a party or by which it may be bound, which
violation or failure to obtain materially adversely affect the business or
condition (financial or otherwise) of the Servicer and its subsidiaries.
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(f) Investment Company. The Servicer is not an investment
company which is required to register under the Investment Company Act
of 1940, as amended.
(g) Fidelity Bond. The Servicer has insurance coverage for employee
dishonesty with respect to pension funds in an amount equal to $2,000,000
per occurrence and for employee dishonesty with respect to other funds in
an amount equal to $500,000 per occurrence.
Section 2.02. Covenants. (a) The Servicer covenants as to the
Purchased Assets:
(i) The Servicer shall not release or assign any Lien in favor of
the Trustee on any Credits related to any Contract in whole or in part,
except as permitted herein or in the Indenture.
(ii) The Servicer will in all material respects duly fulfill all
obligations on the Servicer's part to be fulfilled under or in connection
with the Purchased Assets. The Servicer will not amend, rescind, cancel or
modify any Contract or term or provision thereof, except as permitted
herein or in the Indenture, and the Servicer will not do anything that
would impair the rights of the Noteholders in the Purchased Assets, except
as contemplated herein or in the Indenture; provided that, without
limiting the foregoing, the Servicer may once per Contract over the
lifetime of such Contract allow the Obligor of such Contract to skip one
Scheduled Payment and add one month to the term of the related Contract;
provided, further, that such extension will not extend the date of the
last payment of any Contract one month beyond the Stated Maturity of the
Notes.
(iii) As more specifically set forth below, in performing its
servicing duties hereunder, the Servicer shall collect all payments
required to be made by the Obligors under the Contracts and enforce all
material rights of the Issuer under the Contracts. The Servicer shall not
assign, sell, pledge or exchange or in any way encumber or otherwise
dispose of the Credits, except as permitted hereunder or in the Indenture.
(b) The Servicer will deliver each of the accountings, statements
and reports described in Article 4 hereof to each party as set forth
therein.
(c) The Servicer shall maintain insurance coverage for employee
dishonesty with respect to pension funds in an amount greater than or
equal to $2,000,000 per occurrence and for employee dishonesty with
respect to other funds in an amount greater than or equal to $500,000 per
occurrence.
ARTICLE 3
ADMINISTRATION AND SERVICING OF CONTRACTS
Section 3.01. Responsibilities of Servicer. (a) The Servicer, for the
benefit of the Noteholders, shall be responsible for, and shall, in accordance
with its customary practices,
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pursue the managing, servicing, administering, enforcing and making of
collections on the Contracts, the Credits, the enforcement of the Trustee's
security interest in the Receivables and the Credits granted pursuant to the
Indenture, and, if applicable, the resale of the Credits, each in accordance
with applicable law and the standards and procedures set forth in this Agreement
and any related provisions of the Indenture, the Sale Agreement and the
Receivables Purchase Agreement. The Servicer's responsibilities shall include
collecting and posting of all payments, responding to inquiries of Obligors,
investigating delinquencies, accounting for collections and furnishing monthly
and annual statements to the Trustee and the Noteholders with respect to
payments and using its best efforts to maintain the perfected security interest
of the Trustee in the Trust Estate (except with respect to the Credits). Subject
to the terms and conditions of this Agreement, the Servicer (at its expense),
acting alone or through a subservicer, including the Subservicer, shall have
full power and authority, acting at its sole discretion, to do any and all
things in connection with such managing, servicing, administration, enforcement,
collection and such resale of the Credits that it may deem necessary or
desirable and in the best interests of the Noteholders, including the prudent
delegation of such responsibilities. Without limiting the generality of the
foregoing, the Servicer, in its own name or in the name of the Subservicer,
shall, and is hereby authorized and empowered by the Trustee, subject to Section
3.02 hereof, to execute and deliver (on behalf of itself, the Noteholders, the
Trustee or any of them) any and all instruments of satisfaction or cancellation,
or of partial or full release or discharge, and all other comparable
instruments, with respect to the Contracts, the Custodian Files and the Contract
Files. Subject to the terms and conditions of this Agreement, the Servicer,
acting alone or through the Subservicer, also may, in its sole discretion, waive
any late payment charge or penalty, or any other fees that may be collected in
the ordinary course of servicing any Contract. Notwithstanding the foregoing,
neither the Servicer, nor the Subservicer, shall, except pursuant to an Upgrade
or a judicial order from a court of competent jurisdiction, or as otherwise
expressly provided in this Agreement, release or waive the right to collect the
Scheduled Payments or any unpaid balance on any Contract. The Trustee shall, at
the expense of the Servicer, furnish the Servicer, or at the request of the
Servicer, the Subservicer, with any powers of attorney and other documents
necessary or appropriate to enable the Servicer or the Subservicer to carry out
their servicing and administrative duties hereunder, and the Trustee shall not
be responsible for the Servicer's or the Subservicer's application thereof.
Notwithstanding the appointment by the Servicer of the Subservicer or any
delegation of its responsibilities hereunder, the Servicer shall remain
primarily liable for the full performance of its obligations hereunder;
provided, however, that if the Servicer requests from the Holders the removal of
the Subservicer after the occurrence of a Subservicer Event of Default, or any
act or omission that with the passage of time would be a Subservicer Event of
Default, and the Holders of 66-2/3% in principal amount of the Notes Outstanding
do not consent to such request, the Servicer shall no longer be liable for any
subsequent acts of the Subservicer except any acts taken by Sage at the
direction of the Servicer.
(b) The Servicer shall conduct any Contract management, servicing,
administration, collection or enforcement actions in the following manner:
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(i) The Servicer, as agent for and on behalf of the Issuer, with
respect to any Defaulted Contract shall follow such practices and
procedures as are normal and consistent with the Servicer's standards and
procedures relating to its own contracts, receivables and vacation credits
that are similar to the Contracts, Receivables and the Credits, including
without limitation, the taking of appropriate actions to foreclose or
otherwise liquidate any such Defaulted Contract, together with the related
Credits, to collect any Guaranty Amounts, and to enforce the Issuer's
rights in or under the Sale Agreement and the Receivables Purchase
Agreement. The Servicer shall continue its customary practice of applying
payments on Defaulted Contracts and Delinquent Contracts first to
delinquent interest, then to interest and then to principal. All
Recoveries or Residual Proceeds in respect of any such Receivable and the
related Credits received by the Servicer or the Subservicer shall be
deposited in the Clearing Account pursuant to Section 3.03(a);
(ii) The Servicer may sue to enforce or collect upon Contracts as
agent for the Trustee. If the Servicer elects to commence a legal
proceeding to enforce a Contract, the act of commencement shall be deemed
to be an automatic assignment of the Contract to the Servicer for purposes
of collection only. If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce a Contract on the
ground that it is not a real party in interest or a holder entitled to
enforce the Contract, then the Trustee shall, at the Servicer's request
and expense, take such steps as the Servicer deems necessary and instructs
the Trustee in writing to take to enforce the Contract, including bringing
suit in its name or the name of the Issuer or the names of the
Noteholders, and the Trustee shall be indemnified by the Servicer for any
such action taken;
(iii) The Servicer shall exercise any rights of recourse against third
parties that exist with respect to any Contract in accordance with the
Servicer's usual practice and applicable law. In exercising recourse
rights, the Servicer is authorized on the Trustee's behalf to reassign the
Contract to the person against whom recourse exists to the extent
necessary, and at the price set forth in the document creating the
recourse. The Servicer will not reduce or diminish such recourse rights,
except to the extent that it exercises such right;
(iv) The Servicer may not accept Substitute Contracts that do not
comply with Section 3.10 hereof, Sections 3.03 and 3.04 of the Receivables
Purchase Agreement, Sections 3.03 and 3.04 of the Sale
Agreement and Section 4.03 of the Indenture;
(v) The Servicer may waive, modify or vary any terms of any Contract
or consent to the postponement of strict compliance with any such term if
in the Servicer's reasonable and prudent determination such waiver,
modification or postponement is not materially adverse to the Noteholders;
provided, however, that except as otherwise expressly permitted with
respect to an Upgrade, (A) the Servicer shall not forgive any payment, and
(B) the Servicer shall not permit any modification, waivers, variation or
postponements with respect to any Contract that would decrease the
Scheduled Payment, defer the payment of any principal or interest or any
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Scheduled Payment, reduce the Aggregate Collateral Value relating to the
Notes (except in connection with actual payments attributable to such
Aggregate Collateral Value), or prevent the complete amortization of the
Aggregate Collateral Value relating to the Notes from occurring by the
Calculation Date preceding the Stated Maturity. The Monthly Servicer's
Report shall indicate any modification of any Scheduled Payment pursuant
to Section 2.02(a)(ii) hereof; and
(vi) Notwithstanding any provision to the contrary contained in this
Agreement, the Servicer or the Subservicer shall exercise any right under
a Contract to accelerate the unpaid Scheduled Payments, due or to become
due thereunder in such a manner as to maximize the net proceeds available
to the Issuer; provided, however, that the Servicer will not accelerate
any Scheduled Payment unless permitted to do so by the terms of the
Contract and under applicable law.
Section 3.02. Standard of Care. In managing, administering, servicing,
enforcing and making collections on the Contracts and the Credits pursuant to
this Agreement, each of the Servicer and the Subservicer will provide such
services in a manner consistent with past practice and applicable law and will
not change such practice in any way that would cause an adverse material change
in such practice. In any event, each of the Servicer and the Subservicer
warrants that in providing such services it will exercise that degree of skill
and care consistent with that which other servicers in the industry customarily
exercise with respect to similar contracts and vacation credits owned or
serviced by them. Each of the Servicer and the Subservicer shall punctually
perform all of its obligations and agreements under this Agreement and shall
comply with all applicable federal and state laws and regulations, shall
maintain all state and federal licenses and franchises necessary for it to
perform its servicing responsibilities hereunder, and shall not materially
impair the rights of the Noteholders in any Contracts or payments thereunder.
Section 3.03. Clearing Account, ACH Payments and Servicer Remittances. (a)
The Servicer has previously instructed (or, with respect to Substitute
Contracts, will have instructed) each Obligor to remit his or her payments to
the Subservicer. The Subservicer shall deposit all payments for principal and
interest on the Receivables that it receives into an account (the "Clearing
Account") maintained at the Clearing Account Bank in the name of, and in the
sole control of, the Servicer. On each Business Day, the Subservicer shall, or
shall cause the Clearing Account Bank to, transfer all amounts in the Clearing
Account collected relating to the Contracts and the Receivables to the
Collection Account, which shall be an Eligible Account at the Clearing Account
Bank in the name of the Trustee on behalf of the Noteholders. The Trustee, based
solely on information set forth in the Monthly Servicer's Report, shall cause
the amounts in the Collection Account to be deposited in the Distribution
Account on the Remittance Date in an amount necessary to make the distributions
set forth in Section 12.02(d) of the Indenture on the related Payment Date.
(b) Except as otherwise provided in this Agreement, the Servicer, as agent
of the Issuer, shall remit or cause to be remitted to the Subservicer for
deposit in the Clearing Account by 4:00 p.m., Seattle time, on each Business Day
the amounts described below that
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have been received by the Servicer through 4:00 p.m., Seattle time, on the
preceding Business Day:
(i) all payments made under the Contracts relating to the
Receivables due after the Cut-Off Date, including prepayments but
excluding taxes, received directly by the Servicer;
(ii) all Residual Proceeds and Recoveries;
(iii) the Purchase Price of any Contract purchased by the
Servicer or the Issuer, to the extent received by the Servicer; and
(iv) all Guaranty Amounts.
The Servicer shall hold in trust for the benefit of the Noteholders any
payment it receives relating to items (i) through (iv) above until such time as
the Servicer transfers such payment to the Subservicer. The Subservicer shall
hold in trust for the benefit of the Holders of the Notes any payment it
receives relating to items (i) through (iv) above until such time as the
Subservicer transfers any such payment to the Clearing Account Bank for deposit
in the Clearing Account. Any such amounts held in the Clearing Account shall be
held in trust for the benefit of the Noteholders.
Section 3.04. Property Management. Trendwest will continue to manage the
Club in accordance with the management agreement between Trendwest and WorldMark
in existence as of the date hereof, as the same may be amended from time to time
on account of (i) a change in such agreement approved by a majority of the
members of WorldMark or (ii) a change in the agreement made in order to keep
Trendwest or WorldMark in compliance with federal, state or local laws, rules
and regulations, or (iii) as such agreement may be amended from time to time
with the written consent of the Holders of Notes representing 66-2/3% in
principal amount of the Notes Outstanding.
Section 3.05. Financing Statements. (a) The Servicer will make all UCC
filings and recordings as may be required pursuant to the terms of the
Indenture. The Servicer shall, in accordance with its customary servicing
procedures and at its own expense, be responsible for such steps as are
necessary to maintain perfection of such security interests. The Trustee hereby
authorizes the Servicer to re-perfect or to cause the re-perfection of such
security interest on its behalf as Trustee, as necessary.
(b) Within thirty (30) days from the date upon which the financing
statements described on Schedule I hereto appear in the records of the relevant
offices, the Servicer shall cause searches to be conducted in such offices and
promptly deliver the results of such searches to the counsel of the initial
Noteholders.
Section 3.06. [Reserved.]
Section 3.07. [Reserved.]
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Section 3.08. No Offset. Prior to the termination of this Agreement, the
obligations of the Servicer or the Subservicer under this Agreement shall not be
subject to any defense, counterclaim or right of offset which the Servicer or
the Subservicer have or may have against the Issuer, the Trustee or any
Noteholder whether in respect of this Agreement, the Indenture, the Notes, the
Sale Agreement, any Contract, Receivable, Credit or otherwise.
Section 3.09. Servicing Compensation. As compensation for the performance of
its obligations under this Agreement, the Servicer shall be entitled to receive
the Servicer Fee. The Servicer Fee shall be paid monthly, commencing on the
Initial Payment Date and terminating on the first to occur of (i) the receipt of
the last Scheduled Payment and related Residual Proceeds with respect to the
last remaining Contract, (ii) the receipt of Recoveries with respect to the last
remaining Contract, or (iii) the date on which the Issuer, Trendwest or TFI
purchases the last remaining Contract or Receivable, as the case may be. The
Servicer Fee shall be paid by the Issuer to the Servicer at the times and in the
priority as set forth in the Indenture. The Servicer shall pay all expenses
incurred by it in connection with its servicing activities hereunder, including,
without limitation, payment of the fees and disbursements of the Independent
Accountants, payment of expenses incurred in connection with distributions and
reports to the Trustee and the Noteholders and shall not be entitled to
reimbursement for such expenses; provided, however, that the Servicer will be
entitled to prompt reimbursement from the Issuer for reasonable costs and
expenses incurred by the Servicer (including reasonable attorney's fees and
out-of-pocket expenses) in connection with the realization, attempted
realization or enforcement of rights and remedies upon Defaulted Contracts, from
amounts received as Recoveries from any Defaulted Contracts. The Servicer shall
pay the fees and expenses of the Subservicer and shall not be entitled to
reimbursement therefor.
Section 3.10. Substitution or Purchase of Contracts and Receivables. (a)
Except with respect to an Upgrade, the Servicer shall not allow termination of a
Contract prior to the scheduled expiration date unless the Obligor prepays the
entire Contract in full or unless the Issuer has (i) pledged to the Trustee a
Substitute Receivable and the Issuer's interest in the related Credits under the
related Substitute Contract, and delivered to the Trustee the original executed
counterpart of such Substitute Contract or (ii) purchased such Receivable and
the Issuer's interest in the related Credits from the Trustee by remittance of
the Purchase Price to the Subservicer for deposit in the Clearing Account in
accordance with Section 3.03(a) hereof; provided, further, that purchases and
substitutions of Receivables pursuant to this subparagraph (a) shall comply with
the requirements of Section 4.03 of the Indenture and the criteria set forth in
Section 3.04 of the Sale Agreement and Section 3.04 of the Receivables Purchase
Agreement.
(b) The Servicer shall permit the Issuer to (i) purchase the Receivable
related to any Defaulted Contract or Delinquent Contract by remittance by the
Issuer to the Subservicer for deposit in the Clearing Account in accordance with
Section 3.03(a) hereof or (ii) substitute for the Receivable related to any
Defaulted Contract or Delinquent Contract a Substitute Receivable and the
Issuer's interest in the Credits under the related Substitute Contract, upon the
delivery to the Trustee of the original executed counterpart of the Substitute
Contract; provided that, purchases and substitutions of Receivables pursuant to
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this subparagraph (b) shall comply with the requirements of Section 4.03 of the
Indenture and the criteria set forth in Section 3.04 of the Sale Agreement and
Section 3.04 of the Receivables Purchase Agreement.
(c) Notwithstanding any other provision contained in this Agreement, the
Servicer shall not, with respect to a Defaulted Contract, negotiate or enter
into a new contract with the Obligor relating to the Credits or the Obligor's
obligations under such Defaulted Contract unless the Issuer has repurchased or
made a substitution for the Receivable related to such Defaulted Contract in the
manner set forth in subsection (b) hereof.
(d) In the event that Trendwest is required, as a result of the breach by
it of certain representations or warranties, to repurchase or substitute a
Contract pursuant to Section 3.03 of the Sale Agreement and Section 3.03 the
Receivables Purchase Agreement, the Servicer shall permit such repurchase or
substitution in accordance with the terms of Sections 3.03 and 3.04 thereof.
(e) On any Determination Date, if after giving effect to all distributions
to be made on the related Payment Date, the Reserve Account balance will be
equal to or greater than the Reserve Account Required Balance, Trendwest may, at
its option, purchase, in its own right and not as Servicer hereunder, the
Credits relating to a Defaulted Contract at a price equal to 25% of (i) the
initial principal balance of the related Contract with respect to Contracts
which have not been "upgraded," or (ii) the sum of the initial principal balance
of the original Contract and the increase in principal balance due to Upgrades
with respect to Contracts that have been "upgraded." On such Determination Date,
the proceeds of such sale shall be remitted by Trendwest to the Subservicer for
immediate deposit into the Clearing Account.
(f) Prior to the substitution of any Contract hereunder, the Subservicer
shall review its records and determine that there are no liens or other
interests in such Substitute Contract, the related Substitute Receivable and
related Credits other than that of Trendwest or TFI, as applicable. If there are
any such other interests in such Substitute Contract, such Contract shall not
become a substitute Contract until all such interests have been terminated.
ARTICLE 4
ACCOUNTINGS, STATEMENTS AND REPORTS
Section 4.01. Monthly Servicer's Reports. No later than 1:00 p.m., Chicago
time, on each Determination Date, the Servicer shall deliver to the Issuer, the
Placement Agents, the Trustee and each Noteholder the Monthly Servicer's Report
in the form attached as Exhibit A with respect to the activity in the
immediately preceding Due Period. In the course of preparing the Monthly
Servicer's Report, the Servicer shall seek direction from the Issuer as to
remittance of the funds to be paid pursuant to Section 12.02(d)(xiv) of the
Indenture. Contracts and Receivables which have been substituted for or
purchased by Trendwest or the Issuer shall be identified by the related Obligor
number. On each Determination Date, the Subservicer shall deliver to the
Trustee, in the form of a computer
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disk or tape or via electronic transmission in a format acceptable to the
Trustee, containing all the information in the Subservicer's electronic files
regarding each of the Receivables as well as any additional information
reasonably requested by the Trustee prior to the related Payment Date. The
Monthly Servicer's Report prepared for each Due Period for June, September,
December and March shall also include a summary of the following information as
of the end of such Due Period: the total number of Credits, whether sold or
unsold; and the number of developed properties of the Club; the name of each
such developed property and the total number of Credits allocated to each
developed property.
Section 4.02. Financial Statements; Certification as to Compliance; Notice
of Default. (a) The Servicer (or the successor Servicer if the initial Servicer
is no longer the Servicer) will deliver, or cause to be delivered, to the
Trustee, the Placement Agents and each Holder (and, upon the request of any
Noteholder, to any prospective transferee of any Note):
(i) within 120 days after the end of each fiscal year of each
Reported Company, a copy of such Reported Company's Financial Statements,
all in reasonable detail and accompanied by an opinion of a firm of
independent certified public accountants (which shall be (i) Molatore,
Peugh, McDaniel, Scroggin & Co. LLP, (ii) a legal successor thereto, or
(iii) a nationally recognized accounting firm) stating that such financial
statements present fairly the financial condition of such Reported Company
(or, in the case of a successor Servicer, such successor Servicer's
financial condition) and have been prepared in accordance with generally
accepted accounting principles consistently applied (except for changes in
application in which such accountants concur), and that the examination of
such accountants in connection with such financial statements has been
made in accordance with generally accepted auditing standards, and
accordingly included such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances;
(ii) within 60 days of the end of each fiscal quarter, unaudited
versions of each Reported Company's consolidated balance sheet and income
statement; and
(iii) with the Issuer's, the Servicer's and Trendwest's (if Trendwest
is not the Servicer) Financial Statements delivered pursuant to
subsections (a)(i) and (a)(ii) above, each of the Issuer, the Servicer and
Trendwest (if Trendwest is not the Servicer) deliver an Officer's
Certificate stating that such officer has reviewed the relevant terms of
the Indenture, the Sale Agreement, the Receivables Purchase Agreement and
this Agreement and has made, or caused to be made, under such officer's
supervision, a review of the transactions and conditions of such Reported
Company during the period covered by such Reported Company's Financial
Statements then being furnished, that the review has not disclosed the
existence of any Default or Event of Default under the Indenture or any
Servicer Default or Servicer Event of Default or, if a Default or Event of
Default under the Indenture or a Servicer Default or a Servicer Event of
Default exists, describing its nature, and the Issuer, with respect to a
Default or Event of Default, or the Servicer, with respect to a Servicer
Default or a Servicer Event of Default, describing what action such Person
has taken and is taking with respect thereto, and that on the basis of
such review the
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officer signing such certificate is of the opinion that during such period
the Servicer has serviced the Contracts in compliance with the procedures
hereof except as disclosed in such certificate;
(iv) with each Reported Company's Financial Statements delivered
pursuant to subsections (a)(i) and (a)(ii) above, each Reported Company
shall deliver an Officer's Certificate stating that such financial
statements present fairly the financial condition of such Reported
Company;
(v) immediately upon becoming aware of the existence of any
condition or event which constitutes a Servicer Default, a Servicer Event
of Default, a Subservicer Default or a Subservicer Event of Default
hereunder, a Default or an Event of Default under the Indenture, Sale
Agreement or Receivables Purchase Agreement, or a Trigger Event or Cash
Accumulation Event under the Indenture, a written notice describing its
nature and period of existence and what action the Servicer is or proposes
to take with respect thereto;
(vi) promptly upon the Servicer's becoming aware of:
(A) any proposed or pending investigation of it, the
Subservicer, the Club or the Issuer by any governmental authority
or agency, or
(B) any pending or proposed court or administrative proceeding
which involves or may involve the possibility of materially and
adversely affecting the properties, business, prospects, profits or
condition (financial or otherwise) of the Servicer, the Subservicer,
TFI, SPC, the Club or the Issuer,
a written notice specifying the nature of such investigation or proceeding
and what action the Servicer is taking or proposes to take with respect
thereto and evaluating its merits; and
(vi) with reasonable promptness any other data and information which
may be reasonably requested from time to time, including without
limitation any information required to be made available at any time to
any prospective transferee of any Notes in order to satisfy the
requirements of Rule 144A under the Securities Act of 1933, as amended.
(b) On or before each April 30, so long as any of the Notes are
outstanding, the Servicer shall furnish to the Trustee an Officer's Certificate
either stating that such action has been taken with respect to the recording,
filing, and rerecording and refiling of any financing statements and
continuation statements as necessary to maintain the interest of the Trustee
created by the Indenture, TFI or SPC created by the Sale Agreement and TFI
created Receivables Purchase Agreement with respect to the Trust Estate and
reciting the details of such action or stating that no such action is necessary
to maintain such interest. Such Officer's Certificate shall also describe the
recording, filing, rerecording and refiling
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of any financing statements and continuation statements that will be required to
maintain the interest of the Trustee in the Trust Estate until the date such
next Officer's Certificate is due.
Section 4.03. Independent Accountants' Reports. (a) Within thirty (30) days
of the Closing Date, the Servicer shall, at its expense, cause the Independent
Accountants to prepare a report, a form of which is attached as Exhibit B
hereto, to the effect that such Independent Accountants have reviewed a
statistically significant random sample (at the 95% confidence level) of the
Custodian Files and that such reviewed Custodian Files are in the possession of
the Subservicer and properly accounted for in the Subservicer's records.
(b) For each fiscal year (commencing with the fiscal year ending December
31, 1996), the Servicer at its expense shall cause the Independent Accountants
(who may also render and deliver other services to the Servicer and its
Affiliates) to prepare a report that shall include the information set forth in
the report set forth in paragraph (a) of this Section 4.03 and which shall also
include a report addressed to the Servicer, the Trustee and the Noteholders as
of the close of such year, to the effect that the Independent Accountants have
compared the information contained in the Monthly Servicer's Reports delivered
for a random three-month period during the relevant period with information
contained in the accounts and records for such period, and, where applicable, on
the basis of such procedures and comparison, report matters which come to the
Independent Accountants' attention to indicate that the information contained in
the Monthly Servicer's Reports does not reconcile with the information contained
in the Servicer's accounts and records. If any letter delivered pursuant to this
Section 4.03 (commencing with the letter relating to the fiscal year ending
December 31, 1996) discloses such exceptions, the Servicer at its expense shall
cause the Independent Accountants to deliver an agreed-upon procedures letter
addressed to the Servicer, the Trustee and the Noteholders for each subsequent
three-month period. Such obligation shall continue until the Independent
Accountants deliver a letter relating to a three-month period that does not
disclose any such exceptions. Thereafter, the Servicer shall cause a letter to
be delivered relating to each fiscal year in accordance with the first sentence
of this Section 4.03. The Servicer shall deliver to the Trustee a copy of any
such reports within 90 days of the close of the relevant period.
Section 4.04. Access to Certain Documentation and Information. (a) Each of
the Servicer and the Subservicer shall provide to the Trustee or any Noteholder
and their duly authorized representatives, attorneys or accountants access to
any and all documentation and to any existing data processing systems
(including, but not limited to, any data that can reasonably be generated
therefrom) regarding the Trust Estate (including the Contract Schedule) that the
Servicer and the Subservicer may possess, such access being afforded without
charge but only upon reasonable request and during normal business hours so as
not to interfere unreasonably with the Servicer's or Subservicer's normal
operations or customer or employee relations, at offices of the Servicer and the
Subservicer designated by the Servicer and the Subservicer. If a Servicer Event
of Default, a Subservicer Event of Default, a Cash Accumulation Event or a
Trigger Event has occurred, the reasonable costs of providing the foregoing
shall be borne by the Servicer; otherwise, the Person seeking the foregoing
shall pay its, his or her own expenses relating to the foregoing.
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(b) At all times during the term hereof, the Servicer shall keep available
at its principal executive office for inspection by Noteholders and the Trustee
a list of all Contracts the interests in which are then held as a part of the
Trust Estate, together with a reconciliation of such list to that set forth in
the Contract Schedule and each of the Monthly Servicer's Reports, indicating the
cumulative addition and removal of the Issuer's interest in the Contracts from
the Trust Estate.
(c) Each of the Servicer and the Subservicer will maintain accounts and
records as to each respective Contract serviced by the Servicer and the
Subservicer that are accurate and sufficiently detailed as to permit (i) the
reader thereof to know as of the most recent Calculation Date the status of such
Contract, including any payments, Residual Proceeds and Recoveries received or
owing (and the nature of each) thereon and (ii) the reconciliation between
payments, Residual Proceeds or Recoveries on (or with respect to) each Contract
and the amounts from time to time deposited in the Collection Account in respect
of such Contract.
(d) Each of the Servicer and the Subservicer will maintain all of its
computerized accounts and records so that, from and after the time of the
acquisition of an interest in the Purchased Assets by the Issuer, the Servicer's
and the Subservicer's accounts and records (including any back-up computer
archives) that refer to any Contract, Receivable or Credits indicate clearly
that the Receivables are owned by the Issuer and are pledged, together with the
Issuer's security interest in the related Credits, to the Trustee for the
benefit of the Noteholders. Indication of the Trustee's interest in a Receivable
will be deleted from or modified on the Servicer's accounts and records when,
and only when, the Receivable or related Contract has been paid in full,
replaced with a Substitute Contract or purchased by Trendwest or the Issuer or
assigned to the Servicer pursuant to this Agreement, as the case may be.
(e) Nothing in this Section 4.04 shall affect the obligation of the
Servicer or the Subservicer to observe any applicable law prohibiting disclosure
of information regarding the Obligors, and the failure to provide information
otherwise required by this Section 4.04 as a result of such observance by the
Servicer, shall not constitute a breach of this Section 4.04.
(f) All information obtained by the Trustee or any Noteholder regarding
any Reported Company (pursuant to Section 4.02 or otherwise), the Obligors and
the Contracts, whether upon exercise of its rights under this Section 4.04 or
otherwise, shall be maintained by the Trustee and the Noteholder, as applicable,
in confidence in accordance with procedures adopted by the Trustee or such
Noteholder, as applicable, in good faith to protect such confidential
information; provided that the Trustee and any Noteholder may deliver or
disclose such confidential information to (i) their directors, officers,
employees, agents, attorneys and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented by the
Notes), (ii) their financial advisors and other professional advisors who agree
to hold confidential such information substantially in accordance with the terms
of this Section 4.04(f), (iii) any other holder of any Note, (iv) any
Institutional Investor to which any Noteholder sells or offers to sell such Note
or
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any part thereof or any participation therein (if such Person has agreed in
writing prior to its receipt of such confidential information to be bound by the
provisions of this Section 4.04(f)), (v) any federal or state regulatory
authority having jurisdiction over the Trustee or any Noteholder, (vi) the
National Association of Insurance Commissioners or any similar organization, or
any nationally recognized rating agency that requires access to information
about the Noteholders' investment portfolio or (vii) any other Person to which
such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to the Trustee or
any Noteholder, (x) in response to any subpoena or other legal process, (y) in
connection with any litigation to which the Trustee or any Noteholder is a party
or (z) if an Event of Default has occurred and is continuing, to the extent the
Trustee or any Noteholder may reasonably determine such delivery and disclosure
to be necessary or appropriate in the enforcement or for the protection of the
rights and remedies under the Notes and this Agreement.
Section 4.05. Trustee to Cooperate. Upon payment (including through
application of any prepayment) in full of any Contract, the Servicer will notify
the Trustee by written certification (which certification shall include a
statement to the effect that all amounts received in connection with such
payments in full which are required to be deposited in the Clearing Account
pursuant to Section 3.03 hereof have been so deposited) of a Servicing Officer
and shall request delivery of the Contract to the Servicer in accordance with
Section 1.3 of the Custodian Agreement. Upon receipt of such delivery request,
the Custodian shall, within 7 days of such request by the Servicer, release such
Contract to the Servicer in accordance with the Custodian Agreement. Upon
release of such Contract, the Servicer is authorized to execute an instrument in
satisfaction of such Contract and to do such other acts and execute such other
documents as it deems necessary to discharge the Obligor thereunder and, if
applicable, release any security interest in the Credits related thereto. The
Servicer shall determine when a Contract has been paid in full. Upon the written
request of a Servicing Officer and subject to the Trustee's rights to indemnity
contained herein and in the Indenture, the Trustee shall perform such other acts
as reasonably requested in writing by the Servicer and otherwise cooperate with
the Servicer in enforcement of the Noteholders' rights and remedies with respect
to Contracts.
Section 4.06. Oversight of Servicing. (a) Prior to each Payment Date,
the Trustee shall review the Monthly Servicer's Report related thereto and
shall determine the following:
(i) that such Monthly Servicer's Report is complete on its face;
(ii) that the amounts credited to and withdrawn from the Collection
Account and the Reserve Account, and to be transferred to and withdrawn
from the Distribution Account and the balance of each such account, as set
forth in the records of the Trustee, are the same as the amount set forth
in the Monthly Servicer's Report;
(iii) that the Servicer has properly calculated the aggregate amounts
that are to be distributed pursuant to clauses (i), (ii)(A), (iii), (iv),
(v) and (vi) of Section 12.02(d) of the Indenture on such Payment Date;
and
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(iv) based solely on information set forth in the Monthly Servicer's
Report, determine that the Projected Income for the related Due Period
equals the sum of payments received as principal and interest from
Obligors due in such Due Period plus the amount of principal and interest
not paid on Delinquent Contracts and Defaulted Contracts (including
amounts due by virtue of canceled or bounced checks or other reversed
payments) minus any payments due in other Due Periods that were paid in
such Due Period (both late payments and prepayments).
(b) In the event of any discrepancy between the information set forth in
subparagraph (a) as calculated by the Servicer from that determined or
calculated by the Trustee, the Trustee shall promptly notify the Servicer of
such discrepancy. If within 30 days of such notice being provided to the
Servicer, the Trustee and the Servicer are unable to resolve such discrepancy,
the Trustee shall promptly notify the Holders of the Notes of such discrepancy.
(c) Based solely on the information included in the Contract Schedule
delivered on the Closing Date and the electronic reports provided on each
Payment Date thereafter, the Trustee shall determine that any Substitute
Contracts delivered under Section 3.10 satisfy the Substitution Criterion
described in clause (i) of the second sentence of Section 3.04(b) of the Sale
Agreement and clause (i) of the second sentence of Section 3.04(b) of the
Receivables Purchase Agreement.
(d) Other than as specifically set forth elsewhere in this Agreement, the
Trustee shall have no obligation to supervise, verify, monitor or administer the
performance of the Servicer or the Subservicer and shall have no liability for
any action taken or omitted by the Servicer or the Subservicer.
(e) The Trustee shall consult fully with the Servicer and the Subservicer
as may be necessary from time to time to perform or carry out the Trustee's
obligations hereunder, including the obligation to choose at any time a
successor to the duties and obligations of the Servicer as servicer or
Subservicer under Section 6.02 hereof.
(f) The Subservicer shall provide the Trustee with a copy of the software
that the Subservicer uses to service the Contracts, and the Trustee shall
maintain possession of such software in a manner that will protect the
proprietary information therein. The Trustee shall be under no obligation to
load the software onto its computer systems and may not release such software to
a third party unless the Subservicer is removed or otherwise is no longer acting
as the Subservicer. The Trustee shall return such software upon final payment of
all amounts due on the Notes.
ARTICLE 5
THE SERVICER, THE SUBSERVICER AND THE ISSUER
Section 5.01. Servicer and Subservicer Indemnification. (a) The Servicer
shall indemnify and hold harmless the Trustee, TFI, SPC, the Issuer, and the
Trust Estate, for the
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benefit of the Noteholders, from and against any loss, liability, claim,
expense, damage or injury suffered or sustained to the extent that such loss,
liability, claim, expense, damage or injury arose out of or was imposed by
reason of the failure by the Servicer to perform its duties under this Agreement
or are attributable to errors or omissions of the Servicer related to such
duties; provided, however, that the Servicer shall not indemnify any party to
the extent that acts of fraud, gross negligence or breach of fiduciary duty by
such party contributed to such loss, liability, claim, expense, damage or
injury.
(b) The Subservicer shall indemnify and hold harmless the Trustee, TFI,
SPC, the Issuer, the Servicer and the Trust Estate, for the benefit of the
Noteholders, from and against any loss, liability, claim, expense, damage or
injury suffered or sustained to the extent that such loss, liability, claim,
expense, damage or injury arose out of or was imposed by reason of the failure
by the Subservicer to perform its duties under this Agreement or are
attributable to errors or omissions of the Subservicer related to such duties;
provided, however, that the Subservicer shall not indemnify any party to the
extent that acts of fraud, gross negligence or breach of fiduciary duty by such
party contributed to such loss, liability, claim, expense, damage or injury.
(c) Indemnification under this Section 5.01 shall include, without
limitation, reasonable fees and expenses of counsel and expenses of litigation
reasonably incurred. If the Servicer or Subservicer has made any indemnity
payments to the Trustee or the Noteholders pursuant to this Section and such
party thereafter collects any of such amounts from others, such party will
promptly repay such amounts collected to the Servicer or Subservicer, as
applicable, without interest. The provisions of this Section 5.01 shall survive
any expiration or termination of this Agreement.
Section 5.02. Corporate Existence; Reorganizations. (a) The Servicer and the
Subservicer shall keep in full effect their existence and good standing as
corporations in the State of their incorporation and will obtain and preserve
their qualification to do business as foreign corporations in each jurisdiction
in which such qualification is or shall be necessary to enable the Servicer or
the Subservicer to perform their duties under this Agreement, except where the
failure to so qualify would not have a material adverse effect on the Trust
Estate or the ability of the Servicer or the Subservicer to perform their duties
hereunder; provided, however, that the Servicer and the Subservicer may
reincorporate in another State, if to do so would be in the best interests of
the Servicer or the Subservicer and would not have a material adverse effect
upon the Noteholders.
(b) Neither the Servicer nor the Subservicer shall (i) convey, transfer or
lease substantially all of its assets as an entirety to any Person, or (ii)
merge or consolidate with another Person, unless such Person or the merged or
consolidated entity acquires substantially all the assets of the Servicer or the
Subservicer, as the case may be, as an entirety and executes and delivers to the
Issuer and the Trustee an agreement, in form and substance reasonably
satisfactory to the Issuer and the Trustee, which contains an assumption by such
Person or entity of the due and punctual performance and observance of each
covenant and condition to be performed or observed by the Servicer or the
Subservicer, as the case may be, under this Agreement; provided that nothing
herein shall prevent the
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Servicer from selling contracts and receivables which are not Purchased Assets
pursuant to a receivables financing.
Section 5.03. Limitation on Liability of the Servicer, the Subservicer and
Others. Except as provided in Section 5.01, the Servicer, the Subservicer and
any of the officers, directors, employees or agents of the Servicer or the
Subservicer shall not be under any liability for any action taken or for
refraining from the taking of any action in their capacity as Servicer or
Subservicer pursuant to this Agreement; provided, however, that this provision
shall not protect the Servicer or Subservicer or any such Person against any
liability which would otherwise be imposed by reason of willful misconduct, bad
faith or negligence (which includes negligence with respect to the duties of the
Servicer or Subservicer explicitly set forth in this Agreement) in the
performance of its duties hereunder. The Servicer, the Subservicer and any
officer, director, employee or agent of the Servicer or the Subservicer may rely
in good faith on any document of any kind prima facie properly executed and
submitted by any Person with respect to any matters arising hereunder. No
implied covenants or obligations shall be read into the Servicing Agreement
against the Servicer or the Subservicer. In the event the Servicer or the
Subservicer perform any activities beyond the requirements of this Agreement,
they shall have the option but will not be required to perform such activities
in the future.
Section 5.04. The Servicer and Subservicer Not to Resign. (a) Neither the
Servicer nor the Subservicer shall resign from the duties and obligations hereby
imposed on it by this Agreement except upon a determination by the Board of
Directors of the Servicer or Subservicer, as the case may be, that by reason of
change in applicable legal requirements, with which the Servicer or Subservicer,
as the case may be, cannot reasonably comply, the continued performance by the
Servicer or the Subservicer, as the case may be, of its duties under this
Agreement would cause it to be in violation of such legal requirements, said
determination to be evidenced by a resolution from the appropriate Board of
Directors to such effect, accompanied by an Opinion of Counsel to such effect
and reasonably satisfactory to the Trustee.
(b) No such resignation shall become effective until a successor Servicer
or Subservicer, as the case may be, shall have assumed the responsibilities and
obligations of the Servicer or Subservicer hereunder.
(c) Except as provided in Sections 5.02 and 6.01 hereof, the duties and
obligations of the Servicer and Subservicer under this Agreement shall continue
until this Agreement shall have been terminated as provided in Section 8.01
hereof, and shall survive the exercise by the Issuer or the Trustee of any right
or remedy under this Agreement, or the enforcement by the Issuer, the Trustee or
any Noteholder of any provision of the Notes or this Agreement.
Section 5.05. Issuer Indemnification. The Issuer shall indemnify and hold
harmless the Servicer and the Subservicer (but solely from the amounts to be
distributed as set forth in Sections 12.02(d)(xiv) and 12.03(d)(ii) of the
Indenture) from and against any loss, liability, expense, damage or injury
suffered or sustained by the Servicer or the Subservicer, including but not
limited to any judgment, award, settlement, reasonable attorneys' fees and other
costs and expenses incurred in connection with the defense of any actual or
threatened
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action, proceeding or claim, which arises out of the Servicer's or the
Subservicer's activities hereunder; provided, however, that the Issuer shall not
indemnify the Servicer or the Subservicer if the Servicer's or the Subservicer's
activities constituted fraud, willful misconduct, negligence (which includes
negligence with respect to the duties of the Servicer which are explicitly set
forth in this Agreement) or breach of fiduciary duty by the Servicer or the
Subservicer for any amounts for which the Servicer or Subservicer is obligated
to indemnify the Issuer or other Persons pursuant to Section 5.01 hereof.
ARTICLE 6
SERVICING TERMINATION
Section 6.01. Servicer Events of Default. (a) Any of the following
acts or occurrences shall constitute a Servicer Event of Default:
(i) any failure by the Servicer to deliver to the Subservicer for
payment to Noteholders any proceeds or payments received from an Obligor
or in respect of the Trust Estate and required to be so delivered under
the terms of the Indenture and this Agreement that continues unremedied
until 1:00 p.m., Chicago time, on the second successive Business Day
following such failure; provided, however, that the Subservicer, upon
receiving actual knowledge of such failure, shall give the Servicer and
the Trustee prompt written, telecopied or telephonic notice of such
failure. Notwithstanding the foregoing, any failure by the Subservicer to
deliver such notice to the Servicer shall not prevent the occurrence of a
Servicer Event of Default; or
(ii) any failure by the Servicer to deliver a Monthly Servicer's
Report pursuant to Section 4.01 hereof that continues unremedied until
1:00 p.m., Chicago time, the following Business Day; provided, however,
that if the Trustee has actual knowledge that the Servicer has not
delivered the Monthly Servicer's Report by 1:00 p.m., Chicago time, on a
Determination Date, the Trustee shall give the Servicer written,
telecopied or telephonic notice of such failure. Notwithstanding the
foregoing, any failure by the Trustee to deliver such notice to the
Servicer shall not prevent the occurrence of a Servicer Event of Default;
or
(iii) any failure by the Servicer to remit any Purchase Price received
by it to the Subservicer that continues unremedied until 4:00 p.m.,
Chicago time, the following Business Day; provided, however, that if the
Servicer has not remitted any Purchase Price received by it to the
Subservicer by 2:00 p.m., Chicago time, on the Determination Date and the
Trustee has received written notification from the Subservicer by way of
the Monthly Servicer's Report or otherwise that such Purchase Price has
not been paid, the Trustee shall give the Servicer prompt written,
telecopied or telephonic notice of such failure. Notwithstanding the
foregoing, any failure by the Trustee to deliver such notice to the
Servicer shall not prevent the occurrence of a Servicer Event of Default;
or
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(iv) any failure by the Servicer to make remittances (other than a
remittance of Purchase Price referred to in clause (iii) above) or deliver
notices pursuant to Section 3.03 hereof, that continues unremedied until
1:00 p.m., Chicago time, of the second successive Business Day; or
(v) any failure on the part of the Servicer duly to observe or
perform any other covenants or agreements of the Servicer set forth in
this Agreement or the Indenture, as the case may be, or any representation
or warranty of the Servicer set forth in Section 2.01 of this Agreement
shall prove to be incorrect in any material respect, which failure or
breach continues unremedied for a period of 30 days after the date on
which the Servicer becomes aware of such failure or breach, or receives
written notice of such failure or breach; or
(vi) any assignment by the Servicer to a delegate of its duties or
rights under this Agreement, except as specifically permitted hereunder,
or any attempt to make such an assignment; or
(vii) the entry of a decree or order for relief by a court having
jurisdiction in respect of the Servicer or a petition against the Servicer
in an involuntary case under any federal bankruptcy laws, as now or
hereafter in effect, or any other present or future federal or state
bankruptcy, insolvency or similar law, or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official for the Servicer or for any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Servicer and
the continuance of any such decree or order unstayed and in effect, or
failure for such petition to be dismissed, for a period of 60 consecutive
days; or
(viii) the commencement by the Servicer of a voluntary case under any
federal bankruptcy laws, as now or hereafter in effect, or any other
present or future federal or state bankruptcy, insolvency, reorganization
or similar law, or the consent by the Servicer to the appointment of or
taking possession by a conservator, receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official in any
insolvency, readjustment of debt, marshaling of assets and liabilities,
bankruptcy or similar proceedings of or relating to the Servicer relating
to a substantial part of its property, or the making by the Servicer of an
assignment for the benefit of creditors, or the failure by the Servicer
generally to pay its debts as such debts become due or if the Servicer
shall admit in writing its inability to pay their debts as they become
due, or the taking of corporate action by the Servicer in furtherance of
any of the foregoing; or
(ix) the stockholders' equity of the Servicer and its consolidated
subsidiaries, determined in accordance with generally accepted accounting
principles, as would be shown on a consolidated balance sheet for such
Persons, is below $5,000,000; or
(x) the occurrence of a Trigger Event if the initial Servicer
is the Servicer; or
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(xi) the occurrence of a Subservicer Event of Default.
(b) If a Servicer Event of Default shall have occurred and be continuing,
the Trustee shall, upon written direction of the Holders of Notes representing
not less than 66-2/3% in principal amount of the Notes Outstanding, by notice
(the "Servicer Termination Notice") given in writing to the Servicer terminate
all, but not less than all, of the rights and obligations (except as expressly
provided herein) of the Servicer under this Agreement. Notwithstanding the
foregoing, a delay in or failure of performance under Sections 6.01(a)(ii) or
6.01(a)(v) hereof for a period of 30 or more days shall not constitute a
Servicer Event of Default if such delay or failure could not have been prevented
by the exercise of reasonable diligence by the Servicer and such delay or
failure was caused by acts of declared or undeclared war, public disorder,
rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes,
earthquakes, floods or similar causes; provided, however, that in any event,
such delay or failure shall constitute a Servicer Event of Default if it
continues unremedied for a period of 35 days. The preceding sentence shall not
relieve the Servicer from using its best efforts to perform its obligations in a
timely manner in accordance with the terms of this Agreement, and the Servicer
shall provide the Trustee, the Issuer and the Noteholders with prompt notice of
such failure or delay by it or the Subservicer, together with a description of
its efforts to so perform its obligations.
(c) [Reserved]
(d) On or after the receipt by the Servicer of a Servicer Termination
Notice, all authority and power of the Servicer under this Agreement, whether
with respect to the Notes or the Contracts or otherwise, shall pass to and be
vested in the successor Servicer appointed pursuant to Section 6.02 hereof, and,
without limitation, such successor Servicer is hereby authorized and empowered
to execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer of the Contracts and
related documents, or otherwise. The Servicer agrees to cooperate with the
Trustee and the successor Servicer in effecting the termination of the
responsibilities and rights of the Servicer hereunder, including, without
limitation, the transfer to the successor Servicer for administration by it of
all cash amounts that shall at the time be held by the Servicer for deposit, or
have been deposited by the Servicer or thereafter received with respect to
Contracts. To assist the successor Servicer in enforcing all rights under the
Contracts, the outgoing Servicer, at its own expense, shall transfer its records
(electronic and otherwise) relating to such Contracts to the successor Servicer
in such form as the successor Servicer may reasonably request and shall transfer
the related Contracts (to the extent not held by the Trustee) and all other
records, correspondence and documents relating to the Contracts that it may
possess to the successor Servicer in the manner and at such times as the
successor Servicer shall reasonably request.
Section 6.02. Appointment of Successor Servicer. (a)(i) On and after the
time at which the Servicer resigns as Servicer pursuant to Section 5.04 hereof
or is terminated as Servicer pursuant to Section 6.01 hereof, the Trustee shall,
at the direction of Holders of
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<PAGE> 27
Notes representing not less than 66-2/3% in principal amount of the Notes
Outstanding appoint a successor Servicer.
(ii) The successor Servicer shall be the successor in all respects to the
Servicer in its capacity as Servicer under this Agreement, and the transactions
set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof; provided, however, that any such successor
shall not be liable for any acts or omissions of the outgoing Servicer or for
any breach by the outgoing Servicer of any of its representations and warranties
contained herein or in any related document or agreement. Subject to the consent
of the Holders representing not less than 66-2/3% in principal amount of the
Notes Outstanding, the successor Servicer may subcontract with another firm to
act as subservicer so long as the successor Servicer remains fully responsible
and accountable for performance of all obligations of the Servicer on and after
the time the Servicer receives the Servicer Termination Notice. The successor
Servicer shall be entitled to the Servicer Fee in connection with acting as
Servicer hereunder.
(b) The Servicer, the Subservicer, the Issuer, the Trustee and any
successor Servicer or successor Subservicer shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
Upon any succession, such successor Servicer as well as any successor
Subservicer shall notify the Obligors that it has been appointed Servicer under
this Agreement with respect to the Contracts.
Section 6.03. Notification to Noteholders. The Servicer shall promptly
notify the Subservicer, the Issuer and the Trustee of any Servicer Event of
Default upon actual knowledge thereof by an officer of the Servicer. Upon any
termination of, or appointment of a successor to, the Servicer pursuant to this
Article 6, the Trustee shall give prompt written notice thereof to the
Noteholders at their respective addresses appearing in the Note Register.
Section 6.04. Waiver of Past Defaults. The Trustee shall, at the direction
of the Holders of Notes representing not less than 66-2/3% in principal amount
of the Notes Outstanding, on behalf of all Noteholders, waive any default by the
Servicer in the performance of its obligations hereunder and its consequences,
other than a default with respect to required deposits and payments in
accordance with Article 3 or a default of the type set forth in clause (vii) or
(viii) of Section 6.01(a) hereof, which waiver shall require the consent of each
Noteholder. Upon any such waiver of a past default, such default shall cease to
exist, and any Servicer Event of Default arising therefrom shall be deemed to
have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent thereon
except to the extent expressly waived.
Section 6.05. Effects of Termination of Servicer. (a) Upon the appointment
of a successor Servicer, the predecessor Servicer shall remit any Scheduled
Payments and any other payments or proceeds that such predecessor may receive
pursuant to any Contract or otherwise to such successor after such date of
appointment.
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<PAGE> 28
(b) After the delivery of a Servicer Termination Notice, the outgoing
Servicer shall have no further obligations with respect to the management,
administration, servicing, enforcement, custody or collection of the Contracts,
and the successor Servicer shall have all of such obligations, except that the
outgoing Servicer will transmit or cause to be transmitted directly to such
successor Servicer promptly on receipt and in the same form in which received,
any amounts held by the outgoing Servicer (properly endorsed where required for
such successor to collect them) received as payments upon or otherwise in
connection with the Contracts. The outgoing Servicer's indemnification
obligations pursuant to Section 5.01 hereof will survive the termination of the
Servicer but will not extend to any acts or omissions of a successor Servicer.
Section 6.06. No Effect on Other Parties. (a) Upon any termination of the
rights and powers of the Servicer pursuant to Section 6.01, or upon any
appointment of a successor Servicer, all the rights, powers, duties and
obligations of Trendwest under this Agreement, the Indenture, the Receivables
Purchase Agreement and the Sale Agreement, other than Trendwest's rights,
powers, duties and obligations as Servicer therein, shall remain unaffected by
such termination or appointment and shall remain in full force and effect
thereafter.
ARTICLE 7
THE SUBSERVICER
Section 7.01. Representations and Warranties. The Subservicer makes
the following representations and warranties to the Trustee and for the
benefit of the Noteholders which shall survive the Closing Date:
(a) Organization and Good Standing. The Subservicer has been duly
incorporated and is validly existing in good standing as a corporation
under the laws of the State of Washington, with requisite corporate power
and authority to own its properties, perform its obligations under this
Agreement and to transact the business in which it is now engaged or in
which it proposes to engage; the Subservicer is duly qualified to do
business and is in good standing in each State in which the nature of its
business requires it to be so qualified, except where failure to so
qualify would not have a material adverse effect on the ability of the
Subservicer to perform its obligations under this Agreement.
(b) Authorization and Binding Obligation. This Agreement has been
duly authorized, executed and delivered by the Subservicer and constitutes
the valid and legally binding obligation of the Subservicer enforceable
against the Subservicer in accordance with its terms, subject as to
enforcement to any bankruptcy, insolvency, reorganization and other
similar laws of general applicability relating to or affecting creditors'
rights generally and to general principles of equity regardless of whether
enforcement is sought in a court of equity or law.
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<PAGE> 29
(c) No Violation. The entering into of this Agreement and the
performance by the Subservicer of its obligations under this Agreement and
the consummation of the transactions contemplated herein will not conflict
with or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the property or assets of the
contemplated pursuant to the terms of any material indenture, mortgage,
deed of trust or other agreement or instrument to which it is a party or
by which it is bound or to which any of its property or assets is subject,
nor will such action result in any violation of the provisions of its
Articles of Incorporation or By-laws, or any statute or any order, rule or
regulation of any court or any regulatory authority or other governmental
agency or body having jurisdiction over it or any of its properties; and
no consent, approval, authorization, order, registration or qualification
of or with any court, or any such regulatory authority or other
governmental agency or body is required for the Subservicer to enter into
this Agreement.
(d) No Proceedings. There are no proceedings or investigations
pending, or to the knowledge of the Subservicer, threatened against or
affecting the Subservicer or any subsidiary in or before any court,
governmental authority or agency or arbitration board or tribunal,
including but not limited to any such proceeding or investigation with
respect to any environmental or other liability resulting from its
business which, individually or in the aggregate, involve the possibility
of materially and adversely affecting the properties, business, prospects,
profits or condition (financial or otherwise) of the Subservicer, or the
ability of the Subservicer to perform its obligations under this
Agreement. The Subservicer is not in default with respect to any order of
any court, governmental authority or agency or arbitration board or
tribunal.
(e) Approvals. The Subservicer (i) is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject, (ii)
has not failed to obtain any licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its property or
to the conduct of its business, and (iii) is not in violation in any
material respect of any term of any agreement, charter instrument, bylaw
or instrument to which it is a party or by which it may be bound, which
violation or failure to obtain materially adversely affect the business or
condition (financial or otherwise) of the Subservicer and its
subsidiaries.
Section 7.02. Subservicer Events of Default. (a) Any of the following
acts or occurrences shall constitute a Subservicer Event of Default:
(i) any failure by the Subservicer to deliver to the Clearing
Account Bank for deposit in the Clearing Account any proceeds or payments
received from an Obligor or the Servicer or in respect of the Trust Estate
and required to be so delivered under the terms of the Indenture and this
Agreement that continues unremedied until 1:00 p.m., Chicago time, on the
second successive Business Day following such failure; provided, however,
that the Trustee, upon receiving actual knowledge of such failure, shall
give the Subservicer prompt written, telecopied or
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<PAGE> 30
telephonic notice of such failure. Notwithstanding the foregoing, any
failure by the Trustee to deliver such notice to the Subservicer shall not
prevent the occurrence of a Subservicer Event of Default; or
(ii) any failure on the part of the Subservicer duly to observe or
perform any other covenants or agreements of the Subservicer set forth in
this Agreement, or any representation or warranty of the Subservicer set
forth in Section 7.01 of this Agreement shall prove to be incorrect in any
material respect, which failure or breach continues unremedied for a
period of 30 days after the date on which the Subservicer becomes aware of
such failure or breach, or receives written notice of such failure or
breach; or
(iii) any assignment by the Subservicer to a delegate of its duties or
rights under this Agreement, except as specifically permitted hereunder,
or any attempt to make such an assignment; or
(iv) the entry of a decree or order for relief by a court having
jurisdiction in respect of the Subservicer or a petition against the
Subservicer in an involuntary case under any federal bankruptcy laws, as
now or hereafter in effect, or any other present or future federal or
state bankruptcy, insolvency or similar law, or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official for the Subservicer or for any substantial part of its property,
or ordering the winding up or liquidation of the affairs of the
Subservicer and the continuance of any such decree or order unstayed and
in effect, or failure for such petition to be dismissed, for a period of
60 consecutive days; or
(v) the commencement by either the Subservicer of a voluntary case
under any federal bankruptcy laws, as now or hereafter in effect, or any
other present or future federal or state bankruptcy, insolvency,
reorganization or similar law, or the consent by either the Subservicer to
the appointment of or taking possession by a conservator, receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official in any insolvency, readjustment of debt, marshaling of assets and
liabilities, bankruptcy or similar proceedings of or relating to the
Subservicer relating to a substantial part of its property, or the making
by the Subservicer of an assignment for the benefit of creditors, or the
failure by the Subservicer generally to pay its debts as such debts become
due or if the Subservicer shall admit in writing its inability to pay
their debts as they become due, or the taking of corporate action by the
Subservicer in furtherance of any of the foregoing; or
(b) If a Subservicer Event of Default shall have occurred and be
continuing, then the Trustee shall, upon written direction of the Holders of
Notes representing 66-2/3% in principal amount of the Notes Outstanding, by
notice (the "Subservicer Termination Notice") given in writing to the
Subservicer terminate all, but not less than all, of the rights and obligations
of the Subservicer under this Agreement. Notwithstanding the foregoing, a delay
in or failure of performance under Sections 7.02(a)(ii) hereof for a period of
30 or more days shall not constitute a Subservicer Event of Default if such
delay or failure could
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<PAGE> 31
not have been prevented by the exercise of reasonable diligence by the
Subservicer and such delay or failure was caused by acts of declared or
undeclared war, public disorder, rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes, floods or similar causes; provided,
however, that in any event, such delay or failure shall constitute a Subservicer
Event of Default if it continues unremedied for a period of 35 days. The
preceding sentence shall not relieve the Subservicer from using its best efforts
to perform its obligations in a timely manner in accordance with the terms of
this Agreement, and the Subservicer shall provide the Trustee, the Issuer and
the Noteholders with prompt notice of such failure or delay by it, together with
a description of its efforts to so perform its obligations.
Section 7.03. Appointment of Successor Subservicer. (a)(i) On and after the
time at which Subservicer resigns pursuant to Section 5.04 hereof or is
terminated as Subservicer pursuant to Section 7.02(b) hereof, the Trustee shall,
at the direction of Holders of Notes representing at least 66-2/3% in principal
amount of the Notes Outstanding appoint a successor Subservicer.
(ii) The successor Subservicer shall be the successor in all respects to
the Subservicer in its capacity as Subservicer under this Agreement, and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the
Subservicer by the terms and provisions hereof; provided, however, that any such
successors shall not be liable for any acts or omissions of the outgoing
Subservicer, as the case may be, or for any breach by either the outgoing
Subservicer of any of its representations and warranties contained herein or in
any related document or agreement.
(b) The Servicer, the Subservicer, the Issuer, the Trustee and any
successor Servicer or successor Subservicer shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
Upon any succession, such successor Servicer as well as any successor
Subservicer shall notify the Obligors that it has been appointed Servicer or
Subservicer, as the case may be, under this Agreement with respect to the
Contracts.
Section 7.04. Notification to Noteholders. The Subservicer shall promptly
notify the Servicer, the Issuer and the Trustee of any Subservicer Event of
Default upon actual knowledge thereof by the Subservicer. Upon any termination
of, or appointment of a successor to, the Subservicer pursuant to this Article
7, the Trustee shall give prompt written notice thereof to the Noteholders at
their respective addresses appearing in the Note Register.
Section 7.05. Waiver of Past Defaults. The Trustee shall, at the direction
of the Holders of Notes representing more than 66-2/3% in principal amount of
the Notes Outstanding, on behalf of all Noteholders, waive any default by the
Subservicer in the performance of its obligations hereunder and its
consequences, other than a default with respect to required deposits and
payments in accordance with Article 3 or a default of the type set forth in
clause (iv) or (v) of Section 7.02(a) hereof, which waiver shall require the
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<PAGE> 32
consent of each Noteholder. Upon any such waiver of a past default, such default
shall cease to exist, and any Subservicer Event of Default arising therefrom
shall be deemed to have been remedied for every purpose of this Agreement. No
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon except to the extent expressly waived.
Section 7.06. Effects of Termination of Subservicer. (a) Upon the
appointment of a successor Subservicer, the predecessor Subservicer shall remit
any Scheduled Payments and any other payments or proceeds that such predecessor
may receive pursuant to any Contract or otherwise to such successor after such
date of appointment.
(b) After the delivery of a Subservicer Termination Notice, the outgoing
Subservicer shall have no further obligations with respect to the management,
administration, servicing, enforcement, custody or collection of the Contracts,
and the successor Subservicer shall have all of such obligations, except that
the outgoing Subservicer will transmit or cause to be transmitted directly to
such successor Subservicer promptly on receipt and in the same form in which
received, any amounts held by the outgoing Subservicer (properly endorsed where
required for such successor to collect them) received as payments upon or
otherwise in connection with the Contracts.
ARTICLE 8
MISCELLANEOUS PROVISIONS
Section 8.01. Termination of the Servicing Agreement. (a) Absent a
termination pursuant to Section 6.01 or 7.02 hereof, the respective duties and
obligations of the Servicer, the Subservicer, the Issuer and the Trustee created
by this Agreement shall terminate upon the discharge of the Indenture in
accordance with its terms; and the respective duties and obligations of the
Trustee shall terminate with respect to the Trustee in the event the Trustee
resigns or is replaced under Section 7.09 of the Indenture; provided, however,
that no resignation or removal of the Trustee and no appointment of a successor
Trustee shall become effective until the acceptance of appointment by the
successor Trustee under Section 7.10 of the Indenture. Upon the termination of
this Agreement pursuant to this Section 8.01(a), each of the Servicer and the
Subservicer shall pay all monies with respect to the Receivables and Credits
held by the Servicer or the Subservicer, as the case may be, and to which the
Servicer and the Subservicer or the Subservicer, as the case may be, is not
entitled, to the Issuer or upon the Issuer's order. Each of the Servicer's and
Subservicer's indemnification obligations pursuant to Section 5.01 hereof will
survive the termination of this Agreement.
(b) This Agreement shall not be automatically terminated as a result of an
Event of Default under the Indenture or any action taken by the Trustee
thereafter with respect thereto, and any liquidation or preservation of the
Trust Estate by the Trustee thereafter shall be subject to the rights of the
Servicer to service the Receivables and to collect servicing compensation as
provided hereunder.
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<PAGE> 33
Section 8.02. Amendments. (a) This Agreement may be amended from time to
time by the Issuer, the Subservicer and the Servicer, with the consent of the
Trustee, and the Holders of not less than 66-2/3% in principal amount of Notes
outstanding, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement; provided,
however, that no such amendment shall, without the consent of each Noteholder
(i) alter the priorities with which any allocation of funds shall be made under
this Agreement; (ii) permit the creation of any lien on the Trust Estate (other
than the lien of the Indenture) or any portion thereof or deprive any such
Noteholder of the benefit of this Agreement with respect to the Trust Estate or
any portion thereof; (iii) modify any provision herein relating to the voting
percentage of Noteholders necessary to grant consent or give direction, or (iv)
modify this Section 8.02 or Sections 6.02 or 6.04 hereof.
(b) Promptly after the execution of any amendment, the Servicer shall send
to the Subservicer, the Trustee, the Rating Agency and each Holder of the Notes
a conformed copy of each such amendment.
(c) It shall be necessary, in any consent of Noteholders under this
Section 8.02, to approve the particular form of any proposed amendment. The
manner of obtaining such consent and of evidencing the authorization of the
execution thereof by Noteholders shall be subject to such reasonable regulations
as the Trustee may prescribe.
(d) Any amendment or modification effected contrary to the provisions of
this Section 8.02 shall be void.
Section 8.03. Governing Law. This Agreement shall be construed in accordance
with the internal laws of the State of New York without regard to conflict of
laws principles and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
Section 8.04. Notices, etc., to Trustee, Issuer, Servicer and Subservicer.
Any request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other document provided or permitted by this Agreement to be made
upon, given or furnished to, or filed with any party hereto shall be sufficient
for every purpose hereunder if in writing and telecopied or mailed, first-class
postage prepaid and addressed to the appropriate address below:
(a) to the Trustee at 135 South LaSalle Street, Suite 1740, Chicago,
Illinois 60603 (facsimile number (312) 904-2084), Attention: Asset Backed
Securities Trust Services, TRI Funding 1996-1, or at any other address
previously furnished in writing to the Issuer, the Noteholders, the
Servicer and the Subservicer; or
(b) to the Issuer at TRI Funding Company I, 3250 Lakeport Boulevard,
Klamath Falls, Oregon 97601 (facsimile number (503) 885-7454), Attention:
Treasurer, or at any other address previously furnished in writing to the
Trustee, the Noteholders, the Servicer and the Subservicer by the Issuer;
or
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<PAGE> 34
(c) to the Servicer at Trendwest Resorts, Inc., 12301 N.E. 10th
Place, Bellevue, Washington 98005 (facsimile number (206) 990-2305),
Attention: Executive Vice President, or at any other address
previously furnished in writing to the Trustee, the Noteholders, the
Subservicer and the Issuer; or
(d) to the Subservicer at Sage Systems, Inc., 2135 112th Avenue
N.E., Suite 101, Bellevue, Washington 98004 (facsimile number (206)
462-0264), Attention: President, or at any other address previously
furnished in writing to the Trustee, the Noteholders and the Servicer; or
(e) to the Rating Agency at Fitch Investors Service, L.P., One State
Street Plaza, New York, New York 10004 (facsimile (212) 480-4438),
Attention: Kenneth Rosenberg or at any other address previously furnished
in writing to the Trustee, the Noteholders, the Subservicer, the Servicer
and the Issuer.
Section 8.05. Notices and Other Documents to Noteholders; Waiver. (a) Where
this Agreement provides for notice to Noteholders of any event, such notice
shall be in writing and sent (i) by telefacsimile if the sender on the same day
sends a confirming copy of such notice by a recognized overnight delivery
service (charges prepaid), or (ii) by registered or certified mail with return
receipt requested (postage prepaid), or (iii) by a recognized overnight delivery
service (with charges prepaid). Any such notice to a Noteholder or its nominee
must be sent to (i) such Person at the address specified for such communications
in the Note Register, or at such other address as the Noteholder shall have
specified to the Trustee in writing and (ii) if specified, to such other Person
as shall be identified in writing to the Trustee by each Noteholder or its
nominee. The Trustee acknowledges receipt of Annex 1 to the Note Purchase
Agreement, which sets forth such information with respect to the initial
Holders. Notice under this Section 8.05 will be deemed to be given only when
actually received.
(b) Where this Agreement 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.
(c) Any reports, documents or other communications other than notices to
be sent to Noteholders may be telecopied or mailed, first class postage prepaid
and shall be addressed to the Noteholders and their nominees and designees, if
applicable, as set forth in paragraph (a) above.
Section 8.06. Severability of Provisions. If one or more of the provisions
of this Agreement shall be for any reason whatever held invalid, such provisions
shall be deemed severable from the remaining covenants and provisions of this
Agreement, and shall in no way affect the validity or enforceability of such
remaining provisions, the rights of any parties hereto, or the rights of the
Trustee or any Noteholder. To the extent permitted by
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<PAGE> 35
law, the parties hereto waive any provision of law which renders any provision
of this Agreement prohibited or unenforceable in any respect.
Section 8.07. Binding Effect. All provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties hereto, and all such provisions shall inure to the benefit of the
Noteholders. This Agreement may not be modified except by a writing signed by
all parties hereto.
Section 8.08. Article Headings and Captions. The article headings and
captions in this Agreement are for convenience of reference only, and shall not
limit or otherwise affect the meaning hereof.
Section 8.09. Legal Holidays. In the case where the date on which any action
required to be taken, document required to be delivered or payment required to
be made is not a Business Day, such action, delivery or payment need not be made
on such date, but may be made on the next succeeding Business Day.
Section 8.10. Assignment for Security for the Notes. The Servicer
understands that the Issuer will assign to and grant to the Trustee a security
interest in all of its right, title and interest to this Agreement. The Servicer
consents to such assignment and grant and further agree that all
representations, warranties, covenants and agreements of the Servicer made
herein shall also be for the benefit of and inure to the Trustee and all Holders
from time to time of the Notes.
Section 8.11. No Servicing Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 5.02 and 5.04 hereof,
this Agreement may not be assigned by the Issuer, the Seller, the Subservicer or
the Servicer (except with respect to the appointment of a subservicer) without
the prior written consent of the Holders of Notes representing not less than
66-2/3% in principal amount of the Notes Outstanding.
Section 8.12. Counterparts. This Agreement may be executed in one or
more counterparts all of which together shall constitute one original
document.
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<PAGE> 36
IN WITNESS WHEREOF, the Issuer, the Servicer, the Subservicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers or authorized signatories thereunto duly authorized as of the date and
year first above written.
TRI FUNDING COMPANY I, L.L.C., as Issuer
By: TRENDWEST FUNDING I, INC., Member
By______________________________________
Name:
Title:
TRENDWEST RESORTS, INC., as Servicer
By______________________________________
Name:
Title:
SAGE SYSTEMS, INC., as Subservicer
By______________________________________
Name:
Title:
LASALLE NATIONAL BANK, as Trustee
By______________________________________
Name:
Title:
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<PAGE> 37
EXHIBIT A
FORM OF
MONTHLY SERVICER'S REPORT
<PAGE> 1
EXHIBIT 10.9
PURCHASE AND SALE AGREEMENT
between
TRENDWEST FUNDING I, INC.
("TFI")
and
TWH FUNDING I, INC.
("SPC")
and
TRENDWEST RESORTS, INC.
("TRENDWEST")
and
TRI FUNDING COMPANY I, L.L.C.
("Issuer")
Dated as of March 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS.......................................................................................... 2
Section 1.01. Defined Terms.................................................................................... 2
ARTICLE 2 ACQUISITION OF PURCHASED ASSETS...................................................................... 3
Section 2.01. Purchase Asset Acquisition....................................................................... 3
Section 2.02. Grant of Security Interest....................................................................... 3
Section 2.03. Purchased Asset Price............................................................................ 4
Section 2.04. Delivery of Contracts; Filing of Financing Statements............................................ 4
Section 2.05. Servicing of Contracts and Credits............................................................... 4
Section 2.06. Review of Contracts.............................................................................. 4
ARTICLE 3 REPRESENTATIONS AND WARRANTEES....................................................................... 5
Section 3.01. Representations and Warranties of the Sellers.................................................... 5
Section 3.02. Representations and Warranties of the Issuer..................................................... 12
Section 3.03. Purchase or Substitution Required upon Breach of Certain
Representations and Warranties................................................................... 13
Section 3.04. Requirements for Purchase or Substitution of Receivables; Upgrades............................... 14
ARTICLE 4 COVENANTS............................................................................................ 16
Section 4.01. Seller and Trendwest Covenants................................................................... 16
Section 4.02. Issuer Covenants................................................................................. 20
Section 4.03. Assignment of Purchased Assets................................................................... 21
ARTICLE 5 CONDITIONS PRECEDENT................................................................................. 21
Section 5.01. Conditions to the Issuer's Initial Obligations................................................... 21
Section 5.02. Conditions to the Sellers' Obligations........................................................... 22
ARTICLE 6 TERM AND TERMINATION................................................................................. 23
Section 6.01. Term............................................................................................. 23
Section 6.02. Default by the Sellers or Trendwest.............................................................. 23
ARTICLE 7 MISCELLANEOUS........................................................................................ 23
Section 7.01. Amendments....................................................................................... 23
Section 7.02. Governing Law.................................................................................... 23
Section 7.03. Notices.......................................................................................... 23
Section 7.04. Separability Clause.............................................................................. 23
Section 7.05. Assignment....................................................................................... 24
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
Section 7.06. Further Assurances............................................................................... 24
Section 7.07. No Waivers; Cumulative Remedies.................................................................. 24
Section 7.08. Binding Effect; Third Party Beneficiaries........................................................ 24
Section 7.09. Set-Off.......................................................................................... 24
Section 7.10. Counterparts..................................................................................... 24
</TABLE>
ANNEX A -- FORM OF SUPPLEMENT FOR SUBSTITUTE CONTRACTS
EXHIBIT A -- FORM OF CONTRACT
EXHIBIT B -- FORM OF ASSIGNMENT
EXHIBIT C -- FORM OF SUBORDINATED NOTE
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THIS PURCHASE AND SALE AGREEMENT, dated as of March 1, 1996 (this
"Agreement"), by and among Trendwest Funding, Inc., a Delaware corporation
(herein, together with its permitted successors and assigns, "TFI"), TWH Funding
I, Inc., a Delaware corporation (herein, together with its permitted successors
and assigns, "SPC" and, together with TFI, the "Sellers"), Trendwest Resorts,
Inc., an Oregon corporation (herein, together with its permitted successors and
assigns, "Trendwest") and TRI Funding Company I, L.L.C., a Delaware limited
liability company (herein, together with its permitted successors and assigns,
the "Issuer").
PRELIMINARY STATEMENT
The Issuer has entered into an Indenture, dated as of March 1, 1996 (as
amended and supplemented from time to time, the "Indenture"), with LaSalle
National Bank, as trustee (herein, together with its permitted successors and
assigns, the "Trustee"), and Trendwest, as servicer (herein, together with its
permitted successors and assigns, the "Servicer"), pursuant to which the Issuer
intends to issue its Notes (collectively, the "Notes") as provided in the
Indenture.
In furtherance thereof, the Issuer, Trendwest, and the Sellers have
entered into this Agreement to provide for, among other things, the purchase by
the Issuer of all of the right, title and interest in and to the Purchased
Assets and a security interest in the Credits, which the Issuer is pledging with
the Trustee, and in which the Issuer will be granting to the Trustee a security
interest, as security for the Notes. As a precondition to the effectiveness of
this Agreement, the Issuer, the Trustee, the Subservicer and the Servicer will
enter into the Servicing Agreement, dated as of March 1, 1996 (as amended and
supplemented from time to time, the "Servicing Agreement"), to provide for the
administration and servicing of the Purchased Assets. In connection with the
issuance of the Notes and pursuant to this Agreement, the Sellers will sell the
Purchased Assets to the Issuer. The initial sale shall be effected by this
Agreement and an Assignment from the Seller to the Issuer, and the list of
Contracts relating to the Purchased Assets so conveyed shall be listed on
Schedule I to such Assignment.
In order to further secure the Notes, the Issuer is granting to the
Trustee a security interest in, among other things, the Issuer's rights derived
under this Agreement and the Servicing Agreement, and the Sellers agree that all
covenants and agreements made by it in this Agreement with respect to the
Purchased Assets shall also be for the benefit and security of the Trustee and
all holders from time to time of the Notes. In consideration for the Purchased
Assets and its representations, warranties, covenants and other agreements under
this Agreement, the Sellers will receive payment from the Issuer of all of the
proceeds of the issuance of the Notes on the Closing Date and TFI will receive
the Subordinated Note and a membership interest in the Issuer.
<PAGE> 5
ARTICLE 1
DEFINITIONS
Section 1.01. Defined Terms. For purposes of this Agreement the
following terms shall have the meanings specified herein. Capitalized terms used
herein but not otherwise defined shall have the respective meanings assigned to
such terms in the Indenture.
"Assignment" shall mean the Assignment, substantially in the form
attached hereto as Exhibit B, which shall be entered into in connection with the
conveyance of the Purchased Assets from the Sellers to the Issuer on the Closing
Date.
"Contract File" shall mean, with respect to each Contract, the
following documents:
(i) a copy of the Contract;
(ii) notice of assignment; and
(iii) any other documents or papers relating to
servicing the Receivables.
"Custodian" shall mean Sage Systems, Inc. and its permitted successors
and assigns.
"Custodian File" shall mean, with respect to each Contract, the
following documents:
(i) the original Contract; and
(ii) notice of assignment.
"Cut-Off Date" shall having the meaning set forth in the Indenture.
"Issuer Address" shall mean 3250 Lakeport Boulevard, Klamath Falls,
Oregon 97601.
"Electronic Ledgers" shall mean the electronic master records of all
contracts of the Issuer or the Servicer similar to and including the Contracts.
"Eligible Contract" shall mean a Contract that satisfies the selection
criteria set forth in Section 3.01(a) hereof and which is aged at least four
months, provided that with respect to any Substitute Contract, any reference in
such Section to Cut-Off Date shall be deemed to refer to the date as of which
the Substitute Receivable is conveyed to the Issuer in accordance with Section
3.04 hereof.
"Indenture" shall mean the Indenture, dated as of March 1, 1996, by and
among the Issuer, the Trustee and the Servicer, as amended and supplemented from
time to time.
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"Purchased Asset Price" shall mean an amount equal to the aggregate
principal amount outstanding on the Contracts as of the Cut-Off Date plus
accrued interest through the Closing Date.
"Purchased Assets" shall mean all of the Sellers' right, title and
interest in and to (a) the Contracts and the related Receivables, including the
proceeds of the Contracts and the related Receivables and all payments received
on or with respect to the Contracts and the related Receivables and due after
the Cut-Off Date, (b) the Contract Files and the Custodian Files, (c) the
Sellers' rights and interests in the related Credits, (d) the Servicing Charges
with respect to the Contracts, (e) all rights and interests of TFI under the
Receivables Purchase Agreement, and (f) all income and proceeds of the foregoing
or relating thereto.
"Seller Address" shall mean 12301 N.E. 10th Place, Bellevue, Washington
98005.
"Substitute Contract" shall have the meaning set forth in Section
3.04(b) hereof.
"Substitute Receivable" shall mean the Receivable related to a
Substitute Contract.
"Substitution Criterion" shall have the meaning set forth in Section
3.04(b) hereof.
"Substitution Date" shall mean the date a Contract is purchased or
substituted pursuant to Section 3.03 hereof; such date shall occur on the 25th
of each month or on the next Business Day if the 25th is not a Business Day.
"TFI Contracts" shall mean Contracts which are sold to the Issuer under
this Agreement by TFI.
"Upgrade" shall have the meaning set forth in the Indenture.
"Upgrade Contract" shall have the meaning set forth in the Indenture.
ARTICLE 2
ACQUISITION OF PURCHASED ASSETS
Section 2.01. Purchase Asset Acquisition. In return for the
Purchased Asset Price and other rights created by this Agreement, the Sellers
hereby transfer, assign, sell, and grant, without recourse except as provided in
Section 3.03 of this Agreement, on the Closing Date any and all of the Sellers'
respective right, title and interest in and to all of the Purchased Assets
relating to the Contracts set forth on Schedule I to the Assignment. The Sellers
hereby acknowledge that the transfer of the Purchased Assets to the Issuer is
absolute and irrevocable, without reservation or retention of any interest
whatsoever by the Sellers.
Section 2.02. Grant of Security Interest. Each of the Sellers hereby
pledge, grant and assign to the Issuer its interest in the security interest in
the related Credits to secure the Sellers' performance of its obligations
hereunder and the payment of the obligations of the
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Obligors under each Contract, and this Agreement shall constitute a security
agreement for such purpose under applicable law.
Section 2.03. Purchased Asset Price. By the execution of the
Assignment, subject to all the terms and conditions of this Agreement and in
reliance upon the representations, warranties and covenants set forth in this
Agreement, on the Closing Date, the Issuer hereby agrees to pay the Purchased
Asset Price simultaneously with the issuance of the Notes, in the case of the
Closing Date. The Purchased Asset Price shall be paid in the form of cash or in
such other form as the Sellers and the Issuer may agree.
Section 2.04. Delivery of Contracts; Filing of Financing Statements.
(a) In connection with the Issuer's acquisition of the Purchased Assets, the
Sellers, on behalf of the Issuer, shall deliver, or cause the delivery of, the
original Contracts to the Custodian so that the Custodian may retain possession
thereof as provided in the Transaction Documents. In addition, the Sellers agree
to execute and Trendwest agrees to record and file prior to the Closing Date, at
its own expense, financing statements (and thereafter timely continuation
statements with respect to such financing statements) with respect to the
applicable Purchased Assets, in accordance with Section 3.01(a)(viii) and
Section 4.01(c) hereof.
(b) In connection with each such acquisition, Trendwest shall
promptly, at its own expense, cause any Electronic Ledger maintained by it or
either of the Sellers to be marked to show which Purchased Assets have been
acquired by the Issuer in accordance with this Agreement and pledged by the
Issuer to the Trustee in accordance with the Transaction Documents.
(c) It is the intention of the Sellers and the Issuer that the Issuer
is acquiring full and absolute title to the Purchased Assets. If it is
determined, however, that the Sellers have transferred to the Issuer a security
interest in the Purchased Assets, then this Agreement shall constitute a
security agreement under applicable law, and the Sellers do hereby pledge, grant
and assign to the Issuer a security interest in the Purchased Assets.
Section 2.05. Servicing of Contracts and Credits. The Servicer shall
service the Contracts, the related Credits and the other Purchased Assets for
the benefit of the Issuer (and its successors and assigns) in accordance with
the terms and conditions of the Transaction Documents. Notwithstanding the
foregoing, Trendwest acknowledges and agrees that its obligations under this
Agreement are independent of any obligations it may have under the other
Transaction Documents and that its obligations under this Agreement will
continue in full force and effect until termination of this Agreement in
accordance with Section 6.01 hereof, unless otherwise provided herein.
Section 2.06. Review of Contracts. If either of Trendwest or the
Custodian (who shall thereupon notify Trendwest and the Trustee) discovers that
any Contracts are missing or defective (that is, mutilated, damaged, defaced,
incomplete, improperly dated, clearly forged or otherwise physically altered) in
any material respect, Trendwest shall correct or cure such omission, defect or
other irregularity within 30 days from the date Trendwest discovered such
omission or defect, or from the date Trendwest is notified by the Custodian
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of such omission or defect. In the event Trendwest is unable to correct or cure
such omission, defect or irregularity within the 30 day period described in the
preceding sentence, Trendwest shall purchase or replace such Receivable from the
Issuer in accordance with Section 3.03 hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTEES
Section 3.01. Representations and Warranties of the Sellers. Each
Seller, with respect to itself and the Contracts, Receivables and interest in
the related Credits sold by such Seller, and Trendwest, with respect to all
Contracts, Receivables, the related Credits, and both Sellers, hereby make the
following representations and warranties to the Issuer for the benefit of the
Trustee and Holders of the Notes, on which the Issuer relies in acquiring the
Purchased Assets and on which the Holders of the Notes rely in purchasing the
Notes. Such representations and warranties shall survive any subsequent
transfer, assignment, contribution or conveyance of the Receivables and the
security interest in the related Credits and any issuance of Notes.
(a) As to each Contract, as of the Closing Date:
(i) The information set forth in the Contract
Schedule is true and correct as of the Cut-Off Date.
(ii) The rights with respect to the Contract are
assignable by the lender thereunder and its successors and
assigns without the consent of any Person.
(iii) Trendwest or the applicable Seller has
heretofore provided to the Custodian the sole original
counterpart of the Contract, together with any amendments,
waivers and modifications thereto, except original executed
counterparts which have been marked to show that they have
been pledged by the Issuer to the Trustee under the Indenture,
and the terms of such Contract have not been amended, waived
or modified subsequent to the above being provided to the
Custodian.
(iv) The Electronic Ledgers have been marked as
provided in Section 2.04(b) hereof.
(v) The Contract was not originated in, nor is it
subject to the laws of, any jurisdiction, the laws of which
would make unlawful the sale, transfer or assignment of such
document under any of the Transaction Documents, including any
repurchase in accordance with the Transaction Documents.
(vi) The Contract is in full force and effect in
accordance with its respective terms, and none of Trendwest or
either Seller or any Obligor has or will have suspended or
reduced any payments or obligations due or to become
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due thereunder by reason of a default by the other party to
such Contract; as of the Closing Date, no Scheduled Payment
with respect to such Contract has not been received and
remains unpaid for a period of 30 or more days (without regard
to advances, if any, made by the Servicer), and there are no
proceedings pending, or to the best of the knowledge of
Trendwest or either Seller, threatened asserting insolvency of
such Obligor; there has been no other default, breach or
violation and no event, other than relating to an Upgrade,
permitting acceleration under such Contract; there are no
proceedings pending, or to the best of the knowledge of
Trendwest or either Seller, threatened, wherein such Obligor
or any governmental agency has alleged that such Contract is
illegal or unenforceable; and none of the related Scheduled
Payments are subject to any set-off or credit of any kind.
(vii) The Contract is the valid, binding and legally
enforceable obligation of the parties thereto, enforceable in
accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization and other
similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of
equity regardless of whether enforcement is sought in a court
of law or equity.
(viii) All actions, filings (including UCC filings) and
recordings as are required by the Indenture and that may be
necessary to perfect a security interest of the Issuer and the
Trustee in, and the sale by Trendwest and TW Holdings to TFI
and the sale from TFI and SPC to the Issuer of, the Contract
and the related Receivables being acquired and the granting of
a security interest in the security interest in the related
Credits hereunder have been accomplished and are in full force
and effect.
(ix) The Contract is identical to one of the form
contracts attached as Exhibit A hereto, except for either (i)
such immaterial modifications or deviations from the form
contract which appear in such Contract, which immaterial
modifications or deviations will not have a material adverse
effect on the Holders of the Notes or (ii) such modifications
or deviations as set forth on Schedule I to the Assignment
related to such Contract.
(x) The Contract was originated by Trendwest in
Trendwest's ordinary course of business and meets Trendwest's
qualifications for originating vacation credit installment
contracts. The origination and collection practices used by
Trendwest and the applicable Seller with respect to such
Contract have been in all respects legal, proper, prudent and
customary in the vacation credit financing and servicing
business.
(xi) The Receivable is under a Contract that has a
term to the last Scheduled Payment Date of not more than 84
months and not less than one month.
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(xii) The Contract obligates the related Obligor to
make all Scheduled Payments thereunder in full notwithstanding
the collection by Trendwest of a security deposit with respect
thereto. The calculation of the Collateral Value of the
related Receivable does not include any security deposits or
similar payments collected by or on behalf of Trendwest which
are applied to Scheduled Payments.
(xiii) All requirements of applicable federal, State
and local laws, and regulations thereunder, including, without
limitation, usury laws, if any, in respect of the Contract
have been complied with in all material respects, and such
Contract complied in all material respects at the time it was
originated or made and now complies in all material respects
with all legal requirements of the jurisdiction in which it
was originated.
(xiv) The Contract is not and will not be subject to
any right of rescission, set-off, counterclaim or defense,
including the defense of usury, whether arising out of
transactions concerning such Contract or otherwise, and the
operation of any of the terms of such Contract or the exercise
by the applicable Seller or the Obligor of any right under
such Contract will not render such Contract unenforceable in
whole or in part, and no such right of rescission, set-off,
counterclaim or defense has been asserted with respect
thereto, except that certain rights or defenses may exist
under applicable law which, individually or in the aggregate,
do not make the remedies available to the applicable Seller
with respect to such Contract inadequate for the practical
realization of the benefits provided thereby.
(xv) Each of the Sellers and Trendwest has duly
fulfilled all obligations on the lender's part to be fulfilled
under or in connection with the Contract, including, without
limitation, giving any notices or consents necessary to effect
the acquisition of the Purchased Assets by the Issuer and has
done nothing to impair the rights of the Issuer and the
Noteholders in such Contract or payments with respect thereto.
(xvi) The Contract and the related Seller's interest
in the related Credits have not been sold, transferred,
assigned or pledged by the Seller to any Person other than the
Issuer (except for such interests in the Purchased Assets
which shall be terminated on or prior to the Closing Date),
and upon execution and delivery hereof and of the Assignment
by the related Seller and the payment by the Issuer of the
related Purchased Asset Price, the Issuer will have all of the
right, title and interest in and to such Seller's interest in
the Contract related Receivable and a security interest in the
related Credits, free and clear of all liens and encumbrances,
except for the interests of the Obligor pursuant to such
Contract. Such Contract has not been satisfied, subordinated
or rescinded.
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(xvii) Neither the relevant Seller nor Trendwest has
any specific knowledge that the Contract will not be fully
performed in accordance with its terms.
(xviii) The Obligor has made the first Scheduled
Payment (which payment may be an advance payment under such
Contract) due under the Contract within the time set forth in
such Contract.
(xix) The related Obligor is located in the United
States of America or Canada, and the related Scheduled
Payments are payable in U.S. dollars.
(xx) Except for changes due to Upgrades, the related
Scheduled Payments were established at the time such Contract
was originated.
(xxi) There are no unpaid brokerage or other fees
owed to third parties relating to the origination of the
Contract.
(xxii) The Contract cannot be rescinded pursuant to
applicable consumer finance laws.
(xxiii) The contract was originated in compliance
with the requirements of all federal, state and local laws,
rules and regulations applicable to the origination of the
Contract (including, without limitation, the Federal
Truth-in-Lending Act, the Equal Credit Opportunity Act, the
Fair Credit Billing Act, the Fair Credit Reporting Act, the
Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations "B" and "Z", the Soldiers' and
Sailors' Civil Relief Act of 1940, and any other federal,
state and local laws relating to interest, usury, consumer
credit, equal credit opportunity, fair credit reporting,
privacy, consumer protection, false or deceptive trade
practices and disclosure, the Mail Fraud statute and any
timeshare disclosure), non-compliance with which could have a
material adverse effect on the enforceability or value of the
Contract.
(xxiv) All Scheduled Payments are due and payable
monthly and such Scheduled Payments are level payments
throughout the terms of the Contracts.
(b) As to the aggregate pool of Contracts as of the Closing
Date neither Trendwest nor either Seller used any selection procedures
that identified the Contracts as being less desirable or valuable than
other comparable vacation credit installment contracts originated by
Trendwest.
(c) As to each Seller as of the Closing Date:
(i) Each Seller has been duly organized and is
validly existing and in good standing as a corporation under
the laws of the State of Delaware with corporate power and
authority to own its properties and to transact the business
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in which it is now engaged, and each Seller is duly qualified
to do business in and is in good standing under the laws of
each State in which its business is located or is not required
under applicable law to effect such qualification, except
where failure to so qualify would not have a material adverse
effect on the ability of such Seller to perform its
obligations under the Transaction Documents or on any of the
Contracts, the Receivables or the Credits or on the ability of
the Seller, the Issuer or the Trustee to realize upon or
enforce the same.
(ii) The performance of the obligations of each
Seller under this Agreement and the other Transaction
Documents and the consummation of the transactions herein and
therein contemplated will not conflict with or result in any
breach of any of the terms or provisions of, or constitute
with or without notice, lapse of time or both, a default under
the Certificate of Incorporation or Bylaws of such Seller, or
any material indenture, agreement, mortgage, deed of trust or
other instrument to which such Seller is a party or by which
it is bound, or result in the creation or imposition of any
lien, charge or encumbrance (except the lien created by the
Transaction Documents) upon any of the property or assets of
such Seller pursuant to the terms of such indenture, mortgage,
deed of trust, or other agreement or instrument to which such
Seller is a party or by which such Seller is bound or to which
any of such Seller's property or assets is subject, nor will
such action result in any violation of the provisions of the
Seller's Certificate of Incorporation or By-laws or any
statute or any order, rule or regulation of any court or any
regulatory authority or other governmental agency or body
having jurisdiction over such Seller or any of its properties;
and no consent, approval, authorization, order, registration
or qualification of or with or other action of any court, or
any such regulatory authority or other governmental agency or
body is required for consummation of the transactions
contemplated by this Agreement and the other Transaction
Documents except such consents, approvals and authorizations
which have been obtained or such registrations or
qualifications which have been made.
(iii) This Agreement and any other Transaction
Document to which the Seller is a party have been duly
authorized, executed and delivered by each Seller by all
necessary corporate action and such agreements are the valid
and legally binding obligations of such Seller, enforceable
against such Seller in accordance with their respective terms,
subject as to enforcement to applicable bankruptcy,
insolvency, reorganization and other similar laws of general
applicability relating to or affecting creditors' rights
generally and to general principles of equity regardless of
whether enforcement is sought in a court of law or equity.
(iv) Each Seller Address is the chief executive
office, principal place of business and the office where such
Seller keeps its records concerning the Contracts, Receivables
and the related Credits. Such Seller has not used any address
other than its Seller Address in the previous five-year
period. Such
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Seller's legal name is as set forth in this Agreement. Such
Seller has not used or done business under any other name in
the previous six-year period.
(v) Each Seller does not believe, nor does it have
any reasonable cause to believe, that it cannot perform each
and every covenant contained in this Agreement.
(vi) The transactions contemplated by the Transaction
Documents are being consummated by each Seller in furtherance
of its ordinary business purposes, with no contemplation of
insolvency and with no intent to hinder, delay or defraud any
of its present or future creditors.
(vii) The consideration received by each Seller
pursuant to this Agreement is fair consideration having value
reasonably equivalent to or in excess of the value of the
performance of each Seller's obligations hereunder.
(viii) Neither on the date of the transactions
contemplated by the Transaction Documents or immediately
before or after such transactions, nor as a result of the
transactions, will either Seller:
(A) be insolvent such that the sum of its
debts is greater than all of its respective property,
at a fair valuation;
(B) be engaged in, or about to engage in,
business or a transaction for which any property
remaining with such Seller will be an unreasonably
small capital or the remaining assets of such Seller
will be unreasonably small in relation to its
respective business or the transaction; and
(C) have intended to incur, or believed it
would incur, debts that would be beyond its
respective ability to pay as such debts mature or
become due. Such Seller's assets and cash flow enable
it to meet its present obligations in the ordinary
course of business as they become due.
(ix) Both immediately before and after the
transactions contemplated by the Transaction Documents (a) the
present fair salable value of each Seller's assets was or will
be in excess of the amount that will be required to pay its
probable liabilities as they then exist and as they become
absolute and matured; and (b) the sum of such Seller's assets
was or will be greater than the sum of its debts, valuing its
assets at a fair salable value.
(x) The acquisition of the Purchased Assets by the
Issuer pursuant to this Agreement is not subject to the bulk
transfer or any similar statutory provisions in effect in any
applicable jurisdiction.
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(xi) There are no proceedings or investigations
pending or, to the knowledge of each Seller or Trendwest,
threatened against or affecting such Seller in or before any
court, governmental authority or agency or arbitration board
or tribunal which, individually or in the aggregate, involve
the possibility of materially and adversely affecting the
properties, business, prospects, profits or condition
(financial or otherwise) of such Seller, or the ability of
such Seller to perform its obligations under this Agreement or
the other Transaction Documents. Such Seller is not in default
with respect to any order of any court, governmental authority
or agency or arbitration board or tribunal.
(xii) All tax returns or extensions required to be
filed by each Seller in any jurisdiction have in fact been
filed, and all taxes, assessments, fees and other governmental
charges upon such Seller, or upon any of the respective
properties, income or franchises shown to be due and payable
on such returns have been, or will be, paid. All such tax
returns are true and correct, and such Seller has no knowledge
of any proposed additional tax assessment against it in any
material amount nor of any basis therefor. The provisions for
taxes on the books of such Seller are in accordance with
generally accepted accounting principles.
(xiii) Neither Seller (i) is in violation of any laws,
ordinances, governmental rules or regulations to which it is
subject, (ii) has failed to obtain any licenses, permits,
franchises or other governmental authorizations necessary to
the ownership of its property or to the conduct of its
business, and (iii) is in violation in any material respect of
any term of any agreement, charter instrument, bylaw or
instrument to which it is a party or by which it may be bound
which violation or failure to obtain might materially
adversely affect the business or condition (financial or
otherwise) of such Seller.
(xiv) It is the intention of each Seller that the
Purchased Assets are being or have been acquired by the Issuer
and that the beneficial interest in and title to the Purchased
Assets are not part of such Seller's estate in the event of
the filing of a bankruptcy petition by or against such Seller
under any bankruptcy law.
(xv) Immediately prior to the acquisition of the
Purchased Assets by the Issuer pursuant to this Agreement, the
Seller was the sole owner of such Purchased Assets at such
time and had a valid security interest (or a security interest
in a security interest) in the related Credits, and had good
and marketable title to such Purchased Assets, free and clear
of all liens, claims and encumbrances (except for the
Purchased Asset Price and security interests in the Purchased
Assets which shall be terminated on or prior to the Closing
Date); and the acquisition of the Purchased Assets by the
Issuer does not violate the terms or provisions of any
Contract.
(xvi) Each Seller will treat the transfer of the
Purchased Assets as a sale to the Issuer for federal, State
and local income tax reporting and accounting
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purposes. The affiliated group of which such Seller is a
member within the meaning of Section 1504 of the Code shall
treat the Purchased Assets as owned by the Issuer for federal,
state and local income tax purposes.
(xvii) The transfer of the Purchased Assets pursuant
to this Agreement constitutes the valid transfer by each
Seller to the Issuer of all of such Seller's right, title and
interest in the Purchased Assets.
(xviii) Each Seller has valid business reasons for
selling the Purchased Assets to the Issuer pursuant to this
Agreement rather than obtaining a loan secured by the
Purchased Assets.
(xix) Each Seller will be operated generally so as to
not be substantively consolidated with the Issuer.
(xx) No event has occurred that adversely affects the
Seller's ability to perform the transactions contemplated by
the Transaction Documents.
(xxi) Each pension plan or profit sharing plan to
which either Seller is a party has been fully funded in
accordance with the obligations of such Seller as set forth in
such plan.
(xxii) Neither the acquisition nor the holding of the
Contracts and the related Receivables violates any federal or
State law, rule or regulation the non-compliance with which
could have a material adverse effect on the value of the
Contracts or the related Receivables.
Section 3.02. Representations and Warranties of the Issuer. The
Issuer hereby makes the following representations and warranties for the benefit
of the Trustee and Holders of the Notes, on which the Seller relies in entering
into this Agreement with the Issuer and on which the Holders of the Notes rely
in purchasing the Notes; such representations and warranties speak as of the
Closing Date unless otherwise indicated, but shall survive any subsequent
transfer, assignment, contribution or conveyance of the Purchased Assets:
(a) The Issuer has been duly organized and is validly
existing in good standing as a limited liability company under the laws
of the State of Delaware, with power and authority to own its
properties, perform its obligations under the Transaction Documents and
to transact the business in which it is now engaged or in which it
proposes to engage; the Issuer is duly qualified to do business and is
in good standing in each State in which the nature of its business
requires it to be so qualified, except where failure to so qualify
would not have a material adverse effect on the ability of the Issuer
to perform its obligations under the Transaction Documents.
(b) The transfer to and receipt by the Issuer of each Seller's
interest in the Receivables and a security interest in the related
Credits pursuant to this Agreement and the consummation of the
transactions contemplated herein and in the Transaction
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Documents will not conflict with or result in breach of any of the
terms or provisions of, or constitute (with or without notice, lapse of
time or both) a default under the Certificate of Formation or the
Limited Liability Company Agreement of the Issuer or any material
indenture, agreement, mortgage, deed of trust or other instrument to
which the Issuer is a party or by which it is bound, or result in the
creation or imposition of any lien, charge or encumbrance (except for
the lien created by this Agreement and the Indenture) upon any of the
property or assets of the Issuer pursuant to the terms of, such
indenture, mortgage, deed of trust, or other agreement or instrument to
which the Issuer is a party or by which it is bound or to which any of
the property or assets of the Issuer is subject, nor will such action
result in any violation of the provisions of the Certificate of
Formation or the Limited Liability Company Agreement of the Issuer or
any statute or any order, rule or regulation of any court or regulatory
authority or other governmental agency or body having jurisdiction over
the Issuer or any of its properties; and no consent, approval,
authorization, order, registration or qualification of or with or other
action of any court or any such regulatory authority or other
governmental agency or body is required for the acquisition of the
Purchased Assets hereunder.
(c) The Transaction Documents have been duly authorized,
executed and delivered by the Issuer by all necessary action and
constitute valid and legally binding obligations of the Issuer
enforceable against the Issuer in accordance with their terms, subject
as to enforcement to bankruptcy, insolvency, reorganization and other
similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity
regardless of whether enforcement is sought in a court of equity or
law.
(d) There are no proceedings or investigations to which the
Issuer is a party pending or, to the knowledge of the Issuer,
threatened, before any court, regulatory body, administrative agency or
other tribunal or governmental instrumentality (a) asserting the
invalidity of this Agreement, (b) seeking to prevent the issuance of
the Notes or the consummation of any of the transactions contemplated
by this Agreement, or (c) seeking any determination or ruling that
would materially and adversely affect the performance by the Issuer of
its obligations under, or the validity or enforceability of, this
Agreement.
(e) All approvals, authorizations, consents, orders or other
actions of any Person or of any court, governmental agency or body or
official, required in connection with the execution and delivery of
this Agreement, have been or will be taken or obtained on or prior to
the Closing Date.
(f) The Issuer Address is the principal place of business and
chief executive office of the Issuer.
Section 3.03. Purchase or Substitution Required upon Breach of
Certain Representations and Warranties. Upon discovery by either Seller,
Trendwest or the Issuer of the breach of any representations or warranties set
forth in Section 3.01 or 3.02 hereof
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which materially and adversely affects the value of a Contract, Receivable, the
related Credits, or the interests of the Holders of the Notes, or a breach of
any of the representations and warranties set forth in Sections 3.01(a)(v),
3.01(a)(vi), 3.01(a)(vii), 3.01(a)(xiii), 3.01(a)(xiv), 3.01(a)(xvi),
3.01(a)(xxii) or 3.01(a)(xxiii) hereof, the party discovering such breach shall
give prompt written notice to the other parties. TFI, with respect to TFI
Contracts or Trendwest, with respect to all Contracts shall, within 30 days from
the date such Person was notified of, or otherwise discovers, such breach, cure
such breach, or, (1) if the breach relates to a particular Contract and is not
cured, either (a) purchase the Issuer's interest in the related Receivable from
the Issuer at the Purchase Price or (b) provide a Substitute Receivable or (2)
if the breach relates to a representation or warranty regarding the selection
criteria of the Contracts as a whole and is not cured by TFI or Trendwest, as
applicable, either (a) purchase the Issuer's interest in such non-conforming
Contracts and the related Receivables from the Issuer or (b) provide Substitute
Receivables as set forth above, so that the representations and warranties with
respect to the selection criteria are correct, as evidenced by a certificate of
an officer of TFI or Trendwest. as applicable, to the Trustee. The Purchase
Price for a purchased Receivable shall be paid, and any Substitute Contract
shall be delivered, by such Seller or Trendwest to the Issuer in accordance with
Section 3.04(c) hereof. It is understood and agreed that the obligation of TFI
or Trendwest to cure or purchase or replace any Receivable related to a Contract
as to which such a breach has occurred shall constitute the sole remedy
respecting such breach available to the Issuer, the Holders of Notes or the
Trustee on behalf of such Holders (except for any indemnities provided under
Section 4.01(j) hereof or its obligations under the related Indenture) for any
losses, claims, damages and liabilities arising from the Issuer's interest in
such Receivable or the inclusion of the Issuer's interest in such Receivable in
the Trust Estate.
Section 3.04. Requirements for Purchase or Substitution of
Receivables; Upgrades. (a) If either TFI or Trendwest is required to purchase
the Issuer's interest in any Receivable under Section 3.03 hereof or if the
Issuer is required or elects to purchase the Trustee's interest in any
Receivable under Section 3.10 of the Servicing Agreement, such Receivable shall
be purchased by TFI or Trendwest at the Purchase Price. All purchases shall be
accomplished at the times specified in subsection (c) below.
(b) If TFI or Trendwest is required to substitute any Receivable
related to a Contract under Section 3.03 hereof, or if the Issuer is required or
elects to substitute any Receivable related to a Contract under Section 3.10 of
the Servicing Agreement (a "Substitute Contract"), each such Substitute Contract
shall (i) be an Eligible Contract; (ii) be written on one of the standard forms
attached as Exhibit A to this Agreement; (iii) be accompanied by a supplement to
this Agreement substantially in the form of Annex A hereto subjecting such
Contract to the provisions hereof and providing with respect to such Substitute
Contract the information required in the Contract Schedule; (iv) not have been
selected using procedures that identified the Contracts as being less desirable
or valuable than other comparable vacation credit retail installment contracts
originated by Trendwest and (v) not have any Scheduled Payments that are due
after the Stated Maturity Date of the Notes. In addition, (i) such Substitute
Contracts shall have an aggregate Collateral Value at least equal to and not
materially greater than the aggregate
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Collateral Value of the Contracts being withdrawn as of the date of withdrawal
(the "Substitution Criterion") and (ii) the representations and warranties set
forth in Sections 3.01 and 3.02 shall be true and correct with respect to such
Substitute Contract and the aggregate pool of Contracts as of the date the
Substitute Receivable is conveyed to the Issuer.
Upon the substitution of any Substitute Receivable pursuant to the
provisions of this Section 3.04(b), TFI and Trendwest hereby agrees that such
Substitute Receivable will be subject to all the terms and provisions of this
Agreement, the Servicing Agreement, the Custodian Agreement and the Indenture
just as if such Substitute Receivable and the related Substitute Contract had
been one of the original Contracts the related Receivable of which was acquired
on the Closing Date. Upon the substitution of a Substitute Receivable pursuant
to this Section 3.04(b), the Issuer and the related Seller shall also comply
with the provisions and limitations set forth in the Indenture. All
substitutions shall be accomplished at the time specified in subsection (c)
below.
(c) Any purchase or substitution of a Receivable related to a
Contract by the Seller in accordance with Section 3.03 hereof or this Section
3.04 or by the Issuer under Section 3.10 of the Servicing Agreement shall be
made either by remittance of the Purchase Price to the Subservicer for deposit
into the Clearing Account in accordance with Section 3.03(a) of the Servicing
Agreement or by substitution of a Substitute Receivable, as applicable, within
one Business Day following the expiration of the cure period set forth in
Section 3.03 hereof.
(d) Any voluntary purchase or substitution of a Receivable related to
a Contract by the Issuer pursuant to the terms of the Servicing Agreement or
Indenture in the event of a default, delinquency or modification with respect to
such Contract shall satisfy the same requirements for a purchase or
substitution, as the case may be, as are set forth in this Section 3.04.
(e) If an Obligor desires to enter into an Upgrade Contract,
Trendwest, as Servicer, shall inform the Issuer of such fact. In such event, if
the Issuer desires to enter into such Upgrade and so advises Trendwest,
Trendwest for the benefit of the Issuer may (but shall not be obligated to) to
enter into an Upgrade Contract with such Obligor and transfer such Upgrade
Contract to TFI, which shall simultaneously transfer such Upgrade Contract to
the Issuer, in exchange for the existing Contract with such Obligor and an
amount equal to the difference in the principal balance between the existing
Contract and the Upgrade Contract (which amount shall be paid to TFI by
increasing the amount owed by the Issuer under the Subordinated Note); provided,
however, that (i) such Upgrade Contract has an interest rate that is not more
than 1.0% per annum lower than the interest rate on the Contract that is being
replaced, (ii) each Scheduled Payment under the Upgrade Contract shall be the
equal to or greater than the Scheduled Payments on the existing Contract, (iii)
such Obligor has made all Scheduled Payments due on or before the date of such
Upgrade, (iv) such Upgrade Contract is written on one of the standard forms
attached as Exhibit A to this Agreement, (v) simultaneous with the execution of
the Upgrade Contract, Trendwest shall execute a form of assignment to TFI, which
will immediately execute an assignment to the Issuer
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attached to such Upgrade Contract, and indicate on the face of the Upgrade
Contract that such contract is being sold to the Issuer and pledged to the
Trustee pursuant to the Indenture, (vi) such Upgrade Contract shall be delivered
by Trendwest to the Custodian immediately after execution of such contract by
the Obligor, WorldMark and Trendwest (and, in any event, prior to the release of
the original Contract), (vii) the transfer of the Upgrade Contract shall not be
effective (and the lien of the Trustee on the existing Contract and the related
Receivable shall not be released) until after any applicable rescission period
has expired and (viii) clauses (i)-(vii) above shall be representations and
warranties of Trendwest, and Trendwest shall be obligated to purchase from the
Issuer any Upgrade Contract that does not comply with such representations and
warranties. Simultaneous with the delivery of such Upgrade Contract to the
Custodian, TFI shall deliver to the Trustee a supplement to this Agreement
substantially in the form of Annex A hereto subjecting such Contract to the
provisions hereof and providing with respect to such Upgrade Contract the
information required on the Contract Schedule. TFI shall pay to Trendwest,
through an increase in the intercompany debt between TFI and Trendwest, for such
Upgrade Contract an amount equal to the difference between the principal balance
of the Upgrade Contract on the date of such Upgrade and the Collateral Value of
the Contract being canceled because of such Upgrade as of such date.
Upon the acquisition by the Issuer of any Upgrade Contract pursuant to
the provisions of this Section 3.04(e), Trendwest hereby agrees that such
Upgrade Contract will be subject to all the terms and provisions of this
Agreement, the Receivables Purchase Agreement, the Servicing Agreement and the
Indenture just as if such Upgrade Contract had been one of the original
Contracts acquired on the Closing Date.
ARTICLE 4
COVENANTS
Section 4.01. Seller and Trendwest Covenants. Each Seller (and
Trendwest, with respect to subsections (c), (j), (n) and (q) of this Section
4.01) hereby covenants and agrees with the Issuer as follows:
(a) Except as hereinafter provided, such Seller will keep in
full effect its existence, rights and franchises as a corporation, and
will obtain and preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is or
shall be necessary to protect the validity and enforceability of this
Agreement or any of the Contracts and to perform its duties hereunder.
Any person into which such Seller may be merged or consolidated, or to
whom such Seller has sold substantially all of its assets, or any
corporation resulting from any merger, conversion or consolidation to
which such Seller shall be a party, or any Person succeeding to the
business of such Seller shall be the successor of such Seller
hereunder, without the execution or filing of any paper or any further
act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding; provided, however, that (w) immediately after
giving effect to such transaction, no representation or warranty made
pursuant to Section 3.01(c) hereof shall have been
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breached, (x) such successor executes an agreement of assumption, in
form reasonably satisfactory to the Trustee, to perform every
obligation under this Agreement, (y) such Seller shall have delivered
to the Issuer a certificate of an officer of such Seller and an Opinion
of Counsel each stating that such consolidation, merger, or succession
and such agreement of assumption complies with this Section 4.01 and
that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with, and (z) such
Seller shall have delivered to the Issuer an Opinion of Counsel either
(1) stating that, in the opinion of such counsel, all financing
statements and continuation statements and amendments thereto have been
executed and filed that are necessary fully to preserve and protect the
interest of the Issuer in the Contracts and reciting the details of
such filings, or (2) stating that, in the opinion of such counsel, no
such action shall be necessary to preserve and protect such interest.
(b) Neither such Seller nor any of the directors, officers,
employees or agents of such Seller shall be under any liability to the
Issuer, the Trustee or the Holders of Notes for any action taken or for
refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment not involving recklessness or
negligence; provided, however, that this provision shall not protect
such Seller against any breach of warranties or representations made
herein, or failure to perform its obligations in strict compliance with
this Agreement, or any liability which would otherwise be imposed by
reason of any breach of the terms and conditions of this Agreement.
Such Seller, and any director, officer, employee or agent of such
Seller, may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters
arising hereunder. Such Seller shall not be under any obligation to
appear in, prosecute, or defend any legal action that is not incidental
to its obligations as the seller of the Purchased Assets under this
Agreement and that in its opinion may involve it in any expense or
liability.
(c) Trendwest and the Sellers will from time to time, at
Trendwest's expense, execute and file such additional financing
statements (including continuation statements) as may be necessary or
which the Trustee may deem appropriate to preserve the security
interests and liens described in Section 3.01(a)(viii) hereof and are
reasonably satisfactory in form and substance to the Issuer.
(d) Such Seller will not change its name, identity or
corporate structure in any manner that would, could, or might make any
financing statement or continuation statement misleading within the
meaning of section 9-402(7) of the UCC, unless it shall have given the
Issuer and the Trustee at least 30 days' prior written notice thereof.
(e) Such Seller will give the Issuer and the Trustee at least
30 days' prior written notice of any relocation of its principal
executive office if, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any
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amendment of any previously filed financing or continuation statement
or of any new financing statement.
(f) Such Seller will duly fulfill all obligations on its part
to be fulfilled under or in connection with each Contract and, except
with respect to Upgrades, will not change or modify the terms of the
Contracts except as expressly permitted by the terms of the Transaction
Documents and will do nothing to impair the rights of the Issuer or the
Trustee in the Purchased Assets. In the event that the rights of such
Seller sold hereunder to the Issuer under any Contract or any guaranty
of the related Obligor's obligations under any Contract are not
assignable to the Issuer, such Seller will enforce such rights on
behalf of the Issuer; the Seller is not aware of any such inability to
assign any Contracts.
(g) Such Seller will comply, in all material respects, with
all material acts, rules, regulations, orders, decrees and directions
of any governmental authority applicable to the Purchased Assets or any
part thereof; provided, however, that such Seller may contest any act,
regulation, order, decree or direction in any reasonable manner which
shall not materially and adversely affect the rights of the Issuer or
the Trustee in the Purchased Assets.
(h) Such Seller will advise the Issuer and the Trustee
promptly, in reasonable detail, of the occurrence of any breach by such
Seller following discovery by such Seller of such breach of any of its
representations, warranties and covenants contained herein.
(i) Such Seller will execute or endorse, acknowledge, and
deliver to the Issuer and the Trustee from time to time such schedules,
confirmatory assignments, conveyances, and other reassurances or
instruments and take such further similar actions relating to the
Purchased Assets, and the rights covered by the Transaction Documents,
as the Issuer or the Trustee may reasonably request to preserve and
maintain title to the Purchased Assets and the rights of the Trustee
and the Holders of Notes therein against the claims of all persons and
parties.
(j) Trendwest agrees to indemnify, defend and hold the Issuer
harmless from and against any and all loss, liability, damage,
judgment, claim, deficiency or expense (including interest, penalties,
reasonable attorney's fees and amounts paid in settlement) that is
caused by (i) a material breach at any time by any Seller or Trendwest
of its representations, warranties and covenants contained in Section
3.01 hereof or this Section 4.01 or (ii) any material information
furnished by such Seller which is set forth in any schedule delivered
hereunder, being untrue in any material respect when any such
representation was made or schedule delivered, provided that neither
Trendwest nor the Seller shall have any liability with respect to a
representation or warranty as to any specific Contract, Receivable or
the related Credits other than to purchase the related Receivable or
substitute for such Receivable in accordance with Section 3.03 hereof
unless such breach of representation or warranty is the result of the
fraud, negligence, bad faith or willful misconduct of such
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Seller or Trendwest. Trendwest shall also indemnify the Trustee and the
Servicer for any cost or expenses incurred by them in the enforcement
of this Agreement. The obligations of Trendwest under this Section
4.01(j) shall be considered to have been relied upon by the Issuer and
shall survive the execution, delivery and performance of this
Agreement, regardless of any investigation made by or on behalf of the
Issuer, until termination of the Indenture. If either Trendwest or such
Seller has made any indemnity payments pursuant to this Section 4.01(j)
and thereafter the recipient collects any of such amounts from others,
such party will promptly repay the amount collected to either Trendwest
or such Seller, as applicable, without interest.
(k) Such Seller will do nothing to disturb or impair the
acquisition hereunder by the Issuer of all of such Seller's right,
title and interest in the Purchased Assets.
(l) Such Seller (i) will (A) maintain its books and records
separate from the books and records of the Issuer and (B) maintain bank
accounts separate from those of the Issuer and (ii) will not, prior to
the payment of the Notes, (x) take any action that would cause the
dissolution or liquidation of the Issuer, (y) guarantee (directly or
indirectly), endorse or otherwise become contingently liable (directly
or indirectly) for the obligations of the Issuer or (z) institute
against the Issuer, or join any other person in instituting against the
Issuer, any case, proceeding or other action under any existing or
future bankruptcy, insolvency or similar laws.
(m) Such Seller shall notify the Issuer and the Trustee
promptly after becoming aware of any Lien on any Purchased Asset.
(n) On each date as of which Trendwest or TFI substitutes a
Receivable related to a Substitute Contract in accordance with Section
3.03 hereof, Trendwest or TFI shall provide to the Issuer a supplement
to this Agreement substantially in the form of Annex A hereto
subjecting such Contract and the related Receivable to the provisions
hereof and providing with respect to such Substitute Contract the
information required in the Contract Schedule.
(o) The annual financial statements of such Seller will
disclose the effects of the transactions contemplated by the
Transaction Documents in accordance with generally accepted accounting
principles. The resolutions, agreements and other instruments
underlying the Transaction Documents will be continuously maintained by
such Seller as official records.
(p) The affiliated group of which such Seller is a member
within the meaning of Section 1504 of the Code shall treat the
Contracts as owned by the Issuer for federal, state and local income
tax purposes.
(q) Trendwest will, at its own cost and expense, (i) retain
the Electronic Ledger as a master record of the Contracts and the
related Credits and copies of all documents relating to each Contract
(other than the original executed Contracts) as custodian for the
Issuer and other Persons, if any, with interests in the Contracts and
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the related Credits and (ii) mark the Contracts and the Electronic
Ledger to the effect that the Contracts and the related Receivables and
a security interest in, the related Credits have been acquired by the
Issuer and that they have been transferred and assigned to the Trustee
pursuant to the Indenture.
(r) Such Seller will perform the transactions contemplated by
this Agreement in a manner that is consistent with the Issuer's
ownership interest in the Purchased Assets. The Seller will respond to
all third party inquiries confirming the transfer of the Purchased
Assets to the Issuer.
(s) Such Seller shall immediately transfer to Servicer for
deposit in the Clearing Account any payment it receives relating to the
Purchased Assets.
(t) Such Seller will not amend its Certificate of
Incorporation or its By-laws without the prior written consent of the
Trustee and the Holders of a majority in principal amount of Notes
Outstanding.
Section 4.02. Issuer Covenants. The Issuer hereby covenants and agrees
with each Seller as follows:
(a) The Issuer hereby acknowledges and agrees that its rights
in the related Credits are expressly subject to the rights of the
related Obligors in such Credits pursuant to the related Contract.
(b) On each date as of which any interest in any Contract is
to be purchased or replaced by Trendwest or TFI pursuant to Section
3.03 hereof, the Issuer shall submit to Trendwest or TFI an instrument
of assignment assigning the Issuer's interest in such Receivable and
the related Credits to Trendwest or TFI, as applicable, signed by the
president, senior vice president or any vice president of the Issuer.
Each such assignment shall operate as an assignment, without recourse,
representation, or warranty, to Trendwest or TFI, as applicable, of all
of the Issuer's right, title, and interest in and to such Receivable,
the related Credits and any security documents relating thereto, such
assignment being an assignment outright and not for security, and upon
payment of the Purchase Price or delivery of a Substitute Contract,
Trendwest or TFI, as applicable, will thereupon own such interest in
the related Receivable and all such security and documents, free of any
further obligation to the Issuer with respect thereto. If in any
enforcement suit or legal proceeding it is held that Trendwest or TFI,
as applicable, may not enforce such Contract on the ground that it is
not a real party in interest or holder entitled to enforce such
Contract, the Issuer shall, at the Issuer's expense, take such steps as
the Issuer deems necessary to enforce such Contract, including bringing
suit in the Issuer's name.
(c) The Issuer warrants that it will have a valid security
interest in the related Credits and that it will warrant and defend
such interest in such Credits against all Persons, claims and demands
whatsoever. The Issuer shall not assign, sell, pledge, or
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exchange, or in any way encumber or otherwise dispose of the related
Credits, except as permitted under the Indenture.
(d) The Issuer shall treat the Purchased Assets as owned by
it for Federal, state and local income tax purposes, shall include in
the computation of its gross income for such purposes the other income
from the Purchased Assets, shall treat the Notes as its debt for such
purposes and shall deduct the interest paid or accrued with respect to
the Notes in accordance with its applicable method of accounting for
such purposes.
Section 4.03. Assignment of Purchased Assets. Trendwest and each
Seller understand that the Issuer will assign to and grant to the Trustee a
security interest in all its right, title and interest to this Agreement, the
Contracts, the related Credits and the Purchased Assets. Trendwest and each
Seller consent to such assignment and grants and further agrees that all
representations, warranties, covenants and agreements Trendwest or such Seller
made herein shall also be for the benefit of and inure to the Trustee and all
Holders from time to time of the Notes.
ARTICLE 5
CONDITIONS PRECEDENT
Section 5.01. Conditions to the Issuer's Initial Obligations. The
obligations of the Issuer to execute and deliver the Assignment to each Seller
on the Closing Date pursuant to, and perform it obligations pursuant to, this
Agreement shall be subject to the satisfaction of the following conditions:
(a) All representations and warranties of each Seller and
Trendwest contained in Sections 3.01(b) and 3.01(c) hereof and all
information provided in the Contract Schedule shall be true and correct
on the Closing Date, with the same effect as though such
representations and warranties had been made on such date, and each
Seller and Trendwest shall have delivered to the Issuer, the Trustee
and each original purchaser of the Notes an Officer's Certificate to
such effect;
(b) All representations and warranties of each Seller and
Trendwest contained in Section 3.01(a) hereof shall be true and correct
on the Closing Date with respect to the Contracts listed on the
Contract Schedule, with the same effect as though such representations
and warranties had been made on such date, and each Seller and
Trendwest shall have delivered to the Issuer, the Trustee and each
Holder of Notes an Officer's Certificate to such effect;
(c) Each Seller shall have delivered all other information
theretofore required or reasonably requested by the Issuer to be
delivered by such Seller hereunder, duly certified by an officer of
such Seller, and the Seller shall have substantially performed all
other obligations required to be performed as of the Closing Date by
the provisions of this Agreement;
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(d) On or prior to the Closing Date, each Seller shall have
delivered, or caused the delivery of, the Custodian Files related to
the Contracts identified in the Contract Schedule to the Custodian or
its agent and, subject to Section 2.04 hereof, there shall have been
made all filings, recordings and/or registrations, and there shall have
been given, or taken, any notice or any other similar action, as may be
necessary in the opinion of the Issuer, in order to establish and
preserve the right, title and interest of the Issuer in the Purchased
Assets;
(e) On or before the Closing Date, the Issuer, the Servicer,
the Subservicer and the Trustee shall have entered into the Servicing
Agreement;
(f) The Notes shall be issued and sold on the Closing Date,
the Issuer shall receive the full consideration due it upon the
issuance of the Notes, and the Issuer shall have applied such
consideration, to the extent necessary, to pay the related Purchased
Asset Price; and
(g) Each Seller shall have executed and delivered the
Assignment.
Section 5.02. Conditions to the Sellers' Obligations. The
obligations of each Seller to execute and deliver to the Issuer the Assignment,
and perform it obligations pursuant to, this Agreement on the Closing Date shall
be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Issuer
contained in this Agreement shall be true and correct with the same
effect as though such representations and warranties had been made on
such date;
(b) The Issuer shall have executed and delivered the
Assignment; and
(c) All company and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall
be satisfactory in form and substance to each Seller, and each Seller
shall have received from the Issuer copies of all documents (including,
without limitation, records of corporate proceedings) relevant to the
transactions herein contemplated as each Seller may reasonably have
requested.
Trendwest's and TFI's obligations to repurchase the Contracts pursuant
to this Agreement shall not be affected by any failure of the Issuer to comply
with the provisions of clause (a) of this Section 5.02 subsequent to the Closing
Date.
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ARTICLE 6
TERM AND TERMINATION
Section 6.01. Term. This Agreement shall commence as of the date of
execution and delivery hereof and shall continue in full force and effect until
the later of (i) payment with respect to the last Purchased Asset or (ii)
termination of the Indenture.
Section 6.02. Default by the Sellers or Trendwest. If either Seller
or Trendwest shall be in default under this Agreement and such default shall not
have been cured for a period of 60 days, or if either Seller or Trendwest shall
become insolvent or make an assignment for the benefit of its creditors or have
a receiver appointed for all or substantially all of its properties, or if any
proceedings commenced, or consented to, by either Seller or Trendwest are not
stayed or dismissed within 90 days after being commenced against either Seller
or Trendwest under any bankruptcy, insolvency or other law for the relief of
debtors, the Issuer shall have the right, in addition to any other rights it may
have under any applicable law, to terminate this Agreement upon 30 days' prior
written notice to such Seller or Trendwest, as applicable; provided that any
termination of this Agreement shall not release such Seller or Trendwest, as
applicable from any obligation under this Agreement.
ARTICLE 7
MISCELLANEOUS
Section 7.01. Amendments. This Agreement and the rights and
obligations of the parties hereunder may not be changed orally but only by an
instrument in writing signed by the party against which enforcement is sought.
This Agreement may be amended by the Issuer, Trendwest and the Sellers only with
the consent of the Holders of 66-2/3% in principal amount of Notes Outstanding.
Section 7.02. Governing Law. This Agreement shall be construed in
accordance with the internal laws of the State of New York, without regard to
choice of law principles.
Section 7.03. Notices. All demands, notices and communications
hereunder shall be in writing and shall be delivered personally, mailed by
registered or certified United States mail, postage prepaid, or sent via
overnight air courier or facsimile communication and addressed, in the case of
Trendwest, to 12301 N.E. 10th Place, Bellevue, Washington 98005, in the case of
either Seller, to the applicable Seller Address, and in the case of the Issuer,
to the Issuer Address. All notices and demands shall be deemed to have been
given either at the time of the delivery thereof to any officer of the Person
entitled to receive such notices and demands at the address of such Person for
notices hereunder, or on the third day after the mailing thereof to such
address, as the case may be. Any Person may change the address for notices
hereunder by giving notice of such change to the other Person.
Section 7.04. Separability Clause. Any provisions of this Agreement
which are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to
-23-
<PAGE> 27
the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 7.05. Assignment. Except as provided in Section 4.01(a),
this Agreement may not be assigned or delegated by either Seller without the
prior written consent of the Issuer, the Trustee and the Holders of 66-2/3% in
principal amount of the Notes Outstanding and may not be assigned or delegated
by the Issuer without the prior written consent of the Sellers, Trustee and the
Holders of 66-2/3% in principal amount of the Notes Outstanding.
Section 7.06. Further Assurances. Each of the Sellers and the Issuer
agrees to do such further acts and things and to execute and deliver to the
Trustee such additional assignments, agreements, powers and instruments as are
required by the Trustee to carry into effect the purposes of this Agreement or
to better assure and confirm unto the Trustee or the Holders of the Notes their
rights, powers or remedies hereunder. If any Obligor shall be in default under
any Contract, upon reasonable request from the Servicer, the Seller will take
all reasonable steps to assist in enforcing such Contract and preserving and
maintaining title to the Purchased Assets and the rights of the Trustee and the
Holders of the Notes therein against the claims of all persons and parties to
the extent each Seller is capable of performing such requested steps and the
Servicer reasonably determines that the assistance of the Seller is necessary to
effect the intent and purposes hereof.
Section 7.07. No Waivers; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Issuer or either Seller,
any right, remedy, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any right, remedy, or
privilege hereunder preclude any other or further exercise hereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privileges provided by law.
Section 7.08. Binding Effect; Third Party Beneficiaries. This
Agreement will inure to the benefit of and be binding upon the parties hereto,
the Holders of Outstanding Notes, and their respective successors and permitted
assigns.
Section 7.09. Set-Off. (a) Trendwest and each Seller hereby
irrevocably and unconditionally waive all right of set-off that it may have
under contract (including this Agreement), applicable law or otherwise with
respect to any funds or monies of the Issuer at any time held by or in the
possession of such Seller.
(b) The Issuer shall have the right to set-off against Trendwest and
each Seller any amounts to which such Seller may be entitled and to apply such
amounts to any claims the Issuer may have against such Seller from time to time
under this Agreement. Upon any such set-off the Issuer shall give notice of the
amount thereof and the reasons therefor.
Section 7.10. Counterparts. This Agreement may be executed in one or
more counterparts all of which together shall constitute one original document.
-24-
<PAGE> 28
IN WITNESS WHEREOF, each Seller, Trendwest, and the Issuer have caused
this Agreement to be duly executed by their respective officers thereunto duly
authorized as of the date and year first above written.
TRENDWEST FUNDING I, INC., Seller
By_________________________________
Name:
Title:
TWH FUNDING I, INC., Seller
By_________________________________
Name:
Title:
TRENDWEST RESORTS, INC.
By_________________________________
Name:
Title:
TRI FUNDING COMPANY I, L.L.C., Issuer
By: TRENDWEST FUNDING I, INC., Member
By_______________________________
Name:
Title:
-25-
<PAGE> 29
ANNEX A
FORM OF SUPPLEMENT FOR SUBSTITUTE CONTRACTS
AND UPGRADE CONTRACTS
Pursuant to Section 3.04(b) and Section 3.04(e) of the Purchase and
Sale Agreement dated as of March 1, 1996 (the "Sale Agreement"), between
Trendwest Funding I, Inc. ("TFI"), TWH Funding I, Inc. (together, with TFI, the
"Sellers"), Trendwest Resorts, Inc., and TFI Funding Company I, L.L.C., attached
as Schedule I hereto is a Supplemental Schedule, which includes information
regarding Purchased Assets that are hereby sold, assigned, transferred and
delivered by ____________ to the Issuer in accordance with the Sale Agreement
and the Assignment and setting forth the Collateral Value of any Contract being
sold to TFI by the Issuer pursuant to an Upgrade or exchanged pursuant to a
substitution.
______________________________________
By____________________________________
Name:
Title:
<PAGE> 30
SCHEDULE I
SUPPLEMENTAL SCHEDULE FOR SUBSTITUTE CONTRACTS
AND UPGRADE CONTRACTS
<PAGE> 31
EXHIBIT A
FORM OF CONTRACT
<PAGE> 32
EXHIBIT B
FORM OF ASSIGNMENT
This Assignment Agreement ("Assignment") is made as of April 17, 1996
(the "Transfer Date"), by and between Trendwest Funding I, Inc., a Delaware
corporation, TWH Funding I, Inc., a Delaware corporation (each, an "Assignor"
and together, the "Assignors") and TFI Funding Company I, L.L.C., a Delaware
limited liability company (the "Assignee"), with reference to the following
facts:
RECITALS:
A. In connection with the sale of certain assets by the Assignors in
conjunction with the issuance of notes on the date hereof by the Assignee,
Assignee and the Assignors have executed the Purchase and Sale Agreement dated
as of March 1, 1996 (the "Sale Agreement").
B. In connection with the Sale Agreement, each Assignor desires to
assign and transfer to Assignee all of such Assignor's right, title and interest
in and to each of the purchased assets described in Schedule I hereto, as
supplemented from time to time, and the corresponding paragraphs below (the
"Assigned Interests").
C. Assignee desires to accept this Assignment and transfer of the
Assigned Interests.
D. Terms used but not defined herein have the meanings ascribed to
them in the Sale Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and in consideration of the mutual
covenants set forth herein, the Assignors and Assignee hereby agree as follows:
1. Assignment. Each Assignor hereby assigns, conveys, grants and
transfers, without recourse except as provided in the Sale Agreement, to
Assignee (and the successors and assigns of Assignee) the following property:
1.1. Such Assignor's right, title and interest in and to the
Receivables related to the Contracts described and listed on
Schedule I hereto.
1.2. A security interest in the vacation credits subject to such
Contracts (the "Credits").
1.3. All other Purchased Assets relating to such Contracts.
<PAGE> 33
2. Further Assurance. The Assignors and Assignee each hereby agree
to provide such further assurances and to execute and deliver such documents and
to perform all such other acts as are necessary or appropriate to consummate and
effectuate this Assignment.
3. Distinct Entities. The Assignors and Assignee hereby acknowledge
that for all purposes the Assignors and Assignee are each separate and distinct
legal entities. Accordingly, the Assignors shall not be liable to any third
party for the debts, obligations and liabilities of the Assignee; and Assignee
shall not be liable to any third party for the debts, obligations and
liabilities of the Assignors.
4. Governing Law. This Assignment shall be governed by and
interpreted in accordance with the laws of the State of New York, and the
parties hereto hereby acknowledge and agree that this Assignment and the
transactions contemplated hereunder were negotiated and entered into in the
State of New York.
5. Authority. The Assignors and Assignee each hereby represent
respectively that they have full power and authority to enter into this
Assignment.
6. Counterparts. This Assignment may be executed in multiple
counterparts, each of which shall be deemed an original but all of which, taken
together, shall constitute one and the same instrument.
7. Successors and Assigns. The Assignors and Assignee each agree
that this Assignment will be binding and will inure to the benefit of each
Assignor and its successors and assigns and the Assignee and its successors and
assigns.
B-2
<PAGE> 34
IN WITNESS WHEREOF, this Assignment has been executed as of the date
first above written.
TRENDWEST FUNDING I, INC., ASSIGNOR
By___________________________________
Name:
Title:
TWH FUNDING I, INC., ASSIGNOR
By___________________________________
Name:
Title:
TFI FUNDING COMPANY I, L.L.C., ASSIGNEE
By: TRENDWEST FUNDING I, INC., MEMBER
By___________________________________
Name:
Title:
B-3
<PAGE> 35
EXHIBIT C
FORM OF SUBORDINATED NOTE
$_______________
TRI FUNDING COMPANY I, L.L.C.
SUBORDINATED NOTE
Date: April 17, 1996 Stated Maturity: June 15, 2004
TRI FUNDING COMPANY I, L.L.C., a limited liability company duly
organized and existing under the laws of the State of Delaware (the "Issuer,"
which term includes any successor entity under the Indenture referred to below),
for value received, hereby promises to pay to Trendwest Funding I, Inc. ("TFI"),
or its assigns, the principal sum of ___________________________________________
Dollars ($_____________) in monthly installments beginning on May 15, 1996 (the
"Initial Payment 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 Subordinated Note) on the fifteenth day of each calendar month or, if such
fifteenth day is not a Business Day, the Business Day immediately following
(each, a "Payment Date"), for the period from and including May 15, 1996 through
the last day of the Due Period immediately preceding the Initial Payment Date,
and thereafter, monthly from and including the first day through the last day of
the Due Period immediately preceding the applicable Payment Date, at the rate of
8.42% per annum (calculated on the basis of a 360-day year consisting of 12
months of 30 days each). Each monthly installment of principal payable on this
Subordinated Note shall be an amount equal to the cash available for
distribution pursuant to clause (xi) of Section 12.02(d) of the Indenture
(referred to herein as the "Indenture"), dated as of March 1, 1996, among the
Issuer, Trendwest Resorts, Inc., as Servicer, and LaSalle National Bank, as
Trustee until the principal amount owed hereunder, as adjusted as set forth
below, is paid in full. Any remaining unpaid portion of the principal amount of
this Subordinated Note shall be due and payable no later than the Stated
Maturity referred to above; provided, however, that if the Notes (as defined
below) are not paid in full on such date, no such amounts shall be due or
payable until the Notes are paid in full. All terms used in this Subordinated
Note which are defined in the Indenture shall have the meanings assigned to them
in the Indenture.
The principal and interest on this Subordinated Note are payable by
check mailed by first-class mail to TFI or its assigns or by wire transfer in
immediately available funds to the account specified in writing to the Trustee
by TFI or its assigns received at least five Business Days prior to the Record
Date for the Payment Date on which wire transfers will commence, in such coin or
currency of the United States of America as at the time of
<PAGE> 36
payment is legal tender for payment of public and private debts. Funds
represented by checks returned undelivered will 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 Issuer for such
purpose pursuant to the Indenture.
The principal owed on this Subordinated Note will be increased from
time to time in the event that TFI transfers an Upgrade Contract to the Issuer,
such amount to equal the difference between the principal balance of the Upgrade
Contract as of the date of such Upgrade and the Collateral Value on such date of
the Contract being replaced.
This Subordinated Note and the Issuer's 7.42% Receivables-Backed Notes,
Series 1996-1 (the "Notes") are secured by certain Contracts, Receivables and
other Collateral described in the Indenture. The Trust Estate also secures the
payment of certain other amounts and certain other obligations as described in
the Indenture. Until the Notes are paid in full and the obligations of the
Issuer under the Indenture are satisfied, (i) the Subordinated 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 Issuer before such time and (ii)
the holder of this Subordinated Note will not cause the filing of a bankruptcy
petition against the Issuer for any reason whatsoever, including, without
limitation, the failure of the Issuer to make any payments of principal of or
interest on this Subordinated Note until after a period equal to 10 days plus
the applicable preference period under the United States Bankruptcy Code has
passed since the Notes were paid in full.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the holder of this Subordinated Note under the
Indenture at any time by the Issuer, the Trustee and the Servicer with the
consent of the Holders of not less than 66-2/3% in principal amount of Notes
Outstanding under the Indenture. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Notes, at the time Outstanding under the Indenture, to waive compliance by
the Issuer with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. This Subordinated Note shall not be
amended without the consent of Holders of not less than 66-2/3% in principal
amount of the Notes Outstanding.
No reference herein to the Indenture and no provision of this
Subordinated Note or of the Indenture shall alter or impair the obligation of
the Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Subordinated Note, but, so long as any Notes are Outstanding,
solely from the Collateral pledged to the Trustee under the Indenture at the
times, place and rate, and in the coin or currency, herein prescribed.
Notwithstanding anything else to the contrary contained in this Subordinated
Note or the Indenture, the obligation of the Issuer to pay the principal of and
interest on this Subordinated Note is not a general obligation of the Issuer,
nor its officers or directors, but, so long as any Notes are Outstanding, is
limited solely to the Collateral pledged under the Indenture.
C-2
<PAGE> 37
So long as the Notes are Outstanding, TFI shall not transfer this
Subordinated Note to any Person.
This Subordinated Note and the Indenture shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to conflicts of laws principles.
IN WITNESS WHEREOF, TRI Funding Company I, L.L.C. has caused this
Subordinated Note to be signed, manually, by the Treasurer of Trendwest Funding
I, Inc., as member.
TRI FUNDING COMPANY I, L.L.C.
By: TRENDWEST FUNDING I, INC., as Member
By:______________________________________
Treasurer
C-3
<PAGE> 38
SCHEDULE I
CONTRACT SCHEDULE
<PAGE> 1
EXHIBIT 10.10
RECEIVABLES PURCHASE AGREEMENT
among
TRENDWEST RESORTS, INC.
("Trendwest")
and
TW HOLDINGS, INC.
("TW Holdings")
and
TRENDWEST FUNDING I, INC.
("TFI")
Dated as of March 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS ..................................................2
Section 1.01. Defined Terms ............................................2
ARTICLE 2 ACQUISITION OF ASSETS ........................................3
Section 2.01. [Reserved.] ..............................................3
Section 2.02. Acquisition ..............................................3
Section 2.03. [Reserved.] ..............................................3
Section 2.04. Delivery of Contracts ....................................4
Section 2.05. Servicing of Contracts and Related Credits ...............4
Section 2.06. Review of Contracts ......................................4
ARTICLE 3 REPRESENTATIONS AND WARRANTEES ...............................5
Section 3.01. Representations and Warranties of the Sellers ............5
Section 3.02. Representations and Warranties of TFI ...................12
Section 3.03. Purchase or Substitution Required upon
Breach of Certain Representations and Warranties ........13
Section 3.04. Requirements for Purchase or Substitution of Contracts ..14
ARTICLE 4 SELLER COVENANTS ............................................16
Section 4.01. Seller Covenants ........................................16
Section 4.02. TFI Covenants ...........................................19
Section 4.03. Assignment of Assets ....................................20
ARTICLE 5 CONDITIONS PRECEDENT ........................................20
Section 5.01. Conditions to TFI's Initial Obligations .................20
Section 5.02. Conditions to the Sellers' Obligations ..................21
ARTICLE 6 TERM AND TERMINATION ........................................22
Section 6.01. Term ....................................................22
Section 6.02. Default by Sellers ......................................22
ARTICLE 7 MISCELLANEOUS ...............................................22
Section 7.01. Amendments ..............................................22
Section 7.02. Governing Law ...........................................23
Section 7.03. Notices .................................................23
Section 7.04. Separability Clause .....................................23
Section 7.05. Assignment ..............................................23
Section 7.06. Further Assurances ......................................23
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
Section 7.07. No Waivers; Cumulative Remedies .........................23
Section 7.08. Binding Effect; Third Party Beneficiaries ...............24
Section 7.09. Set-Off .................................................24
Section 7.10. Counterparts ............................................24
</TABLE>
ANNEX A -- FORM OF SUPPLEMENT FOR SUBSTITUTE CONTRACTS AND UPGRADE
CONTRACTS
EXHIBIT A -- FORM OF CONTRACT
EXHIBIT B -- FORM OF ASSET ASSIGNMENT
-ii-
<PAGE> 4
THIS RECEIVABLES PURCHASE AGREEMENT, dated as of March 1, 1996 (this
"Agreement"), by and among Trendwest Resorts, Inc., an Oregon corporation
(herein, together with its permitted successors and assigns, "Trendwest"), TW
Holdings, Inc., a Nevada corporation (herein, together with its permitted
successors and assigns, "TW Holdings"), and Trendwest Funding I, Inc., a
Delaware corporation (herein, together with its permitted successors and
assigns, "TFI").
PRELIMINARY STATEMENT
TRI Funding Company I, L.L.C., a Delaware limited liability company
(the "Issuer") has entered into an Indenture, dated as of March 1, 1996 (as
amended and supplemented from time to time, the "Indenture"), with LaSalle
National Bank, as trustee (herein, together with its permitted successors and
assigns, the "Trustee"), and Trendwest, as servicer (herein, together with its
permitted successors and assigns, the "Servicer"), pursuant to which the Issuer
intends to issue its Notes as provided in the Indenture (the "Notes").
In furtherance thereof, Trendwest and TW Holdings, (collectively, the
"Sellers") and TFI have entered into this Agreement to provide for, among other
things, the acquisition by TFI of all of the right, title and interest in and to
certain Assets which will be sold by TFI to the Issuer pursuant to that certain
Purchase and Sale Agreement, dated as of even date herewith, by and among TFI,
SPC and the Issuer (the "Sale Agreement"). The Issuer will be pledging to the
Trustee the Assets, and the Issuer will be granting to the Trustee a security
interest in the Assets, as security for the Notes. As a precondition to the
effectiveness of this Agreement, the Issuer, the Trustee, the Subservicer and
the Servicer will enter into the Servicing Agreement, dated as of March 1, 1996
(as amended and supplemented from time to time, the "Servicing Agreement"), to
provide for the administration and servicing of the Assets. In connection with
the issuance of the Notes and pursuant to this Agreement, the Sellers will sell
the Assets to TFI. Such sale shall be effected by this Agreement and an Asset
Assignment among the Sellers and TFI, and the list of Contracts so conveyed
shall be listed on Schedule I to such Asset Assignment.
In order to further secure the Notes, TFI is granting to the Issuer,
pursuant to the Sale Agreement, and the Issuer subsequently will grant to the
Trustee pursuant to the Indenture, a security interest in, among other things,
TFI's rights derived under this Agreement, and the Sellers agree that all
representations, warranties, covenants and agreements made by them in this
Agreement with respect to the Assets shall also be for the benefit and security
of the Issuer and the Trustee and all holders from time to time of the Notes. In
consideration for the Assets and their representations, warranties, covenants
and other agreements under this Agreement, the Sellers will receive cash on the
Closing Date and an interest in payments to TFI from the Issuer.
<PAGE> 5
ARTICLE 1
DEFINITIONS
Section 1.01. Defined Terms. For purposes of this Agreement the
following terms shall have the meanings specified herein. Capitalized terms used
herein but not otherwise defined shall have the respective meanings assigned to
such terms in the Indenture or the Sale Agreement.
"Acquisition Consideration" shall mean, with respect to any Contracts
and the related Receivables, the cash which shall be paid by TFI to the Sellers
on the Closing Date and an interest in payments to TFI from the Issuer in an
aggregate amount equal to 100% of the aggregate principal amount outstanding on
the Contracts as of the Cut-Off Date plus accrued interest through the Closing
Date.
"Asset Assignment" shall mean the Asset Assignment, substantially in
the form attached hereto as Exhibit B, which shall be entered into in connection
with the conveyance of Assets from the Sellers to TFI on the Closing Date.
"Assets" shall mean all of the Sellers' right, title and interest in
and to (a) the Contracts and the related Receivables, including the proceeds of
the Contracts and the related Receivables and all payments received on or with
respect to the Contracts and the related Receivables and due after the Cut-Off
Date, (b) the Contract Files and the Custodian Files, (c) the Sellers' rights
and interests in the related Credits, (d) the Servicing Charges with respect to
the Contracts and (e) all income and proceeds of the foregoing or relating
thereto.
"Contract File" shall mean, with respect to each Contract, the
following documents:
(i) a copy of the Contract;
(ii) notice of assignment; and
(iii) any other documents or papers relating to servicing the
Receivables.
"Custodian" shall mean Sage Systems, Inc. and its permitted
successors and assigns.
"Custodian File" shall mean, with respect to each Contract, the
following documents:
(i) the original Contract; and
(ii) notice of assignment.
"Cut-Off Date" shall have the meaning set forth in the Indenture.
-2-
<PAGE> 6
"Electronic Ledgers" shall mean the electronic master records of all
contracts of the Sellers or the Issuer similar to and including the Contracts.
"Eligible Contract" shall mean a Contract that satisfies the selection
criteria set forth in Section 3.01(a) hereof and which is aged at least four
months, provided that with respect to any Substitute Contract, any reference in
such Section to Cut-Off Date shall be deemed to refer to the date as of which
such Substitute Contract is conveyed to the Seller in accordance with Section
3.04 hereof.
"Indenture" shall mean the Indenture, dated as of March 1, 1996, by and
among the Issuer, the Trustee and the Servicer, as amended and supplemented from
time to time.
"Seller Address" with respect to Trendwest shall mean 12301 N.E. 10th
Place, Bellevue, Washington 98005 and with respect to TW Holdings shall mean 245
E. Liberty Street, 3rd Floor, Reno, Nevada 89520.
"SPC" shall mean TWH Funding, Inc. and its successors in interest.
"Substitute Contract" shall have the meaning set forth in Section
3.04(b) hereof.
"Substitute Receivable" shall mean the Receivable related to a
Substitute Contract.
"Substitution Criterion" shall have the meaning set forth in Section
3.04(b) hereof.
"TFI Address" shall mean 12301 N.E. 10th Place, Bellevue, Washington
98005.
"Upgrade" shall have the meaning set forth in the Indenture.
"Upgrade Contract" shall have the meaning set forth in the Indenture.
ARTICLE 2
ACQUISITION OF ASSETS
Section 2.01. [Reserved.]
Section 2.02. Acquisition. In return for the Asset Consideration and
other rights created by this Agreement, each of the Sellers hereby transfers,
assigns, sells and grants to TFI, without recourse except as provided in Section
3.03 of this Agreement, on the Closing Date, any and all of such Seller's
respective right, title and interest in and to all of the Assets relating to the
Contracts set forth on Schedule I to the Asset Assignment. Each of the Sellers
hereby acknowledges that its transfer of the Assets to TFI is absolute and
irrevocable, without reservation or retention of any interest whatsoever by such
Seller.
Section 2.03. [Reserved.]
-3-
<PAGE> 7
Section 2.04. Delivery of Contracts; Filing of Financing Statements.
(a) In connection with TFI's acquisition of the Assets, Trendwest, on behalf of
the Sellers, TFI and the Issuer, shall deliver, or cause the delivery of, the
original Contracts to the Custodian so that the Custodian may retain possession
thereof as provided in the Transaction Documents. In addition, the Sellers agree
to execute, and Trendwest agrees to record and file prior to the Closing Date at
its own expense, financing statements (and thereafter timely continuation
statements with respect to such financing statements) with respect to the
Assets, in accordance with Section 3.01(a)(viii) and Section 4.01(c) hereof.
(b) In connection with such acquisition, each of the Sellers shall
promptly, at its own expense, cause any Electronic Ledger maintained by it to be
marked to show which Assets have been acquired by TFI in accordance with this
Agreement and transferred by TFI to the Issuer and pledged by the Issuer to the
Trustee in accordance with the Transaction Documents.
(c) It is the intention of the Sellers and TFI that TFI is acquiring
full and absolute title to the Assets. If it is determined, however, that the
Sellers have transferred to TFI a security interest in the Assets, then this
Agreement shall constitute a security agreement under applicable law, and each
of the Sellers does hereby pledge, grant and assign to TFI a security interest
in the Assets.
Section 2.05. Servicing of Contracts and Related Credits. The Servicer
shall service the Contracts and the other Assets for the benefit of the Issuer
(and its successors and assigns) in accordance with the terms and conditions of
the Transaction Documents. Notwithstanding the foregoing, Trendwest acknowledges
and agrees that its obligations under this Agreement are independent of any
obligations it may have as Servicer and that its obligations under this
Agreement will continue in full force and effect, whether or not it is acting as
Servicer, until termination of this Agreement in accordance with Section 6.01
hereof, unless otherwise provided herein.
Section 2.06. Review of Contracts. If any of the Sellers or the
Custodian (who shall thereupon notify TFI, Trendwest and the Trustee) discovers
that any Contracts are missing or defective (that is, mutilated, damaged,
defaced, incomplete, improperly dated, forged or otherwise physically altered)
in any material respect, Trendwest shall correct or cure such omission, defect
or other irregularity within 30 days from the date Trendwest discovered such
omission or defect, or from the date Trendwest is notified by the Custodian of
such omission or defect. In the event Trendwest is unable to correct or cure
such omission, defect or irregularity within the 30-day period described in the
preceding sentence, Trendwest shall purchase or replace such Contract from TFI
in accordance with Section 3.03 hereof.
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ARTICLE 3
REPRESENTATIONS AND WARRANTEES
Section 3.01. Representations and Warranties of the Sellers. Each of
Trendwest, with respect to all of the Contracts and related Receivables, and TW
Holdings, with respect to the Contracts and related Receivables transferred by
TW Holdings hereby and by the Asset Assignment, hereby makes the following
representations and warranties to TFI and for the benefit of the Issuer, the
Trustee and Holders of the Notes, on which TFI relies in acquiring the Assets
and on which the Holders rely in purchasing the Notes. Such representations and
warranties shall survive any subsequent transfer, assignment, contribution or
conveyance of the Contracts and related Receivables and interest in the related
Credits and any issuance of Notes.
(a) As to each Contract, as of the Closing Date:
(i) The information set forth in the Contract Schedule is true
and correct as of the Cut-Off Date.
(ii) The rights with respect to the Contract are assignable by
the lender thereunder and its successors and assigns without the
consent of any Person.
(iii) The applicable Seller has heretofore provided to the
Custodian the sole original counterpart of the Contract, together with
any and all amendments, waivers and modifications thereto, except for
any original executed counterparts which have been marked to show that
they have been pledged by the Issuer to the Trustee under the
Indenture, and the terms of such Contract have not been further
amended, waived or modified subsequent to the above being provided to
the Custodian.
(iv) The Electronic Ledgers have been marked as provided in
Section 2.04(b) hereof.
(v) The Contract was not originated in, nor is it subject to
the laws of, any jurisdiction, the laws of which would make unlawful
the sale, transfer or assignment of such document under any of the
Transaction Documents, including any repurchase in accordance with the
Transaction Documents.
(vi) The Contract is in full force and effect in accordance
with its respective terms, and none of the Sellers or any Obligor has
or will have suspended or reduced any payments or obligations due or to
become due thereunder by reason of a default by the other party to such
Contract; as of the Closing Date, no Scheduled Payment with respect to
such Contract has not been received and remains unpaid for a period of
30 or more days (without regard to advances, if any, made by the
Servicer), and there are no proceedings pending, or to the best of the
knowledge of any Seller, threatened asserting
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insolvency of such Obligor; there has been no other default, breach or
violation and no event other than relating to an Upgrade, permitting
acceleration under such Contract; there are no proceedings pending, or
to the best of the knowledge of any Seller, threatened, wherein such
Obligor or any governmental agency has alleged that such Contract is
illegal or unenforceable; and none of the related Scheduled Payments
are subject to any set-off or credit of any kind.
(vii) The Contract is the valid, binding and legally
enforceable obligation of the parties thereto, enforceable in
accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization and other similar laws of
general applicability relating to or affecting creditors' rights
generally and to general principles of equity regardless of whether
enforcement is sought in a court of law or equity.
(viii) All actions, filings (including UCC filings) and
recordings as are required by the Indenture and that may be necessary
to perfect a first priority security interest of the Issuer and the
Trustee in, and the sale by the applicable Seller to TFI and the sale
from TFI to the Issuer of, the Contract and the related Receivables
being acquired and the granting of a security interest in the security
interest in the related Credits hereunder have been accomplished and
are in full force and effect.
(ix) The Contract is identical to one of the form contracts
attached as Exhibit A hereto, except for either (i) such immaterial
modifications or deviations from the form contract which appear in such
Contract, which immaterial modifications or deviations will not have a
material adverse effect on the Holders of the Notes or (ii) such
modifications or deviations as set forth on Schedule I to the Asset
Assignment related to such Contract.
(x) The Contract was originated by Trendwest in Trendwest's
ordinary course of business and meets Trendwest's qualifications for
originating vacation credit installment contracts. The origination and
collection practices used by Trendwest and the applicable Seller with
respect to such Contract have been in all respects legal, proper,
prudent and customary in the vacation credit financing and servicing
business.
(xi) The Receivable is under a Contract that has a term to the
last Scheduled Payment Date of not more than 84 months and not less
than one month.
(xii) The Contract obligates the related Obligor to make all
Scheduled Payments thereunder in full notwithstanding the collection by
Trendwest of a security deposit with respect thereto. The calculation
of the Collateral Value of the related Receivable does not include any
security deposits or similar
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payments collected by or on behalf of Trendwest which are applied to
Scheduled Payments.
(xiii) All requirements of applicable federal, State and local
laws, and regulations thereunder, including, without limitation, usury
laws, if any, in respect of the Contract have been complied with in all
material respects, and such Contract complied in all material respects
at the time it was originated or made and now complies in all material
respects with all legal requirements of the jurisdiction in which it
was originated.
(xiv) The Contract is not and will not be subject to any right
of rescission, set-off, counterclaim or defense, including the defense
of usury, whether arising out of transactions concerning such Contract
or otherwise, and the operation of any of the terms of such Contract or
the exercise by the applicable Seller or the Obligor of any right under
such Contract will not render such Contract unenforceable in whole or
in part, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto, except that certain
rights or defenses may exist under applicable law which, individually
or in the aggregate, do not make the remedies available to the Seller
with respect to such Contract inadequate for the practical realization
of the benefits provided thereby.
(xv) Each of the Sellers has duly fulfilled all obligations on
the lender's part to be fulfilled under or in connection with the
Contract, including, without limitation, giving any notices or consents
necessary to effect the acquisition of the Assets by TFI and has done
nothing to impair the rights of TFI in such Contract or payments with
respect thereto.
(xvi) The Contract and the related Seller's interest in the
related Credits have not been sold, transferred, assigned or pledged by
the Seller to any Person other than the Issuer (except for such
interests in the Purchased Assets which shall be terminated on or prior
to the Closing Date), and upon execution and delivery hereof and of the
Asset Assignment by the related Seller and the payment by the Issuer of
the related Acquisition Consideration, TFI will have all of the right,
title and interest in and to such Seller's interest in the Contract and
the related Receivable and a security interest in the related Credits,
free and clear of all liens and encumbrances, except for the interests
of the Obligor pursuant to such Contract. Such Contract has not been
satisfied, subordinated or rescinded.
(xvii) The relevant Seller has no specific knowledge that the
Contract will not be fully performed in accordance with its terms.
(xviii) The Obligor has made the first payment (which payment
may be an advance payment under such Contract) due under the Contract
within the time set forth in such Contract.
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(xix) The related Obligor is located in the United States of
America or Canada, and the related Scheduled Payments are payable in
U.S. dollars.
(xx) Except for changes due to Upgrades, the related Scheduled
Payments were established at the time such Contract was originated.
(xxi) There are no unpaid brokerage or other fees owed to
third parties relating to the origination of the Contract.
(xxii) The Contract cannot be rescinded pursuant to applicable
consumer finance laws.
(xxiii) The contract was originated in compliance with the
requirements of all federal, state and local laws, rules and
regulations applicable to the origination of the Contract (including,
without limitation, the Federal Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting
Act, the Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve
Board's Regulations "B" and "Z", the Soldiers' and Sailors' Civil
Relief Act of 1940, and any other federal, state and local laws
relating to interest, usury, consumer credit, equal credit opportunity,
fair credit reporting, privacy, consumer protection, false or deceptive
trade practices and disclosure, the Mail Fraud statute and any
timeshare disclosure), non-compliance with which could have a material
adverse effect on the enforceability or value of the Contract.
(xxiv) All Scheduled Payments are due and payable on a monthly
basis and such Scheduled Payments are level payments throughout the
terms of the Contracts.
(b) As to the aggregate pool of Contracts as of the Closing Date no
Seller used any selection procedures that identified the Contracts as being less
desirable or valuable than other comparable vacation credit installment
contracts owned by such Seller.
(c) As to each Seller as of the Closing Date:
(i) Such Seller has been duly organized and is validly
existing and in good standing as a corporation under the laws of the
State in which such Seller was organized with corporate power and
authority to own its properties and to transact the business in which
it is now engaged, and such Seller is duly qualified to do business in
and is in good standing under the laws of each State in which its
business is located or is not required under applicable law to effect
such qualification, except where failure to so qualify would not have a
material adverse effect on the ability of such Seller to perform its
obligations under the Transaction Documents or on any of the Contracts,
the Receivables or the
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related Credits or on the ability of such Seller, TFI, the Issuer or
the Trustee to realize upon or enforce the same.
(ii) The performance of the obligations of such Seller under
this Agreement and the other Transaction Documents and the consummation
of the transactions herein and therein contemplated will not conflict
with or result in any breach of any of the terms or provisions of, or
constitute with or without notice, lapse of time or both, a default
under the Articles of Incorporation or Bylaws of such Seller, or any
material indenture, agreement, mortgage, deed of trust or other
instrument to which such Seller is a party or by which it is bound, or
result in the creation or imposition of any lien, charge or encumbrance
(except the lien created by the Transaction Documents) upon any of the
property or assets of such Seller pursuant to the terms of such
indenture, mortgage, deed of trust, or other agreement or instrument to
which such Seller is a party or by which such Seller is bound or to
which any of such Seller's property or assets is subject, nor will such
action result in any violation of the provisions of such Seller's
Articles of Incorporation or By-laws or any statute or any order, rule
or regulation of any court or any regulatory authority or other
governmental agency or body having jurisdiction over such Seller or any
of its properties; and no consent, approval, authorization, order,
registration or qualification of or with or other action of any court,
or any such regulatory authority or other governmental agency or body
is required for consummation of the transactions contemplated by this
Agreement and the other Transaction Documents except such consents,
approvals and authorizations which have been obtained or such
registrations or qualifications which have been made.
(iii) This Agreement and any other Transaction Document to
which such Seller is a party have been duly authorized, executed and
delivered by such Seller by all necessary corporate action and such
agreements are the valid and legally binding obligations of such
Seller, enforceable against such Seller in accordance with their
respective terms, subject as to enforcement to applicable bankruptcy,
insolvency, reorganization and other similar laws of general
applicability relating to or affecting creditors' rights generally and
to general principles of equity regardless of whether enforcement is
sought in a court of law or equity.
(iv) The relevant Seller Address is the chief executive
office, principal place of business and the office where such Seller
keeps its records concerning the Contracts, Receivables and the related
Credits. Such Seller has not used any address other than its Seller
Address and 4010 Lake Washington Boulevard, Suite 300, Kirkland,
Washington 98033, in the previous five-year period. Such Seller's legal
name is as set forth in this Agreement. Such Seller has not used or
done business under any other name in the previous six-year period.
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(v) Such Seller does not believe, nor does it have any
reasonable cause to believe, that it cannot perform each and every
covenant contained in this Agreement.
(vi) The transactions contemplated by the Transaction
Documents are being consummated by such Seller in furtherance of its
ordinary business purposes, with no contemplation of insolvency and
with no intent to hinder, delay or defraud any of its present or future
creditors.
(vii) The consideration received by such Seller pursuant to
this Agreement is fair consideration having value reasonably equivalent
to or in excess of the value of the performance of such Seller's
obligations hereunder.
(viii) Neither on the date of the transactions contemplated by
the Transaction Documents or immediately before or after such
transactions, nor as a result of the transactions, will such Seller:
(A) be insolvent such that the sum of its debts is
greater than all of its respective property, at a fair
valuation;
(B) be engaged in, or about to engage in, business or a
transaction for which any property remaining with such Seller
will be an unreasonably small capital or the remaining assets
of such Seller will be unreasonably small in relation to its
respective business or the transaction; and
(C) have intended to incur, or believed it would incur,
debts that would be beyond its respective ability to pay as
such debts mature or become due. Such Seller's assets and cash
flow enable it to meet its present obligations in the ordinary
course of business as they become due.
(ix) Both immediately before and after the transactions
contemplated by the Transaction Documents (a) the present fair salable
value of such Seller's assets was or will be in excess of the amount
that will be required to pay its probable liabilities as they then
exist and as they become absolute and matured; and (b) the sum of such
Seller's assets was or will be greater than the sum of its debts,
valuing its assets at a fair salable value.
(x) The acquisition of the Assets by TFI pursuant to this
Agreement is not subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction.
(xi) There are no proceedings or investigations pending or, to
the knowledge of such Seller, threatened against or affecting such
Seller in or before any court, governmental authority or agency or
arbitration board or tribunal which, individually or in the aggregate,
involve the possibility of
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materially and adversely affecting the properties, business, prospects,
profits or condition (financial or otherwise) of such Seller, or the
ability of such Seller to perform its obligations under this Agreement
or the other Transaction Documents. Such Seller is not in default with
respect to any order of any court, governmental authority or agency or
arbitration board or tribunal.
(xii) All tax returns or extensions required to be filed by
such Seller in any jurisdiction have in fact been filed, and all taxes,
assessments, fees and other governmental charges upon such Seller, or
upon any of the respective properties, income or franchises shown to be
due and payable on such returns have been, or will be, paid. All such
tax returns are true and correct, and such Seller has no knowledge of
any proposed additional tax assessment against it in any material
amount nor of any basis therefor. The provisions for taxes on the books
of such Seller are in accordance with generally accepted accounting
principles.
(xiii) Such Seller (i) is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject,
(ii) has not failed to obtain any licenses, permits, franchises or
other governmental authorizations necessary to the ownership of its
property or to the conduct of its business, and (iii) is not in
violation in any material respect of any term of any agreement, charter
instrument, bylaw or instrument to which it is a party or by which it
may be bound which violation or failure to obtain might materially
adversely affect the business or condition (financial or otherwise) of
such Seller.
(xiv) The Sellers and TFI are members of an affiliated group
within the meaning of Section 1504 of the Code which has filed and will
continue to file a consolidated federal income tax return at all times
until termination of the Transaction Documents.
(xv) It is the intention of such Seller that the Assets are
being or have been acquired by TFI and that the beneficial interest in
and title to the Assets are not part of such Seller's estate in the
event of the filing of a bankruptcy petition by or against such Seller
under any bankruptcy law.
(xvi) Immediately prior to the acquisition of the Assets by
TFI pursuant to this Agreement, such Seller was the sole owner of its
portion of the Assets at such time and had good and marketable title to
the Assets, free and clear of all liens, claims and encumbrances
(except for the Acquisition Consideration and security interests in the
Assets which shall be terminated on or prior to the Closing Date).
(xvii) The Sellers will treat the transfer of the Assets as a
sale to TFI for federal, State and local income tax reporting and
accounting purposes.
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(xviii) The sale of the Assets pursuant to this Agreement
constitutes the valid sale by the Sellers to TFI of all of the Sellers'
right, title and interest in the Assets.
(xix) The Sellers have valid business reasons for selling the
Assets to TFI pursuant to this Agreement rather than obtaining a loan
secured by the Assets.
(xx) The Sellers will be operated generally so as to not be
substantively consolidated with TFI for bankruptcy purposes.
(xxi) No event has occurred that adversely affects the
Sellers' ability to perform the transactions contemplated by the
Transaction Documents.
(xxii) Each pension plan or profit sharing plan to which each
of the Sellers is a party has been fully funded in accordance with the
obligations of such Seller as set forth in such plan.
(xxiii) Neither the acquisition nor the holding of the
Contracts and the related Receivables violates any federal or State
law, rule or regulation the non-compliance with which could have a
material adverse effect on the value of the Contracts or the related
Receivables.
Section 3.02. Representations and Warranties of TFI. TFI hereby makes
the following representations and warranties for the benefit of the Issuer, the
Trustee and Holders of the Notes, on which the Sellers rely in entering into
this Agreement with TFI and on which the Holders of the Notes rely in purchasing
the Notes; such representations and warranties speak as of the Closing Date
unless otherwise indicated, but shall survive any subsequent transfer,
assignment, contribution or conveyance of the Assets or any part thereof:
(a) TFI has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware,
with corporate power and authority to own its properties, perform its
obligations under the Transaction Documents and to transact the
business in which it is now engaged or in which it proposes to engage;
TFI is duly qualified to do business and is in good standing in each
State in which the nature of its business requires it to be so
qualified, except where failure to so qualify would not have a material
adverse effect on the ability of TFI to perform its obligations under
the Transaction Documents.
(b) The transfer to and receipt by TFI of the Sellers'
interest in the Contracts, the Receivables and the related Credits
pursuant to this Agreement and the consummation of the transactions
contemplated herein and in the Transaction Documents will not conflict
with or result in breach of any of the terms or provisions of, or
constitute (with or without notice, lapse of time or both) a default
under the Certificate of Incorporation or By-laws of TFI or any
material indenture, agreement, mortgage, deed of trust or other
instrument to which TFI is a party or by which it is
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bound, or result in the creation or imposition of any lien, charge or
encumbrance (except for the lien created by the Sale Agreement and the
Indenture) upon any of the property or assets of TFI pursuant to the
terms of, such indenture, mortgage, deed of trust, or other agreement
or instrument to which TFI is a party or by which it is bound or to
which any of the property or assets of TFI is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of TFI or any statute or any order, rule or
regulation of any court or regulatory authority or other governmental
agency or body having jurisdiction over TFI or any of its properties;
and no consent, approval, authorization, order, registration or
qualification of or with or other action of any court or any such
regulatory authority or other governmental agency or body is required
for the acquisition of the Assets hereunder.
(c) The Transaction Documents to which TFI is a party have
been duly authorized, executed and delivered by TFI by all necessary
corporate action and constitute valid and legally binding obligations
of TFI enforceable against TFI in accordance with their terms, subject
as to enforcement to bankruptcy, insolvency, reorganization and other
similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity
regardless of whether enforcement is sought in a court of equity or
law.
(d) There are no proceedings or investigations to which TFI is
a party pending or, to the knowledge of TFI, threatened, before any
court, regulatory body, administrative agency or other tribunal or
governmental instrumentality (a) asserting the invalidity of this
Agreement, (b) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by this Agreement,
or (c) seeking any determination or ruling that would materially and
adversely affect the performance by TFI of its obligations under, or
the validity or enforceability of, this Agreement.
(e) All approvals, authorizations, consents, orders or other
actions of any Person or of any court, governmental agency or body or
official, required in connection with the execution and delivery of
this Agreement, have been or will be taken or obtained on or prior to
the Closing Date.
(f) The TFI Address is the principal place of business and
chief executive office of TFI.
Section 3.03. Purchase or Substitution Required upon Breach of Certain
Representations and Warranties. Upon discovery by TFI or any of the Sellers of
the breach of any representations or warranties set forth in Section 3.01 or
3.02 hereof which materially and adversely affects the value of a Contract,
Receivable, the related Credits, or the interests of the Holders of the Notes,
or a breach of any of the representations and warranties set forth in Sections
3.01(a)(v), 3.01(a)(vi), 3.01(a)(vii), 3.01(a)(xiii), 3.01(a)(xiv),
3.01(a)(xvi), 3.01(a)(xxii) or 3.01(a)(xxiii) hereof, the party discovering such
breach shall give prompt written notice to the other parties. Trendwest shall,
within 30 days
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from the date it was notified of, or otherwise discovers, such breach, cure such
breach, or, (1) if the breach relates to a particular Contract and is not cured,
either (a) purchase TFI's interest in such Contract and the related Receivable
from TFI at the Purchase Price or (b) provide a Substitute Contract or (2) if
the breach relates to a representation or warranty regarding the selection
criteria of the Contracts as a whole and is not cured by Trendwest, either (a)
purchase TFI's interest in such non-conforming Contracts and the related
Receivables from TFI or (b) provide Substitute Contracts as set forth above, so
that the representations and warranties with respect to the selection criteria
are correct, as evidenced by a certificate of an officer of Trendwest to the
Trustee. The Purchase Price for a purchased Contract shall be paid, and any
Substitute Contract shall be delivered, by Trendwest to TFI in accordance with
Section 3.04(c) hereof. It is understood and agreed that the obligation of
Trendwest to cure or purchase or replace any Contract as to which such a breach
has occurred shall constitute the sole remedy respecting such breach available
to TFI, the Issuer, the Holders of Notes or the Trustee on behalf of such
Holders (except for any indemnities provided under Section 4.01(j) hereof or any
obligations under the Sale Agreement or the Indenture) for any losses, claims,
damages and liabilities arising from TFI's interest in such Contract or the
inclusion of TFI's interest in such Contract in the Trust Estate.
Section 3.04. Requirements for Purchase or Substitution of Contracts;
Upgrades. (a) If Trendwest is required to purchase TFI's interest in any
Contract and the related Receivables under Section 3.03 hereof, if TFI or
Trendwest is required to purchase the Issuer's interest in any Contract and the
related Receivables under Section 3.03 of the Sale Agreement, or if the Issuer
is required or elects to purchase the Trustee's interest in any Contract and the
related Receivables under Section 3.10 of the Servicing Agreement, such Contract
and related Receivables shall be purchased by Trendwest at the Purchase Price.
All purchases shall be accomplished at the times specified in subsection (c)
below.
(b) If Trendwest is required to substitute any Contract under Section
3.03 hereof or if TFI or Trendwest is required to substitute any Contract under
Section 3.03 of the Sale Agreement (a "Substitute Contract"), each such
Substitute Contract shall (i) be an Eligible Contract; (ii) be written on one of
the standard forms attached as Exhibit A to this Agreement; (iii) be accompanied
by a supplement to this Agreement substantially in the form of Annex A hereto
subjecting such Contract to the provisions hereof and providing with respect to
such Substitute Contract the information required in the Contract Schedule; (iv)
not have been selected using procedures that identified the Contracts as being
less desirable or valuable than other comparable vacation credit installment
contracts owned by Trendwest; and (v) not have any Scheduled Payments that are
due after the Stated Maturity Date of the Notes. In addition, (i) such
Substitute Contracts shall have an aggregate Collateral Value at least equal to
and not substantially greater than the aggregate Collateral Value of the
Contracts being withdrawn as of the date of withdrawal (the "Substitution
Criterion") and (ii) the representations and warranties set forth in Sections
3.01 and 3.02 shall be true and correct with respect to such Substitute Contract
and the aggregate pool of Contracts as of the date such Substitute Contract is
conveyed to TFI.
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Upon the substitution of any Substitute Contract pursuant to the
provisions of this Section 3.04(b), Trendwest hereby agrees that such Substitute
Contract will be subject to all the terms and provisions of this Agreement, the
Sale Agreement, the Servicing Agreement, the Custodian Agreement and the
Indenture just as if such Substitute Contract had been one of the original
Contracts acquired on the Closing Date. Upon the substitution of a Substitute
Contract pursuant to this Section 3.04(b), TFI and Trendwest shall also comply
with the provisions and limitations set forth in the Indenture. All
substitutions shall be accomplished at the time specified in subsection (c)
below.
(c) Any purchase or substitution of a Contract by Trendwest in
accordance with Section 3.03 hereof or this Section 3.04 or by TFI or Trendwest
under Section 3.03 or Section 3.04 of the Sale Agreement shall be made either by
remittance of the Purchase Price to the Subservicer for deposit into the
Clearing Account in accordance with Section 3.03(a) of the Servicing Agreement
or by substitution of a Substitute Contract, as applicable, within one Business
Day following the expiration of the cure period set forth in Section 3.03
hereof.
(d) If an Obligor desires to enter into an Upgrade Contract, Trendwest,
as Servicer, shall inform the Issuer of such fact. In such event, if the Issuer
desires to enter into such Upgrade and so advises Trendwest, Trendwest for the
benefit of the Issuer may (but shall not be obligated to) enter into an Upgrade
Contract with such Obligor and transfer such Upgrade Contract to TFI for
transfer to the Issuer in exchange for the existing Contract with such Obligor
and an amount equal to the difference in the principal balance between the
existing Contract and the Upgrade Contract (which amount shall be paid to
Trendwest by increasing the amount owed by TFI under the intercompany debt
between TFI and Trendwest); provided, however, that (i) such Upgrade Contract
has an interest rate that is not more than 1.0% per annum lower than the
interest rate on the Contract that is being replaced, (ii) each Scheduled
Payment under the Upgrade Contract shall be the equal to or greater than the
Scheduled Payments on the existing Contract, (iii) such Obligor has made all
Scheduled Payments due on or before the date of such Upgrade, (iv) such Upgrade
Contract is written on one of the standard forms attached as Exhibit A to this
Agreement, (v) simultaneous with the execution of the Upgrade Contract,
Trendwest shall execute a form of assignment to TFI attached to such Upgrade
Contract, and indicate on the face of the Upgrade Contract that such contract is
being sold to TFI, so that TFI can immediately execute an assignment to the
Issuer and be pledged to the Trustee pursuant to the Indenture, (vi) such
Upgrade Contract shall be delivered by Trendwest to the Custodian immediately
after execution of such contract by the Obligor, WorldMark and Trendwest (and,
in any event, prior to the release of the original Contract), (vii) the transfer
of the Upgrade Contract shall not be effective (and the lien of the Trustee on
the existing Contract and the related Receivable shall not be released) until
after any applicable rescission period has expired and (viii) clauses (i)-(vii)
above shall be representations and warranties of Trendwest, and Trendwest shall
be obligated to purchase from the Issuer any Upgrade Contract that does not
comply with such representations and warranties. Simultaneous with the delivery
of such Upgrade Contract to the Custodian, Trendwest shall deliver to the
Trustee a supplement to this Agreement substantially in the form of Annex A
hereto
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subjecting such Contract to the provisions hereof and providing with respect to
such Upgrade Contract the information required on the Contract Schedule.
Upon the acquisition by TFI and, subsequently, the Issuer of any
Upgrade Contract pursuant to the provisions of this Section 3.04(d), Trendwest
hereby agrees that such Upgrade Contract will be subject to all the terms and
provisions of this Agreement, the Sale Agreement, the Servicing Agreement and
the Indenture just as if such Upgrade Contract had been one of the original
Contracts acquired on the Closing Date.
ARTICLE 4
SELLER COVENANTS
Section 4.01. Seller Covenants. Each Seller hereby covenants and agrees
with TFI as follows:
(a) Except as hereinafter provided, such Seller will keep in
full effect its existence, rights and franchises as a corporation, and
will obtain and preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is or
shall be necessary to protect the validity and enforceability of this
Agreement or any of the Contracts and to perform its duties hereunder.
Any person into which such Seller may be merged or consolidated, or to
whom such Seller has sold substantially all of its assets, or any
corporation resulting from any merger, conversion or consolidation to
which such Seller shall be a party, or any Person succeeding to the
business of such Seller shall be the successor of such Seller
hereunder, without the execution or filing of any paper or any further
act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding; provided, however, that (w) immediately after
giving effect to such transaction, no representation or warranty made
pursuant to Section 3.01(c) hereof shall have been breached, (x) such
successor executes an agreement of assumption, in form reasonably
satisfactory to the Trustee, to perform every obligation under this
Agreement, (y) such Seller shall have delivered to TFI a certificate of
an officer of such Seller and an Opinion of Counsel each stating that
such consolidation, merger, or succession and such agreement of
assumption complies with this Section 4.01 and that all conditions
precedent, if any, provided for in this Agreement relating to such
transaction have been complied with, and (z) such Seller shall have
delivered to TFI an Opinion of Counsel either (1) stating that, in the
opinion of such counsel, all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary fully to preserve and protect the interest of TFI in the
Contracts and reciting the details of such filings, or (2) stating
that, in the opinion of such counsel, no such action shall be necessary
to preserve and protect such interest.
(b) Neither such Seller nor any of the directors, officers,
employees or agents of such Seller shall be under any liability to TFI,
the Trustee or the Holders of Notes for any action taken or for
refraining from the taking of any action in good
-16-
<PAGE> 20
faith pursuant to this Agreement, or for errors in judgment not
involving recklessness or negligence; provided, however, that this
provision shall not protect such Seller against any breach of
warranties or representations made herein, or failure to perform its
obligations in strict compliance with this Agreement, or any liability
which would otherwise be imposed by reason of any breach of the terms
and conditions of this Agreement. Such Seller, and any director,
officer, employee or agent of such Seller, may rely in good faith on
any document of any kind prima facie properly executed and submitted by
any Person respecting any matters arising hereunder. Such Seller shall
not be under any obligation to appear in, prosecute, or defend any
legal action that is not incidental to its obligations as the seller of
the Assets under this Agreement and that in its opinion may involve it
in any expense or liability.
(c) Such Seller will from time to time, at its own expense,
execute and file such additional financing statements (including
continuation statements) as may be necessary or which the Trustee may
deem appropriate to preserve the security interests and liens described
in Section 3.01(a)(viii) hereof and are reasonably satisfactory in form
and substance to TFI and the Issuer.
(d) Such Seller will not change its name, identity or
corporate structure in any manner that would, could, or might make any
financing statement or continuation statement misleading within the
meaning of section 9-402(7) of the UCC, unless it shall have given TFI,
the Issuer and the Trustee at least 30 days' prior written notice
thereof.
(e) Such Seller will give TFI, the Issuer and the Trustee at
least 30 days' prior written notice of any relocation of its principal
executive office if, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any amendment of any
previously filed financing or continuation statement or of any new
financing statement.
(f) Such Seller will duly fulfill all obligations on its part
to be fulfilled under or in connection with each Contract, will not
change or modify the terms of the Contracts (and shall prevent any
third-party originator that still owns any Contract from changing or
modifying the terms of any such Contract) except as expressly permitted
by the terms of the Transaction Documents and will do nothing to impair
the rights of TFI, the Issuer or the Trustee in the Assets. In the
event that the rights of such Seller under any Contract or any guaranty
of the related Obligor's obligations under any Contract are not
assignable to TFI or the Issuer, such Seller will enforce such rights
on behalf of TFI or the Issuer; the Seller is not aware of any such
inability to assign any Contracts.
(g) Such Seller will comply, in all material respects, with
all material acts, rules, regulations, orders, decrees and directions
of any governmental authority applicable to the Assets or any part
thereof; provided, however, that such Seller may contest any act,
regulation, order, decree or direction in any reasonable manner which
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<PAGE> 21
shall not materially and adversely affect the rights of TFI, the Issuer
or the Trustee in the Assets.
(h) Such Seller will advise TFI, the Issuer and the Trustee
promptly, in reasonable detail, of the occurrence of any breach by such
Seller following discovery by such Seller of such breach of any of its
representations, warranties and covenants contained herein.
(i) Such Seller will execute or endorse, acknowledge, and
deliver to TFI, the Issuer and the Trustee from time to time such
schedules, confirmatory assignments, conveyances, and other
reassurances or instruments and take such further similar actions
relating to the Assets, and the rights covered by the Transaction
Documents, as TFI, the Issuer or the Trustee may reasonably request to
preserve and maintain title to the Assets and the rights of the Trustee
and the Holders of Notes therein against the claims of all persons and
parties.
(j) Trendwest agrees to indemnify, defend and hold TFI
harmless from and against any and all loss, liability, damage, judgment,
claim, deficiency or expense (including interest, penalties, reasonable
attorney's fees and amounts paid in settlement) that is caused by (i) a
material breach at any time by any Seller of its representations,
warranties and covenants contained in Section 3.01 hereof or this
Section 4.01 or (ii) any material information furnished by any Seller
which is set forth in any schedule delivered hereunder, being untrue in
any material respect when any such representation was made or schedule
delivered, provided that Trendwest shall not have any liability with
respect to a representation or warranty as to any specific Contract,
Receivable or the related Credits other than to purchase such Contract
or substitute for such Contract in accordance with Section 3.03 hereof
unless such breach of representation or warranty is the result of a
Seller's fraud, negligence, bad faith or willful misconduct. Trendwest
shall also indemnify the Issuer, the Trustee and the Servicer for any
cost or expenses incurred by them in the enforcement of this Agreement.
The obligations of Trendwest under this Section 4.01(j) shall be
considered to have been relied upon by TFI and shall survive the
execution, delivery and performance of this Agreement, regardless of any
investigation made by or on behalf of TFI, until termination of the
Indenture. If Trendwest has made any indemnity payments pursuant to this
Section 4.01(j) and thereafter the recipient collects any of such
amounts from others, such party will promptly repay the amount collected
to Trendwest, without interest.
(k) Such Seller will do nothing to disturb or impair the
acquisition hereunder by TFI of all of such Seller's right, title and
interest in the Assets or the Issuer's rights, title or interest in the
Purchased Assets.
(l) Such Seller (i) will (A) maintain its books and records
separate from the books and records of TFI and (B) maintain bank
accounts separate from those of TFI and (ii) will not (x) take, prior
to the complete payment of the Notes, any action that would cause the
dissolution or liquidation of TFI, (y) guarantee (directly or
-18-
<PAGE> 22
indirectly), endorse or otherwise become contingently liable (directly
or indirectly) for the obligations of TFI or (z) institute against TFI,
or join any other person in instituting against TFI, any case,
proceeding or other action under any existing or future bankruptcy,
insolvency or similar laws.
(m) Such Seller shall notify TFI, the Issuer and the Trustee
promptly after becoming aware of any Lien on any Asset.
(n) On each date as of which Trendwest substitutes a
Substitute Contract in accordance with Section 3.03 hereof, Trendwest
shall provide to TFI a supplement to this Agreement substantially in
the form of Annex A hereto subjecting such Contract to the provisions
hereof and providing with respect to such Substitute Contract the
information required in the Contract Schedule.
(o) The annual financial statements of such Seller will
disclose the effects of the transactions contemplated by the
Transaction Documents in accordance with generally accepted accounting
principles. The financial statements of such Seller and TFI will also
disclose that the assets of TFI are not available to pay creditors of
such Seller. The resolutions, agreements and other instruments
underlying the Transaction Documents will be continuously maintained by
such Seller as official records.
(p) Such Seller will, at its own cost and expense, (i) retain
the Electronic Ledger as a master record of the Contracts and the
related Credits and copies of all documents relating to each Contract
(other than the original executed Contracts) as custodian for the
Issuer and other Persons, if any, with interests in the Contracts and
the related Credits and (ii) mark the Contracts and the Electronic
Ledger to the effect that the Contracts and such Seller's interest in
the related Credits have been acquired by TFI, that the Contracts and
the related Receivables subsequently have been transferred by TFI to
the Issuer and a security interest in the related Credits have been
granted by TFI to the Issuer and that such Receivables, security
interests and rights have been pledged, transferred and assigned to the
Trustee by the Issuer pursuant to the Indenture.
(q) Such Seller will perform the transactions contemplated by
this Agreement in a manner that is consistent with TFI's ownership
interest in the Assets (prior to the conveyance of any part of such
interest to the Issuer pursuant to the Sale Agreement). Such Seller
will respond to all third party inquiries confirming the transfer of
the Assets to TFI and of the Purchased Assets to the Issuer.
(r) Such Seller shall immediately transfer to the Servicer for
deposit in the Clearing Account any payment it receives relating to the
Assets.
Section 4.02. TFI Covenants. TFI hereby covenants and agrees with the
Sellers as follows:
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<PAGE> 23
(a) TFI hereby acknowledges and agrees that its rights in the
related Credits are expressly subject to the rights of the related
Obligors in such Credits pursuant to the applicable Contract.
(b) On each date as of which any interest in any Contract is
to be purchased or replaced by Trendwest pursuant to Section 3.03
hereof, TFI shall submit to Trendwest an instrument of assignment
assigning TFI's interest in such Contract and the related Credits to
Trendwest, signed by the president, senior vice president or any vice
president of TFI. Each such assignment shall operate as an assignment,
without recourse, representation, or warranty, to Trendwest of all of
TFI's right, title, and interest in and to such Contract, related
Credits and any security documents relating thereto, such assignment
being an assignment outright and not for security, and upon payment of
the Purchase Price or delivery of a Substitute Contract, Trendwest will
thereupon own such interest in the Contract and all such security and
documents, free of any further obligation to TFI with respect thereto.
If in any enforcement suit or legal proceeding it is held that
Trendwest may not enforce a Contract on the ground that it is not a
real party in interest or holder entitled to enforce the Contract, TFI
shall, at TFI's expense, take such steps as TFI deems necessary to
enforce the Contract, including bringing suit in TFI's name.
(c) TFI warrants that, except as contemplated by the
Transaction Documents, it will have ownership of or a valid security
interest in the related Credits. TFI shall not assign, sell, pledge, or
exchange, or in any way encumber or otherwise dispose of the related
Credits, except as contemplated by or permitted under the Transaction
Documents.
Section 4.03. Assignment of Assets. The Sellers understand that TFI
will assign to the Issuer the Receivables and grant to the Issuer a security
interest in all its right, title and interest to this Agreement, the Contracts
and the related Credits and that the Issuer will assign to and grant to the
Trustee a security interest in such Receivables, Contracts and the related
Credits. The Sellers consent to such assignments and grants and further agree
that all representations, warranties, covenants and agreements the Sellers made
herein shall also be for the benefit of and inure to the Issuer, the Trustee and
all Holders from time to time of the Notes.
ARTICLE 5
CONDITIONS PRECEDENT
Section 5.01. Conditions to TFI's Initial Obligations. The obligations
of TFI to execute and deliver the Asset Assignment to the Sellers on the Closing
Date pursuant to, and perform it obligations pursuant to, this Agreement shall
be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Sellers
contained in Sections 3.01(b) and 3.01(c) hereof and all information
provided in the Contract
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<PAGE> 24
Schedule shall be true and correct on the Closing Date, with the same
effect as though such representations and warranties had been made on
such date, and the Sellers shall have delivered to TFI, the Issuer, the
Trustee and each original purchaser of Notes an Officer's Certificate
to such effect;
(b) All representations and warranties of the Sellers
contained in Section 3.01(a) hereof shall be true and correct on the
Closing Date with respect to the Contracts listed on the Contract
Schedule, with the same effect as though such representations and
warranties had been made on such date, and the Sellers shall have
delivered to TFI, the Issuer, the Trustee and each original purchaser
of Notes an Officer's Certificate to such effect;
(c) The Sellers shall have delivered all other information
theretofore required or reasonably requested by TFI to be delivered by
the Sellers hereunder, duly certified by an officer of each of the
Sellers, and the Sellers shall have substantially performed all other
obligations required to be performed as of the Closing Date by the
provisions of this Agreement;
(d) On or prior to the Closing Date, Trendwest, on behalf of
the Sellers shall have delivered, or caused the delivery of, the
Custodian File related to the Contracts identified in the Contract
Schedule to the Custodian or its agent and, subject to Section 2.04
hereof, there shall have been made all filings, recordings and/or
registrations, and there shall have been given, or taken, any notice or
any other similar action, as may be necessary in the opinion of TFI, in
order to establish and preserve the right, title and interest of TFI in
such Contract and the other Assets;
(e) On or before the Closing Date, the Issuer, the Servicer,
the Subservicer and the Trustee shall have entered into the Servicing
Agreement;
(f) The Notes shall be issued and sold on the Closing Date,
the Issuer shall receive the full consideration due it upon the
issuance of the Notes, the Issuer shall have applied such
consideration, to the extent necessary, to pay the related
consideration to TFI for the sale of the Contracts and the Receivables
and the grant of the security interest in the Credits, and TFI shall
have applied such consideration, to the extent necessary, to pay the
related Acquisition Consideration; and
(g) Each of the Sellers shall have executed and delivered the
Asset Assignment.
Section 5.02. Conditions to the Sellers' Obligations. The obligations
of each of the Sellers to execute and deliver to TFI the Asset Assignment, and
perform its obligations pursuant to this Agreement on the Closing Date shall be
subject to the satisfaction of the following conditions:
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<PAGE> 25
(a) All representations and warranties of TFI contained in
this Agreement shall be true and correct with the same effect as though
such representations and warranties had been made on such date;
(b) TFI shall have executed and delivered the Asset
Assignment; and
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall
be satisfactory in form and substance to such Seller, and such Seller
shall have received from the TFI copies of all documents (including,
without limitation, records of corporate proceedings) relevant to the
transactions herein contemplated as such Seller may reasonably have
requested.
Trendwest's and TFI's obligations to repurchase the Contracts pursuant
to this Agreement shall not be affected by any failure of the Issuer to comply
with clause (a) of this Section 5.02 subsequent to the Closing Date.
ARTICLE 6
TERM AND TERMINATION
Section 6.01. Term. This Agreement shall commence as of the date of
execution and delivery hereof and shall continue in full force and effect until
the later of (i) payment with respect to the last Asset or (ii) termination of
the Indenture.
Section 6.02. Default by Sellers. If either Seller shall be in default
under this Agreement and such default shall not have been cured for a period of
60 days, or if such Seller shall become insolvent or make an assignment for the
benefit of its creditors or have a receiver appointed for all or substantially
all of its properties, or if any proceedings commenced, or consented to, by such
Seller are not stayed or dismissed within 90 days after being commenced against
such Seller under any bankruptcy, insolvency or other law for the relief of
debtors, TFI shall have the right, in addition to any other rights it may have
under any applicable law, to terminate this Agreement with respect to such
Seller upon 30 days' prior written notice to such Seller; provided that any
termination of this Agreement shall not release such Seller from any obligation
under this Agreement.
ARTICLE 7
MISCELLANEOUS
Section 7.01. Amendments. This Agreement and the rights and obligations
of the parties hereunder may not be changed orally but only by an instrument in
writing signed by the party against which enforcement is sought. This Agreement
may be amended by TFI and the Sellers only with the prior written consent of the
Holders of 66-2/3% in principal amount of Notes Outstanding.
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<PAGE> 26
Section 7.02. Governing Law. This Agreement shall be construed in
accordance with the internal laws of the State of New York, without regard to
choice of law principles.
Section 7.03. Notices. All demands, notices and communications
hereunder shall be in writing and shall be delivered personally, mailed by
registered or certified United States mail, postage prepaid, or sent via
overnight air courier or facsimile communication and addressed, in the case of
the Sellers, to the Seller Address, and in the case of TFI, to the TFI Address.
All notices and demands shall be deemed to have been given either at the time of
the delivery thereof to any officer of the Person entitled to receive such
notices and demands at the address of such Person for notices hereunder, or on
the third day after the mailing thereof to such address, as the case may be. Any
Person may change the address for notices hereunder by giving notice of such
change to the other Person.
Section 7.04. Separability Clause. Any provisions of this Agreement
which are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 7.05. Assignment. Except as provided in Section 4.01(a), this
Agreement may not be assigned or delegated by any Seller without the prior
written consent of TFI, the Trustee and the Holders of 66-2/3% in principal
amount of the Notes Outstanding and may not be assigned or delegated by TFI
without the prior written consent of each of the Sellers, the Trustee and the
Holders of 66-2/3% in principal amount of the Notes Outstanding.
Section 7.06. Further Assurances. Each of the Sellers and TFI agrees to
do such further acts and things and to execute and deliver to the Trustee such
additional assignments, agreements, powers and instruments as are required by
the Trustee to carry into effect the purposes of this Agreement or to better
assure and confirm unto the Trustee or the Holders of the Notes their rights,
powers or remedies hereunder. If any Obligor shall be in default under any
Contract, upon reasonable request from the Servicer, the applicable Seller will
take all reasonable steps to assist in enforcing such Contract and preserving
and maintaining title to the Assets and the rights of the Trustee and the
Holders of the Notes therein against the claims of all persons and parties to
the extent the applicable Seller is capable of performing such requested steps
and the Servicer reasonably determines that the assistance of the applicable
Seller is necessary to effect the intent and purposes hereof.
Section 7.07. No Waivers; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of TFI or the Sellers, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, remedy, or privilege hereunder
preclude any other or further exercise hereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exhaustive of any rights, remedies,
powers and privileges provided by law.
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<PAGE> 27
Section 7.08. Binding Effect; Third Party Beneficiaries. This
Agreement will inure to the benefit of and be binding upon the parties hereto,
the Holders of Outstanding Notes, and their respective successors and permitted
assigns.
Section 7.09. Set-Off. (a) Each of the Sellers hereby irrevocably and
unconditionally waives all right of set-off that it may have under contract
(including this Agreement), applicable law or otherwise with respect to any
funds or monies of TFI and the Issuer at any time held by or in the possession
of such Seller.
(b) TFI and the Issuer shall have the right to set-off against each
Seller any amounts to which such Seller may be entitled and to apply such
amounts to any claims TFI and the Issuer may have against such Seller from time
to time under this Agreement. Upon any such set-off TFI shall give notice of the
amount thereof and the reasons therefor.
Section 7.10. Counterparts. This Agreement may be executed in one or
more counterparts all of which together shall constitute one original document.
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<PAGE> 28
IN WITNESS WHEREOF, the Sellers and TFI have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the date and year first above written.
TRENDWEST RESORTS, INC., in its
individual capacity and
as Seller
By______________________________________
Name:
Title:
TW HOLDINGS, INC., Seller
By______________________________________
Name:
Title:
TRENDWEST FUNDING I, INC.
By _____________________________________
Name:
Title:
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<PAGE> 29
ANNEX A
FORM OF SUPPLEMENT FOR SUBSTITUTE CONTRACTS
AND UPGRADE CONTRACTS
Pursuant to Section 3.04(b) and Section 3.04(d) of the Receivables
Purchase Agreement dated as of March 1, 1996 (the "Agreement"), among Trendwest
Resorts, Inc. ("Trendwest"), TW Holdings, Inc. and Trendwest Funding I, Inc.
("TFI"), attached as Schedule I hereto is a Supplemental Contract Schedule,
which includes information regarding Assets that are hereby sold, assigned,
transferred and delivered by Trendwest to TFI in accordance with the Agreement
and the Asset Assignment and setting forth the Collateral Value of any Contract
being sold to TFI by the Issuer pursuant to an Upgrade or exchanged pursuant to
a substitution.
TRENDWEST RESORTS, INC.
By______________________________________
Name:
Title:
<PAGE> 30
SCHEDULE I
SUPPLEMENTAL CONTRACT SCHEDULE FOR SUBSTITUTE CONTRACTS
AND UPGRADE CONTRACTS
<PAGE> 31
EXHIBIT A
FORM OF CONTRACT
<PAGE> 32
EXHIBIT B
FORM OF ASSET ASSIGNMENT
This Asset Assignment ("Assignment") is made as of April 17, 1996 (the
"Closing Date"), by and among Trendwest Resorts, Inc., an Oregon corporation
("Trendwest"), TW Holdings, Inc., a Nevada corporation, (together with
Trendwest, the "Assignors" and each an "Assignor") and Trendwest Funding I,
Inc., a Delaware corporation ("Assignee"), with reference to the following
facts:
RECITALS:
A. In connection with the sale of certain assets of the Assignors in
conjunction with the issuance of notes on the date hereof by TRI Funding Company
I, L.L.C., Assignee and the Assignors have executed the Receivables Purchase
Agreement dated as of March 1, 1996 (the "Agreement").
B. In connection with the Agreement, each of the Assignors desires to
assign and transfer to Assignee all of such Assignor's right, title and interest
in and to each of the assets described in Schedule I hereto, and the
corresponding paragraphs below (the "Assigned Interests").
C. Assignee desires to accept this Assignment and transfer of the
Assigned Interests and assume all duties and obligations attendant thereto,
accruing after the Transfer Date.
D. Terms used but not defined herein have the meanings ascribed to them
in the Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and in consideration of the mutual
covenants set forth herein, the Assignors and Assignee hereby agree as follows:
1. Assignment. Each Assignor hereby assigns, conveys, grants and
transfers, without recourse except as provided in the Agreement, to Assignee
(and the successors and assigns of Assignee) the following property:
1.1. Such Assignor's right, title and interest in and to the
Contracts and related Receivables described and listed on Schedule I
hereto.
1.2. A security interest in the vacation credits subject to
each such Contract (the "Credits").
1.3. All other Assets relating to such Contract.
<PAGE> 33
2. Assumption. Assignee hereby accepts the foregoing assignment and
hereby assumes all of the duties and obligations incident hereto and thereto,
subject to the terms and conditions of the Agreement.
3. Further Assurance. The Assignors and Assignee each hereby agree to
provide such further assurances and to execute and deliver such documents and to
perform all such other acts as are necessary or appropriate to consummate and
effectuate this Assignment.
4. Distinct Entities. The Assignors and Assignee hereby acknowledge
that for all purposes each of the Assignors and the Assignee are separate and
distinct legal entities. Accordingly, no Assignor shall be liable to any third
party for the debts, obligations and liabilities of the Assignee; and Assignee
shall not be liable to any third party for the debts, obligations and
liabilities of any Assignor to the extent that such debts, obligations and
liabilities have not been expressly assumed by Assignee hereunder.
5. Governing Law. This Assignment shall be governed by and interpreted
in accordance with the laws of the State of New York, and the parties hereto
hereby acknowledge and agree that this Assignment and the transactions
contemplated hereunder were negotiated and entered into in the State of New
York.
6. Authority. Each of the Assignors and the Assignee hereby represent
respectively that they have full power and authority to enter into this
Assignment.
7. Counterparts. This Assignment may be executed in multiple
counterparts, each of which shall be deemed an original but all of which, taken
together, shall constitute one and the same instrument.
8. Successors and Assigns. Each of the Assignors and the Assignee agree
that this Assignment will be binding and will inure to the benefit of each
Assignor and its successors and assigns and the Assignee and its successors and
assigns.
B-2
<PAGE> 34
IN WITNESS WHEREOF, this Assignment has been executed as of the date
first above written.
TRENDWEST RESORTS, INC., Assignor
By______________________________________
Name:
Title:
TW HOLDINGS, INC., Assignor
By______________________________________
Name:
Title:
TRENDWEST FUNDING I, INC., Assignee
By______________________________________
Name:
Title:
B-3
<PAGE> 35
SCHEDULE I
CONTRACT SCHEDULE
<PAGE> 1
EXHIBIT 10.15
NONEXCLUSIVE LIMITED ASSIGNMENT
This NONEXCLUSIVE LIMITED ASSIGNMENT ("Assignment") is dated for
reference purposes September 20th, 1996 by and between TRENDWEST RESORTS, INC.,
an Oregon Corporation ("Trendwest") and EAGLE CREST PARTNERS, LTD.,
("Developer") and pertains to the Vacation Owner Program known as WORLDMARK,
THE CLUB, a California nonprofit mutual benefit corporation ("Club").
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE/SECTION PAGE
--------------- ----
<S> <C> <C>
1: RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Declarant. . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Club . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Memberships/Vacation Credits . . . . . . . . . . . . . 2
1.4 Trendwest's Rights & Powers. . . . . . . . . . . . . . 2
1.5 Definitions. . . . . . . . . . . . . . . . . . . . . . 3
2: ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Annexation . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Sales Proceeds . . . . . . . . . . . . . . . . . . . . 3
2.3 Resales. . . . . . . . . . . . . . . . . . . . . . . . 3
3: DEVELOPER DUTIES AND ASSUMPTION. . . . . . . . . . . . . . . 3
3.1 Club Assessments . . . . . . . . . . . . . . . . . . . 4
3.2 Declaration. . . . . . . . . . . . . . . . . . . . . . 4
3.3 Property Expenses. . . . . . . . . . . . . . . . . . . 4
3.4 Sales Expenses . . . . . . . . . . . . . . . . . . . . 4
3.5 Trendwest Fee. . . . . . . . . . . . . . . . . . . . . 4
3.6 Compliance . . . . . . . . . . . . . . . . . . . . . . 4
3.7 Legal Review . . . . . . . . . . . . . . . . . . . . . 4
3.8 Sales Regulation . . . . . . . . . . . . . . . . . . . 4
3.9 Land Use Regulation. . . . . . . . . . . . . . . . . . 4
3.10 Construction and Improvements. . . . . . . . . . . . . 5
3.11 Representations and Warranties . . . . . . . . . . . . 5
3.12 Further Interest . . . . . . . . . . . . . . . . . . . 5
3.13 Limited Authority. . . . . . . . . . . . . . . . . . . 5
3.14 Complaints . . . . . . . . . . . . . . . . . . . . . . 6
3.15 Defaults and Remedies. . . . . . . . . . . . . . . . . 6
4: TRENDWEST SERVICES AND DUTIES. . . . . . . . . . . . . . . . 6
4.1 Inspection and Approval. . . . . . . . . . . . . . . . 6
4.2 Allocation of Vacation Credits . . . . . . . . . . . . 6
4.3 Sales Regulation . . . . . . . . . . . . . . . . . . . 6
4.4 No Supervision . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Article/Section Page
--------------- ----
<S> <C> <C>
5: GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . 6
5.1 Assignment . . . . . . . . . . . . . . . . . . . 6
5.2 Amendment. . . . . . . . . . . . . . . . . . . . 7
5.3 Assignment . . . . . . . . . . . . . . . . . . . 7
5.4 Attorney's Fees . . . . . . . . . . . . . . . . 7
5.5 Entire Agreement . . . . . . . . . . . . . . . . 7
5.6 Headings . . . . . . . . . . . . . . . . . . . . 7
5.7 Hold Harmless and Indemnity . . . . . . . . . . 7
5.8 Law Applicable . . . . . . . . . . . . . . . . . 8
5.9 Legal Effects and Return . . . . . . . . . . . . 8
5.10 Notices . . . . . . . . . . . . . . . . . . . . 8
5.11 Severability . . . . . . . . . . . . . . . . . . 8
5.12 Successors . . . . . . . . . . . . . . . . . . . 8
5.13 Survival . . . . . . . . . . . . . . . . . . . . 8
5.14 Termination . . . . . . . . . . . . . . . . . . 8
5.15 Waiver . . . . . . . . . . . . . . . . . . . . . 9
5.16 Word Usage . . . . . . . . . . . . . . . . . . . 9
5.17 Exhibits . . . . . . . . . . . . . . . . . . . . 9
6: SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 9
Consent (Of Club) . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
1: RECITALS. The following Recitals are acknowledged and agreed to
by the parties.
1.1 Declarant. Trendwest is the founder of the Club and the
Declarant under the "Declaration of Vacation Owner Program (WorldMark, The
Club)" ("Declaration") recorded for each Property annexed to the Club and
dedicated to the Vacation Owner Program. Trendwest is also the Manager of the
Club under a Management Agreement dated February 13, 1991.
1.2 Club. The Club is an association of the owners of Memberships
in the Club and the owner or lessee of the various Property to be available to
its Members for resort and recreational use pursuant to the Club Governing
Documents. The Club was formerly known as CLUB ESPRIT.
1.3 Memberships/Vacation Credits. Memberships in Club are sold by
Trendwest to the general public in the form of Vacation Credits, which are
allocated to each Property based on its relative value as a resort in the Club
Vacation Owner Program. A Membership is in perpetuity or for a prescribed term
of years, and constitutes a vacation license, which means a right to use and
occupy Units in the Property available through Club from time to time,
according to the reservation rules.
1.4 Trendwest's Rights and Powers. Under the Declaration Trendwest
has the right to annex additional Property to the Club and to sell for its own
account the Vacation Credits allocated to each Property.
<PAGE> 3
1.5 Definitions. Unless the context otherwise requires, the
definitions set forth in the most recently recorded Declaration are hereby
adopted as the definitions herein.
2: ASSIGNMENT. Trendwest hereby assigns to Developer, on a
nonexclusive basis and specifically limited as expressed herein, the following
rights and powers:
2.1 Annexation. Developer may annex to Club the Property described
on Exhibit One attached hereto by conveying or directing conveyance of
marketable fee title in the Property to the Club free of all liens, charges and
encumbrances other than customary restrictions relating to condominiums and
easements for ingress and egress and utilities. Future annexations may be
conveyed to the Club by the written agreement of Running Y and Trendwest in a
form as set forth in Exhibit Two ("Addendum to Nonexclusive Limited
Assignment"). Trendwest reserves the absolute right, in its sole discretion, to
reject the annexation of any property from Developer to the Club. All property
annexed to Club pursuant to this Agreement shall be referred to as the
"Developer Property." Title insurance shall be provided at Developer's expense.
The title policy to be issued shall contain no exceptions other than the
General Exclusions and Exceptions in a standard form title policy and Special
Exceptions consistent with the condition of title. Title shall be conveyed by
Statutory Warranty Deed. All costs of closing, including title insurance,
escrow fees, real estate excise tax, or any other taxes or fees shall be paid
by Developer.
2.2 Right to sell Vacation Credits. Trendwest hereby grants to
Developer the non-exclusive right to market and sell Vacation Credits, subject
to the terms and conditions of this Agreement. Developer may sell for its
own account and retain all of the gross proceeds from the sale of the Vacation
Credits allocated to the Developer Property, subject to payment of the fee set
forth in Section 3.5. Under no circumstances shall Developer sell more Vacation
Credits than have been allocated to the Developer Property.
2.3 Resales. Developer shall be entitled to resell Vacation Credits
originally sold by it if they are repossessed by the Club or by Developer and
still subject to a purchase money security interest in Developer, subject to
reimbursement to the Club for amounts owed to the Club pursuant to such Vacation
Credits. Following expiration of any purchase money security interest in
Developer, Developer has no interest in or claim against such Vacation Credits.
3.: DEVELOPER DUTIES AND ASSUMPTION. Developer hereby assumes the
duties and obligations associated with the limited assignment of rights herein,
specifically, but not limited to, the following:
<PAGE> 4
3.1 Club Assignments. Developer shall pay to Club all assessments
and other charges levied pursuant to the Club Governing Documents as to all
unsold Vacation Credits allocated to the Developer Property for which Developer
has an interest in the sales proceeds, whether or not yet sold or repossessed.
3.2 Declaration. Developer shall record a Declaration with the Club
as Co-Developer, substantially similar to the Declarations recorded by
Trendwest.
3.3 Property Expenses. Developer shall be solely responsible for
all costs and expenses associated with acquisition, construction, remodeling,
furnishing, inspection, appraisal and/or conveying the Developer Property.
3.4 Sales Expenses. Developer shall be solely responsible for all
costs and expenses associated with marketing and selling the Vacation Credits
allocated to the Developer Property, including the costs of advertising and
preparing and printing sales documents and copies of the Governing Documents.
3.5 Trendwest Fee. For its services under and for making this
Assignment, Trendwest shall receive from Developer a fee of three percent (3%)
of the selling price of the Vacation Credits allocated to the Developer
Property, to be paid within twenty (20) days after the month in which the sale
of the Vacation Credits was made.
3.6 Compliance. Developer shall conform its Declaration, sales
documents, representations and relations with Club Members and prospective
Members to the Club Governing Documents and to all applicable laws, ordinances
and regulations.
3.7 Legal Review. If requested by Trendwest, Developer shall obtain
at its own expense and by legal counsel reasonably acceptable to Trendwest,
legal review of its sales and consumer documentation, advertising, and
regulatory filings.
3.8 Sales Regulation. Developer shall, at its own expense, comply
completely with, all Federal, state and local subdivision or timeshare sales
regulatory and consumer protection laws, regulations and ordinances, relating
to the annexed property. The Club may join with Developer in its regulatory
filings. Developer shall also pay all direct expenses for registering the
Developer Property in all jurisdictions where the Club is registered by
Trendwest, even if Developer is not selling or advertising there. Such costs
shall include, but not be limited to, filing fees, appraisal and inspection
fees. (See sec. 4.3)
3.9 Land use regulation. Prior to conveyance to the Club, Developer
shall obtain any clearances or permits necessary to allow the use of the
Developer Property as a Club Property.
<PAGE> 5
3.10 Construction and Improvements. Developer shall complete all
construction, remodeling, improvements and interior furnishing of the Developer
Property, subject to the specifications required by Trendwest, prior to
conveyance to the Club.
3.11 Representations and Warranties of Developer. With respect to any
Developer Property, Developer hereby represents and warrants to Trendwest and
the Club as follows:
a. Compliance with Environmental Laws. Neither the Developer nor any
person (including any previous owner, lessee, sublessor or sublessee) has
generated, handled, used, manufactured, processed, distributed in commerce,
transported, treated, stored, disposed, released (or arranged for the
transportation, treatment or disposal) of petroleum products, hazardous waste,
hazardous chemicals or substances, toxic chemicals, chemical substances or
mixtures, pollutants or contaminants on, at or from the Developer Property, or
any other assets or properties owed, leased or subleased or used by the
Developer in the operation of its business or on, at or from any real property
to which any of the above-listed substances from the above-listed assets or
properties were transported, or at or on which they were treated or disposed
that could subject the Developer, Trendwest or the Club to liability under any
provision of law, including without limitation, federal, state, local or common
law, in each case as in existence on or after the date the Developer Property
is annexed to the Club.
b. Construction Quality. The Developer Property has been built in
accordance with the plans and specifications approved by Trendwest, and has
been constructed in accordance with all applicable building, fire and
electrical codes and all other governmental regulations applicable to the
Developer Property. All work done in construction of the Developer Property was
completed in a good and workmanlike manner and all materials utilized in such
construction were of good quality. To the best knowledge of the Developer, the
Developer Property is free of any and all material defects.
3.12 No Further Interest. Developer acknowledges that after
conveyance of the Developer Property to the Club, Developer shall have no claim
or interest in the Developer Property, except as may be provided in this
Assignment, and no further claim or interest in Vacation Credits sold by it
after expiration of Developer's purchase money security interest therein.
3.13 Limited Authority. Developer shall not represent or purport to
bind the Club other than through the sale or resale of Vacation Credits in the
ordinary course of business in conformity with the Club Governing Documents.
Developer shall not use the tradename or any service mark of the Club other
than in connection with the sale of Vacation Credits allocated by the
5
<PAGE> 6
Club to the Developer Property. Developer shall not use Trendwest's name in any
manner, except as it may appear in the Club Governing Documents.
3.14 Complaints. Developer shall notify Club in writing within five
business days of becoming aware of a material complaint or dissatisfaction by a
Club Member, and deliver to Club therewith any written complaint or
correspondence from a Club member pertaining to a complaint or dissatisfaction.
The Club is solely responsible for Member relations, but Developer agrees to
assist Club, at Club's reasonable request and direction, in resolving complaints
and dissatisfaction of Members who purchase Vacation Credits from Developer.
3.15 Defaults and Remedies. Upon the commission of a material
default under this Assignment, or upon the failure to timely pay any amount
required to be paid or reimbursed hereunder, Club may suspend the right of
Developer to sell Vacation Credits until such time as the default or failure to
pay is cured.
4: TRENDWEST DUTIES.
4.1 Inspection and Approval. Trendwest, as Manager of the Club, must
inspect and reasonably approve the quality and harmony of the Developer Property
as Club Property regarding, but not limited to, design, size, location,
amenities (interior, project, and surrounding area) and quality of construction,
which approval must be given in writing prior to conveyance to the Club.
4.2 Allocation of Vacation Credits. Trendwest, as Manager of the
Club, will determine the allocation of Vacation Credits on the same bases as
Vacation Credits are allocated to Property annexed by Trendwest to the Club.
4.3 Sales Regulation. Trendwest will be responsible (but at
Developer's expense) for registering the Developer Property as part of the Club
offering in all states where the Club is registered by Trendwest.
4.4 No Supervision. Trendwest shall have no right, power or
obligation to assist, supervise or control financial terms, manner or means by
which Developer develops the Developer Property.
5. GENERAL PROVISIONS.
5.1 Agency. Nothing in this Assignment shall be construed as
constituting a partnership between, or joint venture by, the parties hereto, or
constitute either party the agent or employee of the other.
6
<PAGE> 7
5.2 Amendment. No supplement, modification, or amendment of this
Assignment shall be binding unless in a writing executed by each of the
parties.
5.3 Assignment. This Assignment is personal between the parties,
and neither party may sell, assign, transfer, or hypothecate any rights or
interests created under this Assignment without the express written consent of
the other party. Any purported sale, assignment, transfer, or hypothecation of
any such rights or interests of any party without such consent shall be void.
5.4 Attorneys' Fees. Upon a material default or commission of a
tort hereunder by one party, the other party shall be entitled to attorney fees
and costs reasonably incurred in connection with such default or tort, whether
or not legal or arbitration proceedings are undertaken. Should any action or
proceeding be commenced between the parties hereto concerning this Assignment
or their rights and duties hereunder, the party prevailing in such action or
proceeding shall be entitled to actual attorneys' fees and costs in such action
or proceeding. Each party shall bear its own costs, expenses, and attorney fees
incurred in negotiating, preparing, and signing this Assignment.
5.5 Entire Agreement. This Assignment, the Club Governing
Documents, and all documents signed at the same time and/or specifically
referred to herein constitute the complete, exclusive and final expression of
the agreement between the parties pertaining to the subject matter contained
herein, and no party has made or relied on any oral representations or
assurances not contained herein. This Assignment supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties;
and it may not be contradicted by evidence of any prior or contemporaneous
agreement. No extrinsic evidence whatsoever may be introduced in any proceeding
concerning the terms of this Assignment. There is no representation or
inference that Developer will be able to annex additional Property to the Club.
5.6 Headings. The paragraph or section headings or titles in this
Assignment are for convenience and reference only and do not in any way modify,
interpret, or construe the intent of the parties or affect any of the
provisions of this Assignment.
5.7 Hold Harmless and Indemnity. Each of the parties agrees to hold
the other party harmless and indemnify the other party from and against any and
all loss, cost, damage or liability which the other party may incur or sustain
as a result of any action by such party or for any breach by such party of any
warranty or representation contained in this Assignment, or for any
misrepresentation or material omission in the representations herein, or for any
violation of any applicable law, ordinance or regulation, whether by neglect or
willful act
7
<PAGE> 8
and whether by a party or its agents, contractors, or employees. Such
indemnification shall include, among other costs, administrative costs, civil
penalties, attorneys' fees and costs of appeal, settlement or defense, and the
obligation to undertake or assume the defense of any claim.
5.8 Law Applicable. This Assignment and its interpretation,
construction, and enforcement, shall be governed by the laws of the State of
Oregon.
5.9 Legal Effects and Return. No representation, warranty or
recommendation is made by any party or its respective agent or attorney
regarding the legal sufficiency or effect, financial return, or tax
consequences of any transaction contemplated under this Assignment to any
individual or specific entity, and each party acknowledges it has been advised
to submit this Assignment to independent legal counsel before signing it. There
shall be no presumption in favor of or against any party with regard to which
party arranged for initial drafting of this Assignment.
5.10 Notices. Any notice required or desired to be given hereunder
shall be deemed given if personally delivered, properly sent by facsimile
transmission, or ninety-six (96) hours after mailing (first class postage
prepaid, return receipt requested), to the parties at the following addresses,
or at such other addresses as may be given by proper notice:
5.10(a) TRENDWEST: TRENDWEST RESORTS, INC., 12301 N.E. 10th
Pl., Bellevue, Washington 98005; facsimile transmittal (206) 990-2302.
5.10(b) DEVELOPER: EAGLE CREST PARTNERS, LTD., 821 S. 6th St.,
Redmond, OR 97756; facsimile transmittal (503) 923-0881.
5.11 Severability. If any provision of this Assignment is held to
be unenforceable, invalid or illegal by any arbitrator or court of competent
jurisdiction, such shall not affect the remainder of this Assignment.
5.12 Successors. Subject to Section 5.3 regarding assignment, this
Assignment shall be binding upon and benefit the heirs, legal representatives,
successors, and assigns of the parties.
5.13 Survival. All provisions, covenants and warranties hereunder
shall survive the conveyance of the Developer Property to the Club.
5.14 Termination. This Agreement shall be terminable by either party
within thirty (30) days of written notice given to the other party by certified
mail, return receipt requested directed to the address set forth in paragraph
5.10 above, as amended.
8
<PAGE> 9
5.15 Waiver. No waiver of enforcement or breach of any of the
provisions of this Assignment shall be deemed, or shall constitute, a waiver of
any other provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless in writing and signed by
the person making the wavier.
5.16 Word Usage. Unless the context clearly otherwise requires, (a)
the plural and singular numbers or the masculine, feminine and neuter genders
shall each be deemed to include the others; (b) "shall", "will", or "agrees"
are mandatory, and "may" is permissive; (c) "or" is not exclusive; and (d)
"including" is not limiting.
5.17 Exhibit. The following Exhibits are attached hereto and
incorporated herein by this reference:
Exhibit One - DEVELOPER PROPERTY DESCRIPTION
Exhibit Two - ADDENDUM TO NONEXCLUSIVE LIMITED ASSIGNMENT
6: SIGNATURES. The individuals applying their signatures to this
Assignment warrant that they are signing for themselves individually, or if
signing in a representative capacity for a person or entity whose name is set
forth immediately above their signature, and that they have been expressly
authorized to sign the Assignment on behalf of such person or entity.
Signed effective the date first above written.
TRENDWEST: DEVELOPER:
TRENDWEST RESORTS, INC., an EAGLE CREST PARTNERS, LTD.,
Oregon Corporation an Oregon Corporation
By /s/ WILLIAM F. PEARE By /s/ JERRY ANDRES
------------------------ ------------------------
William F. Peare, President Jerry Andres, President
9
<PAGE> 10
EXHIBIT ONE
- --------------------------------------------------------------------------------
DEVELOPER PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
That certain real Property located in the County of Deschutes, State of Oregon
described as follows:
- --------------------------------------------------------------------------------
Lot 47, River View Vista Estates Plat IV, recorded December 3, 1992 in the
office of the County Recorder, Deschutes County, Oregon, and all improvements
located thereon;
- --------------------------------------------------------------------------------
Units 6402, 6404, 6405, 6406, 6502, 6503, 6504, 6505, 6506, 6601, 6602, 6603,
6604, 6605, and 6606 of EAGLE CREST at RIDGE HAWK, a CONDOMINIUM, together with
the general and limited common elements pertaining thereto, as provided in the
Declaration Submitting Stage 1 of EAGLE CREST at RIDGE HAWK to Condominium
Ownership, recorded October 12, 1995, in the Official Records of Deschutes
County Recorder, Oregon as Book 387, Page 2015. The land included within such
property is described in Exhibit A to the Declaration and such description is
incorporated herein by reference. The limited common elements pertaining to
such unit consist of the decks and storage closet adjoining such unit.
- --------------------------------------------------------------------------------
Units, 3301, 3302, 3303, 3304, 3305, 3306, 3307, 3309, 3310, 3311, 3312, 3313,
3314, 3315, 3316, 3317, 3318, 3319, 3320, 3322, 3323, 3324, 3225, 3326, 3327,
3328, 3329, 3330, 3331, 3332, 3334 and 3336 of STAGE 1 OF EAGLE CREST HOTEL
CONDOMINIUMS, together with the general and limited common elements pertaining
thereto, as provided in the Declaration Submitting STAGE 1 OF EAGLE CREST HOTEL
CONDOMINIUMS to Condominium Ownership, recorded November 29, 1995, in the
records of Deschutes County, Oregon, as Book 392, Page 869. The land included
within such property is described in Exhibit "A" to the Declaration and such
description is incorporated herein by reference. The limited common elements
pertaining to such units consist of the decks, corridors, laundry room and club
room adjoining such units.
- --------------------------------------------------------------------------------
<PAGE> 11
EXHIBIT TWO
ADDENDUM TO
NONEXCLUSIVE LIMITED ASSIGNMENT
This Addendum is to the Nonexclusive Limited Assignment between
Trendwest Resorts and Eagle Crest Properties dated September 20, 1996.
This Addendum is made pursuant to the Annexation section of that
Assignment (Sec. 2.1). It is agreed between Trendwest Resorts and Eagle Crest
Properties that the following described property shall be annexed into
WorldMark, The Club under the terms of the above referenced assignment.
That certain real property located in the County of Deschutes, Oregon,
described as follows: Condominiums ______, inclusive, as set forth on
that certain plan entitled "Condominium Plan of __________________
Condominiums" ("Plan") consisting of ____________ (___) sheets recorded
on _____________, 19__, in Book ______ of Maps at pages _______,
____________________________ County Records, _________, which constitute
a condominium plan for the _________________ Condominium Project
("Project"), which is located on the land described as Parcel ______ as
shown on the "Final Map of ____________________ ("Map") consisting of
_______________ (___) sheets recorded on _______________, 19__, in Book
______ of Maps at Pages ______, _________________________ County
Records, _________________.
The persons applying their signatures to this Addendum are signing in a
representative capacity for the entity whose name is set forth immediately
above their signature, and that they have been expressly authorized to sign the
Addendum on behalf of such entity.
TRENDWEST RESORTS: EAGLE CREST PROPERTIES:
TRENDWEST RESORTS, INC., an EAGLE CREST PROPERTIES, INC.,
Oregon corporation an Oregon corporation
By By
--------------------------- ----------------------------
William F. Peare, President Jerry Andres, President
<PAGE> 12
ADDENDUM TO
NONEXCLUSIVE LIMITED ASSIGNMENT
This Addendum is to the Nonexclusive Limited Assignment between
Trendwest Resorts and Eagle Crest, Inc., formerly Eagle Crest Partners, Ltd.,
dated September 20, 1996.
This Addendum is made pursuant to the Annexation section of that
Assignment (Sec. 2.1). It is agreed between Trendwest Resorts and Eagle Crest
Properties that the following described property shall be annexed into
WorldMark, The Club under the terms of the above referenced assignment.
That certain real property located in the County of Deschutes, State of
Oregon, described as follows:
Lot 65, of Eagle Crest II - Phase 1 recorded March 28, 1996 in the
Official Records of Deschutes County Recorder, and all improvements
located thereon; located in County of Deschutes, State of Oregon.
Units 6401, 6403 and 6501 of EAGLE CREST at RIDGE HAWK, a CONDOMINIUM,
together with the general and limited common elements pertaining
thereto, as provided in the Declaration Submitting Stage 1 of EAGLE
CREST at RIDGE HAWK to Condominium Ownership, recorded October 12, 1995,
in the Records of Deschutes County, Oregon as Book 387, Page 2015. The
land included within such property is described in Exhibit A to the
Declaration and such description is incorporated herein by reference.
The limited common elements pertaining to such unit consist of the decks
and storage closet adjoining such unit.
The persons applying their signatures to this Addendum are signing in a
representative capacity for the entity whose name is set forth immediately above
their signature, and that they have been expressly authorized to sign the
Addendum on behalf of such entity.
TRENDWEST RESORTS: EAGLE CREST, INC.:
TRENDWEST RESORTS, INC., an EAGLE CREST, INC.,
Oregon corporation an Oregon corporation
By /s/ WILLIAM F. PEARE By /s/ JERRY ANDRES
---------------------------- ----------------------------
William F. Peare, President Jerry Andres, President
<PAGE> 1
EXHIBIT 10.16
NONEXCLUSIVE LIMITED ASSIGNMENT
This NONEXCLUSIVE LIMITED ASSIGNMENT ("Assignment") is dated for
reference purposes September 20, 1996 by and between TRENDWEST RESORTS, INC.,
an Oregon corporation ("Trendwest") and RUNNING Y, INC., ("Developer") and
pertains to the Vacation Owner Program known as WORLDMARK, THE CLUB, a
California nonprofit mutual benefit corporation ("Club").
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article/Section Page
- --------------- ----
<S> <C> <C>
1: RECITALS.................................................... 2
1.1 Declarant........................................... 2
1.2 Club................................................ 2
1.3 Memberships/Vacation Credits........................ 2
1.4 Trendwest's Rights & Powers......................... 2
1.5 Definitions......................................... 3
2: ASSIGNMENT.................................................. 3
2.1 Annexation.......................................... 3
2.2 Sales Proceeds...................................... 3
2.3 Resales............................................. 3
3: DEVELOPER DUTIES AND ASSUMPTION............................. 3
3.1 Club Assessments.................................... 4
3.2 Declaration......................................... 4
3.3 Property Expenses................................... 4
3.4 Sales Expenses...................................... 4
3.5 Trendwest Fee....................................... 4
3.6 Compliance.......................................... 4
3.7 Legal Review........................................ 4
3.8 Sales Regulation.................................... 4
3.9 Land Use Regulation................................. 4
3.10 Construction and Improvements....................... 5
3.11 Representations and Warranties...................... 5
3.12 Further Interest.................................... 5
3.13 Limited Authority................................... 5
3.14 Complaints.......................................... 5
3.15 Defaults and Remedies............................... 5
4: TRENDWEST SERVICES AND DUTIES............................... 6
4.1 Inspection and Approval............................. 6
4.2 Allocation of Vacation Credits...................... 6
4.3 Sales Regulation.................................... 6
4.4 No Supervision...................................... 6
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Article/Section PAGE
--------------- ----
<S> <C> <C>
5: GENERAL PROVISIONS...................................... 6
5.1 Assignment...................................... 6
5.2 Amendment....................................... 7
5.3 Assignment...................................... 7
5.4 Attorney's Fees................................. 7
5.5 Entire Agreement................................ 7
5.6 Headings........................................ 7
5.7 Hold Harmless and Indemnity..................... 7
5.8 Law Applicable.................................. 8
5.9 Legal Effects and Return........................ 8
5.10 Notices......................................... 8
5.11 Severability.................................... 8
5.12 Successors...................................... 8
5.13 Survival........................................ 8
5.14 Termination..................................... 8
5.15 Waiver.......................................... 9
5.16 Word Usage...................................... 9
5.17 Exhibits........................................ 9
6: SIGNATURES.............................................. 9
CONSENT (Of Club)............................................... 10
</TABLE>
1: RECITALS. The following Recitals are acknowledged and agreed to by the
parties.
1.1 Declarant. Trendwest is the founder of the Club and the
Declarant under the "Declaration of Vacation Owner Program (WorldMark, The
Club)" ("Declaration") recorded for each Property annexed to the Club and
dedicated to the Vacation Owner Program. Trendwest is also the Manager of the
Club under a Management Agreement dated February 13, 1991.
1.2 Club. The Club is an association of the owners of Memberships
in the Club and the owner or lessee of the various Property to be available to
its Members for resort and recreational use pursuant to the Club Governing
Documents. The Club was formerly known as CLUB ESPRIT.
1.3 Memberships/Vacation Credits. Memberships in Club are sold by
Trendwest to the general public in the form of Vacation Credits, which are
allocated to each Property based on its relative value as a resort in the Club
Vacation Owner Program. A Membership is in perpetuity or for a prescribed term
of years, and constitutes a vacation license, which means a right to use and
occupy Units in the Property available through Club from time to time,
according to the reservation rules.
1.4 Trendwest's Rights and Powers. Under the Declaration Trendwest
has the right to annex additional Property to the Club and to sell for its own
account the Vacation Credits allocated to each Property.
<PAGE> 3
1.5 Definitions. Unless the context otherwise requires, the
definitions set forth in the most recently recorded Declaration are hereby
adopted as the definitions herein.
2: ASSIGNMENT. Trendwest hereby assigns to Developer, on a
nonexclusive basis and specifically limited as expressed herein, the following
rights and powers:
2.1 Annexation. Developer may annex to Club the Property described
on Exhibit One attached hereto by conveying or directing conveyance of
marketable fee title in the Property to the Club free of all liens, charges and
encumbrances other than customary restrictions relating to condominiums and
easements for ingress and egress and utilities. Future annexations may be
conveyed to the Club by the written agreement of Running Y and Trendwest in a
form as set forth in Exhibit Two ("Addendum to Nonexclusive Limited
Assignment"). Trendwest reserves the absolute right, in its sole discretion, to
reject the annexation of any property from Developer to the Club. All property
annexed to Club pursuant to this Agreement shall be referred to as the
"Developer Property." Title insurance shall be provided at Developer's expense.
The title policy to be issued shall contain no exceptions other than the
General Exclusions and Exceptions in a standard form title policy and Special
Exceptions consistent with the condition of title. Title shall be conveyed by
Statutory Warrant Deed. All costs of closing, including title insurance, escrow
fees, real estate excise tax, or any other taxes or fees shall be paid by
Developer.
2.2 Right to sell Vacation Credits. Trendwest hereby grants to
Developer the non-exclusive right to market and sell Vacation Credits, subject
to the terms and conditions of this Agreement. Developer may sell for its own
account and retain all of the gross proceeds from the sale of the Vacation
Credits allocated to the Developer Property, subject to payment of the fee set
forth in Section 3.5. Under no circumstances shall Developer sell more Vacation
Credits than have been allocated to the Developer Property.
2.3 Resales. Developer shall be entitled to resell Vacation Credits
originally sold by it if they are repossessed by the Club or by Developer and
still subject to a purchase money security interest in Developer, subject to
reimbursement to the Club for amounts owed to the Club pursuant to such
Vacation Credits. Following expiration of any purchase money security interest
in Developer, Developer has no interest in or claim against such Vacation
Credits.
3: DEVELOPER DUTIES AND ASSUMPTION. Developer hereby assumes the
duties and obligations associated with the limited assignment of rights herein,
specifically, but not limited to, the following:
<PAGE> 4
3.1 Club Assessments. Developer shall pay to Club all assessments
and other charges levied pursuant to the Club Governing Documents as to all
unsold Vacation Credits allocated to the Developer Property for which Developer
has an interest in the sales proceeds, whether not yet sold or repossessed.
3.2 Declaration. Developer shall record a Declaration with the Club
as Co-Developer, substantially similar to the Declarations recorded by
Trendwest.
3.3 Property Expenses. Developer shall be solely responsible for
all costs and expenses associated with acquisition, construction, remodeling,
furnishing, inspection, appraisal and/or conveying the Developer Property.
3.4 Sales Expenses. Developer shall be solely responsible for all
costs and expenses associated with marketing and selling the Vacation Credits
allocated to the Developer Property, including the costs of advertising and
preparing and printing sales documents and copies of the Governing Documents.
3.5 Trendwest Fee. For its services under and for making this
Assignment, Trendwest shall receive from Developer a fee of three percent (3%)
of the selling price of the Vacation Credits allocated to the Developer
Property, to be paid within twenty (20) days after the month in which the sale
of the Vacation Credits was made.
3.6 Compliance. Developer shall conform its Declaration, sales
documents, representations and relations with Club Members and prospective
Members to the Club Governing Documents and to all applicable laws, ordinances
and regulations.
3.7 Legal Review. If requested by Trendwest, Developer shall obtain
at its own expense and by legal counsel reasonably acceptable to Trendwest,
legal review of its sales and consumer documentation, advertising, and
regulatory filings.
3.8 Sales Regulation. Developer shall, at its own expense, comply
completely with, all Federal, state and local subdivision or timeshare sales
regulatory and consumer protection laws, regulations and ordinances, relating
to the annexed property. The Club may join with Developer in its regulatory
filings. Developer shall also pay all direct expenses for registering the
Developer Property in all jurisdictions where the Club is registered by
Trendwest, even if Developer is not selling or advertising there. Such costs
shall include, but not be limited to, filing fees, appraisal and inspection
fees. (See sec. 4.3)
3.9 Land use regulation. Prior to conveyance to the Club, Developer
shall obtain any clearances or permits necessary to allow the use of the
Developer Property as a Club Property.
<PAGE> 5
3.10 Construction and Improvements. Developer shall complete all
construction, remodeling, improvements and interior furnishing of the Developer
Property, subject to the specifications required by Trendwest, prior to
conveyance to the Club.
3.11 Representations and Warranties of Developer. With respect to
any Developer Property, Developer hereby represents and warrants to Trendwest
and the Club as follows:
a. Compliance with Environmental Laws. Neither the Developer nor any
person (including any previous owner, lessee, sublessor or sublessee) has
generated, handled, used, manufactured, processed, distributed in commerce,
transported, treated, stored, disposed, released (or arranged for the
transportation, treatment or disposal) of petroleum products, hazardous waste,
hazardous chemical or substances, toxic chemicals, chemical substances or
mixtures, pollutants or contaminants on, at or from the Developer Property, or
any other assets or properties owed, leased or subleased or used by the
Developer in the operation of its business or on, at or from any real property
to which any of the above-listed substances from the above-listed assets or
properties were transported, or at or on which they were treated or disposed
that could subject the Developer, Trendwest or the Club to liability under any
provision of law, including without limitation, federal, state local or common
law, in each case as in existence on or after the date the Developer Property
is annexed to the Club.
b. Construction Quality. The Developer Property has been built in
accordance with the plans and specifications approved by Trendwest, and has
been constructed in accordance with all applicable building, fire and
electrical codes and all other governmental regulations applicable to the
Developer Property. All work done in construction of the Developer Property was
completed in a good and workmanlike manner and all materials utilized in such
construction were of good quality. To the best knowledge of the Developer, the
Developer Property is free of any and all material defects.
3.12 No Further Interest. Developer acknowledges that after
conveyance of the Developer Property to the Club, Developer shall have no claim
or interest in the Developer Property, except as may be provided in this
Assignment, and no further claim or interest in Vacation Credits sold by it
after expiration of Developer's purchase money security interest therein.
3.13 Limited Authority. Developer shall not represent or purport to
bind the Club other than through the sale or resale of Vacation Credits in the
ordinary course of business in conformity with the Club Governing Documents.
Developer shall not use the tradename or any service mark of the Club other than
in connection with the sale of Vacation Credits allocated by the
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<PAGE> 6
Trendwest's name in any manner, except as it may appear in the Club Governing
Documents.
3.14 Complaints. Developer shall notify Club in writing within five
business days of becoming aware of a material complaint or dissatisfaction by a
Club Member, and deliver to Club therewith any written complaint or
correspondence from a Club Member pertaining to a complaint or dissatisfaction.
The Club is solely responsible for Member relations, but Developer agrees to
assist Club, at Club's reasonable request and direction, in resolving
complaints and dissatisfaction of Members who purchase Vacation Credits from
Developer.
3.15 Defaults and Remedies. Upon the commission of a material
default under this Assignment, or upon the failure to timely pay any amount
required to be paid or reimbursed hereunder, Club may suspend the right of
Developer to sell Vacation Credits until such time as the default or failure to
pay is cured.
4: TRENDWEST DUTIES.
4.1 Inspection and Approval. Trendwest, as Manager of the Club,
must inspect and reasonably approve the quality and harmony of the Developer
Property as Club Property regarding, but not limited to, design, size,
location, amenities (interior, project, and surrounding area) and quality of
construction, which approval must be given in writing prior to conveyance to
the Club.
4.2 Allocation of Vacation Credits. Trendwest, as Manager of the
Club, will determine the allocation of Vacation Credits on the same bases as
Vacation Credits are allocated to Property annexed by Trendwest to the Club.
4.3 Sales Regulation. Trendwest will be responsible (but at
Developer's expense) for registering the Developer Property as part of the Club
offering in all states where the Club is registered by Trendwest.
4.4 No Supervision. Trendwest shall have no right, power or
obligation to assist, supervise or control financial terms, manner or means by
which Developer develops the Developer Property.
5: GENERAL PROVISIONS.
5.1 Agency. Nothing in this Assignment shall be construed as
constituting a partnership between, or joint venture by, the parties hereto, or
constitute either party the agent or employee of the other.
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<PAGE> 7
5.2 Amendment. No supplement, modification or amendment of this
Assignment shall be binding unless in a writing executed by each of the parties.
5.3 Assignment. This Assignment is personal between the parties,
and neither party may sell, assign, transfer, or hypothecate any rights or
interests created under this Assignment without the express written consent of
the other party. Any purported sale, assignment, transfer, or hypothecation of
any such rights or interests of any party without such consent shall be void.
5.4 Attorneys' Fees. Upon a material default or commission of a
tort hereunder by one party, the other party shall be entitled to attorney fees
and costs reasonably incurred in connection with such default or tort, whether
or not legal or arbitration proceedings are undertaken. Should any action or
proceeding be commenced between the parties hereto concerning this Assignment
or their rights and duties hereunder, the party prevailing in such action or
proceeding shall be entitled to actual attorneys' fees and costs in such action
or proceeding. Each party shall bear its own costs, expenses, and attorney
fees incurred in negotiating, preparing, and signing this Assignment.
5.5 Entire Agreement. This Assignment, the Club Governing
Documents, and all documents signed at the same time and/or specifically
referred to herein constitute the complete, exclusive and final expression of
the agreement between the parties pertaining to the subject matter contained
herein, and no party has made or relied on any oral representations or
assurances not contained herein. This Assignment supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties;
and it may not be contradicted by evidence of any prior or contemporaneous
agreement. No extrinsic evidence whatsoever may be introduced in any
proceeding concerning the terms of this Assignment. There is no representation
or inference that Developer will be able to annex additional Property to the
Club.
5.6 Headings. The paragraph or section headings or titles in this
Assignment are for convenience and reference only and do not in any way modify,
interpret, or construe the intent of the parties or affect any of the
provisions of this Assignment.
5.7 Hold Harmless and Indemnity. Each of the parties agrees to
hold the other party harmless and indemnify the other party from and against
any and all loss, cost, damage or liability which the other party may incur or
sustain as a result of any action by such party or for any breach by such party
of any warranty or representation contained in this Assignment, or for any
misrepresentation or material omission in the representations herein, or for
any violation of any applicable law, ordinance or regulation, whether by
neglect or willful act
7
<PAGE> 8
and whether by a party or its agents, contractors, or employees. Such
indemnification shall include, among other costs, administrative costs, civil
penalties, attorneys' fees and costs of appeal, settlement or defense, and the
obligation to undertake or assume the defense of any claim.
5.8 Law Applicable. This Assignment and its interpretation,
construction, and enforcement, shall be governed by the laws of the State of
Oregon.
5.9 Legal Effects and Return. No representation, warranty or
recommendation is made by any party or its respective agent or attorney
regarding the legal sufficiency or effect, financial return, or tax
consequences of any transaction contemplated under this Assignment to any
individual or specific entity, and each party acknowledges it has been advised
to submit this Assignment to independent legal counsel before signing it. There
shall be no presumption in favor of or against any party with regard to which
party arranged for initial drafting of this Assignment.
5.10 Notices. Any notice required or desired to be given hereunder
shall be deemed given if personally delivered, properly sent by facsimile
transmission, or ninety-six (96) hours after mailing (first class postage
prepaid, return receipt requested), to the parties at the following addresses,
or at such other addresses as may be given by proper notice:
5.10(a) TRENDWEST: TRENDWEST RESORTS, INC., 12301 N.E. 10th
Pl., Bellevue, Washington 98005; facsimile transmittal (206) 990-2302.
5.10(b) DEVELOPER: Running Y, Inc., 821 S. 6th St., Redmond, OR
97756; facsimile transmittal (503) 923-0881.
5.11 Severability. If any provision of this Assignment is held to be
unenforceable, invalid or illegal by any arbitrator or court of competent
jurisdiction, such shall not affect the remainder of this Assignment.
5.12 Successors. Subject to Section 5.3 regarding assignment, this
Assignment shall be binding upon and benefit the heirs, legal representatives,
successors, and assigns of the parties.
5.13 Survival. All provisions, covenants, and warranties hereunder
shall survive the conveyance of the Developer Property to the Club.
5.14 Termination. This Agreement shall be terminable by either party
within thirty (30) days of written notice given to the other party by certified
mail, return receipt requested, directed to the address set forth in paragraph
5.10 above, as amended.
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<PAGE> 9
5.15 Waiver. No waiver of enforcement or breach of any of the
provisions of this Assignment shall be deemed, or shall constitute, a waiver of
any other provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless in writing and signed by
the person making the waiver.
5.16 Word usage. Unless the context clearly otherwise requires, (a)
the plural and singular numbers or the masculine, feminine and neuter genders
shall each be deemed to include the others; (b) "shall", "will", or "agrees"
are mandatory, and "may" is permissive; (c) "or" is not exclusive; and (d)
"including" is not limiting.
5.17 Exhibit. The following Exhibits are attached hereto and
incorporated herein by this reference:
Exhibit One - DEVELOPER PROPERTY DESCRIPTION
Exhibit Two - ADDENDUM TO NONEXCLUSIVE LIMITED ASSIGNMENT
6: SIGNATURES. The individuals applying their signatures to this
Assignment warrant that they are signing for themselves individually, or if
signing in a representative capacity for a person or entity whose name is set
forth immediately above their signature, and that they have been expressly
authorized to sign the Assignment on behalf of such person or entity.
Signed effective the date first above written.
TRENDWEST: DEVELOPER:
TRENDWEST RESORTS, INC., RUNNING Y, INC.,
an Oregon Corporation an Oregon Corporation
By /s/ WILLIAM F. PEARE By /s/ JERRY ANDRES
---------------------------- ------------------------------
William F. Peare, President Jerry Andres, President
9
<PAGE> 10
EXHIBIT ONE
- --------------------------------------------------------------------------------
DEVELOPER PROPERTY DESCRIPTION
That Certain real Property located in the City of (in unincorporated Klamath
county), County of Klamath, described as follows: Lot 87, RUNNING Y RESORT,
PHASE 1, according to the official plat recorded August 2, 1996, on file in the
office of the Klamath County Clerk, and all improvements located thereon;
located in the County of Klamath, State of Oregon.
<PAGE> 11
EXHIBIT TWO
ADDENDUM TO
NONEXCLUSIVE LIMITED ASSIGNMENT
This Addendum is to the Nonexclusive Limited Assignment between
Trendwest Resorts and RUNNING Y, INC., dated September 20, 1996.
This Addendum is made pursuant to the Annexation section of that
Assignment (Sec. 2.1). It is agreed between Trendwest Resorts and Eagle Crest
properties that the following described property shall be annexed into
WorldMark, The Club under the terms of the above referenced assignment.
That certain real property located in the County of Deshutes, Oregon,
described as follows: Condominiums ___________, inclusive, as set forth
on that certain plan entitled "Condominium Plan of ___________________
Condominiums" ("Plan") consisting of ___________ (___) sheets recorded
on ___________, 19__, in Book _____ of Maps at pages _____,
______________ County Records, _____, which constitute a condominium
plan for the _________________ Condominium Project ("Project"), which is
located on the land described as Parcel _____ as shown on the "Final Map
of ______________ ("Map") consisting of ________ (___) sheets recorded
on ___________, 19__, in Book _____ of Maps at Pages _____,
_____________________ County Records, _______________.
The persons applying their signatures to this Addendum are signing in a
representative capacity for the entity whose name is set forth immediately
above their signature, and that they have been expressly authorized to sign
the Addendum on behalf of such entity.
TRENDWEST RESORTS: RUNNING Y, INC.:
TRENDWEST RESORTS, INC., RUNNING Y, INC.,
an Oregon Corporation an Oregon Corporation
By By
---------------------------- ------------------------------
William F. Peare, President Jerry Andres, President
<PAGE> 1
EXHIBIT 10.19
PURCHASE AGREEMENT
This Purchase Agreement (hereinafter referred to as "Agreement") is
made this 13th day of March, 1992, by and between TRENDWEST RESORTS, INC.
(hereinafter referred to as "Seller") and JELD-WEN FOUNDATION (hereinafter
referred to as "Buyer"), each of whom agrees:
1. DEFINED TERMS. As used in this Purchase Agreement, the following terms
shall have the respective meanings set forth below (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
a. "Acquired Purchase Contracts" means the purchase contracts receivable
of Seller which are described and listed in Exhibit A hereto, free and clear of
all liens and encumbrances.
b. "Assignment and Assumption Agreement" means the agreement to be
executed by the Seller and Buyer at the Closing in the form of attached Exhibit
B covering transfer of the Seller's interest in the Acquired Purchase contracts.
c. "Bill of Sale" means the instrument to be executed by the Seller and
delivered to the Buyer at the Closing in the form of attached Exhibit C.
d. "Buyer" means the JELD-WEN FOUNDATION located at 3250 Lakeport Blvd.,
Klamath Falls, Oregon 97601.
e. "Closing" has the meaning specified in Section 3 hereof.
f. "Closing Date" has the meaning specified in Section 3 hereof.
g. "Effective Time" has the meaning specified in Section 3 hereof.
h. "Person" shall mean an individual, partnership, joint venture,
corporation, bank, trust, unincorporated organization and/or a government or
any department or agency thereof.
i. "Purchase Price" has the meaning specified in Section 4.1 hereof.
j. "Seller" means TRENDWEST RESORTS, INC. located at 4010 Lake Washington
Blvd., Suite 210, Kirkland, Washington 98033.
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2. AGREEMENT TO SELL AND PURCHASE THE ACQUIRED PURCHASE CONTRACTS.
Subject to the terms and conditions and in reliance upon the representations
and warranties contained in this Agreement, Seller shall sell to Buyer and
Buyer shall acquire from Seller the Acquired Purchase Contracts.
3. CLOSING; EFFECTIVE DATE. The sale and purchase of the Acquired
Purchase Contracts as contemplated by this Agreement (the "Closing") shall take
place at Seller's offices, located at 4010 Lake Washington Blvd., Suite 210,
Kirkland, Washington 98033 at 10:00 a.m. (local time) on March 13, 1992 (or
such other place, date and time as shall be agreed upon by Buyer and Seller).
The date of Closing is referred to in this Agreement as the "Closing Date".
When completed, the Closing shall be effective as of 12:01 a.m. (local time) on
March 13, 1992 (the "Effective Time").
4. PURCHASE PRICE.
4.1 Price. As the purchase price for the Acquired Purchase Contracts,
Buyer shall pay to Seller the total sum of One Million Four Hundred Thousand
and No/100ths Dollars ($1,400,000.00) (hereinafter referred to as "Purchase
Price"), payable, at Closing, in immediately available funds of the United
States by wire transfer.
5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby warrants and
represents to Buyer as follows:
5.1 Standing and Authority of Seller. Seller is a corporation duly
organized and validly existing in good standing under the laws of the State of
Washington and possesses all requisite corporate power and authority to enter
into and perform this Agreement. This Agreement is a valid and binding
obligation of Seller, duly enforceable in accordance with its terms.
5.2 Title and Condition of Acquired Assets. Seller has good,
marketable and indefeasible title to all of the Acquired Purchase Contracts at
the Closing and as of the Effective Time, free and clear of all mortgages,
liens, charges, claims, leases, restrictions and encumbrances whatsoever. There
is no agreement of any kind whereby any Person or Persons have any right to
acquire or obtain (by purchase, gift, merger, consideration or otherwise) an
interest in any of the Acquired Purchase Contracts.
5.3 Compliance with Instruments. Seller is not in default under, or
in breach of any material term or provision of contract, lease, agreement or
other instrument to which the Acquired Purchase Contracts are bound. The
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execution, delivery and performance of this Agreement by Seller does not and
will not conflict with or result in a breach of or a default under, or give
rise to any right of termination, cancellation or acceleration with respect to,
any of the terms, conditions or provisions of any (as so defined) indenture,
contract, agreement, license, lease or other instrument to which the Acquired
Purchase Contracts are bound.
5.4 Authorization by Seller. The execution, delivery and performance
of this Agreement by Seller have been duly and validly authorized by all
necessary action on the part of Seller and this Agreement is a valid, binding
and enforceable obligation of Seller except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws affecting or limiting the rights of creditors generally.
5.5 Brokers. No person acting on behalf of the Seller or under the
authority of Seller is or will be entitled to any broker's, finder's or similar
fee, directly or indirectly from the Buyer in connection with the asset
purchase contemplated in this Agreement.
5.6 Disclosure. To Seller's knowledge there are no other matters or
liabilities, contingent or otherwise, which materially adversely affects or has
a substantial likelihood in the future of materially adversely affecting the
Acquired Purchase Contracts.
6. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE. The obligation of the Seller
to transfer, assign, and deliver the Acquired Purchase Contracts to Buyer
pursuant to this Agreement is subject to the satisfaction (unless waived in
writing by seller) of each of the following conditions at and as of the Closing.
6.1 Performance of Obligations by Buyer. Buyer shall have performed
and complied with all agreements and conditions required to be performed or
complied with by Buyer under this Agreement prior to or at the Closing.
6.2 Purchase Price, Seller shall have received, the Purchase Price as
described in Section 4.1 herein.
6.3 Consents and Notices. Buyer shall have obtained or effected all
consents, approvals, waivers, notices and filings required in connection with
the execution and delivery by Buyer of this Agreement or consummation by Buyer
of the transactions contemplated thereby, and any notice or waiting period
relating thereto shall have expired with all requirements lawfully imposed
having been satisfied in all
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material respects
6.4 Escrow Service Agreement. Buyer Seller, and the escrow agent
shall sign and deliver the Service Escrow Agreement in the form attached
hereto as Exhibit D.
7. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE. The obligation of Buyer to
purchase the Acquired Purchase Contracts from Seller pursuant hereto is subject
to the satisfaction (unless waived in writing by Buyer) of each of the
following conditions at and as of the Closing:
7.1 Representations and Warranties Correct. The representations and
warranties of Seller contained in Section 5 hereof shall be true and correct in
all material respects on and as of the date of this Agreement and at and as of
the Closing as though made at and as of the Closing, except as affected by the
transactions contemplated by this Agreement.
7.2 Performance of Obligations by Seller. Seller shall have performed
and complied with all agreements and conditions required to be performed or
complied with by Seller under this Agreement prior to or at the Closing
including without limitation the delivery to Buyer of: (a) a duly
executed Bill of Sale transferring to Buyer all of the Acquired Purchase
Contracts free of all liens and encumbrances; (b) a duly executed Assignment
and Assumption Agreement transferring the Acquired Purchase Contracts; (c) a
certified copy of resolutions of the Board of Directors of Seller authorizing
it to enter into and perform this Agreement.
7.3 Consents and Notices. Seller shall have obtained or effected
all consents, approvals, waivers, notices and filings required in connection
with the execution and delivery by Seller of this Agreement or consummation by
Seller of the transactions contemplated hereby, and any notice or waiting
period relating thereto shall have expired with all requirements lawfully
imposed having been satisfied in all material respects.
7.4 Escrow Agreement. Buyer, Seller, and the escrow agent shall sign
and deliver the Service Escrow Agreement in the form attached hereto as
Exhibit D.
8. FURTHER COOPERATION. After the Closing, each party, at the request of
the other and without additional consideration, shall execute and deliver or
cause to be executed and delivered from time to time such further instruments
and shall take such further action as the requesting party may reasonably
require in order to carry
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out more effectively the intent and purpose of this Agreement.
9. AMENDMENTS AND WAIVERS. Any term or provision of this Agreement may be
waived without affecting any of the rights, conditions, or limitations relating
to the other terms and conditions of this Agreement at any time by an
instrument in writing signed by the party which is entitled to the benefits
thereof and this Agreement may be amended or supplemented at any time by an
instrument in writing signed by all parties hereto.
10. EXPENSES. Each party will be responsible for its own attorneys',
accounting and other professional fees incurred in connection with the purchase
contemplated in this Agreement.
11. PRORATIONS. The parties will prorate as of the Effective Time, all
interest and principle receivable and periodic charges which related to the
Acquired Purchase Contracts.
12. ASSIGNMENT AND BINDING EFFECT. The Agreement shall be binding upon and
inure to the benefit of and be enforceable by each of the parties hereto and
their respective successors and assigns. Neither this Agreement nor any
obligation hereunder shall be assigned or assignable by Buyer or Seller without
the prior written consent of the other parties hereto.
13. NOTICES. All notices, consents, requests, instructions, approvals and
other communications provided for herein and all legal process in regard hereto
shall be validly given, made or served if in writing or delivered personally or
sent by certified or registered mail, postage prepaid, addressed as follows:
To Seller: TRENDWEST RESORTS, INC.
4010 Lake Washington, Blvd., Suite 210
Kirkland, Washington 98033
To Buyer: JELD-WEN FOUNDATION
3250 Lakeport Blvd.
Klamath Falls, Oregon 97601
or to such other address as any party hereto may, from time to time, designate
in writing delivered in a like manner. Notice given by mail shall be deemed to
be given on the date which is two business days following the date the same is
postmarked.
14. ENTIRE AGREEMENT. This Agreement constitutes the
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entire agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes and is in full substitution for any and all
prior agreements and understandings between any of said parties relating to
such transactions.
15. DESCRIPTIVE HEADINGS. The descriptive headings of the several sections
of this Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
18. ATTORNEY'S FEES. In the event legal action is taken to enforce this
Agreement or any provision thereof, or as a result of any breach of warranty or
representation or other default of either party, the prevailing party in such
action shall be entitled to receive its reasonable attorney's fees, in addition
to all other costs or charges allowed, which shall be fixed by the court or
courts in which the suit or action, including any appeal thereon, is tried,
heard or decided.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BUYER: SELLER:
JELD-WEN FOUNDATION TRENDWEST RESORTS, INC.
By: /s/ R. C. WENDT By: [SIG]
-------------------------- ---------------------------
R. C. Wendt Its: Secretary
Trustee -------------------------
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TRENDWEST RESORTS, INC. ASSIGNMENT JOURNAL TRENDWEST RESORTS, INC. PAGE 1
ASSIGNMENTS TO 500 - JELD WEN FOUNDATION o EDIT RUN RUN DATE 03/12/92
<TABLE>
<CAPTION>
ASSIGNMENT SALE ASSIGN PR TY SALE PRINCIPAL
MEMBER # LAST NAME OLD NEW -DATE- DATE PK PE PRICE BALANCE TERM
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01001030 GILLEY 100 500 10/24/90 03/12/92 01 06 4600.00 5724.93 84
01001904 GARRISON 100 500 05/06/91 03/12/92 01 06 4600.00 7740.00 84
01001970 JACKSON 100 500 05/16/91 03/12/92 01 06 4600.00 7479.87 84
01002025 KAENE 100 500 05/28/91 03/12/92 01 06 4600.00 5744.52 84
01002055 GRAY 100 500 05/31/91 03/12/92 01 06 4600.00 5810.46 84
01002045 JOHNSON 100 500 06/01/91 03/12/92 01 06 4600.00 5810.46 84
01002160 QUARLES 100 500 06/13/91 03/12/92 01 06 4400.00 5810.92 84
01002165 JOHNSON 100 500 06/14/91 03/12/92 01 06 4400.00 5805.43 84
01002166 JOHNS 100 500 06/14/91 03/12/92 01 06 4400.00 5810.48 84
01002311 SHERWOOD 100 500 07/05/91 03/12/92 01 06 4400.00 5854.15 84
01002319 JOYNES 100 500 07/05/91 03/12/92 01 06 4400.00 5897.32 84
01002334 KAYES 100 500 07/09/91 03/12/92 01 06 4400.00 5854.35 84
01002343 EUGULSKI 100 500 07/09/91 03/12/92 01 06 4400.00 5877.32 84
01002381 FLINXFELT 100 500 07/13/91 03/12/92 01 06 4400.00 5854.15 84
01002454 GROFF 100 500 07/15/91 03/12/92 01 06 4400.00 5894.89 84
01002442 STOCKWELL 100 500 07/25/91 03/12/92 01 06 4400.00 5940.00 84
01002487 RIDER 100 500 07/26/91 03/12/92 01 06 4400.00 5897.32 84
01002517 KILTENBERGER 100 500 07/31/91 03/12/92 01 06 4400.00 5764.32 84
01002568 GOLOMREK 100 500 01/02/92 03/12/92 01 06 4400.00 5854.15 84
01002381 HOCKRIDGE 100 500 01/07/92 03/12/92 01 06 4400.00 5902.32 84
01002619 MORRIS 100 500 02/20/92 03/12/92 01 06 4400.00 5940.00 84
01002684 KOSAREK 100 500 08/17/91 03/12/92 01 06 4400.00 5810.99 84
01002820 GILLIES 100 500 07/05/91 03/12/92 01 06 4400.00 5748.00 84
01002860 GARH 100 500 02/20/92 03/12/92 01 06 4400.00 5740.00 84
01002881 LAPP 100 500 02/11/91 03/12/92 01 06 4400.00 5765.32 84
01003043 MALVORSON 100 500 10/01/91 03/12/92 01 06 4400.00 5766.32 84
01003046 HASSETT 100 500 10/03/91 03/12/92 01 06 4400.00 5733.39 84
01003039 MARKLEY 100 500 10/03/91 03/12/92 01 06 4400.00 5774.47 84
01003065 MORRIS 100 500 10/03/91 03/12/92 01 06 4400.00 7488.43 84
01003074 GIES 100 500 10/04/91 03/12/92 01 06 10700.00 7420.02 84
01003080 POLLYDORE 100 500 10/05/91 03/12/92 01 06 4400.00 5810.48 84
01003081 RARIG 100 500 10/05/91 03/12/92 01 06 4400.00 5721.65 84
01003046 HEARTLAND 100 500 10/05/91 03/12/92 01 07 7700.00 6727.39 84
01003102 HAMILTON 100 500 10/05/91 03/12/92 01 06 6600.00 5854.15 84
01003200 MILLS 100 500 10/22/91 03/12/92 01 07 7700.00 6784.05 84
01003204 LOCKHART 100 500 10/23/91 03/12/92 01 06 4400.00 5810.48 84
01003210 NEXIE 100 500 10/24/91 03/12/92 01 07 7700.00 4778.91 84
01003214 HUFFMAN 100 500 10/24/91 03/12/92 01 10 11000.00 9684.15 84
01003232 MCPEAK 100 500 10/26/91 03/12/92 01 07 7700.00 6778.91 84
01003321 OLBU 100 500 11/05/91 03/12/92 01 06 6600.00 5815.48 84
01003343 HEPPER 100 500 11/00/91 03/12/92 01 06 6600.00 5810.48 84
01003345 HIFFMAN 100 500 11/08/91 03/12/92 01 06 6600.00 5810.48 84
01003550 ?????? 100 500 11/09/91 03/12/92 01 06 8800.00 7752.43 84
01003344 MOVE 100 500 11/09/91 03/12/91 01 06 4400.00 5690.63 84
01003382 PATTERSON 100 500 11/13/91 03/12/92 01 07 7700.00 4778.91 84
01003388 REIHERF 100 500 11/14/91 03/12/92 01 04 4400.00 5810.48 84
01003413 GRECO 100 500 11/16/91 03/12/92 01 07 7700.00 6714.92 84
01003423 OKINAKA 100 500 11/16/91 03/12/92 01 12 13200.00 10950.06 84
01003431 JORANSTAD 100 500 11/20/91 03/12/92 01 06 4400.00 5854.15 84
01003454 HUVLER 100 500 11/20/91 03/12/92 01 06 6600.00 5910.38 84
01003440 MULLICAN 100 500 11/22/91 03/12/92 01 07 6800.00 7747.51 84
01003462 SCOTT 100 500 11/23/91 03/12/92 01 06 7700.00 6829.85 84
01003475 GUSTAFSON 100 500 11/24/91 03/12/92 01 06 6600.00 5854.15 84
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
TRENDWEST RESORTS, INC. ASSIGNMENT JOURNAL TRENDWEST RESORTS, INC. PAGE 2
ASSIGNMENTS TO 500 - JELD WEN FOUNDATION EDIT RUN RUN DATE 03/12/92
ASSIGNMENT SALE ASSIGN PR TY SALE PRINCIPAL
MEMBER # LAST NAME OLD NEW -DATE- DATE PK PE PRICE BALANCE TERM
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01003479 MCMANUS 100 500 11/30/91 05/12/92 01 07 4235.00 3728.89 84
01003407 GOUGH 100 500 11/29/91 03/12/92 01 07 7700.00 6829.85 84
01003492 GUILLEN 100 500 11/29/91 03/12/92 01 10 11000.00 9756.92 84
01003501 HANSEN 100 500 11/30/91 03/12/92 01 07 7700.00 6854.91 84
01003505 GAMMEL 100 500 11/30/91 03/12/92 01 07 7700.00 6834.85 84
01003509 SMITH 100 500 11/30/91 05/12/92 01 06 4600.00 5654.15 84
01003530 RIGGS 100 500 01/04/92 03/12/92 01 04 6600.00 5097.32 84
01003531 GUNDERSON 100 500 12/04/91 03/12/92 01 07 7700.00 6029.85 84
01003535 MCCAIN 100 500 12/05/91 03/12/92 01 04 6600.00 5781.37 84
01003541 JAIN 100 500 12/05/91 03/12/92 01 06 6600.00 5820.48 84
01003547 JONES 100 500 12/06/91 03/12/92 01 07 7700.00 6829.85 84
01003561 JACKSON 100 500 12/07/91 03/12/92 01 06 6600.00 8201.80 84
01003570 ROBS 100 500 12/05/91 03/12/92 01 08 8800.00 7863.09 84
01003577 SMITH 100 500 12/10/91 05/12/92 01 07 7700.00 6880.21 84
01003620 FERRCEN 100 500 12/20/91 03/12/92 01 07 7700.00 6827.95 84
01003653 JUDD 100 500 01/11/92 03/12/92 01 07 7700.00 6876.16 84
01003662 HULETT 100 500 01/11/92 03/12/92 01 07 7700.00 6872.57 84
01003767 REYNOLDS 100 500 02/01/92 03/12/92 01 10 11500.00 7269.59 84
01003847 HANSON 100 500 02/12/92 03/12/92 01 06 6900.00 6210.00 84
01005067 HEFFRON 100 500 02/15/92 05/12/92 01 12 13800.00 12420.00 84
01403883 GLENN 100 500 02/18/92 03/12/92 01 06 6900.00 6210.00 84
01005901 KALES 100 500 02/20/92 03/12/92 01 08 9280.00 8280.00 84
01003915 GULLING 100 500 02/22/92 03/12/92 01 07 8050.00 7245.00 84
01003940 GREENWOOD 100 500 02/27/92 05/12/92 01 04 6900.00 6218.00 84
01003955 HACKLER 100 500 02/28/92 03/12/92 01 08 9200.00 8280.00 84
01003915 HERRIDGE 100 500 02/29/92 03/12/92 01 08 9200.00 8280.00 84
03001404 SCHMIDT 100 500 05/17/91 03/12/92 03 06 6600.00 5940.00 84
03001715 KOGAN 100 500 06/23/91 03/12/92 03 06 6600.00 5806.49 84
03001720 KIMMEL 100 500 06/24/91 03/12/92 05 06 6400.00 5805.51 84
03001723 JACOBUS 100 500 06/27/91 03/12/92 03 06 6600.00 5807.45 84
03001729 JEFFERS 100 500 06/28/91 03/12/92 05 06 6600.00 5857.16 84
03001731 HARTZ 100 500 06/28/91 03/12/92 05 06 6600.00 5852.11 84
03001744 JOHANSON 100 500 07/03/91 03/12/92 05 06 6600.00 5852.11 84
03001634 PRITTIE 100 500 07/28/91 03/12/92 05 06 6600.00 5777.10 84
03001807 PETTY 100 500 08/14/91 03/12/92 05 06 6600.00 5772.41 84
03001914 NORTHROP 100 500 08/22/91 03/12/92 03 06 6600.00 3744.32 84
03001932 ROBERTUS 100 500 08/29/91 03/12/92 03 06 6600.00 5854.15 84
03001942 GILLIES 100 500 09/07/91 03/12/92 05 06 6600.00 5864.70 84
03001972 HUNT 100 500 09/08/91 03/12/92 03 06 6600.00 5814.43 84
03001977 KISH 100 500 09/11/91 03/12/92 03 06 7700.00 6789.09 84
03002079 KNUTSON 100 500 10/03/91 03/12/92 03 07 7700.00 6729.08 84
03002080 OLLEN 100 500 10/03/91 03/12/92 03 08 8800.00 7651.77 84
03002092 MEGANT 100 500 10/04/91 03/12/92 03 06 6600.00 5825.54 84
03002094 LARSEN 100 500 10/04/91 03/12/92 03 07 7700.00 6690.63 84
03002100 GOLDADE 100 500 10/09/91 03/12/92 03 06 6600.00 5764.32 84
03002104 HUZYK 100 500 10/06/91 03/12/92 03 06 6600.00 4642.67 84
03002109 MCPHEDRAN 100 500 10/09/91 03/12/92 03 07 7700.00 6757.43 84
03002114 NENCHEROFF 100 500 10/09/91 03/12/92 03 07 7700.00 6850.77 84
03002120 MEYER 100 500 10/11/91 03/12/92 03 10 11000.00 7326.86 60
03002131 KRECKO 100 500 10/12/91 03/12/92 03 08 0000.00 7688.45 84
03002132 NEVERS 100 500 10/12/91 03/12/92 03 07 7700.00 6675.22 84
03002175 GROSS 100 500 10/20/91 03/12/92 03 06 6600.00 5744.32 84
03002178 HARTE 100 500 10/23/91 03/12/92 03 04 6600.00 3810.48 84
</TABLE>
<PAGE> 9
TRENDWEST RESORTS, INC. ASSIGNMENT JOURNAL TRENDWEST RESORTS, INC. PAGE 3
ASSIGNMENTS TO 500 - JELD WEN FOUNDATION o EDIT RUN RUN DATE 03/12/92
<TABLE>
<CAPTION>
ASSIGNMENT SALE ASSIGN PR TY SALE PRINCIPAL
MEMBER # LAST NAME OLD NEW -DATE- DATE PK PE PRICE BALANCE TERM
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03002107 KEPLE 100 500 10/24/91 03/12/92 03 06 4400.00 5744.32 84
03002327 SMITH 100 500 11/23/91 03/12/92 03 06 6600.00 5854.14 84
03002344 SIGUALDASON 100 500 11/27/91 03/12/92 03 06 6400.00 5859.15 84
03002371 HUBERT 100 500 12/04/91 03/12/92 03 06 4600.00 1874.58 84
03002386 FOXX 100 500 12/03/92 03/12/92 03 07 7700.00 6828.75 84
03002399 SIMARD 100 500 12/12/91 03/12/92 03 06 6400.00 5897.32 84
03002427 ROBERTSON 100 500 01/11/92 03/12/92 03 06 6600.00 5887.72 84
03002445 SCHROEDER 100 500 01/16/92 03/12/92 03 07 0050.00 7188.71 84
03002459 STEWART 100 500 01/19/92 03/12/92 03 06 4900.00 6161.75 84
03002497 GENTRAY 100 500 01/29/92 03/12/92 03 06 4900.00 4210.00 84
03002527 HAMMER 100 500 02/07/92 03/12/92 05 06 4900.00 4210.00 84
03002553 SCHNEIDER 100 500 02/09/92 03/12/92 03 07 8050.00 1102.46 84
03002559 HAYES 100 500 02/14/92 03/12/92 03 07 8050.00 7245.00 84
03002540 EVANS 100 500 02/14/93 03/12/92 03 07 8050.00 7186.71 84
03002585 GARDENER 100 500 02/20/92 03/12/92 03 08 9200.00 8200.00 84
03002407 GILL 100 500 02/28/92 03/12/92 03 10 11500.00 10350.00 84
04401144 REILLY 100 500 05/31/91 03/12/92 04 06 6000.00 5283.62 84
04001146 PARRA 100 500 04/01/91 03/12/92 04 07 7080.00 6156.65 84
04001374 MARTINEZ 100 500 04/09/91 03/12/92 04 07 7000.00 4164.24 84
04001234 NOSMER 100 500 01/15/91 03/12/92 04 07 4400.00 5697.82 84
04001251 JONES 100 500 06/20/91 03/12/92 04 06 4600.00 5055.15 84
04001257 MENDONCA 100 500 06/29/91 03/12/92 04 06 4600.00 5612.98 84
04001390 REEVES 100 500 08/05/91 03/12/92 04 07 7700.00 6780.65 84
04001391 JONES 100 500 01/15/92 03/12/92 04 08 8800.00 7843.76 84
04001420 MARGUNRDT 100 500 03/13/91 03/12/92 04 06 6400.00 3811.90 84
04001439 ADACA 100 500 08/14/91 03/12/92 04 12 13200.00 11678.75 84
04001445 GUTIERREZ 100 500 08/16/91 03/12/92 04 07 7700.00 6780.65 84
04041445 SALAZAR 100 500 08/22/91 03/12/92 04 06 4400.00 5855.15 84
04001471 IVORY 100 500 08/22/91 03/12/92 04 06 4400.00 5811.98 84
04001467 LAMB 100 500 08/27/91 03/12/92 04 06 4400.00 5811.98 84
04001487 JENSEK 100 500 08/27/91 03/12/92 04 06 4600.00 5817.09 84
04001530 JONES 100 500 09/07/91 03/12/92 04 06 4600.00 5811.98 84
04001549 HOLDEN 100 500 09/10/91 03/12/92 04 07 7700.00 6830.99 84
04001431 HARRIMAN 100 500 09/28/91 03/12/92 04 04 6600.00 5940.00 84
04001444 MARTINEZ 100 500 10/03/91 03/12/92 04 06 4400.00 5774.82 84
04001448 HENDERSON 100 500 10/05/91 03/12/92 04 08 8800.00 7811.25 84
04001454 LAMPERT 100 500 10/05/91 03/12/92 04 10 10600.00 5425.25 75
04001437 SAUCEDO 100 500 10/09/91 03/12/92 04 04 6600.00 5899.47 84
04001640 MCFARLAND 100 500 10/09/91 03/12/92 04 07 7700.00 6737.28 84
04001400 HORLINCS 100 500 01/15/92 03/12/92 04 06 6600.00 5899.47 84
04001435 HONG 100 500 10/17/91 03/12/92 04 07 7700.00 6757.28 84
04001720 MACAFEE 100 500 10/24/91 03/12/92 04 06 6600.00 5816.80 84
04001753 ORLIK 100 500 10/26/91 03/12/92 04 10 11000.00 9494.90 84
04001740 JOHNSON 100 500 10/30/91 03/12/92 04 08 8900.00 7755.93 84
04001741 JORGE 100 500 10/30/91 03/12/92 04 04 6600.00 5814.88 84
04001748 GROVES 100 500 11/01/91 03/12/92 04 10 11000.00 7624.72 84
04001761 MASON 100 500 11/02/91 03/12/92 04 04 4400.00 5834.40 84
04001782 NAZZAK 100 500 11/09/91 03/12/92 04 07 7700.00 4786.34 84
04001793 HART 100 500 11/14/91 03/12/92 04 06 6600.00 3858.00 84
04001799 HOOD 100 500 11/15/91 03/12/92 04 08 8800.00 7755.83 84
04001815 HOLLAND 100 500 11/19/91 03/12/92 04 08 8800.00 7811.23 84
04001832 FITZPATRICK 100 500 11/23/91 03/12/92 04 07 7700.00 6834.43 84
04001344 HARDWICK 100 500 11/29/91 03/12/92 04 06 6600.00 5748.68 84
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
TRENDWEST RESORTS, INC. ASSIGNMENT JOURNAL TRANDWEST RESORTS, INC. PAGE 4
ASSIGNMENTS TO 500 -- JELD WEN FOUNDATION EDIT ADM RUN DATE 5/12/92
ASSIGNMENT SALE ASSIGN PR TV SALE PRINCIPAL
MEMBER # LAST NAME OLD NEW -DATE- DATE PK PE PRICE BALANCE TERM
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
04001945 HARRIS 100 500 11/29/91 05/12/92 04 04 6600.00 5058.45 84
04001952 PHILLIPS 100 500 11/29/91 03/12/92 04 06 6600.00 5916.95 84
04001953 GRAYSON 100 500 12/17/91 05/12/92 04 10 11000.00 9832.56 84
04001842 MIERS 100 500 12/03/91 05/12/92 04 10 4400.00 5854.45 84
04001883 GEORGATOS 100 500 12/06/92 05/12/92 04 5000.00 7311.23 84
04001895 FINLEY 100 500 12/06/91 05/12/92 04 05 7700.00 6380.23 84
04001901 ILANDER 100 500 11/30/91 05/12/92 04 05 11000.00 9744.46 84
04001818 SCHUDEL 100 500 12/10/91 05/12/92 04 05 1600.00 5924.67 84
04001824 GAINES 100 500 12/10/91 05/12/92 04 06 4400.00 5899.47 84
04001927 ROBINSON 100 500 01/02/91 05/12/92 04 06 7700.00 4282.71 84
04001966 SKAMMAN 100 500 01/11/92 03/12/92 04 07 7700.00 6282.71 84
04001994 SALINAS 100 500 01/16/92 05/12/92 04 06 6900.00 4167.45 84
04007237 JAIME 100 500 02/11/92 03/12/92 04 07 8050.00 7195.34 84
04002194 GONZALEZ 100 500 02/21/92 05/12/92 04 07 15000.00 12420.00 84
04402194 GONG 100 500 02/26/92 03/12/92 04 08 9200.00 9280.00 84
04002203 HANNA 100 500 02/27/92 03/12/92 04 07 8050.00 7245.00 84
04002212 HALE 100 500 02/28/92 03/12/92 04 06 6900.00 4210.00 84
05001072 GONZALEX 199 500 00/02/91 03/12/92 05 06 4000.00 5322.86 84
05091105 ODOMHELL 100 500 08/15/91 03/12/92 05 07 4600.00 5279.42 84
05001144 GOLSIC 100 500 08/20/91 03/12/92 05 06 4600.00 5897.92 84
05001161 LASHLEY 100 500 08/10/91 03/12/92 05 06 4600.00 5748.51 84
05001162 KING 100 500 08/30/91 05/12/92 05 06 4400.00 5847.51 84
05001147 GREWELL 100 500 05/28/91 03/12/92 05 07 7700.00 4760.45 84
05001310 MONTZ 100 500 09/27/91 03/12/92 05 04 4606.08 5816.98 84
05001251 SHERBURNE 100 500 10/25/92 03/12/92 05 06 4400.00 5879.47 84
05001274 HURD 100 500 10/23/92 03/12/92 05 05 4700.00 5754.45 84
05001310 GEM 100 500 10/23/92 03/12/92 05 05 4400.00 5774.82 84
05001343 MELLOTT 100 500 10/23/92 03/12/92 05 07 7700.00 6796.04 84
05001354 RUGER 100 500 10/23/92 03/12/92 05 07 4660.00 6773.93 84
05001375 MAGEE 100 500 10/23/92 03/12/92 05 06 4400.00 3265.42 84
05001375 LANGSTON 100 500 11/23/92 03/12/92 05 07 7700.00 4574.21 84
05001376 HANSEN 100 500 11/23/92 03/12/92 05 06 6600.00 4476.34 84
05001378 MOATS 100 500 11/23/92 03/12/92 05 06 4400.00 5816.43 84
05001301 JONES 100 500 11/23/92 03/12/92 05 07 4770.00 5848.24 84
05001302 FERRIS 100 500 11/23/92 03/12/92 05 07 6600.00 3456.34 84
05001395 MATSUDA 100 500 11/23/91 03/12/92 05 06 4400.00 5821.67 84
05001381 HARWELL 100 500 11/23/91 03/12/92 05 06 7700.00 5746.55 84
05001396 JOSE 100 500 11/23/91 03/12/92 05 07 6600.00 6885.38 84
05001498 MHODIES 100 500 12/23/91 03/12/92 05 06 4400.00 5814.72 84
05001401 LAGOMARSINO 100 500 12/23/91 03/12/92 05 06 7700.00 6784.36 84
05001412 SCHWINN 100 500 12/23/91 03/12/92 05 06 6600.00 5814.72 84
05001420 MAYASHI 100 500 12/23/91 03/12/92 05 06 4400.00 5816.38 84
05001474 MELLIGAN 100 500 12/23/91 03/12/92 05 04 7700.00 5848.43 84
05001459 GARTIEZ 100 500 12/23/91 03/12/92 05 06 6600.00 5858.43 84
05001475 FAJARRO 100 500 12/23/91 03/12/92 05 06 4400.00 5816.89 84
05001475 FEIGHERT 100 500 12/23/91 03/12/92 05 06 7700.00 5816.80 84
05001475 IMEI 100 500 12/23/91 03/12/92 05 06 6600.00 5858.43 84
05001467 ESTRELLA 100 500 12/23/91 03/12/92 05 06 4400.00 5858.43 84
05001495 HOYNE 100 500 12/23/91 03/12/92 05 07 7700.00 7811.23 84
05001537 COWEN 100 500 01/23/92 03/12/92 05 07 6600.00 6738.80 84
05001568 SCHMITZ 100 500 10223/92 03/12/92 05 04 7700.00 5899.47 84
05001869 ISHIDA 100 500 01/11/92 03/12/92 05 04 6600.00 6874.09 84
</TABLE>
<PAGE> 11
TRENDWEST RESORTS, INC. ASSIGNMENT JOURNAL TRENDWEST RESORTS, INC. PAGE 5
ASSIGNMENTS TO 500 - JELD WEN FOUNDATION o EDIT RUN RUN DATE 03/12/92
<TABLE>
<CAPTION>
ASSIGNMENT SALE ASSIGN PA TY SALE PRINCIPAL
MEMBER # LAST NAME OLD NEW -DATE- DATE PK PE PRICE BALANCE TERM
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
05001508 HIGHT 100 500 01/15/92 03/12/92 05 06 4900.00 6147.65 84
05001590 FENNER 100 500 01/16/92 03/12/92 05 07 7700.00 6834.83 84
05001608 HAWTHORNE 100 500 01/18/92 03/12/92 05 06 4900.00 6210.00 84
05001630 STEWART 100 500 01/24/92 03/12/92 05 07 8050.00 7194.56 84
05001799 HARMON 100 500 02/27/92 03/12/92 05 07 8050.00 7245.00 84
- -------------------------------------------------------------------------------------------------------------
500 - JELD WEN FOUNDATION 1421950.00 1404377.53 217
</TABLE>
<PAGE> 12
ASSIGNMENT AND ASSUMPTION AGREEMENT
FOR VALUE RECEIVED, (i) TRENDWEST RESORTS, INC., a Washington
corporation ("Assignor"), assigns, transfers and sets over to the JELD-WEN
FOUNDATION ("Assignee"), all of Assignor's right, title and interest as of the
Effective Time in the Acquired Purchase Contracts described in that certain
Purchase Agreement dated as of March 13, 1992 between Assignor and Assignee
("Agreement"), and listed in the attached Schedule; and (ii) Assignee hereby
assumes and agrees to perform all obligations of Assignor under said contracts,
which arise or mature after the Effective Time.
This Assignment and Assumption Agreement is executed pursuant to the
Agreement, which contains warranties, rights and limitations with respect to
the obligations assigned and assumed hereunder and which Agreement is
incorporated herein by this reference. All capitalized terms in this instrument
shall have the meanings set forth in the Agreement, unless separately defined
herein.
DATED this 13th day of March, 1992.
JELD-WEN FOUNDATION TRENDWEST RESORTS, INC.
By: [SIG] By: [SIG]
-------------------------- ---------------------------
R. C. Wendt Its: Secretary
Trustee
<PAGE> 13
BILL OF SALE
FOR VALUE RECEIVED, TRENDWEST RESORTS, INC., a Washington corporation
("Seller") sells, assigns and transfers to the JELD-WEN FOUNDATION ("Buyer"),
all of Seller's right, title and interest in the Acquired Purchase Contracts as
of the Effective Time. The property being conveyed pursuant to this Bill of
Sale is listed on Appendix "A", attached hereto.
This Bill of Sale is given pursuant to that certain Purchase Agreement
dated as of March 13, 1992, between Seller and Buyer ("Agreement"), which is
incorporated herein by reference and which contains certain warranties and
disclaimers applicable for this instrument. All capitalized terms in this Bill
of Sale shall have the meanings specified in the Agreement.
DATED this 13th day of March, 1992.
TRENDWEST RESORTS, INC.
By: [SIG]
----------------------------
Its: Secretary
--------------------------
<PAGE> 1
EXHIBIT 10.23
SERVICING ESCROW AGREEMENT
DATED: October 12, 1993
BETWEEN: Jewel W. Kintzinger "Buyer"
AND: TRENDWEST RESORTS, INC. "Seller"
4010 Lake Washington Blvd. #210
Kirkland, WA 98033
AND: SAGE SYSTEMS, INC. "Escrow Agent"
555 116th Ave. NE
Bellevue, WA 98004
Pursuant to the terms of the Purchase Agreement between the Buyer and
Seller dated October 12, 1993 (the "Agreement"), the Buyer has agreed to
purchase $1,700,000.00 of Seller's contracts receivable or collateral notes
("Acquired Purchase Contracts"). Payment of the Acquired Purchase Contracts are
secured by security interests and liens in certain beneficial property interests
in condominiums and resorts, as more fully described in the Agreement.
The Escrow Agent is responsible for collecting payments under the
Acquired Purchase Contracts purchased from TRENDWEST RESORTS, INC. This
agreement provides for the designation of a Lock Box Agent which collects the
funds and forwards the funds directly to the Buyer for the account of the Buyer.
Seller has delivered the Purchase Contracts Receivable described in the
Agreement to the Escrow Agent.
This agreement requires the establishment of a reserve pool of purchase
contracts receivable in the amount of $10,000.00 at any time in order to
facilitate the replacement contracts described in Section 3 herein. Seller has
established this reserve pool.
The parties desire to establish a procedure pursuant to which Escrow
Agent holds the Acquired Purchase Contracts, collects the payments, disburses
the funds to the Buyer and Seller according to the terms herein, submits reports
regarding payment status and makes demands upon the reserve pool established by
Seller when required under this agreement.
NOW, THEREFORE, the parties agree that Escrow Agent holds the Acquired
Purchase Contracts described in the Agreement and instruments delivered pursuant
thereto, subject to the following terms and conditions:
1. Seller will deliver to Escrow Agent, as agent of the Buyer, all
Acquired Purchase Contracts designated as part of this purchase, and
Escrow Agent will hold the same on Buyer's behalf, to perfect Buyer's
security interest related thereto
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<PAGE> 2
and otherwise as directed by the Buyer pursuant to the Agreement and
related documents.
2. The Escrow Agent shall collect all principal and interest and other
payments under the Acquired Purchase Contracts when and as they become
due from the various obligors and remit the monies to the Buyer and
Seller as described herein on or before the fifth (5th) day of each
month.
3. The Escrow Agent shall keep and maintain proper books of record and
account in which full, true, and correct entries shall be made of all
transactions relating to the Acquired Purchase Contracts.
4. The Escrow Agent shall submit reports to the Buyer and Seller covering
all transactions relating to the Acquired Purchase Contracts during
each calendar quarter (monthly if possible). Such reports shall be
submitted not later than the 15th day of January, April, July, and
October each year for the respective preceding calendar quarters.
5. Seller will continue to assure that a Lock Box Agreement remains in
full force and effect and that the Lock Box Agent reports regarding
payments received, including without limitation failures to make
payments, or late payments and charges, identifying the particular
Timeshare Interest and Acquired Purchase Contracts.
6. Seller shall assure that real properties taxes are paid as they become
due and fire/hazard insurance is furnished and maintained for the
benefit of the Seller on each property related to the Acquired Purchase
Contracts.
7. The Seller shall promptly notify the Buyer if and when any of the
following events or conditions affecting any of the Acquired Purchase
Contracts shall come to Seller's attention.
(a) Any loss or damage by fire or other hazard to properties covered
by the Acquired Purchase Contracts.
(b) Any deterioration or waste suffered or committed in respect to any
such property.
(c) Any other matter which would adversely affect the value of any
such property.
(d) Any failure of any obligor to make payment within the grace period
provided in the Acquired Purchase Contracts or other failure
continuing for more than 30 days to perform any covenant or other
obligation contained in the Acquired Purchase Contract which in
Seller's judgment requires enforcement against the obligor.
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<PAGE> 3
(e) Any claim of default by any "Timeshare Purchaser" under an
Acquired Purchase Contract.
(f) The institution by or against any Timeshare Purchaser of any
bankruptcy or other insolvency proceedings.
8. Escrow Agent will review the report submitted by the Lock Box Agent and
determine whether any payment due under any Acquired Purchase Contract
held by Escrow Agent is delinquent for more than 90 days. If any
Acquired Purchase Contract is delinquent with respect to payment for
more than 90 days, then Escrow Agent shall immediately demand of Seller
a replacement Qualified Purchase Contract of the same or greater value.
"Qualified Purchase Contract" shall be defined as a contract receivable
or collateral note owned by Seller that is not in default or is not
subject to any of the specific events described in Paragraph 7 herein.
Escrow Agent shall notify the Buyer of the demand. If Seller fails to
provide a Qualified Purchase Contract of the same or greater value
(such qualification and value to be determined by Seller) within 15
days after demand, then Escrow Agent shall notify Seller and the Buyer
in writing of the failure. In the event the Seller submits a Qualified
Purchase Contract from the reserve pool described above, the Seller
shall restore the reserve pool to the $50,000.00 level described
hereinabove. Escrow Agent is not required to do more than send the
demand and other notices described in this Agreement, and in particular
is not required to bring suit or otherwise take any action with respect
to any failure to respond to written notices or demands.
9. Upon tender of Qualified Purchase Contract, Escrow Agent will assure
that Seller receives the original Acquired Purchase Contract and all
other documents described as an "Acquired Purchase Contract" under this
agreement. The Buyer will deliver to or otherwise make available to
Seller any purchase agreements, security agreements, or copies thereof
and other documents in its possession as Seller may reasonably need to
enforce the same against any obligor or Timeshare Purchaser. A copy of
the standard documents used are attached hereto as exhibits.
10. Seller shall not add to, modify, or waive any of the terms, conditions,
or other provisions of any of the Acquired Purchase Contracts without
the prior written consent of Buyer.
11. For the services rendered hereunder, Seller agrees to pay Escrow Agent
any and all escrow fees to set up or replace Acquired Purchase
Contracts held in the escrow.
12. Seller shall perform all services required hereunder without further
charge, and may retain, provided Seller is not in default under the
Agreement or any agreement related thereto:
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<PAGE> 4
(a) Fifty percent of any late payment charges arising by failure of
the Timeshare Purchaser to make timely payments of principal and
interest.
(b) Fees for change of ownership, substitution of insurance policies,
modifications, mortgagee's statements, other default penalties and
amounts payable by Timeshare Purchasers, and any other fees or
charges arising out of the servicing of the Acquired Purchase
Contracts.
Prepayment penalties, if any, shall be paid to the Buyer.
13. The Buyer shall have the option at any time upon notice to Seller and
Escrow Agent to terminate this servicing arrangement and to service the
Acquired Purchase Contracts itself or through others. If the Buyer
should so elect, Seller and Escrow Agent shall immediately return to
Buyer, without charge, all Acquired Purchase Contracts and papers,
documents and funds, if any, then held by Seller and Escrow Agent with
respect to the Acquired Purchase Contracts.
This Servicing Escrow Agreement shall have no force and effect unless
and until signed by all three parties hereto (by counterpart) , in the space
provided below, but will thereafter bind the successors and assigns of each
party.
Buyer:
____________________________
Jewel W. Kintzinger
Seller: TRENDWEST RESORTS, INC.
By:_________________________
Its:________________________
Escrow Agent: SAGE SYSTEMS, INC.
By:_________________________
Its:________________________
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<PAGE> 5
BILL OF SALE
FOR VALUE RECEIVED, TRENDWEST RESORTS, INC., a Washington corporation
(referred to herein as "Seller") sell, assign and transfer to Jewel W.
Kintzinger (collectively referred to as "Buyer"), all of Seller's right, title
and interest in the Acquired Purchase Contracts as of the Effective Time. The
property being conveyed pursuant to this Bill of Sale is listed on Appendix "A",
attached hereto.
This Bill of Sale is given pursuant to that certain Purchase Agreement
dated as of October 12, 1993, between Seller and Buyers ("Agreement"), which is
incorporated herein by reference and which contains certain warranties and
disclaimers applicable for this instrument. All capitalized terms in this Bill
of Sale shall have the meanings specified in the Agreement.
DATED this 12th day of October, 1993.
TRENDWEST RESORTS, INC.
By:______________________
Its:_____________________
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<PAGE> 6
ASSIGNMENT AND ASSUMPTION AGREEMENT
FOR VALUE RECEIVED, (i) TRENDWEST RESORTS, INC., a Washington
corporation and (referred to herein as "Assignor"), assign, transfer and set
over to Jewel W. Kintzinger (referred to as "Assignee"), all of Assignor's
right, title and interest as of the Effective Time in the Acquired Purchase
Contracts described in that certain Purchase Agreement dated as of October 12,
1993 between Assignor and Assignee ("Agreement"), and listed in the attached
Schedule; and (ii) the Assignee hereby assumes and agrees to perform all
obligations of Assignor under said contracts, which arise or mature after the
Effective Time.
This Assignment and Assumption Agreement is executed pursuant to the
Agreement, which contains warranties, rights and limitations with respect to the
obligations assigned and assumed hereunder and which Agreement is incorporated
herein by this reference. All capitalized terms in this instrument shall have
the meanings set forth in the Agreement, unless separately defined herein.
DATED this 12th day of October, 1993.
ASSIGNEE: ASSIGNOR:
TRENDWEST RESORTS, INC.
______________________
Jewel W. Kintzinger
By:________________________
Its:_______________________
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<PAGE> 1
EXHIBIT 10.25
BYLAWS
OF
WorldMark, The Club
A California Nonprofit Mutual Benefit Corporation
Adopted August 3, 1989 and Amended and Restated December 2, 1994.
Contents
<TABLE>
<CAPTION>
Bylaw/Section Title Page
- ------------- ----- ----
<S> <C> <C>
1: IDENTIFICATION AND PURPOSE .................................... 2
1.1 Name ..................................................... 2
1.2 Purpose .................................................. 2
2: DEFINITIONS ................................................... 2
3: MEMBERS ....................................................... 3
3.1 Joint Membership ......................................... 3
3.2 Voting ................................................... 3
3.3 Meetings ................................................. 6
3.4 Discipline ............................................... 7
3.5 Transfer of Membership ................................... 7
4: BOARD OF DIRECTORS ............................................ 8
4.1 Powers and Duties ........................................ 8
4.2 Number ................................................... 10
4.3 Qualification ............................................ 10
4.4 Election and Removal ..................................... 10
4.5 Meetings ................................................. 12
4.6 Action Without Meeting ................................... 13
5: OFFICERS ...................................................... 13
5.1 Election/Term ............................................ 13
5.2 Qualifications ........................................... 14
5.3 Removal/Resignation ...................................... 14
5.4 Offices .................................................. 14
6: ASSESSMENTS AND SPECIAL CHARGES ............................... 15
6.1 Annual Assessments And Bonus Time Fee .................... 15
6.2 Special Assessments ...................................... 16
6.3 Statement ................................................ 17
6.4 Payment .................................................. 17
6.5 Late Charges/Costs ....................................... 17
6.6 Suspensions .............................................. 17
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Bylaw/Section Title Page
- ------------- ----- ----
<S> <C> <C>
6.7 Lien/Foreclosure ......................................... 18
6.8 Disposition of Funds ..................................... 18
6.9 Statement of Charges ..................................... 18
7: RECORDS AND REPORTS ........................................... 18
7.1 Inspections .............................................. 18
7.2 Accountings and Reports .................................. 19
7.3 Audit .................................................... 21
8: INSURANCE ..................................................... 21
8.1 Generally ................................................ 21
8.2 Policies ................................................. 21
9: GENERAL BYLAWS ................................................ 22
9.1 Principal Office ......................................... 22
9.2 Liability of Agents ...................................... 22
9.3 Indemnification .......................................... 23
9.4 Distributions ............................................ 23
9.5 Dissolution .............................................. 23
9.6 Amendments ............................................... 23
9.7 Master Association ....................................... 24
10: CERTIFICATION ................................................. 24
</TABLE>
1: IDENTIFICATION AND PURPOSES
1.1 Name. The name of this corporation is WorldMark, The Club, a
California nonprofit mutual benefit corporation ("Club").
1.2 Purpose. The Club is formed and shall be operated to own, lease,
care for, maintain, operate and manage the real property and Improvements
thereon and personal property therein or which it owns, wherever located, which
has been dedicated to the WorldMark, The Club VACATION OWNER PROGRAM by a
Declaration recorded by TRENDWEST RESORTS, INC. ("DECLARANT"), an Oregon
corporation.
2: DEFINITIONS. Unless the context otherwise requires, the Definitions
set forth in the DECLARATION OF VACATION OWNER PROGRAM (WorldMark, The Club -
OTTER CREST) as may be amended from time to time ("Declaration"), are hereby
adopted as the definitions herein. The Declaration was originally recorded
September 6, 1989, in Microfilm Volume 209, Page 141, Official Records, Lincoln
County, Oregon. A substantially similar Declaration shall be recorded in each
county, and shall describe each Resort, where the Club owns or
<PAGE> 3
leases real property subject to the Vacation Owner Programs and Club
Memberships. The provisions of recorded Declarations shall have priority over
the Bylaws, and inconsistent provisions among various Declarations shall be
resolved in favor of the most restrictive provision on the Club or Declarant
and/or the most favorable provision for protecting the Members.
3: MEMBERS. Members and Memberships are defined in the Declaration. The
rights, powers and duties of Members are more fully described in these Bylaws.
3.1 Joint Membership. When two (2) or more persons jointly hold a
membership, any proxy, ballot or communication which requires the signature of
a Member, must be signed by all such persons or their agent designated on the
books of the Club. All such persons may attend meetings, but no vote of such
Membership shall be cast without the unanimous consent of all persons present
at such meeting holding such Membership unless cast by their designated agent.
In the event joint holders of a Membership cannot agree among themselves how
their vote shall be cast, their vote shall be lost.
3.2 Voting. Each Membership carries the power to vote in the Club from
and after the commencement of assessments on the Membership. Except as
otherwise provided by law, only Members in whose names Memberships entitled to
vote stand on the records of the Club on the record date for voting purposes,
as provided herein, and Declarant (except as otherwise specifically excluded),
shall be entitled to vote at any meeting or by written ballot without a
meeting. Such vote may be by voice or by ballot; provided, however, that an
election for directors must be by written ballot.
3.2(a) Two Classes of Members. There are two (2) classes of
Members:
(i) Class A. Class A Members hold Memberships
primarily for occupancy or personal use, and are entitled to one (1) vote for
the Basic Membership and one (1) vote for each additional increment of Vacation
Credits owned which equals the number of Vacation Credits in the Basic
Membership.
(ii) Class B. Declarant is a Class B Member, and shall
be entitled to one (1) vote for each Membership held which is authorized for
sale by a Final Subdivision Public Report by the California Department of Real
Estate or by a similar document in a state where the Vacation Owner Program is
registered for sale. Class B shall become Class A as soon as the Voting Power
of Class B falls below twenty percent (20%) of the total Voting Power.
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<PAGE> 4
3.2(b) Membership Approval. A requirement in the Articles,
Bylaws, or Declaration for approval of the Members, of the Membership, or of
the Voting Power means the affirmative vote or written assent of a majority of
the votes represented at a meeting, or cast in an election by written ballot,
where a quorum is represented or responds, respectively, unless a different
number or portion is specifically prescribed. The required portion of
affirmative vote shall be from:
(i) each class of Voting Power if there is more than
one class; or
(ii) if there is only one class of Voting Power, from
Voting Power residing in Members other than Declarant and from the total Voting
Power.
3.2(c) Voting Without a Meeting. Any matter or issue
requiring the vote of the Members may be submitted for vote by written ballot
without a meeting of the Members.
(i) Decision. the determination to conduct an
election in this fashion shall be made by a majority of the Board or by Members
having ten percent (10%) of the total Voting Power signing a written request
and delivering same to the Secretary.
(ii) Ballot. The officers shall thereupon distribute
a written ballot to every Member entitled to vote on the matter. Such ballot
shall set forth the proposed action or actions, provide an opportunity to
specify approval or disapproval of any proposal, provide that the votes shall
be cast as specified, and provide a reasonable time, not less than twenty (20)
nor more than sixty (60) days after distribution, within which to return the
ballot to the Club. A written ballot may not be revoked.
(iii) Solicitation. All solicitations shall indicate
the number of responses needed to meet the quorum requirement, the percentage
of approvals necessary to pass the measure submitted, and the time by which the
ballot must be received in order to be counted.
(iv) Procedure. Distribution of ballots and
solicitations shall be in the same manner as specified herein for notice of
meetings. Approval by written ballot pursuant to this section shall be valid
only when the number of votes cast by ballot within the time period specified
equals or exceeds the quorum required to be present at a meeting authorizing
the action, and the number of approvals equals or exceeds the number of votes
that would be required to approve at a meeting at which the total number of
votes cast was the same as the number of votes cast by ballot. Counsel or the
accountants for the Club shall be retained to supervise the secrecy and control
of the election, if deemed necessary by the Board or if requested by the
Members requesting
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<PAGE> 5
the election. Upon tabulation of the ballots, the Board shall promptly notify
the Members of the outcome of the election or that insufficient votes to
constitute a quorum were cast.
3.2(d) Proxies. Every Member entitled to vote or execute
consents shall have the right to do so either in person or by an agent or
agents authorized by a written proxy executed by such Member or his duly
authorized agent and filed with the Secretary of the Club; provided that no
such proxy shall be valid after the expiration of eleven (11) months from the
date of its execution unless the person executing it specifies therein the
length of time for which such proxy is to continue in force, which in no event
shall exceed three (3) years from the date of its execution. A proxy must
provide an opportunity for the Member to specify approval or disapproval of the
matters described therein and specifically name the persons to whom the proxy
is to be given. A proxy shall be valid as to the following matters only if the
general nature of the matter is described in the proxy: removal of director or
filling a vacancy on the Board, approving transactions involving directors,
amending proxy rights, amending the Articles, selling substantially all Club
assets, mergers, dissolution and distributions.
3.2(e) Record Date. The Board may fix a time in the future as
a record date for the determination of the Members entitled to notice of and to
vote at any meeting of Members or on any action without a meeting. The record
date so fixed shall be not more than sixty (60) nor less than thirty (30) days
prior to the date of the meeting or such action. When a record date is so
fixed, only Members of record on that date shall be entitled to notice of and
to vote at the meeting, notwithstanding any transfer of Memberships on the
books of the Club after the record date.
3.2(f) Quorum. The presence or participation in person, by
written ballot, and/or by proxy of the holders of fifteen (15) percent of the
Voting Power, excluding Declarant, shall constitute a quorum for the
transaction of business. The Members present at a duly called or held meeting
at which a quorum is present shall be deemed to constitute a quorum until
adjournment, notwithstanding the withdrawal of enough Members to leave less
than a quorum. Every act or decision done or made by a majority of Voting Power
voting on an issue at a meeting duly held at which a quorum is present shall be
deemed the act of the Membership unless a greater number of proportion is
specifically required. In the absence of a quorum no business shall be
conducted, and the meeting shall be adjourned by the presiding officer without
rescheduling it. If less than one-third of the total Voting Power is in
attendance or represented at a meeting, only those matters described in the
notice of the meeting may be voted upon by the Members.
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<PAGE> 6
3.3 Meetings.
3.3(a) Place. Any meeting of the Members shall be held at a
suitable location that is readily accessible at reasonable cost to the largest
possible number of members, as determined by resolution of the Board.
3.3(b) Annual Meeting. The annual meeting of the Members for
the election of Directors and for the transaction of such other business as may
properly come before the Members, shall be held on the third Thursday of
October each year at 7:00 p.m.
The first annual meeting of the Members shall be held not later
than one (1) year after the first closing of the sale of a Membership.
3.3(c) Special Meetings. Special Meetings of the Members for
any lawful purpose and at any time, shall be scheduled in response to a call by
the President, by the Board, or upon receipt of a written request signed by
Members holding five percent (5%) of the Voting Power held by Members other
than Declarant. Such meetings must be duly noticed and held not less than
thirty-five (35) days nor more than ninety (90) days after request therefor is
received by the President or Secretary. If notice is not given by the Secretary
within twenty (20) days of such receipt by the Club of a request for special
meeting, then the person(s) requesting the meeting may give notice.
3.3(d) Notice. Written notice of each meeting of the Members
shall be given to each Member who, on the record date for notice of the meeting,
is entitled to vote thereat, either by personal delivery, by first class mail or
other means of written communication, charges prepaid, addressed to such Member
at his record address appearing on the books of the Club, or given to the Club
by the Member for notice purposes. All such notices shall (i) be sent to each
Member entitled thereto not less than thirty (30) and not more than ninety (90)
days before the subject meeting; (ii) specify the place, the date and the time
of such meeting; (iii) provide a brief statement of the matters which the Board
intends to present or believes that others will present for consideration by the
Members; and (iv) provide the name, address and a brief biographical sketch of
each person who has announced the intention to stand for election to the Board.
3.3(e) Consent of Absentees. Any defects in the call, notice,
time or location of a meeting, shall not affect the validity of transactions at
the meeting which are otherwise valid, if a quorum is present, either in person
or by proxy, and if each Member entitled to vote, not present in person or by
proxy, signs a written approval of the minutes. Such approvals shall be made a
part of the minutes of the meeting. Nothing in this Subsection shall be
construed as requiring the consent of absentees to
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<PAGE> 7
transactions at a properly called, noticed and held meeting at which a quorum
is present.
3.3(f) Adjourned Meetings. Any Members' meeting,
annual or special, if a quorum is present, may be adjourned from time to time by
the vote of a majority of the Voting Power present in person or by proxy. When
(i) any Members' meeting is adjourned for not less than five (5) days and not
more than thirty (30) days, (ii) announcement of the time and place of the
adjourned meeting is made prior to adjournment, and (iii) there is no change in
the record date, then no additional notice need be given. Otherwise, notice of
the adjourned meeting shall be given as in the case of an original meeting.
3.4 Discipline. The Board shall establish uniform fines and
temporary suspensions which shall be imposed for violation of the Articles,
Declaration, Bylaws or Rules. Determination of responsibility, such as for
maintenance or repairs of damage, or determination of what constitutes a
nuisance, shall be only by the following procedures, or by a court or
arbitration proceeding. Violations may be determined and penalties imposed only
after thirty (30) days' written notice to the offending Member served personally
or by mail, first class postage prepaid, return receipt requested, mailed to
the latest address for such Member shown on the Club records, specifying the
possible action and the alleged reasons therefor, and an opportunity for the
Member to be heard before a quorum of the Board at least five (5) days before
the effective date of any possible action.
3.5 Transfer of Membership. Transfer or abandonment of the
Membership does not relieve Member of Member's obligations under the Governing
Documents, unless Club agrees to the transfer or terminates the Membership. A
Membership may be transferred entirely or partially if the following conditions
are fulfilled as to such Membership in a manner reasonably satisfactory to
Club:
3.5(a) Fee. A transfer fee of a reasonable amount has
been paid to Club;
3.5(b) Current. All payments for charges due Club are
current;
3.5(c) Credits. The Membership transferred and the
Membership retained, if any, must each include enough Vacation Credits to be a
Basic Membership at the then current requirement; and
3.5(d) Qualifications. The transferee must satisfy
all qualifications of a member and Club's reasonable credit requirements.
Absent written objection by Club specifying the reasons therefor, approval
shall be deemed given 15 days following
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<PAGE> 8
receipt by Club of an application for transfer and the proposed transferee's
credit information.
4: BOARD OF DIRECTORS
4.1 Powers and Duties. Subject to the provisions of the Articles,
the Declaration, these Bylaws, and the laws of California, all corporate powers
of the Club shall be exercised by or under the authority of, and the business
and affairs of the Club shall be controlled by, the Board.
4.1(a) Responsibilities. Without prejudice to its general
powers, but subject to the same limitations, the Board shall have the power and
responsibility to perform the following duties:
(i) Officers and Agents. To select all officers,
agents and employees of the Club and prescribe powers and duties for them; and
to delegate authority to a managing agent to carry out duties and obligations
as set forth in a written management agreement;
(ii) Management. To conduct, manage and control the
affairs and business of the Club, including contracting for such insurance,
goods, services, professional management, legal and accounting services as is
required by the Declaration, Articles or these Bylaws, provided that any
management agreement (A) shall not exceed a term of three (3) years, (B) shall
be automatically renewed annually after expiration of the first term unless
renewal is denied by a majority of the Voting Power residing in Members other
than Declarant and sixty (60) days written notice is given of the intent not to
renew; (C) may be terminated for cause by the Board at any time, subject to
arbitration if requested by managing agent;
(iii) Rules. To promulgate rules and regulations
regarding conduct of Club business, behavior of members and guests, and use of
the Resorts, including, but not limited to, the following subjects: (A) length
of stay; (B) frequency of use; (C) reservations; (D) number of occupants and
guests and fees; (E) provision for the rental of Resorts by Club to non-members
when not in use by Members; (F) charges for use of specific facilities; (G)
personal conduct and behavior; (H) check-out times; (I) care and maintenance of
Units and facilities.
(iv) Places. To prescribe the location of the
principal office for the transaction of the business of the Club and to
designate the place for the holding of any Members meeting pursuant to Bylaw
3.3(a) or Board meeting (Board meetings shall ordinarily be at the principal
office);
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<PAGE> 9
(v) Enforcement and Discipline. To enforce the
Articles, Declaration, Bylaws, Rules, and any other instruments affecting
Membership, management and control of the Resorts; and to initiate and execute
disciplinary proceedings against Members for violation of the Articles,
Declaration, Bylaws or Rules, in accordance with the "Discipline" section of
these Bylaws.
(vi) Payments. To pay any taxes, assessments or
charges which are or could become a lien on Club Property; and
(vii) Maintenance. To provide for maintenance of the
Resorts including all Improvements and Club personal property, except to the
extent another entity has the duty of maintenance.
4.1(b) Discretionary Powers. In addition to the foregoing
mandatory duties, the Board shall have the power to:
(i) Remove officers, agents or employees of the
Club, with or without cause;
(ii) Change the location of the principal office of
the Club;
(iii) Appoint committees composed of Members to
assist it in its duties; and
(iv) Prescribe reasonable fees for use of specific
Club property which is individual-use intensive and not normally furnished with
a Unit as part of the Common Furnishings.
4.1(c) Limitation of Powers. The Board must obtain the
approval of a majority of the Voting Power of Members other than the Declarant
for taking any of the following actions:
(i) Contracts. Entering into a contract with a
third person for goods or services for a term greater than one (1) year, except
(a) a contract with a public utility for the shortest possible term and at
rates regulated by a public utilities commission; or (b) a contract for
casualty and/or liability insurance not to exceed three (3) years and which
allows short rate cancellation by the insured; or (c) five-year or shorter
contracts or leases for the following (so long as the lessor or provider is not
an entity in which Declarant or Manager has a direct or indirect interest of
ten percent (10%) or more): (1) Common Furnishings; (2) laundry room fixtures
and equipment; (3) cable or satellite TV equipment or services; (4) alarm
services or equipment; and/or (5) access to an exchange program by Members
electing to participate therein.
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(ii) Compensating directors or officers other than
reimbursements for expenses incurred in pursuing the business of the Club;
(iii) Capital Expenses. Incurring during any fiscal
year aggregate capital expenditures in excess of five percent (5%) of the
budgeted gross expenses of the Club for that year; or
(iv) Selling during any fiscal year property of the
Club having an aggregate fair market value in excess of five percent (5%) of
the budgeted gross expenses of the Club for that year.
4.2 Number. There shall be five (5) directors of the Club.
4.3 Qualification. After conversion of Class B Memberships to Class
A Memberships all directors must be Members of the Club.
4.4 Election and Removal. Directors shall be chosen, hold office
and be removed as follows:
4.4(a) Election. The first Directors shall be those
individuals named by the incorporator or their successors determined pursuant
to this Bylaw. Thereafter, Directors shall be elected at each annual meeting of
the Members to fill each vacancy created by the expiration of a Director's
term. If for any reason any such annual meeting is not held, or not all the
authorized number of directors are elected thereat, or it is necessary for the
Members to fill a vacancy on the Board, directors may be elected at any special
meeting of Members held for that purpose.
4.4(b) Nomination. The Board shall prescribe reasonable
procedures and opportunities for nomination of directors, communication by
nominees with the Members as to qualifications and reasons for candidacy and
solicitation of votes, and for elections.
4.4(c) Cumulative Voting. Every Member entitled to vote at any
election for directors shall have the right to cumulate his votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such Member is entitled, or to
distribute his votes on the same principle among as many candidates as he
thinks fit, provided that:
(i) To receive cumulative votes, a candidate's
name must be placed in nomination prior to the voting, and
(ii) To cast cumulative votes, a Member, or any
other Member, must have given notice, at the meeting and prior to the voting,
of his intention to cumulate his votes.
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The candidates receiving the highest number of votes, up to the number
of directors to be elected, shall be elected. Provided, however, that at least
one (1) director shall be elected solely by the votes of Class A Members so
long as the Declarant holds a majority of the Voting Power, or so long as there
are two classes of Membership. The ballots from Class A Members shall be
deposited and counted separately.
4.4(d) Term of Office. Terms of office for Directors shall be two
years. The terms of two Directors will expire in even-numbered years and the
terms of three Directors will expire in odd-numbered years. Terms shall begin
at the conclusion of the meeting at which Directors are elected, and expire at
the conclusion of the annual meeting approximately two years later at which
Directors are voted upon. Provided, however, the two Directors who receive the
lowest number of votes at the 1991 annual meeting shall serve only until the
1992 annual meeting.
4.4(e) Vacancies.
(i) Causes. A vacancy or vacancies in the Board shall be
deemed to exist in case of the death, resignation or removal of any director,
or if the authorized number of directors be increased, or if at any annual or
special meeting of Members at which any director or directors are to be
elected, the Members fail to elect the full authorized number of directors to
be elected at that meeting, or if a vacancy is declared by the Board for any
reason permitted by law.
(ii) Filling. Vacancies in the Board may be filled by a
majority of the remaining directors, though less than a quorum, or by a sole
remaining director, or by the Members; provided, however, that a vacancy on the
Board created by the removal of a director can only be filled by the Members. If
the Board accepts the resignation of a director tendered to take effect at a
future time, the Board or the Members shall have power to elect a successor,
pursuant to the provisions, hereof, to take office when the resignation is to
become effective. Each director so elected shall hold office for the remainder
of the term of the position to which he was elected.
4.4(f) Removal. The Board may remove a director who has been declared
of unsound mind by a final court order or convicted of a felony while in
office. Removal for any other reason must be approved by a majority of the
Members; provided, however, that unless the entire Board is removed, a director
may not be removed prior to the expiration of his term if the votes cast
against his removal, or not consenting in writing to such removal, would be
sufficient to elect him by cumulative voting at an election at which the same
total number of votes were cast and the entire number of directors authorized
at the time of the subject director's most recent election were then being
elected.
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A director elected solely by the votes of Members other than the Declarant
shall not be removed other than by the affirmative vote of a majority of the
Voting Power of Members other than Declarant. No reduction of the authorized
number of directors shall have the effect of removing any director prior to the
expiration of his term of office.
4.5 Meetings.
4.5(a) Regular Meetings. Immediately following each annual
meeting of Members, the Board shall hold an annual regular meeting for the
purpose of organization, election of officers, and the transaction of other
business. The Board shall also hold a regular meeting approximately six (6)
months from such annual meeting, and more often if deemed necessary.
4.5(b) Special Meetings. Special meetings of the Board may be
held at any time, at a place designated by the Board in accordance with these
Bylaws, upon call by the President, by any Vice President, by the Secretary, or
by any two (2) directors.
4.5(c) Notice. Written notice of the time and place of Board
meetings, including notice of any special business to be considered, shall be
given to each director at least thirty (30) days for regular meetings and
fifteen (15) days for special meetings, prior to the meeting by personal
delivery, or by first-class mail, first class postage or charges prepaid,
addressed to him or her at the address as shown upon the records of the Club.
Provided, however, no notice need be given to any director who signs a waiver
of notice or a consent to holding the meeting. Minutes of Board Meetings shall
be distributed to the Members within sixty (60) days after each meeting.
4.5(d) Attendance. Directors may participate in any special or
regular meeting, and shall be deemed present, through the use of conference or
speaker telephone equipment, so long as all participants in the meeting can hear
one another. Members may attend Board meetings, but may not participate in
discussions or deliberations unless authorized by a majority of a quorum of the
Board. The Board may, upon approval of a majority of a quorum of the Board,
adjourn a meeting and reconvene in executive session to discuss and vote on
personnel, litigation or similar matters, after first announcing in open session
the nature of all business to be considered.
4.5(e) Consent of Absentees. Any defects in the call, notice,
time or location of a meeting, shall not affect the validity of transactions at
the meeting which are otherwise valid, if a quorum is present, and if, either
before or after the meeting, each of the directors not present signs a written
approval of the minutes thereof. All such approvals shall be made a part of the
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minutes of the meeting. Nothing in this Subsection shall be construed as
requiring the consent of absentees to transactions at a properly called,
noticed and held meeting at which a quorum is present.
4.5(f) Quorum. A majority of the authorized number of
directors shall constitute a quorum for the transaction of business. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the
Board unless a greater number be required by law or by the Articles of
Declaration. A meeting at which a quorum is present may continue to transact
business, notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of a quorum or such greater number as may be
required by law, the Articles, Bylaws or Declaration.
4.5(g) Adjournment. A majority of the directors
present, whether or not a quorum is present, may adjourn any meeting to another
time and place; provided, however, that in the absence of a quorum a majority
of the directors present at any directors' meeting, either regular or special,
may adjourn from time to time until the time fixed for the next regular meeting
of the Board. Notice of the time and place of holding an adjourned meeting need
not be given to absent directors if the time and place be fixed at the meeting
adjourned.
4.5(h) Reimbursement. The Club shall reimburse
directors for actual transportation expenses incurred and reasonable per diem
payments for attendance at regular and special meetings of the Board.
4.6 Action Without Meeting. Any action required or permitted
by the Board may be taken without a meeting if all the directors shall
individually or collectively consent, in writing, to such action. Such action
by written consent shall have the same force and effect as a unanimous vote of
the Board. Such written consent shall be filed with the minutes of the
proceedings of the Board. Within three (3) days after such action is adopted
the Board shall give the Members an explanation of the action in the manner
prescribed for giving notice of regular meetings of the Board.
5: OFFICERS
5.1 Election/Term. Each officer shall be elected by the Board
and shall hold his office until he shall resign, shall be removed or otherwise
disqualified to serve, or his successor shall be elected and take office.
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5.2 Qualifications. Officers, other than the President, need
not be directors or Members. One person may hold two (2) or more offices,
except those of President and Secretary.
5.3 Removal/Resignation. Any officer may be removed, either
with or without cause, by a majority of the Board at any regular or special
meeting of the Board. Any officer may resign at any time by giving written
notice to the Board. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. Removal or resignation shall not prejudice the
rights of the Club or the officer under any contract of employment or the
position on the Board of an officer who is also a director.
5.4 Offices. The Club shall have the following officers, and
such other officers, including one (1) or more Assistant Secretaries, as may be
appointed by the Board. The duties of officers shall be as prescribed in the
Articles, Declaration or Bylaws, or as assigned from time to time by the Board
and, as to other officers, the President:
5.4(a) President. The President, who shall be chosen
from the Board, shall be the chief executive officer of the Club and shall,
subject to the control of the Board, have general supervision, direction and
control of the business and officers of the Club. He shall preside at all
meetings of the members and of the Board of Directors.
5.4(b) Vice President. In the absence or disability
of the President, the Vice President shall perform all the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President.
5.4(c) Secretary. The Secretary shall keep or cause
to be kept, at the principal office, or at such other place as the Board may
order, a book of minutes of all meetings of directors and members, or a
duplicate thereof, with the time and place of holding, whether regular or
special, and, if special, how authorized, the notice thereof given, the names
of those present at directors' meetings, the number of Memberships present or
represented at Members' meetings, and the proceedings thereof.
The Secretary shall keep or cause to be kept, in any
form permitted by law, at the principal office or such other place as the Board
may order, a Membership register, or a duplicate thereof, showing the names of
the Members and their addresses, the number and date of Memberships issued, and
the number and date of cancellation of Membership.
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The Secretary shall give, or cause to be given, notice of all meetings
of the Members and of the Board required by these Bylaws or by law to be given,
and shall keep the seal of the Club in safe custody.
5.4(d) Chief Financial Officer. The Chief Financial Officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct accounts of the properties and business transactions of the Club,
including accounts of its assets, liabilities, receipts, disbursements, gains or
losses. The books of account shall at all times be open to inspection by any
directors.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name of and to the credit of the Club with such depositaries as
may be designated by the Board, shall disburse the funds of the Club as may be
ordered by the Board, and shall render to the President and directors, whenever
they request it, an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Club.
6: ASSESSMENTS AND SPECIAL CHARGES.
6.1 Annual Assessments. Each year the Board shall consider the
current and future needs of the Club as to its operation, the operation and
maintenance of the Resorts and any personal property maintained by the Club,
including reasonable reserves for capital improvements and replacements,
payment of taxes, and protecting and promoting the common interests of the
Members pursuant to the Articles, Declaration, Bylaws and Rules, and, in light
of such needs, determine the annual budget of the Club and fix by resolution
the amount of annual assessments to be levied against each Membership for the
coming year, based on the respective numbers of Vacation Credits held.
6.1(a) Assessment Formula. Annual assessments shall be based
on the formula given in Exhibit A attached hereto and incorporated herein,
according to the following provisions.
i) Beginning January 1, 1995 all new purchasers will pay
the full amounts required by Exhibit A.
ii) Beginning August 1, 1995, owners who purchased prior to
January 1, 1995 will gradually be adjusted up to the
assessment amount by annual increase of 5% or the actual
rate of inflation, whichever is greater.
iii) On August 1, 2000 all Owners will be subject to the full
assessment under Exhibit A as amended herein.
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6.1(b) Limitation. No annual assessment or Bonus Time
Fee shall be increased more than the higher of the following two amounts above
the annual assessment or Bonus Time Fee for the immediately preceding fiscal
year: (i) five percent (5%), or (ii) the percentage increase in the U.S.
Consumer Price Index for All Urban Consumers as reported by the U.S. Department
of Labor, Bureau of Labor Statistics, for the calendar year immediately
preceding the year for which the increase is being made. Provided, however, an
increase in annual assessments due to an increase in real property taxes
against Units shall be excluded from the calculation of percentage increase for
applying this limitation.
6.1(c) Reserves. The Club shall maintain a reserve
fund adequate to cover maintenance, repair and replacement of those properties,
including personal property, for which the Club is responsible (excluding
property for which another entity has responsibility), which are subject to
major maintenance or repair or replacement on a periodic basis. Such reserves
shall be funded from the periodic payments of assessments for reserves and
shall be held in a separate account.
6.2 Special Assessments. Special assessments may be levied
at any time upon determination by the Board that such assessments are necessary
for capital improvements or major expenses, repairs or acquisitions for which
no reserves have been established or for deficiencies in such reserves, or for
any purposes related to the mutual health, safety and welfare of the Members
pursuant to the Articles, Declaration, Bylaws and Rules.
6.2(a) Limitation. Special assessments shall not be
imposed without the approval of a majority of the Voting Power held by Members
other than Declarant, except:
(i) 5%. To the extent special assessments
in the aggregate in any fiscal year do not exceed five percent (5%) of the
budgeted gross expenses for that fiscal year, except as provided in subsection
(ii) below;
(ii) Rebuilding. A special assessment for
the repair or rebuilding of a Unit(s), which does not exceed ten percent (10%)
of the budgeted gross expenses for the fiscal year in which the special
assessment is imposed; and/or
(iii) Reimbursements. A special assessment
against a Member(s) for reimbursing the Club for costs of bringing such
Member(s) into compliance with the Governing Documents.
6.2(b) Form of Levy. Special assessments shall be
levied upon the same basis as annual assessments, except special charges levied
against less than all the Members for reimbursement to the Club, fines, or
remedies for violation of the Governing Documents.
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6.3 Statement. The Secretary shall mail to each Member,
first class postage prepaid, at such Member's record address, a written
statement of each annual assessments or special assessment or special charges
at least thirty (30) days prior to the date such assessment or charge shall
become due and payable. Such statement shall set forth:
6.3(a) Amount of the installment or payment of
assessments, fines or charges due from that Member;
6.3(b) Date such payment or installment is due;
6.3(c) Date such payment or installment becomes
delinquent (thirty (30) days past due);
6.3(d) Where and to whom payment is to be made;
6.3(e) Purpose for the charge or levy; and
6.3(f) Dates when late charges and interest begin to
accrue (ten (10) days past due), when Membership rights will be suspended as to
annual assessments and special assessments (thirty (30) days past due), and
when collection costs and attorneys' fees must be paid (thirty (30) days past
due).
6.4 Payment. All such assessments shall be paid to the Club
or its designated agent for collection in lawful money of the United States, on
or before the date or period established by the Board pursuant to the
resolution adopted by the Board fixing the amount of such. Annual assessments
shall be paid in such periodic payments as the Board shall prescribe.
6.5 Late Charges/Costs. Any such assessment not paid within
ten (10) days of its due date, shall be subject to the following: (a) a late
charge in the amount of five dollars ($5.00) to compensate the Club generally
for the added cost of collection, plus (b) interest at the rate of nine percent
(9%) per annum on any such unpaid installment, which interest shall accrue from
the tenth day after the due date. A late charge may be imposed only once for a
particular payment. A Member shall also be liable to the Club for actual costs
and attorney fees incurred in collecting assessments not paid within thirty
(30) days of when due.
6.6 Suspensions. The Club shall not transfer a Membership
on its books, or allow the exercise of any rights or privileges of Membership
on account thereof by any Member or any person claiming under him, unless and
until all delinquent annual assessments and special assessments to which such
Membership is subject are paid, provided the procedures of Bylaw 3.4 regarding
"Discipline" have been followed.
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6.7 Lien/Foreclosure. The Board shall enforce collection of
assessments by suit at law, by foreclosure of the lien rights, or by exercise
of the power of sale established in the Declaration.
6.8 Disposition of Funds. The funds arising from assessments,
insofar as possible, shall be applied toward the payment of expenses pursuant
to the annual budget adopted by the Board. Excess assessments, after making
allowance for budgeted reserves for replacement, may be returned to the Members
on an equitable basis or held in trust for future budgeted needs.
6.9 Statement of Charges. The Board, on not less than twenty (20)
days prior written request, shall execute, acknowledge and deliver to the party
making such request, a written statement whether or not to the knowledge of the
Club, a particular Member is in default as to his assessments, and disclosing
the amount of delinquent assessments, late charges, attorneys fees and other
penalties assessed against such Member's Membership, and further stating the
dates to which installments of assessments, have been paid as to his
Membership. Any such certificate may be relied on by any prospective purchaser
or mortgagee of the Membership, but reliance on such certificate may not extend
to any default not involving the payment of assessments of which the signer had
no actual knowledge. The Club may charge a fee reasonably related to the cost
of preparing such statement.
7: RECORDS AND REPORTS
7.1 Inspections.
7.1(a) Members. The Articles, Bylaws, Declaration, Rules,
Membership register (including mailing addresses and telephone numbers) or
duplicate Membership register, the books of account and minutes of proceedings
of the Members, the Board and any committees, and all other records of the
Program maintained by the Club or its Manager, shall be made available for
inspection and copying, upon written demand and reasonable notice, by any Member
or his duly appointed representative, at any reasonable time and for a purpose
reasonably related to his interests as a Member. The Club may restrict the use
of information from the Membership register by requiring Members to sign a
written agreement not to use or allow use of Membership information for
commercial or other purposes not reasonably related to the affairs of the Club.
An original or copy of the Articles and Bylaws, as amended to date, shall be
kept at the principal office of the Club and shall be open to inspection by the
Members at all reasonable times during office hours. The records shall be made
available for inspection at the office where the records are maintained. Upon
receipt of an authenticated written request from a Member along with the fee
prescribed by the Board to defray the costs of reproduction, the
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Manager or other custodian of records shall prepare and transmit to the Member
a copy of any and all records requested.
7.1(b) Directors. Each director shall have the absolute right
at any reasonable time to inspect all books, records and physical properties
owned or controlled by the Club, and to make copies and extracts thereof at the
expense of the Club, and subject only to signing a written agreement not to use
or allow use of Membership information for commercial or other purposes not
reasonably related to the affairs of the Club.
7.1(c) Rules. The Board shall establish reasonable rules
regarding notice to be given the custodian of the records by a Member desiring
to make an inspection, times records are available, and payment of costs of
reproduction.
7.2 Accountings and Reports. The Board shall cause to be prepared
and distributed to the Members the following:
7.2(a) Budget. A pro forma operating budget, or summary
thereof, distributed not less than forty-five (45) days and not more than sixty
(60) days before the beginning of each fiscal year, containing the following:
(i) Estimated revenue and expenses on an accrual basis.
(ii) The amount of the total cash reserves of the Club
currently available for replacement or major repair of the Resorts and for
contingencies.
(iii) An itemized estimate of the (A) remaining life
of; (B) the current replacement costs of; and (C) the methods of funding to
defray the costs of repair, replacement or additions to; the major components
of the Resorts and facilities for which the Club is responsible.
(iv) A general statement setting forth the procedures
used by the governing body in the calculation and establishment of reserves to
defray the costs of repair, replacement or additions to major components of the
Resorts and facilities for which the Club is responsible.
7.2(b) Initial Statements distributed within sixty (60) days
of an accounting date which is the last day of the month closest in time to six
(6) months from the date of the first close of the sale of a Membership, which
shall consist of the following:
(i) A balance sheet as of such accounting date; and
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(ii) An operating statement for the period from the
date of the first close of the sale of a Membership to said accounting date,
which operating statement shall include a schedule of assessments received or
receivable itemized by Membership number and by the name of the person or
entity assessed.
7.2(c) Annual Report. Thereafter, within one hundred twenty
(120) days after the last day of the Club's fiscal year, an Annual Report
containing the following:
(i) A balance sheet as of the last day of the fiscal
year;
(ii) An operating (income) statement for the fiscal
year, including amounts (and description of property) received from Declarant
under a Subsidy Agreement, if any;
(iii) A statement of changes in financial position for
the fiscal year;
(iv) A copy of the review of the Annual Report prepared
in accordance with generally accepted accounting principles by a licensee of a
State Board of Accounting or similar agency, for any fiscal year in which the
gross income of the Club exceeds $75,000. Such review shall include
verification of the respective and total allocations of Vacation Credits.
(v) A list of the names, addresses and telephone
numbers of current directors;
(vi) A description of any transaction or series of
transactions by the Club involving $40,000 or more in which a director, officer
or holder of ten percent (10%) or more of the Voting Power had a direct or
indirect financial interest;
(vii) A description of any indemnifications or advances
aggregating more than $10,000 paid during the fiscal year to any officer or
director of the Club; and
(viii) If not prepared by an independent accountant, a
certificate by an authorized officer that the Annual Report was prepared from
the books and records of the Club without independent audit or review.
7.2(d) Enforcement Policies. Within sixty (60) days prior to
the beginning of the fiscal year, a statement of the Club's policies and
practices in enforcing its remedies against Members for defaults in the payment
of regular and special assessments, including the foreclosing of liens against
Memberships.
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7.3 Review. The Annual Report shall be reviewed by an independent
public accountant for any fiscal year in which the gross income of the Club
exceeds $75,000.
8: INSURANCE
8.1 Generally. Where practicable, insurance policies shall be
blanket policies covering the Resorts, to the extent the Club may have exposure
for liability or property loss, any properties owned or administered by the
Club, activities of the Club and its employees and agents, within or without
the Resorts, and any property or activities of Declarant, located within or
nearby the Resorts, in which case the Club and Declarant shall each pay their
proportionate share of the premium and be named co-insureds. With respect to
insurance proceeds paid in connection with a loss of Club property only, the
Board shall be deemed trustee of the interests of all Members in any insurance
proceeds paid to it under any such policies, and shall have full power to
receive and to receipt for their interest in such proceeds and to deal
therewith as set forth in the Declaration and Bylaws. The limits and coverage
should be reviewed at least every three (3) years.
Every policy of insurance obtained by the Club shall contain (a) an
express waiver, if applicable, of any and all rights of subrogation against
Declarant, Declarant's agents and representatives, any person, firm or
corporation affiliated with Declarant in the Resorts or Program, the Board and
individual members of the Board, and individual Members of the Club; (b) a
severability of interest endorsement, as applicable; and (c) a cross-liability
endorsement, as applicable. No act or omission by a Member, unless acting in
the scope of authority on behalf of the Club, will void a policy or operate as
a condition to recovery under a policy by any other person.
8.2 Policies. The Board shall obtain and maintain in force at all
times the following policies of insurance:
8.2(a) Fire and extended coverage insurance on all personal
property, Structures and Improvements, including building service equipment,
owned by the Club in the Resorts, insuring eighty percent (80%) of the
aggregate full insurable value, meaning actual replacement value, exclusive of
the cost of land, excavations, foundations and footings, from an insurance
carrier designated Class VI or better in Best's Key Rating Guide, or any
successor or similar guide. Such insurance shall insure the Club, shall contain
a deductible clause of no more than $250, shall contain an inflation guard
endorsement, and shall insure against loss or damage by fire, theft and other
hazards covered by the standard extended coverage endorsement, and by sprinkler
leakage, debris removal, cost of demolition, vandalism, malicious mischief,
windstorm, water damage and other risks customarily insured against in similar
projects.
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8.2(b) Public liability insurance, with limits of not less than Five
Hundred Thousand Dollars ($500,000) per person and One Million Dollars
($1,000,000) per occurrence for personal injury, not less than One Hundred
Thousand Dollars ($100,000) for property damage, and a deductible of not more
than One Thousand Five Hundred Dollars ($1,500), insuring against liability for
bodily injury, death and property damage, including water damage, arising from
the activities of the Club or with respect to property under its jurisdiction
or used for its benefit or business, such as non-owned and hired automobiles,
and for such other risks as are customarily covered in similar programs.
Liability insurance shall name as separately protected insureds the
Declarant, the Club, the Board and the Members, and their representatives,
members and employees, with respect to any liability arising out of the
maintenance or use of any Resorts or Club Property.
8.2(c) Workers' compensation insurance to the extent necessary to
comply with any applicable laws, which shall cover the risk of all Members as
well as the Club.
8.2(d) Fidelity bond or bonds in a penal amount equal to at least the
maximum amount of funds of the Club over which the principal(s) under the
bond(s) may reasonably be expected to have control or access at any time,
naming the members of the Board, officers, employees, any person responsible
for handling funds, and such other persons as may be designated by the Board as
principals, and the Club as obligee, and containing waivers of any defense
based on the exclusion of persons who serve without compensation from any
definition of "employee" or a similar expression.
8.2(e) Such other insurance, including indemnity and other bonds, as
the Board shall deem necessary or expedient to carry out the Club's functions
as set forth in the Declaration, Articles and Bylaws.
9: GENERAL BYLAWS
9.1 Principal Office. The principal office of the Club shall be at
such specific location as may from time to time be designated by the Board of
Directors.
9.2 Liability of Agents. No director, officers, employee, agent or
representative (collectively "agent") of the Club shall be personally liable in
any action or proceeding to any Member, person, or the Club for any damage,
loss or prejudice suffered or claimed on account of any act, negligence, error
or omission of the Club, the Board or any agent of the Club or any committee,
provided that such agent has acted in good faith and without willful or
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intentional misconduct upon the basis of such information as may be possessed
by him or available to him upon reasonable inquiry.
9.3 Indemnification. Subject to California Corporations
Code Section 7237, if any action or proceeding is brought against any agent
because such person is or was an agent of the Club, then upon approval of (a) a
majority of a quorum of directors who are not parties to such proceeding; (b)
the Voting Power, pursuant to Bylaw 3.2(b), excluding those who are parties to
such action; or (c) the court in which such action is or was pending; the Club
shall indemnify such person against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding or action, if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the Club and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
of such person was unlawful. The termination of any proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
the best interests of the Club or that the person had reasonable cause to
believe that the person's conduct was unlawful. If the Club is required to
incur any cost or expense hereunder, the Club shall be entitled to levy a
special assessment for the amount so expended.
9.4 Distributions. There shall be no distribution of gains,
profits or dividends to any Member except upon dissolution or upon the lawful
redemption of a Membership.
9.5 Dissolution. Upon dissolution and winding up of the
Club, the Board of Directors, or trustee shall dispose of all Club assets. After
payment or making provision for the payment of all liabilities of the Club, the
Board of Directors or trustee shall distribute all of the remaining assets to
the Members in the same proportion that the Vacation Credits held by a Member
bears to the total outstanding Vacation Credits. For purposes of this Section
9.5, Declarant shall be deemed to hold the number of Vacation Credits allocable
to each basic Membership held by it regardless of qualification or registration
for sale to the public. If the Club or its trustee fails to liquidate the
assets of the Club within one year from the date which the Club voted as the
date of dissolution, then the State in which the assets are located will
perform the liquidation. Each State is hereby granted a permanent and
irrevocable power of attorney to perform such liquidation.
9.6 Amendments. New Bylaws may be adopted, or these Bylaws
may be amended or repealed, only by the affirmative vote or written assent of
(a) at least twenty-five percent (25%) of each Class of Voting Power, if there
is more than one class; or (b) if there is only one class of Voting Power, at
least twenty-five percent (25%)
23
<PAGE> 24
of Voting Power residing in Members other than Declarant along with at least
twenty-five percent (25%) of the total Voting Power. Provided, however, the
votes required for an amendment shall not be less than the affirmative votes
required for action to be taken under the clause being affected.
9.7 Master Association. The Board is authorized to appoint
and authorize the Manager of the Club, one or more of the Directors of the
Club, or a Member of the Club to represent the Club at any meeting or in an
election or ballot of a Master Association to which the Property or a portion
of the Property of the Club is subject, to represent the Club and vote in a
manner that such authorized agent shall, in its sole discretion, deem to be in
the best interest of the Club.
10. CERTIFICATION
I, the undersigned, do hereby certify:
10.1 That I am the Secretary of WorldMark, The Club, a
California nonprofit mutual benefit corporation.
10.2 That the foregoing Bylaws, comprising twenty-four (24)
pages, including this page, constitute the Bylaws of said corporation as duly
adopted by the Incorporator on the 3rd day of August, 1989, and as amended and
restated by approval of the Members pursuant to Bylaw 9.6 on December 2, 1994.
IN WITNESS WHEREOF, I have hereunto subscribed my name this
10th day of December, 1994.
/s/ J. MICHAEL MOYER
_____________________________
J. Michael Moyer
Secretary
24
<PAGE> 25
EXHIBIT A
Formula for Determining Annual Assessments
$ X per year for each Basic Membership of 5,000 Vacation Credits.
Plus 30.4% of $ X per year for each additional 2,500 Vacation Credits or
portion thereof in the same Membership.
EXHIBIT A
To WorldMark, The Club Bylaws
<PAGE> 1
EXHIBIT 10.26
FORM OF
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This agreement is dated and made effective the May 1, 1997 (the
"Effective Date") between William Peare, ("Executive") and Trendwest Resorts,
Inc., an Oregon corporation ("Company").
1. Employment. Company employs Executive and Executive accepts
employment on the terms and conditions in this agreement.
2. Duties. Executive is employed in the capacity of President and
Chief Executive Officer. In this capacity Executive shall have primary
responsibility for direction and guidance of Company and implementation of
Company's business strategies. Executive shall report directly to, and take
direction from, Company's Board of Directors (the "Board") and to no other
Company employee. Executive shall perform the duties customarily performed by a
president and CEO.
3. Intensity of Effort; Other Business. Executive shall devote his
entire working time, attention and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not engage
in any business or employment activity that is not on Company's behalf (whether
or not pursued for gain or profit) except for (a) activities approved in writing
in advance by the Board and (b) passive investments that do not involve
Executive providing any advice or services to the businesses in which the
investments are made.
4. Term. The term of this agreement is of indefinite duration. As
stated in P. 8 below, this agreement and Executive's employment relationship may
be terminated at any time, with or without cause.
5. Compensation. Executive's compensation shall be as follows:
(a) Executive's salary shall be $4,166.67 payable
semi-monthly (equal to $100,000.00 on an annualized basis) in accordance with
the Company's standard procedures. Executive's salary shall be reviewed by the
Board and adjusted as determined by the Board in its sole discretion.
(b) Executive will be eligible to receive a monthly personal
performance bonus as determined by the Company's Board based upon performance
criteria consistent with those criteria utilized to establish Executive's bonus
in prior years. The personal performance bonus, if any, shall be paid thirty
(30) days following the end of each month. The total bonus payable for any
twelve month period shall not exceed two times Executive's base salary for such
twelve month period.
6. Benefit Plans. Executive shall be eligible to participate in the
Company's Employee Benefit Package offered generally to employees. The exact
terms and conditions of the Company's benefits, including eligibility, are
governed by the benefit plans and policies of the Company, not this agreement or
any summary provided to Executive.
7. Business Expenses. Executive is authorized to incur reasonable
travel and entertainment expenses to promote Company's business. Company shall
reimburse Executive for those expenses consistent with the Company's policies
and procedures. Executive shall provide to Company the itemized expense account
information that Company reasonably requests.
8. Termination. Executive's employment may be terminated as
follows, in which event Executive's compensation and benefits shall terminate
except as otherwise provided below:
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<PAGE> 2
(a) Without Cause or Good Reason. Either party may terminate
Executive's employment at any time by giving 30 calendar days' advance written
notice of termination to the other without the necessity of cause or good
reason.
(b) By Company for Cause. Company may terminate Executive's
employment for cause, without advance written notice of termination, by giving
written notice of such termination. The notice may take effect immediately or at
such later date as Company may designate. Any termination of Executive's
employment for cause must be approved by a majority of the Board other than
Executive. For purposes of this Agreement, "cause" means gross negligence,
wilful misconduct, fraud or material breach of the Company's written policies
and procedures or of this Agreement. Executive must be given reasonable advance
notice of the meeting at which his or her termination is to be considered, and a
reasonable opportunity to address the Board.
(c) Death. Executive's employment shall terminate
automatically upon Executive's death.
(d) Permanent Disability. Company may terminate Executive's
employment immediately if Executive becomes permanently disabled. For purposes
of this agreement Executive will be considered "permanently disabled" if, for a
continuous period of 24 weeks or more, Executive has been unable to perform the
essential functions of the job because of one or more mental or physical
illnesses and/or disabilities, provided that Company may grant Executive unpaid
leave if and to the extent that, in Company's judgment, doing so is required by
law.
9. Termination Payments.
(a) Termination Without Cause.
(i) If Company terminates Executive's employment
when neither cause nor permanent disability exists, Company shall pay Executive
for a period of twelve (12) months following such termination, as liquidated
damages and in lieu of all other remedies to which Executive might be entitled
arising out of the termination, termination payments equal to Executive's
monthly salary at the date of termination (these payments exclude bonuses and
any other incentive compensation) plus the amount of bonuses received by
Executive in the twelve month period preceding termination, pro rated on a
monthly basis over the twelve month payment period. Such liquidated damages
shall be paid only if Executive executes a full and final general release of all
claims against Company (including Company's officers, directors, agents,
employees and assigns) arising out of Executive's employment relationship with
Company.
(ii) In addition, if Company terminates Executive's
employment when neither cause nor permanent disability exists, but Company gives
Executive less than the 30 days' advance written notice called for above,
Company shall pay Executive, as liquidated damages and in lieu of all other
remedies to which Executive might be entitled arising out of Company's failure
to give 30 days' advance written notice, termination payments equal to the
additional salary Executive would have received if Company had given Executive
30 days' advance written notice of termination.
(iii) Termination payments shall be paid out on
regular payroll days subject to normal payroll deductions, commencing first with
the termination payments called for by subpart (ii), if any, followed by the
termination payments called for by subpart (i).
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<PAGE> 3
(b) All Other Terminations. In all other cases of
termination or expiration of this agreement or of Executive's employment
(including a termination of Executive by Company for Cause, Executive's
resignation of employment or Executive's permanent disability or death),
Executive's compensation and benefits shall terminate on the date the employment
ends and Executive shall not be entitled to any termination payments or damages.
10. Confidentiality. Executive agrees that information not generally
known to the public to which Executive has been or will be exposed as a result
of Executive's employment by Company is confidential information that belongs to
Company. This includes information developed by Executive, alone or with others,
or entrusted to Company by its customers or others. Company's confidential
information includes, without limitation, customer contacts and files,
information relating to Company's trade secrets, know-how, procedures,
purchasing, accounting, marketing, sales, customers and employees. Executive
will hold Company's confidential information in strict confidence and will not
disclose or use it except as authorized by Company and for Company's benefit.
Executive shall not obtain, keep, use for Company's benefit or disclose to
Company any confidential, proprietary or trade secret information that belongs
to others, unless the party who has the rights to the information expressly
consents in writing in advance. Executive warrants that he is not a party to any
agreements, such as noncompetition agreements, that would limit his ability to
perform his duties for Company.
11. Possession of Materials. Executive agrees that upon conclusion
of employment or request by Company, Executive shall turn over to Company all
documents, files, office supplies and any other material or work product in
Executive's possession or control that were created pursuant to or derived from
Executive's services for Company.
12. Noncompetition. Executive agrees that Company has many
substantial, legitimate business interests that can be protected only by
Executive agreeing not to compete with Company under certain circumstances.
These interests include, without limitation, Company's contacts and
relationships with its customers, Company's reputation and goodwill in the
industry, and Company's rights in its confidential information. In consideration
of the promises in this agreement, together with the stock option agreement,
Executive therefore agrees that for twenty four (24) months after Executive's
employment with Company ends, regardless of the reason it ends, Executive shall
not, directly or indirectly (a) acquire, service, advise or conduct any business
in the United States competitive with Company's business acquiring, developing,
marketing or selling timeshare interests or properties, or (b) be an employee,
employer, consultant, officer, director, partner, trustee or shareholder of more
than 5% of the outstanding common stock of any person or entity that acquires,
services, advises or conducts any such business.
13. Nonraiding of Employees. Executive recognizes that Company's
workforce is a vital part of its business. Therefore, Executive agrees that for
24 months after Executive's employment with Company ends, regardless of the
reason it ends, Executive will not solicit, directly or indirectly, any employee
to leave his or her employment with Company. For purposes of this agreement, the
phrase "shall not solicit, directly or indirectly," includes, without
limitation, that Executive (a) shall not identify any Company employees to any
third party as potential candidates for employment, such as by disclosing the
names, backgrounds and qualifications of any Company employees; (b) shall not
personally or through any other person approach, recruit or otherwise solicit
employees of Company to work for any other employer; and (c) shall not
participate in any preemployment interviews with any person who was employed by
Company while Executive was employed or retained by Company.
14. Dispute Resolution. Company and Executive agree to resolve all
disputes arising out of their employment relationship by the following alternate
dispute resolution process: (a) Company and
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<PAGE> 4
Executive agree to seek a fair and prompt negotiated resolution; but if this is
not successful, (b) all disputes shall be resolved by binding arbitration;
provided that during this process, (c) at the request of either party, made not
later than 75 days after the initial arbitration demand, the parties agree to
attempt to resolve any dispute by non-binding third-party intervention including
either mediation or evaluation or both (but without delaying the arbitration
hearing date). By entering into this contract, both parties give up their right
to have the dispute decided in court by a judge or jury. The provisions of the
Washington arbitration statute, Chapter 7.04 RCW, are incorporated herein to the
extent not inconsistent with the other terms of this agreement.
(a) Binding Arbitration. Any controversy or claim arising
out of or connected with Executive's employment at Company, including but not
limited to claims for compensation or severance and claims of wrongful
termination, age, sex, racial or other discrimination, or civil rights
violations shall be determined by arbitration commenced in accordance with RCW
7.04.060, provided that the total award by a single arbitrator (as opposed to a
majority of three arbitrators) shall not exceed $250,000. If either party
asserts in good faith that it is entitled to an award over $250,000, there shall
be three arbitrators. The location of the arbitration shall be Seattle,
Washington, or such other city to which the parties may agree. If Company and
Executive cannot agree on the arbitrator(s), then the arbitrator(s) shall be
selected by the administrator of the American Arbitration Association (AAA)
office nearest the city where the arbitration is to be conducted. Each
arbitrator shall be an attorney with at least 15 years' experience in commercial
law. All statutes of limitations which would otherwise be applicable shall apply
to any arbitration proceeding hereunder. Any issue about whether a controversy
or claim is covered by this agreement shall be determined by the arbitrator(s).
(b) Procedures. The arbitration shall be conducted in
accordance with this agreement using as appropriate the AAA Employment Dispute
Resolution Rules in effect on the date hereof. There shall be no discovery or
dispositive motion practice (such as motions for summary judgment or to dismiss
or the like) except the arbitrator(s) shall authorize such discovery as may be
shown to be necessary to ensure a fair hearing, and no such discovery shall
extend the time limits contained herein. The arbitrator(s) shall not be bound by
the rules of evidence or of civil procedure, but rather may consider such
writings and oral presentations as reasonable business people would use in the
conduct of their day-to-day affairs, and may require both parties to submit some
or all of their respective cases by written declaration or such other manner of
presentation as the arbitrator(s) may determine to be appropriate. The parties
agree to limit live testimony and cross-examination to the extent necessary to
ensure a fair hearing on material issues.
(c) Hearing -- Law -- Appeal Limited. The arbitrator(s)
shall take such steps as may be necessary to hold a private hearing within one
hundred twenty (120) days of the initial request for arbitration and to conclude
the hearing within two (2) days; and the arbitrator(s)'s written decision shall
be made not later than fourteen (14) calendar days after the hearing. The
parties agree that they have included these time limits in order to expedite the
proceeding, but they are not jurisdictional, and the arbitrator(s) may for good
cause allow reasonable extensions or delays, which shall not affect the validity
of the award. The written decision shall contain a brief statement of the
claim(s) determined and the award made on each claim. In making the decision and
award the arbitrator(s) shall apply applicable substantive law. Absent fraud,
collusion or willful misconduct by an arbitrator, the award shall be final and
judgment may be entered in any court having jurisdiction thereof. The
arbitrator(s) may award injunctive relief or any other remedy available from a
judge, including the joinder of parties or consolidation of this arbitration
with any other involving common issues of law or fact or which may promote
judicial economy, and may award attorneys' fees and costs to the prevailing
party, but shall not have the power to award punitive or exemplary damages. The
decision and award of the arbitrators need not be unanimous; rather, the
decision and award of two arbitrators shall be final.
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<PAGE> 5
(d) Injunctive Relief. In the case of a breach of any of
Executive's obligations to Company, Company may request a court of competent
jurisdiction to issue such temporary or interim relief (including temporary
restraining orders and preliminary injunctions) as may be appropriate, either
before arbitration is commenced or pending the outcome of arbitration. No such
request shall be a waiver of the right to submit any claim or controversy to
arbitration. Any issues of law or fact which arise in connection with such
request shall, at Company's election, be determined by arbitration in accordance
with subparagraphs (a) through (c) above.
15. Attorneys' Fees; Venue and Jurisdiction. In any lawsuit or
arbitration arising out of or relating to this agreement or Executive's
employment, including without limitation arising from any alleged tort or
statutory violation, the prevailing party shall recover reasonable costs and
attorneys' fees, including on appeal. Venue and jurisdiction of any lawsuit
involving this agreement or Executive's employment shall exist exclusively in
state and federal courts in King County, Washington, unless injunctive relief is
sought by Company and, in Company's judgment, that relief might not be effective
unless obtained in some other venue. The provisions of this section are subject
to and do not supersede the dispute resolution provisions described above.
16. Governing Law. This agreement shall be governed by the internal
laws of the state of Washington without giving effect to provisions thereof
related to choice of laws or conflict of laws.
17. Saving Provision. If any part of this agreement is held to be
unenforceable, it shall not affect any other part. If any part of this agreement
is held to be unenforceable as written, it shall be enforced to the maximum
extent allowed by applicable law. The confidentiality, possession of materials,
noncompetition and nonraiding provisions of this agreement shall survive after
Executive's employment by Company ends, regardless of the reason it ends, and
shall be enforceable regardless of any claim Executive may have against Company.
18. Waiver. No waiver of any provision of this agreement shall be
valid unless in writing, signed by the party against whom the waiver is sought
to be enforced. The waiver of any breach of this agreement or failure to enforce
any provision of this agreement shall not waive any later breach.
19. Assignment; Successors. Company may assign its rights and
delegate its duties under this agreement. Executive may not assign his or her
rights or delegate his or her duties under this agreement.
20. Binding Effect. This agreement is binding upon the parties and
their personal representatives, heirs, successors and assigns.
21. Counterparts. This agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
22. Complete Agreement. This agreement is the final and complete
expression of the parties' agreement relating to Executive's employment. This
agreement may be amended only by a writing signed by both parties; it may not be
amended orally or by course of dealing. The parties are not entering into this
agreement relying on anything not set out in this agreement. This agreement
shall control over any
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<PAGE> 6
contrary policies or procedures of Company, whether in effect now or adopted
later. Company's policies and procedures that do not conflict with this
agreement, whether in effect now or adopted later, shall apply or not apply to
Executive as determined by Company in its discretion.
DATED as of the date first written above.
EXECUTIVE COMPANY
William Peare Trendwest Resorts, Inc.
____________________________ By: __________________________
President
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<PAGE> 1
EXHIBIT 10.27
FORM OF
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This agreement is dated and made effective the May 1, 1997 (the
"Effective Date") between Jeffrey Sites, ("Executive") and Trendwest Resorts,
Inc., an Oregon corporation ("Company").
1. Employment. Company employs Executive and Executive accepts
employment on the terms and conditions in this agreement.
2. Duties. Executive is employed in the capacity of Executive Vice
President. In this capacity Executive shall have primary responsibility for
direction and guidance of Company's operations and implementation of the
Company's operating strategies. Executive shall report directly to, and take
direction from, Company's President and Board of Directors (the "Board") and to
no other Company employee. Executive shall perform the duties customarily
performed by an executive vice president.
3. Intensity of Effort; Other Business. Executive shall devote his
entire working time, attention and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not engage
in any business or employment activity that is not on Company's behalf (whether
or not pursued for gain or profit) except for (a) activities approved in writing
in advance by the Board and (b) passive investments that do not involve
Executive providing any advice or services to the businesses in which the
investments are made.
4. Term. The term of this agreement is of indefinite duration. As
stated in P. 8 below, this agreement and Executive's employment relationship may
be terminated at any time, with or without cause.
5. Compensation. Executive's compensation shall be as follows:
(a) Executive's salary shall be $3,125.00 payable
semi-monthly (equal to $75,000.00 on an annualized basis) in accordance with the
Company's standard procedures. Executive's salary shall be reviewed by the Board
and adjusted as determined by the Board in its sole discretion.
(b) Executive will be eligible to receive a monthly personal
performance bonus as determined by the Company's Board based upon performance
criteria consistent with those criteria utilized to establish Executive's bonus
in prior years. The personal performance bonus, if any, shall be paid thirty
(30) days following the end of each month. The total bonus payable for any
twelve month period shall not exceed two times Executive's base salary for such
twelve month period.
6. Benefit Plans. Executive shall be eligible to participate in the
Company's Employee Benefit Package offered generally to employees. The exact
terms and conditions of the Company's benefits, including eligibility, are
governed by the benefit plans and policies of the Company, not this agreement or
any summary provided to Executive.
7. Business Expenses. Executive is authorized to incur reasonable
travel and entertainment expenses to promote Company's business. Company shall
reimburse Executive for those expenses consistent with the Company's policies
and procedures. Executive shall provide to Company the itemized expense account
information that Company reasonably requests.
8. Termination. Executive's employment may be terminated as
follows, in which event Executive's compensation and benefits shall terminate
except as otherwise provided below:
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<PAGE> 2
(a) Without Cause or Good Reason. Either party may terminate
Executive's employment at any time by giving 30 calendar days' advance written
notice of termination to the other without the necessity of cause or good
reason.
(b) By Company for Cause. Company may terminate Executive's
employment for cause, without advance written notice of termination, by giving
written notice of such termination. The notice may take effect immediately or at
such later date as Company may designate. Any termination of Executive's
employment for cause must be approved by a majority of the Board other than
Executive. For purposes of this Agreement, "cause" means gross negligence,
wilful misconduct, fraud or material breach of the Company's written policies
and procedures or of this Agreement. Executive must be given reasonable advance
notice of the meeting at which his or her termination is to be considered, and a
reasonable opportunity to address the Board.
(c) Death. Executive's employment shall terminate
automatically upon Executive's death.
(d) Permanent Disability. Company may terminate Executive's
employment immediately if Executive becomes permanently disabled. For purposes
of this agreement Executive will be considered "permanently disabled" if, for a
continuous period of 24 weeks or more, Executive has been unable to perform the
essential functions of the job because of one or more mental or physical
illnesses and/or disabilities, provided that Company may grant Executive unpaid
leave if and to the extent that, in Company's judgment, doing so is required by
law.
9. Termination Payments.
(a) Termination Without Cause.
(i) If Company terminates Executive's employment
when neither cause nor permanent disability exists, Company shall pay Executive
for a period of twelve (12) months following such termination, as liquidated
damages and in lieu of all other remedies to which Executive might be entitled
arising out of the termination, termination payments equal to Executive's
monthly salary at the date of termination (these payments exclude bonuses and
any other incentive compensation) plus the amount of bonuses received by
Executive in the twelve month period preceding termination, pro rated on a
monthly basis over the twelve month payment period. Such liquidated damages
shall be paid only if Executive executes a full and final general release of all
claims against Company (including Company's officers, directors, agents,
employees and assigns) arising out of Executive's employment relationship with
Company.
(ii) In addition, if Company terminates Executive's
employment when neither cause nor permanent disability exists, but Company gives
Executive less than the 30 days' advance written notice called for above,
Company shall pay Executive, as liquidated damages and in lieu of all other
remedies to which Executive might be entitled arising out of Company's failure
to give 30 days' advance written notice, termination payments equal to the
additional salary Executive would have received if Company had given Executive
30 days' advance written notice of termination.
(iii) Termination payments shall be paid out on
regular payroll days subject to normal payroll deductions, commencing first with
the termination payments called for by subpart (ii), if any, followed by the
termination payments called for by subpart (i).
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<PAGE> 3
(b) All Other Terminations. In all other cases of
termination or expiration of this agreement or of Executive's employment
(including a termination of Executive by Company for Cause, Executive's
resignation of employment or Executive's permanent disability or death),
Executive's compensation and benefits shall terminate on the date the employment
ends and Executive shall not be entitled to any termination payments or damages.
10. Confidentiality. Executive agrees that information not generally
known to the public to which Executive has been or will be exposed as a result
of Executive's employment by Company is confidential information that belongs to
Company. This includes information developed by Executive, alone or with others,
or entrusted to Company by its customers or others. Company's confidential
information includes, without limitation, customer contacts and files,
information relating to Company's trade secrets, know-how, procedures,
purchasing, accounting, marketing, sales, customers and employees. Executive
will hold Company's confidential information in strict confidence and will not
disclose or use it except as authorized by Company and for Company's benefit.
Executive shall not obtain, keep, use for Company's benefit or disclose to
Company any confidential, proprietary or trade secret information that belongs
to others, unless the party who has the rights to the information expressly
consents in writing in advance. Executive warrants that he is not a party to any
agreements, such as noncompetition agreements, that would limit his ability to
perform his duties for Company.
11. Possession of Materials. Executive agrees that upon conclusion
of employment or request by Company, Executive shall turn over to Company all
documents, files, office supplies and any other material or work product in
Executive's possession or control that were created pursuant to or derived from
Executive's services for Company.
12. Noncompetition. Executive agrees that Company has many
substantial, legitimate business interests that can be protected only by
Executive agreeing not to compete with Company under certain circumstances.
These interests include, without limitation, Company's contacts and
relationships with its customers, Company's reputation and goodwill in the
industry, and Company's rights in its confidential information. In consideration
of the promises in this agreement, together with the stock option agreement,
Executive therefore agrees that for twenty four (24) months after Executive's
employment with Company ends, regardless of the reason it ends, Executive shall
not, directly or indirectly (a) acquire, service, advise or conduct any business
in the United States competitive with Company's business acquiring, developing,
marketing or selling timeshare interests or properties, or (b) be an employee,
employer, consultant, officer, director, partner, trustee or shareholder of more
than 5% of the outstanding common stock of any person or entity that acquires,
services, advises or conducts any such business.
13. Nonraiding of Employees. Executive recognizes that Company's
workforce is a vital part of its business. Therefore, Executive agrees that for
24 months after Executive's employment with Company ends, regardless of the
reason it ends, Executive will not solicit, directly or indirectly, any employee
to leave his or her employment with Company. For purposes of this agreement, the
phrase "shall not solicit, directly or indirectly," includes, without
limitation, that Executive (a) shall not identify any Company employees to any
third party as potential candidates for employment, such as by disclosing the
names, backgrounds and qualifications of any Company employees; (b) shall not
personally or through any other person approach, recruit or otherwise solicit
employees of Company to work for any other employer; and (c) shall not
participate in any preemployment interviews with any person who was employed by
Company while Executive was employed or retained by Company.
14. Dispute Resolution. Company and Executive agree to resolve all
disputes arising out of their employment relationship by the following alternate
dispute resolution process: (a) Company and
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<PAGE> 4
Executive agree to seek a fair and prompt negotiated resolution; but if this is
not successful, (b) all disputes shall be resolved by binding arbitration;
provided that during this process, (c) at the request of either party, made not
later than 75 days after the initial arbitration demand, the parties agree to
attempt to resolve any dispute by non-binding third-party intervention including
either mediation or evaluation or both (but without delaying the arbitration
hearing date). By entering into this contract, both parties give up their right
to have the dispute decided in court by a judge or jury. The provisions of the
Washington arbitration statute, Chapter 7.04 RCW, are incorporated herein to the
extent not inconsistent with the other terms of this agreement.
(a) Binding Arbitration. Any controversy or claim arising
out of or connected with Executive's employment at Company, including but not
limited to claims for compensation or severance and claims of wrongful
termination, age, sex, racial or other discrimination, or civil rights
violations shall be determined by arbitration commenced in accordance with RCW
7.04.060, provided that the total award by a single arbitrator (as opposed to a
majority of three arbitrators) shall not exceed $250,000. If either party
asserts in good faith that it is entitled to an award over $250,000, there shall
be three arbitrators. The location of the arbitration shall be Seattle,
Washington, or such other city to which the parties may agree. If Company and
Executive cannot agree on the arbitrator(s), then the arbitrator(s) shall be
selected by the administrator of the American Arbitration Association (AAA)
office nearest the city where the arbitration is to be conducted. Each
arbitrator shall be an attorney with at least 15 years' experience in commercial
law. All statutes of limitations which would otherwise be applicable shall apply
to any arbitration proceeding hereunder. Any issue about whether a controversy
or claim is covered by this agreement shall be determined by the arbitrator(s).
(b) Procedures. The arbitration shall be conducted in
accordance with this agreement using as appropriate the AAA Employment Dispute
Resolution Rules in effect on the date hereof. There shall be no discovery or
dispositive motion practice (such as motions for summary judgment or to dismiss
or the like) except the arbitrator(s) shall authorize such discovery as may be
shown to be necessary to ensure a fair hearing, and no such discovery shall
extend the time limits contained herein. The arbitrator(s) shall not be bound by
the rules of evidence or of civil procedure, but rather may consider such
writings and oral presentations as reasonable business people would use in the
conduct of their day-to-day affairs, and may require both parties to submit some
or all of their respective cases by written declaration or such other manner of
presentation as the arbitrator(s) may determine to be appropriate. The parties
agree to limit live testimony and cross-examination to the extent necessary to
ensure a fair hearing on material issues.
(c) Hearing -- Law -- Appeal Limited. The arbitrator(s)
shall take such steps as may be necessary to hold a private hearing within one
hundred twenty (120) days of the initial request for arbitration and to conclude
the hearing within two (2) days; and the arbitrator(s)'s written decision shall
be made not later than fourteen (14) calendar days after the hearing. The
parties agree that they have included these time limits in order to expedite the
proceeding, but they are not jurisdictional, and the arbitrator(s) may for good
cause allow reasonable extensions or delays, which shall not affect the validity
of the award. The written decision shall contain a brief statement of the
claim(s) determined and the award made on each claim. In making the decision and
award the arbitrator(s) shall apply applicable substantive law. Absent fraud,
collusion or willful misconduct by an arbitrator, the award shall be final and
judgment may be entered in any court having jurisdiction thereof. The
arbitrator(s) may award injunctive relief or any other remedy available from a
judge, including the joinder of parties or consolidation of this arbitration
with any other involving common issues of law or fact or which may promote
judicial economy, and may award attorneys' fees and costs to the prevailing
party, but shall not have the power to award punitive or exemplary damages. The
decision and award of the arbitrators need not be unanimous; rather, the
decision and award of two arbitrators shall be final.
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(d) Injunctive Relief. In the case of a breach of any of
Executive's obligations to Company, Company may request a court of competent
jurisdiction to issue such temporary or interim relief (including temporary
restraining orders and preliminary injunctions) as may be appropriate, either
before arbitration is commenced or pending the outcome of arbitration. No such
request shall be a waiver of the right to submit any claim or controversy to
arbitration. Any issues of law or fact which arise in connection with such
request shall, at Company's election, be determined by arbitration in accordance
with subparagraphs (a) through (c) above.
15. Attorneys' Fees; Venue and Jurisdiction. In any lawsuit or
arbitration arising out of or relating to this agreement or Executive's
employment, including without limitation arising from any alleged tort or
statutory violation, the prevailing party shall recover reasonable costs and
attorneys' fees, including on appeal. Venue and jurisdiction of any lawsuit
involving this agreement or Executive's employment shall exist exclusively in
state and federal courts in King County, Washington, unless injunctive relief is
sought by Company and, in Company's judgment, that relief might not be effective
unless obtained in some other venue. The provisions of this section are subject
to and do not supersede the dispute resolution provisions described above.
16. Governing Law. This agreement shall be governed by the internal
laws of the state of Washington without giving effect to provisions thereof
related to choice of laws or conflict of laws.
17. Saving Provision. If any part of this agreement is held to be
unenforceable, it shall not affect any other part. If any part of this agreement
is held to be unenforceable as written, it shall be enforced to the maximum
extent allowed by applicable law. The confidentiality, possession of materials,
noncompetition and nonraiding provisions of this agreement shall survive after
Executive's employment by Company ends, regardless of the reason it ends, and
shall be enforceable regardless of any claim Executive may have against Company.
18. Waiver. No waiver of any provision of this agreement shall be
valid unless in writing, signed by the party against whom the waiver is sought
to be enforced. The waiver of any breach of this agreement or failure to enforce
any provision of this agreement shall not waive any later breach.
19. Assignment; Successors. Company may assign its rights and
delegate its duties under this agreement. Executive may not assign his or her
rights or delegate his or her duties under this agreement.
20. Binding Effect. This agreement is binding upon the parties and
their personal representatives, heirs, successors and assigns.
21. Counterparts. This agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
22. Complete Agreement. This agreement is the final and complete
expression of the parties' agreement relating to Executive's employment. This
agreement may be amended only by a writing signed by both parties; it may not be
amended orally or by course of dealing. The parties are not entering into this
agreement relying on anything not set out in this agreement. This agreement
shall control over any
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contrary policies or procedures of Company, whether in effect now or adopted
later. Company's policies and procedures that do not conflict with this
agreement, whether in effect now or adopted later, shall apply or not apply to
Executive as determined by Company in its discretion.
DATED as of the date first written above.
EXECUTIVE COMPANY
Jeffrey Sites Trendwest Resorts, Inc.
____________________________ By: __________________________
President
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EXHIBIT 10.28
TRENDWEST RESORTS, INC.
1997 Employee Stock Option Plan
SECTION 1 Purpose. The purpose of the Trendwest Resorts, Inc.
1997 Employee Stock Option Plan (the "Plan") is to enable Trendwest Resorts,
Inc. (the "Company") to attract and retain the services of people with training,
experience and ability and to provide additional incentive to such persons by
granting them an opportunity to participate in the ownership of the Company.
SECTION 2 Stock Subject to Plan. The stock subject to this Plan
shall be the Company's common stock, no par value per share (the "Common
Stock"), presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 10, the aggregate amount
of Common Stock reserved for issuance or delivery upon exercise of all options
granted under this Plan shall not exceed 5% of the shares of Common Stock
outstanding from time to time. If any option granted under this Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall thereupon again be available for
purposes of this Plan, including for replacement options which may be granted in
exchange for such expired, surrendered, exchanged, canceled or terminated
options.
SECTION 3 Administration. The Plan shall be administered by the
Board of Directors of the Company, in accordance with the following terms and
conditions:
3.1 General Authority. Subject to the express provisions of
the Plan, the Board of Directors shall have the authority, in its discretion, to
determine all matters relating to options to be granted under the Plan,
including the selection of individuals to be granted options, the number of
shares to be subject to each option, the exercise price, the term, whether such
options shall be immediately exercisable or shall become exercisable in
increments over time, and all other terms and conditions thereof. Grants under
this Plan to persons eligible need not be identical in any respect, even when
made simultaneously. The Board of Directors may from time to time adopt rules
and regulations relating to the administration of the Plan. The interpretation
and construction by the Board of Directors of any terms or provisions of this
Plan or any option issued hereunder, or of any rule or regulation promulgated in
connection herewith, shall be conclusive and binding on all interested parties.
The Board of Directors in its sole discretion, may grant incentive stock options
("Incentive Stock Options") as such term is defined in Section 422 of the
Internal Revenue Code of 1986, as amended, (the "Code") and/or nonqualified
stock options ("Nonqualified Stock Options"). A Nonqualified Stock Option is a
stock option which is not an Incentive Stock Option. The type of option granted,
whether an Incentive Stock Option or a Nonqualified Stock Option shall be
clearly identified by the Board of Directors when granted. The term option when
used in this Plan should refer to Incentive Stock Options and Nonqualified Stock
Options, collectively.
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3.2 Delegation to a Committee. Notwithstanding the
foregoing, the Board of Directors, if it so determines, may delegate any or all
authority for the administration of the Plan to a committee of the Board of
Directors (the "Committee") comprised exclusively of two or more Non-Employee
Directors as that term is defined in Rule 16b-3(b)(3) promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and thereafter
references to the Board of Directors in this Plan shall be deemed to be
references to the Committee to the extent provided in the resolution
establishing the committee.
3.3 Replacement of Options. The Board of Directors, in its
absolute discretion, may grant options subject to the condition that options
previously granted at a higher or lower exercise price under the Plan be
cancelled or exchanged in connection with such grant. The number of shares
covered by the new options, the exercise price, the term and the other terms and
conditions of the new option, shall be determined in accordance with the Plan
and may be different from the provisions of the cancelled or exchanged options.
Alternatively, the Board of Directors may, with the agreement of the Optionee,
amend previously granted options to establish the exercise price at the then
current fair market value of the Company's Common Stock.
3.4 Loans to Optionees. The Board of Directors, in its
absolute discretion, may provide that the Company loan to Optionees sufficient
funds to exercise any option granted under the Plan and/or to pay withholding
tax due upon exercise of such option. The Board of Directors shall have the
authority to make such determinations at the time of grant or exercise and shall
establish repayment terms thereof, including installments, maturity and interest
rate.
SECTION 4 Eligibility. Options may be granted only to persons who,
at the time the option is granted, are directors, employees, consultants or
independent contractors of the Company or any of its present or future parent or
subsidiary corporations (as those terms are used in Section 422(a)(2) and (d)(1)
and Section 424(e) and (f) of the Code, hereafter a "Parent" or "Subsidiary").
Any individual to whom an option is granted under this Plan shall be referred to
hereinafter as "Optionee." Any Optionee may receive one or more grants of
options as the Board of Directors as shall from time to time determine, and such
determinations may be different as to different Optionees and may vary as to
different grants. Optionees who are not employees will only be eligible to
receive Nonqualified Stock Options.
SECTION 5 Terms and Conditions of Options. Options granted under
this Plan shall be evidenced by written agreements which shall contain such
terms, conditions, limitations and restrictions as the Board of Directors shall
deem advisable and which are not inconsistent with this Plan. Each option
granted hereunder shall clearly indicate whether it is an Incentive Stock Option
or a Nonqualified Stock Option. Notwithstanding the foregoing, all such options
shall include or incorporate by reference the following terms and conditions:
5.1 Number of Shares; Exercise Price. The maximum number of
shares that may be purchased pursuant to the exercise of each option shall be as
established by the Board of Directors, provided, however, that the maximum
number of shares with respect to
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which an option or options may be granted to any Optionee in any one fiscal year
of the Company shall not exceed 50,000 shares (the "Maximum Annual Optionee
Grant"). The exercise price of all options granted hereunder shall be as
established by the Board of Directors, but in no event shall be less than the
fair market value per share of the Common Stock at the time the option is
granted, as determined in good faith by the Board of Directors.
5.2 Duration of Options. Subject to the restrictions
contained in Section 9, the term of each option shall be established by the
Board of Directors and, if not so established, shall be ten years from the date
it is granted, but in no event shall the term of any Incentive Stock Option
exceed ten years.
5.3 Exercisability. Each option shall prescribe the
installments, if any, in which an option granted under the Plan shall become
exercisable and the time periods after which such installments shall become
exercisable. The Board of Directors, in its absolute discretion, may waive or
accelerate any installment requirement contained in outstanding options. In no
case may an option be exercised as to less than 100 shares at any one time (or
the remaining shares covered by the option if less than 100) during the term of
the option. Only whole shares shall be issued pursuant to the exercise of any
option.
5.4 Incentive Stock Option. Any option which is issued as an
Incentive Stock Option under this Plan, shall, notwithstanding any other
provisions of this Plan or the option terms to the contrary, contain all of the
terms, conditions, restrictions, rights and limitations required to be an
Incentive Stock Option, and any provision to the contrary shall be disregarded.
The Board of Directors may require an Optionee to give the Company prompt notice
of any disposition of shares of Common Stock acquired by the exercise of an
Incentive Stock Option prior to the expiration of two years after the date of
grant of the option and one year from the date of exercise.
SECTION 6 Nontransferability of Options. Options granted under
this Plan and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or the applicable laws of descent and
distribution, or by gift to a revocable trust of which the Optionee is a
trustee, and shall not be subject to execution, attachment or similar process.
Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose
of any option under this Plan or any right or privilege conferred hereby,
contrary to the provisions hereof, or upon the sale or levy or any attachment or
similar process, such option thereupon shall terminate and become null and void.
During an Optionee's lifetime, any options granted under this Plan are personal
to him or her and are exercisable solely by such Optionee. Notwithstanding the
foregoing, the Company may permit an Optionee to, during the Optionee's
lifetime, designate a person who may exercise the option after the Optionee's
death by giving written notice of such designation to the Company (such
designation may be changed from time to time by the Optionee by giving written
notice to the Company revoking any earlier designation and making a new
designation).
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SECTION 7 Certain Limitations Regarding Incentive Stock Options.
The grant of Incentive Stock Options shall be subject to the following special
limitations:
7.1 Limitation on Amount of Grants. As to all Incentive
Stock Options granted under the terms of this Plan, to the extent that the
aggregate fair market value of the stock (determined at the time the Incentive
Stock Option is granted) with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
this Plan and all other incentive stock option plans of the Company, a related
corporation or a predecessor corporation) exceeds $100,000, such options shall
be treated as Nonqualified Stock Options. The previous sentence shall not apply
if the Internal Revenue Service issues a public rule, issues a private ruling to
the Company, any Optionee or any legatee, personal representative or distributee
of an Optionee or issues regulations changing or eliminating such annual limit.
No such limitation shall apply to Nonqualified Stock Options.
7.2 Grants to 10% Shareholders. Incentive Stock Options may
be granted a person owning more than 10% of the total combined voting power of
all classes of stock of the Company and any Parent or Subsidiary only if (a) the
exercise price is at least 110% of the fair market value of the stock at the
time of grant, and (b) the option is not exercisable after the expiration of
five years from the date of grant.
SECTION 8 Exercise of Options. Options shall be exercised in
accordance with the following terms and conditions:
8.1 Procedure. Options shall be exercised by delivery to the
Company of written notice of the number of shares with respect to which the
option is exercised.
8.2 Payment. Payment of the option price shall be made in
full within 5 business days of the notice of exercise of the option and shall be
in cash or bank-certified or cashier's checks, or personal check if permitted by
the Board of Directors. To the extent permitted by the terms of the option grant
and by applicable laws and regulations (including, but not limited to, federal
tax and securities laws and regulations), an option may be exercised by delivery
of shares of Common Stock of the Company which have been held by the Optionee
for a period of at least six months having a fair market value equal to the
exercise price, such fair market value to be determined in good faith by the
Board of Directors. Such payment in stock may occur in the context of a single
exercise of an option or successive and simultaneous exercises, sometimes
referred to as "pyramiding," which provides that, rather than physically
exchanging certificates for a series of exercises, bookkeeping entries will be
made pursuant to which the Optionee is permitted to retain his existing stock
certificate and a new stock certificate is issued for the net shares.
If the Company's Common Stock is registered under the 1934 Act, and if
permitted by the Board of Directors, and to the extent permitted by applicable
laws and regulations, (including, but not limited to, federal tax and securities
laws and regulations) an option also may be exercised by delivery of a properly
executed exercise notice together with irrevocable
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instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
8.3 Federal Withholding Tax Requirements. Upon exercise of
an option, the Optionee shall, upon notification of the amount due and prior to
or concurrently with the delivery of the certificates representing the shares,
pay to the Company amounts necessary to satisfy applicable federal, state and
local withholding tax requirements or shall otherwise make arrangements
satisfactory to the Company for such requirements. In order to implement this
provision, the Company or any related corporation shall have the right to retain
and withhold from any payment of cash or Common Stock under this Plan the amount
of taxes required by any government to be withheld or otherwise deducted and
paid with respect to such payment. At its discretion, the Company may require an
Optionee receiving shares of Common Stock to reimburse the Company for any such
taxes required to be withheld by the Company and withhold any distribution in
whole or in part until the Company is so reimbursed. In lieu thereof, the
Company shall have the right to withhold from any other cash amounts due or to
become due from the Company to the Optionee an amount equal to such taxes. The
Company may also retain and withhold or the Optionee may elect, subject to
approval by the Company at its sole discretion, to have the Company retain and
withhold a number of shares having a market value not less than the amount of
such taxes required to be withheld by the Company to reimburse the Company for
any such taxes and cancel (in whole or in part) any such shares so withheld.
SECTION 9 Termination of Employment, Disability and Death
9.1 General. If the employment of the Optionee by the
Company, a Parent or a Subsidiary shall terminate by retirement or for any
reason other than death, disability or cause as hereinafter provided, any Option
granted hereunder may be exercised by the Optionee at any time prior to the
expiration of three months after the date of such termination of employment
(unless by its terms the option sooner terminates or expires).
9.2 Disability. If the employment of the Optionee by the
Company, a Parent or a Subsidiary is terminated because of the Optionee's
disability (as herein defined), the option may be exercised by the Optionee at
any time prior to the expiration of one year after the date of such termination
(unless by its terms the option sooner terminates or expires), but only if, and
to the extent the Optionee was entitled to exercise the option at the date of
such termination. For purposes of this section, an Optionee will be considered
to be disabled if the Optionee is unable to engage in any substantial gainful
activity by reason of any medically determinable mental or physical impairment
which can be expected to result in death or which has lasted or can be expected
to last a continuous period of not less than 12 months.
9.3 Death. In the event of the death of an Optionee while in
the employ of the Company, a Parent or a Subsidiary, the option shall be
exercisable on or prior to the expiration of one year after the date of such
death (unless by its terms the option sooner terminates and expires), but only
if and to the extent the Optionee was entitled to exercise the option at date of
such death and only by the Optionee's personal representative if then subject
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to administration as part of the Optionee's estate, or by the person or persons
to whom such Optionee's rights under the option shall have passed by the
Optionee's will or by the applicable laws of descent and distribution.
9.4 Termination for Cause. If the Optionee's employment with
the Company, a Parent or a Subsidiary is terminated for cause, any option
granted hereunder shall automatically terminate as of the first advice or
discussion thereof, and such Optionee shall thereupon have no right to purchase
any shares pursuant to such option. "Termination for Cause" shall mean dismissal
for dishonesty, conviction or confession of a crime punishable by law (except
minor violations), violation of the Company's drug testing policiese, fraud,
misconduct or disclosure of confidential information.
9.5 Waiver or Extension of Time Periods. The Board of
Directors shall have the authority, prior to or within the times specified in
this Section 9 for the exercise of any such option, to extend such time period
or waive in its entirety any such time period to the extent that such time
period expires prior to the expiration of the term of such option. In addition,
the Board of Directors may grant, pursuant to a specific resolution adopted at
the time of grant, modify or eliminate the time periods specified in this
Section 9. However, no Incentive Stock Option may be exercised after the
expiration of ten (10) years from the date such option is granted. If an
Optionee holding an Incentive Stock Option exercises such option, by permission,
after the expiration of the various time periods specified in this Section 9,
and by virtue of such exercise the option is no longer treated as an Incentive
Stock Option under the Code, such Option shall automatically be converted into a
Nonqualified Stock Option.
9.6 Termination of Options. To the extent that the option of
any deceased Optionee or of any Optionee whose employment is terminated shall
not have been exercised within the limited periods prescribed in this Section 9,
including any extension period, all further rights to purchase shares pursuant
to such option shall cease and terminate at the expiration of such period. No
Incentive Stock Option may be exercised after the expiration of ten (10) years
from the date such option is granted, notwithstanding any provision to the
contrary.
9.7 Non-employee Optionees. Options granted to Optionees who
are not employees of the Company, a Parent or a Subsidiary at the time of grant
shall not be subject to the provisions of this Section 9, except as specifically
provided in the option.
SECTION 10 Acceleration upon Change in Control. Notwithstanding any
other provision of the Plan, if the Board determines that a Change in Control
(as defined in the next paragraph) has occurred or is about to occur, the
options theretofore granted hereunder to a person who at the time of the Change
in Control is an employee, consultants or independent contractor of the Company
or any of its subsidiaries shall, subject to the approval of the Board and the
satisfaction of any applicable requirements or limitations of Rule 16b-3 under
the Exchange Act, become exercisable to the full extent theretofore not
exercised, but in no event after the option period specified in each individual
option agreement.
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For purposes of this Section 10 only, a Change in
Control of the Company shall be deemed to have occurred if (A) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities, or (B)
during any period of two consecutive years individuals who at the beginning of
such period constitute the Board and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clauses (A) or (C) of this paragraph) whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (C) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.
SECTION 11 Option Adjustments
11.1 Adjustments Upon Changes in Capitalization. The
aggregate number and class of shares on which options may be granted under this
Plan, the Maximum Annual Optionee Grant set forth in Section 5.1, the number and
class of shares covered by each outstanding option and the exercise price per
share thereof (but not the total price), and all such options, shall each be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up, spin-off or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
11.2 Effect of Certain Transactions. Except as provided in
subsection 11.2, upon a merger, consolidation, acquisition of property or stock,
separation, reorganization (other than a merger or reorganization of the Company
in which the holders of Common Stock immediately prior to the merger or
reorganization have the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger or reorganization) or
liquidation of the Company, as a result of which the shareholders of the Company
receive cash, stock or other property in exchange for their shares of Common
Stock, any option granted hereunder shall terminate, but, provided that the
Optionee shall have the right immediately prior to any such merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation to exercise his or her option in whole or in part whether or not the
vesting requirements set forth in the option agreement have been satisfied.
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11.3 Conversion of Options on Stock for Stock Exchange. If
the shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger, consolidation, acquisition of property or stock,
separation or reorganization (other than a merger or reorganization of the
Company in which the holders of Common Stock immediately prior to the merger or
reorganization have the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger or reorganization), all
options granted hereunder shall terminate in accordance with the provision of
subsection 11.2 unless the Board of Directors and the corporation issuing the
Exchange Stock, in their sole and arbitrary discretion and subject to any
required action by the shareholders of the Company and such corporation, agree
that all such options granted hereunder are converted into options to purchase
shares of Exchange Stock. The amount and price of the such options shall be
determined by adjusting the amount and price of the options granted hereunder in
the same proportion as used for determining the number of shares of Exchange
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. The vesting
schedule set forth in the option agreement shall continue to apply to the
options granted for the Exchange Stock.
11.4 Fractional Shares. In the event of any adjustment in the
number of shares covered by any option, any fractional shares resulting from
such adjustment shall be disregarded and each such option shall cover only the
number of full shares resulting from such adjustment.
11.5 Determination of Board of Directors to be Final. All
such adjustments shall be made by the Board of Directors and its determination
as to what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive.
SECTION 12 Securities Regulations
12.1 Compliance. Shares shall not be issued with respect to
an option granted under this Plan unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the 1934 Act, the rules
and regulations promulgated thereunder, and the requirements of the Nasdaq Stock
Market or any stock exchange upon which the shares may then be listed, and shall
further be subject to the approval of counsel for the Company with respect to
such compliance. Inability of the Company to obtain from any regulatory body
having jurisdiction, the authority deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder, shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.
12.2 Representations by Optionee. As a condition to the
exercise of an option, the Company may require the Optionee to represent and
warrant at the time of any such exercise that the shares are being purchased
only for investment and without any present intention to sell or distribute such
shares, if, in the opinion of counsel for the Company, such
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representation is required by any relevant provision of the laws referred to in
Section 12.1. At the option of the Company, a stop transfer order against any
shares of stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred unless an opinion of counsel was provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on the stock certificate in order
to assure exemption from registration. The Board of Directors may also require
such other action or agreement by the Optionees as may from time to time be
necessary to comply with the federal and state securities laws. This provision
shall not obligate the Company to undertake registration of options or stock
hereunder.
SECTION 13 Employment Rights. Nothing in this Plan or any option or
right granted pursuant hereto shall confer upon any Optionee any right to be
continued in the employment or service of the Company, a Parent or any
Subsidiary of the Company or to remain a director, or to interfere in any way
with the right of the Company, a Parent or any Subsidiary, in its sole
discretion, to terminate such Optionee's employment or service at any time or to
remove the Optionee as a director at any time.
SECTION 14 Amendment and Termination
14.1 Action by Shareholders. The Plan may be terminated,
modified or amended by the shareholders of the Company.
14.2 Action by Board of Directors. The Board of Directors may
at any time suspend, amend or terminate this Plan. No termination, suspension or
amendment of the Plan may, without the consent of each Optionee to whom any
option shall theretofore have been granted, adversely affect the rights of such
Optionees under such options.
14.3 Automatic Termination. Unless the Plan shall theretofore
have been terminated as herein provided, this Plan shall terminate ten (10)
years from the earlier of: (a) the date on which the Plan is adopted; or (b) the
date on which this Plan is approved by the shareholders of the Company. No
option may be granted after such termination, or during any suspension of this
Plan. The amendment or termination of this Plan shall not, without the consent
of the Optionee, alter or impair any rights or obligations under any option
theretofore granted under this Plan.
SECTION 15 Effective Date of the Plan. This Plan shall become
effective on the date of its adoption by the Board of Directors of the Company
and options may be granted immediately thereafter but no option may be exercised
under the Plan unless and until the Plan shall have been approved by the
shareholders within 12 months after the date of adoption of the Plan by the
Board of Directors. If such approval is not obtained within such period the Plan
and any options granted thereunder shall be null and void.
-9-
<PAGE> 1
EXHIBIT 10.29
STOCK PURCHASE AGREEMENT
BETWEEN
TRENDWEST RESORTS, INC.
AND
JELD-WEN, INC.
DATED
JUNE 26, 1997
(TRENDWEST FUNDING I, INC.)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
1. Definitions................................................................................... 1
2. Purchase and Sale; Closing.................................................................... 3
2.1 Sale of the Company Shares........................................................... 3
2.2 Purchase Price....................................................................... 3
2.3 Closing.............................................................................. 3
2.4 Closing Deliveries................................................................... 3
3. Representations and Warranties of Seller...................................................... 4
3.1 Corporate Organization and Standing; Power and Authority............................. 4
3.2 Capitalization....................................................................... 4
3.3 Organization; Authorization; Enforceability.......................................... 4
3.4 Investment........................................................................... 5
3.5 Absence of Certain Conflicts......................................................... 5
3.6 Liabilities.......................................................................... 5
3.7 Absence of Material Changes.......................................................... 5
3.8 Absence of Certain Developments...................................................... 5
3.9 Proprietary Rights................................................................... 6
3.10 Taxes................................................................................ 6
3.11 Contracts and Commitments; No Default................................................ 6
3.12 Litigation; Judgments................................................................ 7
3.13 Compliance with Laws................................................................. 7
3.14 Brokers and Finders.................................................................. 7
4. Representations and Warranties of Purchaser................................................... 7
4.1 Corporate Organization and Standing; Power and Authority............................. 7
4.2 Enforceability....................................................................... 7
4.3 Consents............................................................................. 7
4.4 Absence of Certain Conflicts......................................................... 8
4.5 Litigation........................................................................... 8
4.6 Brokers and Finders.................................................................. 8
5. Conditions to Closing......................................................................... 8
5.1 Conditions to Obligations of Purchaser............................................... 8
5.2 Conditions to Obligations of Seller.................................................. 8
6. Survival of Representations and Warranties; Indemnification................................... 9
6.1 Survival of Representations and Warranties........................................... 9
6.2 Indemnification by Seller............................................................ 9
6.3 Indemnification by Purchaser......................................................... 9
6.4 Limitation on Claims................................................................. 9
6.5 Insured Losses....................................................................... 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
7. Miscellaneous................................................................................. 10
7.1 Amendments and Waivers............................................................... 10
7.2 Successors and Assigns............................................................... 10
7.3 Termination.......................................................................... 10
7.4 Severability......................................................................... 10
7.5 Headings............................................................................. 11
7.6 Notices.............................................................................. 11
7.7 Governing Law; Jurisdiction.......................................................... 11
7.8 Parties in Interest.................................................................. 11
7.9 Expenses; Attorneys' Fees............................................................ 11
7.10 Entire Agreement..................................................................... 12
7.11 Counterparts......................................................................... 12
</TABLE>
DISCLOSURE SCHEDULES
Schedule 3.11 Required Consents
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
(TRENDWEST FUNDING I, INC.)
This Stock Purchase Agreement (the "Agreement"), dated June ____, 1997,
is between TRENDWEST RESORTS, INC., an Oregon corporation ("Purchaser") and
JELD-WEN, INC., an Oregon corporation.
Seller is the owner of all of issued and outstanding shares (the
"Company Shares") of the common stock of Trendwest Funding I, Inc., an Oregon
corporation (the "Company"), which constitutes all of the issued and outstanding
capital stock of the Company. Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, all of the Company Shares on the terms and
subject to the conditions set forth in this Agreement.
Therefore, the parties agree as follows:
1. DEFINITIONS.
(a) "Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common control
with, the Person specified.
(b) "Assets" means all of the businesses, franchises, licenses, rights,
privileges, assets and property of the Company, of any nature and kind, whether
real, personal, mixed tangible or intangible, wherever situated, including the
goodwill of the business as a going concern.
(c) "Business" means the business carried out by the Company.
(d) "Claim" has the meaning given such term in Section 6.4.
(e) "Closing" has the meaning given such term in Section 2.3.
(f) "Closing Date" has the meaning given such term in Section 2.3.
(g) "Company Shares" has the meaning given such term in the second
opening paragraph of this Agreement.
(h) "Financial Statements" has the meaning given such term in Section
3.5.
(i) "Governmental Authority" means any nation or government, foreign or
domestic, any state or other political subdivision thereof, and any agency or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of government, including, without limitation, all
taxing authorities.
(j) "Liability" means each of, and "Liabilities" means any and all, the
debts, liabilities, claims, damages, obligations, payments, costs and expenses,
matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, known or unknown,
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<PAGE> 5
including, without limitation, any of the foregoing arising under, out of or in
connection with any action by or order or consent decree of any governmental
entity or award of any arbitrator of any kind, or any law, rule, regulation,
contract, commitment or undertaking.
(k) "Lien" means any interest, consensual or otherwise, in real,
personal or mixed property (a) securing an obligation owed to, or a claim by, or
(b) evidencing an interest of, a Person other than the owner of the property,
including, without limitation, any mortgage, lien, pledge, security interest,
conditional sale agreement, or any assessment, charge or other type of notice
which is levied or given by any Governmental Authority and for which a lien
could be filed.
(l) "Loss" means any demand, penalty, assessment, interest, obligation,
Liability, claim, loss, cost, expense, tax, lawsuit, arbitration or other legal
action, judgment or damage, liquidated or unliquidated, accrued, contingent or
otherwise, incurred or suffered, any other damage or impairment in the value of
the business of the Person incurring or suffering such Loss or any of its
properties or assets, including, without limitation, any interest, penalties,
reasonable accounting and legal fees and expenses, and reasonable expert witness
and consultant fees and expenses in connection with the occurrence of any Loss
or in defending against any Loss.
(m) "Material Adverse Effect" has the meaning given such term in
Section 3.1.
(n) "Material Contract" means:
(i) any agreement, contract, or commitment which involves or
could involve aggregate future payments by the Company of more than $25,000;
(ii) any agreement restricting the Company from carrying on
the Business or any part thereof or from competing in any line of the Business
with any Person; and
(iii) any commitment, agreement, contract or other instrument
to which the Company is a party or by which it is bound, which (taken
individually) is material to the Business, Assets or financial conditions of the
Company, taken as a whole, and has a remaining term of more than one year.
(o) "Person" means an individual, corporation, partnership,
unincorporated association, trust, joint venture or other organization or
entity, including a Governmental Authority.
(p) "Purchase Price" has the meaning given such term in Section 2.2.
(q) "Purchaser Indemnitee" has the meaning given such term in Section
6.2.
(r) "Returns" means all reports, estimates, declarations, schedules,
disclosures, information statements and returns relating to, or required to be
filed in connection with, any Taxes, including information returns or reports
with respect to backup withholding and other payments to third parties.
2
<PAGE> 6
(s) "Seller Indemnitee" has the meaning given such term in Section 6.3.
(t) "Survival Period" has the meaning given such term in Section 6.1.
(u) "Tax" or "Taxes" means all federal, state and local income or
profits taxes, payroll and employee withholding taxes, unemployment insurance,
social security taxes, Washington business and occupation taxes, including any
interest, penalties or other additions to tax that may become payable in respect
thereof, imposed by any Governmental Authority.
2. PURCHASE AND SALE; CLOSING.
2.1 Sale of the Company Shares. On and subject to the terms and
conditions set forth in this Agreement, at Closing, Seller will sell, assign,
transfer and deliver the Company Shares to Purchaser, free and clear of all
Liens, and Purchaser will purchase the Company Shares from Seller. At the
Closing, title to the Company Shares will pass to the Purchaser, as record and
beneficial owner. Purchaser will then be entitled to all rights, including,
without limitation, voting rights, as the sole owner of such Company Shares,
free and clear of all Liens.
2.2 Purchase Price. The aggregate consideration to be paid by Purchaser
for the Company Shares (the "Purchase Price") is 1,870 shares (the "Purchaser
Shares") of common stock of Purchaser.
2.3 Closing. The closing of the transaction contemplated by this
Agreement (the "Closing") will take place at the offices of Foster Pepper &
Shefelman PLLC, 1111 Third Avenue, Suite 3400, Seattle, Washington 98101, or
such other place as is mutually agreed in writing by the parties to this
Agreement, on the date and at the time immediately prior to the closing of a
public offering of shares of common stock of Purchaser, or on such other date
and time as may be mutually agreed upon by the parties to this Agreement (the
"Closing Date").
2.4 Closing Deliveries.
(a) By Seller. At Closing, Seller will deliver to Purchaser
certificates representing the Company Shares to be acquired by Purchaser, such
certificates duly endorsed or accompanied by duly executed blank stock powers,
as appropriate, free and clear of all Liens.
(b) By Purchaser. At Closing, Purchaser will deliver to Seller
duly endorsed certificates representing the Purchaser Shares to be issued to
Purchaser, free and clear of all Liens. Any certificate representing the
Purchaser Shares will be endorsed with the following legend:
These securities have not been registered under the Securities
Act of 1933, as amended (the "Act"). Such securities may not
be sold or offered for sale, transferred, hypothecated or
otherwise assigned in the absence of an effective registration
statement with respect thereto under such Act or an opinion
reasonably acceptable to the Company of counsel reasonably
acceptable to the Company that an
3
<PAGE> 7
exemption from registration for such sale, offer, transfer,
hypothecation or other assignment is available under such Act.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to
Purchaser as of the date of this Agreement and as of the Closing Date as
follows:
3.1 Corporate Organization and Standing; Power and Authority. The
Company is a corporation validly existing and in good standing under the laws of
the state of Oregon. The Company has full power and authority (corporate or
otherwise) to own, lease or operate its respective properties and to conduct its
respective business as currently conducted. The Company is duly qualified as a
foreign corporation for the transaction of business and is in good standing in
each jurisdiction in which such company owns or leases its properties or
conducts any business so as to require such qualification, except where failure
to be so qualified would not have a material adverse effect on the condition
(financial or otherwise) or the operations of the Company taken as a whole (a
"Material Adverse Effect"). Seller has delivered to Purchaser true and complete
copies of the Articles of Incorporation and Bylaws of the Company, together with
any and all amendments thereto.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
__________ shares of common stock, $______ par value, of which ________ shares
are issued and outstanding. The Company Shares have been duly authorized in
compliance with applicable law, and are fully paid and nonassessable.
(b) Seller has good and marketable title to, and owns, the
Company Shares, beneficially and of record. The Company Shares are free and
clear of all Liens, demands, and adverse claims of whatsoever nature. Seller has
full voting power over the Company Shares, subject to no proxy, shareholders'
agreement, voting trust or other agreement relating to the voting of any of the
Company Shares. Other than this Agreement, there is no agreement between Seller
and any other Person with respect to the disposition of the Company Shares or
otherwise relating to the Company Shares. Upon consummation of the Closing
deliveries described in Section 2.4, Seller will have transferred (or caused to
be transferred) to Purchaser good title to the Company Shares, free and clear of
all Liens.
(c) No Person has any preemptive right to purchase any Company
Shares or any other securities of the Company. There are no outstanding
securities or other instruments of the Company which are convertible into or
exchangeable for any shares of its capital stock. There are no contracts,
arrangements, commitments or restrictions relating to the issuance, sale,
transfer or purchase or obtaining of capital stock or other securities or
instruments of the Company. There is no existing option, warrant, right, call or
commitment of any character granted or issued by the Company governing the
issuance of shares of its capital stock.
3.3 Organization; Authorization; Enforceability. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Oregon. Seller has full corporate power and authority to enter
into, execute and deliver this Agreement and all of the documents and
instruments to be executed pursuant to or in connection with this
4
<PAGE> 8
Agreement, and to carry out the transactions contemplated by this Agreement and
such other documents and instruments. All corporate action on the part of Seller
necessary for the authorization, execution, delivery and performance by Seller
of this Agreement and the consummation of the transaction contemplated by this
Agreement has been taken or will be taken prior to Closing. This Agreement has
been duly executed and delivered by Seller. As of the Closing Date, each
document or instrument to be executed and/or delivered pursuant to this
Agreement to which Seller or the Company is a party will have been duly and
validly executed and delivered by Seller. Assuming the due authorization,
execution and delivery by Purchaser, this Agreement constitutes a valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, except to the extent that enforceability may be limited by bankruptcy,
reorganization, insolvency or other laws affecting the enforcement of creditors'
rights generally or the availability of equitable remedies subject to the
discretion of the court.
3.4 Investment. Seller is acquiring the Purchaser Shares for its own
account for investment and not with a view to, or for resale in connection with,
the sale or distribution thereof, or the granting of any participation therein.
Seller has no present intention of distributing or selling to others any of the
Purchaser Shares or granting any participation therein, except in compliance
with all applicable federal and state securities laws.
3.5 Absence of Certain Conflicts. Neither the execution and delivery of
this Agreement by Seller nor the consummation of the transactions contemplated
by this Agreement will (a) conflict with or result in a breach of any provision
of the Articles of Incorporation or Bylaws of Seller or the Company, or (b) to
the knowledge of Seller, violate any judgment, decree, order, injunction, or any
statute, law, regulation or rule of any Governmental Authority applicable to
Seller, the Company, or any other restriction of any kind or character by which
any of them or their respective properties or assets may be bound, in either
case to the extent that such conflict or violation might reasonably be expected
to have a Material Adverse Effect.
3.6 Liabilities. To the knowledge of Seller, except for (a) Liabilities
reflected on the consolidated statements of financial condition of the Company
as of December 31, in each of the two fiscal years 1996 and 1995 and the related
statements of income, statement of stockholders' equity and statements of cash
flows for the same periods ("Financial Statements"); (b) Liabilities incurred by
the Company in the ordinary course of the Business subsequent to the period
covered in the Financial Statements; (c) Liabilities explicitly arising under
the provisions of the leases, contracts, agreements and other commitments
previously disclosed to Purchaser; and (d) any Taxes; there are no Liabilities
that would, individually or in the aggregate, have a Material Adverse Effect.
3.7 Absence of Material Changes. To the knowledge of Seller, since
December 31, 1996, there has not been any event or circumstances (a) which has
had a Material Adverse Effect, or (b) that might reasonably be expected to have
a Material Adverse Effect.
3.8 Absence of Certain Developments. To the knowledge of Seller, except
as disclosed below or as otherwise provided in this Agreement, since December
31, 1996, the Company has not:
5
<PAGE> 9
(a) conducted its Business other than in the ordinary course
or in the manner in which the Business has been conducted prior to such date;
(b) issued or sold any equity securities, securities or
instruments convertible into equity securities, or warrants, options, calls or
other rights to acquire equity securities, or entered into any merger,
recapitalization, reclassification, stock split, reorganization or other
transaction affecting its capital stock;
(c) paid or agreed to pay any salaries, royalties, bonuses or
other compensation to any Person (other than in the ordinary course of Business
consistent with past practices);
(d) agreed to do any of the foregoing.
3.9 Proprietary Rights. To the knowledge of Seller, the Company owns,
or is duly licensed and has the right to use (and to license others to use, to
the extent they are licensing others to use), all computer software used in
connection with the Business.
3.10 Taxes. To the knowledge of Seller, the Company has timely filed,
either separately or as a member of a consolidated, combined or unitary group (a
"Combined Group"), all material Returns required by applicable law to be filed
by them and have paid, either separately or as a member of a Combined Group, all
Taxes shown to be due or payable on such Returns. In those cases where Taxes
have accrued but are not yet due and payable, the Company has established
adequate reserves or accruals for the payment of all such Taxes. The Company
does not have any liability for any Taxes in excess of the amounts so paid or
the reserves or the accruals as established.
3.11 Contracts and Commitments; No Default.
(a) To the knowledge of Seller, all of the Material Contracts
have previously been disclosed to Purchaser. To the knowledge of Seller, each of
the Material Contracts is in full force and effect and enforceable in accordance
with its terms. To the knowledge of Seller, the Company has not received notice
of cancellation of or intent to cancel any of the Material Contracts. To the
knowledge of Seller, there exists no event of default or occurrence, condition
or act on the part of the Company or on the part of the other party to such
Material Contracts which constitutes or would constitute (with notice or lapse
of time or both) a breach or cause or permit acceleration of any obligation of
the Company which individually or in the aggregate would have a Material Adverse
Effect.
(b) To the knowledge of Seller, with the exception of the
consents listed on Schedule 3.11, the consummation of the transactions
contemplated by this Agreement will not cause any default under any of the
Material Contracts, and no consent of any other party to the Material Contracts
is required in connection with the execution, delivery and performance of this
Agreement by Seller.
3.12 Litigation; Judgments. To the knowledge of Seller, there is (a) no
litigation or suit, administrative or judicial, to which the Company is a party,
and (b) no claim, investigation,
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<PAGE> 10
arbitration, grievance, or other proceedings pending or, to the knowledge of
Seller, threatened against the Company at law or in equity, or before any
Governmental Authority the adverse determination of which, individually or in
the aggregate, would have a Material Adverse Effect.
3.13 Compliance with Laws. To the knowledge of Seller, the Company (a)
is not in violation of any federal, state, local or foreign law, rule,
ordinance, regulation or order applicable to the Assets or the Business, and (b)
has not received any complaint or notice from any Governmental Authority,
alleging that any of them has violated any law, rule, regulation, order,
licensing requirement, authorization or accreditation or judicial or
administrative decision, either of which event described in (a) or (b) has
potential consequences that could have a Material Adverse Effect.
3.14 Brokers and Finders. Neither Seller nor any Person acting on
behalf of Seller has employed any broker, agent or finder or incurred any
Liability for any brokerage fees, agents' commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Seller as of the date of this Agreement and as of the Closing Date
as follows:
4.1 Corporate Organization and Standing; Power and Authority. Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Oregon. All corporate action on the part of Purchaser
necessary for the authorization, execution, delivery and performance by
Purchaser of this Agreement and the consummation of the transactions
contemplated by this Agreement has been taken. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
by this Agreement will conflict with or result in a breach of any provisions of
the Articles of Incorporation or Bylaws of Purchaser. The Purchaser Shares, when
issued, will be validly issued, fully paid and nonassessable.
4.2 Enforceability. This Agreement has been duly executed and delivered
by Purchaser, and, as of the Closing Date, each document or instrument to be
executed and/or delivered pursuant to this Agreement to which Purchaser is a
party, will have been duly and validly executed and delivered by Purchaser.
Assuming the due authorization, execution and delivery by Seller, this Agreement
is a valid and binding agreement of Purchaser enforceable in accordance with its
terms, except to the extent that enforceability may be limited by bankruptcy,
reorganization, insolvency or other laws affecting the enforcement of creditors'
rights generally or the availability of equitable remedies subject to the
discretion of the court.
4.3 Consents. All consents, approvals, qualifications, licenses, orders
or authorizations of, or filings with, any Governmental Authority required in
connection with Purchaser's valid execution, delivery or performance of this
Agreement have been obtained, given or made or will, as of the Closing Date,
have been obtained, given or made.
4.4 Absence of Certain Conflicts. Neither the execution and delivery by
Purchaser of this Agreement nor the consummation of the transaction contemplated
by this Agreement will
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<PAGE> 11
violate any judgment, decree, order, injunction, or, to the knowledge of
Purchaser, any statute or law, regulation or rule of any Governmental Authority
applicable to Purchaser.
4.5 Litigation. There is no pending or, to the knowledge of Purchaser,
threatened action or suit which alone or in the aggregate with such other
actions and suits could reasonably be expected to restrict Purchaser's ability
to perform its obligations under this Agreement or to carry out the transactions
contemplated by this Agreement.
4.6 Brokers and Finders. Neither Purchaser nor any Person acting on
behalf of such Purchaser has employed any broker, agent or finder or incurred
any Liability for any brokerage fees, agents' commissions or finders' fees in
connection with the stock purchase transaction contemplated by this Agreement.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Obligations of Purchaser. Notwithstanding any other
provision of this Agreement, the obligation of each Purchaser to purchase the
Company Shares is subject to the satisfaction, on or before the Closing Date or
such earlier date as is specified below, of the following conditions, each of
which may be waived by Purchaser:
(a) No Governmental Proceeding or Litigation. No suit, action,
investigation, inquiry or other proceeding by any Governmental Authority or
other Person will have been instituted or threatened which seeks to restrain or
prohibit, or questions the validity or legality of, the transactions
contemplated by this Agreement or which if successfully asserted would otherwise
have a Material Adverse Effect, or would impose limitations on the ability of
Purchaser to effectively exercise full rights of ownership of the Company
Shares.
(b) Authorizations. All actions necessary to authorize the
execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions contemplated by this Agreement will have been
duly and validly taken by Seller and the Company.
(c) Corporate Documents. Seller will have caused to be
delivered to Purchaser the minute books and stock records for the Company.
5.2 Conditions to Obligations of Seller. Notwithstanding any other
provision of this Agreement, the obligation of Seller to sell the Company Shares
is subject to the satisfaction, on or before the Closing Date or such earlier
date as is specified below, of the following conditions, each of which may be
waived by Seller:
(a) Authorizations. All actions necessary to authorize the
execution, delivery and performance of this Agreement by Purchaser and the
consummation of the transactions contemplated by this Agreement will have been
duly and validly taken by Purchaser.
(b) Litigation. No action, suit or proceeding will be pending
which would adversely affect the ability of Purchaser to carry out the
transactions contemplated by this Agreement.
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<PAGE> 12
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
6.1 Survival of Representations and Warranties. The parties agree that
the representations and warranties made by the parties in this Agreement, and
the indemnities under this Agreement, will survive for a period commencing on
the Closing Date and ending on the third anniversary of the Closing Date (the
"Survival Period").
6.2 Indemnification by Seller. Subject to the Closing having occurred
and the other limitations and qualifications set forth in this Section 6, Seller
will protect, defend, indemnify, and hold the Company, Purchaser, and each of
their respective, successors and assigns, (each, a "Purchaser Indemnitee")
harmless for, from and against any Loss (a) arising out of or due to any breach
of any of the representations, warranties, covenants or agreements of Seller
contained in this Agreement, (b) arising out of any litigation brought or
threatened by any third Person against the Company or Purchaser to the extent
such litigation relates to an act or omission of the Company occurring prior to
Closing not reserved or accrued for in the Financial Statements, or (c) in
connection with Taxes owing by the Company for periods ending on or prior to
Closing and not reserved for.
6.3 Indemnification by Purchaser. Subject to the Closing having
occurred and the provisions of this Section 6, Purchaser will protect, defend,
indemnify, and hold Seller and its successors and assigns (each, a "Seller
Indemnitee") harmless for, from and against any Loss (a) arising out of or due
to any breach of any of the representations, warranties, covenants or agreements
of Purchaser contained in this Agreement, (b) arising out of any litigation
brought or threatened by any third Person against the Company, Seller or an
Affiliate to the extent such litigation relates to an act or omission of the
Company occurring after Closing, or (c) in connection with Taxes owing by the
Company for periods ending after Closing.
6.4 Limitation on Claims.
(a) Survival Claims Period. Notwithstanding any other
provision in this Agreement, no claim or indemnified Loss may be asserted under
this Agreement unless the party seeking indemnification gives the other party
notice of such claim before the end of the applicable Survival Period; provided,
that where notice of such claim has been timely given, such claim will survive
the expiration of the Survival Period.
(b) Exclusive Remedy. If the transaction closes, the rights of
indemnification of either party under Section 6 will be the exclusive remedy as
to any matters addressed in this Agreement. Prior to the Closing, the rights of
the parties set forth in Section 7.3 will be the exclusive remedies of the
parties as to the matters addressed therein.
(c) Subrogation. Following indemnification as provided for
under this Agreement, the Indemnifying Party will be subrogated to all rights of
the Indemnitee with respect to all Persons relating to the matter for which
indemnification has been made.
6.5 Insured Losses. Notwithstanding any other term or provision of this
Agreement, the Indemnified Party will not be required to indemnify the
Indemnitee for a Loss to the extent that the Indemnitee receives insurance
payments covering such Loss; provided, that this
9
<PAGE> 13
provision would not result in the loss of, or a requirement to repay, such
insurance by the Indemnitee. In the event that insurance is not paid to the
Indemnitee to cover the full amount of the Loss, the Indemnifying Party will
remain liable for the difference between the insurance payment as described
above and the amount of the Loss.
7. MISCELLANEOUS.
7.1 Amendments and Waivers. The provisions of this Agreement may be
amended only by the written agreement of all of the parties to this Agreement.
Except as otherwise provided in this Agreement, any waiver, permit, consent or
approval of any kind or character on the part of any party of any provisions or
conditions of this Agreement must be made in writing and will be effective only
to the extent specifically set forth in such writing.
7.2 Successors and Assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be assigned by either
of the parties to this Agreement without the prior written consent of the other
party to this Agreement and any purported assignment or delegation of this
Agreement without such consent will be null and void.
7.3 Termination. At any time prior to the Closing Date, this Agreement
may be terminated:
(a) by mutual written consent of the parties to this
Agreement;
(b) by either Purchaser or Seller if the Closing has not
occurred by July 31, 1997, provided, however, that the right to terminate this
Agreement under this Section will not be available to a party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing Date to occur on or before such date;
(c) by either Purchaser or Seller if a court of competent
jurisdiction has issued an order, decree or ruling permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action has become final and
nonappealable; or
(d) by either party if the other party (i) breaches its
representations and warranties in any material respect, or (ii) fails to comply
in any material respect with any of their covenants or agreements contained in
this Agreement.
In the event of any termination pursuant to this Section 7.3, the parties to
this Agreement will be released from all liabilities and obligations arising
under this Agreement with respect to matters contemplated by this Agreement.
7.4 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
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<PAGE> 14
7.5 Headings. The descriptive headings contained in this Agreement are
inserted for convenience of reference only and do not constitute a part of this
Agreement.
7.6 Notices. Any notices, requests, demands or other communications
required or permitted to be sent under this Agreement or under any document or
instrument to be executed and/or delivered pursuant to this Agreement must be in
writing and delivered personally, sent by overnight or international courier or
mailed by registered or certified mail, return receipt requested, to the
following addresses, and will be deemed to have been received on the day of
personal delivery, one business day after deposit with an overnight domestic
courier or three business days after deposit in the mail:
(a) Purchaser: Trendwest Resorts, Inc.
12301 N.E. 10th Place
Bellevue, Washington 98005
Attention: Gary A. Florence
(b) Seller: Jeld-Wen, inc.
3250 Lakeport Boulevard
P. O. Box 1329
Klamath Falls, Oregon 97601
Attention: Douglas Kintzinger
7.7 Governing Law; Jurisdiction. The validity, meaning and effect of
this Agreement will be determined in accordance with the laws of the State of
Washington applicable to contracts made and to be performed in that state. The
parties irrevocably submit to the jurisdiction of any Washington State or
federal court sitting in Seattle in any action or proceeding arising out of or
relating to this Agreement, and the parties irrevocably agree that all claims in
respect of such action or proceeding arising out of or relating to this
Agreement will be heard and determined in such a Washington State or federal
court. The parties consent to and grant to any such court jurisdiction over the
persons of such parties and over the subject matter of any such dispute and
agree that delivery or mailing of any process or other papers in the manner
provided in this Agreement, or in such other manner as may be permitted by law,
will be valid and sufficient service thereof.
7.8 Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by any reason of
this Agreement on any Persons other than the parties to it and their respective
permitted successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or Liability of any third Persons to any
party to this Agreement, nor will any provision give any third Persons any right
of subrogation or action over against any party to this Agreement.
7.9 Expenses; Attorneys' Fees. Whether or not the transactions
contemplated by this Agreement are consummated, and except as otherwise
expressly provided in this Agreement, each of the parties to this Agreement will
pay its own expenses incurred by it or on its behalf in connection with this
Agreement or any transactions contemplated by this Agreement. Notwithstanding
the foregoing, in any legal action or other proceeding brought to enforce or
interpret the terms of this Agreement or any document or instrument to be
executed and/or
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<PAGE> 15
delivered pursuant to this Agreement, the prevailing party or parties will be
entitled to reasonable attorneys' fees and other costs and expenses incurred in
that proceeding, in addition to any other relief to which it is entitled.
7.10 Entire Agreement. This Agreement constitutes the entire agreement
of the parties concerning the matters referred to in this Agreement and therein
and supersedes all prior agreements and understandings, oral or written.
7.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, and all of which
together will constitute one instrument.
DATED the date first written above.
PURCHASER: TRENDWEST RESORTS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
SELLER: JELD-WEN, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
12
<PAGE> 1
EXHIBIT 10.30
STOCK PURCHASE AGREEMENT
BETWEEN
TRENDWEST RESORTS, INC.
AND
I & I HOLDINGS, LTD.
DATED
JUNE 26, 1997
(TW HOLDINGS, INC.)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
1. Definitions................................................................................... 1
2. Purchase and Sale; Closing.................................................................... 3
2.1 Sale of the Company Shares........................................................... 3
2.2 Purchase Price....................................................................... 3
2.3 Closing.............................................................................. 3
2.4 Closing Deliveries................................................................... 3
3. Representations and Warranties of Seller...................................................... 4
3.1 Corporate Organization and Standing; Power and Authority............................. 4
3.2 Capitalization....................................................................... 4
3.3 Organization; Authorization; Enforceability.......................................... 4
3.4 Investment........................................................................... 5
3.5 Absence of Certain Conflicts......................................................... 5
3.6 Liabilities.......................................................................... 5
3.7 Absence of Material Changes.......................................................... 5
3.8 Absence of Certain Developments...................................................... 5
3.9 Proprietary Rights................................................................... 6
3.10 Taxes................................................................................ 6
3.11 Contracts and Commitments; No Default................................................ 6
3.12 Litigation; Judgments................................................................ 7
3.13 Compliance with Laws................................................................. 7
3.14 Brokers and Finders.................................................................. 7
4. Representations and Warranties of Purchaser................................................... 7
4.1 Corporate Organization and Standing; Power and Authority............................. 7
4.2 Enforceability....................................................................... 7
4.3 Consents............................................................................. 7
4.4 Absence of Certain Conflicts......................................................... 8
4.5 Litigation........................................................................... 8
4.6 Brokers and Finders.................................................................. 8
5. Conditions to Closing......................................................................... 8
5.1 Conditions to Obligations of Purchaser............................................... 8
5.2 Conditions to Obligations of Seller.................................................. 8
6. Survival of Representations and Warranties; Indemnification................................... 9
6.1 Survival of Representations and Warranties........................................... 9
6.2 Indemnification by Seller............................................................ 9
6.3 Indemnification by Purchaser......................................................... 9
6.4 Limitation on Claims................................................................. 9
6.5 Insured Losses....................................................................... 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
7. Miscellaneous................................................................................. 10
7.1 Amendments and Waivers............................................................... 10
7.2 Successors and Assigns............................................................... 10
7.3 Termination.......................................................................... 10
7.4 Severability......................................................................... 10
7.5 Headings............................................................................. 11
7.6 Notices.............................................................................. 11
7.7 Governing Law; Jurisdiction.......................................................... 11
7.8 Parties in Interest.................................................................. 11
7.9 Expenses; Attorneys' Fees............................................................ 11
7.10 Entire Agreement..................................................................... 12
7.11 Counterparts......................................................................... 12
</TABLE>
DISCLOSURE SCHEDULES
Schedule 3.11 Required Consents
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
(TW HOLDINGS, INC.)
This Stock Purchase Agreement (the "Agreement"), dated June ____, 1997,
is between TRENDWEST RESORTS, INC., an Oregon corporation ("Purchaser") and I &
I HOLDINGS, LTD., an Oregon corporation.
Seller is the owner of all of the issued and outstanding shares (the
"Company Shares") of the common stock of TW Holdings, Inc., an Oregon
corporation (the "Company"), which constitutes all of the issued and outstanding
capital stock of the Company. Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, all of the Company Shares on the terms and
subject to the conditions set forth in this Agreement.
Therefore, the parties agree as follows:
1. DEFINITIONS.
(a) "Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common control
with, the Person specified.
(b) "Assets" means all of the businesses, franchises, licenses, rights,
privileges, assets and property of the Company, of any nature and kind, whether
real, personal, mixed tangible or intangible, wherever situated, including the
goodwill of the business as a going concern.
(c) "Business" means the business carried out by the Company.
(d) "Claim" has the meaning given such term in Section 6.4.
(e) "Closing" has the meaning given such term in Section 2.3.
(f) "Closing Date" has the meaning given such term in Section 2.3.
(g) "Company Shares" has the meaning given such term in the second
opening paragraph of this Agreement.
(h) "Financial Statements" has the meaning given such term in Section
3.5.
(i) "Governmental Authority" means any nation or government, foreign or
domestic, any state or other political subdivision thereof, and any agency or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of government, including, without limitation, all
taxing authorities.
(j) "Liability" means each of, and "Liabilities" means any and all, the
debts, liabilities, claims, damages, obligations, payments, costs and expenses,
matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, known or unknown,
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<PAGE> 5
including, without limitation, any of the foregoing arising under, out of or in
connection with any action by or order or consent decree of any governmental
entity or award of any arbitrator of any kind, or any law, rule, regulation,
contract, commitment or undertaking.
(k) "Lien" means any interest, consensual or otherwise, in real,
personal or mixed property (a) securing an obligation owed to, or a claim by, or
(b) evidencing an interest of, a Person other than the owner of the property,
including, without limitation, any mortgage, lien, pledge, security interest,
conditional sale agreement, or any assessment, charge or other type of notice
which is levied or given by any Governmental Authority and for which a lien
could be filed.
(l) "Loss" means any demand, penalty, assessment, interest, obligation,
Liability, claim, loss, cost, expense, tax, lawsuit, arbitration or other legal
action, judgment or damage, liquidated or unliquidated, accrued, contingent or
otherwise, incurred or suffered, any other damage or impairment in the value of
the business of the Person incurring or suffering such Loss or any of its
properties or assets, including, without limitation, any interest, penalties,
reasonable accounting and legal fees and expenses, and reasonable expert witness
and consultant fees and expenses in connection with the occurrence of any Loss
or in defending against any Loss.
(m) "Material Adverse Effect" has the meaning given such term in
Section 3.1.
(n) "Material Contract" means:
(i) any agreement, contract, or commitment which involves or
could involve aggregate future payments by the Company of more than $25,000;
(ii) any agreement restricting the Company from carrying on
the Business or any part thereof or from competing in any line of the Business
with any Person; and
(iii) any commitment, agreement, contract or other instrument
to which the Company is a party or by which it is bound, which (taken
individually) is material to the Business, Assets or financial conditions of the
Company, taken as a whole, and has a remaining term of more than one year.
(o) "Person" means an individual, corporation, partnership,
unincorporated association, trust, joint venture or other organization or
entity, including a Governmental Authority.
(p) "Purchase Price" has the meaning given such term in Section 2.2.
(q) "Purchaser Indemnitee" has the meaning given such term in Section
6.2.
(r) "Returns" means all reports, estimates, declarations, schedules,
disclosures, information statements and returns relating to, or required to be
filed in connection with, any Taxes, including information returns or reports
with respect to backup withholding and other payments to third parties.
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<PAGE> 6
(s) "Seller Indemnitee" has the meaning given such term in Section 6.3.
(t) "Survival Period" has the meaning given such term in Section 6.1.
(u) "Tax" or "Taxes" means all federal, state and local income or
profits taxes, payroll and employee withholding taxes, unemployment insurance,
social security taxes, Washington business and occupation taxes, including any
interest, penalties or other additions to tax that may become payable in respect
thereof, imposed by any Governmental Authority.
2. PURCHASE AND SALE; CLOSING.
2.1 Sale of the Company Shares. On and subject to the terms and
conditions set forth in this Agreement, at Closing, Seller will sell, assign,
transfer and deliver the Company Shares to Purchaser, free and clear of all
Liens, and Purchaser will purchase the Company Shares from Seller. At the
Closing, title to the Company Shares will pass to the Purchaser, as record and
beneficial owner. Purchaser will then be entitled to all rights, including,
without limitation, voting rights, as the sole owner of such Company Shares,
free and clear of all Liens.
2.2 Purchase Price. The aggregate consideration to be paid by Purchaser
for the Company Shares (the "Purchase Price") is 8,250 shares (the "Purchaser
Shares") of common stock of Purchaser.
2.3 Closing. The closing of the transaction contemplated by this
Agreement (the "Closing") will take place at the offices of Foster Pepper &
Shefelman PLLC, 1111 Third Avenue, Suite 3400, Seattle, Washington 98101, or
such other place as is mutually agreed in writing by the parties to this
Agreement, on the date and at the time immediately prior to the closing of a
public offering of shares of common stock of Purchaser, or on such other date
and time as may be mutually agreed upon by the parties to this Agreement (the
"Closing Date").
2.4 Closing Deliveries.
(a) By Seller. At Closing, Seller will deliver to Purchaser
certificates representing the Company Shares to be acquired by Purchaser, such
certificates duly endorsed or accompanied by duly executed blank stock powers,
as appropriate, free and clear of all Liens.
(b) By Purchaser. At Closing, Purchaser will deliver to Seller
duly endorsed certificates representing the Purchaser Shares to be issued to
Purchaser, free and clear of all Liens. Any certificate representing the
Purchaser Shares will be endorsed with the following legend:
These securities have not been registered under the Securities
Act of 1933, as amended (the "Act"). Such securities may not
be sold or offered for sale, transferred, hypothecated or
otherwise assigned in the absence of an effective registration
statement with respect thereto under such Act or an opinion
reasonably acceptable to the Company of counsel reasonably
acceptable to the Company that an
3
<PAGE> 7
exemption from registration for such sale, offer, transfer,
hypothecation or other assignment is available under such Act.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to
Purchaser as of the date of this Agreement and as of the Closing Date as
follows:
3.1 Corporate Organization and Standing; Power and Authority. The
Company is a corporation validly existing and in good standing under the laws of
the state of Oregon. The Company has full power and authority (corporate or
otherwise) to own, lease or operate its respective properties and to conduct its
respective business as currently conducted. The Company is duly qualified as a
foreign corporation for the transaction of business and is in good standing in
each jurisdiction in which such company owns or leases its properties or
conducts any business so as to require such qualification, except where failure
to be so qualified would not have a material adverse effect on the condition
(financial or otherwise) or the operations of the Company taken as a whole (a
"Material Adverse Effect"). Seller has delivered to Purchaser true and complete
copies of the Articles of Incorporation and Bylaws of the Company, together with
any and all amendments thereto.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
__________ shares of common stock, $______ par value, of which ________ shares
are issued and outstanding. The Company Shares have been duly authorized in
compliance with applicable law, and are fully paid and nonassessable.
(b) Seller has good and marketable title to, and owns, the
Company Shares, beneficially and of record. The Company Shares are free and
clear of all Liens, demands, and adverse claims of whatsoever nature. Seller has
full voting power over the Company Shares, subject to no proxy, shareholders'
agreement, voting trust or other agreement relating to the voting of any of the
Company Shares. Other than this Agreement, there is no agreement between Seller
and any other Person with respect to the disposition of the Company Shares or
otherwise relating to the Company Shares. Upon consummation of the Closing
deliveries described in Section 2.4, Seller will have transferred (or caused to
be transferred) to Purchaser good title to the Company Shares, free and clear of
all Liens.
(c) No Person has any preemptive right to purchase any Company
Shares or any other securities of the Company. There are no outstanding
securities or other instruments of the Company which are convertible into or
exchangeable for any shares of its capital stock. There are no contracts,
arrangements, commitments or restrictions relating to the issuance, sale,
transfer or purchase or obtaining of capital stock or other securities or
instruments of the Company. There is no existing option, warrant, right, call or
commitment of any character granted or issued by the Company governing the
issuance of shares of its capital stock.
3.3 Organization; Authorization; Enforceability. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Oregon. Seller has full corporate power and authority to enter
into, execute and deliver this Agreement and all of the documents and
instruments to be executed pursuant to or in connection with this
4
<PAGE> 8
Agreement, and to carry out the transactions contemplated by this Agreement and
such other documents and instruments. All corporate action on the part of Seller
necessary for the authorization, execution, delivery and performance by Seller
of this Agreement and the consummation of the transaction contemplated by this
Agreement has been taken or will be taken prior to Closing. This Agreement has
been duly executed and delivered by Seller. As of the Closing Date, each
document or instrument to be executed and/or delivered pursuant to this
Agreement to which Seller or the Company is a party will have been duly and
validly executed and delivered by Seller. Assuming the due authorization,
execution and delivery by Purchaser, this Agreement constitutes a valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, except to the extent that enforceability may be limited by bankruptcy,
reorganization, insolvency or other laws affecting the enforcement of creditors'
rights generally or the availability of equitable remedies subject to the
discretion of the court.
3.4 Investment. Seller is acquiring the Purchaser Shares for its own
account for investment and not with a view to, or for resale in connection with,
the sale or distribution thereof, or the granting of any participation therein.
Seller has no present intention of distributing or selling to others any of the
Purchaser Shares or granting any participation therein, except in compliance
with all applicable federal and state securities laws.
3.5 Absence of Certain Conflicts. Neither the execution and delivery of
this Agreement by Seller nor the consummation of the transactions contemplated
by this Agreement will (a) conflict with or result in a breach of any provision
of the Articles of Incorporation or Bylaws of Seller or the Company, or (b) to
the knowledge of Seller, violate any judgment, decree, order, injunction, or any
statute, law, regulation or rule of any Governmental Authority applicable to
Seller, the Company, or any other restriction of any kind or character by which
any of them or their respective properties or assets may be bound, in either
case to the extent that such conflict or violation might reasonably be expected
to have a Material Adverse Effect.
3.6 Liabilities. To the knowledge of Seller, except for (a) Liabilities
reflected on the consolidated statements of financial condition of the Company
as of December 31, in each of the two fiscal years 1996 and 1995 and the related
statements of income, statement of stockholders' equity and statements of cash
flows for the same periods ("Financial Statements"); (b) Liabilities incurred by
the Company in the ordinary course of the Business subsequent to the period
covered in the Financial Statements; (c) Liabilities explicitly arising under
the provisions of the leases, contracts, agreements and other commitments
previously disclosed to Purchaser; and (d) any Taxes; there are no Liabilities
that would, individually or in the aggregate, have a Material Adverse Effect.
3.7 Absence of Material Changes. To the knowledge of Seller, since
December 31, 1996, there has not been any event or circumstances (a) which has
had a Material Adverse Effect, or (b) that might reasonably be expected to have
a Material Adverse Effect.
3.8 Absence of Certain Developments. To the knowledge of Seller, except
as disclosed below or as otherwise provided in this Agreement, since December
31, 1996, the Company has not:
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<PAGE> 9
(a) conducted its Business other than in the ordinary course
or in the manner in which the Business has been conducted prior to such date;
(b) issued or sold any equity securities, securities or
instruments convertible into equity securities, or warrants, options, calls or
other rights to acquire equity securities, or entered into any merger,
recapitalization, reclassification, stock split, reorganization or other
transaction affecting its capital stock;
(c) paid or agreed to pay any salaries, royalties, bonuses or
other compensation to any Person (other than in the ordinary course of Business
consistent with past practices);
(d) agreed to do any of the foregoing.
3.9 Proprietary Rights. To the knowledge of Seller, the Company owns,
or is duly licensed and has the right to use (and to license others to use, to
the extent they are licensing others to use), all computer software used in
connection with the Business.
3.10 Taxes. To the knowledge of Seller, the Company has timely filed,
either separately or as a member of a consolidated, combined or unitary group (a
"Combined Group"), all material Returns required by applicable law to be filed
by them and have paid, either separately or as a member of a Combined Group, all
Taxes shown to be due or payable on such Returns. In those cases where Taxes
have accrued but are not yet due and payable, the Company has established
adequate reserves or accruals for the payment of all such Taxes. The Company
does not have any liability for any Taxes in excess of the amounts so paid or
the reserves or the accruals as established.
3.11 Contracts and Commitments; No Default.
(a) To the knowledge of Seller, all of the Material Contracts
have previously been disclosed to Purchaser. To the knowledge of Seller, each of
the Material Contracts is in full force and effect and enforceable in accordance
with its terms. To the knowledge of Seller, the Company has not received notice
of cancellation of or intent to cancel any of the Material Contracts. To the
knowledge of Seller, there exists no event of default or occurrence, condition
or act on the part of the Company or on the part of the other party to such
Material Contracts which constitutes or would constitute (with notice or lapse
of time or both) a breach or cause or permit acceleration of any obligation of
the Company which individually or in the aggregate would have a Material Adverse
Effect.
(b) To the knowledge of Seller, with the exception of the
consents listed on Schedule 3.11, the consummation of the transactions
contemplated by this Agreement will not cause any default under any of the
Material Contracts, and no consent of any other party to the Material Contracts
is required in connection with the execution, delivery and performance of this
Agreement by Seller.
3.12 Litigation; Judgments. To the knowledge of Seller, there is (a) no
litigation or suit, administrative or judicial, to which the Company is a party,
and (b) no claim, investigation,
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<PAGE> 10
arbitration, grievance, or other proceedings pending or, to the knowledge of
Seller, threatened against the Company at law or in equity, or before any
Governmental Authority the adverse determination of which, individually or in
the aggregate, would have a Material Adverse Effect.
3.13 Compliance with Laws. To the knowledge of Seller, the Company (a)
is not in violation of any federal, state, local or foreign law, rule,
ordinance, regulation or order applicable to the Assets or the Business, and (b)
has not received any complaint or notice from any Governmental Authority,
alleging that any of them has violated any law, rule, regulation, order,
licensing requirement, authorization or accreditation or judicial or
administrative decision, either of which event described in (a) or (b) has
potential consequences that could have a Material Adverse Effect.
3.14 Brokers and Finders. Neither Seller nor any Person acting on
behalf of Seller has employed any broker, agent or finder or incurred any
Liability for any brokerage fees, agents' commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Seller as of the date of this Agreement and as of the Closing Date
as follows:
4.1 Corporate Organization and Standing; Power and Authority. Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Oregon. All corporate action on the part of Purchaser
necessary for the authorization, execution, delivery and performance by
Purchaser of this Agreement and the consummation of the transactions
contemplated by this Agreement has been taken. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
by this Agreement will conflict with or result in a breach of any provisions of
the Articles of Incorporation or Bylaws of Purchaser. The Purchaser Shares, when
issued, will be validly issued, fully paid and nonassessable.
4.2 Enforceability. This Agreement has been duly executed and delivered
by Purchaser, and, as of the Closing Date, each document or instrument to be
executed and/or delivered pursuant to this Agreement to which Purchaser is a
party, will have been duly and validly executed and delivered by Purchaser.
Assuming the due authorization, execution and delivery by Seller, this Agreement
is a valid and binding agreement of Purchaser enforceable in accordance with its
terms, except to the extent that enforceability may be limited by bankruptcy,
reorganization, insolvency or other laws affecting the enforcement of creditors'
rights generally or the availability of equitable remedies subject to the
discretion of the court.
4.3 Consents. All consents, approvals, qualifications, licenses, orders
or authorizations of, or filings with, any Governmental Authority required in
connection with Purchaser's valid execution, delivery or performance of this
Agreement have been obtained, given or made or will, as of the Closing Date,
have been obtained, given or made.
4.4 Absence of Certain Conflicts. Neither the execution and delivery by
Purchaser of this Agreement nor the consummation of the transaction contemplated
by this Agreement will
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<PAGE> 11
violate any judgment, decree, order, injunction, or, to the knowledge of
Purchaser, any statute or law, regulation or rule of any Governmental Authority
applicable to Purchaser.
4.5 Litigation. There is no pending or, to the knowledge of Purchaser,
threatened action or suit which alone or in the aggregate with such other
actions and suits could reasonably be expected to restrict Purchaser's ability
to perform its obligations under this Agreement or to carry out the transactions
contemplated by this Agreement.
4.6 Brokers and Finders. Neither Purchaser nor any Person acting on
behalf of such Purchaser has employed any broker, agent or finder or incurred
any Liability for any brokerage fees, agents' commissions or finders' fees in
connection with the stock purchase transaction contemplated by this Agreement.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Obligations of Purchaser. Notwithstanding any other
provision of this Agreement, the obligation of each Purchaser to purchase the
Company Shares is subject to the satisfaction, on or before the Closing Date or
such earlier date as is specified below, of the following conditions, each of
which may be waived by Purchaser:
(a) No Governmental Proceeding or Litigation. No suit, action,
investigation, inquiry or other proceeding by any Governmental Authority or
other Person will have been instituted or threatened which seeks to restrain or
prohibit, or questions the validity or legality of, the transactions
contemplated by this Agreement or which if successfully asserted would otherwise
have a Material Adverse Effect, or would impose limitations on the ability of
Purchaser to effectively exercise full rights of ownership of the Company
Shares.
(b) Authorizations. All actions necessary to authorize the
execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions contemplated by this Agreement will have been
duly and validly taken by Seller and the Company.
(c) Corporate Documents. Seller will have caused to be
delivered to Purchaser the minute books and stock records for the Company.
5.2 Conditions to Obligations of Seller. Notwithstanding any other
provision of this Agreement, the obligation of Seller to sell the Company Shares
is subject to the satisfaction, on or before the Closing Date or such earlier
date as is specified below, of the following conditions, each of which may be
waived by Seller:
(a) Authorizations. All actions necessary to authorize the
execution, delivery and performance of this Agreement by Purchaser and the
consummation of the transactions contemplated by this Agreement will have been
duly and validly taken by Purchaser.
(b) Litigation. No action, suit or proceeding will be pending
which would adversely affect the ability of Purchaser to carry out the
transactions contemplated by this Agreement.
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6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
6.1 Survival of Representations and Warranties. The parties agree that
the representations and warranties made by the parties in this Agreement, and
the indemnities under this Agreement, will survive for a period commencing on
the Closing Date and ending on the third anniversary of the Closing Date (the
"Survival Period").
6.2 Indemnification by Seller. Subject to the Closing having occurred
and the other limitations and qualifications set forth in this Section 6, Seller
will protect, defend, indemnify, and hold the Company, Purchaser, and each of
their respective, successors and assigns, (each, a "Purchaser Indemnitee")
harmless for, from and against any Loss (a) arising out of or due to any breach
of any of the representations, warranties, covenants or agreements of Seller
contained in this Agreement, (b) arising out of any litigation brought or
threatened by any third Person against the Company or Purchaser to the extent
such litigation relates to an act or omission of the Company occurring prior to
Closing not reserved or accrued for in the Financial Statements, or (c) in
connection with Taxes owing by the Company for periods ending on or prior to
Closing and not reserved for.
6.3 Indemnification by Purchaser. Subject to the Closing having
occurred and the provisions of this Section 6, Purchaser will protect, defend,
indemnify, and hold Seller and its successors and assigns (each, a "Seller
Indemnitee") harmless for, from and against any Loss (a) arising out of or due
to any breach of any of the representations, warranties, covenants or agreements
of Purchaser contained in this Agreement, (b) arising out of any litigation
brought or threatened by any third Person against the Company, Seller or an
Affiliate to the extent such litigation relates to an act or omission of the
Company occurring after Closing, or (c) in connection with Taxes owing by the
Company for periods ending after Closing.
6.4 Limitation on Claims.
(a) Survival Claims Period. Notwithstanding any other
provision in this Agreement, no claim or indemnified Loss may be asserted under
this Agreement unless the party seeking indemnification gives the other party
notice of such claim before the end of the applicable Survival Period; provided,
that where notice of such claim has been timely given, such claim will survive
the expiration of the Survival Period.
(b) Exclusive Remedy. If the transaction closes, the rights of
indemnification of either party under Section 6 will be the exclusive remedy as
to any matters addressed in this Agreement. Prior to the Closing, the rights of
the parties set forth in Section 7.3 will be the exclusive remedies of the
parties as to the matters addressed therein.
(c) Subrogation. Following indemnification as provided for
under this Agreement, the Indemnifying Party will be subrogated to all rights of
the Indemnitee with respect to all Persons relating to the matter for which
indemnification has been made.
6.5 Insured Losses. Notwithstanding any other term or provision of this
Agreement, the Indemnified Party will not be required to indemnify the
Indemnitee for a Loss to the extent that the Indemnitee receives insurance
payments covering such Loss; provided, that this
9
<PAGE> 13
provision would not result in the loss of, or a requirement to repay, such
insurance by the Indemnitee. In the event that insurance is not paid to the
Indemnitee to cover the full amount of the Loss, the Indemnifying Party will
remain liable for the difference between the insurance payment as described
above and the amount of the Loss.
7. MISCELLANEOUS.
7.1 Amendments and Waivers. The provisions of this Agreement may be
amended only by the written agreement of all of the parties to this Agreement.
Except as otherwise provided in this Agreement, any waiver, permit, consent or
approval of any kind or character on the part of any party of any provisions or
conditions of this Agreement must be made in writing and will be effective only
to the extent specifically set forth in such writing.
7.2 Successors and Assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be assigned by either
of the parties to this Agreement without the prior written consent of the other
party to this Agreement and any purported assignment or delegation of this
Agreement without such consent will be null and void.
7.3 Termination. At any time prior to the Closing Date, this Agreement
may be terminated:
(a) by mutual written consent of the parties to this
Agreement;
(b) by either Purchaser or Seller if the Closing has not
occurred by July 31, 1997, provided, however, that the right to terminate this
Agreement under this Section will not be available to a party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing Date to occur on or before such date;
(c) by either Purchaser or Seller if a court of competent
jurisdiction has issued an order, decree or ruling permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action has become final and
nonappealable; or
(d) by either party if the other party (i) breaches its
representations and warranties in any material respect, or (ii) fails to comply
in any material respect with any of their covenants or agreements contained in
this Agreement.
In the event of any termination pursuant to this Section 7.3, the parties to
this Agreement will be released from all liabilities and obligations arising
under this Agreement with respect to matters contemplated by this Agreement.
7.4 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
10
<PAGE> 14
7.5 Headings. The descriptive headings contained in this Agreement are
inserted for convenience of reference only and do not constitute a part of this
Agreement.
7.6 Notices. Any notices, requests, demands or other communications
required or permitted to be sent under this Agreement or under any document or
instrument to be executed and/or delivered pursuant to this Agreement must be in
writing and delivered personally, sent by overnight or international courier or
mailed by registered or certified mail, return receipt requested, to the
following addresses, and will be deemed to have been received on the day of
personal delivery, one business day after deposit with an overnight domestic
courier or three business days after deposit in the mail:
(a) Purchaser: Trendwest Resorts, Inc.
12301 N.E. 10th Place
Bellevue, Washington 98005
Attention: Gary A. Florence
(b) Seller: I & I Holdings, Ltd.
c/o Jeld-Wen, inc.
3250 Lakeport Boulevard
P. O. Box 1329
Klamath Falls, Oregon 97601
Attention: Douglas Kintzinger
7.7 Governing Law; Jurisdiction. The validity, meaning and effect of
this Agreement will be determined in accordance with the laws of the State of
Washington applicable to contracts made and to be performed in that state. The
parties irrevocably submit to the jurisdiction of any Washington State or
federal court sitting in Seattle in any action or proceeding arising out of or
relating to this Agreement, and the parties irrevocably agree that all claims in
respect of such action or proceeding arising out of or relating to this
Agreement will be heard and determined in such a Washington State or federal
court. The parties consent to and grant to any such court jurisdiction over the
persons of such parties and over the subject matter of any such dispute and
agree that delivery or mailing of any process or other papers in the manner
provided in this Agreement, or in such other manner as may be permitted by law,
will be valid and sufficient service thereof.
7.8 Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by any reason of
this Agreement on any Persons other than the parties to it and their respective
permitted successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or Liability of any third Persons to any
party to this Agreement, nor will any provision give any third Persons any right
of subrogation or action over against any party to this Agreement.
7.9 Expenses; Attorneys' Fees. Whether or not the transactions
contemplated by this Agreement are consummated, and except as otherwise
expressly provided in this Agreement, each of the parties to this Agreement will
pay its own expenses incurred by it or on its behalf in connection with this
Agreement or any transactions contemplated by this Agreement. Notwithstanding
the foregoing, in any legal action or other proceeding brought to enforce or
11
<PAGE> 15
interpret the terms of this Agreement or any document or instrument to be
executed and/or delivered pursuant to this Agreement, the prevailing party or
parties will be entitled to reasonable attorneys' fees and other costs and
expenses incurred in that proceeding, in addition to any other relief to which
it is entitled.
7.10 Entire Agreement. This Agreement constitutes the entire agreement
of the parties concerning the matters referred to in this Agreement and therein
and supersedes all prior agreements and understandings, oral or written.
7.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, and all of which
together will constitute one instrument.
DATED the date first written above.
PURCHASER: TRENDWEST RESORTS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
SELLER: I & I HOLDINGS, LTD.
By:________________________________
Name:______________________________
Title:_____________________________
12
<PAGE> 1
EXHIBIT 16.2
[COOPERS & LYBRAND LETTERHEAD]
July 10, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Trendwest Resorts, Inc. (copy attached),
which we understand will be filed with the Commission, pursuant to 304(a) of
Regulation S-K, as part of the Company's Form S-1. We agree with the statement
pursuant 304(a) of Regulation S-K in such Form S-1. However, we make no comment
as to the adequacy of disclosure pursuant 304(b) of Regulation S-K.
Very truly yours,
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Enclosures
cc: Office of the Chief Accountant
SECPS Letter File
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, DC 20549
Mr. Gary Florence
Trendwest Resorts, Inc.
12301 N.E. 10th Place
Bellevue, WA 98005
<PAGE> 2
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
The Company engaged KPMG Peat Marwick LLP ("KPMG") on March 12, 1997 as
the Company's independent accountants to report on the Company's balance sheets
as of December 31, 1996 and 1995, and the related combined statements of
income, stockholders' equity and cash flows for each of the years in the three
year period ended December 31, 1996. The decision to appoint KPMG was approved
by the Company's Board of Directors.
Molators, Peugh, McDaniel, Scroggin & Co. LLP ("MPMS") had acted as the
Company's independent accountants since 1992. None of such accountant's reports
on the Company's financial statements for any of the years reported on
contained an adverse opinion or disclaimer of opinion, nor were the opinions
modified as to uncertainty, audit scope or accounting principles, nor were
there any events of the type requiring disclosure under Item 304(a)(1)(v) of
Regulation S-K under the Securities Act. There were no disagreements with MPMS,
resolved or unresolved, on any matter of accounting principles or practices,
financial disclosure, or auditing scope or procedure, which, if not resolved to
MPMS's satisfaction, would have caused it to make reference to the subject
matter of the disagreement in connection with its reports. MPMS was not
retained to report on the Company's 1996 financial statements.
In August 1996, the Company engaged Coopers & Lybrand LLP ("C&L") as
the Company's independent accountants to report on the Company's balance sheet
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity and cash flow for each of the years in the three year
period ended December 31, 1995. C&L did not render any report on the Company's
financial statements and was dismissed as the Company's independent accountants
on February 10, 1997. The decision to retain and subsequently to dismiss C&L
was approved by the Company's Board of Directors.
During the period of C&L's engagement, disagreements arose over the
accounting treatment of the sales of additional Vacation Credits to existing
Owners ("Upgrade Sales"). The Company contended that Upgrade Sales could be
fully recognized as income under Financial Accounting Standards Board Statement
No. 66 ("SFAS 66") without an additional 10% cash down payment, provided that
the Owner had sufficient equity in previously purchased Vacation Credits
(including prior principal payments on the Note Receivable from the previous
purchases) and additional cash down payments, if any, at the time of the
Upgrade Sale, to satisfy the 10% down payment requirement for full accrual
profit recognition under SFAS 66. C&L's position was the SFAS 66 and Emerging
Issues Task Force Issue No. 88-12 required each Upgrade Sale to have a separate
10% cash down payment (without consideration of equity from previously
purchased Vacation Credits) before the full accrual of revenue could be
recognized on such sale. Prior to C&L's dismissal, the Company agreed to modify
its revenue recognition policies in accordance with C&L's position.
Upon an Upgrade Sale, any existing Note Receivable is cancelled ad a
new Note Receivable with a seven year term is executed for the balance of the
existing Note Receivable and the financed amount of the Upgrade Sale. The
Company and C&L discussed the allocation of payments on the new Note Receivable
for the purpose of profit recognition on the Upgrade Sale. The Company's view,
as reflected in the financial statements included herein, is that the payment
due on the new Note Receivable could be bifurcated between the amount
attributable to the Upgrade Sale and the amount attributable to the extended
balance of the previous Note Receivable, and that the excess of the payment due
under the new Note Receivable over the part of the bifurcated payment
attributable to the extended balance of the previous Note Receivable could be
allocated to the financed portion of the Upgrade Sale without affecting the
accounting for the previous sale. Profit on the Upgrade Sale would be recognized
on the installment method until allocated principal payments equal to 10% of
the Upgrade Sale are received. Profit would then be recognized on the accrual
method. C&L recommended that the concurrence of the Securities and Exchange
Commission ("Commission")) staff with this methodology be obtained prior to the
filing of this Registration Statement. C&L was prepared to accept the Company's
view, provided that the Commission staff concurred. Accordingly, at the time of
C&L's dismissal, with the exception of the issue of profit recognition on the
new Note Receivable and the effect of
55
<PAGE> 3
the allocation of principal payments to the new Note Receivable on the
recognition of profit on the previous sale, the Company does not believe that
there were any unresolved disagreements with C&L on any matter of accounting
principles or practices, financial disclosure, or auditing scope or procedure,
which, if not resolved to C&L's satisfaction, would have caused it to make
reference to the subject matter of the disagreements in connection with its
reports. C&L discussed each of these issues with members of the Board of
Directors of the Company and of the board of directors of the Company's parent,
Jeld-Wen. The Company has authorized C&L to respond fully to the inquiries of
KPMG concerning each of the disagreements.
In addition, C&L advised the Company of two matters that, if further
considered in connection with its audit of the financial statements, could
materially impact the fairness of the financial statements. The matters relate
to the adequacy of the Company's allowance for doubtful accounts for
receivables from the sale of Vacation Credits and the method of calculating
gains on the sale of such receivables. Due to their dismissal, C&L did not
complete the audit procedure and inquiries necessary to conclude on these
matters.
Prior to the engagement of KPMG, the Company met with representatives
of KPMG at a meeting on January 22, 1997 to discuss KPMG's experience in the
Company's industry and industry accounting practices in connection with Upgrade
Sales. At that meeting, the disagreements between the Company and C&L were
discussed. KPMG orally advised the Company that they believed that C&L's view
on the revenue recognition principles applicable to the required down payment
on Upgrade Sales was the correct interpretation of SFAS 66. KPMG did not
express any views on the other area of discussion between the Company and C&L,
the recognition of revenue from Upgrade Sales based on an allocation of
principal payments on Notes Receivable. The Company did not request, nor did it
receive, any oral or written reports from KPMG concerning the subject of the
unresolved disagreements with C&L. The Company did not consult C&L regarding
the issues which were the subject of the disagreement following the date of
dismissal. KPMG did discuss with C&L the subject matter of the disagreements
and other matters relevant to the audit of the Company's financial statements
prior to KPMG's agreement to the engagement as the Company's auditors. The
Company has requested KPMG to review the disclosure contained herein and has
provided KPMG the opportunity to furnish the Company with a letter addressed to
the Commission containing any new information, clarification of the Company's
expression of KPMG's views or the respects in which KPMG does not agree with
the statements contained herein. KPMG has reviewed the disclosure contained
herein and has advised the Company that it does not intend to deliver such a
letter to the Company.
As previously discussed, C&L was prepared to accept the Company's view
regarding revenue recognition for Upgrade Sales, provided that the Commission
staff concurred. In addition, due to their dismissal, C&L did not complete the
audit procedures and inquiries necessary to conclude on certain other matters.
the Company believes that, if C&L were allowed to complete their engagement and
if pre-filing acceptance by the Commission staff were obtained with regard to
revenue recognition for Upgrade Sales, the resolution of the aforementioned
issues and matters would have been treated no differently than as presently
treated in the Company's combined financial statements, and therefore there
would not have been any effect on the combined financial statements of the
Company as presented herein.
56
<PAGE> 1
EXHIBIT 21.1
1. TW Holdings, Inc., an Oregon corporation.
2. Trendwest Funding I, Inc., an Oregon corporation.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
The Board of Directors
Trendwest Resorts, Inc.
TW Holdings, Inc.
Trendwest Funding I, Inc.:
We consent to the use of our report dated May 2, 1997, except as to note 17 to
the combined financial statements which is as of July 2, 1997, included herein
and to the references to our firm under the headings "Selected Combined
Financial and Operating Data," "Experts" and "Change in Accountants" in the
prospectus.
KPMG Peat Marwick LLP
Seattle, Washington
July 28, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated March 31, 1997 with
respect to the financial statements of WorldMark, the Club, and to the
references to our firm under the heading "Experts" in the prospectus included
in the Registration Statement on Form S-1 of Trendwest Resorts, Inc.
Molatore, Peugh, McDaniel, Scroggin & Co. LLP
Klamath Falls, Oregon
July 25, 1997
<PAGE> 1
EXHIBIT 23.4
Consent of Proposed Director
I hereby consent to be named as a proposed director of Trendwest
Resorts, Inc. in the Registration Statement on Form S-1, File No. 333-26861.
Dated: July 14, 1997
/s/ HARRY DEMOREST
--------------------------
Harry Demorest
<PAGE> 1
EXHIBIT 23.5
Consent of Proposed Director
I hereby consent to be named as a proposed director of Trendwest
Resorts, Inc. in the Registration Statement on Form S-1, File No. 333-26861.
Dated: July 14, 1997
/s/ MICHAEL P. HOLLERN
--------------------------
Michael P. Hollern
<PAGE> 1
EXHIBIT 23.6
Consent of Proposed Director
I hereby consent to be named as a proposed director of Trendwest
Resorts, Inc. in the Registration Statement on Form S-1, File No. 333-26861.
Dated: July 14, 1997
/s/ LINDA M. TUBBS
---------------------------
Linda M. Tubbs
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
FINANCIAL STATEMENTS OF TRENDWEST RESORTS, INC. AND CERTAIN AFFILIATES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,195
<SECURITIES> 0
<RECEIVABLES> 70,333
<ALLOWANCES> 7,060
<INVENTORY> 18,078
<CURRENT-ASSETS> 0
<PP&E> 6,422
<DEPRECIATION> 0
<TOTAL-ASSETS> 110,433
<CURRENT-LIABILITIES> 0
<BONDS> 15,135
0
0
<COMMON> 14,970
<OTHER-SE> 38,773
<TOTAL-LIABILITY-AND-EQUITY> 110,433
<SALES> 27,945
<TOTAL-REVENUES> 32,613
<CGS> 7,553
<TOTAL-COSTS> 7,812
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,816
<INTEREST-EXPENSE> 634
<INCOME-PRETAX> 6,252
<INCOME-TAX> 2,253
<INCOME-CONTINUING> 3,999
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,999
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
FINANCIAL STATEMENTS OF TRENDWEST RESORTS, INC. AND CERTAIN AFFILIATES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 802
<SECURITIES> 0
<RECEIVABLES> 51,280
<ALLOWANCES> 5,832
<INVENTORY> 16,247
<CURRENT-ASSETS> 0
<PP&E> 7,303
<DEPRECIATION> 1,391
<TOTAL-ASSETS> 89,330
<CURRENT-LIABILITIES> 0
<BONDS> 1,055
0
0
<COMMON> 14,970
<OTHER-SE> 34,774
<TOTAL-LIABILITY-AND-EQUITY> 89,330
<SALES> 100,040
<TOTAL-REVENUES> 116,909
<CGS> 27,400
<TOTAL-COSTS> 28,259
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,467
<INTEREST-EXPENSE> 2,445
<INCOME-PRETAX> 20,024
<INCOME-TAX> 7,348
<INCOME-CONTINUING> 12,676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,676
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
