SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended December 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from ____________ to
______________
Commission file number 333-26861
TRENDWEST RESORTS, INC..
(Exact name of registrant as specified in charter)
OREGON 93-1004403
(State or other jurisdiction of organization) (IRS Employer Identification
No.)
12301 NE 10TH Place
Bellevue, WA 98005
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (425) 990-2300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock,
no par value
(Title of Class)
Aggregate market price of shares held by non-affiliates at March
24, 1998 was $76,384,013.75, consisting of 3,867,545 shares.
The number of shares of common stock outstanding on March 24,
1998 was 17,593,366 shares.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Proxy Statement for the 1998 Annual
Meeting of stockholders are incorporated by reference into Part III of this
Form 10-K.
<PAGE>
PART I
Item 1. Business
Trendwest Resorts, Inc. (Company) markets, sells and finances timeshare
Vacation Ownership Interests and acquires, develops and manages timeshare
resorts. A Vacation Ownership Interest entitles an owner to use a fully
furnished vacation resort unit at any of the WorldMark resorts based on the
number of Vacation Credits purchased. The Company's timeshare resorts are owned
and operated through WorldMark, the Club, (WorldMark) a non-profit mutual
benefit corporation organized by Trendwest in 1989 to provide an innovative,
flexible vacation ownership system. The Company presently sells Vacation
Ownership interests in Washington, Oregon and California primarily through
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 of the year and in 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 fourteen sales offices, ten of which
are located off-site in metropolitan areas. The other sales offices are located
on-site at four of the WorldMark Resorts.
In addition to the planned addition of Angel's Camp to the network of
WorldMark resorts (see table), 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 inc, (Parent or
JELD-WEN). On behalf of JELD-WEN, the Company is currently pursuing the
necessary regulatory approvals and has incurred approximately $4,400,000 in
costs related to the project as of December 31, 1997. All costs incurred will be
reimbursed by JELD-WEN and are included as a reduction to the due to Parent
amounts on the Company's balance sheet.
Corporate Background and Consolidation of Finance Subsidiaries
The Company commenced its timeshare business as a wholly-owned subsidiary of
JELD-WEN, in 1989 with three condominium units. JELD-WEN is currently the
Company's principal stockholder. 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.
The Company raises capital for property acquisitions and working capital by
selling or securitizing Notes Receivable through two subsidiaries (the "Finance
Subsidiaries"). Prior to June 30, 1997, the Finance Subsidiaries were owned by
JELD-WEN. 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"). On August 15, 1997, the Company consummated a
public offering of 3,176,250 shares of Common Stock at $18.00 per share
resulting in net proceeds of $51,772,000 after deducting the related issuance
costs.
The Company has transactions with other JELD-WEN subsidiaries and related
parties. See note 15 "Related Party Transactions" in the notes to the financial
statements contained herein.
The Company was incorporated in Oregon in 1989. The Company's principal
executive offices are located at 12301 NE 10th Place, Bellevue, Washington
98005, and its telephone number is (425) 990-2300.
<PAGE>
WorldMark
WorldMark is a California nonprofit mutual benefit corporation 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 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.
The 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. 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.
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. The Company
pays WorldMark the dues on all unsold Vacation Credits. Such payments totaled
$512,000, $275,000 and $793,000 in 1995, 1996 and 1997, 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 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.
<PAGE>
The WorldMark Resorts
The following table sets forth certain information as of December 31, 1997,
regarding each existing WorldMark Resort, planned expansion at existing
WorldMark Resorts through 1999, and planned new WorldMark Resorts through 1999.
<TABLE>
<CAPTION>
Existing
Date Units
Contributed in Planned Total Units
Existing Resorts Location To WorldMark (a) Service Expansion Anticipated RCI Rating (b)
<S> <C> <C> <C> <C> <C> <C>
British Columbia
Sundance Whistler February 1992 25 --- 25 R.I.D.
California
North Shore Estates Bass Lake October 1991 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 51 19 (c) 70 Gold Crown
Hawaii
Valley Isle Maui April 1990 14 --- 14 (d) Gold Crown
Kapaa Shores Kauai July 1991 49 --- 49 (d) Gold Crown
Kona Hawaii November 1997 32 32 (e) 64 Gold Crown
Nevada
Lake Tahoe Stateline January 1991 50 --- 50 Gold Crown/R.I.D.
Las Vegas Las Vegas December 1996 42 --- 42 Gold Crown
Oregon
Eagle Crest Redmond September 1989 67 --- (f) 67 Gold Crown
Gleneden Beach Lincoln City March 1996 80 --- 80 Gold Crown
Running Y Ranch Klamath Falls February 1997 54 40 (g) 94 Gold Crown
Schooner Landing Newport September 1997 13 (h) --- 13 Gold Crown
Washington
Lake Chelan Shores Chelan August 1990 13 --- 13 (d) Gold Crown
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 November 1994 80 56 (j) 136 Gold Crown
del Cablo
Planned Resorts
Clear Lake Nice, CA (k) 88 88
Angel's Camp Angel's Camp, WA(l) --- 112 112
--- --- ---
Total 928 399 1,327
=== === =====
(a) The dates in this column indicate, for each resort, the month and year in
which the first completed units at such resort were transferred to
WorldMark. At certain resorts, additional units were transferred to
WorldMark at later dates.
(b) Gold Crown and Resort of International Distinction ("R.I.D.") are resort
ratings awarded annually by RCI. In 1997, approximately 17% of the resorts
reviewed by RCI received a Gold Crown rating, the highest rating awarded by
RCI, and approximately 13% of the resorts reviewed by RCI received an R.I.D.
rating, the second-highest rating awarded by RCI.
(c) Construction on 45 units began in January 1997 with all units complete at
December 31, 1997. The remaining 19 units will be transferred to WorldMark
in early 1998.
(d) These units represent less than 1/2 the number of units at this resort.
(e) Construction of this resort was completed in November 1997 with 32 units
transferred to WorldMark. The remaining 32 units will be transferred in the
first quarter of 1998.
(f) 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 Trendwest will purchase the
financed portion of such sales, with full recourse, which will allow the
company to realize the stated rates of interest ranging from 13.9% to 15.4%.
Eagle Crest will repurchase defaulted contracts when they become 180 days
delinquent or are written off at their unpaid principal amount. In exchange
for such sales, Eagle Crest must transfer condominium units to WorldMark at
no cost to either the Company or WorldMark. Retention of the full interest
amounts from the contracts was negotiated in lieu of a fee from Eagle Crest
equal to 3% of net sales of vacation credits occurring at the Eagle Crest
resort and originally planned to commence in September 1997. 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.
(g) The Company is obligated to purchase 20 units in November 1998 and 20 units
in 1999. Units will be transferred to WorldMark as purchased The Company has
an agreement with Running Y, 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 Trendwest will purchase the financed portion of such
sales with full recourse, which will allow the company to realize the stated
rates of interest ranging from 13.9% to 15.4%. Running Y will repurchase
defaulted contracts when they become 180 days delinquent or are written off
at their unpaid principal amount. In exchange for such sales, Running Y must
transfer condominium units to WorldMark at no cost to either the Company or
WorldMark. Retention of the full interest amounts from the contracts was
negotiated in lieu of a fee from Running Y equal to 3% of net sales of
vacation credits occurring at the Running Y resort and originally planned to
commence in September 1997. 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.
(h) The Company purchased 659 weeks of time per year from Schooner's Landing and
deeded the rights to this time to WorldMark. This is equivalent to 13
condominium units.
(i) Construction began in April 1997 with units completed and transferred
to WorldMark in February and March of 1998.
(j) Construction was completed by the developer in December 1997 with 6 units
transferred to WorldMark in December. The remaining 56 units are expected to
be transferred to WorldMark in 1998.
(k) This project was substantially complete at December 31, 1997 with 50% of the
units available for use by WorldMark owners. Individual units cannot be
transferred to WorldMark until construction is 100% completed because the
individual units do not have separate legal descriptions. The Company has
experienced delays in obtaining final certificates of occupancy for the
entire project as County Building Inspectors have been dealing with several
emergency conditions throughout the County due to heavy rains associated
with El Nino.
Final certificates of occupancy are expected in early April 1998.
(l) Construction on this resort began in September, 1997. The first units
are expected to be completed in August, 1998.
</TABLE>
Sales And Marketing
The Company's sales of Vacation Credits primarily occur at ten off-site
sales offices located in metropolitan areas in three regions. The remainder of
the Company's sales of Vacation Credits occur at four on-site sales offices.
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 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. 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.
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 1996 and
1997, the Company had a rescission rate of 17.7% and 16.5% 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.
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 contributed in the aggregate approximately 29.0% and 25.3% of the
Company's net sales in 1996 and 1997, 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 1997, the average new Owner purchased approximately 6,600 Vacation
Credits for a purchase price of approximately $8,507 and the Company financed
approximately 88% of the aggregate purchase price of Vacation Credits sold to
new Owners with an average new Note Receivable of approximately $7,653. During
1997, the aggregate amount of Notes Receivable generated in connection with the
sale of Vacation Credits to new Owners was approximately $98.3 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.
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 cancelled and a new seven-year note secured by an interest in all Vacation
Credits owned is issued.
At December 31, 1997, an aggregate of $242.3 million of Notes Receivable
were outstanding, of which approximately $84.7 million with a weighted average
interest rate of 14.1% per annum had been retained by the Company. The balance
of approximately $157.6 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. The Company may continue to sell a
substantial amount of its Notes Receivable. See "Liquidity and Capital Resources
- -- 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 December 31, 1997, approximately $4.5 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 as 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, 1996 and 1997 were $11.2
million, and $15.2 million, respectively, representing approximately 6.2%, and
6.3% 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.
The Company estimates its reserve for doubtful accounts and recourse
liability by analysis of bad debts by each sales site by year of Note Receivable
origination. The Company uses this historical analysis, in conjunction with
other factors such as local economic conditions and industry trends. The Company
also utilizes experience factors of more mature sales sites in establishing the
reserve for bad debts at new sales offices. The Company generally charges off
all receivables when they become 180 days past due and returns the credits
associated with such charge-offs to inventory. At December 31, 1997, 1.9% of the
Company's total receivables portfolio of $242.3 million were more than 60 days
past due.
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 rescission notice has not been received from the purchaser. The Company
handles billing inquiries and all other personal interaction with the Owners,
including collections on its Notes Receivable.
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 comply 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.
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 December 31, 1997, WorldMark had a reserve for replacement costs of
approximately $5.3 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 Resort Condominiums International, LLC (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 $78), 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 $110 for exchanges in North America and $145
for International exchanges). The Company 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 11, 1998, RCI had approximately 3,200 participating resort facilities and
over 2.4 million members worldwide. During 1997, RCI processed approximately 1.8
million vacation interval exchanges.
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. See "Risk Factors - Competition".
Employees
As of December 31, 1997, Trendwest had 837 full-time employees. The Company
believes that its employee relations are good. None of the Company's employees
are 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.
<PAGE>
RISK FACTORS
In addition to the other information contained in this Form 10-K, the
following risk factors should be carefully considered in evaluating the Company
and its business. The Company cautions the reader that this list of risk factors
may not be exhaustive. This document 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 the Form 10-K.
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. 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. 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 December 31,
1997, the Company had purchase agreements and developments in progress to obtain
399 additional resort units by the end of 1999. 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.
Since the Company generally finances approximately 88% 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 purchase
additional resort units. No assurance can be given that the Company will be able
to obtain debt or equity capital through the sale or securitization of its Notes
Receivable, 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 "Liquidity and Capital Resources - 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 risk 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 inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and authorizations, the
ability of the Company to coordinate construction activities with the process of
obtaining such permits and authorizations, and the ability of the Company to
obtain the financing necessary to complete the necessary acquisition,
construction and 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. 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
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 material 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 could have a material adverse
effect on the Company's business, results of operations and financial condition.
Risks Associated with Customer Financing
The Company obtains a security interest in the purchased Vacation Credits
and it does not verify a prospective Owner's credit history. At December 31,
1997, an aggregate of $242.3 million of Notes Receivable were outstanding, of
which approximately $84.7 million had been retained by the Company. The
remaining balance of approximately $157.6 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.
Notes Receivable become delinquent when a 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 December 31, 1997, approximately $4.5 million of Notes
Receivable previously sold by the Company were past 60 days due 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. 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
"Liquidity and Capital Resources - Finance Subsidiaries."
The Company is exposed to credit losses in the event of nonperrformance by
the counterparties to its interest rate caps and forward swap agreements used to
hedge interest rate risk in securitization transactions. The Company does not
obtain collateral to support financial instruments but monitors the credit
standing of the counterparties.
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., The Walt Disney Company,
Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels and & Resorts,
Inc., Inter-Continental Hotels and Resorts, Inc., Westin Hotels & Resorts and
Promus Hotels, Inc. In addition, other publicly-traded companies in the
timeshare industry, such as Signature Resorts, Inc., Fairfield Communities,
Inc., and Vistana, Inc., 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.
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. 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.
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 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 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.
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 the
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 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 proportional 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
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."
Item 2. Properties
The Company owns its headquarters building in Bellevue, Washington. In the
ordinary course of business, the Company purchases property for development and
deeds said property to WorldMark upon completion of the project.
See "Business - WorldMark".
Item 3. Legal Proceedings
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.
Item 4. Submission of Matters to a Vote of Securities Holders
There were no matters submitted to a vote of the Company's equity holders
during the fourth quarter of 1997.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's initial public offering of Common Stock was consummated on
August 15, 1997 at an initial price of $18.00 per share. The Company's common
stock is quoted on the Nasdaq National Market under the symbol "TWRI". The
following table sets forth for the periods indicated, the high and low sales
price for Common Stock, as quoted on the Nasdaq National Market:
High Low
------- -----------
Year ended December 31, 1997:
Third quarter (commencing August 15, $20 7/8 $17 7/8
1997)
Fourth quarter $29 1/2 $18 1/2
January 1, 1998 to March 24, 1998 $22 3/4 $18 13/16
On March 24, 1998, there were approximately 37 holders of record of the
Company's common stock and approximately 1,362 beneficial stockholders.
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock. The
Company currently intends to retain future earnings to finance its operations
and fund the growth of the business. Any payment of future dividends will be at
the discretion of the Board of Directors of the Company and will depend on,
among other things, the Company's earnings, financial condition, contractual
restrictions in respect of the payment of dividends and other factors the Board
of Directors deems relevant.
<PAGE>
Item 6. Selected Financial 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" are derived from the audited financial
statements of Trendwest Resorts, Inc. and certain affiliates. 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 and
consolidated financial information for the Company and the notes thereto which
are contained elsewhere herein. The information presented below under the
caption "Operating Data" is unaudited.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Vacation Credit sales, net............... $38,743 $54,904 $77,783 $ 100,040 $ 128,835
Finance income........................... 3,813 3,736 5,368 7,143 11,989
Gains on sales of notes receivable....... 1,558 1,635 3,222 5,673 6,582
Resort management services............... 1,102 2,805 1,579 1,501 2,032
Other.................................... 344 763 1,226 2,552 2,149
------- ------- ------- ----------- -----------
Total revenues..................... 45,560 63,843 89,178 116,909 151,587
Costs and operating expenses:
Vacation Credit cost of sales............ 8,743 15,070 20,484 27,400 34,569
Resort management services............... 959 2,613 1,283 859 1,108
Sales and marketing...................... 19,523 25,615 36,374 47,810 59,448
General and administrative............... 4,056 6,588 8,391 10,904 13,449
Provision for doubtful accounts and
recourse 2,805 4,537 6,522 7,467 9,077
liability..............................
Interest................................. 1,929 881 2,380 2,445 1,739
------- ------- ------- ----------- -----------
Total costs and operating expenses. 38,015 55,304 75,434 96,885 119,390
------- ------- ------- ----------- ------------
Income before income taxes................. 7,545 8,539 13,744 20,024 32,197
Income tax expense....................... 2,909 3,214 4,979 7,348 11,588
------- ------- ------- ----------- ------------
Net income................................. $ 4,636 $ 5,325 $ 8,765 $ 12,676 $ 20,609
======= ======= ======= =========== ============
Basic and diluted net income per share of
Common Stock............................... $ 0.37 $ 0.42 $ 0.61 $ 0.88 $ 1.32
Shares used in computing basic and diluted
net income per share of Common Stock (1).. 12,378,643 12,758,616 14,387,169 14,417,116 15,596,419
Operating Data:
Number of WorldMark Resorts (at end of
period).................................. 12 14 16 19 22
Number of units (at end of period)......... 239 325 499 746 928
Number of Vacation Credits sold (in
thousands)............................... 34,296 47,025 65,308 82,270 99,911
Average price per Vacation Credit sold..... $ 1.14 $ 1.18 $ 1.21 $ 1.24 $ 1.27
Average cost per Vacation Credit sold...... $ 0.25 $ 0.32 $ 0.31 $ 0.33 $ 0.35
Number of Owners (at end of period)........ 12,732 18,740 27,965 38,997 51,778
Average purchase price for new Owners...... $ 7,879 $ 8,141 $ 8,325 $ 8,432 $ 8,507
Balance Sheet Data:
Cash, including restricted cash............ $ 528 $ 375 $ 516 $ 802 $ 1,289
Total assets............................... 36,007 51,143 71,289 89,330 151,750
Indebtedness(2)............................ 4,809 10,378 24,826 22,371 1,947
Stockholders' equity....................... 22,308 27,456 36,753 49,744 122,125
- ----------
(1) Includes 5,193,693 shares issued to JELD-WEN in connection with the Consolidation Transactions.
(2) Indebtedness is comprised of notes payable to JELD-WEN and others.
</TABLE>
<PAGE>
Selected quarterly financial data
<TABLE>
<CAPTION>
1996 quarters ended
March 31 June 30 September 30 December 31
------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Total revenue $25,202 $31,016 $31,166 $29,525
Total costs and operating 21,936 24,639 25,809 24,501
expenses
Net income 2,057 4,043 3,386 3,190
Basic and diluted net income
per common share $ 0.14 $ 0.28 $ 0.23 $ 0.22
</TABLE>
<TABLE>
<CAPTION>
1997 quarters ended
March 31 June 30 September 30 December 31
------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Total revenue $ 32,613 $ 39,837 $ 40,472 $ 38,665
Total costs and operating 26,361 30,803 31,963 30,263
expenses
Net income 3,999 5,781 5,433 5,396
Basic and diluted net income
per common share $ 0.28 $ 0.40 $ 0.34 $ 0.31
</TABLE>
Item 7. 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 revenue primarily from the sale of Vacation Credits
and, to a lesser extent, from 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 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 Sale 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
1996, 13% of Upgrade Sales had the additional 10% cash down payment, as compared
to 55% in 1997.
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.
<PAGE>
Results of Operations
The following discussion of the results of operations relates to entities
comprising the Company on a combined historical basis.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
As a Percentage of Total Revenues: 1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Vacation Credit sales, net 87.2% 85.5% 85.0%
Finance income 6.0 6.1 7.9
Gains on sales of notes receivable 3.6 4.9 4.3
Resort management services 1.8 1.3 1.3
Other 1.4 2.2 1.5
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
As a Percentage of Vacation Credit Sales, Net:
Vacation Credit cost of sales 26.3% 27.4% 26.8%
Sales and marketing 46.8 47.8 46.1
Provision for doubtful accounts and recourse liability 8.4 7.5 7.0
As a Percent of Resort Management Revenues:
Cost of resort management services 81.3% 57.2% 54.5%
As a Percentage of Total Revenues:
General and administrative 9.4% 9.3% 8.9%
Total costs and operating expenses 84.6 82.9 78.8
</TABLE>
Comparison of the year ended December 31, 1997 to the year ended December 31,
1996
For the year ended December 31, 1997 the Company achieved total revenues of
$151.6 million compared to $116.9 million for the year ended December 31, 1996,
an increase of 29.7%. The principal reason for the overall improvement was a
28.8% increase in Vacation Credit sales from $100.0 million for the year ended
December 31, 1996 to $128.8 million for the year ended December 31, 1997. The
increase in Vacation Credit sales was primarily the result of a 21.4% increase
in the number of Vacation Credits sold from 82.3 million for the year ended
December 31, 1996 to 99.9 million for the year ended December 31, 1997. The
increase in Vacation Credits sold was largely attributable to two new off-site
sales offices in the Southern California region, Costa Mesa and Woodland Hills,
opened in February and October 1997; the maturation of two offices opened in
February and April of 1996; and increased Upgrade sales. Revenues from Upgrade
Sales increased 60.5% from $12.4 million for the year ended December 31, 1996 to
$19.9 million for the year ended December 31, 1997 due largely to the increase
in 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 11.4% in the year ended December 31, 1997
compared to the year ended December 31, 1996 due to the continued growth of
resorts and effective sales efforts. The average price per Vacation Credit sold
increased from $1.24 for the year ended December 31, 1996 to $1.27 for the year
ended December 31, 1997, an increase of 2.4%, which was due primarily to a 4.5%
increase in the sales price of Upgrade credits.
Finance income increased 69.0% from $7.1 million for the year ended December
31, 1996 to $12.0 million for the year ended December 31, 1997, due to the
increased carrying balances of Notes Receivable and the recognition of
unrealized gain on residual interest in Notes Receivable sold of $1.0 million.
Gains on sales of Notes Receivable increased 15.8% from $5.7 million for the
year ended December 31, 1996 to $6.6 million for the year ended December 31,
1997 due to higher net interest spreads on the principal amount of Notes
Receivable sold.
Vacation Credit cost of sales increased from $27.4 million for the year
ended December 31, 1996 to $34.6 million for the year ended December 31, 1997,
an increase of 26.3% and primarily reflects the increase in sales of Vacation
Credits. As a percentage of Vacation Credit sales, Vacation Credit cost of sales
decreased from 27.4% for the year ended December 31, 1996 to 26.8% for the year
ended December 31, 1997. The Company believes that the change in Vacation Credit
cost of sales as a percentage of Vacation Credit sales would have been slightly
higher for the year ended December 31, 1997 as compared with the year ended
December 31, 1996 absent the increase in the percentage of Owners who made a 10%
cash down payment on Upgrade Sales.
Sales and marketing costs increased 24.3% from $47.8 million for the year
ended December 31, 1996 to $59.4 million in the year ended December 31, 1997. As
a percentage of Vacation Credit sales, sales and marketing costs decreased from
47.8% for the year ended December 31, 1996 to 46.1% for the year ended December
31, 1997 primarily due to a substantially higher percentage of Upgrade Sales for
the year ended December 31, 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 would have remained relatively constant for
the two years compared absent the increase in the percentage of Owners who made
a 10% cash down payment on Upgrade Sales.
General and administrative expenses increased 22.9% from $10.9 million for
the year ended December 31, 1996 to $13.4 million for the year ended December
31, 1997 primarily reflecting the increased sales growth and increased
administration costs due to regionalization. As a percentage of total revenues,
general and administrative expenses decreased from 9.3% for the year ended
December 31, 1996 to 8.9% for the year ended December 31, 1997, due primarily to
the substantially higher percentage of Upgrade Sales that were entitled to full
revenue recognition at the time of sale. The Company believes that general and
administrative expenses as a percentage of total revenues would have remained
relatively constant for the years ended December 31, 1996 and 1997 absent the
increase in the percentage of Owners who made a 10% cash down payment on Upgrade
Sales in 1997.
Interest expense decreased from $2.4 million for 1996 to $1.7 million for
1997, a decrease of 29.2% due primarily to the repayment of borrowings from the
Parent from net proceeds of the Offering in August 1997.
Provision for doubtful accounts and recourse liability increased 21.3% from
$7.5 million for the year ended December 31, 1996 to $9.1 million for the year
ended December 31, 1997. As a percentage of Vacation Credit sales, the provision
declined from 7.5% for the year ended December 31, 1996 to 7.0% for the year
ended December 31, 1997 due to the substantially higher percentage of Upgrade
Sales for 1997 that were entitled to full revenue recognition at the time of
sale and continued growth in the amount of Notes Receivable from Upgrade Sales
which have a historically lower default rate than new sales.
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 sold, 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
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 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.
Provisions 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.
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, management
fees, 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 year ended December 31 1997, cash used in operating activities
was $46.5 million. While net income was higher for the year ended December 31,
1997, cash generated from operating activities was reduced 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. Cash flows from operating
activities resulted primarily from the sale and repayment of Notes Receivable of
$71.1 million and net income of $20.6 million. Cash flow used in operating
activities was principally due to an increase in Notes Receivable of $112.2
million to finance the purchase of Vacation Credits by Owners and an increase in
inventory of $28.3 million due to the increasing sales of Vacation Credits. The
decrease in proceeds from the sales of Notes Receivable was due in part to
treating the transfer of such receivables to the Bank Group after January 1,
1997, and prior to June 30 1997 as secured borrowing as TW Holdings did not meet
the sales recognition criteria of Statement of Financial Accounting Standards
Number 125 (SFAS 125).
Net cash used in investing activities for the year ended December 31, 1997,
was $1.7 million and primarily consisted of acquisitions of furniture and
fixtures and data processing equipment required to meet the growth of the
Company.
Net cash provided by financing activities for the year ended December 31
1997 was $48.2 million. The Company received net proceeds of $51.8 million from
the offering of 3,176,250 shares of the Company's stock. Net proceeds from the
offering were used to repay $41.9 million of borrowings from JELD-WEN, resulting
in a net change due to Parent of $19.4 million. The balance of the proceeds were
used to finance the acquisition of additional resort properties, to carry Notes
Receivable contracts, and for working capital and other general corporate
purposes. After January 1, 1997, and prior to June 30, 1997, the Company
borrowed $16.8 million from a group of banks through TW Holdings, Inc., secured
by Notes Receivable to meet working capital needs.
The Company continually needs to acquire and develop additional resort units
for WorldMark in order to provide additional vacation credits for sale by the
Company and to provide a greater variety of resort location for Owners. The
continued growth of the Company and increase in the owner base allows for the
development of larger resorts which provides certain economies of scale to the
Company and to WorldMark from an operating cost standpoint. The permitting
process for larger resorts can be lengthy at times, particularly in California
and necessitates the need to acquire land as much 12 to 18 months before a
resort is completed. This is reflected in the Company's investment in inventory
which increased $28.3 million in 1997 to $44.5 million at December 31, 1997.
At December 31, 1997, there were 5.2 million credits available for sale.
Included in construction in progress at December 31, 1997 were 55.2 million of
credits associated with Kona, Big Bear and Coral Baja which will be transferred
to the Company by developers in 1998 in accordance with the transfer schedules.
In addition, Clear Lake was substantially complete at December 31, 1997 with
some use by Owners. Due to the impact of El Nino, final approvals from local
authorities allowing for transfer of title to WorldMark could not be obtained
until late March of 1998. This project will provide approximately 37.1 million
of credits for sale by the Company. With the above units coming on line in 1998,
completion of 112 units at Angel's Camp, the expansion of existing resorts and
completion of the permitting process for Maui, the Company believes it will have
an adequate supply of credits available to meet its planned growth through the
early part of the year 2000. 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.
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 the Parent 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."
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 Bank of America NT&SA (the "Bank Group") pursuant to a
receivables transfer agreement. Through TW, the Company transferred eligible
Notes Receivable of $38.6 million in 1995, $42.1 million in 1996 and $57.1
million in 1997 to the Bank Group. The transfers are subject to recourse for
defaults and the Company maintains a reserve for recourse liability.
Financing of Notes Receivable has been accomplished by use of a $98.0
million purchase commitment from the Bank Group. As of December 31, 1997, Notes
Receivable totaling $98.0 million had been transferred to the Bank Group. 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 125 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. In conjunction with the renewal of the purchase commitment in June of
1997, the Company modified its transfer arrangements so that Notes Receivable
transferred to the Bank Group qualify for sales recognition under SFAS 125. In
December of 1997 the purchase commitment was amended to increase the size of the
facility from $93.0 million to $98.0 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.
The Company has limited involvement with derivative financial instruments
and uses them only to manage well-defined interest rate risks. They are not used
for trading purposes.
The Company has a $10 million open line of credit with the Parent which
bears interest at prime plus 1% (currently 9.5%) per annum and is payable on
demand. As of December 31, 1997 the outstanding indebtedness to the Parent was
$1.9 million and income taxes payable to the Parent were $2.8 million.
In October 1997, the Company entered into two $50 million notional amount
forward interest rate swap agreements to effectively hedge the treasury
component of a future financing transaction expected to be completed in the
first quarter of 1998. These transactions meet the requirement for hedge
accounting, including designation to a specific transaction, and high
correlation. Gains and losses on the forward swap agreements are deferred and
recognized upon completion of the transaction. The fair value of these swaps was
($472,000) at December 31, 1997, which reflects the estimated amount the Company
would have to pay at that date to cancel the contracts or transfer them to other
parties.
The remaining balance of the Company's $5.0 million line of credit with
FINOVA Capital Corporation was paid in August 1997, and the line of credit was
terminated by the Company due to the relatively high interest rate of 10.5%. The
Company pursued and consummated a $30 million revolving line of credit with its
Bank Group agented by Bank of America NT&SA in February 1998, at more favorable
interest rates, (see discussion under "Recent Developments.").
Through the end of 1999, the Company anticipates spending approximately
$98.0 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 from net proceeds of a securitization
of notes receivable completed in March 1998, further sales or securitizations of
Notes Receivable and a $30 million revolving credit facility, which was
consummated in the first quarter of 1998, (see discussion under "Recent
Developments"). The above credit facilities, together with cash generated from
financing transactions and the $10 million line of credit with Parent should be
sufficient to meet the Company's working capital and capital expenditure needs
for the near future.
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
In February 1998, the Company entered into a Credit Agreement with a group
of banks to provide the Company with a three-year unsecured revolving credit
facility for $30 million. The credit agreement provides for borrowings at the
reference rate as announced by Bank of America, NT&SA or at LIBOR plus 100 basis
points. The Credit Agreement provides for a commitment fee to the banks of 30
basis points per annum on the total unused amount of the commitment.
Availability under the line of credit is subject to a borrowing base which is a
percentage of unencumbered Notes Receivable and inventory, including property
under development. Under the terms of the Credit Agreement, the Company is
required to maintain certain interest coverage ratios and capitalization ratios
and also imposes limitations on certain liens and carrying amounts of inventory.
The Credit Agreement matures on February 12, 2001. The Company plans to use this
facility to meet short term working capital needs.
In March 1998, the Company sold $37.9 million of Notes Receivable to a
special purpose company, Trendwest Funding II, Inc. In addition, the Bank Group
sold $98.0 million of Notes Receivable purchased from TW Holdings, Inc. to
Trendwest Funding II, Inc. The special purpose company sold the receivable to
TRI Funding II, Inc. (TRI), a special purpose entity , and TRI issued $130.4
million in two classes of senior and subordinated notes to institutional
investors. The 1998-1, Class A notes were issued for $125.0 million at a fixed
rate of 6.88%. The 1998-1, Class B notes were issued for $5.4 million at a fixed
rate of 7.98%. The Class A notes and Class B notes were rated `A" and `BBB' by
Fitch IBCA, Inc., respectively, and are secured by the Notes Receivable owned by
TRI. The ratings reflect credit enhancements of a 4% overcollaterilization and a
2% minimum reserve account. The notes have a stated maturity of April 15, 2009.
Upon completion of this financing, the Company had $93.0 million of availability
under the TW Holdings facility and $30.0 million under the revolving credit
agreement.
On March 17, 1998 the Company opened its Burlingame, California off-site
sales office bringing the total number of off-site sales offices to fourteen,
ten of which are located off-site in metropolitan areas. This newest Northern
California sales office will compliment other off-site Northern California sales
offices in Sacramento, Santa Clara and Walnut Creek. In the second quarter of
1998 the Company expects to open two additional off-site sales offices, one in
the San Diego area and one in the Phoenix area. The latter which will provide an
entrance into the Southwest Region market area which the Company believes will
provide additional sales opportunities to sustain near-term growth of the
Company.
The Company is presently negotiating the purchase of land and construction
of a new Corporate headquarters building to be available for occupancy on or
about December 1, 1998. The facility will be larger and enable the Company to
consolidate most of the existing Corporate operations at one location. Estimated
cost of the new facility is expected to be approximately $11.0 million and will
provide space to meet growth of the Company for the near future. The existing
Corporate facility will be sold with proceeds estimated at approximately $3.8
million. The new building is a expected to be financed under a conventional
commercial real estate mortgage.
Year 2000
The Year 2000 issue is a flaw in many electronic data processing systems
which prevents them from processing year-date data accurately beyond the year
1999. This is the result of using a two-digit representation for the year, for
example "99" for "1999". This approach assumed that the first two digits of the
abbreviated date is "19". However, when the computer reaches 2000 it may
interpret "00" as the year 1900 possibly causing inaccurate data processing or
processing to stop altogether. The Company has reviewed its exposure to the Year
2000 issue with respect to its data processing systems and determined the cost
of Year 2000 compliance will be immaterial to its financial condition and
results of operations. Additionally, the Company has reviewed its exposure to
Year 2000 issue with respect to material vendors such as Sage and is monitoring
Sage's Year 2000 compliance program to ensure timely completion.
The above statement and other statements herein contain forward looking
information which include future financing transactions, acquisition of
properties, and the Company's future prospects and other forecasts and
statements of expectations. Actual results may differ materially from those
expressed in any forward-looking statement made by the Company, due among other
things, to the Company's ability to develop or acquire additional resort
properties, find acceptable debt or equity capital to fund such development, as
well as other risk factors as outlined in the "Risk Factors" section of this
Form 10-K.
Item 8. Financial Statements and Supplementary Data
See the information set forth on Index to Financial Statements appearing on
page F-1 of this report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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
filing the Registration Statement in connection with the Company's IPO. 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 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.
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. The Commission staff did not object to the Company's revenue
recognition policy for upgrade sales at the time of the Company's IPO. 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 had been allowed to complete their engagement the resolution of the
aforementioned issues and matters would have been treated no differently than as
presently treated.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item will be set forth under "Directors and
Executive Officers" and "Proxy Statement - Compliance with Section 16(a) Under
the Securities Exchange Act of 1934" in the Company's Proxy Statement and
reference is expressly made thereto for specific information incorporated herein
by reference.
Item 11. Executive Compensation
The information required by this Item will be set forth under Executive
Compensation" in the Company's Proxy Statement and reference is expressly made
thereto for the specific information incorporated herein by the aforesaid
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item will be set forth under "Proxy
Statement - Share Ownership of Directors and Executive Officers," and "Other
information - Certain Shareholders" in the Company's Proxy Statement and
reference is expressly made thereto for the specific information incorporated
herein by the aforesaid reference.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The information required by this item will be set forth under "Proxy
Statement - Certain Relationships and Related Transactions" in the Company's
Proxy Statement and reference is expressly made thereto for the specific
information incorporated herein by the aforesaid reference.
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Registrant, dated July 2, 1997. (1)
3.2 Amended and Restated Bylaws of the Registrant. (1)
10.1 Management Agreement (Fourth Amended) between the Registrant and WorldMark, the Club
("WorldMark"), dated September 30, 1994. (1)
10.2 Software Support and Maintenance Agreement between the Registrant and Sage Systems, Inc.
("Sage"), dated , 1994. (1)
10.3 Service Agreement between the Registrant and Sage, dated January 1, 1996. (1)
10.4 Software Transfer Agreement between the Registrant, Sage and James McBride, Sr., dated
August, 1994. (1)
10.5 Escrow Agreement between the Registrant, Club Esprit (predecessor to WorldMark) and Sage,
dated as of October 25, 1990. (1)
10.6 Form of WorldMark Retail Installment Contract Vacation Owner Agreement. (1)
10.7 Indenture among the Registrant, TRI Funding Company I, L.L.C. and LaSalle National Bank, dated
as of March 1, 1996. (1)
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. (1)
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. (1)
10.10 Receivables Purchase Agreement among the Registrant, TW Holdings, Inc. and Trendwest Funding
I, Inc., dated March 1, 1996. (1)
10.12 Receivables Purchase Agreement between Registrant and TW Holdings, Inc., dated December 1,
1993. (1)
10.13 Second Amended and Restated Eagle Crest Receivables Purchase Agreement dated as of June 1,
1997, by and between Eagle Crest, Inc. and TW Holdings
10.14 Second Amended and Restated Receivables Transfer Agreement dated as of June 1, 1997, by and
between TW Holdings, Inc. as Seller, Bank of America National Trust and Savings Association,
doing business as Seafirst Bank, and Other Purchasers Named Therein as Purchasers, Seafirst
Bank as Agent, and Trendwest Resorts, Inc. as Master Servicer
10.14.1 First Amendment to Receivables Transfer Agreement
10.15 Nonexclusive Limited Assignment among the Registrant, Eagle Crest Partners, Ltd. and
WorldMark, dated September 20, 1996. (1)
10.16 Nonexclusive Limited Assignment among the Registrant, Running Y, Inc. and WorldMark dated
September 20, 1996. (1)
10.17 Purchase Agreement among the Registrant, Eagle Crest Partnership, Ltd., Roderick C. Wendt and
Richard L. Wendt, dated December 30, 1992. (1)
10.18 Purchase Agreement among the Registrant, Roderick C. Wendt and Richard L. Wendt, dated April
1, 1993. (1)
10.19 Purchase Agreement between the Registrant and Jeld-Wen Foundation, dated March 13, 1992. (1)
10.20 Purchase Agreement between the Registrant and Jeld-Wen, dated March 15, 1993. (1)
10.21 Purchase Agreement between the Registrant and Jeld-Wen, dated September 30, 1993. (1)
10.22 Purchase Agreement between the Registrant and Jewel W. Kintzinger, dated October 12, 1993. (1)
10.23 Servicing Escrow Agreement between Jewel Kintzinger, the Registrant and Sage, dated October
12, 1993. (1)
10.24 Articles of Incorporation of WorldMark, the Club, dated December 10, 1992. (1)
10.25 Bylaws of WorldMark, dated December 2, 1994. (1)
10.26 Form of Employment Agreement between William F. Peare and the Registrant. (1)
10.27 Form of Employment Agreement between Jeffery P. Sites and the Registrant. (1)
10.28 Trendwest Resorts, Inc. 1997 Employee Stock Option Plan. (1)
10.29 Stock Purchase Agreement between Trendwest Resorts, Inc. and JELD-WEN, inc. (1)
10.30 Stock Purchase Agreement between Trendwest Resorts, Inc. and I&I Holdings, Ltd. (1)
11.1 Statement re Computation of Earnings per Share
13.1 Annual Report to Shareholders (2)
21.1 List of all Subsidiaries of the Registrant. (1)
24.1 Power of Attorney from officers and directors (contained on signature page).
27.1 Financial Data Schedule (one year)
(1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-26861).
(2) Incorporated by reference to the Company's Annual Report to Shareholders.
</TABLE>
- ----------
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three month
period ending December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, Trendwest Resorts, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bellevue,
State of Washington, on March 30, 1998.
TRENDWEST RESORTS, INC.
By: /s/ JEFFERY P. SITES
Jeffery P. Sites
Executive Vice President
/s/ WILLIAM F. PEARE President, March 30, 1998
- ---------------------------------- Chief Executive Officer
William F. Peare and Director
(Principal Executive Officer)
/s/ JEFFERY P. SITES Executive Vice President, March 30, 1998
- ----------------------------------
Jeffery P. Sites Chief Operating Officer and
Director
/s/ GARY A. FLORENCE Vice President, Treasurer March 30, 1998
- ----------------------------------
Gary A. Florence and Chief Financial Officer
(Principal Financial Officer)
/s/ JEROL E. ANDRES Director March 30, 1998
- ----------------------------------
Jerol E. Andres
Director March __, 1998
- ----------------------------------
Harry L. Demorest
/s/ MICHAEL P. HOLLERN Director March 30, 1998
- ----------------------------------
Michael P. Hollern
/s/ DOUGLAS P. KINTZINGER Director March 30, 1998
- ----------------------------------
Douglas P. Kintzinger
Director March __, 1998
- ----------------------------------
Linda M. Tubbs
/s/ RODERICK C. WENDT Director March 30, 1998
- ----------------------------------
Roderick C. Wendt
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TRENDWEST RESORTS, INC. AND SUBSIDIARIES
Page
Independent Auditors' Report.................................. F-2
Combined and Consolidated Balance Sheets...................... F-3
Combined and Consolidated Statements of Income................ F-4
Combined and Consolidated Statements of Stockholders' Equity.. F-5
Combined and Consolidated Statements of Cash Flows............ F-6
Notes to Combined and Consolidated Financial Statements....... F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Trendwest Resorts, Inc.:
We have audited the accompanying combined and consolidated balance sheets of
Trendwest Resorts, Inc. and subsidiaries as of December 31, 1996 and 1997, and
the related combined and consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1997. These combined and consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined and consolidated 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 and consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Trendwest Resorts, Inc. and subsidiaries as of December 31, 1996 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
February 13, 1998
F-2
<PAGE>
TRENDWEST RESORTS, INC.
AND SUBSIDIARIES
Combined and Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------------
Assets 1996 1997
----------------- -----------------
<S> <C> <C>
Assets:
Cash $ 93 70
Restricted cash 709 1,219
Notes receivable, net of allowance for doubtful accounts, sales
returns and deferred gross profit 45,448 73,075
Accrued interest and other receivables 4,606 7,435
Residual interest in notes receivable sold 10,839 15,235
Inventories 16,247 44,534
Property and equipment, net 5,912 7,057
Deferred income taxes 2,360 924
Other assets 3,116 2,201
----------------- -----------------
Total assets $ 89,330 151,750
----------------- -----------------
----------------- -----------------
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable 1,037 944
Accrued liabilities 2,100 3,862
Accrued construction in progress 2,089 10,480
Due to Parent 21,316 1,947
Allowance for recourse liability and deferred gross profit on notes
receivable sold 10,080 8,757
Income taxes payable to Parent 1,909 2,755
Income taxes payable -- 880
Notes payable 1,055 --
----------------- -----------------
Total liabilities 39,586 29,625
----------------- -----------------
Stockholders' equity:
Preferred stock, no par value. Authorized 10,000,000 shares;
no shares shares issued or outstanding -- --
Common stock, no par value. Authorized 90,000,000 shares;
issued and outstanding 17,593,366 shares at December 31, 1997 14,970 66,742
Retained earnings 34,774 55,383
----------------- -----------------
Total stockholders' equity 49,744 122,125
Commitments and contingencies
----------------- -----------------
Total liabilities and stockholders' equity $ 89,330 151,750
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to combined and consolidated financial statements.
<PAGE>
TRENDWEST RESORTS, INC.
AND SUBSIDIARIES
Combined and Consolidated Statements of Income
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
1995 1996 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Vacation Credit sales, net $ 77,783 100,040 128,835
Finance income 5,368 7,143 11,989
Gains on sales of notes receivable 3,222 5,673 6,582
Resort management services 1,579 1,501 2,032
Other 1,226 2,552 2,149
------------------ ------------------ ------------------
Total revenues 89,178 116,909 151,587
------------------ ------------------ ------------------
Costs and operating expenses:
Vacation Credit cost of sales 20,484 27,400 34,569
Resort management services 1,283 859 1,108
Sales and marketing 36,374 47,810 59,448
General and administrative 8,391 10,904 13,449
Provision for doubtful accounts and recourse
liability 6,522 7,467 9,077
Interest 2,380 2,445 1,739
------------------ ------------------ ------------------
Total costs and operating expenses 75,434 96,885 119,390
------------------ ------------------ ------------------
Income before income taxes 13,744 20,024 32,197
Income tax expense 4,979 7,348 11,588
------------------ ------------------ ------------------
Net income $ 8,765 12,676 20,609
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Basic and diluted net income per common share $ .61 .88 1.32
Basic and diluted weighted average shares of
common stock outstanding 14,387,169 14,417,116 15,596,419
</TABLE>
See accompanying notes to combined and consolidated financial statements.
<PAGE>
TRENDWEST RESORTS, INC.
AND SUBSIDIARIES
Combined and Consolidated Statements of Stockholders' Equity
(dollars in thousands)
<TABLE>
<CAPTION>
Employee
Class A Class B notes
common stock common stock receivable Total
------------------------ ---------------------- for common Retained stockholders'
Shares Amount Shares Amount stock earnings equity
----------- --------- ---------- -------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 Trendwest Funding
common stock 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
Consolidation transactions
(5,193,693 shares of Trendwest
common stock issued in
exchange for all of the out-
standing shares of TW Holdings
and Trendwest Funding) 5,192,493 8,500 (100) (8,500) -- -- --
Issuance of common stock, net
of issuance costs of $5,401 3,176,250 51,772 -- -- -- -- 51,772
Net income -- -- -- -- -- 20,609 20,609
----------- ---------- --------------- -------- ---------- ------------ ---------
Balance at December 31, 1997 17,593,366 $ 66,742 -- $ -- -- 55,383 122,125
----------- ---------- --------------- -------- ---------- ------------ ---------
----------- ---------- --------------- -------- ---------- ------------ ---------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------
Issued and
Authorized outstanding
-------------- -----------
<S> <C> <C>
Trendwest:
Common stock, voting no par value 10,264,215 9,223,423
Preferred stock, no par value -- --
TW Holdings:
Class A, voting, no par value 200 200
Class B, nonvoting, no par value 200 100
Trendwest Funding common stock,
voting, no par value 1,000 1,000
</TABLE>
See accompanying notes to combined and consolidated financial statements.
<PAGE>
TRENDWEST RESORTS, INC.
AND CERTAIN AFFILIATES
Combined and Consolidated Statements of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,765 12,676 20,609
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 330 502 681
Amortization of residual interest in notes receivable sold 1,481 2,735 4,089
Provision for doubtful accounts, sales returns and recourse
liability 7,655 10,078 11,755
Recoveries of notes receivable charged off 113 72 132
Residual interest in notes receivables sold (3,258) (5,674) (6,729)
Unrealized gain on residual interest in notes receivable sold -- -- (1,044)
Change in deferred gross profit 1,480 2,737 (684)
Deferred income tax expense (benefit) (364) (422) 1,436
Issuance of notes receivable (71,052) (91,593) (112,170)
Proceeds from sale of notes receivable 46,665 67,257 42,292
Proceeds from repayment of notes receivable 11,084 21,388 28,781
Purchase of notes receivable (11,305) (11,150) (16,571)
Changes in certain assets and liabilities:
Increase in restricted cash (110) (328) (510)
Inventories 1,493 (5,653) (28,287)
Accounts payable and accrued liabilities (3,279) 1,729 10,060
Income taxes payable to Parent (2,207) 713 846
Income taxes payable -- -- 880
Other (1,740) (1,540) (2,044)
-------------- -------------- --------------
Net cash provided by (used in) operating activities (14,249) 3,527 (46,478)
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (4,312) (1,429) (1,696)
Proceeds from sale of marketable equity securities 4,219 -- --
-------------- -------------- --------------
Net cash used in investing activities (93) (1,429) (1,696)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from notes payable 100 -- 16,803
Payments on notes payable (1,529) (1,487) (1,055)
Net change in due to Parent 15,877 (968) (19,369)
Dividends paid (120) -- --
Proceeds from issuance of common stock 15 1 51,772
Payments on notes receivable for stock 30 314 --
-------------- -------------- --------------
Net cash provided by (used in) financing activities 14,373 (2,140) 48,151
-------------- -------------- --------------
Net increase (decrease) in cash 31 (42) (23)
Cash at beginning of period 104 135 93
-------------- -------------- --------------
Cash at end of period $ 135 93 70
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental disclosures of cash flow information
cash paid during the period for:
Interest $ 2,091 2,579 1,951
Income taxes 7,547 7,056 8,010
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental schedule of noncash investing and financing activities:
Issuance of common stock for notes receivable $ 41 -- --
Reduction of notes payable through transfer of notes receivable -- -- 16,803
Issuance of note receivable in exchange for other assets sold -- -- 489
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to combined and consolidated financial statements.
<PAGE>
TRENDWEST RESORTS, INC.
AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements, Continued
December 31, 1995, 1996 and 1997
(dollar amounts in thousands)
(1) Description of Business and Basis of Presentation
Description of Business
Trendwest Resorts, Inc. (Trendwest), TW Holdings, Inc. (TW Holdings) and
Trendwest Funding I Inc. (Trendwest Funding I) (Company) generate
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 unit based on the number of Vacation Credits purchased.
Vacation Credits are created through the transfer to WorldMark of resort
units developed or purchased by the Company. The Company also manages
resort properties under a management agreement with WorldMark. WorldMark
is a separate entity which owns the transferred properties for the
benefit of Vacation Credit owners (Members or Owners).
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%. The resulting note balances are
secured by the Vacation Credits sold.
Basis of Presentation
For periods prior to June 30, 1997, the financial statements are
presented on a combined basis and include the accounts of Trendwest, TW
Holdings and Trendwest Funding I. Trendwest Funding I is included in the
financial statements from April 19, 1996 (inception). The financial
statements of these three entities have been combined as they are
entities under the common control of JELD-WEN, inc. (Parent).
Trendwest is a majority owned subsidiary of the Parent and prior to June
30, 1997, TW Holdings and Trendwest Funding I were wholly-owned
subsidiaries of the Parent. Effective June 30, 1997, the Parent
transferred to Trendwest all of the outstanding common stock of TW
Holdings and Trendwest Funding I in exchange for 5,193,693 shares of
Trendwest common stock (Consolidation Transactions) resulting in TW
Holdings and Trendwest Funding I becoming wholly-owned subsidiaries of
Trendwest. The financial statements for periods beginning June 30, 1997
are presented on a consolidated basis and include the accounts of
Trendwest, TW Holdings and Trendwest Funding I.
The Consolidation Transactions are considered a reorganization of
entities under common control and have been accounted for in a manner
similar to a pooling of interests. The assets and liabilities of the
combining entities continue to be recorded at their historical cost basis
and the results of operations continue to include the same components in
consolidation as were included in combination.
All intercompany balances and transactions have been eliminated in
combination and consolidation.
Capital Transactions and Public Offering
In contemplation of the Company's initial public offering, the Company's
articles of incorporation were amended effective July 2, 1997 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.
As authorized, the pricing committee of the Board declared a 513.211 for
1 stock split effective July 2, 1997. The accompanying combined financial
statements have been retroactively restated to give effect to this stock
split.
On August 15, 1997, the Company consummated the offering of 3,176,250
shares of the Company's common stock at $18 per share resulting in net
proceeds of $51,772, after deducting the related issuance costs.
Basic and Diluted Net Income Per Common Share
Basic and diluted net income per common share has been computed based on
the number of shares of Trendwest common stock outstanding and assumes
the 5,193,693 shares issued to the Parent in connection with the
Consolidation Transactions have been outstanding for all periods
presented.
The following illustrates the reconciliation of weighted average shares
used for basic net income per share:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Basic
Weighted average shares - Trendwest 9,193,476 9,223,423 10,402,726
Effect of consolidation transactions 5,193,693 5,193,693 5,193,693
--------------- --------------- ---------------
Basic weighted average shares outstanding 14,387,169 14,417,116 15,596,419
=============== =============== ===============
</TABLE>
Net income available to common shareholders for basic net income per share
was $8,765, $12,676 and $20,609 for the years ended December 31, 1995, 1996 and
1997, respectively.
There were no dilutive securities outstanding for the periods presented
resulting in basic and diluted net income per share being equal.
At December 31, 1997, there were options to purchase 490,000 shares of
common stock outstanding which were antidilutive in 1997 and therefore not
included in the computation of diluted net income per share.
(2) Summary of Significant Accounting Policies
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.
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.
Inventories
Inventories consist of Vacation Credits and construction in progress as
follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Vacation Credits $ 7,784 1,722
Construction in progress 8,463 42,812
---------------- ----------------
Total inventories $ 16,247 44,534
================ ================
</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, 1995, 1996 and 1997 amounted to $0,
$343 and $637, respectively.
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 recission 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 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 is
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 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.
(ii) Sales of Notes Receivable
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
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. Beginning January 1, 1997, the residual interest in
notes receivable sold is classified as a trading security in accordance
with 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 (see note 14) of the residual
interest in notes receivable sold are 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.
Property and Equipment
Property and equipment are recorded at cost and depreciated or amortized
using the straight-line method over the following assets' estimated
useful lives:
Building and improvements 20 to 45 years
Equipment, furniture and fixtures 3 to 12 years
Leasehold improvements 2 to 5 years
Advertising
Advertising costs, included in sales and marketing expenses in the
accompanying combined statements of income, are expensed as incurred and
amounted to $2,012, $4,036 and $4,204 for the years ended December 31,
1995, 1996 and 1997, respectively.
<PAGE>
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 was included in the Federal consolidated tax return of the
Parent prior to August 15, 1997. The Parent allocated the combined
current and deferred tax expense to the Company as if the Company had
filed on a stand-alone basis.
Subsequent to August 15, 1997, the Company files its Federal consolidated
tax return on a stand-alone basis.
Stock-Based Compensation
During 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, effective for years beginning after
December 15, 1995. The statement requires expanded disclosures of
stock-based compensation arrangements and encourages (but does not
require) application of the fair value recognition provision in the
statement. Under the fair value recognition method, compensation cost is
measured at the grant date of the option, based on the value of the award
and is recognized over the vesting period. Under existing rules
("intrinsic value based method"), compensation cost is the excess, if
any, of the market value of the stock at grant date over the amount an
employee must pay to acquire the stock. None of the Company's stock
options have any intrinsic value at grant date and, under Accounting
Principles Board (APB) Opinion No. 25, no compensation cost has been
recognized for them. SFAS No. 123 does not alter the existing accounting
rules for employee stock-based programs. Companies may continue to follow
rules outlined in APB Opinion No. 25, but are required to disclose the
pro forma amounts of net income and earnings per share that would have
been reported had they elected to follow the fair value recognition
provision of SFAS No. 123. Effective January 1, 1996, the Company adopted
the disclosure requirements of SFAS No. 123, but has determined that it
will continue to measure its employee stock-based compensation
arrangements under the provisions of APB Opinion No. 25. Accordingly, no
compensation cost has been recognized for its stock option plan.
<PAGE>
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 financial statements
and the reported amounts of revenues and expenses during the reporting
period to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates and assumptions.
Derivative Financial Instruments
The Company has limited involvement with derivative financial instruments
and uses them only to manage well-defined interest rate risks. They are
not used for trading purposes.
The Company enters into forward interest rate swap agreements and
interest rate cap agreements to hedge the effects of fluctuations in
interest rates related to anticipated sales of notes receivables. These
transactions meet the requirements for hedge accounting, including
designation to a specific transaction and high correlation. Gains and
losses on these agreements are deferred and recognized upon completion of
the sale of notes receivable.
Effect of New Accounting Pronouncements
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.
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 limited liability
company (LLC), respectively, (see note 5).
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
adopted SFAS No. 128 in the fourth quarter of 1997 and has restated all
prior periods to conform to the new standard. There was no material
impact on earnings per share from the 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 1996 and 1997 bear
interest at 13.9% or 14.9%, depending on the 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 the Owners in the event
membership is terminated for nonpayment of the notes.
Maturities of notes receivable at December 31, 1997 are as follows during
the next five years and thereafter:
1998 $ 10,435
1999 11,585
2000 12,627
2001 13,544
2002 13,986
Thereafter 22,537
---------------
$ 84,714
===============
Customers over 60 days past due on monthly payments are considered
delinquent. Delinquent notes receivable represent 1.80% and 1.88% of
notes receivable at December 31, 1996 and 1997, respectively.
The activity in the allowance for doubtful accounts, recourse liability
and sales returns is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Balances at beginning of period $ 5,284 7,964 11,241
Provision for doubtful accounts, sales returns and
recourse liability 7,655 10,078 11,755
Notes receivable charged-off and sales returns net of
Vacation Credits recovered (5,088) (6,873) (7,888)
Recoveries 113 72 132
--------------- --------------- ---------------
Balances at end of period $ 7,964 11,241 15,240
=============== =============== ===============
1995 1996 1997
--------------- --------------- ---------------
Allowance for doubtful accounts and sales returns $ 5,429 5,832 9,935
Recourse liability on notes receivable sold 2,535 5,409 5,305
--------------- --------------- ---------------
$ 7,964 11,241 15,240
=============== =============== ===============
Total notes receivable outstanding, including notes receivable sold (see
note 5), amounted to $180,323 and $242,286 at December 31, 1996 and 1997,
respectively.
</TABLE>
(5) Sales of Notes Receivable
TW Holdings
The Company sells through TW Holdings, an 80% interest in certain notes
receivable to outside investors primarily through an agreement, as
amended on December 30, 1997, expiring June 30, 1998 (Agreement) with
Seattle-First National Bank and other purchasers (Investors). Under the
terms of the Agreement, up to $98,000 of receivables can be sold to the
Investors and proceeds from the collection of sold notes receivable can
be used to purchase additional notes receivable. The notes receivable
have stated rates of 13.9%-14.9% and are sold at par to yield LIBOR plus
1.25% 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 $55,000 and $98,000 at December 31, 1996 and 1997, 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 balance sheets
amounted to $13,750 and $24,500 at December 31, 1996 and 1997,
respectively.
Subsequent to January 1, 1997 and prior to the Consolidation
Transactions, the Company's transfer of notes receivable under the
Agreement did not qualify for sales treatment under SFAS No. 125 and were
treated as secured borrowings.
In conjunction with the Consolidation Transactions, the bylaws and
articles of incorporation of TW Holdings were amended such that the
transfer of notes receivable from Trendwest to TW Holdings met the sales
recognition criteria of SFAS No. 125 resulting in the transferred notes
receivable no longer being assets of Trendwest. At June 30, 1997, notes
receivable previously transferred and treated as secured borrowings
aggregating $16.8 million were accounted for as sales of notes
receivable.
Trendwest Funding I
In 1996, the Company sold through Trendwest Funding I, 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 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 and $14,580 at December 31, 1996 and
1997, respectively.
The LLC 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 LLC.
(6) 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>
1996 1997
--------------- ----------------
<S> <C> <C>
Land $ 877 877
Building and improvements 3,586 3,612
Equipment, furniture and fixtures 2,504 3,697
Leasehold improvements 336 814
--------------- ----------------
7,303 9,000
Less accumulated depreciation and amortization 1,391 1,943
--------------- ----------------
$ 5,912 7,057
=============== ================
</TABLE>
<PAGE>
(7) 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>
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Gross sales value $ 8,266 15,618 9,023
=============== =============== ===============
Gross profit deferred 3,826 7,328 4,277
Gross profit recognized 2,346 4,591 4,961
--------------- --------------- ---------------
Net gross profit deferred (recognized)
during period $ 1,480 2,737 (684)
=============== =============== ===============
</TABLE>
Notes receivable is presented net of deferred gross profit in the
accompanying balance sheets. Such deferred amounts aggregated $1,168 and
$1,704 at December 31, 1996 and 1997, respectively.
Deferred gross profit related to notes receivable sold is combined with
allowance for recourse liability on notes receivable sold in the
accompanying balance sheets. Such deferred amounts aggregated $4,671 and
$3,451 at December 31, 1996 and 1997, respectively.
(8) Notes Payable
The Company had a line of credit of $5,000 with FINOVA Capital
Corporation which was terminated in August 1997. The outstanding balance
at December 31, 1996 and 1997 was $1,054 and $0, respectively.
<PAGE>
(9) Income Taxes
The provision for income taxes consist of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Federal:
Current $ 5,218 7,426 9,173
Deferred (308) (450) 1,749
--------------- --------------- ---------------
4,910 6,976 10,922
--------------- --------------- ---------------
State:
Current 125 344 980
Deferred (56) 28 (314)
--------------- --------------- ---------------
69 372 666
--------------- --------------- ---------------
Total $ 4,979 7,348 11,588
=============== =============== ===============
</TABLE>
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>
1996 1997
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $ 4,206 3,940
Deferred gross profit 2,185 1,964
Other 571 690
---------------- ----------------
Total deferred tax assets 6,962 6,594
---------------- ----------------
Deferred tax liability:
Excess servicing asset 3,375 4,664
Other assets 196 150
Property and equipment 120 251
Other 911 605
---------------- ----------------
Total deferred tax liability 4,602 5,670
---------------- ----------------
Total deferred asset, net $ 2,360 924
================ ================
</TABLE>
<PAGE>
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>
1995 1996 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Income tax at Federal statutory rate 35.0% 35.0% 35.0%
State tax, net of Federal benefit .3 1.2 1.3
Other .9 .5 (.3)
--------------- ---------------- ----------------
36.2% 36.7% 36.0%
=============== ================ ================
</TABLE>
(10) 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.
(11) 401(k) Plans
Prior to August 15, 1997, the Company participated in the Parent 401(k)
plan. Company contributions, which are invested in Parent common stock,
were at the discretion of the Board of Directors of the Parent and
totaled $1,283, $1,686 and $1,124 for the years ended December 31, 1995
and 1996 and the period from January 1, 1997 to August 15, 1997,
respectively.
On August 15, 1997, the Company ceased participation in the Parent 401(k)
plan and sponsored a new plan (Trendwest plan) covering all Trendwest
employees. Company contributions totaled $765 for the period from August
15, 1997 to December 31, 1997.
(12) Derivative Financial Instruments
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
10.25%.
The interest rate cap agreement expires in April 1998.
Forward Swap Agreement
In October 1997, the Company entered into two $50,000 notional amount
forward interest rate swap agreements. These contracts are designed to
hedge the interest rate risk of an anticipated securitization of notes
receivable expected to close in the first quarter of 1998.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its interest rate caps and its forward swap
agreements. The Company anticipates, however, that counterparties will be
able to fully satisfy their obligations under the contracts. The Company
does not obtain collateral to support financial instruments but monitors
the credit standing of the counterparties.
(13) Stock Option Plan
In 1997, the Board of Directors approved the adoption of an incentive
stock option plan providing for the award of incentive stock options to
employees of the Company at the discretion of the Board of Directors.
Under the plan, on the date of grant, the exercise price of the option
must be at least equal to the market value of common stock for shares
issued. The plan provides for grants up to 5% of the Company's
outstanding shares (879,668 at December 31, 1997).
Stock options vest ratably over five years and expire three years after
becoming fully vested.
The following table summarizes stock option activity for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Weighted
average
Shares option price
---------------- ----------------
<S> <C> <C>
Options granted 492,000 $ 26.875
Expired or canceled 2,000 --
---------------- ----------------
Balance at end of year 490,000 $ 26.875
================ ================
</TABLE>
There are no options exercisable at December 31, 1997.
The Company applies APB Opinion No. 25 in accounting for its plan and,
accordingly, no compensation cost has been recognized for its stock
options in the accompanying financial statements. Had the Company
determined compensation cost based on the fair value at the grant date,
the Company's net income would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year ended
December 31, 1997
--------------------
<S> <C>
Net income, as reported $ 20,609
Net income, pro forma 20,377
Basic and diluted EPS, as reported 1.32
Basic and diluted EPS, pro forma 1.31
</TABLE>
The fair value of the options granted is estimated on the date of grant
using the Black-Scholes method with the following weighted average
assumptions used in 1997; annual dividend yield of 0%; volatility of 45%;
risk free interest rate of 6.4%; and expected lives of 6 years. The
weighted average grant date fair value per share of options granted
during the year ended December 31, 1997 was $12.94.
(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.
<PAGE>
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>
1996 1997
---------------------------------- ----------------------------------
Carrying value Estimated Carrying value Estimated
fair value fair value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Financial assets:
Cash (a) $ 93 93 70 70
Restricted cash (a) 709 709 1,219 1,219
Notes receivable (a) 46,616 46,616 74,779 74,779
Residual interest in notes
receivable sold (b) 10,839 11,705 15,235 15,235
Financial liabilities:
Due to Parent (c) 21,316 21,316 1,937 1,947
Recourse liability on notes (a) 5,409 5,409 5,305 5,305
sold
Notes payable (c) 1,055 1,055 -- --
</TABLE>
(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. The
Company utilizes the following assumptions in determining the fair
value of its residual interest in notes receivable sold at
December 31:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Discount rate 12.25% 12.25%
Annual prepayment rate 6% 6%
</TABLE>
(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, 1996 and
1997. The fair value of the Company's forward swap agreement was $(472)
at December 31, 1997. This negative fair value represents the estimated
amount the Company would have to pay at each date to cancel the contracts
or transfer them to other parties.
(15) Related Party Transactions
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>
1996 1996 1997
-------------- --------------- --------------
<S> <C> <C> <C>
Sale of notes receivable:
Members of the Board of Directors of the Parent (at
face value, no recourse) $ 3,905 3,350 917
I&I Holdings, a subsidiary of the Parent (at face value,
full recourse) 1,321 232 55
Parent Foundation (at face value, full recourse) 191 211 --
Purchases of notes receivable:
Eagle Crest Partners, Ltd., a subsidiary of the Parent
(at face value, full recourse) 11,305 8,993 7,134
Running Y Resorts, Ltd., a subsidiary of the Parent (at
face value, full recourse) -- 2,157 3,218
Parent foundation (at face value, full recourse) -- -- 2,536
</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 $18,512 and $13,564 at December 31, 1996 and
1997, respectively.
<PAGE>
WorldMark
(i) Management Contract
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
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 for the years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
WorldMark:
Management fee income $ 747 1,103 1,488
Dues expense incurred by Trendwest 512 275 793
Reimbursed salaries 1,533 3,103 5,448
Resort operations, maid and key service
income 332 -- --
Other reimbursed expenses 297 323 612
(ii) Financial Information (Unaudited)
</TABLE>
A summary of financial information for WorldMark as of and for the years
ended December 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
---------------- ----------------
<S> <C> <C>
Cash and investment securities $ 4,166 6,364
Member dues receivable 6,694 8,860
Other 908 2,170
---------------- ----------------
Total assets 11,768 17,394
---------------- ----------------
Deferred revenue 7,441 10,080
Other 1,015 2,008
---------------- ----------------
Total liabilities 8,456 12,088
---------------- ----------------
Net assets $ 3,312 5,306
================ ================
Annual member assessments $ 10,733 15,426
================ ================
Excess of revenues over expenses $ 1,351 1,994
================ ================
Condominiums owned, at developers unamortized historical cost $ 98,826 128,411
================ ================
</TABLE>
<PAGE>
Parent and Other Related Party
The Company has an open revolving credit line with its Parent to meet
operating needs and invest excess funds. The credit line is $10 million
and is payable on demand. It bears interest at the prime rate plus 1% per
annum (9.5% at December 31, 1997).
The Company also reimburses the Parent for administrative services
received and its share of insurance expenses. Also, through June 30, 1997
the Parent was named as the master servicer under the terms of certain
sales of notes receivable and received a servicing fee of 1.75% per annum
of the sold receivables to service the receivable. The Parent
subcontracted 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 and subsequent to June 30, 1997 is the named master
servicer under the terms of certain sales of notes receivable. 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>
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Parent:
Interest income $ -- 451 159
Interest expense 1,993 2,564 1,945
Insurance expense 879 1,304 1,865
Administrative service expense 723 913 --
Servicing fee expense, net 1,163 1,008 240
TRI Funding Company I, LLC - servicing fee
income -- 925 1,157
</TABLE>
The Company is developing a resort in central Washington known as
MountainStar in conjunction with its Parent. The Parent owns the land and
the Company is acting as the developer. On behalf of its Parent, the
Company has incurred approximately $4,400 in costs related to the project
as of December 31, 1997. All costs incurred will be reimbursed by the
Parent and are included as a reduction to the due to Parent amounts on
the Company's balance sheet.
(16) Commitments and Contingencies
Purchase Commitments
The Company routinely enters into purchase agreements with various
developers to acquire and build resort properties. At December 31, 1997,
the Company has outstanding purchase commitments $28,353 related to
properties under development. The Company has also committed to
purchasing 20 condominium units in each of 1998, 1999 and 2000,
respectively, from Running Y Resorts, Ltd. The cost of the units is fixed
at 26% of the selling price of Vacation Credits at the time the units are
purchased.
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.
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:
1998 $ 1,582
1999 1,483
2000 1,229
2001 729
2002 133
Rental expense amounted to $1,126, $1,426 and $2,018 for the years ended
December 31, 1995, 1996 and 1997, respectively.
(17) Subsequent Events
Credit Facility
In February 1998, the Company entered into a credit agreement with a
group of banks to provide the Company with a three-year unsecured
revolving credit facility for $30 million.
Trendwest Funding II, Inc.
In March 1998, the Company sold $37.9 million of notes receivable to a
special purpose company, Trendwest Funding II, Inc. In addition, the Bank
Group sold $98.0 million of notes receivable purchased from TW Holdings
to Trendwest Funding II, Inc. The special purpose company sold the
receivable to TRI Funding II, Inc. (TRI), a special purpose entity, and
TRI issued $130.4 million in two classes of senior and subordinated notes
to institutional investors.
Purchase Commitment
The Company has an agreement in principle to purchase land and construct
a new office building in Redmond, Washington. The estimated construction
and land costs are $11 million and the building is expected to be
completed on or before December 1, 1998.
EAGLE CREST, INC.,
as Originator
and
TW HOLDINGS, INC.,
as Buyer
SECOND AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
Dated as of June 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
DEFINITIONS................................................. 4
Section 1.1 Definitional Provisions.......................................................... 4
ARTICLE 2
CONVEYANCE OF RECEIVABLES.......................................... 5
Section 2.1 Conveyance of Receivables........................................................ 5
Section 2.2 Representations and Warranties as to the
Originator.................................................................................... 7
Section 2.3 Representations and Warranties as to the
Receivables; Repurchase upon Breach........................................................... 10
Section 2.4 Affirmative Covenants of the Originator.......................................... 11
Section 2.5 Negative Covenants of the Originator............................................. 13
ARTICLE 3
PAYMENT OF PURCHASE PRICE.......................................... 14
Section 3.1 Payment of Purchase Price........................................................ 14
ARTICLE 4
TERMINATION................................................. 15
Section 4.1 Termination...................................................................... 15
ARTICLE 5
MISCELLANEOUS PROVISIONS........................................... 15
Section 5.1 Amendment........................................................................ 15
Section 5.2 Protection of Right, Title and Interest to
Receivables................................................................................... 15
Section 5.3 Governing Law.................................................................... 16
Section 5.4 Notices.......................................................................... 16
Section 5.5 Severability of Provisions....................................................... 17
Section 5.6 Assignment....................................................................... 17
Section 5.7 Further Assurances............................................................... 17
Section 5.8 No Waiver: Cumulative Remedies................................................... 17
Section 5.9 Counterparts..................................................................... 17
Section 5.10 Third-Party Beneficiaries....................................................... 17
Section 5.11 Merger and Integration.......................................................... 18
Section 5.12 Headings........................................................................ 18
Section 5.13 Originator Indemnification...................................................... 18
Section 5.14 Assumption of the Obligations of the
Originator.................................................................................... 18
Section 5.15 Confirmation of the Obligations under
Prior Purchase Agreement...................................................................... 18
</TABLE>
2
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
SECOND AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, dated as of
June 1, 1997, between EAGLE CREST, INC., an Oregon corporation, as seller
("Eagle Crest" or the "Originator"), and TW HOLDINGS, INC., a Nevada
corporation, as purchaser ("TW Holdings" or the "Buyer").
RECITALS
WHEREAS, the Buyer is in the business of purchasing from time to time,
among other things, certain right to use timeshare receivables (the "Right to
Use Receivables") originated by the Originator and by Trendwest Resorts, Inc.
("TRI") (Eagle Crest and TRI, together, are referred to herein as the
"Originators");
WHEREAS, the Buyer was formerly also in the business of purchasing from
time to time certain mortgage loan timeshare receivables (the "Mortgage Loan
Receivables" and, together with the Right to Use Receivables, the "Receivables")
from Eagle Crest Partners, Ltd., an Oregon limited partnership of which Eagle
Crest (under the name Eagle Crest G.P., Inc.) was the general partner, pursuant
to that certain Amended and Restated Receivables Purchase Agreement between
Buyer and Eagle Crest Partners, Ltd., dated as of June 1, 1994 (the "Prior
Purchase Agreement");
WHEREAS, pursuant to a receivables transfer agreement, dated as of
December 31, 1993, among TW Holdings, as seller, Seattle- First National Bank,
as purchaser, Seattle-First National Bank as agent, and Jeld-Wen, inc.
("JELD-WEN"), as master servicer, Seattle-First National Bank, as purchaser,
purchased Receivables from TW Holdings;
WHEREAS, the above-mentioned transfer agreement was amended and
restated to become the Amended and Restated Receivables Transfer Agreement,
dated as of June 1, 1994, among TW Holdings, as seller, the other purchasers
named therein, Seattle-First National Bank, as agent, and JELD-WEN, as master
servicer (as thereafter amended from time to time, the "Prior Receivables
Transfer Agreement");
WHEREAS, the Prior Receivables Transfer Agreement was amended and
restated to become the Second Amended and Restated Receivables Transfer
Agreement, dated as of June 1, 1997 (the "Transfer Agreement"), among TW
Holdings, as seller (the "Seller"), the purchasers named therein (the
"Purchasers"), Bank of America National Trust and Savings Association, doing
business as Seafirst Bank ("Seafirst"), as agent (in such capacity, the
"Agent"), and TRI, as master servicer (the "Master Servicer"),
3
<PAGE>
pursuant to which the Purchasers will purchase from time to time certain Right
Use Receivables from the Seller, which Right to Use Receivables the Seller shall
purchase from time to time from the Originators;
WHEREAS, in connection with the transaction contemplated by the
Transfer Agreement, Eagle Crest will sell, transfer and assign Right to Use
Receivables to the Buyer from time to time and the Buyer will, among other
things, grant a first perfected security interest in such Right to Use
Receivables to the Agent for the benefit of the Purchasers and Eagle Crest shall
cease to sell Mortgage Loan Receivables to Buyer; and
WHEREAS, Eagle Crest Partners, Ltd. has dissolved and Eagle Crest, Inc.
has acquired all of the assets and assumed all of the obligations of Eagle Crest
Partners, Ltd., and the parties desire to (i) substitute Eagle Crest, Inc. for
Eagle Crest Partners, Ltd., with respect to the obligations of Eagle Crest
Partners, Ltd., under the Prior Purchase Agreement; and (ii) amend, restate and
replace the Prior Purchase Agreement to provide for the sale of Right to Use
Receivables by Eagle Crest to TW Holdings and the cessation of the sale of
Mortgage Loan Receivables.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree an follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitional Provisions.
(a) Capitalized terms used herein that are not otherwise
defined shall have the meanings ascribed thereto in the Transfer Agreement.
(b) The words "hereof," herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section, subsection
and Schedule references contained in this Agreement are references to Sections,
subsections and Schedules in or to this Agreement unless otherwise specified;
with respect to all terms in this Agreement, the singular includes the plural
and the plural includes the singular; words importing gender include the other
gender; references to "writing" include printing, typing, lithography and other
means of reproducing words in visible form; references to agreements and other
contractual instruments include all subsequent amendments thereto or changes
therein entered into in accordance with their respective terms and not
prohibited by this
4
<PAGE>
Agreement; references to Persons include their permitted successors and assigns;
and the term including" means including without limitation."
Section 1.2 Certain Other Definitional Provisions. Whenever used in
this Agreement, the following words and phrases shall have the following
meanings:
"Agreement" shall mean this Receivables Purchase Agreement and all
amendments hereof and supplements hereto.
"Buyer" means TW Holdings, Inc., in its capacity as purchaser of the
Right to Use Receivables under this Agreement, and any successor thereto.
"Eagle Crest" means Eagle Crest, Inc., an Oregon corporation and
successor by name change to Eagle Crest G.P., Inc., and any successors thereto.
"Schedule of Mortgage Loan Receivables" means the Schedule of Mortgage
Loan Receivables attached as Schedule B hereto and as an Exhibit to the Transfer
Agreement, as it may be amended from time to time.
"Schedule of Right to Use Receivables" means the Schedule of Right to
Use Receivables attached as Schedule A hereto and as an Exhibit to the Transfer
Agreement, as it may be amended from time to time.
"Transfer Agreement" means the Second Amended and Restated Receivables
Transfer Agreement dated as of June 1, 1997, among TW Holdings, Inc., the
purchasers named therein, as Purchasers, Bank of America National Trust and
Savings Association, doing business as Seafirst Bank, as Agent, and TRI as
Master Servicer.
"TRI" shall mean Trendwest Resorts, Inc., an Oregon corporation, and
any successors thereto.
ARTICLE 2
CONVEYANCE OF RECEIVABLES
Section 2.1 Conveyance of Receivables.
(a) In the case of the Initial Receivables conveyed by the
Originator, on the Closing Date the Originator does hereby sell, transfer and
assign to the Buyer, without recourse (subject to its obligations hereunder):
(i) all right, title and interest of the
Originator in and to the Initial Receivables, all Related
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Security with respect to such Receivables, all related Receivable Documents and
all collections due on or in respect of such Receivables and paid thereon or in
respect thereof (including proceeds of the repurchase of Initial Receivables by
the Originator pursuant to Section 2.3(b)) on or after the Initial Cutoff Date;
(ii) the interest of the Originator in the
security interests in and liens on such Receivables and any
accessions thereto granted by the Obligors pursuant to such
Receivable;
(iii) the interest of the Originator in any
proceeds of any insurance policies covering such Receivables (including but not
limited to any physical damage or title insurance relating to any Mortgage Loan
Receivables) and in any proceeds of any credit life or credit disability
insurance policies relating to such Receivables or the related Obligors; and
(iv) all proceeds of the foregoing.
(b) In the case of the Subsequent Receivables that are Right
to Use Receivables, on the related Transfer Dates occurring from time to time
prior to the Commitment Termination Date, the Originator will sell, transfer and
assign to the Buyer, without recourse (subject to its obligations hereunder):
(i) all right, title and interest of the
Originator in and to the related Subsequent Receivables that are Right to Use
Receivables, all Related Security with respect to such Right to Use Receivables,
all related Receivable Documents and all collections on or in respect of such
Right to Use Receivables and paid thereon or in respect thereof (including
proceeds of the repurchase of such Subsequent Receivables that are Right to Use
Receivables by the Originator pursuant to Section 2.3(b)) on or after the
related Subsequent Cutoff Date;
(ii) the interest of the Originator in the
security interests in and liens on such Right to Use Receivables and any
accessions thereto granted by the Obligors pursuant to such Right to Use
Receivables;
(iii) the interest of the Originator in any
proceeds of any physical damage and title insurance policies covering such Right
to Use Receivables and in any proceeds of any credit life or credit disability
insurance policies relating to such Right to Use Receivables or the related
Obligors; and
(iv) all proceeds of the foregoing.
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(c) In connection with each such conveyance, on or prior to
the related Transfer Date, the Originator agrees to record and file, at its own
expense, a financing statement with respect to the related Right to Use
Receivables meeting the requirements of applicable state law in such manner and
in such jurisdictions as are necessary to perfect the sale and assignment of
such Right to Use Receivables to or upon the order of the Buyer, and the
proceeds thereof as may be perfected by filing a financing statement (and any
continuation statements as are required by applicable state law), and to deliver
a file-stamped copy of each such financing statement (or continuation statement)
or other evidence of such filings (which may, for purposes of this Section,
consist of telephone confirmation of such filing with the file stamped copy of
each such filing to be provided to the Buyer in due course), as soon as is
practicable after the Originator's receipt thereof.
In connection with each such conveyance, the Originator further agrees,
at its own expense, on or prior to the related Transfer Date, (i) to indicate in
its computer files that the related Right to Use Receivables have been
transferred to the Buyer pursuant to this Agreement, (ii) to deliver to the
Buyer a computer file or microfiche list containing a true and complete list of
all such Right to Use Receivables, and containing the information with respect
thereto required by the Schedule of Right to Use Receivables and (iii) to
deliver to the Buyer and the Agent a Schedule of Right to Use Receivables with
respect to such Right to Use Receivables, which shall be added to all Schedules
of Right to Use Receivables delivered to the Buyer and the Agent prior to such
Transfer Date and appears as Schedule A hereto.
(d) On each Transfer Date, the Originator shall deliver to or
upon the order of the Buyer, the documents relating to the related Right to Use
Receivables called for pursuant to Section 2.5 of the Transfer Agreement.
(e) From time to time, the Originator may, upon the terms and
conditions in Section 15.2 of the Transfer Agreement, substitute a new Right to
Use Receivable or Mortgage Loan Receivable that is an Eligible Receivable for a
Right to Use Receivable or Mortgage Loan Receivable, as the case may be, that is
either a Defaulted Receivable or is otherwise no longer an Eligible Receivable.
As to substituted Mortgage Loan Receivables, the Originator will be deemed to
have made the same representations and warranties that were made in connection
withi Mortgage Loan Receivables transferred under the Prior Purchase Agreement.
Section 2.2 Representations and Warranties as to the
Originator. The Originator hereby represents and warrants as of
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the date and execution of this Agreement, the Closing Date and each Transfer
Date that:
(a) Organization and Good Standing. The Originator shall have
been duly organized under the laws of the State of Oregon and shall be validly
existing an a corporation whose status is active, with power and authority to
own its properties and to conduct its business as such properties shall be
currently owned and such business is presently conducted, and had at all
relevant times, and shall now have, power, authority and legal right to acquire,
own, sell and service the Right to Use Receivables.
(b) Due Qualification. The Originator shall be duly qualified
to do business as a foreign corporation in good standing, and shall have
obtained all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business shall require such
qualifications, except where the failure to so qualify or to have obtained such
licenses and approvals would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or business
prospects of the Originator.
(c) Power and Authority. The Originator shall have the power
and authority to execute, deliver and perform its obligations under this
Agreement and each other Facility Document to which it is a party or by which it
is bound and to carry out their respective terms; the Originator shall have full
power and authority to sell and assign the Receivables to be sold and assigned
to and deposited with the Buyer and shall have duly authorized such sale and
assignment to the Buyer by all necessary corporate action; and the execution,
delivery and performance of this Agreement and each other Facility Document to
which it in a party or by which it is bound shall have been duly authorized by
the originator by all necessary corporate action.
(d) Valid Transfer and Assignment: Binding Obligations.
This Agreement shall evidence a valid transfer and assignment of the
Receivables, enforceable against creditors of and purchasers from the
Originator; and shall constitute a legal, valid and binding obligation
of the originator enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors, rights in
general and by general principles of equity, regardless of whether such
enforceability shall be considered in a proceeding in equity or at law.
(e) No Violation. The consummation of the
transactions contemplated by this Agreement and the other
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Facility Documents to which the Originator in a party or by which it is bound
and the fulfillment of the terms of this Agreement shall not conflict with,
result in any breach of any of the terms and provisions of, nor constitute (with
or without notice or lapse of time) a default under, the articles of
incorporation or bylaws of the Originator, or conflict with or violate any of
the material terms or provisions of, or constitute (with or without notice or
lapse of time) a default under, any indenture, agreement or other instrument to
which the Originator in a party or by which it shall be bound; nor result in the
creation or imposition of any Lien upon any of its properties pursuant to the
terms of any such indenture, agreement or other instrument (other than the Lien
created by this Agreement, the Lien created by the Transfer Agreement and, with
respect to Right to Use Receivables, the Liens of WorldMark); nor violate any
law or, to the best of the Originator's knowledge, any order, rule or regulation
applicable to it of any court or of any federal or state governmental regulatory
body, administrative agency or other Governmental Authority having jurisdiction
over it or its properties; which breach, default, conflict, lien or violation
would have a material adverse effect on its condition, financial or otherwise,
or its earnings, business affairs or business prospects.
(f) No Proceedings. There are no proceedings or investigations
pending, or to the best of the Originator's knowledge, threatened, before any
court, regulatory body, administrative agency or other Governmental Authority
having jurisdiction over it or its properties: (i) asserting the invalidity of
any other Facility Document to which it in a party or by which it in bound, (ii)
seeking to prevent the consummation of any of the transactions contemplated by
any Facility Document to which it in a party or by which it in bound or (iii)
seeking any determination or ruling that might materially and adversely affect
the performance by the Originator of its obligations under, or the validity or
enforceability of any Facility Document to which it is a party or by which it is
bound.
(g) Government Approvals. No authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority is
required for the due execution, delivery and performance by the Originator of
any Facility Document to which it is a party by which it is bound with the
transactions contemplated thereby except such as have been obtained prior to the
date of this Agreement and are in full force and effect (copies of which have
been delivered to the Buyer and the Agent).
(h) Licenses. The Originator holds, and at all times
during the term of this Agreement will hold, all material
licenses, certificates, franchises and permits from all
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Governmental Authorities necessary for the conduct of its business and has
received no notice of proceedings relating to the revocation of any such
license, certificate, franchise or permit, which singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect its ability to perform its obligations under any Facility
Agreement to which it is a party or by which it is bound or any other documents
or transactions contemplated hereunder or thereunder or the validity or
enforceability of the Right to Use Receivables.
(i) Offices. The principal place of business and
chief executive office of Eagle Crest is located at the address
set forth in Section 5.4.
(j) Taxes. The Originator has filed all tax returns and
reports required of it, has paid all Taxes which are due and payable and has
provided adequate reserves for payment of any Tax whose payment is being
contested; all charges, accruals and reserves on its books in respect of Taxes
for all fiscal periods to date are accurate; and there are no material questions
or disputes between the Originator and any Governmental Authority with respect
to any Taxes.
(k) Compliance with Applicable Laws. The Originator
is in material compliance with the requirements of all applicable
laws, rules, and regulations and orders of all Governmental
Authorities.
(l) Ownership Interests. The Originator is a wholly-
owned subsidiary of JELD-WEN, inc.
The representations and warranties set forth in this Section shall
survive the transfer and assignment of the related Receivables to the Buyer on
the related Transfer Date and the transfer and assignment of such Receivables by
the Buyer to the Purchasers pursuant to the Transfer Agreement. Each of the
originator and the Buyer shall inform the other party promptly, in writing, upon
the discovery of any breach of the foregoing representations and warranties.
Section 2.3 Representations and Warranties as to the
Receivables; Repurchase upon Breach.
(a) In connection with each transfer of Right to Use
Receivables to the Buyer, as of the related Transfer Date, each such Right to
Use Receivable satisfies each of the representations and warranties set forth in
Section 7.2 of the Transfer Agreement. Additionally, each Mortgage Loan
Receivable satisfies each of the representations and warranties set forth in
Sections 7.2 and 7.3 of the Transfer Agreement.
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(b) The representations and warranties set forth in this
Section shall survive the transfer and assignment of the Receivables to the
Buyer and the transfer and assignment of such Receivables by the Buyer to the
Purchasers pursuant to the Transfer Agreement. Each of the Originator and the
Purchaser shall inform the other party promptly, in writing, upon the discovery
of any breach of the Originator's representations and warranties pursuant to
Section 2.3(a) which materially and adversely affects any Receivable. Unless the
breach shall have been cured in all material respects by the 60th day following
its discovery, the Originator will repurchase such Receivable by remitting an
amount equal to the related Purchase Amount to or upon the order of the Buyer.
Additionally, in the case of Mortgage Loan Receivables, if the Seller does not
deliver to the Agent within 90 days after the related Transfer Date either an
opinion of counsel pursuant to Section 2.5(a)(iv) of the Transfer Agreement or a
recorded Assignment of the related mortgage with evidence of recording thereon
to or upon the order of the Agent, the Seller shall repurchase the related
Mortgage Loan Receivable. The sole remedy of the Buyer with respect to a breach
of the foregoing representations and warranties which materially and adversely
affects any Receivable shall be to require the Originator to repurchase such
Receivable.
(c) Upon the payment by the Originator of the Purchase price
for any Receivable repurchased pursuant to this Section, the Buyer shall cause
such instruments as may be necessary to assign and transfer, without recourse or
warranty of any kind, such Receivable and the Related Security and Receivable
Documents to the Originator.
Section 2.4 Affirmative Covenants of the Originator. With respect to
Receivables purchased from the Originator, the Originator hereby covenants that
from the date hereof until the first day following the Commitment Termination
Date on which (i) the Outstanding Principal Balance of the Receivables purchased
from the Originator and comprising part of the Receivables Pool shall be reduced
to zero and (ii) all Obligations shall have been fully paid and performed, the
Originator shall do all of the following unless the Buyer or the Agent (acting
upon the direction of the Required Purchasers) shall otherwise consent in
writing:
(a) The Originator shall comply in all material respects with
all applicable laws, rules, regulations and orders, including but not limited to
all applicable laws, rules, regulations and orders with respect to the
Receivables and the Assigned Collateral relating thereto and will take all
actions necessary to ensure that all Taxes, pension obligations and other
governmental claims in respect of its operations, business and assets are
properly paid when due.
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(b) The Originator shall preserve and maintain its corporate
existence, rights, franchises and privileges in the State of Oregon, and qualify
and remain qualified in good standing as a foreign corporation in each State
where such qualification is necessary or advisable in view of its operations,
business and assets.
(c) From time to time during regular business hours and upon
at least three days, prior written notice, the Originator shall permit the
Buyer, the Agent, any Purchaser and their respective agents and representatives
(i) to examine and make copies of and abstracts from all books, records and
documents (including, without limitation, computer tapes and disks) in the
possession or under the control of the Originator and (ii) to visit the offices
and properties of the Originator for the purpose of examining such materials and
to discuss matters relating to the Receivables, the performance of the
Originator under any Facility Document to which it is a party or by which it is
bound and the affairs, finances and accounts of the Originator generally with
any of its officers, directors or employees.
(d) The Originator shall comply in all material respects with
the Credit and Collection Policy applicable to Right to Use Receivables and the
Credit and Collection Policy applicable to Mortgage Loan Receivables.
(e) Promptly after learning thereof, the Originator will
notify the Buyer and the Agent of (i) the details of any action, proceeding,
investigation or claim against or affecting it instituted before any court,
arbitrator or Governmental Authority or, to its knowledge threatened to be
instituted, which, if determined adversely would be likely to have a material
adverse effect on (A) the performance by it of any obligations under any
Facility Document to which it is a party or by which it is bound, (B) the
validity or enforceability of any Facility Document to which it in a party or by
which it in bound, (C) the validity or enforceability of any Receivable,
Mortgage Note or Mortgage, or (D) the first priority security interest of the
Agent an behalf of the Purchasers in the Assigned Collateral relating to the
Receivables; (ii) any material dispute between the Originator and any
Governmental Authority; (iii) any labor controversy which has resulted in or
threatens to result in a strike which would materially affect the business or
operations of the Originator; and (iv) the occurrence of any Termination Event
relating to the Originator.
(f) From time to time the Originator will (i) pay or reimburse
the Buyer, the Agent and each Purchaser for all Taxes imposed by virtue of the
transactions contemplated by this Agreement and for all expenses including legal
fees incurred in
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connection with the enforcement by judicial proceedings or otherwise of any of
the rights of the foregoing parties under this Agreement or under any other
Facility Document to which the Originator is a party or by which it is bound;
(ii) pay or reimburse the Agent for all expenses, including legal fees, incurred
by or on behalf of the Buyer in connection with the perfection of the Buyer's
interest in the Assigned Collateral relating to the Receivables; (iii) obtain
and promptly furnish to the Agent evidence of all such government approvals as
may be required to enable the Originator to comply with its obligations under
any Facility Document to which it in a party or by which it in bound; (iv)
execute and deliver all such instruments (including UCC continuation statements)
and perform all such other acts an may be necessary to maintain the Purchasers'
interest continuously perfected as a first priority security interest in the
Assigned Collateral relating to the Receivables; (v) execute and deliver all
such other instruments and perform all such other acts as the Buyer, the Agent
or any Purchaser may reasonably request to carry out the transactions
contemplated by this Agreement and the other Facility Documents to which it is a
party or by which it in bound; and (vi) comply in all material respect with the
obligations of the Originator under the Facility Documents.
(g) The Originator agrees to deliver in kind upon receipt to
the Master Servicer all Collections received by the Originator in respect of any
Receivable after the related Transfer Date as soon as practicable after receipt
thereof, but in any event no later than two Business Days following such
receipt.
(h) On the last Business Day of each month but in any event no
later than five days subsequent to the last Business Day of each month, the
Originator shall provide to the Buyer such information as is reasonably
necessary for the Buyer to determine the Consolidated Delinquency Date Amount,
the Consolidated Defaulted Receivable Amount and the Consolidated Monthly
Charge- off Date.
Section 2.5 Negative Covenants of the Originator. With respect to
Receivables purchased from the Originator, from the date hereof until the first
day following the Commitment Termination Date on which (i) the Outstanding
Principal Balance of the Receivables purchased from the Originator and
comprising part of the Receivables Pool shall be reduced to zero and (ii) all
Obligations shall have been fully paid and performed, the Originator shall
refrain from doing any of the following, unless the Buyer or the Agent (acting
upon the direction of the Required Purchasers) shall otherwise consent in
writing:
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(a) Except for the conveyances hereunder, the Originator will
not sell, pledge, assign or transfer to any other Person, or grant, create,
incur, assume or suffer to exist any Lien on any Receivable or any Related
Security or Receivable Document, whether now existing or hereafter created, or
any interest therein; the Originator will immediately notify the Buyer and the
Agent of the existence of any Lien on any Receivable or any Related Security or
Receivable Document and such Receivable will be repurchased from the Buyer by
the Originator in the manner and with the effect specified in Section 2.3(b),
and the Originator shall defend the right, title and interest of the Buyer in,
to and under the Receivables, whether now existing or hereafter created, against
all claims of third parties claiming through or under the Originator; provided,
however, that nothing in this subsection shall prevent or be deemed to prohibit
the Originator from suffering to exist upon any of the Receivables or any
Related Security or Receivable Document, Liens in favor of WorldMark with
respect to Right to Use Receivables, Liens for municipal or other local taxes if
such taxes shall not at the time be due and payable or if the Originator shall
currently be contesting the validity of such taxes in good faith by appropriate
proceedings and shall have set aside on its books adequate reserves with respect
thereto.
(b) After the Transfer Date relating to a Receivable, the
Originator shall take no action, nor omit to take any action, which would impair
the rights of the Buyer in such Receivable.
(c) The Originator shall not, during the term of this
Agreement, transfer to the Buyer Right to Use Receivables on forms substantially
different from the forms attached as Exhibits to the Transfer Agreement.
ARTICLE 3
PAYMENT OF PURCHASE PRICE
Section 3.1 Payment of Purchase Price. In consideration of the sale
from the Originator to the Buyer, as provided in Section 2.1, of (a) the Initial
Receivables that are Right to Use Receivables on the Closing Date, the Buyer
agrees to pay the Originator an amount equal to the Outstanding Principal
Balance of such Right to Use Receivables as of the Initial Cutoff Date, plus
accrued interest to the date of purchase and (b) the Subsequent Receivables that
are Right to Use Receivables, on the related Transfer Dates, the Buyer agrees to
pay the Originator an amount equal to the Outstanding Principal balance of such
Right to Use Receivables as of the related Subsequent Cutoff Date.
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ARTICLE 4
TERMINATION
Section 4.1 Termination. The respective obligations and
responsibilities of the Originator and the Buyer created hereby shall terminate,
except for indemnity obligations as provided herein, upon the termination of the
Transfer Agreement.
ARTICLE 5
MISCELLANEOUS PROVISIONS
Section 5.1 Amendment.
(a) This Agreement may be amended from time to time in writing
by the Buyer and the Originator, with the consent of the Agent, which consent
shall not be unreasonably withheld, to cure any ambiguity, to correct or
supplement any provisions herein which ray be inconsistent with any other
provisions herein, or to add any other provisions with respect to matters or
questions arising under this Agreement which shall not be inconsistent with the
provisions of this Agreement or the Transfer Agreement; provided, however, that
such action shall not, as evidenced by an opinion of counsel delivered to the
Buyer and the Agent, adversely affect in any material respect the interests of
the Buyer or the Purchasers in any Receivables or Assigned Collateral related
thereto.
(b) This Agreement may also be amended from time to time in
writing by the Buyer and the Originator, with the consent of the Agent (acting
upon the direction of the Required Purchasers), for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement.
Section 5.2 Protection of Right, Title and Interest to
Receivables.
(a) The Originator at its expense shall cause this Agreement,
all amendments hereto and/or all financing statements and continuation
statements and any other necessary documents covering the Buyer's right, title
and interest to the Receivables and other property conveyed by the Originator to
the Buyer hereunder to be promptly recorded, registered and filed, and to be at
all times kept recorded, registered and filed, all in such manner and in such
places as may be required by law fully to preserve and protect the right, title
and interest of the Buyer hereunder to the Receivables and such other property.
The Originator shall deliver to the Buyer file-stamped copies of, or filing
receipts for, any document recorded, registered or filed
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as provided above, an soon as available following such recording, registration
or filing. The Buyer and the Agent shall cooperate fully with the Originator in
connection with the obligations set forth above and will execute any and all
documents reasonably required to fulfill the intent of this Section.
(b) Within 30 days after the Originator makes any change in
its name, identity or corporate structure which would make any financing
statement or continuation statement filed in accordance with paragraph (a) above
seriously misleading within the meaning of Section 9-402(7) of the UCC as in
effect in the applicable state, it shall give the Buyer and the Agent notice of
any such change and shall execute and file such financing statements or
amendments as may be necessary to continue the perfection of the Buyer's
security interest in the Receivables and the Assigned Collateral relating
thereto.
(c) The Originator will give the Buyer and the Agent prompt
written notice of (i) any relocation of any office at which it keeps records
concerning the Receivables or of its principal executive office and (ii)
whether, 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 and shall execute and
file such financing statements or amendments as may be necessary to continue the
perfection of the interest of the Buyer in the Receivables and the Assigned
Collateral relating thereto.
Section 5.3 Governing Law. This Agreement and the other facility
documents shall be governed by and construed in accordance with the internal
laws of the State of Washington, except to the extent that the perfection (and
the effect of perfection or nonperfection) of the interests of the lenders in
the receivables, loan documents, related security, assigned collateral, facility
documents and collections is governed by the laws of a jurisdiction other than
the state of Washington.
Section 5.4 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, return receipt requested, to, (a) in
the case of the Buyer, TW HOLDINGS, INC., c/o Trendwest Resorts, Inc., 12301
N.E. 10th Place, Bellevue WA 98005, Attention: William F. Peare and Gary A.
Florence; (b) in the case of the Originator, EAGLE CREST, INC., 821 South Sixth
Street, Redmond, OR 97756, Attention: _________________; or (c) as to either of
such Persons, at such other address as shall be designated by such Person in a
written notice to the other Person.
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Section 5.5 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be hold invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
Section 5.6 Assignment. This Agreement may not be assigned by the Buyer
or the Originator except as contemplated by this Section or the Transfer
Agreement; provided, however, that simultaneously with the execution and
delivery of this Agreement, the Buyer shall assign all of its right, title and
interest therein to the Agent for the benefit of the Purchasers an provided in
the Transfer Agreement, to which the Originator hereby expressly consents.
Section 5.7 Further Assurances. The Originator and the Buyer agree to
do and perform, from time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by the other party hereto
more fully to effect the purposes of this Agreement, including, without
limitation, the execution of any financing statements, amendments, continuation
statements or releases relating to the Receivables for filing under the
provisions of the UCC or other law of any applicable jurisdiction.
Section 5.8 No Waiver: Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Buyer or the Originator, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof 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 5.9 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 and the same instrument.
Section 5.10 Third-Party Beneficiaries. This Agreement will inure to
the benefit of and be binding upon the parties hereto, for the benefit of the
Agent and the Purchasers, which shall be considered to be a third-party
beneficiary hereof. Except as otherwise provided in this Agreement, no other
person will have any right or obligation hereunder.
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Section 5.11 Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
Section 5.12 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
Section 5.13 Originator Indemnification. The Originator shall indemnify
and hold harmless the Buyer from and against any loss, liability, expense,
damage or injury suffered or sustained by reason of any acts, emissions or
alleged acts or emissions arising out of activities of the Originator pursuant
to this Agreement or as a result of the transactions contemplated hereby,
including, but not limited to, any judgment, award, settlement, reasonable
attorneys' fees and other costs or expenses incurred in connection with the
defense of any actual or threatened action, proceeding or claim; provided,
however, that the Originator shall not indemnify the Buyer if such acts,
omissions or alleged acts or omissions constitute negligence or willful
misconduct by the Agent or any Purchaser.
Section 5.14 Assumption of the Obligations of the Originator. The
obligations of the Originator hereunder shall not be assignable nor shall any
Person succeed to the obligations of the Originator hereunder except in each
case in accordance with the provisions of Section 5.6.
Section 5.15 Confirmation of the Obligations under Prior Purchase
Agreement. The Originator hereby expressly assumes and agrees to perform all
covenants, warranties, indemnities and other obligations of Eagle Crest
Partners, Ltd., under the Prior Purchase Agreement with respect the Mortgage
Loan Receivables sold to Buyer by Eagle Crest Partners, Ltd., and confirms the
accuracy of the Schedule of Mortgage Loan Receivables set forth as Schedule B.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
EAGLE CREST, INC.,
as Originator
By:
Name:
Title:
18
<PAGE>
TW HOLDINGS, INC.,
as Buyer
By:
Gary A. Florence
Treasurer
ACCEPTED:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, doing
business as Seafirst Bank, as
Agent
By: _________________________
Ken Puro
Vice President
19
<PAGE>
SCHEDULE A
Schedule of Right to Use Receivables
(Omitted, originals on file with Buyer and Agent)
<PAGE>
SCHEDULE B
Schedule of Mortgage Loan Receivables
(Omitted, originals on file at Buyer and Agent)
<PAGE>
EXHIBIT A
Form of UCC-1
(omitted, originals on file at Buyer and Agent)
TW HOLDINGS, INC.,
as Seller,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
doing business as SEAFIRST BANK
AND OTHER PURCHASERS NAMED HEREIN,
as Purchasers,
SEAFIRST BANK,
as Agent,
and
TRENDWEST RESORTS, INC.,
as Master Servicer
---------------------------------------------
$93,000,000
SECOND AMENDED AND RESTATED
RECEIVABLES TRANSFER AGREEMENT
Dated as of June 1, 1997
---------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
<S> <C>
ARTICLE 1 DEFINITIONS................................................................. 3
Section 1.1 Certain Defined Terms............................................................ 3
Section 1.2 Usage of Terms................................................................... 23
Section 1.3 Accounting Terms................................................................. 23
ARTICLE 2 THE COMMITMENT; TRANSFER OF RECEIVABLES................................... 24
Section 2.1 The Commitment................................................................... 24
Section 2.2 Certain Purchase Procedures...................................................... 24
Section 2.3 [Reserved]....................................................................... 25
Section 2.4 Conveyance of Receivables........................................................ 25
Section 2.5 Custody of Receivable Files...................................................... 27
Section 2.6 Duties of Master Servicer as Custodian........................................... 28
Section 2.7 Instructions; Authority to Act................................................... 29
Section 2.8 Indemnification by Master Servicer as
Custodian................................................................... 29
Section 2.9 Effective Period and Termination................................................. 29
ARTICLE 3 EARNED YIELD................................................................ 30
Section 3.1 Earned Yield..................................................................... 30
Section 3.2 Selection of Yield............................................................... 30
Section 3.3 Applicable Days for Computation of Yield......................................... 31
Section 3.4 Unavailable LIBOR Rate........................................................... 31
Section 3.5 Yield Protection................................................................. 31
Section 3.6 Funding Losses................................................................... 33
ARTICLE 4 COLLECTIONS AND SETTLEMENTS................................................. 34
Section 4.1 Collections...................................................................... 34
Section 4.2 Reinvestments.................................................................... 34
Section 4.3 Settlement Procedures............................................................ 34
Section 4.4 Deposits to Collection Account to Avoid
Break-Funding Costs......................................................... 35
Section 4.5 Deemed Collections............................................................... 36
Section 4.6 Allocation of Payments and Collections........................................... 36
Section 4.7 Order of Distribution by the Agent............................................... 37
Section 4.8 Collection Account............................................................... 37
Section 4.9 Lock Boxes....................................................................... 38
ARTICLE 5 FEES AND OTHER PAYMENTS..................................................... 39
Section 5.1 Fees............................................................................. 39
Section 5.2 Termination Event Rate Payments.................................................. 40
Section 5.3 Payments......................................................................... 40
i
<PAGE>
ARTICLE 6 CONDITIONS OF PURCHASES..................................................... 41
Section 6.1 Conditions to Initial Purchase................................................... 41
Section 6.2 Conditions to All Purchases...................................................... 42
ARTICLE 7 REPRESENTATIONS AND WARRANTIES.............................................. 43
Section 7.1 Representations and Warranties as to the
Seller...................................................................... 43
Section 7.2 Representations and Warranties as to the
Receivables................................................................. 46
Section 7.3 Additional Representations and Warranties
as to the Mortgage Loan Receivables......................................... 49
Section 7.4 Repurchase Upon Breach: Optional
Repurchase.................................................................. 52
Section 7.5 Representations and Warranties as a Whole........................................ 53
ARTICLE 8 AFFIRMATIVE COVENANTS....................................................... 54
Section 8.1 Affirmative Covenants of the Seller.............................................. 54
Section 8.2 Affirmative Covenants of TRI..................................................... 57
ARTICLE 9 NEGATIVE COVENANTS.......................................................... 58
Section 9.1 Negative Covenants of the Seller................................................. 58
Section 9.2 Negative Covenants of TRI........................................................ 59
ARTICLE 10 SERVICING, ADMINISTRATION AND COLLECTIONS................................... 60
Section 10.1 Designation of Master Servicer.................................................. 60
Section 10.2 Duties of the Master Servicer:
Subservicers................................................................ 62
Section 10.3 Collection Responsibilities; Receivable
Modifications............................................................... 65
Section 10.4 Maintenance of Insurance........................................................ 66
Section 10.5 Assumption and Substitution Agreements.......................................... 67
Section 10.6 Realization Upon Defaulted Receivables.......................................... 67
Section 10.7 Payment of Fees and Expenses of Agent:
No Offset................................................................... 68
Section 10.8 Servicing Fee................................................................... 68
Section 10.9 Representations and Warranties as to the
Master Servicer............................................................. 69
Section 10.10 Existence; Status as Master Servicer;
Merger...................................................................... 70
Section 10.11 Performance of Obligations.......................................... 71
Section 10.12 Liability of the Master Servicer:
Indemnities................................................................ 71
ii
<PAGE>
ARTICLE 11 TERMINATION EVENTS.......................................................... 72
Section 11.1 Termination Events.............................................................. 72
Section 11.2 Remedies........................................................................ 74
ARTICLE 12 THE AGENT................................................................... 75
Section 12.1 Authorization and Action........................................................ 75
Section 12.2 Duties and obligations.......................................................... 76
Section 12.3 Dealings with the Seller........................................................ 77
Section 12.4 Purchaser Credit Decision....................................................... 77
Section 12.5 Right to Rely on Payments....................................................... 78
Section 12.6 Limitations on Liability;
Indemnification............................................................. 78
Section 12.7 Successor Agent................................................................. 79
Section 12.8 Delegation of Duties............................................................ 80
Section 12.9 Merger of Agent................................................................. 80
ARTICLE 13 ASSIGNMENTS AND PARTICIPATIONS.............................................. 80
Section 13.1 Generally....................................................................... 80
Section 13.2 Assignments..................................................................... 80
Section 13.3 Participations.................................................................. 82
ARTICLE 14 SELLER INDEMNITIES.......................................................... 82
Section 14.1 Indemnities by the Seller....................................................... 82
ARTICLE 15 MISCELLANEOUS............................................................... 84
Section 15.1 Repurchases for Administrative
Convenience................................................................. 84
Section 15.2 Substitution of Receivables..................................................... 85
Section 15.3 No Waiver; Remedies Cumulative.................................................. 85
Section 15.4 Governing Law................................................................... 86
Section 15.5 Notices......................................................................... 86
Section 15.6 Severability.................................................................... 87
Section 15.7 Entire Agreement; Amendment..................................................... 87
Section 15.8 Submission to Jurisdiction: Etc................................................. 87
Section 15.9 Waiver of Jury Trial............................................................ 88
Section 15.10 Captions and Cross-References;
Incorporation by Reference................................................. 88
Section 15.11 Counterparts................................................................... 88
Section 15.12 Confidentiality................................................................ 88
Section 15.13 Resale of Receivables.......................................................... 88
Section 15.14 Oral Agreements Not Enforceable................................................ 89
</TABLE>
iii
<PAGE>
SCHEDULES
Schedule 1 Credit and Collection Policy (Right to Use
Receivables
Schedule 2 Credit and Collection Policy (Mortgage Loan
Receivables)
Schedule 3 Schedule of Right to Use Receivables
Schedule 4 Schedule of Mortgage Loan Receivables
Schedule 5 Locations of Receivable Files
EXHIBITS
Exhibit A Form of Purchase Notice
Exhibit B Form of Purchase Certificate
Exhibit C Forms of Right to Use Receivables
Exhibit D [Reserved]
Exhibit E Form of Settlement Statement
Exhibit F Form of Lock Box Notice
Exhibit G Form of Opinion of Washington Counsel
Exhibit H Forms of Opinion of Oregon Counsel
Exhibit I Form of Opinion of Nevada Counsel
iv
<PAGE>
RECEIVABLES TRANSFER AGREEMENT
This Second Amended and Restated Receivables Transfer Agreement is made
as of June 1, 1997 (the "Agreement"), among TW HOLDINGS, INC., a Nevada
corporation (the "Seller"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association, doing business as SEAFIRST BANK
("Seafirst") and the other Purchasers named herein (collectively, the
"Purchasers"), Seafirst, as agent for the Purchasers (in such capacity, the
"Agent"), and TRENDWEST RESORTS, INC., an [Oregon] corporation ("TRI" or, in its
capacity as Master Servicer, the "Master Servicer").
RECITALS
WHEREAS, the Seller is in the business of purchasing from time to time
certain right to use timeshare receivables (the "Right to Use Receivables") from
TRI and from Eagle Crest, Inc.
("Eagle Crest");
WHEREAS, the Seller was formerly also in the business of purchasing
from time to time from Eagle Crest Partners, Ltd. (together with Eagle Crest and
TRI, the "Originators") certain mortgage loan timeshare receivables (the
"Mortgage Loan Receivables" and, together with the Right to Use Receivables, the
"Receivables");
WHEREAS, the Seller, Seattle-First National Bank (the "Original
Purchaser" and predecessor by merger to Seafirst), Seattle-First National Bank
as agent, and Jeld-Wen, inc. as master servicer executed a receivables transfer
agreement dated as of December 31, 1993 (the "Original Transfer Agreement"),
pursuant to which, among other things, the Original Purchaser provided financing
to enable the Seller to purchase Right to Use Receivables from TRI;
WHEREAS, the parties to the Original Transfer Agreement executed an
amended and restated receivables transfer agreement dated as of June 1, 1994,
pursuant to which, among other things, the Original Purchaser provided financing
to enable the Seller to purchase, not only Right to Use Receivables from TRI,
but also Mortgage Loan Receivables from Eagle Crest Partners, Ltd. (predecessor
to Eagle Crest);
WHEREAS, the amended and restated receivables transfer agreement dated
as of June 1, 1994 (as amended, the "Prior Transfer Agreement") has been amended
by Amendment No. 1 dated as of December 1, 1994, Amendment No. 2, dated as of
March 30, 1995, a letter dated May 26, 1995, Amendment No. 4 dated as of June
30, 1995, Amendment No. 5 dated as of December 11, 1995, and
<PAGE>
Amendment No. 6 dated as of June 30, 1996; and the parties desire to restate in
one document so much of the Prior Transfer Agreement as the parties intend to
remain in effect;
WHEREAS, the parties wish to amend the Prior Transfer Agreement in
several ways, including (i) adding Sanwa Bank and Societe Generale as
Purchasers, (ii) allowing TRI to acquire the stock of Seller and Trendwest
Funding I, Inc. and to be substituted for Jeld-Wen, inc., as Master Servicer,
(iii) terminating the financing of additional Mortgage Loan Receivables while
providing for the financing of Right to Use Receivables acquired by the Seller
from Eagle Crest as well as from TRI; (iv) reducing the Margin used in
computation of the Yield Rate to be received by the Purchasers; and (v) changing
the financial reporting obligations of the Seller;
WHEREAS, the Seller has requested that the Purchasers provide financing
to enable the Seller to purchase Right to Use Receivables from TRI and from
Eagle Crest, and the Purchasers are willing to make funds available for such
purpose upon the terms and subject to the conditions contained herein;
WHEREAS, as a result of the foregoing, the Seller has and will have
certain Receivables in which it intends to sell interests (the "Undivided
Interests"), which Undivided Interests shall be purchased by the Purchasers from
time to time upon the terms and subject to the conditions contained herein;
WHEREAS, certain of the collections relating to the Receivables and the
Undivided Interests may be reinvested in additional Receivables upon the terms
and subject to the conditions contained herein;
WHEREAS, the Seller has agreed to secure its obligations hereunder to
the Purchasers in connection with such sale by granting to the Agent (for the
benefit of the Purchasers) a first priority, perfected security interest in all
of the Receivables owned by it;
WHEREAS, the Master Servicer has agreed to undertake certain
responsibilities relating to the servicing of the Receivables;
and
WHEREAS, the parties hereto desire to amend and restate the Prior
Transfer Agreement in its entirety.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
2
<PAGE>
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Defined Terms. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings:
"Agent" means Seafirst, in its capacity as agent for the Purchasers
pursuant to this Agreement, and any successor agent appointed pursuant to
Section 12.7.
"Aggregate Net Investment" means, as of any date, the aggregate amount
of all Purchasers' Investments outstanding as of such date.
"Aggregate Net Investment Limit" means, as of any date, an amount equal
to the lesser of (i) the Commitment Amount or (ii) the sum of (a) 80% of the Net
Pool Balance and (b) amounts deposited in the Collection Account pursuant to
Section 4.4 and not yet disbursed to the Agent pursuant to Section 4.9.
"Aggregate Undivided Interest" means, as of any date, an undivided
floating fractional ownership interest (owned ratably by the Purchasers) in the
Receivables comprising the Receivables Pool, which is equal to a fraction,
expressed as a percentage, the numerator of which is the sum of (i) Aggregate
Net Investment and (ii) 25% of the Aggregate Net Investment and the denominator
of which is the Net Pool Balance; provided that in no event can the Aggregate
Undivided Interest exceed 100%.
"Agreement" means this Agreement and all amendments hereof and
supplements hereto as shall exist from time to time.
"Assigned Collateral" means, as of any date, the Seller's (i) ownership
interest in (a) all of the Receivables comprising the Receivables Pool;
(b) all Related Security with respect to
such Receivables; (c) all collections on or in respect of such Receivables after
the related Cutoff Dates; (d) all related Receivable Documents; and (e) all
proceeds of the foregoing, and (ii) interest in (a) the Facility Documents and
(b) all monies from time to time on deposit in the Collection Account, including
investments of such monies.
"Assignee Purchaser" shall have the meaning set forth in
Section 13.2.
"Assignment" means an assignment of mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction in which a Mortgaged Property is located to reflect of record
the sale of
3
<PAGE>
the related Mortgage Note and Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages and Mortgage Notes secured by Mortgaged Properties located in
the same county, if permitted by applicable law and acceptable for recording.
"Associations" means the Eagle Crest Vacation Resort Owners
Association, the Eagle Crest Master Association, the Eagle Crest Estate Homesite
Association, the River View Vista Estates Association and the Fairway Vista
Estates Association.
"Board of Governors" means the Board of Governors of the Federal
Reserve System, and any successor thereto.
"Business Day" means any day other than Saturday, Sunday or another day
on which banks are authorized or obligated to close in Seattle, Washington,
except that in connection with the selection of the LIBOR Rate or the
calculation of the LIBOR Rate for any Yield Period, "Business Day" means any day
other than Saturday or Sunday on which dealings in foreign currencies and
exchanges between banks may be carried on in London, England, New York, New York
and Seattle, Washington.
"Charge-off Rate" means, as of any Settlement Date, the average of the
Monthly Charge-off Rates for the three Collection Periods immediately preceding
the Collection Period in which such Settlement Date occurs.
"Closing Date" means June 30, 1997.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Percentage" means, as of any date, a fraction, expressed as
a percentage, the numerator of which is the Net Pool Balance and the denominator
of which is the Aggregate Net Investment.
"Collected Interest" means all Collections other than
Collected Principal and Miscellaneous Payments.
"Collected Principal" means that portion of Collections
allocable to principal on the Receivables.
"Collection Account" means the account or accounts designated as such
and established and maintained pursuant to Section 4.8.
"Collection Period" means, in the case of (i) the first Settlement
Date, the period of time from the Closing Date to and including the last day of
the month immediately preceding the month in which such Settlement Date occurs
and (ii) any
4
<PAGE>
Settlement Date other than the first Settlement Date, the month immediately
preceding the month in which such Settlement Date occurs.
"Collections" means all funds which either (i) are received by the
Seller or the Master Servicer on or after the related Cutoff Date on or in
respect of the Receivables and the other Assigned Collateral or (ii) are deemed
to have been received as Collections pursuant to Section 4.5.
"Commitment" means the several obligations of the Purchasers to make
Purchases pursuant to this Agreement and the Prior Transfer Agreement.
"Commitment Amount" means $93,000,000.
"Commitment Fee" means the fee payable in arrears by the Seller to the
Agent pursuant to Section 5.1 in respect of each day from the Closing Date until
the Commitment Termination Date in an amount equal to the product of (i) 0.25%,
(ii) the excess, if any, of (a) the Commitment Amount on such day over (b) the
Aggregate Net Investment on such day and (iii) 1/360.
"Commitment Termination Date" means June 30, 1998, as such date may be
extended pursuant to Section 2.3.
"Consolidated Defaulted Receivable Amount" means, as of any Settlement
Date, a fraction, expressed as a percentage, the numerator of which is the sum
of (i) the outstanding Principal Balance of all Receivables included in the
Receivables Pool that were Defaulted Receivables and (ii) the outstanding
principal balance of all Originator Receivables that would be Defaulted
Receivables pursuant to the definition thereof, in each case as of the last day
of the related Collection Period, and the denominator of which is the sum of (i)
the Outstanding Principal Balance of all Receivables included in the Receivables
Pool and (ii) the outstanding principal balance of all Originator Receivables,
in each case as of the last day of such Collection Period.
"Consolidated Delinquency Rate Amount" means, as of any Settlement
Date, a fraction, expressed as a percentage, the numerator of which is the sum
of (i) the Outstanding Principal Balance of all Receivables included in the
Receivables Pool in respect of which a payment of Monthly P&I was more than 30
days past due and (ii) the outstanding principal balance of all Originator
Receivables in respect of which a scheduled monthly payment was more than 30
days past due, in each case as of the last day of the related Collection Period,
and the denominator of which is the sum of (i) the Outstanding Principal Balance
of all Receivables included in the Receivables Pool and (ii) the
5
<PAGE>
outstanding principal balance of all Originator Receivables, in each case as of
the last day of such Collection Period.
"Consolidated Monthly Charge-off Rate" means, with respect of any
Collection Period, a fraction, expressed as a percentage on a per annum basis,
the numerator of which is the sum of (i) the Outstanding Principal Balance of
all Receivables included in the Receivables Pool that were charged-off and (ii)
the outstanding principal balance of all Originator Receivables that were
charged-off, in each case during such Collection Period, and the denominator of
which is the sum of (i) the average Outstanding Principal Balance of all
Receivables included in the Receivables Pool and (ii) the average outstanding
principal balance of all Originator Receivables, in each case for each day in
such Collection Period.
"Credit and Collection Policy" means those credit and collection
policies described on Schedules 1 and 2 hereto, as the same may be modified from
time to time in accordance with this Agreement.
"Cutoff Date" means, with respect to a Receivable, the Initial Cutoff
Date or the related Subsequent Cutoff Date, as the case may be.
"Defaulted Receivable" means any Receivable comprising part of the
Receivables Pool in respect of which (i) the related obligor has failed to pay
when due any amounts due in respect thereof which failure continues for 90 days
or more; (ii) the Obligor has failed to perform any term or covenant on its part
to be performed under any related Receivable Document which failure continues
for 90 days or more, if the effect of such failure is to accelerate or to permit
(with or without the giving of notice) the acceleration of the maturity of such
Receivable or, if such Receivable is a Mortgage Loan Receivable, the related
Mortgage Note; (iii) the related Obligor is the subject of a petition in
bankruptcy, either voluntary or involuntary, or in any other proceeding under
the federal bankruptcy laws or makes an assignment for the benefit of creditors;
(iv) liquidation or foreclosure proceedings relating to all or any part of the
Related Security have begun; or (v) the Master Servicer has determined, in
accordance with the procedures and standards set forth in this Agreement and in
the related Credit and Collection Policy, that eventual payment in full is
unlikely.
"Defaulted Receivable Amount" means, as of any Settlement Date, a
fraction, expressed as a percentage, the numerator of which is the Outstanding
Principal Balance of all Receivables included in the Receivables Pool that were
Defaulted Receivables as of the last day of the related Collection Period and
the denominator of which is the Outstanding Principal Balance of all
6
<PAGE>
Receivables included in the Receivables Pool as of the last day of such
Collection Period.
"Defective Receivable" means any Receivable required to be
repurchased by the Seller pursuant to Section 7.4.
"Delinquency Rate Amount" means, as of any Settlement Date, a fraction,
expressed as a percentage, the numerator of which is the Outstanding Principal
Balance of all Receivables included in the Receivables Pool in respect of which
a payment of Monthly P&I was more than 30 days past due as of the last day of
the related Collection Period and the denominator of which is the Outstanding
Principal Balance of all Receivables (other than Defaulted Receivables) included
in the Receivables Pool as of the last day of such Collection Period.
"Dollar" or "$" means the currency of the United States.
"Due Date" means, with respect to any Receivable, the date upon which
installments of Monthly P&I are required to be paid pursuant to such Receivable
or, if such Receivable is a Mortgage Loan Receivable, pursuant to the related
Mortgage Note, in each case after giving effect to any grace period permitted by
such Receivable or Mortgage Note.
"Eagle Crest" means Eagle Crest, Inc., an Oregon corporation, and any
successor thereto.
"Eagle Crest Master Association" means that certain nonprofit
corporation organized under the laws of the State of Oregon having its principal
place of business at 821 South Sixth Street, Redmond, Oregon 97756, which owns
and operates the common improvements and facilities for the benefit of all
owners of the Mortgaged Properties.
"Eagle Crest Purchase Agreement" means the Amended and Restated
Receivables Purchase Agreement, dated as of the date hereof, between Eagle Crest
and the Seller, and all amendments thereof and supplements thereto as shall
exist from time to time.
"Eagle Crest Vacation Resort Owners Association" means that certain
non-profit corporation organized under the laws of the State of Oregon having
its principal place of business at 821 South Sixth Street, Redmond, Oregon
97756, which owns and operates the facilities identified for the use and benefit
of the
owners of the Timeshare Estates.
"Earned Yield" shall have the meaning set forth in
Section 3.1.
7
<PAGE>
"Eligible Assignee" means a commercial bank or other financial
institution formed under the laws of any OECD Country.
"Eligible Receivable" means, as of any date, a Receivable that is
either a Right to Use Receivable or a Mortgage Loan Receivable and:
(i) as to which, at the time of its conveyance to the Seller,
no portion of any payment of Monthly P&I is more than 30 days delinquent and (a)
if the Receivable is a Right to Use Receivable, no portion of any payment of
Monthly P&I has ever been more than 30 days delinquent and (b) if the Receivable
is a Mortgage Loan Receivable, no portion of any payment of Monthly P&I has been
delinquent since January 1, 1994;
(ii) is not a Defaulted Receivable;
(iii) in respect of which at the time when such Receivable
became an Eligible Receivable, four months had elapsed since the related
Origination Date;
(iv) which either constitutes chattel paper under the Nevada
UCC or, if such Receivable is a Mortgage Loan Receivable, the related Mortgage
Note constitutes an instrument under the UCC in effect in the state in which the
related Mortgaged Property is located;
(v) as to which, at the time of (a) its conveyance to the
Seller and (b) as of such date, the related Originator or the Seller, as the
case may be, has or will have good and marketable title thereto free and clear
of all Liens other than (1) the Lien in favor of the Agent for the benefit of
the Purchasers created pursuant to this Agreement, (2) if such Receivable is a
Mortgage Loan Receivable, other than Permitted Encumbrances on the related
Mortgaged Property and (3) if such Receivable is a Right to Use Receivable,
other than Liens in favor of WorldMark;
(vi) as to which a first priority security interest in favor
of the Agent for the benefit of the Purchasers has been perfected (and, if such
Receivable is a Mortgage Loan Receivable, a first priority security interest in
the related Mortgage and Mortgage Note has been so perfected); and
(vii) as to which no Lien exists that is on a parity with the
security interests described in clause (vi) above other than Permitted
Encumbrances on the related Mortgaged Property in the case of a Mortgage Loan
Receivable and Liens in favor of WorldMark in the case of a Right to Use
Receivable.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
8
<PAGE>
"Eurodollar Rate" means, with respect to any Yield Period, (i) the
British Bankers' Association interest settlement rate at 11:00 a.m., London
time, on the day that is two Business Days prior to the first date of such Yield
Period, as reported on page 3750 of Telerate Systems, Inc. (or its successor
publication) (or such other page as may replace page 3750 in that service for
the purpose of displaying London interbank offer rates of major banks) under the
U.S. Dollar column, or, if unavailable, (ii) the offered rate for U.S. Dollar
deposits as reported on the Reuters Monitor Money Rates Service or (iii) if no
such rate is available as described in clauses (i) or (ii) above, the arithmetic
mean of the quotations of the rates at which deposits in U.S. Dollars are
offered in the London interbank market by three Reference Banks selected by the
Agent (after consultation with the Seller) and to which a request was made to
the principal London office for a quotation of such rate at approximately 11:00
a.m., London time, on the day that is two Business Days prior to the first date
of such Yield Period to prime banks in the London interbank market for such
Yield Period; provided that the Eurodollar Rate for the initial Yield Period
hereunder shall be determined by interpolation between the reported rates for
periods of 30 and 60 days.
"Eurodollar Reserves" means a fraction, expressed as a four digit
decimal, the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the minimum reserve percentages
(including, without limitation, any special, supplemental, marginal or emergency
reserves), expressed as a four digit decimal, established by the Board of
Governors or any other banking authority to which the Purchasers are subject for
Eurocurrency Liability (as such term is defined in Regulation D). For all
purposes of this Agreement, Eurodollar Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve percentage and
shall apply to all Yield Periods commencing after the effective date of such
change.
"Facility Documents" means this Agreement, the Purchase Agreements,
each Subservicing Agreement, if any, and all reports, statements, financing
statements, instruments and other documents delivered in connection herewith or
therewith or in connection with the transactions contemplated hereby or thereby.
"Fairway Vista Estates Association" means that certain nonprofit
corporation organized under the laws of the State of Oregon having its principal
place of business at 821 South Sixth Street, Redmond, Oregon 97756, which owns
and operates the facilities identified for the use and benefit of certain owners
of the Fractional Ownership Interests.
9
<PAGE>
"Federal Funds Rate" means, with respect to any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates displayed on such days as the federal funds effective rate
on the display page designed as "Page 12011 on the Dow Jones Telerate Service
(or such other page as may replace that page on that service, or such other
service as may be designated as the information source by Agent for the purpose
of determining the daily effective federal funds rate for federal funds
transactions between members of the Federal Reserve System).
"Fee Letter" means that certain letter, dated the Closing Date, from
the Agent to the Seller, and all amendments thereof and supplements thereto as
shall exist from time to time.
"FHLMC" means the Federal Home Loan Mortgage Association and
its successors.
"Filing Assets" means, with respect to any Receivable acquired by the
Seller on or after the Closing Date, (i) such Receivable; (ii) all Related
Security with respect to such Receivable; (iii) all Collections with respect to
such Receivable; (iv) all related Receivable Documents; (v) the Seller's rights
under the related Purchase Agreement; and (vi) all proceeds of the foregoing.
"Fractional Ownership Interest" means a fee simple ownership interest
in common with other owners in a single-family residential home or townhouse
entitling the owner thereof to the exclusive use of such home or townhouse for
four, five or ten weeks, together with access to the accompanying facilities of
the Project.
"Governmental Authority" means the government of the United States or
any state, county or municipality or any foreign country or any political
subdivision of any of the foregoing or any branch, department, agency,
instrumentality, court, tribunal or regulatory authority which constitutes a
part or exercises any sovereign power of any of the foregoing.
"Indebtedness" means, with respect to the Seller, all (i) obligations
for borrowed money; (ii) obligations representing the deferred purchase price of
property other than accounts receivable or accounts payable arising in the
ordinary course of the business of the Seller on terms customary in the trade;
(iii) obligations, whether or not assumed, secured by Liens or payable out of
the proceeds or production from property now or hereafter owned or acquired by
the Seller; (iv) obligations which are evidenced by notes, acceptances or other
instruments; (v) obligations under leases which would be capitalized on the
balance sheet of the Seller prepared in accordance with generally
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<PAGE>
accepted accounting principles; and (vi) obligations for which
the Seller is obligated pursuant to a guarantee.
"Indemnified Amounts" shall have the meaning specified in
Section 14.1.
"Indemnified Parties" shall have the meaning specified in
Section 14.1.
"Independent Director" means a director of the Seller who shall at no
time be, and has not been a director or officer of, or be employed by any direct
or ultimate parent, or Affiliate of the parent, of the Seller, and who shall at
no time hold any beneficial interest in the Seller or any Affiliate of the
Seller; provided, however, that the Independent Director may serve in similar
capacities for other "special purpose corporations" formed by the parent of the
Corporation and its Affiliates. "Affiliate" means, with respect to any Person,
any officer, director, or holder of 5% or more of the voting power of the
Seller, or any brother, sister, spouse, parent or child of any such person, and
any other entity other than the Seller, controlling or controlled by or under
common control with such entity, and "control" means the power to direct the
management and policies of such entity, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.
"Initial Cutoff Date" means June 30, 1997.
"Initial Receivables" means the Receivables comprising the
Receivables Pool as of the Closing Date.
"Interest Rate Protection Date" means the second consecutive Settlement
Date in respect of which the difference between (i) the weighted average
Receivable Interest Rate of the Receivables comprising the Receivables Pool
during the related Collection Period and (ii) 30-day LIBOR is less than or equal
to 8%.
"Interest Rate Protection" means a transaction governed by an ISDA
Master Agreement pursuant to which a counterparty will ensure for a three year
period commencing on the related Interest Rate Protection Date, on an amount at
least equal to 60% of the Aggregate Net Investment as of such Interest Rate
Protection Date, the 30-day Eurodollar Rate will be less than or equal to the
sum of (i) the 30-day Eurodollar Rate in effect on such Interest Rate Protection
Date and (ii) 4%.
"Investment Company Act" means the Investment Company Act of
1940, as amended.
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<PAGE>
"IRS" means the Internal Revenue Service, and any successor
thereto.
"LIBOR Rate" means, with respect to any Tranche for any Yield Period,
an interest rate per annum equal to the sum of (i) the Margin and (ii) the
product of (a) the Eurodollar Rate in effect for such Yield Period and (b) the
Eurodollar Reserves in effect on the first day of such Yield Period. For all
purposes of this Agreement, each Tranche accruing a yield at the LIBOR Rate
shall be deemed to constitute a Eurocurrency Liability and to be subject to the
reserve requirements of Regulation D, without benefit of credit or proration,
exemptions or offsets which might otherwise be available to the Purchasers from
time to time under Regulation D.
"Lien" means, with respect to any Person, any security interest, lien,
charge, claim, pledge, equity or encumbrance of any kind upon or affecting the
revenues of such Person or any real or personal property in which such Person
has or hereafter acquires any interest, other than Tax liens, mechanics, liens
and any liens that attach by operation of law.
"Liquidation Expenses" means, with respect to the liquidation of any
Defaulted Receivable, all reasonable out-of-pocket expenses (including all
reasonable sales and marketing expenses, but not including overhead) incurred by
the Master Servicer in connection with such liquidation.
"Liquidation Proceeds" means, with respect to the liquidation of any
Defaulted Receivable, amounts actually received in connection with such
liquidation.
"Lock Box" means each post office box or bank box to be included in the
Lock Box Network as to which the Seller has notified the Agent that collections
will be remitted to pursuant to Section 4.9 following a Termination Event.
"Lock Box Account" means each account maintained by the Seller as a
part of the Lock Box Network and (i) as to which the Seller has notified the
Agent that Collections will be deposited therein and (ii) with respect of which
the Agent shall have received an undated executed copy of a Lock Box Notice
addressed to the related Lock Box Bank.
"Lock Box Agreement" means each agreement between the Seller and a Lock
Box Bank relating to a Lock Box and a Lock Box Account, which agreement shall be
in form and substance satisfactory to the Agent.
"Lock Box Bank" means each of the banks or depository institutions
added as a lock box bank pursuant to Section 4.9.
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"Lock Box Network" means one or more post office boxes and/or bank
boxes and accounts maintained by the Seller for the sole purpose of receiving
Collections and in connection with which a collecting bank is exclusively
authorized and directed to collect and process mail and Collections remitted to
each such post office box or bank box and to deposit such Collections into the
Collection Account, directly or through a Lock Box Account.
"Lock Box Notice" means, with respect to each Lock Box and Lock Box
Account, a letter in substantially the form of Exhibit F hereto from the Seller
to each Lock Box Bank.
"Margin" means, in the case of any Yield Period (or portion thereof)
1.25%, and after the Commitment Termination Date, provided that no Notice Date
has occurred, 2%.
"Master Servicer" means TRI, in its capacity as Master Servicer
hereunder, and any successor Master Servicer designated by the Agent pursuant to
Section 10.1, including any Person assuming the duties of the Master Servicer
under Article 10 after being designated in a Successor Notice.
"Maturing Tranches" means, as of any Settlement Date, those Tranches
for which such Settlement Date is the last day of the applicable Payment Period.
"Miscellaneous Payments" means, with respect to any Receivable, any
amounts received from or on behalf of the related Obligor representing
assessments and payments relating to real property taxes, insurance premiums,
transfer fees, late fees and service charges, annual dues payable to WorldMark
and condominium or homeowners, association fees.
"Monthly Charge-off Rate" means, with respect to any Collection Period,
a fraction, expressed as a percentage on a per annum basis, the numerator of
which is the Outstanding Principal Balance of all Receivables included in the
Receivables Pool that were charged-off by the Seller during such Collection
Period and the denominator of which is the average Outstanding Principal Balance
of all Receivables included in the Receivables Pool for each day in such
Collection Period.
"Monthly P&I" means, with respect to any Receivable, the scheduled
payment of principal and interest due in each Collection Period pursuant to such
Receivable (which payment, if such Receivable is a Mortgage Loan Receivable, is
set forth in the related Mortgage Note).
"Mortgage" means the mortgage, deed of trust or other instrument
creating a first lien on the Mortgaged Property securing a Mortgage Note.
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<PAGE>
"Mortgage Loan Receivables" means such of the mortgage loans originated
by Eagle Crest Partners, Ltd., acquired by the Seller and included in the
Receivables Pool pursuant to the Prior Transfer Agreement, which mortgage loans
are identified in the Schedule of Mortgage Loan Receivables.
"Mortgage Note" means the promissory note or other evidence of
indebtedness executed by an obligor that evidences the indebtedness of such
obligor under a Mortgage Loan Receivable.
"Mortgaged Property" means the property securing a Mortgage Note, which
may be either a Timeshare Estate or a Fractional Ownership Interest consisting
of a fee simple estate in real property located at the Project.
"Net Pool Balance" means, as of any date, the aggregate Outstanding
Principal Balance of all Eligible Receivables included in the Receivables Pool
as of such date.
"Net Worth" means an amount equal to the tangible shareholders' equity
of the Seller (as such term is defined in accordance with generally accepted
accounting principles) minus the fair market value of any securities owned by
the Seller prior to the Closing Date (other than investment of monies on deposit
in the Collection Account).
"New Lock Box Accounts" shall have the meaning specified in Section
4.9.
"New Lock Boxes" shall have the meaning specified in Section
4.9.
"Notice Date" means the day on which the Agent, pursuant to Section
11.2, delivers or is deemed to have delivered to the Seller a notice of the
occurrence of a Termination Event and declaration that the Commitment is
terminated and all Obligations are due and payable (from Collections or
otherwise).
"Obligations" means (i) all obligations of the Seller to the Agent, the
Purchasers and their respective successors, permitted transferees and assigns
arising under or in connection with the Facility Documents, and (ii) all
obligations of the Seller to any Indemnified Party arising under Section 14.1,
in each case however created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due.
"Obligor" means any Person obligated to make payments on or in respect
of a Receivable, whether as a direct obligor or as a guarantor thereof.
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<PAGE>
"OECD Country" means a country which is a member of the grouping of
countries that are full members of the Organization of Economic Cooperation and
Development, plus countries that have concluded special lending arrangements
with the International Monetary Fund associated with its General Arrangements to
Borrow.
"Officer's Certificate" means a certificate signed by the president,
any vice president, the treasurer, the assistant treasurer, the secretary or the
assistant secretary of the Seller or the Master Servicer, as the case may be,
and delivered to the Agent.
"Original Principal Balance" means, with respect to any Receivable, the
amount set forth in such Receivable or, in the case of a Mortgage Loan
Receivable, on the related Mortgage Note, as the original principal balance of
such Receivable.
"Origination Date" means, with respect to any Receivable, the date
specified as the Origination Date on the related Schedule of Receivables, such
date being represented to be (i) in the case of a Mortgage Loan Receivable, the
date on which the related Mortgage was recorded in the public records in the
jurisdiction in which the related Mortgaged Property is located and (ii) in the
case of a Right to Use Receivables, the date of origination of such Right to Use
Receivable.
"Originator" means TRI or Eagle Crest or Eagle Crest Partners, Ltd., as
the case may be.
"Originator Receivables" means, as of any time, all right to use
timeshare receivables and mortgage loan timeshare receivables originated by the
related Originator, other than the Receivables, that have not been paid in full
or charged off.
"Outstanding Principal Balance" means, with respect to any Receivable
as of any date, its Original Principal Balance less all payments received on or
in respect of such Receivable on or prior to such date and allocable to
principal.
"Participant" shall have the meaning set forth in
Section 13.3.
"Payment Period" means (i) for any Tranche for which the Earned Yield
is calculated at the LIBOR Rate, the Yield Period, provided, that if a Notice
Date shall occur prior to the end of such Yield Period, the Payment Period for
such Tranche shall end on the Settlement Date next succeeding such Notice Date;
(ii) for any Tranche for which the Earned Yield is calculated at the Reference
Rate, that period commencing on the next day after the last day of the
immediately preceding Payment Period for such Tranche (or applicable portion
thereof) or if there has been no
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<PAGE>
such preceding Payment Period, the date the Purchasers' Investment in such
Tranche was initially made by the Purchasers and, in either case, continuing
through and including the next succeeding Settlement Date; and (iii) for any
Tranche for which the Earned Yield is calculated at the Termination Event Rate,
that period commencing on (a) the next day after the last day of the immediately
preceding Payment Period for such Tranche (or applicable portion thereof), or
(b) if there has been no such preceding Payment Period, the date the Purchasers'
Investment in such Tranche (or applicable portion thereof) was initially made by
the Purchasers and, in either case, continuing through and including the
immediately succeeding Settlement Date.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Encumbrances" means, with respect to any Mortgaged Property,
(i) all Liens and encumbrances identified in the related Mortgage and (ii) all
other mortgages, deeds of trust or other security instruments on such Mortgaged
Property to the extent that such mortgages, deeds of trust or other security
instruments and the related promissory note or other evidence of indebtedness
are substantially similar to the Mortgages and Mortgage Notes, respectively, and
relate to mortgage loan timeshare receivables which are substantially similar to
the Mortgage Loan Receivables and have been transferred to the Agent for the
benefit of the Purchasers.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Portfolio Yield" means, as of any Settlement Date, the difference
between (i) the product of (a) the amount of Collected Interest collected during
the related Collection Period and (b) the Purchasers' Interest for such
Collection Period, and (ii) the sum of (a) the Earned Yield in respect of such
Collection Period, whether or not paid, and (b) the product of (1) the
Purchasers' Interest for such Collection Period and (2) the sum of the Servicing
Fee payable in respect of such Collection Period, the Outstanding Principal
Balance of all Receivables that were charged-off by the Seller during such
Collection Period and the Program Costs in respect of such Collection Period,
whether or not paid.
"Prior Transfer Agreement" shall have the meaning defined in the
recitals to this Agreement.
"Pro Rata Share" shall mean for each Purchaser the percentage set forth
opposite its name below.
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<TABLE>
<CAPTION>
Purchaser Pro Rata Share
<S> <C>
Seafirst Bank 21.51%
First National Bank of Chicago 16.13
Societe Generale 16.13
The Bank of Tokyo-Mitsubishi 10.75
Key Bank National Association 10.75
Sanwa Bank California 10.75
First Security of Idaho, N.A. 8.60
U. S. Bank 5.38
</TABLE>
"Program Costs" means, in respect of any Collection Period, all
expenses and fees of the Seller payable during such Collection Period (other
than the Servicing Fee and Earned Yield), including but not limited to, fees
payable pursuant to Section 5.1.
"Project" means the respective land, buildings and appurtenant rights
which comprise the Eagle Crest Resort, Redmond, Oregon, within which each
Mortgaged Property is located.
"Purchase" means any purchase by the Purchasers of an Undivided
Interest from the Seller and includes, without limitation, Reinvestments.
"Purchase Agreements" means the Eagle Crest Purchase
Agreement and the TRI Purchase Agreement.
"Purchase Certificate" shall have the meaning set forth in
Section 6.2(c).
"Purchase Notice" shall have the meaning set forth in
Section 2.2(a).
"Purchase Price" means, with respect to any Defective Receivable, an
amount equal to the Outstanding Principal Balance of such Receivable as of the
last day of the Collection Period immediately preceding the Collection Period in
which such Receivable is being repurchased, together with interest thereon at
the applicable Receivable Interest Rate from the end of such immediately
preceding Collection Period through the current Collection Period.
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"Purchase and Sale Agreement" means, with respect to any
Mortgage Loan Receivable, the related Eagle Crest Vacation Resort
Ownership Purchase and Sale Agreement, Escrow Instructions and
Buyer's Receipt for Documents.
"Purchasers" means each of the Persons identified as a "Purchaser" in
the definition of "Pro Rata Share" and any of their respective successors.
"Purchasers' Interest" means, with respect to any Collection Period, a
fraction, the numerator of which is the average Aggregate Net Investment for
each day in such Collection Period and the denominator of which is the average
outstanding Principal Balance of the Receivables comprising the Receivables Pool
for each day in such Collection Period.
"Purchasers' Investment" in any Undivided Interest means an amount
equal to the original amount paid to the Seller for such Undivided Interest at
the time of its initial acquisition by the Purchasers, as such amount may be
reduced from time to time by Collections received and distributed pursuant to
Sections 4.3 and 4.7. The Purchasers' Investment shall not be considered reduced
by any distribution of any portion of Collections if at any time such
distribution is rescinded or otherwise must be returned for any reason nor shall
the Purchasers' Investment be reduced or increased by any Reinvestment.
"Purchasers' Share" of any Collections means, (i) on any day on or
before the Commitment Termination Date, if no Notice Date shall have occurred,
the product of such amount and the Aggregate Undivided Interest on such day;
(ii) on any day after the Commitment Termination Date, if no Notice Date shall
have occurred on or before the Commitment Termination Date, the product of such
amount and the Aggregate Undivided Interest as of the Commitment Termination
Date; and (iii) if a Notice Date shall have occurred on or before the Commitment
Termination Date, the product of such amount and the Aggregate Undivided
Interest as of such Notice Date.
"Receivable Documents" means, with respect to any Receivable, all loan
agreements, security agreements, guarantees, pledges, mortgages, deeds of trust,
financing statements, certificates, instruments, agreements and other related
documents executed in connection with such Receivable (including, if such
Receivable is a Mortgage Loan Receivable, the related Mortgage, Mortgage Note
and Warranty Deed) or in connection with the Related Security.
"Receivable Files" means the documents in respect of the
Receivables specified in Section 2.5.
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"Receivable Interest Rate" means, with respect to a Receivable, the per
annum rate of interest or finance charge borne by such Receivable.
"Receivables" means the Right to Use Receivables and the Mortgage Loan
Receivables included in the Receivables Pool, and all proceeds thereof and
payments thereunder on and after the related Cutoff Date, which Receivables are
identified in the related Schedule of Receivables. Once so designated, a
Receivable shall continue to be a Receivable for all purposes hereunder until
(i) its Outstanding Principal Balance has been reduced to zero, (ii) the Seller
repurchases such Receivable pursuant to Section 7.4 or 15.1 or (iii) the Seller
substitutes a new Receivable for such Receivable therefor pursuant to Section
15.2.
"Receivables Pool" means at any time all Receivables
outstanding at such time.
"Reference Bank" means a major bank selected from time to time by the
Agent that is active in the London interbank market.
"Reference Rate" means on any day the greater of the rate of interest
in effect for such day as publicly announced from time to time by Bank of
America National Trust and Savings Association ("BofA") in San Francisco,
California as its "reference rate" and (ii) the sum of (a) the Federal Funds
Rate and (b) 0.50%. The BofA "reference rate" is a rate set by BofA based upon
various factors, including its costs and desired return, general economic
conditions, and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below the announced rate. Any change in
the reference rate announced by BofA shall take effect at the opening of
business on the day specified in the public announcement of the change.
"Regulation D" means Regulation D promulgated by the Board of Governors
of the Federal Reserve System, as amended.
"Reinvestment" means any Purchase made pursuant to
Section 4.2.
"Related Security" means, with respect to any Receivable, all security,
guarantees and other collateral securing the obligations of the related Obligor
under such Receivable, including, if such Receivable is a Mortgage Loan
Receivable, the related Mortgaged Property.
"Required Purchasers" means, unless otherwise indicated, at any time
Purchasers having an aggregate Purchasers' Investment of at least 66%.
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<PAGE>
"Right to Use Receivable" means such of the right to use receivables
originated by TRI or Eagle Crest (forms of which are attached hereto as Exhibit
C), acquired by the Seller and included in the Receivables Pool pursuant to
either this Agreement or the Prior Transfer Agreement, which right to use
receivables are identified in the Right to Use Receivables Schedule.
"River View Vista Estates Association" means that certain non-profit
corporation organized under the laws of the State of Oregon having its principal
place of business at 821 South Sixth Street, Redmond, Oregon 97756, which owns
and operates the facilities identified for the use and benefit of certain owners
of the Fractional Ownership Interests.
"Schedule of Mortgage Loan Receivables" means the schedule or schedules
of Mortgage Loan Receivables attached hereto as Schedule 4, as the same may be
amended from time to time. The Mortgage Loan Receivable Schedule shall set forth
the following information as to each Mortgage Loan Receivable: (i) its
identifying number; (ii) the name of and the mailing address for the related
Obligor; (iii) the street address of the related Mortgaged Property; (iv) the
original number of months to maturity; (v) the number of months to maturity as
of the related Cutoff Date; (vi) its Origination Date; (vii) its Receivable
Interest Rate; (viii) its Due Date; (ix) its original Principal Balance; (x) its
Outstanding Principal Balance as of the related Cutoff Date; (xi) whether the
related Mortgaged Property is a Fractional Ownership Interest or a Timeshare
Estate; and (xii) the address at which the related Receivable File is
maintained. Every list submitted to the Agent purporting to identify such
Receivables conveyed or to be conveyed to the Agent pursuant to this Agreement
shall be deemed an amendment or supplement to such schedule regardless of
whether the list is accurate or complete or complies with the requirements of
the preceding sentence.
"Schedule of Receivables" means the Schedule of Right to Use
Receivables or the Schedule of Mortgage Loan Receivables.
"Schedule of Right to Use Receivables" means the schedule of Right to
Use Receivables attached hereto as Schedule 3, as the same may be amended or
supplemented from time to time. The Right to Use Receivable Schedule shall set
forth the following information as to each Right to Use Receivable: (i) its
identifying number; (ii) the name of and mailing address for the related
Obligor; (iii) the original number of months to maturity; (iv) the number of
months to maturity as of the related Cutoff Date; (v) its Receivable Interest
Rate; (vi) its Due Date; (vii) its Original Principal Balance; (viii) its
Outstanding Principal Balance as of the related Cutoff Date; (ix) its
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<PAGE>
Origination Date; and (x) the address at which the related Receivable File is
maintained. Every list submitted to the Agent purporting to identify such
Receivables conveyed or to be conveyed to the Agent pursuant to this Agreement
shall be deemed an amendment or supplement to such schedule regardless of
whether the list is accurate or complete or complies with the requirements of
the preceding sentence.
"Seafirst" means Bank of America National Trust and Savings
Association, a national banking association doing business as Seafirst Bank, and
any successor thereto.
"Section 4.4 Deposits" shall have the meaning specified in
Section 4.8.
"Seller" means TW Holdings, Inc., and any successor thereto.
"Servicing Fee" means the fee to be paid to the Master Servicer for
services rendered during each Collection Period, determined pursuant to Section
10.8.
"Settlement Date" means the tenth day of each month or, if such day is
not a Business Day, the immediately succeeding Business Day, commencing July 10,
1994.
"Subsequent Cutoff Date" means the date specified by the Seller in the
related Schedule of Receivables after which all payments owing under a
Subsequent Receivable shall be paid to or upon the order of the Agent as
directed pursuant to this Agreement.
"Subsequent Receivables" means any Receivable transferred to
the Seller after the Closing Date.
"Subservicer" means any subservicer engaged by the Master Servicer to
subservice a Receivable pursuant to Section 10.2.
"Subservicing Agreement" means an agreement between the Master Servicer
and a Subservicer relating to the servicing of one or more of the Receivables,
and all amendments thereof and supplements thereto as shall exist from time to
time.
"Subsidiary" shall mean any corporation of which a majority (by number
of shares or by number of votes) of any class of outstanding capital stock
normally entitled to vote for the election of one or more directors (regardless
of any contingency which does or may suspend or dilute the voting rights of such
class) is at such time owned directly or indirectly by the Seller or TRI, as the
case may be, or by one or more of their respective Subsidiaries; provided that
notwithstanding the foregoing, any entity that is consolidated on the balance
sheet of another
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<PAGE>
entity shall be a Subsidiary of the second entity for purposes of
this definition.
"Successor Notice" shall have the meaning specified in
Section 10.1.
"Tax" means, with respect to any Person, any tax, assessment, duty,
levy, impost or other charge imposed by any Governmental Authority on such
Person or on any property, revenue, income or franchise of such Person and any
interest or penalty with respect to any of the foregoing.
"Termination Event" shall have the meaning set forth in
Section 11.1.
"Termination Event Rate" means a per annum rate equal to 1.5% above the
related Yield Rate in effect from time to time.
"Timeshare Estate" means a timeshare interval fee simple ownership
interest in a timeshare unit located in the Project which secures a Mortgage
Loan Receivable and which entitles the owner thereof to occupy a unit at the
Project for a particular interval, together with access to the accompanying
facilities at the Project.
"Tranche" means any portion of the Aggregate Net Investment (expressed
in dollars) accruing a yield at the same rate, and, in the case of portions of
the Aggregate Net Investment accruing a yield at the same LIBOR Rate, for the
same Yield Period.
"Transfer Date" means the date as of which a Receivable is
acquired by the Purchaser.
"TRI" means Trendwest Resorts, Inc., an Oregon corporation,
and any successor thereto.
"TRI Purchase Agreement" means the Amended and Restated Receivables
Purchase Agreement dated as of June 1, 1994, between TRI and the Seller, and all
amendments thereof and supplements thereto as shall exist from time to time.
"TW HOLDINGS" means TW Holdings, Inc., a Nevada corporation,
and its successors.
"UCC" means the Uniform Commercial Code as in effect in the
related jurisdiction.
"Undivided Interest" means, as of any date, for each Purchasers'
Investment, an undivided fractional ownership interest (owned ratably by the
Purchasers) equal to (i) the sum
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<PAGE>
of (a) the Purchasers' Investment plus (b) 25% of the Purchasers, Investment,
divided by (ii) the Net Pool Balance.
"Upfront Fee" shall equal the product of .0025 multiplied by the
Commitment Amount; the Upfront Fee to be received by each Purchaser upon making
or increasing its investment shall equal the product of that Purchaser's
Pro-Rata Share (or so much thereof as represents its increased investment)
multiplied by .0025 and the Commitment Amount.
"Unmatured Termination Event" means any event which with the giving of
notice, the passage of time or both would constitute a Termination Event.
"WorldMark" means WorldMark, The Club, a California nonprofit mutual
benefit corporation, and its successors.
"Yield Notice" shall have the meaning set forth in Section
3.2.
"Yield Period" means with respect to any Tranche for which the LIBOR
Rate has been selected as the Yield Rate, the period commencing on the first
date the Seller elects to have such LIBOR Rate apply (which date must be a
Settlement Date or such other date as agreed to by all Purchasers named herein)
and ending on the Settlement Date closest to a date one, two or three months
thereafter as specified in a Yield Notice given pursuant to Section 3.2,
provided that the initial Yield Period hereunder shall end on August 10, 1997.
"Yield Rate" for any portion of the Purchasers' Investment means the
Reference Rate unless the Seller has made an effective selection of a LIBOR Rate
pursuant to Section 3.2, in which case, "Yield Rate,, for such portion of the
Purchasers' Investment means such LIBOR Rate.
Section 1.2 Usage of Terms. With respect to all terms in this
Agreement, the singular includes the plural and the plural the singular; words
importing any gender include the other gender; references to "writing" include
printing, typing, lithography and other means of reproducing words in a visible
form; references to agreements and other contractual instruments include all
subsequent amendments thereto or changes therein entered into in accordance with
their respective terms and not prohibited by this Agreement; references to
Persons include their permitted successors and assigns; and the term "including"
means "including without limitation."
Section 1.3 Accounting Terms. Except as otherwise provided
herein, accounting terms not specifically defined shall be
construed, and all accounting procedures shall be performed, in
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accordance with generally accepted accounting principles in the United States
consistently applied.
ARTICLE 2
THE COMMITMENT; TRANSFER OF RECEIVABLES
Section 2.1 The Commitment. On the terms and subject to the conditions
set forth in this Agreement, and in reliance upon the representations and
warranties herein set forth, each Purchaser, severally and for itself alone,
agrees to purchase from time to time prior to the Commitment Termination Date,
pro rata shares of Undivided Interests from the Seller, each of which shall be
in an amount equal to such Purchaser's Pro Rata Share of the aggregate amount of
the requested Purchase; provided, however, that under no circumstances will any
Purchaser be obligated to make any Purchase to the extent that, after giving
effect to such Purchase, (i) the Aggregate Net Investment would exceed the
Aggregate Net Investment Limit, (ii) such Purchaser's Pro Rata Share of the
Aggregate Net Investment would exceed the amount of its Pro Rata Share of the
Commitment Amount or (iii) the Collateral Percentage as of the date of the
proposed Purchase (after giving effect to such Purchase and all Purchases to be
made on or prior to such date) would be less than 125%.
Section 2.2 Certain Purchase Procedures.
(a) Purchases Other Than Reinvestments. Except in the case of
a Purchase that is a Reinvestment, the Seller shall deliver to the Agent a
notice setting forth the details of each proposed Purchase, substantially in the
form of Exhibit A hereto (a "Purchase Notice"), no later than 11:00 a.m.,
Seattle time, on the Business Day immediately preceding the date of the proposed
Purchase; provided, however, if the Seller shall select the LIBOR Rate as the
initial Yield Rate for such proposed Purchase, the Purchase Notice shall be
delivered to the Agent prior to 11:00 a.m., Seattle time, at least three
Business Days before the date of such proposed Purchase. Notwithstanding the
foregoing, in the case of the initial Purchase to be made on the Closing Date,
the related Purchase Notice can be delivered to the Agent on the Closing Date.
Except as otherwise provided in the immediately preceding sentence, Purchase
Notices received after 11:00 a.m., Seattle time, on any Business Day will be
deemed received on the immediately succeeding Business Day. Each Purchase Notice
shall set forth the proposed amount of the Purchase, which shall be an integral
multiple of $100,000 and not less than $1,000,000, and the proposed date of
Purchase, which, except for the initial Purchase on the Closing Date, shall be a
Settlement Date occurring prior to the Commitment Termination Date. Such notice
shall be irrevocable and shall be deemed to constitute a representation and
warranty by the Seller that as of
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the date of the Purchase Notice, all of the representations and warranties of
the Seller set forth in Article 7 are true and correct and that no Unmatured
Termination Event or Termination Event has occurred and is continuing. Upon
receipt of a Purchase Notice, the Agent shall promptly notify each Purchaser by
telephone (confirmed by facsimile transmission), or facsimile transmission of
the date and time of the proposed Purchase. Each Purchaser shall before 11:00
a.m., Seattle time, on the date of such Purchase (other than a Reinvestment),
remit an amount equal to the lesser of (i) such Purchaser's Pro Rata Share of
the amount of the Purchase identified in the Purchase Notice or (ii) the maximum
amount such Purchaser is committed to pay pursuant to Section 2.1, in
immediately available funds to the Agent at its Commercial Loan Service Center,
Seattle, Washington. Upon fulfillment to the Agent's satisfaction of the
applicable conditions set forth in Article 6, and after receipt by the Agent of
such funds, the Agent will promptly make such immediately available funds
available to the Seller by depositing them to an ordinary checking account
maintained for such purpose by the Seller with the Agent.
(b) Reinvestments. Reinvestments shall be made by permitting
the Master Servicer to apply each Purchaser's Pro Rata Share of the Purchasers'
Share of Collected Principal towards the purchase of additional Undivided
Interests pursuant to Section 4.2.
Section 2.3 [Reserved]
Section 2.4 Conveyance of Receivables.
(a) In consideration of the obligation of the Purchasers to
make purchases from time to time pursuant to this Agreement, on each Transfer
Date, the Seller does hereby transfer, assign and otherwise convey to the Agent
for the benefit of the Purchasers, without recourse (subject to the obligations
of the Seller herein), all of its right, title and interest in, to and under the
Assigned Collateral obtained by the Seller on such Transfer Date (or all
Assigned Collateral owned as of the Closing Date in the case of the first
Transfer Date).
(b) In connection with each transfer and assignment described
in Section 2.4(a), on or prior to the related Transfer Date the Seller will (i)
deliver to the Agent (A) a revised Schedule of Mortgage Loan Receivables and/or
a revised Schedule of Right to Use Receivables, as the case may be, listing all
of the Receivables being conveyed on the related Transfer Date and all of the
related Receivables previously conveyed pursuant to this Agreement, and (B) an
Officer's Certificate of the Seller to the effect that the related Receivable
Files have been delivered to or upon the order of the Master Servicer, as
custodian for the
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Agent, and that the following legend (or the substantive equivalent thereof) has
been placed on each of the above-referenced files, on each of the data
processing reports that the Master Servicer, the Seller or either Originator
generates which are of the type which a potential purchaser or lender would
reasonably be expected to review to evaluate the Receivables: "Undivided
Interests in the Receivable(s) described herein have been sold to various
Purchasers pursuant to a Second Amended and Restated Receivables Transfer
Agreement, dated as of June 1, 1997, among TW Holdings, Inc., the Purchasers
named therein, Seafirst Bank, as Agent, and Trendwest Resorts, Inc. as Master
Servicer" and (ii) file in the appropriate offices in the jurisdictions where
filing of a UCC-1 financing statement is necessary or appropriate, such UCC-1
financing statements shall be executed by the Seller as debtor, naming the
Agent, acting on behalf of the Purchasers, as secured party and listing the
related Assigned Collateral as collateral. In connection with such filing, the
Seller agrees that it shall cause to be filed all necessary continuation
statements and to take or cause to be taken such actions and execute such
documents as are necessary to perfect the interests of the Purchasers in such
Assigned Collateral. File-stamped copies of each such financing statement or
continuation statement shall be delivered to the Agent as soon they are received
by the Seller.
(c) In connection with the first transfer and assignment
hereunder of Right to Use Receivables pursuant to Section 2.4(a), the Seller
will deliver to the Agent an opinion of counsel to the effect that the Agent
will have a first perfected security interest in such Receivables, all
Collections on or in respect of such Receivables after the related Cutoff Date
and all proceeds of the foregoing.
(d) On the Closing Date and each anniversary of the first
Settlement Date, the Seller will deliver to the Agent an opinion of counsel to
the effect that in respect of all Receivables transferred and assigned pursuant
to Section 2.4(a) since the first such transfer and assignment (or, in the case
of each anniversary of the first Settlement Date after the first such
anniversary, Receivables so transferred and assigned during the past year) the
Agent has a first perfected security interest in such Receivables, all
Collections on or in respect of such Receivables after the related Cutoff Dates
and all proceeds of the foregoing.
(e) It is the intention of the Seller and the other parties to
this Agreement that the transfers and assignments contemplated by this Agreement
shall constitute a sale of Receivables in an aggregate principal amount up to
the Commitment Amount from the Seller to the Agent, on behalf of the Purchasers,
and the beneficial interest in and title to such Receivables
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shall not be part of the Seller's estate in the event of the filing or a
bankruptcy petition by or against the Seller under any bankruptcy law. In the
event that the transfers and assignments contemplated by this Agreement are
deemed to be other than a sale, this Agreement shall be deemed to be and in such
event hereby is the grant of a security interest from the Seller to the Agent in
the Assigned Collateral and the Agent, on behalf of the Purchasers, shall have
all the rights, powers and privileges of a secured party under the UCC. In such
event, the Seller agrees to take such action and execute such documents as the
Agent shall reasonably request in order fully to realize the benefits of such
secured party status, including, without limitation, powers of attorney,
financing statements, notices of lien or other instruments or documents.
Section 2.5 Custody of Receivable Files. To assure uniform quality in
servicing the Receivables and to reduce administrative costs, the Agent, upon
the execution and delivery of this Agreement, revocably appoints the Master
Servicer, and the Master Servicer accepts such appointment, to act as the agent
of the Agent as custodian of the following documents or instruments, directly or
through one or more Subservicers, which are hereby constructively delivered to
the Agent, and of which the Master Servicer shall acknowledge receipt thereof,
with respect to each Receivable assigned and transferred on the related Transfer
Date:
(i) the fully executed original of the Receivable;
(ii) documents evidencing or relating to any insurance policy
relating to such Receivable, the related Obligor and, if such Receivable is a
Mortgage Loan Receivable, the related Mortgaged Property;
(iii) in the case of a Mortgage Loan Receivable, the original
Mortgage Note endorsed (which endorsement may be by manual or facsimile
signature) by the Seller without recourse to the order of the Agent in the
following form: "Without recourse, pay to the order of Seattle-First National
Bank, as Agent of the Purchasers under the Amended and Restated Receivables
Transfer Agreement, dated as of June 1, 1994, among TW Holdings, Inc., the
Agent, the Purchasers and JELD-WEN, inc.";
(iv) in the case of a Mortgage Loan Receivable, a recorded
Assignment to the Agent, acting on behalf of the Purchasers, of the related
Mortgage or, if the Seller provides the Agent with an opinion of counsel
admitted to practice law in the state in which the related Mortgaged Property is
located to the effect that recordation is not necessary to secure the interest
in such Mortgaged Property in the name of the Agent, an assignment in recordable
form;
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(v) in the case of a Mortgage Loan Receivable,
originals or recorded copies of all intervening Assignments with
evidence of recording indicated thereon;
(vi) in the case of a Mortgage Loan Receivable, the
related Mortgage, with evidence of recording indicated thereon;
(vii) originals of all assumption, modification and substitution
agreements where the terms or provisions of such Receivable and, if such
Receivable is a Mortgage Loan Receivable, the related Mortgage or Mortgage Note,
have been modified or such Receivable, Mortgage or Mortgage Note has been
assumed; and
(viii) copies of all other Receivable Documents and any and all
other documents that the Seller, the related Obligor, the related Originator or
the Master Servicer, as the case may be, shall keep on file, in accordance with
its customary procedures, relating to such Receivable, the related Obligor and,
if such Receivable is a Mortgage Loan Receivable, the related Mortgaged
Property.
Section 2.6 Duties of Master Servicer as Custodian.
(a) The Master Servicer, in its capacity as custodian, shall
hold the Receivable Files on behalf of the Agent for the use and benefit of all
Purchasers, and maintain such accurate and complete accounts, records and
computer systems pertaining to each Receivable. The Receivable Files will be
marked and physically separated from the files relating to all other right to
use timeshare receivables and mortgage loan timeshare receivables that the
Master Servicer services on behalf of itself or others. In performing its duties
as custodian, the Master Servicer shall act with reasonable care, using that
degree of skill and attention that it exercises with respect to comparable
receivables that it services for itself or others. The Master Servicer shall
conduct, or cause to be conducted, periodic reviews of the files of all
receivables owned or serviced by it which shall include the Receivable Files
held by it under this Agreement, and of the related accounts, records and
computer systems, in such a manner as shall enable the Agent to verify the
accuracy of the Master Servicer's record keeping. The Master Servicer shall
promptly report to the Agent any failure on its part to hold the Receivable
Files and maintain its accounts, records and computer systems as herein provided
and promptly take appropriate action to remedy any such failure.
(b) The Master Servicer shall maintain each Receivable
File at one of the locations set forth in Schedule 5 hereto, or
at such other location or locations as shall be specified to the
Agent by 30 days' prior written notice (and each such location
shall be added to a revised Schedule 5). The Master Servicer
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shall make available to the Agent or its duly authorized representatives,
attorneys or auditors the Receivable Files and the related accounts, records and
computer systems maintained by the Master Servicer at such times as the Agent
may reasonably request.
(c) Upon instruction from the Agent, the Master Servicer shall
release any document in the Receivable Files to the Agent or its agent or
designee, as the case may be, at such place or places as the Agent may
designate, as soon as practicable. The Master Servicer shall not be responsible
for any loss occasioned by the failure of the Agent to return any document or
any delay in doing so.
Section 2.7 Instructions; Authority to Act. The Master Servicer shall
be deemed to have received proper instructions with respect to the Receivable
Files upon its receipt of written instructions signed by an authorized officer
of the Agent. A certified copy of a bylaw or of a resolution of the Board of
Directors of the Agent shall constitute conclusive evidence of the authority of
any such authorized officer to act and shall be considered to be in full force
and effect until receipt by the Master Servicer of written notice to the
contrary is given by the Agent.
Section 2.8 Indemnification by Master Servicer as Custodian. The Master
Servicer, as custodian, shall indemnify the Agent and the Purchasers for any and
all liabilities, obligations, losses, compensatory damages, payments, costs or
expenses of any kind whatsoever that may be imposed on, incurred or asserted
against the Agent and the Purchasers as the result of any improper act or
omission in any way relating to the maintenance and custody by the Master
Servicer, as custodian, of the Receivable Files; provided, however, that the
Master Servicer shall not be liable for any portion of any such amount resulting
from the willful misfeasance, bad faith or negligence of the Agent, any
Purchaser or any successor Master Servicer.
Section 2.9 Effective Period and Termination. The Master Servicer's
appointment as custodian shall become effective as of the Closing Date and shall
continue in full force and effect until terminated pursuant to this Section. If,
pursuant to Section 10.1, the Master Servicer shall resign as Master Servicer or
if all of its rights and obligations have been terminated, the appointment of
the Master Servicer as custodian shall be terminated by the Agent (acting upon
the direction of the Required Purchasers), in the same manner as the Agent or
such Purchasers may terminate the rights and obligations of the Master Servicer
pursuant to Section 10.1. The Agent may terminate the Master Servicer's
appointment as custodian, with cause at any time upon written notice to the
Master Servicer, and without cause upon
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30 days' prior written notice to the Master Servicer. As soon as practicable
after any termination of such appointment, the Master Servicer shall deliver the
Receivable Files to or upon the order of the Agent at such place or places as
the Agent may reasonably designate. Notwithstanding the termination of the
Master Servicer as custodian, the Agent agrees that upon any such termination,
the Agent shall provide, or cause its agent to provide, access to the Receivable
Files to the Master Servicer for the purpose of carrying out its duties and
responsibilities with respect to the servicing of the Receivables hereunder.
ARTICLE 3
EARNED YIELD
Section 3.1 Earned Yield. The Purchasers shall be entitled to receive,
and the Seller agrees to cause the Master Servicer to pay to the Agent, out of
Collections, for the account of each Purchaser, an amount (the "Earned Yield")
equal to the product of (i) the Aggregate Net Investment from the date an
Undivided Interest was first purchased until the Aggregate Net Investment is
reduced to zero on a day following the Commitment Termination Date and (ii)(A)
the applicable Yield Rate at all times prior to a Notice Date or (B) the
Termination Event Rate at all times on and after a Notice Date.
Section 3.2 Selection of Yield. The Seller may, subject to the
requirements of this Section, on at least three Business Days, prior written
notice, select the LIBOR Rate as the Yield Rate for all or any portion of the
Aggregate Net Investment for any applicable Yield Period. Such notice (a "Yield
Notice") shall be deemed delivered on receipt by the Agent except that any Yield
Notice received by the Agent after 11:00 a.m., Seattle time, on any day, shall
be deemed to have been received on the immediately succeeding Business Day. Each
Yield Notice shall identify, subject to the conditions of this Section, the
dollar amount of the Tranche for which the LIBOR Rate is to apply and the Yield
Period selected by the Seller. Such Yield Notice shall be irrevocable and shall
constitute a representation and warranty by the Seller that as of the date of
such Yield Notice, the representations and warranties of the Seller set forth in
Article 7 are true and correct and that no Unmatured Termination Event or
Termination Event has occurred and is continuing. Upon receipt of a Yield
Notice, the Agent shall promptly notify each Purchaser by telephone (confirmed
by facsimile transmission) of the information set forth therein. The Seller's
right to select the LIBOR Rate as the Yield Rate for all or any portion of the
Aggregate Net Investment shall be subject to the following conditions: (i) the
amount of any Tranche for which the yield is to be calculated at a particular
LIBOR Rate for the same Yield Period shall be an integral multiple of not less
than $100,000;
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(ii) a LIBOR Rate may not be selected for all or any portion of a Tranche which
is already accruing interest at a LIBOR Rate unless such selection is only to
become effective at the maturity of the Yield Period then in effect; (iii) the
Agent or any Purchaser shall not have given notice pursuant to Section 3.4 that
the LIBOR Rate is not available; and (iv) no Unmatured Termination Event or
Termination Event shall have occurred and be continuing. Any Yield Notice which
specifies a LIBOR Rate but which fails to specify a Yield Period shall be deemed
to have specified a Yield Period ending on a Settlement Date nearest to the date
one month after the first day of such Yield Period. The Yield Notice may be
given with and contained in any Purchase Notice. In the absence of an effective
request for the application of a LIBOR Rate for all or any portion of the
Aggregate Net Investment, the Yield Rate for the Aggregate Net Investment (or
portion thereof) shall be the Reference Rate.
Section 3.3 Applicable Days for Computation of Yield. Computations of
Earned Yield based on (i) the LIBOR Rate shall be made on the basis of a year of
360 days, and (ii) the Reference Rate shall be made on the basis of a year of
365 or 366 days, as the case may be, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such Earned Yield is payable.
Section 3.4 Unavailable LIBOR Rate. If in the reasonable judgment of
any Purchaser, for any reason fair and adequate means do not exist for
establishing a particular LIBOR Rate or that obtaining a yield on any Tranche at
a LIBOR Rate by such Purchaser has become unlawful, such Purchaser may give
notice thereof to the Agent and the Seller. After such notice has been given and
until such Purchaser notifies the Seller and the Agent that the circumstances
giving rise to such notice no longer exist, the LIBOR Rate shall no longer be
available. Thereafter, any attempt by the Seller to select the LIBOR Rate as the
Yield Rate shall be ineffective. If the circumstances giving rise to the notice
described herein no longer exist, the Purchaser shall notify the Seller and
Agent in writing, and the Seller shall then once again become entitled to select
the LIBOR Rate as the Yield Rate in accordance with Section 3.2.
Section 3.5 Yield Protection. In the event that after the date hereof
any change occurs in any applicable law, regulation, guideline, treaty or
directive or interpretation thereof by any authority charged with the
administration or interpretation thereof, or any condition is imposed by any
authority after the date hereof or any change occurs in any condition imposed by
any authority on or prior to the date hereof which:
(i) subjects any Purchaser to any Tax, or changes the
basis of taxation of any payments to any Purchaser made under any
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Facility Document with respect to any Undivided Interest owned by it or with
respect to its obligation or right to make Purchases (other than a change in the
rate of tax based solely on the overall net or gross income of such Purchaser);
(ii) imposes, modifies or determines applicable any reserve,
deposit, assessment or similar requirement against any assets held by, deposits
with or for the account of, or credit extended by, any office of any Purchaser;
(iii) affects the amount of capital required or expected to be
maintained by any Purchaser or any corporation controlling such Purchaser with
respect to any Undivided Interest owned by it or with respect to its obligation
or right to make Purchases; or
(iv) imposes upon any Purchaser any other condition with
respect to any Undivided Interest owned by it or with respect to its obligation
or right to make Purchases; and, the result thereof is, or would be, (a) to
increase the cost to such Purchaser in respect of making, issuing, maintaining
or committing to make, issue or maintain any Undivided Interest (other than any
Undivided Interest to the extent that the Reference Rate is applicable thereto),
(b) to reduce the amount of any sum received or receivable by such Purchaser
under any Facility Document or (c) in the reasonable determination of such
Purchaser, to reduce the rate of return on such Purchaser's capital as a
consequence of its obligations hereunder or arising in connection herewith to a
level below that which such Purchaser would otherwise have achieved, then, upon
demand by such Purchaser, the Seller shall immediately pay to such Purchaser
additional amounts which shall be sufficient to compensate it for such increased
costs incurred or reduced receipts suffered thereby for a period not to exceed
90 days prior to the date of such demand.
A certificate of a Purchaser as to such increased costs incurred or
reduced receipts suffered as a result of any event mentioned in clause (i)
through (iv) above submitted to the Seller specifying the event causing such
increased cost or reduced receipt and setting forth in reasonable detail the
calculation made to determine the amount of such increased cost or reduced
receipt and the assumptions used in calculating such amount shall be
presumptively correct as to the amount thereof, if such assumptions are
reasonable and there are not demonstrable errors in such calculation. Each
Purchaser shall exercise reasonable efforts to minimize such increased costs or
reduced receipts.
The protection of this Section shall be available to each Purchaser
regardless of any possible contention of invalidity or inapplicability of the
relevant law, regulation, guideline,
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treaty, directive, condition or interpretation thereof. In the event that the
Seller pays any Purchaser the amount necessary to compensate such Purchaser for
any charge, deduction or payment incurred or made by it as provided in this
Section, and such charge, deduction or payment or any part thereof is
subsequently returned to such Purchaser as a result of the final determination
of the invalidity or inapplicability of the relevant law, regulation, guideline,
treaty, directive or condition, then such Purchaser shall remit to the Seller
the amount paid by the Seller which has actually been returned to such Purchaser
(together with any interest actually paid to Purchaser on such returned amount)
less such Purchaser's costs and expenses incurred in connection with such
governmental regulation or any challenge made by such Purchaser with respect to
its validity or applicability.
Section 3.6 Funding Losses. In the event that any Purchaser shall incur
any loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such
Purchaser to finance a portion of the Aggregate Net Investment for which Earned
Yield was or was to be calculated at the LIBOR Rate) as a result of
(i) any payment in respect of any Tranche made on a date other
than the Settlement Date initially established for such Tranche (to the extent
that the Earned Yield related thereto was initially calculated by reference to
the LIBOR Rate) whether voluntary, involuntary, the result of the collection
efforts of the Agent or one or more Purchasers, or the result of any change in a
Payment Period following a Notice Date;
(ii) any repurchase of all or any portion of a Tranche
pursuant to Section 15.1 on a day other than a Settlement Date for such Tranche
(to the extent that the Earned Yield related to such Tranche was calculated by
reference to the LIBOR Rate); or
(iii) any Purchase (in connection with which a Yield Notice
selecting a LIBOR Rate was delivered) not being made in accordance with the
Purchase Notice therefor;
such Purchaser shall give the Seller and the Agent written notice of such event
specifying the amount that will, in the reasonable opinion of such Purchaser,
reimburse it for such loss or expense and setting forth in reasonable detail the
calculation made to determine the amount of such loss or expense and the
assumptions used in calculating such amount shall be presumptively correct as to
the amount thereof, if such assumptions are reasonable and there are not
demonstrable errors in such calculation. The Seller shall, within five Business
Days after the receipt of such notice, pay such amount to such Purchaser.
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ARTICLE 4
COLLECTIONS AND SETTLEMENTS
Section 4.1 Collections. On each day during each Collection Period, the
Master Servicer shall collect the Purchasers' Share of Collected Principal and
the Purchasers, Share of Collected Interest received or deemed received on such
day and shall hold such funds in trust for the benefit of the Purchasers and
shall collect all other Collected Principal and Collected Interest so received
or deemed received and shall hold such funds in trust for the benefit of the
Seller. Collections received by the Master Servicer shall at all times be
segregated from other funds of the Master Servicer. In the event that the Seller
receives any payments on or in respect of a Receivable subsequent to the related
Transfer Date, the Seller shall remit such amount to the Master Servicer within
two Business Days of receipt.
Section 4.2 Reinvestments. Subject to the satisfaction of the
conditions set forth in Section 6.2, the Seller's right to make a contrary
election pursuant to Section 4.3(a)(ii) and subject to Section 4.3(b)(ii),
provided that no Notice Date shall have occurred, on each Settlement Date on or
prior to the Commitment Termination Date, the Master Servicer shall be deemed to
have reinvested (for the benefit of the Purchasers) the Purchasers' Share of
Collected Principal received during the related Collection Period in additional
Undivided Interests in the Receivables Pool. In the event any such funds cannot
be reinvested on the date received because the conditions set forth in Section
6.2 have not been satisfied, they shall be deemed reinvested on the first day
thereafter on which such conditions shall be satisfied unless sooner paid to the
Agent on any Settlement Date. Neither the Purchasers' Investment, the Earned
Yield thereon nor any Obligation shall be deemed reduced or paid on account of
such unreinvested Collections until such amount is paid to the Agent on a
Settlement Date.
Section 4.3 Settlement Procedures.
(a) Prior to Termination Event. Subject to Section 4.4 and
except as otherwise provided in Section 4.3(b), on each Settlement Date which is
the last day of a Payment Period, the Seller shall cause the Master Servicer to
pay to the Agent:
(i) from the Collected Interest collected since
the last Settlement Date on which any payment was due under this Section and
from the Collected Interest collected prior thereto and allocated but unpaid
with respect to the Earned Yield on the Aggregate Net Investment (as Collected
Interest has been reduced to pay the Servicing Fee, including any unpaid
Servicing Fee in respect of one or more prior Collection Periods, to the Master
Servicer pursuant to Section 10.8), the lesser of (A) the unpaid
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Earned Yield on the Purchasers' Investment in each Maturing Tranche accrued to
(but excluding) such Settlement Date, or (B) the amount of the Purchasers' Share
of Collected Interest collected since the last Settlement Date on which any
payment was due under this Section plus the amount of the Purchasers' Share of
Collected Interest collected prior thereto and allocated but unpaid with respect
to the Earned Yield on the Aggregate Net Investment (as Collected Interest has
been so reduced); and
(ii) from the Collected Principal collected since
the last Settlement Date on which any payment was due under this Section, the
amount of the Purchasers' Share of Collected Principal so collected less any
amounts that the Master Servicer has been deemed to have reinvested from such
Collections pursuant to Section 4.2; provided, that notwithstanding the terms of
Section 4.2, if on any Settlement Date which is the last day of a Payment
Period, the Seller so notifies the Agent in writing, the Master Servicer shall
pay to the Agent any amount selected by the Seller up to the amount of the
Purchasers' Share of Collected Principal collected since the last Settlement
Date on which any payment was due under this Section. If the Seller elects to
cause the Master Servicer to make such a payment, the amount so paid shall be
deemed not to have been reinvested pursuant to Section 4.2.
(b) Subsequent to Termination Event. If a Notice Date shall
have occurred on or before any Settlement Date, in addition to all other
remedies provided for herein, on such Settlement Date the Seller shall cause the
Master Servicer to pay to the Agent:
(i) to the extent of the Purchasers' Share of
such Collected Interest, all Collected Interest collected since the last
Settlement Date on which any payment was due under this Section (as Collected
Interest has been reduced to pay the Servicing Fee, including any unpaid
Servicing Fee in respect of one or more prior Collection Periods); and
(ii) to the extent of the Purchasers' Share of
such Collected Principal, all Collected Principal collected since the last
Settlement Date on which any payment was due under this Section, the amount of
the Purchasers' Share of Collected Principal so collected; provided, that to the
extent that pursuant to Section 4.2, the Master Servicer would have been deemed
to have reinvested some or all of the Purchasers' Share of Collected Principal
which the Seller is required to pay to the Agent pursuant to Section 4.3(b),
such reinvestment shall be deemed not to have occurred.
Section 4.4 Deposits to Collection Account to Avoid Break-
Funding Costs. In the event that on any Settlement Date the
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Seller would, pursuant to Section 4.3(a)(ii), be required to disburse principal
payments to the Agent for a Tranche for which the LIBOR Rate was selected as the
Yield Rate prior to the last day of the applicable Payment Period for such
Tranche, in order to avoid possible funding losses which could result from such
accelerated payment, on such Settlement Date the Seller shall deposit to the
Collection Account, in lieu of paying such amount to the Agent pursuant to
Section 4.3(a)(ii), an amount equal to (a) such amount less (b) the sum of (i)
the Dollar amount of all then Maturing Tranches for which the Earned Yield is
calculated based on the LIBOR Rate and (ii) the Dollar amount of all Tranches
(whether Maturing Tranches or not) for which the Earned Yield is calculated
based on the Reference-Rate. Neither the Purchasers' Investment, the Earned
Yield thereon nor any Obligation shall be deemed reduced or paid on account of
the deposit of such amounts to the Collection Account.
Section 4.5 Deemed Collections. If on any day, any of the Seller's
representations or warranties set forth in Sections 7.1, 7.2 or 7.3 shall prove
to have been untrue when made with respect to any Receivable in the Receivables
Pool or the Seller shall be in breach of its obligations under Sections 8.1(d),
8.1(e), 8.1(f) or 9.1 in respect of any Receivable in the Receivables Pool, then
the Seller shall be deemed to have received on such day a Collection of such
Receivable in full, and the Seller shall transfer to the Master Servicer an
amount equal to the Outstanding Principal Balance of such Receivable, together
with interest thereon at the related Receivable Interest Rate through the last
day of the Collection Period in which deemed Collection occurs. The Master
Servicer shall reinvest and distribute each such payment pursuant to Sections
4.2, 4.3 and 4.4, as the case may be, as if such payment actually had been
received by the Seller on such day from the Obligor of such Receivable. Payments
under this Section shall not constitute a payment under the indemnity provisions
of Article 14.
Section 4.6 Allocation of Payments and Collections.
(a) Except as otherwise required by law or the related
Receivable Documents and subject to the provisions of Section 4.6(b), all
amounts collected on or in respect of each Receivable shall be applied first
against fees, expenses and indemnities due in respect of such Receivable,
second, against interest due in respect of such Receivable and thereafter
against the obligations of the related Obligor to repay the principal amount
thereof.
(b) On each Settlement Date, Collections (other than
Collections reinvested pursuant to Section 4.2) shall be applied by the Master
Servicer in the following amounts and in the following order of priority:
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(i) to the Master Servicer, an amount equal to
the Servicing Fee in respect of the related Collection Period and any unpaid
Servicing Fee in respect of one or more prior Collection Periods;
(ii) to the Agent, any amount payable pursuant to
Section 4.3;
(iii) to the Agent, an amount equal to all
Program Costs due to the Agent payable during the related
Collection Period; and
(iv) any remaining Collections shall be paid to
the Seller, free and clear of all Liens.
Section 4.7 Order of Distribution by the Agent. On each Settlement Date
on which the Agent receives any payments pursuant to Sections 4.3 or 4.8, the
Agent shall distribute such funds to the Purchasers first in payment of the
unpaid Earned Yield on the Purchasers' Investment in the Maturing Tranche
accrued to (but excluding) such Settlement Date, and thereafter in reduction of
the Aggregate Net Investment, in each case until reduced to zero.
Section 4.8 Collection Account.
(a) On or prior to the Closing Date, the Seller shall
establish an account with the Agent in the name of the Agent for the benefit of
the Agent and the Purchasers (the "Collection Account") which account, together
with all monies on deposit therein and investments thereof, shall be under the
exclusive dominion and control of the Agent (for the benefit of the Purchasers).
Monies shall be deposited in the Collection Account from time to time as
described in Sections 4.4 and 4.9. Neither the Seller nor the Master Servicer
shall have any right to make withdrawals or distributions from the Collection
Account nor shall any additional amounts be deposited to or commingled with
amounts in the Collection Account except as provided in Section 4.4, 4.5 and
this Section.
(b) on any Settlement Date which is the last day of a Payment
Period, if a Notice Date shall not have occurred and if any amounts have been
deposited to the Collection Account pursuant to Section 4.4 which have not yet
been disbursed to the Agent ("Section 4.4 Deposits"), the Agent shall withdraw
such monies, to the extent that such monies, together with all amounts payable
under Section 4.3(a)(ii) on such Settlement Date, do not exceed the sum of (i)
the amount of all then Maturing Tranches for which the Earned Yield is
calculated based on the LIBOR Rate and (ii) the amount of all Tranches (whether
Maturing Tranches or not) for which the Earned Yield is calculated based on the
Reference Rate. Section 4.4 Deposits withdrawn by the Agent
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hereunder shall be applied as if they had been received in payment from the
Seller on the date withdrawn pursuant to Section 4.3(a)(ii).
(c) If a Notice Date shall have occurred and the Agent has
delivered notice to the Seller that all Collections should thereafter be
deposited through the Lock Box Network, the Master Servicer shall cause to be
deposited into the Collection Account (i) all Collections received by it or a
Subservicer within two Business Days of receipt and (ii) all monies on deposit
in the Lock Box Accounts and any New Lock Box Accounts on the Business Day
immediately preceding the last day of each Collection Period and on each other
Business Day or Business Days during each Collection Period as selected by the
Agent (acting upon instructions of the Required Purchasers). On the related
Settlement Date, such monies will be applied in the same manner and to the same
extent as the Seller would otherwise be obligated to pay and apply pursuant to
Section 4.3(b). The balance of the amounts on deposit in the Collection Account,
if any, shall be applied against accrued but unpaid obligations and after such
unpaid Obligations are satisfied, delivered to the Seller on such Settlement
Date.
(d) The Agent shall invest and reinvest monies on deposit in
the Collection Account in short-term, high-quality investments acceptable to the
Agent pursuant to instructions given by the Seller; provided, that (i) the Agent
and the Purchasers shall not be liable in any manner for any reason for any loss
of or on account of such investments and (ii) the Agent shall at all times be a
pledgee in possession of such investments. Interest accruing on and income
earned in respect of amounts and investments in the Collection Account shall be
retained in the Collection Account and shall be applied against accrued but
unpaid Obligations and after such unpaid Obligations are satisfied, delivered to
the Seller on each Settlement Date. The Seller agrees that all income earned on
amounts in the Collection Account shall be earned by the Seller and reported on
its tax returns. To the extent that the Agent is otherwise liable for the
payment of any Taxes in respect of monies on deposit from time to time in the
Collection Account, the Seller shall indemnify the Agent in respect thereof and
shall promptly reimburse the Agent for any such Taxes paid.
Section 4.9 Lock Boxes. After a Termination Event has occurred and the
Agent has delivered notice to the Seller and the Master Servicer that all
Collections should thereafter be deposited through the Lock Box Network, the
Seller shall instruct or otherwise cause all Obligors to make all payments under
the Receivables directly to a Lock Box and shall instruct the applicable Lock
Box Bank to deposit all cash, checks and drafts received therein directly to a
Lock Box Account. The Seller
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shall not add any bank as a Lock Box Bank, any post office or bank box as a Lock
Box, or any account as a Lock Box Account (including, without limitation, the
addition of any such Lock Box Bank, Lock Box or Lock Box Account in connection
with the establishment of a Lock Box Network) unless (a) the Agent shall have
received five days' prior written notice of such addition, (b) the Agent shall
have received a copy of any new Lock Box Agreement and (c) the Agent shall have
received undated executed copies of Lock Box Notices substantially in the form
of Exhibit F to each Lock Box Bank for each Lock Box and Lock Box Account. The
Seller shall not terminate any bank as a Lock Box Bank, any post office or bank
box as a Lock Box or any account as a Lock Box Account unless the Agent shall
have received 15 days' prior written notice of such termination. After the
occurrence of a Termination Event, and after the Agent has delivered notice to
the Seller that all Collections should thereafter be deposited through the Lock
Box Network, (i) upon receipt of notice from the Agent, the Seller shall
instruct the Lock Box Banks to segregate all Collections from all other
collections received in such Lock Box and to deposit such Collections into an
account designated by the Agent, (ii) the Agent is hereby authorized, whether or
not it is then serving as Collection Agent, to date and deliver to the Lock Box
Banks the Lock Box Notices delivered to the Agent hereunder and (iii) upon the
receipt of notice from the Agent, the Seller shall (A) establish and maintain at
its expense new Lock Boxes (the "New Lock Boxes") into which only Collections
will be received, (B) open new Lock Box Accounts (the "New Lock Box Accounts")
into which only Collections on or in respect of the Assigned Collateral will be
deposited and (C) notify the Obligors that all future payments by such Obligors
under the Receivables are to be made to such new Lock Boxes. The Seller hereby
agrees that the Agent (for the benefit of the Purchasers) shall have the
exclusive ownership and control of the New Lock Boxes and the New Lock Box
Accounts, and shall take any further action, including, without limitation,
executing additional Lock Box Notices, to transfer or establish such control. In
case any authorized signatory of the Seller whose signature shall appear on any
Lock Box Notice shall cease to have such authority before the delivery of such
Lock Box Notice, such signature shall nevertheless be valid and sufficient for
all purposes as if such authority had remained in force at the time of such
delivery. Monies on deposit in the Lock Box Accounts and any New Lock Box
Accounts will be withdrawn therefrom and deposited into the Collection Account
pursuant to Section 4.8(c).
ARTICLE 5
FEES AND OTHER PAYMENTS
Section 5.1 Fees. The Seller shall pay, pursuant to Section 4.6(b), to the
Agent the following amounts: (i) on each
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Settlement Date and on the Commitment Termination Date, the Commitment Fee, (ii)
on the Closing Date, the Upfront Fee and (iii) on each day specified in the Fee
Letter, the related fees and expenses specified therein.
Section 5.2 Termination Event Rate Payments. The Seller or the Master
Servicer, as the case may be, shall pay to the Agent (for the benefit of the
Agent and the Purchasers, as the case may be) interest on all obligations not
paid when due under any Facility Document at the Termination Event Rate, which
interest shall be payable on demand.
Section 5.3 Payments.
(a) All payments of the Commitment Fees and the Upfront Fee
(including interest thereon accruing under Section 5.2), all payments of Earned
Yield and all amounts paid to the Agent for the repayment of the Purchasers'
Investment shall be made for the ratable account of the Purchasers.
(b) All amounts to be paid to the Agent by the Seller or the
Master Servicer under any Facility Document shall be paid to the Agent at its
Commercial Loan Service Center, Seattle, Washington or deposited to the
Collection Account in accordance with the terms hereof no later than 11:00 a.m.,
Seattle time, on the day when due in immediately available funds payable in
Dollars.
(c) If any Purchaser shall obtain any payment or other
recovery (whether voluntary, involuntary, by application of or forbearance to
exercise, set off or otherwise) on account of the Aggregate Net Investment,
Earned Yield or otherwise (other than pursuant to Sections 3.5 and 3.6) in
excess of such Purchaser's Pro Rata Share of payments then or therewith obtained
by all Purchasers, such Purchaser shall purchase from the other Purchasers such
participations in the interests held by them as shall be necessary to cause such
purchasing Purchaser to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing
Purchaser, the purchase shall be rescinded and each Purchaser that has sold a
participation to the purchasing Purchaser shall repay to the purchasing
Purchaser the purchase price (without interest) to the ratable extent of such
recovery. The Seller agrees that any Purchaser so purchasing a participation
from another Purchaser pursuant to this clause may, to the fullest extent
permitted by law, exercise all its rights of set off with respect to such
participation as fully as if such Purchaser were the direct Purchaser from the
Seller in the amount of such participation. If under any applicable bankruptcy,
insolvency or other similar law, any Purchaser receives a secured
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claim in lieu of a set off to which this clause would apply, such Purchaser
shall, to the extent practicable, exercise its rights in respect of such secured
claim and share the benefits thereof in such a manner that the remaining
Purchasers will receive the same benefits as they would otherwise have been
entitled to receive under this clause if a set off had been permitted.
(d) When any payment made pursuant to this Agreement is due on
a day that is not a Business Day, such payment shall be made on the immediately
succeeding Business Day, and such extension of time shall be included in the
computation of interest or fees, as the case may be.
ARTICLE 6
CONDITIONS OF PURCHASES
Section 6.1 Conditions to Initial Purchase. The obligation of each
Purchaser to make the initial Purchase hereunder on the Closing Date is subject
to the satisfaction of the conditions specified in Section 6.2 and to the
delivery to the Agent of the following:
(a) certified copies of the articles of incorporation and
by-laws of each of the Seller, TRI and Eagle Crest and certified copies of
resolutions adopted by their respective Boards of Directors authorizing the
execution, delivery and performance of the Facility Documents to which such
entity is a party, together with evidence of the authority and specimen
signatures of the individuals who signed this Agreement and the other Facility
Documents on behalf of such entity;
(b) certified copies of the articles of incorporation
and by-laws of WorldMark;
(c) a written search report from a Person satisfactory to the
Agent listing all effective financing statements that name the Seller or either
Originator as "debtor" or "assignor" covering the States of Washington and
Oregon and such other jurisdictions as the Agent may require, together with
copies of such financing statements; and no such financing statements shall
cover any portion of the Assigned Collateral;
(d) copies of all financing statements on Form UCC-3,
with evidence of filing thereon, releasing the interest of any
Person in the Assigned Collateral;
(e) evidence satisfactory to the Agent that the assignment of
the Undivided Interests and the grant of a security interest in the Assigned
Collateral has been duly perfected by the filing of all such UCC financing
statements and the taking of
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all such other or additional acts as may be necessary, or in the Agent's
opinion, desirable to perfect the ownership interests of the Purchasers in the
Undivided Interests and security interest in the Assigned Collateral in all
jurisdictions, including, in the case of the Mortgage Loan Receivables, the
recorded Mortgage Notes, Mortgages and Assignments required pursuant to Section
2.5;
(f) all fees payable to the Agent on or prior to the
Closing Date pursuant to Section 5.1;
(g) the opinion of Washington counsel to the Seller, TRI, and
Eagle Crest, dated the Closing Date and addressed to the Agent and the
Purchasers, substantially in the form attached hereto as Exhibit G;
(h) the opinion of Oregon counsel to the Seller, TRI and Eagle
Crest dated the Closing Date and addressed to the Agent and the Purchasers,
substantially in the form attached hereto as Exhibit H;
(i) the opinion of Nevada counsel to the Seller, dated
the Closing Date, substantially in the form attached hereto as
Exhibit I;
(j) such other documents, certificates and opinions as
the Agent or any Purchaser may reasonably request.
Section 6.2 Conditions to All Purchases. The obligation of each
Purchaser to make any Purchase hereunder (including the initial Purchase) is
subject to the satisfaction of the conditions set forth in Section 2.1 and the
fulfillment of the following further conditions precedent:
(a) a Commitment Termination Date shall not have
occurred;
(b) except in the case of a Reinvestment, the Agent
shall have received a duly executed Purchase Notice;
(c) except in the case of a Reinvestment, the Agent shall have
received a certificate from the Master Servicer substantially in the form
attached hereto as Exhibit B (each, a "Purchase Certificate") one Business Day
prior to the date of such proposed Purchase containing a calculation of (i) the
Net Pool Balance, (ii) the amount of Section 4.4 Deposits which have not yet
been disbursed to the Agent pursuant to Section 4.8(b) and (iii) the Aggregate
Net Investment (after giving effect, on a pro forma basis, to such proposed
Purchase);
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(d) except in the case of a Reinvestment, the Agent shall have
received an Officer's Certificate of the Seller to the effect that (i) the
representations and warranties of the Seller contained in this Agreement, any
other Facility Document to which the Seller is a party or in any certificates
delivered to the Agent or any Purchaser by or on behalf of the Seller in
connection with such Purchase are true and correct on and as of the date of such
Purchase, with the same force and effect as though made on and as of such day,
and (ii) to the best of the knowledge and information of such officer, no event
has occurred and is continuing, or would result from such Purchase, that
constitutes or would constitute an Unmatured Termination Event or Termination
Event;
(e) except in the case of a Reinvestment, the Agent shall have
received an Officer's Certificate of the Master Servicer to the effect that the
representations and warranties of the Master Servicer contained in this
Agreement, any other Facility Document to which the Master Servicer is a party
or in any certificates delivered to the Agent or any Purchaser by or on behalf
of the Master Servicer in connection with such Purchase are true and correct on
and as of the date of such Purchase, with the same force and effect as though
made on and as of such day; and
(f) the Agent and the Purchasers have received such
other documents, certificates and opinions as the Agent or any
Purchaser may reasonably request.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
Section 7.1 Representations and Warranties as to the Seller. The Seller
shall make the following representations and warranties on which the Agent shall
rely in accepting the Receivables on behalf of itself and the Purchasers and on
which the Agent and the Purchasers may rely in making Purchases. The
representations and warranties shall speak as of the date of execution and
delivery of this Agreement, each Transfer Date and on each date on which a
Purchase is made, but in each case shall survive the repayment in full of all
Purchases and Obligations and the termination of this Agreement.
(a) Organization and Good Standing. The Seller shall have been
duly organized and shall be validly existing as a corporation in good standing
under the laws of the State of Nevada, with power and authority to own its
properties and to conduct its business as such properties shall be currently
owned and such business is presently conducted, and had at all relevant
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times, and shall now have, power, authority and legal right to acquire, own and
sell the Receivables.
(b) Due Qualification. The Seller shall be duly qualified to
do business as a foreign corporation in good standing, and shall have obtained
all necessary licenses and approvals in all jurisdictions in which the ownership
or lease of property or the conduct of its business shall require such
qualifications, except where the failure to so qualify or to have obtained such
licenses and approvals would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or business
prospects of the Seller.
(c) Power and Authority. The Seller shall have the power and
authority to execute, deliver and perform its obligations under the Agreement
and each other Facility Document to which it is a party and to carry out their
respective terms; the Seller shall have full power and authority to sell the
Receivables to be sold to the Purchasers and shall have duly authorized such
sale by all necessary corporate action; and the execution, delivery and
performance of this Agreement and each other Facility Document to which it is a
party shall have been duly authorized by the Seller by all necessary corporate
action.
(d) Licenses. The Seller holds, and at all times during the
term of this Agreement will hold, all material licenses, certificates,
franchises and permits from all Governmental Authorities necessary for the
conduct of its business and has received no notice of proceedings relating to
the revocation of any such license, certificate, franchise or permit, which
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect its ability to perform its
obligations under this Agreement or any other Facility Document to which it is a
party or the validity or enforceability of any of the Receivables.
(e) Valid Sale: Binding obligations. This Agreement together
with the Prior Transfer Agreement shall evidence a valid sale, transfer and
assignment of Receivables having an aggregate outstanding Principal Balance up
to but not exceeding the Commitment Amount, enforceable against creditors of and
purchasers from the Seller; and shall constitute a legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms, except as enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors, rights in general and by general principles of equity.
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(f) No Violation. The consummation of the transactions
contemplated by, and the fulfillment of the terms of, this Agreement and the
other Facility Documents to which the Seller is a party shall not conflict with,
result in any breach of any of the terms and provisions of, nor constitute (with
or without notice or lapse of time) a default under, the articles of
incorporation or bylaws of the Seller, or conflict with or violate any of the
terms or provisions of, or constitute (with or without notice or lapse of time)
a default under, any material indenture, agreement or other instrument to which
the Seller is a party or by which it shall be bound; nor, except as otherwise
provided in this Agreement, result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument; nor violate any law or, to the best of the
Seller's knowledge, any order, rule or regulation applicable to the Seller of
any court or of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Seller or its
properties; which breach, default, conflict, Lien or violation would have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Seller.
(g) No Proceedings. There are no proceedings or investigations
pending, or to the best knowledge of the Seller, threatened, before any court,
regulatory body, administrative agency or other Governmental Authority having
jurisdiction over the Seller or its properties: (i) asserting the invalidity of
this Agreement or any other Facility Document to which the Seller is a party,
(ii) seeking to prevent the consummation of any of the transactions contemplated
by the Facility Documents to which the Seller is a party or (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by, the Seller of its obligations under, or the validity or
enforceability of, such Facility Agreement.
(h) Government Approvals. No authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority is
required for the due execution, delivery and performance by the Seller of this
Agreement and the other Facility Documents to which it is a party or in
connection with the transactions contemplated hereby or thereby, except such as
have been obtained prior to the date of this Agreement and are in full force and
effect.
(i) Margin and Other Regulations. No use of any funds acquired
by the Seller under this Agreement will conflict with or contravene any Federal
Reserve Regulation including, without limitation, Federal Reserve Regulations G,
T, U and X.
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(j) Taxes. The Seller has filed all tax returns and reports
required of it and has paid all Taxes which are due and payable and has provided
adequate reserves for payment of any Tax whose payment is being contested and
there are no material questions or disputes between the Seller and any
Governmental Authority with respect to any Taxes.
(k) Investment Company Act. The Seller is not
required to be registered as an "investment company" under in the
Investment Company Act.
(l) Capital Stock. All of the issued and outstanding capital
stock of the Seller has been duly authorized, validly issued and is fully paid
and non-assessable, free and clear of Liens; all of such stock is owned
beneficially and of record by TRI.
(m) Associations; WorldMark. Each Association and WorldMark
shall have been duly organized and shall be validly existing as a corporation in
good standing under the laws of the state of its incorporation; no practice,
procedure or policy employed by the Association or WorldMark violates any law,
regulation or agreement which, if enforced, could be reasonably expected to have
a material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Association or
WorldMark, as the case may be, or constitute grounds for the revocation of any
license, charter or permit that is material to the conduct of its business.
Section 7.2 Representations and Warranties as to the Receivables. The
Seller shall make the following representations and warranties as to the
Receivables on which the Agent shall rely in accepting the Receivables on behalf
of itself and the other Purchasers and on which the Agent and the Purchasers may
rely in making Purchases. Except as otherwise provided herein, such
representations and warranties shall speak as of the Transfer Date relating to
each such Receivable, and on each date on which a Purchase is made pursuant to
this Agreement, but in each case shall survive the repayment in full of all
Purchases and Obligations And the termination of this Agreement.
(a) Origination; General Terms and Form. Each Receivable (i)
shall be an Eligible Receivable, (ii) shall have been originated in the United
States by an Originator in the ordinary course of its business and in accordance
with its customary underwriting and origination criteria, shall have been fully
and properly executed by the parties thereto and shall have been acquired by the
Seller from such Originator pursuant to the related Purchase Agreement; (iii)
shall be assignable, and shall be so assigned, by the Seller to the Agent (for
the benefit of
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the Purchasers); (iv) shall, except as otherwise provided in this Agreement,
provide for level payments of Monthly P&I (provided that (A) the payment in the
first or last month in the life of such Receivable may be minimally different
from the level payment) that fully amortizes its Original Principal Balance by
maturity and provides for a fixed finance charge or yields a fixed rate of
interest at its Receivable Interest Rate; (v) shall provide for, in the event
that such Receivable is prepaid, a prepayment that fully pays such Original
Principal Balance and includes accrued but unpaid interest at least through the
date of prepayment in an amount calculated by using an interest rate at least
equal to its Receivable Interest Rate; (vi) shall have had a down payment made
by the related obligor in an amount at least equal to 10% of such Original
Principal Balance; (vii) shall be payable in Dollars; (viii) shall have an
original scheduled term of seven years or less if a Right to Use Receivable or
ten years or less if a Mortgage Loan Receivable; (ix) if such Receivable is a
Right to Use Receivable, it shall be substantially in one of the forms attached
hereto as Exhibit C; and (x) if such Receivable is a Mortgage Loan Receivable,
each of the related Mortgage and Mortgage Note shall be substantially in one of
the forms attached as Exhibit D to the Prior Transfer Agreement.
(b) Compliance with Consumer Protection Laws. Each Receivable
shall have complied at the time it was originated, and shall comply at the time
of making of such representation and warranty, in all material respects with all
requirements of applicable federal, state and local laws, and regulations
thereunder, including usury and consumer protection laws.
(c) One Original; Enforceability. There is only one original
of each Receivable (and, if such Receivable is a Mortgage Loan Receivable, one
original of the related Mortgage Note and Mortgage) and such Receivable (and, if
such Receivable is a Mortgage Loan Receivable, the related Mortgage Note) shall
constitute the legal, valid and binding payment obligation in writing of the
related Obligor, enforceable by the holder thereof in accordance with its terms,
except as enforceability may be subject to or limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights in general and by general principles of equity.
(d) United States Obligors; No Bankrupt or Governmental
Obligors. To the best knowledge of the Seller, the Obligor is a citizen or
resident of, and making payments from, the "United States" (as such term is
defined in Section 7701(a)(9) of the Code) and the Receivable is not due from
(i) an Obligor who is currently the subject of a bankruptcy proceeding or is
bankrupt or insolvent or (ii) the United States, any state thereof or any local
government or municipality therein or from any agency, department or
instrumentality of the United States,
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any state thereof or any local government or municipality therein.
(e) Employee Obligors. Based on the Outstanding Principal Balance,
less than 10% of the Receivables comprising the Receivables Pool have Obligors
who are employees of either Originator, the Seller or any of their respective
affiliates.
(f) Modifications. The Receivable has not been satisfied, subordinated
or rescinded and no provision thereof has been waived in such a manner that it
fails to meet all of the other representations and warranties with respect to
such Receivable, and each such amendment or waiver has been reduced to writing
and has been included in the related Receivable File.
(g) No Setoffs, Breaches or Unmatured Termination Events. No facts
shall be known to the Seller which would give rise to any right of rescission,
setoff, counterclaim or defense, nor shall the same have been asserted or
threatened, with respect to the Receivable; no default, breach, violation or
event permitting acceleration under the terms of such Receivable shall have
occurred as of the related Cutoff Date or Transfer Date, as the case may be; no
continuing condition that with notice or the lapse of time would constitute a
default or event of default or breach, violation or event permitting
acceleration under the terms of such Receivable shall have arisen; and the
Seller shall not have waived any of the foregoing.
(h) Title to and Security Interest in Receivables. No provision of
such Receivable shall have been waived, except as provided in clause (f) above;
immediately prior to the transfer and assignment of such Receivable, the Seller
had good and marketable title to such Receivable free and clear of Liens (other
than Permitted Encumbrances on the related Mortgaged Property if such Receivable
is a Mortgage Loan Receivable and Liens of WorldMark in the case of Right to Use
Receivables) or rights of others; immediately upon the transfer and assignment
thereof, the Agent for the benefit of the Purchasers shall have good and
marketable title to such Receivable, free and clear of all Liens (other than
Permitted Encumbrances on the related Mortgaged Property if such Receivable is a
Mortgage Loan Receivable and Liens of WorldMark in the case of Right to Use
Receivables) and rights of others; all filings and recordings (including UCC
filings) necessary in any jurisdiction to give the Agent a first priority
perfected security interest in the Receivable (and, if such Receivable is a
Mortgage Loan Receivable, in the related Mortgage Note) shall have been made;
and the Agent's security interest in such Receivable (and, if such Receivable is
a Mortgage Loan Receivable, in the related Mortgage Note) is and will be prior
to any Lien (including, without limitation, any Lien of any homeowners,
association or
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condominium association) on, or other interests relating to, such Receivable
(and, if such Receivable is a Mortgage Loan Receivable, in the related Mortgage
Note) except for (i) such Liens and claims which have been satisfied or
otherwise released in full as of the related Transfer Date, (ii) Liens for
municipal or other local taxes if such taxes shall not at the time be due and
payable or if the Seller shall currently be contesting the validity of such
taxes in good faith by appropriate proceedings, (iii) if such Receivable is a
Mortgage Loan Receivable, Permitted Encumbrances on the related Mortgaged
Property and (iv) if such Receivable is a Right to Use Receivable, Liens of
WorldMark.
(i) No Adverse Selection. In connection with the transactions
contemplated by this Agreement and the Purchase Agreements, the Receivable meets
the criteria set forth in this Section (and if such Receivable is a Mortgage
Loan Receivable, the criteria set forth in Section 7.3) and no selection
procedures adverse to the interests of the Agent and the Purchasers were used in
connection with such selection.
(j) Schedule of Receivables. The information set forth in the related
Schedule of Receivables with respect to such Receivable shall be true and
correct in all material respects.
Section 7.3 Additional Representations and Warranties as to the
Mortgage Loan Receivables. In addition to the representations and warranties in
Section 7.2, the Seller shall make the following representations and warranties
on which the Agent shall rely in accepting the Receivables that are Mortgage
Loan Receivables on behalf of itself and the Purchasers and on which the Agent
and the Purchasers may rely in making Purchases. The representations and
warranties shall speak as of each Transfer Date and on each date on which a
Purchase is made, but in each case shall survive the repayment in full of all
Purchases and Obligations and the termination of this Agreement.
(a) Characterization of Interest. The timeshare estate
mortgaged by the related obligor constitutes a fee interest in real property at
Eagle Crest; the related Mortgage has been duly filed and recorded with all
appropriate Governmental Authorities in all jurisdictions in which such Mortgage
is required to be filed and recorded to create a valid, binding and enforceable
first Lien on the related Mortgaged Property and such Mortgage creates a valid,
binding and enforceable first Lien on such Mortgaged Property; Eagle Crest, to
the extent applicable, is in compliance with all permitted encumbrances
respecting the right to the use of such Mortgaged Property; each of the
assignment of such Mortgage from the Seller to the Agent and each related
endorsement of the Mortgage Note constitutes an endorsement of the Seller, of
such Mortgage and Mortgage Note, all monies due or to become due thereunder and
all
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proceeds thereof; and the execution and delivery of an Assignment of such
Mortgage from the Seller to the Agent (and the recording thereof in the
appropriate jurisdiction), and the endorsement and delivery of such Mortgage
Note by the Seller, constitute all actions required to be taken by the Seller to
fully perfect the ownership interest of the Agent in such Mortgage and Mortgage
Note.
(b) Title to Mortgaged Property; Disbursement of Receivable
Proceeds. At the related Origination Date, the Obligor had good and marketable
fee simple title to the related Mortgaged Property, free and clear of all Liens,
except for Permitted Encumbrances, and the proceeds of such Mortgage Loan
Receivable have been fully disbursed.
(c) The Mortgages Generally. The related Mortgage contains
customary and enforceable provisions so as to render the rights and remedies of
the holder thereof adequate for the practical realization against the related
Mortgaged Property of the benefits of the security interests intended to be
provided thereby, including by judicial foreclosure; there is no exemption
available to the related Obligor which would interfere with the mortgagee's
right to foreclose such Mortgage, other than that which may be available under
applicable bankruptcy, debt relief or homestead statutes; any applicable
intangibles taxes and documentary sales taxes have been paid; and such Mortgage
gives the mortgagee the right to receive and direct the application of insurance
and condemnation proceeds received in respect of such Mortgaged Property.
(d) The Mortgage Notes Generally. The related Mortgage Note is
not and has not been secured by any collateral except the Lien of the related
Mortgage; the amount financed by such Mortgage Note did not include any portion
of the related down payment or homeowners' association payments; such Mortgage
Note does not by its terms provide for the capitalization of interest or the
forbearance of interest; any applicable intangibles taxes and documentary sales
taxes have been paid; and such Mortgage Note evidences a fully amortizing debt
obligation which bears a fixed rate of interest, provides for level monthly
payments of principal and interest and is payable in Dollars.
(e) No Impairment of Insurance Coverage. The Seller has not
taken (or omitted to take), and has no notice that the related Obligor has taken
(or omitted to take), any action that would impair or invalidate the coverage
provided by any hazard, title or other insurance policy relating to such
Mortgage Loan Receivable or the related Mortgaged Property.
(f) Assignability of Mortgaged Property. The related
Mortgaged Property is assignable to and by the mortgagee without
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the consent of the related Association or any other Person and there are no
other restrictions on resale thereof (other than the obligation to notify such
homeowners, association of any such assignment).
(g) Associations. Eagle Crest manages, through Country Club
Management, Inc., the related Mortgaged Property and performs services, pursuant
to a management agreement between Eagle Crest and the related Association which
is in full force and effect and a copy of which has been delivered to the Agent;
and to the best knowledge of the Seller, all obligations under such agreement
have been performed and there is no material default under such agreement.
(h) Insurance; Damage to Project. The Project in which the
related Mortgaged Property is located is insured through the related homeowners,
association in the event of fire or other casualty for the full replacement
value thereof, and in the event that such Mortgaged Property should suffer any
loss covered by casualty or other insurance, upon receipt of any insurance
proceeds such homeowners, association is required, during the time such
Mortgaged Property is covered by such insurance, under its applicable governing
instruments either to repair or rebuild the portions of the Project in which
such Mortgaged Property is located or to pay such proceeds to the holder of the
related Mortgage secured by a timeshare estate in the portions of the Project in
which such Mortgaged Property is located; and such Project is not located in a
designated flood plain.
(i) No Amounts Outstanding. There are no delinquent or unpaid
taxes, ground rents, water charges, sewer rents or assessments outstanding with
respect to the related Mortgaged Property, nor any other material outstanding
Liens other than Permitted Encumbrances affecting such Mortgaged Property that
would materially affect the interests of the Purchasers in the related Mortgage
Loan Receivable.
(j) No Damage. To the best knowledge of the Seller, the
related Mortgaged Property and the Project in which such Mortgaged Property is
located is in good repair and condition, excepting ordinary wear and tear, and
there is no proceeding pending or threatened for the total or partial
condemnation or taking of such Mortgaged Property or any part of such Project by
eminent domain.
(k) Recreational Facilities. The portions of the
Project in which the related Mortgaged Property which represents
the recreational facilities are in good repair and condition,
ordinary wear and tear excepted.
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(l) No Rights of Partition. Neither the Mortgagor nor any
other Person has the right, by statute, contract or otherwise, to seek the
partition of the Mortgaged Property, except for failed timeshare provisions
under Section 94.775 of the Oregon Revised Statutes.
(m) Compliance with Laws. The Project in which the related
Mortgaged Property is located is in compliance with any applicable zoning,
building or environmental law or regulation and all inspections, licenses,
special use permits and certificates required, whether by law, regulation or
insurance standards to be made or issued with respect to the Project and with
respect to the use and occupancy of the same for the purpose for which it is
currently used, including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or issued by the appropriate
governmental, quasigovernmental or other authorities; neither the Seller nor
Eagle Crest has received notice of any outstanding violations (i) of the
Department of Environmental Quality Water Pollution Control Facility permit,
(ii) with respect to the operation of the septic tank system or (iii) of any
material legal requirement with respect to the use and occupancy of such
Project; neither the Seller nor Eagle Crest has received notice from the
Department of Environmental Quality Central Region office, Deschutes County
agencies or any other Governmental Authority of any spills or releases of, or
the presence of, hazardous substances on the Project and neither the Seller nor
Eagle Crest has knowledge of any such hazardous substances; and such Project has
been completed within the meaning of any applicable state statute.
(n) Compliance as to Environmental Matters. The Project in which
the related Mortgaged Property is located is in compliance with all
environmental laws, ordinances, rules, regulations and orders of federal and
state governmental authorities relating thereto; and such Project is not now and
has never been used to generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer, produce, process or in any manner deal with gasoline,
petroleum products, explosives, radioactive materials, hazardous materials,
hazardous wastes, hazardous or toxic substances, polychlorinated biphenyls or
related or similar materials, asbestos or any material containing asbestos, or
any other substance or material as may be defined as a hazardous or toxic
substance by any federal, state or local environmental law, ordinance, rule or
regulation which might reasonably be expected to have a material adverse impact
on such Project or constitute grounds for the revocation of any license,
charter, permit or registration which is material to the continued operation of
such Project.
Section 7.4 Repurchase Upon Breach: Optional Repurchase.
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(a) Each of the parties hereto shall inform the other parties
promptly in writing upon the discovery of any breach of the Seller's
representations and warranties pursuant to Sections 7.2 or 7.3 which materially
and adversely affects any Receivable. Unless the breach shall have been cured in
all material respects by the 60th day following its discovery, the Seller shall
repurchase such Receivable. Additionally, in the case of Mortgage Loan
Receivables, if the Seller does not deliver to the Agent within 90 days after
the related Transfer Date either an opinion of counsel pursuant to Section
2.5(a)(iv) or a recorded Assignment of the related mortgage with evidence of
recording thereon to or upon the order of the Agent, the Seller shall repurchase
the related Mortgage Loan Receivable. if necessary, the Seller shall enforce the
obligation of the related Originator under the related Purchase Agreement to
repurchase any such Receivable required to be repurchased as described above. In
consideration of the purchase of any such Receivable, the Seller shall remit an
amount equal to the Purchase Amount to the Master Servicer. The sole remedy of
the Agent, acting on behalf of the Purchasers, with respect to a breach of the
foregoing representations and warranties which materially and adversely affects
any Receivable shall be to require the Seller to repurchase Receivables pursuant
to this Section and to enforce the related Originator's obligation to the Seller
to repurchase such Receivable pursuant to the related Purchase Agreement.
(b) In connection with any transfer of ownership of a
Mortgaged Property by the related obligor, the Seller may, if the Master
Servicer is required to enforce a due-on-sale clause contained in the related
Mortgage Note, in its discretion, repurchase the related Mortgage Loan
Receivable in order to avoid the required enforcement of such due-on-sale
clause. In consideration of the purchase of any such Mortgage Loan Receivable,
the Seller shall remit an amount equal to the Purchase Price to the Master
Servicer.
(c) Upon the payment by the Seller of the Purchase Price for
any Receivable repurchased pursuant to Section 7.4(a) or 7.4(b), the Agent shall
deliver to the Seller such instruments as may be necessary to assign and
transfer, without recourse or warranty of any kind, such Receivable and the
Related Security and Receivable Documents.
Section 7.5 Representations and Warranties as a Whole. This Agreement,
the other Facility Documents and all other instruments, documents, certificates
and statements furnished to the Agent or any Purchaser by the Seller or on the
Seller's behalf pursuant to the Facility Documents, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
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ARTICLE 8
AFFIRMATIVE COVENANTS
Section 8.1 Affirmative Covenants of the Seller. From the date hereof
until the first day following the Commitment Termination Date on which (i) the
Aggregate Undivided Interest shall be reduced to zero and (ii) all Obligations
shall have been finally paid and performed, the Seller shall do all of the
following unless the Agent (acting upon the direction of the Required
Purchasers) shall otherwise consent in writing:
(a) The Seller shall comply with all applicable laws, rules,
regulations and orders that are material to it, including but not limited to all
applicable laws, rules, regulations and orders with respect to the Assigned
Collateral and will take all actions necessary to ensure that all Taxes, pension
obligations and other governmental claims in respect of its operations, business
and assets are promptly paid when due.
(b) The Seller shall preserve and maintain its corporate
existence, rights, franchises and privileges in the State of Nevada, and qualify
and remain qualified in good standing as a foreign corporation in each State
where such qualification is necessary or advisable in view of its operations,
business and assets.
(c) From time to time during regular business hours, after
receipt of at least three days, prior notice from the Agent or the related
Purchaser, the Seller shall permit the Agent, any Purchaser and their respective
agents and representatives (i) to examine and make copies of and abstracts from
all books, records and documents (including, without limitation, computer tapes
and disks) in the possession or under the control of the Seller and (ii) to
visit the offices and properties of the Seller for the purpose of examining such
materials and to discuss matters relating to the Receivables, its performance
under any Facility Document to which the Seller is a party or its affairs,
finances and accounts generally with any of its officers, directors or
employees.
(d) The Seller shall maintain and implement or cause to be
maintained and implemented administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing the Receivables
and the Receivable Documents in the event of the destruction of the originals
thereof), and keep and maintain or cause to be kept and maintained (i) all
documents, books, records and other information reasonably necessary or
advisable for the collection of the Receivables (including, without limitation,
records adequate to permit the daily identification of each new receivable and
all Collections
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of and adjustments to each existing Receivable) and (ii) adequate records and
books of account in which complete entries will be made in accordance with
generally accepted accounting principles, consistently applied, reflecting all
financial transactions of the Seller (except that transfers of Receivables
regardless of the date of transfer may be accounted for in accordance with the
rules in effect prior to January 1, 1997).
(e) The Seller shall (i) keep its principal place of business
and its chief executive office at the address set forth in Section 15.5 unless
it shall have provided 60 days' prior written notice of any intended move to the
Agent, (ii) maintain a fiscal year ending on December 31 and shall not make any
significant change-in accounting policies or reporting practices other than
changes required by generally accepted accounting principles or otherwise
required by law and (iii) comply in all material respects with the Credit and
Collection Policy in connection with each Receivable, and each Receivable
Document related thereto.
(f) The Seller will deliver to the Agent as soon as reasonably
possible and in any event within 60 days after the close of each fiscal quarter
(90 days-after the close of the fourth quarter), its in-house prepared (A)
balance sheet as at the end of such fiscal quarter setting forth in comparative
form the corresponding figures as at the end of the preceding fiscal quarter,
and (B) statement of income for such fiscal quarter setting forth in comparative
form the corresponding figures for the previous fiscal quarter, with
transactions and account balances accounted for in conformity with generally
accepted accounting principles applied on a basis consistent with that of the
preceding quarter (except that transfers of Receivables, regardless of the date
of transfer, may be accounted for in accordance with the rules in effect prior
to January 1, 1997) or containing disclosure of the effect on financial position
or results of operations of any change in the application of accounting
principles during the quarter, together with an Officer's Certificate certifying
as to such financial statements and that the signer thereof has obtained no
knowledge of any Unmatured Termination Event or Termination Event.
(g) Promptly after learning thereof, the Seller will notify
the Agent of (i) the details of any action, proceeding, investigation or claim
against or affecting the Seller instituted before any court, arbitrator or
Governmental Authority or, to the Seller's knowledge threatened to be
instituted, which, if determined adversely would be likely to have a material
adverse effect on (A) the performance by the Seller, TRI, Eagle Crest or the
Master Servicer of their respective obligations under any Facility Document to
which it is a party or by which it is bound, (B) the validity or enforceability
of any Facility Document,
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(C) the validity or enforceability of any Receivable (or any Receivable Document
related thereto), (D) the Purchasers, first priority security interest in the
Assigned Collateral or (E) the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Seller, TRI, Eagle
Crest, WorldMark or the Master Servicer and (ii) the occurrence of any Unmatured
Termination Event or Termination Event.
(h) From time to time, the Seller will (i) pay or reimburse
the Agent for all reasonable expenses, including legal fees, incurred by the
Agent in connection with the preparation of this Agreement and the other
Facility Documents, the making of any Purchase, and the perfection of the
Purchasers, interests in the Assigned Collateral; (ii) obtain and promptly
furnish to the Agent evidence of all such government approvals as may be
required to enable the Seller to comply with its obligations under the Facility
Documents to which it is party; (iii) execute and deliver all such instruments
(such as UCC continuation statements) and perform all such other acts as may be
necessary to maintain the Purchasers, interests continuously perfected as a
first priority interest in the Assigned Collateral; (iv) execute and deliver all
such other instruments and perform all such other acts as the Agent or any
Purchaser may reasonably request to carry out the transactions contemplated by
this Agreement and the other Facility Documents; and (v) comply in all material
respects with the Seller's obligations under the Facility Documents to which the
Seller is a party or by which it is bound and not take any action which would
permit or cause the Seller, the Master Servicer or any Subservicer to have the
right to refuse to perform any of their respective obligations under any
Facility Documents.
(i) The purpose of the Seller shall be limited to the
following purposes, and activities incident to and necessary or convenient to
accomplish the following purposes or to fulfill the Seller's obligations under
contracts in effect on the Closing Date: to acquire from time to time
Receivables and other Assigned Collateral from TRI and Eagle Crest pursuant to
the Purchase Agreements, and to sell, dispose, pledge, transfer and assign to
the Agent and the Purchasers pursuant to this Agreement such Receivables and
Assigned Collateral, together with Mortgage Loan Receivables previously acquired
by the Seller from Eagle Crest Partners, Ltd. and transferred to the Agent and
the Purchasers pursuant to the Prior Transfer Agreement.
(j) The Seller will deliver to the Agent copies of the annual
financial statements of each Association and WorldMark within 120 days of each
fiscal year end.
(k) The Seller will within ten Business Days following
an Interest Rate Protection Date obtain Interest Rate Protection.
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Section 8.2 Affirmative Covenants of TRI. From the date hereof until
the first day following the Commitment Termination Date on which (i) the
Aggregate Undivided Interest shall be reduced to zero and (ii) all obligations
shall have been fully paid and performed, TRI shall, unless the Agent (acting
upon the direction of the Required Purchasers) otherwise consents in writing,
(i) notify the Agent if TRI or any of its Subsidiaries allows their respective
obligations under ERISA to become delinquent; (ii) deliver to the Agent as soon
as reasonably possible and in any event within 60 days after the close of each
fiscal quarter (or within 90 days after the close of the fourth quarter), its
in-house prepared (A) balance sheet as at the end of such fiscal quarter setting
forth in comparative form the corresponding figures as at the end of the
preceding fiscal quarter, and (B) statement of income for such fiscal quarter
setting forth in comparative form the corresponding figures for the previous
fiscal quarter, with transactions and account balances accounted for in
conformity with generally accepted accounting principles applied on a basis
consistent with that of the preceding quarter or containing disclosure of the
effect on financial position or results of operations of any change in the
application of accounting principles during the quarter, together with an
Officer's Certificate certifying as to such financial statements and that the
signer thereof has obtained no knowledge of any Unmatured Termination Event or
Termination Event; and (iii) deliver to the Agent as soon as reasonably possible
and in any event within 120 days after the close of each fiscal year, its (A)
balance sheet as at the end of such fiscal year setting forth in comparative
form the corresponding figures at the end of the preceding fiscal year, and (B)
statements of income, retained earnings and changes in financial position for
such fiscal year setting forth in comparative form the corresponding figures for
the previous fiscal year, prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that of the preceding
year or containing disclosure of the effect on financial position or results of
operations of any change in the application of accounting principles during the
year which consolidated balance sheet and income statements shall be accompanied
by an unqualified report and opinion of independent public accountants of
recognized standing approved by the Agent, which report and opinion shall be in
accordance with generally accepted auditing standards relating to reporting or,
if qualified, the opinion shall not be qualified due to any limitation in scope
of the examination or due to any departure from any generally accepted
accounting principles, and shall be accompanied by a statement of such
accountants that, in making the audit necessary for the certification of such
financial statements and such report, such accountants have obtained no
knowledge of any Unmatured Termination Event or Termination Event or under any
other evidence of indebtedness or, if in the opinion of such accountants any
such Unmatured Termination Event or
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Termination Event shall have occurred and be continuing, shall include a
statement as to the nature and status thereof.
ARTICLE 9
NEGATIVE COVENANTS
Section 9.1 Negative Covenants of the Seller. From the date hereof
until the first day following the Commitment Termination Date on which (i) the
Aggregate Undivided Interest shall be reduced to zero and (ii) all Obligations
shall have been finally paid and performed, unless the Agent (acting upon the
direction of the Required Purchasers) shall otherwise consent in writing:
(a) The Seller shall not, except as otherwise provided herein,
(i) sell, transfer, assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Lien upon or with respect to any
Assigned Collateral (other than Permitted Encumbrances on the Mortgaged
Properties in the case of Mortgage Loan Receivables and Liens of WorldMark in
the case of Right to Use Receivables) or any other property now owned or
hereafter acquired by the Seller (other than Liens arising by operation of law
or arising in connection with court proceedings), (ii) assign any right to
receive any income or proceeds in respect thereof or (iii) create, incur, assume
or cause to exist any indebtedness, whether current or funded, or any liability
other than (A) liabilities payable to the Purchasers, (B) liabilities for
services supplied or furnished to the Seller including, but not limited to, the
reasonable fees of accountants, attorneys or other professionals required by the
Seller for the normal operation of its business, and (C) liabilities payable to
TRI in respect of items described in clause (B) above, payments in respect of
which shall be subordinated to amounts owed by the Seller under this Agreement.
(b) The Seller shall not (i) issue any additional shares of
its capital stock to any Person other than TRI, (ii) permit the transfer, sale
or pledge of any shares of its outstanding capital stock, (iii) amend its
articles of incorporation or bylaws or (iv) have any Subsidiaries.
(c) Notwithstanding the provisions of Section 9.1(b), so long
as no Unmatured Termination Event or Termination Event has occurred and is
continuing, the Seller can (i) pay dividends on its outstanding shares of Class
A common stock so long as the amount of such dividends, within any 12 month
period, do not exceed 12% per annum or $480,000, and (ii) make permitted
payments in respect of liabilities permitted under Section 9.1(a).
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(d) The Seller shall not (i) engage in any business or
activity other than those permitted by Section 8.1(i), (ii) make any material
change in the character of its business, enter into a new business, enter into
any material agreement other than as contemplated by the Facility Documents or
(iii) merge or consolidate with any other corporation, company or entity or sell
all or substantially all of its assets or acquire all or substantially all of
the assets or capital stock or other ownership interest of any other
corporation, company or entity.
(e) The Seller shall not, except as described in Section
9.1(c)(ii) and (c)(iii), (i) make loans to any Person, (ii) advance credit or
enter into any agreement whereby the Seller is contingently liable for the debts
of another, (iii) guarantee the indebtedness of other parties or (iv) make
capital expenditures.
(f) The Seller shall not, without the prior consent of the
Independent Director and the affirmative vote of all members of the board of
directors, (i) institute proceedings to be adjudicated bankrupt or insolvent, or
consent to the institution of bankruptcy or insolvency proceedings against it,
or file a petition or consent to a petition seeking reorganization or relief
under any applicable federal or state law relating to bankruptcy or insolvency,
or consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Seller, or a substantial part of
its property, or make any assignment for the benefit of creditors, or, except as
required by law, admit in writing its inability to pay its debts generally as
they become due, or take any corporate action in furtherance of any such action;
(ii) dissolve or liquidate, in whole or in part; (iii) merge or consolidate with
or into any other entity, or convey or transfer all or substantially all of its
properties and assets to any other entity; (iv) incur, assume or guarantee any
indebtedness for borrowed money or for the deferred purchase price of goods or
services other than those contemplated by this Agreement; or (v) engage in any
other action that bears upon whether the separate identity of the Seller and its
parent will be respected, or the assets of the Seller will be consolidated with
those of its parent under applicable federal or state bankruptcy or insolvency
law.
Section 9.2 Negative Covenants of TRI. From the date hereof until the
first day following the Commitment Termination Date on which (i) the Aggregate
Undivided Interest shall be reduced to zero and (ii) all Obligations shall have
been finally paid and performed, unless the Agent (acting upon direction of the
Required Purchasers) shall otherwise consent in writing:
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(a) TRI shall not, except as otherwise provided herein, sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create or
suffer to exist any Lien upon or with respect to any of the capital stock of the
Seller.
(b) TRI shall not allow its payment or funding obligations under
ERISA to become delinquent.
(c) TRI shall not make any material change in the character or
conduct of its business as it is conducted as of the Closing Date or enter into
any new businesses.
ARTICLE 10
SERVICING, ADMINISTRATION AND COLLECTIONS
Section 10.1 Designation of Master Servicer.
(a) The servicing, administering and collection of the
Receivables shall be conducted by the Master Servicer designated from time to
time in accordance with this Section. Until the Agent (acting upon the direction
of the Required Purchasers) gives notice (the "Successor Notice") to the Seller
and the Master Servicer of the designation of a new Master Servicer, TRI is
hereby designated as, and hereby agrees to perform the duties and obligations
of, Master Servicer in accordance with the terms of this Agreement. The Agent
and the Purchasers agree not to provide the Seller and the Master Servicer with
a Successor Notice unless (i) a Termination Event shall have occurred and be
continuing or (ii) the Seller or the Master Servicer, as the case may be, shall
fail to perform or observe any term, covenant or agreement contained in Sections
8.1, 8.2, 9.1 or 9.2 or this Article and such failure shall remain unremedied
for five Business Days after written notice thereof shall have been given to the
Seller and the Master Servicer by the Agent.
(b) Upon receipt of a Successor Notice or upon resignation of
the Master Servicer pursuant to Section 10.1(c), the Master Servicer will take
such actions as are necessary to best facilitate the transition of the
performance of the Master Servicer's activities to the new Master Servicer and
the Seller and Master Servicer shall use their best efforts to assist the new
Master Servicer to assume and perform the duties of the Master Servicer
hereunder. Without limiting the foregoing, the Master Servicer agrees that:
(i) the Agent may direct some or all of the
Obligors to make payment of all amounts payable under any Receivables directly
to the Agent, to the new Master Servicer or through the Lock Box Network;
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(ii) the Master Servicer shall, at the Agent's
request and at the Master Servicer's expense, give notice of the Purchasers'
ownership of the Receivables to each obligor and direct that payments be made
directly to the Agent, to the new Master Servicer or through the Lock Box
Network;
(iii) the Master Servicer shall, at the Agent's
request, (A) assemble all of the documents, instruments and other records
(including, without limitation, computer programs, tapes and disks) in its
possession which evidence the Receivables, the related Receivable Documents and
the Related Security, or which are otherwise necessary or desirable to collect
such Receivables, and shall make the same available to the Agent or the new
Master servicer at a place selected by the Agent, (B) segregate all cash, checks
and other instruments received by it from time to time constituting Collections
in a manner acceptable to the Agent and shall, promptly upon receipt, remit all
such cash, checks and instruments, duly indorsed or with duly executed
instruments of transfer, to the Agent, the new Master Servicer or the Collection
Account, as the case may be, and (C) permit the successor Master Servicer and
its agents, employees and assignees access to its facilities and its books,
records, documents and instruments (including, without limitation, computer
programs, tapes and disks) related to the Receivables; and
(iv) the Agent or any new Master Servicer is
authorized to take any and all steps in the Seller's name and on behalf of the
Seller necessary or desirable, in the Agent's determination, to collect all
amounts due under the Receivables (including, in the case of the Mortgage Loan
Receivables, amounts due under the related Mortgage Notes), including, without
limitation, endorsing the Seller's name on checks and other instruments
representing Collections and enforcing such Receivables and the related
Receivable Documents.
(c) The Master Servicer's authorization to act as servicer of
the Receivables under this Agreement shall terminate on the first day following
the Commitment Termination Date on which (i) the Aggregate Undivided Interest
shall be reduced to zero and (ii) all obligations shall have been fully paid and
performed.
(d) TRI acknowledges that the Agent and the Purchasers have
relied on TRI's agreement to act as the initial Master Servicer hereunder in
their respective decisions to execute and deliver the Facility Documents. TRI
agrees not to resign as Master Servicer and that until any Successor Notice
shall have been delivered to TRI, it shall continue to perform all of the duties
of the Master Servicer hereunder unless it shall have determined that the
performance of such duties shall no longer be permitted by applicable law.
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Section 10.2 Duties of the Master Servicer: Subservicers.
(a) The Master Servicer, acting alone and/or through one or
more Subservicers as provided in this Section, shall, as agent for the Agent and
the Purchasers, manage, service, administer and make collections on or in
respect of the Receivables. The Master Servicer agrees that its servicing of the
Receivables shall be carried out in accordance with customary and usual
procedures of institutions which service unsecured timeshare receivables and
timeshare receivables secured by mortgages and, to the extent more exacting, the
procedures used by the Master Servicer in respect of the foregoing timeshare
receivables serviced by it for its own account. The duties of the Master
Servicer shall include collection and posting of all payments, responding to
inquiries of obligors on the Receivables, investigating delinquencies, sending
payment coupons to Obligors, reporting tax information to obligors, accounting
for collections and furnishing monthly statements to the Agent and the
Purchasers substantially in the form of Exhibit E hereto, which statements shall
be delivered no later than the Settlement Date in each month. Each monthly
statement shall be accompanied by a current certificate from each Subservicer
(and from the Master Servicer with respect to any portion of the Receivables
Pool serviced by the Master Servicer itself) stating that to the best of the
knowledge and information of such Subservicer (or of the Master Servicer, if
applicable) after examination of relevant books and records, the Seller has not
sold except to the Agent, or granted a security interest in, any Receivable
comprised in that portion of the Receivables Pool serviced by such Subservicer
(or by the Master Servicer, if applicable). The Master Servicer shall have,
subject to the terms of this Agreement, full power and authority, acting alone
and subject only to the specific requirements and prohibitions of this
Agreement, to do any and all things in connection with such managing, servicing,
administration and collection that it may deem necessary or desirable. Without
limiting the generality of the foregoing, but subject to the other provisions of
this Agreement, the Master Servicer is authorized and empowered by the Agent,
acting on behalf of the Purchasers, to execute and deliver, on behalf of itself,
the Agent, the Purchasers or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all comparable instruments, with respect to the Receivables and, in the case of
Mortgage Loan Receivables, the related Mortgaged Properties. The Agent shall
furnish the Master Servicer with all powers of attorney or other documents
necessary or appropriate to enable the Master Servicer to carry out its
servicing and administrative duties hereunder.
(b) The Master Servicer may enter into Subservicing
Agreements with one or more Subservicers approved by the Agent
for the servicing and administration of certain of the
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Receivables. The Master Servicer shall notify the Agent promptly if a
Subservicer is hired. References in this Agreement to actions taken or to be
taken by the Master Servicer in servicing the Receivables include actions taken
or to be taken by a Subservicer on behalf of the Master Servicer and the Agent.
Each Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Agreement and as the Master Servicer and the Subservicer
have agreed. With the approval of the Master Servicer and the Agent, a
Subservicer may delegate its servicing obligations to third-party servicers, but
such Subservicer will remain obligated under the related Subservicing Agreement.
The Master Servicer and a Subservicer may enter into amendments thereto or
different forms of Subservicing Agreements; provided, however, that any such
amendments or different forms shall be consistent with and not violate the
provisions of this Agreement or materially adversely affect the rights of the
Agent or the Purchasers.
The Master Servicer shall be entitled to terminate any Subservicing
Agreement that may exist in accordance with the terms and conditions of such
Subservicing Agreement and without any limitation by virtue of this Agreement;
provided, however, that in the event of termination of any Subservicing
Agreement by the Master Servicer or the related Subservicer, the Master Servicer
shall either act directly as servicer of the related Receivables or enter into a
Subservicing Agreement with a successor Subservicer approved by the Agent which
will be bound by the terms of the related Subservicing Agreement.
Notwithstanding any Subservicing Agreement, any of the provisions of
the Agreement relating to agreements or arrangements between the Master Servicer
or a Subservicer or reference to actions taken through such Persons or
otherwise, the Master Servicer shall remain obligated and liable to the Agent
and the Purchasers for the servicing and administering of the Receivables in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such Subservicing Agreement or arrangements
or by virtue of indemnification from a Subservicer and to the same extent and
under the same terms and conditions as if the Master Servicer alone were
servicing and administering the Receivables. The Master Servicer shall be
entitled to enter into any agreement with a Subservicer for indemnification of
the Master Servicer and nothing contained in this Agreement shall be deemed to
limit or modify such indemnification.
Any Subservicing Agreement that may be entered into and any other
transactions or servicing arrangements relating to the Receivables involving a
Subservicer or an affiliate of the Master Servicer in its capacity as such shall
be deemed to be between the Subservicer or other affiliate of the Master
Servicer, as the
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case may be, and the Master Servicer alone, and the Agent and the Purchasers
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to the Subservicer except as set
forth in the immediately succeeding paragraph; provided that the Agent and the
Purchasers may rely upon all representations and warranties of the Subservicer
contained therein.
In the event the Master Servicer shall for any reason no longer be
servicing any of the Receivables (including, but not limited to, by reason of a
Termination Event), the Agent or its designee may, at the sole discretion of the
Agent, thereupon assume all of the rights and obligations of such Master
Servicer under each Subservicing Agreement selected by the Agent in its sole
discretion. In such event, the Agent, its designee or the successor servicer for
the Agent shall be deemed to have assumed all of the Master Servicer's interest
therein and to have replaced the Master Servicer as a party to each such
Subservicing Agreement to the same extent as if such Subservicing Agreement had
been assigned to the assuming party except that the Master Servicer shall not
thereby be relieved of any liability or obligations under the Subservicing
Agreement. The Master Servicer shall, upon request of the Agent but at the
expense of the Master Servicer, deliver to the assuming party all documents and
records relating to each such Subservicing Agreement and the Receivables then
being serviced and an accounting of amounts collected and held by it and
otherwise use its best efforts to effect the orderly and efficient transfer of
the Subservicing Agreement to the assuming party.
The Master Servicer shall retain all data (including, without
limitation, computerized records) relating directly to or maintained in
connection with the servicing of the Receivables at the address of the Master
Servicer set forth in Section 15.5, at one of the addresses listed on Schedule 5
hereto, at the office of any Subservicer or, upon 15 days' notice to the Agent,
at such other place where the servicing offices of the Master Servicer are
located, and shall give the Agent access to all data at all reasonable times,
and, during the continuation of a Termination Event, the Master Servicer shall,
on demand of the Agent, deliver or cause to be delivered to the Agent all data
(including, without limitation, computerized records and, to the extent
transferable, related operating software) necessary for the servicing of the
Receivables and all monies collected by it and required to be deposited in or
credited to the Collection Account.
(c) The Master Servicer may, from time to time and with the
consent of the Agent, make changes to the Credit and Collection Policies,
provided that no such change can materially impair the collectibility of any
Receivable. Copies of each such
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revised Credit and Collection Policies shall replace the version existing as
Schedule 1 or 2, as the case may be.
(d) All expenses incurred by the Master Servicer, including
expenses incurred by any Subservicer, in performing their obligations hereunder
shall be for the account of the Master Servicer, and the Purchasers and the
Agent shall have no obligations to make any payments in respect thereof.
(e) No later than one Business Day prior to each Settlement
Date, the Master Servicer shall prepare and forward to the Agent by telecopier
and to each Purchaser by overnight courier service for delivery on the
immediately succeeding Business Day, a settlement certificate, certified by an
officer of the Master Servicer, substantially in the form attached hereto as
Exhibit E.
Section 10.3 Collection Responsibilities; Receivable
Modifications.
(a) The Master Servicer shall, on behalf of the Agent, collect
all payments made under each Receivable and shall use its reasonable efforts to
collect from each Obligor all payments on or in respect of such Receivable after
the related Cutoff Date. The Master Servicer may in its discretion waive any
assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or other fees which may be
collected in the ordinary course of servicing the Receivables. Notwithstanding
anything to the contrary in this Agreement, neither the Master Servicer nor the
Agent shall modify, waive or amend the terms of any Mortgage Loan Receivable
unless a default thereon has occurred or is imminent or unless such
modification, amendment or waiver shall not (i) alter the interest rate on, the
principal amount of, or the timing of payments of interest and principal in
respect of, such Mortgage Loan Receivable, (ii) materially impair the related
Mortgaged Property or (iii) reduce materially the likelihood that payments of
interest and principal on such Mortgage Loan Receivable shall be made when due;
provided, however, that the Master Servicer shall not reschedule the payment of
delinquent payments more than one time in any 12 consecutive months with respect
to any obligor.
(b) Subject to Section 4.3, the Master Servicer shall remit,
by any commercially acceptable method, to the appropriate party the portion of
such payments representing Miscellaneous Payments, it being understood that such
Miscellaneous Payments may be retained by the Master Servicer or applied on
behalf of obligors, as the case may be; provided, that the Master Servicer shall
remit portions of Miscellaneous Payments constituting homeowners' association
fees and condominium association fees to
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the related condominium association or homeowners, association,
as the case may be.
(c) All Collections shall be segregated from funds of the
Master Servicer and other funds received or collected by the Master Servicer for
Persons other than the Purchasers and, to the extent of the Purchasers' Share
thereof, all Collections shall be held in trust by the Master Servicer for the
exclusive benefit of the Purchasers.
Section 10.4 Maintenance of Insurance.
(a) The Master Servicer shall maintain or cause each
Association to maintain fire insurance with extended coverage on the Project in
an amount which is at least equal to the replacement cost of the improvements
which are a part of such Project, but in no event less than such amount as is
necessary to avoid the application of any co-insurance clause in the related
hazard insurance policy. It is understood and agreed that no earthquake, flood
or other additional insurance is to be required of any Obligor or the
Association other than pursuant to such applicable laws and regulations as shall
at any time be in force and as shall require such additional insurance.
The Master Servicer agrees to prepare and present, or cause the
Association to prepare and present, claims under each insurance policy
maintained pursuant to this Section in a timely fashion in accordance with the
terms of such policy and to take such reasonable steps as are necessary to
enable the Association or the Master Servicer, as appropriate, to receive
payment or to permit recovery thereunder and to restore and repair the Project
and the Mortgaged Property. Each insurance policy maintained under this Section
shall be issued by an issuer with a General Policy Rating of "A" or better in
Best's Key Rating Guide.
(b) The Master Servicer shall cause each Subservicer and any
successor Subservicers to keep in force during the term of this Agreement a
policy or policies of insurance covering errors and omissions in the operation
of such Subservicer's procedures, and a fidelity bond. Such policy or policies
and fidelity bond shall be in such form and amount that would meet the
requirements of FHLMC if it were the purchaser of the Mortgage Loans and the
Subservicer were servicing and administering the Mortgage Loans for FHLMC. In
the event any Subservicing Agreement is terminated and the Master Servicer does
not enter into a subservicing Agreement with a successor Subservicer, the Master
Servicer shall obtain one or more policies of insurance covering errors and
omissions in the operation of the Master Servicer's procedures and one or more
fidelity bonds in such form and amount as specified in the immediately preceding
sentence. The Master Servicer shall be
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deemed to have complied with this provision if an affiliate of the Master
Servicer has such errors and omissions and fidelity bond coverage and, by the
terms of such insurance policy or fidelity bond, the coverage afforded
thereunder extends to the Master Servicer. Each such errors and omissions policy
and fidelity bond shall not be cancelled without 30 days, prior written notice
to the Agent.
(c) The Master Servicer shall cause each Subservicer and any
successor Subservicer to keep in force during the term of this Agreement
insurance coverage in such amounts as shall be normal and usual in the business.
Section 10.5 Assumption and Substitution Agreements. The Master
Servicer is authorized to take or enter into an assumption or substitution
agreement from or with the Person to whom property subject to a Mortgage has
been or is about to be conveyed. The Master Servicer is also authorized, if
required by law to do so, to release the original Obligor from liability upon
the Mortgage Loan Receivable and substitute the new mortgagor as Obligor
thereon. In connection with such assumption or substitution, the Master Servicer
shall apply such underwriting standards and follow such practices and procedures
as shall be normal and usual and as it applies to mortgage loan timeshare
receivables owed solely by it. Notwithstanding the foregoing, in connection with
any transfer of ownership of a Mortgaged Property by an Obligor to any Person,
the Master Servicer shall not agree to any change in the rate of interest borne
by, the maturity date of, the principal amount of, the timing of payments of
principal and interest in respect of, and all other material terms of, the
related Mortgage Note. The Master Servicer shall notify the Agent that any such
assumption or substitution agreement has been completed and if requested to do
so by the Agent, shall forward to the Agent a copy of such assumption or
substitution agreement for the Agent's review. The original of any assumption or
substitution agreement shall be added to the related Receivable File and shall,
for all purposes, be considered a part of such Receivable File to the same
extent as all other documents and instrument constituting a part thereof. In
connection with any such assumption or substitution agreement, the related
Mortgage Note shall not be changed. Any fee collected by the Master Servicer for
entering into an assumption or substitution agreement will be retained by the
Master Servicer as additional servicing compensation.
Section 10.6 Realization Upon Defaulted Receivables.
(a) The Master Servicer shall foreclose upon or otherwise
comparably convert the ownership of the Mortgaged Properties securing such of
the Mortgage Loan Receivables as come into and continue in default and as to
which no satisfactory
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arrangements can be made for collection of delinquent payments pursuant to
Section 10.2. In connection with such foreclosure or other conversion, the
Master Servicer shall follow such practices and procedures as it shall deem
necessary or advisable and as shall be normal and usual in its general mortgage
servicing activities; provided that if the Master Servicer has actual knowledge
or reasonably believes that any Mortgaged Property is affected by hazardous or
toxic waste or substances, then the Master Servicer need not acquire title to
such Mortgaged Property in a foreclosure or similar proceeding. The foregoing is
subject to the proviso that the Master Servicer shall not be required to expend
its own funds in connection with any foreclosure or to restore any damaged
property unless it shall determine that such foreclosure or restoration will
increase the Liquidation Proceeds available to the Seller after reimbursement to
the Master Servicer for its Liquidation Expenses.
(b) In connection with the foreclosure or liquidation of any
Defaulted Receivable that is a Right to Use Receivable, the Master Servicer
shall follow such practices and procedures as it shall deem necessary or
advisable and as shall be normal and usual in its general servicing activities.
The Master Servicer shall be required to expend its own funds in connection with
the liquidation of any Defaulted Receivable that is a Right to Use Receivable,
if it shall determine that such expenditures will increase the Liquidation
Proceeds available to the Seller after reimbursement to the Master Servicer for
its Liquidation Expenses.
(c) Liquidation Expenses incurred by the Master Servicer can
be repaid to the Master Servicer only from Liquidation Proceeds from sale or
other disposition of the related Defaulted Receivables.
Section 10.7 Payment of Fees and Expenses of Agent: No Offset. Prior to
the termination of this Agreement, the obligations of the Master Servicer under
this Agreement shall not be subject to any counterclaim or right of offset which
the Master Servicer has or may have against the Agent or any Purchaser, whether
in respect of this Agreement, any Receivable or otherwise.
Section 10.8 Servicing Fee. The Seller shall pay to the Master Servicer
out of Collected Interest a fee (the "Servicing Fee") for each day until the
first Business Day after the Commitment Termination Date on which the Aggregate
Undivided Interest shall be reduced to zero and all obligations shall have been
fully paid and performed. The accrued Servicing Fee shall be paid in arrears on
each Settlement Date and on the first Business Day after the Commitment
Termination Date on which the Aggregate Undivided Interest shall be reduced to
zero and all
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obligations shall have been fully paid and performed. The Servicing Fee shall be
calculated for each day as an amount equal to the product of (i) 1.75%, (ii) the
outstanding Principal Balance of the Receivables comprising the Receivables Pool
as of such day and (iii) a fraction, the numerator of which is one and the
denominator of which is 360. In no event shall the Agent or any Purchaser have
any obligation to pay any fee in respect of the services to be provided
hereunder.
Section 10.9 Representations and Warranties as to the Master Servicer.
The Master Servicer represents and warrants to the Agent for the benefit of the
Purchasers that:
(a) Organization and Good Standing. The Master Servicer shall
have been duly organized and shall be validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with power and
authority to own its properties and to conduct its business as such properties
shall be currently owned and such business is presently conducted.
(b) Due Qualification. The Master Servicer shall be duly
qualified to do business as a foreign corporation in good standing, and shall
have obtained all necessary licenses and approvals in all jurisdictions in which
the ownership or lease of property or the conduct of its business shall require
such qualifications, except where the failure to so qualify or to have obtained
such licenses and approvals would not have a material adverse effect on the
ability of the Master Servicer to perform its obligations under this Agreement
or the other Facility Documents to which it is a party.
(c) Power and Authority. The Master Servicer shall have the
power and authority to execute, deliver and perform its obligations under the
Agreement and each other Facility Document to which it is a party and to carry
out their respective terms; and the execution, delivery and performance of this
Agreement and each other Facility Document to which it is a party shall have
been duly authorized by the Master Servicer by all necessary corporate action.
(d) Binding Obligations. This Agreement shall constitute a
legal, valid and binding obligation of the Master Servicer enforceable in
accordance with its terms, except as enforceability may be subject to or limited
by bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors, rights in general and by general principles of equity.
(e) No Violation. The consummation of the
transactions contemplated by this Agreement and the other
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Facility Documents to which the Master Servicer is a party and the fulfillment
of the terms of this Agreement and the other Facility Documents shall not
conflict with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or bylaws of the Master Servicer, or conflict with or
violate any of the terms or provisions of, or constitute (with or without notice
or lapse of time) a default under, any material indenture, agreement or other
instrument to which the Master Servicer is a party or by which it shall be
bound; nor violate any law or, to the best of the Master Servicer's knowledge,
any order, rule or regulation applicable to the Master Servicer of any court or
of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Master Servicer or its
properties; which breach, default, conflict or violation would have a material
adverse effect on the ability of the Master Servicer to perform its obligations
under this Agreement or the other Facility Documents to which it is a party.
Section 10.10 Existence; Status as Master Servicer; Merger.
(a) Except as otherwise permitted by Section 10.2(f), the
Master Servicer shall keep in full effect its existence, rights and franchises
as a corporation under the laws of the state of its organization and shall
obtain and preserve its qualification to do business as a foreign corporation,
in each case to the extent necessary to protect the validity and enforceability
of the Receivables (and, in the case of Mortgage Loan Receivables, the related
Mortgage Notes and Mortgages) and this Agreement.
(b) The Master Servicer shall not consolidate with or merge
into any other Person or convey, transfer or lease substantially all of its
assets as an entirety to any Person unless the Person formed by such
consolidation or into which the Master Servicer has been merged or the Person
which acquires substantially all the assets of the Master Servicer as an
entirety is a corporation organized under the laws of a state in the United
States, can lawfully perform the obligations of the Master Servicer hereunder
and executes and delivers to the other parties hereto an agreement, in form and
substance reasonably satisfactory to the Agent (acting upon the direction of the
Purchasers), which contains an assumption by such successor entity of the due
and punctual performance and observance of each covenant and condition to be
performed or observed by the Master Servicer under this Agreement.
(c) From the date hereof until the first day following the
Commitment Termination Date on which (i) the Aggregate Undivided Interest shall
be reduced to zero and (ii) all
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obligations shall have been fully paid and performed, the Master Servicer shall,
promptly after learning thereof, notify the Agent of (i) the details of any
action, proceeding, investigation or claim against or affecting the Master
Servicer instituted before any court, arbitrator or Governmental Authority or,
to its knowledge threatened to be instituted, which, if determined adversely to
the Master Servicer would be likely to have a material adverse effect on the
performance by it of its obligations under any Facility Document to which is a
part or by which it is bound.
Section 10.11 Performance of Obligations. The Master Servicer shall not
take any action or, to the extent within its control, permit any action to be
taken by others, which would excuse any Obligor from any of its covenants or
obligations under any Mortgage Note or Mortgage, or under any other instrument
relating thereto, or which would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any Mortgage Note or Mortgage or any such instrument, without
the written consent of the Agent, except as expressly provided herein and
therein.
Section 10.12 Liability of the Master Servicer: Indemnities. The
Master Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Master Servicer under this Agreement.
Such obligations shall include the following:
(a) The Master Servicer shall indemnify, defend and hold
harmless the Agent and the Purchasers from and against any loss, liability or
expense incurred by reason of the Master Servicer's negligence, willful
misfeasance or bad faith in the performance of its obligations and duties
hereunder, reckless disregard of its obligations and duties hereunder or breach
of any provision hereof.
(b) The Master Servicer shall indemnify, defend and hold
harmless the Agent and the Purchasers from and against all costs, expenses,
losses, claims, damages and liabilities arising out of or incurred in connection
with the acceptance or performance of its duties herein contained, except to the
extent that any such cost, expense, loss, claim, damage or liability: (i) shall
be due to the willful misfeasance, bad faith or negligence of the Agent or any
Purchaser or successor Master Servicer, (ii) relates to any Tax other than the
Taxes with respect to which the Master Servicer shall be required to indemnify
the Agent or (iii) shall be one as to which the Seller is required to indemnify
the Agent.
Indemnification under this Section shall include, without limitation,
reasonable fees and expenses of counsel and expenses
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of litigation, and appeals therefrom (including, but not limited to, any such
fees and costs incurred in a bankruptcy, receivership or similar proceeding). If
the Master Servicer shall have made any indemnity payments to the Agent pursuant
to this Section and the Agent thereafter shall collect any of such payments from
others, the Agent shall repay such amounts to the Master Servicer, with interest
to the extent collected (which interest shall not be an expense of the Agent or
any Purchaser). The indemnifications under this Section shall survive the
termination of this Agreement and the appointment of any successor Agent.
ARTICLE 11
TERMINATION EVENTS
Section 11.1 Termination Events. Each of the following
events shall constitute a "Termination Event":
(a) The Seller or either Originator shall fail to make any
payment or deposit required under this Agreement or the related Purchase
Agreement, in each case that continues unremedied for three Business Days after
discovery of such failure by an officer of the Seller or the related originator
or written notice of such failure is given to the Seller or such Originator by
the Agent;
(b) Any representation and warranty made by the Seller or
either Originator in this Agreement or any other Facility Document to which it
is a party regarding corporate organization or authority or the enforceability
of this Agreement or any other such Facility Document or any information
required to be given by the Originators to identify the Receivables proves to
have been incorrect in any material respect when made, and which continues to be
incorrect in any material respect for a period of 30 days after written notice
of such incorrectness shall have been given to the Seller or such originator by
the Agent;
(c) Failure of the Seller or either Originator to observe or
perform in any material respect any material covenant or agreement under this
Agreement or any other Facility Document to which it is a party which continues
unremedied for a period of 30 days after written notice is delivered by the
Agent to the Seller or such originator; or failure by the Seller or either
Originator to perform or observe any other term, covenant or agreement contained
in this Agreement or any other Facility Document to which it is a party on its
part to be performed or observed and such failure shall remain unremedied for 30
days after written notice thereof shall have been given to the Seller or such
Originator by the Agent;
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(d) Any Indebtedness of the Seller in excess of $100,000 shall
be declared to be due and payable or required to be prepaid (other than by
regularly scheduled required prepayment) prior to the stated maturity thereof;
(e) The entry of a decree or order by a court or agency or
supervisory authority having jurisdiction in the premises for the appointment of
a trustee in bankruptcy, conservator, receiver or liquidator of the Seller,
either Originator, WorldMark or any Association in any bankruptcy, insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of their respective affairs,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days;
(f) The consent by the Seller, either Originator, WorldMark or
any Association to the appointment of a trustee in bankruptcy, conservator or
receiver or liquidator in any bankruptcy, insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
any of the foregoing entities of or relating to substantially all of their
property; or the Seller, either Originator or WorldMark shall admit in writing
its inability to pay its debts generally as they become due, file a petition to
take advantage of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend payment of
its obligations;
(g) Any judgment shall have been entered (and shall have
remained unsatisfied or unstayed for more than ten Business Days) against either
Originator or the Seller that if levied upon would have a material adverse
effect on the condition, financial or otherwise, or the earnings, business
affairs or business prospects of such Originator or the Seller;
(h) The Seller becomes an "investment company" and is
required to register as such under the Investment Company Act;
(i) The IRS shall file notice of a lien pursuant to Section
6323 of the Code with regard to any Receivable and such lien shall not have been
released within ten Business Days, or the PBGC shall file notice of a lien
pursuant to Section 4068 of ERISA with regard to any Receivable and such lien
shall not have been released within ten Business Days;
(j) If TRI or any Subsidiary other than the Seller shall fail
to pay when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) any Indebtedness in excess of $750,000 and
such failure shall
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continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness;
(k) If, as of any Settlement Date, (i) the Charge-off Rate or
the Consolidated Charge-off Rate exceeds 5% per annum, (ii) the average of the
Delinquency Rate Amounts or the Consolidated Delinquency Rate Amounts, in either
case for the three Collection Periods immediately preceding the Collection
Period in which such Settlement Date occurs exceeds 5%, (iii) the average of the
Defaulted Receivable Amounts or the Consolidated Defaulted Receivable Amounts,
in either case for the three Collection Periods immediately preceding the
Collection Period in which such Settlement Date occurs exceeds 3% or (iv) the
Portfolio Yield is negative;
(l) If the Collateral Percentage falls below 125% and within
five Business Days after the Seller learns of such event or is given notice of
such event by the Agent or the Master Servicer it does not cause the Collateral
Percentage to equal or exceed 125%;
(m) If the Seller has a Net Worth less than an amount
equal to the greater of (i) $22,000,000 or (ii) the product of
0.25 and the Aggregate Net Investment;
(n) WorldMark, on an annual basis, has excess of
revenues over expenses of less than $0; or
(o) Any Association, (i) fails to deliver to the Agent, within
90 days of the end of such Association's fiscal year, a report and an
unqualified opinion of independent public accountants, or (ii) fails to have an
annual replacement reserve report generated (by an independent consultant
acceptable to the Purchasers) and delivered to the Agent within 90 days of the
end of such Associations year end, showing a fund balance (as such fund balances
are shown on the financial statements of each Association) for the current year
of less than zero, or projecting within the next ten years that the fund balance
will equal less than zero.
Section 11.2 Remedies.
(a) Upon the occurrence of (i) a Termination Event described
in Section 11.1(e) or 11.1(f), the Commitment shall be terminated, the Agent
shall have been deemed to have given notice of the occurrence of a Termination
Event to the Seller, and the Obligations shall become due and payable (from
Collections or otherwise), all without further act or notice by the Agent or the
Purchasers, (ii) a Termination Event described in Section 11.1(a), the Agent or
any Purchaser may give notice to the Seller that the Commitment shall be
terminated, the Agent shall have
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been deemed to have given notice of the occurrence of a Termination Event to the
Seller and the Obligations shall become due and payable (from Collections or
otherwise) and (iii) any other Termination Event, the Agent shall, at the
request of the Required Purchasers, immediately terminate the Commitment, give
notice to the Seller of the occurrence of a Termination Event, and declare the
Obligations due and payable (from Collections or otherwise).
(b) Upon any termination of the Commitment pursuant to this
Section, the Agent and the Purchasers shall have, in addition to all other
rights and remedies under this Agreement and the other Facility Documents, all
rights and remedies provided under the UCC of each applicable jurisdiction and
under other applicable laws, which rights shall be cumulative.
ARTICLE 12
THE AGENT
Section 12.1 Authorization and Action. Each Purchaser hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no duties or responsibilities except those expressly set
forth in this Agreement. The duties of the Agent shall be mechanical and
administrative in nature, it shall not have by reason of this Agreement a
fiduciary relationship in respect of any Purchaser and nothing in this Agreement
or the other Facility Documents, expressed or implied, is intended to or shall
be so construed as to impose upon the Agent any obligations in respect of this
Agreement or the other Facility Documents except as expressly set forth herein
or in such other Facility Documents. As to any matters not expressly provided
for by this Agreement, the Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining) upon the
instructions of the Required Purchasers, and such instructions shall be binding
upon all Purchasers, provided that the Agent shall not be required to take any
action which exposes it to personal liability or which is contrary to any
Facility Document or applicable law and provided, further, that without the
prior written consent of all Purchasers, the Agent shall not, nor can the Agent
be instructed to, change or modify (a) any requirement that any particular
action be taken by the Required Purchasers or by all the Purchasers, (b) the
definition of "Required Purchasers," (c) the Commitment Amount or any
Purchasers' Pro Rate Share thereof, (d) the amount of the Commitment Fees or the
Upfront Fee, (e) the Commitment Termination Date (except as provided in Section
2.3), (f) the
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date for payment of any Earned Yield or (g) the amount of the Earned Yield and
provided, further, that the terms of Sections 5.1 and 13.2 and this Article
shall not be amended without the prior written consent of the Agent (acting for
its own account). In the absence of instructions from the Required Purchasers,
the Agent shall have authority (but no obligation), in its sole discretion, to
take or not to take any action, unless this Agreement specifically requires the
consent of all Purchasers or of the Required Purchasers and any such action or
failure to act shall be binding on all the Purchasers. Each Purchaser shall
execute and deliver such additional instruments, including powers of attorney in
favor of the Agent, as may be necessary or desirable to enable the Agent to
exercise its powers hereunder.
Section 12.2 Duties and obligations.
(a) Neither the Agent nor any of its directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it or any of them under or in connection with this Agreement except for its
or their own gross negligence or willful misconduct. Without limiting the
generality of the foregoing, the Agent (i) may treat each Purchaser as the party
entitled to receive payments hereunder except as otherwise provided in Article
13; (ii) may consult with legal counsel (including counsel for the Seller),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such experts; (iii) makes no warranty or
representation to any Purchaser and shall not be responsible to any Purchaser
for any statements, warranties or representations made in or in connection with
this Agreement or in any instrument or document furnished pursuant hereto; (iv)
shall not have any duty to ascertain or to inquire as to the performance of any
of the terms, covenants or conditions of the Facility Documents on the part of
the Seller or as to the existence or possible existence of any Unmatured
Termination Event or Termination Event; (v) shall not be responsible to any
Purchaser for the due execution, legality, validity, enforceability,
genuineness, effectiveness or value of this Agreement or of any instrument or
document furnished pursuant hereto; and (vi) shall incur no liability under or
in respect to this Agreement by acting upon any oral or written notice, consent,
certificate or other instrument or writing (which may be by telegram, facsimile
transmission, cable or telex) believed by it to be genuine and signed or sent by
the proper party or parties or by acting upon any representation or warranty of
the Seller made or deemed to be made hereunder.
(b) The Agent will account to each Purchaser for its Pro Rata
Share of payments made for the ratable account of the Purchasers which are
received by the Agent from the Seller and
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will promptly remit to the Purchasers entitled thereto all such payments. The
Agent will transmit to each Purchaser copies of all documents received from the
Seller pursuant to the requirements of this Agreement other than documents which
by the terms of this Agreement the Seller is obligated to deliver directly to
the Purchasers. The Agent will provide notice to each of the Purchasers within
30 days of any of the following: (i) any Amendment to this Agreement pursuant to
Section 15.7; (ii) the waiver of any of the Seller's covenants as provided in
Section 8.1 and 9.1; (iii) the waiver of any of TRI's covenants as provided in
Sections 8.1 and 9.2; (iv) the designation of a new Master Servicer as provided
in Section 10.1; (v) the termination of the Commitment as provided in Section
11.2(a); (vi) the taking of any other action upon the instructions of the
Required Purchasers as prescribed in Section 12.1; (vii) the removal of the
Agent or the appointment of a Successor Agent by the Required Purchasers as
provided in Section 12.7; (viii) the assignment or delegation by the Seller of
any of its rights or duties as provided in Section 13.1; or (ix) any other
action under any of the Facility Documents requiring the vote of the Required
Purchasers (in which case notice should be received within 30 days prior to such
vote).
(c) Each Purchaser or its assignee shall furnish to the Agent
in a timely fashion such documentation (including, but not by way of limitation,
IRS Forms Nos. 1001, 4224 and W-8) as may be required by applicable law or
regulation or as may reasonably be requested by Agent to establish such
Purchaser's status for tax withholding purposes.
Section 12.3 Dealings with the Seller. With respect to its portion of
the Commitment and the Purchases made by it, the Agent shall have the same
rights and powers under this Agreement as any other Purchaser and may exercise
the same as though it were not the Agent, and the term "Purchaser" shall unless
otherwise expressly indicated include the Agent in its individual capacity. The
Agent may accept deposits from, lend money to, act and generally engage in any
kind of business with the Seller and any Person which may do business with the
Seller, all as if the Agent were not the Agent hereunder and without any duty to
account therefor to the Purchasers.
Section 12.4 Purchaser Credit Decision. Each Purchaser acknowledges
that it has, independently and without reliance upon the Agent or any other
Purchaser and based upon such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Purchaser also acknowledges that it will, independently and
without reliance upon the Agent or any other Purchaser and based upon such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking
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or not taking action under this Agreement and the other Facility
Documents.
Section 12.5 Right to Rely on Payments.
(a) Unless the Agent shall have been notified in writing by a
Purchaser by 2:00 p.m., Seattle time, on the day prior to a Purchase (other than
a Reinvestment) that such Purchaser will not make available the amount which
would constitute its Pro Rata Share of the amount to be paid in connection with
such Purchase, the Agent may assume that such Purchaser has made such amount
available to the Agent and, in reliance upon such assumption, make available to
the Seller a corresponding amount. If and to the extent that such Purchaser
shall not have made such amount available to the Agent, such Purchaser and the
Seller severally agree to repay the Agent forthwith on demand such amount
together with interest thereon, for each day from the date the Agent made such
amount available to the Seller to the date such amount is repaid to the Agent,
at the Yield Rate applicable to such Purchase when first made.
(b) Unless the Agent shall have been notified by telephone and
such notice shall have been confirmed in writing by the Master Servicer by 2:00
p.m., Seattle time, on the day prior to the date any payment is due hereunder
that the Master Servicer will not make the full amount of all payments scheduled
to be made by it on such due date, the Agent may assume that the Master Servicer
has made such amount available to the Agent and, in reliance upon such
assumption, make available to itself and the Purchasers their respective shares
of such amount. If the Agent makes any such amount available to any Purchaser,
but such amount was not in fact made available by the Master Servicer to the
Agent on such due date, such Purchaser shall pay to the Agent on demand the
amount previously made available to such Purchaser, together with interest on
such amount at the daily average Federal Funds Rate for the number of days from
and including the date on which such Purchaser received such amount to the date
on which such amount becomes immediately available to the Agent. A statement of
the Agent submitted to any Purchaser with respect to any amounts owing under
this paragraph shall be conclusive and binding in the absence of manifest error.
If such amount is not in fact repaid to the Agent by such Purchaser within two
Business Days after the date on which such Purchaser is informed by the Agent
that such amount was not made available to the Agent by the Purchaser then the
Agent shall be entitled to recover on demand an amount calculated in the manner
specified in the second preceding sentence of this clause (b) after substituting
the term "Reference Rate" for the term "Federal Funds Rate."
Section 12.6 Limitations on Liability; Indemnification.
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(a) Anything herein to the contrary notwithstanding, the Agent
and the Purchasers shall have no obligations or liabilities with respect to any
Assigned Collateral, nor shall any of them be obligated to perform any of the
obligations of the Seller owing to any Obligor under the Receivables or in
respect thereof.
(b) The Purchasers agree to indemnify the Agent (to the extent
not reimbursed by the Seller) ratably according to their respective Pro Rata
Shares from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, Taxes (in the case of Taxes in
respect of earnings or gains from the investment of funds held in the Collection
Account), expenses or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement or any other Facility Document or any action
taken or omitted by the Agent under this Agreement or any other Facility
Document, except any such as result from the Agent's gross negligence or willful
misconduct. Without limiting the foregoing, each Purchaser agrees to reimburse
the Agent promptly on demand in proportion to its Pro Rata Share for all
reasonable out-of-pocket expenses, including legal fees, incurred by the Agent
in connection with the administration or enforcement of or the preservation of
any rights under this Agreement or any other Facility Document (to the extent
that the Agent is not reimbursed for such expenses by the Seller). The foregoing
indemnities shall survive the termination of this Agreement.
Section 12.7 Successor Agent. So long as the Agent is not concurrently
a Purchaser, the Agent may give written notice of resignation at any time to the
Purchasers and the Seller which resignation shall not be effective until at
least 30 days thereafter, and the Agent may be removed at any time with cause by
the Required Purchasers (such Required Purchasers to be determined, solely for
purposes of this Section, by excluding the Purchasers' Investment relating
solely to Seafirst, so that the Required Purchaser's aggregate Purchasers'
Investment of 66% will be based on the initial acquisition by the Purchasers
excluding, however, the acquisition by Seafirst as Purchaser, and as such amount
may be reduced from time to time by Collections received and distributed
pursuant to Sections 4.3 and 4.7.). Upon any such notice of resignation or
removal, the Required Purchasers shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Required
Purchasers and shall have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation or the removal of the retiring
Agent by the Required Purchasers, then the retiring Agent may on behalf of the
Purchasers, appoint a successor Agent, which shall be a bank organized under the
laws of the United States or of any state thereof, or any affiliate of
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such bank, and having a combined capital and surplus of at least $100,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
The retiring Agent, however, would not be released from any liabilities
resulting from such retiring Agent's gross negligence or willful misconduct.
Until the acceptance by such a successor Agent, the retiring Agent shall
continue as "Agent" hereunder. After any retiring Agent's resignation or removal
hereunder as Agent shall become effective, the provisions of this Article shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
Section 12.8 Delegation of Duties. The Agent may execute any of its
duties under this Agreement or any other Facility Document to which it is a
party by or through agents, employees or attorneys-in-fact and shall be entitled
to the advice of counsel concerning all matters pertaining to such duties. The
Agent shall not be held liable to any Purchaser for the negligence or misconduct
of any agent or attorney-in-fact that the Agent selects with reasonable care.
Section 12.9 Merger of Agent. Any Person into which the Agent may be
merged or converted or which it may be consolidated with or any Person resulting
from any merger, conversion or consolidation to which it shall be a party or any
Person to which the Agent may sell or transfer all or substantially all of its
agency relationships shall be the successor to the Agent without the execution
or filing of any paper or further act, anything herein to the contrary
notwithstanding.
ARTICLE 13
ASSIGNMENTS AND PARTICIPATIONS
Section 13.1 Generally. Each Purchaser may assign, or sell
participations in, its share of the Aggregate Net Investment and in the
Commitment to one or more Persons in accordance with this Article. Unless the
Agent (acting upon the direction of the Required Purchasers) shall otherwise
consent in writing, the Seller may not assign or delegate any of its rights or
duties hereunder and any such assignment or delegation purported to be made
shall be void and of no effect.
Section 13.2 Assignments. Any Purchaser, with the prior written consent
(which prior consent from the Seller and Master Servicer shall not be required
if a Termination Event shall have occurred and is continuing or if the
assignment is to an
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affiliate of the Purchaser) of the Seller, the Agent and the Master Servicer
(which consents will not be unreasonably withheld), may at any time assign and
delegate to one or more commercial banks or other financial institutions (each,
an "Assignee Purchaser"), all or any portion of its Pro Rata Share of the
Aggregate Net Investment and its Pro Rata Share of the Commitment (which
assignment and delegation shall be a constant, and not a varying, percentage of
all the assigning Purchasers, share of the Aggregate Net Investment and its
share of the Commitment. Notwithstanding the foregoing, (i) the portion of the
Commitment assigned to any Assignee Purchaser shall not be less than $1,000,000
unless such assignment covers all of the assigning Purchasers' interests and
obligations under all Facility Documents and (ii) any Assignee Purchaser must
purchase interests in the assigning Purchasers' share of the Aggregate Net
Investment and of the Commitment and other obligations in equal proportions.
The Seller, the Master Servicer and the Agent shall be entitled to
continue to deal solely and directly with such assigning Purchaser in connection
with the interests and obligations so assigned and delegated to an Assignee
Purchaser until:
(i) the Agent and Seller shall have approved the
proposed assignment;
(ii) written notice of such assignment and delegation,
together with payment instructions, addresses and related information with
respect to such Assignee Purchaser, shall have been given to the Seller, the
Master Servicer and the Agent by such Purchaser and such Assignee Purchaser;
(iii) such Assignee Purchaser shall have executed and delivered to
the Seller, the Master Servicer and the Agent an agreement pursuant to which
such Assignee Purchaser shall be bound to the terms of this Agreement and the
other Facility Documents in form and substance acceptable to the Agent; and
(iv) the processing fees described below shall have
been paid.
From and after the date that all of the foregoing conditions shall have
been fully satisfied, (A) the Assignee Purchaser shall be deemed automatically
to have become a party hereto and to the extent that rights and obligations
hereunder have been assigned and delegated to such Assignee Purchaser in
connection with such assignment, shall have the rights and obligations of a
Purchaser hereunder and under the other Facility Documents and (B) the assigning
Purchaser, to the extent that rights and obligations under the Facility
Documents have been assigned and delegated by
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it, shall be released from its obligations which are not then due and payable
under the Facility Documents.
The assigning Purchaser must pay an administrative processing fee
(which fee shall not be reimbursable by the Seller) to the Agent in an amount of
$1,000. Any attempted assignment and delegation not made in accordance with this
Section shall be null and void.
In connection with each assignment and delegation effected in
accordance with this Section, each of the parties hereto agrees, promptly upon
the Agent's request, to execute and deliver all financing statements and
continuation statements that the Agent deems necessary or appropriate in
connection with such assignment and delegation.
Section 13.3 Participations. Any Purchaser may at any time sell to one
or more commercial banks or other financial institutions (each, a "Participant")
undivided interests in its rights in respect of any Purchases, its portion of
the Commitment or other interests or obligations of such Purchaser hereunder;
provided, however, that no such participation shall relieve such Purchaser from
its portion of the Commitment or its other obligations under the Facility
Documents and the Seller, the Master Servicer and the Agent shall continue to
deal solely and directly with such Purchaser in connection with such Purchasers,
rights and obligations under this Agreement and each of the other Facility
Documents. The Seller acknowledges and agrees that each Participant, for
purposes of Sections 3.5, 3.6, 10.3, 14.1, 15.8 and 15.9 shall be considered a
Purchaser; provided, however, that no Participant shall be entitled to payment
of any amount under such Sections that would not have been payable to the
selling Purchaser had no participation occurred.
ARTICLE 14
SELLER INDEMNITIES
Section 14.1 Indemnities by the Seller. The Seller hereby agrees to
indemnify each of the Agent, the Purchasers, their respective successors,
permitted transferees and assigns and all officers, directors, shareholders,
controlling persons, employees and agents of any of the foregoing (each, an
"Indemnified Party"), forthwith on demand, from and against any and all damages,
losses, claims (whether on account of settlements or otherwise), liabilities and
related costs and expenses, including reasonable attorneys, fees and
disbursements (collectively, the "Indemnified Amounts") awarded against or
incurred by any of them arising out of or as a result of any Facility Document
or the transactions contemplated thereby or the use of proceeds therefrom,
including, without limitation, in respect of the
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ownership of an Undivided Interest or in respect of any Receivable or any
Receivable Document, excluding, however, Indemnified Amounts to the extent
resulting from (a) nonpayment by any Obligor of an amount due and payable with
respect to a Receivable unless such nonpayment results from a dispute, claim,
offset or defense described in Section 14.1(vi) or the noncompliance with
applicable laws, rules or regulations described in Section 14.1(iii), (b)
negligence or willful misconduct on the part of such Indemnified Party or (c)
disputes between assigning Purchasers and Assignee Purchasers, or disputes
between selling Purchasers and Participants, if such disputes relate solely to
the conduct of such Persons and not to the failure of the Seller or the Master
Servicer to perform any Facility Document. Without limiting the foregoing, the
Seller shall indemnify each Indemnified Party for Indemnified Amounts relating
to or resulting from:
(i) the transfer by the Seller of any interest in any
Receivable other than an Undivided Interest;
(ii) the breach of any representation or warranty made by the
Seller under or in connection with any Facility Document, any report or
settlement statement or any other information or report delivered by the Seller
or the Servicer pursuant thereto, which shall have been false or incorrect when
made or deemed made;
(iii) the failure by the Seller to comply with any applicable law,
rule or regulation with respect to any Receivable or the related Receivable
Documents, or the nonconformity of any Receivable or the related Receivable
Documents with any such applicable law, rule or regulation;
(iv) the failure to vest and maintain vested in the
Purchasers' ownership interests in the Undivided Interests, free and clear of
any Lien (other than Permitted Encumbrances on the Mortgaged Properties and any
Lien arising solely as a result of an act of the Purchasers or the Agent,
whether existing at the time of the Purchase of such Undivided Interest or at
any time thereafter);
(v) the failure to file, or any delay in filing, financing
statements or other similar instruments or documents under the UCC or other
applicable laws with respect to any Receivable, all or any part of the Assigned
Collateral whether at the time of any Purchase or at any subsequent time;
(vi) any dispute, claim, offset or defense (other than
discharge in bankruptcy) of the obligor to the payment of any Receivable
(including, without limitation, a defense based on the related Receivable or
Receivable Documents not being the legal,
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valid and binding obligations of such obligor enforceable against it in
accordance with its respective terms), or any other claim resulting from the
sale of the services or goods related to such Receivable or the furnishing or
failure to furnish such services or goods;
(vii) any failure of the Seller, as the Servicer or
otherwise, to perform its duties or obligations in accordance
with the provisions of Article 10; and
(viii) any Tax, all interest and penalties thereon or with respect
thereto, and all out-of-pocket costs and expenses, including the reasonable fees
and expenses of counsel in defending against the same, which may arise by reason
of the purchase or ownership of any Undivided Interest, or other interest in the
Assigned Collateral or Facility Documents other than Taxes upon or measured by
net income, gross receipts or profits of the Indemnified Party; indemnification
in respect of any such amounts shall be in an amount necessary to make the
Indemnified Party whole after taking into account any tax consequences to the
Indemnified Party of the receipt of the indemnity provided hereunder or of any
refund of any Tax previously indemnified hereunder, including the effect of such
tax or refund on the amount of tax measured by net income, gross receipts or
profits which is or was payable by the Indemnified Party.
The indemnities provided herein shall survive the termination of this Agreement.
ARTICLE 15
MISCELLANEOUS
Section 15.1 Repurchases for Administrative Convenience. If on any
Settlement Date, the Aggregate Net Investment is less than or equal to lot of
the maximum Aggregate Net Investment on any date prior to such Settlement Date,
the Seller shall be entitled to repurchase all (but not less than all) of the
Undivided Interests from the Purchasers on such Settlement Date. To effect such
repurchase, the Seller shall give the Agent at least three Business Days, prior
written notice thereof and on the Settlement Date shall tender payment of the
repurchase price calculated as hereinafter provided. The Seller shall pay such
repurchase price in cash to the Agent (for the benefit of the Agent and the
Purchasers) in an amount equal to the sum of (i) unpaid Earned Yield on the
Aggregate Net Investment accrued to and including the date of repurchase, (ii)
the Aggregate Net Investment, (iii) accrued but unpaid Commitment Fees, (iv) all
other Obligations that are then due and payable, including, without limitation,
any Obligations which may arise under
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Section 3.6 as a result of such repurchase and (v) the amount of the Servicing
Fee accrued to and including the date of repurchase (which amount shall be paid
to the Master Servicer). Upon receipt of such funds, the Purchasers shall be
obligated to reconvey their Undivided Interests and all Assigned Collateral to
the Seller pursuant to an assignment in form reasonably acceptable to the
Seller, the Agent and the Purchasers, but without representation or warranty
except for a several representation and warranty from each Purchaser that the
Undivided Interests and all Assigned Collateral assigned are free and clear of
Liens created by or arising under such Purchaser.
Section 15.2 Substitution of Receivables. On any Settlement Date
occurring on or before the Commitment Termination Date, the Seller may remove
any Receivable that is either a Defaulted Receivable or is otherwise no longer
an Eligible Receivable; provided, however, that simultaneously with such
removal, Seller shall substitute a new Receivable which can be either a Right to
Use Receivable or a Mortgage Loan Receivable which is an Eligible Receivable as
of the time of substitution and which has an Outstanding Principal Balance equal
to or greater than the Outstanding Principal Balance of the Receivable being
removed from the Receivables Pool. After the Commitment Termination Date,
provided that no Notice Date has occurred, on any Settlement Date the Seller may
remove any Receivable which is a Defaulted Receivable or which is no longer an
Eligible Receivable from the Receivables Pool; provided, however, that
simultaneously with such removal, the Seller shall substitute a new Receivable
which is an Eligible Receivable as of the time of substitution, which has a
final maturity date not later than the final maturity date of the Receivable
being removed from the Receivables Pool and which has an outstanding Principal
Balance equal to or greater than the Outstanding Principal Balance of the
Receivable being removed from the Receivables Pool. Any new Receivables being
substituted for Receivables being removed from the Receivables Pool shall be
separately identified on the related Settlement Statement.
Section 15.3 No Waiver; Remedies Cumulative. No failure by the Agent or
any Purchaser to exercise, and no delay in exercising, any right, power or
remedy under this Agreement or any other Facility Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
remedy under this Agreement or any other Facility Document preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The exercise of any right, power or remedy shall in no event constitute a cure
or waiver of any Unmatured Termination Event or Termination Event under this
Agreement nor prejudice the right of the Agent or any Purchaser in the exercise
of any right hereunder or under any other Facility Document. The rights and
remedies provided herein and
85
<PAGE>
therein are cumulative and not exclusive of any right of remedy
provided by law.
Section 15.4 Governing Law. This Agreement and the other Facility
Documents shall be governed by and construed in accordance with the internal
laws of the State of Washington except to the extent that the perfection (and
the effect of perfection or nonperfection) of the interests of the Purchasers in
all or any part of the Assigned Collateral is governed by the laws of a
jurisdiction other than the State of Washington.
Section 15.5 Notices. All demands, notices and communications under
this Agreement shall be in writing, personally delivered or mailed by certified
mail, return receipt requested, or sent by air courier or by telephonic
facsimile transmission and shall be deemed to have been duly given upon receipt
in the case of:
(i) TW HOLDINGS, INC.
c/o Trendwest Resorts, Inc.
12301 N.E. 10th Place
Bellevue, WA 98005
Attention: Gary A. Florence
Telephone: (206) 990-2300
Telecopier: (206) 990-2302
(ii) Trendwest Resorts, Inc.
12301 N.E. 10th Place
Bellevue, WA 98005
Attention: Gary A. Florence
Telephone: (206) 990-2300
Telecopier: (206) 990-2302
(iii) The Purchasers
c/o Seafirst Bank
701 Fifth Avenue
12th Floor
Seattle, WA 98104
Attention: Gordon H. Gray
Telephone: (206) 358-3012
Telecopier: (206) 358-3113
(iv) Seafirst Bank, as Agent
701 Fifth Avenue
16th Floor
Seattle, WA 98104
Attention: Ken Puro
Telephone: (206) 358-0138
Telecopier: (206) 358-0971
86
<PAGE>
Any of the foregoing addresses can be changed by written notice to the other
parties to this Agreement.
Section 15.6 Severability. Any provision of this Agreement or any other
Facility Document which is prohibited or unenforce- able in any jurisdiction
shall as to such jurisdiction be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties waive any
provision of law which renders any provision hereof prohibited or unenforceable
in any respect.
Section 15.7 Entire Agreement; Amendment. This Agreement, the Fee
Letter and the other Facility Documents to which the Seller is a party comprise
the entire agreement of the parties hereto and may not be amended or modified
except by written agreement of the Seller and the Agent. No provision of this
Agreement may be waived except in writing and then only in the specific instance
and for the specific purpose for which given.
Section 15.8 Submission to Jurisdiction: Etc. Each party hereto hereby
irrevocably (a) submits to the jurisdiction of any Washington State or United
States federal court sitting in Seattle, Washington, over any action or
proceeding arising out of or relating to any Facility Document; (b) agrees that
all claims in respect to such action or proceeding may be heard and determined
in such state or United States federal court; (c) waives, to the fullest extent
it may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding; (d) in the case of the Seller,
consents to the service of any and all process in any such action or proceeding
by the mailing of copies of such process to the Seller at its address provided
in Section 15.5; (e) agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law; and (f) in the case
of the Seller, agrees not to institute any legal action or proceeding against
the Agent or the Purchasers or the directors, officers, employees, agents or
property of any thereof, arising out of or relating to any Facility Document, in
any court other than (i) any Washington state or United States federal court
sitting in Seattle, Washington or (ii) in the case of an action against a
particular Purchaser, any court sitting at the location of the Purchasers,
principal place of business. Nothing in this Section shall affect the right of
the Agent or any Purchaser to serve legal process in any other manner permitted
by law or to bring any action or proceeding against the Seller or its property
in the courts of any other jurisdiction.
87
<PAGE>
Section 15.9 Waiver of Jury Trial. Each party hereto waives any right
to a trial by jury in any action or proceeding to enforce or defend any rights
under or relating to this agreement, any other Facility Document or any
amendment, instrument, document or agreement delivered or which may in the
future be delivered in connection herewith or arising from any relationship
existing in connection with this Agreement or any other Facility Document, and
agrees that (i) any such action or proceeding shall be tried before a court and
not before a jury and (ii) any party hereto may file an original counterpart or
a copy of this Agreement with any court as written evidence of the consent of
any other party or parties hereto to the waiver of its or their right to a trial
by jury.
Section 15.10 Captions and Cross-References; Incorporation by
Reference. The various captions (including, without limitation, the table of
contents) in this Agreement are included for convenience only and shall not
affect the meaning or interpretation of any provision of this Agreement.
References in this Agreement to any Section, Schedule or Exhibit are to such
Section, Schedule or Exhibit of this Agreement, as the case may be. The
Schedules and the Exhibits hereto are hereby incorporated by reference and made
a part of this Agreement.
Section 15.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement.
Section 15.12 Confidentiality. Each party hereto agrees, insofar as it
is legally possible to do so, to use its best efforts to keep in confidence the
terms of this Agreement and all information furnished or which may hereafter be
furnished to it pursuant to the provisions of this Agreement including, without
limitation, information relating to the Receivables; provided, however, that
this Section shall not prohibit disclosure (i) to Purchasers; (ii) required or
requested by any regulatory authority having jurisdiction over such party or
otherwise required by law; (iii) of information otherwise lawfully obtainable
from other sources; (iv) to attorneys and accountants for their review in
connection with the performance of their duties; (v) to any Participant or
prospective Participant or Assignee Purchaser; or (vi) to the extent such duty
of confidentiality is waived by the applicable party hereunder.
Section 15.13 Resale of Receivables. In connection with a
securitization of Receivables, the Agent may from time to time at the request of
the Seller and with prior notice to each Purchaser, resell some or all of the
Receivables at a price equal to the aggregate amount of the Purchasers'
Investment relating to such Receivables, plus the unpaid Earned Yield accrued
thereon to
88
<PAGE>
the date of Resale. In connection with such resales of Receivables, the Agent is
authorized to disclaim expressly all present and after-acquired rights of the
Agent and Purchasers in and to the resold Receivables. The Agent may enter into
such agreements as it deems necessary or appropriate to effectuate such resales
of Receivables and related disclaimers of interest. The Agent shall promptly
distribute to the Purchasers their Pro Rata Shares of all proceeds of resales of
Receivables and if the distribution occurs before the Commitment Termination
Date, the Commitment Amount shall increase by so much of the distribution as is
attributable to return of the Purchasers' Investment.
Section 15.14 Oral Agreements Not Enforceable. ORAL AGREEMENTS OR
ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
TW HOLDINGS, INC., as Seller
By ____________________________________
Name: _____________________________
Title: _____________________________
TRENDWEST RESORTS, INC., as Master
Servicer
By ____________________________________
Name: _____________________________
Title: _____________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION doing business as
SEAFIRST BANK, as Agent
By ____________________________________
Name: _____________________________
Title: _____________________________
89
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION doing business as
SEAFIRST BANK, as Purchaser
By ____________________________________
Name: _____________________________
Title: _____________________________
FIRST NATIONAL BANK OF CHICAGO
By ____________________________________
Name: _____________________________
Title: _____________________________
SOCIETE GENERALE
By ____________________________________
Name: _____________________________
Title: _____________________________
THE BANK OF TOKYO-MITSUBISHI, LTD., as
Purchaser
By ____________________________________
Name: _____________________________
Title: _____________________________
KEYBANK NATIONAL ASSOCIATION
By ____________________________________
Name: _____________________________
Title: _____________________________
90
<PAGE>
SANWA BANK CALIFORNIA
By ____________________________________
Name: _____________________________
Title: _____________________________
FIRST SECURITY BANK OF IDAHO, N.A.
By ____________________________________
Name: _____________________________
Title: _____________________________
U.S. BANK
By ____________________________________
Name: _____________________________
Title: _____________________________
91
EXECUTION COPY
TW HOLDINGS, INC.,
as Seller
SEAFIRST BANK
AND THE OTHER PURCHASERS NAMED HEREIN
as Purchasers,
SEAFIRST BANK
as Agent,
and
TRENDWEST RESORTS, INC.,
as Master Servicer
------------------------------
AMENDMENT NUMBER ONE
DATED AS OF DECEMBER 30, 1997
TO SECOND AMENDED AND RESTATED
RECEIVABLES TRANSFER AGREEMENT
DATED AS OF JUNE 1, 1997
------------------------------
<PAGE>
This Amendment Number One dated as of December 30, 1997 (this
"Amendment") to Second Amended and Restated Receivables Transfer Agreement dated
as of June 1, 1997, (the "Receivables Transfer Agreement"), is made among TW
HOLDINGS, INC., a Nevada corporation (the "Seller"), BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, a national banking association doing business as
Seafirst Bank ("Seafirst"), and the other purchasers named herein (collectively,
the "Purchasers"), SEAFIRST as agent for the Purchasers (in such capacity, the
"Agent"), and TRENDWEST RESORTS, INC., an Oregon corporation ("TRENDWEST" or, in
its capacity as Master Servicer, the "Master Servicer").
RECITALS
WHEREAS, the Seller, the Purchasers, the Agent and TRENDWEST
executed the Receivables Transfer Agreement; and
WHEREAS, pursuant to Section 12.01 of the Receivables Transfer
Agreement, the Agent may, upon the instruction of the Required Purchasers,
modify certain terms of the Receivables Transfer Agreement with the consent of
all Purchasers, including the definition of the terms "Commitment Amount", "Pro
Rata Share", and "Purchasers"; and
WHEREAS, Seafirst as one of the Purchasers has requested
that its Pro Rata Share be increased by $5,000,000; and
WHEREAS, the parties to the Receivables Transfer Agreement,
have agreed to increase the Commitment Amount to $98,000,000; and
WHEREAS, the parties desire to have the Seller transfer
additional Receivables to the Agent;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
Section 1.01. Effective immediately, the definitions of "Commitment
Amount" and "Pro Rata Share" set forth in Section 1.01 of the Receivables
Transfer Agreement shall be amended to read in their entirety as follows:
"Commitment Amount" means $98,000,000.
"Pro Rata Share" means for each Purchaser the percentage set forth
opposite its name below:
4823363\3\00118.AMD/3.27.98
Seattle
1
<PAGE>
<TABLE>
<CAPTION>
Purchaser Pro Rata Share
<S> <C>
Seafirst Bank 25.51%
First National Bank of Chicago 15.31%
Societe Generale 15.31%
The Bank of Tokyo-Mitsubishi, Ltd. 10.20%
KeyBank National Association 10.20%
Sanwa Bank California 10.20%
First Security Bank of Idaho, N.A. 8.16%
U.S. Bank National Association 5.10%
Total 100.0%
</TABLE>
Section 1.02. The Purchasers each hereby instruct the Agent to amend
the Receivables Transfer Agreement as set forth above and further consent to
such amendment.
Section 1.03. This Amendment may be executed in counterpart signatures
by the parties hereto, which, when taken together, shall constitute one binding
instrument among the parties hereto.
Section 1.04. The Seller, the Purchasers, the Agent and TRENDWEST
hereby further ratify, confirm and approve all of the provisions of the
Receivables Transfer Agreement and their applicability hereto. Except as
expressly amended by the terms hereof, the terms of the Receivables Transfer
Agreement shall remain in full force and effect.
Section 1.05. The Seller hereby represents and warrants that (i) the
respective representations and warranties made by the Seller in the Receivables
Transfer Agreement are true and correct with the same force and effect as though
made on and as of the date hereof and (ii) no Termination Event or Unmatured
Termination Event has occurred and is continuing nor will occur as a result of
amending the Receivables Transfer Agreement in the manner set forth above.
Section 1.06. The Master Servicer hereby represents and warrants that
(i) the respective representations and warranties made by the Master Servicer in
the Receivables Transfer Agreement are true and correct with the same force and
effect as though made on and as of the date hereof and (ii) no Termination Event
or Unmatured Termination Event has occurred and is continuing nor will occur as
a result of amending the Receivables Transfer Agreement in the manner set forth
above.
Capitalized terms used herein that are not otherwise defined shall have
the meanings ascribed thereto in the Receivables Transfer Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on their behalf by their officers duly authorized thereunto, as of the
day and year first above written.
TW HOLDINGS, INC., as Seller
By ____________________________________
Name: _____________________________
Title: _____________________________
TRENDWEST RESORTS, INC., as Master
Servicer
By ____________________________________
Name: _____________________________
Title: _____________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION doing business as
SEAFIRST BANK, as Agent
By ____________________________________
Name: _____________________________
Title: _____________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION doing business as
SEAFIRST BANK, as Purchaser
By ____________________________________
Name: _____________________________
Title: _____________________________
3
<PAGE>
FIRST NATIONAL BANK OF CHICAGO
By ____________________________________
Name: _____________________________
Title: _____________________________
SOCIETE GENERALE
By ____________________________________
Name: _____________________________
Title: _____________________________
THE BANK OF TOKYO-MITSUBISHI, LTD., as
Purchaser
By ____________________________________
Name: _____________________________
Title: _____________________________
KEYBANK NATIONAL ASSOCIATION
By ____________________________________
Name: _____________________________
Title: _____________________________
SANWA BANK CALIFORNIA
By ____________________________________
Name: _____________________________
Title: _____________________________
4
<PAGE>
FIRST SECURITY BANK OF IDAHO, N.A.
By ____________________________________
Name: _____________________________
Title: _____________________________
U.S. BANK NATIONAL ASSOCIATION
By ____________________________________
Name: _____________________________
Title: _____________________________
5
Exhibit 11.1 Statement re Computation of Basic and Diluted Net Income
per Share
Basic and diluted net income per share is calculated as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995: Number of Weighted
Date shares Average
-------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding 1/1/95 (1) 1/1/95 14,174,881 14,174,881
Shares issued 2/15/95 242,235 212,288
-------------------------------------------------------
---------------------------------------
Weighted average shares outstanding for the period 14,387,169
Net income for the period (thousands) $
8,765
===============
Basic and diluted net income per share (2) $
0.61
===============
Year ended December 31, 1996: Number of Weighted
Date shares Average
------------------------------------------------------
Shares outstanding 1/1/96 (1) 1/1/96 14,417,116 14,417,116
------------------------------------------------------
------------------------------------------------------
Weighted average shares outstanding for the period 14,417,116
Net income for the period (thousands) $ 12,676
===============
Basic and diluted net income per share (2) $ 0.88
===============
Year ended December 31, 1997: Number of Weighted
Date shares Average
------------------------------------------------------
Shares outstanding 1/1/97 (1) 1/1/97 14,417,116 14,417,116
Shares issued 8/15/97 2,745,000 1,040,687
Over-allotment shares issued 9/5/97 431,250 138,616
------------------------------------------------------
Weighted average shares outstanding for the period 15,596,419
Net income for the period (thousands) $ 20,609
==============
Basic and diluted net income per share (2) $ 1.32
==============
(1)Includes outstanding shares of Trendwest Resorts only and assumes the
5,193,693 shares issued in conjunction with the consolidation transaction
described in Note 2 to the combined and consolidated financial statements had
been outstanding for all periods presented.
(2) There are no dilutive securities for the periods presented.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
AND CONSOLIDATED 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,289
<SECURITIES> 0
<RECEIVABLES> 84,714
<ALLOWANCES> 9,935
<INVENTORY> 44,534
<CURRENT-ASSETS> 0
<PP&E> 9,000
<DEPRECIATION> 1,943
<TOTAL-ASSETS> 151,750
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 66,742
<OTHER-SE> 55,383
<TOTAL-LIABILITY-AND-EQUITY> 151,750
<SALES> 128,835
<TOTAL-REVENUES> 151,587
<CGS> 34,569
<TOTAL-COSTS> 35,677
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,077
<INTEREST-EXPENSE> 1,739
<INCOME-PRETAX> 32,197
<INCOME-TAX> 11,588
<INCOME-CONTINUING> 20,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,609
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
